ANALYSIS:THE WORLD Bank is the plain twin sister of the more glamorous International Monetary Fund (IMF). The twins were conceived at the end of the second World War and would, it was hoped, help countries to maintain monetary stability and spur growth.
Reflecting US preponderance in international political and economic affairs at that time, it was decided both would reside in Washington, where they have been headquartered ever since.
The IMF has spent the intervening decades dashing to the world’s economic hot spots. It bails out countries that have got themselves into hot water and can no longer pay their bills. Staff from the fund fly into basket-case countries to dispense unpalatable medicine, and fly out again quickly. It’s fast-moving stuff.
World Bank staffers, by contrast, are long haulers and slower movers. They have always sought to foster long-term development in poor countries by advocating deep reforms of markets and institutions.
This has never been as easy job, not least because economists, despite generations spent trying to understand what triggers and sustains development, still haven’t much of a clue. But that does not stop them from plugging away at the problem.
It certainly hasn’t discouraged the bank’s chief economist, Justin Yifu Lin. He was in Ireland yesterday to address the matter. A Chinese national educated in that bastion of free market economics, the University of Chicago, Lin is a clever fellow. He is thoughtful too, developing his brand of development economics which he calls “the new structural economics”.
He opened a talk at the Institute of International and European Affairs in Dublin by describing how the bank’s policy prescriptions had changed over time, reflecting how orthodoxy has changed in economics.
In the three decades after the war, economic orthodoxy placed much emphasis on the role of government in development. He described the results as “miserable”. In the following three decades, the orthodoxy shifted. Free up markets, and growth in the poor world would be unleashed. That was the conventional wisdom, and the results of this have been “mixed at best” he said.
He was at pains to highlight that the bank was questioning the pure-ish free-market approach as long ago as 1993.
His approach now is a synthesis of past orthodoxies. He sees competitive markets and a “facilitating” state as being essential. With both, he is confident poor countries can grow out of poverty.
That not a single member of the Department of Foreign Affairs – those who decide on how the State’s still large development aid budget is spent – was present at Lin’s address was (presumably) not a breach of protocol. But it was certainly impolite. Even worse, it demonstrated an incuriousness on the department’s part.
Economists’ understanding of development may be limited, but there is not much else to go on. This State has wasted countless billions of taxpayers’ money on policies formulated unthinkingly. Hopefully, the same has not happened with aid spending.
