Stefan Dercon: Why beer and pizza are integral to development

While traveling through Cambodia earlier this year, Stefan Dercon, then still working for the United Kingdom’s Foreign, Commonwealth & Development Office, learned the country’s government is still “skeptical” about the U.K. because of its Cold War-era support for the Khmer Rouge.

“If you don't have that historical political understanding, whatever you say will get differently interpreted and you will lose your ability to do something sensible,” he told Devex during an interview in his London apartment.

But by traveling with a regional expert, Dercon, originally from Belgium, was left with a much better understanding of the Cambodian government, including its internal narratives, behavior, geopolitical history, and “entry points.” As a result, his official advice on deforestation and green economic growth “totally changed.”

The experience did not spawn the idea for Dercon’s new book, “Gambling on Development,” but it did reinforce the ideas described in it, informed by the economist’s years of working in development — most recently as a policy adviser to former U.K. Foreign Secretary Dominic Raab and as chief economist in the now-defunct Department for International Development between 2011 and 2017.

He has since left the civil service because he “did not see a sufficiently useful and interesting role anymore” under the setup of Liz Truss, who succeeded Raab in September 2021.

The premise of “Gambling on Development,” a 326-page treatise that is also part memoir, is that the elite groups within low-income countries must decide to agree — for whatever reason — on a “development bargain” to achieve economic “takeoff.” How a development bargain comes about varies from place to place depending on the local political and economic context — and whether a country’s elites are willing to gamble their positions on a better future for their entire nation, rather than just themselves.

Following war, famine, and chaos, a development bargain emerged in Bangladesh because rival factions consciously avoided populism and “short term resource grabs” to avoid a return to instability, Dercon wrote. Meanwhile, Vietnam’s was based on “a mixture of socialist legitimacy seeking and self preservation, with proud nationalistic fervour.”

“This shared commitment is what, above all, more successful countries appear to have in common, despite disagreements over important details, including those on economic policymaking,” Dercon wrote. In his view, credible politics, state capabilities, and the ability to learn from mistakes are required for a bargain to work.

He takes readers on a tour of the many countries he has visited over the years, often on behalf of the U.K. government, and delves into where development bargains have and haven’t emerged. His experiences in China were particularly influential, and Dercon learned that officials did many things that “don't make full sense” to outsiders but were pragmatic within the country’s unique system.

A key theme that emerges from Dercon’s comments is that development professionals should not work in a nation “without spending time trying to understand what's going on in this country and politics,” or else they risk being “ineffective.”

Both economists and politicians have to acknowledge “a reality on the ground,” he added. This is often far clearer to development practitioners, who must navigate local realities. “During the day they are trying to be technocrats … being [all] results-based financing or macroeconomic reform,” said Dercon. “And at night over beer and pizza, they talk politics.”

But “you can't be so schizophrenic,” he added. “It doesn't mean that technocratic advice is wrong, but actually you need to think about, where's the entry point? What should I do? How should I act? And I think in that sense the international development community is, you know, woefully inadequate.”

Instead of relying on “spin doctors,” everyone should make an effort to integrate themselves and consider the local context, particularly as it relates to politics, Dercon said. This is not necessarily about taking a political stance — though he agrees that development professionals are also acting in the political sphere — but about understanding “what's happening around the politics because it will affect the effectiveness of my technical advice.”

Without this understanding of how politics operates, a development professional will have “no way of contextualizing” whether a government official will ever do something they say they will do, or they are “just interested in your money,” said Dercon.

And further afield, “when we're sitting in the capitals in London or Washington, we just love to be kind of much more abstract, theoretical, or maybe ideological,” he added.

So how can organizations — which Dercon said are typically too siloed — fix this issue? The minimum is that “everybody who works in that sector should be willing ... to inform themselves,” he said. While leaders tend to do this, Dercon said there probably is not enough work being done to inform organizations more broadly.

As an example, Bill Gates — a co-chair of the Bill & Melinda Gates Foundation — “understands politics,” as do his “excellent advisers,” Dercon said. But for “people who work within a foundation like that, they should actually have a bit of those skills as well, and not, as I sometimes see, become this kind of perfect technocrat.”

Organizational culture can be helpful in remedying this. Dercon cited the “best” DFID country offices, whose leaders were “all the time thinking about: ‘What is the network of power here?’ ‘Who is actually making a difference here?’ And they would just make sure that across the organization, in their interaction with their all different teams, that they kept on making sure that that knowledge gets passed on.”

So if donors are convinced by the development bargain approach, what can they do to support it, given so much is related to internal politics? Dercon encouraged spending “more in those places where the upside seems to be really high and where there is a sign of a commitment” to embed development bargains — not always easy in a sector that often suffers from “optimism bias.”

Aid, in Dercon’s view, can “de-risk the investment in the places where the upside can be high and that will have a high rate of return of the countries and the investors as well.” This might sound familiar to readers who closely follow U.K. development policy. But Dercon also suggested that budget support could be part of this to avoid building “parallel state structures.” FCDO still does not do that — aside from its work in Ukraine, according to comments made by Nick Dyer, director general for humanitarian and development efforts.

Many “campaigning organizations,” whether pro- or anti-aid, have “a poor understanding of the developing world” and are “not willing to say, look, there are countries where actually it's worth doing it and in other countries you want to be careful,” said Dercon.

His caution around this extends to the $100 billion climate finance target, aimed at helping lower-income countries adapt to climate change. That was intended to be an annual amount of funding between 2020 and 2025 but is not expected to be met until at least 2023. “How well it will be used in these countries will really start depending on how committed they are actually to make these things work,” Dercon said.

Meanwhile, giving aid to countries where “nothing is happening” will result in a “low” rate of return, he said. In his book, Dercon brings up the example of withdrawing spending from health systems in Nigeria some years ago: “Why do we need to compensate for their unwillingness to [invest in health care] in a country that has its own oil revenue?”

Of course, withdrawing this kind of spending — from Nigeria or any other country without a development bargain — ultimately risks the deaths of aid recipients.

“As an economist, I need to be willing, whether it's about humanitarian settings or whether it's about climate change, to actually start weighing what's happening with current and future generations and the life chances of current people versus future,” Dercon said.

“Whenever you work in government, you are making choices,” he added, citing domestic U.K. funding choices for the National Health Service. “It's brutal. But I do think that we may at times risk making it worse.”