Thursday, July 12, 2012

Dani Rodrik's prognosis

in The New Global Economy's (Relative) Winners
"Those that do relatively better will share three characteristics. First, they will not be weighed down by high levels of public debt. Second, they will not be overly reliant on the world economy, and their engine of economic growth will be internal rather than external. Finally, they will be robust democracies.
Having low to moderate levels of public debt is important, because debt levels that reach 80-90% of GDP become a serious drag on economic growth. They immobilize fiscal policy, lead to serious distortions in the financial system, trigger political fights over taxation, and incite costly distributional conflicts. Governments preoccupied with reducing debt are unlikely to undertake the investments needed for long-term structural change. With few exceptions (such as Australia and New Zealand), the vast majority of the world’s advanced economies are or will soon be in this category."

Discussing emerging maket-economies, he says

"Domestic demand-led growth will be a more reliable strategy than export-led growth. That means that countries with a large domestic market and a prosperous middle class will have an important advantage.

Finally, democracies will do better because they have the institutionalized mechanisms of conflict management that authoritarian regimes lack. Democracies such as India may seem at times to move too slowly and be prone to paralysis. But they provide the arenas of consultation, cooperation, and give-and-take among opposing social groups that are crucial in times of turbulence and shocks.

In the absence of such institutions, distributive conflict can easily spill over into protests, riots, and civil disorder. This is where democratic India and South Africa have the upper hand over China or Russia."

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