Thursday, May 29, 2008

World Bank wisdom- or lack of it?- on growth

This is the hottest new thing on how to achieve growth and it has been driven by the World Bank, among others.

A high-powered 21- member Commission on Growth and Development headed by Nobel Laureate Michael Spence has published a report, “Growth Report: Strategies for Sustained Growth and Inclusive Development.” (India is represented by Montek Ahluwalia, Dy Chairman, Planning Commission).The Commission is an independent body supported by Australia, Sweden, the Netherlands, United Kingdom, William and Flora Hewlett Foundation and the World Bank Group.

I haven't had a chance to read the report but I did read the overview at the World Bank website. The report identifies 13 economies that sustained growth of ovr 7% for 25 years. It says they had the following in common. Each economy:
  • Fully exploited the world economy
  • Maintained macroeconomic stability
  • Mustered high rates of saving and investment
  • Let markets allocate resources
  • Had committed, credible and capable governments
Since China is among the economies mentioned, one has difficulty accepting all the five "common" elements. Nobody can seriously argue that China, which has undervalued its currency and has a state-dominated banking system that funnels resources to state enterprises lets "markets allocate resources".

The report will fuel much comment, not necessarily favourable. William Easterly, himself formerly of the World Bank, has a scathing piece in the FT- he calls the report a "debacle":

After two years of work by the commission of 21 world leaders and experts, an 11- member working group, 300 academic experts, 12 workshops, 13 consultations, and a budget of $4m, the experts’ answer to the question of how to attain high growth was roughly: we do not know, but trust experts to figure it out.

... Why should we care about the debacle of a World Bank report? Because this report represents the final collapse of the “development expert” paradigm that has governed the west’s approach to poor countries since the second world war. All this time, we have hoped a small group of elite thinkers can figure out how to raise the growth rate of a whole economy. If there was something for “development experts” to say about attaining high growth, this talented group would have said it.

What went wrong? Experts help as long as there are useful general principles, such as could be established by comparing low-growth and high-growth countries. The Growth Commission correctly pointed out that such an attempt to find secrets to growth has failed. The Growth Commission concluded that “answers” had to be country specific and even period specific. But if each moment in each country is unique, then experts cannot learn from any other experience – so on what basis do they become an “expert”?

1 comment:

gaddeswarup said...

William Easterley has some comments here not liked by experts:
In response toPaulSeabrights criticism of his criticism of experts, Easterley says "Paul misunderstood my point, which is probably due to my inadequate exposition. There is a big difference between saying “a small group of experts cannot cause growth in a whole economy” and saying “all experts are useless.” I was saying the first, and not the second. Paul seemed to think I was saying the second. I nowhere talked about relying exclusively on “common sense.” I am implicitly defining the “development expert” as someone who has the presumption that they CAN cause growth in a whole economy, and saying the time of such “development experts” is definitely over. I think it is much more plausible that development happens in a decentralized spontaneous way through the efforts of many free individuals to seek better lives for themselves, through the market and through democracy. Of course, some of those ways involve many complex endeavors that need the advice and technical training of many specialized experts: doctors, biologists, physicists, engineers, and yes, definitely, economists. Economists give great guidance on everything from trading systems to macroeconomic stabilization to auction design to financial regulation. Keynes in a famous quote said it would be splendid if economists were thought to be as competent as dentists. I think we are getting close to Keynes’ ambition, and all of the things I just cited where we can be good dentists will contribute to economic development,"