Does Bill Gates see too much like a state, and not like an entrepreneur?

Morten Jerven has a terrific book, Poor Numbers, chronicling the vagaries and inaccuracies of our main measure of poverty and development: Gross Domestic Product. Essential reading for anyone studying development.

In what I can only assume made Morten’s publisher faint in ecstasy, Bill Gates gives it a rousing review.

…it is clear to me that we need to devote greater resources to getting basic GDP numbers right. As Jerven argues, national statistics offices across Africa need more support so that they can obtain and report timelier and more accurate data. Donor governments and international organizations such as the World Bank need to do more to help African authorities produce a clearer picture of their economies. And African policymakers need to be more consistent about demanding better statistics and using them to inform decisions.

I would like to see better GDP numbers–who wouldn’t?–but it’s hard for me to see the constraint on development this revelation would relieve, and why it’s anywhere close to the top ten constraints poor countries face.

The problem with those of us in the development complex, be we academics or Presidents or foundations or NGOs, is we want the world nicely ordered with levers to pull and a dashboard to monitor. And so we put a lot of energies into levers and dashboards and monitors.

I think of poverty and political powerlessness in terms of constraints and frictions–the limitless host of things, little and big, that made it more difficult to run a business profitably or turn a profit or invent a new product or get your kid educated or select the leader who serves your interests. States and institutions and norms and technology and organizations reduce these frictions and relieve these constraints. That is the fundamental driver of development. This is the basic logic behind almost every theory of development in your textbooks, from growth models to poverty traps to everything in between.

Reducing frictions and eliminating constraints is maybe the best thing outsiders can try to help with, freeing entrepreneurs and citizens to do their thing. (Well, I guess we can also help by giving them a big freaking market to sell things to, but that’s another story).

To the extent that missing information and measurement constrains development, or creates frictions, there’s a long list of more likely candidates than GDP. A sample:

  • small banks who don’t know the creditworthiness of the mass of potential borrowers,
  • village leaders who don’t know what funds the local bureaucrats get from the center
  • citizens who don’t know their MP’s meteoric rise in wealth
  • farmers who don’t know prices a district to the west

I kind of wish Gates would say “we need credit bureaus” or “we need freedom of information acts” instead.

I’m not even sure information of these sorts are even the most important frictions to address. To the extent we pay them attention or design programs, I think it’s because they seem cheaper and easier to tackle than the harder ones. But they are all a far sight better than better GDP data.

The litmus test: If we went back in a time machine, and Gates wanted to expand sales or product development or factories in Asia or Africa, would he have called for these things or better GDP data?

Postscript: The discussion continues here.

90 Responses

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  8. Everyone complains about the accuracy of China’s GDP data, but that doesn’t seem to have constrained growth there over the last decade or so. The information that China seems to have focused on his acquiring industrial technology.

  9. Gates’ views do seem very top-down, but I would say development depends critically on public goods, particularly public health and transportation, and so seeing like a state (or Ostrom-like common pool resource monitoring system) is crucial.

    Remember that gains from trade largely come from heterogeneous production functions, heterogeneous utility functions, and specialization and scale. Looking at a lot of rural African regions you see a smallish group of people, with similar education, incomes and access to capital, and lousy transportation options to other markets. It’s hard to see how even the most perfect of market institutions are going to give you much leverage in such a situation.

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  11. I am reminded of the term “GDP fetishism,” and Tyler Cowen’s (I think) observation that if a state borrows to pay for a $1 billion increase in military spending, then *poof* that shows up as a $1 billion increase in GDP, even though it’s hard to see how that improves standards of living by $1 billion, and so what we really care about is not GDP per se, but its components.

    Not the same point you’re making, but related.

    Jervens’ book is very good, and I would not be surprised to see it appear on a development economics syllabus.

  12. I think I kind of disagree and agree with both Chris Blattman and Bill Gates on this one. I think GDP is a more important number than Chris’s post gives the impression of. Should we invest more in getting the GDP numbers right? I think so. But that is not a blanket call for more funds data collection (which Bill could be read as saying, but I don’t think that’s exactly what he means) – but rather an agenda for improving GDP requires institutional reform. You mention freedom of information – that is key for statistical offices as well. In countries like Eritrea they do not publish GDP because they do not want the share of military expenditure to be public. In Nigeria they may face a big problem when GDP is revised – with a doubling in GDP as we can expect – it will be harder to square the increases in GDP with the flat trend in poverty lines. Finally, investment in accountability and institutional capacity building should be made only in mind with what data are available and needed locally, and not somehow overnight transform the Central Statistical Office in Malawi into the Norwegian Bureau of statistics. That means putting aside global standards and global data wishlists for a minute(such as the Millennium Development Goals – is it 8 goals, 18 indicators and 48 targets? This global spreadsheet of data has to be collected by the local statistical offices) and start thinking about what information African states and citizens need and want for monitoring development.

    Improving the numbers that monitor development is a pressing need. It will require some investment, but a big lump sum won’t do it. A new agenda for data for development in SSA is required – where local demand, incentives and applicability is at the center.

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  14. If only a quarter of those Western leaders, International organizations or institutions that some how has a connection with developing countries and the real problems has this understanding, I bet the status-quos would change. Otherwise development work is like washing a mud, it never get clean.