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American Economic Association

Goodbye Washington Consensus, Hello Washington Confusion? A Review of the World Bank's "Economic Growth in the 1990s: Learning from a Decade of Reform" Author(s): Dani Rodrik Source: Journal of Economic Literature, Vol. 44, No. 4 (Dec., 2006), pp. 973-987 Published by: American Economic Association Stable URL: http://www.jstor.org/stable/30032391

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Journalof EconomicLiterature Vol.XLIV (December2006), pp. 973-987

Goodbye

Hello

A

Review

Washington Consensus, Washington Confusion?

of

the

World

Bank's

Economic

Growth

in

the

1990s:

Learning from

a

Decade

of

Reform

DANI RODRIK*

Proponents and critics alike agree that the policies spawned by the Washington

produced whetherthe Washington Consensusis deador alive, but overwhatwill

important markerin this intellectualterrainis the WorldBank'sEconomicGrowth

in the 1990s: Learning froma Decade of Reform (2005). Withits

ity, policy diversity,

rather extraordinary document demonstrating the extentto whichthe

developmentpolicy community has been transformed over the years.

other

Consensus have not

the desired results. The debate now is

not over

replace it. An

emphasis on humil-

selective and modest reforms, and

experimentation, this is a

thinkingof the But there are

(exemplifiedby

Washington)puts

the U.N.

these

diverse perspectivesrequires an explicitlydiagnosticapproach that recognizes that

the binding

Millennium Report) puts faith on

competingperspectives as

well. One (trumpeted elsewherein

and another

faith on extensive institutional reform,

constraintson

foreign aid. Sorting intelligently among

growthdifferfrom setting to setting.

1. Introduction

Life

usedto

be relativelysimple for the

peddlers of policy advicein the tropics.

Observing the endlesslist of policy folliesto

Roger Gordon for

his encouragement and comments; to Ricardo Hausmann,

Lant Pritchett, and John Williamson for their reactions;

and to Roberto Zagha for the many insights he has shared

Williamsonremind-

ed me that

my in almost identical form

present form, the title also makes allusion to the classic

paper by Carlos Diaz-Alejandro (1985).

* Harvard University. I am grateful

to

with me over the last few

years. John title is far from

original,having been used

by Moises Naim (1999). In its

973

which

any

well-trainedandwell-intentionedeconomist

could feel

profession:get your ancesin order, takethe stateout

truthsof the

of business,

give

justified in uttering the obvious

nations had succumbed,

poor

macrobal-

marketsfree rein.

"Stabilize, privatize,

and of the political

and liberalize"became the mantraof a

gen-

erationof technocratswho cut theirteeth in

the developing world

leaders

they Codifiedin John Williamson's (1990) well-

known Washington

inspired a wave

counseled.

Consensus, this advice

of reformsin LatinAmerica

974 Journal of Economic Literature, Vol.XLIV (December2006)

and Sub-SaharanAfricathat fundamentally

transformedthe

developing Wall and the

former socialistcountries

bold

privatization,deregulation, andtradeliberal- izationin LatinAmericaandEastern Europe

than

economic

governments movedwithless convictionand

speed,

the

policy agenda marketing boardswere

reduced,

amountsof

opened up,

between, but the market-orientedreformsof

the 1990s proved

ill-suitedto deal with the

health

emergency

in which

growingpublic

the continentbecameembroiled.The critics,

meanwhile, feel that the

disappointing out-

comes have vindicatedtheir concernsabout

the inappropriateness of the standardreform While the lessons drawn

by propo-

agenda.

that

nobody really

Consensus

nents

and skeptics

differ, it is fairto

say

believes in

the Washington

question

replace

it.

anymore.2 The

now is

Washington Consensus is

not whether the

deador alive; it is whatwill

The World Bank'sEconomic Growth in

the 1990s: Learning from a Decade of

henceforth

attempts

at making senseof the factsof the lastdecade

anda

In fact, it is a rather extraordinary document

insofaras it shows how far we from the

There are no

Consensus.

Reform (2005,

Learningfrom

Reform) is one of a spate

half, and

of recent

probably the most intelligent.

have come

original Washington

confident assertionshere of

whatworksandwhat doesn't-and no blue-

adopt. The

emphasis is on the need for humility, for pol-

icy diversity,

reforms, andfor

and modest

prints for policymakers to

for selective

experimentation. "Thecen-

of

this volume," Gobind

policy landscape areas.Withthe fall of the Berlin

collapse

of the Soviet Union,

similarly made a

towardmarkets.There was more

in

Sub-Saharan Africa,

in

these

leap

probablyanywhere else at anypoint

history.

In

new

but there too a substantial portion of

adopted:

dismantled, inflation and

was

state

trade

significant

privatization undertaken.1

enthusiasmfor reform in

Such was the

many of these countries that Williamson's list of do's and don'tscame to look

original

remarkably tame and innocuous by compar-

ison. In

and

went much farther than what Williamson

from

the

vantage point Williamson's (2000)

standing, the reform agendaeventually came

to be

overtly ideological

liberalism"and"marketfundamentalism"on

developing nations.

on

thing that is generallyagreed of these reformsis

about the consequences

that things have not quite worked out the

way they ardent supporters now concede that

has been

expectations America (and the "transitioncrisis"

and moresustainedthan

socialist economies). Not

storiesin Sub-SaharanAfricafew and farin

1980s.

had anticipated (or thought prudent)

particular,

financial liberalization

openingup

to international capital flows

of

the

late

protestations notwith-

its critics, as an

impose

perceived, at least by effort to

"neo- tral message

Nankani, the World Bank vice-president

who oversawthe effort, writesin the preface

of the book, "isthat there is no unique uni-

versalset of rules

from formulae and the search for elusive

'best

the reader has to remind himself that the book he is holding in his handsis not some

The one

[W]e need to get away

were intended. Even their most

below

in

growth

Latin

deeper

expected in former were success

only

." (p. xiii).3 Occasionally,

2 In

a book edited with Pedro-Pablo Kuczynski in 2003,

crisis-proofing

reforms, and

of

economies,

John Williamson laid out an expanded reform

agenda,

"second-

emphasizing

generation"

and social issues (Kuczynski and Williamson 2003).

3 Roberto Zagha led the team that prepared the report. Members of the team were J. Edgardo Campos, James Hanson, Ann Harrison, Philip Keefer, loannis Kessides, Sarwar Lateef, Peter Montiel, Lant Pritchett, S. Ramachandran, Luis Serven, Oleksiy Shvets, and Helena Tang.

policies addressing inequality

1 To cite just one example, fifty percent or more of the state-owned enterprises were divested during the 1990s in the Central African Republic, Cote d'Ivoire, Gambia, Ghana, Guinea-Bissau, Kenya, Mali, Tanzania, Togo, Uganda, and Zambia (John Nellis 2003). On the extent of trade reform in Africa,see Vinaye D. Ancharaz(2003).

Rodrik: Goodbye Washington Consensus, Hello WashingtonConfusion?

975

radical manifesto, but a

the seat of orthodoxy in

developmentpolicy.

reportpreparedby

the universe of

extreme poverty.4 The paradox is that that

was

market forces,of

course, but their

levels of trade

protection,

industrial policies, and lax fiscal and finan-

cial

economies

hardly the Washington

they cesses they turned out to be, they would

have arguablypresented stronger evidence

in

Washington Consensus

unexpected

too!

China and India

increasedtheirrelianceon

unconventional.With

lack of

policies through

policies remained highly

high privatization, extensive

the 1990s, these two

exemplars

of

looked like

Consensus. Indeed, had

2. TheRecord

how Learningfrom Reform sum-

marizes the

there was an unexpectedlydeep

longed collapse in output in countriesmak-

ing marketeconomies.Morethana decade into

the transition, many countrieshad still not

caught up to their 1990 levels of output.

Second,

off, despite

reform,

Sub-SaharanAfrica failed to take

Here is

surprises

of the

1990s. First,

and

pro-

the

transition from communism to

been dismalfailuresinsteadof the suc-

support

of

this telling, if anecdotal, evi-

relationship

economic

policies.5

policies.5

Along

with

significant policy

improvements in the political and external

foreign aid.

Uganda,

Tanzania, and

monly cited instances-and remained frag-

ile

were frequent and painful financialcrisesin

Latin

Turkey. Most had remained

financialmarketsand economistsuntil

tal flows started to reverse

Fourth,

proved The 1990s as a whole saw less

short-lived.

first half of the 1990s

very suddenly. the LatinAmerican recovery in the

dence has come a more skepticalreading of

the

policy

between

growth.

Characteristically, it is the WorldBankitself

that has been prone to make grandiose

claimson the impact of policy reform.In one

environments, and continued The successes were few-with

cross-national

reform

and

Mozambique the most com-

more than a decade later. Third, there

America, East

Asia, Russia, and

unpredictedby

particularly egregious instance cited by

William

(2005), Paul Collier and

David Dollar (2001) argued that policy

capi- reform of the conventional type could cut

Easterly

world poverty by

half. Work

by Easterly

(2005) and Francisco

Rodriguez (2005)

such

show that the data do not

support claims. The evidence that macroeconomic

policies,

predictable, robust,

and

rates is quite weak-except possibly in the

extremes.

autarkictrade

growth, associated with widely varying economic

outcomes.6

but moderateamountsof each are

can stifle economic

fiscal deficits or

growth

andtrade openness have

growth in

capita dismantling of the

GDP than in

Latin Americain per

1950-80, despite the

price distortions, financial policies,

effects on national

state-led,

regimes

the poster boy of the Latin Americaneco-

nomic

down in

2002 asits

currency board proved

able in the wake of Brazil'sdevaluationin

January 1999.

populist, and protectionistpolicy of the

region. Finally, Argentina,

revolution, came

crashing

unsustain-

since 1990 was development.

systematic

Humongous

policies

Significantly, the period

disaster for economic

not a

Quite to the contrary. From the standpoint

of globalpoverty, the

proved the most favorablethat the world has ever experienced. Rapid economic growth in China, India, and a few other Asian countrieshas resulted in an absolute

reductionin the numberof people living in

4 According

to World Bank estimates, there were

people living

below the $1 a

last two decades have

roughly

two decades earlier

(Chen and Ravallion2004).

5 See Dani Rodrik(2005a) for an interpretativesurvey

of recent growth experience.

6 See also Rodrik(2005b) for a general methodological critique of growth regressions with policy variableson the right-hand side.

day

poverty line in 2001 compared to

400 millionfewer

976 Journal of Economic Literature, Vol.XLIV (December2006)

The question is howto interpret thisrecent and how to turn the

interpreta-

policy Reform makessome valuable

advice.

Here

summarizesomeof the maincon-

implemented"(p. 11, emphasis in the origi-

on to

go each of these ends can be

number of

out that

nal). The authors

experience, tion into concrete

Learningfrom

progress. I

clusions below, emphasizing thosethat depart most strongly fromthe earlier approach.

point achieved in a trade

open-

For

ways. ness can be achieved

through lower import

tariffs, but also through duty

export subsidies, special

export processing

renunciationof standard"best

World Bank

markable, andmustnothavecomewithouta

significant internal fight.

differentcontexts require different

problems. investment incentives

mayrequireimproving the security of prop-

ertyrights

financial sector in

catch-upmay

patent

protection,depending on the level of

opment. This explainswhy countriesthatare

Bangladesh,

growing-the

Botswana,Chile, China, Egypt, India,

example,

drawbacks,

economic zones, and so on. This

practice" in

quite

re-

zones,

3.

The Interpretation of

insights

policy

advice is

One of the

Learningfrom

deadweight-

the

efficiency

Reform is that the conventional package of

reformswas too obsessed with

loss triangles and reaping

gains from eliminating them, anddidnot pay

enough

forces that lie behind the

Seekingefficiencygains does not amountto

a growthstrategy.Although

not

authorshave in mind is that marketor

ernmentfailuresthataffectaccumulationor

productivitychange

and hence more

tion, thandistortionsthat

resourceallocation. Theymay alsobe harder

to

identify.Focusing the former results

could even turnout to be

when policy

constraint (more reformin one area means

less reformin another). A second conclusion is that the broad of economic

objectives

market-oriented incentives, macroeconomic

stability, and outward orientation-do

translateinto

the words of the

of

liberalization, and

interpretednarrowly to mean 'minimizefis-

cal deficits, minimize inflation, minimize

tariffs, maximize privatization, maximizelib- eralizationof finance,'with the assumption thatthe more of these changes the better,at all times and in all places-overlooking the fact that these expedients are just some of the ways in which these principles can be

Third,

solutions to solving

Enhancing private

in one

common

attentionto

stimulating the dynamic

growth process.

way,

report what I thinkthe

the

does

gov-

costly,

country but enhancing the

another.

Technological call for betteror worse

report

cites

devel-

Lao

quite put

it in this

are much more

deserving of policy

simply

atten- PDR, Mauritius, Sri Lanka, Tunisia, and

Vietnam--have such diverse policyconfigu-

successful

rations, and

policy

up

why attempts to copy

reformsin another country often end

Learningfrom Reformargues that

overdiscretionin

govern-

governments. Butit

the malfeasanceof

Argentina'scurrency

government, workedwell

but led to disastrousoutcomeswhen

improv-

processes of decisionmaking (better

guidingprinci-

better implementation) such that

in failure.

Fourth,

there has been a tendency to exaggerate the

advantages of rules

ment behavior.Rules were meant to disci-

pline

turnsout that "government discretioncannot

be bypassed"(p. 14).

board, whichremoved monetarypolicy from

the hands of the

when the binding constraintwaslackof cred-

ibility, the binding constraintbecamean overvalued

currency. There is no alternativeto

ing the

checks and balances, better

ples,

discretionleadsto betteroutcomes. Finally, reformeffortsneed to be selective andfocuson the binding constraintson eco- nomic growth ratherthantakea laundry-list

affectstatic

on the latterinsteadof

in small benefits, and

counterproductive makersface a

politicalbudget

reform-namely

policy

not

actions.In

unique

set of

Report, "The principles

domestic

stability, have been

'macroeconomic

openness'

Rodrik: Goodbye Washington Consensus, Hello WashingtonConfusion? 977

approach at la Washington Consensus.While

there is no

these constraints,

nomic

investmentis constrained by poor

financial intermediation

will not

cost of

ty will

learning

constraints,

therefore an

process.

uationsin which many constraintsneed to be

addressed

ges cases, countries can deal with constraints

sequentially, a few at a time"

foolproof

method of

identifying

common sense and eco-

(see below). When

property

analysis can help

rights, improving

help.

hardly

high

capital,improving institutional quali-

Experimentation and

the

When it is constrained by

work.

about the nature of

and the changes

Even

integral part

though

binding

therein, are

of the reform

countries may face sit-

report jud-

simultaneously, the

these situations to

be rare: "In most

(p. 16).

face value,

strategies.

Of

change

oper-

Taking

Taking

what

they

these conclusions at

development

entailis nothing less thana radical

rethink of

course, it would be naive to think that the

WorldBank's practice will therefore

overnight. Thereis little evidencethat

ational work at the Bank has internalized

these lessonsto

are contending

interpretations of what has gone wrong

how to moveforward.Butthe mere factthat

suchviewshavebeen

put cial WorldBank publication is indicativeof the changing natureof the debateandof the

space thatis openingup withinorthodoxcir-

cles for alternativevisions of development

anysignificantextent.7 And,

and

as I will discuss below, there

forwardin an offi-

policy.

4.

TheAlternativesI: Institutions

Around the same time that the World Bankwas grappling with the lessons of the 1990s, its sisterinstitutionacrossthe street, the International Monetary Fund (IMF),

7Along with RicardoHausmannand the lead authorof the World Bank report, Roberto Zagha, I have been involvedin an effort to bring some of these implications to bear on the country operational work at the Bank. One thing we have discovered is how difficult it is to wean the Bank's country economists away from the Washington- Consensus, laundry-list,best-practice approach to reform.

put out a

the

America (AnoopSingh

an

equally shows that in

but consensusthese

days. startsfromthe same basic has been

ment

According

not with the thatit didnot

the report's

uneven and remained

document that focused on much

same issues in the context of Latin

et. al. 2005). This is

remarkable document which

Washington there is anything

report

premise--growth

argu-

different.

was

reform, but

go deep andfar enough.Using own words, "reforms were

more

The IMF

its basic

problem

disappointing-but

could

not

be

to its authors, the

approach taken to

the IMF

incomplete"(p. xiv).

report

claims,

costs, such

reforms that

benefits,

strength-

same

diagnosis is expressedsuccinctly in the title of one of Anne

Little,

policy

Failed Much"

perspective,

up Washington has advocatedall

to the nature of these reformsitself.8The

and not

little reform of the kind that

the failureshave to be chalked

"More progress was made,"

"withmeasuresthathadlow

up-front as privatization, relative to

promised greater long-term such as improving macroeconomic

xiv).

The

and labormarket institutions, and

eninglegal and judicialsystems"(p.

Krueger'sspeeches on

Well,

Tried

2004). From this

along

reform: "Meant

too

(Krueger

to

policy implication that followsis simple: do

more of the

same, Several key ideas

and do it well.

underpin this interpreta-

tion of the evidence. First, political leaders

may havehad the talk, but they didn't quite

genuine

reformwas often "skin-deep" and there was

"lack of

Second, andmore mitted reformers

undertaking the full

changes marketeconomies. sory institutions in

havethe walk:theircommitmentto

follow-through"(Krueger 2004).

fundamentally, even com-

well short of

stopped gamut of institutional

well-functioning

needed to create

Regulatory and supervi-

and financial

product

8 But even within the IMF, there are divergent views. The IMF's EvaluationOffice (nominallyindependent and headed until recently by a distinguished outsider, Montek Ahluwahlia, but staffed largely by IMF economists) has produced reports that often reach different conclusions.

978 Journal of Economic Literature, Vol.XLIV (December2006)

TABLE1

THEAUGMENTEDWASHINGTONCONSENSUS

OriginalWashington Consensus

1. Fiscal discipline

2. Reorientationof publicexpenditures

3. Taxreform

4. Financialliberalization

5. Unifiedand competitiveexchange rates

6. Tradeliberalization

7. Openness to DFI

8. Privatization

9. Deregulation

10. Secure PropertyRights

"Augmented"Washington Consensus

the previous 10 items, plus:

11. Corporategovernance

12. Anti-corruption

13. Flexiblelabormarkets

14. WTO agreements

15. Financialcodes andstandards

16. "Prudent" capital-accountopening

17. Non-intermediate exchange rate regimes

18. Independent centralbanks/inflation targeting

19. Social safety nets

20. Targetedpoverty reduction

markets proved too weak.

and corruption remaineda problem. Courts

andthe judiciary were ineffective.Andlabor

market

"flexible." Of course this second

lack of

itself an

versionof the

far as the latterdid not featureinstitutional

reform of the

type IMF have in mind in their

the 1990s.Mostof the items in Williamson's

original list were relatively simple policy

changes (liberalizetrade, eliminate currency

and so

on)

changes. "propertyrights" in his list, but thatwas the last item on the list and came almostas an

afterthought.

tional

Poor governance

not work if fiscal institutionswere not in

place

ital

expanding sectors, customsofficialswere not

competent

institutionsdid not work

transitional unemployment, and is that the

original Washington

upshot

Consensushas been

list of

that are heavily

precise

tutionalreforms depends on who is talking

and when, andoften the list seems to extend to whateverit is that the reformers may not havehada chanceto do-which is one of the

to make up

forlost trade revenue,

cap-

markets did not allocate finance to

andhonest

enough,

labor-market

properly to reduce

so on. The

augmentedby a long

so-called "second-generation" reforms

institutionalin nature.The

enumerationof these requisite insti-

institutions were not sufficiently

about the

point, on institutional reform, is

emphasis

implicitrepudiation of the original

Washington Consensus,

inso-

that Krueger and the

interpretation of

overvaluation, reduce fiscal deficits,

thatdid not requiredeep-seated

institu- problems that I will discuss below.

rendition is

Williamson did include

Nonetheless,

shown in table 1, where I

second-generation reformsto maintain sym-

Washington

Consensus.

Thisfocuson institutionshasalsoreceived

a

rediscovery of institutionsas a driverof long-

termeconomic performance in the

literatureon economic

Daron

Acemoglu, James A. Robinson's (2001)

drove home the point that the

security of

important work

one

the

possible

have listed ten

metry

with

original

What has become clearerto

practitioners Consensusover time is

Sound

of the

pro-

duce lasting effects if the background insti-

tutional

policies institutions. Moreover, there were

across different

signifi-

areas of reform.Tradeliberalizationwould

cant complementarities

poor. needed to be embedded in solid

Washington thatthe standard policy reformsdid not

conditions

were

strong boost from the (largely unrelated)

empirical

growth. In particular,

Simon Johnson, and

Rodrik: Goodbye Washington Consensus, Hello WashingtonConfusion?

979

propertyrights

the

some

remained

Easterly andRossLevine (2003) showedthat

policies

exchange rate overvaluation) do not exert

independent effect on long-term

performance

institutions is included in the

regression.

Often, thisworkhastakena formthat

called

relateit to (and

lier wave of "market fundamentalism." Getting the institutions right is the mantra

of the

was

AugmentedWashington Consensusderives

supportlargely on the primacy of institutions.9' 10

its academic

from this work

of

hasbeen

historicallyperhaps

why

others

further,

inflation, and

any

economic

of domestic

single

most important determinantof

grew

rich

and

one

step

countries

poor. Going

(i.e., trade

openness,

quality

once the

may be

"institutions fundamentalism"-to

distinguish it from) the ear-

just as getting prices right

the

latter.

The

former,

the

mantra

Takento its

logical conclusion, the focuson

side

institutionshas

potentiallydebilitating effectsfor policy reformers.Institutionsare by

their very nature deeply embeddedin

society.

If

rule of law,

propertyrightsprotection,governance, andso

on-how

prospects for growth in poor

all,

war,

cal

institutional change to

occurindeedatsuchhistorical junctures: con-

siderfor

West Germany, or of NorthandSouthKorea.

countriesthatdo notwant

poor to go through such upheavals to do?

9A mea culpa here: My article on "InstitutionsRule"

(Rodrik, Arvind

2004) is

tutions fundamentalism

caveatsin the second half of the

paper). 10The most serious challenge to institutions funda- mentalism has been launched by Edward L. Glaeser,

Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei

Shleifer (2004) who find the

institutions-cause-income literature flawed and think it is

human capital (and dictators)that cause growth.

Subramanian, and Francesco Trebbi

in the frontline of insti-

being (although there are important

Butwhatare

growth indeed requiresmajor institutional

pessimistic aboutthe

countries?After

suchinstitutional changestypicallyhappen in the aftermathof

wars,revolutions, andother

majorpoliti-

that link

upheavals. The cleanest cases

growthperformance

example the split

betweenEast and

transformation-inthe areasof

canwe not be

veryrarely-perhaps

civil

frequently

seen as

empirical approach

in the

Learningfrom Reformpays lip

importance

of

institutions,

serviceto but to its

the

credit it steers clear from too much institu-

tions determinism.Thatis wise because the Consensus' focus

Augmented Washington on institutional changeproves to be

dead-end upon closer look. There are two major reasons for this, which I summarize

here. First, the cross-national literature has

been unableto establisha strong causallink

between

institutionsand economic

that growth happens

secure,

institutional blueprints will make them feel

more secure in a

ture

levers are. Institutionalfunction does not

uniquely determineinstitutionalform.If you

thinkthis is

experience 1990s. China was able to elicit inordinate

amountsof

tem of public ownership(township

lage

failed to

ownership. Presumably investorsfelt more secure when

allied with local

residual

claims on the stream of

they

private

by incompetent and corrupt courts.Whatever

the

demonstrateshow common

tion of

divergent

theme that Learningfrom Reform loudly trumpets.

that

(2001)

work and other relatedresearchfocused on

long-termeconomicperformance.The typi-

cal dependent variablein this line of literature is the level of income in some recent year, not the rate of economic growth over a particular

institutional

period.

Acemoglu, Johnson,

largely a

any particulardesign

when

feature of

growth. We know

investors feel

specific

but we have no idea what

given us no hint as to what the

context.The litera-

right

the

gives

splitting hairs, just compare

of Russiaand Chinain the mid-

private

investmentunder a

sys-

and vil-

that Russia

enterprises), something

do under

Western-style private

this was

because

they

were

governments with

profits had to entrust their assets to

than when

contractsthatwouldhave to be enforced

underlying

reason,

achieved under

Second,

we

should

China's experience

goals (protec-

propertyrights) can sometimes be

rules. This is a

not

forget

and Robinson

When

indicators

are

980 Journal of Economic Literature, Vol.XLIV (December2006)

introducedin

are muchweakerandless robust.

work focusing

growth

scaleinstitutionaltransformations play a role

(Hausmann, Pritchett, and Rodrik 2005;

Benjamin

2005).

Chinaembarkedon rapidgrowth in the late

in its system of incen-

1970s with

large-

growthregressions, the results

Empirical on transitionsinto and out of

has found little evidence that

F.

To take two

changes

marginal in

no

with

ownership in its trade

Jones and Benjamin A. Olken

important examples,

nature (and cer- reform

or

tives thatwere

tainly

regime early

on),

the early 1980s was

institutional

changes.

gest

ing

by targeting the most binding

economic

growth-where reform buck is

scarce

course, institutionalreformwillbe needed eventual-

ly

easier and more effective to do that when

the economy is alreadygrowing andits costs

can be

spread In the limit, the obsessionwith

hensiveinstitutionalreformleadsto a

compre-

policy ambitiousand vir-

tuallyimpossible to

tries in Africa or Latin Americathat they

have to set their

institutionsof the United Statesor Sweden

is like telling them that the only way to

develop

useful

somethinginherently unfalsifiableaboutthis

advice. So open-ended is the agenda that

even the mostambitiousinstitutionalreform effortscan be faultedex post for having left

something out. So you reformedinstitutions

in trade,propertyrights, and macrobut still

significantchange

nied)

that a

and India'stransitionto high growth in

preceded (or accompa-

by These and other

policy

no

identifiable

experiencessug-

in

maker interested

constraintson

the bang for the

greatest-than by investing andadministrative capital on

may

be

ignit-

economic growthmay be better served

political

ambitiousinstitutionalreforms. Of

to sustaineconomic

growth.

overtime.

But it

agenda that is hopelessly

fulfill. Tellingpoor coun-

sights

on the

best-practice

developed-hardly

policy advice! Furthermore, there is

is to become

didnot grow?Well, it must be that you did

not reformlabor-marketinstitutions.Youdid that too but still did not grow? Well, the

problem mustbe withlackof

social insurance.You reformed

Obviously the prob-

that your political system was sufficient

legitimacy the advisee who falls

short, and never the advisorwho is proved

wrong.

credibility, for the reforms.In

lem was

unable to

inadequate those with little effect?

safety nets and

generate

always

lock-in, and the end, it is

5.

TheAlternativesII: Foreign Aid

Yet another vision of reform

by

strategy is

offered

Project

(2005),

less holisticthanthatof the institutionsfun-

damentalists, although the elements of

package

comprehen-

sive and simultaneousincrease in

investments,

develop-

ment assistance," while providing "aframe-

work

governance,

promoting human rights,engaging civilsoci-

(p.

xx).

what can and shouldbe done. Some of the

include free

distributionof bed nets against malaria, end-

ing

essentialhealth services,

the U.N. Millennium

led byJeffrey Sachs.Thisvisionis no

and the

the

weight placed on each dif-

"public

domestic

fer.The U.N. Project callsfor a

capacity building,

official

resource mobilization, and

ety,

for

strengthening

and

promoting

the

private

sector"

Butit alsoaboundsin concretedetailsof

"quick-win actions"it proposes

user fees for

primary

education and

expansion of school and

of soil nutrients on small-

meals programs in

replenishment

holder

agriculture through free distributionof chemicalfertilizers.

hunger zones,