C3 – Centrum für Internationale Entwicklung
ÖFSE Development Lecture 9
with Robert H. Wade (Department of International Development, London School of Economics), Melanie Pichler (Department of Political Science, University Vienna) and Ludovico Alcorta (UNIDO).
The „Mother of Global Problems“ today is stopping climate disruption, or more exactly, decarbonizing the energy system while sustaining economic growth. If the issue is framed as a horse race between economic growth and avoiding climate disruption, economic growth will always win, for political reasons. But what if the still-prevailing Washington Consensus on appropriate politics and institutions for economic growth in developing countries is not effective for economic diversification and upgrading, to the point that many middle-income countries are caught in periodic cycles of sharp growth accelerations followed by sharper decelerations and longer periods of very low growth, also known as the middle-income trap? Countries in this condition are likely to drag their heels on decarbonizing their economies, saying „We are too poor, and you (developed countries) caused the problem“. This talk discusses the reality or otherwise of the middle-income trap, a contentious subject – unsurprisingly because its reality would go against the conventional wisdom of neoclassical development economics. Then, having established that it is „real enough“ for policy makers to take very seriously, what is the appropriate role of the state in escaping it? This brings us to the still-toxic topic of industrial policies and how to do them well rather than badly.