Fifty years ago, in the aftermath of World War II, we economists began our own audacious quest: to discover the means by which poor countries in the tropics could become rich like the rich countries in Europe and North America. Observing the sufferings of the poor and the comforts of the rich motivated us on our quest. If our ambitious were successful, it would be one of humankind's greatest intellectual triumphs.

Like the ancient questors, we economists have tried to find the precious object, the key that would enable the poor tropics to become rich. We thought we had found the elixir many different times. The precious objects we offered ranged from foreign aid to investment in machines, from fostering education to controlling population growth, from giving loans conditional on reforms to giving debt relief conditional on reforms. None has delivered as promised.

The poor countries that we treated with these remedies failed to achieve the growth we expected. The region we treated most intensively, sub-Saharan Africa, failed to grow at all. Latin America and the Middle East grew for a while, but then spiraled into a growth crash in the 1980's and 1990's. South Asia, another recipient of intensive attention from economists, has suffered from erratic growth that has still left it the home to a huge proportion of the world's poor. And most recently, East Asia, the shining success we celebrated over and over, went into its own growth crash (from which some, but not all, East Asian nations are now recovering.) Outside the tropics, we tried applying some of the tropical remedies to the ex-communist countries - with very disappointing results.

Just as various claims to have found the elixir of life proved groundless, we economists have too often peddled formulas that violated the basic principle of economics. The problem was not the failure of economics, but the failure to apply the principles of economics in practical policy work. What is the basic principle of economics? As a wise elder once told me, "People do what they get paid to do: what they don't get paid to do, they don't do." A wonderful book by Steven Landsburg, The Armchair Economist, distills the principle even more concisely: "People respond to incentives; all the rest is commentary."

Economists have done a lot of research over the past two decades on how economic growth responds to incentives. This work has variously detailed how private businesses and individuals respond to incentives, how government officials respond to incentives, and even how aid donors respond to incentives. This research shows that a society's economic growth does not always pay off at the individual level for government officials, aid donors, and private businesses and households. Incentives often lead them in other, unproductive, directions. This research makes clear how unfortunately misguided, with the benefit of hindsight, were the past panaceas - including some still in force today-for economic growth in the tropics.
To find their way from poverty to riches, we need reminding that people do what they get paid to do. If we do the hard work of ensuring that the trinity of First World aid donors, Third World governments, and ordinary Third World citizens have the right incentives, development will happen. If they don't, it wont. We will see that the trinity often did not have the right incentives, following formulas that violated the basic principle of economics, and so the expected growth did not happen.

This is a sad story, but it can be a hopeful one. We now have statistical evidence to back up theories of how the panaceas failed and how incentive-based policies can work. Incentives can change and start countries on the road to prosperity. It won't be easy. Incentives are not themselves a facile panacea. We will see how the interlocking incentives of aid donors, governments, and citizens form a complicated web that is not easily untangled.

Moreover, there is already widespread disappointment that the quest has not been more successful. Protestors from Seattle to Prague call for abandoning the quest altogether. That is not acceptable. As long as there are poor nations suffering from pestilence, oppression, and hunger, as I describe in the first part of the book, and as long as human intellectual efforts can devise ways to make them richer, the quest must go on.

Four notes before I begin. First, what I say here is my own opinion and not that of my employer, the World Bank.
Occasionally I am even critical of what my employer has done in the past. One thing I admire about the World Bank is that it encourages gadflies like me to exercise intellectual freedom and doesn't stifle internal debate on World Bank policies.

Second, I am not going to say anything about the environment. I tried to say something about the environment in early drafts of this book, but found I didn't have anything useful to say. There is a big issue about how growth affects the environment, but that's a different book. Most economists believe that any negative effects of growth on the environment can be alleviated with wise environmental policies, like making polluters bear the costs of their deleterious effects on human welfare, and so we don't actually have to stop economic growth to preserve the environment. This is a good thing, because stopping growth would be very bad news for the poor everywhere, as I discuss in the first chapter.

Third, I am not trying to do a general survey of all of economists' research on growth. This research has exploded in the past decade and a half, following the seminal work of Stanford Business School professor Paul Romer and, later, the inspirational work of Nobel Prize winner Robert Lucas. There is not yet a scholarly consensus on some issues, although I think the evidence is strong on others. I try to follow the thread of work that specifically relates to the efforts of economists to figure out how to make poor tropical countries rich.

Fourth, I am going to insert snapshots of daily life in the Third World, "intermezzos," between chapters to remind us that behind the quest for growth are the sufferings and joys of real people, and it is for them we go on the quest for growth.

William Easterly, The Elusive Quest for Growth: Economists Adventures and Misadventures in the Tropics, The MIT Press. Cambridge, Massachusetts, 2001.