Developing Development Econ
New economic thinking is needed to meet the fresh challenges of rapid global growth.
I have a question. The acceleration of growth in emerging markets, and even in less-developed countries, has transformed the global economy. Why hasn't it upended development economics?
From my own exposure to the topic, I have come to three broad conclusions relevant to this question -- all of them are obviously debatable, and please do debate them. (The comments section is waiting for you.) The first is that most development economists did not see this -- by which I mean the acceleration of trend real output growth in such economies from 2 percent in 1990 to 7 percent in today -- coming. The second is that most development economists still do not have anything approaching an adequate explanation for why this happened, and why it happened when it did. The third is that development economists remain totally in the dark as to how to bring about this remarkable growth acceleration in the remaining laggard economies. The fourth is that development economists are unsure if the growth acceleration will endure, particularly in the less-developed countries.
This represents a real failure for this field of scholarship. It also represents a real opportunity.
Economics has never been a field where consensus comes easy -- Harry Truman's demand for a "one-armed economist" comes to mind -- but in macro, vigorous debate conceals a surprising degree of agreement on broad principles such as the value of countercyclical government policy, for low and stable inflation and the causes of inflation, etc. This is much less true in development economics, where the fundamentals remain in debate. It's hard to put a development program into practice when there really isn't a program -- and there isn't, whether we're talking about policies on trade, investment, and capital flows, or on institution-building and the Third World state, or in what determines whether a constraint on growth is binding or not.
Akash Kapur, The International Herald-Tribune's India correspondent, explains:
For all its temptations, however, the search for a policy toolkit toward development is fraught with pitfalls. Over the last 60 years or so, the international development community has come up with model after model, theory after theory, in search of just such a toolkit...Three papers by Dani Rodrik drive this point home (1, 2, 3). At various points, Rodrik's words are striking: "The debate now is not over whether the Washington Consensus is dead or alive, but over what will replace it." "What should developing countries do to increase their growth rates and speed up the rates at which their citizens converge to the level of material well-being obtained in today’s advanced nations? Around ten or fifteen years ago, there was a fair degree of consensus on how to answer this question...This consensus has by now largely dissipated...Few economists now seriously believe that there is a short list of 10 or 20 policy reforms that can be relied on systematically to produce higher economic growth." "[G]rowth accelerations tend to be highly unpredictable: the vast majority of growth accelerations are unrelated to standard determinants."
Yet for all the efforts to come up with a general theory of development, the truth is that economic growth remains something of a mystery. This is the conclusion of a recent anthology, “What Works in Development?”, published by the Brookings Institution. The essays lead to the conclusion that there is no clear way to ease poverty, and — as the editors, William Easterly and Jessica Cohen, state in their introduction — “no consensus on ‘what works’ for growth and development.”...
It was given voice last month by none other than Robert B. Zoellick, president of the World Bank, when he spoke of the need for “rethinking” development economics and “a questioning of prevailing paradigms.”
Does development economics need such a short list? Maybe not, in the end. While the scholars have tussled and failed, the developing world has found their solutions, for the most part. (Even the lot of Collier's "bottom billion" is improving.) The paths these countries have charted in the last decade, and their continued advance in the coming years, offers the potential for a root-and-branch remaking of this branch of economics.