Development

The trouble with talking all the time in the language of countries growing and countries failing to grow, is that we forget the real actors:  People start a business, hire other people, make some people richer by buying from them, drive yet others out of business. This is what capitalism is all about. Growth is just the name we give to the accretion of all that.

What makes someone start a business? There is an influential view that says that being an entrepreneur comes naturally to people: Hernando De Soto tells us that if only the government would stop making it hard for them (by refusing to give them titles to the land they own, for example) the poor (which is most people in the developing world) could transform themselves and the rest of the economy through their entrepreneurship.

The current crisis is hurting all developing countries, but in a few years it will be past, and it will not have altered the big differences among countries on which the Growth Commission (GC) focused.  China will still be forging ahead, and Africa lagging behind.  Let us therefore do all we can to mitigate the shock, but not stop thinking about how to accelerate longer-run growth in Africa.

As we continue to face extreme volatility in financial markets, the dire economic prospects for the real economy are now also becoming increasingly apparent. Policymaking is rightly focusing on short-term measures to stabilize financial systems. But it is clear that financial stability alone will not be enough to avoid a dramatic global economic slowdown and recessions in many countries. The policy debate is focusing towards measures that can revive the real economy.

Some may wonder how the observations of the Growth Report, dealing with sustainable high growth patterns over long periods, can be reconciled with policy choices currently facing government decision-makers.  Clearly the food and fuel price spikes earlier in 2008, followed by the financial meltdown affecting all markets, were dramatic challenges, especially for poorer developing economies, but also for emerging market economies generally. This will inevitably be followed by a global recession in 2009, a slow-down that has already started, even in China, the world’s dominant growth engine in recent years.

Kemal Dervis, head of the UN Development Program, and also a commissioner on the Commission for Growth and Development discussed the need for fairness in the availability of credit for emerging markets. In an op-ed in the Washington Post on Monday, November 3rd, Commissioner Dervis highlighted the dramatic effects the current deleveraging process will have on developing economies. He also points out that if the IMF and reserve-rich countries start implementing a selective lending facility, this will likely create new political tensions that will push vulnerable countries into crisis even faster.  

On October 10, 2008, Michael Spence, Mohamed El-Erian and Mahmoud Mohieldin discussed the current global imbalances, macro economic global governance, and the impact it will have on the developing world.  Please access the video of the discussion here.

In an opinion piece that is being carried by various publications around the world, Growth Commission Chair Michael Spence discusses how the current credit crisis in the U.S. and other G-8 countries can influence growth in developing countries. In particular, Dr. Spence stresses the evolving nature of global interdependencies, and the need for proactive coordination in warding off future crises. Please read more and offer your thoughts by accessing the article here.

We are launching the Commission on Growth and Development BLOG (The Growth Blog) today, while unprecedented changes in the financial markets are underway. These changes have the potential to reconfigure financial systems in a manner not seen since the 1930s. However important those are, we should not lose sight of the longer-term, of the real economy and of the performance of developing countries-on which the prospects of millions of people depend. The report of the commission, entitled, "The Growth Report: Strategies for High Growth and Sustainable Development" deals exactly which such issues. We will also want to discuss and debate what the shifting global landscape means for effective growth strategies and how they need to be adapted to account for climate change, heightened volatility and risk, including rapid shifts in relative prices, reduced growth in the developed economies for a period of time and other factors. I believe that a broad array of policies that could be under the heading risk mitigation and management will become a higher priority in setting growth and development strategies. Notwithstanding the secular and surprising cyclical shifts, the underlying dynamics of sustained high growth and their political and policy underpinnings are not likely to change dramatically. And there are major areas of supporting policy in which there is ongoing research, continued debate and something less than complete practical guidance in the offing.