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Thursday, June 12, 2008

A New Washington Consensus?

Dani Rodrik seems pleased with the emerging consensus on the "do's and don'ts for policymakers in developing countries":

Is there a new Washington consensus?, by Dani Rodrik, Project Syndicate: ...Two and a half years ago,... the World Bank approached the Nobel laureate Michael Spence to ask him to lead a high-powered commission on economic growth. The question at hand could not have been more important. The "Washington consensus" — the infamous list of do's and don'ts for policymakers in developing countries — had largely dissipated. But what would replace it? ...

Thus was born the Spence Commission on Growth and Development, a star-studded group of policymakers ... whose final report was issued at the end of May.

The Spence report represents a watershed for development policy... Gone are confident assertions about the virtues of liberalisation, deregulation, privatisation, and free markets. Also gone are the cookie cutter policy recommendations unaffected by contextual differences. Instead, the Spence report ... recognises the limits of what we know, emphasises pragmatism and gradualism, and encourages governments to be experimental. ...

The Spence report reflects a broader intellectual shift within the development profession, a shift that encompasses not just growth strategies but also health, education, and other social policies. ...

[T]he 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 emphasises 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. ... This approach is greatly influenced by China's experimental gradualism since 1978 — the most spectacular episode of economic growth and poverty reduction the world has ever seen.

The Spence report ... has no "big ideas" of its own, and at times it tries too hard to please everyone and cover all possible angles. But... It is quite a feat to have achieved the degree of consensus he has around a set of ideas that departs in places so markedly from the traditional approach.

It is to Spence's credit that the report manages to avoid both market fundamentalism and institutional fundamentalism. Rather than offering facile answers such as "just let markets work" or "just get governance right," it rightly emphasises that each country must devise its own mix of remedies. Foreign economists and aid agencies can supply some of the ingredients, but only the country itself can provide the recipe.

If there is a new Washington consensus, it is that the rulebook must be written at home, not in Washington. And that is real progress.

    Posted by on Thursday, June 12, 2008 at 01:17 AM in Development, Economics | Permalink  TrackBack (0)  Comments (9)

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