Wednesday, March 06, 2013

A Response to Bill Gates on "Why Nations Fail"

Well, actually, I agree to a lot of his criticism. I think that freer markets are the best indicator for future growth and its test is the best available. However, he also nit-picks some things, that I find not quite as defensible. While I concur on the fall of Venice and the excellence of Rome not depending on inclusive institutions, but rather on timing, global trade and good governance ( at least with the Romans), I strongly disagree with the Korean and Taiwan example.

In my point of view both countries developed despite a rather autoritarian government (like China). I think South Korea is an illustrative example, being right next to a country with an even more autoritarian leader: North Korea. It was less the leadership decisions that made the difference, but the dependence on the US against North Korea, Japan, Soviets and China. I think one could make a similar case for Taiwan.

If you look at South America and Africa, I think one can make a better case for strong leaders resulting in sub-optimal results. And this brings me to the second point were we disagree: Foreign Aid. Bill Gates has made clear for a long time now that he supports foreign aid in general. He doesn't like the Afghanistan example, because it is a war zone and thus a special case. I agree, but I also think that Robinson and Acemoglu wouldn't have had to look far for even better cases.
Haiti is a foreign aid disaster and most has to do with culture and how foreign aid is done. Most central African countries are foreign aid disasters (the stronger the leader, the worse the example). Here foreign aid supplied by states is even worse than the one done by private companies.
But even in central Africa, poverty, infrastructure, education and a counter-productive culture are bigger problems than foreign aid. Of course, some foreign aid is more disasterous than others: Like free clothes from Europe.

Mali is an excellent example on what went wrong: Foreign Aid used as a general easement on our concience, rather than means-tested. I think even Bill Gates might agree that foreign aid should be supplied on a "what-works-best" basis.

Then there is a lot of foreign aid which should be scrapped, because it goes to entities that don't deserve it or are nowadays wealthier than they were when the money was really needed (amongst others, Germany, Israel, Egypt etc.).

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