World Bank economist Kirk Hamilton on the planet’s real wealth

24 08 2007

Ronald Bailey in Reason Magazine

This new focus on the importance of social and political institutions marks a dramatic shift away from the World Bank’s infatuation with financing mega-projects in poor countries. Examples include the $2.5 billion Lesotho Highlands Water Development Project and the $3.7 billion Chad-Cameroon oil pipeline project. Most such projects are failures. The World Bank’s own self-audited evaluations found that the projects it financed failed 55 to 60 percent of the time. In its 1997 World Development Report, the bank recognized the failure of such top-down technocratic aid interventions: “Governments embarked on fanciful schemes. Private investors, lacking confidence in public policies or in the steadfastness of leaders, held back. Powerful rulers acted arbitrarily. Corruption became endemic. Development faltered, and poverty endured.” Evidently, the World Bank is coming to realize that the late economist Peter Bauer was right when he wrote in his brilliant 1972 book Dissent on Development: “If all conditions for development other than capital are present, capital will soon be generated locally or will be available…from abroad….If, however, the conditions for development are not present, then aid…will be necessarily unproductive and therefore ineffective. Thus, if the mainsprings of development are present, material progress will occur even without foreign aid. If they are absent, it will not occur even with aid.”

Where is the Wealth of Nations? convincingly shows what countries need to do to create wealth and lift billions of people out of abject poverty: Establish the rule of law and educate their people. That’s a lot harder to do than building giant dams or aluminum factories, but it would be a lot more effective in reducing poverty.

More here.

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