Sat | Dec 10, 2016

What makes countries grow?

Published:Sunday | September 7, 2014 | 12:00 AM

Ian Boyne, Columnist

The 548-page neo-liberal bible, The Global Competitiveness Report 2014-2015, was released last Tuesday, but the purists must be scandalised that heresies have crept into this latest version of the holy writ.

Put out by the highly prestigious and influential World Economic Forum, the Global Competitiveness Report this year makes a plea for inclusive growth and social inclusion, concepts traditionally championed by progressives who have now managed to break the intellectual hegemony of neo-liberal thinking in important quarters. The report now bemoans the fact that "in many countries, the gap between rich and poor is widening, youth unemployment is rising and access to basic services remains a challenge. Even in several fast-growing developing countries, it appears growth has not made a notable dent in income inequality or poverty and the vulnerabilities associated with these problems remain entrenched. The global community is calling for change - for solutions that foster economic growth in a more inclusive manner".

The report goes on to say that, "The emergence and widespread acceptance of the principle of social inclusion in the public domain has both a cultural origin and an economic one. Its cultural origin can be traced as far back as the 17th-Century idea of egalitarianism ..." You remember Michael Manley using that E word in the 1970s and people taking five flights to Miami, scared of communism? Well, egalitaria-nism is no longer a bad word to the august World Economic Forum, whose annual meetings in Davos, Switzerland attract the most powerful people in politics and business. The World Economic Forum now has a global project on inclusive growth. Formerly, some economists and political scientists used to propagate the view that inequality was necessary to economic growth and that it is nothing to worry about. From that inequality will emerge the creativity and innovativeness of individuals incentivised by the aroma of the market. At worse, it was a necessary evil to foster growth.

But that view has now been rejected by even mainstream economists. Reflecting this change, The Global Competitiveness Report says, "Reductions in excessive income inequality have also emerged as a prerequisite for inclusive growth, supported by mounting evidence that inequality undermines growth." The report goes on: "Over the past decades, these ideas have become prominent in global discourse and have helped to create a public expectation of growing prosperity that goes hand in hand with social justice and environmental protection." They might have become prominent in global discourse, but that discourse is certainly not prominent here in Jamaica. We are still locked in magic of the market ideas.

Our chattering classes are still imprisoned by the paradigm of neo-liberalism - market over state, private over public, free up this, free up that, to put it crudely. It is ironic that so-called hard-nosed business people and financial analysts will sneer at progressives who critique neo-liberalism, charging that they are too steeped in theory and ideology and they don't understand real-world economics. If you hear some people talk or read online comments, you will notice admonitions to abandon "textbook arguments" and deal with "the real world". But the fact is that it is the neo-liberals who are oblivious to economic history and, indeed, to contemporary economic realities.

Contrary to common propaganda

When you look at the economies which are growing rapidly, you will find, quite the contrary to common propaganda, that it is economies with a strong state sector which are doing outstandingly well. Though we are told that Government is hopelessly, necessarily inefficient, growth-reducing and economically repressive, yet we find China, India, Brazil, Russia, Mauritius and Scandinavia growing and they are not using laizzez-faire policies. You look at history and you see that the early industrialisers - Britian, the United States, Europe and then Japan and East Asia did not apply standard neo-liberal, Washington Consensus (International Monetary Fund-inspired) policies.

In fact, the number one country in the world in terms of competitiveness overall is Switzerland, which has a strong welfare sector and much inclusive growth. This proves that pro-poor, inclusive growth is not inimical to, but in fact, supportive of inclusive growth. Of the top 15 countries in global competitiveness, almost every one has a strong state sector. This neo-liberal fantasy is just that - a fantasy. Countries can't depend on markets alone to grow. They need the steady, efficient hand of the State.

If you want to see myths about the
State exploded, I strongly recommend Mariana Mazzucato's book,
The Entrepreneurial State: Debunking Public vs. Private Sector
. "Companies like Apple, Compaq, Intel and many
others received early-stage financing through Government financing
programmes like the Small Business Innovation Research, for example. The
infrastructure of the ICT revolution laying the basis for the Internet
was lavishly funded by the State ..."
A lot of the initial
investments in green technologies came from the State funding. This
marginalisation of the state is based on ignorance and


General-purpose technologies which have
provided the basis for many innovations by private entrepreneurs have
been funded by the State and then utilised by the private sector. The
State and the market must work together for economic growth. Countries
don't generally grow by market forces minus strong state facilitation.
Yes, there are many examples of state failure, but so are there many
examples of market failure. Don't forget that the market is not a
perfect decision-making mechanism.

Says The
Entrepreneurial State
: "How many people know that the
algorithm that led to Google's success was funded by a public sector
National Science Foundation grant? Or that molecular antibodies which
provided the foundation for biotechnology before venture capital moved
into the sector were discovered in public Medical Research Council labs
in the UK? How many people realise that many of the most innovative
young companies in the US were funded not by private venture capital,
but by public venture capital such as provided by the Small Business
Innovation Research?

Some of these facts
are hidden in "textbooks" never read. Most know at least that the basis
of the Internet and satellite technology came from US defense research.
Japan became an industrial giant partially through public research and
development funding. Europe has made significant public investments in
research and development.

Talking about neo-liberal
myths, let's take the aversion to industrial policy - which basically
has to do with picking winners and focusing on particular sectors you
want to grow. Neo-liberals say you should not do that. Just fix the
macroeconomy and private entrepreneurs will make their own market-driven
decisions as to where to invest. When Governments pick winners - engage
in industrial policy - they mess up things. Damien King has argued this
view strenuously. The facts are not on his side at

East Asia is the classic case of successful
industrial policy. What our manufacturers are clamouring for and being
told they simply want handouts is exactly what East Asian manufacturers
got to deliver the astounding economic miracle there. But it was not
just in East Asia. As the esteemed development economist Ha-Joon Chang
says in his latest (2014) book co-authored with Ilene Grabel,
Reclaiming Development :An Alternative Economic Policy
: "Other developing countries have used the
policy with success. The Brazilian aerospace industry is the most
notable example. During the post World War II period, a number of
European countries, notably France, Austria, Norway and Finland
aggressively used selective industrial policy. These countries used
indicative investment planning, state control over finance, state-owned
enterprises, various trade control measures and industrial subsidies to
modernise their industries and compete with and eventually surpass
countries like the UK."

As the authors go on
to note, "The world-class automobile, steel and electronics
industries in Japan and Korea and electronics and chemicals in Taiwan
would not have developed without industrial policy."
industrial policy has to be carefully designed and managed. It has to be
accompanied by a strict accountability framework. There have to be
performance criteria. Jamaica's Industrial policy and incentive regimes
have been sloppy, haphazard and often counterproductive. But we cannot
use our ineptitude at industrial policy to discredit it in

We need a broader and more robust
discussion of economic policy in Jamaica - one that is informed and
research-based. It can't be faith-based, as is our present neo-liberal

Ian Boyne is a veteran journalist working
with the Jamaica Information Service. Email feedback to and