20 August 2009

Failed, Failing and Fragile States

How to restart growth in failed, failing and fragile states? How do we alleviate poverty in a sustained manner?What has been going wrong in development policies in recent years, compared to successful strategies in the past?
Reinert and Kattel's paper , part of the Tallinn University of Technology's Working Papers in Technology Governance and Economic Dynamics, documents the historical record across the world : Korea in 1950 was poorer than Somalia - what changed the growth trajectory for the two?
They argue that the root causes of poverty lie in a certain type of economic structure that fails to produce the virtuous circles of economic growth that need increasing returns and sufficient diversity and diffusion of economic activities in order to become self-sustainable

Six main differences distinguish today’s approach to economic development – as represented by the Washington Institutions – from previous theories of development process (Renaissance to Marshall Plan). Today’s theories fail:

1. To approach economic development from a multidisciplinary stand point, as was done in the German tradition of Staatswissenschaft;

2. To study and tailor-make policy-recommendations to the specific context in which a nation finds itself (insisting that ‘one size fits all’);

3. To observe and classify qualitative differences between economic activities (e.g. increasing or diminishing returns, perfect or imperfect competition, etc.);

4. To investigate differences between the productive structures of nations;

5. To conceive of development as a dynamic synergetic phenomenon propelled by self-reinforcing mechanisms (e.g. Collier’s static development ‘traps’ compared to the dynamic virtuous and vicious circles of classical development economics);

6. To understand the role of the state in economic growth from any standpoint other than ‘market failure’.

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