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Some Random Thoughts on Growth Neil McCulloch Globalisation Team Leader Growth in per capita income of the poor 20% 10% -20% -10% 10% 20% -10% y = 1.17x - 0.00 R 2 = 0.52 -20% Growth in per capita income Growth Incidence Curves Reflecting big differences in real GDP Growth rates SULAWESI SUMATRA KALIMANTAN MALUKU PAPUA JAVA BALI NUSA TENGGARA CAD vs CAF CAD CAF CAD: firms in prioritised areas cannot survive in open competitive markets because they are in conflict with the comparative advantages determined by their endowments They need subsidies, but these can’t be afforded, so governments use administrative measures (e.g. Monopolies, suppressed interest rates, overvalued currencies, price controls on inputs These controls then lead to shortages in funds, forex and raw materials • Follow the comparative advantage of the country at every stage of development As countries develop, their endowments change, as to relative factor prices and so the strategy can also change Processes for effective growth policy • Ensuring that all voices are heard, including those of the poor and marginalised • Accountability mechanisms • Dialogue – between public and private sectors • Do good technical analysis • Monitor, evaluate and kill things that aren’t working • Build effective systems for domestic resource mobilisation Gross domestic product or ‘grossly deceptive product’? • Non-market transactions – The ‘care’ economy (underestimation of housewives/husbands work) – Subsistence agriculture • Distribution, nature and quality of goods produced • Leisure time • The hidden economy – Illegal activities – Informal sector • Economic ‘bads’ – No distinction between green and polluting industries Complements to GDP Name Year Producer/Developer Index of Sustainable Economic Welfare/ Genuine Progress Indicator Green GDP 1989 Herman Daly, John B. Cobb 1993 Bureau of Economic Analysis, USA Genuine Savings 1995 The World Bank Ecological Footprint 1990 William Rees, Mathis Wackernagel Subjective Well-being 1967 Warner Wilson Gross National Happiness 1972 Human Development Index 1990 Happy Planet Index 2006 King Jigme Singye Wangchuck King of Bhutan Mahbub ul Haq, Amartya Sen (UNDP) New Economics Foundation Living Planet Index 1998 World Wide Fund for Nature Conclusions • We all know that growth is important • We also know that we don’t really know how to create it (far less pro-poor, inclusive, sustainable growth) => focus on building effective processes for deciding growth policy • Growth is not the ultimate objective • There are several well developed measures which provide more rounded assessments of progress => standardise their use in the UK, EU and G20 Thank you
