"Rethinking Growth Policies in the Developing World:" Comments 4

By Le Hieu Trung (Vietnam)

For more than 15 years, the consensus of opinion on which economic policies could boost growth in developing countries is presented. At that time, there was several concepts and theories of reform policies for developing countries. As far as the concept of reform policies is concerned, it was divided into 2 different groups, one of which was the group of countries following broadly similar strategies. This group was known as sequential reform, which was opposed to simultaneous reform. “Big bang”, the name of this other group of countries, was non-dogmatic in their approach to economic reform. Those countries were pragmatic, experimental and proceeded in a flexible and instrumentalist way. Professor Dani Rodrik of F. Kennedy School of Government, Harvard University, has written many articles and books on the areas of international economics, economic development, and political economy. In “Rethinking Growth Policies in the Developing countries”, Professor Rodrik wanted to evaluate the reason explaining the failure of some developing countries related to reform, while some other countries managed to reform well and achieved remarkable results. He stood on the idea of Washington Consensus that begun from some countries in North American, especially in Latin America and also from some countries in Asian and African, and compared with the other group to find out the more efficiency methodologies for reform policies.

Firstly, as mentioned in the article, nowadays, the Washington Consensus becomes very popular and is used constantly in government’s debated related to trade and development. It is often defined as synonymous with neo-liberalism and globalization. This concept focused mainly on trade liberalization and tax reform, As far as trade liberalization is concerned, it is the liberalization of inflows in foreign direct investment, privatization, and the insurance of property right. As the author mentioned in his article, the consensus does not perform as expected. The Latin America has to face with the low perspective of economic growth and it’s started to reach an even lower level than the period before the presence of the consensus. In order to solve this puzzle, Professor Rodik found the case of some other countries, where it started as under-developed countries. However, those countries applied the heterodox policies and they saw a growth rapidly over the same period. China, India and Vietnam could be the example for this case, where it had a high and sustainable economic growth from 1980. This growth is explained in this article as due to the main characteristics of those countries’ policies, which are developing based on market-oriented but somehow had their own unorthodox ways. Taking Vietnam as an example for a deeper review, liberalization of foreign trade and investment has been an important part of Vietnamese reform. The trade system was highly restricted through the mid-1980s. Reform has included dismantling of non-tariff barriers and tariff reductions. So it becomes more difficult to measure the effectiveness of trade policy reform. However, it could be based on the one good indicator, which is the volume of trade in constant prices relative to PPP GDP. This ratio increased from 0.08 in 1989 to 0.27 in 1997. Nowadays, world trade is closely related to foreign investment. Vietnam also liberalized its policies toward foreign investment. Flows of FDI averaged more than 5% of GDP in the second half of the 1990s, up from zero in the 1980s.

Secondly, the key to success of the group countries, which are using their own method to reform, is maintaining a stability for their macro-economic and an integration in the world economy. However, they still need to keep a good protection for their domestic products against import. On the other hand, they have to enhance a deeper and wider cooperation with the world trade regime. Another important point is the provision of effective protection to investors in terms of property rights and contract enforcement. Furthermore, they have to maintain a social cohesion, solidarity and political stability. Moreover, other reason for a positive result as explained by the author is the general principles of economic policy. In some countries like China and Vietnam, their policies often don’t approach directly and aren’t made specifically so the result could still be changed and cannot be foreseen. It means that there wasn’t a perfect concept of policies. This flexibility in policies could bring a successful result to those countries. In the reverse, Latin America with too rigid policies cannot afford to develop reflection policies like China and Vietnam. This reason explained the lack of success on Latin America’s economic growth.

Thirdly, from his own evaluation on the trend of reform policies in developing countries, Professor Rodrik stated two concepts that provide guidance to developing countries for further development. One is Augmented Washington Consensus and the second one is Diagnostic Approach to Growth Strategies. According to the author, the first concept is almost failed and for the second concept, he could see some more opportunities to become successful. While Augmented Washington Consensus focused on the correction and reparation of the issues presented in the original policies, the Diagnostic Approach to Growth Strategies aimed to provide new ideas by identifying the major problem or the bottleneck in the economic sphere at any point in time, and to only focus on solving this bottleneck. The concentration on detail purpose, as opposed to the focus on many targets, could be seen as the main advantage of the second concept.

In conclusion, “Rethinking Growth Policies in the Developing Countries” provides a comprehensive review of reform policies‘s methodologies in the world during the last decade. Moreover, throughout his article, the author evaluates the reform models based on some main respects of both theories and realities. However, until now, I believe that the reform model in China and Vietnam remains inadequate. Economic based on market-oriented also has some imperfections, which need to be considered. In the other hand, a rapid increase on Globalization somehow forces China and Vietnam to take part more deeply and widely in the global economic. Consequently, there are some issues that they have to face when subsidy and protectionism factor are replaced by an equally business environment. Furthermore, as author mentioned, the Washington Consensus was collapsed because of the unaffected of the theory, rigid and uniform disciplines, and the completely globalization. On another hand, the application of reform policies depend mostly on each country’s situation, as Professor Rodrik assumes that the presence of a perfect model, which could apply for all countries, is impossible. Nowadays, it becomes difficult to foreseen the trend of global economic, thus, the economist forecast and the reform models become narrow. So, the answer to the question of the necessity or not to their focus and their actual situation.