Global Development: Views from the Center
« French Candidate for IMF Head Would Reform Selection System: AFP | Main | Bill Easterly and Development »
August 13, 2007
Al Harberger, Labor, and Capital in Latin America: Did the Washington Consensus have it right?
Posted by Dennis de Tray at 02:57 PM
Arnold "Al" Harberger came to Washington and to CGD on Friday. For those readers who don't know, Al is, among other things, known as the father of the "Chicago Boys" -- young economists from Chile and elsewhere in Latin America who trained at the University of Chicago in the 1970s and returned to lead the reform of their countries' economies. Al is also a long-time advisor to governments around the world, especially in Latin America, where he is universally known as "Alito," and a teacher in all the best economic departments. Harberger is also a professor at the University of California Los Angeles (UCLA) and chief economist at USAID.
It was a very special day for Washington's development economists, a hardy bunch who arrived by the score despite the summer heat, as well as for me personally. I first met Al almost 40 years ago when I started my PhD program at Chicago. There, he was part of a group of economics faculty members that I have come to see as the most extraordinary collection of "policy-economists," as Al calls them, ever assembled.
Al's talk Friday had me worried, especially when he asked for a "white board." I reminded him that this was not to be an academic lecture; he told me not to worry, and indeed, there was no need for concern.
Al spoke eloquently and persuasively about two broad themes (see event page When Capital Earns a 20% Real Return, What is Left for Labor? A Glimpse into Latin American Reality for photos and transcripts). First, on how the high returns that capital demands in order to be active in Latin America (20 percent plus) may be squeezing the returns to the less mobile factor of production, labor. He also spoke about the push back we are seeing, especially in Latin America, on what we might call conventional neo-classic economic policy -- John Williamson's Washington Consensus (John was a discussant at Friday’s event).
These themes are related. Al's main point was that bad policies (protectionism, weak property rights, red tape) make capital demand high rates of return, and that leaves less for everyone else. The Washington Consensus has come in for a lot of bashing since John first coined the term in 1987. But just maybe it's not the Washington Consensus that is the problem. Maybe it's that countries have not taken the messages of the Consensus sufficiently seriously.
After the event one participant approached me to say, "Dennis, you really need to do more of this -- bringing the great names in development economics to CGD, and just letting them talk." It was a treat to listen to Al and to be reminded that good and clear economic thinking still has a place in Washington's world of political correctness and policy compromise.
Trackback Pings
TrackBack URL for this entry:
/mt/mt-tb.cgi/942
Comments
Did the WC have it right? No... at least that much seems clear in most of Latin America and throughout the world. Privatization, unhindered opening of markets, cutbacks in state programs, and deregulation have not resulted in massive moves to lift people out of poverty. And now we hear that countries just "got it wrong"? Hardly. But it is good to see that the new emerging pro-development, pro-people economics out of Latin America has those responsible for the Washington Consensus worried...
Posted by: MK at August 14, 2007 12:35 PM
The Washington Consensus was a sound prescription for an economic malady (stagflation) prevalent in the heavily indebted Latin American countries. The name reflects the locus where the creditors, led by the IIE, put forward their rules for the post-Brady world. The reason it became so vulnerable to criticism is that the consensus lacked a polity framework that explicitly addressed two major issues: poverty and corruption. These issues were not dealt with in your debate, but policy-makers in Latin America, be it Chile, Brazil, Colombia or Mexico, now understand that a strong pro-poor stance is vital for stability and growth in a democratic political context, and that repression of corruption (including criminality) is a requisite for economic success.
Posted by: Juan de Onis at August 16, 2007 09:09 AM
With Jagdish Bhagwati and Paul Krugman, I think that free trade would help the developing countries and the poor. Those nations do indeed need to emulate our regulated free enterprise for all. They must not emulate Venezuela! They do need welfare capitalism. I hope the Chicago boys are not the same as the Chicago School. Thanks!
Posted by: morgan-lynn griggs lamberth at August 17, 2007 06:26 PM