The World is Flat!
China is the Future!
(Farrar, Straus & Giroux) - ‘The Next Convergence: The Future of Economic Growth in a Multispeed World’ by Michael Spence. Farrar Straus Giroux. 296 pp. $27
America is Finished!
Many of our most celebrated econopundits traffic in such oversimplified, sensationalized rhetoric, especially in times of market turmoil and economic uncertainty. But the global economy is too complicated for slogans. Which is one reason why Michael Spence’s new book is so refreshing. Spence, who shared the Nobel Prize in economics with Joseph Stiglitz in 2001, has systematically investigated the origins of hypergrowth, the process through which national economies rise from poverty to relative prosperity. In “The Next Convergence,” he presents a nuanced, highly readable argument on the symbiotic, fraught relationship between today’s booming developing markets and the seemingly stagnant developed ones.
In 2011, the global economy doesn’t stand at the dusk of one era, or at the dawn of another. Rather, we’re smack in the middle of the “third century of the Industrial Revolution.” Until roughly 1750, the world economy was a stagnant cesspool of poverty and misery. But after two centuries of innovation and growth, the handful of nations that followed the United Kingdom into industrialization prospered mightily. By 1950, Spence writes, “the average incomes of people living in these countries had risen twenty times, from about $500 per year to over $10,000 per year.” Unfortunately, these places housed just 15 percent of the globe’s population.
The author points out that in the decades since 1950, as political, social and technological barriers fell, the growth virus spread to populous nations such as China and India. And it’s still spreading like Groupon. By 2050, Spence argues, our descendants will inhabit a world “in which perhaps 75 percent or more of the world’s people live in advanced countries.” In the future, we’ll all be comparatively rich, and the gulf separating the typical American consumer from the typical Indian one won’t be quite so large. “The huge asymmetries between advanced and developing countries have not disappeared, but they are declining, and the pattern for the first time in 250 years is convergence rather than divergence.”
The formula for success seems simple: Unleash the spirit of capitalism and plug into the vibrant world of globalization and trade. As an open nation, capitalist South Korea saw its GDP per-capital rise from a pathetic $350-$400 in 1960 to $20,000 in 2005. By comparison, walled-off North Korea hasn’t enjoyed any growth in the past half-century. But Spence notes that convergence isn’t a matter of flipping a switch. For a country to boost per capita income from $500 to $20,000, it takes 50 consecutive years of 7 percent annual growth. And in the last half century, only 13 nations (mostly Asian countries, plus Brazil and Botswana) have managed to notch 25 straight years.
Nor is that formula for success quite as simple as many free-market economists would have us believe. Adhering to the rules of supply and demand and competing in international markets are important. But factors that typically don’t enter the glossary of Econ 101 textbooks can play a larger role, including leadership, governance, institutions and politics. While many economists profess disdain for the softer social sciences, Spence taps liberally into sociological and psychological factors. Human curiosity is a “very powerful, and largely noneconomic, force,” he writes. “Inclusiveness turns out to be an essential part of sustaining growth.”
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