What is growth?
- Some define it using GDP, but the writer here says that is “reducing the restless endeavor and
bewildering variety of a national economy into a single number.”
- When economies grow, a society becomes more tightly organized, more densely interwoven. A growing
economy is one in which energies are better directed; resources better deployed; techniques mastered,
then advanced. It is not just about making money
- Others say that growth is dependent on “ingenious machinery, invigorated by capital and skill.”
- But the deeper roots of growth draw on advances in science, finance, trade, education, medicine, public
health, and government.
- China and then India reformed their closed, heavily regulated economies, motivated in part by the force
of international example.
Challenges of growth:
- The clear divergence in incomes within and between countries. Of the roughly 6 billion people on the
planet, about 65 percent live in high-income or high-growth economies. The remaining 2 billion people
live in countries with stagnating, or even declining, incomes.
- The quickened growth of world GDP has put new pressure on the planet’s ecology and climate.
The 13 success stories:
- Five striking points of resemblance b/w these 13 countries:
They fully exploited the world economy
They maintained macroeconomic stability
They mustered high rates of saving and investment
They let markets allocate resources
They had committed, credible, and capable governments.
Point #1: The global economy
- Sustained growth at this pace was not possible before 1950
- It became feasible only because the world economy became more open and tightly integrated.
- The high-growth countries benefited in two ways: one, they imported ideas, technology, and know-how
from the rest of the world. Two, they exploited global demand, which provided a deep, elastic market for
their goods. The inflow of knowledge dramatically increased the economy’s productive potential; the
global market provided the demand necessary to fulfill it. “They imported what the rest of the world
knew, and exported what it wanted.”
- Domestic demand is no substitute for this expansive global market. In a poor country, for example, the
home market is small and therefore relatively “inelastic.” For sales to rise, prices have to fall. Size is not
the only problem. The pattern of domestic spending may not correspond well to the strengths of domestic
supply. What home consumers want to buy may not match what home producers are best at making.
Since specialization is limited by the extent of the market, home markets give an economy less scope to
specialize in its areas of comparative advantage.
Point #2: Macroeconomic stability
- Macroeconomic volatility and unpredictability damage private sector investment, and hence, growth.
During their most successful periods, the 13 high-growth cases avoided the worst of this turbulence.