By Lesroy W. Williams
Observer Reporter
(Basseterre, St. Kitts) – A new report on growth and development outlines the necessary conditions for expansion and gives an overview of the current conditions.
On Wednesday, May 21, at the Eastern Caribbean Central Bank, there was a videoconference to launch a report by the World Bank Commission on Growth and Development.
This report brings together the views of a Commission of 19 leaders, mostly from developing countries, and a fellow academic, Bob Slow.
Sir K. Dwight Venner, Governor, Eastern Caribbean Central Bank, St. Kitts and Nevis, who is a member of the Commission, was present as the facilitator of the teleconference.
Michael Spence, Nobel Laureate in Economics, and Professor Emeritus, Stanford University is the Chair of the Commission.
“Growth is not an end in itself but a means to an end. It is the dominant important ingredient in poverty reduction. We understand that what people care about is their own well-being and security, the well being of their children and grandchildren, they care about productive employment, health and the opportunity to be creative,” Mr. Spence said in his address via video from London.
Mr. Spence highlighted the fact that the international community cares about the achievement of the Millennium Development Goals, but that those goals will be very difficult to achieve without a pattern of sustained growth.
There are eight Millennium Development Goals of the United Nations: Eradicate extreme poverty and hunger; Achieve universal primary education; Promote gender equality and empower women; Reduce child mortality; Improve maternal health; Combat HIV/AIDS, malaria and other diseases; Ensure environmental sustainability; Develop a global partnership for development.
In order for growth to take place the report said that there must be good leadership and effective government. Good leadership requires patience, a long planning horizon, and an unwavering focus on the goal of inclusive growth. The report indicated that rival political parties can, for example, agree on a bipartisan growth strategy, which they each follow during their term in power. Even if a formal pact is never made, a successful growth strategy, commanding the confidence of the public, may outlast the government that introduced it.
The report went on to say that just as growth is not the ultimate object, reforms aren’t either. Both are means to ends. Reforms may be admirable and present major achievements, but if growth does not accelerate, or if large numbers of people do not feel any improvement in their circumstances, then there is more work to do.
The report mentioned that government is not the proximate cause of growth. The role falls to the private sector, to investment and entrepreneurship responding to price signals and market forces. But stable, honest, and effective government is critical in the long run. The remit of the government, for example, includes maintaining price stability and fiscal responsibility, both of which influence the risks and returns faced by private investors.
Although the members on the Commission recognize that they do not know the sufficient conditions for growth, they also realize that in order to sustain growth over a long period, a set of things needs to come together.
Some of these things are: One – A high level of investment in infrastructure, human capital, education and health. For example, telecommunications infrastructure is of particular importance because telecommunications plays a variety of crucial roles in the public and private sector. It can aid education, transparency initiatives and the delivery of government services.
Two – Technology Transfer. In all cases of sustained, high growth, the economies have rapidly absorbed know-how, technology, and, more generally, knowledge from the rest of the world. These economies did not have to originate much of this knowledge, but they did have to assimilate it at a tremendous pace.
Three, – Savings. Just as growth depends on investment, investment depends on a country’s ability to finance it – out of its own savings or from foreign sources. There are limits to the latter, however, because foreign borrowing is risky.
Other factors include Competition and Structural Change, Labor Markets, Export Promotion and Industrial Policy, Exchange Rates, Capital Flows and Financial Market Openness, Macroeconomics Stability, Financial Sector Development, Urbanization and Rural Investment, Equity and Equality of Opportunity, Regional Development, The Environment and Energy Use, Effective Government, The Quality of Debate and Bad Ideas.
The report also looked at the effect of Global Warming, Rising Income Inequality and Protectionism, The Rise of China and India and the Decline of Manufacturing Prices, Demographics, Aging, and Migration, Global Imbalances and Global Governance and the Rising Price of Food and Fuel and how these affect growth.
With respect to the timely topic of the rising price of food and fuel, the Commission said that because poor people devote between half and three quarters of their income to feeding themselves and their families, the steep increase in the price of rice, grains, and edible oils is tantamount to a large reduction in their income. The World Bank estimates that 100 million people may have been pushed into poverty because of the high prices of the past two years. Africa and other low-income countries are particularly vulnerable. But even middle-income countries are at risk if they lack well developed social safety-nets.
The report stated that contributing factors to global inflation in food and fuel include rising demand; shifting diets; droughts; possibly financial speculation; increased costs of key agricultural inputs such as fertilizers; and policies that encourage the use of agricultural land and output for bio-fuels. Although there is no consensus yet on the relative importance of these factors, many believe that policies that favor biofuels over food need to be reviewed and if necessary reversed.
The Commission Report said that high prices will tempt governments to introduce price controls. These measures also are understandable and perhaps even justified in an emergency. But while governments will want to protect consumers, they also have to recognize that such interference in the price mechanism is counterproductive over the long run.
Participating islands in the teleconference included Jamaica, Antigua, Anguilla, Suriname, Dominica, Guyana, Barbados, and St. Vincent and the Grenadines.
