|Financial Times - Review|
By Martin Wolf
Michael Spence has written an intelligent, rational and humane book about the great economic event of our era: convergence, or the rapid rise of once poor countries. Anyone seeking a common-sense guide to the transformation under way need look no further.
In this book, Professor Spence – a Nobel laureate and former chairman of the independent Commission on Growth and Development – sets out to explain “the future of economic growth in a multispeed world”. That future is, he believes, a bright one, in which perhaps 75 per cent of humanity will enjoy standards of living similar to those of today’s high-income countries by the middle of this century. Yet reaching this destination is going to pose huge challenges for policymakers within individual countries, and still more for their ability to sustain co-operation.
The book starts in 1950, at the beginning of what the author expects to be a century of economic convergence. So far, such convergence has been difficult to sustain: only 13 developing countries have managed to grow at an average rate of 7 per cent or more in 25 years. Fewer still have managed to jump from poverty to affluence. But this sort of growth is now being achieved by giant countries, notably China, with India a little behind. That changes everything.
Moreover, argues Prof Spence, we now know far better how to make rapid and sustained growth work. He seems confident that it will not just continue but also spread. He offers four broad lessons: recognise the limits of one’s knowledge and the need to feel the way; appreciate the benefits of adversity; understand that sustainable wealth is built on people; finally, realise that governance – indeed government – matters, not just in holding the ring but also as an active force.
From the challenges of sustained convergence, the book turns to the economic crisis from which the world is painfully emerging. Prof Spence lauds the ability of so many emerging economies to escape relatively unscathed. He lauds, too, the co-operative spirit in which it was managed, not least via the replacement of the Group of Seven high-income countries with the Group of 20, which includes the all-important emerging economies. He is rather less impressed with policymaking in high-income countries that permitted a huge run-up in leverage, overextension of the financial sector and a catastrophic collapse.
Finally, the book turns to “the future of growth”. It discusses the prospects for continued rapid convergence, the challenges of resource availability and climate change, and the extraordinary transformation being brought about by the spread of information technology. As Prof Spence notes, not so long ago we were concerned about the “digital divide”. Today, the number of mobile phone subscriptions is equal to 70 per cent of the global population. One can envisage a future in which every adult will have access to all the information humanity possesses. That surely is a profound revolution.
To bring this optimistic future about, Prof Spence hopes for a spirit of pragmatism and global co-operation. Can we realistically expect either? From his discussion of policymaking in the US, one would not expect him to be particularly optimistic. Evidently, he finds the half-baked oversimplifications of the US policy debate exasperating. But he is notably more optimistic about policymaking elsewhere, particularly in the emerging economies.
I greatly admire the lucidity, scope and tone of the book. Readers will learn a great deal. But that does not mean I agree with everything.
Prof Spence believes, for example, that emerging market economies have insured themselves by accumulating the liabilities of western governments. This is a strange form of insurance! He also underplays the role of such reserve accumulations in the imbalances that helped create the conditions for the financial crisis.
More important, the analysis of the resource requirements of a world in which 6bn-7bn people live as 1bn people do now is superficial and over-optimistic. True, he is in good company. But I wonder whether such a world will prove sustainable. Certainly, far more rigorous analysis is needed.
Finally, while I want to be optimistic about the capacity of emerging countries to sustain rapid growth and of high-income countries to accommodate their rise, much can go wrong. As the book concludes: “We, and future generations, will have to invent our way through and around the potential roadblocks along the way.” Is humanity capable of such wisdom? I too hope so. But hope is very far indeed from confidence.
The writer is the FT’s chief economics commentator