I’m currently reading “The Quest for Prosperity,” a terrific book by the former Chief Economist of the World Bank, Justin Yifu Lin. It’s a highly-recommendable read for those of you looking for perspective on the problems of development in the world.
One of the things Lin does in the book is trace back the debate on how we believe countries manage to grow.
He focuses on the XXth Century. He discusses the challenge the Soviet Union posed to growth theories, the push for industrialization of the 50s and 60s, and the latest, “Washington Consensus“-type reforms. All of this leads to his assessment of where we are today, and a powerful justification for Asia-style export-oriented intervention in the economy.
Two hundred-plus years after Adam Smith gave birth to modern economics, we still haven’t figured out the key to growth. I am under no illusions: this is a serious indictment of my profession. But before we punch the first economist we bump into to, it turns out there is now an actual recipe for growth!
Back in 2008, a group of 19 economists (two of them Nobel Prize winners) got together and published “The Growth Report.” It looked at the thirteen cases of high-growth countries since World War II, and came up with a list of “do’s” and “don’ts” that high-growth countries follow.
I think it would be a useful exercise to go through the list and see where Venezuela stands.
High-growth countries generally:
- Exploit the world economy in a savvy way – importing ideas, technology, know how, and focusing on what the world is demanding.
- Provide a stable macroeconomic environment, avoiding unpredictability in fiscal and monetary policies.
- Have high saving and investment rates (Lin says that the idea that this is inherent to cultures is hogwash).
- Provide a market system to allocate resources, allowing for “creative destruction.”
- Have committed, credible, and capable governments.
High-growth countries generally do not:
- Subsidize energy.
- Rely on the civil service to deal with joblessness.
- Reduce the fiscal deficit by cutting on infrastructure.
- Provide open-ended protection to domestic firms.
- Impose price controls to stem inflation.
- Ban exports for long periods.
- Resist urbanization.
- Measure educational progress through infrastructure.
- Ignore environmental issues as an “unaffordable luxury.”
- Adopt a regulation of the banking system.
- Allow the exchange rate to appreciate excessively.
If you’re like me, then I know what you’re thinking: we are so screwed. There is probably not a single item on either of these lists that we are currently doing right.
But what does it take to right the ship? Is it impossible? Where do we start? Which are the bottlenecks?
I think analyzing the two lists for the Venezuelan case is a worthy endeavour. So, for the next few weeks, I am going to go through each item on the list individually and talk about what they mean. With your help, I want to figure out what it’s going to take to solve our problems.
I realize that many of you are not economists, so when you read “stable macroeconomic environment” it probably doesn’t mean much to you. That’s why I think it would be useful if I wrote each post separately, focusing on the real-life meaning of each item, and how (I think) we should go about solving it.
Obviously, I don’t have all the answers, but the idea is to get the conversation going, and come up with either solutions, or a fair assessment of the magnitude of the problem.
So let’s do this, folks. Let’s crank up our nerd-o-meters and think all of this through.
Is this really impossible? Is development – and the defeat of poverty – a pipe dream?