Distinguished Speaker Seminar by A. Michael Spence on Economic Growth for Development and Poverty Reduction

A. Michael Spence, recipient of the 2001 Nobel Memorial Prize in Economic Sciences, a senior fellow at the Hoover Institution and Philip H. Knight Professor Emeritus of Management in the Graduate School of Business, Stanford University, and chairman of an independent Commission on Growth and Development supported by the World Bank, bilateral donors, and William and Flora Hewlett Foundation, discussed the Commission’s work to deepen the understanding of sustained and inclusive growth and development at a distinguished speaker seminar on 24 March 2008.

Professor Spence briefly outlined the work of the Commission saying that its origin draws from the World Bank report on Lessons of the 1990s (April 2005) that examined what have been learned from the growth experiences of the 1990s, the accumulation of relevant experience with sustained growth in several countries and some emerging issues such as the sense that the link between growth and poverty had been lost combined with the sense that external advice to developing countries was delivered with more assurance than is justified by the state of our knowledge and the accuracy of models. The subject that the Commission will be dealing with is sustained high inclusive growth and the policies, investments and political underpinnings that support it.

He noted that 12 economies namely Botswana; People’s Republic of China (PRC); Hong Kong, China; Indonesia; Japan; Republic of Korea; Malaysia; Malta; Oman; Singapore; Taipei,China and Thailand have achieved sustained high growth showing 7% or more for 25 years or more. India and Vietnam follow closely behind the 12 economies because of growth accelerations in the past 10-15 years. There may be others because of recent growth accelerations partly due to upward shift in the relative price of energy, commodities and food. The jury, however, is still out on whether these initial growth accelerations can be transformed into sustainable growth dynamics, that is, rapid employment creation and structural diversification. These economies have different starting points, growth patterns and drivers of growth, but they appear to have common elements that sustained their growth momentum. These include, among others, leveraging global economy; market incentives and decentralization; high levels of savings and public and private investment; resource mobility ? especially labor across sectors; stable and functional investment environment; political leadership and effective, pragmatic and when needed activist government; pragmatism and willingness to experiment; and government that acts in the interests of all the citizens of the country as opposed to itself or subgroups.

Professor Spence pointed out that the role of the government is to stabilize, liberalize and increase privatize sector participation in the economy, but in reality it is much more complicated than that. Governments should be pragmatic and not to be guided by dogmas. The role of the government evolves over time as the economy matures, expands its capabilities and integrates into the global economy. Government must provide leadership and vision, adopt effective communication strategies and be a consensus builder. He admitted though that at this stage of our knowledge of economic development, no one knows with a sufficient degree of conviction, the necessary and sufficient conditions for growth. He identified the following key policy priorities and challenges: leadership; equity and equality of opportunity and inclusiveness; public sector investment; environmental aspects of growth; health; education; competition and structural change; the dynamics of productivity growth; industrial policies and export promotion and the role of government in the dynamics of comparative advantage; exchange rates; open economy capital account management as well as the pace and sequencing of the opening of the current and capital account.

He highlighted some cases with important challenges: small states ? lack of diversification and heightened exposure to economic and natural risks and shocks and high governance overhead costs; resource-rich countries ? prone to conflict and governance problems, among others; African countries in various categories ? vulnerability to weakness of neighbors, climate change and tribal and ethnic diversity; and middle-income to high income transitions ? perceived threat of loss of basis of competitiveness, shifting policies and investment to facilitate the transition to human capital, etc.

Finally, Professor Spence noted some global trends such as rising income inequality and resistance to globalization; issues of global warming and developing countries; global implications of the growth of the PRC and India; demographics, aging and migration; and global governance, imbalances and the rising influence and impact of developing countries that pose the challenge of policy coordination with new important players. These trends need to be given more attention by key world leaders.