[Andrew Sheng] Globalization with constraints

The globalization issue is the most misunderstood and confusing topic today. In the last 20 years, there was a dominant view that globalization was good for everyone. But the Asian and global financial crises, caused in part by volatile global capital flows, have proved that there is what I called “global gain, local pain.” It does not mean that we reject globalization, but that there are risks that have to be understood and managed. 

Nobel Laureate Michael Spence, currently a professor of economics at New York University, has just written a new book called “The Next Convergence: The Future of Economic Growth in a Multispeed World.” Prof. Spence is most qualified to talk about global growth, having chaired the independent Commission on Growth and Development, created and sponsored by the World Bank and other donors in 2006.

Prof. Spence has written an important book. His greatest quality is an open-mindedness that is refreshing, with an ability to listen to diverse views and seeing the world through the eyes of the developing countries, rather than through a Western business or policy agenda. His skill is to put hard facts into perspective and then ask the important questions.

Put in historical context, the world was pretty convergent until the Industrial Revolution that began around 1750. Then the Western advanced countries simply outstripped the rest of the world. In the last 50 years, however, a second revolution occurred, when the rest of the world started growing at nearly 10 percent per annum. This is remarkable since before that date, the average growth rate was roughly 3 percent per annum. By the time of the 2007-09 crisis, the old order was gone and G20 took over from G7. G20 accounts for 90 percent of global GNP and two thirds of population.

The book is a veritable source of knowledge about mysteries of growth and development. Growth is after all about access to the global market and to knowledge. Globalization and technology, which reduced transaction costs and spread knowledge, made previously non-tradable goods and services tradable, thus opening up opportunities to emerging markets.

Personally, I found most impressive and insightful this book’s chapters on Political Leadership and Governance Underpinnings of Growth, Climate Change and the Role of Information Technology and the Integration of the Global Economy.

On the first issue, there is awareness that human leadership is key to successful growth. It takes great statesmanship, moral courage and determination to move poor countries out of backwardness, fighting vested interests and undertaking very unpopular measures, both domestic and international. But great leaders in emerging markets fulfilled the four conditions of taking growth seriously, acting on behalf of the majority, pushing for competent and effective government and allowing economic freedom and protecting property rights. Many leaders had to do this without the support of strong and experienced institutions.

The second issue of climate change is very contentious. The advanced countries are most responsible for the current state of carbon emission, but the emerging markets will be responsible for future emissions as they grow larger and faster. There is deadlock because the advanced countries won’t pay for the current mess but insist on emerging markets doing what they themselves didn’t clean up in the past. Prof. Spence proposes an elegant and practical solution ― the advanced countries should concentrate on carbon mitigation and the emerging markets should adapt to a low carbon strategy. This may not be as clean as the environmental scientists want but may be the only practical way out.

On the third issue, Prof. Spence has spelled out clearly what information technology has done and will do for globalization. Technology has truly flattened the world and enabled emerging markets to catch up on knowledge and access to global markets. Local talent has now global value and growth has speeded up.

This brings us to the Next Convergence ― how to accommodate the rise of a multi-speed world where the emerging markets will play a greater and more complex role. We have moved from an essentially single polar world dominated by G7 to a complex multi-polar world run by G20. Given multiple value systems, different governance models and severe future competition for scarce resources, can G20 keep the global economy open, restore demand and financial stability, prevent deflation and avoid a third world war?

No one has the answers because none of us have traversed this journey at this speed or scale before. But Michael Spence has provided thought leadership by asking the right questions and framing the issues with clarity, empathy and constructive options.

We are all bound by constraints, resource-wise, mentally and institutionally. Michael Spence has risen above economics and helped us peer into the future, not with doom and gloom, but with measured optimism that with the right management, we might just deliver a better world for future generations. 

By Andrew Sheng 

Andrew Sheng is an adjunct professor at the University of Malaya and Tsinghua University and is the author of “From Asian to Global Financial Crisis (Cambridge University Press).” ― Ed.

(Asia News Network)