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«SHAKING UP INTERNATIONAL DEVELOPMENT Learning to Learn Undoing the Gordian Knot of Development Today Charles Sabel and Sanjay Reddy The authors, ...»

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Learning to Learn

SHAKING UP

INTERNATIONAL DEVELOPMENT

Learning to Learn

Undoing the Gordian Knot of

Development Today

Charles Sabel and Sanjay Reddy

The authors, specialists in development, argue

that what they call dirigisme—an a priori set of

requirements for economic development—has led

to the preeminence of the strong and the exclusion

of the weak. They advocate a learning-centered approach to development, which in turn emphasizes the contributions of both demand and supply to economic development.

D EVELOPMENT the world over is a partially successful and partially failed experiment. Urgent questions about its means reverberate more and more often with broad doubts about its goals.

Its deep flaw is its dirigisme: the assumption, common to nearly all development theory, that there is an expert agent—the state for the CHARLES SABEL is professor of law and social science at Columbia Law School. SANJAY REDDY is an assistant professor of economics at Barnard College and the School of International and Public Affairs at Columbia University.

Challenge, vol. 50, no. 5, September/October 2007, pp. 73–92.

© 2007 M.E. Sharpe, Inc. All rights reserved.

ISSN 0577–5132 / 2007 $9.50 + 0.00.

Challenge/September–October 2007 73 DOI: 10.2753/0577–5132500505 Sabel and Reddy dogmatist and orthodox left, the International Monetary Fund (IMF) or other guardians of market orthodoxy for the right—that already sees the future of development and can therefore issue instructions for arriving there. Whether through celebration of the developmental state or by adulation of a cosmopolitan, technical elite, this dirigisme has led to unholy alliances with the powerful and the exclusion of the weak.

Conceptually, dirigisme is expressed as a set of theories of the requirements of economic development under specific conditions: a list (different, again, for the left and right, and under constant, confusing revision, it seems, by both) of the institutional prerequisites for growth. In practice, the dirigiste mentality presents a set of policy recipes for determining how investment funds will be allocated, tax rates set, and currency conversion managed.

It is these recipes that suppress the diversity of forms of life, by dening which ends of humankind are “feasible” and accrediting some sources of knowledge while discrediting others. Such a straitjacketed conception of the order of things diminishes the attainment here and now of human potential, and accentuates the propensity to misapply technology and ideas, with too often disastrous consequences—discovered, and admitted, too late. No wonder development by dirigiste stages and recipes seems to many tobe more an invitation to collective self-abnegation than a reliable promise of regeneration.

Is there a way forward? In this programmatic note we propose that a common thread connects the emergent alternatives to development orthodoxy: the enhancement of the conditions of individual and collective learning. This approach to development highlights the existence of unresolved problems and the necessity of problem solving in every sphere. The enhancement of the conditions of learning can be the key to improving performance, resolving deadlocks, and overcoming blockages. By expanding the space of effective freedom, innovations in the conditions of learning can make possible the discovery of new institutions that better serve the diversity of the goals that we may have. This is true at every level at which common dilemmas and collective problem solving occur—from the global commons to the local enterprise.

74 Challenge/September–October 2007 Learning to Learn The learning-centered approach to development avoids the dirigiste pretension that the pathway of development has a clear and predetermined form. Because it emphasizes that learning is a collective but indeterminate process that is best advanced by collective arrangements that recognize this indeterminacy, it also avoids the pretension of dirigisme to a privileged insight concerning, and capacity to execute, the conditions of advance. The learning-centered approach recognizes the fundamental and pervasive incompleteness of our perceptions and cognitive capacities as human beings, and our need for one another to partially overcome this incompleteness. By emphasizing local experimentation on the one side and the need to correct local results by interlocal exchange and review, the learning-centered approach does justice to both the limits of our knowledge and our collective ability to better it.

Seen another way, learning to learn relaxes apparent constraints both in the sphere of practical problem solving in which it takes place and in the others that adjoin it. The reciprocal relaxation of constraints, within and across domains and levels of economic and social life, enables a progressive unblocking of unrealized potential. In economic life, it progressively transforms the operative rules of each sphere of productive activity, and the relation between the micro- and the macroeconomy, revealing certain hard choices to be false dilemmas while putting new problem-solving challenges in their place.

By itself, of course, the approach we suggest will not overcome the dualism of developing economies, which is manifested in the industrial domain by the separation of a few advanced firms connected to world markets from a mass of vastly less capable producers struggling to survive in the vigorous but under-resourced informal sector. Nor will it alone solve the problem of corrupt, often predatory governments that batten on the miseries of dualism. However, it does suggest common ways to unleash the creative power of both the advanced and informal sectors and to improve government performance, so as progressively to advance a process of development.





In the note that follows, we first present two examples of the learning-centered approach. The first indicates why, under current

Challenge/September–October 2007 75Sabel and Reddy

conditions, there need not be a hard choice between relaxation of constraints of supply and relaxation of constraints on demand. The second indicates why this reciprocal relaxation can be advanced, not subverted, by a public sector that undertakes learning-centered reforms. Then we illustrate two ways in which the learning-centered approach might be extended. The first illustration suggests how jointly addressing supply and demand constraints at the level of national economies can prompt reconsideration of the function and approach of key institutions—the IMF and the World Bank—that constitute an essential part of the context for national development decisions. The second, more tentative still, suggests how one innovation in democratic participation might be reconsidered in the light of learningcentered problem solving.

In keeping with a compelling idea—open, nonproprietary software development—consider what follows not as an effort to lay foundation stones of a new cathedral of development thinking, but rather as an offering in the bazaar of collaborative work on a theme that concerns us all. Refine and multiply the examples—or counter them with others. Better yet, develop the overall argument—or reject it in favor of a better alternative (we trust) to a failed dirigisme.

Not Such a Hard Choice After All? The Straitjacket of Supply and Demand in the National Economy Under current orthodoxy, a government often comes across fiscal limits to its development strategy, which are in turn grounded in political limits. A government that wishes to augment domestic demand often cannot do so directly, because—tenuously supported in civil society—it faces obstacles to increasing tax revenues. Moreover, the limited credibility of its development program raises the specter that debt finance will be inflationary. This worry is reinforced by international financial institutions such as the IMF, which place severe external constraints on the ability of treasuries to finance by borrowing. In parallel, on the “supply side” a state cannot encourage supply-side innovation without arousing the suspicion of “picking 76 Challenge/September–October 2007 Learning to Learn winners” (and so encouraging rent seekers) or simply of letting the bureaucracy run amok.

An alternative, learning-centered strategy loosens the supply constraints of individuals and firms by fostering the development of their capabilities to learn and to do, and enhancing the rewards to such learning. In the most favorable outcome, the increase in the capabilities of agents will in turn foster an increase in demand, as it will ease the access to resources of those who have previously been shut out—first triggering an expansion of the demand for investment goods with which to make productive use of new energies, and ultimately for consumption goods with which to realize improvements in standard of living.

Mechanisms of this general sort are familiar from theories of unbalanced growth. A fairly recent example of a virtuous cycle of supply-induced expansion in demand is provided by China’s experience in the years after 1978, during which a rapid increase in agricultural productivity generated by institutional reform and market liberalization in agriculture became the trigger for an upward spiral of national growth. Such a virtuous cycle is characterized by the reciprocal breaking of the constraints of supply and demand, as the entry of new “supply-side” market participants pursuing market opportunities newly opened to them in turn augments the demand for goods produced by others. This is not an application of the static (and false) Say’s law, by which supply is deemed “automatically” to generate corresponding demand. What is doing the work is, on the contrary, continuing disequilibrium—the dynamics of demand calling forth output supply and supply generating input demand—occasioned by the expanding circle of market participation under a progressively more inclusive pattern of economic development. In the best case, such a virtuous cycle is characterized by a fever of self-reinforcing and self-fulfilling positive expectations, which provides the slow-burning fuel for prolonged and sustained growth.

Historically, unbalanced growth strategies have typically meant dangerous leaps in the dark. The same limit-breaking designed to touch off virtuous circles could easily lead to self-defeating “great leaps

Challenge/September–October 2007 77Sabel and Reddy

forward” or, less dramatically, continuing disruptive turbulence that eventually allows powerful interests to offer themselves—at a handsome price—as the forces of stable prosperity. What we highlight in contrast is the possibility that breakthroughs can come not through vast initial developmental gambles involving whole sectors, but rather by a myriad of small improvements on the supply side coming together to generate a marked relaxation of constraint on the demand side.

An Example—Credit, Learning, and Industrial Development Creditworthiness is one crucial and conspicuous link between microstructural improvement and the relaxation of macro-constraints. One of the most important of the conditions that facilitates the reduction of supply constraints is the broadening of access to credit. Increased access to credit is in turn made possible by the increase in the creditworthiness of individual agents that takes place when observable determinants of productivity such as physical infrastructure, established skills, and the conditions of individual and social learning are enhanced.

For instance, all else being equal, the better able a firm is to detect and correct defects in its internal organization, training, and links to suppliers or customers, the greater its chances of success and hence its creditworthiness. At a very high level of generality, this is an empty tautology; and under conditions of general and enduring stability, it is irrelevant (because existing firms will have done just about all the error-correction detection that competitive survival requires).

But under volatile market conditions, where the composition of demand and technology change abruptly and continuously, this ability is a precondition for competitive adjustment. It is seen as such by many potential customers and suppliers, who are therefore keen to rate and continuously monitor the capacities of their suppliers (especially the capacity to respond to queries about performance). Hence, among other things, the explosive diffusion of certification under ISO and other norms that signal this capacity.

Similarly, in volatile markets, the better able a lender is to assess 78 Challenge/September–October 2007 Learning to Learn the ability of firms to make these kinds of success-enhancing self assessments, the less likely it is to make bad loans, and the greater its creditworthiness. This increased creditworthiness means, of course, that lenders themselves can borrow more from other financial institutions and increase the volume of their loans to (creditworthy) firms.

Whether to firms or to financial institutions, this is capacity-based, not collateral-based, lending. We can think of its generalization through the economy as the vulgarization of venture capital.

The upshot is that as firms (increasingly) learn to reduce their failure rates and financial institutions (increasingly) learn to identify the learning firms, improvement of microstructural conditions enlarges the return on investment of a developing economy and so relaxes macroeconomic constraints, even in the presence of hard-money central banks.

The effects of such a learning-based increase in business investment would likely be multiplied by links between investment and private consumption, and between domestic and foreign investment typical of developing economies. An example is consumer credit. Where financial institutions doubt their capacity to assess the creditworthiness of firms, they are likely to throw up their hands at the prospect of assessing the creditworthiness of individual consumers those firms employ. So it is no surprise that for this reason (and, of course, others), loans for consumer durables are often available only at usurious rates.



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