By BOB DAVIS, WALL STREET JOURNAL, February 23, 2005; Page A15
… the “Washington Consensus” … identified government as a roadblock
to prosperity, and called for dismantling trade barriers, eliminating
budget deficits, selling off state-owned industries and opening Latin
nations to foreign investment. Latin America took that advice and
during the following decade shucked many of its protectionist ways.
Nevertheless, the region slipped further behind Asia and the
industrialized world, while poverty remained high. “Deep reforms; lousy
growth,” says Mr. Hausmann, who is now at Harvard University. “There
must be something wrong with the theories of growth.”
Mr. Hausmann and a handful of development economists are rethinking the
free-market orthodoxy for Latin America. They argue that government
isn’t any longer the main drag on growth; indeed, it may often be the
solution. They advise governments to subsidize entrepreneurial projects
throughout Latin America, in the hopes of developing new businesses and
igniting growth. Given Latin America’s history of subsidies lining the
pockets of the rich, they also are devising policies to help
governments limit political influence. Even restricting free trade is
an option. “Industrial development for 200 years has involved the
selective use of trade protection, and it wasn’t captured by special
interests,” says Columbia University economist Joseph Stiglitz, a Nobel
laureate.
… Mr. Hausmann defends his policy flip-flop. “The role of the
scientist isn’t to commit to consistency but to the perception of
truth,” he says.
… [A] country economist for Bangladesh blanched at industrial policy.
“I’d be very scared of putting it in place” in a country with high
levels of corruption, he said. … [A]n economic adviser at the
[World]bank … says … development ideas have been stuck in a rut.
“This forces us to think of different hypotheses,” he says.