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THE PERFORMANCE OF NATIONS AND THE LEADERS OF TOMORROW Joseph Stiglitz Athens March 2006.

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Presentation on theme: "THE PERFORMANCE OF NATIONS AND THE LEADERS OF TOMORROW Joseph Stiglitz Athens March 2006."— Presentation transcript:

1 THE PERFORMANCE OF NATIONS AND THE LEADERS OF TOMORROW Joseph Stiglitz Athens March 2006

2 NEW GLOBAL LANDSCAPE INTEGRATION OF 2.5 BILLION PEOPLE IN INDIA, CHINA, AND ELSEWHERE IN ASIA –Who were formerly excluded and marginalized, legacy of colonialism INTO GLOBAL ECONOMY IS AN EVENT OF HISTORICAL PROPORTIONS AND SO IS THEIR UNPRECEDENTED SUCCESS

3 Global success –Previous economic revolutions—like the industrial revolution of the nineteenth century—had seen growth rates peak at around 2 to 3% –The golden age of growth in America in the fifties and sixties saw similar growth rates –China’s growth has been three times these numbers Even faster than Asia miracle countries –Success not only in increasing GDP The fraction of the Chinese population living on less than $1 a day has fallen from 63.8% in 1981 to 16.6% twenty years later What has led to such unprecedented success?

4 BUT CHINA IS NOT ALONE India’s enormous success More than two decades of growth of 5 to 6%, now approaching 8% Outsourcing of high tech jobs to India Recognition of new global landscape –What does this new global landscape look like? –And again how do we explain this success

5 There are other successes… Ireland Botswana Viet nam

6 But there are many more failures Russia and the other countries –In spite of the fact that the transition was supposed to bring unprecedented prosperity –Instead it brought unprecedented poverty Latin America –Where reforms were supposed to enhance growth –But instead lead to growth half of what it had been in earlier decades And Africa –which has seen incomes decline

7 Narrowing of disparity between successes and advanced industrial countries But growing disparities between failures and advanced industrial countries Even after NAFTA, gap between Mexico and U.S. has increase Again, key question, explaining successes and interpreting new global landscape

8 Changing Global Landscape Thomas Friedman has suggested that “the world is flat”—for first time in human history, poor countries are competing on a level playing field But the world is not flat –Disparities between the haves and have nots have increased –Power of entrenched monopolies, like Micro-soft, is probably greater than ever before –Importance of research gives enormous advantage to those who have the resources and skills to undertake it –The Uruguay Round made the world less flat Especially TRIPs But the nature of competition is enormously changed –Cannot simply rest on laurels And there may be a high price for success THESE CHANGES WILL AFFECT EVERYONE

9 India’s success In spite of weaknesses in infrastructure –Including electricity –Better infrastructure would have led to even more growth In spite of absence of natural resources –Or perhaps because The “natural resource curse” Growth occurred before trade liberalization And, like China, there is still not full capital market liberalization

10 China’s success IN SPITE OF IT NOT FOLLOWING MOST OF DICTATES OF “CONVENTIONAL WISDOM” (WASHINGTON CONSENSUS) –Not even clear property rights But clearer property rights might have led to even more impressive growth! –Large role of government Including Industrial policy –No free trade in earlier high growth period –No free capital market liberalization—even today SUCCESS BECAUSE THEY FOLLOWED A DIFFERENT AGENDA –Appropriate to their circumstances and history MUCH OF CONVENTIONAL WISDOM IF OFF THE MARK

11 THE MEANING OF SUCCESS We need to be careful in assessing what we mean by success US: GDP increasing, but –Increased poverty –And even those in the middle worse off—as real median incomes falling –Real wages stagnating—incomes would have fallen even more were it not that Americans are working more and more Imposing costs to the family Huge social costs Perhaps partially reflected in high level of violence and crime—ten times higher

12 Meaning of success (2) –Poor performance in other indicators—health Spends more, poorer results Lower ranking on HDI –Growing problem: rich countries with poor people? U.S. and elsewhere, GDP increasing, but environment worsening –Will growth be sustainable? –Not only environmentally, but socially and economically –Especially with huge deficits Important not to be misled by using wrong measures of success –What we measure affects behavior –Importance of information systems, accounting

13 Key Ingredients of Success Technology and education Leadership Broader concerns for society/organization

14 1. Technology and education SUCCESS OF CHINA IN MANUFACTURING AND INDIA IN SOFTWARE NOT JUST A MATTER OF UNSKILLED LABOR –Combining skilled and unskilled –Even in textiles and automobile assembly –Labor costs in textiles actually higher than many other developing countries –Chengdu becoming software center –Jilin, Wuhan –example of how to deal with “rust belt problems

15 Changes the competitive position of the United States and EU –MODERN ECONOMY BASED ON TECHNOLOGY –BUT NUMBER OF GRADUATES IN SCIENCE AND ENGINEERING NOW DWARFED BY THOSE IN ASIA

16 SOME STATISTICS –Of 2.8 1st university degrees in science and engineering 1.2 million in Asia 830,000 in Europe 400,000 in U.S. –In engineering, Asia produces 8 times U.S. –since 1993, the number of American citizens in graduate science programs has fallen from 55,000 to under 42,000 while the global supply of Ph.D. in science has increased by 25%--mostly in Asia –Just under half of all doctorate degrees in engineering and computer science in the United States are earned by foreign students Serious visa problems since 9/11

17 PROBLEMS START EARLIER PROBLEMS START EARLIER IN ELEMENTARY AND SECONDARY SCHOOLS –EVIDENCED BY PERFORMANCE IN STANDARDIZED TESTS IN SCIENCE AND MATH. For example, at 8th grade 44% of Singapore performed at highest level 38% of Taiwan 7% U.S.

18 DECLINING RESEARCH EXPENDITURES ON RESEARCH DECLINING –As percent of GDP, 37% decline in federal funding since 1970 –Reflected in part in patents Since 1980, Japan’s share world wide increased from 12% to 21%, mostly at expense of U.S. (which has decline 8 percentage points)

19 CHINA AND INDIA UNDERSTAND… That what separates developed from less developed countries is not only a gap in resources but a gap in knowledge And are working hard—and successfully—to narrow that gap Education and technology also basis of success of Ireland and Brazil –Brazil’s Embraer airplane –Energy independence through research –Huge growth of exports

20 Two weeks, China adopted its 11th 5 year plan –Comprehensive approach to development –Emphasis on problems of inequality, and especially in the rural area –Emphasis on the environment –And emphasis on science and technology, maintaining competitiveness Including establishing global class universities A basis of independent innovation Are Europe and America responding effectively? –America has squandered huge amounts on Iraq War, with costs now CONSERVATIVELY estimated between $1 to 2 TRILLION

21 2. LEADERSHIP Sustained growth requires sustained leadership –Avoiding “cult of personality” –Recognizing fallibility of individuals Checks and balances Reducing the dependence for success on particular individuals –Importance of accountability

22 Leadership (2) –Key role of succession Without successful succession, gains can easily be eroded Knowing when to leave –Pragmatism versus ideology Recognizing that “one size fits all prescriptions won’t work Changing times require changing policies What worked in the past may not work in the future

23 Leadership (3) Setting goals and aspirations –Stretches –But attainable Examples –Clinton: creating 8 million new jobs in 4 years More than succeeded –Fox (Mexico): 7% growth: unrealistic—actual growth 1% And by middle of term, seemed content with just 1 or 2% –China—set high growth targets (7,8%) But in every plan exceeded targets

24 Leadership (4) Consensus building –Participation in decision making –Even in China Inclusiveness and fairness –Countries cannot succeed if some are doing well, and others are being left behind Sense of unfairness behind unrest in France Sense of cohesion behind success of Sweden, Finland, Norway –Just as good growth –Companies cannot succeed if some are doing well, and others being left behind Increasing problem in American style capitalism Growing disparities between CEO and ordinary workers

25 3. A focus on broader concerns for society/organization Social cohesion –Especially difficult in new world of globalization –Which is putting strong downward pressures on wages, especially of unskilled workers Reflected in increase in measures of inequality Except in most of the most successful countries –Reinforcing need for “upskilling,” education

26 A focus on the long run Beyond quarterly reports, or the next election cycle In U.S.—problems of environment and increasing indebtedness being ignored –Risk to long term living standards –And sustainability of growth Especially as debt is “crowding out” expenditures on research and education

27 Pragmatism and balance Success requires “balance” For countries—a balanced role of government and the market –Market is at the center of the economy –But in every successful economy the government has played a large role In science and technology (internet) In making markets work (sound banking and securities market regulation In protecting the environment In maintaining social cohesion (income distribution, safety nets)

28 –Helps explain why Nordic countries have been so successful, not only in growth, but in broader measures of success Readjusted their “welfare state” model to new realities But still retained model—including high taxes With better safety net, there can be more risk taking, entrepreneurship Success in modern technology based economies requires risk taking

29 Has the rest of Europe achieved balance? Cannot have growth without Macro-balance, but –European Central Bank focuses exclusively on inflation, not on growth or employment Focus on “labor market flexibility”—increasing insecurity –Without commensurate increases in safety nets, job training programs, adequate investments in education, adequate job growth –Need to accompany with a whole portfolio of micro- policies –Productivity increases cannot offset large exchange rate changes

30 For companies, a set of values –Not just a focus on the bottom line, shareholder value Even modern economic theory says that that is wrong Recognizing the companies are “communities” and are located in communities –Treat each other with respect –Concern for each others problems and concerns Reflected in growing important of movement for corporate social responsibility

31 Concluding Remarks There are huge differences in the performance of companies and countries It is important to learn the “lessons” of successes and failures Not simply a matter of imitating “best practices” –But understanding the principles that underlay their success

32 SUCCESS IS NOT JUST A MATTER OF LUCK BUT IT IS BASED ON THE EFFORTS AND CONTRIBUTIONS OF INDIVIDUALS WORKING TOGETHER THE WHOLE IS GREATER THAN THE SUM OF THE PARTS THIS ENTAILS DESIGNING POLICIES AND PRACTICES THAT ELICIT THE BEST AND MOST THOUGHTFUL EFFORTS OF ALL AND COORDINATING THOSE EFFORTS SUSTAINED LEADERSHIP IS ESSENTIAL I HOPE I HAVE PROVIDED SOME INSIGHTS INTO WHAT IS ENTAILED TO INCREASE THE LIKELIHOOD OF TRUE AND SUSTAINABLE SUCCESS—HIGH PERFORMANCE IN EVERY DIMENSION-- BOTH FOR COUNTRIES AND COMPANIES


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