Fri, Jul 20, 2012 - Page 9 News List

After the global economic bloodbath, new winners are emerging

As the world economy’s goalposts shift, some countries will have an advantage — especially those with low public debt, reliable domestic demand and democracy

By Dani Rodrik

MERCANTILISM

Countries that rely excessively on world markets and global finance to fuel their economic growth will also be at a disadvantage. A fragile world economy will not be hospitable to large net foreign borrowers or large net foreign lenders. Countries with large current-account deficits, such as Turkey, will remain hostage to skittish market sentiment. Those with large surpluses, such as China, will be under increasing pressure — including the threat of retaliation — to rein in their “mercantilist” policies.

Domestic demand-led growth will be a more reliable strategy than export-led growth. That means that countries with a large domestic market and a prosperous middle class will have an important advantage.

Finally, democracies will do better because they have the institutionalized mechanisms of conflict management that authoritarian regimes lack. Democracies such as India may seem at times to move too slowly and be prone to paralysis. However, they provide the arenas of consultation, cooperation and give-and-take among opposing social groups that are crucial in times of turbulence and shocks.

In the absence of such institutions, distributive conflict can easily spill over into protests, riots and civil disorder. This is where democratic India and South Africa have the upper hand over China or Russia. Countries that have fallen into the grip of autocratic leaders — for example, Argentina and Turkey — are also increasingly at a disadvantage.

An important indicator of the magnitude of the new global economy’s challenges is that so few countries satisfy all three requirements. Indeed, some of the most spectacular economic success stories of our time — China in particular — fail to meet more than one. It will be a difficult time for all.

However, some — think Brazil, India and South Korea — will be in a better position than the rest.

Dani Rodrik is a professor of international political economy at Harvard University.

Copyright: Project Syndicate

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