Every few years, a book on development economics gets everyone talking. I have bought my share of them over the years, but not necessarily for my enlightenment. Their theses tend to cancel each other out, and I ended up more confused than before. In the mid-2000s, economist Jeffrey Sachs released The End of Poverty: Economic Possibilities for Our Time , arguing that foreign aid, judiciously applied, can help poor countries overcome the interlinked problems of extreme poverty, low or zero growth and environmental degradation. A few years later came Dead Aid: Why Aid is Not Working and How There is a Better Way for Africa by former Goldman Sachs banker Dambisa Moyo, who criticised massive foreign, mostly Western aid, for achieving nothing over many decades other than perpetuating dependency, corruption, poor governance and poverty among recipient countries. Moyo is particularly memorable to me, but not in a good way. She actually made me much poorer. But for reading her, I would have been richer by a few million, at least in Hong Kong dollars. I can’t remember whether it was this book or her subsequent one, How the West Was Lost , where she wrote that from an investment point of view, there ought to be no difference between putting your money in real estate or the stock market. Sure enough, I sold my flat in west Mid-Levels in 2010 and put most of the money in stocks. For those who know about the Hong Kong property market between 2006 (when I bought the flat) and now, you get the picture. I had to see a psychiatrist after that. US democracy vs Chinese-style development: the real ideological clash But sorry to digress. So, aid or no aid? For me, no idea. Then economists Daron Acemoglu and James Robinson made a splash with Why Nations Fail: The Origins of Power, Prosperity, and Poverty . To achieve sustainable growth and development, you need proper political and economic institutions such as inclusive democratic governance and intellectual property protection. Well, sure, but look at China! In contrast, the influential Growth Report, commissioned by the World Bank and co-authored by Nobel economics winner Michael Spence, famously concludes there is no recipe for economic development, at most only some known ingredients. In Bad Samaritans: The Myth of Free Trade and the Secret History of Capitalism , Korean economist Chang Ha-joon argues how the richest countries of today all committed what we nowadays call intellectual property theft when they were poor and technologically underdeveloped. And now comes Gambling on Development: Why Some Countries Win and Others Lose by Stefan Dercon, a Belgian economist who is director of the Centre for the Study of African Economies at the University of Oxford. His theory is very simple, even simplistic, but I think it’s basically true. Developing nations succeed if they can commit to what he calls the development bargain, a kind of social contract between the governing elite and the governed. “The defining feature of a development bargain is a commitment by those with the power to shape politics, the economy and society, to striving for growth and development,” he wrote. Ring a bell? Well China, of course! But that’s only the most well-known and the one that provokes the most controversy. Before, there was the Liberal Democratic Party in post-war Japan, which was governed practically as a one-party democracy; Chiang Kai-shek and the Kuomintang in Taiwan, Lee Kuan Yew and the People’s Action Party in Singapore, and Park Chung-hee in South Korea. The development bargain, at least in East Asia, seems highly compatible with the basic tenet of political Confucianism: the ruler has the greatest duty not only to defend the nation, but to make it stable and prosperous. Indeed, the legitimacy of rulership depends on that. US cannot stop China’s hi-tech rise “Peace and stability, Chinese officials are always saying that [as prerequisite to economic development success]. I am sure they have been told to say that, but they are also not wrong,” he said in a lecture at Oxford available on YouTube. Dercon, of course, wasn’t thinking about Asia per se. Plenty of recent examples where developing countries have made huge strides whose rulers never read a word of Confucius. Vietnam, Bangladesh, Rwanda, Botswana and Ethiopia all have had high and fast growth in the past decade. Sadly, the last is now mired in a civil war. These are all states that are committed to achieving peace and stability, self-aware enough to be able to recognise errors, learn from them and make course corrections. These can be democratic or non-democratic. They need functioning institutions which need not be perfect or corruption-free; and they are usually not committed strictly to a market economy or state control, but a mixture of the two. Foreign aid works in countries that have made the development bargain; they don’t in countries without one. And politics before economics: outside economists and advisers can help if they understand and can work within the domestic political context. After all, the big bargain means the ruling elite has to be on board. In other words, arrogant lecturing Westerners and NGOs get nowhere, if not worse. People talk about political realism. Dercon’s may be called economic realism. And you know what? It makes perfect sense to me. Gambling on Development: Why Some Countries Win and Others Lose by Stefan Dercon, published by Hurst