Policy

The World Bank And Toward The Wealth Of Nations: Possibly Useful Thoughts?

The World Bank is one of the world's best hopes to drive economic progress in poor areas of the world. Using the terms First, Second and Third World, the First World averages $20,000 per year per capita and has grown at an average 2 percent per year for 70 years. The Second World averages $6,000 per capita and grows in spurts that typically die out. The Third World averages $1,000 per capita and does not grow.

Economic growth theory seems to have no accepted account of the increasing diversity of wealth between the rich and poor nations.

In a previous post on economics and collectively autocatalytic sets, it was pointed out that an economy consists of input goods, production capacity "catalyzed" transformations of these to output goods, and that the transformations catalyzed were either by human hands, minds or products of the economic "web" itself. Two boards as inputs to a production capacity of nail and hammer yields an output good of two nailed boards.

Thus the economy is, in fact, a collectively autocatalytic system where all the production capacities, or transformations, are "catalyzed" by products of the very same economic web.

Some economies are supracritical, creating an increasing diversity of, often un-pre-statable, goods and production capacities, e.g., the global economy. Some economies are subcritical, e.g., Alberta, Canada, producing for export oil, wheat, timber and beef. Alberta is wealthy by virtue of export to the world of its commodities, which are used by the supracritical collectively autocatalytic set economies of other parts of the world. We hypothesize the testable hypothesis that the stable growth of the First World at 2 percent is linked to its supracriticality. It provides the import market for countries that are largely producing export commodities.

A critical distinction is this: Alberta is linked to and dependent on the world commodity market for its wealth. It does not make goods that are sold and bought mostly by Albertans. The United States largely is supracritical and, at least some decades ago, made goods sold and bought by Americans, fairly largely independent of import and export. The U.S. economy provides internally its own market for its own goods produced by its own collectively autocatalytic set. The wealth of U.S. citizens has thus been relatively independent of exports, less now than before.

Economic macroeconomic growth theory appears to ignore the role of the economic web and treats the economy as producing pretty much a single good. Economic aid tries to help other nations by the Washington Consensus: stable government, good infrastructure, sound money, educated workforce, etc. But Alberta has all this yet remains subcritical, thus wealthy but vulnerable to the world commodity markets.

The World Bank has not sought to create supracritical collectively autocatalytic sets in poor countries that might internally provide jobs and wealth for its citizens. Rather, based on Ricardo's theory of National Competitive Advantage, where Scotland produces wool well, and Spain produces sherry well, both have advantages of trade. Partially with this foundational idea in mind, the World Bank often offers a subprime loan to poor country, X, used to pay for something like the construction of, say, a zinc mine in X, constructed by a first World company. X is enriched by export of zinc to the world commodity market, must repay the loan, perhaps in devaluing local currency, often a big load. The company in the first world makes money from its construction of the zinc mine.

This leaves X with no internal supracritical autocatalytic economy where X, or X and its regional neighbors with such a shared supracritical autocatalytic set, can generate jobs, goods and services which are made, sold and bought internally, largely independent of the world commodity export market. In the best case, X becomes Alberta, wealthy, but like Alberta, dependent upon the supracritical collectively autocatalytic set economy to which it exports zinc.

Ricardo was both right but, we suggest, inadequate. He did not, in his national advantages of trade theory, consider economies as sub- and supracritical, nor that economies can be vast interconnected collectively autocatalytic sets that provide jobs and goods sold and bought independently of exports.

We believe new thoughts, if validated, may be needed about economic development based on building in X or a X region, collectively autocatalytic set economies large enough and diverse enough to supply jobs, and goods largely sold and purchased within X or its region. Such sets could, in principle, start at a low technological level, that of X, and yet provide interwoven jobs and goods, and gradually increase in technological sophistication to eventually compete in the global economy. If these ideas have merit, they might help the World Bank in the business of creating the wealth of nations.


Asim Zia, the co-author of this post, is currently serving as assistant professor in the Department of Community Development and Applied Economics at the University of Vermont. He has a Ph.D. in Public Policy from the Georgia Institute of Technology. His research is focused on the development of computational and complex-systems based approaches for policy analysis, governance informatics and adaptive management.

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