What is Development? : The Road Ahead



What implications does complex adaptive thinking have for how we manage development?

In his 40-min lecture posted on the Center for Global Development, Owen Barder makes a new and compelling case about how we should think about development. His talked, titled “What is Development” presents us with key ideas that should shift the way we think about foreign engagement in developing economies.

In Part 4 of this blog series (Part 3: Evolutionary Progress ; Part 2: Progress in a Vacuum ; Part 1: Where we've been) we discuss the imperatives we face given the systemic nature of the development challenge.



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Why have I written this post? We spend billions on development aid, and if the end result of a generation of goodwill is inefficiency and anemic progress, then we risk disillusioning those that follow. The world not only needs us to have a big heart, but also the best of our mind.

How can we be smarter about the change we seek to make? I'm going to skip the justifications (read prior posts for the build-up) and delve into a short list of how our development efforts much change.



1. Resist Engineering
It's tempting to design the ultimate solution. However, evolutionary biology is a story of adaptive change consistently outperforming design. As the challenges get tougher, the simplifying assumptions we must make to comprehend and the model undercuts the value of such an approach.
It takes a level of humility to abandon the illusion of control engineering gives us, but it is a necessary step.

Resisting the lure of over-engineered solutions will also mean that we approach problems with fresh eyes and appreciate the context. What matters in Peru will not matter in Indonesia. Even if the guiding principles hold, the small differences that tip the balance of change can never be fully predicted.

This also means we must find ways to resist the pressure from donors to adopt "best practices" or "industry standards". The history of poorly applied best practice is well worn.



2. Resist Fatalism
It may feel like waiting for evolutionary forces to drive change will leave us watching for the proverbial pot to boil. However, intentional, market driven pressure to iterate fast and effectively can drive dramatic improvement quickly.

It took computers a decade to transition from the office desk to our back pocket, but the pace was driven by companies experimenting and innovating. It wasn't one company that drove that change either (I'm sorry Apple fanboys) but whether Dell changing laptops, or Nokia the cell phone, or Apple the smart phone, or Google the eye-whatever, the progress comes through an optimistic drive for persistent failure and occasional success.




3. Encourage Innovation
Though necessary this can be a hard task to fulfill. Sometimes we need Apple like safeguards to create the right conditions. The argument of pharmaceuticals and the entire patent system is that innovation must be nurtured safely, much like a seedling in a greenhouse.

However, the era of open-source innovation has challenged the notion; arguing the opening the floodgates and creating a collaborative culture will be far more effective. Crowd sourced fundraising have enabled a generation of entrepreneurs to bootstrap their innovations outside the strict confines of corporate R&D.

The method you prefer may reflect as much of your temperament as the circumstances you find yourself in. If the patent system is weak or non-existent, then perhaps open-sharing might be the way to go. Whatever the method, the mandate is clear. Keep placing bets and make sure you stay at the table.



4. Embrace Creative Destruction
Innovation cannot sustain itself without selection. In his follow-up posts he discusses the idea of identifying the right fitness function to enable proper selection. Iteration without a meaningful method for promoting the promising results is meaningless.

Effective selection is the underlying engine for crowd sourced funding. By allowing people to vote with their dollars, the hope is that the best outcomes will bubble up the surface. Similarly, by creating the right marketplace for developmental work we can create an objective lens through which the screen initiatives. The process might seem ruthless and none of us wants to envision our own demise, but progress demands culling and renewal.



5. Act Global
The world is far too large for us to operate in a static and simple framework. Here I relinquish the page to pose a series of ideas:

"If we believe...

that open and accountable institutions are important, we could make a bigger effort to reform international institutions of which we are part. We still participate in processes to appoint leaders of international organizations based on stitch‐ups behind closed doors.

that trade is important, we could do more to open our own markets to trade from developing countries.

that property rights are important, we could do more to enforce the principle that nations, not illegitimate leaders, own their own natural resources, and that anyone who buys oil or minerals from un-elected governments is guilty of handling stolen goods.

that transparency is important, we could start by requiring our own companies to publish the details of the payments they make to developing countries. (the Foreign Corrupt Practices Act is a step in the right direction.

that rule of law is important, we could entrench those rights more firmly in our own systems, and resist the temptation to make exceptions in the name of political expediency
.
that openness and exchange of ideas are important we could do more to welcome the movement of people around the world, instead of making it more and more difficult for people to migrate temporarily or permanently from one country to another."
- Owen Barder







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In Part 1, we discussed the complexity of development and how each successive theory of progress has added more layers or agents that are necessary for development to happen. The economy is a highly complex inter-dependent system and it has proved difficult to find the right levers to spur growth.

In Part 2, our case example highlighted the networked nature of systems. A simple toaster making company requires a large ecosystem of products and services in order to function, yet once these are in place, growth is exponential. 

In Part 3, our review of the innovative way Unilever increased soap powder efficiency a hundredfold illustrates how an evolutionary approach to problem solving allows us to overcome incredibly complex challenges.

What is Development?: Evolutionary Progress







Evolutionary problem solving is a power agent for addressing complex challenges:

In his 40-min lecture posted on the Center for Global Development, Owen Barder makes a new and compelling case about how we should think about development. His talked, titled “What is Development” presents us with 2 key ideas that should shift the way we think about foreign engagement in developing economies.

In Part 3 of this blog series (Part 2: Progress in a Vacuum ; Part 1: Where we've been) we look at a case example that demonstrates the power of evolutionary problem solving. In our final post next week we'll tie together these insights into the implications it has for developmental policy.

In Part 1, we discussed the complexity of development and how each successive theory of progress has added more layers or agents that are necessary for development to happen. The economy is a highly complex inter-dependent system and it has proved difficult to find the right levers to spur growth.

In Part 2, our case example highlighted the networked nature of systems. A simple toaster making company requires a large ecosystem of products and services in order to function, yet once these are in place, growth is exponential. 


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The Original Soap Powder Nozzle


The process for making soap powder is fairly simple. It requires mixing several chemicals and forcing the mixture through a spray nozzle. The force of the nozzle makes soap power crystallize and fall to the floor. You then sweep up the powder and sell it at a huge profit.
The critical component is the nozzle. At Unilever, a roomful of scientists had puzzled on how to design a better nozzle. The challenge was that the fluid dynamics were non-linear resulting in a horribly complicated model. Numerous physicists and engineers were unable to make any kind of progress on the redesign.

Steve Jones, a young evolutionary biologist assigned to the team decided to try a different approach. Taking the existing nozzle he made ten copies which were random variants of the original. After testing these he selected the best, and then made another ten random variations of this new nozzle. After 45 such generations of testing a new nozzle emerged that look somewhat like a chess piece. It would have been impossible to envision at the beginning.

The new Nozzle after 45 generations of testing
The new nozzle worked. If it had increased efficiency by 20%, Unilever would have been ecstatic. The nozzle wasn't 20% better; it was hundreds of times better. The most incredible part was that no one could explain why it worked.

To quote Owen:
" This is a characteristic of adaptive change: It doesn't just bring about small improvements; it often brings about startling, game-changing jumps to new solutions, like the evolution of the eye for example in biology."

This is the central message to development experts. The products that impact are lives are not the result of one person's innovation but hundreds of iterations of trial and error. Thomas Edison might have invented the light-bulb, but the hundreds of iterations since have increased the efficacy of the product thousands fold. 

In order for progress to happen, economies must cycle through a process of trial and error, with firms emerging and failing. The idea is embedded in Schumpeter's theory of creative destruction. 

The last point to make is that adaptive problem solving isn't a choice we an ignore. We are already adapting. With each generation of humans we have new preferences, choices and world-views that impact our society. With each generation of new businesses we find new products and services that fundamentally shift the human experience (think about the transition from the printing press to the internet). Hence, attempting to manufacture progress in a static world-view can only be explained as profound naivete or short-sighted arrogance. The change we need to make is embracing change.


What is Development?: Progress in a Vacuum


Development is the emergent property of a system. The challenge is creating the system.

In his 40-min lecture posted on the Center for Global Development, Owen Barder makes a new and compelling case about how we should think about development. His talked, titled “What is Development” presents us with 2 key ideas that should shift the way we think about foreign engagement in developing economies.

In Part 2 of this blog series (Part 1: Where we've been) we consider an illustrative scenario that points out the current problem with piece-meal development. Next blog, we'll look at a case study that illustrates the power of adaptive problem solving.

When we left of last we had reviewed the history of development ideas and the various parts of the economy that were proposed as the key levers for sustained development.


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Thomas Thwaites, a British design students decided that for his final project he would make an electric toaster entirely from scratch, from basic raw materials. He selected the simplest toaster model he could find for ~$6.

The simple toaster turned out to still be incredibly complicated, with over 400 parts made form hundreds of different raw materials. 



Aside from trying to make a home-made smelter, Thomas faced incredible challenges. After spending 9 months and an absurd amount of money he assembled his finished product. Unfortunately, since he was unable to get any rubber, the copper wiring was not insulated and after a few brief moments of functionality, his toaster burst into flames.



The principle is that even a five-dollar toaster is an incredibly complex machine that requires an array of services and technologies. Likewise, an economy that makes toasters must provide this broad range of capabilities. If you're starting a toaster business, not only do you need functioning industry, but also a functioning legal system and labor market and transportation system.

Hence, increasing productivity or capability in one industry or aspect of the economy is itself unlikely to spur development. It is the full emergence of functioning trade, industry, legal systems and schools that leads to rapid development. 

Emergence here has a specific meaning. The idea is that development isn't an activity you do, but rather the emerging feature of a system and confluence of events. If individual sectors and firms are raindrops, then development is the gathering storm. No single droplet can be described as a storm, but in composite, they form a thunderstorm.

Likewise, no particular economic activity can be rightly be described as development, but rather in aggregate they allow for the emergence of development as a property of the system.

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In the post-war 40's, the American economy was primed for development. It has a large returning labor and consumer force, a massive infrastructure and technology investment as a result of the war, and a friendly economic environment with people eager to escape the confines of the great depression. This lead to a economic boom that propelled America into a new global economic power, far more-so than before the war.

When we think of today's development landscape, it perhaps should be through the same lens of development as something that happens when the right ingredients are in place.


What is Development?: Where we've been


After a century of economic thought we still wrestle to bridge the development gap.

In his 40-min lecture posted on the Center for Global Development, Owen Barder makes a new and compelling case about how we should think about development. His talked, titled “What is Development” presents us with 2 key ideas that should shift the way we think about foreign engagement in developing economies.

  • The economy consists of a many people, products, firms and institutions which means it behaves as a complex adaptive system. Hence, development is not a series of individual successes. Instead it is the emergence of self-organizing complexity from the system as a whole. 
  • There are 7 key policy implications from this idea that change how we engage with issues of development and that explain why some economies ‘take-off’ while others stagnate. 
This first blog post pulls out a summary of the history of development ideas included in Barder’s presentation. Post #2 – 3 will talk about development as an emergent property and the last post will focus on the policy implications. Conventional Economic Models

  1. It’s capital, stupid: Developed after the second world war, the Harrod-Domar growth model argued that the economy is the sum of labor and capital inputs. Since most developing countries seemed to have a surplus of labor, they were most likely capital constrained. 
  2. It’s savings, stupid: Walter Rostow’s model of economic growth spoke of the virtuous cycle of investment, growth and savings. He argued that if an ‘investment gap’ could be bridged by aid, then the virtuous cycle would lead to rapid growth. This has informed much of traditional foreign aid policy.  
  3. It’s technology, stupid: The prevalent Solow model of growth mentions ‘technology’ as the exogenous component that drives growth. The idea has received merit thanks to the telecom revolution in Asia and Africa. However, what constitutes the right technology is hard to define and Solow himself tends to avoid specifics on this bucket. 
  4. It’s policies, stupid: The IMF and World Bank have set up loan programs on the thesis that government is the ingredient that prevents economies from living up to their theoretical potential. This has created the Washington Consensus which is a series of policy reforms often required from countries receiving aid and loans. 
  5. It’s institutions, stupid: In response to the failings of the Washington Consensus, business figured the lack of strong institutions are to blame and hence billions have been spent of trying to build good governance practices. However, given the range of institutions (land reform, judicial reform, public sector pay, government auditing, corruption, budgeting, term limits, etc.) its hard to figure out where to start. 
  6. It’s politics, stupid: In their 2012 best-seller “Why Nations Fail”, Acemoglu and Robinson argue that it is the politics of powerful elites that control capital and resources that are to blame. Hence, the idea is that weak institutions, bad policy and poor capital are designed and intended results of a well-positioned elite. 
So, which of these answers are correct? In some sense, all of them are. In some sense, none of them are. The models are right to the extent that the last half-century has been an era of rapid economic development and the biggest increase in the global standard of living in history.

However, the models still fail to explain why some countries have astronomical success and why others fail. The chart below shows the relative income growth in South Korea and Ghana, and economists have struggled to explain where Korea succeeded and Ghana failed.


The biggest challenge is that ultimately each of the models points to an endogenous ingredient that is driving growth. It seems that in order to be effective these ingredients are not something provided from the outside, but rather are products/characteristics of the economic system itself.

Next Up > The Toaster Experiment

EMDC gets on the Cold Call Chronicle


For the first time, EMDC has featured an article in the Darden Cold Call Chronicle. We are thankful for our partnership with the paper and look forward to more opportunities in the future. We are especially thankful to Jonathan O'Connor for candidly sharing his thoughts with us. It helps us aspire to ask more of each other and search for the truly extraordinary amongst us.

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EMDC