William Easterly: The Elusive Quest for Growth - Essay Example

April 23, William Easterly: The Elusive Quest for Growth Summary of Chapter The chapter begins with the explanation of the conditions of a small village in Pakistan by the name of Gulvera. The conditions in this town are certainly not feasible for the villagers to live. The houses are battered with no proper drainage system. The village does not have a doctor and is plagued by mosquitoes. The women do not have equal status as the men and in the absence of a girl’s elementary school they are also deprived of education. There is almost no women empowerment and their status is not equal to the males. This is a characteristic feature which may be found in many under developed and developing countries. The topic of infant mortality is discussed in detail with the help of statistics. The infant mortality rates are much higher in the developing and under developed countries. The young children are plagued by diseases causing early deaths. Much of the diseases can be cured but the lack of awareness and the absence of healthcare facilities lead to such problems. It is found that many children have to face deaths due to simple problems such as fever and dehydration. Many of the diseases which are the result of deaths in such areas can actually be cured. However, the absence and ignorance leads to such problems of high infant mortality rates. Due to this a severe problem comes up in such societies- over population. Due to the high infant mortality rates the parents tend to have more children expecting that from amongst them a few will survive the risks of infant mortality. However, more than enough children survive increasing the family size. Some professors and experts have pointed out that income and mortality rates were linked. A fall in incomes leads to greater mortality rates and vice versa. This is due to the simple reason that increasing income improves the standard of living. One of the main reasons for the high infant mortality rates is the problem of hunger. The people in poor countries are faced by the problems of hunger and malnutrition which results in them being prone to diseases. The daily calorie intake is said to be one-third lower for the poorest five countries when compared to the richest five countries (Easterly, 11). The poorer families already low on cash and are always taking loans from one place or the other to support their families. This results in debt bondage where the family members are in a position of debts. As a result, even the children have to go out and work in order to bring in the funds for survival. This increases the hardships on the children as they are putting in extra effort and there is little to eat. This reduces the energy and may cause malnutrition amongst the children. When there is little work available most of it is taken up by young males. The females then often resort to prostitution. This is one of the most discussed questions in many countries. Apart from prostitution females are also subject to oppression in many under developed countries. A story is related in the end telling the hardships of the poor and their sufferings. People are made to realize that today it is very difficult to leave something and move on in life. Nowadays the poor not even have the land or the resources to get back from their doomed situations. The reason for discussing these questions of mortality rates, oppression of the women, slavery and poor healthcare in economics is to point out the importance of economic growth. Much of this could be avoided by increasing GDP and GNP per capita as increasing incomes increases the standard of living. Thus this can be a way for overcoming these issues which are being faced by many people worldwide. Summary of Chapter 2 This chapter begins with another example this time of Ghana, which was the first colony which became independent from the African colonies. Ghana had a good start because of the aid money invested into their economy by the foreigners mainly the British, Americans and Germans. The concept which is mentioned here is that Ghana’s leader Nkrumah aimed to invest the foreign aid in infrastructure projects and building a hydroelectric power plant. After that they aimed to make an Alumina plant and later convert the artificial lake into a flourishing fishing industry. Also they aimed to use it as a boost for the economy. However, these big plans did not pan out as expected an resulted in a failure. After a couple of decades not only did the plans remained unaccomplished but the mismanagement resulted in a serious downfall in growth as well causing the military to take over. An American professor Domar put forward a model explaining the relation between the investments and growth in the economy (Easterly, 28). The model put forward by Domar seemed unrealistic to him and he disavowed it himself eleven years later. However, it is still used today in many countries to determine an investment rate to meet the target growth rate. The model simply states that there is a proportional rate of change between the investment rate and the rate of growth of GDP. However, it has some serious flaws which make it not such an efficient model to use. Initially the economists did not focus on the economic conditions of the developing countries or the conditions of the third world. However, they soon realized that this was an area related to economics which should and could not be ignored. In 1960, Rostow published his best-selling book by the name of the Stages of Economic Growth (Easterly, 32). He explained that countries had used this policy effectively of increasing investment in order to trigger economic growth. Rostow used the example of the Soviet Union to analyze and explain his ideas. Through this he derived the explanation that the third world or developing countries did not necessarily need the communist hold in order to trigger economic growth. This previous perception had been proven wrong by the example of the Soviet Union. What was actually required was financial investment and the gap in this could be helped to be filled by foreign countries. Explanations put forward by Rostow changed the face of the economic policies of many developed countries. The amount of aid given by developed countries has increased manifold over the last half century. In fact it has increased to such an amount that between 1950- 1995 this aid amount equaled to almost a trillion dollars. This is quite some amount given in aid. The problem which arose here was the repayments of the aid. Many countries who were receiving aid were not looking to repay all the aid in the future. What was important was the analysis that after the growth took off economies should start saving more in order to overcome the debts. Considering all these factors the World Bank came up with models of MSM and RMSM due to the conversion of these theories to calculations in the computer. Summary of Chapter 3 Robert Solow came up with an entirely new theory in 1956 and 1957 which surprised everyone. According to him it was not the investment in technology which triggered the growth. In fact what did bring about the change was the introduction or development of technology. It was this factor that had contributed to the growth of output per worker in America by seven eighths as calculated by Solow (Easterly, 48). However, many economists claim that it was investment that had led to the growth of most of the economies. However, considering Solow’s explanation the problem of diminishing returns sets in. The problem of diminishing returns means that the average output instead of increasing decreases in the long run. This occurs because the firm has already surpassed its maximum output per unit labor. Solow’s explanation brought about a massive disturbance amongst the economists. His idea that the investment also has diminishing returns took everyone by surprise. He explained that as the labor was fixed the increase in machinery and capital investment may increase the outputs for some time, but, as soon as the diminishing returns set in the outputs will fall. The best way to increase output is not by increasing machinery but by improving the production process or bringing in new technology. He compares this with the example of Henry Ford who introduced the concept of mass production through division of labor. Opposition to the ideas of Solow claims that the technological change or an improvement in technology does not only increase the output but it removes a lot of labor from the work causing unemployment. The unemployment increases problems in the economy and results in the reverse process. Therefore, technological advancement may not necessarily be good for all. This idea can be defended by the fact that countries like United States, UK and Germany have had constant technological improvements. However, in the long run there have not been any signs of increasing unemployment. Instead due to this technological advancement there has been a constant increase in the output per person and the incomes which they earn. The idea of Solow comes bang on target that the increase in machinery may not be a solution to increasing output and income in the long run. What needs to be done is that there should be significant technological progress to meet the increasing requirements and in this way even if there are a lot of machines with advancement the diminishing returns will not set in. thus, transitional capital accumulation was not the solution to growth. The actual solution is technological advancement. It is often argued about the implementation of ideas of Solow on developing or under developed economies. The solution is that in such economies there should be an increase in educated labor. Thus, the advancement here will be in the form of education provided to the human capital. This may allow the other technological advancements to simultaneously bring out the effect. Reference Easterly, W. The Elusive Quest for Growth, Massachusetts: MIT Press, 2001. Print Read More