How to Build Economies
Brian Pinto worked as an economist in the World Bank for almost 30 years and saw many grand development initiatives -- some successful, others botched -- up close. In "How Does My Country Grow?: Economic Advice Through Story-Telling" he distills the lessons of this experience. Don't be misled by the whimsical title. It's a serious, and seriously enlightening, work.
I'm not sure whether Pinto is a cautious optimist or a pessimist open to persuasion. Perhaps there's no difference. The book revolves around big economic reform programs undertaken in India, Poland, Russia and Kenya: You come to see that rapid development is generally possible, and at the same time extremely difficult. Governments have to get a lot of things right at once, and then keep on getting them right. If your rulers are corrupt, incompetent or just easily distracted, forget it.
Pinto's formula for success, assuming a government willing to apply it, has three main elements. These combine macroeconomics and microeconomics. The basic ideas aren't novel. What's unusual is Pinto’s emphasis on context.
First, you need well-managed public finances. This isn't reducible to a fixed number for the budget deficit in any particular year or an exact threshold for the ratio of public debt to gross domestic product. It's a matter of persuading creditors that the government is living within its means over time and is capable of paying them back.
Second is what Pinto calls the micro-policy trio, describing the climate for private enterprise. Hard budget constraints (companies pay their bills and their taxes on time); low barriers to trade, ensuring competition from imports, which drives growth in productivity; and an appropriately valued exchange rate (no black market for foreign currency).
Finally, countries need sufficient financial resilience to cope with various kinds of volatility -- especially sudden reversals of capital flows. Capital flight from Asian economies in the late 1990s caused a crisis that set them back years. During the so-called taper tantrum of 2013, when investors began to anticipate higher interest rates (hence better returns) in the U.S., the same economies had much stronger finances. Resilience, again, has different components: well capitalized banks, competent financial regulation, sufficient foreign-exchange reserves, and (if need be) judicious use of capital controls.
The "story-telling" part of Pinto's book arises from his conviction that broad principles such as these, important as they may be, get you only so far. Applying them intelligently demands deep familiarity with each country's particular circumstances. As well as theory, in other words, you need anecdotes -- and not just a few. Never be ashamed of anecdotes.
The book has many illustrations of the power of locally specific knowledge unavailable to desk-bound theorists and crunchers of official numbers. What will happen to prices if you float the currency and crush the black market? It depends -- among other things, on how goods are priced and traded in the local market. You have to go and find out. Is a growing budget deficit proof of badly managed public finances? It depends. If the cause is lower tax revenues due to lower import duties, competition may be intensifying, perhaps raising productivity, perhaps leading to a bigger tax base in future years. You have to go and find out.
This insistence on "country economics," as Pinto calls it, is especially valuable. Economic expertise in universities and development institutions such as the World Bank is increasingly specialized by theme: You work on trade, or fiscal policy, or telecoms. The general development practitioner, with specialized knowledge of a particular country's circumstances, is needed at least as much.
Though, as Pinto says, none of this matters if the government concerned isn't mainly interested in growth. You'd be surprised, he says, how few actually are. The rulers of many poor or underperforming countries have other goals -- such as staying in power and helping their friends.
Consider Russia under Vladimir Putin, a remarkable instance of wasted economic potential. Putin cares more about the nation's honor, as he sees it, than about gross domestic product. In Putin's Russia, things are so bad, even anecdotes are no use: They just bounce off.
If you aren't acquainted with basic economics, Pinto's book is not an easy read. He uses math to explain some key points -- corralled into boxes and appendices, but to understand him you need to work through it. As a first introduction to the subject, "How Does My Country Grow?" would be tough going, but anybody with more than a passing interest in development will find it absorbing and learn a lot.
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