Local Knowledge

Our conversation today focused extensively on a favorite economic principle of mine: Local Knowledge. The Economist F.A. Hayek wrote a wonderful treatise entitled "The Use of Knowledge in Society" in which he writes:

"The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess. The economic problem of society is thus not merely a problem of how to allocate "given" resources--if "given" is taken to mean given to a single mind which deliberately solves the problem set by these "data." It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality."

This idea of "dispersed bits" of knowledge is what we would call local knowledge. Basically, no one person (or entity) can know everything about a situation. The knowledge is dispersed throughout the community. How does this apply to our conversation?

It is extremely difficult for a westerner to come in with a big plan to save Africa. Why? because it is impossible for him/her to hold all the knowledge of the situation. The knowledge of what needs to be done is already in Africa. It is dispersed throughout the villages and tribes. The people have the solutions. When they come together and discuss the issues they can create much better solution than we could ever impose on them. Sure, they may need a little bit of our information (we might want to tell them about the global economy). They need schooling and exposure to new ideas. But everything else should be homegrown.

Why is South Africa doing so well (relatively at least)? It's because Nelson Mandela was a home grown hero. It's because their government and leadership and entire system has been homegrown (more so than other African nations at least)

Now imagine that instead of people being able to grow their own solutions these solution were imposed on them. This is often what happens when someone comes up with a "plan" for development. Economist David Henderson wrote:

"Think about kinds of local knowledge you have about your job or other parts of your economic life, knowledge that would be unavailable to a central planner. Now ask yourself how things would work if you had to get a central planner's permission each time you wanted to act on this knowledge."

This is where the plan gets in the way. It is usually inflexible and thinks that it has all the solutions already. This is opposed to an emergent order where things naturally unfold and do not require anyone to get permission for anything. Instead of planning things out, we should let the people emerge with (or discover) their own solutions.

Again, Hayek writes:

"the answer to this question is closely connected with that other question which arises here, that of who is to do the planning. It is about this question that all the dispute about "economic planning" centers. This is not a dispute about whether planning is to be done or not. It is a dispute as to whether planning is to be done centrally, by one authority for the whole economic system, or is to be divided among many individuals."

In my opinion, the planning needs to be divided among many individuals, and these individuals need to be African. This is the way to create the buy-in and ownership that Kristy posted about. And if this doesn't happen, maybe nothing else will.