Toward Understanding and Managing Unintended Outcomes
Transcript of Toward Understanding and Managing Unintended Outcomes
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TOWARD UNDERSTANDING AND MANAGING UNINTENDEDOUTCOMES: A FRAMEWORK USING SYSTEMS, NETWORK,
CHAOS, AND COMPLEXITY THEORY
MICHAEL PAUL STATON
OCTOBER 2006
A THESIS
Submitted to the faculty of Clark University, Worcester,Massachusetts, in partial fulfillment of the requirements for
the degree of Master of Arts in the department ofInternational Development, Community, and Environment.
And accepted on the recommendation of
DAVID BELL, Chief Instructor
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ABSTRACT
TOWARD UNDERSTANDING AND MANAGING UNINTENDED
OUTCOMES: A FRAMEWORK USING SYSTEMS, NETWORK,CHAOS, AND COMPLEXITY THEORY
MICHAEL PAUL STATON
This discussion is an attempt to understand and manage unintended
outcomes for more successful development. Properties found in Systems, Network,
Chaos, and Complexity Theory, referred to as the new sciences, are used to explain
why development assistance does not often achieve predicted outcomes and often
instigates unintended outcomes. The premise is that much assistance has been
unsuccessful because the development industry uses the paradigm, methodology,
and standard operating procedure from the natural sciences in environments that
exhibit properties of the new sciences. The paper then uses the properties of the
new sciences to set forward several general guiding principles for future
development assistance. Examples are given of current practices that utilize those
properties and are thus likely to contribute lastingly to development.
DAVID BELL, Ph.D.Chief Instructor
SAMUEL RATICK, Ph.D.Assistant Professor
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ACADEMIC HISTORY
Name (in Full): Michael P. Staton Date: August8, 2006
Place of Birth: Houston, TX Date: July 1,1980
Baccalaureate Degree: Geography
Source: Clark University Date: May 22, 2002
Occupation and Academic Connection since date ofbaccalaureate degree:
Michael Staton has taught Social Studies in HoustonIndependent School District since 2004. He now teaches U.S.
History at Bellaire High School.
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DEDICATION (IF ANY)
To David Bell, Sam Ratick, Laura Hammond, Paul Ropp, Richard Peet,Doug Little, David Zern, Laurie Ross, Richard Ford, Fred Greenaway,and all the Clark Faculty that oversaw my intellectual development.Most of all, to those who believed in me after I abandoned hope andsat by patiently as I acted like it. Perhaps one day I will make you
proud.
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ACKNOWLEDGEMENTS
I wish to thank David Bell and Sam Ratick for overseeing this complex
and chaotic process and my parents for nagging me to get it done.
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TABLE OF CONTENTS
List of Illustrationsvi
Introduction7
Introduction to the New Sciences11
Selecting a Focus 19
What Went Wrong21
Why Do We Continue 33
Towards a New Framework for Development Policy37
Bibliography99
Illustrations:
Cluster Formation 14
Strange Attractor 17
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TOWARD UNDERSTANDING AND MANAGING UNINTENDEDOUTCOMES: A FRAMEWORK USING SYSTEMS, NETWORK,
CHAOS, AND COMPLEXITY THEORY
To me our knowledge of the way things work, in society or in nature, comes trailing
clouds of vagueness. Vast ills have followed a belief in certainty, whether historical
inevitability, grand diplomatic designs, or extreme views on economic policy. When
developing policy with wide effects for individual or a society, caution is needed
because we cannot predict the consequences. Kenneth Arrow, I Know a Hawk from a
Handsaw.
The efforts of economically developed societies to provide assistance to more
deprived societies have fallen short. The prophecies of ending disease, poverty,
violence, and hunger have all been unmet. A prolific set of critics have articulated
arguments against these efforts based on evidence well documented by the institutions
that carry out these efforts. These critics usually do not stop at the failure to succeed,
but rather go on to document illustrious examples of how supposed assistance has
caused unexpected problems ever more severe and complicated.
As early as 1960, only 9 years after the Development Industry commenced,
investigators were commenting on the lack of lasting development that was being
accomplished. Andrew Shonfield, a journalist, commented:
Of course they would, if you offered them a lot of foreign exchange, be able to spend it. The
question was, after spending it, how substantial would be the permanent gain in their productive
power? In only a few cases was there a clear prospect that the gain would be sufficient to create
a new economic momentum in these societies with sufficient force of its own to continue even
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9after the special aid from abroad has lapsed, (Shonfield 1960).
Today, popular books found at a (well stocked) bookstore come with titles like
Despite Good Intentions: Why Development Assistance to the Third World Has Failed
(Dichter 2003), The Road to Hell: The Ravaging Effects of Foreign Aid and
International Charity (Maren 1997), The Lords of Poverty: The Power, Prestige, and
Corruption of the International Aid Business (Hancock 1989) and The White Mans
Burden: Why the Wests Efforts to Aid the Rest Have Done So Much Ill and So Little
Good(Easterly 2006). These unforgiving titles are written by individuals who have
spent most of their lives working for the same institutions they criticize within them.
Much of the debate focuses on what have come be known as unintended
outcomes, or the effects which were unforeseen. Sometimes unintended outcomes have
been noted for their positive and surprising affects; more often the publicized
unintended outcomes were negative and debase any good the intervention may have
done. Many of the planners and architects of various interventions are surprised by the
unintended outcomes and claim that they cannot foresee the complete future in such a
complex and chaotic environment.
The fact that the efforts have been increased in spite of their failures poses many
questions: What went wrong? Why do we continue? and, if were going to continue,
how can we do better? are among the many, chosen here for the breadth and simplicity
of each question. Many of our greatest minds have tackled and are tackling these
questions. It is the subject of numerous conferences, working papers, scholarly
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journals, and books. But there are imbedded questions within those, such as: What
worldview do we use to guide our analysis? What assumptions do we make about how
the world works? What is the framework of development policy analysis and creation?
This paper is a discussion of moving towards a new framework for development
policy analysis and creation. This framework will also provide a means of
understanding and managing unintended outcomes. For this, Systems, Network, Chaos,
and Complexity Theory, when spoken of altogether here they are referred to as the new
sciences, provide many insights. The proposed framework is based on the premise that
the development industry has failed using the paradigm, methodology, and procedures
of the natural sciences due to unintended outcomes.
Scientists and Mathematicians are also acknowledging the failures of the natural
sciences: Stephen Wolfram, founder of Wolfram Research Institutes and the
mastermind behind the mathematical modeling software Mathematica, recently
authored a book called A New Kind of Science, (2002). A New Kind of Science is an
assemblage of theories and models either developed or surfacing towards the end of the
20th century that perhaps relate to most disciplines. The book is a symbol that the
scientists, the mathematicians, and the econometricians are starting to surrender to the
complexity of life.
This new science challenges determinacy and the accuracy of mathematical
models in predicting or describing more complex systems. Cellular Automata, Agent-
Based Modeling, and Network Modeling have been part of a score of techniques in
computer programming attempting to find what Wolfram terms Computational
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Equivalence, or the attempt to find parallels to nature in programmed computer models
to analyze complex phenomena where traditional forms of analysis have failed.
As Wolfram describes, the great historical success of theoretical science have
typically revolved around finding mathematical formulas that directly allow one to
predict the outcome, (Wolfram 2002). However, the mathematics itself tries to
shortcut the detailed and myriad processes of the actual system, and therefore arrives at
incorrect answers. Wolfram describes many systems, especially open systems, as
computationally irreducible.
The new science has become quite trendy, or perhaps they can be more aptly
lumped under the new sciences, as the number of these fields and subjects of study
seems to grow all the time; a neighborhood bookstore will turn up a small library of
rather literary accounts of Chaos, Complexity, Systems and Networks for the general
public.
One of the most common applications in these accounts is in the realm of
economics, its applications nearly self evident. An economy, of course, has all of these
properties described by the new sciences it is, after all, composed of a network of
individuals and firms forming and open, complex system, in which elements of chaos
can be seen. The most high profile yet academic efforts to apply the new sciences to
economics has been undertaken by the Santa Fe Institute and published as theEconomy
as an Evolving Complex System series of books, the third volume released in 2006.
The possibilities for development policy analysis and creation are also obvious.
In terms of analysis,these various nonlinear dynamics may go a long way toward
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explaining the apparent perpetuation of conflicting programs and the proliferation of
unintended consequences, in the face of calls for coherent strategies, (Danake 1998).
In terms of policy creation, policy makers should understand that development is a
process involving enormously complex systems, composed of many interconnected
aspects, and structured across temporal and spatial scales, (Straussfogel 1997).
In order to fully understand the foundations of the proposed framework of
analysis, one needs to have some familiarity with the new sciences.
Introduction to the New Sciences
Systems Theory operates as the basis, though not necessarily the intellectual
foundations, for the other three parts of the new sciences described here, as the other
three are really models for the exploration of systems with different properties.
Network Theory provides a framework for studying how the parts or agents behave
within relationships that then add up to a whole system, while Chaos, and Complexity
Theory provide a framework for understanding how systems behave in a manner
seemingly all on its own.
Systems Theory
Systems Theory is perhaps the oldest and most basic of the new sciences. It is
the exploration of a single idea: a system has within it interacting agents exhibiting
specific behaviors, and develop relationships with other agents; the sum of these
relationships create a broader system that exhibits its own behaviors and actions
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independent of the intentions or knowledge of the agents.
The origin of Systems Theory is largely attributed to the Austrian Biologist, Karl
Ludwig von Bertalanffy, who built and adapted existing ideas into a more complete
framework described in General Systems Theory: Foundations, Developments,
Applications (1968). The work was an attempt to unify science and counter
reductionism by showing the common relationship between many disciplines (biology,
physics, sociology, economics, etc.). His goal was to illustrate that phenomena studied
by the sciences interact in a larger environment which at larger and larger scales seems
to escape comprehension.
Studies in Systems Theory explore system dynamics, or how the behaviors of
the agents develop into relationships, how these relationships may or may not affect the
behavior of the system as a whole, and how the system responds to changes in its
environment. There are various types of systems, but all systems seem to share certain
properties.
Systems themselves exhibit characteristics and behaviors, even personalities
independent of the component parts and their relationships. The myriad way to describe
or classify them has been simplified by Jamshid Gharajedaghi categorizes systems into
three categories according to their behavior: astate-maintainingsystemreacts to
changes in the environment to maintain its state, agoal seekingsystem varies responses
to different events and different environments until it produces a particular outcome,
and the highest order of systems arepurposeful systems that can actively produce not
only the same outcomes in different ways in the same environment but different
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outcomes in both the same and different environment. Systems can change in the long
run from one form to the other, (Gharajedaghi 2005).
The most common property of systems is that they can show counterintuitive
behavior. Gharajedaghi describes counterituitiveness of systems as illustrating actions
within or on a system may yield results that are unforeseen, surprising, and often even
opposite of the intentions of the actor. To elaborate on counterintuitiveness,
Gharajedaghi makes the following assertions:
An event or action happening at a given time and place may have a delayed
effect, producing an impact at a different time and place.
Cause and effect display circular relations in the form of feedback.
Multiple effects can occur from the same event, the prominence of which may
shift in time.
A set of variables that initially played a key role in producing an effect may be
replaced by a different set of variables at a different time. Removing the initial
cause will not necessarily remove the effect.
Networks
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Figure 1: (Watts 1999)
Network Theory is a way of modeling systems. Networks are composed of
nodes and links; a node has a relationship with another node through a link. Nodes
form groups that then relate to other groups. Network models are made to mimic
societal formation, and real world networks (such as the internet) are analyzed to find
consistent properties and dynamics. Given the large and increasing prevalence of
situations where network structure are important, it is necessary to understand the
properties of these networks and how various aspects of the network formation process
determine those properties, (Jackson and Rogers 2004).
Network Theory can trace its history to a branch of mathematics called Graph
Theory. Until recently, Graph Theory was very theoretical. Most contributions were
made to Random Graph Theory, built on the works of Paul Erdos. Network Theory
started to find fame and application when Stanley Milgram, of the Stanford Prison
Experiments fame, claimed proof that there is, in fact, an average of six degrees of
separation between every person on the planet. Since then, researchers have been
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digging deeper, trying to figure out what that network might look and act like and what
properties might guide its development.
There are many types of networks, and Network Theory is a tool of analysis for
completely abstract rather than real networks. However, Network Theory found
applications in the analysis of Social Networks by modeling computational equivalence
of societal behavior. The two postulations of Network Theory relevant to the proposed
framework arepower laws based on each nodespreferential attachmentto more fit
nodes, itsfitness derived from the number of existing links. Second, the tendency of
Social Networks towards the most secure form of network, asmall world network.
In modeling and playing with network data, Albert-Laszlo Barabasi and Reka
Albert explored the notion of preferential attachment in network formation when a
new node attaches itself to the network it tends to attach to nodes that have access to
most other nodes. Barabasi and Albert found the famous Power Law as the principle of
preferential attachment, applicable to all real world networks. The Power Law states
that there is a direct relationship between the number of links a node has acquired, and
itsfitness for acquiring other links. To analogize, the rich get richer, the popular get
more popular, and the powerful get more powerful.
Watts and Strogatz (1998) offered another reality of networks: small world
networks (see figure 2). Expanding on the postulations of Milgram and others, Watts
and Strogatz found that many networks acted to retain a small diameter as well as small
average path links, concluding that the social networks within which we live possess a
special and hitherto unsuspected organization and structure that truly make for a small
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world, (Buchanan 2002). They suggested that the most interesting and efficient paths
to a small world (when everyone links to everyone else in a short path distance)
happen when the preference for new links is mostly local but starts to become scale-free
(independent of path distance). They confirmed the notion that the most secure network
cluster, when everyone has a link with every one else in the network, and that localized
societies tend to form cluster networks. However, if the preference for link formation
becomes slightlyscale-free (people can travel or meet people off the internet),
interesting things start to happen in the network the world suddenly becomes small in
terms of personal associations. The small world network formation is the correct model
to use in economics because (i) high clustering results from low costs of attachment to
similar (nearby) nodes, and (ii) low diameter results from the large benefit of attaching
to dissimilar (distant) nodes because of the substantial indirect access they provide to
other distant nodes, (Jackson and Rogers 2004).
When nodes attempt to use other nodes to accomplish a goal, it must send out a
query. Burt (2003) describes the success of the query with the term closure, meaning
the efficiency in getting non-redundant information to the inquiring source. Burt
illustrates that closure is more likely when interconnections between nodes are strong,
such as in a cluster.
Chaos
Chaos stemmed out of a half-century of the mathematical explorations in
nonlinear dynamics. Chaos developed as a field of study at the Los Alamos Research
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Observatory, primarily by meteorologist Edward Lorenz, as a tool to analyze weather
patterns. To make a long story short, Lorenz made a nonlinear quantitative model of the
weather and with slight differences in the starting point for a few simple variables
watched his computer print out some rather chaotic, or unpredictable, patterns.
The first property of chaotic phenomena of interest is a near infinitesensitivity
to initial conditions, also known as the butterfly effect; the conditions at start of the
process, if changed in the minutest and even imperceptible way, have drastic impacts on
the process and end result. Applied to weather systems, a butterfly flapping its wings in
one location may alter initial conditions enough to cause a tornado elsewhere that would
not have otherwise occurred, or alternately it may
have prevented a tornado from occurring.
A second common property of chaotic
phenomena is astrange attractor the plotting of
these unpredictable phenomena will often show
aggregations around areas or points (Lorenz 1993).
Complexity
The field of complexity also stems from the nonlinear dynamics of Henri
Poincare. Tomas Schelling, the 2005 Nobel Prize winner in Economics, popularized the
study ofemergence with his bookMicromotives and Macrobehavior(1978). The Santa
Fe Institute continues to explore economic models in their series The Economy As an
Evolving Complex System.
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Complexity refers to phenomena between chaotic and random. Interest in the
subject has grown since digital computers have proven able to model phenomena that
mathematics could not. The study of the subject, with seemingly innumerable
applications, is really experimentation with the low-dimensional rules governing micro-
agents. These models demonstrate that simple agents in simple environments following
simple rules can still exhibit complex, nonlinear, and unpredictable behavior. The
experimenter then observes this process to see if any global order or set of rules
emerges. The order that is seen is known asself-organization, oremergence.
In addition to emergence, complex systems have a number of distinct properties.
Complex systems are dynamic and are open in both time and space, meaning that
complex systems change over time and can be affected by variations irrespective of
their location or time. Complex systems containfeedback loops,bothpositive and
negative; all behavior affects the system which then in turn affects the behavior. Lastly,
Complex Systems are adaptive, in that the agents within them learn to adapt to
unforeseen changes in their environments without any central control.
Properties of Interest
In sum, the following properties must be digested to properly analyze and create
development policy:
Systems develop a behavior independent of their component parts that is
state maintaining, goal seeking, or purposeful.
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Systems are counterintuitive.
Networks have a tendency towards small worlds, with access to the
larger world increasing dramatically with randomized non-local links.
Nodes have a fitness for acquiring links that increases dramatically with
each additional link according to the power law.
Chaotic systems exhibit sensitivity to initial conditions
Phenomena can hover around a strange attractor
Individual actors self-organize into systems without necessarily
acknowledging their participation in the emergence or the resulting
global order.
Complex systems are dynamic, open, and adaptive
Systems possess feedback loops, both positive and negative.
Selecting a Focus
The multitude of agents in the realm of international assistance, also called the
development industry, is mind boggling. To discuss them all would be impossible, so it
is necessary to focus on the main actors, primarily the World Bank. The IMF, WTO are
often thrown in when discussing the World Bank, not only because their roles in the
global economy are sometimes overlapping but because their origins all lay in the
Bretton Woods conference of 1944. They are all easy targets, well known, and
overrepresented in the literature. Although my analysis and eventual recommendations
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are directed at all actors in the development business, I must submit, join the
bandwagon, and use the World Bank as my favorite whipping boy as well.
The World Bank, just like the entire development industry, is plagued by failure.
The Metzer Report, commissioned by the US Congress to evaluate seven multi-lateral
institutions in the development business including the World Bank and IMF, found:
High cost and low effectiveness characterize many development bank operations as well. The
World Banks evaluation of its own performance in Africa found a 73% failure rate. Only one of
four programs, on average, achieved satisfactory, sustainable results. In reducing poverty and
promoting the creation and development of markets and institutional structures that facilitate
development, the record of the World Bank leaves much room for improvement, (Meltzer
2000).
And good on me for it, the World Bank can be seen as a barometer of trends in
the development industry. Gavin and Rodrik (1995), in their paper The World Bank in
Historical Perspective, devote an entire section to the topic, entitled The World Bank
as a Source of (and Proselytizer of) Ideas on Development. They discuss the role as a
conveyor belt of ideas about development policy to the borrowing countries, claiming
that it is difficult to overemphasize the part played by the Bank in this regard. The
Bank is profiled, not as an innovator, but of a mainstream institution that is able to
legitimate, amplify, and popularize practices developed by others; once the Bank gets
hold of an idea, its financial clout ensures that the idea will gain wide currency.
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What went wrong?
Abstractions are necessary to identify any particular manner in which the
development industry has failed. The world of Systems and Networks are also
annoyingly abstract. However, combine them and there can be at least three
conclusions of general truth. Based on Systems and Network Theory, particularly
World Systems Theory, the development industry fails to recognize that most efforts
benefit the global capitalist system. Based on Systems, Chaos and Complexity Theory,
the linear methodologies of science are unlikely to yield the desired results in an open
economy if not cause drastic, unforeseen problems. Third, acting to help another
society can decrease their capacity to help themselves.
1. Most efforts benefit the global capitalist system
The mainstream institutions of the development industry, most notably the
Bretton Woods institutions, were established to promote global economic stability and
prosperity. The assumption they all make is that this stability and prosperity will come
from integrated economies tied with finance and trade. The political compromise
necessary to secure the generosity of Western states, most notably the United States,
was to allow the governance mechanisms of these institutions to be dominated, through
voting and appointments, to be dominated by the West. In addition, the head offices
needed to be located in the unofficial capitols of the global economy Washington DC,
New York, London, Geneva, etc. More often than not, large sums in the form of loans
and grants came with stipulations for contracts with firms based within and owned by
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Western economies at the behest of the Western governments providing the capital.
Systems Theory suggests that systems can be purposeful, and their purpose can
be completely unknown to the agents within the system. Theorists using Systems theory
have established a World Systems Theory, which sees the major historical process in
world history as the growth of commodity supply chains, integrating smaller, local
economies into one global economic system. The main purpose of this system,
according to Wallerstein (1974; 1980; 1989), is to expand the system in order to further
extract capital for a group of core firms and individuals. And finally, Network Theory
states that power laws assure corporations and economies with the most links are more
fit to acquire more links.
Hobson (1902), British Economist, laid the groundwork for World Systems
Theory in his bookImperialism: A Study. He suggested that colonialism was a result of
the over-savings of the British merchants and later industrialists. Banks had to invest
their deposited money; otherwise they would operate at a loss. Hobson explained how
the accumulation of wealth in Britain became so great the sums could not find outlets
within the country. So, the financial capital, and then later the products of
industrialization, had to find other markets. In this way, the capitalist system is a
purposeful one it finds ways to operate in other environments to produce the desired
outcome: namely, the economic growth of the original system.
Theories of neocolonialism looked to the same argument, suggesting that
Overseas Development Assistance began as no more than the search for markets.
Common knowledge suggests that this is indeed the case; the bulk of assistance was
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made in response to an overabundant supply of capital caused by amassed petro-dollars
after the high gasoline prices of the 1973 and 1979. The argument of Dependency
Theory, then, is that with foreign capital comes alien (and unaccountable) ownership of
property as well as control over the organizations extracting resources and mobilizing
human capital.
One of the primary tenets of World Systems Theory states the topology of the
global economy creates a hierarchy of power in international relations: core (countries
that control others), semi-periphery (countries controlled by the core but controlling the
periphery) and periphery (countries controlled by both core and semi-periphery).
Immanuel Wallerstein, largely attributed as the father of World-Systems Theory,
describes how the World System created the current predicament of development:
From the beginning, this [capitalism] involved the establishment of integrated production
processes we may call commodity chains. These commodity chains almost all tended to traverse
the existing political boundaries. The total surplus extracted in these commodity chains was at
no point in time distributed evenly in terms of the geographical location of the creation of the
surplus, but was always concentrated to a disproportionate degree in some zones rather than
others. We mean by peripheries those ones that lost out in the distribution of surplus to core
zones. Whereas, at the beginning of the historical process, there seemed little difference in the
economic wealth of the different geographical areas, a mere one centurys flow of surplus was
enough to create a visible distinction between core and periphery in terms of three criteria: the
accumulation of capital, the social organization of local production processes, the political
organization of the state structures in creation. (Wallerstein 1991)
The key property of the system is that the system has mechanisms to expand and
indeed must expand to thrive. Systems Theorists with Marxist leanings or those who
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believe in underdevelopment believe that the economic disparities in production are
also seen in politics, and a strong political core secures their economic advancement at
the expense of the periphery. Wallerstein does not see the economic development that
has occurred as a succession of successful national development efforts, rather he sees
it as the story of secular expansion of the world-economy as a whole, and the
constant expansion of the boundaries of the system. The local, endogenous
economies of the periphery, which Wallerstein called mini-systems, are slowly but
surely integrated into creating surpluses for the core, (Wallerstein 1991). Krugman, an
economic geographer, acknowledged that the economy would spontaneously organize
itself into a core-periphery geometry. (Krugman 1998)
That development assistance is really an instrument of a global economy
seeking to expand does much to explain the behavior of the system. Upon its founding,
the World Bank was primarily interested in bankable infrastructural projects, such as
roads, power grids, and sanitation systems. These projects were actually tied to
consulting and finance from Western corporations and served as an impetus to purchase
Western made capital equipment. According to the Meltzer Report (2000), one of the
main problems of international financial institutions is the commandeering of
international resources to meet objectives of the US Government or its Treasury
Department. Perkins (2004) goes so far as to claim that these projects were designed
so that the amount of money going to Western firms was purposefully more than the
loans and income generated by the project. Earlier in its history, the World Bank did
much to expand agribusiness, much of which buys technological inputs from Western
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corporations like Monsanto. In terms of the IMF, IMF loans permit some private
lenders to be repaid on more favorable terms, so the benefits have gone mainly to those
lenders, (Meltzer 2000). Assistance can also be seen as a cultural world system trying
to expand. Kottak (1990) claims:
The faulty social design of incompatible projects has generally been based on either (1) Euro-
American social groups and property concepts individualistic productive units, privately held
by individuals or a couple and worked by a nuclear family or (2) cooperative systems at least
partially based on models that have been used in Eastern Bloc and modern socialist countries.
Later on, the Bank recommended structural adjustment peeling off of tariffs,
opening economies to investment and selling public industries to private owners to
open local economies to the well established network of the global economic system.
According to the power law then, corporations and individuals that already own would
be the ones to buy industries, to make interest off of investments, and to open facilities
for export. The profits, of course, would head back to the West and be put back in
Western banks generally for use in Western economies. Indeed, this is what happened,
(Johnson 2004).
2. Linear methodologies of science are unlikely to yield the desired results
Probably the most obvious but least discussed pathway to failure is the
wholesale use of the standard operating procedures and paradigms most familiar to the
natural sciences. Measurements are taken, diagnoses are made, interventions are
planned, hypotheses in the form of projections and predictions are formulated,
monitoring and evaluation is carried out to measure for results, conclusions are drawn
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and what is learned is published in either internal documents or as articles for the
general public. The process starts with proposals and end in assessments in 1, 3, 5, or
10 year time frames. The location of the intervention, be it a village, neighborhood,
region, or country, is seen as a kind of laboratory. Economists do various computations
while sociologists study and observe in an effort to find the one true path to prosperity,
(Dichter 2003).
Upon the final assessment managers usually find that whatever intervention was
made did not cause the predicted effect. Many times, other studies turn up that claim
the intervention had unpredicted effects, sometimes positive but often negative. When
the Operations Evaluations Department, the independent arm aimed to assess the Banks
performance, evaluated the Banks progress towards water supply and sanitation from
1967-1989 against intended objectives they concluded that the Bank failed on all
counts, (OED 2002). The Quality Assurance Group in 2000 reported the Banks
processes as related to Poverty Assessment are satisfactory only 38% of the time. In
terms of the economic policy changes (structural adjustments) recommended as a
condition for receiving financial assistance, their research, as well as considerable
research by outsiders, finds no evidence of systematic, predictable effects from most of
the conditions, (Meltzer 2000).
With the new kind of science in mind, it is easy to see why so many policies and
interventions fail. Specifically, the idea of measurements and time frames do not stand
up to scrutiny. Systems Theory discusses the counterintuitiveness of systems, meaning
that systems react in unpredictable and surprising ways; an event may have delayed
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effects, appearing in a different time and place; an event may have multiple effects, the
prominence of which may shift in time. Complexity offers the interactions of both
negative and positive feedback of events, long after the event has transpired; cause and
effect can have circular relations. Chaos brings to the table sensitivity to initial
conditions so that any mismeasure or measure left out will thwart prediction.
This linear project model seems to perpetuate, despite the admission, even in the
mainstream, that development is an inherently complex process. The challenge of
development, never straightforward, has become even more complex as the number of
actors has grown and the desire for demonstrable results has intensified, is the first
sentence in the 2001 Annual Review of Development Effectiveness published by the
World Bank Operations Evaluations Department.
So, in the face of utter failure and the infinitely complex world, the mantra has
been to continue with the paradigm and (counterintuitively) tighten reign and add to the
standard procedures. As opposed to abandoning the methodologies or at least loosening
their holds, the discussion reveals a seeming obsession with better management, better
data, better evaluation and an array of technocratic words. Sometimes, nonsensical
gobbledygook seems to lose its meaning like this text from the Quality Assurance
Group:
Country and sector strategies can be strengthened through a more transparent and objective
record of past performance. A stronger independent and self-evaluation focus would be
facilitated by a closer alignment of inputs to results, using a logical results chain and verifiable
performance indicators, (QAG 2000).
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The Operations Evaluations Department, in evaluating Global Programs, also
emphasizes a more systematic and regular approach for monitoring of program
performance and provision of audit reports, introduc[ing] independent panels to
review quality of the ongoing portfolio, and expand audits to cover all programs
receiving Bank support, (OED 2002). In the Quality Assurance Groups Annual
Report on Portfolio Performance in 2002, the QAG suggests strengthening staff and
management capacities, pushing the measurement frontier, and reporting on
results, and keeping risky investments down to 15-20 percent of the overall portfolio.
To boot, the three themes of the 2001 Annual Review of Development Effectiveness
were as follows:
1) Good Diagnosis
2) Proper choice of instrument considering country, sector, and past performance.
3) Poor Policy and Institutional environments compromise effectiveness.
Despite the rise of qualitative indicators, the Industry remains loyal to measured,
quantitative results in most of its projects and loans. Dichter exclaims:
We seem to know that development is not measurable or easily quantifiable in any reasonable
time frame, yet we measure many things anyway, in wholly unreasonable time frames (e.g., two
years, three years, five years), acting as if these measurements are proxies for
development,(2003).
Regardless of the management and measurement frenzy, many statistics and
indicators do not stand up to analytical scrutiny in the first place. Razafindrakoto and
Roubaud, in their article The existing systems for monitoring poverty: weaknesses of
the usual household surveys, conclude that it is clear that the poverty monitoring tools
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in poor countries, and indeed the statistical information systems in general, show such
deficiencies that they are unlikely to be effective in fulfilling the role they have been
assigned, (2002).
The frenzy also affects all of the countries it serves. As it stands currently,
Highly Indebted Poor Countries must write a Poverty Reduction Strategy Paper formed
in a participatory manner at all levels of governance. This PRSP contains
comprehensive forms of measurement, multi-sectored initiatives, and the
determination of a battery of outcome indicators and a system of monitoring and
evaluation, (Naudet 2002). Assistance from the Bank comes in a variety of forms and
is mostly conditional on a solid PRSP.
Not only is the linear project model perpetuated, but it has also become more
grandiose in its scope. The United Nations built a consensus around the Millennium
Development Goals and the new Global Monitoring Report, subtitled From Consensus
to Momentum, is in its third year of publication. The Report is designated as the
central artery of monitoring and evaluation towards the MDGs. The World Bank
Annual Report in 2005, under the section Toward Effective Development, the first
two sections are about the Global Monitoring Report and Managing for Results, with
phrases like a five-point agenda of actions that can help developing and developed
countries build the momentum needed to attain the MDGs, and efforts to strengthen
country-level statistical capacity continued.
As opposed to de-emphasizing measurement, the World Bank Development
Reports have continually redefined poverty to a progressively more complex and
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holistic view, now containing elements of consumption and assets as well as access to
social services, and vague and relatively immeasurable concepts like dignity and
autonomy, (Cling 2002). The aggregation of qualitative data with more traditional
quantitative data is perhaps a step in the right direction. Kottak (1990) found that
according to predetermined measures of cultural compatibility, culturally compatible
projects succeed 10% more often. More qualitative data is problematic only in its
limitations, mostly the expense of its broad collection and in depth analysis.
3. Acting to help another society can decrease their capacity to help themselves
The development industry knew of its failures early on. Much of the failure was
blamed on the corruption, incompetence or incorrect sets of policies. Lending and other
forms of assistance became conditional on nice sounding national plans as well as
changes in sets of policies, particularly in the era of structural adjustment. The result
was more failures, and the donor countries and international agencies taking part,
particularly the World Bank and the IMF, acted surprised.
Systems Theory states that systems are counterintuitive and can act state-
maintaining, while Complexity assures that systems are adaptive. Network Theory
states that networks are most secure in small worlds, while the power law assures that
nodes that are more fit acquire links to more nodes.
While those working in the development industry would expect governments to
reform in order to reap the financial rewards promised to them by the development
institutions, namely the World Bank, IMF, and the private capital on their coattails, it is
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of no surprise to a systems theorist that a government is a state-maintaining system.
Nor would it be a surprise to someone versed in complexity that a government would
adapt just enough to get the promised money. These characteristics are described in the
Meltzer Report lists principal reasons for the World Banks poor record: number five of
six is countries do not implement reforms unless the choose to do so, and they rarely
sustain reforms imposed by outsiders, and number six of six is development projects
typically succeed only if the recipient country has a significant interest in the project
and directs its efforts to achieve success, (2000).
Emergency has proven throughout history to be a primary source of institution
building, innovation, and economic growth. Societies that have made their own
weapons, organized their own militaries, and created relationships during periods of
crisis are the same societies that we look at today as developed. The US, in particular,
flourished in the wake of World War I and World War II and reaped myriad benefits
continuing to this day. Intervention in emergencies often prevents societies from
reaping the inadvertent benefits of their increased organizational capacity.
Even seemingly tragic conflicts can reap benefits by increasing organizational
capacities. Crowley and Skocpol (2001) investigated the roots of American civic
organizations and concluded that Modern American civil society took very much in
the wake of the Union victory in the Civil War. This contests modernist arguments that
civic society develops magically with increased urbanization, the development of
communication and transportation networks, and increases in educational enrollments.
Using the assumption of the preferential attachment and the power law in
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Network Theory, any individuals from recipient societies who develop the skills to
organize and manage emergencies or development needs would be likely to join
existing organizations centered in the West (Gates Foundation, UN, World Bank, etc.).
Just as Brain Drain assures talented, skilled, and educated members join the ranks of the
scientific community of the Core, the talented, skilled, and educated economists and
bureaucrats join the ranks of Core bureaucracy and philanthropy.
If Network Theory is a good model of analysis, the development industry, as a
network, develops links to governments, organizations, and individuals in the act of
helping and keep this link. If the International Red Cross is running refugee camps, if
later conflicts produce refugees again they will know to look for the Red Cross and
local institutions will not develop to provide that need. Powerful organizations like the
World Bank or Oxfam, who have a fitness for acquiring more links, are more likely to
be solicited for consulting and financial help than local groups. Out of these
relationships comes a dependency, one in which local individuals and organizations,
when in need, reach out to external groups for help, which in turns assure that no local
capacity is developed. Dichter explains his frustration with the development industry:
If development were successful in fostering institutions, attitudes, and laws and in enhancing
human resources, we - as professional developers - would not have to do things like build
schools or roads. The institutions of a functioning society would see to it that it got built,
(2003).
If small world networks really are the most secure, than a reliable local network
to provide for needs is far superior to an international response team. No one will
advocate for genocide, but interventions during crisis assure that the only organizational
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capacities that will develop will be the ones of the organizations serving the needy. If
those are based in other countries, it creates a situation of dependence.
Why do we continue?
Assume that more developed societies are actually using assistance to assist
more deprived societies and that these institutions are actually for the intended purpose
and not the capitalist conspiracy depicted in Confessions of an Economic Hit Man,
(Perkins 2004). Why would we continue to provide assistance if it has continually
proven to be not worth it? Once again, general truths can be concluded by looking at
Systems Theory and World Systems Theory: the development system is state-
maintaining, goal-seeking, and purposeful, and bureaucratic and philanthropic capital
have perceived higher moral returns in poor societies.
1. The development system is state-maintaining, goal-seeking, and purposeful
The development industry, since its birth, has been a growth industry in spite of
near complete recognition of blatant and near universal failure. The number of
professions within the industry and the type of products has multiplied. According to
the World Banks operational summary for the year 2005, the IBRD gave 23 projects
under development policy lending, up from 15 in 2001, while the IDA loaned money to
32 projects under development policy lending, up from 15 in 2001. Gross
disbursements of the IDA have rise from 5.5 billion in 2001 to nearly 9 billion in 2005.
The future of the development industry is secure it is a growing field.
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Within the development industry, each institution and organization that has the
capacity to attempts to grow by taking on more and more responsibilities.
Organizations multiply around the same sets of issues, problems, or crises. The Meltzer
Report (2000) identifies overlapping missions and mission creep as the first main
problem of the international financial institutions.
As Systems Theory would predict, a system would seek to promote, enlarge, and
diversify itself, regardless of the ideas of the agents within who want to work
themselves out of a job (i.e. eradicate disease, violence, and deprivation). It does this
by acting as a state-maintaining system when under attack, as a goal-seeking system
when finding new challenges it can take on, and as a purposeful system when it acts in
various environments to meet established goals.
The development industry has constantly had to innovate new norms and
behaviors for development assistance, even since before its own birth, to keep the
system going. The premise of its founding improving life for others has been forced
to adapt to national, supranational, and extra-national codes for how to behave: ideas
such as government ought to be accountable to the governed (Social Contract), to the
idea that modern societies ought to help the backward ones (White Mans Burden), to
the idea that wealth ought to be shared (Gospel of Wealth).
With the advent of the Marshall Plan and the Bretton Woods institution, a
framework of global institutions with formally stated global mandates has arisen. These
institutions, built out of the ideals of post-WWII globalism and the institutional capacity
among heavily administered nations, are primarily an arm of the populations they come
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from. Even Japan describes western notions of Overseas Development Assistance as a
noblesse oblige, or a moral must of the better off derived from Judeo-Christian cultural
roots, (Akira and Yasutami 1998).
In a clear summary of the history of the operating ideas of the World Bank,
Gavin and Rodrik (1995) explain that the Bank began as a traditional bank, with an
emphasis on creating a portfolio of concrete, bankable projects that were largely
related to measurable infrastructural investments such as roads and power grids. In the
1950s came an emphasis on coherent, achievable national development plans of its
client countries; after seeing unacceptable results, the Bank moved towards private
sector and rural development projects more bent on ending poverty, particularly in the
70s under the leadership of Robert McNamara. As conservative economists as chief
researchers for the Bank grew in influence, they began the famously criticized era of
structural adjustment and outward orientation where countries were manipulated
into adopting conservative, laissez-faire economic policies. Now, the Bank is trying to
find its new role after structural adjustment.
A system just up and dissolving itself, even with a history of complete failure, is
unlikely systems just dont do that. If more people attack it and more failures are
documented, it will just adapt in order to maintain its state. The World Bank, for
instance, has managed to adapt by a serious public relations makeover, abandoning
altogether (at least in rhetoric) structural adjustment programs and broadcasting
grassroots programs and debt reduction all over its website. The internal organization
has yet to live up to the public relations make over, but the organization has maintained
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its state as the amplifier of development trends and will go on to become a goal-seeking
and then purposeful organization once it finds its new voice.
2. Bureaucratic and philanthropic capital have perceived higher moral returns in
poorer societies
The public attempt to meet the demands of poverty is called bureaucracy and the
private attempt is called philanthropy. Using Hobsons theories on the origins of
Imperialism originating from an over-abundance of financial capital, the myriad and
multitudinous organizations that are working to alleviate poverty around the world
originate from an over-abundance of what I term bureaucratic and philanthropic capital.
Bureaucracy and philanthropy, though organized differently and around different
tenets, are more or less the organization of providing for social needs. These forms of
capital are a luxury, part of the results of production and the procurement of profit
becoming so efficient that significant portions of society can find employment in
meeting the more subtle demands of the population. Dichter describes:
the core characteristics of an organized form of activity in the modern world are obvious.
Complex actions need to be planned, carried out, and paid for. Specialized functions come into
being, such as production, supervision, management, administration, bookkeeping, public
relations, research, and human resources,(2003).
In developed societies, the capacity to mobilize money and resources, write policies,
draft forms and paperwork, theorize, hypothesize, analyze, produce statistics, form
committees to make streamlined procedures is so great that it has to look to other
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markets in order to employ all the individuals with these skills. Unfortunately, the
industry of development is little more than the export of our organizational capacity.
In more wealthy societies poverty takes on a less absolute and less pitiful image,
so excess bureaucratic and philanthropic capital looks for other markets where they
might find higher moral returns. The returns in the poverty stricken populations in the
lower strata of the developed economies are perceived as marginal. So long as Western
societies continue to think of foreign problems as more weighing than domestic
problems, we can be sure that Western bureaucrats and philanthropists will export their
efforts.
Towards a New Framework for Development Policy
By assuming this meta theoretical perspective, we allow ourselves a range of theoretical and
possibly methodological tools from complex systems theory to help us grapple with this
particular complex system, (Straussfogel 1997).
If there is a meta-theme to a new framework derived from the new sciences, it is to
concur with World Banks publication on one of their major recommendations: Aid
can nurture reform in even the most distorted environments but it requires patience
and a focus on ideas, not money, (World Bank 1998). The ideas (and the money),
need to be focused on a Means not Ends, Process not Outcome approach. The
development industry should not be efficiently trying to meet measurable goals, but
rather taking sets of actions that are known to have a positive effect. The number of
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recommendations based on this framework could be numerous, but for clarity there are
listed and embellished five general recommendations.
1. Build Human Capital with Training
2. Build Local Networks
3. Embrace Emergence and Self-Organization
4. View Predictions, Goals, and Planning with Perspective
5. Plan and Embrace Spillovers: The Unpredicted Outcomes
(1) Build Human Capital with Training
The passage from object to subject, or from victim to actor, is the foundation of all processes of
social development. The challenge for organizations involved in providing humanitarian
assistance is to take the time and to make the investmentsin the midst of what is objectively
perceived to be an emergencyto ensure that there is, in fact, ownership of the process and that
implementation strategies will contribute to developing capacity and empowering social actors.
(Magnones 2002)
Arrow, in his paper entitled The Economic Implications of Learning by Doing
(1962) states that learning is the product of experience. Learning can only take place
through the attempt to solve a problem and therefore only takes its place during
activity. Robert Lucas further develops this idea in microeconomics into the notion of
product-specific learning, the idea that that human capital organizes itself around the
production of certain products, and that human capital development is dependent on the
entry of new products requiring and evolving and escalating set of training or
educational experiences.
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With this idea in mind, an economy will grow only when (1) the skill sets of its
citizens are trained on the job, (2) the skill sets are gradually diversified towards growth
industries and higher-income jobs, particularly in management and ownership. Any
assistance that does not work towards these two goals are not fostering the capacity of
the society to develop.
The literature published in the Industry often speaks of investing in Human
Capital and building capacity but it does so mostly in reference to the development of
educational systems, minimum nutritional inputs and medical treatment so that a body
is healthy. On the job training is virtually unmentioned. The World Bank
acknowledges that projects need to focus on creating and transmitting knowledge and
capacity, and even where money may not stick, the local knowledge and institutional
capacity created by the catalyst of aid projects can,(World Bank 1998). However, it
states that the way to do this is to have objective and rigorous evaluation of outcomes
and dissemination of new information. Nowhere does it say that each technocrat
should take on shadows and interns.
Assistance, if not operated delicately with a focus on training and capacity
building, only assures the bureaucracy and philanthropy of the Western world learns
how to better organize, give, and share wealth and information with its recipients. The
recipient society, then, would develop systems that adapt to receiving Western
assistance. The problem is not necessarily trying to meet needs but lays in the fact that
the organizational capacity that develops in meeting these demands is the necessary
component missing in societies having trouble accumulating more wealth.
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Lucas describes a human capital gap that amplifies itself over time in the
absence of intervention. The comparative advantages that dictate a countrys initial
production mix will simply be intensified over time by human capital accumulation,
(Lucas 1988). An economy that settles on low-skill industries will be bound to keep
itself in a trap, particularly as more economies join the supply chain for those products.
Arrow states that learning associated with repetition of essentially the same problem is
subject to sharply diminishing returns, (Arrow 1962). Lucas states that a more
satisfactory treatment of product-specific learning would involve modeling the
continuous introduction of new goods, with learning potential on any particular good
declining with the amount produced, (Lucas 1988). If a the population of an economy
is working in, lets say, a sweatshop in a free-trade zone for 16 hours per day with little
opportunity to increase the number or level of their skills, that economy is idling their
human capital. The eventual result would be low economic growth.
Lucas paints a larger picture in which economies that do not diversify the goods
they create also do not diversify its human capital; the end result will be that they create
a low-skill and low-wage global niche in the long run. Lucas states if different goods
are taken to have different potential for human capital growth, then the same
considerations of comparative advantage that determine which goods get produced
where will also dictate each countrys rate of human capital growth, (Lucas 1988). A
developing economy would also constantly push the types of capital investments
towards industries that use and require higher levels of education and training.
Alvin Toffler, a popular futurist, points toward the even use of information
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technology as the new manner in which to empower the rural poor to gain wealth. His
new book with his wife Heidi,Revolutionary Wealth , is more or less about the ways that
the information based economy will restructure the current distribution of wealth. The
book relays the exciting possibilities for creating prosperity while breeding equality by
utilizing the various new forms of technology.
(2) Build Local Networks
Efforts towards education, training, health care, and information sharing to build
human capital do so with the inherent assumption that an educated and healthy
body then has the freedom to use their human capital. However, their human
capital is nothing of the sort if they do not have access to an available niche either as
an employee or an entrepreneur. In order to build available niches and assure that there
is access to them, it is necessary to carefully build local, productive economic and
information networks.
The exploration of emergent structures in Network Theory can give us a
framework to imagine how economies evolve from a stagnant to a booming economy.
As each node (economic agent) experiences a surplus beyond its individual necessity, it
goes looking for something to do with this surplus. In the case of individuals, it will
likely be in the form of consumption and will make a link to a business. A business will
make a link to the labor market or input producers in the form of expansion or
investment spending. Out of this original market interaction, a market economic
network is made.
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According to Network Theory, a cluster is the most stable form of network. For
an economy, this means that each business would have economic ties with every other
local economic actor. In this way, if a business loses one customer, it has other
customers to rely on. An unstable market economy would be one that relies on one firm
or one industry to provide jobs. One can debate the meaning of local, but in this
particular case local can be considered within the targeted region or defined economy.
Clustering coefficients can be increased with policies that focus on building
input industries. A true cluster is impossible to achieve except on extremely small
scales, but in order to build a local economy analogous to a cluster, development policy
must focus on the diversification of industries and their interdependence through
economic links, ultimately increasing the complexity of the economy. The most secure
way to do this is to focus on input industries, or industries that are created around
products that are used in existing industries, particularly industries tied to location; For
example, if the local industry is centered around mining and garment production (tied to
cheap labor markets), making mining equipment, textiles, and sewing machinery would
be a good start. The end result will be that a local economy will retain not only direct
income and employment but indirect income and employment, or the income and
employment that is generated by supplying the keystone industry with the components
they need to produce their product. Thus, the necessary magnifiers are present as
positive feedback.
In addition to building networks, it is necessary to stop leakage promoted by
assistance. Shonfield (1960), Johnson (2004) and Perkins (2004) specifically criticize
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the manner in which international assistance ties aid and loans to the purchase of
Western goods and services. In a realm of economics called Input-Output Analysis,
matrices are used to analyze how industries demand inputs from other industries.
Leakages are inputs purchased from external economies, and counterbalancing flows
are the demand generated by the external economies from the income of said inputs.
Leakages must be prevented by import substitution policies.
Information networks particularly social networks through which information
passes. In economics, people use social networks as a resource to satisfy both the
search for jobs and financial capital. Social Capital was originally defined by Loury
(1977) as the resources resulting from family relationships and community that affect
child development. Subsequently, the concept has been broadened to encompassthe set
of relationships with individuals and organizations that make the achievement of any
possible end, particularly securing opportunities. Ioannides, Yannis, and Loury (2004)
establish three facts about job information networks: (1)there is widespread use of
friends, relatives, and other acquaintances to search for jobs and it has increased over
time. (2) this use varies by location and by demographic characteristics. (3)
and it is generally productive.
The properties of the network determine the ease of closure, or the success of
the query. Burt (2003) acknowledges that networks with closure tend to be composed
of links with strong interconnections, or close to the model of a cluster. However, in
order to broaden the opportunities available to find closure, the local clusters must have
access to the broader world the network must look like a small world network. In
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addition, Granovetter(1973) and subsequent researches have concluded that weak
ties (acquaintances rather than close friends) are the primary source of social capital.
Dodd, Muhamad and Watts (2003) add that professional relationships carry a
disproportionate amount of inquiry in the social search process. Armengol and Jackson
(2003) suggests that agents that begin operation in a network with worse initial starting
conditions are more likely to drop out of the network.
It is easy to imagine a model of how this might work. An agent with an inquiry
first goes to the most appropriate of its own ties, which will most likely be a weak tie,
and then the closure within the network depends on the strength of the interrelationships
between the agents of the network processing the query. It is the model of Power
Networking, taught in Business schools the world round and the topic of many best-
selling books.
(3) Embrace Emergence, Self-Organization, and Strange Attractors
The world society has reached a higher level of complexity with higher structural contingencies,
more unexpected and unpredictable changes (some people call this 'chaos') and, above all, more
interlinked dependencies and interdependencies. This means that causal constructions,
(calculations, plannings) are no longer possible from a central point of view. They differ
depending upon observing systems, that attribute effects to causes and causes to effects, and this
destroys the ontological and the logical assumptions of central guidance, (Luhmann 1997).
Change should focus on local actions meeting local needs. Much of the new
science seems to agree on a principal that distributed intelligence is better than any of
the various forms of central intelligence. Distributed intelligence is the idea that
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individual actors at all levels have a base of knowledge and that all actors would be
better at making local decisions because of their familiarity with local knowledge.
Distributed intelligence is, in fact, an implicit assumption of laissez-faire economic
thought: the idea that entrepreneurs, businesses, and consumers should be able to act
without the intervention of a central authority.
Assistance should target societies on the brink of success. Aid often follows the
direction of our philanthropic nature rather than heading towards economies on the
brink of development. Successful economic development depends upon an array of
factors so multitudinous and so uncontrollable they can not all be centrally planned.
Rather than plan economic development by targeting assistance, assistance should be
targeted towards economies that have stable and complex economic networks.
Moreover, targeted assistance should accompany policies that are aimed to activate
business around well framed strategies.
Project assistance often creates new structures rather than build upon previous
ones. This runs into problems with Systems Theory which exclaims systems under
stress will behave as state-maintaining systems. Kottak (1990) confirms this idea:
Implicit in all the successful projects I examined was the goal of changing so as to
maintain preserving systems while making them work better; for example, irrigation
projects that aimed at rehabilitating, improving, or expanding existing systems were
more successful than projects designed to create entirely new structures.
Activate investment from existing firms rather than securing investment
elsewhere. Kinoshita and Mody (2001) found that the new investments in emerging
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markets of Japanese firms were positively correlated with the firms own previous
investment and with the current and planned investment of their competitors. They
attribute this to the firms existing and private knowledge of the emerging market.
Krugman identifies economic applications of the strange attractors from Chaos
Theory: he refers to them as centripetal forces forces that tend to make
manufacturing concentrate in only one region emerge from the from the three-way
interaction among scale economies, transportation costs, and factor mobility.
Agglomerations form as firms are motivated to concentrate production near markets and
suppliers while factors of production move gradually toward locations that offer higher
current real returns, (Krugman 1998). Harris (1954) first postulated that producers
will tend, other things being the same, to choose sites with access to good markets,
(Krugman 1998).
(4) View Predictions, Goals, and Planning with Perspective
The world is far more sensitive than we had ever dreamed. We may harbor the hope that we will
regain predictability as soon as we can learn how to account for all variables. But in fact these
desires for mastery and prediction can never be satisfied in this non linear world. We would do
better to abandon that search entirely. In nonlinear systems, iteration helps small differences
grow into powerful and unpredictable effects. In complex ways that no model will ever capture,
the system feeds back on itself, magnifying slight variances, communicating through its
networks, becoming disturbed and unstable and prohibiting prediction, ever, (Wheatley 1999).
In the admitted failures of the development industry, they also fail to recognize
that if economic systems are truly complex or chaotic, that their success could be in a
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different time and place, affecting an aspect of society not measured or even noticed.
With the current procedural model of proposal, implementation, monitoring and
evaluation based on specific measurable indicators, the system is bound to go on failing
by its own definitions.
Sensitivity to initial conditions is a well discussed property of chaotic and
complex systems. The Butterfly Effect, referring to sensitivity of initial conditions, is
the title of Ormerods book that discusses the applications of Chaos Theory in
Economics. Ormerod concentrates on the role of positive feedback in which an
initial impact of actions or events tends to be magnified over time (1998). Considering
that the Economy is a network, Watts also identifies the butterfly effect: equally
significant changes in global structure can result from changes in local structure that are
so minute as to be effectively undetectable at the local level, (Watts 1999).
However, most students of Economics would not want to recognize the chaos in
an economy. The complex systems approach makes life more difficult, not just for
policy-makers but for scholars and businessmen alike. Unfortunately, the world cannot
be changed to suit our convenience. (Ormerod 1998). It is a heavily mentioned but
narrowly studied phenomenon. However, existing studies show that the larger the
economy the more elements of chaos can be found. Kelsey (1988) sees chaos as the
answer between the deterministic variables in microeconomics but the seeming
randomness of the variables in macroeconomics. Dechert, using Monte Carlo analysis,
shows that when modeling networks, as the size and complexity of systems increase,
the probability of Chaos increases to 100%. Dechert infers in his conclusion that most
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large systems are chaotic, (1996).
The new sciences all point to the fact that economic growth is almost completely if
not utterly unpredictable. Ormerods book on Butterfly Economics is littered with
statements like this one:
Despite the respectable background in economics which insists that successful short-term
prediction of the overall economy is not feasible, economic policy in Western economies
continues to be dominated by short-term economic forecasts. (1999)
Yet the business of development is more or less to set goals, try to achieve them, and
measure results. Much effort is also gone into explaining why or how (including the
efforts of this author) the results were not met.
The World Bank acknowledges the top-down, technocratic approach to project
design and service delivery has not worked in areas critical for development. The
whole industry might be better served to focus less on measurement and predictable
outcomes and choose process oriented goals. Luhmann (1995), noted as the intellectual
responsible for bringing system theory to sociology, describes the role of the observer as
primarily someone who creates a role for himself in the system being observed. With
the ideas of a kind of philanthropic and bureaucratic imperialism previously stated, the
development business should be aware of their self-creating role as goal consultant,
project manager, and outcome analyst, respectively. At what point can we conclude that
this role is redundant and a waste of resources? It is up to those working in the field to
decide.
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(5) Spillovers: The Unpredicted Outcome
In the absence of absolute certainty that a project or policy will have the desired
outcome, it is necessary to assure that all outcomes, intended or unintended, will be
positive. While the necessity of managing process has been discussed, managing all
outcomes also deserves treatment. Chaos is seemingly built into mainstream models of
economics in the form of spillovers and externalities, though traditional models do not
cope with spillovers and externalities as potential magnifiers into unmonitored parts of
the economy. The major outcomes will be in capacity: training and education,
institutions and companies, economic and social networks, infrastructure, and money
circulation.
In his bookIn Defense of Globalization, Bhagwati (2004) reviews available
economic research regarding the effect of spillovers from multinationals as competition
in developing economies. Critics declare that spillovers are negative, that multinational
presence inhibits local business and entrepreneurship through both economies of scale
and by employing local talent in ventures that eventually profit the home nation of the
multinational. However, Bhagwati claims that positive spillovers of knowledge and
experience in those industries exposed to multinational presence gives local firms a
stronger footing: when the growth of productivity in domestic firms was isolated, it
was seen to be higher in the presence of multinationals.(Bhagwati 2004). He also
reviews many studies proclaiming that overall growth of an industry, including
domestic firms, correlates with the presence of multinational competition. It is just such
spillovers that need to be coveted and nurtured. Good policy would force
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multinationals to pick local partners, train local management, and share certain
intellectual property to foster such open competition.
The ideas of chaos and complexity may complicate the process of development
considerably, but it does not necessarily mean that assistance can have no positive
affect. Paul Omerod confirms:
The inability to control the economy or society in a precise way in the short term does not mean
in any way that the actions of governments have no effects. They most certainly do. But
conventional thinking offers an account of such impacts which is at best incomplete and at worst
positively misleading. (Omerod 1998)
In order to not be misled, assistance needs to be designed to work with spillovers,
magnifiers, and feedback in mind. The obsession with particular targets and goals
should stop, and the embracing of process needs to become the focus.
The question that needs to be asked is not whether or not a project met its
foreseen goals, but whether or not the project contributed to the capacities of the
locality or region targeted. For instance, how many people were employed at a level
which increased their social or economic capital? how many individuals were trained in
such a capacity as to use it for their future advantage? how many relationships were
developed among local actors? or how much money was spilled into the local economy
so as to contribute to local capital accumulation while not affecting the greater rate of
inflation?
The first and foremost way to manage spillovers would be to stop leakages.
Shonfield (1960), in his investigations, was finding that the inflow of money was not
leading to the capacity of a society to self organize a functional and interdependent
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economy. He particularly was perturbed at the management style of contracted
engineers that tried to minimize costs by using imported capital goods rather than the
multitude of available labor. The monies importing goods was a leakage. He discussed
the shadow price of having the flow of money go back to developing countries and not
into the belly of the recipient of the assistance. Shonfield goes on to recommend that
the World Bank take the lead by getting rid of the powerful built-in bias towards the
employment of scarce capital goods and away from the use of surplus labor.
Iraq might as well be the pinnacle of textbook cases that will go utterly wrong.
The US Government is hiring American corporations to do all of the work, leaving most
Iraqis unemployed. The leakage is blatant, American corporations reaping the benefits.
The occupying American army and government are doing most of the learning, while
Iraqis standby and get angry. The US will find that when they leave, if they ever can,
that local capacities will not pick up where they left off, but will have to start over from
scratch (perhaps in a civil war).
Policy that Works
There are particular types of assistance, policies, and institutions that match the
theoretical foundations of the new sciences and therefore would be apt to be more
successful. A few are listed here:
Local Banks: Banks are the quintessential mechanism of wealth creation. In more
impoverished countries, the wealthy put their money in foreign banks that are more
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secure and profitable, thus again money leaks out of local economies. Swiss, British,
and US Banks contain the financial capital for most of the rest of the world. These
international banks then invest in ventures in industrialized countries, sucking capital
back into the core. They do not find small entrepreneurs and businesses trying to
provide for the local economies in nations less well off. Schumpeter, throughout his
body of work, made a hero of the entrepreneur and the institutions that allowed them to
flourish banks and the corresponding systems of credit (Danake 1998). Any economy
with hopes of developing must not only have stable banks, but also must stop the leaks
of capital. Article 8 of the Chinese-Foreign Joint Ventures Law of 1979 actually
requires that the joint venture open an account with the Bank of China or an approved
bank and must be insured by Chinese insurance companies. It states explicitly a
foreign joint venturer shall be encouraged to deposit in the Bank of China foreign
exchange that it is entitled to remit abroad.
Microfinance: We have seen the birth of the Microfinance movement, and thank
goodness. However, excellent development policy would focus on the security and
financial stability of commercial banks and credit unions within poorer nations. Until
the wealthy begin to put their money in institutions that will keep capital within the
nations borders, development will be slow going.
Locate offices in developing nations: Washington DC is the home of the World Bank
and the IMF, New York is the home of the United Nations. All emissaries, technocrats,
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