Political Economy After the Crisis

Michael WoolcockWeek 2

The Past and Future of Economic Growth

February 6, 2014

Overview

• Prelude: Where you sit shapes where you stand• Economic growth in the past (the ‘long run’)

– Eight ‘stylized facts’, some initial principles– What don’t we know that we need to know?

• Not just for ‘policy’, but for implementation? – Where might we search for answers?

• The future of economic growth– Integrating diverse evidence, coherent theory,

capability for implementation, legitimacy

Prelude• Different types of problems…

– require different types of solutions, which require• different types of strategies for assessing effectiveness

– attract (‘select for’) different kinds of people, who in turn• are trained, socialized, hired, assessed by people like them• creating reasonable – and sometimes unreasonable – differences. E.g.,

– Academics vs practitioners vs ‘policymakers’– Heart surgeons vs cardiologists– Debates over rise/fall of ‘global poverty’ (Kanbur 2001)– Sachs vs Easterly on effectiveness of ‘foreign aid’ (ongoing!)

Prelude• Different types of problems…

– require different types of solutions, which require• different types of strategies for assessing effectiveness

– attract (‘select for’) different kinds of people, who in turn• are trained, socialized, hired, assessed by people like them• creating reasonable – and sometimes unreasonable – differences. E.g.,

– Academics vs practitioners vs ‘policymakers’– Heart surgeons vs cardiologists– Debates over rise/fall of ‘global poverty’ (Kanbur 2001)– Sachs vs Easterly on effectiveness of ‘foreign aid’ (ongoing!)

• So, in debates over ‘growth strategies’…– ‘Washington Consensus’ (‘neo-liberalism’) vs MDGs vs HR– Policy X vs Policy Y vs Policy X’ (i.e., ‘the what’)– Little attention to implementation (‘how?’, ‘by whom’?)– Little attention to identifying, interrogating the actual problem

• Many experts ‘sell’ solutions; don’t wrestle with novel problems

Stylized Fact #1a: ‘Modern economic growth’ (Kuznets) is a recent phenomena

Growth in Real World GDP per Capita, 1000-Present

-100%

0%

100%

200%

300%

400%

500%

600%

700%

800%

900%

1000%

11th 12th 13th 14th 15th 16th 17th 18th 19th 20th

Century

#1b: Or, ‘poverty’ is the historical norm; need to explain national wealth

6

India, $2990

1851

China, $5332

1898

Ethiopia, $688 ~ Year 12501929

Mexico, $8165

Economic Trajectory of Leading Country

CurrentCrossSection

From: Pritchett (2009)

$0

$10,000

$20,000

$30,000

$40,000

1700 2000

GD

P PP

P pe

r Cap

ita

UK USA

#2: Divergence: some countries (OECD) rich, some rising (BRICs), most still poor

Economic growth, 1980-2010Great divergence continues…

8

How wealthy is the US?

#3a: Global inequality today is mostly a result of between-country differences

1820 1929 20050

0.2

0.4

0.6

0.8

1

1.2

within-country inequalitybetween-country in-equalitylo

g m

ean

devi

ation

#3b: Though within-country inequality rising at unprecedented rates in late 20th C

11

#4: But still better to be poor in a rich country than rich in a poor country

0.2

.4.6

4 6 8 10 12ln income (2005 PPP dollars)

Nigeria

China

U.S.A.

Within- and Between-country inequality today

13

#5: 100+ years of stable, 2.6% pa growth = Prosperity (OECD)

Source: Pritchett and Werker 2012

#6a: Few countries have initiated and sustained rapid growth

• China, (India)• “Getting to Portugal” (poorest OECD country)

– Who’s made it in the last 60 years?• South Korea• (Taiwan…)• Chile• (Singapore)• Selected Eastern European States

– Czech Republic, Poland, Estonia, Slovenia…

#6b: Turbulent, volatile growth characterizes most poor countries

Source: Pritchett and Werker (2012)

#7: Heterodoxy (‘many recipes’) required; ‘best fit’ not ‘best practice’

• Rodrik (2007, 2012)– No single story can (yet?) accommodate this variety

• Or, this diversity requires at least a coherent array of theories• Work inductively from evidence to principles to ‘policy’

– Successful cases often followed non-orthodox path• China, Taiwan, South Korea…• Rich countries themselves took different paths, have different institutional

configurations (e.g., Japan vs Canada vs Netherlands)• Lots of devils in lots of details

• Whether to pursue a particular policy course must be fit for purpose, context-specific– Much of professional life, and our global institutional architecture,

actively conspires against this

#8: Getting ‘good institutions’, implementing effective policy, is really hard• Sustained economic growth is a ‘relentless revolution’

(Appleby 2011)– Legitimacy of change process is key– More complex economic activity requires correspondingly robust,

adaptable global and national institutions• Good aggregate description of ‘institutions’ does not map on a

good theory or ‘instruments’ for getting them• Many countries struggle to deliver the mail (i.e., perform

purely logistical tasks), let alone implement something as complex as ‘the rule of law’

• ‘Institutions’ as human inventions– Cf. languages, religions (Fukuyama 2011)– Back to types of problems… (to be continued!)

Big picture, rival views?

• ‘Culture’ • ‘Institutions’• ‘Geography’