Sunday, 25 May 2008

The Growth Report

The Commission on Growth and Development has released its final report, The Growth Report: Strategies for Sustained Growth and Inclusive Development. In the press release announcing the report's release Michael Spence, the Commission's Chair and Nobel Laureate in Economics is reported as saying
The Growth Report also kills off once and for all the misguided notion that you can lift people out of poverty in the absence of growth. Growth can spare people en masse from poverty and drudgery. And with India needing to grow at a fast pace for another 13-15 years to catch up to where China is today, and China having another 600 million people in agriculture yet to move into more productive employment in urban areas, growth will lift many more people out of poverty in the coming decades.
The simple fact growth is the answer to poverty will not go down well with some, in particular many in the environmental movement, in the industrialised world who seem to think of growth as the cause of all the world's problem rather than the answer to them. The Club of Rome types will not be happy.

In its discussion of the recent world wide rise in food prices the report recommends actions including an end to export bans; a review of policies that favour bio-fuels and, if necessary, reversal of such polices. By now it should be obvious that a reversal is necessary. In addition it also suggests more effective safety nets and redistribution mechanisms to protect people vulnerable from sudden shifts in prices and a revitalization of infrastructure investment for agriculture.

Other key conclusions of the Report include:

--That growth is a crucial part of poverty reduction and the improvement of people’s lives. It is impossible for poor countries to lift large populations out of poverty without growth. Equality of opportunity and a focus on individuals and families, gender inequalities, and economic security, however, is critical to maintaining the support for growth oriented policies.

-- That growth is a long-term challenge that requires leadership, persistence, stamina, pragmatism, transparency and the support of the population.

-- That growth requires engagement with the global economy to import knowledge and technology, to access markets, and to generate a strong export sector – critical in the early stages of growth.

-- That growth must be inclusive. The Report highlights the importance of sharing the benefits of globalization, providing access to the underserved, and dealing with issues of gender inclusiveness. It notes the importance of infant and childhood nutrition to avoid long-term impairment in acquiring cognitive and non-cognitive skills, ensuring that they derive greater benefit from the education system and become more effective in the workplace.

-- That resources, especially labour, must be mobile. The Report also recommends a bridging of the divide between the formal and informal labour sectors by allowing export-oriented industries to recruit workers on easier terms than prevail in the formal sector but with the same essential worker protection in the areas of health and safety, working hours and child labour. It highlights the need to better manage the migration challenge and the results of changing demographics.

-- That growth requires high rates of investment, with the Report suggesting that overall public and private sector investment rates of 25 percent of GDP or above are needed.

-- That investment in education and health are particularly important. The Commission also calls for greater research into the measurement of students’ abilities in literacy and numeracy, and increased opportunities for women in the education system.

-- That money spent subsidizing energy consumption in developing countries is often misspent. Better to invest the resources in education and infrastructure. In addition subsidies bias the capital investment in long-lived assets away from energy efficiency and may negatively bias the structural evolution of the economy.

Robert Solow, Nobel Laureate and Commissioner observed that
The evidence in our work pointed to a number of findings: That competition is absolutely essential at every stage of economic development, that access to world markets is very much a lesson for the rich countries as it is for developing countries, and that the more equitable the growth, the more sustainable it’s likely to be. Leadership and governance can only work when it is supported by wide parts of the population.
This does raise the issue of governance within developing countries. Good governance is an important foundation on which development must be built. Economic development requires the creation of sound political and legal institutions – in particular, secure and functional property rights. In many cases the leaders within the developing countries are unwilling to commit to good governance. An obvious example would be Robert Mugabe in Zimbabwe.

As another useful move I would add the opening up of developed countries markets via the removal of trade barriers and subsidies paid to farmers and other groups within these economies. A move towards free trade would, overall, be a big help to developing countries. In addition removal of trade barriers between the developing countries themselves would help.

In a comment on the report Mark Koyama at Oxonomics says
... I take the report as presenting the current consensus on growth and development - something that almost all economists would broadly agree with or at least find it difficult to really disagree with.

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