8 April 2008
Panel participants
Dominique Strauss-Kahn, IMF managing director (moderator
Montek Ahluwalia, Planning Commission of India
Simon Johnson, IMF economic counsellor
Danny Leipziger, World Bank
Micahel Spence, Stanford University
Han Duck-soo, former prime minister of South Korea
Pedro-Pablo Kucynski, former prime minister of Peru
Presentation by Michael Spence on the work of the Commission
Introduction
- The subject: sustained high, inclusive growth (and poverty reduction)
- This is defined as more than 7 per cent growth for more than 25 years; must not have large social exclusion
- Primary goal is a framework for policy makers - this is not supposed to be technical
- We recognise that growth is not an end goal
Methods and ideas
- Recognition that high growth is difficult to achieve
- Twelve countries fit our definition for study: Botswana, China, Hong Kong, Indonesia, Japan, Korea, Malaysia, Malta, Oman, Singapore, Taiwan, Thailand
- Others will likely join the group soon: India, Vietnam, etc
- Common characteristics of their policies:
- leverage the global economy (domestic demand alone is insufficient)
- Use of market incentives, not central planning
- High levels of savings and investment
- Diversification of the economy - usually for export, increasing productive employment
- Resource mobility, especially of labour
- High urbanisation
- Stable/functional investment environment
- Political leadership that was effective, pragmatic, and when-needed activist
- leadership can be a substitute for well-developed institutions
- It is a multi-decade process, this means the role of the government must evolve
- There is a pragmatism and willingness to experiment
- A focus on inclusiveness, the absense of tribalism was important
Findings
- The role of the government is key
- Yes you should stabilise, liberalise and privatise - but it is more complicated than that
- Better government is needed rather than less government
- Necessary and sufficient conditions - we are close to knowing the former, not to knowing the latter; there is significant model uncertainty
- There are 10 key policy ingredients:
- leadership
- equity (both ex-post, in form of not too differential outcomes, and ex-ante in form of equal opportunities)
- public sector investment - averaged around 25 per cent
- environmental issues - because fixing them later is too expensive
- health, especially child nutrition rather than health systems
- education (must focus on input as well as output)
- competition
- dynamics of growth - investment climate reforms and entry and exit necessary; protect people, not jobs
- industrial policies and export promotion (but this lacked consensus)
- stable exchange rates, usually fixed (but this lacked consensus)
- pace and sequencing of current and capital account liberalisation
- Enabling diversification - labour mobility, urbanisation, technology transfer, the appropriate place of agriuculture, effective government that can implement policies; there are key questions about how to accelerate technology transfer
Global Trends
- Increasing income inequality, resistance to globalisation, climate change, growth of China and India, changing demographics, global governance - especially economic imbalances
- Ageing populations are manageable if your institutions are good
- high population growth countries have a real problem - seems like the only answer is migration
Discussion by Panelists
Montek Ahluwali:
- This work is addressed at political leaders - not the World Bank and IMF
- We are framing the debate not giving precise recommendations
- approach to "let the discussion flow" - we need to get leaders to ask the right questions
Han Duck-soo:
- role of leadership and government is key
- how to imagine the counter-factual is a real problem
- vision was important in Korea: change from Import Substitution Industrialisation to Export-Oriented Industrialisation
- the imposition of global standards, the use of incentive schemes
- the positive role of the WB/IMF in Korea's development - they were trusted advisors
- WB investment and advise was quite useful
Pedro-Pablo Kuczynski
- You have to stick with your policies for a long time if you want them to work - it is not 6-7 years time frame
- We have avoided controversy in the results
- The real question is who is the audience and can we convince those who need convincing
Danny Leipziger:
- No standardised prescriptions - heterdox policies are possible as long as they are coherent, targeted and done for a while
- there was no focus on aid, but there is a lesson for aid: effectiveness of a government is key
- infrastructure, especially urban infrastructure is vital
- on demographic pressure - the lesson is that job creation is necessary, the WB needs to do more here
- climate change is important - we have to start dealing with it in poverty reduction strategies
- need stronger institutions, so institution building becomes important - ie in the financial sector you need more than just independence for the central bank
Simon Johnson
- global trading opportunities are key
- There will be bumps along the road because of globalisation - we need to address insurance needs at the country level
- there is a fundamentally important role of exchange-rates; you need to prevent overvaluation.
Questions from the audience
Question on surprising patterns found?
MS - the pervasive pattern of underinvestment on the public side. compare 25 per cent investment in China versus 2 per cent investment in other low-income countries
MS - health is also not as important as we thought except for early childhood nutrition
Question on exchange rate and industrial policy?
MS - all 12 countries had managed exchange rates; combination of exchange rate management and capital controls helped export oriented nature; but we need to talk about the risks of such a strategy. The most important thing is the evolution of policy over time, you can't lock it in
Question on authortarian vs. democratic governments, esp in Latin American context?
MA - more important is leadership, not the political system; you need to build consensus for taking the necessary actions
HDS - deadlock between executive and legislature is a problem; but other institutions are there (journalists, CSOs) which can help in manoeuvring
PPK - remember that autocracies have also been terrible; the cases of Argentina and Venezuela are clouding the picture now
Question on pacing and sequencing of capital account liberalisation?
MS - partial principles: don't open so much that job destruction is greater than job creation; industrial policy should always be temporary support not permanent; need special economic zones to disappear over time; the potential for "capture" is highly country specific
Statement on the lack of gender balance on the panel
Question on the sources of revenue for public investment given tax evasion, profit repatriation?
MS - we haven't done enough work on these things, but yes it is important
Question on the meaning of inclusive growth?
MS - there is a difference between inequality and reduction of poverty; to have acceptance of ex-post inequality you need need ex-ante equality of opportunity
DL - with persistent inequality it is harder to get people to accept globalisation
HDS - the definition of inclusiveness is difficult - do you mean absolute or relative; we should focus on the decrease in absolute poverty
Question on education policy in India?
MA - we have a structural shift and are rapidly increasing spending on education; the real question is about the quality of delivery
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Published: 8 April 2008 , last edited: 16 April 2008
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