RE: [Futurework] What do economists know about growth?

[Karen Watters Cole]

Guess what?  Foreign Policy online has this index, for those interested @ http://www.foreignpolicy.com/story/story.php?storyID=13656     Surely, a rhetorical question.  I also read overtones to the local living economies thread, which attracted some good commentary on FW. - KWC   Looking Beyond Free Trade By Jeff Madrick, NYT, June 12, 2003 @ http://www.nytimes.com/2003/06/12/business/12SCEN.html   SINCE the Iraq war, developed nations like France and the United States seem to be vying to show that they care about the world's poor. The events of Sept. 11, 2001, made us all more aware of the deprived state of citizens around the world. The difficult aftermath of the war has also shown us that overthrowing a dictator is not enough to ensure security, economic opportunity and sustained decency.   Interestingly, President Bush has taken the lead on these issues at home. His Democratic rivals for president are hardly heard on the subject. Mr. Bush has proposed a free trade region for the Middle East, a number of bilateral trade pacts, a 50 percent increase in international aid and a costly new program to combat AIDS.   But with the exception of the AIDS plan, is all this mostly talk? Economic development of Afghanistan seems to be faltering. And Mr. Bush's rationale is disturbingly ideological. "Across the globe, free markets and trade have helped defeat poverty, and taught men and women the habits of liberty," he said last month.   In the last decade, economists have discovered how much more difficult development is than just promoting trade and free markets. Despite the adoption of such policies in the developing world, poverty remains high, inequality at unacceptable levels, and economic growth poor. The Middle East, many agree, seems far from ready for free trade. The amount Mr. Bush plans to devote to nontrade reforms is peanuts.   What do economists know about growth?  "At the more practical end of things — how do we make growth happen? — things have turned out to be somewhat disappointing," the Harvard economist Dani Rodrik writes in a fine summary of the state of development economics in the forthcoming "Handbook on Economic Growth" (North-Holland).  That is an understatement.    But the danger is to think that nothing has been learned in the last decade, or that the developed world has truly tried hard to help.   A useful contribution to our understanding has been put together by the Center for Global Development and Foreign Policy magazine.  It is an index — based on a variety of components, not just quantity of aid — that ranks the contribution developed nations make to the developing world.  Why an index?  "A horse race attracts attention," said Nancy Birdsall, the center's president. It also helps broaden thinking about just what contributes to growth.   Even the highest-ranked nation, the Netherlands, scored only 5.6 out of a possible 10. But for the United States, the results are disturbing; second to last out of 21 nations, nosing out Japan.   Even though many factors are used in the index — some debatable — the United States, as a basic matter, gives so little to the developing world as a percentage of gross domestic product that its score is brought down significantly.  In the days of the Marshall Plan, Ms. Birdsall notes, the United States spent 1 to 2 percent of its G.D.P. on aid.  Now it spends 0.1 percent.  President Bush says he would like to raise that figure to 0.15 percent, but his most recent budget made no allowance for that.   America's score is also reduced by other factors.  The index penalizes nations for polluting the world, and America's carbon emissions are the highest of the 21.  Surprisingly, our immigration policy is also more restrictive than in most other nations.  But we lead the pack in openness to imports, an urgent issue for many developing nations.  European nations are significantly more closed to agricultural imports.  Yet even here, our credibility has been hurt by Congress's recent protectionist farm bill, signed by Mr. Bush without a fight.   Although it certainly looks as if Mr. Bush is moving in the right direction, questions arise over his tenacity and whether his commitment to development will essentially be only about free trade.  "Free trade agreements are at best only part of the solution," said Robert Z. Lawrence, a Harvard economist. "They must be complemented with other reforms."   What are those reforms?  There seem to be two broad lessons to be drawn from recent experience. Perhaps most important, as Mr. Rodrik emphasizes, there is no single set of policies for all countries. Any one-size-fits-all strategy, including the formulaic demands of the World Bank, the International Monetary Fund and the Treasury Department, can hurt more than help.   In fact, he notes, Latin America came closest to following the precepts of the "Washington consensus," which includes budget discipline, deregulation and the liberalization of trade and finance, but the record has mostly been dismal.  East Asian nations like South Korea and Taiwan, not to mention China, followed different, often contradictory paths to success.   The second lesson, closely related to the first, is to tap local strengths while constructing policies. David Ellerman, a consultant to the World Bank, argues that it is important to recognize what existing institutions can work in a nation and not impose rapid-fire Western-style privatization.   As an example, the Bush administration's anger toward the Baath Party in Iraq could backfire because the skilled technical and administrative people needed to rebuild Iraq turn out, inevitably, to have been party members.  Most should be incorporated into developing the nation, not banished from it.   Similarly, a locally run regional development bank may now make sense for the Middle East. "Successful reforms are those that package sound economic principles around local capabilities, constraints and opportunities," Mr. Rodrik writes.  This is also where liberty and democracy can matter.  They are integral to respect for local concerns.   Development is now clearly about elbow grease, not canned ideas.  It is about tenacity and pragmatism, not political values or the export of ways of doing business that are congenial to our own companies.  Now is the time to hold the Bush administration and others to their promises, and to broaden our thinking beyond slogans and ideology.