Countries with a development bargain tend to have three features in common: 1) the politics of the

bargain are real and credible, not just some vague official statement or announcement; (2) the capabilities
of the state are used to achieve the goals of the bargain, but, importantly, the state avoids doing more than
it can handle; and (3) the state possesses a political and technical ability to learn from mistakes and
correct course.’

Dercon blog 1:
So what made the difference in a way that has more in common with other successes? It was the shift in
China after 1979 towards a fundamental commitment by its leaders to growth and development—indeed,
they staked their own political legitimacy as a one-party state on offering their citizens better living
conditions through growth and development.

The elite tend to gain from the status quo—that is, the political system and the economy are built to
serve them. Elites that move towards growth and development, with the long-term perspective that
it requires, tend to gamble that restraint and lower gains in the short term may pay off later. Vested
interests are bound to be affected, and the risks to their own position are obvious. The elite are thus
gambling on development.

Dercon contended that low tax collection is part of this elite bargain equilibrium, as are high subsidies,
low savings, and investments. The poor business environment is intended to discourage foreign direct
investment. He added that these factors often lead to poor decision-making, resulting in macroeconomic
fiscal crises.

(. the state ventures into various areas more suited to the private sector, such as manufacturing (of food
items/cereal), to agriculture (corporate farming).

Review 1:
Ultimately, the prescription is to take steps to bring a development bargain closer—Dercon suggests
backing with those bureaucrats who pursue good economic outcomes within the existing elite bargain and
working with firms directly to nudge the economy to a place where for the elites, placing a long-term bet
on development starts to look more sensible and less like a wild gamble. Without one, development—and
certainly prosperity—will be slow, painful, and probably out of reach.