Development as accumulation of factors of production plus technology plus social organisation

Sometimes known as ‘neoclassical growth theory’, this rich vein of development thinking began with Robert Solow’s iconic 1956 article (Solow, 1956). In this account, the simple accumulation of capital and labour was not enough to drive a growth process. There must also be productivity growth, with technology as a major component, and technological advances must disseminate globally enough to be a universal growth driver. This basic model evolved over time so that the growth driver extended to “multifactor

productivity”, or total factor productivity (TFP) beloved of mainstream economics, including at the OECD. At its limits, this concept extended to “social organisation”, in other words a well-functioning society with a workable political settlement and associated social cohesion. This is correct, but then it becomes necessary to spot the real bottlenecks, which go way beyond labour markets (Aghion & Howitt, 2009). At the OECD Economics Directorate, this was manifested in an ever wider growth agenda, covered in an annual series of reports on “Going for Growth”. And as the National Bureau of Economic Research (NBER, n.d.) or Voxeu (n.d.) websites indicate, economists are searching in every nook and cranny of social organisation, with no boundaries between what is development economics and what is not. One reaction to this quandary is to conclude that what really matters is the quality of institutions, hence the issue becomes an issue of governance.

On the development side however, the phenomenon of “miracle” growth rates in Asia, even before China’s 1978 market reforms, can be traced to another classic article by Robert Lucas, quoted at the beginning of this chapter. In “On the Mechanics of Economic Development”, Lucas exhaustively searched the neo-classical growth model, but could not find any mechanism that could explain such unprecedent growth rates. He found the explanation in rapid urbanisation combined with rapid increases in human capital, especially acquired through learning by doing (Lucas, 1988). He developed this proposition further in a 1993 article “Making a Miracle”, in which he put even greater weight on the learning by doing factor, especially linked to engagement in international trade (Lucas, 1993).

In fact, learning by doing and human capital development had already been incorporated in neoclassical growth models, so it was their conjunction with the urbanisation dynamic that was providing the “combinatorial factor” that generated “economic miracle” growth rates. And the implication was that economic miracles required an activist state, not just a market economy to achieve economic transformations of this order at this speed.

That proposition became one of the huge debates of the development industry when the Japanese government requested and sponsored a report from the World Bank, which emerged in 1993 as a research paper on the

“east Asian Miracle” (World Bank, 1993). The issue was “states versus markets”, even though it is obvious that it was and is both. A vigorous and sometimes virulent debate erupted around the “Asian Miracle” on just this front, however, and remains live to this day (Kato et al., 2016).

In the OECD the debate was lively. The mainstream Economics and Trade Directorates continued to remain very firmly in the “markets and Washington Consensus” camps and that shaped the ethos in the OECD as a whole, including the DAC (though not in the Development Centre, which was regarded at that time, in the more “neo-liberal” parts of the OECD, as dispensable).²⁶ The principal “activist” item in this area of the DAC work programme remained the trade capacity building effort, described above. And the human capital agenda was embedded in the MDGs, but it did not extend to tertiary education, and infrastructure fell off the agenda. Urbanisation did not appear at all.

These lacunae were replicated at the World Bank, where the “Doing Business Better” focus remained on regulatory reform. And the tenure of Justin Yifu Lin of Beijing University as Chief Economist (2008-2012) brought an “active state” theoretical framework, though within the neo-classical model (Lin, 2012). Lin’s tenure at the World Bank was marked by internal opposition, however. More recently, a major change in thinking is abroad in the Bretton Woods institutions, including at the IMF (Cherif & Hasanov, 2019). The 2020 IMF/World Bank Spring Meetings marked this change, but bringing back the old debates.²⁷

In the neoclassical growth model, technology remained a central issue. At the DAC, it got early attention under its chair, Willard Thorp. A systematic effort to focus research on significant obstacles to development was jointly initiated by the OECD’s Directorate for Science and Technology, the Directorate for Development Cooperation, the Development Centre and the DAC chairman. Research strategists from each of the major donor countries met periodically to define research priorities and to promote appropriate follow-up by governments and private institutions in the funding of research (OECD/DAC, 1985). A similar effort was pursued by a German-inspired planning group on science and technology for developing countries in 1971.

In 1990, a significant experts’ meeting was convened by the DAC, financed by France, in association with the UN Centre for Scientific and Technology Development (UNCSTD), then under the dynamic leadership of Brazilian

26 This author, tasked in 1999 to draft for publication an OECD brief on trade and development, built the storyline around dynamic learning by doing capacity development rather than classical comparative advantage. The draft was rejected by the Economics and Trade Directorates, with the battle going all the way to then SG Donald Johnston. This, decades after learning by doing had entered growth theory (Lucas, 1993).

27 For an early treatment of today’s issues see Stopford, Strange & Henley, 1991.

Sergio Trindade. Unusually, for logistical reasons the meeting ran over into a Saturday, with lunch on the terrace of the Chateau de la Muette on a beautiful day in May. The published report emerging from that meeting recommended that developing countries create partnerships across their policy-making communities, engaging the larger public, based around a set of “missions” related to solving basic development problems and opening up new development options. As summarised in the 1993 DAC “Principles for Effective Aid”, “the missions should be used as the principal instrument for specifying and coordinating domestic and external science and technology resources”. And

donor agencies should thus increasingly shift from a project-by-project approach to a more strategic capacity building thrust with longer term commitments to help accomplish well-defined technology development missions. A key requirement will be to create a synergy within aid agencies between economic analysts, programme planners, and science and technology specialists so that the building of national capacities to manage technological change becomes a central early issue in program design. (OECD/DAC, 1992, pp, 18-19)

The relevance of the above cannot be higher in the context of the demographic development dynamics of Sub-Saharan Africa. Rapid urbanisation and the emergence of extensive rural conurbations together with more human capital than ever before, plus information and communications technology and green technologies, hold the promise of Lucas-style “miracle growth” (Lucas, 1993). Already there are African Silicon Valleys emerging and cultural industries with world recognition. At the same time there are fundamental institutional challenges, agricultural transformation still has a long way to go, and there is a need for rapid infrastructure development that is at once an opportunity and a constraining factor. Structured African learning processes have a major role to play.

For the DAC, revisiting the conclusions of the 1990 experts’ meeting on science and technology could offer relevant inspiration given that mission-driven economic strategies are now becoming a new norm (Mazzucato, 2021). And the Lucas narrative on miracle growth can also be revisited with an eye to what is possible in an African continent with a 2063 strategy, rapid urbanisation that must become functional, a new African Continental Free Trade Agreement, and continental integration prospects on a par with those of the US in the 19th and 20th centuries. Could Africa be like America? That is a leading question (Wood, 2002).

2.4.4 Development as human development – wellbeing,