Russ Roberts

What Role Can (and should) Data Play in Development?

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by Russ Roberts
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In the Easterly Essay questions I asked:

What role can (and should) data play in development? How does Easterly answer this question? How would Jeffrey Sachs answer this question? Morten Jerven discusses the quality of data collected by African nations in this 2013 episode. Given some of these challenges, how should Easterly and Sachs revise their approaches?

I thought the best answer to this question came from Michael Tew:

On The World Bank's website, you can find more than 1,000 development indicators tracked for each country, much of which goes back decades. GDP, infant mortality, and poverty rates barely scratch the surface of the database (which also includes the number of threatened fish species). One can argue how useful this data is for development economists. Data in poor countries is plagued by quality problems. The question of the usefulness of data goes beyond quality concerns, however. The debate about development data has yet to undergo what William Easterly calls a Copernican Revolution in development, that places poor people in the center of development instead of rich westerners.

For Easterly, it's difficult to draw many useful conclusions on any analysis of short term economic trends. Recent economic improvements may not prove lasting, and data have too many inaccuracies to trust much. This isn't to say that data is entirely useless for Easterly's understanding of how development happens. We should expect errors to cancel each other out in the long run, allowing us to make better conclusions over time. Easterly claims that the broadest trends in the data support his argument that countries with liberal democracies are the ones that became rich.

For other development economists, data can do a lot more than explain broad trends after the fact. Data can be used to make better decisions to alleviate poverty. At some point in the discussion among development economists, data's role changes from being a tool for scientists to a tool for managers. Jeffrey Sachs writes:

"...[W]ell-designed aid programs with sound operating principles, including clear goals, metrics, milestones, deliverables, and financing streams, can make an enormous difference..."

Bill Gates, another advocate of data-driven approaches to development, says that data and measuring are the key to helping more countries join the ranks of the rich, and that aid programs need to be run more "like a business."

But Easterly's primary challenge to these economists isn't over whether a data-driven approach to management is a good thing, but whether rich westerners should be the managers. Westerners have taken it upon themselves to measure, set goals, track progress, and correct course for the world. Easterly advises us to appreciate our own path of development, in which individuals carved their own paths to prosperity.

If data proves crucial to development it will be because it's valuable to those living in poor countries. Few of the indicators in the World Bank's database will answer questions that might be on the mind of an Ethiopian farmer: Where can I get the best price for my crop? What are the best growing methods? What is the cost of each method? Will I make enough money to provide for my family?

It's possible that more and better data can help people in poor countries build better businesses and governments. One can imagine that instant information communication and improved software makes it easier to do business in poor countries. But data isn't everything in managing an organization. Intuition, trial and error, and sheer will can prove just as valuable as data analysis. Whatever the optimal extent of data-driven decision-making, Easterly's greatest piece of advice is that the focus should be on who ought to be making the decisions. His message is that people achieve their own prosperity, and people in poor countries deserve the rights and sovereignty that allows them to do so.

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COMMENTS (1 to date)
Nassim Haddad writes:

Something I miss in the discussion is the role of western businesses that operate in developing countries. Those companies have managers who are taking business decisions (investments, choice of suppliers, setting ways of working, etc.), and some of them would like to make decisions that will enhance (rather than harm) the lives of the people affected. Their position is much more humble than that of the tyrannic experts, much more bottom-up driven. What's their role and how should their actions be guided ?

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