Back in 2009, John Weiss professor of development economics and former director of the IMF institute, was giving a talk on economic governance to Chevening Fellows who had assembled at Bradford Centre for International Development from various countries, including this writer from Pakistan. A participant from Kenya put an apt question to Prof Weiss about the impact of the British social security system on economic growth and productivity: Does the social security system of the UK not reward the lethargic and work shirkers at the expense of those who work hard and pay a considerable part of their income to the state as taxes, which, in turn, are utilised by the government as transfer payments to the unemployed who may remain unemployed voluntarily?
Prof Weiss scratched his head and said: “Suppose you are employed in a textile factory, and further suppose that due to some negative shocks to the economy, demand for the textile goods produced by your factory drops. In such a situation it is most likely that the factory owner will either lay off some workers – and it may include you – or he may shut it down completely as running the factory is no more viable. In such a scenario, even the employed will be losers.
“But if the state is paying to the unemployed and they are purchasing the goods produced by the factories, then the factories will keep on generating employment. In this way the social security system is a guarantee of the jobs of those who are already engaged in gainful employment.”
Prof Weiss paused a bit and advanced another argument in favour of the social security system.
“Suppose you do not have a system of redistribution in place. In such a situation, rich will get richer and the poor get poorer. After some time such a society will reach a boiling point when the poor, underprivileged and deprived sections of the society will rise against the system, and even those who might have made their fortunes through sheer hard work and entrepreneurship will find themselves in deep trouble.”
Prof Weiss was right in his analysis. Only two years later, we witnessed serious riots in London resulting, among other things, from social and economic deprivations, government spending cuts, poverty and unemployment. The point is that England Riots 2011 were symptomatic of the anger that was simmering in the society due to these deprivations.
This anecdote underscores the significance of inclusive economic growth in a simple way. Economic growth is essential for poverty reduction, but to make it sustainable in the long-run, both the pace and pattern of economic growth are important. In order to be sustainable, economic growth needs be broad-based and inclusive. According to the Commission on Growth and Development, an international body mandated with charting opportunities for global economic growth under the chairmanship of Michael Spence, a Nobel laureate in economics, inclusiveness is an important ingredient of any successful growth strategy. The Commission notes that inclusiveness is a concept that encompasses equity, equality of opportunity, and protection in market and employment transitions. Simply put, inclusive growth should be broad based and it should benefit the large part of the country’s labour force.
Against this backdrop, the Fifth South Asian Economic Summit (SAES-V) being held at the Sustainable Development Policy Institute (SDPI) is a good step forward. The choice of the theme – i.e., “making growth inclusive and sustainable in South Asia” – is important at least from two aspects:
First, it reflects a departure from the trickledown paradigm. It is a vindication of the fact at the intellectual level that benefits of growth do not trickle down automatically, and for growth to become broad-based, the inclusiveness aspect needs to be addressed through well-thought out economic and social global cooperation policies. Second, it highlights the importance of regional growth in achieving growth and development.
A sustained pace of economic growth is dependent on both internal and external factors. Internally, a country needs to concentrate on maintaining macroeconomic stability, investing in its people and, above all, strengthening institutions and controlling corruption. It is possible only through consistent and sound economic policies.
Based on case studies of 13 different countries – China, Thailand, Taiwan, Singapore, Korea, Hong Kong, Malaysia, Oman, Malta, Japan, Indonesia, Brazil and Botswana – the Commission of Economic Growth and Development came up with certain commonalities among these countries. The first point of resemblance, the commission has pointed out, is that all these countries fully exploited the world economy.
The Commission emphasised that high-growth countries benefitted from the global economy mainly through two channels: First, they capitalised on the ideas, knowhow, and technology from the global world which were generally accompanied with foreign direct investment (FDI). Second, these countries exploited global demand for their goods by increasing the productive potentials of their economies.
So in order for sustained growth to be ensured, regional cooperation is also significant. In an interdependent global economy, if one country is hit by economic or financial crisis, it is not completely possible for other countries to shield themselves from the negative impacts of such a crisis.
The financial crisis that ensued in the US had impacted almost every country, though the level of impact may vary from country to country. Similarly, the Greek crisis has endangered the entire Eurozone. Therefore, sustained growth is also dependent on extraneous factor and regional economic cooperation is in the interest of all regional countries.
As for the South Asia Economic Summit on inclusive and sustainable growth, we should expect that the participants will come up with concrete suggestions and policy options to ensure inclusive and sustainable economic growth in south Asia. What is more important is that academia, practitioners of public policy and members of the business community participating in the summit not only give their recommendations but also concentrate on practical frameworks for translation of these recommendations into action.
At least, we should expect answers to the following questions. How can we accelerate the pace of growth in South Asia? How can we make it sustainable? How can we take care of the pattern of growth in South Asia to make the growth inclusive? What should be the priority areas of economic cooperation between South Asian countries to boost growth? What practical steps are needed to ensure regional cooperation in South Asia to unleash the potential of its people so that they can contribute towards long-term growth? Further, trade is an important stimulator of sustained growth and we hope that the South Asian Economic Summit will also come up with clear recommendations on enhancing regional trade cooperation in South Asia.
The writer is a graduate from Columbia University with a degree in economic policy management. Email: jamilnasir1969@ gmail.com