Economists Lip-Sync Led Zeppelin

Rock stars want to be development economists for some reason, and development economists seem to want to be rock stars. Both groups treat economic doctrines like songs: A new doctrine zooms to the top of the playlist. The ex-favorite gets dropped faster than you can say Gini Coefficient.This pattern seems to be holding for the Washington Consensus, a program for developing countries laid out in 1989 by economist John Williamson of the Peterson Institute for International Economics. Mr. Williamson’s Consensus has multiple lines, though a summary version would be: stabilize, privatize, and liberalize.These days, mere mention of the old Consenus is enough to offend. Some have suggested the rock-honored method of rebranding, calling it the Dublin or New Delhi Consensus instead.Now comes a formal effort to supplant the unloved Consensus. In a study just presented at various sites, including at the Council on Foreign Relations, where I work, Nobelists Michael Spence and Robert Solow, Danny Leipziger of the World Bank, Ernesto Zedillo of Yale, Zhou Xiaochuan of the People’s Bank of China, and other big names of economics suggest new rules for developing countries.The Growth Report, as the authors call it, says countries should push for big increases in gross domestic product, strong political leadership, and government flexibility when it comes to environmental policy.There’s a lot to like in this plan, starting with the name. The authors looked around the globe and found 13 countries able to sustain an average of 7% growth for a quarter of a century. Replicating that performance should be the goal of those nations and the rest of the world as well, they argue.Income inequality? This matters, yet will narrow after per capita GDP grows. This order is preferable to the reverse, in which equality is viewed as a condition for growth. That sequence is favored by Bono, Bob Geldof, and many other rock economists. Even Led Zeppelin has done Live AID.When it comes to infrastructure, Messrs. Spence and Solow and the other economists prove refreshingly retro. They suggest that bypass technologies like the cell phone may have offered all they can. It is time, rather, the authors posit, for governments to lay land lines — that is, to get in the road, dam, and bridge business again. This seems reasonable. Why shouldn’t Latin American countries spend 10% of GDP where they now spend 2%, 3%, or 5%?Softer ideas put forward by the group are also appealing. “It is not wise to seek long-term commitments from developing countries to reduce emissions,” the authors say. This pragmatic position is wonderful, not least because it’s likely to drive global-warming ideologues insane.Still, the Growth Report misses some important notes. Instead of reinforcing the solid Washington Consensus rule on taxes — make marginal rates lower — the authors call for “tax mobilization.” That’s development-speak for “wicked enforcement and higher rates,” both of which are anti-growth.The authors also tolerate farm subsidies, saying, “there are many good reasons to invest in agriculture,” neglecting the distorting effect such subsidies have on even poor economies.Most jarring is the line on commodities. The authors advise governments to use commodity-wealth revenue for themselves — it saves the bother of tax collection. They seem unconcerned about the damage to property rights such use can cause.As one economist put it: “Countries with good endowments of natural resources and that can build export revenues on mineral deposits or something of the sort, we suggest those ought to appropriate a substantial fraction of the pure rents from those resources and invest them domestically.”“Appropriate” was not a felicitous verb to choose: appropriating is what Robert Mugabe has been doing in Zimbabwe. But the greater trouble is that the authors seem to think that nations’ experiences with commodity wealth have been good for stability, growth, property rights, and democracy. This despite Venezuela, or Russia, where oil prices seem to determine the volume of the regime’s threats to other powers.Diamond-rich Botswana is one example the authors offer up as a resource success story. It is true that civilians, not colonels, govern there and that GDP per capita is higher than in neighboring South Africa.But Botswana’s population is about the size of that of metropolitan San Antonio. Two in 10 people are unemployed and AIDS is so prevalent that one of the country’s health officials recently told the Great Britain’s Guardian that Botswana was “faced with extinction.” A tragic outlier is not a model.The country that best illustrates the limits of the Growth Report is India. Half a century ago, the World Bank and others poured millions of dollars into infrastructure and agriculture projects in the country.The lenders worked hard to make Jawaharlal Nehru a strong leader. Yet India seemed to prove Thomas Malthus right in its inability to feed itself. Indian companies had no future, it was said. In 1969, the editors of Time magazine marked a high in the condescension department when they published “Teaching Business Success,” a praiseful article about how American professors were, with enormous effort, introducing the entrepreneurial principle in an obscure place called Hyderabad.It was adherence to the then-new Washington Consensus by Manmohan Singh, first as finance minister in the early 1990s and then as prime minister that made the Indian economic miracle possible. That Consensus is still good. Updating the name may be all the Consensus needs — the Delhi Consensus works.You get the feeling that if you presented it to them right, rock stars, too, would see the merit in this. In any case, the growth part of the Growth Report is the best part. Or, as Led Zeppelin would put it, on growth, the song remains the same.Miss Shlaes, a senior fellow in economic history at the Council on Foreign Relations, is a columnist for Bloomberg News.

Economists Lip-Sync Led Zeppelin

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