After the Second World War, a vast array of international and national institutions—the United Nations, the World Bank, the International Monetary Fund, and a host of nongovernment and government aid organizations—was created to better the lot of the world's poor. Conventional wisdom came to hold that improvements in infrastructure, technology, capital markets, education, and health care would eliminate the stark distinctions between rich and poor nations.¹ Fifty years and billions of dollars later, this wisdom has proved wrong.

At the beginning of the 1990s, the Soviet Union's fall precipitated a new conventional wisdom. This "Washington consensus" focused heavily on macroeconomic policies, such as flexible exchange rates, low inflation, and government solvency, while also embracing microeconomic elements—for instance, price decontrol, privatization, and good corporate governance and market regulation. Market reform swept through the world, including countries as diverse as Argentina, Brazil, India, Mexico, New Zealand, Poland, and Russia. Most were thought to be doing virtually everything needed to spark rapid growth.

But once again the results were disappointing. By the end of the 1990s, most of these countries' growth rates had returned to levels so low that the profile of the global economic landscape wasn't changing at all. Today...