Aligning Elites with Development

Alice Amsden, Alisa DiCaprio, and James Robinson

To understand what role elites play in the process of economic development, we need to establish first who they are. Though most definitions are welfare neutral, in popular discourse elites take on a negative connotation. This conceptual confusion has contributed towards international assistance practices that assume elites are not developmental. Here we turn to look at the missing concept of developmental elites, the ways in which they diverge from other elites, and whether it is possible to promote the conditions under which they thrive. 

Who are the "elite"?

The origins of the term are firmly rooted in Pareto's work on the distribution of wealth and the ruling class.  But today, the term goes beyond its roots in class and is used to describe actors at various levels of society.  A working definition we adopt here is that elites are "a distinct group within a society which enjoys privileged status and exercises decisive control over the organization of society." This does not require that the actor be either wealthy or a member of the ruling class, but it does suggest that they have a measurable impact on development outcomes. 

If we look to the existing development paradigm, we are presented with the idea this impact will be negative and that elites are a problem to be solved.  Increasingly, poverty reduction approaches are bottom-up and seek to move decision-making power away from governments. But this belies the fact that elites are not, by virtue of their position alone, negative forces for development. Throughout history, there are examples of elites who contributed to the provision of national and global public goods — Lee Kwan Yew in Singapore, Nelson Mandela in South Africa, and Bill Gates in the United States are examples. They changed the direction of development in ways that were contingent on their position as elites, and in ways that favoured the advancement of their societies. Whether the welfare impact of elites is positive or negative is determined by how the actor or elite group executes its influence.  

Channels of Elite Impact on Development

The impact that elites have on growth and development exceeds their actual representation within society. This disproportionate impact stems from their control over the productive assets and institutions, which enables them to influence both the allocation of resources and the allocation of authority.

The ownership of resources enables elites to impact growth in two ways.  The most direct is through their decisions over resource allocation.  They can choose to redistribute resources in ways that increase employment, economic efficiency, and reduce income inequality. Or alternatively, they can act as rent-seekers and direct resources towards their social groups.

In addition, their control over resources also gives elites the ability to make decisions over production and technology. The owners of the factors of production have influence over what is produced and how it is produced.  They can act as entrepreneurs and innovators and increase factor productivity and diversification. Or they can overexploit existing resources without regard for sustainability into the future.

Elites also impact development outcomes through their control over decision-making processes that allocate political resources within a society. This introduces two additional channels through which their activities impact growth in the long run.  The first is that elites have the resources to design and implement institutions that favour their interests. Such institutions may promote participation and information flow.  Or they may simply cement the position of a particular group within the governance structure.

Another feature of elite control over institutions is that they are able to influence how both elites and non-elites within a society perceive different issues. Elites control how issues are framed through their ability to distribute or withhold information, and their influence over and within the media.  Even where there is a free media, it depends on elites for information, and can choose to present issues that reflect a particular bias.

The extent to which these channels are used for social or personal welfare gain varies among societies. But the fact that these channels exist in every society highlights the fact that if elites can be induced to adopt developmental behaviour, it can have a disproportionately positive impact on growth and development. 

Capturing Elites for Development

The benefits of bringing the objectives of elites in line with national objectives are obvious.  But the extent to which this is possible and the levers to use to do so depend on what makes elites developmental. On the one hand, it might be that there is some inherent characteristic of some sectors of the elite that makes them different from predatory elites.  On the other, it could be that elites who have been positive forces for development were responding to incentives that made them developmental. Understanding which of these is the correct perspective is important for understanding not only domestic elites in developing countries but also the international elites who are building institutions that embed their preferences into the workings of the international economy.

There is little evidence to support the contention that some elites are naturally more developmental than others.  This is particularly important given the design of international governance structures which incorporate the assumption that there are fundamental differences between the elites of developed and developing countries. There is little to suggest, for example, that the objectives of elites in OECD countries are relatively more altruistic and that the institutions designed by such global elites focus on generating global public goods to a greater extent than would be true if the institutions were designed by alternate elites. For example, though institutions such as the WTO can play an important role in sustaining international trade, they can at the same time play the role of distributing the rents towards developed countries, and by taking too simplistic a view of the nature of comparative advantage can impede socially desirable policies in poor countries. Thus an important element in the design of international governance structures is the perpetuation of the preferences of rich country elites.

Given these observations, the answer to the question of how elites can play a positive role in development needs to focus on how to create the incentives that will lead elites to act in a developmental way. There are three considerations that can direct the process of building incentives without recommending specific institutional forms.

The first step to creating incentives for elites to incorporate social welfare into their activities is to understand the source of elite influence.  Elites that draw their status from the ownership of resources will react differently than elites that draw their status from political influence.  The proper incentives will be adjusted to the source of power.     

The second step is to identify how elites interpret the need for development in society.  For some elites, the volatility caused by poverty may create incentives for them to support development, for example by inducing them to disburse some of their influence to other groups in society.  For others, development may be a threat which induces them to try to capture as much rent as possible before they lose power. 

A third step is to look at how elites translate the interests of their constituency. Elites are a decisive group within their society, and there is evidence that leaders of political parties and unions are often more tolerant of reform and change than the masses they represent. Incentives need to reflect this.

Bringing Globalization into the Equation

The rise of globalization in the current period has had conflicting impacts on elites. On the one hand, it offers new sources of influence for existing elites.  Development aid is channelled through elites before it reaches the poor. FDI allows commercial elites to spread their business model and their products beyond national markets. The need to address global public goods ties governing elites and empowers those technocrats with the ability to create solutions.

On the other hand, globalization constrains the domestic activities of elites. Rules set by the international institutions give non-elites enforcement power. The MDGs pressure elites to at least acknowledge that poverty in its many forms must be dealt with. Mobile phones enable coordination of protesters in authoritarian states to act against ruling elites.

The power of elites is that they will continue to exist in every country in every environment. This was one of the great insights of Pareto and Michels. Their persistence ensures that they will always play a key role in development and growth outcomes.  The challenge that remains is whether their societies  can identify the incentives that will align elite incentives with society’s goals.

WIDER Angle newsletter, August 2009
ISSN 1238-9544