Business

One approach does not fit all

Dani Rodrik: COMMENT

The new World Bank chief may come from the pro-poor camp, but he has arrived in a time of policy agnosticism.

Barack Obama introduces the new World Bank president, Jim Yong Kim. (Jonathan Ernst, Reuters)

Jim Yong Kim’s appointment as World Bank president may have been predictable, given the long-standing tradition that renders the selection an American prerogative. But even the appearance of competition between Kim and the other candidates, Ngozi Okonjo-Iweala and José Antonio Ocampo, served to expose a deep fissure within the field of development policy, because Kim and his two rivals represented dramatically different approaches.

The vision for which Kim stands is bottom-up. It focuses directly on the poor and on delivering services, for example, education, healthcare and microcredit. This tradition’s motto could be “development is accomplished one project at a time”.

The other approach, represented by Okonjo-Iweala and Ocampo, emphasises broad reforms that affect the overall economic environment and thus focuses on areas such as international trade, finance, macroeconomics and governance.

The first group idolises non-governmental organisation leaders such as Mohammad Yunus, whose Grameen Bank pioneered micro­finance, and Ela Bhatt, a founder of India’s Self-Employment Women’s Association. The heroes of the second group are reformist finance or economy ministers such as India’s Manmohan Singh or Brazil’s Fernando Henrique Cardoso.

At first sight, this might seem like another dispute between economists and non-economists, but the rift runs within, rather than between, disciplinary boundaries. For example, recent work with field experiments and randomised controlled trials, which has caught on like wildfire among development economists, lies strictly in the tradition of bottom-up development.

Macro approach
The relative effectiveness of the two visions is not easy to determine. Proponents of the macro approach point out that the greatest development successes have typically been the product of economy-wide reforms. The dramatic reductions in poverty achieved by China and other East Asian countries resulted largely from improved economic management, as much as earlier investments in education and health may have played a role. Reforms in incentives and property rights, not anti-poverty programmes, enabled these economies to take off.

The trouble is that these experiences have not proved as informative for other countries as one might have wished. Asian-style reforms do not travel well and, in any case, there is significant controversy about the role of specific policies. In particular, was the key to the Asian miracle economic liberalisation or the limits that were placed on it?

Development specialists in the bottom-up tradition can deservedly claim success in demonstrating the effectiveness of education, public health or microcredit projects in specific contexts. But too often such projects treat poverty’s symptoms rather than its causes.

Poverty is often best addressed not by helping the poor to be better at what they are already doing but by getting them to do something altogether different. This calls for diversification of production, urbanisation and industrialisation, which in turn require policies that may lie at considerable distance from the poor, such as fixing regulations or targeting the value of the currency.

Moreover, there are limits to what can be learned from individual projects. A randomised controlled trial conducted under specific conditions does not generate usable hard evidence for policymakers in other settings. Learning requires some degree of extrapolation, converting randomised evaluations from hard evidence into soft evidence.

Real progress
The good news is that there has been real progress in development policy and beneath the doctrinal differences is a certain convergence – not on what works but on how we should think about and do development policy. The best of the recent work in the two traditions shares common predilections. Both favour diagnostic, pragmatic, experimental and context-specific strategies.

Conventional development policy has been prone to fads, moving from one big fix to another. Development is held back by too little government, too much government, too little credit, no property rights, and so on. The remedy is planning, the Washington Consensus, microcredit, or distributing land titles to the poor.

By contrast, the new approaches are agnostic. They acknowledge that we do not know what works and that the binding constraints to development tend to be context-specific. Policy experimentation is a central part of discovery, coupled with monitoring and evaluation to close the learning loop. Experiments do not need to be of the randomised controlled trial type – China certainly learned from its policy experiments without a proper control group.

Reformers in this mould are suspicious of “best practices” and universal blueprints. They look instead for policy innovations, small and large, that are tailored to local economic circumstances and political complications.

The field of development policy can and should be reunified around these shared diagnostic, contextual approaches. Macrodevelopment economists need to recognise the advantages of the experimental approach and adopt the policy mind-set of enthusiasts of randomised evaluation. Microdevelopment economists need to recognise that one can learn from diverse types of evidence and that, although randomised evaluations are tremendously useful, the utility of their results is often restricted by the narrow scope of their application.

In the end, both camps should show greater humility: macro­development practitioners about what they already know, and microdevelopment practitioners about what they can learn. – © Project Syndicate 2012, project-syndicate.org
Dani Rodrik, professor of international political economy at Harvard University, is the author of The Globalization Paradox: Democracy and the Future of the World Economy.

Topics In This Section

Comments

blog comments powered by Disqus