Using Data, Networks and Complexity to Study Trade, Aid, Economics

The number of times you read a paper which seriously affects the way you view the world is depressingly low in the development business. Papers focus on the small-scale (does buying more text books improve test scores?) instead of the big picture (why are so many people starving to death?).

Among the papers which do seriously change your view of things, very few of them are accessibly written (see this blog post on Sen) and almost none contain laugh-out-loud moments or prose well-written enough to verge on poetry.

Eric D. Beinhocker‘s “The Origin of Wealth” is a well-known example, and I have now found one more. Jay W. Forrester‘s paper Counterintuitive Behavior of Social Systems left me reeling, dazzled by beautifully expressed ideas and charged with a new enthusiasm for research just as much as Beinhocker’s book did, but is something in the order of 50 times shorter. It contains all the ideas which are currently doing the rounds at the Center for Global Development‘s supposedly state-of-the-art thinking on development and complexity (see Owen Barder‘s fantastic lecture on this subject) and yet was written in 1971. (Note that all quotes will be from this article unless I say otherwise.)

The economists among us may have heard of Forrester as the originator of the Macroeconomics 101 favourite “Beer Game“, which was an entertaining MIT-originated way of demonstrating how well-intentioned attempts to improve a business, even those made by people with full knowledge of the business and complete understanding of the policy levers at their disposal, can lead to booms, busts and the highly unpredictable and chaotic behaviour seen in financial markets. Forrester says in this paper that these unexpected outcomes are the result of the human brain’s inability to follow through the logical conclusions of its understanding, or “mental model”, of the system it is trying to fix.

“Ordinarily [people's] assumptions about structure and internal motivations are more nearly correct than are the assumptions about the implied behavior.”

A common example of this is the arguments around the impact of giving cash to people asking for money on the streets. We’re told not to do it, for reasons which sometimes appeal to complex cause-and-effect chains, but it seems counter-intuitive and against some kind of moral urge. According to Forrester this is because social systems

“…are inherently insensitive to most policy changes that people select in an effort to alter the behavior of the system. In fact, a social system tends to draw our attention to the very points at which an attempt to intervene will fail.”

Forrester uses an example from his time working in urban dynamics at MIT. He says that building low-cost housing in depressed areas can have counter-productive effects by (temporarily) lowering housing costs, attracting inward migration without creating any new jobs. More people and no new jobs only serves to depress the area further. This and other measures (including financial aid in the form of subsidies) are concluded to

“…lie between neutral and detrimental almost irrespective of the criteria used for judgement.”

Forrester maintains that social systems are complex, and that solutions are not to be found in the same places as symptoms (c.f. Ben Ramalingam‘s leading-edge thinking on malaria). It is unsustainable for any area of a country to be fundamentally more attractive (across all possible considerations of attractiveness), and if local development programmes succeed in:

…[making] some aspects of an area more attractive than its neighbor’s, population of that area rises until other components of attractiveness are driven down far enough to again establish an equilibrium.

Instead, he makes a plea for programmes which think of the wider system holistically, taking into account so-called “general equilibrium effects” which describe how the wider system reacts to changes in a certain area.

“Programs aimed at improving the city can succeed only if they result in eventually raising the average quality of life for the country as a whole.”

This advice clearly applies to development projects too, and it’s astonishing to think how little it is still being heeded in the vast majority of today’s development literature: Angus Deaton‘s hugely entertaining diatribe “Instruments, Randomization and Learning About Development” makes similar complaints, and was written some forty years after Forrester’s.

Another piece of advice which could have been written yesterday (c.f. seemingly every British government policy since Attlee) is that:

there is a fundamental conflict between the short-term and long-term consequences of a policy change… [We should be] cautious about rushing into programs on the basis of short-term humanitarian impulses. The eventual result can be anti-humanitarian.

He goes on to extol the virtues of mathematical modelling over “contemplation, discussion, argument, and guesswork” and presents an enormous, Heath Robinson-esque model of the world which he uses to predict global catastrophe from a variety of all-to-contemporary concerns including food production limitations, a pollution crisis and natural resource limitations. Let me just restate: this paper was written in 1971.

A Heath Robinson-inspired model of the world (1971)

A Heath Robinson-inspired model of the world (Forrester, 1971)

He makes an ahead-of-his-time gloomy assessment of the outlook for international development, that there may be

“…no realistic hope for the present underdeveloped countries reaching the standard of living demonstrated by the present industrialized nations.”

Forrester then goes on to present possible ways of avoiding catastrophic population collapse cautioning that transitioning from the contemporary path of unsustainable growth to one of sustainable equilibrium will involve painful readjustments and unpopular policies (sound familiar? See this entertaining clip of Paul Krugman talking about fiscal consolidation during a recession, or any one of a million of his brilliant blog posts on the subject.) This stuff reminds me of the hugely impressive Diane Coyle, and her work on The Economics of Enough.

The paper ends with a little bit of more-optimistic poetry:

I suggest that the next frontier for human endeavour is to pioneer a better understanding of the nature of our social systems. The means are visible. The task will be no easier than the development of science and technology. For the next 30 years we can expect rapid advance in understanding the complex dynamics of our social systems. To do so will require research, the development of teaching methods and materials, and the creatino of appropriate educational programs. The research results of today will in one or two decades find their way into the secondary schools just as concepts of basic physics moved from research to general education over the past three decades.

I wonder if, over forty years on and given that almost no one is working on development as a complex system, Jay W. Forrester is disappointed that this is the one area where his predictive powers seemed to fail him so spectacularly.

January 23, 2013

Thanks for the intro, makes me want to read the paper. The Sen link didn’t work for me though.

January 24, 2013

Oops. Thanks for letting me know about the link, Stephen. I’ve fixed it!

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