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Book Review The trade-offs of reforms BHARAT JHUNJHUNWALA Collection of critical and up-to-date expositions on the `new development economics' THE NEW DEVELOPMENT ECONOMICS - After the Washington Consensus: K.S. Jomo and Ben Fine — Editors; Tulika Books, 35 A/1, III Floor, Shapur Jat, New Delhi-110049, and Zed Books, London and New York. Rs. 650. Nobel Laureate Joseph Stiglitz was the Chief Economist of the World Bank in the 1990s. He criticised the World Bank and the IMF for pushing market-based economic reforms and ignoring other parameters of development such as good governance, environment and education. He was removed from his post for this `indiscretion'. He has since become the chief proponent of `new development economics', which holds that the market alone will not secure economic development. It seems that Stiglitz is a serious opponent of the World Bank's neoliberal ideology. However, according to K. S. Jomo of University of Malay, Kuala Lumpur and Ben Fine of University of London, Stiglitz's opposition of market-based reforms of the World Bank is a facade. In this book they say that Stiglitz wants to bring issues such as governance, environment and education within the purview of the market. Role of the state Truly, the market promoted by Stiglitz has a broader and deeper reach though it appears he is opposing the supreme role of the market. On the other hand, Jomo and Fine give many examples of the positive role of the state in economic development. The government had a critical role in bringing forth rapid economic growth in the East Asian countries in the 1990s. It regulated domestic competition to optimal levels. It did not allow excessive competition while also preventing establishment of monopolies. This carrot-and-stick policy led to the domestic companies growing rapidly. That was the source of the Asian Miracle. The domestic banks and companies were provided easy loans under government guidance in Japan. The Chaebols were similarly supported by the government in Korea. These examples show that the government can have a positive role in economic development. Other examples point to the opposite direction, however. The leaders of the South American countries deposited money got from loans in their personal accounts in Swiss Banks. The East Asian, Japanese and Korean Governments could not adjust the level of government interference leading to crisis in East Asia and Korea, and stagflation in Japan. Examples of both positive and negative role of the state are available. Market-driven model It was expected that the World Bank and Stiglitz would examine how to strengthen the positive role of the government in economic development and prevent a negative role. But these agencies and thinkers deny any positive role of the government and have imposed a market-based model of economic development on the developing countries. The World Bank appears to follow this approach since it is beneficial for the developed countries. It perhaps did not want the governments of other developing countries to support their domestic businesses along the lines of East Asia, Japan and Korea. The mantra of `free market' was created under the Washington Consensus in the mid-1980s in order to prevent other developing countries from pursuing such an independent development policy. Domestic companies were unable to develop in the absence of a supportive state and that provided entry to the multinational corporations (MNCs) of the developed countries. India, for example, would have sought entry of MNCs to establish steel plants if the government had not invested in Durgapur and Bhilai. According to the editors, the result of this World Bank policy has not been good. The wheels of economic growth have come to a grinding halt in South America for the last 15 years. Many African countries have given full freedom to the market but they have yet been reduced to basket cases. Therefore, the developing countries should reconsider the approach of free market propounded by the World Bank and Stiglitz. Reconsideration This reconsideration can be done in two different directions. One is to strengthen the positive role of the government as in East Asia, Korea and Japan. Second is to further reduce the role of the state. An example would clarify the issue. Say a patient is not responding to antibiotic medicine. The doctor can either give a higher doze of the antibiotic or change the treatment. In a situation where the developing countries are not responding to the free market policies either the role of the government can be strengthened as in East Asia, Korea and Japan or reduce it as suggested by the World Bank and Stiglitz. The Government of India should establish a commission to study the role of the state in economic development and not blindly follow the policies suggested by the World Bank in favour of a lean state. Otherwise we will unknowingly hit our own progress by rejecting the positive role of the state. The editors should be congratulated for having given this timely warning that we can ignore only at our own peril.
