Download Competitiveness, Latin America, and the Changing Global Landscape

Competitiveness, Latin
America and the Changing
Global Landscape
Joseph E. Stiglitz
Mexico City
March 9, 2006
A PERIOD OF ENORMOUS
CHANGE
• NOT JUST GLOBALIZATION
– THE CLOSER INTEGRATION OF THE
COUNTRIES OF THE WORLD AS A RESULT
OF LOWERING OF TRANSPORTATION AND
COMMUNICATION COSTS AND THE
ELIMINATION OF MAN MADE BARRIERS
– FACILITATING FASTER MOVEMENT OF
GOODS, CAPITAL, LABOR ACROSS
BORDERS
BUT THE INTEGRATION OF 2.5
BILLION PEOPLE INTO THE
GLOBAL ECONOMY
• ASIA, INCLUDING INDIA AND CHINA
• AFTER A LONG PERIOD OF EXCLUSION AND
MARGINALIZATION, ECONOMIC
SUPPRESSION UNDER COLONIALISM
• GROWING AT AN UNPRECEDENTED PACE
– EVEN IN THE INDUSTRIAL REVOLUTION,
GROWTH WAS ONLY 3 TO 3.5%
– INDIA HAS BEEN GROWING AT 6% FOR A
QUARTER CENTURY—NOW APPROACHING 8%
– CHINA HAS BEEN GROWING AT 9% FOR THREE
DECADES
NOT JUST ECONOMIC GROWTH
• BUT IMPROVEMENTS IN BROADER
MEASURES OF LIVING STANDARDS
• AND IMPRESSIVE REDUCTIONS IN
POVERTY, ESPECIALLY IN CHINA
THESE CHANGES ARE
IMPOSING ENORMOUS STRAINS
• ON DEVELOPED COUNTRIES
– DECLINING MANUFACTURING SECTOR
– BUT EVEN COMPETITION IN OUTSOURCING IN SOFTWARE,
HI-TECH
– IMPOSING DOWNWARD PRESSURES ON WAGES,
ESPECIALLY OF LOW SKILLED WORKERS
• Long time predictions of economic theory of what a fully integrated
global economy might look like may be coming true
• Leading to rich countries with poor people
– WORRIES ABOUT AMERICAN COMPETITIVENESS
• The World is Flat
– SURGE OF PROTECTIONISM, RESISTANCE TO SALE OF
ASSETS (STEEL, PORT)
• And reinforcing long standing charges of hypocrisy
BUT THERE ARE ALSO STRAINS ON
EMERGING MARKETS AND OTHER
DEVELOPING COUNTRIES
• Globalization has been associated with
increasing inequality
– Partly because of “unfair” globalization—refusal of
advanced industrial countries to reduce subsidies on
agriculture, maintaining tariff structures almost
designed to stymie development
– Partly because of asymmetric globalization
• Capital liberalized more than labor
– And partly because globalization has increased
demand for certain skills
STRAINS TO COMPETE
• THE WORLD IS NOT FLAT
– Some have the resources and capabilities to compete
more effective
• Disparity between haves and have nots (within and between
countries) may even be growing
– Large countries have resources to invest in research
– New global monopolies (Microsoft) may be creating a
less even playing field
– The Uruguay Round made the world less flat
• Especially TRIPs
LESSONS FROM THE SUCCESS
• CHINA’S SUCCESS IN SPITE OF IT NOT
FOLLOWING MOST OF DICTATES OF
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
India’s success
• In spite of weaknesses in infrastructure
– Including electricity
• 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
WHAT DO THESE SUCCESS
CASES HAVE IN COMMON?
• SOUND MACRO-POLICY
– But a focus on growth, not just stabilization
– Concern about access to credit
• Explicit initiatives in China and India directed at foreign banks
• LARGE ROLE FOR GOVERNMENT
– Including in fighting poverty
• HEAVY INVESTMENTS IN EDUCATION, AND
ESPECIALLY SCIENCE AND TECHNOLOGY
– In the case of India, going back a century
– Even outpacing in some ways more advanced
countries
Some statistics
•
NUMBER OF GRADUATES IN SCIENCE AND
ENGINEERING NOW DWARFED BY THOSE IN ASIA
– 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 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.
We are not only a Globalized Economy,
but a Knowledge Economy
• We now recognize that what separates
developed from less developed countries is not
just a gap in resources, but a gap in knowledge
• There is a limit to the pace at which you can
close a gap in resources
– Though China’s savings rate in excess of 42% helps
speed the process
– But closing the gap in knowledge can occur at a very
rapid rate
– That is why even a natural resource rich country like
Malaysia has, in the last two years, switched from
focusing on investments in infrastructure to
investments in people and research
China’s success is not just because
of its cheap labor
• Labor costs in textiles actually higher than
many other developing countries
• Chengdu becoming software center
• Jilin –example of how to deal with “rust
belt problems”
China’s 11th 5 year plan
• Next week, China will adopt 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
Latin America Can Compete
• Brazil had, before 1980, three quarters of a
century of extremely rapid growth (5-6 percent),
surpassed later only by East Asian countries.
Other countries too had impressive growth rates
• But growth in Latin America since 1980 has
been dismal—even in the 90s, after reform,
growth was half the rate in pre-1980 decades
• And the growth of the first half of the 90s was
not sustainable—and was not sustained
– Largely based on capital inflows
• Brazil has demonstrated technological
leadership
– Embraer airplane global best seller
– Bio-fuels have helped Brazil achieve energy
independence
– All done with important support from
government
• Including through development bank (BNDES)
• These have resulted in impressive export
performance
Puzzle
• Brazil’s overall performance has not been
as strong as one would have thought from
its strong export performance
• Explanation: excessively tight monetary
and fiscal policies
A Competitiveness/Growth Strategy
for Mexico
1. Enhancing Competition
– Requiring strong anti-trust laws
– Strong regulations of natural monopolies
2. Strengthening the public sector
– More revenues—current revenues insufficient to
finance investments needed to compete
•
Strengthening progressive taxation
– Less reliance on V.A.T.
•
More taxation of oligopolies
– Increasing transparency
•
One of great achievements of current Administration
– Benchmarking efficiency
3. Putting people first
–
–
Investments in education, health
Mexico ranks 53 in the world in HDI
•
With great disparities within the country
4. Pro-growth policies
–
–
–
Expanding credit
Maintaining a pro-growth macro-policy
Industrial/export promotion policies at national and
state level
•
Including investments in advanced education and research
Promoting the Economy
• Identifying dynamic comparative advantages
– Location near U.S.
• Not question of picking winners, but looking for
externalities, coordinating needed infrastructure
investments, other investments
• Almost every successful country has had such policies
– Today, America’s is largely embedded in defense department
– But current American Administration is finally recognizing
importance for America to remain competitive, increased NSF
budget
• Though in scientific community, strong belief that Administration is
anti-scientific
• And immigration policies are having their toll
Mexico’s Choice
• Mexico has a choice between two strategies
– One has not been working well in Latin America or
elsewhere
– Failed in promoting well-being of ordinary citizens
• Success should not be measured by increases in GDP
• In U.S. GDP has been increasing, but so too has poverty,
and real income even of median household has been
declining
• One needs to have sustainable, equitable, democratic
development
– Growth based on indebtedness is not sustainable
– Growth based mainly on exploiting natural resources is not
sustainable
• Better measures are Green Net National Product, Real
Income of Median Household, HDI
• The alternative strategy—pursued in much of Asia-- has
worked well, beyond the wildest expectations
– Though any strategy has to be adapted to local
conditions; one size fits all policies do not work
• Fifteen years ago there was considerable uncertainty
about the relative merits of alternative strategies
– Enormous successes and failures has now brought
clarity
– Though in many circles ideology/interests still prevail
– Success of alternative model consistent with modern
economic theory, with its recognition of the strengths
and limits of markets
Responding to the Competitive
Challenge of Globalization
• Hopefully, Mexico will choose the strategy
which is not only likely to enhance
economic growth
• But also will have a greater chance of
ensuring that the benefits of that growth
are shared widely among the Mexican
people