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Pessimism will only stunt international growth

By Christopher Lingle

Tuesday, Dec 03, 2002, Page 9

It is both telling and disturbing that so many of those wishing to be regarded as "futurologists" seem to prefer Thomas Malthus to Adam Smith. For his part, much of Malthus's work was premised upon a view that the conditions of the world are essentially static.

Since Malthus overlooked the dynamic features of the real world, his predictions were limited to extrapolations into the future based upon existing trends. This makes it unsurprising that his grim predictions about the limits to population have been contradicted by nearly two centuries of evidence. Since so many futurologists tend to follow the same path, it is likely that their pessimism will prove to be unwarranted.

Pessimists about the future often point to apparent demographic patterns whereby a growing imbalance in global age distribution is seen to aggravate the problem of over-population. With a wide-sweeping brush, we are informed that these demographic trends have implications for consumption, production, markets, education, services, the environment, investments and for war and peace. In grand style, populist impresarios of doom offer something to alarm everybody and to catch the attention of every interest group.

As is often the case, there is little to argue against in terms of the statistics cited. It is undoubtedly true that underdeveloped economies have relatively high birth rates. The abject poverty and disproportionate number of children in these countries exaggerates the scale and scope of their population problems. Meanwhile, it is certainly true that developing countries are trending in opposite directions. Declines in population growth (in some cases a diminishing population) are leading to a graying of the population of the richer countries. However, it should be remembered that interpretations of these statistics allow for various predictions of the future.

It is bad enough that Samuel Huntington warns of a "clash of civilizations" along cultural fault lines. We also told of a demographic-technological fault line appearing across the planet in the form of a digital divide. On the one hand, there are longitudinal fault lines that traverse East to West across the Mediterranean or along the Rio Grande. On the other hand, Huntington's fault lines seem to be latitudinal, for example, passing North to South through the Baltic States.

It is as though mankind is being crucified on a complex, self-constructed cross of conceptual fault lines. All this gloom and doom by modern thinkers conjures up the necessary elements for selling newspapers. Instead of "Man bites dog", scenarios abound which suggest that "Man loses control; bites himself."

Despite a presumption to be a global fortuneteller, most futurologists are as short on prognosis as they are flawed in their diagnosis.

Granted they often offer vague proposals to do something to stabilize population in a just and humane manner.

Criticisms are often raised that rich countries have failed to fulfill their promise to allocate 0.7 percent of their GDP toward development aid. Yet the World Bank has provided over US$300 billion to this end since its inception. The harsh reality is that such generosity seldom bears the desired fruit. By its own accounting, nearly 38 percent of World Bank projects completed by 1991 were deemed to yield unsatisfactory results. Meanwhile, bilateral aid is seldom more economically effective as it is often linked to either strategic or defense interests.

It would be far better to encourage developing countries to follow the development approach of many of the East Asian countries.

"Trade not aid" is not merely a catchy corporate policy. It makes good, humane sense. Policy recommendations and futurologist's models should match the conditions of a dynamic world. Extrapolations of trends tend to fall apart when pricing information is imputed.

The famous Club of Rome report Limits to Growth has been widely criticized for ignoring the dynamic effect of human choices in response to dynamics and changing prices. When relative prices change, shifts in expenditures occur toward more highly valued technologies. Similarly, higher prices induce conservation as individuals and firms change consumption or production patterns to economize. Extrapolations are too simplistic. Policies based upon simplistic reasoning can have dire consequences that risk condemning citizens to continued poverty.

In all events, there is no reason to believe that a technological gap shall necessarily follow any historical or geographic pattern. Such deterministic reasoning overlooks the fact that many of the hardships facing the under-developed world stem from an array of poor policy choices. Poor weather and bad luck are simply not plausible explanations for persistent misery. Systemic problems that persist over a long period of time reflect defects in the broad incentive structures that are most heavily influenced by government policies. It is particularly strange that this determinism logic is treated as credible when there are such remarkable success stories in many emerging economies.

As various countries from South Africa to Vietnam to Poland to Chile shake off the vestiges of authoritarian regimes they shall release the dynamism that has been so long repressed. Many of these transition economies are already beginning to show signs of benefits from a reverse brain drain and inflows of international capital. With these observations in mind, it is not surprising that Adam Smith's dynamic insights into the workings of an economic order have come to dominate economic thinking. This dominance occurred despite the articulate naysayers who admired the scholarly prose of Malthus and Marx. Pessimistic futurology may sell books and lead to prestigious appointments, but too much of it is based upon facile reasoning based upon a set of conditions unresponsive to altered circumstances. In order to gain a better understanding of the world today and to measure its effects upon the future we must move the dialogue away from the cackling cacophony of Chicken Little alarmists and "what, me worry?"ostriches.

Christopher Lingle is a professor of economics at Universidad Francisco Marroquin and global strategist for eConoLytics.com.
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