There has been little progress in the fight against world poverty in the last decade. Yet when the G8 leaders met in Genoa, Italy, two weeks ago, they chastised protesters with warnings that they would only obstruct progress for the poor.
Considering the facts, that was quite a display of arrogance. The World Bank calculates that a third to a fourth of the world's people still live in severe poverty -- and this is based on minimal poverty rates of $1 to $2 a day. The overall proportion has fallen only slightly in the last 10 years, and poverty levels have risen in many countries. Moreover, in poor regions, except Asia, income inequality has widened.
Insensitivity to the stunning facts is not limited to Western leaders. Mainstream economists have been notable for their silence.
At the Kennedy School of Government at Harvard, a highly attended weekend seminar was held in the early summer on the Clinton administration's economic policies. Yet hardly a word of criticism was raised about the US Treasury's heavy-handed advocacy of the rapid liberalization of capital flows, which many mainstream economists now concede contributed to the Asian financial crisis in 1997 and 1998, sending many people into poverty.
Today, Argentina and New Zealand, once virtual models for the ``liberalizing'' policies so widely encouraged by economists and global investors, are in serious difficulties. Argentina, which linked its currency to the dollar in 1991, amid plaudits from disciplinarians, totters on the brink of a financial crisis that could sweep up Brazil as well. New Zealand's growth rates are among the worst in the OECD. Yet there is little public outcry about mistaken policies.
In June, a small dissenting group of international economists and political scientists met to discuss this absence of a full public discourse. The conference was organized by two Harvard professors, Dani Rodrik, an economist at the Kennedy School, and Roberto Unger, a law professor. The two had taught a standing-room-only course at Harvard Law School on alternative development strategies in the spring.
The participants essentially found themselves up against a wall. Nations have little leeway to adopt policies that deviate from those accepted by institutions like the International Monetary Fund or those demanded by the financial markets. If they do, capital flees, interest rates rise and loans are not renewed.
Yet the truly regrettable irony is that the strategies advocated by today's economic and financial mainstream -- reduced government spending, privatization, unrestricted capital flows and completely free trade -- are not the policies that gave rise to the rapid growth of developing nations in the recent past. Had South Korea, Taiwan, Thailand or Brazil been restricted to the policies considered acceptable today, they would not have been such success stories.
As Rodrik points out, Taiwan and South Korea adopted aggressive industrial policies to subsidize crucial industries. Many of the fastest-growing nations owned and ran major industries and protected infant industries with high tariffs. Government investment in education was often strong in these nations. Most slowly depreciated their currencies, rather than adopt the floating currencies advocated today (or the fixed-currency regime used by Argentina). In sum, these nations integrated their economies with the advanced world -- not right away, but when they had matured and grown more prosperous.
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