Given massive social divisions and the disruptions from technology, what is the new development model?

As the Commission for Global Economic Transformation, co-chaired by Nobel laureates Joseph Stiglitz and Michael Spence, formed early last month, gets down to work, we should reflect whether emerging markets are able to formulate such a new development model.

The World Bank is the world’s premier development funding agency and its flagship World Development Report is an opinion shaper about the future of development. This analytical effort is the largest group think on development issues, overseen by the World Bank chief economist aided by a team of over 100 staff and consultants. It is an annual taking of stock of the latest thinking and accumulated experience on development issues and policies.

The bank is part of the economics establishment, since it hires what it considers the best and brightest economists from the top universities. But if the economics profession is blind to its own blindness, then the bank also suffers the same fate. A recent blog review of the last five WDRs, however, suggests that a new Washington consensus is emerging. Gone are the idealist and perfectionist models of free markets. Instead, the bank has embraced complexity, context, learning by doing, politics and ideas -- all major reviews of the economic profession since the global financial crisis hit in 2007-8.

Indeed, a review of the last decade of WDRs suggests that the bank has made significant mental shifts about the whole development process. After a separate review of 30 years of development thinking in 2009, the WDR that year launched an influential report on economic geography, reminding everyone that the world is not flat, and geography shapes destiny.

In 2010, the WDR presciently pointed out that climate change would hurt emerging markets more, requiring more urgent attention to climate mitigation. The next WDR looked at conflict and security as fragile states continue to fail because weak institutions cannot cope with the combined stresses of conflict, security, corruption, justice and jobs.

In 2012, the bank addressed the issue of gender in development. Since women generally make up half of the population, it seems common sense that higher proportion of women in the active labor force, with equal pay, would increase growth in incomes. But women face different forms of discrimination that deter development.

In 2013, the bank tackled jobs, finding that unemployment and job expectations among youth being the most urgent of policy priorities. In the last two years, this has emerged as one of the top political concerns arising from the impact of robotics, 3-D printing and artificial intelligence on lower-skilled jobs.

After looking at risk management in 2014, which was clearly overlooked in the run-up to the global financial crisis, the bank took an unusual step in looking at Mind, Culture and Behavior. 

Moving out of the comfort zone of economics into psychology and other social sciences, the WDR team used the three principles of human decision making: thinking automatically, thinking socially, and thinking with mental models to argue that policy makers can advance development by thinking beyond economics. This report never got the serious attention it deserved, mainly because it was outside the reductionist mental model of mainstream rational expectations economics.

In three years, the bank has tackled the issues of digitization (2016), governance and the law (2017) and most recently learning (2018). The issue of using technology to accelerate development is not new, and how rapidly innovation and advances in technology is making old ideas and work processes obsolete is becoming more obvious every day.

In the issue on governance, bank President Kim Jim-yong asked the right question: Not “what is the right policy?” but “what makes policies work to produce life-improving outcomes?” By moving out of a purely technical analysis of development into the political economy of how to arrive at the right choices and implementing them effectively, the bank has finally accepted that the world is a complex adaptive system, in which there are no optimal outcomes.

The latest WDR on learning lies at the heart of development. And yet, education and learning is defective in many societies, keep large numbers in poverty and hopelessness. Many countries spend huge fortunes on education, but the results are not always ideal. This WDR report, led by bank chief economist Paul Romer (famed for his work on human capital, innovation and knowledge), was marred by the controversy over the bank’s writing style, which led to stripping the chief economist of the research group’s leadership.

My quarrel with bank reports are aligned with Paul’s -- they are too long, too technical and try to sanitize everything. When an executive summary is itself nearly 50 pages long, the reader is lost and misses the big picture. Practitioners in development know that most governments are lucky to implement three major initiatives in their four to five year terms. The need to focus and prioritize is critical to policy formulation and delivery.

Indeed, the elites have lost trust with the populace by promising too much but not delivering enough. The populist revolts basically reflect their sentiment that current thinking perpetuates the interests of 1 percent at the expense of the other 99 percent. The verbiage in the bank reports disguises the truism that its member countries are having serious problems delivering for the 99 percent. That requires the bank to speak truth to power.

But this cannot be done as long as the bank’s resources are running short, since it is also losing money (net loss of $237 million in fiscal 2017) without sufficient capital increases from its shareholders. This is problematic at exactly the time when sound analysis and advice is necessary in a confusing development world.

In the past, the roads to Rome were many. Today, you don’t have to go to Washington to find development ideas. That itself means that the path of development thinking has changed profoundly.


By Andrew Sheng 

Andrew Sheng writes on global issues from an Asian perspective. -- Ed.


(Asia News Network)