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This historical accident of the countries aspiring for growth being divided into different kinds of political regimes had a major impact on how a strategy of industrialisation should be devised. On the one hand, colonies of the British, Dutch and the French could choose any economic regime, the east and central European countries had a Hobson’s choice as the Soviet Union imposed its economic hegemony on them. The former colonies preferred, by and large, free enterprise econo mies, tempered though with some rudiments of planning inherited from the Soviet improvisation on the basic tenets of Marxian economics. Since the developing countries had severe resource constraints in view of low income-low saving

Economic & Political Weekly

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Development Economics through the Decades: A Critical Look at 30 Years of the World Development Report by Shahid Yusuf et al (Washington DC: World Bank), 2009.

vicious circle, absence of skills, and the backwardness of the intellectual and social infrastructure, they had to seek help of the World Bank which came to prominence as an agency to facilitate a transfer of capital, knowledge and the institutional governance from the rich developed countries to the poor ones.

Was there any specific guidance for the World Bank to look to in designing a development strategy and lending policy except a vague adaptation of classical economics and to some extent, the Keynesian economics or a mere “Trial and Error” path that usually is a staple when there is no clearly defined framework? Did the World Bank follow a “Look back, go forward” policy by encouraging state-directed investment with targets since the colonies, particularly the British had never practised “laissez-faire” Hobsbawm (1969), Bhattacharya (2005), Chandavarkar (2009)?

There were, of course, several “green shoots” of development economics in the academic arena so to speak, with the publication of the Harrod-Domar model of growth stemming from the womb of the Keynesian economics, Rosenstein-Rodan’s pioneering thesis of the “Big Push”, Arthur Lewis’ pathbreaking model of “Economic Development with Unlimited Supplies of Labour”, Ragnar Nurkse’s concept of “Saving Potential of Disguised Unemployment”, Hirschman’s “Unbalanced Growth Approach to Development”, Amartya Sen’s “The Choice of Techniques: An Aspect of Planned Development”, and Hans Singer’s export pessimism and the bold but unsuccessful experiment of the Indian planners, like Mahalanobis, who used a stylised version of the Soviet economic model. The last one was particularly famous for aiming at the elimination of poverty

vol xliv no 46

World Bank seriously consider articulating its development vision, targets and policies resulting in the annual publication of its flagship World Development R eport (WDR) since 1978.

This monograph, conceptualised and written by Shahid Yusuf, who himself was one of the participants in a series of WDRs on the eve of its 30th anniversary, is an e rudite narrative on development econo m ics and policy written in lucid and limpid prose with insights assiduously a cquired through wide knowledge of economics and experience in the World Bank over a long stretch of time. The treatment is thematic, carefully teasing out the main topic of each report in a broader context and relating to others in a series so as to present a coherent understanding of development economics as a social discipline. The early WDRs hopped from “the changing sectoral composition of developing countries’ economies affecting their ability to grow”, embedding of poverty in the discussion on development, “income distribution”, “importance of institutions for market functioning”, “entry, innovations, and growth of firms”, “governance interpreted in its holistic sense”, “agricultural productivity” and so on. The author then glances, introspectively, at all the reports to raise an embarrassing question, if the WDRs pooling knowledge from inside the World Bank and outside were worth incurring huge monetary and intellectual costs.

His quest is directed to six themes:

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The main body of this essay attempts to expatiate on these six themes.

One inference drawn by the author is dispiriting and does not speak well for WDRs of recent vintage. He quotes approvingly a study of Sala-i-Martin which yields a startling conclusion that “We have learnt a lot about growth in the last few years. However, we still do not seem to understand why Africa turned to have a dismal growth performance.” One theme often harped on in WDRs is that the experience of the fastest growing economies would lead one to conclude that high and rising rates of capital accumulation are significant and all the goodies would flow from them. But there is an immediate retraction that rapid capital accumulation might not work if the economies are in the globalised world with lower trade barriers!

Some of the WDRs over the last decade, the author argues, “stayed away from the macroeconomic highway to growth” implying that the conventional fiscal, monetary and exchange rate policies have had a limited effect on resource mobilisation, investment and growth. The macroeconomic stabilisation, better known as the “Washington Consensus” (a phrase coined by John Williamson who once was an Asia region chief eco nomist in the World Bank), is first derided by the author as “notorious” but is elevated latter in the narrative to a high pedestal. As the author puts it, “With the benefit of hindsight, however, it, i e, macroeconomic stabilisation policy, may have helped set the stage for greater macroeconomic stability in the industrialising countries during the past decade”. This possibly implies that what is learnt through the WDRs at one stage is unlearnt at the next or the one after. If the purpose of the WDRs is to assimilate experience and to draw lessons from it, surely it is aborted.

The same sort of contradictory postures are airbrushed, time and again in the monograph. While the general tenor of the World Bank’s policies as reflected in the WDRs is against industrial policies, with a misdirected and obstructive state meddling in economic affairs, the World Bank and the WDRs, changed their tune and indulged in ex post facto rationalisation of industrial policies when it was e vident from the success stories of the market-led development of the east Asian countries. The truth of the matter is not that the “WDRs attempted to forge a coexistence between strong developmental state and vigorous market economy”. What is overlooked is that it was not so much state intervention per se as the fact that the policies pursued were guided by prices in the export markets and not by the arbitrary decisions of the bureaucratic state.

Market-Friendly Institutions

There has been varying discussion of building or promoting the right kind of market-friendly institutions, if the development is to be accelerated and the conclusions derived from it are taken as signals to itself as well as to its client borrowing countries. But it was soon realised that building appropriate institutions is not a magic bullet, since their context and meaning differ from country to country. The author quotes and approvingly the intuitive remark of Avinash Dixit that “For every paper that endorses one kind of institution or policy, one finds another that makes precisely the opposite claim”. On an empirical plane, China exemplified the difficulties in defining institutions or their appropriateness as it was growing with investment serving as the principal driver without a clear relationship running from specific institution building to growth, while Latin American countries aggressively reformed their policies and institutions during the 1980-90 period but were not rewarded with growth. There was the same running wild with new ideas in WDRs like “leveraging knowledge capital” in the dialogue with the developing countries but exaggeration of it was soon proved by the evidence cited by the author that “new knowledge-based growth theories accounted for less than 1% of the total variation in growth of income per capita, while physical capital accumulation a ccounts for 40%” which was the conventional wisdom in the 1970s.

There are some quibbles but should not be ignored. In his thematic discourse, the author credits Hollis Chenery with the origination of the two-gap model while making a point that the “growth is constrained not only by the scarcity of domestic capital but also by the paucity of foreign exchange” and that “the two gap model… in a sense closed the circle of development thinking”. In fact, the two gap model originated from a distinction

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the balance of payments gap and the inflation gap. Far from closing the “circle of development thinking”, however, the Chenery version of the two-gap model created an avoidable confusion. As Vijay Joshi (1970) has shown, the two-gap model is based on very extreme assumptions which reduces its value as a classification of reality. It might have some limited use in a rough, short-term calculation of aid requirements, but institutional assumptions need to be looked at very carefully. Over the longer term it is not of much use.

There is also a misinterpretation of the concept of “animal spirits” when the author states that “animal spirits are dampened and investment is suboptimal”. But animal spirit is different from self-interest and investment guided by it, far from being optimal, is, often, apt to be speculative (Ackerlof and Shiller 2009).

At the end of it all, the question that is uppermost in minds of the World Bank’s research staff and development economists at large is whether the WDR has a future at all or has it outlived its function as a knowledge purveyor. The author is l egitimately apprehensive as he says at the end that

something comparable to the vision that gave birth to the first WDR could be recovered or rediscovered. Exhaustive WDRs packed with myriad micro-empirical findings may be running into diminishing returns outside and inside the Bank. So many other similar reports are on the market that the voice of the WDR and its uniqueness are in danger of being lost.

This judgment is shared by the World Bank’s Independent Evaluation Group report of 2008. However, the answers to the question are foregrounded in two rather sharp but agnostic commentaries by Angus Deaton and William Easterly, who were both associated with the World Bank’s research department for many years but did not lose objectivity.

Deaton, for instance, considers the WDR mainly as a summariser of inside and outside academic research and finds no evidence that “these summaries reputedly put the WDRs on many college reading lists”. He even questions that “…the WDRs have – or ever – had influence”. Yusuf this is a self-lifting exaggeration as the journals in which those articles appeared are not among the more reputed academic journals. Deaton’s strictures are even more scathing in tenor. “Citation counts”, he argues “are presented, which are unimpressive to my eyes, but are scarcely relevant. The reaction of the intended audience…is not measured by citations in the ISI Web of Knowledge database or the Google Scholar”. Deaton perceives the value of the WDRs more in the tables on World Development Indicators than in “words upfront” and the WDR should focus on this aspect in the future than on the rigmarole surrounding the data.

The comments of William Easterly could be considered as a former insider’s views from outside and for that reason even more credible and authentic. He sees the

intellectual tragedy of WDRs in their falling victim to many of the classic heuristic biases about randomness… including frequent use of circular reasoning which leads to drawing conclusions about how to achieve superior long-run performance from too small a number of observations, without allowing for the large role of transitory factors in a small sample. With these strong heuristic biases, therefore, the WDRs can only continue the tragic intellectual failures.

With such severe indictment of the WDRs, and the author’s hesitancy and his apologetic bearing while dealing with a gallimaufry of themes, one can raise a question whether the monograph under review has been worth the effort and cost that went into the production of the WDR. The WDR was not a “star” to be born, nor even an epigone for other multilateral organisations to emulate. In fact, the World Bank could have learnt much from the Economic Outlook brought out by the Organisation of European Cooperation and Development (OECD) before 1978 which earned high laurels for its analytical contents woven around the political economy of the concerned countries. In contrast, it is now clear after reading this essay that the WDR “far from illuminating development issues” and “contributing to the science of policymaking” is more like, to use a resonating phrase of Nandan Nilekani, a Niagara

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november 14, 2009 vol xliv no 46

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Falls of well-worn ideas and a Sahara of new exciting ones.

Deena Khatkhate (dkhatkhate@aol.com) worked in the Reserve Bank of India and then in the International Monetary Fund. He still writes for the EPW.

Alagappa, Muthiah, ed. (2009): The Long Shadow: Nuclear Weapons and Security in 21st Century Asia (New Delhi: Oxford University Press); pp xvi + 571, Rs 995.

Alawi, Amir Ahmad (2009): Journey to the Holy Land: A Pilgrim’s Diary (New Delhi: Oxford University Press), pp 271, Rs 650.

Andrew, Jose Miguel and Rita Dulci Rahman (2009): Global Democracy for Sustaining Global Capitalism: The Way to Solve Current Global Problems (New Delhi: Academic Foundation); pp 361, Rs 995.

Arora, Ramesh K and Meenakshi Hooja, ed. (2009): Panchayati Raj, Participation and Decentralization (Jaipur: Rawat Publications), pp xii + 316, Rs 795.

Arora, Ramesh K and Tanjul Saxena, ed. (2009): Excellence, Ethics and the World of Management (Jaipur: Rawat Publications); pp 258, Rs 625.

Arora, Ramesh K, ed. (2008): Ethics in Governance: Innovations, Issues and Instrumentalities (Jaipur: Rawat Publications); pp xvi + 243, Rs 550.

Banerjee, P, ed. (2009): India – Science and Technology 2008 (New Delhi: National Institute of Science, Technology and Development Studies), pp xli + 367, price not indicated.

Bery, Suman, Barry Bosworth and Arvind Panagariya, ed. (2009): India Policy Forum – 2008/09 Vol 5 (New Delhi: Sage Publications); pp xx + 295, Rs 595.

Bhaduri, Amit (2009): Macroeconomic Theory and Policy: Critical Essays on the Dynamics of Capitalism (Kolkata: Setu Prakashani); pp 240, price not indicated.

Bhowmik, Sharit, ed. (2009): Street Vendors in the Global Urban Economy (New Delhi: Routledge); pp xxii + 320, Rs 695.

Chakrabarti, Rajesh, ed. (2009): The Other India: Realities of an Emerging Power (New Delhi: Sage Publications); pp xxviii + 274, Rs 695.

Chakrabarty, Bidyut and Rajendra Kumar Pandey (2009): Modern Indian Political Thought: Text and Context (New Delhi: Sage Publications); pp xxxix + 430, Rs 350.

Danish, Ishtiyaque, ed. (2005): Muslims in India: Perceptions and Misperceptions (New Delhi: Global Media Publications); pp 168, Rs 400.

Das, G K and Sushma Arya, ed. (2009): Literature of Resistance – India 1857 (Delhi: Primus Books); pp xi + 203, Rs 450.

Deshpande, Anirudh (2009): Class, Power and Consciousness in Indian Cinema and Television (Delhi: Primium Books); pp xvii + 169, Rs 595.

Dhanda, Amita and Archana Parashar, ed. (2009): Decolonisation of Legal Knowledge (New Delhi: Routledge); pp xxxv + 293, Rs 795.

References

Ackerlof, G and R Shiller (2009): Animal Spirits (Princeton: Princeton University Press).

Bhattacharya, S (2005): The Financial Foundation of the British Raj: Ideas and Interests in the Reconstruction of Indian Public Finance, 1858-1872

(Hyderabad: Orient Longman).

Chandavarkar, A (2009): “Myth of Laissez-Faire in Colonial India”, a chapter in Unexplored

Books Received

Dube, Saurabh (2009): Enchantments of Modernity: Empire, Nation, Globalization (New Delhi: Routledge); pp xvi + 504, Rs 850.

Ghauri, Abdus Sattar and Isanur Rahman Ghauri (2009): The Only Son Offered for Sacrifice Isaac or Ishmael (New Delhi: Gyan Publishing House); pp 338, Rs 750.

Ghosh, Papiya (2009): Muhajirs and the Nation: Bihar in the 1940s (New Delhi: Routledge); pp xxx + 140, Rs 495.

Giri, Ananta Kumar, ed. (2009): The Modern Prince and the Modern Sage: Transforming Power and Freedom (New Delhi: Sage Publications); pp xlix

+ 598, Rs 950.

Itty, John M, P J Philip and V Mathew Kurian (2009):

Global Economic Crisis: End of Growth Paradigms?

(Kerala: Vichara, Mavelikara); pp 144, Rs 120.

Jain, Manju, ed. (2009): Narratives of Indian Cinema (Delhi: Primium Books); pp x + 274, Rs 900.

Janapathy, Varalakshmi (2009): Women Key to Successful Democracy (Delhi: Kalpaz Publications); pp 370, Rs 750.

Janeja, Manpreet K (2009): Transactions in Taste: The Colloborative Lives of Everyday Bengali Food (New Delhi: Routledge); pp xix + 185, Rs 695.

Kapila, Uma, ed. (2009): Indian Economy since Independence (New Delhi: Academic Foundation); pp 872, Rs 475.

Kumar, A Prasanna, ed. (2009): Education, Development and Culture (Essays in Honour of Shri Vavilala Seetaramaiah) (Visakhapatnam: Centre for Policy Studies), pp viii + 404, price not indicated.

Lal, Vinay, ed. (2009): Political Hinduism: The Religious Imagination in Public Spheres (New Delhi: Oxford University Press); pp vi + 287, Rs 650.

Linden, Marcel Van der and Prabhu P Mohapatra, ed. (2009): Labour Matters towards Global Histories: Studies in Honour of Sabyasachi Bhattacharya

(New Delhi: Tulika Books); pp xxii + 338, Rs 695.

Munshi, Shoma (2009): Prime Time Soap Operas on Indian Television (New Delhi: Routledge); pp xv + 312, Rs 595.

Parikh, Kirit S, ed. (2009): Macro-modelling for the Eleventh Five-Year Plan of India (New Delhi: Academic Foundation); pp 281, Rs 695.

Premchander, Smita, V Prameela, M Chidambaranathan and L Jeyaseelan (2009): Multiple Meanings of Money: How Women See Microfinance (New Delhi: Sage Publications); pp xxi + 264, Rs 595.

Purushotham, P (2009): Institutional Credit for Rural Livelihoods (A Study of SGSY in the Regions of High Poverty) (Hyderabad: National Institute of Rural Development); pp 151 + 100, price not indicated.

november 14, 2009

Keynes and Other Essays (New Delhi: Academic Foundation).

Indian Planning Commission Report (1962): Perspective Development: India, 1960-61 to 1975-76, Implications of Plans of Minimum Level of Living, New Delhi.

Joshi, V (2005): “Saving and Foreign Exchange Constraints” in P Sreeten (ed.), Unfashionable Economist: Essays in Honour of Lord Balogh (1970)

(London: Widenfield and Nicolson).

Raghavan, G N S (2009): Discovering the Rigveda: A Bracing Text for Our Times (Delhi: Kalpaz Publications); pp 200, Rs 540.

Rao, N Bhaskara (2009): A Handbook of Poll Surveys in Media: An Indian Perspective (New Delhi: Gyan Publishing House), pp 329, Rs 550.

Reddy, Sirgapur Vidya Sagar (2009): The Great Betrayal (Hyderabad: Navodaya Book House); pp 396, Rs 200.

Rist, Gilbert (2009): The History of Development: From Western Origins to Global Faith (New Delhi: Academic Foundation), pp xiii + 288, Rs 995.

Roul, Chhabilendra (2009): The International Jute Commodity System (New Delhi: Northern Book Centre); pp xxxiii + 294, Rs 1,250.

Sastri, K A Nilakanta (2009): The Illustrated History of South India: From Prehistoric Times to the Fall of Vijayanagar (New Delhi: Oxford University Press), pp xxxii + 357, Rs 325.

Seth, Padma (2009): Infant Mortality and Maternal Mortality: Socio-Economic Causes and Determinants (New Delhi: Gyan Publishing House); pp 327, Rs 750.

Shah, Tushaar (2009): Taming the Anarchy: Groundwater Governance in South Asia (New Delhi: Routledge); pp xii + 310, Rs 695.

Shylendra, H S, ed. (2009): New Governance and Development: Challenges of Addressing Poverty and Inequality (New Delhi: Academic Foundation); pp 364, Rs 995.

Siddharthan, N S and K Narayanan, ed. (2009): Indian and Chinese Enterprises: Global Trade, Technology and Investment Regimes (New Delhi: Routledge); pp xiv + 312, Rs 795.

Siddique, Iqtidar Husain (2009): Delhi Sultanate: Urbanization and Social Change (New Delhi: Viva Books); pp x + 241, Rs 795.

Singh, Lata, ed. (2009): Theatre in Colonial India: Play-House of Power (New Delhi: Oxford University Press), pp viii + 354, Rs 895.

Srinivasan, T N (2009): Trade, Growth and Poverty Reduction: Least Developed Countries, Landlocked Developing Countries and Small States in the Global Economic System (New Delhi: Academic Foundation); pp 152, Rs 695.

Sundararajan, Saroja (2009): Kashmir Crisis: Unholy Anglo-Pak Nexus (Delhi: Kalpaz Publications); pp 421, Rs 850.

Tiwari, Murli D and Kamlesh N Agarwala, ed. (2009): IT and Rural Health Care (Delhi: Primus Books); pp xviii + 179, Rs 695.

Willis, Michael (2009): The Archaeology of Hindu Ritual: Temples and the Establishment of the Gods (New Delhi: Cambridge University Press); pp xiv + 375, Rs 795.

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