Mon, May 02, 2011 - Page 9 News List

The West declines, while others ready for a boom

While post-industrial economies stumble out of recession, some unlikely developing nations are poised for a period of ‘catch-up’ reminiscent of China’s rapid industrialization

By Heather Stewart  /  The Guardian, LONDON

In fact, not much changed until the Industrial Revolution, when technological improvements and mass urbanization led to huge growth in productivity. Postwar reconstruction helped generate another jump in growth, as western European countries and Japan rebuilt and played catch-up with the US. There was a further jump from the 1990s on, as the opening up of former communist countries to trade with the West, and later the integration of China in the global trading system, brought rapid improvements in living standards for millions.

Today, Buiter and his colleagues say there is an auspicious combination of large numbers of countries with big populations that are a long way behind their peers in the rest of the world, but are revving up for takeoff.

Of course it’s not that simple — a range of factors are significant in what economists call the “convergence” of living standards toward the levels of the wealthiest countries.

High investment is important — and the capital to fund it, often from high levels of domestic saving. A young and relatively well-educated population is handy — recent research has shown that investment in schooling has been critical to China’s success. And some openness to international trade and investment (though not to the pernicious credit booms of the 2000s) is important. Bad government, armed conflict or just very bad luck (such as a spate of natural disasters) can set a country’s progress back by decades.

Venezuela was richer than many western European nations in 1957, for example, with income per head at two-thirds the US level; but decades of poor policies have seen it falling further behind instead of catching up, with GDP per capita now barely a fifth that of the US. Zimbabwe provides an even starker example of the catastrophic consequences of bad government.

It could all go wrong at the level of international diplomacy, too: Failure to make progress in the Doha round of trade talks, as evidenced yet again in Geneva on Friday, shows how little political will remains, in Washington especially, for further dismantling of trade barriers and raises the specter that protectionism could reverse some of the gains of the past decade.

However, even without an ambitious WTO deal, there is much to be won by, for example, freeing trade between emerging economies. A recent report by the Asian Development Bank urged the countries of “the south” — a catch-all term embracing Africa and Latin America as well as Asia — to burnish their trade and investment links, and reduce their dependence on the US and Europe. The bank’s research suggested they could almost double their share of world exports — from 33 percent in 2004 to 55 percent in 2030 — by waking up to the potential of markets closer to home.

None of this is good news if you’re concerned about Britain’s status as a mighty world economic power; but there hasn’t been much good news on that front for decades. It could be great news, though, for many millions of people who have so far missed out on the benefits of a century or more of economic development.

There’s a new drive to assess “happiness” and other alternative measures of success, prompted by the puzzle that after a certain point, rising GDP doesn’t seem to make people feel any better. However, if you don’t have food to eat and you can’t send your children to school, the benefits of extra income are blindingly obvious. Let’s hope as many as possible of the countries preparing to harness the power of catch-up in the coming decades follow Buiter’s key piece of advice — “don’t blow it.”

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