This is the central message of a report World Bank staff prepared as an input to the G20 Los Cabos summit held from June 18-19. The summit comes at a precarious time for the world economy. The Euro Area is facing a relapse into recession, with potentially large losses of output with global repercussions if current risks to stability and growth are not addressed forcefully. Recovery in other advanced economies is weak and faltering. Growth is also slowing in emerging economies that have been the drivers of global growth in recent years. Against this background, the Bank report, entitled Restoring and Sustaining Growth, conveys the following main messages:
The latest World Bank estimates suggest that the percentage of the developing world’s population living below $1.25 a day declined from 52% in 1981 to 22% in 2008. While this indicates that there is still a long way to go in poverty reduction, the progress is encouraging. Moreover, we now also appear to be in a much better position to make such statements. The numbers above, by my colleagues at the Department Research Group, are based on over 850 household surveys for nearly 130 developing countries, representing 90% of the population of the developing world. By contrast, they used only 22 surveys for 22 countries when the first such estimates were reported in the 1990 World Development Report.
In his hit My Valentine, former Beatle Sir Paul McCartney sings about a Moroccan vacation where foul weather meant he and his love could not enjoy the vacation and planned sightseeing they had envisioned. Sir Paul was frustrated, until his love said the weather mattered little and they should change their mindset and make the most of it. That advice inspired the opening lyrics of his tune -- What if it rained?/ We didn't care/ She said that someday soon/ The sun was gonna shine/ And she was right/ This love of mine,/ My Valentine -- and taught him a valuable lesson: Complaining about the missing ingredients necessary to achieve any goal is a waste. It is far better to focus on what is already available and make the most of things.
Given worldwide concern over jobs, it makes sense that the 2013 World Development Report (WDR) is on jobs. According the ILO, though growth has resumed in some regions, the global employment situation is bleak and shows no sign of recovery in the near term.
The WDR, which is being launched this autumn, will posit that jobs are more than what people earn or what they do at work -- they are also part of who they are. With that in mind, the report will use a jobs lens to look at multiple outcomes associated with jobs – how they contribute to living standards, productivity and social cohesion.
Millions of Chinese have just celebrated the beginning of the year of the Dragon - a year which according to Chinese tradition is auspicious for ambitious undertakings. These may be required as the global economy faces severe headwinds. According to the January edition of Global Economic Prospects (GEP) report the world economy is expected to grow at 2.5 percent and 3.1 percent in 2012 and 2013, significantly below the 3.6 percent projected for both years in last July’s GEP. But even achieving these much weaker outturns is highly uncertain. The downturn in Europe and weaker growth in several large developing countries, such as Brazil and India, could potentially reinforce one another, resulting in an even weaker outcome. But without growth it will be more difficult to reduce the high debt of some advanced economies to sustainable levels and create much needed jobs world-wide.
Not a month goes by without some sort of bad news about foreign aid. Examples of incompetence , abuse of funds by corrupt leaders, and distorted incentives abound. These stories fuel a deep skepticism of foreign aid. In this view, perverse effects dominate – and end up weakening, rather than encouraging, growth and development. If one accepts this view, then it is logical to turn off the poisoned tap of foreign aid. But are such views well founded?
The answer is no.
Structural transformation is a key determinant of productivity growth and explains two-thirds of the difference between superior East Asian growth and more muted Latin American growth in the past two decades.
Given the multi-speed paths that regions and countries take as they transform, with some succeeding spectacularly and some struggling to compete, it may be time to consider new industrial and labor policies to ensure that a huge swath of the lower middle class in the developing world doesn’t get left behind in the race to compete in today’s unforgiving global marketplace.
Tackling poverty and inequality through appropriate growth strategies is at the core of the World Bank’s mission. In my view, achieving sustainable and inclusive growth depends on a well-functioning market and to a significant extent also the degree to which government policies facilitate private firms’ upgrading and diversification into industries that are aligned with an economy’s comparative advantages.
To smooth the way and allow this dynamic process to function optimally, we need to answer many questions that are unique to different types of economies. For example, how is it possible to successfully tap a developing country’s comparative advantage when it is rich in resources and has an abundant labor supply?
In the famous movie Forrest Gump (1994), which is the story of an innocent man who represents how the world should be, the main character Tom Hanks remembers: “My Mama always said, ‘Life is like a box of chocolates; you never know what you’re gonna get.’” Development economists working on industrial policy should always keep in mind that motherly wisdom and maintain humility in their random quest for the recipe for economic growth.
In a recent paper on ‘Growth Identification and facilitation: The role of the state in the dynamics of structural change,’ Justin Yifu Lin and I have tried to suggest a rational way of looking at the trial-and-error process that successful economic development always involves. In a new post on his excellent blog ‘Africa Can,’ my colleague Shanta Devarajan welcomes our work but asserts that we gloss over the politics that underlie efforts by governments to guide certain industries toward success.
The extent to which people across the world have access to clean water, education, food, healthcare and other basic needs is measured by the Millennium Development Goals (MDGs), a set of internationally agreed targets adopted in 2000. Last week, world leaders and the developmental community gathered in New York for the MDG summit to urge the international community to speed up progress toward the MDGs.