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Where growth is free from dogma financial scene

— Photo: Kamal Narang

FOR INCLUSIVE GROWTH: (from left) Deputy Chairman of Planning Commission, Montek Singh Ahluwalia, Prof. Michael Spence, President of the Commission on Growth and Development, Union Finance Minister, P. Chidambaram, and Chairman of the Economic Advisory Council to the Prime Minister, C. Rangarajan, at a seminar in New Delhi recently.

What are the pitfalls that countries must avoid to join the ranks of those which have grown consistently over long periods? Issues such as these have dominated the academic world as well as policy makers ever since development studies came into vogue.

The literature on the subject is vast and is often replete with ideological interpretations. Also, while pursuing growth or other developmental strategies countries have had to reckon with diverse political, economic and cultural systems. The successful ones had obviously found their own unique solutions to their problems. All this suggests that it is easy to make a list of ‘dos and don’ts’ for a country that wants to catch up with those with a track record of sustained high growth rates.

However, the recently released “Growth Report: Strategies for sustained growth and inclusive development” has done just that and, judged by reactions across the world, seems to have succeeded where many other reports have failed.

The report was prepared by the Commission on Growth and Development, an independent body supported among others by the United Kingdom, the Netherlands and the World Bank.

The Commission had a number of policymakers, both past and present, from developing countries as members. Montek Singh Ahluwalia, Deputy Chairman of the Indian Planning Commission, Zhou Xiaochuan, Governor of the People’s Bank of China, Ernesto Zedillo, former President of Mexico, Kemal Dervis, former finance minister of Turkey, and Trevor Manuel, finance minister of South Africa, were its members. Nobel Laureate and Stanford University Professor Michael Spence was its chairman.

The growth report points out that 30 years ago less than a fifth of humanity lived in high income or high growth countries.

The proportion has gone up to two-thirds today. Unfortunately, a substantial number of people live in countries that are stagnating. Their number is expected to grow substantially by the middle of this century.

The challenge therefore is to shift less developed countries into the category of high growth ones. Growth itself is necessary and is the foundation of everything. Without it there can be no redistributive justice.

In the 1990s many development economists from India and other countries had sought to downplay the significance of growth. That it widened inequality was a familiar refrain.

After making a detailed analysis of 13 countries which have consistently maintained a growth rate of 7 per cent and over for 25 years, the report lists out some common socio-economic policies that each one of them has followed that are worth emulating by the less developed countries. The list of countries is interesting. It includes Botswana, Brazil, China, Hong Kong, Indonesia, Japan, South Korea, Malaysia, Malta, Oman, Singapore, Taiwan and Thailand. India and Vietnam are poised to join this group shortly.

While these countries form a diverse group, they have certain points of resemblance. They benefited from globalisation; maintained macroeconomic stability; sustained high rates of savings and investment; they let markets allocate resources to a substantial extent and finally had a committed, credible and competent government.

These points are consistent with the so-called Washington consensus of the 1990s which significantly conditioned the rich countries’ advice to the developing world. Privatisation, free trade and free markets were its mantra. In many countries including India and China such policies were never implemented in full. But even in countries that followed the free trade-free markets agenda there was a realisation of the role the state can play in development.

The growth report stresses the important role that governments can play in the growth process.

The emphasis on the role of the ‘developmental state’ characterises most of its recommendations.

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