Response to Dani Rodrik on Washington Consensus

Dani gives a response to some “counter-arguments” against his post favoring Import-substituting Industrialization (ISI) over Washington Consensus (WC) that had mysteriously “resuscitated” themselves after they “had long been laid to rest.” I appreciate Dani’s courtesy in not identifying the culprits in this misguided resuscitation of long-dead counterarguments, but it does make it a little difficult to carry on a precise debate. It’s possible that my post about skill vs. luck, and the comments that followed, may have been one of the culprits (fitting the theme of that post, this can only be a probability rather than a certainty). Anyway, assuming that my post and ensuing comments was partly to blame (and thanks to Chris Blattman for a more favorable review), Dani does not have time in his short post to get to the crucial arguments. His original post was too vague about the timing and identification of just who had ISI and who had WC and when, and so what growth experiences to attribute to each, and whether to control for the overall fall in average growth of ALL countries in the world from the ISI to the WC period. And in Dani’s new post, we also have the third category of policy regime “unorthodox but well-targeted reforms” (UBWTR?) for Asian countries. And to test a hypothesis that growth under one regime is higher than under another, you have to calculate standard errors reflecting noise in the growth rate (affectionately called “luck,” which standard errors I and others have shown are large), you cannot dismiss standard errors with a quip about “the check is in the mail.” Most attempts to sort all that out have not been very successful or conclusive, which is why economists started saying things like:

the experience of the last two decades has frustrated the expectations …{that} we had a good fix on the policies that promote growth.

I will acknowledge from whom I think I absorbed this valuable cautionary statement. I am pretty sure it was from a 2005 article by a certain D. Rodrik (ungated version here, official version here).