More Pritchett, Less Piketty

Last week, Thomas Piketty and 45 co-authors at the World Inequality Lab released what they call the Global Justice Report. Piketty summed up the main findings and demands in the plan on X. It’s a sweeping blueprint for restructuring the world economy by 2100. The stated goal is twofold: fight climate change and lift the Global South out of poverty. Rich countries stop growing; the resulting ecological space allows poor countries to grow; redistribution through the Global Justice Fund does the rest.

At the heart of the argument is the idea that the growth-centered economic model has run its course for poverty alleviation, and that growth itself should be discouraged for rich countries.

Many have noted how insane this idea is. Some have also rightfully labeled it an exercise in envirodictatorship. However, the offering of this idea has elevated the discussion about the importance of growth. In the course of reading about how people responded to Piketty, I found a new research paper that challenges the idea that growth alone isn’t enough, and that development aid or a global government to address global poverty is as necessary as growth.

Growth Is Enough, and Only Growth is Enough

Lant Pritchett of the London School of Economics and Addison Lewis of Brigham Young University have released a paper with a deceptively simple title: “Economic Growth Is Enough and Only Economic Growth Is Enough.“

Their target is a claim that has become fashionable in development economics: that growth is not sufficient to improve human wellbeing, that targeted programs and redistribution are “equally important,” and that poor countries should worry as much about the distribution of income as its growth. To this effect, Pritchett and Lewis cite a bunch of examples. The executive director of J-PAL, one of the most influential development research organizations in the world, put it baldly in a 2021 op-ed: “growth is not enough.” Yale’s Rohini Pande, director of the Economic Growth Center, wrote that growth “will not be sufficient to eradicate extreme poverty.”

This phenomenon, taken to its extreme, is what Piketty and his friends express when they argue against growth.

In that paper, Pritchett and Lewis set the record straight. They aim to prove something stronger about growth than a mere correlation: namely, that every general, plausible, cross-national measure of the basics of human material wellbeing has a strong, non-linear, statistically robust relationship with GDP per capita.

“Basics” here means what you’d expect: things like child mortality, nutrition, access to clean water and sanitation, shelter, primary and secondary schooling, and life expectancy. The floor of what a decent human life requires.

They construct multiple measures of the basics using entirely different methods, then compare them to GDP per capita. They also run three deliberate “data undermining” exercises to search specifically for indicators and weights that minimize their relationship to GDP per capita, to find the weakest possible result.

What they find is that regardless of how you measure the basics of human wellbeing (the Legatum Prosperity Index, the Social Progress Imperative’s Basic Human Needs index, the Oxford Multidimensional Poverty Index, or headcount poverty rates), the relationship with GDP per capita has four features that hold across every specification:

• The relationship is strong. GDP per capita alone predicts basic human wellbeing with a correlation of around 0.90. The statistical significance is, in the authors’ own word, ‘astronomical.’

• The relationship is non-linear. Growth matters most where countries are poorest. For the world’s bottom billion, an extra dollar of GDP per capita does two to eight times as much for basic human well-being as the same dollar does in a middle-income country. The poorer you are, the more growth transforms your life, which is precisely why capping it is most cruel to those Piketty claims to be helping

• Third, GDP per capita is empirically sufficient. There are no countries with high GDP per capita that have low scores on basic human wellbeing.

• Fourth, GDP per capita is empirically necessary. There are no countries with low GDP per capita that have achieved high scores on basic human wellbeing. You cannot get there without it. No combination of targeted programs, clever NGOs, redistribution schemes, or foreign aid has produced a poor country with rich-country health, nutrition, and education outcomes.

The lone outlier is Equatorial Guinea, a country that achieved high GDP per capita through oil extraction under a kleptocratic government that kept the gains confined to a narrow elite. The point is made: if growth is captured entirely by a tiny ruling class, it won’t flow to basics. But this is an argument for governance and institutions, not against growth.

Pritchett and Lewis do not just show that their preferred measures of basics correlate with GDP per capita. They run 100,000 simulations in which they randomly draw one indicator from each of seven basic domains of human wellbeing (health, education, nutrition, water and sanitation, housing, poverty, and natural environment) and combine them with randomly chosen weights. They then look for the specification that produces the weakest possible relationship with GDP per capita.

Even their worst-case result, which they achieve by rigging the index so that air pollution counts 40 times more than adult mortality and 29 times more than extreme poverty – a weighting scheme no serious researcher has ever proposed – nevertheless still shows countries getting meaningfully better as they get richer. These authors tried 100,000 different combinations of indicators and weights, specifically looking for a way to break the relationship. They couldn’t find one.

The share of income spent on necessities declines as income rises. This means that necessities are consumed intensively at low-income levels, and the income-expansion path for basics is steep at first, then flattens out. That is precisely what the non-linearity in these data shows. The strongest effects of growth on basics are at the lowest income levels, where growth moves people from near-nothing to something. Once a country’s GDP per capita reaches around $20,000–$25,000, the marginal gains to basics from further growth are small, not because growth stops mattering, but because the basics have already largely been achieved.

For the countries where development economics actually operates – countries below the 80th percentile of global income – the typical person lives right at the peak of the elasticity curve. Growth there does not just raise measured income. It raises child survival rates, nutrition, schooling, and life expectancy. No targeted program does that at scale or as a path to universally decent living standards. Moreover – and importantly – the absence of growth ends any improvement.

The Policy Implication

Pritchett and Lewis are careful not to argue against targeted programs as such. A well-designed intervention that passes a benefit-cost test is worth doing. But there is a crucial distinction between “cost-effective” and “sufficient.” Targeted programs can be cost-effective at the margin without ever being sufficient to deliver universally decent living standards. Growth, if it actually happens, is both sufficient. That is the finding.

This distinction matters for how donors, governments, and international institutions allocate their scarce attention. If the goal is to get poor countries to rich-country levels of basic human wellbeing, the evidence says that the path runs through sustained GDP growth. The institutions, the property rights, the rule of law, the openness to trade and investment, the macroeconomic stability – basically the things Adam Smith advocated for 250 years ago – these are the things that produce growth, and growth is what produces the outcomes everyone claims to care about.

Development economists have spent two decades shifting their field’s attention away from the importance of growth. Instead, they committed themselves to the idea that poverty is a problem that can be solved with the right detailed programs. Pritchett and Lewis essentially argue that this reallocation of intellectual effort has been a major mistake.

Why This Matters Here at Home

On his Substack, Lant Pritchett writes about his new paper: “This paper is part of my continued quest to get development economics and development actors re-focused on economic growth, and yes, the more inclusive the better, but “inclusive” is just the adjectival modifier, “growth” is the noun. You might like having a red car more than a blue car but if you don’t have a car its color is hypothetical.”

The path out of poverty clearly runs through growth; nothing delivers results like it. Targeted programs are not remotely equal to growth, no matter what many development economists and activists claim. I am pretty certain this is also an indictment of pretending we can lift people out of poverty through the forced redistribution of a deliberately shrunk pie a la Piketty.