Development thinking in the postwar era which opened in 1945 was dominated for 25 years or so and is well described as the Keynesian Consensus. It is now often described (frequently with a derogatory implication) as “statist and inward-looking”. Both descriptions are correct, although the derogatory implication is not. Thinking was statist in the sense that the state or government was considered the natural embodiment of the public good. The power of the state to mobilize countries’ resources had been amply demonstrated by the success of wartime planning in the United Kingdom; even central planning seemed to be vindicated by the military success of the Soviet Union. The Keynesian Consensus did not, however, advocate central planning but rather indicative macroeconomic planning plus the achievement of a level of global effective demand corresponding to full employment equilibrium, if necessary through public investment and public works. Once full employment was achieved, the allocation of resources could be left to follow market signals. The market alone, however, would not be likely to achieve full employment. Rather, as Keynes had explained in the General Theov, it could perpetuate unemployment equilibrium, or even (with the lessons of the Great Depression of the 1930s in mind) result in cumulative decline and mass unemployment preparing the ground for dictatorships and wars. The acceptance of the state as representing the public interest did not exclude the acknowledgement of government failures but these were weighed less on the scale (and also considered more easily tractable) than market failures, such as the existence of extemalities, imperfect competition, absence of market institutions, etc. Later, under the Washington Consensus, this judgement of relative choice of evils was to be reversed. There is no known method or firm empirical basis for an accurate comparison of government failures vs. market failures. There may be a Nobel prize waiting for someone who invents such a common scale! In terms of policy, this may not matter all that much: both schools could agree that it is important to improve both government performance and market performance. Today the pendulum seems to be swinging back to such an intermediate position. As it has been well put recently, “Just as the existence of market failures does not necessarily warrant government intervention, so the existence of govemment failures does not necessarily mean that intervention is detrimental to economic growth”.’ As guidelines for government planning two different schools of thought emerged. The first, associated with the name of Ragnar Nurkse, was the doctrine of balanced growth. This was a recipe for using the linkages between different sectors in the economy to match supply capacities to demand expansion and make expansion mutually supportive. The ultimate intellectual source for this was the concept of the multiplier, developed by Richard Kahn, and then incorporated by Keynes in the General Theory. The second school of thought, associated with the name of Albert Hirschman, was the doctrine of unbalanced growth. This involved the identification of growth poles from which growth could spread throughout the economy. This second school of thought, involving “picking winners” and an active industrial policy, has quite recently become the subject of a new discussion centring on the role of active industrial policy in producing the East Asian “miracle”. The road to full employment was through a high volume of investment. In line with the General Theory, the emphasis was on investment rather than savings: savings would be generated by investment, resulting in a basic identity. The danger of inflation was recognized Keynes himself was no more an advocate of inflation than the later Washington Consensus. But again following experience during and immediately after the war it was assumed that inflation could be controlled by fiscal policies, income policies, and by enlightened wage negotiations emphasizing real rather than money wages.