The power of improvisation. Directed improvisation.

There is no shortage of ‘best practices’ or ‘one-size-fits-all’ solutions in a development economy. Free trade, democracy, institution building, you name it. The Washington Consensus has reigned in the decades since the 1990s. Now the Beijing consensus is emerging.

Yuen Yuen Ang dismisses such solutions and suggests that there is no universal prescription. Her one-sentence summary is “Poor and weak countries can escape the poverty trap by first building markets with weak institutions and, more fundamentally, by crafting environments that facilitate improvisation among the relevant players.” She explores this idea through studying how China managed to achieve and sustain economic development after Mao. The country employed this approach, which allowed the to achievement of economic growth in complex circumstances. Yuen Yuen Ang call this approach ‘directed improvisation’ where central reformers direct and local state agents improvise. It taps local knowledge and adapts to the local circumstances, while aiming at an overarching goal. The resulting transformative process has displayed three distinct patterns. It is broad, bringing systemic changes despite incremental reforms. It is bold, unusually entrepreneurial but also attracts corruption-prone bureaucrats. Finally, it is uneven, with wide regional disparities coexisting with national prosperity.

The Government nurtured what Yuen Yuen Ang calls ‘directed innovation’ through variation, selection and niche creation. To promote variation, central reformers allowed local agents to flexibly implement central mandates according to local conditions. This has been done through deliberate creation of grey zones, as too much leeway could create chaos. Hence, Central bodies clearly delineated these zones of local improvisation. They imposed red lines around local administration, denoting things which are prohibited and risk very severe punishments; and black lines for things which must be delivered, again at the risk of severe punishment in the case of non-performance. The rest was in a grey zone, open for innovation and adaptation to local conditions. Selection was promoted by clearly defining and rewarding success within bureaucracy, of the type in the black lines discussed above. Central reformers clearly communicated the criteria for success to lower levels and ranked localities, and closely looked for what has worked and what didn’t. Successful models and approaches then became central policy, scaled up and replicated throughout China. For instance, the famous Township and Village Enterprises (TVEs) were neither prescribed, nor anticipated by central reformers, as Deng Xiaoping himself admitted. They grew up out of local experimentation at that stage of the reforms, as best fit to local needs and conditions, to produce growth spurts, and centrally imposed restrictions for the of non-acceptability of private property. The diversity of China provided the raw material for innovation, resulting in niche creation for different localities. Regional diversity thus turned from liability into a collective advantage.

The methodology Yuen Yuen Ang used is a mapping of the ‘coevolutionary process’, with whole Chapter (1) and Annex (A) devoted to the description of the methodology. She does not engage into construction of sophisticated regression models, torturing data in the elusive quest for causality out of correlation. Neither does she stick to small N approach, looking through messy and overcomplicated set of variable for a single case (By the way, enquiring reader could find great discussion of cultural differences between small N versus big N approaches in “A Tale of Two Cultures: Qualitative and Quantitative Research in the Social Sciences” by Gary Goertz and James Mahoney). Hence, no oversimplification and no messy non-reductionist approach to complexity. Rather, a complex approach, which captures a non-linear, co-evolutionary process, in reduced form. She tracks changes in the related systems of economy and institutions, over the time. Throughout the book, she dives into examples of Forest Hill, Blessed County and Humble County in China, which are archetypes of various types of localities in China. In her methodological annex she extends this approach to two additional cases of tax-less finance in United States of America in the 1880s and raise of Nollywood in Nigeria.

The three ‘I’s haunting development economics, according to Esther Duflo, are a conceiving Ideology, often derived out of Ignorance, that is perpetuated as a result of Inertia (see also “Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty” by Abhijit Banerjee and Esther Duflo). More and more we do recognize the complex nature of issues we face with, the inadequacy of opaque models pushing correlation for causality, and the lack of Silver Bullet solutions. However, we are yet to find the instruments for handling complexity in a meaningful way. The book by Yuen Yuen Ang is an excellent starting point for this intellectual inquiry.

Economics of Good and Evil: The Quest for Economic Meaning from Gilgamesh to Wall Street by Tomáš Sedláček

Economics of Good and Evil: The Quest for Economic Meaning from Gilgamesh to Wall Street by Tomáš Sedláček

The guy drives me crazy trying to persuade that gender equality is much higher at distant districts of that (quite patriarchal) country, than in capital. The best argument he uses “econometrics shows this, and you know, math doesn’t lie”. When we run down devils in details, it turned out that the guy used share if girls among higher education students as a metrics of gender equality. In distant districts higher education facilities are limited to medical and pedagogical ones, overpopulated by girls. Contrary, in the capital there is much broader set of education institutions, including technical ones preferred by boys, and share of girls is naturally lower. Wrong implicit assumptions lead to wrong results, despite of all that ubersophisticated math.

Tomáš Sedláček tells that story, but on a bigger scale. Currently, we hide implicit assumptions behind sophisticated formulas of economics (which more and more is limited to econometrics). Math replaced ethics in economic debates, based on assumption that math is value-neutral. However, this is very recent development. Over centuries economic though was inseparable from ethics, moral philosophy. In this book author walk through the long history, analyzing sources as old as Gilgamesh and the Old Testament, coming to the Greek philosophers, continuing to Christian economics, and then to Enlightenment ages, and finally the Wall Street. The book is well written and easy to read. While I don’t agree with several arguments, it is thought provoking and very useful.

To my surprise, there is not much Wall Street in the book, while Crash 2008 could be a very good case study. Intricate econometrics and math models simply hide the basic assumption that property prices will rise forever. As soon as this assumption turned out be false, and prices stagnated and slightly went down, all models went crazy and market crashed. On the other hand, author pay some attention to Debt, which is a great issue going well beyond Public Debt.

Overall—nicely written, thought provoking, well referenced book.

http://amzn.to/2wQr60Q

 

Blink: The Power of Thinking Without Thinking by Malcolm Gladwell


Blink: The Power of Thinking Without Thinking by Malcolm Gladwell
My rating: 4 of 5 stars

How did gender discrimination has been radically eliminated from classic music world, with the percentage of women in major symphony orchestras in the United States skyrocketed from meager 5 percent to close to 50 percent over twenty-five years? Affirmative actions, boycotting, public awareness campaign? No, just simple procedural change–introduction of blind auditions, which radically changed decision making (and associated biases)

The book by Malcolm Gladwell tells the stories how our brain make intuitive decisions, how these decisions shape our life for good or for bad. How simple quiz with words associated with elderly make you to walk slower. How people in Emergency Room radically improved heart attack diagnostics and saved many lives (and money for hospital). How New Cola miserably failed despite all marketing researches. How rough commander with outdated military equipment managed to beat state-of-the-art Blue Team (resembling movie “Down Periscope”). How unconscious racial bias affect hiring decisions. How police end up with brutality (and how they could avoid it trough very simple changes in procedures).

The book addresses three questions: Why and how our brain take these fast, intuitive decisions (thinking without thinking)? When these decisions are good and when are bad? When we should rely on these intuitive decisions, and when we should deliberately take time to make rational decision?

Gladwell is a great journalist–he collects and references interesting researches and compliment them with real life accounts, thus telling the whole story. The book is very well written and easy to read. However, if you are more interested in substance, rather than whole story, you could read just introduction, as author laid out whole argument there. If you are more interested in subject of brain work, you could read thick volume “Thinking, Fast and Slow” by Daniel Kahneman (he got the Nobel prize in 2002 for “having integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty”), which goes into details of thinking and decision making.

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“When Nature Helps Scientists: Natural Experiments of History” ed Jared Diamond

Human history and societies left many question open—why Haiti and the Dominican Republic, which share the very same island of Hispaniola, are so radically different in their level of development? Why expansion of Western Territories in USA in 19th century was so explosive? Is it unique? What condition level of political development in Polynesian societies? How slave trade has affected long-term development perspectives of Africa?

Social scientists find themselves in disadvantaged position, comparing to natural scientists, physicians, or chemists—they have no luxury to run a controlled laboratory experiments, often considered to be the hallmark of the scientific method. On the one hand, they often deal with past. On the other hand, even if they could design such an experiment, it would be immoral and illegal. To make things even worse, social phenomena often are hard to measure (for instance, what are the measures for “happiness”, “development” or “stability”?) and involve many variables, which affect outcome. (Back in 1987 Jared Diamond wrote an excellent article “Soft sciences are often harder than hard sciences”, where he touch upon some of the issues).

However, Mother Nature often times offers her helping hand, in the form of “natural experiments”—serendipitous situations, when systems or groups are similar in many respects, but are affected differently by a treatment, random or quasi-random. This allows comparing two systems or groups and studying influence of the treatment factor. “Natural Experiments of History” is a collection of eight comparative studies drawn from history, archeology, business studies, economics, economic history, geography, and political science.

Book is easy to read and it is extremely thought-provoking. It offers broad sample of approaches to comparative history, using range of methods—from nonquantitative to statistical, range of compared subjects—from two in development Hispaniola island case to 233 areas in India, range of temporal comparisons—from past to contemporary societies, and wide geographic coverage. Behind all cases there is one simple idea—comparative analysis of natural experiments can be applied to the messy realities of human history, politics, culture, economics and the environment.

Short summary of all chapters is available on-line. Many chapters in this book are based on research papers, which could provide additional information about research methods used.