At the spring meetings in April the Bank released a paper on fiscal policy for growth, and announced the creation of an independent commission on growth. Importantly, this marks the first foray of president Wolfowitz into development economics. However, the composition of the commission suggests that its purpose is to shore up the widening cracks in the Washington consensus, rather than explore new thinking.
The joint Bank-Fund paper makes the important admission that past efforts at stabilisation were achieved by “cutting public capital formation significantly, despite its potential negative impact on growth and poverty reduction.” A new analytical framework (fiscal space diamonds) has been proposed to look at how governments may create fiscal space for growth. (On the four axes of the diamond are efficiency in public expenditure, revenue efficiency, access to external aid and access to credit.)
its purpose is to shore up the widening cracks in the Washington consensus
Motivating the new framework is the Bank’s need to increase financing for infrastructure – hard (transport, energy) and soft (health and education). This would kill two birds with one stone, allowing increased investment towards the MDGs, and boosting the Bank’s sagging lending volumes, especially in middle-income countries. Unfortunately, largely missing from the discussion is the role of industrial and investment policies needed to stimulate growth and thereby increase domestic revenues.
The next step of the joint Bank-Fund work on growth will be a seminar at the annual meetings in Singapore. A full report is to be completed by early 2007.
The independent commission on growth and development, according to the Bank, will take two years “to deepen the understanding of economic growth for development and poverty reduction. It will be chaired by Nobel laureate Michael Spence, former dean of Stanford business school. It is funded by the Swedish, Dutch and UK governments and the William and Flora Hewlett Foundation.
While Bank-watchers welcome a re-examination of the institution’s understanding of the dynamics of economic development, the composition of the commission suggests that no such effort is in the offing. The nominally independent commission is stacked with high-powered names from policy circles, business and academia. (According to Roberto Zagha, of the Bank’s Poverty Reduction and Economic Management team, the commission members were “selected on the basis of their knowledge of world affairs, and experience in policy making.” )
Members of the Commission on Growth and Development
- Montek Ahluwalia (India), Deputy Chairman of the Planning Commission.
- Edmar Bacha (Brazil), Director of the Casa Das Farcas Institute for Economic Policy Studies in Rio de Janeiro, former President of the National Bank for Economic and Social Development.
- Dr. Boediono (Indonesia), Coordinating Minister for Economic Affairs.
- Lord John Browne (Great Britain), CEO, British Petroleum.
- Kemal Dervis (Turkey), Administrator of the United Nations Development Programme, former Minister of Finance of Turkey.
- Alejandro Foxley, (Chile), Minister of Foreign Affairs.
- Chok Tong Goh (Singapore), Senior Minister in Cabinet and Chairman of the Monetary Authority of Singapore.
- Duck Soo Han (Korea), Deputy Prime Minister and Minister of Finance and Economy.
- Danuta Huebner (Poland), European Commissioner for Regional Policy.
- Carin Jaemtin (Sweden), Minister for International Development.
- Pedro Pablo Kuczynski (Peru), Prime Minister.
- Trevor Manuel (South Africa), Minister of Finance.
- Mahmoud Mohieldin (Egypt), Minister of Investment.
- Ngozi N. Okonjo-Iweala (Nigeria), Minister of Finance and Economy.
- Robert Rubin (USA), Director, Chairman of the Executive Committee and Member of the Office of the Chairman of Citigroup, former Secretary of the US Treasury
- Robert Solow (USA), Nobel Laureate, Professor Emeritus, Massachusetts Institute of Technology MIT.
- Michael Spence (USA), Nobel Laureate, Professor Emeritus, Stanford, Chair of the Growth Commission, former Dean of Stanford Graduate Business School.
- Sir K. Dwight Venner (Saint Kitts and Nevis, West Indies) Governor of the Eastern Caribbean Central Bank.
- Ernesto Zedillo (Mexico), Director of the Center for the Study of Globalization, former President of Mexico.
- Xiaochuan Zhou (China), Governor of the People’s Bank of China.
Professor Ha-Joon Chang at Cambridge University’s Faculty of Economics expressed disappointment, saying “many people on the list are well-known advocates of the Bank-Fund line. It does not include anyone who can be considered a critic.”
The commission would enjoy more legitimacy if it took on board divergent analyses on how growth occurs and what role it plays in development. Kari Polanyi Levitt, professor of development economics at McGill University in Canada, argues in a paper presented to the international meeting of economists in Havana in February that growth over the past two decades “has been accompanied by an unprecedented polarisation of income and the social exclusion of poor people from economic circuits of production and consumption.” When asked why multilateral agencies continue to pursue this growth strategy, she says the answer is simple: “the policies serve the interests of creditors and provide a favourable environment for foreign investors”.
Early in 2006, the UK’s new economics foundation published a report, Growth isn’t working: the uneven distribution of benefits and costs from economic growth, finding that between 1990 and 2001, for every $100 worth of growth in the world’s income per person, just $0.60 contributed to reducing poverty below the $1-a-day line. Therefore, to achieve $1 of poverty reduction requires $166 of additional global production and consumption. “The notion that global economic growth is the only way of reducing poverty for the world’s poorest people”, say authors Woodward and Simms, “is the self-serving rhetoric of those who already enjoy the greatest share of world income.”
Although the commission has already held its first meeting, a detailed terms of reference will not be available for at least another month. The commission’s final report will be released by the end of 2007, “meanwhile experts will produce papers on a range of subjects that will help shape the commission’s views”. Papers will be discussed at two to three conferences “that are in the process of being planned”, to which civil society organisations will be invited. Interested individuals can liaise with commission members directly, or through Bank external relations officers.