Sunday, June 21, 2009

Does Policy Matter for Growth?

. Sunday, June 21, 2009

Matthew Yglesias reads Charles Kenny and decides that policy is overrated:

One point Charles Kenny makes in The Success of Development that I’ve also seen argued convincingly in other contexts is that public policy choices seem to matter less than people would lead you to believe. This is a particularly striking fact:

Looking more broadly at the experience of the communist bloc under communism, over the period 1950-1988, no East European country grew as slowly as the UK, Mexico, Switzerland, Colombia, the US, Australia, India, New Zealand, Peru, Chile, Argentina or Venezuela.


People sometimes about the poor policy choices that led to Argentina’s poor growth performance in the 20th century. But it’s hard to make the case that Argentina was following worse policies during this period than Poland. Also: “Between 1928 and 1937, at the same time as farms were brutally collectivized, famine killed as many as 10 million people in the Ukraine, and Stalin‘s great terror was unleashed, the Soviet Union was the fastest growing country in the world.”

NB: I am not advocating Stalin-style economic policies.


This is the wrong way to look at things. Another way to look at it would be to say that no Western European country but the UK and Switzerland had lower growth rates than countries in the Soviet bloc. Still another would way to look at it would be to compare broader aggregates over time, rather than individual cases, to see larger trends. This approach is most appropriate when one is trying to compare economic systems, as Kenny and Yglesias seem to be doing:



As you can see, the "West" outperformed everyone else in the second half of the 20th century, and the difference is not subtle.

But Kenny's broader point is that we have yet to find some magic combination of policies that are easily exportable and automatically lead to lots of economic growth. This is true. As Kenny wrote in an earlier paper [pdf]:

In short, the last six years has not changed the basic conclusion that the growth literature has taught us much less about how to get rich than it has about who is already rich. There is nothing particularly new in recent growth theory, but perhaps that is no surprise because there is remarkably little new in growth, either –the rich today are by and large those who were rich yesterday. That there might not be a holy grail of growth policy, however, is no reason for people of economic faith to stop looking, so no doubt the next six years will see another 13,000 articles on the subject to review.

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Does Policy Matter for Growth?
 
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