Growth in the Fast Lane
By Suman Tarafdar
We thought we were at the edge of a new era of human history. Not so, says Nobel laureate for economics, Michael Spence in his new book, The Next Convergence: The Future of Economics in a Multispeed World, in which he says the book is actually sort of mid term review of growth that began around 1950 and is expected to continue until 2050, by when 75 percent of humanity will enjoy standards of living similar to those of today's high-income countries. For him the convergence is of the current developed and developing world, the net result of which, he points out, will pose considerable challenges for leaders in their respective countries, and in their abilily to sustain cooperation.
Spence writes, "Getting there from where we are will be difficult. Political, business and academic elites have lost credibility with the populace in many countries. We have been wrong about important characteristics of the economy that affect people's lives. And relatively insensitive to distributional issues." He goes on to write "The loss of trust in the elites has left a vacuum, that is being filled by an increasingly confrontational politics, one in which shared goals are few, and investment in the world that future generations will inherit is well below optimal, nor does it seem to be a high priority." The echoes in India's streets are uncanny.
Spence, currently professor of business at the Stern School of Business at New York University, traces the beginnings of the current phase of growth to the post World War II years, when about 15 percent of all humans lived in nations with an average income of over $10,000 per annum. He lists just another 13 that have manged it by managing sustained levels averaging 7 percent or more for at least 25 consecutive years. These include countries such as Japan, where the average per capita income rose from $3500 in 1950 to $39,600 in 1983, South Korea, which went from an average of $1,100 in 1950 to $13,200 in 2001, or even China, where the 1961 average of $105 went to $1,400 by 2005. While most of these 13 are east Asian countries, the exceptions are Brazil, Botswana, Malta and Oman. India and Vietnam are expected to join the list in a few years.
He points out that for the first time, there is more convergence than divergence. His estimations show that the average American consumer would not be significantly different from the typical Indian, a significant change from the past few centuries. He points out that India and China on high growth trajectories coupled with huge population is a never-before situation for the world. Their say in the future coordination of policy matters will be crucial, according to him. He also points out that for these nations, their growth and development agendas are likely to take precedence over global responsibilities and that is unchartered territory, with no definite answers on which paths will be taken. He does have some suggestions, which include recognising the limits of one's knowledge, appreciating the benefits of adversity; the importance of people, including effective leadership, in sustaining development, and the need for governments to play a more active role in leading the way.
India has a separate chapter to itself, and numerous mentions otherwise, next only to China. Spence outlines the socio-economic situation, pointing to the lack of infrastructure, uneven education and continuous reforms but gets a sense of optimism from both the private and state players. However he is optimistic "that democratic governance and rapid growth and development are compatible and mutually supportive."
The tone of the book is temperate, markedly minus the catch lines that often seem designed more to ensure greater sales. He admits that predicting the future is an uncertain act. The book has a lot of questions, many obvious. While that in itself is not a problem, the answers are largely generalisations such as "enhanced coordinated oversight" and "global effective government". It could be argued that Spence is looking at the macro picture, but given that specifics have affected growth in more than one country, more specific answers would have perhaps helped both the policymakers and any other readers better in addressing some of these issues.