Do What We Did, Not What We Say

Today, many emerging markets, from Indonesia to Mexico, are told that there is a certain code of conduct to which they must conform if they are to be successful. The message is clear: here is what advanced industrial countries do, and have done. If you wish to join the club, you must do the same. The reforms will be painful, vested interests will resist, but with enough political will, you will reap the benefits.

Each country draws up a list of what to be done, and each government is held accountable in terms of its performance. In all countries, balancing the budget and controlling inflation are high on the list, but so are structural reforms. In the case of Mexico, for example, opening up the electricity industry, which Mexico's constitution reserves to the government, has become the structural reform of the day demanded by the West. So analysts--mindlessly one is tempted to say--praise Mexico for its progress in controlling its budget and inflation, but criticize it for lack of progress in electricity reform.

As someone who was intimately involved in economic policy making in the US, I have always been struck by the divergence between the policies that America pushes on developing countries and those practiced in the US itself. Nor is America alone: most other successful developing and developed countries pursue similar "heretical" policies.

For example, both political parties in the US now accept the notion that when a country is in a recession, it is not only permissible, but even desirable , to run deficits. Yet all over the world, developing countries are told that central banks should focus exclusively on price stability. America's central bank, the Federal Reserve Board, has a mandate to balance growth, employment, and inflation--and it is a mandate that brings it popular support.