Practitioners in Development: What lessons do the 1990s hold for development?

• Pages: 46-48

Page 46

Counsellor and Director of Research and now a senior fellow at the Institute for International Economics.

For Summers, now more than three years away from the day-today demands of economic policy- making, the 1990s held five chief lessons for development practitioners: the importance of institutions; the practical steps that could be taken in financial crisis prevention, management, and resolution; the need to reconsider how much of a build-up in reserves is needed to help guard against future crises; the importance of reflecting further on the fungibility of development aid; and the priority of building a constituency for development in the richest countries.

Summers placed particular emphasis on recognizing the "transcendent" importance of the quality of institutions and the closely related question of the efficacy of political administration. Institutional capacity-or lack thereof, as evidenced, for example, by the inability in many countries to collect a bounced check or evict a person for failure to pay rent-surely has more to do with success and failure in development than has been suggested historically, Summers argued. The quality of a country's government cannot be dissociated from the quality and the functioning of its institutions, Malan added, while recalling that, back in 1958, Albert Hirschman's classic work highlighted how critical government efficiency is for economic development.

Mussa, too, gave top mention to the importance of institutions. Reciting from a 1947 speech delivered by George Marshall-best known for the Marshall Plan, which helped fund the reconstruction of Western Europe after the Second World War-Mussa noted that the transition of Central and Eastern Europe and the former Soviet Union from centrally planned to market-oriented economies had certainly brought the issue to the fore again. Harking back to Adam Smith's Wealth of Nations and Thucydides' history of the Peloponnesian War, Mussa showed how economic development has been linked with the quality of institutions and the protection of property rights for some time. "When ownership and control of all of society's wealth and productive assets are up for grabs every day," Mussa noted, "you don't get much economic development."

Disproportionate crisis punishment

Turning to the series of financial crises that erupted in emerging market countries in the 1990s, Summers surmised...