Saturday, February 28, 2009

The 'Asian Model' Is No Alternative

. Saturday, February 28, 2009

So says William Easterly:

Suppose we have a group of drivers leave New York at the same time to drive to Washington, and we interview the first 5 drivers who arrive in Washington. We find that they drove Lamborghinis at 150 mph, weaving in and out of traffic down the New Jersey Turnpike and I-95, out-running Highway Patrol cars who tried to stop them. Are they models for success getting from New York to Washington?

No, because since we only studied the “successful” first 5 drivers to arrive, we didn’t know about the vast majority of Lamborghini “failures” – the drivers who got into fatal accidents or were caught by the Highway Patrol and jailed for insanely reckless driving. On average, this approach was a disaster. On average, soccer moms driving mini-vans outperformed the Lamborghini drivers, if we study BOTH successes and failures.

So Asian success either happened in spite of statist industrial policy, not because of it, or industrial policy was an incredibly risky strategy that usually fails but occasionally has big successes, possibly in East Asia.

Either view would help explain why a huge amount of effort spent imitating East Asian success stories has NOT successfully replicated that success anywhere else.

One general problem with social sciences is that the counterfactuals aren't always obvious: everything we study has selection bias, because we can only analyze events that have actually occurred; we look into an alternate universe to see how things would be different if we tweaked this input or that structural alignment. So it's one thing to look at the meteoric economic rise of countries like China in recent decades and conclude that state-run economies present a viable alternative model for market-run economies. But we can't know the counterfactual: China may have grown faster without so much government interference*.

At least that's what Easterly is saying. For another view, Blattman suggests this essay by Dani Rodrik [pdf].

*In any case, one must only look at the economic degradation during Mao's reign to see how much an economy can collapse if a government gets it wrong.


The 'Asian Model' Is No Alternative




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