Democratising development economics
Monday, 11 October 2010
Robert B. Zoellick
GEORGE Bernard Shaw once famously said: "If all economists were laid end to end, they would not reach a conclusion."
Considering the causes and course of the worst global economic crisis since the Great Depression, it is fair to ask: Were too few conclusions at fault? Or too much certainty?
Today, economics, and in particular development economics, must broaden the scope of the questions it asks - thereby also becoming more relevant to today's challenges. It must help policymakers facing complex, multi-faceted problems.
Economics has contributed significantly to how we understand our world. But economics doesn't always get it right. Indeed, it can get things spectacularly wrong, as we saw in the recent crisis when bad ideas led to bad results that we are all still paying for.
In the 1950s, during the World Bank's early years of reconstruction work and engineering projects, our Economics Department had the relatively narrow remit of conducting financial feasibility studies of proposed projects. Yet its assistant director, Paul Rosenstei n-Rodan, sought to conceptualize the development challenge with the "Big Push" theory. Development, his theory argued, depended on a simultaneous expansion of domestic sectors that generated demand for each other's output. Not long thereafter, some East Asian economies began to zoom ahead based on "narrower" export-led growth.
This was also the age when development economists hypothesized that developing countries would "take off" once they received capital to combine with underemployed labor. The Soviet Union, it appeared, had solved this problem through "forced saving"; the Third World, some argued, could fill the "saving gap" with foreign aid.
In the 1960s, the World Bank expanded its numbers and areas of research, and by the 1970s was seeking to improve the understanding of the causes of poverty and searching for policy options for overcoming poverty, focusing especially on rural areas. As one historian wrote, it was becoming more like an agency for development than a bank.
In 1972, Hollis Chenery became the Bank's first Chief Economist, and partly influenced by Simon Kuznets -- who had won the Nobel Prize in 1971 for his empirically founded interpretation of growth and development -- organized the first data-heavy quantitative research programme for the Bank.
In the 1980s, the research focus shifted toward market incentives, getting prices right, energy, and macroeconomic adjustment.
Gender and the environment appeared on the Bank's research agenda in the late 1980s. The reform of socialist economies and the emergence of AIDS became special areas of emphasis after 1989, as well as first efforts to understand the "East Asian Miracle." Poverty, inequality, and corruption reemerged as research topics during the 1990s.
In the 2000s, emerging economies, in particular China and India and their impact on the world economy, as well as the role played by infrastructure and agriculture -- after years of neglect in lending -- have been high on the agenda. So too have the problems of fragile states, whose weak institutions make them prone to conflict and pose special development challenges.
These contributions have been impressive -- and I admire the endeavours to develop overarching development insights -- even though the temples of thought have often tumbled under the assault of the realities of life.
But it is appropriate to ask: Where has development economics brought us? Is it serving us well?
Even before the crisis there was a questioning of prevailing paradigms and a sense that development economics needed rethinking. The crisis has only made that more compelling.
A great deal of progress has been made over the last several decades: in health, education, and poverty. The share of people living in extreme poverty in developing countries has more than halved in the quarter century since 1980; global child mortality rates have almost halved.
But success has been uneven; countries are frustrated by the lack of progress on overcoming poverty and achieving the Millennium Development Goals, a useful yardstick to measure progress.
Most of the fall in poverty has occurred in East and South Asia and Latin America. While the world will meet the MDG target of halving the number of people living in extreme poverty by 2015, progress in Sub-Saharan Africa, despite some notable recent gains, still lags. Progress at the country level is even more uneven: Only 45 of 87 countries with data have already achieved or are on track to achieve the poverty target.
And the crisis has highlighted other changes with broader implications.
Even as countries are moving towards recovery, many are asking about what they see as "the middle-income trap" -- the fear that initial boosts of growth will slow and that it will take them many years, with painful setbacks, before they join the ranks of high-income countries.
The success of China and others has raised questions on the role of the state. What are the effective and proper roles of government -- Enabler? Referee of fair and clear rules? Empowerer? Investor? Owner? Or anointer of winners?
The benefits of globalization and reform have yet to reach many of the poor. Many see the economic policy prescriptions of the Washington Consensus as incomplete -- lacking attention to institutional, environmental or social issues, or simply lacking as a guiding philosophy.
Others herald "orthodox" policies as helping developing countries navigate the crisis, pointing out that some developed countries strayed from orthodox lessons of finance and budgeting to their peril.
A new multi-polar world requires multi-polar knowledge: Beyond these challenges to old assumptions, a more complex set of changes is taking place.
As economic tectonic plates have shifted, paradigms must shift too.
Emerging economies are now key variables in the global growth equation. The developing world is becoming a driver of the global economy. Much of the recovery in world trade has been due to strong demand for imports among developing countries. Led by the emerging markets, developing countries now account for half of global growth and are leading the recovery in world trade.
We see a similar trend in the global development landscape, with developing countries assuming important roles alongside traditional development partners. These new partners are contributing not only aid, but more importantly are becoming major trading partners and sources of investment and knowledge. Their experiences matter.
Yet for too long prescriptions have flowed one way. A new multi-polar economy requires multi-polar knowledge.
With the end of the outdated concept of a Third World, the First World must open itself to competition in ideas and experience.
The flow of knowledge is no longer North to South, West to East, rich to poor.
Rising economies bring new approaches and solutions. We see that as India advises Africa on dairy farming; as China learns from Africa about effective community-driven development approaches in Ghana and Nigeria; as the United States learns from China about high-speed railways; and the Chief Economist of the World Bank, for the first time in our 66 year history, comes from a developing country: Justin Yifu Lin -- a student of the University of Beijing and the University of Chicago.
Justin's thoughtful Marshall Lectures at Cambridge University in 2007, exploring the question of why many countries were not developing, exemplify this new influence of thinking based on more diverse experiences.
This is no longer about the Washington Consensus. One cannot have a consensus about political economy from one city applying to all. This is about experience regarding what is working -- in New Delhi, in Sao Paolo, in Beijing, in Cairo, and Accra. Out of experience may come consensus. But only if it is firmly grounded -- and broadly owned.
Has development economics lost its way?: Is development economics today addressing the most important problems facing developing countries or has it lost its way?
Have we gone from one false certitude to another?
Has the disappointment with grand theories of development led to an overreaction, a retreat into laboratories and tiny development hamlets?
Over the last 10 years, as the belief has grown that there is no simple recipe for development, there has been a shift towards more empirically-based development research. This is welcome -- and very positive. Thirty years ago, Deng Xiaoping, another practitioner of development economics, recommended "emancipating the mind so as to seek truth from facts." Two hundred years earlier, British philosopher David Hume wrote, "A wise man proportions his belief to the evidence."
But is the impressive set of data and analytic tools now available sufficiently anchored to the most pressing questions facing developing country leaders, advisors, and investors?
Or is it more like a map of the world being filled in by careful study of non-randomly chosen villages, one at a time?
Too often the positive outcomes of research for policymakers seem to be occasional byproducts of research rather than its objective from the outset.
Too often research economists seem not to start with the key knowledge gaps facing development practitioners, but rather search for questions they can answer with the industry's currently favourite tools.
The big questions facing policymakers are extremely complex. But is our present-day research too narrowly focused -- and too weak on external validity or scalability -- to provide the kinds of insights policymakers need? I believe we need a more practical approach -- one that is firmly grounded in the key knowledge gaps for development policy.
One that is geared to the needs of policymakers and practitioners -- as a primary focus, not as an academic afterthought.
One that throws open the doors to all those with hands-on experience.
GEORGE Bernard Shaw once famously said: "If all economists were laid end to end, they would not reach a conclusion."
Considering the causes and course of the worst global economic crisis since the Great Depression, it is fair to ask: Were too few conclusions at fault? Or too much certainty?
Today, economics, and in particular development economics, must broaden the scope of the questions it asks - thereby also becoming more relevant to today's challenges. It must help policymakers facing complex, multi-faceted problems.
Economics has contributed significantly to how we understand our world. But economics doesn't always get it right. Indeed, it can get things spectacularly wrong, as we saw in the recent crisis when bad ideas led to bad results that we are all still paying for.
In the 1950s, during the World Bank's early years of reconstruction work and engineering projects, our Economics Department had the relatively narrow remit of conducting financial feasibility studies of proposed projects. Yet its assistant director, Paul Rosenstei n-Rodan, sought to conceptualize the development challenge with the "Big Push" theory. Development, his theory argued, depended on a simultaneous expansion of domestic sectors that generated demand for each other's output. Not long thereafter, some East Asian economies began to zoom ahead based on "narrower" export-led growth.
This was also the age when development economists hypothesized that developing countries would "take off" once they received capital to combine with underemployed labor. The Soviet Union, it appeared, had solved this problem through "forced saving"; the Third World, some argued, could fill the "saving gap" with foreign aid.
In the 1960s, the World Bank expanded its numbers and areas of research, and by the 1970s was seeking to improve the understanding of the causes of poverty and searching for policy options for overcoming poverty, focusing especially on rural areas. As one historian wrote, it was becoming more like an agency for development than a bank.
In 1972, Hollis Chenery became the Bank's first Chief Economist, and partly influenced by Simon Kuznets -- who had won the Nobel Prize in 1971 for his empirically founded interpretation of growth and development -- organized the first data-heavy quantitative research programme for the Bank.
In the 1980s, the research focus shifted toward market incentives, getting prices right, energy, and macroeconomic adjustment.
Gender and the environment appeared on the Bank's research agenda in the late 1980s. The reform of socialist economies and the emergence of AIDS became special areas of emphasis after 1989, as well as first efforts to understand the "East Asian Miracle." Poverty, inequality, and corruption reemerged as research topics during the 1990s.
In the 2000s, emerging economies, in particular China and India and their impact on the world economy, as well as the role played by infrastructure and agriculture -- after years of neglect in lending -- have been high on the agenda. So too have the problems of fragile states, whose weak institutions make them prone to conflict and pose special development challenges.
These contributions have been impressive -- and I admire the endeavours to develop overarching development insights -- even though the temples of thought have often tumbled under the assault of the realities of life.
But it is appropriate to ask: Where has development economics brought us? Is it serving us well?
Even before the crisis there was a questioning of prevailing paradigms and a sense that development economics needed rethinking. The crisis has only made that more compelling.
A great deal of progress has been made over the last several decades: in health, education, and poverty. The share of people living in extreme poverty in developing countries has more than halved in the quarter century since 1980; global child mortality rates have almost halved.
But success has been uneven; countries are frustrated by the lack of progress on overcoming poverty and achieving the Millennium Development Goals, a useful yardstick to measure progress.
Most of the fall in poverty has occurred in East and South Asia and Latin America. While the world will meet the MDG target of halving the number of people living in extreme poverty by 2015, progress in Sub-Saharan Africa, despite some notable recent gains, still lags. Progress at the country level is even more uneven: Only 45 of 87 countries with data have already achieved or are on track to achieve the poverty target.
And the crisis has highlighted other changes with broader implications.
Even as countries are moving towards recovery, many are asking about what they see as "the middle-income trap" -- the fear that initial boosts of growth will slow and that it will take them many years, with painful setbacks, before they join the ranks of high-income countries.
The success of China and others has raised questions on the role of the state. What are the effective and proper roles of government -- Enabler? Referee of fair and clear rules? Empowerer? Investor? Owner? Or anointer of winners?
The benefits of globalization and reform have yet to reach many of the poor. Many see the economic policy prescriptions of the Washington Consensus as incomplete -- lacking attention to institutional, environmental or social issues, or simply lacking as a guiding philosophy.
Others herald "orthodox" policies as helping developing countries navigate the crisis, pointing out that some developed countries strayed from orthodox lessons of finance and budgeting to their peril.
A new multi-polar world requires multi-polar knowledge: Beyond these challenges to old assumptions, a more complex set of changes is taking place.
As economic tectonic plates have shifted, paradigms must shift too.
Emerging economies are now key variables in the global growth equation. The developing world is becoming a driver of the global economy. Much of the recovery in world trade has been due to strong demand for imports among developing countries. Led by the emerging markets, developing countries now account for half of global growth and are leading the recovery in world trade.
We see a similar trend in the global development landscape, with developing countries assuming important roles alongside traditional development partners. These new partners are contributing not only aid, but more importantly are becoming major trading partners and sources of investment and knowledge. Their experiences matter.
Yet for too long prescriptions have flowed one way. A new multi-polar economy requires multi-polar knowledge.
With the end of the outdated concept of a Third World, the First World must open itself to competition in ideas and experience.
The flow of knowledge is no longer North to South, West to East, rich to poor.
Rising economies bring new approaches and solutions. We see that as India advises Africa on dairy farming; as China learns from Africa about effective community-driven development approaches in Ghana and Nigeria; as the United States learns from China about high-speed railways; and the Chief Economist of the World Bank, for the first time in our 66 year history, comes from a developing country: Justin Yifu Lin -- a student of the University of Beijing and the University of Chicago.
Justin's thoughtful Marshall Lectures at Cambridge University in 2007, exploring the question of why many countries were not developing, exemplify this new influence of thinking based on more diverse experiences.
This is no longer about the Washington Consensus. One cannot have a consensus about political economy from one city applying to all. This is about experience regarding what is working -- in New Delhi, in Sao Paolo, in Beijing, in Cairo, and Accra. Out of experience may come consensus. But only if it is firmly grounded -- and broadly owned.
Has development economics lost its way?: Is development economics today addressing the most important problems facing developing countries or has it lost its way?
Have we gone from one false certitude to another?
Has the disappointment with grand theories of development led to an overreaction, a retreat into laboratories and tiny development hamlets?
Over the last 10 years, as the belief has grown that there is no simple recipe for development, there has been a shift towards more empirically-based development research. This is welcome -- and very positive. Thirty years ago, Deng Xiaoping, another practitioner of development economics, recommended "emancipating the mind so as to seek truth from facts." Two hundred years earlier, British philosopher David Hume wrote, "A wise man proportions his belief to the evidence."
But is the impressive set of data and analytic tools now available sufficiently anchored to the most pressing questions facing developing country leaders, advisors, and investors?
Or is it more like a map of the world being filled in by careful study of non-randomly chosen villages, one at a time?
Too often the positive outcomes of research for policymakers seem to be occasional byproducts of research rather than its objective from the outset.
Too often research economists seem not to start with the key knowledge gaps facing development practitioners, but rather search for questions they can answer with the industry's currently favourite tools.
The big questions facing policymakers are extremely complex. But is our present-day research too narrowly focused -- and too weak on external validity or scalability -- to provide the kinds of insights policymakers need? I believe we need a more practical approach -- one that is firmly grounded in the key knowledge gaps for development policy.
One that is geared to the needs of policymakers and practitioners -- as a primary focus, not as an academic afterthought.
One that throws open the doors to all those with hands-on experience.