The Great Escape, Angus Deaton’s big new book: Brilliant on inequality and politics, but wrong on aid

March 4, 2014

     By Duncan Green     

Ricardo Fuentes (@rivefuentes) reviews The Great Escape, Angus Deaton’s big (and controversial) new book on development.Great Escape cover

A long time ago, while finishing my college degree at CIDE in Mexico, I started working with the different editions of the Mexican Household Income and Expenditure Survey. I was assisting my then boss and mentor, Alejandro Villagomez, in a project studying consumption and savings in poor households in Mexico. It was then that I first read Angus Deaton’s work – we used his synthetic cohorts method. It made me feel much smarter than I really was.

It was also around that time when Deaton published his hugely influential book: The Analysis of Households Surveys. For a young economist interested in development microeconomics, that book was nothing short of a miracle. Clearly written, broad in scope, technically thorough and with the Stata code for the analysis in the appendix. I used it so much in the early years of my career that the cover of my copy went from blue to pale gray. It’s now missing the back flap.

So it was very exciting to hear that Deaton had a new book. The Great Escape is a detailed tour-de-force that collects most of Deaton’s academic work over the last 20 years or so, but written for the general public. The first goal of the book is then to disseminate the trove of findings that Deaton and coauthors produced in academic journals. But the book is also an instrument for Deaton to express some of his views on politics and policy. This is what’s really new in The Great Escape.

In Deaton’s own words, the core argument of the book is:

“Life is better now than at almost any time in history. More people are richer and fewer people live in dire poverty. Lives are longer and parents no longer routinely watch a quarter of their children die. Yet millions still experience the horrors of destitution and of premature death. The world is hugely unequal.

Inequality is often a consequence of progress. Not everyone gets rich at the same time, and not everyone gets immediate access to the latest life-saving measures, whether access to clean water, to vaccines, or to new drugs for preventing heart disease. Inequalities in turn affect progress. This can be good; Indian children see what education can do and go to school too. It can be bad if the winners try to stop others from following them, pulling up the ladders behind them. The newly rich may use their wealth to influence politicians to restrict public education or health that they themselves do not need.”

inequality cartoonSo, humanity’s lot has improved over the long term but this progress creates inequalities in the process.  The first two sections of the book present the evidence to support the argument. To explain how progress creates inequalities in health, for instance, Deaton uses the example of cigarette smoking. He writes “The knowledge that cigarette smoking kills has saved millions of lives in the past fifty years, yet it was educated, richer professionals who were the first to quit, opening up a health gap between rich and poor”. But then, he asks “Why do these inequalities persist, and what can be done about them?”

This is, to me, the most important question in the book. While the existence of these inequalities is the result of scientific or technological progress, its persistence is the result of policy and political decisions.

Then it becomes a Catch-22. As Deaton argues, massive income inequality distorts the political process in favor of the few wealthy elites. “Growth, inequality, and catch up are the bright side of the coin. The dark side is what happens when the process is hijacked, so that catch-up never comes”. He explains how politics and inequality are intertwined in the US: “there is a danger that rapid growth of top incomes can become self-reinforcing through the political access that money can bring” and continues “If democracy becomes a plutocracy, those who are not rich are effectively disenfranchised.”

I agree with Deaton’s overall argument – it’s very similar to the idea behind our recent paper “Working For The Few”. Where I disagree, and it’s no surprise, is in Deaton’s last section, where he deals with the problems of international aid.

It is not that aid is without problems. Just by looking at the history of US food aid policy one could quickly become disenchanted. But it seems to me that Deaton is throwing the baby out with the bathwater. Deaton harshly criticizes the “hydraulic” approach to aid: if water is pumped in at one end, water pours out at the other. He writes “Fixing world poverty and saving the lives of dying children is seen as an engineering problem…. Children’s lives are saved by providing insecticide-treated bed nets (which protect against malaria) at a few dollars each, or by oral rehydration therapy at $0.25 a dose, or by administering vaccinations at a few dollars each”.

The thing is, children’s lives are indeed saved by bed nets, vaccinations and ORT, all of them supported by aid (as he later, in the same chapter, accepts). It’s hard to imagine the dramatic fall in child mortality in the last decade without such aid-supported interventions. Deaton spends the chapter focusing on the negative aspects of foreign aid (and there are plenty) but minimizes the positive impacts (and there are plenty of those too). His most drastic accusation, that foreign aid undermines democracy and civil participation in receiving countries, follows a similar logic as the resource curse. And just as with the resource curse, it might be true in some instances, but by no means justifies, as Deaton suggest, the elimination of all aid forms. That conclusion is akin to suggest no country should ever exploit its natural resources, instead of making better use of them. He writes that those in favor of foreign aid argue it needs to be improved, and goes on to dismiss it as an easy answer, but to me, it’s the most complicated, and relevant, one. The resources available through foreign aid can and should be used to promote that Great Escape that Deaton celebrates.

Deaton concludes with cautious optimism about the future of humanity’s lot in the face of major threats, most notably climate change and politics captured by a small elite. It’s reassuring to read this hopeful note from someone of Deaton’s stature. And many years after first reading his writings, I’m still learning in every document he writes. Highly recommended.

Loads of other reviews in the blogosphere, but I particularly enjoyed Owen Barder’s polite but forensic probing in his Development Drums podcast interview with Deaton.