The Hindu Business Line : Chief Economist of World Bank

Prof. Justin Yifu Lin will be the first Asian to occupy the post of Chief Economist at the World Bank. Considering Prof Lin’s credentials and the Bank’s keenness to have closer links with China, there appears to be no better choice for the post.

Prof. Justin Yifu Lin, chief economist-designate, World Bank.

K. Subramanian

When the news about the appointment of Prof. Justin Yifu Lin as the Chief Economist of the World Bank broke out in the last week of January, it was greeted with excitement by many in the developing world. Western analysts praised the Bank President, Mr Robert Zoëllick, for his astuteness and hoped that Prof. Lin’s induction would change the Bank’s policies.

Prof. Lin will take over in May and is the first Asian to occupy the post. Indeed, the Bank has seen many other non-western — Indian, Chinese or African — administrators and economists holding senior positions. However, as the BBC’s Chinese Editor said, “Lin is no ordinary Chinese citizen.”

Noteworthy credentials

Prof. Lin’s CV, on his Web site, runs to 22 pages and includes a garland of degrees, accolades and honours he has secured over the years. He has held several senior academic positions in China and outside. He took his doctorate from Chicago University and did post-doctoral work in Yale. He has been a consultant to the World Bank since 1993. He has published more than 100 articles in journals such as the Economic Journal and the American Economic Review. Since 1993, he has been heading the China Centre for Economic Research (CCER), which he founded.

What distinguishes Prof. Lin from other academics is his deep involvement in the development strategies of China. He is unique in that even as he functioned as the architect of China’s programmes, he was also a fearless critic inside the system. His research covers areas such as fiscal decentralisation, enterprise reform, urban and rural modernisation and agricultural innovation and reform. These are not fashionable areas coveted by World Bank economists. In his analyses, Prof. Lin shows rare, unconventional insight into developmental processes transcending the mechanist models of Western counterparts.

Announcing his appointment, Mr Zoëllick said, “As our first chief economist from a developing country, and an expert on economic development and, particularly, agriculture, Prof. Justin Lin brings a unique set of skills and experience to the World Bank Group.”

“I look forward to working closely with him on a number of areas, including growth and investment in Africa, opportunities for South-South learning…” What he did not add was that in its present state, the Bank needs Prof Lin more than Prof Lin needs the Bank.

Need to rework approach

The Washington consensus, which was the template of the Bank’s programmes for years, is in disarray. Even as the Bank needs to rework its approaches, it would not have failed to note the stellar success of China in promoting economic growth and reducing poverty. Indeed, its influence on other developing countries is growing. Perhaps, the Bank is keen to draw on it and have closer links with China. On January 22, China Daily reported: “Analysts see in Lin’s candidacy a sign of China’s increasing links with the Bank.” It went on to explain how China had shared its developing experience with the Bank in the past.

There are changes in Development Economics in the wake of China’s success. As three leading economists wrote in a seminal article in Financial Times (‘Rethinking on development policy — A new consensus’, October 19, 2007), a new model — Beijing-Seoul-Tokyo or BeST — is emerging. Is there an attempt within the Bank to imbibe these policies?

Prof. Lin seems to view the assignment as an opportunity. He deemed it a high honour and added, “By picking a candidate from China, the World Bank will be able to better serve developing countries.” He said, “I will work with the other 700 economists of the World Bank to select research directions and topics, understand their long-term restraints, challenges and opportunities. Then we we’ll explore a theoretical framework to address the problems.”

He is proud of China’s achievements and told the China Business News in an interview, “China is in a unique position to ‘re-write’ the macroeconomic policies of the past. Because of China’s success in transforming the economy and sustaining its growth for a long time, everybody wants to know the formula behind.” He feels that the Bank can only consolidate its role as a leader in the global anti-poverty movement by coming up with effective measures. He said, “in this regard, China can provide useful experience.”

While saying these, he has no illusions about the Bank’s role. He recognises the diminished role of the Bank in providing financial assistance and feels that they need more of its technical assistance. Rather, he mirrors China’s own relations with the World Bank.

Lin’s writings

A close study of his major writings shows that Prof. Lin is no ivory tower economist. Though he is steeped in the highest academic tradition, he can transcend theories and learn from structures and institutions on the ground in countries such as China. He faults neo-classical theory for its failure to take note of structures in promoting growth.

He has faith in the ‘market’, not in the ideological sense in which it is posited by the World Bank economists, but as an institution required to exploit the comparative advantages of regions. He wants government “to remove all possible obstacles for the function of the free, open and competitive markets.” While saying this, he was not playing the Chicago tune. Prof. Lin firmly believes that the government is the most important institution and the quality of the government would determine the success or failure of development.

He uses the tools of neo-classical economics and illustrates how they may fail to achieve growth objectives if inappropriately used. He advocates what he calls comparative advantage-favouring (CAF) approaches to comparative advantage-defying (CAD) strategies. Using these concepts, he establishes how the Great Leap Forward policies of early communist regimes distorted growth and also created serious regional disparities.

In a Working Paper (Is China’s Growth Real and Sustainable?, CCER, February 26, 2004), he explained that it was possible for China to maintain dynamic growth for another two or three decades because of the advantage of backwardness. He went on, “However, China needs to complete the transition from the planned economy to a market economy, adopt a comparative-advantage-following development strategy and integrate fully with the global economy.” In his writings, Prof. Lin provided the theoretical underpinnings for the programmes put through by Deng Xiaoping. China did not fall in line with the World Bank’s view of “shock therapy” and preferred an incremental or stage-by-stage policy of marketisation.

Better quality research

Most analysts refer to the infusion of new ideas on development that Prof. Lin would take with him into the Bank. They fail to observe that the much-publicised Development Economics Group (DEC) of the World Bank has not covered itself with credit in its research work.

An academic group led by Prof. Angus Deaton of Princeton and consisting of three other eminent economists studied the work done by DEC during the years 1998 to 2005. It gave its report in September 2006.

It found that “too large a fraction of Bank research was undistinguished, in the sense that it had neither great relevance to policy nor claim to academic distinction.” It had made many critical comments and one of them was: “This research was used to proselytise on behalf of Bank policy, often without taking a balanced view of the evidence, and without expressing appropriate scepticism.”

Since the Deaton report on the DEC, there is no evidence of reforms in the DEC. If Prof. Lin is given a free hand, he can help in helping the DEC to come out of its rut and produce better quality work relevant to emerging economies and their development problems.

There are doubts whether he will have a free hand. In the past, Ravi Khanpur was not allowed to complete the World Development Report 2000, which was frowned upon by the US. Prof. Stiglitz was eased out of his post as Chief Economist as they could not tolerate difference of opinion over policies to deal with East-Asian crisis.

On all accounts, Prof. Justin Yifu Lin is the man for the job. If there is openness in the higher echelons of the Bank and its major shareholders like the US, the Bank and its policies can be transformed and made more realistic and relevant. It is not cynicism, but the odds seem to work heavily against such optimism.

Prof. Lin may be disappointed, not unhappy. He can get back to China and to his CEER and continue his contributions. He will not be the loser in the end.

(Email: subrabhama@gmail.com.)

More Stories on : People | RBI & Other Central Banks

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
The HYDE ACT — Misreading or misleading?

Issues ignored by waiver package

The waiver and its burden

Debt Relief and Waiver Scheme — Effective only if it is total

Political gameplan

Chief Economist of World Bank — The man for the job

Debt waiver