13 countries averaged 7% growth for 25 years or more after World War II.
High, sustained growth can be achieved in other countries, argues report.
Industrialized countries should grant African countries trade preferences to manufactured exports to help them overcome the disadvantages of being late starters.
May 21, 2008 — South Korea was once one of Asia’s poorest countries. Today, it’s one of the wealthiest, a high-income country with a standard of living about the same as Slovenia, Israel, or Saudi Arabia, and higher than in the Czech Republic, Oman or Portugal.
South Korea is one of only 13 countries that managed to pull off a kind of miracle in the post World War II era—economic growth averaging 7 percent or more for at least 25 years in a row, according to the “Growth Report: Strategies for Sustained Growth and Inclusive Development.” The report was prepared by the Commission on Growth and Development, an independent body supported by Australia, Sweden, the Netherlands, United Kingdom, William and Flora Hewlett Foundation and the World Bank Group.
High, long-lived growth isn’t easily achieved, but the report by some of the world’s top policy-makers and thinkers argues it can be repeated in other countries, thereby giving them a chance to reduce poverty and improve opportunity and quality of life for their citizens.
“The Growth Report,” released today in London, Cairo, Cape Town, New York and St. Kitts, seeks to unlock the growth strategies of high growth countries and highlight the potential of economic growth to improve lives around the globe. Some 3 billion people have been able to enjoy the fruits of growth in the post-war period, and another 2 billion could also benefit from the global economy.
“There is, perhaps for the first time in history, a reasonable chance of transforming the quality of life and the creative opportunities for the vast majority of humanity,” says Chairman Michael Spence, one of two Nobel Laureates on the 21-member commission comprising leaders from business, government and academia.
“Economic growth is absolutely important to eradicate poverty and uplift the standard of living of people,” adds Gon Chok Tong, Chairman of Monetary Policy in Singapore, one of six countries that achieved high income status through sustained high growth.
The Growth Report identifies some of the distinctive characteristics of high-growth countries and highlights the importance of leadership and governance, economic security, competition, sound fiscal and monetary policy, and public investment in health and education. It also looks at global trends and their impact on growth, including global warming, rising prices, rising income inequality, and labor migration.
No Silver Bullets
“We are acutely aware that there are no silver bullets to create long-running, inclusive growth, and that no single paradigm exists,” says Commission Vice Chair Danny Leipziger, who is also Vice President for Poverty Reduction and Economic Management (PREM) at the World Bank.
The report’s major goal is to give policy makers in developing countries an opportunity to figure out the right mix of policy ingredients for their own country, adds Leipziger.
Nevertheless, the 13 countries had at least five things in common. Each country:
Fully exploited the world economy
Maintained macroeconomic stability
Mustered high rates of saving and investment
Let markets allocate resources
Had committed, credible and capable governments
Six countries, including Hong Kong, Japan, Korea, Malta, Singapore and Taiwan, China, sustained high growth long enough to reach high income status, but several others lost momentum long before catching up to the world’s leading economies.
Brazil, one of the first countries to achieve sustained high growth, began to slow down in 1980. The country suffered inflation and debt overhang from the 1973 oil shock. Instead of seeking to expand exports, the country turned inward in 1974 and extended a policy of sheltering light manufacturing domestic industries to heavy industries and capital goods production so they could compete in the home market against foreign rivals. Brazil’s exchange rate appreciated dramatically and its exporters lost much of the ground they’d gained in previous decades. When interest rates spiked in 1979, Brazil was plunged into a debt crisis from which it took a decade to emerge, says the report.
The report observes that domestic demand is no substitute for the “expansive global market.”
“For growth to be sustained, it must be growth that takes into account that we are living in a more and more globalized world,” says Danuta Hubner, European Commissioner for Regional Policy. “We need growth that is using all the opportunities that are offered by the global economy.”
Advice for Africa and Latin America
The Growth Report also offers specific recommendations for Sub-Saharan Africa and Latin America, both of which face challenges to sustained growth. Sub-Saharan Africa must contend with “unhelpful borders, bequeathed by colonialism, and the mixed blessing of unusually rich natural resources.” In Latin America, countries with incomes as high as $4,000 a head “nevertheless contain large numbers of poor people, who lack access to formal jobs, capital markets and public services.”
Among the advice for Sub-Saharan Africa: encourage regional cooperation and regional integration—seen as particularly important for landlocked countries; give citizens access to secure channels for saving and credit; and adopt best practices for the exploitation of natural resources.
The Commission also calls for industrialized countries to grant African countries time-bound trade preferences to manufactured exports to help them overcome the disadvantages of being late starters, and to finance the expansion of Africa’s tertiary education to make up for brain drain.
Latin America needs to increase savings rates and to transition to a more knowledge and capital-intensive economy, says the report. While middle income countries in Latin America demonstrate that growth is not sufficient in itself to reduce poverty, progress can be made by redistributing income, assets or access to services, it adds.
“I do believe that a lot is gained by generating inclusiveness, by making sure that growth is widely shared,” says Nobel Laureate Robert Solow. “Leadership and governance cannot do the job by itself unless it can generate support from wide parts of the population.”