Wednesday, May 21, 2008

Dissenting from Conventional Wisdom

Now that President George W. Bush has made an early grab for the Chutzpah of the Week award there, we are not hearing much news out of this week's meeting of the World Economic Forum. More disappointing, however, is the neglect that the business press seems to have shown towards the recently published findings of the Growth Commission, to the extent that, had it not been for a report by Steve Schifferes on the BBC News Web site, I probably would not have known that this organization existed. Schifferes describes the commission as "set up to find out the key elements that lead poor countries to get rich;" and its members are "key policy makers and economists" under the chairmanship of Michael Spence. The member name that was most familiar to me was Nobel laureate Robert Solow, who I still think has done the best job of any economist in cutting through all the claptrap we have to endure that invokes the noun "value." (Other members cited by Schifferes are "former US Treasury Secretary Robert Rubin, former Mexican President Ernesto Zedillo, and South Korean president Han Duck Soo.")

The Growth Commission is best viewed as a voice of dissent in a time when we should be debating all the problematic issues of economic crisis, rather than circling the wagons in defense against an unseen enemy. The primary targets of its dissenting position are the International Monetary Fund and the World Bank. While these organizations are taken to task for their economic orthodoxy, there is at least an implicit assumption that such orthodoxy derives from an elitist perspective that probably knows little about what actually happens in poor countries and may very well care even less. As I have suggested on many previous occasions, such elitism is also stock-in-trade at the World Economic Forum.

The primary elitist dogma that the Growth Commission attacks is the belief that markets are the sole engine of economic growth. After all, what belief system would you expect from those elites who now exercise global control over those markets? As Schifferes reports, the Commission is thus making a noble effort to get economic leaders to stop drinking Milton Friedman's Kool-Aid and "go back to the basics" of John Maynard Keynes:

Government intervention in the economy, and a degree of protectionism, will be needed in the early stages of development.

The Commission thus shares with Keynes the need to balance short-term solutions against long-term consequences:

The report reaffirms the need for engagement with the global economy - including the transfer of key technologies and export specialisation - which are key to long-term sustainable growth.

But it points out that policies which support equality are also crucial to making sure the benefits are equally distributed, and to ensuring political support for globalisation.

Put another way, while economic growth may be a major goal of every developing country, it would be a mistake to view it as the only developmental goal of a country. As the report puts it, "no country has sustained rapid growth without also keeping up an impressive rate of public investment in infrastructure, education, and health. … far from crowding out private investment, this spending crowds it in." Thus, a long-term path to development is more about equitable growth than about "creation of wealth," regardless of where the wealth ends up going. This leads to an observation, cited by Schifferes, that is sure to upset the ideological fixations of our current Administration:

However, the report points out that democracy does not seem to be essential for fast growth, at least in the early stages.

Many of the 13 fastest-growing developing countries over the past 40 years - including China, Indonesia, Korea, Brazil and Singapore - had one-party governments for at least part of that period.

Having lived in both Singapore and the United States, I have a deep appreciation for the lack of correlation between democracy and equitable growth; and it may be that a country is only ready for democracy once it has demonstrated an ability not only to assure the economic well-being of its population but also to do so in an equitable manner. (It may also be that when such equitability is jeopardized then so is the underlying democratic foundation.)

In terms of the voices that speak loudest about current economic conditions, the findings of the Growth Commission are very much a "minority report." What interests me the most is the extent to which any of our Presidential candidates will take the trouble to examine this report with the attention it deserves. BBC news analysts, such as Matt Frei, seem to be coming to the conclusion that this will be another election whose outcome will depend on who the country thinks will get us out of the current hard times. If a candidate like Barack Obama wants to maintain his "audacity" stance, then he may wish to consider the audacity of questioning the conventional economic wisdom that got us into this mess in the first place; and a good place to begin the questions could be with the findings of the Growth Commission.

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