It's a well known -- yet rarely acknowledged -- fact that Keynes was instrumental in the formation of the World Bank and the IMF - meta government institutions founded on the principle that
a committee of intelligent and well-intentioned men possess the wisdom and information necessary to "steer" an economy.
Despite the free-trade, capitalist rhetoric that is attached to the Washington consensus, there should be no mistake that the IMF and World Bank are built upon the principles of central planning, and government intervention.
Despite the vast gains in computer processing technology, the dream of those men has largely failed. Macroeconomics arose as a discipline to compare aggregate variables in a mechanistic fashion, amassing a slew of statistics with which to perform econometric analysis. Measurement and manipulation was the aim.
But it didn't work. The stagflation of the 1970s irreparably damaged "Keynesian economics" resulting in a situation now where the sole aim of most central banks is to keep inflation low. Labour and Tory alike agree upon the importance of individual choice - regarding where to work and what to buy - as being the foundation of a prosperous society. For sure, subsidies and market distortions abound, but by and large the Fatal Conceit has been curbed and no party believes it can and should run an economy. As Tim Garton-Ash says:
the left now seems no longer to be about the best way to produce wealth, only about the best way to distribute it
So lament the fact that we don't apply this lesson abroad.
The field of Development Economics is little more than an exportation of the Keynesian system that we've rejected at home. The DFiD is far from being a plum ministerial job, and their lagging economic competence still maintains that large-scale planning is the best way to produce wealth. The culture of aid necessitates measurement - a bank won't release funds without means to assess the way it's being spent, so similarly the IMF and World Bank seek observable returns. This propagates the statistics and measurements that are irrelevant for prosperity.
In the GI's Intellectual Revolution in Development Economics (discussed by Owen and Jim), the emphasis is on enterprise solutions to poverty - the role of microcredit and other bottom up initiatives. Perhaps an even bigger revolution concerns the methodology being used - a movement away from econometrics toward case studies. Planners need computers and formulae. They see the economy as being akin to a giant machine with systems of levers that can be fine tuned to achieve particular goals. A genuine bottom-up approach looks at emergent phenomena and spontaneous order - things only observable via smaller studies that can incorporate culture, local knowledge, and individual choice. The policy proposals that emerge from such an endeavor are what we already know - the rule of law, a competant and transparent government, private property rights, freer trade etc.
The great irony is that we use the label "developing country" to describe places that aren't developing - they're stagnant. We call the countries that are actually developing "developed". This is symptomatic of the static thinking that pervades Keynesian thought. You're either one thing or another, there's nothing in between. Only a theory of market process (i.e. Austrian economics) treats dynamic time and uncertainty seriously.
Development isn't something to be achieved, it's a process.
Obviously I exaggerate slightly, and in many ways the World Bank and IMF are unrecognizable from their founding principles. Perhaps my complaint is more to do with the acknowledgment of past errors than the propagation of current ones. But regardless, my claim is simple: development economics needn't be about planning. When I claimed that PT Bauer (pictured) had been vindicated, Owen said: Nothing could be further from the truth.
I'll leave you with the words of Amartya Sen - eminent development economist and former critic of Bauer:
Peter Bauer is in a class of his own as an outstanding economist. The originality, force, and extensive bearing of his writings have been quite astonishing. He is a real pioneer of modern development economics…Many of Bauer’s claims, while resisted at the time, have become a part of the new "establishment" of ideas. Like the old lady who went to see Hamlet and felt it was full of quotation, a young reader of Bauer’s early books may find his arguments rather familiar. This is, to a great extent, evidence of his triumph, though the new enthusiasts for Bauer’s ideas often do not give him enough credit.