Kicking Away the Ladder. Development Strategy in Historical Perspective

First of all, in pushing for institutional improvement in developing countries, we should accept that it is a lengthy process and be more patient with it. The discussion in Chapter 3 shows that it took the NDCs decades, if not centuries, to develop institutions, and that there were frequent setbacks and reversals during the course of the process. Seen from this perspective, the 5 to 10-year transition periods currently being given to the developing countries to bring their institutions up to ‘global standards’ are highly inadequate. Moreover, given that today’s developing countries are already institutionally more advanced than were the NDCs at comparable stages of development, asking these countries to install a whole range of new ‘global standard’ institutions in short periods of time seems unrealistic. This, of course, should not mean that developing countries should adopt institutional standards of the last century. Nor should it make developed countries accept any ‘we-are-not-ready-yet’ argument put forward by governments of developing nations (more on this point later in section 4.4). However, it is clear that there should be a keener recognition of the speed – or lack of it – with which institutional development can be achieved in developing countries.

The second qualification I wish to make is that ‘good’ institutions produce growth only when they are combined with ‘good’ policies. As the reader can probably guess, when I say ‘good’ policies here, I mean the policies that most NDCs were using when they were developing, rather than the ones that they are now recommending to the developing countries. The fact is that, despite the continuous, and presumably accelerating, improvements in the quality of their institutions, today’s developing countries have experienced marked slowdowns in growth during the last two decades (see section 4.2). In my view, this was because the ability of these countries to pursue the ‘(genuinely) good’ policies was significantly curtailed as a result of the ‘policy reforms’ implemented during this period.

Table 4.3 shows that the average per capita growth rate among developing countries has fallen from around three per cent p.a. during the period 1960-1980 (see table 4.1) to 1.5 per cent p.a. for 1980-1999.[12] The latter is basically the rate of growth that the NDCs achieved during the late nineteenth and early twentieth centuries (1875-1913) when they were hampered by less favourable institutional conditions than those experienced by the developing countries of today (see table 4.2). The only sub-groups which achieved growth rates above that level during this period were East Asia (and Pacific) and South Asia, whose growth rates are dominated by those of China and India respectively. The interesting thing to note is that both these countries are frequent lambasted by the IDPE for the poor quality of their institutions and policies. If we had excluded these two countries from our calculation of developing country average, we would have ended up with a much lower growth rate still.[13]

Table 4.3
Per capita annual GDP growth rates (per cent) in developing countries during the ‘Age of Institutional Reform’
	1980-1990	1990-1999	1980-1999
Developing Countries	1.4	1.7	1.5
--East Asia and Pacific	6.4	6.1	6.3
--Europe and Central Asia	1.5	-2.9	-0.6
--Latin America and the Caribbean	-0.3	1.7	0.6
--Middle East and North Africa	-1.1	0.8	-0.2
--South Asia	3.5	3.8	3.6
--Sub-Saharan Africa	-1.2	-0.2	-0.7
Developed Countries	2.5	1.8	2.2

Notes: The data is from World Bank 2001. The figures are only approximate, as they were constructed by subtracting the population growth rates from GOP growth rates. This had to be done because the World Bank stopped publishing IO-year per capita GOP growth rates from its 1998 World Development Report. For country classification, see the table in p. 334 of the report.