Paper - Initiative for Policy Dialogue

22
Wade, Mushtaq Khan, Meles Zenawi, and Jomo and von Arnim in this volume) is
typically justified by the judgment that the risks and costs of government interventions to
correct market failures, whether through restrictions (regulations) or through marketfortifying
interventions (such as assistance in finance or technology) are greater than
those of market failure. This judgment may or may not be clouded by ideology and/or
the interests of the rich and powerful but that is another matter, which need not concern
us, except to note that it is not just policies of interventionism but also of market
liberalization that are susceptible to the political economy of “capture” 34 : in the end
governance rules.
At any rate, when does government intervention make matters worse than market
failures and what constitutes an appropriate balance between the roles of the market and
the state is a contextual matter: it depends above all on the type and varieties of market
failures to be addressed, the particular policy of intervention and the institutional
framework, especially pertaining to governance. In countries at early stages of
development, both market and government failures tend to be more common and more
serious than in more developed countries. 35 This suggests that there are both higher risks
and rewards to correcting the errors of markets in such economies. Foregoing the
rewards is hardly likely to be the answer to rapid development; rather how to minimize
the risks and maximize the rewards should be a central issue for policy design.
That this, in sum, is an important lesson of history and thus that the neo-liberal or
Washington consensus view is not only based on faulty or outmoded models but is also
ahistorical, is one theme running through many of the essays in this volume, as it did in
much of the Task Force discussions. Another one is that despite the recognition of its
limitations and failures and attempts to curb some of its excesses, the Washington
Consensus retains sufficient influence to make the orthodox policy discourse on Africa
part of the problem. Hence, a radical overhaul of the policy options on the table and the
perspective that informs them is necessary if Africa is to achieve sustained rapid
economic growth and associated structural transformation. Beginning such an overhaul
was indeed one of the objectives of the IPD Africa Task Force.
As noted in section II, Africa’s economic crisis did originally reflect, in large
measure, mistaken policies that often went to the extreme of neglecting such
fundamentals as a modicum of macroeconomic stability, avoidance of highly overvalued
exchange rates, inappropriate and counterproductive interventions in markets, bloated
public sectors and disregard of government failure. It is understandable why Africa
turned away from the market in the years after independence: markets had not brought
much to Africa. The companies that had come to Africa had come to exploit it, to take its
land and natural resources aided by colonial rule. They had not brought broad–based,
inclusive development. After such a long, dark history, who wouldn’t have sought an
34 This is a common allegation of the root causes of the financial crisis that erupted in 2008; there is a
consensus that there was too little regulation of derivatives and that the policy of not regulating derivatives
was a result of political capture of regulatory agencies, the Administration, and legislative processes.
35 Some might dispute this claim: looking at say, the contrast between the US and Asia in contributing to
both the current economic crisis and to recovery from it.