?India?s reserves are going up, your inbound capital flows are larger than your trade deficit (so, setting up a sovereign wealth fund is feasible). China has $1.6 trillion in reserves, largely from private capital inflows and its currency is a one-way street. But the astonishing trade surplus they are running since a couple of years is unacceptable in a developing country. It is pushing capital outside when it should be used at home and impoverishing people by holding real wages down.?
That?s the provocative Nobel laureate and former dean of the Stanford Graduate School of Business, Michael Spence. As chair of the Growth Commission set up by the World Bank in April 2006 to ?gather the best understanding about the policies and strategies that underlie rapid economic growth and poverty reduction?, Spence has been engaging with over 300 academics and policymakers from developing countries to examine growth and development, for two years.
The commission, whose members include Planning Commission deputy chairman Montek Singh Ahluwalia and Monetary Authority of Singapore chairman Goh Chok Tong, has come up with the world?s latest consensus on growth. Steering clear of prescribing a ?secret? recipe that the much-maligned Washington Consensus (1989) suggested for Latin American economies, the commission has tried to provide a policymaking framework that stresses on the subjective priorities and needs of different countries.
?While India?s priorities today are infrastructure, education, labour markets and ensuring the government doesn?t fiddle much with market prices, China has none of these problems. Instead, it needs to urgently fix social security, tertiary education, income inequalities and environmental issues. We have mooted a sensible policy priority-setting process that accounts for subjectivity of interests, so the output would be different across countries,? Spence told FE before releasing the report in the capital on Tuesday.
The Washington Consensus had stressed on minimising government?s role in the economy, engaging with the global economy and following rule-based regulatory frameworks. Spence differs: ?The government must be an important and active player in leadership and implementation roles.?