Robert Hunter Wade

What strategies are viable for developing countries today? The World Trade Organization and the shrinking of ‘development space’

The world is currently experiencing a surge of international regulations aimed at limiting the development policy options of developing country governments. Of the three big agreements coming out of the Uruguay Round – on investment measures (TRIMS), trade in services (GATS), and intellectual property rights (TRIPS) – the first two limit the authority of developing country governments to constrain the choices of companies operating in their territory, while the third requires the governments to enforce rigorous property rights of foreign (generally Western) firms. Together the agreements make comprehensively illegal many of the industrial policy instruments used in the successful East Asian developers to nurture their own industrial and technological capacities and are likely to lock in the position of Western countries at the top of the world hierarchy of wealth. The paper describes how the three agreements constitute a modern version of Friedrich List’s ‘kicking away the ladder’. It then outlines some needed changes in the way we think about development and in the role of multilateral organizations. It concludes that the practical prospects for change along these lines are slender, but not negligible.

The Asian debt-and-development crisis of 1997-?: Causes and consequences

Abstract Interpretations of the Asian crisis have coalesced around two rival stories: the “death throes of Asian state capitalism” story about internal, real economy causes; and the “panic triggering debt deflation in a basically sound but under-regulated system” story that gives more role to external and financial system causes. The paper presents the stories and assesses the evidence. The evidence — in particular, the chronology of the crisis — supports the second rather better than the first. The paper discusses the interests driving capital account liberalization without a framework of regulation, the single most irresponsible act of public authorities in the whole crisis. US and UK financial firms, allied with their treasuries and with the IMF, the WTO, and the OECD, saw themselves at a chronic disadvantage in the Asian system of long-term relationships and patient capital. This alliance, supported by segments of Asian political and financial elites, achieved dramatic domestic financial sector liberalization and capital account opening in Asia over the 1990s, setting up the conditions for crisis. Paradoxically, the crisis may be looked back upon not as the triumph of benign globalization and neoliberal economic doctrine but as the beginning of its end.

Emerging World Order? From Multipolarity to Multilateralism in the G20, the World Bank, and the IMF:

Many developing and transitional countries have grown faster than advanced countries in the past decade, resulting in a shift in the distribution of world income in their favor. China is now the second largest economy in the world, behind the United States and ahead of Japan. As the relative economic weight of China and several others has come to match or exceed that of the middle-ranking G7 economies, the world economy has shifted from “unipolar” toward “multipolar,” less dominated by the G7. How is this change being translated into changes in authority and influence within multilateral organizations like the G20, the World Bank, and the International Monetary Fund (IMF)? Alarm bells are ringing in G7 capitals about G7 loss of influence. According to a WikiLeaks cable from the senior U.S. official for the G20 process, from January 2010, “It is remarkable how closely coordinated the BASIC group of countries [Brazil, South Africa, India, China] have become in international fora, taking turns to impede US/EU initiatives and playing the US and EU off against each other.” This essay suggests that the shift in power is much smaller than the headlines or private alarm bells suggest. The United States remains the dominant state, and the G7 states together continue to exercise primacy, but now more fearfully and defensively. China is split between asserting itself as “the wave of the future” and defending itself as too poor to take on global responsibilities (it is roughly 100th in the per capita income hierarchy). The combination of G7 defensiveness and emerging states’ jealous guarding of sovereignty produces a spirit of Westphalian assertion in international fora, or “every state for itself.” On the assumption that the world economy is in a transitional period, the article suggests reforms in the G20 and the World Bank that would boost their role and legitimacy as multilateral organizations in a more multipolar world.

Return of industrial policy

For the sake of freedom, economic growth and poverty reduction the state in market economies should limit itself to regulating markets and (sometimes) correcting ‘market failures’. This neoliberal conception has been the near-consensus for the past two to three decades in the West and in western-led international organizations such as the World Bank. But as of recently, the consensus has been challenged by circumstances with which it cannot contend. This article spells out key ideas behind the consensus – in particular, its rejection of industrial policy. It then argues that the US government has long practised – to good effect – a hitherto little noticed type of industrial policy focused neither on the individual firm nor on the geographic region but on networks of firms, and that a (small) change in the American normative climate has occurred post 2008 in favour of a government steering role in markets. Moreover, some middle-income countries, with manufacturing sectors shrinking in the face of East Asian competition, have recently shown renewed interest in industrial policy. Finally, parts of the World Bank have recently begun to operationalize industrial policy, under the banner of ‘building competitive industries’ (industrial policy by another name), as has not been the case since the mid 1980s. The combination of these several forces may herald the emergence of new global norms in favour of a more ‘developmental’ role of the state.

On the causes of increasing world poverty and inequality, or why the Matthew effect prevails

In the 1870s the American economist Henry George remarked that ‘the association of poverty with progress is the great enigma of our times’. Today the enigma is well on the way to being solved. World poverty and income inequality have both fallen during the past 20 years, thanks in large part to the third great wave of ‘globalisation’ (rising economic openness and integration of national economies). This, at least, is the claim of the neoliberal argument, which supports the optimism about globalisation that emanates from the pages of the World Bank, the International Monetary Fund (IMF), the World Trade Organization (WTO), The Financial Times, The Economist and other organs of ‘thinking for the world’. For example, the World Bank says that the number of people in extreme poverty (living on an income of less than US

Iceland as Icarus

1 a day in purchasing-powerparity [PPP] terms) has fallen in the past two decades for the first time in more than 150 years, from 1.4 billion in 1980 to 1.2 billion in 1998. No ifs or buts. Or, in another version, the Bank says that ‘the long trend of rising global inequality and rising numbers of people in absolute poverty has been halted and even reversed [since around 1980]’. This reversal of the long trend is the ‘net effect’, says the Bank, of surging globalisation; as shown by the fact that the big falls in poverty and inequality—sufficient to reverse the long global trend—have occurred in the ‘new globalisers’, that is, countries that had the biggest increases in trade to Gross Domestic Product (GDP) in 1977–97 (the top one third in a sample of developing countries ranked by trade/GDP increase). The ‘nonglobalisers’ (the countries in the bottom two thirds of the ranking) make little or no contribution to the reversal of trend. The empirical evidence thus confirms the neoliberal predictions that openness is good and more openness is better, both at the level of the world economy and at the level of national economies. Those who oppose further liberalisation (including trade unions, sections of business) must be acting—wittingly or unwittingly—out of ‘vested interests’ or ‘rent seeking’, and the few marginal academics who argue against simply do not understand the theory. Those who

Protecting Power: How Western States Retain The Dominant Voice in The World Bank’s Governance

Did Iceland fly too close to the sun? We have rarely had a case when a nation so avidly adopted an economic model that was bound to fail. Iceland became the poster child for this economic crisis. Robert Wade documents it graphically.

The First-World Debt Crisis of 2007-2010 in Global Perspective

— The global economic crisis raised the urgency of reforming the Bretton Woods organizations in order to get more “buy in” from developing countries. But the “voice” reforms announced in 2010, heralded as a major shift in favor of developing countries, left them severely under-represented relative to their weight in the world economy, both collectively and many individually. This paper reveals how the World Bank and representatives of western states manipulated the process to make voting power changes appear substantial. The paper then discusses alternative voting power systems for the Bank, in light of the generally accepted need to enhance the legitimacy of the organization. 2013 Elsevier Ltd. All rights reserved.

Failing States and Cumulative Causation in the World System

We do not yet know how bad the current credit crisis will get. But we do know that policies in rich nations, dominated by the United States, were often the opposite of corrective. As the author writes in this incisive review of the events that led to the crisis, while boom times rolled on, the cost of credit fell, generating pro-cyclical momentum that made matters worse. A new regulatory apparatus is needed, he argues, one that is more aggressive than is currently being discussed.

The Global Slump: Deeper Causes and Harder Lessons

This article takes a world-system perspective on the phenomenon of actual or potential “failing states.” While recognizing the role of “domestic” causes (including corruption and cronyism), it emphasizes factors such as widening world income inequality, the location decisions of multinational corporations, North–South terms of trade, technology non-diffusion, and the strategies of the dominant states and the global economic multilateral organizations. At the end, it considers some implications for development strategy that follow from the central development imperative of shifting the balance of economic activity away from the activities that Malthus wrote about and toward those that Schumpeter wrote about.