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by William Easterly

  China even got an early version of foreign aid. Between 1929 and 1941, the League of Nations provided China with thirty development experts on fields such as health, education, transport, and organization of rural cooperatives. On July 18, 1933, the League appointed a representative to “liase with China’s National Economic Council for the purposes of technical collaboration” with the League.21

  The long involvement of Europeans in China failed to leave much of a mark. The European involvement ended with Mao’s victorious revolution in 1949. Then, after Communist tyranny, the “Great Leap Backward,” and the Cultural Revolution seemed to have condemned China’s people to eternal misery, something unexpected happened in China.

  Second Chinese Revolution

  I take my teenage daughter, Rachel, shopping for shoes. (Rachel and her teenage girlfriends constitute half of the American shoe market.) I like to turn over the shoes in the store and see where they were made. Almost always they are made in China. Less anecdotally, China now accounts for 63 percent of American imports of women’s shoes.22

  Not that China just exports shoes. I do a quick survey of my apartment. My New York Yankees baseball cap—made in China. My clock radio—made in China. My USB FlashDrive for my computer—made in China. The laptop computer itself—made in China.

  The exploration of free markets that started with the end of agriculture communes in Xiaogang in 1978, as told in a previous chapter, spread to industrial as well as agricultural enterprises. On December 24, 2004, the New York Times did a story on China’s textile enclaves. Datang is China’s Socks City, producing nine billion pairs of socks a year, a third of the world’s output. As recently as the late 1970s, Datang was a sleepy rice-growing village of less than a thousand people. People sewed socks in their spare time and sold them by the road in baskets. Ms. Dong Ying Hong worked in the 1970s as an elementary-school teacher at nine dollars a month. She gave up her teaching to make socks at home. Today, she is a millionaire as the owner of Zhejiang Socks.

  Near Datang, in coastal China, there are other enclaves: Underwear City, Necktie City, Sweater City, and Kid’s Clothing City. Hong Kong investors brought modern technology and designs to Necktie City in 1985; the workers at the initial enterprises soon left to start their own necktie companies. China’s Communist government discovered ways to promote these enclaves such as handing out public land, giving tax breaks, and building transport infrastructure. What’s scary is that China achieved this success even while bound by restrictions on international trade in textiles. Those restrictions expired on January 1, 2005.

  China is the most remarkable success story of the last two decades: a very poor nation propelled into an economic powerhouse that scares the Chinese-made underpants off Western companies and other poor countries alike. It is an unconventional homegrown success, failing to follow any Western blueprint for how to be modern. It combines lack of property rights with free markets, Communist Party dictatorship with feedback on local public services, and municipal state enterprises with private ones.

  After the market-based reforms started in 1978, what was $59 billion in industrial production in 1978 became $844 billion in 2003. Exports of $44 billion in 1982 became $428 billion in 2003. Enterprises such as Bao Steel adopted cutting-edge technology by sending engineers and managers for overseas training.23

  Success attracts paternity claims. The World Bank suggests that “support from outside helped make reform happen and contributed to the structure of the reforms.” The World Bank is allegedly saving China’s poor on a shoestring budget: as of the year 2002, $563 million a year, or about a tenth of a penny per day for each Chinese person.24

  I visited China in December 2003, amazed at the dynamism of everyone I met and everything I saw. Everyone is working hard, constructing edifices everywhere; everything and everyone is moving at high speed. Where Washington has its one perpetual traffic jam on its Beltway, Beijing has five beltways (with a sixth one under construction). Technology is exploding, with cell phones and computers everywhere.

  The Chinese economics Ph.D. students I taught in Beijing and Wuhan Universities were ferocious in their desire to learn. I taught in five days the equivalent of a semester-long course, which exhausted me far more than my Chinese students. I later got a Christmas card from Wuhan University that had the bracing message “Improve oneself, promote perseverance, seek truth, and make innovations.”

  To be sure, the ultimate economic test of a society is not rapid growth but attaining a high level of income. China’s per capita income is still only one sixth of that in the United States. The lack of democracy and the remaining inefficiencies caused by state-owned enterprises, banking-system problems, and other state-induced distortions in the economy are still major worries. The bubble may burst, or China may continue its amazing boom, but change is coming from exploration within.

  India

  I am hurtling down a street in old Delhi on a bicycle rickshaw. The “street” is barely wide enough to accommodate the rickshaw and the two middle-age tourist-wallahs on the back. The street is also crowded with fruit, vegetable, and flower vendors, motorbikes, wandering children, emotionally disturbed dogs, and two-wheel carts full of bricks pushed by strong men. Hindu temples line the street. We visit one of them. It dazzles with color paintings of gods, inscriptions in an unfamiliar alphabet, burning candles surrounded by flowers, the smell of incense, and carved stone and wood. It should be humbling to arrogant Westerners to realize that Indian civilization goes back more than three thousand years, which is a tad longer than the life of the White Man’s Burden.

  In any case, India failed to develop during the long period of British tutelage. After independence, foreign aid never amounted to more than about a hundredth of GDP. India initially took a heavily planned, interventionist approach to development, and knew only mediocre growth. The anemic growth was so notorious it even got its own name: “the Hindu rate of growth.” India finally discovered its capitalist inner child late in the twentieth century. (See figure 36.)

  As it does with China, the West tries to take credit for recent Indian success. In India as in China, the World Bank also congratulates itself on a protégé’s rapid economic growth. By its own account, the Bank not only promoted free trade and worked with India’s national government, but it also supported the Indian government’s decentralization, working with India’s myriad state, local, and municipal governments. As in China, the budget for these ambitious achievements was modest: about $1.75 billion in new World Bank lending per year, or about half a penny per Indian per day. How much difference did these modest sums make? The World Bank chief economist suggested their “powerful demonstration effects” enlightened the Indians.

  Fig. 36. India Per Capita Income in U.S. Dollars

  Back on this planet, India had Searchers. Two young entrepreneurs from Delhi, Rajendra Pawar and Vijay Thadani, started a private computer school in the early 1980s. Their National Institute of Information Technology (NIIT) was an instant hit, so much so that they couldn’t accommodate the demand. Their breakthrough idea was to become the McDonald’s of computer education, franchising new schools wherever there was the demand. The franchisees were local professionals who carried the NIIT from the largest cities to the smallest towns. NIIT protected its brand name by standardizing classrooms, teacher training, and advertising, as well as by performing frequent audits and rigorous exams. Today, the tall, bearded forty-eight-year-old Rajendra Pawar leads a company with a stock market capitalization of two billion dollars; eight of his executives are millionaires. Lonely singles seeking matrimony often mention the NIIT degree as a credential in personals ads.25

  India’s famous success at outsourcing IT services for the U.S. market is exemplified by Wipro Ltd., India’s most valuable company, at over ten billion dollars in market capitalization.26 The company provides IT services to 138 of the Fortune 1000 and Global 500 companies, including such famous names as Sony, Nokia, Home Depot, and Compaq. It also runs call centers fo
r the likes of Delta Airlines.27 This is pretty impressive for an obscure company founded in 1945 as a maker of edible oils. The owner of Wipro, Azim Premji, with a B.A. from Stanford, is the fifty-eighth richest billionaire in the world.28

  Turkey

  I met Fatma two days after September 11, 2001. She lives in a rural village forty miles outside of Ankara, Turkey. I arrived in Ankara just as the planes hit the World Trade Center and the Pentagon back home. After a panic-filled day and night trying to reach my kids, I finally got through and found out they were okay. No planes were flying, so I could not return to the United States. My hosts in Turkey generously arranged some travel in the countryside around Ankara.

  On these travels, I encountered Fatma.29 a dignified middle-aged woman. She was sitting outside her home, a four-room mud-and-stone hut covered with wooden sticks and thatch. She told me of the precarious existence of her family. The only income earner is her illiterate teenage son, who does odd jobs of manual labor. Her husband died two years ago, leaving a large debt to the state welfare agency, which demanded repayment of the debt before it would pay pension benefits. To pay the debt, Fatma had to sell all the family’s sheep. Still, some of the debt remained, preventing her from getting a pension. To earn money to feed her aged mother and two deaf and retarded children, she gathers food from the family garden. I can see that what she has described as a two-year-long drought has shriveled its produce. Fatma has some land outside the village, but it is worthless without rain and she cannot afford to dig a well and install an irrigation system. The family makes do on what food Fatma can gather from nature. The charity of neighbors helps the family survive. When I asked her about her hopes or fears about the future, she said she trusted in God to bring better times.

  After my visit with Fatma, I went to the village square. The friendly men of the village were very hospitable to the uninvited visitor, offering me a drink of water and then of some unidentified but tasty alcoholic beverage. The men laughed and joked with one another as I asked them about their village. Some of them were of Kurdish descent but had lived in this village in central Turkey for decades. A few women were present, but held back from the conversation. The men pointed with pride to the beautiful local mosque. Some of the people in the square had probably been benefactors to Fatma, under the Muslim tradition of zakat, in which observant Muslims give away 2.5 percent of their wealth every year to the poor.30

  Fatma is needy and poor, but she is better off in a middle-income economy than she would be in a very poor one. Her poverty is not of the same order as that I have seen in Africa. She has a reasonably comfortable home, with a television set and a refrigerator. I hope Fatma’s life improved as Turkey’s economy recovered strongly from the crisis of 2001. Turkey has had a strong economy for a while.

  In 1917, Vehbi Koç, the son of a literary scholar of modest means, opened a grocery store in Ankara, Turkey, with an investment of eight dollars. He was sixteen years old. When he died, in 1996, he was on the Forbes list of global billionaires. His company, the Koç Group, went from a small trading firm to a global conglomerate that is one of Turkey’s largest private employers. Koç Group produces everything from automobiles, televisions, VCRs, refrigerators, and ovens to matches and tomato paste; it operates banks, insurance companies, tourist properties, and retail chains; it thrives despite the lowering of tariffs and European competition. Koç’s son Rahmi took over the business after his father retired in 1984. Rahmi Koç has a B.A. from Johns Hopkins University. In 2004, when he was number 406 on Forbes ’s list of the world’s richest people, Rahmi Koç passed the generational reins of the company along to his son, Mustafa Koç.31 With consumer choice the guide for Koç that it never was for the White Man’s Burden, Koç has prospered.32 In 2002, its exports rose 45 percent, to $2.6 billion.

  From 1970 to 1995, the share of manufactures in Turkey’s exports rose from 9 percent to 74 percent.33 Turkey’s manufacturing sector as a whole has grown at a robust 5.6 percent per year from 1966 to 2003.

  Turkey is one of the success stories of the twentieth century. Never colonized or occupied by the West, it recovered from the collapse of the Ottoman Empire and a war with Greece after World War I. It has known steady growth ever since. Notwithstanding periodic macroeconomic crises, conflicts with the Kurds, and military coups, Turkey is today a stable democracy. Students from the country are flooding the graduate schools of the United States, getting top faculty positions at prestigious American universities, or going back to Turkey to teach at very well regarded universities there.

  Fig. 37. Turkey Per Capita Income

  Turkey’s government is negotiating with the European Union the conditions of its accession to the Union, promising the epic moment of economic and political unity of Western Christendom and what Europeans used to view as the Eastern infidels. Turkey is not just catching up to the West, it is rubbing out the line between the West and the Rest.

  Botswana

  In 1968, the South African company De Beers discovered significant diamond deposits in Botswana. Botswana’s government negotiated a partnership agreement with De Beers. Whereas other governments with valuable minerals usually nationalized them, Botswana’s government acted shrewdly in enlisting De Beers’s expertise at diamond mining and marketing. In 1976, the De Beers Botswana Mining Company (Debswana) discovered another huge diamond pipe at Jwaneng, in southern Botswana, the largest diamond discovery in the world since the original South African discoveries at Kimberley. Botswana renegotiated the original agreement with De Beers, giving it close to 80 percent of the profits from diamonds. In 1986, Botswana sold to De Beers its stockpile of diamonds (previously withheld from the world market to keep prices high) in exchange for cash and an unprecedented 5.2 percent of the shares of De Beers itself, including the right to name two directors of the De Beers board. Botswana’s economy grew at the world’s fastest rate over the last four decades, despite its dependence on diamonds, an outcome very different from that of other diamond producers, such as Sierra Leone and Angola.34 Botswana’s tiny manufacturing sector expanded rapidly at the same time, registering 8.7 percent growth from 1966 to 2003. Cattle was another important prop for exports and domestic income. In the new millennium, Botswana is diversifying its economy to include other products besides diamonds and is coping with a terrible AIDS crisis.

  Botswana may have benefited from strong pre-colonial institutions of consultations of chiefs with citizens (in kgotlas that were sort of like town hall meetings). Other favorable factors were benign neglect by Britain during the colonial period, the absence of ethnic conflict because of the relative homogeneity of the Tswana people, and clear indigenous property rights based on cattle holdings.35

  Botswana shows a possible path for homegrown development for many African countries. The abundance of natural resources in Africa has been a curse due to their capture by corrupt dictators. We saw in chapter 4 that natural resources are historically associated with bad government. But historical tendencies are not ironclad laws; some countries can break free. Botswana shows that if Africans can get good government from their rulers, the abundance of natural resources can be turned into a blessing.

  Not all African countries are resource rich, but many are. Angola’s natural resources to produce food crops, coffee, sisal, oil palm, sugarcane, tobacco, citrus fruits, fish, hydroelectricity, diamonds, and oil should make it rich. People produced all of these things in the colonial period, but the abrupt departure of the Portuguese at independence and the outbreak of civil war destroyed this potential. Railways built by the Portuguese formerly reached into the mining regions of DRC and Zambia for lucrative cross-border transit to the Angolan port of Benguela. The railway has not functioned since independence. Peace in the DRC and Angola could open the door to tapping this potential again, if citizens’ demands for better government were realized.

  Chile

  I saw just how well integrated Santiago, Chile, was into the world economy when I visited some of the local espresso bar
s during a visit to Chile’s central bank. Barely clad young waitresses took orders, handed out the cups, and collected generous tips. Combining sex, caffeine, and commerce seemed like the epitome of the best and worst of today’s global economy.

  A purer vision of the benefits of Chile’s development came during a visit to a shantytown in Santiago. Accompanied by some idealistic upper-class students who ran a charity renovating shantytown dwellings, I visited some clean, orderly homes amid well-kept streets. I talked to a grandmother whose cement dwelling was adorned by hanging pots of flowers, a television, and comfortable furniture. Poverty was here, but it was quite muted by comparison with other shantytowns I had visited around the world. Chile’s economic growth has benefited poor as well as rich.

  Chile is an exception to the current Latin American travails. After Salvador Allende’s socialist detour in 1970–1973, the brutal military government of Augusto Pinochet instituted free-market reforms. Macroeconomic crises plagued the military regime, but the free-market reforms eventually paid off in the 1980s. Democracy returned, but both leftist and rightist political parties agreed to keep the free-market model. Today, Chile is a stable free-market democracy.

  On July 23, 2003, Congress approved a free-trade agreement between Chile and the United States, which took effect on January 1, 2004. Chile exported a diverse range of products to the United States in 2004, such as fish, fresh fruit, wood, wood products, copper, and clothing.36 The success of the fresh fruit industry is typical of Chile’s exploration for its niche in the world economy. Exploiting its Mediterranean climate and its opposite Southern Hemisphere growing season, it seized on the chance to export gourmet fresh fruit to the North Americans.