Monday, June 30, 2008

Development as Dumb

There's some buzz about the new Growth Report: Strategies for Sustained Growth and Inclusive Development (or Spence Report) replacing the age-old "Washington Consensus." The report, however, prompts a no-duh kind of response. Dani Rodrik summarizes the report's general view:
...The traditional policy framework, which the new thinking is gradually replacing, is presumptive rather than diagnostic.

It starts with strong preconceptions about the nature of the problem: too much (or too little) government regulation, too poor governance, too little public spending on health and education, and so on. Moreover, its recommendations take the form of the proverbial “laundry list” of reforms, and emphasize their complementary nature – the imperative to undertake them all simultaneously – rather than their sequencing and prioritization. And it is biased toward universal recipes – “model” institutional arrangements, “best practices,” rules of thumb, and so forth.

By contrast, the new policy mindset starts with relative agnosticism about what works. Its hypothesis is that there is a great deal of “slack” in poor countries, so simple changes can make a big difference. As a result, it is explicitly diagnostic and focuses on the most significant economic bottlenecks and constraints. Rather than comprehensive reform, it emphasizes policy experimentation and relatively narrowly targeted initiatives in order to discover local solutions, and it calls for monitoring and evaluation in order to learn which experiments work.

The new approach is suspicious of universal remedies. Instead, it searches for policy innovations that provide a shortcut around local economic or political complications.
But much of the most intelligent thinking in development work came to such conclusions a couple of decades ago by challenging the very notion of "development." The development industry - a monopoly of monstrous international agencies, elites on massive salaries, and smaller firms doing whatever it takes for money-flow - is fundamentally conservative intellectually. The best work has almost always come from the margins once again - at time from within places like the World Bank, but most often from without - making small dents here and there in the industry. But now it appears that the industry itself is shifting its general perspective. William Easterly responds pretty much how I would,
...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.

This conclusion is fleshed out with statements such as: “It is hard to know how the economy will respond to a policy, and the right answer in the present moment may not apply in the future.” Growth should be directed by markets, except when it should be directed by governments.

My students at New York University would have been happy to supply statements like these to the World Bank for a lot less than $4m.

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”?

That's partially because "growth" is now and always has been the wrong marker for the good life. It's a dumb, meaningless marker.

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