"Rethinking Growth Policies in the Developing World:" Comments 3

By Magoti Suzanna Joachim (Tanzania)

1) INTRODUCTION

The article presents an account of different approaches on how developing countries can increase their growth rates and speed up the rate at which their citizens converge to the level of material well-being. The Author is also trying to provide an analysis on distinct approaches and reform by various economists of the 1980 and 1990 over the Economic Growth. Dan Rodrik also made an effort to offer some challenges, comparative analysis of The Augmented Washington Consensus Approach and Diagnosis Approaches to Growth Strategies and his own suggestion on what ca developing Countries do to speed up their Economic Growth.

2) SUMMARY OF THE ARTLCLE

a) The concept of Policy Reforms for Economic Growth gained momentum at the end of 1980-1990 by preaching the triple commandments which are stabilize, liberalize and privatize. This time marked the overwhelming of reforms around the World from Latin America to Sub-Sahara Africa Continent and in many places around Asia. In a relative short period, most developing countries unilaterally eliminated quantitative restrictions on imports, lowered tariff barriers and reduce the dispersion of tariff rates. According to this Article, It shows that despite of the adoption of these radical changes in policies, there was no analogous radical improvement in economic performance. Economic growth in those Countries that adopted the “stabilize, liberalize and privative” agenda has turned out to be low not only in absolute terms but also relative to other countries that were reluctant reformer and relative to the reforming countries’ own historical experience. Fiscal discipline, privatization and openness to trade have produced an economic performance that does not even begin to match the performance under import substitution.

b) The author is trying to provide his critical observation on why the reforms of the 1980s and 1990s have produced weak return in many developing countries by outlining two Approaches one is The Augmented Washington Consensus and two is A Diagnosis Approach to growth. According to this Article The Augmented Washington Consensus is impracticable because it does not take into account the amount of administrative capacity, human resource and political capital needed to complete the institution reform agenda, governments are overwhelmed with the range of things that need to be completed, copies of western legislation or “best practice” codes are adopted without much consideration of their suitability and adaptability and too little effort is made to render the reforms politically popular and ultimately sustainable.

c) He points out that, the trouble with the “do as much you can as quickly as you can approach as emphasized by the Augmented Washington Consensus is bad economics because the optimistic strategy may end up being targeted on areas of reform that are not particularly significant for economic growth at that point in time and may end up producing low economic returns. The vast majority of take-offs are not produced by significant economic reform and the vast majority of significant economic reform do not produce economic take-offs.

d) Furthermore, the author managed to analyze the diagnostic approach to growth strategies. He proposed that the biggest hit for the reform buck can be obtained by identifying the most significant bottleneck in the economy at any point in time, and focusing efforts on alleviating that bottlenecks. Thus, in order to deal with these bottlenecks we must be able to realize that if intermediation is problematic, there must be lack of competition among banks and/or high taxes on the financial system that are proportionate with the limits. And if labor skills are the constraints, it must show up in very high return to education, if taxes are significantly constraining private activity, the effective tax rate must be high, if corruption and other institution problems are dominant these should show up in cross-national survey evidence. If information or coordination externalities are rampant, there must be a shortage of new investment ideas and the policy setting needed to exploit new opportunities must be absent.

e) Therefore diagnostic approach clarifies why it is desirable to apply different fixes to different countries, match policy priorities with diagnostic signals, Find ways of identifying country specific solution and it is inherent bottom-up that it empowers countries to do their own diagnosis analyses. Diagnostic approach is sensitive to political and administrative constraints and it is dynamic in that it recognizes that the nature of the binding constraint changes over time.

3) RELEVANCE OF THE ARTICLE TO TANZANIAN SITUATIONS

i. The nature and content of economic reforms carried out in various countries in Africa and Tanzania in particular, have varied in terms of coverage and emphasis. However, the main elements of economic reform have been liberalization of internal and external trade, greater reliance on market forces (i.e. price liberalization, devaluations and interest rate adjustments), tight monetary policies, mainly in the form of credit squeezes, and tight fiscal policy in the form of budget cuts and public sector reforms. These policies have primarily been designed to restore equilibrium, especially in the balance of payments and the fiscal and monetary variables.

ii. The 1980s and 1990s was the moment in time in which Tanzanian government adopted several reforms as a response to economic crisis which was claimed to be a result of inappropriate domestic policies, including incentive structures, and the mismanagement of public resources (World Bank, 1981). In responding to the economic crisis, Tanzania government was forced as one of the IMF and World Bank condition to adopt Structural Adjustment Programmes. According to Husain (1994) it is indicated that for 1985-1990 the export volumes of nine major export commodities in countries which had undertaken Adjustment Programmes like Tanzania increased by 75 per cent as compared with the 1977-1979 averages. Yet export earnings from these exports had fallen by 40 per cent over the same period, because of deteriorating barter terms of trade.

iii. Some of the conditions embedded in Structural Adjustment Policy were Down-sizing Government structure for efficient human resource and effective service delivery, Introduction of Multi-party system for democratic government, Privatization of some of the public sectors such as Industries, mining sectors and hotels in order for improving performance and production. However, despite of the expected outcomes the return has been so slow and negative in some sectors. After all that beautiful plans and propagandas one was expecting rapid economic growth, Law inflation rate, Rapid reduced absolute poverty among the majority Tanzanian, and Increased employment and per capital income but this is not the case. It is almost 20 years since the adoption of structural and policy reforms but Tanzania is still lagging at the 3rd poorest country in Sub Saharan Africa despite of the richness in natural resources and tourist attractions.

iv. Never the less, since the inception of economic reforms in 1986, a large segment of Tanzania’s population has benefited from gradual poverty reduction, which was driven mostly by steady improvement in economic performance, implementation of structural reforms, and, in the most recent past, greater attention to public service delivery. GDP growth has been sufficient to allow increases in income per capita, including in rural areas. However the decline in poverty has been more pronounced in urban areas, while poverty in rural areas which employs more than 75 percent of the population, remains considerably higher. In conclusion therefore, one may argue that not every approach and reforms that have worked in the western countries can also be copied by developing countries to bring about economic growth in isolation of historical background, cultural and political condition and environment.