27 April 2013

New Ideas on Development After The Financial Crisis

Nancy Birdsall and Francis Fukuyama (eds)
2011, The John Hopkins Unversity Press, Baltimore, 360 pages, £18.00
ISBN 9780801899768

Reviewer: Mark Henstridge, Chief Economist, Oxford Policy Management

This book is simultaneously too early and too late. It is based on papers presented in April 2009, which was too soon after the 2008 financial crisis to have perspective on its impact on development ideas - the book’s premise - but it was published in 2011, by which time events had moved on. So why bother with it? Because the financial crisis gave interesting writers on economics and development pause for thought. They were writing so soon after the crisis that they were not constrained by it, and have produced some fresh ideas anyway.

First, a quibble on rigour. The preface argues that the burden of the financial crisis was borne by poor countries: “Global GDP growth dropped virtually everywhere in the world in the fourth quarter of 2008, and countries dependent on exports saw their export earnings shrink even faster.” (p.viii). But the data provided show that in 2009 GDP grew by 7% in India and 9% in China, and was flat in Brazil. The other countries in Table P1 are Russia, Germany, the UK and USA, so it says nothing about the rest of Asia or Africa, much of which was relatively unscathed. The exports data in Table P2 for Brazil, China, India, and South Korea show average growth in exports from December 2008 to December 2009 of 19% (ignoring the typo that added US$100 billion to monthly Indian exports from September 2009). The strong claims on the burden of crisis having been shouldered by poor countries are at odds with the evidence presented, which makes one hesitate before proceeding.

But it is worth persisting for the positives: this book has a distinguished cast of writers. Among the highlights are chapters by Lant Pritchett and Michael Clemens. Pritchett writes on making public institutions work. The crisis is used as an illustration of the dissonance between institutions that look good on paper - financial regulation in the US for example - but which fail under the pressure of events. The persisting relevance of this chapter is that this is the same challenge faced in developing countries by public institutions struggling to deliver public services, and small and medium-sized enterprises looking to grow. Both need organisational capabilities, such as middle-management, to be effective.

The default unit for thinking about economic growth and development is a country: we usually think about the development of a place, rather than people. Clemens argues that this conventional perspective is too narrow. Just as people get better off by moving from country to town within a country, many could get better off by moving to other countries. This is an important part of thinking about how people become better off; and is mirrored in the struggles of international business in the UK to bring in people to work under the tighter policies on migration of the current government. Overall, this book is ineffective in its own terms, but a good source of ideas.