Tuesday
Nov062012

Why Nations Fail, David Cameron and the Golden Thread of Development  

Let us continue our detour away from patronage politics for a while longer to write a few things about some debates on economic development in the British political circles.

The British Prime Minister David Cameron has a new concept he is trying to use to bring new ideas to the table in solving the problems of poor countries. He calls it “The Golden Thread of Development” (his ideas are discussed in this recent op-ed in the Wall Street Journal).

What is this mysterious sounding Golden Thread? In Cameron’s words:

we … need to tackle the causes of poverty, not just its symptoms. And that means a radical new approach to supporting what I call “the golden thread” of conditions that enable open economies and open societies to thrive: the rule of law, the absence of conflict and corruption, and the presence of property rights and strong institutions. It is only when people can get a job and a voice that they can take control of their own destiny and build a future free from poverty.

Eradicating poverty requires the growth that is fueled by open economies, and open economies are themselves best ensured by open societies: rights for women and minorities, a free media, integrity in government, and the freedom to participate in society and have a say over how your country is run. A genuine golden thread would tie together economic, social and political progress in countries the world over.

The Golden Thread therefore is an interlinked set of institutions which creates the incentives and opportunities which will generate economic growth. Interestingly, the emphasis here runs from open societies to open economies. Politics comes before and leads to economics.

Readers of Why Nations Fail and this blog will know that this is all music to our ears. To use our terminology, what David Cameron is arguing is that to have sustained economic growth and poverty reduction, what is required are inclusive economic institutions (“open economies”). But these don’t just spring out of nowhere, they are a result of inclusive political institutions (“open societies”). So far so good.

David Cameron also argues that in itself foreign aid, at least as currently structured, won’t do much to create inclusive institutions. But exactly as we argue in the last chapter of Why Nations Fail, and will discuss again in the next post, this is not an argument for cutting aid, since aid positively impacts the lives of many poor people. What is needed now is a practical agenda of how aid can be used to stimulate institutional reforms, an agenda which has the politics, as well as the economics of institutions at its heart. David Cameron’s brief article sketches some ideas about what these reforms might look like.

In Why Nations Fail when we discussed the central role of empowerment, we point out that this idea emanated not from academia but from international institutions like the World Bank. Now it seems the politicians, even Tories, are getting ahead of the curve as well!

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