DATA150

Question 1. How does Owen Barder define development? How does he extend Amartya Sen’s definition to include the idea of complexity?

Owen Barder defines development as a multi-dimensional property of the economic, social and political system itself. He extends Amartya Sen’s definition by claiming that development is not just the the sum of improvement in the well-being of individuals or output of firms in society. Improving the overall economic, social, and political system is crucial for the individuals’ well-beings.

Question 2. Barder compared the economic growth of South Korea and Ghana between 1960 and 2010. Why did he make this comparison? What did this comparison demonstrate when used as the basis to validate economic models?

Barder compared the average income South Korea and Ghana and found out there were rapid growth of income for South Korea which exceeds Ghana. He made this comparison to introduce the following economic models he is going to describe. It shows that growth of income is not a complete measure of individuals’ welfare, and there are other factors involving. This comparison is also used as a basis for economic models validation by testing if the proposed economic model can explain the disparity from comparison.

Question 3. What was the toaster project? What did Thomas Thwaites attempt to do? Was he successful? What is the significance of this example in the context of complexity?

Thomas Thwaites attempts to make an electric toaster from scratch. He bought a cheap and simple toaster from the store. However, simple toaster is still complicated as it has 400 components made from different materials. It took Thomas 9 months and huge cost to make that toaster. Unfortunately, he was unable to get rubber to insulate copper wires, and when he turned on the toaster, the toaster busted into flame. This example demonstrates that development can not be just marked by increasing in output of individual firms. A rich economical, social, and political system is necessary to provide individuals opportunity and improve their welfare.

Question 4. What was the Harrod Domar growth model? What are the two fundamental variables in this model? Who was Walter Rostow and what was the impact of his work on development?

Harrod Domar growth model claims that increase in output relies on both increase in amount of capital and increase in labor. Walter Rostow created the circle of economic growth model, which claims that increase in investment will trigger the virtuous circle and launch the country into self-sustained growth. This model rationales the foreign aid, and provides a way to calculate finance gap between the domestic savings and the amount of investment needed. Once figuring out the finance aid needed, the country can use aid to finance infrastructures and promote economic growth.

Question 5. What was the Robert Solow model? How did it address the limitations of the Harrod-Domar model? Was this model successful at predicting economic growth?

Robert Solow construct a neoclassical growth model which adds a third variable called technical change to Harrod-Domar model. It addressed the limitations that Harrod-Domar model bears no resemblance to reality. Although Robert’s model fits actual data much better than Harrod Domar model, it still can not explain the low growth in poor country because of the fact that knowledge can spread at cheap cost.

Question 6. What was the Ajaokuta Steel works? How did it illustrate the transition from a focus on policies to institutions? What is Acemoglu & Robsinson’s book Why Nations Fail about? How is their argument a response to the previously failed idea regarding engineering prosperity by providing the correct economic advice?

Ajaokuta Steel Works in Nigeria is one of the largest investment of steel in the world. Although the labor and capital are abundant for the Ajaokuta Steel Works, it does not promote economic growth in Nigeria at all. This example illustrates that instead of policy, poor management and endemic corruption caused the low economic growth, which shift the focus from policies to institutions. Acemoglu & Robsinson’s book Why Nations Fail claims that poor countries are poor not because of their government’s mistaken policy such as prevent market exchange and tolerate corruption. The actual reason is poor countries have weak institutions which is an internally generated result of the country’s politics.

Question 7. According to Barder, how successful have economic models been at describing and predicting growth over the past 50 years?

According to Barder, the economic growth is rapid over the past 50 years. As the missing ingredient are, Economic models keep modifying the missing ingredients and turning their focus to endogenous, but they still fail to explain the economic growth difference between countries.

Question 8. What was the significance of Schumpeter’s idea of creative destruction? How does it relate to firms and institutions? What is co-evolution and why is it significant?

Schumpeter’s idea of creative destruction explains the real situation in market place that firm and industry adapt to its changing environment and evolve. Old outdated firms go bust and are replaced by new firms that are better adaptive to today’s environment. Co-evolution is the idea that in the complex economic system, all the different adaptive processes in physical technology, people’s behavior, business plans and firms, social institutions, and the environment we live interact with each other when they evolve together. Co-evolution creates the complex adaptive system and accelerates development very effectively.

Question 9. What is a complex adaptive system? What are some of its important features?

A complex adaptive system refers to a complex linear system in which adaptive agents interact with each other. There are five import features for the complex adaptive system. First, it is difficult or impossible to predict in detail because of the butterfly effect. Second, predictions about the system as a whole can be made. Third, complex adaptive system has emergent properties which are not linked to any individual agents within it. Fourth, complex adaptive system tends towards greater complexity. Fifth, this system does not tend towards equilibrium through time because of co-evolution.

Question 10. Who was Haile Sellasie? What is the significance of Kapuscinski’s book The Emperor? How did Ethiopia exemplify the suppression of emergent systemic change? Do you agree with this analysis?

Haile Sellasie was the last emperor of Ethiopia which was overthrown in 1974. Kapuscinski’s book The Emperor analyzes the poverty trap in Ethiopia and its dictatorship. In this country, all crucial decisions were made by the emperor. The ruler tried to extract economic values from their population and suppress the coevolution of more plural and equal economic and social institutions that may threaten his position. When the mechanisms of adaptation and coevolution are stifled by rulers, the emergent systemic change and self-organizing complexity are suppressed. I agree that dictatorship leads to institution failure and impacts the whole economic society so democracy is important.

Barder recommends resisting engineering as a policy implication because evolutionary processes often outperform design, and the nonlinear dynamics make it generally impossible to predict results of any changes which in turn makes engineering solutions almost impossible. Isomorphic mimicry for institution development is that it is easier to create an organization that looks like international best practice than create an organization that can really operate effectively.

Question 12. What did Barder mean by “resist fatalism”? Who was Norman Borlaug and what is the green revolution?

Resist fatalism means that people should not accept whatever outcome of evolution in terms of development. Norman Borlaug, an important figure for green revolution, intervened the evolutionary process by cross-breeding and developed high-yield disease-resistant wheat varieties. Green revolution increased agricultural production worldwide through new technological means.

Question 13. Barder also recommended to promote innovation, embrace creative destruction and shape development. What did he mean by these recommendations?

Barder believes that well-organized publicly funded research and development mechanisms which encourage innovation should be promoted. To embrace creative destruction, system need to incorporate feedback loops which promote adaptation suitable to that environment. people and more importantly is to embrace creative destruction. In addition, the fitness function which the selective pressure enforces represents the goals and values in the community.

Question 14. Who was Nicholas Georgescu-Roegen and what was his insight about economic systems and evolution?

Nicholas Georgescu-Roegen is a mathematician, statistician and economist. He believes that creative destruction and adaption are crucial for economic system, and it is important to take every factors into account.