A universal recipe for development

In today’s world we know a lot about economic growth and institutions that promote it. Private property rights, rule of law, functioning judicial system, and so on – all those institutions are necessary for economic and democratic progress because they help build and sustain good governance. But if we know all that, why is it that we can’t just come up with a set of “ideal” laws that each developing country could simply apply? As Friedrich Hayek argues, such a one-fits-all approach doesn’t work because no matter how much textbook economic knowledge we may have, no single person or group has enough detailed on-the-ground knowledge to prescribe a precise universal set of steps toward greater development. The best we can do is strive to create institutions that facilitate economic and political freedom and thus enable individuals to channel their dispersed local knowledge into productive entrepreneurial outcomes.

    If there were omniscient men, if we could know not only all that affects the attainment of our present wishes but also our future wants and desires, there would be little case for liberty. And, in turn, liberty of the individual would, of course, make complete foresight impossible. Liberty is essential in order to leave room for the unforeseeable and unpredictable; we want it because we have learned to expect from it the opportunity of realizing many of our aims. It is because every individual knows so little and, in particular, because we rarely know who of us knows best, that we trust the independent and competitive efforts of many to induce the emergence of what we shall want when we set it.

Because economic development is dependent on so many variables unknown and unknowable to any single individual, autocracy cannot be a good recipe for development even if various strongmen around the world want to convince their populations that it is. Instead, individual freedom – constantly enhanced and protected through a network of liberal economic and democratic institutions – is the only universal development recipe we have. There is no better mechanism for lifting nations out of poverty than to give free individuals a voice in the policymaking process in their country so that they may aggregate the benefits of grassroots knowledge and advocate for local solutions to local problems.

Published Date: March 18, 2008