I Распечатать с новой страницы

About the Authors

Richard Kozul-Wright is a senior economist at the United Nations Conference on Trade and Development (UNCTAD) in Geneva. He received his Ph.D. in economics from Cambridge University, from where he went to work at the United Nations, first in New York on the World Economic and Social Survey and subsequently in Geneva on the World Investment Report, the Trade and Development Report and the Economic Development in Africa Report. He has published articles on a broad range of issues in economic development and economic history in the Economic Journal, the Cambridge Journal of Economics, the Oxford Review of Economic Policy and the Journal of Development Studies.

Paul Rayment studied economics at Magdalen College, Oxford and spent several years on the research staff of the National Institute of Economic and Social Research in London before joining the United Nations. He worked first in the United Nations Conference on Trade and Development (UNCTAD) and then moved to the UN's Economic Commission for Europe, where he became Director of Economic Analysis. In addition to a large output published under the UN imprint, he has written papers on economic development, transition economies and international trade that have appeared in a number of academic journals and collective works.

The resistible rise of market fundamentalism

«Stabilise, liberalise and privatise» has, since the debt crisis of the early 1980-s, been the mantra chanted at developing countries with quasi-religious conviction by international financial institutions, donor countries and newspaper columnists. Policy debate has increasingly polarised into the rhetoric of extremes: trade liberalisers versus protectionists, cosmopolitan versus nationalist, the right-thinking versus the wrong-headed, and so on. In The Resistible Rise of Market Fundamentalism Richard Kozul-Wright and Paul Rayment expose the mix of selective evidence, mythical economic history, simplistic assumptions and opportunistic bias which comprise this prescription for economic development.

They argue that attempts to apply a universal model of development have not only met with little or no success but are also dangerously at odds with democratic principles. Insisting on a ready-made, «one size fits all» model increases the risk of policy reactions that are likely to undermine the peace, prosperity and global integration that the big economic powers and the international organisations are seeking to promote and in which the developing countries seek to share. Instead, developing countries must be given the freedom to experiment, to develop their own policies and discover what works in their own national circumstances. On this basis, Kozul-Wright and Rayment set out a pragmatic, constructive and more hopeful approach to development than the simplicities of market fundamentalists.

«An incisive critique of orthodoxy and a timely reminder of what development is all about» - Thandika Mkandawire, Director, United Nations Research Institute for Social Development (UNRISD)

«An insightful, timely and very welcome contribution to the ongoing debate on how to bring about a more equitable and balanced international economic order»

- Rubens Ricupero, former Minister of Finance of Brazil and former Secretary-General of the United Nations Conference on Trade and Development (UNCTAD)

«Casts a clear light on the biases and asymmetries in today's globalisation process ... Read it if you really want to understand what is going on in the world economy.»

- Ha-Joon Chang, Reader in the Political Economy of Development, Faculty of Economics, University of Cambridge

1 These regularities are associated with the empirical studies of Verdoorn and Kaldor (Scott, 1991:Chap. 12).

2 There are, of course, dissenting voices; see Easterly (2002).

3 Thus, most astute observers of the role of technological innovation in the growth process recognise an unavoidable degree of interaction with investment (Baumol etal., 1991:164).

4 This is perhaps one of the main reasons why econometric studies have failed to establish a one-to-one relation between the rate of investment and economic growth. Still, it is the case that of the many variables fed into growth equations, investment emerges as one of the few with a robust and independent impact on economic growth, particularly for rapidly growing middle-income economies (Bosworth and Collins, 2004; Ros, 2000; IMF, 1997:80-81; Levine, 1992). A recent study by Bond et al. (2004) of some 98 countries for the period 1960-98 found that a higher share of investment in GDP predicts a higher level of output per worker in the steady state and that an increase in the share of investment predicts a higher growth rate of output per worker, both in the short run and the steady state, with the long-run effects on growth rates quantitatively substantial and statistically significant. This study also stresses the importance of heterogeneity across countries reflecting differences in economic policies and institutions.

5 This conclusion applies, we believe, to much of the recent discussion, initiated by the World Bank, on how to improve the «investment climate» in developing countries.

6 Conventional theory has long struggled to fashion a convincing theory of investment on the back of its own assumptions of perpetual market clearing, rational expectations, efficient markets, small owner-managed firms, etc. In particular, the investment decision, whether following Tobin's Q or Jorgenson's user cost model, is an essentially riskless and reversible decision, involving no 4i sunk costs, site specificity, inter-temporal profit trade-offs or debt burdens.

7 All this was lost sight of after the debt crisis when the focus shifted from growth as a policy objective to the removal of price distortions as the surest way to improve allocative efficiency, a shift that was linked directly to the mobilisation of domestic savings through the deregulation and liberalisation of the financial sector and the attraction of FDI (World Bank, 1991).

8 For more on the profit-investment nexus, see UNCTAD (1995, 1997); Singh (1999); Ros (2000); and Amsden (2001).

9 At more advanced levels of development a wage-led growth dynamic is feasible. Indeed, in many accounts the transition to such a new social contract was precisely what gave the richer countries their strong growth impulse after the Second World War (Armstrong et al., 1984:123-211).

10 Rodrik (1999); and for further elaboration see UNCTAD (1996, 2003a).

11 There is, needless to say, a vast but thoroughly inconclusive body of econometric literature attempting to discover a relationship (positive or negative) between the size of the state (whether measured from the expenditure or revenue side) and economic growth; see Agell et al. (1997).

12 For a detailed and still useful survey of these developments see Shonfield (1965).

13 This is very close to North's (1990) notion of «adaptive efficiency» and is discussed in the next chapter.

14 Myrdal seems to have had in mind the states of North-West Europe in the late 19-th century, which had achieved high levels of integrity in politics and administration along with effective intervention to raise productivity.

15 They certainly acquired some of the characteristics of the late-industrialising Scandinavian countries; see Chang and Kozul-Wright (1994).

16 On these differences see Haggard (2004); Jomo et al. (1997).

17 For critical reviews of the public choice approach, see Self (1993) and Orchard h and Streeten (1997).

18 Persistent denigration of the state and public servants by neo-liberal ideologues and naive conservatives has achieved little by way of reducing the size of the state in the more developed market economies, but by undermining the morale of civil servants and, often, by holding back their salaries relative to those in the private sector, it can undermine the efficiency of the bureaucracy.

19 Following the so-called «rose revolution» in the Republic of Georgia in November 2003, 15,000 police officers were dismissed and salaries were raised 10-fold for the new force, a popular move with a population that had previously regarded the police as enemies of the people; salaries were also raised considerably for tax inspectors and anti-corruption officials, a move that should lead to higher tax revenues; and the budget, supported with significant funds from the UN Development Programme (UNDP), was raised four-fold in order to pay civil servants a decent salary.

20 We have not discussed the contribution of the new institutional development economics associated with the work of Acemoglu et al. (2001). However, while their empirical work is ingenious, we do not think its particular brand of geographical determinism provides a convincing account of colonial development, let alone the challenges facing developing countries today. For a critique of that approach, see Rodrik (2004c).

21 For a detailed account of the workings of the WTO, see Jawara and Kwa (2003) and Das (2003).

22 The evolution of democratic institutions in today's advanced western economies is measured in decades if not centuries. Certainly, the use of foreign armies to bring liberty and a new constitution to a country is more likely to unite progressive and conservative elements of the population in opposition to the foreign invader, as suggested by the rejection of the revolutionary armies of France bearing liberty to its European neighbours. In addition, ethnic, religious or linguistic divisions may be exacerbated and thereby weaken the prospects for more democratic institutions and for economic development. The reader is unlikely to need reminding of more recent examples of the limits of armed force in spreading democracy.

23 It seems clear to us that concern for human rights and the equitable treatment of all citizens, male and female, are part and parcel of any search for a just, or more just, society, and this in turn is part of a still wider search for international peace and security. The thesis of the «democratic peace», that liberal democracies never go to war with one another, is, of course, a familiar and appealing one. A consensus is often claimed for Kant's proposition on the grounds that democracies are notably successful at managing and settling disputes and institutionalising their agreements and obligations. This is an attractive model, not least because violent conflict, actual or threatened, whether intra- or inter-state, is still a major obstacle to economic development in many parts of the world, and institutional reforms, at both national and regional levels, are a priority if a stable environment for development is to be created. Assessing whether or not democracies go to war depends in part on what subset of characteristics qualifies a country to be called a democracy: in Western Europe, the current shape of democracy has evolved over a very long period, the right to vote, for example, being extended to women in many countries only from the 1940-s, and in some only in the 1970-s. Democracy was considered at the time to have triumphed in Europe in 1918, but its roots were shallow and, with calamitous consequences, it failed to compete with authoritarian forms of political order in providing solutions to social and economic Problems (Mazower, 1998).

24 The latest opinion surveys undertaken in Latin America by Latinobarometro, a Chilean organisation, suggest support for democracy is lower in a dozen countries today than in 1996, although it is still generally seen as the least-worst option. See «Democracy's ten-year rut», The Economist, 27 October 2005.

25 States that hold free elections but ignore these other dimensions of the democratic process, including respect for the rule of law and respect for individual rights, have been labelled «illiberal democracies» (Zakaria, 1997). In many cases this may reflect the problems of «transition» mentioned earlier. Disenchantment with half-way democracies as a block on development was a focus of the UNDP's Human Development Report in 2002. More generally, on the positive links between development and democracy, see Leblanc (1997); Nelson and Singh (1998); Isham, Kaufmann and Pritchett (1997); Siegle, Weinstein and Halperin (2004).

26 We suspect that the outlook inspired by the Marshall Plan had a decisive impact in these cases; see Chapter 7.

27 For a useful collection of papers on the concept of deliberative democracy, see Bohman and Relig (1997).

28 The concept of «second-stage» reforms is not very helpful in that it suggests a series of finite steps which should be followed in sequence and that we know what it should be. The general idea of a credible sequence of reforms is understandable in the sense that proceeding with A before B can increase the probability of success for both, whereas the opposite sequence may raise expectations that both may fail. But apart from recommending that the trade account should be liberalised before the capital account, economists have little general advice to give about correct sequencing. This will have to be determined largely on pragmatic grounds and on the basis of local knowledge. The «second- stage» concept is to a large extent a belated recognition of matters that should have been in the «first stage» but were overlooked by those advocating shock therapy in Eastern Europe in the 1990-s.