Why are some countries rich while others remain poor? 

October 7, 2022

Göran Holmqvist reviews Stefan Dercon’s latest book Gambling on Development in the Swedish journal Ekonomisk Debatt.

Photo: Senzekile Msomi / Unsplash.

Göran Holmqvist, Director at the Department for Asia, Middle East and Humanitarian Assistance at Sida, reviews Stefan Dercon’s “Gambling on Development Why Some Countries Win and Others Lose,” a potential bestseller among the classic books on development economics. This is the English summary of the original review published in the Swedish journal Ekonomisk Debatt 6/2022 (årgång 50).

Countries should invest in growth-oriented development 

In his book, Stefan Dercon, Professor at Oxford University and former Chief Economist of the British development aid agency, answers the question of why some countries win and others lose in development. His main thesis is that the countries’ elite must put aside their short-term, conflicting interests and instead “invest” in growth-oriented development (gambling on development). According to Holmqvist, Dercon nevertheless seems to ignore the role of civil society and other actors in the institution building process by acting as a counterforce to elite dominance. 

Dercon rejects the idea that a particular policy prescription is the success factor for countries. The differences in areas such as the degree of state involvement, governance, transparency, openness to the outside world and natural resource management are too great. However, common characteristics of successful countries are that states can act with credibility, adapt their roles to their capabilities and being able correct the course when initiatives fail.

What about development aid? 

Holmqvist writes that Dercon advocates an aid strategy à la Warren Buffet, the super-investor who invests in good management in businesses with long-term stability, rather than spectacular and short-term, growth potential. This means investing in countries with an emerging elite bargain on development, which in the past decade have been countries like Rwanda, Ethiopia (at least until recently), Bangladesh and perhaps Ghana. Despite the corruption and political oppression you may find in these countries, donors should not be over-alarmed but rather focus on long-term economic and social progress.  

Aid is also needed in countries that fail to get ahead, countries such as Democratic Republic of Congo, Nigeria, Malawi, Sierra Leone, South Sudan and Afghanistan, where elites have acted according to short-term interests and the state has degenerated into an instrument of self-enrichment. In these countries, humanitarian needs are often the greatest. However, expectations on results should be low, and the approach should be cautious in order to facilitate future pro-development arrangements between elites. 

Dercon’s recommendations fit rather poorly with the orientation of Swedish aid, Holmqvist argues. Swedish aid have a strong focus on fragile countries with weak institutions and it has often demonstrated a high degree of sensitivity to even temporary, democratic setbacks when it comes to state-to-state assistance.

Civil society, citizens and counterforces to an elite-dominated state feature conspicuously little in Dercon’s country analyses and recommendations, although the implications it has for the more informed political economy analysis Dercon calls for. In this aspect Dercon is clearly at odds with another institutionally oriented economist – Daron Acemoglu (author of Why Nations Fail and of The Narrow Corridor) – whose analysis point at the crucial role such counterforces have in the shaping of development friendly institutions.  

SweDev hosted a dialogue with Dercon on 8 June this year. He held a keynote and presented main findings from his book and gave further insights.

News translation by Roksana Rotter, SweDev. Edited by Göran Holmqvist, Director at the Department for Asia, Middle East and Humanitarian Assistance at Sida and Ylva Rylander, Communications Officer for SweDev at SEI.