Célestin Monga and Justin Yifu Lin
This introductory chapter presents the objectives of this volume and discusses the challenges of producing relevant knowledge. It starts with an exploration of the reasons why Africa has remained neglected in economics, despite its important contributions to the discipline. It then highlights Africa’s enduring intellectual influence on some of the world’s leading economists. It discusses the traditional reasons why that deep positive influence is little known and rarely acknowledged in mainstream economics. It also offers a different explanation of the neglect of Africa as a rich source of economic knowledge, highlighting the fact that economic thinking on Africa has generally mirrored the general evolution of macroeconomics and the dominant frameworks of analysis of the continent’s low-income countries have always been fraught with analytical sins and mimetic choices.
Peter Lewin and Howard Baetjer Jr.
Capital theory is fundamental to everything else in Austrian economics. It lies at its core, implicit in discussions of monetary policy, the business cycle, the entrepreneur, and the subjectivity of value and expectations. Prior to the Keynesian revolution, it was capital theory for which the Austrian school was most known among mainstream economists. With the advent of Keynesian macroeconomics, interest in capital theory all but disappeared. But it has recently been the subject of increasing attention. After a brief overview of the main ideas in Austrian capital theory (ACT) from its origins and extensions through the middle of the last century, this chapter notes this rekindled interest and surveys recent applications, including its connection to complexity studies, management studies, entrepreneurship, and macroeconomic policy.
Peter S. Heslam
There are two key facts about development that are obvious yet often overlooked: the solution to material poverty is material wealth and the only sphere of society that generates such wealth is business. From these two foundations, the argument in this chapter is that Christianity can be, and often is, conducive to the kind of environment that business needs to flourish and for business to contribute to the well-being of society. It is remarkable the extent to which the role of religion and business are ignored in mainstream development thinking. One reason this is generally overlooked is that the development community tends to focus on definitions and causes of poverty, rather than what causes wealth. This chapter discusses the role of the Evangelical-Pentecostal-Charismatic Movement in promoting wealth through a sense of calling, a positive mind-set, delaying gratification, stimulating entrepreneurship, rationalization, and nurturing voluntary associations.
This chapter draws on key concepts from the Austrian school of economics to consider both the practical implications for and the ethical evaluation of the ideal constitutional schemes proposed by John Rawls and James Buchanan. With regard to practicalities, the chapter challenges the types of political regimes favored by Rawls and Buchanan on the grounds that they pay insufficient attention to the “knowledge problem.” With respect to moral evaluation, the chapter argues that the contractarian method provides insufficient grounds to judge the legitimacy of political institutions in a world characterized by actors with bounded rationality and diverse standards of evaluation.
This chapter examines the articulation of two powerful determiners of individual and collective actions in the African context—culture and economy—from a point of view that could be called civilizational. The question is to determine in what measure the efficiency of an economic system is linked to its degree of adequation with its cultural context on one hand and, on the other, whether the efficiency of the resulting social system is dependent on respect of the functions assigned to each order by the group. A fruitful dialectics between economics and culture requires on one hand the assignation of each order to the finality for which it is the most efficient and, on the other hand, a better rooting of the African economies in their respective sociocultures.
Discussion of faith, religion, and development often raises controversy, including over terminology. This chapter considers the various formal dialogues among development practitioners and faith-inspired actors, recounting the history and assessing future prospects. Ignoring or mismanaging the dialogue is likely to be costly for development, especially in some of the poorest parts of the world where faith and religion are particularly important.
G.P. Manish and Benjamin Powell
This chapter provides a summary of the lessons that the Austrian theory of capital holds for the field of development economics. It provides an introduction to the concepts of the structure of production and time preference and a brief overview of how the rate of time preference limits both the available pool of savings and the extent of capital formation. The implications that this uniquely Austrian insight holds for the theory of economic growth are spelled out, in particular the fact that what constrains the growth of developing countries is not the availability of technology but the availability of savings to undertake investment. The chapter also provides a brief exposition of the concept of capital heterogeneity and its implications for the impossibility of economic calculation under a system of central planning. A critique of some popular models that advocate planning as a means of economic development is also provided.
Although development generally refers to a broad concept, the quest for development in sub-Saharan Africa has been biased by ideological considerations which made abstraction of local conditions and people’s aspirations. The prevalent development models have used increased national income as a sufficient statistics for broad-based development. This chapter argues for an alternative and a more comprehensive and reflexive development framework that harnesses local and global knowledge and advocates generalized balanced growth and structural transformation to move sub-Saharan African countries towards self-reliance—their collectively defined aspirational goal. Analytically, it shows that the potential development outcomes of the region under such an endogenous framework would be superior to the results achieved under the prevailing development models.
John Maynard Keynes was not a development economist as the description is used today. He did not address directly issues of national or international poverty and income distribution; only indirectly through his focus on unemployment, which has always been, and remains, a major cause of poverty in both developed and developing countries. Nevertheless, Keynes’s theoretical apparatus and thinking about what drives capitalist economies, formalized in his magnum opus, The General Theory of Employment, Interest and Money (1936), and his proposals at the Bretton Woods Conference in 1944 for a new international monetary order (which were largely ignored), do have relevance for the debates that take place today in development economics. This chapter attempts to get into Keynes’s mind and to try to guess what he might have said and recommended on economic development and other pressing issues facing developing countries (and the world economy) today. In particular, it examines the Keynes-Harrod growth theory and the determinants of actual growth performance.
Paul Dragos Aligica
This chapter starts with a brief comparative overview of the distinctive theoretical core of market process theory, preparing the way for a systematic presentation of what the capitalist market system looks like when framed through theoretical lenses shaped by a process view. Noting that such an approach has analytical, explanatory, and normative implications, the chapter focuses on the normative aspects. Its objective is twofold: first, to show how descriptive and analytical process theory requires and transmutes into a specific form of normative process theory and, second, to identify the convergence points with the existing relevant literatures, themes, and theoretical perspectives that are (or should be) part of the conceptual and logical elaboration of this normative political economy framework.
Scott A. Beaulier and Daniel J. Smith
One of the lingering questions for development economists is that of economic transition and whether development can be promoted by a strong political leader. Earlier writings on leadership and economic development tend to fall into one of two camps: (1) leaders matter and can contribute positively to economic growth, or (2) leaders seldom have positive effects and, at best, can avoid doing a great deal of harm. This article establishes a third option—a middle-ground position—between these two views. Good leadership can, indeed, have a positive effect on economic growth but only during the initial moment when economic reform is up for grabs. Once the opportunity to implement sweeping reform has passed, interests become entrenched, and the opportunity for growth-enhancing reform passes. Bad leaders, on the other hand, can hamper economic growth in periods well beyond the ideal reform moment.
As history, institutions, and social and political forces specific to any economy have a profound effect on that economy’s dynamics, it is important to understand how these have evolved with the development of capitalism. The classical economists analyzed economies with labor surpluses, which kept wages at subsistence levels, encouraging profits and therefore economic growth. Lewis extended this model to developing economies, with the labor surplus coming from the agricultural sector. With growth and development, the labor surplus becomes absorbed into the labor force, eventually leading to upward pressure on wages This is associated with the Keynesian era, when the level of effective demand becomes an important determinant of employment and growth. As a result of further development, competitive capitalist economies have evolved to the monopoly capital stage, where oligopolistic corporations influence the dynamics of the economy. More recently, we have seen the increased prominence of the financial sector, which has both led to and been influenced by globalization.
The division of labor creates a division of knowledge, which creates expertise and the problem of experts. The rule of experts exists when experts have an epistemic monopoly and choose for others. Generally, experts may have power that threatens individual autonomy. Competition tends to dissipate the power of experts, although the details of market structure matter. Even well-meaning experts may fail because they have bounded rationality. Epistemic monopoly increases the risks of error and expert failure; competition reduces them. Information choice theory is an economic theory of experts. It may help in the design of epistemic systems, which are agent-based processes viewed from perspective of their knowledge properties. Epistemic engineering studies the design principles of epistemic systems. Economists should consider the epistemic properties of alternative institutions to minimize the problem of experts and avoid the rule of experts. Applications discussed include religion, law and justice, and medical research.
A “corpus of knowledge” about the mechanisms of development has been accumulated over decades, and shows an extraordinary variability in its mechanisms in space and time, in the constraints under which they work, and in the policies to be implemented to foster the process of change. This chapter attempts an evaluation of this knowledge by revisiting the great debates of development economics in the light of the theoretical and empirical elements at our disposal today and very much with reference to the case of sub-Saharan Africa. First, it outlines the way this knowledge has progressed over the course of time. Second, it examines the role that the international development community and particularly the developed countries can play in the development of the poorest countries. Finally, it discusses the remaining challenges of development in sub-Saharan Africa, where it seems that world poverty will increasingly be concentrated in the coming decades.
Olga Nicoara and Peter Boettke
Following the collapse of communism in central and eastern Europe (1989) and the Soviet Union (1991), the field of comparative political economy has undergone multiple stocktakings and revisions. In the former communist countries, Marxist economics was abandoned in favor of neoclassical economics, which dominated the profession in the West. But was neoclassical theory equipped to suggest adequate institutional arrangements in support of the transformations to capitalism in the former centrally planned economies of central and eastern Europe (C and EE) and the former Soviet Union (FSU)? What have economists working in the field of comparative political economy learned from the collapse of communism and the experience of transition so far? This chapter surveys the thoughts of leading transition scholars and assesses the new lessons learned in comparative transitional political economy.