Keeping It Up

Growth that is. Foreign Policy looks at what makes countries grow.

Why do some countries succeed when others struggle? That’s what Nobel laureate A. Michael Spence and the Commission on Growth and Development set out to discover in their landmark study of the world’s 13 fastest-growing economies.

Foreign Policy: You’ve obviously studied development topics in economics for a long time. Was there anything that surprised you as you did your research with the commission?

Michael Spence: I was surprised by two things. One, how important the global economy is for developing countries both in terms of demand, meaning the size of the market and your ability to expand it once you get a cost position, and also from the point of view of importing technology or knowledge. But the biggest surprise was how important political leadership is in looking at cases of sustained high growth in developing countries. There’s a whole lot of consensus building and picking the right model, getting everybody on board, making deals with stakeholders like labor and business, and a persistent kind of pragmatic approach with imperfect knowledge about how the economy is going to respond to policy. I started out thinking this was a subject that was mainly about economics, and I ended up thinking that was about half of it, but the other half is really political.

FP: Were you able to discover any secret to growth among the countries that you studied?

MS: I don’t think there’s any kind of secret. There are certainly common characteristics of the sustained high-growth cases, and they’re described in some detail in the report. I don’t view them as secrets. But we haven’t been able to find a case where, if you avoid the general approach that’s described there—engagement with the global economy; being careful to bring everybody on board; very high savings and investment levels; a stable macro environment and a pretty heavy reliance on the basic characteristics of market allocation, price signals, and stuff; and being willing to put up with rather chaotic microeconomic dynamics—you can sustain high growth.

And now for something a little closer to home:

FP: What’s your view on corruption as a drag on development? Countries like India, China, Indonesia, and South Korea have major problems with corruption, and yet they’ve been able to grow fairly successfully.

MS: I think it depends on the kind of corruption. This is an active subject of research, so we’re learning all the time. I would say really small-scale corruption is not necessarily a good thing, but it’s a little bit like a tax. If it gets out of hand and turns into big delays in things like establishing businesses or getting approvals for investment projects, it can be a problem. The really destructive kind of corruption, I would describe as wholesale theft on a large scale, where governments are really living on taking the national resources and using them to buy votes and stay in power. That seems to be completely destructive of the sustained growth and policies that are needed to support it.

Congress are you listening?