Following the major but short-run transformation that took place during the Green Revolution (approximately 25 years), it became obvious to Rausser that other major research and
development activities should be pursued to advance the next potential phase of increased food productivity and reducing the degree of food insecurity. Based on this vision, Rausser was successful in convincing and the Secretary of State to set aside a major grant to establish the Institute for Policy Reform (IPR). This institute focused on promoting increases in the size of the economic pie, reducing food insecurity and correcting malnutrition of those most vulnerable segments of society. The funding was used to engage university social sciences intellectual leaders to prepare white papers on specific countries or regions of the world. IPR did analytical work on public policy reforms and how the current political-economic structures might be adjusted (e.g. reducing the amount of corruption on the part of government officials) to sustain such reforms.
Rausser had pointed out that governments must be able to protect certain rights and protections in order for their economies to prosper. For example, creating democratic governmental and judicial institutions is critical for enforcing contracts, securing private property, and assigning liability for wrongful damage. Rausser had advanced four “prescriptives” for successful market economies:
- an underlying constitution must be designed that establishes the credible guidelines and mechanisms for the “rules by which rules are made”;
- the legal and regulatory infrastructure that emerges from the underlying constitution must provide a framework that is conducive to a vibrant market economy;
- the political-economic configuration that evolves from the legal and regulatory infrastructure must admit a public sector and political agents that are able, for crucial matters, to rise above immediate self-interest; and
- the policies that encourage anti-monopolization forces (privatization, antitrust policy, trade policy, and foreign investment policy) must be jointly designed to attain sustainable economic growth.
Through its work, the IPR succeeded in changing the “Washington Consensus” on development policy from “getting the prices right” to “getting the governance structures right.” In 1997, the International Monetary Fund (IMF) announced a new policy governing credit and loans to developing countries: in order to borrow money, a borrowing country would have to agree to improve governance structure, rather than simply to meet economic targets and/or implement specific policies. The IMF adopted this policy on improved governance after its sister lending agency, the World Bank, implemented a similar strategy.
IMF Managing Director Michel Camdessus recently remarked, “Increasingly, we find that a much broader range of institutional reforms is needed if countries are to establish and maintain private-sector confidence, and thereby lay the basis for sustained growth. Every country that hopes to maintain market confidence must come to terms with the issues associated with good governance.”
In 1994, funding for the institute came to an end with a change in administration within the U.S. State Department and Rausser returned to UC Berkeley.