Dani Rodrik
Introductory paragraph:
Once upon a time, economists believed the developing world was full of market failures,
and the only way in which poor countries could escape from their poverty traps was through
forceful government interventions. Then there came a time when economists started to believe
government failure was by far the bigger evil, and that the best thing that government could do
was to give up any pretense of steering the economy. Reality has not been kind to either set of
expectations. Import substitution, planning, and state ownership did produce some successes,
but where they got entrenched and ossified over time, they led to colossal failures and crises.
Economic liberalization and opening up benefited export activities, financial interests, and
skilled workers, but more often than not, they resulted in economy-wide growth rates (in labor
and total factor productivity) that fell far short of those experienced under the bad old policies of
the past.
Few people seriously believe any more that state planning and public investment can act
as the driving force of economic development. Even economists of the left share a healthy
respect for the power of market forces and private initiative. At the same time, it is increasingly
recognized that developing societies need to embed private initiative in a framework of public
action that encourages restructuring, diversification, and technological dynamism beyond what
market forces on their own would generate. Perhaps not surprisingly, this recognition is now
particularly evident in those parts of the world where market-oriented reforms were taken the
farthest and the disappointment about the outcomes is correspondingly the greatest—notably in
Latin America.