DEVELOPMENT IN A WORLD OF MARKET ECONOMICS

The record of the international development effort over the past half-century has generally been disappointing-success in east Asia, failure in Africa and limited success in countries containing the majority of the people of the developing world. After 45 years well over a billion people still live in abject poverty. This reflects failure to achieve and sustain rapid growth, which in turn reflects the statist, protectionist policies followed in the majority of developing countries from the 1950s to the 1980s. Official aid and the influence of international agencies encouraged these policies. <P>In the 1980s and early 1990s, a revolution in thinking has led most of Asia and Latin America to market-based policies which have increased growth rates substantially in many countries. The extreme view that aid is inconsistent with the market philosophy is wrong, but the new policy consensus, together with the huge increase in flows of private capital, do raise important questions about the role of aid. It is important to recognize that aid can do harm and is not validated merely by good intentions. The principles which should govern aid need to be reformulated. Aid should be basically concerned with helping countries to run efficient market economies and should take two main forms: assistance to the state to enable it to play its proper role in a market economy, and to the private sector to enable it to lead economic growth in conditions where markets often work imperfectly. Both forms of aid should be subject to strict disciplines. © 1997 by John Wiley & Sons, Ltd.