Political Economy After the Crisis

1. Political Economy After the Crisis Michael Woolcock Week 2 The Past and Future of Economic Growth February 6, 2014

2. 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

3. 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!)

4. 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

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

6. Mexico, $8165 China, $5332 India, $2990 Ethiopia, $688 ~ Year 1250 1851 1898 1929 #1b: Or, ‘poverty’ is the historical norm; need to explain national wealth Current Cross Section Economic Trajectory of Leading Country From: Pritchett (2009)

7. #2: Divergence: some countries (OECD) rich, some rising (BRICs), most still poor

8. Economic growth, 1980-2010Great divergence continues…

9. How wealthy is the US?

10. #3a: Global inequality today is mostly a result of between-country differences

11. #3b: Though within-country inequality rising at unprecedented rates in late 20th C

12. #4: But still better to be poor in a rich country than rich in a poor country China Nigeria U.S.A.

13. Within- and Between-country inequality today

14. #5: 100+ years of stable, 2.6% pa growth = Prosperity (OECD) Source: Pritchett and Werker 2012

15. #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…

16. #6b: Turbulent, volatile growth characterizes most poor countries Source: Pritchett and Werker(2012)

17. #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

18. #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!)

19. Big picture, rival views? • ‘Geography’ • ‘Culture’ • ‘Institutions’