Growth, debt, and politics

Why have so many attempts by developing countries to correct their financial insolvency by economic adjustment failed even when those nations have adhered closely to the "orthodox" economic prescriptions dispensed by the International Monetary Fund? Does the fault lie in policies that are poorly conceived or implemented haphazardly or in too much government intervention in the economy? In this fascinating book, Lewis Snider convincingly argues the opposite - that problems arise not because the government is involved but because the way it intervenes is often counter-productive. In addition, he contends that political weakness, rather than misconceived policies or the inability of policymakers to foresee the consequences of their decisions, most often prevents leaders from successfully implementing economic reforms. Snider's analysis focuses on three problems common to poor countries: an inability to extract sufficient resources from society; a lack of credible political and economic institutions; and as a natural outcome of these two, covert income and profit transfers that in turn serve to reinforce the institutional credibility problem. How can this vicious circle be broken? Drawing on examples and evidence from around the world, Snider demonstrates that the state must first improve its institutional credibility in the form of secure property rights and reliable contract enforcement. Only then will it be able to increase its extraction while holding down transaction costs at the level necessary for economic adjustment to succeed.