Another Decade of Development Failure

Dani Rodrik looks back on a decade of failure--not of the failure of economic development, for worldwide the past fifteen or so years have been unbelievably wonderful ones for world development, but of the failure of economists to give useful and helpful development advice:

Life used to be relatively simple for the peddlers of policy advice in the tropics. Observing the endless list of policy follies to which poor nations had succumbed, any well trained and well-intentioned economist could feel justified in uttering the obvious truths of the profession: get your macro balances in order, take the state out of business, give markets free rein. “Stabilize, privatize, and liberalize” became the mantra of a generation of technocrats who cut their teeth in the developing world, and of the political leaders they counseled.

Codified in John Williamson’s (1990) well-known "Washington Consensus," this advice inspired a wave of reforms in Latin America and Sub-Saharan Africa which fundamentally transformed the policy landscape in these developing areas. With the fall of the Berlin Wall and the collapse of the Soviet Union, former socialist countries similarly made a bold leap towards markets. There was more privatization, deregulation and trade liberalization in Latin America and Eastern Europe than probably anywhere else at any point in economic history. In Sub-Saharan Africa governments moved with less conviction and speed, but there too a substantial portion of the new policy agenda was adopted: state marketing boards were dismantled, inflation reduced, trade opened up, and significant amounts of privatization undertaken.

Such was the enthusiasm for reform in many of these countries that Williamson’s original list of do’s and don’ts came to look remarkably tame and innocuous by comparison. In particular, financial liberalization and opening up to international capital flows went much farther than what Williamson had anticipated (or thought prudent) from the vantage point of the late 1980s. Williamson’s (2000) protestations notwithstanding, the reform agenda eventually came to be perceived, at least by its critics, as an overtly ideological effort to impose “neoliberalism” and “market fundamentalism” on developing nations.

The one thing that is generally agreed on about the consequences of these reforms is that things have not quite worked out the way they were intended. Even their most ardent supporters now concede that growth has been below expectations in Latin America (and the “transition crisis” deeper and more sustained than expected in former socialist economies). Not only were success stories in Sub-Saharan Africa few and far in between, but the market-oriented reforms of the 1990s proved ill-suited to deal with the growing public health emergency in which the continent became embroiled. The critics, meanwhile, feel that the disappointing outcomes have vindicated their concerns about the inappropriateness of the standard reform agenda. While the lessons drawn by proponents and skeptics differ, it is fair to say that nobody really believes in the "Washington Consensus" anymore. The question now is not whether the "Washington Consensus" is dead or alive; it is what will replace it...