Rodrik on the Washington Consensus

Thanks to Nicholas for drawing my attention to this 2006 paper from Dani Rodrik, Professor of International Political Economy at the John F. Kennedy School of Government (at Harvard University) and one of the current high priests of development economics.

The paper is a review of the World Bank publication Economic Growth in the 1990s: Learning from a Decade of Reform. A detailed summary is unnecessary, since it’s short and accessible.

Rodrik finds that, unlike previous manifestos from the Bretton Woods institutions, this one is deeply humble in tone — so much so that it signals an acknowledgement that the 1990s Washington Consensus has collapsed. In some countries where the policies have been implemented in detail, they havenât worked; in others, especially China, spectacular growth has occurred in the absence of several of the supposedly necessary conditions.

He finds fault with the two main alternative prescriptions on the table. One, advocated by the IMF, is that development programs need to embrace the Washington Consensus items more deeply and thoroughly, with more emphasis on follow-through in implementing institutional reforms like property rights.

In the limit, the obsession with comprehensive institutional reform leads to a policy agenda that is hopelessly ambitious and virtually impossible to fulfil.

Telling poor countries in Africa or Latin America that they have to set their sights on the best-practice institutions of the U.S. or Sweden is like telling them that the only way to develop is to become developedâhardly useful policy advice! Furthermore, there is something inherently unfalsifiable about this advice.

So open-ended is the agenda that even the most ambitious institutional reform efforts can be faulted ex post for having left something out. So you reformed institutions in trade, property rights, and macro, but still did not grow? Well, it must be that you did not reform labour-market institutions. You did that too, but still did not grow? ¹

The other approach, emanating from the UN and articulated by Millennium Fund director Jeffrey Sachs, recommends a strong injection of development aid for the poorest countries, that will launch them out of their poverty trap and harness increasing returns to scale. Rodrik argues that this approach doesnât explain many African cases where growth has taken off at very low income levels in most African countries but has petered out after a decade in every instance.

The trouble seems to be not that poor African countries are unable to grow, but that their growth spurts eventually fizzle out. This suggests a rather different remedy, one that focuses in the short run on selectively removing binding constraints on growth (which may well differ from country to country), and in the medium- to longer-run on enhancing resilience to external shocks.

Rodrik goes on to exhort us to âLet a thousand development models bloomâ, as he once titled an opinion piece.

But if you get this far, it’s well worth persevering, to discover that Rodrik is doing much more than just criticizing the one-size-fits-all approach. He presents an ingenious diagnostic taxonomy for finding the right remedy in each case, so that policies can be directed at the aforementioned binding constraints, rather than at total transformation, which is often wasteful and/or dangerous.

1. Etcetera, etcetera[↩]