|REVIEW | THE ECONOMIST|
When the poor catch up: The challenges of growing richer
MICHAEL SPENCE has long been pointing out the frictions that interfere with efficient markets. He won the Nobel prize in economics for this in 2001, together with George Akerlof and Joseph Stiglitz. In recent years Mr Spence has been preoccupied with the economics of development and growth, and his interest in laissez-faire’s flaws has stayed with him. His new book, “The Next Convergence”, warns of the frictions that arise when the world tries to accommodate both rapidly-growing emerging giants like India and China and slow-growing developed countries like America.
Never before have so many people grown rich so quickly. Japan was the first country to achieve sustained, high-speed growth, in the post-war years, but it did so alone. A handful of smallish Asian tigers followed. Mr Spence wonders whether that formula can work when 60% of humanity, led by India and China, try the same thing. Globalisation, he notes, has been critical to the rapid growth of emerging markets. But it has also led to rising inequality in the rich countries, and they may now well respond by raising protectionist barriers. Or maybe not. Mr Spence is not sure about this nor, unfortunately, of many of the other issues he tackles. “The Next Convergence” feels less like a book than a transcript of the author thinking out loud about a hotch-potch of contemporary economic issues.Mr Spence surveys the state of knowledge of growth and development economics, touching on the role of foreign aid, trade liberalisation, natural resources and the difficulty that countries experience when they begin evolving from middle- income nations to more advanced economies. He breaks little new ground and sticks to broad generalities, offering little in the way of examples or research to prove his point. The text is also thick with such phrases as “suboptimal noncooperative outcomes” and “systematically impactful”. Readers new to the field may find this book a useful overview, but only if they can endure the ponderous writing.
This is a pity because Mr Spence has much to offer from a rich career in research, academia and global policymaking. The reader occasionally glimpses his experiences, in particular in his analysis of China. He describes how Deng Xiaoping, China’s paramount leader until the early 1990s, realised that the country could accelerate its development by learning from Western experts, such as the World Bank, how markets work rather than feeling its way by trial and error. He also illustrates how China’s leaders are grappling with reorienting growth from labour-intensive manufactured exports to capital-intensive services aimed at domestic consumers.
Mr Spence is no fire-breathing ideologue, but he clearly believes the world trusts too much in laissez-faire and not enough in government. America, he says, needs to spend more on unemployment insurance, industrial policy and public infrastructure. The world economy needs “enhanced coordinated oversight” and “global effective government”. But he is never clear about what this would entail nor what good it would do. Mr Spence wants to replace the current hybrid of floating and fixed exchange rates—with “a new hybrid”. That’s as specific as he gets. He downplays the benefits of China letting its undervalued exchange rate rise while arguing later that it must do so anyway.
In short, Mr Spence has more questions than answers. That in itself is no bad thing. You need humility when evaluating the impact of globalisation, he says. But that makes for an unsatisfying book.
|Last Updated on Saturday, 04 June 2011 21:56|