This report presents the cumulative experience of sustained, high, inclusive growth and the policies, investments and political underpinnings that support it. The report reflects the views of a commission consisting of 19 experienced policy, government, and business leaders.
Since 1950, 13 economies have grown at an annualized rate of at least 7 percent for at least 25 years. At that pace of expansion, an economy almost doubles every decade. This growth rate indicates that the economy has exploited its resources and potential. This report is about sustained, high growth of this kind: its causes, consequences, and internal dynamics. The report reflects the views of a commission consisting of 19 renowned and experienced policy, government, and business leaders mostly from the developing world, and two leading economists.
What do we know about economic growth? And what practical implications can policy makers draw from that knowledge? Those are both daunting questions which have guided the work of the Commission on Growth. Drawing on academic research, case histories, and practical experience, the Commission has weighed what is known about generating and sustaining fast growth in developing countries.
The concept behind the report
The report wishes to present an innovative approach to economic growth. The report identifies some of the distinctive characteristics of high-growth economies and asks how other developing countries can emulate them. But, as opposed to the 'Washington Consensus',1 it does not provide a formula for policy makers to apply. According to the commission, each country has specific characteristics and historical experiences that must be reflected in its growth strategy.2 The report does offer a framework, based on the experience of countries that enjoyed a sustained and high growth rate, that should help policy makers create a growth strategy of their own.
Principles for sustained, high growth
Though there is no recipe for sustained, high growth, one may identify some common principles shared by the 13 countries that have experienced such episodes.3
- Global economy creates a springboard for developing countries - Countries seeking sustained, high growth do not necessarily need to invest in creating new knowledge. Global demand for existing manufacturing skills provides the countries with a much greater market and gives incentives for specialization and for productivity gains.
- Maintaining macro-economic stability - Countries that have experienced sustained, high growth have managed to abstain from volatility and uncertainties that negatively affect private investment. They have maintained fiscal responsibility and have restrained inflation.
- Future orientation - The example countries succeeded in maintaining high rates of savings and investment, in particular public investment in infrastructure.
- Free markets - These countries relied on a functioning market system which provided price signals, incentives to supply what was in demand and decentralized decision making. Furthermore, the sustained, high growth required reallocation of resources and structural changes like urbanization and manpower transfer between sectors.
- A leadership committed to the overarching goal of sustained, high growth - These countries benefited from the consistent long-term commitment from their leadership to sustained, high growth. This leadership excelled in its credibility and governance. It was also able to communicate a vision of the future and persuade citizens to save and invest in the short run in return for future benefits.
What can Israel learn from the report?
While the report focuses on developing countries, it addresses the group of countries wishing to move from middle-income to high-income. This kind of growth has been less studied. Nonetheless, it is known that this kind of growth is harder to maintain. The principles mentioned above do not necessarily apply and each country has to rely on the private sector's bets to find its own path to prosperity.
Some countries have prepared themselves for the inevitable structural and adaptive changes by establishing planning units. Those units forecast future trends and help the economy to prepare for the required changes.4
For the full report, click here.
1 The Washington Consensus is a set of ten economic policy prescriptions that constitute a "standard" reform package promoted for crisis-wracked countries by institutions such as the International Monetary Fund (IMF), World Bank and the U.S. Treasury Department. For a summary of its principles, click here.
2 See prof. Dani Rodrick from John F. Kennedy School of Government at Harvard University weblog : A Washington Consensus I can live with
3 The countries are: Botswana (1960-2005), Brazil (1950-1980), China (1961-2005), Hong Kong (1960-1997), Indonesia (1966-1997), Japan (1950-1983), Korea Rep.of (1960-2001), Malaysia (1967-1997), Malta (1963-1994), Oman (1960-1999), Singapore (1965-2002), Taiwan (1965-2002), Thailand (1960-1997).
4 See Reut's document: socio economic 'central mind' (Hebrew only).