Download The Performance of Nations and the Leaders of Tomorrow

THE PERFORMANCE OF
NATIONS AND THE LEADERS
OF TOMORROW
Joseph Stiglitz
Athens
March 2006
NEW GLOBAL LANDSCAPE
• INTEGRATION OF 2.5 BILLION PEOPLE
IN INDIA, CHINA, AND ELSEWHERE IN
ASIA
– Who were formerly excluded and
marginalized, legacy of colonialism
• INTO GLOBAL ECONOMY IS AN EVENT
OF HISTORICAL PROPORTIONS
• AND SO IS THEIR UNPRECEDENTED
SUCCESS
Global success
– Previous economic revolutions—like the industrial
revolution of the nineteenth century—had seen
growth rates peak at around 2 to 3%
– The golden age of growth in America in the fifties and
sixties saw similar growth rates
– China’s growth has been three times these numbers
• Even faster than Asia miracle countries
– Success not only in increasing GDP
• The fraction of the Chinese population living on less than $1
a day has fallen from 63.8% in 1981 to 16.6% twenty years
later
• What has led to such unprecedented success?
BUT CHINA IS NOT ALONE
• India’s enormous success
• More than two decades of growth of 5 to
6%, now approaching 8%
• Outsourcing of high tech jobs to India
• Recognition of new global landscape
– What does this new global landscape look
like?
– And again how do we explain this success
There are other successes…
• Ireland
• Botswana
• Viet nam
But there are many more failures
• Russia and the other countries
– In spite of the fact that the transition was supposed to
bring unprecedented prosperity
– Instead it brought unprecedented poverty
• Latin America
– Where reforms were supposed to enhance growth
– But instead lead to growth half of what it had been in
earlier decades
• And Africa
– which has seen incomes decline
Narrowing of disparity between successes and
advanced industrial countries
But growing disparities between failures and
advanced industrial countries
• Even after NAFTA, gap between Mexico and
U.S. has increase
Again, key question, explaining successes and
interpreting new global landscape
Changing Global Landscape
• Thomas Friedman has suggested that “the world is flat”—for first
time in human history, poor countries are competing on a level
playing field
• But the world is not flat
– Disparities between the haves and have nots have increased
– Power of entrenched monopolies, like Micro-soft, is probably
greater than ever before
– Importance of research gives enormous advantage to those who
have the resources and skills to undertake it
– The Uruguay Round made the world less flat
• Especially TRIPs
• But the nature of competition is enormously changed
– Cannot simply rest on laurels
• And there may be a high price for success
• THESE CHANGES WILL AFFECT EVERYONE
India’s success
• In spite of weaknesses in infrastructure
– Including electricity
– Better infrastructure would have led to even more
growth
• In spite of absence of natural resources
– Or perhaps because
• The “natural resource curse”
• Growth occurred before trade liberalization
• And, like China, there is still not full capital
market liberalization
China’s success
• IN SPITE OF IT NOT FOLLOWING MOST OF
DICTATES OF “CONVENTIONAL WISDOM”
(WASHINGTON CONSENSUS)
– Not even clear property rights
• But clearer property rights might have led to even
more impressive growth!
– Large role of government
• Including Industrial policy
– No free trade in earlier high growth period
– No free capital market liberalization—even today
• SUCCESS BECAUSE THEY FOLLOWED A
DIFFERENT AGENDA
– Appropriate to their circumstances and history
• MUCH OF CONVENTIONAL WISDOM IF OFF THE
MARK
THE MEANING OF SUCCESS
We need to be careful in assessing what we mean by
success
• US: GDP increasing, but
– Increased poverty
– And even those in the middle worse off—as real
median incomes falling
– Real wages stagnating—incomes would have fallen
even more were it not that Americans are working
more and more
• Imposing costs to the family
• Huge social costs
• Perhaps partially reflected in high level of violence
and crime—ten times higher
Meaning of success (2)
– Poor performance in other indicators—health
• Spends more, poorer results
• Lower ranking on HDI
– Growing problem: rich countries with poor people?
• U.S. and elsewhere, GDP increasing, but environment
worsening
– Will growth be sustainable?
– Not only environmentally, but socially and
economically
– Especially with huge deficits
• Important not to be misled by using wrong measures of
success
– What we measure affects behavior
– Importance of information systems, accounting
Key Ingredients of Success
• Technology and education
• Leadership
• Broader concerns for society/organization
1. Technology and education
• SUCCESS OF CHINA IN MANUFACTURING
AND INDIA IN SOFTWARE NOT JUST A
MATTER OF UNSKILLED LABOR
– Combining skilled and unskilled
– Even in textiles and automobile assembly
– Labor costs in textiles actually higher than many other
developing countries
– Chengdu becoming software center
– Jilin, Wuhan –example of how to deal with “rust belt
problems
• Changes the competitive position of the
United States and EU
– MODERN ECONOMY BASED ON
TECHNOLOGY
– BUT NUMBER OF GRADUATES IN
SCIENCE AND ENGINEERING NOW
DWARFED BY THOSE IN ASIA
SOME STATISTICS
– Of 2.8 1st university degrees in science and
engineering
• 1.2 million in Asia
• 830,000 in Europe
• 400,000 in U.S.
– In engineering, Asia produces 8 times U.S.
– since 1993, the number of American citizens in
graduate science programs has fallen from 55,000
to under 42,000 while the global supply of Ph.D. in
science has increased by 25%--mostly in Asia
– Just under half of all doctorate degrees in
engineering and computer science in the United
States are earned by foreign students
• Serious visa problems since 9/11
PROBLEMS START EARLIER
• PROBLEMS START EARLIER IN
ELEMENTARY AND SECONDARY
SCHOOLS
– EVIDENCED BY PERFORMANCE IN
STANDARDIZED TESTS IN SCIENCE AND
MATH. For example, at 8th grade
• 44% of Singapore performed at highest level
• 38% of Taiwan
• 7% U.S.
DECLINING RESEARCH
• EXPENDITURES ON RESEARCH
DECLINING
– As percent of GDP, 37% decline in federal
funding since 1970
– Reflected in part in patents
• Since 1980, Japan’s share world wide increased
from 12% to 21%, mostly at expense of U.S.
(which has decline 8 percentage points)
CHINA AND INDIA
UNDERSTAND…
• That what separates developed from less
developed countries is not only a gap in
resources but a gap in knowledge
• And are working hard—and successfully—to
narrow that gap
• Education and technology also basis of success
of Ireland and Brazil
– Brazil’s Embraer airplane
– Energy independence through research
– Huge growth of exports
• Two weeks, China adopted its 11th 5 year plan
– Comprehensive approach to development
– Emphasis on problems of inequality, and especially in
the rural area
– Emphasis on the environment
– And emphasis on science and technology,
maintaining competitiveness
• Including establishing global class universities
• A basis of independent innovation
• Are Europe and America responding effectively?
– America has squandered huge amounts on Iraq War,
with costs now CONSERVATIVELY estimated
between $1 to 2 TRILLION
2. LEADERSHIP
• Sustained growth requires sustained leadership
– Avoiding “cult of personality”
– Recognizing fallibility of individuals
• Checks and balances
• Reducing the dependence for success on
particular individuals
– Importance of accountability
Leadership (2)
– Key role of succession
• Without successful succession, gains can
easily be eroded
• Knowing when to leave
– Pragmatism versus ideology
• Recognizing that “one size fits all
prescriptions won’t work
• Changing times require changing policies
• What worked in the past may not work in
the future
Leadership (3)
• Setting goals and aspirations
– Stretches
– But attainable
• Examples
– Clinton: creating 8 million new jobs in 4 years
• More than succeeded
– Fox (Mexico): 7% growth: unrealistic—actual growth
1%
• And by middle of term, seemed content with just 1 or 2%
– China—set high growth targets (7,8%)
• But in every plan exceeded targets
Leadership (4)
• Consensus building
– Participation in decision making
– Even in China
• Inclusiveness and fairness
– Countries cannot succeed if some are doing well, and others are
being left behind
• Sense of unfairness behind unrest in France
• Sense of cohesion behind success of Sweden, Finland,
Norway
– Just as good growth
– Companies cannot succeed if some are doing well, and others
being left behind
• Increasing problem in American style capitalism
• Growing disparities between CEO and ordinary workers
3. A focus on broader concerns for
society/organization
• Social cohesion
– Especially difficult in new world of
globalization
– Which is putting strong downward pressures
on wages, especially of unskilled workers
• Reflected in increase in measures of inequality
• Except in most of the most successful countries
– Reinforcing need for “upskilling,” education
A focus on the long run
• Beyond quarterly reports, or the next
election cycle
• In U.S.—problems of environment and
increasing indebtedness being ignored
– Risk to long term living standards
– And sustainability of growth
• Especially as debt is “crowding out” expenditures
on research and education
Pragmatism and balance
• Success requires “balance”
• For countries—a balanced role of government
and the market
– Market is at the center of the economy
– But in every successful economy the government has
played a large role
• In science and technology (internet)
• In making markets work (sound banking and securities
market regulation
• In protecting the environment
• In maintaining social cohesion (income distribution, safety
nets)
– Helps explain why Nordic countries have
been so successful, not only in growth, but in
broader measures of success
• Readjusted their “welfare state” model to new
realities
• But still retained model—including high taxes
• With better safety net, there can be more risk
taking, entrepreneurship
• Success in modern technology based economies
requires risk taking
Has the rest of Europe achieved
balance?
• Cannot have growth without Macro-balance, but
– European Central Bank focuses exclusively on
inflation, not on growth or employment
• Focus on “labor market flexibility”—increasing
insecurity
– Without commensurate increases in safety nets, job
training programs, adequate investments in
education, adequate job growth
– Need to accompany with a whole portfolio of micropolicies
– Productivity increases cannot offset large exchange
rate changes
• For companies, a set of values
– Not just a focus on the bottom line, shareholder value
• Even modern economic theory says that that is wrong
• Recognizing the companies are “communities”
and are located in communities
– Treat each other with respect
– Concern for each others problems and concerns
• Reflected in growing important of movement for
corporate social responsibility
Concluding Remarks
• There are huge differences in the
performance of companies and countries
• It is important to learn the “lessons” of
successes and failures
• Not simply a matter of imitating “best
practices”
– But understanding the principles that underlay
their success
SUCCESS IS NOT JUST A MATTER OF LUCK
• BUT IT IS BASED ON THE EFFORTS AND
CONTRIBUTIONS OF INDIVIDUALS WORKING
TOGETHER
• THE WHOLE IS GREATER THAN THE SUM OF THE
PARTS
• THIS ENTAILS DESIGNING POLICIES AND
PRACTICES THAT ELICIT THE BEST AND MOST
THOUGHTFUL EFFORTS OF ALL AND
COORDINATING THOSE EFFORTS
• SUSTAINED LEADERSHIP IS ESSENTIAL
I HOPE I HAVE PROVIDED SOME INSIGHTS INTO WHAT
IS ENTAILED TO INCREASE THE LIKELIHOOD OF
TRUE AND SUSTAINABLE SUCCESS—HIGH
PERFORMANCE IN EVERY DIMENSION-- BOTH FOR
COUNTRIES AND COMPANIES