Davos Newbies Home

Anyone listening?  

Jonathan Freedland has an interesting take on the Clinton Dimbleby lecture: “When al-Qaida’s complete surrender is within the US’s grasp, why fret about clean water for Africa or the need for a democratic breeze to blow through the cobwebs of the Muslim world?”

I agree that all the signs are that a historic moment to change the world for the better is being lost.

Approaching the problems from a different angle, Martin Wolf has a pithy analysis of how globalisation has helped reduce the inequalities of our world. “The argument about globalisation, as such, must stop. All successful developing countries have exploited international opportunities in their development. What is needed, instead, is agreement on how to reverse the marginalisation of so broad a swathe of humanity.”

5 thoughts on “Davos Newbies Home

  1. Eric Mauro

    Lance, I only keep writing to you because you ask provocative questions and seem to care about this. In response to Wolf, couldn’t we do a better job figuring out what causes growth in these countries.

    It would be great if the world focussed on getting poor countries growing. But it would be even better if the international lending institutions gave advice that would actually cause growth. Here is part of an article from the NYTimes about Peru in 1974. The same article has been written a hundred times since then about a hundred different countries. Maybe in five years we’ll read the same article in The Economist about Afghanistan:

    Four years ago [1973] commercial banks were eagerley lending Peru money for just about any project the military could dream up… Experts from the IMF, the World Bank and the industrial countries told the Peruvian that between 1975 and 1977 they could easily handle $2.8 billion in new debt to spur economic development. Recalling the scene in Lima at the time, a local banker says: “Foreign bankers wanted to give us money before we asked for it. The Italians had lira for a dam. The French had francs for our steel mill.”

    — [then things went bad. more quoting]

    The IMF team, which is headed by American economist Linda Koenig, wants Peru to do two things before it will approve a standby credit of about $100 million, a credit that would be less important for its size than for it constituting and IMF seal of approval in the eyes of other bankers. First the team wants the 1977 budget deficit hel down, as an anti-inflationary measure. Second it wants the value of Peru’s currency, the sol, to be continually adjusted against the dollar by a series of mini-devaluations. That policy, which Peru did follow from June 1976 until lately, would tend to spur exports by lowering their price and discourage imports by raising theirs, while avoiding sudden sharp changes…

    *end quote

    The conventional reponse, when we hear about such a country today, is to blame their government for investing in white elephant projects like superhighways, airports and skyscrapers. Also the people of the country are blamed for being too stuck on the old ways, evading taxes, being somehow untrained in democracy, etc.

    That is why someone has to be skeptical of the World Bank’s prescriptions today. They are proposing that the countries take on loans to build hospitals, schools and universities etc. Where they make the mistake is that these too are signs of an advanced economy, no different from the dams and skyscrapers built in the 70s. Growth causes hospitals and superhighways, not the other way around.

    And to pay for them the IMF and World Bank will again get the countries to raise taxes on their people. Most IMF reports make a condition of lending that the tax structure is “broadened” (so more people are taxed more at lower incomes) and “rationalized” (with increased progressivity to punish the rich). Most of these countries have higher, more punishing tax rates, which start at lower levels, than any country in the developed world. Yet the IMF is continually surpised by disappointing tax revenues, and recommends, what else, tougher enforcement!

    I had to stop reading The Economist because I saw this same series of articles again and again. I love reading international news but I can’t stand reading the same tragic things over and over.

    Reply
  2. Lance Knobel

    Eric,

    There are unquestionably problems with the so-called Washington consensus on economics. But there are also people within the multilateral institutions who are aware of this and are working hard to precipitate change.

    I’d highly recommend William Easterly’s The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics. It’s a worthy heir to Robert Klitgaard’s Tropical Gangsters.

    Lance

    Reply
  3. Eric Mauro

    Brian, I agree with much of what you have said about Clinton but his basic point I think is right.

    For instance, the fight over land in Zimbabwe would not have occurred if the country was prosperous. The IMF is deeply involved in Zimbabwe’s economy, so one thing we could do is get them to stop hurting Zimbabwe.

    Racial and ethnic divisions are always there, but they are deeper when the economy is bad. Clinton believes everybody can love everybody else, which is pie-in-the-sky, but there’s a grain of truth to the idea that people can be too busy to hate, an ideal of the New South.

    Basically I think Clinton has the right intention, I just don’t believe that the IMF and its ilk are likely to bring about growth. I don’t want to get rid of the IMF, and I don’t doubt that the liberalization Lance points to will occur. But will the new regime aid growth? The IMF has always advanced liberal ideas, like a steeply progressive income tax, infrastructure spending, representative democracy, etc.

    Reply

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