The good, the bad and the powerful

Dani Rodrik recently opened a blog entry with the following:

Increasingly, economists are moving away from the Washington-Consensus, rules-of-thumb approach to country-specific strategies based on diagnosing locally-binding constraints. The difficulty is that designing such strategies is more of a craft than a science.

The latest contribution to the literature comes from Wendy Carlin and Paul Seabright.

My initial take was 'what's new here'? But there's an interesting footnote on the first page of the paper that made me giggle:

Gregory Clark (2007 forthcoming) challenges institutionalist explanations of the industrial revolution, on the grounds that a number of medieval economies (such as England from the thirteenth century onwards) had institutions (such as systems of secure property rights in land) that, he claims, would have earned them high marks in any World Bank policy review. Of course, not all researchers who claim that good institutions are important for development would claim that they were either necessary or sufficient. (emphasis added)

This really begs the question of what is a 'good' institution if it is neither necessary nor sufficient. Most economists would, for example, argue that China's massive expansion of the past 3 decades was based on 'bad' institutions. 'Good' institutions clearly were not necessary in this case. Milton Friedman, on the other hand, was famed for pooh-poohing the idea that theory is important - if it works then it must be right. Friedman, of course, was wrong. His understanding of the relationship between money supply and inflation was based on a simple correlation and, without understanding the transmission mechanism, his prescription of reducing the money supply would (and did) wreak havoc on any economy to which it was applied. For the authors of the above paper on the other hand, 'good' institutions clearly come from somewhere in the realm of World Bank thinking which, for half a century now, hasn't worked (at least in terms of its stated - as distinct from possible non-overt - intentions). Where is the difference from the Washington consensus here?