Global Grand Challenges (Growth Report)
- The first is a clear divergence in incomes within and between countries.
- The second challenge is environmental. The quickened growth of world GDP has put new pressure on the planet’s ecology and climate.
1.The Global Economy:
- Sustained growth at this pace was not possible before 1950. It became feasible only because the world economy became more open and more tightly integrated.
- The high-growth countries benefited in two ways. One, they imported ideas, technology, and know-how from the rest of the world. Two, they exploited global demand, which provided a deep, elastic market for their goods.
- It is easier to learn something than it is to invent it. That is why advanced economies do not grow (and cannot grow) at rates of 7 percent or more, and why lagging economies can catch up.
- The global economy also provides a large, relatively stable market for the goods of developing countries. In the 1950s, some economists fell prey to “export pessimism.” They assumed that the more goods the developing world sold on global markets, the lower the price they would fetch.
- Since specialization is limited by the extent of the market, home markets give an economy less scope to specialize in its areas of comparative advantage.
- 2. Macroeconomic stability
- •Macroeconomic volatility and unpredictability damage private sector investment, and hence, growth. During their most successful periods, the 13 high-growth cases avoided the worst of this turbulence. Their quick expansion was accompanied, from time to time, by moderately high inflation. Korea, for example, had double-digit inflation rates for most of the 1970s; China’s inflation peaked at about 24 percent in 1994.But prices were stable enough not to scramble market signals, cloud the view of long-term investors, or deter savers from entrusting their wealth to banks.
- . Future Orientation
- This macroeconomic stability set the stage for their third characteristic: they all mustered high rates of saving and investment, not least public investment in infrastructure. They were all “future-oriented,” forgoing consumption in the present in pursuit of a higher level of income in the future.
- In 1955, Singapore established a mandatory saving scheme, the Central Provident Fund, which collects contributions from wages that are primarily
- saved until retirement, although some withdrawals for medical and housing have been permitted.
- Market Allocation:
- The high-growth economies all relied on a functioning market system, which provided price signals, decentralized decision making, and incentives to supply whatever was in demand. Countries varied in the strength and clarity of their property rights. But in all cases, firms and entrepreneurs felt they had enough of a claim on their assets to invest heavily in them.
- A country’s comparative advantage will evolve over time. In any period of fast growth, capital, and especially, labor moves rapidly from sector to sector, industry to industry.
5. Leadership and governance
Growth is about more than economics. It also requires committed, credible, and capable governments. “[I]n the long run it does not pay to build an economic mansion on a foundation of political sand,Their policy makers understood that growth does not just happen. It must be consciously chosen as an overarching goal by a country’s leadership.
In the fast-growing economies, by contrast, policy makers understood that successful development entails a decades-long commitment, and a fundamental bargain between the present and the future. Even at very high growth rates of 7–10 percent it takes decades for a country to make the leap from low to relatively high incomes.