Cautious welcome to the World Bank's rejection of old orthodoxies

The one-size-fits-all development strategy is dead, says Robert Zoellick. But will the World Bank therefore be run differently? - asks The Guardian newspaper in its PovertyMatters Blog [link]:

The World Bank provided one of the three pillars of the Washington consensus. Along with the International Monetary Fund (IMF) and the US Treasury, it was the source of an economic orthodoxy exported, often ruthlessly, from America to the rest of the world.

Put simply, the Washington consensus provided a one-size-fits-all solution to the problems of development. Countries were told to privatise and to liberalise, to slim down the size of the state, bear down on inflation, reduce their budget deficits and concentrate on exports. "We know what works", the advocates of the consensus said. "Free markets work."

So it was fascinating yesterday to find the World Bank's president, Robert Zoellick (pictured), acting as the gravedigger for the once-all powerful dogma. Urging a rethink of development economics, Zoellick said in a speech in Georgetown: "This is no longer about the Washington consensus. One cannot have a consensus about political economy from one city applying to all. This is about experience regarding what is working – in New Delhi, in Sao Paolo, in Beijing, in Cairo, and Accra. Out of experience may come consensus. But only if it is firmly grounded – and broadly owned."

Some might say this is simply bowing to the inevitable, since one big casualty of the crisis has been the economics profession, with its over-elaborate mathematical models and its messianic belief in the invisible hand of the price mechanism. But, as Zoellick rightly noted, even before the crisis broke there was a questioning of the orthodoxy and a sense that development economics needed to be rethought.

Critics such as the Cambridge economist Ha-Joon Chang said that no country in history had ever based a successful development strategy on the free-trade model: all protected their fledgling industries. It was also noted that the countries most successful in riding out the economic storm, India and China, were those that had defied the Washington consensus and kept controls on capital flows in place.

There is, though, a bit more to it than that. The rapid growth of the bigger emerging nations – China, India and Brazil in particular – has given them added clout on the world stage. The first manifestation of this was at the World Trade Organisation, where it is no longer possible for the US and the European Union to cook up a private deal and then present it to the rest of the world on a take-it-or-leave-it basis.

Now the developing world wants a bigger say in the running of the World Bank and the IMF. Change to the anachronistic governing structure – which reflects the world as it was in 1944 rather than as it is in 2010 – is happening, even if at a somewhat glacial pace. Developing countries are also reluctant to see the World Bank take charge of a new fund that will help poorer nations adapt to climate change, and want it to be run out of the United Nations instead. So when Zoellick says, as he did yesterday, that a multi-polar economy requires multi-polar knowledge, a cynic might say he was trying to ingratiate himself with the policy makers in Beijing and New Delhi.

There was a sense of genuine humility in Zoellick's speech. "We need to democratise and demystify development economics, recognising that we do not have a monopoly on the answers. 

"We need to throw open the doors, recognising that others can find and create their own solutions. And this open research revolution is underway. We need to recognise that development knowledge is no longer the sole province of the researcher, the scholar, or the ivory tower."

All absolutely true, and very welcome. Talk, of course, is cheap. The real test is whether Zoellick's openness to new ideas makes a difference to how the World Bank is run and how it acts.

Important news for our current understanding of how the World Bank operates in the present-day world—vital insights for World Economic Governance in Unit 3D, particularly in regard to criticisms that have been made of the past approach to economic development and governance by the World Bank!