Integration is the Path to Economic Development:
The 8 Domains

Theories explaining the drivers of economic progress abound. The goal behind the theories is to build a roadmap toward prosperity for all humanity. Why then, in poor nations, do so many efforts fail? Diverse economic development theories can be categorized into Eight Domains according to Michael Fairbanks. To read more about the eight domains directly from Michael Fairbanks, see "That's My Duck, The Case for Integration" from In the River They Swim: Essays from Around the World on Enterprise Solutions to Poverty, Templeton Press 2009.

The Eight Domains of Development represent the end of a process which distills myriad development ideas and places them into categories. These categories – The Eight Domains - give us a way to think about different development philosophies. One can use them to look for common ground among theories and to find obvious contradictions. Typically, development theorists design a paradigm and then propagate it largely in isolation of other thinkers. In so doing, each domain comes to represent a stand alone perspective. In contrast the Eight Domains present us a way to integrate diverse theories of economic progress. What follows is a brief description of each Domain and a reading list to provide a more robust perspective.

1. The Human Science Domain.

The domain of Human Science combines discoveries in biological evolution with those in human migration to give us clues toward development solutions. Societies on different continents have developed under variable environmental and geographic factors. Those factors led to unique human evolution including migratory patterns, community development, and immunity to diseases (among other biological adaptations). Today, humankind continues its evolutionary process. New research on brain development explores the importance of certain neurons for human empathy and risk taking – ingredients essential to economic development. Child rearing practices may play a role in the vigor of those neurons. Descriptively the domain of Human Science shows us the evolutionary impact of geographic and biological circumstances. Prescriptively it points us to study disease immunity and brain development to look for clues about biological connections to economic development. For example, if we can isolate child development patterns that augment growth, we can encourage those patterns in an effort to increase human capacity.

To learn more about the Human Science Domain please read the following:

• Jared Diamond, Guns, Germs and Steel; the Fates of Human Societies, (Norton, New York, 1999)
• Colin Camerer, George Lowenstein, and Matthew Rabin, Advances in Behavioral Economics, (Princeton, Princeton, 2004) and “Neuroeconomics: How Neuroscience Can Inform Economics,” Journal of Economic Literature, (March 2005)
• John Christianson and Marc Lampe, “Applying Neuroscience to Business and Public Policy,” The San Diego Union-Tribune, June 8, 2007, at www.signonsandiego.com
• Mark Schaller and Damian Murray, “Pathogens, Personalities, and Culture,” Journal of Personality and Social Psychology, (2008, Vol. 95, No. 1, 212–221)
• Sigman, Cohen, and Beckwith, "Why Does Infant Attention Predict Adolescent Intelligence?" Journal of Infant Behavior and Development, (1997, Volume 20)
• Thomas Sowell, Conquests and Cultures, (Basic Books, New York, 1998)

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2. The Culture Domain. Nations differ in what they believe is valuable or esteemed.

Those collectively held values and beliefs also shape human progress. The cultural domain suggests the internal culture of a nation is a primary force behind development or lack thereof. Values can be characterized in two ways: those that support progress and those that hinder it. An emphasis on education, hard work, utility, dissent, and a future orientation are examples of progress-promoting values. Values like these support new learning, welcome competition and promote innovation. By contrast progress-resistant values undermine progress. Examples of progress-resistant values would include an emphasis on the past over the present, paternalism toward authority, and leisure as more highly regarded than work. According to culturalists values can be catalogued and changed and can therefore positively influence progress. The values most determinative to economic success are the degree of trust toward others in the society, the kind of ethical system supported by most people, personal attitudes about work, and how authority is viewed and managed.

To learn more about the Culture Domain please find these resources:

• The following books by Lawrence Harrison:
  • The Central Liberal Truth, (Oxford, New York, 2001); and
  • Culture Matters (Basic Books, New York, 2000); and
  • Who Prospers, (Basic Books, New York, 1992); and
  • Underdevelopment is a State of Mind, (Basic Books, New York, 1986)
• Geert Hofstede, Culture’s Consequences, (Sage, London, 2001) and, Cultures and Organizations: Software of the Mind, (McGraw Hill, New York, 2005)
• Francis Fukuyama, Trust: The Social Virtues and the Creation of Prosperity, (Free Press, New York, 1995)
• Ed Banfield, The Moral Basis of a Backward Society, (Free Press, New York, 1967)
• Robert Putnam, Making Democracy Work: Civic Traditions in Modern Italy, (New York, 1994) and Bowling Alone; The Collapse and Revival of American Community, (Simon and Schuster, New York, 2000)
• Alexis De Tocqueville, Democracy in America, (Harper Collins, New York, 2007)
• Montesquieu, The Spirit of the Laws, (Cambridge Press, New York, 2002)

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3. The Institutional Domain.

“Institutions are the rules of the game,” according to Douglass North, Nobel Prize winning economist. They are the systems society puts in place to reduce the costs and risks of transactions. Institutions are analogous to the rules in an athletic contest – both the formal rules and those more informal codes of conduct within which the players abide. When players agree to play by the rules the game moves forward in a predictable and efficient fashion. Examples of formal institutions are a nation’s constitution, its system of property rights, its judicial system, and rules about starting a business. Examples of informal institutions are social norms, esteemed virtues, and the aforementioned degree of trust within a society. Positive economic change occurs because the underlying institutional framework consistently enforces the law and property rights are guarded. Stable, efficient, predictable rules encourage investment and growth. Conversely, inefficient institutions undermine productive choices, and even create disincentives for such choices.

To learn more about the Institutional Domain please refer to the following:

• Douglass North, Institutions, Institutional Change and Economic Performance, (Cambridge University Press, New York, 1990)
• Steven Levitsky and Maria Victoria Murillo, Argentine Democracy, (Penn State Press, University Park, 2005)
• “Order in the Jungle; Economics and the Rule" (The Economist print edition, March 13, 2008)
• Richard Roll and John Talbott, “Political Freedom, Economic Liberty, and Prosperity,” (Journal of Democracy, July 2003)
• Alina Mungiu-Pippidi, “Corruption: Diagnosis and Treatment”, (Journal of Democracy, July 2006)
• Larry Diamond, The Spirit of Democracy: The Struggle to Build Free Societies Throughout the World, (Holt Paperbacks, New York, 2008)
• Francis Fukuyama, The End of History and the Last Man, (University of Wales Press, United Kingdom, 1999)
• Fared Zakaria, The Future of Freedom: Illiberal Democracy at Home and Abroad, (W.W. Norton & Company, New York, 2003)
• Amartya Sen, Development as Freedom, (Random House, New York, 1999)
• Milton Friedman, Capitalism and Freedom, (University of Chicago Press, Chicago, 2002)
• Hernando DeSoto, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else, (Basic Books, New York, 2000)

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4. The Basic Factor Domain.

Basic factors are the natural resources and infrastructure nations need to build an economy. According to a basic-factor approach, subterranean wealth is the most basic factor, providing a natural resource to export in some way. Other forms of basic factors include transportation or communication infrastructure, easily accessed trade routes, and sunshine and rain for agriculture. According to aid advocates, large amounts of financial assistance will substitute in regions where natural resources are scarce or geographic conditions challenge growth. However, many contest the sustainability of over-reliance on either basic factors or aid packages. Too much Basic Factor wealth squelches entrepreneurial activity. There has also been debate about the effectiveness of foreign aid packages as large cash inflows can also spawn corruption, and undermine incentives to innovate.

To read more about the Basic Factor approach and the debate surrounding it as a sustainable solution, please refer to the following:

• Jeff Sachs, The End of Poverty; Economic Solutions for Our Time, (Penguin New York, 2003)
• William Easterly, The White Man’s Burden, (Penguin, New York, 2006)
• William Easterly, “Can Western Aid Save Africa?” Clemens Lecture Series (2005)
• Jeff Sachs, et al, “Ending Africa’s Poverty Trap.” Brookings Papers on Economic Activity, (2004)
• The Economist, “The Paradox of Plenty,” (December 20, 2005)
• Svetlana Tsalic and Anya Schiffrin, Covering Oil, (Open Society Press, New York, 2005)
• Paul Collier, The Bottom Billion: Why the Poorest Countries Are Failing and What Can Be Done About It, (Oxford University Press, New York, 2007); Collier enters the Basic Factor Domain as a centrist, and also advocates institutional reform. He could also be included in that Domain.

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5. The Macro-Economic Domain.

The macro-economic domain suggests that economic growth occurs when central banks and governments apply the correct monetary and fiscal policies. Proposed solutions to development problems can be summarized in the strategies recently used by the IMF in an effort to rebuild former Soviet, Latin American and East Asian economies: stabilize (currency and government spending), liberalize (controls to FDI, trade flows, etc.), and privatize (by selling off state owned enterprises). Much of the bi-lateral and multilateral aid to developing nations has recently been conditioned upon some kind of economic policy or political reform strategy. John Williamson’s “Washington Consensus,” directed initially at developing economies in Latin America, reflects the general agreement from a decade ago. Though no longer as ubiquitous a philosophy, it illustrates the attempt to design growth strategies by leaning on central resources and monetary measures.

The following books and articles can be included in the Macro-economic Domain:

• John Williamson, “What Should the World Bank Think about the Washington Consensus?” The World Bank Research Observer, (August 2000, v 15, n 2)
• John Williamson, “Curbing the Boom-Bust Cycle; Stabilizing Capital Flows to Emerging Markets,” Institute for International Economics, (Washington DC, 2005)
• Allan Greenspan, The Age of Turbulence, (Penguin, New York, 2008)
• Joseph Stiglitz, Globalization and Its Discontents, (Norton, New York, 2003)

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6. The Human Capital Domain.

The Human Capital Domain posits that economic growth is maximized when workers are made more productive through on-the-job training, higher levels of education and health care. These activities are called investments in human capital. Human capital investment increases the efficiency of the worker allowing greater output per person hour. It also allows the worker to demand a higher wage. Investing in education facilitates new ideas and has paid dividends world wide. On-the-job training programs and health care also increase the productivity of the average worker. Job specific training likely has the most immediate effect as worker’s new skills make a direct impact on productivity; but sustaining a healthy workforce also plays a powerful role.

To read more about Human Capital please find the following resources:

• Gary Becker, Human Capital: a Theoretical and Empirical Analysis with Special Reference to Education, (University of Chicago Press, Chicago, 1993)
• Theodore W. Schultz, “Investment in Human Capital,” American Economic Review, (1961)
• Thomas O. Davenport, Human Capital: What It Is and Why People Invest It, (Josey Bass, San Francisco, 1999)
• T. Paul Schultz, Investment in Women’s Human Capital, (University of Chicago Press, Chicago, 1995)
• World Bank Policy Research Bulletin, “The Making of the East Asian Miracle,” (August -October 1993, v 4, n 4)

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7. The Idea Gap.

An Idea Gap exists between the developed and developing worlds. Its source is an uneven flow of information, ideas, and innovations. Information and ideas are generated and distributed around the world in asymmetric ways. People in different places and in different positions have unequal access to the right kind of information and that difference has caused inequities in incomes. Therefore, the quest for, and most efficient use of, good information is a paramount economic enterprise. It takes time, energy and resources to connect the unemployed with an employer, credit markets with entrepreneurs, and goods with buyers. These costs make up part of the “idea gap.” The manner by which innovations diffuse through a society makes up part of the gap as well. The faster they move, the more quickly members can integrate new insight. When a complex problem is recognized, ideally basic and applied research can be conducted; then entrepreneurs can create a marketable product or service. Perhaps the most important ideas are what Paul Romer calls Meta-ideas. They are the inventions that will support the generation of many new ideas and innovations.

To read more about the Idea Gap please refer to the following resources:

• Joseph Stiglitz, “Information” The Concise Encyclopedia of Economics. www.econolib.org.
• Paul Romer, “Economic Growth,” The Concise Encyclopedia of Economics. www.econolib.org.
• Paul Romer, “Increasing Returns and Long-Run Growth,” Journal of Political Economy, (1986, v 94, n 5)
• Paul, Romer, “Why Indeed in America? Theory, History, and the Origins of Modern Economic Growth,” The American Economic Review, (May 1996, v 86, n 2)
• Everett Rogers, Diffusion of Innovations, (New York, Free Press, 2003)

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8. The Micro-Economic Domain.

The Micro-economic Domain suggests that strong competitive firms are the foundation for robust growth. According to micro-economists firms compete, not nations. Good business strategy and an environment where entrepreneurs can thrive must be part of the atmosphere for developing economies. This requires a shift in thinking on behalf of many who seek to build their economies on outdated comparative advantage thinking rather than on gaining a competitive advantage in world markets. The more productively a nation uses its resources the more it will progress and develop. While a century ago a nation’s wealth was measured comparatively with what others had (who had more natural resources), today the “productivity paradigm” of wealth is a measure of its competitive advantage (who uses those resources more efficiently). The most productive micro-economies occur when businesses operate in “clusters” – groups of competitors and industry stakeholders. The primary belief needed to shape this kind of environment is an affirmation that productivity drives progress, not control of resources.

To read more about a micro-economic path to development please refer to the following:

• Michael Porter, Competitive Advantage of Nations, (Free Press, New York, 1990)
• Michael Fairbanks and Stace Lindsay, Plowing the Sea; Nurturing the Hidden Sources of Growth in the Developing World (Harvard Business School Press, Boston, 1997)

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The Eight Domains of Development help to categorize the best of development thinking in recent decades. Discussed in parallel fashion rather than as competing ideas, one can see an integrative model emerge. Though some policy decisions are based on one domain against another, there is no need for exclusivity. Policies that run at counter purposes with others should be scrutinized closely and the most effective should be promoted. Not only can common ground be found, all the domains have their voice in present solutions. Each points to an aspect of the answer.