'The Great Escape': An economist defends growth, disses foreign aid

Princeton economist Angus Deaton makes a compelling case against the naysayers of economic growth

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Does economic growth lead to greater well-being? Economists often correlate growth with such factors as life expectancy or per-capita income, but estimates of personal welfare are more elusive. This question is the principal charge of Angus Deaton’s new book, “The Great Escape: Health, Wealth, and the Origins of Inequality.”

Mr. Deaton borrows his title from the 1963 Steve McQueen film, which follows the travails of Allied soldiers who attempted a mass escape from the German POW camp, Stalag Luft III. Of the 76 men who escaped, only three made it to safety.

By Angus Deaton.
Princeton University Press ($29.95).

To Mr. Deaton, this is a suitable analogy for the advancement of modern society, which has allowed much of the world’s population to escape from poverty and destitution. Even so, roughly 800 million people remain in abject poverty, subsisting on less than $1 a day. Is growth helping these people?

The Princeton economist makes a compelling case against the naysayers of economic growth, marshalling a wealth of data and clear-eyed observations to explain how growth allows people to live more freely.

Looking at improvements in health, Mr. Deaton urges us to see economic growth as a catalyst of personal welfare. In today’s world, people are stronger and taller, they live longer, and they are less afflicted by ailments such as poor eyesight. Still, he notes, there is great disparity in these gains.

Disparity is an obligatory theme for any inquiry into economic growth, most notably the issue of income inequality. Mr. Deaton explains, just as the Industrial Revolution led to the “great divergence” between the West and the rest, so too has the postwar period of growth given rise to divergences within nations, such as the United States.

Is this disproportionate growth inherently harmful to the American public? Mr. Deaton deftly summarizes both sides of the argument.

Many of the advancements of modern society have given Americans greater access to resources such as health care, travel, and entertainment. Yet, he also finds that — by correlating individuals’ incomes with those of their forebears — upward mobility is increasingly constrained. He concludes that income inequality, in and of itself, does not undermine well-being unless the elites can “undermine the institutions on which broad-based growth depends.”

This idea of extractive institutions makes for a wonderful transition back to the task at hand: international development. That domestic elites, through corruption and extractive political processes, are the biggest menace to development is the central thesis of Mr. Deaton’s book.

This leads to the most contentious of Mr. Deaton’s arguments. Rather abruptly, in the last chapter, he takes a strong stance in deriding the practice of foreign aid. For pro-aid advocates such as Jeffrey Sachs (or Bono), the argument is simple: foreign aid has failed because there is not enough of it. For the anti-aid contingent, aid is a fruitless and often destructive practice. Mr. Deaton casts his lot with this latter group.

Indeed, there is no lack of examples of aid engendering corruption. Mr. Deaton’s proposed alternatives — which he says are most likely to offer escapes to those mired in poverty — are both clever and constructive.

To effect change, he argues, the West should provide in-kind aid in lieu of transfer payments. Among these he includes opening borders, improving terms of trade for poorer countries, and investing in a cure for diseases, such as malaria, which ravage impoverished nations of the world. Few economists would be inclined to disagree.

Though Mr. Deaton’s rebuke of aid is a trifle overblown, he is among the most qualified in making such an assessment. Moreover, the types of aid that he wholeheartedly rejects are those that induce plutocracy. While it’s unlikely that Mr. Deaton opposes emergency relief in cases of natural disaster or violent conflicts, his book would benefit from explicit recognition of such instances.

Mr. Deaton’s seemingly inexhaustible knowledge of all things historical is bound to edify even the most erudite of readers. Though some chapters may prove a bit of a slog for non-economists, he does a commendable job of simplifying complex economic models into easy-to-understand graphs.

For Mr. Deaton, a happy ending awaits humanity’s long, slow climb from deprivation. He asserts that economic growth has broadly improved well-being. Of our confidence in continued prosperity, he says, “It is reasonable to hope.”

Andrew Lewis, a financial analyst in Philadelphia, is a Pittsburgh native and recent graduate of University of Vermont in economics (andrewlew91@gmail.com). He was a contributing writer at The American Interest and Via Meadia.

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