This is the first in a series of posts on economic development, which was prompted by this post on multi-lateral banks.
Many people criticize academics for their pointless theorizing. I think there are three types of theories, all of which are very different, and not all types of theories deserve criticism:
- Theories which are not intended to have any application in the real world. Philosophy or perhaps more specifically epistemology speculates on what is knowledge. Except for some esoteric applications of epistemology in artificial intelligence, nobody really cares too much about what is knowledge. Very few philosophers commit suicide in an attempt to prove that the world exists outside their mind. Philosophy and its theories are an example of a harmless body of theories of interest principally to those who like the subject (me included).
- Theories which are intended to explain the real world. Math, science and finance would all be examples. For instance, the Black-Sholes formula is used by people every day to price options in financial markets.
- Theories which are intended to explain the real world and only confuse the issues. Economic development theory is a case in point. I will illustrate my point through an exhibit, shown below. This chart shows in the left column the six sectors of economic development and across the top the eight dimensions of social inclusion, one and only one important objective of economic development. One could substitute education for social inclusion and create the same type of economic development matrix. (Ignore the numbers.)
While I have not finished researching economic development theory, I do believe the matrix is representative of the current theories on economic development. If you want to know why foreign aid has no meaningful effect or why multi-lateral banks are only effective in building financial systems, imagine trying to design and manage a development project with this complexity of objectives.
I will eventually present a theory of economic development that might be workable, but you will need to be patient.
(I have intentionally not footnoted where the exhibit above came from because I have no intention or desire to possibly embarrass in any way the people who prepared it, given the subject of this post.)
The views expressed here are my personal opinions and do not reflect the views of any organization with whom I am affiliated.
