The State of the Art in Economics: Avoiding Prescription

During the last decade, economists and international agencies gave prescriptions to promote economic growth in developing countries. However, the economic performance has not matched with expectations, and more important, these prescriptions have been blamed as an important cause of economic crisis and market turmoil in the last years. It has generated an avalanche of criticism over the guidelines established by international organizations, materialized in an explicit set of economic policy goals, famously know as Washington Consensus. It has eroded the perception of these organizations as beacon to guide trough effective economic policies toward prosperity.

In this way, it looks like the economists and organizations are avoiding give recipes to promote economic growth to evade this class of disillusions. Instead, they have chosen a conservative approach by offering less strict economic guidelines, leaving governments to apply their economic policies with less political and ideological friction with international agencies, think takers, and public opinion leaders. This trend can be reading in the report titled: “The Growth Report: “Strategies for Sustained Growth and Inclusive Development”, dubbed as the new Washington consensus (http://www.growthcommission.org/).

Derived of this situation, the economic effect will be diffused, more linked to the economic logic behind the policies in each country, than the lack or presence of prescriptions. If politicians try to design an economic framework considering local traits and preserving the general economic fundamentals as fiscal responsibility, central bank fighting against inflation, or a real commitment of government to promote internal competition; then we could recurrently see economic miracles as Taiwan and South Korea in the future. However, if politicians have no idea in how the economy works and more important, if they have not the will to listen to economic advice, then we could see the kind of results that we’ve been seeing around the world, principally in Venezuela y Zimbabwe.

We think that the situation could be offset by market and institutional factors, but even though they limit the ability of the governments to engage heterodox policies, such as happened in Argentina conflict with taxes on grain exportation, the lack of advising activity in middle of this kind of debate to give intellectual support in one side the controversial spectrum, threat or delay the perspectives of the economic growth in the future.

Now as never before, it is require a new kind of leadership (maybe a new Washington consensus) to mitigate the lack of direction in economic policy, in the presence of empirical facts contradicting apparently the rules previously taught toward the economic prosperity. For example, a “superficial” reading leads us to conclude: China is growing fast and strong, even though has not an explicit capitalism system; and monetary and fiscal policy in United States is not as orthodox as they say. A new kind of leadership could help disperse the doubts, a true challenger to international institutions and economic science.

Salvador O. Rodríguez Hernández

salva.rguez@gmail.com

July 21, 2008