The prosperity formula?

By Dr R Balashankar?

?Pillars of Prosperity: The Political Economics of Development Clusters, Timothy Besley and Torsten Persson, Princeton, Pp 375 (HB), $ 45.00?

Economics today is much more than money and taxes. It has evolved into a science overlapping on other social sciences. Now, the governments decide how much, how and on what to spend money on. For instance, the tax system in India is so all-pervading that it determines the amount of petrol we use, the number of calls we make, the cigarrets we puff away and the levels of saving a citizen can and cannot do. That after all this, the income disparities are growing and the rich are getting richer and the poor poorer is an undeniable fact.

Timothy Besley and Torsten Persson in their book, Pillars of Prosperity: The Political Economics of Development Clusters, discuss the factors that lead to prosperity and poverty at a very theoretical level. With well-defined formulas, complete with symbols and equations, the two scholars break down economics and governance. The discourse is based on the three parametres for prosperity — effective state institutions, the absence of political violence and high per-capita incomes. Two of these three had been prescribed by Adam Smith nearly 200 years ago. He said, “Little else is required to carry a state to the highest degree of opulence from the lowest barbarism, but peace, easy taxes, and a tolerable administration of justice, all the rest being brought about  by the natural course of things.”

Besley and Persson have set out to understand and unravel “why some countries are rich and others poor?” Today, the income disparity between some of the poorest and some of the richest is as high as 200 times. “It has long been understood that economic development is about much more than rising income. Indeed, state effectiveness is now given center stage in practical policymaking, with a greater focus on how to deal with countries hobbled by weak, fragile, or failed states,” say the authors. Their approach is macroeconomic and macropolitical.

In an exercise undertaken to predict pillars of prosperity, using eight linear specifications, India, China, Myanmar and Sri Lanka are among the Asian countries that were way off in the predicted and actual ranking (negative). The analysis for India goes like this: “India is the country with the largest difference in both rank and index value. As already noted, India suffers from a low value of state capacity as well as a great deal of political violence. In terms of predictors, however, India has quite cohesive political institutions, being one of the oldest democracies in the developing world. It is ethnically fragmented, which works against common interests of the state, but it has a history with threats of external conflict, which works in favour of common interest…”

This is a highly theoretical book, starting on a certain premise and dealing in a limited area. It is an academic exercise meant to provoke debate and discussion. Timothy Besley is the Kuwait Professor of Economic and Political Science at the London School of Economics and Political Science and Torsten Persson is the Torsten and Ragnar Soderberg Chair in Economic Sciences and professor of economics at the Institute for International Economic Studies, Stockholm University.    

(Princeton University Press, 41 William Street, Princeton, New Jersey 08540)?