Daniel W. Drezner
What do Tiger Woods and economic development have in common?
Over at Aid Watch, William Easterly tries to turn the Tiger Woods imbroglio into a teachable moment about development economics. No, really: What Tiger considerately did for our education was to show how the Halo Effect is a myth…. So if we observe a country is good at say, technological innovation, we assume that this ...
Over at Aid Watch, William Easterly tries to turn the Tiger Woods imbroglio into a teachable moment about development economics. No, really:
What Tiger considerately did for our education was to show how the Halo Effect is a myth….
So if we observe a country is good at say, technological innovation, we assume that this country is also good at other good things like, say, visionary leadership, freedom from corruption, and a culture of trust. Since the latter three are imprecise to measure (and the measures themselves may be contaminated by the Halo Effect), we lazily assume they are all good. But actually, there are plenty of examples of successful innovators with mediocre leaders, corruption, and distrustful populations. The US assumed world technological leadership in the late 19th century with presidents named Chester Arthur and Rutherford B. Hayes, amidst legendary post-Civil War graft. Innovators include both trusting Danes and suspicious Frenchmen.
The false Halo Effect makes us think we understand development more than we really do, when we think all good things go together in the “good” outcomes. The “Halo Effect” puts heavy weight on some explanations like “visionary leadership” that may be spurious. More subtly, it leaves out the more complicated cases of UNEVEN determinants of success: why is New York City the world’s premier city, when we can’t even manage decent airports (with 3 separate failed tries)?
The idea that EVERYTHING is a necessary condition for development is too facile. The principles of specialization and comparative advantage suggest you DON”T have to be good at everything all the time.
Really, I get Easterly’s point — not everything is a necessary condition for economic development. Still, as I read this, my mind kept drifting back to a gem of an article William Baumol wrote called, "Entrepreneurship: Productive, Unproductive and Destructive." It’s gist:
The basic hypothesis is that, while the total supply of entrepreneurs varies among societies, the productive contribution of the society’s entrepreneurial activities varies much more because of their allocation between productive activities, such as innovation, and largely unproductive activities, such as rent seeking or organized crime. This allocation is heavily influenced by the relative payoffs society offers to such activities. This implies that policy can influence the allocation of entrepreneurship more effectively than it can influence its supply.
Not everything is a necessary condition for development. But some things are VERY IMPORTANT necessary conditions. Without them, a country’s natural endowments get used in very, very perverse ways. It is entirely possible to have an innovative society in a corrupt state, for example — but the question is, how does a corrupt public sector skew the incentives of entrepreneurs and inventors?
I don’t think Easterly is completely wrong in his point about the Halo Effect — but I don’t think he’s completely right, either.