Jim Yong Kim’s appointment as World Bank president may have been predictable, given the long-standing tradition that renders the selection a US prerogative. However, even the appearance of competition between Kim and the other candidates, Ngozi Okonjo-Iweala and Jose Antonio Ocampo, served to expose a deep fissure within the field of development policy, because Kim and his two rivals represented dramatically different approaches.
The vision for which Kim stands is bottom-up. It focuses directly on the poor and on delivering services — for example, education, healthcare and microcredit — to their communities. This tradition’s motto could be, “Development is accomplished one project at a time.”
The other approach, represented by Okonjo-Iweala and Ocampo, takes an economy-wide approach. It emphasizes broad reforms that affect the overall economic environment, and thus focuses on areas such as international trade, finance, macroeconomics and governance.
Practitioners in the first group idolize non-governmental organization leaders like Mohammad Yunus, whose Grameen Bank pioneered microfinance, and Ela Bhatt, a founder of India’s Self-Employment Women’s Association. The heroes of the second group are reformist finance or economy ministers such as India’s Manmohan Singh or Brazil’s Fernando Henrique Cardoso.
At first sight, this might seem like another dispute between economists and non-economists, but the rift runs within, rather than between, disciplinary boundaries. For example, recent work with field experiments and randomized controlled trials (RCT), which has caught on like wildfire among development economists, lies strictly in the tradition of bottom-up development.
The relative effectiveness of the two visions is not easy to determine. Proponents of the macro approach point out that the greatest development successes have typically been the product of economy-wide reforms. The dramatic reductions in poverty achieved by China over the span of a few decades, as well as by other East Asian countries like South Korea and Taiwan, resulted largely from improved economic management (as much as earlier investments in education and health may have played a role). Reforms in incentives and property-rights arrangements, not anti-poverty programs, enabled these economies to take off.
The trouble is that these experiences have not proved as informative for other countries as one might have wished. Asian-style reforms do not travel well, and, in any case, there is significant controversy about the role of specific policies. In particular, was the key to the Asian miracle economic liberalization or the limits that were placed on it?
Moreover, the macro tradition vacillates between specific recommendations (“set low and uniform tariffs,” “remove interest-rate ceilings on banks,” “improve your ‘doing business’ ranking”) that find limited support in cross-country evidence, and broad recommendations that lack operational content (“integrate into world economy,” “achieve macroeconomic stability,” “improve contract enforcement”).
Development specialists in the bottom-up tradition, for their part, can deservedly claim success in demonstrating the effectiveness of education, public health, or microcredit projects in specific contexts. However, too often, such projects treat poverty’s symptoms rather than its causes.