Owen Barder defines development as a property of the economic and social system itself. In other words, development is not only an increase in economic output, but the emergence of a system of economic, social, financial, legal institutions, firms, products, and technologies that together provide liberties for people to live happy and fulfilling lives.
Barder compared these 2 countries to highlight the idea that there are multiple reasons outside of just income per person that result in economic growth. The exploration of these facets and contribution to development is what allowed for the transformation of peoples’ lives in South Korea.
The toaster project was an attempt by Thomas Thwaites to create a toaster from scratch. This process took 9 months to complete and he ultimately was successful for 5 minutes as he did not have rubber to insulate the copper and it blew up shortly after being plugged in. His attempt demonstrated the idea that an economy is not simply economic output but rather the emergence of an interdependent system in which individual components allow citizens to live happy and fulfilling lives.
A simplified model that said to make a unit of output, a certain amount of capital and labour would be necessary. According to the model, a firm would be able to increase its output if it was able to increase its capital or labour or both. Walter Rostow published the Stages of Economic growth which claimed that development is a virtuous circle. Rostow hypothesized that if investment was increased by 10-20%, a developing country could launch into a self-sustaining cycle.
The Harrod-Domar model did not necessarily represent reality. Thus, Robert Solow introduced the Neoclassical Growth Theory model that introduced a third component on top of labour and capital which was technological change. When technological change is combined with labor and capital, output would increase. While his model matched the data, it was more of a counting method than a model. His model had an extreme emphasis on technology which was not always the correct reason countries developed at higher rates.
Ajaokuta Steel works was one of the largest investments in steel production that cost more than 5 billion US dollars. The reason it was unsuccessful was poor management and corruption. Thus the emphasis shifted from policies to institutions, though the specific institution that causes growth is still unspecified. Acemoglu and Robinson argue that mainstream development practice today is built on an incorrect assumption that poor countries are poor because their rulers have mistaken views on how to run their country thus stopping the markets from working correctly. Rather, it is because it suits the ruler of the country to run it in that way.
According to Barder, traditional economic models have a hard time explaining why some countries experience rapid economic growth while others don’t. The exploration of each of these “missing ingredients” have not succeeded as the ideal indicator.
The significance of Shumpter’s idea is that long-term assumptions must be destroyed to create space to foster innovation and progress. This relates to firms as no one-standing theory of the economy should be seen as the end all be all. Instead, the theories should be deconstructed and allowed to be made new.
A rich set of interactions between a very large number of adaptive agents all of which are co-evolving. A complex adaptive system’s defining features are difficult or impossible to predict in detail (butterfly effect), an ability to make broad generalizations about the system as a whole rather than individual, emergent properties, tend towards greater complexity, and not tend towards an equilibrium.
Halle Sellasie was the last emperor of a feudal dynasty in Ethiopia. The Emperor’s significance is that it described in great detail the life of Selassie and provided insight about why Ethiopia was stuck in a poverty trap. Ethiopia exemplified suppression of emergent systemic change because of Sellasie’s top-down authoritarian approach that dictated almost every happening within the nation. From his advisors’ perspective, it would have been dangerous to inform Sellasie about poverty as a result of his suppressant views and subsequent undermining of their positions, thus contributing to the lack of economic progress. I agree with this analysis because it highlights the idea that economic systems benefit the rich and powerful class rather than address underlying causes of poverty which results in a cyclic poverty trap.
Barder says to resist engineering because it is difficult in a complex adaptive economic system . He lists 2 main reasons; the first is that at a level of specific improvements, evolutionary processes often outperform design. The second is that at the level of the system as a whole, the nonlinear dynamics means that it is generally impossible to predict the results of any particular change. He says to avoid isomorphic mimicry as radical change to some key institution often results in an organization that looks like it should work but does not. It has the organizational characteristics of a well-functioning institution (hence mimicry) but does not connect to or change its environment.
Barder says to resist fatalism in the sense that we do not have to necessarily accept the outcome provided by biological evolution. Rather, we have the ability to both accelerate and shape evolution. Norman Bourlaugh was who brought about the Green Revolution by intervening in the evolutionary process to develop high-yield, resistant wheat varieties. He increased innovation by using cross- breeding and selecting for high-yield varieties. His impact is stated to have saved over 1 billion people from starvation.
Barder recommended to promote innovation which he meant as key parts of the system e.g. emphasizing entrepreneurs, protection of property rights, ownership of assets, access to financial services, absence of corruption laws of limited liabilities and joint stock companies, and keeping government bureaucracy out of the way for entrepreneurs for those on the right. For those on the left, promoting innovation might mean that more equal societies are more pluralist and less susceptible to capture e.g. innovation may depend on well-organized publicly funded research and development, and a role for the state where conditions are created for firms and industries can get started based on strategic industrial policy. He also says that creative destruction is essential as it has selection based off of incorporating feedback loops that promote adaptation suitable to that environment. Creative destruction allows for a feedback loop that forces performance in economic and social institutions. Finally, he says that the fitness function that results in selection from creative destruction must represent the goals and values of the community, hence shape development.
Nicholas Georgescu-Roegen was the author of The Entropy Law and the Economic Process (1971) and his insights were that the economy faces limited growth as he used the Second Law of Thermodynamics stating that useful energy dissipates as evidence for his assertion.