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Key Takeaways from Eric Werker’s Talk on Deals and Development: The Political Dynamics of Growth Episodes

by Karly Hurlock and Alex Lam

Published: November 24, 2018

On November 19, Eric Werker led a presentation and roundtable discussion about his recently released book at Carleton University’s Norman Paterson School of International Affairs (NPSIA).

Deals and Development: The Political Dynamics of Growth Episodes, edited by Eric Werker, Lant Pritchett, and Kunal Sen, focuses on bringing private sector insights and logic into the governance of development and growth in developing countries. The book provides a framework for understanding the political economy behind economic growth episodes and each chapter of the book investigates a different case study.

Here are CIDP’s three takeaways from the event:

1. Developing country economies are characterized by uneven growth episodes

The framework presented in Deals and Development is motivated by the fact that economic growth in developing countries is characterized by medium-term growth episodes. This is in contrast to long-term stable growth suggested in traditional economic theories and witnessed in OECD countries. For example, Ghana has experienced an average GDP growth rate of 1.3 per cent, comparable to OECD countries such as the UK, but has witnessed far more boom-and-bust variation over history.

International assistance donor countries, such as Canada, should pay attention to what drives growth episodes in developing countries. The factors underlying these growth episodes, especially negative ones, have implications for international development policy effectiveness.

2. Growth episodes are determined by political factors and business interests

The business environment in developing countries is characterized by individual deals between governments and firms, rather than the neutral applications of rules and policies. These deals are heavily influenced by two domestic factors,  the political settlement (the realization of political power distributions within a domestic setting) and business interests.

Domestic business interests, also referred to as the “rent space”, are determined by the type of market within which firms are operating. The markets are either competitive or rent-seeking, and export-oriented or domestic. All firms fall into one of four different groups: “magicians”, “rentiers”, “workhorses”, or “power brokers”.  Each different type of firm interacts with the political settlement and rent space and this interaction influences economic growth episodes.

3. Business deals can vary in nature and can promote sustainable growth

Certain types of deals between businesses and government facilitate more positive, stable, and sustainable growth episodes. Others may create negative feedback loops that harm the economy, disrupt the distribution of political power, and encourage monopolistic rather than competitive firm behavior.

Deals may be characterized along two axes: openness refers to the exclusivity of private sector access to deal-making with political powers, and order refers to the predictability or stability of deals conducted. Open ordered deals facilitate stable growth episodes, and they pave the way for structural improvements to political and economic institutions in developing countries. In contrast, closed deals are likely to reinforce existing political power structures, discourage competition and innovation, and cause institutional decline.

Roundtable Discussion 

The discussion that followed Dr. Werker’s presentation involved a wide range of participants including faculty from the NPSIA, professors from neighboring universities, representatives from the International Development Research Centre, and professors from various universities.

Key questions emerging from the roundtable:

Can individual firms switch classifications, for instance from “workhorse” to “magician,” in response to political changes or external shocks? Perhaps firm classifications should be considered less of a concrete identity. If firms are seen as entities that evolve over time it is possible to identify conditions that are most conducive to producing each type of firm and deal.

What role do  property rights have in achieving  long-term economic stability? Long-term property rights may be endangered by shorter-term instability in growth and political power.

Can government policy be truly nuanced enough to make room for and attend to the classification of firms?  The system and theory presented may not be immediately applicable and may not be able to be implemented in its current form.

 

Deals and Development: The Political Dynamics of Growth Episodes is available for free open access.

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