Irrepressible dynamism not always economic reality
Nobel laureates Abhijit Banerjee and Esther Duflo lay out in their upcoming book a vision of policies that can help fight inequality and bring global economy back on a firm footing
Economics imagines a world of irrepressible dynamism. People get inspired, change jobs, turn from making machines to making music, quit and decide to wander the world. New businesses get born, rise, fail, and die, are replaced by timelier and more brilliant ideas. Productivity grows in staccato leaps, nations grow richer. What was made in Manchester mills moves to Mumbai factories and then to Myanmar and maybe, one day, to Mombasa or Mogadishu. Manchester is reborn as Manchester digital, Mumbai turns its mills into up-market housing and shopping malls, where those who work in finance spend their newly fattened paychecks. Opportunities are everywhere, waiting to be discovered and grabbed by those who need them.
As economists who study poor countries we have long known that things do not quite work that way, at least in the countries we have worked in and spend our time. The Bangladeshi would-be-migrant starves in his village with his family rather than brave the uncertainties of seeking a job in the city. The Ghanaian job seeker sits at home wondering when the opportunity he believed his education promised him will drop into his empty lap. Trade shuts down factories in the Southern Cone of South America, but few new businesses arrive to take their place. Change seems all too often to benefit other people, unseen people, unreachable people. Those who lost their jobs in the Mumbai mills will not get to eat in those glittering eateries. Perhaps their children will get jobs serving— jobs they for the most part do not want.
What we realized over the last few years is that this is also the story of many places in the developed world. All economies are sticky. There are of course important differences. Small businesses in the United States grow much faster than those in India or Mexico, and those that fail to grow are shut down, forcing their owners to move on. Those in India and, to a lesser extent in Mexico, seem stuck in their place in time, neither growing to be the next Walmart nor exiting into something else more promising. Yet this US dynamism conceals enormous geographical variations. Businesses shut down in Boise and show up in booming Seattle, but the workers who lost their jobs cannot afford to move to Seattle. Nor do they want to anyway, since so much of what they value— their friends and their families, their memories and their loyalties— will have to stay behind. But as the good jobs vanish and the local economy goes into a tailspin, the choices look more and more dire and anger mounts. This is what is happening in Eastern Germany, much of France outside the big cities, the Brexit heartland, and in the red states of the US, but also in large pockets of Brazil and Mexico. The rich and the talented step nimbly into the glittering pockets of economic success, but all too many of the rest have to hang back. This is the world that produced Donald Trump, Jair Bolsonaro, and Brexit and will produce many more disasters unless we do something about it.