Saturday, November 04, 2006

WTF: Wealth of nations

Tyler Cowen's column in the NYTimes::

Economists typically explain the wealth of a nation by pointing to good policies and the quality of a country’s institutions. But why do these differences exist in the first place?

In “A Farewell to Alms: A Brief Economic History of the World”, ... Gregory Clark, an economics professor at the University of California, Davis, identifies the quality of labor as the fundamental factor behind economic growth. Poor labor quality discourages capital from flowing into a country, which means that poverty persists. Good institutions never have a chance to develop.

It's not clear from the article how this "quality of labor" thingy is defined; it seems to be some combination of education, skill level, work ethic and so on. It's also not clear how it differs from human capital. In any event, one finds, a little later in the article, this:

The poorer countries remain stuck at the bottom as growing populations mean fewer resources for everyone else. Paradoxically, advances in sanitation and medical care, by saving lives, have driven down well-being for the average person. The population is rising in most of sub-Saharan Africa, but living standards have fallen below hunter-gatherer times and 40 percent below the average British living standard just before the Industrial Revolution. The upshot is this: The problem with foreign aid is not so much corruption but rather that the aid brings some real benefits and enables higher populations. [bold emphasis added]

Did it make you go WTF? In case it was not clear enough, Tyler says it explicitly in his blog post:

Clark also argues that sub-Saharan Africa is poorer than ever before, and that foreign aid worsens a zero-sum Malthusian trap. He makes the startling claim that gains in health are the worst thing we can bring to modern Africa. ... [again, bold emphasis added]

Surprisingly, not many commented on this observation; among the few that did, AdamSmithee has managed just the right tone in his comment [there's more on his blog]:

Thank God for AIDS, then. Surely the best thing to happen for Africa's growth prospects since Mr Mosquito met Mr Falciparum. Although strange that that one didn't seem to help much. Clearly we need Diseases That Try Harder [...]


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Update: Don't miss Mark Thoma's commentary (and the comments thereon) on Tyler's WTF-inducing pronouncement about poor countries and foreign aid.


  1. Anonymous said...


    The question is: Do you disagree with what he is saying or merely disgusted by the implication? If your answer with the former, then why? Please note, no one is saying that lives should NOT be saved, if anyone is making that argument, please point out to me and I would join you in saying WTF.

  2. gaddeswarup said...

    Abi, I browsed throuh bits of Clark's book. It seems readable but even without a thorough reading, I have doubts that poor labour quality is the cause of divergence and will continue to be. In his main example, he is comparing the productivity of American labour and Indian labour in cotton mills around the beginning of 20th century. He does not talk about democracy, colonialism or nutrition; just that they had comparable equipment. In any case, these perhaps change with time and he does not talk about current rates of productivity. Steve Sailor and some others in Marginal Revolution comments seem to be trying to connect it to IQs. Building of good institutions and descipline seem to be required but I am not sure about Clark's pessimisic analysis. There is also an online book by Brad DeLong which is more non-commital. These comments are very tentative; I may have a better idea if I read the book.

  3. Abi said...

    Confused: If all that economics (and, economists) can do is to just give justifications for letting people just die (and for 'active' non-intervention), I don't know about you, but it makes me go WTF. Take this sentence (quoted in the post as well):

    "He [Greg Clark] makes the startling claim that gains in health are the worst thing we can bring to modern Africa."

    I will say it again: WTF? If you want to wonder and marvel at the logic of it all, please go ahead; I won't bother you.

    Swarup: My understanding is that modern economics lays stress not only on good institutions, but also on designing the right kind of incentives. Things such as quality of labor, human capital, IQ, etc. are secondary in that right policy environment can be created to help build these capabilities.

    Do please read Thoma's post, and the comments there. There's a lot of ideas there.

  4. Anonymous said...


    Sorry, I had missed this one. I had read only his NYT artcile and not his blogpost. Fair enough, economically just focussing on saving lives can actually lead to lower standards of living, to advocate we should not do it, is something else.

    Since you pointed it ou, I must join you in saying WTF.

  5. gaddeswarup said...

    Raghram Rajan's ideas at:
    Came to this article through one of the comments after Thoma's commentary.