Dani Rodrik's weblog: Shleifer the (counter-)revolutionary

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February 23, 2008

Shleifer the (counter-)revolutionary

Whenever I see Andrei Shleifer, he asks me how the revolution is going. He has in mind of course the kind of views I espouse in this blog, which he considers heretical.

But Andrei is promoting his own counter-revolution, one that enshrines the last quarter century as the age of Milton Friedman. In a recent short paper, he attributes the rapid growth of China, India, and a few others to the turn to markets and the victory of Friedmanite views on economic policy.

The last quarter century has witnessed remarkable progress of mankind. The world’s per capita inflation-adjusted income rose from $5400 in 1980 to $8500 in 2005. Schooling and life expectancy grew rapidly, while infant mortality and poverty fell just as fast. Compared to 1980, many more countries in the world are democratic today.
The last quarter century also saw wide acceptance of free market policies in both rich and poor countries: from private ownership, to free trade, to responsible budgets, to lower taxes. Three important events mark the beginning of this period. In 1979, Deng Xiao Ping started market reforms in China, which over the quarter century lifted hundreds of millions of people out of poverty. In the same year, Margaret Thatcher was elected Prime Minister in Britain, and initiated her radical reforms and a long period of growth. A year later, Ronald Reagan was elected President of the United States, and also embraced free market policies. All three of these leaders professed inspiration from the work of Milton Friedman. It is natural, then, to refer to the last quarter century as the Age of Milton Friedman.

Shleifer's article is purported to be a review of two books with different takes on this period, one by Stanley Fischer and collaborators and another one by Joe Stiglitz and collaborators. No prize for guessing which one Andrei likes and which he trashes.

I have always found this view--attributing the successes of the last quarter century simply to market-oriented policies--as more obfuscating than clarifying. For one thing, countries like China and India have so many blemishes on their record that if you treat them as poster children for economic liberalism you run very quickly into trouble. Had these countries been basket cases instead, the Friedmanite perspective would offer as good an explanation of their failure: look at the corruption, the pervasiveness of state controls, the extent of public ownership!

Secondly, the countries that did a real turn towards markets, chiefly those in Latin America, have been rewarded not by China-like growth, but dismal outcomes. Shleifer recognizes this. His explanation: overbearing taxation and regulation! With this kind of parsing of the evidence ex post, there is no way we can ever be wrong...

For a good antidote, turn to Berkeley economist Pranab Bardhan's demolition of China and India myths in the Boston Review.

Posted at 07:48 AM | Permalink

Comments

Wow, as if China and India didn't have a host of constricting regulations of their own even now...

Posted by: Minivet | February 23, 2008 at 08:45 AM

I attended a discussion forum last week at the Independent Institute. What strikes me about Shleifer and the panel at the forum is that both attribute the rise of China and India to free market and the declining role of government.
They launched a book titled "Making Poor Nations Rich"...this book reeks of the unconvincing, banal views argued by Shleifer! Check this out: http://chandansapkota.blogspot.com/2008/02/how-to-make-poor-countries-rich.html
Interesting stuff: one audience asked the editor of the book, who attributed the rise of Celtic tiger and decline in poverty to free markets and very small government, what is the difference between his approach and the Washington Consensus? To my surprise, he did not know what Washington Consensus was (though he kept on saying "getting institutions right" for markets for the entire duration of the talk) and said, "I think it always keeps on changing. I will pass it to the other panel!"

Posted by: Chandan | February 23, 2008 at 01:06 PM

You should ask Shleifer if it helps or hurts a country to have advisers who engage in massive insider trading, fraud, and embesslement. He certainly knows a few things about those topics!

Posted by: Matt | February 23, 2008 at 05:45 PM

Pranab has the key link firmly in hand
as we
old school diamat types put it

the solid base in rural china
a two fold legacy
part deng part mao

deng's shrewd lot use reform
village caucus household division system

and bizzare as clio can get
in her opportunism
the earlier maoist
commune movement's
rural self sufficiency decentralization structure

the two powered
prosperity and local initiative in the first five years of reform

with the vestigal commune
system
as human mobilizer
and trad-tech
thousand hand
craft brigades
everywhere ready to "make marketable stuff "....

btw
i'm impressed
in many ways
by the independence
of this view

for a sub-continental
to be so generous to
the carthage to his rome
is a tribute in itself
to his clear and wide open head

to see both the ups
and downs of
plans(policies)
and markets....
the checkerboard
of casual patterns
in actual social development ....
well just makes me think
clio herself sort of
agrees with deng's infamous line
about opposite cats

red or white cats
both at the right time
and in the right place
(and often in odd
unexpected re-combination)
can catch progress

but here's the proviso

they both also
from time to time
especially in dogmatic
isolation from each other
don't catch progress one damn bit

Posted by: paine | February 23, 2008 at 07:55 PM