Gambling on Development

Why Some Nations Lose & Others Gain

An Exploration of Development Dynamics

Stefan Dercon’s “Gambling on Development” offers a refreshing perspective on why some nations prosper while others remain impoverished. Drawing on his extensive experience as a development economist, Dercon argues that the key to understanding development lies in the intricate interplay between political elites and the broader societal context.

The Central Thesis

At the heart of Dercon’s thesis is the notion that development is a gamble. Elites in developing countries face a choice: either maintain the status quo, characterized by corruption, patronage, and rent-seeking, or they can risk disrupting this system in favour of policies that promote economic growth and development. The outcome of this gamble depends on various factors, including the nature of the elite bargain, the quality of institutions, and the external environment. This central thesis is engaging and keeps the reader interested in the book’s argument.

The Pivotal Role of Elites in Development

Stefan Dercon’s assertion that elites hold a paramount influence over development trajectories is undeniably accurate. As the architects and gatekeepers of policy, elites wield immense power in shaping nations’ destiny. Their decisions on resource allocation, policy implementation, and institutional structures significantly determine whether a country ascends toward prosperity or remains trapped in a cycle of underdevelopment.

When elites are driven primarily by self-interest and rent-seeking, their actions often align with preserving the status quo. Such motives can lead to policies favouring the elite at the expense of the broader population, stifling economic growth and perpetuating inequality. Corruption, cronyism, and inefficient governance become the hallmarks of these regimes, hindering the development of inclusive institutions and sustainable economic pathways.

However, if elites can be convinced that their well-being is intertwined with the nation’s overall progress, they may be more inclined to support policies that promote development. This could involve creating a conducive environment for private investment, improving education and healthcare, and fostering good governance. By recognizing that their long-term interests align with the broader public good, elites can become powerful catalysts for positive change.

The Crucial Role of Institutions

Institutions, the formal and informal rules that govern economic and social interactions, are the backbone of any society. Their strength and independence are instrumental in shaping development outcomes. Strong and independent institutions, such as a robust judiciary, a transparent bureaucracy, and a free press, play a pivotal role in constraining the power of elites and ensuring their accountability. These institutions help to prevent the concentration of power, promote fair competition, and protect the rights of citizens.

Conversely, weak and corrupt institutions can hinder development efforts and perpetuate poverty. When institutions are characterized by inefficiency, nepotism, and rent-seeking, attracting investment, fostering innovation, and creating a conducive business environment becomes difficult. These institutions may also fail to provide essential public services, such as education and healthcare, to the population, exacerbating inequality and social unrest.

Building inclusive institutions representing the interests of a broad range of stakeholders is essential for sustainable development. These institutions should be responsive to the needs of all segments of society, including the poor, marginalized groups, and minorities. By fostering inclusivity, institutions can create a sense of shared ownership and promote social cohesion, which are critical for long-term development.

The strength and quality of institutions are crucial determinants of development outcomes. Strong and independent institutions can create a favourable environment for economic growth, social progress, and political stability. Conversely, weak and corrupt institutions can hinder development efforts and perpetuate poverty. Building inclusive institutions representing all stakeholders’ interests is essential for achieving sustainable and equitable development.

External Environment and Development

While internal factors such as governance, institutions, and elite bargains are undoubtedly crucial determinants of development outcomes, the external environment also plays a significant role. Global economic conditions, geopolitical developments, and natural disasters can all profoundly impact a country’s development trajectory.

For example, a country with favourable terms of trade for its primary exports may experience more rapid economic growth than one with unfavourable terms. Similarly, a country in a region experiencing geopolitical instability may face challenges in attracting foreign investment and promoting trade. Natural disasters such as earthquakes, floods, and droughts can also reduce development efforts by destroying infrastructure, disrupting economic activity, and exacerbating poverty.

However, it is important to note that while external factors can provide opportunities or constraints, they are ultimately less important than internal factors in determining long-term development success. Countries with solid governance, inclusive institutions, and capable leadership can better weather external shocks and seize development opportunities. Conversely, countries with weak governance, corrupt institutions, and elite capture may find it difficult to overcome the challenges of the external environment.

Case Studies and Evidence

Dercon’s “Gambling on Development” is grounded in a wealth of empirical evidence, drawing on case studies from diverse regions across the globe. He delves into the experiences of countries that have successfully navigated the path out of poverty traps, contrasting them with those that have remained trapped in cycles of underdevelopment. By examining these contrasting narratives, Dercon offers invaluable insights into the intricate factors contributing to development success or failure. His analysis extends beyond broad generalizations, providing nuanced perspectives on different countries’ specific contexts and challenges. Through these case studies, Dercon illustrates the complexities of development, demonstrating that there is no one-size-fits-all approach and that understanding the unique circumstances of each country is essential for effective development interventions, instilling a sense of reassurance and confidence in the reader.

Policy Implications

Dercon’s book highlights the need for a nuanced approach to development policy. A one-size-fits-all solution is likely to fail due to different countries’ diverse political, economic, and social contexts. Policymakers need to carefully consider the specific dynamics at play in each country, such as the power dynamics between elites and the broader population, the strength and independence of institutions, and external factors like global economic conditions and geopolitical trends. By understanding these unique factors, policymakers can design more effective strategies that address the root causes of poverty and inequality and promote sustainable development. The book’s findings suggest that policies should be tailored to each country’s unique circumstances, and that addressing issues of elite capture and institutional strength is crucial for successful development interventions.

Strengths and Weaknesses

Stefan Dercon’s “Gambling on Development” offers a compelling analysis of the factors driving economic growth and development in developing countries. The book’s central thesis, focusing on the interplay between elites, institutions, and external factors, provides a valuable framework for understanding the complex dynamics at play.

One of the book’s significant strengths is its insightful exploration of the role of elites. Dercon’s emphasis on the importance of elite bargains and institutional factors helps explain why some countries have been able to achieve sustained economic growth while others have remained trapped in poverty. By highlighting the crucial role played by political elites in shaping development trajectories, Dercon offers a nuanced perspective that goes beyond simplistic explanations, leaving the reader feeling enlightened and informed.

However, the book also has some limitations. While Dercon’s focus on elites and institutions is valuable, it might downplay the importance of other factors influencing development outcomes. Geographical factors, such as resource endowments and location, can significantly impact a country’s economic prospects. Cultural factors, including social norms, values, and beliefs, can also shape development trajectories. Additionally, historical legacies, such as colonial experiences and past conflicts, can affect a country’s development path.

Furthermore, the book could have benefited from a more explicit discussion of the potential for bottom-up initiatives and civil society organizations to drive development. While Dercon acknowledges the importance of inclusive institutions, he could have explored in more detail how civil society organizations can challenge the status quo and advocate for policies that benefit the broader population. By incorporating a more nuanced understanding of the role of civil society, Dercon could have provided a more comprehensive picture of the factors influencing development.

“Gambling on Development” is a valuable contribution to the literature on development economics. While its focus on elites and institutions provides a useful framework, it could be strengthened by considering the broader range of factors that influence development outcomes and by exploring the potential role of bottom-up initiatives and civil society organizations.

“Gambling on Development” is a compelling and informative book that offers a fresh perspective on developing countries’ challenges and opportunities. Dercon provides a valuable framework for understanding the factors that drive development success or failure by focusing on the interplay between elites, institutions, and the external environment.

12th Year • September 2024 • No. 133