Two Approaches to Economic Development 

“The conventional approach to economic development … is based on a technocratic illusion: the belief that poverty is a purely technical problem amendable to … technical solutions.”     ~William Easterly, The Tyranny of Experts

There are two different approaches to economic development, according to Dr. William Easterly. One is technocratic or authoritarian development, a technocracy in which “well-intentioned autocrats advised by technical experts” focus on technical solutions to economic development while ignoring the “rights of real people” (Easterly 2013, p. 5). The second approach he calls “free development” which gives free individuals with political and economic rights “the right to choose amongst a myriad of spontaneous problem-solvers, rewarding those that solve our problems” (Easterly 2013, p. 6). In this paper, we’ll refer to them as technocratic development and free-market development. 

Technocratic Development

Easterly describes a technocratic development project led by the World Bank in Uganda: 

The soldiers had arrived on the morning of Sunday, February 28, 2010, while the farmers were in church. Hearing gunshots, the farmers had rushed to their houses, which by then were already immersed in flames. While some soldiers kept the farmers at gunpoint from rescuing their homes, others poured gasoline over the recent grain harvest in the barns and burned that as well. One eightyear-old child was trapped and died in the fire. The dairy cows were dispatched more quickly and humanely with a burst of machine-gun fire. Then the soldiers marched the more than 20,000 farmers away at riflepoint. Never come back, they were told; the land is no longer yours. 

The farmers, many of whose homesteads had been in their families for generations, were unhappy to learn that a British company was taking their land with the help of the soldiers. The company was going to grow forests and then sell the timber. The farmers were even more distressed to learn that the World Bank, an official international organization combating global poverty, had financed and promoted the project by the British company. (Easterly 2013, p. 3) 

We might think that something like this could never happen in America, but the same type of economic development projects take place here—although usually without the violence. If you don’t believe it, take a look at Poletown. 

Poletown was a neighborhood in Detroit which took the name of the Polish immigrants that had at one time lived there. However, by the 1970s, it had become a predominantly black neighborhood. 

About that time technocratic development planners in Detroit came up with the idea to stem Detroit’s ongoing economic decline by turning Poletown into a General Motors plant. They put the plan in motion, using eminent domain to force people out of their homes and businesses. Once the Michigan Supreme Court sided with the city in 1981, 4,200 residents in Poletown were displaced and 1,400 homes were destroyed. The Court’s reversal of its Poletown decision 23 years later came too late to help the residents.

 Texans, however, don’t have to travel overseas, or even out of state to witness examples of technocratic economic development. The Dallas City Council decided in 2005 that Ross Avenue was much better suited for upscale apartments and condominiums than the numerous auto repair shops and used car lots that occupied it at that time. So the city re-zoned Ross Avenue, turning many of the existing businesses into “nonconforming uses.” 

Overnight, businesses like Woodard Paint and Body Shop could no longer legally operate on Ross Avenue, despite the fact that in Woodard’s case it had occupied its location since 1976. The Texas courts wouldn’t help owner Allen Woodard, but he put up a political fight and at a cost of close to $100,000 was able to operate on Ross Avenue longer than most of his neighbors. However, Woodard finally closed his doors last year, eight years after the Dallas City Council started its campaign against his business.

In both of these cases, we have local politicians working with city planners using the technocratic economic development process to decide how to best increase prosperity while the rights of affected property owners, residents, and workers are ignored. 

This moral problem is inherent in the technocratic economic development approach. This is true whether or not eminent domain is used because in all cases the technocratic approach can only function by taking property from citizens, whether it is in the form of real property or hard cash. Yet it is evident that its inherent moral problem hasn’t stopped the technocratic approach from being adopted throughout the world, including in Texas.

Free-Market Development

The technocratic development approach stems from a flawed misunderstanding of how economies work and grow. Economies flourish only because of the division of labor, which allows people to specialize. Because of this, we no longer have to grow our own food, build our own houses, or make our own tools. But for specialization to work, we need a complex system of exchange. Factory workers can’t eat tractors and farmers can’t use corn cobs to plow their fields. The complexity of getting corn cobs to workers and tractors to farmers is far beyond the ability of centralized planners to comprehend. 

Yet policymakers assume just the opposite when they endorse technocratic economic development. They believe that either they or government planners can best determine what technology has the best chance of success, which jobs and products best supply society’s needs, and where best to expend scarce supplies of capital. They believe that they just can’t sit back and let the economy take care of itself, that they have to take money and property from citizens in order to solve real problems in the real world. 

This ivory tower approach to economic development stands in stark contrast to the ongoing economic development activities taking place each day in the real world. Millions of consumers (attempting to satisfy their endless needs) haggling over prices with hundreds of thousands of suppliers (trying to determine the most profitable mix of jobs, products, and capital allocation) is the best way to help the economy grow. Central planners can’t make sense of this all. Entrepreneurs are what is needed to make this system work. Only entrepreneurs are capable of providing the coordination needed to ensure that we do not waste our precious supplies of labor and capital. To place these entrepreneurial decisions into the hands of technocratic economic development planners is nothing less than gambling with the money of taxpayers. 

Shawn Ritenour explains the importance of entrepreneurs in economic development: 

Waste is possible, because production decisions in the present are based on a forecast of uncertain future market conditions. If the producer forecasts incorrectly, he will use his capital making something people do not want. He will also be unable to sell his output at the price needed to cover his costs. 

Entrepreneurs need to use economic calculation if they are to direct factors of production toward their most valued uses. Market prices allow entrepreneurs to make meaningful comparisons of social value between different consumers’ and producers’ goods because prices are all expressed in terms of the same good. These same objective prices are determined by the subjective preferences of buyers and sellers:

• If the expected price of a final product is greater than the sum of the prices of the factors of production, the entrepreneur will produce that good
• When entrepreneurs reap a profit, they do it precisely by providing those goods that people value the most in the least costly manner
• One cannot neatly sever the components responsible for economic expansion from one another and find a single key that explains economic progress
•  A highly developed division of labor would be impossible without the accumulation and use of capital goods
• Likewise, the entrepreneur must invest real capital in the production process and if he errs in his market forecast, he can indeed reap large losses

At the same time, capital per se never guarantees economic progress either, because it must be wisely utilized. Economic progress is the happy consequence of a highly developed division of labor, taking advantage of an increasing capital stock wisely invested by entrepreneurs. (Ritenour 2014)

This is the real-world process of economic development. It is folly to pretend that government can improve upon this through its technocratic approach. In fact, just the opposite is true. Every dollar taken from the pockets of taxpayers for technocratic economic development programs decreases the economic efficiency of the entrepreneurial process and consequently reduces economic growth.

Conclusion

Dr. Easterly concludes this paper:

The conventional approach to economic development … is based on a technocratic illusion: the belief that poverty is a purely technical problem amenable to such technical solutions as fertilizers, antibiotics, or nutritional supplements.

What used to be the divine right of kings has in our time become the development right of dictators. The implicit vision in development today is that of well-intentioned autocrats advised by technical experts, what this book will call authoritarian development. The word technocracy (a synonym for authoritarian development) itself is an early twentieth-century coinage that means “rule by experts.”

The technocratic approach ignores what this book will establish as the real cause of poverty—the unchecked power of the state against poor people without rights.