WE HAVE READ with great interest Chapter 3 of the World Bank’s Global Economic Prospects publication of January 2024, entitled “The Magic of Investment Accelerations” (https://www.worldbank.org/en/publication/global-economic-prospects). The chapter tells us not only that investment matters but also that it is as powerful as Chinese medicine: it cures all illnesses. It is the single most important factor to solve economic problems such as growth, climate change, jobs, education, or health. You name it. The implication? Find ways to accelerate investment.
Let us start with the disclaimer that we certainly agree that investment matters. Yet, we have the impression that the World Bank has run out of new ideas and policy advice to give to developing countries. Its authors have decided to return to where it all started: investment. Our reading of the report is that the overall proposition is not new. We are also skeptical about the statement that it cures all illnesses.
Ex-World Bank economist William Easterly wrote a well-known book entitled The Elusive Quest for Growth, in the early 2000s. It details the many panaceas that multilateral banks, led by the World Bank, recommended to the developing countries since WWII. Most of them ended up being failures. The first one of these panaceas was no more than investment. It was all based on the so-called Harrod-Domar model (developed in the late 1930s and early 1940s), poorly used to mis-advice developing countries that they needed a required investment rate to attain a target growth rate. The difference between the required investment and the country’s own savings was called the “financing gap.” What was the selling point? Since private investors would not fill the gap, the World Bank and its little regional sisters would provide foreign assistance.