Students and Stagnation: What Strategies for Growth?

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In the last couple of days, I was struck by two pieces of news. They were small but surprising, and both affect the way we think about how to strengthen an economy in a developing country.
 
One news item concerned shifting intellectual currents. Faculties of economics in seven cities announced last week that they will be revising their curriculum. They are responding to demands from students, such leading academics as Joseph Stiglitz and such policymakers as Andy Haldane at the Bank of England. Their goal is to reduce the dominance of neoclassical models and to have economics courses that will focus on the real-world responses to financial crises, inequality and other problems. This is no ordinary student rebellion: On Friday, the Financial Times published an editorial in their support. On the heels of Ha Joon Chang’s book launch (“Economics: The User’s Guide”), I found this news interesting. Is there one way to look at an economy, and can we afford to rally behind one school of thought?
                                                                                                                         
The other story was more depressing.  It concerned what former U.S. Treasury Secretary and former Harvard President Larry Summers and others are calling “secular stagnation.”  It showed that U.S. firms’ net capital expenditure was the exact same in 2013 as it was in 2000. So, even smoothing out the global financial crisis, even in the largest economy in the world – with one of the best business environments and all the innovation of places like Silicon Valley – investment has been flat for more than a decade. Summers’ argument, which he advocates in textbooks, essays and speeches, is that we have entered a period of permanently lower private-sector investment.
 

The second story brought home to me our urgent need – in the developed and the developing worlds – for new strategies for growth. The first story gave me some optimism that an active debate was taking shape. If we are going to escape stagnation, we need new ideas, and one source of those must be young, rebellious thinkers – just like (ironically) those who pushed neoclassical models and monetarism to the forefront in the 1970s, during that era of “stagflation.”
 
From the most macro level to the classroom we need new ideas – but, just as important, we need to understand what has been done and how it has worked.  In our own way, we are trying to do our part here in the Trade and Competitiveness Global Practice of the World Bank Group.

This is the purpose of our upcoming Trade and Competitiveness conference, which I mentioned in my previous blog: New Growth Strategies.

The conference – on October 14 and 15 at the World Bank Group’s headquarters in Washington – will be opened by Dani Rodrik, who moved last year from Harvard to the Institute for Advanced Study (Einstein’s old home) in Princeton. While Dani is perhaps best known for his writing on globalization and “new industrial policy,” he has also written widely on the plurality of strategies that countries have used for growth, in two seminal books during the last decade.  Most recently, he has gone further, to analyze the political economy of ideas themselves, and how new ideas can change the trade-offs of reform (in a fascinating paper in the Journal of Economic Perspectives earlier this year).
 
After Dani’s keynote, he will join the opening panel along with Philippe Aghion, Arvind Subramanian, and Minister Andreu Mas-Collel of the Catalonia Government (Spain). The panel will focus on how we can measure the impact of new growth strategies. In particular, now that it has been about a decade since “new industrial policy” came into prominence, and five years since the adoption of heterodox ideas after the global financial crisis, how can we tell how those policies are faring? And what can we learn from the variation in their results?
 
We couldn’t have asked for a stronger panel to tackle this topic. The panelists combine theory and empirics, global knowledge and regional knowledge, and world-leading research with direct, practical experience in government.
 
That panel will also be just the beginning of a day-long series of discussions. After the opening panel, we will have a discussion on the institutions needed to pursue new growth strategies; we’ll take the conversation to the city level with a panel on urban competitiveness; we’ll discuss the relevance of developed-country strategies for developing economies; and we’ll end the day with a reality check from the private sector.
 
On the second day of the conference, we’ll break into smaller seminars, including one that offers some fresh research by Dr. Subramanian on growth in India; a deep discussion on models for skills delivery, in parallel to a review of new research on competitive cities; and sessions on green growth, tourism and more.
 
Of course, we aren’t going to solve the problem of secular stagnation in just a day (or even two), or discover revolutionary ways to support countries’ search for growth. But I hope, at the least, that we will help keep the conversation moving forward – knowing that the end goal of growth, job creation and income distribution is vitally important.

Authors

Ivan Rossignol

Chief Technical Specialist, Competitive Industries Global Practice

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