Thursday, January 11, 2007

Economists puzzling over Growth?

From the WSJ's David Wessel:

Why aren't more poor countries catching up faster?

One view, articulated by Ms. Krueger, is that so-called Third World governments and their First World advisers applied sound economic principles incorrectly or without sufficient attention to the reality. Policies to encourage exports and shield embryonic industries from imports until they got rolling sounded good, for instance, but bred corruption, infantilized industries and created politically powerful vested interests that blocked needed change.

Another view is that poor countries got bad advice and paid the price, but that today's experts know much more than their predecessors. "We don't have recipes, or a checklist," Mr. Edwards says. But, he says, we do know the ingredients: educating workers, accumulating capital and investing it widely, improving productivity. Even he concedes economists are better at dissecting success stories -- China, for one -- and identifying particular reasons for each one's success than generalizing to advise struggling countries what steps to take to boost living standards for the masses.

A third view is that earlier economists focused on the wrong thing. Mr. Johnson, among others, argues that what really matters is having solid political, legal and economic institutions -- courts, central banks, honest bureaucrats, private-property rights -- that allow entrepreneurs to flourish. Imposing what seem to be sound economic policies on corrupt, incompetent or myopic governments is doomed. Building strong institutions is a necessary prerequisite. In this camp, there is a running side argument about which comes first: the institutions or the educated people who create them. Was the Constitution key to U.S. success, or was it Jefferson, Madison and Hamilton?

Technological advances and the spread of markets likely will boost the overall income of the world significantly over the next 25 to 50 years. "But," Mr. Johnson warns, "at least half the world's population will likely not participate fully" -- unless his crowd finds better ways to spread prosperity along with better health to poor countries.
Count me solidly in the third camp and entirely unimpressed with the first two. As to which comes first, Americans have been leaders in the world attracting the best and brightest from around the world - particularly in developing countries. It's even been a continuing concern for Canada... but like Michael Ignatieff... ex-pats tend to return at some point. Finding the educated and even educated passionate people shouldn't be the problem.

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