Saturday, March 22, 2008

Development Book review

Nicholas Kristof reviews Fatal Misconception:The Struggle to Control World Population by Matthew Connelly;
Fatal Misconception” is to population policy what William Easterly’s “White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good” (2006) was to foreign aid: a useful, important but ultimately unbalanced corrective to smug self-satisfaction among humanitarians. Connelly scrupulously displays a hundred years of family planners’ dirty laundry, but without adequately emphasizing that we are far better off for their efforts. One could write a withering history of medicine, focusing on doctors’ infecting patients when they weren’t bleeding them, but doctors are pretty handy people to have around today. And so are family planners.

One of the movement’s early sins was a fondness for eugenics, the belief that contraception was perfect for “dull-minded natives,” as one enthusiast put it, or for curbing the share of melanin in the admixture of humanity. Activists sometimes seem to have had antifreeze in their veins. Connelly cites a crusader named William Vogt, author of a best-selling environmental diatribe called “Road to Survival,” who in 1948 described tropical diseases like sleeping sickness as “advantages” because they helped curb population growth and scolded the medical profession for believing it “continues to have a duty to keep alive as many people” — read: brown and black people — “as possible.” Margaret Sanger, who courageously pioneered the cause of birth control, icily promoted contraception “to be used in poverty-stricken slums, jungles and among the most ignorant people.”...

It’s certainly fair of Connelly to dredge up the forced sterilizations, the casual disregard for injuries caused by IUDs, the racism and sexism and all the rest — but we also need to remember that all that is history. The family planning movement has corrected itself, and today it saves the lives of women in poor countries and is central to efforts to reduce poverty worldwide. If we allow that past to tarnish today’s efforts by family planning organizations, women in poor countries will be doubly hurt.

John Kay reviews Rodrik's book;
In surveying this diverse international experience, Rodrik cites with approval Larry Summers's assessment: "The rate at which countries grow is substantially determined by three things: their ability to integrate with the global economy through trade and investment; their capacity to maintain sustainable government finances and social money; their ability to put in place an institutional environment in which contracts can be enforced and property rights can be established." This sounds conventional. But the subtlety of Summers's description, as Rodrik explains, is that what matters is not individual policies as such but the effect of all policies taken together.

There are many paths to development. China and India, South Korea and Botswana have achieved growth not by following a standard template but by developing their own institutions in a specific political and cultural context. There are no examples of sustained growth resulting from autarchic strategies: in this sense, there is no escaping globalisation. But it does not follow that free trade and capital flows are necessary or sufficient for impressive growth rates. Rodrik makes a telling comparison between Haiti, whose policies have followed the prescriptions of the Washington consensus, and Vietnam, which retains a plethora of state controls. Haiti is still one of the world's poorest countries, while Vietnam is growing fast.

In Rodrik's view, abilities and capacities are established by local businesses and political entrepreneurs responding to local circumstances. The creation of such capacities is a product of experiment. Here-in perhaps the only part of the book where what Rodrik wants to believe conditions his interpretation of the data-Rodrik argues that democratic institutions best secure this matching of institutions to needs. If the data is not unequivocal on that, it does support his claim that authoritarianism produces a wide range of good and bad outcomes. Democracy is less risky.

Rodrik is sceptical of salvationists with universal solutions. He has little time for the Washington consensus, noting wryly that when South Korea sought IMF help after the Asian crisis of 1997-98, assistance was subject to the usual conditionality: sound money, banking reform, privatisation and so on. But South Korea's development record since the second world war is the most remarkable ever seen: it is at least arguable that the country should be explaining the secrets of development success rather than having them imposed.

Rodrik devotes a lot of space to the failures of liberalisation in Latin America and to the varieties of state involvement in Asia. He does not challenge a central role for trade in promoting development, nor does he support state planning as an alternative to markets. But he does say that integration into global markets should not be equated with free trade, nor markets equated with privatisation and deregulation.

Rodrik has little to say about Africa, and nothing to say about aid. His thesis leaves little role for the breastbeating of moralists who want to hold colonialism, multinationals or unfair trading arrangements responsible for third world poverty. Countries find and create their own destinies. Nor does he have time for the visiting expert with a chequebook and a sense of mission. Rodrik's heroes are not the framers of the millennium development goals, but the people who establish cut-flower nurseries in Colombia, football production lines in Pakistan and bicycle factories in Taiwan. Development, he argues, is a process of self-discovery.

So Rodrik also disputes another conventional prescription-that the most useful thing we can do for poor countries is to reduce our own protectionism. Rodrik illustrates quantitatively how small the impact of a successful completion of the Doha round would be for anyone-in rich countries or poor-and observes that the largest beneficiaries from the dismantling of agricultural protection would be European taxpayers. International trade negotiation is in practice a forum for bargaining between producer interest groups in which neither consumer welfare nor economic growth plays a significant role.

Instead, Rodrik proposes a reform of the WTO that would make clear that its priority was development and that the promotion of trade is a means to an end, not an end in itself. At this point there is a danger that Rodrik may seem to be giving support to anti-globalisers who see trade with and investment in poor countries by the west as a form of exploitation. This is not what he intends. The real debate, he stresses, is not over whether integration is good or bad, but over policy and priorities.

In this spirit, Rodrik proposes that politicians in the west should use some of the political capital they now expend securing market access for developing countries to seek liberal policies towards immigration from the same countries. Both free trade and immigration are, he observes, good for poor countries and unpopular in rich. Not only does immigration allow the flow of remittances to the country of origin, it also-when it is temporary and non-renewable-stimulates skills and entrepreneurial capabilities and ensures that they are repatriated.

Another review of Rodrik's book by Thomas Palley;
Rodrik has rendered a major service by stating the claim of "one economics". A critic who made the same claim that economics allows only one theoretical approach would be dismissed as paranoid, whereas Rodrik's standing creates an opportunity for a debate that would not otherwise be possible.

The "many recipes" thesis is that countries develop successfully by following eclectic policies tailored to specific local conditions rather than by following generic best-practice formulas designed by economic theorists. This challenges the Washington Consensus, with its one-size-fits-all formula of privatisation, deregulated labour markets, financial liberalisation, international economic integration, and macroeconomic stability based on low inflation.

But, while the many recipes thesis has strong appeal and empirical support, and suggests a spirit of theoretical pluralism, the claim of "one economics" is misguided, for it implies that mainstream neoclassical economics is the only true economics. Part of the difficulty of exposing this narrowness is that there is a family split among neo-classical economists between those who believe that real-world market economies approximate perfect competition and those who don't. Believers are identified with the "Chicago School", whose leading exponents include Milton Friedman and George Stigler. Non-believers are identified with the "MIT School" associated with Paul Samuelson. Rodrik is of the MIT School, as are such household names as Paul Krugman, Joseph Stiglitz, and Larry Summers. This split obscures the underlying uniformity of thought.

Still more reviews of Rodrik's book; EPW- India by Jamie Ros, Arnold Kling, and Alan Beattie in FT;
Dani Rodrik, a Harvard academic usually associated with the active-government side, has written an intriguing book, One Economics, Many Recipes. He argues that economists who agree in general about where countries should be going can conduct open and honest - and technical rather than ideological - debates about how to get there.

Part of the problem hitherto may have been a confusion of ends with means. Rodrik quotes Larry Summers, fellow Harvard academic and former US treasury secretary, to the effect that no country has failed to grow after implementing the following: integrating with the global economy through trade and investment, maintaining sound government finances, and putting in place an institutional environment that protects property rights and enforces contracts. How to get to those desirable states is another question, however. It is not as if the average African president during his or her first day in power finds a draft order on the desk saying ''Integrate with global economy: yes/no? Tick one.''

Orthodox outcomes may result from unorthodox policies and vice versa. The central American state of Haiti cut its trade tariffs heavily and removed import quotas in the 1990s, while in south-east Asia, Vietnam continued with high import taxes and restrictions and extensive state intervention in the economy. Yet Vietnam is rapidly becoming the new China, foreign multinationals are investing like crazy and happily exporting; Haiti remains desperately poor and largely isolated from global trade.

Rodrik's approach involves an eclectic, practical approach of ''growth diagnostics'': trying to work out what is holding a country back - poor infrastructure? lack of education? too much regulation? - and designing responses appropriately.

Of course, this still leaves room for debate on what the right policies are. For my taste, while Rodrik admits governments can fail, he too often assumes that their interventions will be benign. His account of the Argentine financial crisis of the early 2000s, for example, is that the drastic currency regime the country adopted in 1991 failed because Asian and Brazilian financial crises later that decade blew it off course. It would be more accurate to say the Argentine government proved congenitally incapable of controlling its spending in either good times or bad. Sometimes, maintaining sound government finances is largely a question of, well, maintaining sound government finances. Still, Rodrik's aim here is mainly to suggest a policy-making approach, not to push his own policy prescriptions. In this he deserves to succeed.

For anyone seeking a policy blueprint, try Jeffrey Sachs, once a mainstream academic economist, now head of the giant interdisciplinary Earth Institute at Columbia University and adviser to the United Nations. His latest book achieves the improbable feat of outdoing its predecessors in scope and ambition: Common Wealth is a plan for saving the planet. It takes in radical action on climate change, economic growth and development, trade, infectious disease, population, water and biodiversity.

Still more; One Economics, Many Recipes, Recipes for Success: Dani Rodrik on How to Grow the Economic Pie

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