The Mystery of Economic Growth

The New York Times is as befuddled as the rest of us:

Development is an unpredictable business. ...One of the central questions facing India — and, indeed, the developing world as a whole — is why some people, or countries, move ahead, while others fall behind.

For all its temptations, however, the search for a policy toolkit toward development is fraught with pitfalls. Over the last 60 years or so, the international development community has come up with model after model, theory after theory, in search of just such a toolkit.

It has, at various times, promoted the benefits of huge, often conditional, inputs of foreign aid, the rigors of shock therapy, the virtues of free trade and the promise of the Washington Consensus (a set of policies prescribed and often imposed by agencies like the World Bank, the International Monetary Fund and the U.S. Treasury).

The author,  Akash Kapur, has superb taste in economists and publications:

Yet for all the efforts to come up with a general theory of development, the truth is that economic growth remains something of a mystery. This is the conclusion of a recent anthology, “What Works in Development?”, published by the Brookings Institution. The essays lead to the conclusion that there is no clear way to ease poverty, and — as the editors, William Easterly and Jessica Cohen, state in their introduction — “no consensus on ‘what works’ for growth and development.”

Mr. Easterly, a former World Bank economist, has elsewhere shown that there is little correspondence between a nation’s economic growth and the extent to which it follows international development prescriptions. Analyzing data for 1980 to 2002, he found that countries that grew the fastest received considerably less foreign aid and spent less time under I.M.F. tutelage than those that grew the slowest. This doesn’t mean that following the orthodoxy harms development, but it does suggest that rapid growth is possible without international aid or advice.

Unfortunately, this could create open season for ignoring Econ 101 (oops!):

Robert B. Zoellick, president of the World Bank ... spoke of the need for “rethinking” development economics and “a questioning of prevailing paradigms.”

The rise of Southeast Asia (and more recently China... represented a repudiation of textbook views about the proper role of the government and of the relationship between markets and the state.

India’s recent growth, too, can be seen as a result of a determination to follow its own path. ... {to} contravene the conventional model.

It's not going to be easy to conclude after all this, but the article gamely finds a constructive note:

Ultimately, it is... ability to accommodate context and local detail, that works best in development. The type of grinding, sweaty work it implies — time in the field, in villages and on farms, learning about cultures and social structures — is certainly less glamorous than designing overarching theories to rid the world of poverty.

But poverty is an unglamorous business. It is only fitting that the most effective way to address it would be through small, low-key and often backbreaking interventions.

Good, as long as we also recognize the tremendous poverty-reducing accomplishments of another grinding, sweaty, backbreaking, context-sensitive group  -- private entrepreneurs.