28.07.2008WHAT IS GOOD AND WHAT IS BAD
To this very analogical question with reference to methods of long-term economic progress of developing countries a group of experts headed by the Standford University professor, the Nobel Prize laureate Michael Spence was making an attempt to answer. Well known specialists of different spheres from different countries have analyzed and summarized experience of 118 developing countries and made it a ground to represent corresponding recommendations. Although the authors didn’t have an objective to secure high rate of economic growth in the long-term perspective, however, according to them, the conclusions made may be useful while working out and carrying out social-economic and political reforms in developing countries. For two years of intense work and $4 million allocated by governments and private sector of different countries was necessary for the research to be conducted. The volume report was the subject of broad discussions of different interested organizations, as well as the UN. I’ll make an attempt to briefly represent the comparatively important provisions of the research. I hope that the interested reader will find answers to some actual questions, at least, the ideas developed will make a ground for their own mediations and conclusions.
One of the main conclusions of the research sounds quite trivial: Economic growth is important, it is the prerequisite of solving the other problems of social developments, but, at that, it doesn’t guarantee their solution. The poorer the country is, the more vital is economic growth, as this lack or insufficiency brings the solution of other issues to naught.
The research conclusions on the whole run counter to recommendations of the paradigm of Washington consensus with regard to necessity of privatization, liberalization and stabilization. It is corroborated the importance of micro-economic stability, role of trade and markets for ensuring economic growth. Nevertheless, the accents on such issues as privatization of state property, liberalization of trade and markets of capital are somehow different from the postulates of the above mentioned paradigm. It is stressed up that after realization of the above mentioned events the role of the government in formation and realization of economic policy is not limited at all. Moreover, it acquires more delicate regulative character and more subtle methods and instruments of influence.
In comparison with the Washington consensus, this very report also brings some quantitative recommendations. So, it is supposed that successful realization of social tasks on the proper level requires provision of high rate of economic growth and a time frame of at least 15-20 years. The level of investment is to make at least 25% of GNP, from 5-7% of which is to be directed to the infrastructure’s development, at least, 7-8% of GNP. Financing of the mentioned expenses is to be realized on the account of local economies, which, in its turn, determines monitory policy. It is extremely important involvement of cutting-edge technologies into the country, encouragement of competition, provision of labor-market’s flexibility, realization of nature-conservative measures. In the report special attention is devoted to the issues with regard to which both practical men and theorists still continue arguing. The issues of possibility and expediency to carry out national, industrial policy, choice of the regime of regulating the rate of exchange, the extent of liberalizing markets of capital are subject to such disputes. The volume of material provides no chance for me to embrace all the questions; however, I’ll try speaking briefly of the most important of them.
According to the authors, political-economic aspects continue determining possibility of the countries’ development in the long-term or short-term prospective. The experts have analyzed the following 4 groups of indices reflecting corresponding integrated components: geography of a country, the institutes working, leadership and consensus in society.
The comparatively tangible component is sure to be the geography of a country including such criteria as reach resources, access to the sea and big amount of population. It goes without saying that the existence of the mentioned characteristics is favorable for a country’s development. At the same time, reach natural resources is note necessarily guarantee of prosperity. Under other equal conditions, comparatively high indices of long-term development have in particular demonstrated less resource–reach countries. The striking example of it is the comparison made between the countries of Africa and South America rich with natural resources and the countries of later development of South-Eastern Asia (Japan, South Korea, Taiwan (Chinese people’s republic), Singapore). The very last group, in comparison with the first one, has demonstrated unprecedented results of development not having any natural resources.
Whether the resource-rich country will become rich or poor in the long-term perspective is determined by its institutional base. Strong and effective institutes further carrying out of such a policy which stimulates stable economic growth and accumulation of national riches. Weak and ineffective institutes bring to wild exploitation of natural resources in favor of a narrow group of proprietors to the detriment of the long-term perspective of a country’s development. The quality of institutes is determined by the vision and world view of the people establishing them. According to the authors, the quality of institutes of developing countries was inversely proportional to the level of corruptibility of leaders and elite of the mentioned countries and in direct proportion to the level of their accountability and civil responsibility.
It is noteworthy that the quality of institutes is not determined by the character of political system of the countries under research. In economy, as well as in politics, it is more important moderations and counterbalances, which doesn’t suppose their exclusive derivation from democraticity of the given state system. The report doesn’t call in question that that economically more developed countries are in reality more democratic. At the same time, some authoritative regimes, in comparison with their more democratic “confreres,” have demonstrated higher indices of long-term development. It has come to prove the hypothesis of the well known sociological school headed by Samuel Lipest, confirming that to support democracy it is necessary quite a high level of income of population, at least $6 thousand per head. Under lower level of income democracy and economic growth become mutually exclusive. As a result, sooner or later poor countries roll down to more authoritative regimes.
The report once more confirmed that the role of leadership in ensuring steady economic growth was very important. In all the structures realization of the task of long-term economic growth requires high-professional, unprejudiced and self-denying leaders able to form quite ambitious but real vision of future, create possibly wider public consent with regard to such a vision and mobilize the society around successful realization of it. The research results accentuate the importance of the leaders’ devotion not to “party or their personal interests, but exclusively to the national ones.” As the report has come to prove, all the prospering countries have had an obligatory experience of providing the leaders and bureaucracy with enough, if not high, remuneration of labor for minimization of corruptive risks.
Another important index influencing on dynamics or quality of growth, according to the report, is the level of social consensus of society with regard to a country’s strategy of development and the vision of its future. By saying this, the experts mean the level of convergence of interests in different social groups of society.
The report authors confirm that such a phenomenon as “brain drain” is the comparatively reliable indicator of confidence in to institutes of the given country. According to them, it is quite high level of confidence that creates stimulus and grants freedom for emancipation of personal capabilities of gifted individuals and application of their talent in their own country. It is not by chance that the highest level of «brain-drain»was recorded in the countries having problems with steady economic growth.
In the report special attention was paid to so call “most vulnerable” countries, to which were ascribed the small ones. They think that small size of national economy makes is diversification extremely difficult, which, in its turn, determines excessive dependence of such countries on external factors and economic shocks. To such countries is recommended maximum integration into the world economy, formation of regional clubs and outsourcing some function of the government.
Along with confirmation of importance to develop the country’s infrastructures, the report also represented the analysis and some recommendations referring to the extent of expenses to develop infrastructures. Stressing up the difficulty to determine some universal extent of expenses, however, the report draws some general conclusions on the basis of analysis of corresponding expenses of developing countries. So, it is recommended to envisage for about 4% GNP for the infrastructures’ investment and development, and almost as much to ensure effective functioning of the ones existing. Restoration of cost of the infrastructure’s components sharply distinguish for different branches. Thus, optimal level of these expenses is relative to the cost of the whole complex for the systems of production and supply of electrical energy for motor roads and railways makes for about 2%, for the systems of water-supply and sewerage – for about 3%, for the system of telephony – for about 8%.
Since development and maintenance of infrastructures require constant and considerable expenses, the next important task is to determine optimal sources of their financing. As the experience has come to prove, the main burden is on public finances, on the account of which are realized infrastructural projects. If the field is privatized, than the expenses are reflected in the cost of services, which, as a result, determines their availability for population, and first of all for its most poor strata.
It is interesting that improvement of transport communication on economic development of regions had quite contradicting influence in different countries. It is reasoned by elimination of “natural” trade barriers “protecting” local industry and furthering the solution of employment problems of the local people. Such a cause-effect relation is more noticeable in the countries where the population’s level of expenses sharply differs by regions.
In the report special attention was devoted to the issue of ensuring competitiveness of exchange courses, successful realization of which, according to many economists, was the prerequisite of South-Eastern economic “miracle.” At the same time, noncompetitiveness of exchange courses of the Latin American countries became the reason of big deficit of balance which brought these countries to crisis in 1980s. Noncompetitiveness of exchange courses especially aggravates the situation in the countries subject to so called “Holland disease”. Rapid export of row materials results strengthening of national currency furthering the surpassing development of import and suppressing production and export of industrial output. Such a development of events, in the end, has disastrous influence on economics on the whole. According to the authors, support to competitive courses and corresponding currency policy is very important for the countries where extraction and export of natural row materials is of great importance. Corresponding practical recommendations are given for such countries in the report.
It is quite noteworthy that the report authors represented not only the measures to be possibly undertaken, but also presented quite a big list of bad ideas. To the “bad ideas” the authors ascribe financing of power engineering, solving unemployment problem on the account of extending state bureaucracy, aggressive reduction of budget deficit, introduction of price controlling mechanisms aiming at curbing inflations, prolonged protection of national economy branches from international competition, underestimation of nature- conservative measures, low salaries of state officials, lack of bank regulation and control mechanisms, over-strengthening of national currency under the conditions of the economy’s unavailability to transfer to more high-productive industry. It goes without saying that the list of mistakes singled out in the report is not final and each country can “work out and realize” ungrounded economic policy by itself with all the harmful consequences to follow. That’s why sober-minded analyze is the precondition to work out optimal economic policy.
Summing up we may say that from the one hand the report total is encouraging: the developing countries are in principally able to ensure quite high standards of life. At the same time, it is once more confirmed that this problem is quite difficult to solve and requires contribution and serious efforts of all the components of the present day society.
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