"Rethinking Growth Policies in the Developing World": Comments 1

By Md. Abdur Rouf Mia (Bangladesh)

The article on ‘Rethinking Growth Policies in the Developing World’ by ‘Dani Rodrik’ basically criticized the policy agenda suggested by the ‘Washington Consensus’ as it failed to produce conceived economic growths in many developing countries (e.g., many African and Latin American Countries), which followed ten principles in the original ‘Washington Consensus’. Rather, he pointed out that the countries (e.g., China, India, and Vietnam) that followed heterodox policies have achieved significant economic growths in last two or three decades. In this context, in order to provide effective guidance to the developing countries for achieving economic growth, this paper evaluates the strengths and shortcomings of two potential approaches: (1) an extension of the Washington Consensus adding ten more principles, and (2) a diagnostic approach to growth strategies.

The Augmented Washington Consensus, in fact, adds several policy agenda (e.g., flexible labor markets, anti-corruption) to remedy the weaknesses in the implementation of the original ten principles (e.g., openness, fiscal discipline, and privatization) of the ‘Washington Consensus’. However, again Rodrik has suspected the efficacy of the long-listed reform agenda due to several issues. Firstly, the reform agenda does not provide any priority, and they are being suggested without much consideration of their adaptability to the local conditions. Moreover, efforts on many diverse issues may not attain the ultimate goal. On the other hand, implementing ‘the best as you can’ suggested by the proponents of the ‘Washington Consensus’ would induce opportunistic strategy, which may end up with unexpected results (e.g., low returns). Secondly, there is a possibility to augment the reform agenda in future in the case of failure by putting responsibility on the adopters’ shoulder for not conforming many of the long-listed principles.

Therefore, Rodrik suggests that instead of focusing on many reform agenda, it is rather important to recognize the most important bottleneck in the economy at any point of time, and put efforts on removing this constraint. He argues that this diagnostic approach is simple, operational, and economical. In the following sections, I intend to examine the applicability of the arguments of this paper in my country, Bangladesh.

Although the paper rightly pointed out the weaknesses of the ‘Washington Consensus’, promoting trade liberalization (a principle of the consensus) appears to bring about positive outcome in Bangladesh. In fact, several papers (CPD, 2004; Gisselquist and Grether, 2000; Osmani, 2005) argue that trade liberalization has positive outcomes in Bangladesh. CPD (2004) indicates that the large-scale liberalization of market and trade by increasing the easy availability of modern agricultural inputs have expanded the rural nonfarm sectors. In the same context, Gisselquist and Grether (2000) show that farmers in Bangladesh were benefited from increased availability of farm inputs through the process of liberalization. In an extensive study, Osmani (2005) argues that embracing globalization has stimulated aggregate demand from three sources: increased crop production, remittance, and growths in ready-made garments sector in Bangladesh, which eventually helped the poor to escape or come out of the poverty. In this context, the World Bank (2002) and several other studies (e.g., Nargis and Hossain, 2006) confirm noteworthy achievements in poverty reduction in both rural and urban areas in Bangladesh in the last two decades.

Nevertheless, the diagnostic approach, suggested by Rodrik, could be a better way to solve other existing micro and macro economic problems in Bangladesh. For example, the banking sector in Bangladesh has a huge amount of idle money amounting to nearly 150 billion, whereas agricultural farmers has to borrow money from non-governmental organizations (NGOs) or money lenders at relatively high interest rates. Moreover, investments in the manufacturing or services sectors are also relatively low among many South Asian Countries. These facts suggest that government should identify the bottlenecks in this regard and should take effective measures to best utilize those idle money. Similarly, Bangladesh is confronting many other significant economic and non-economic issues (e.g., meager FDI inflows, lack of export diversification, absence of rural industrialization, weak institutions). Identifying the main causes of these issues and addressing them pragmatically should be the priorities of the government. Finally, I do agree with the statement that careful policy analyses, carried out by the professionals/academicians in the respective fields, should replace the shortcuts or broad economic principles.

References:
Center for Policy Dialogue, 2004, Promoting Rural Nonfarm Economy: Is Bangladesh Doing enough? CPD Report No. 66, Dhaka: CPD.

Gisselquist, D. and Grether. J.M., 2000, "An Argument for Deregulating the Transfer of Agricultural Technologies to Developing Countries," World Bank Economic Review, 14(1), 111-27.

Nargis, N., & Hossain, M., 2006, "Income Dynamics and Pathways out of Poverty in Bangladesh: 1988-2004," Agricultural Economics, 35(3): 425-435.

Osmani, S.R. 2005, "The Impact of Globalization on Poverty in Bangladesh," Working Paper No. 65, Geneva: ILO.