By Mthuli Ncube and Michael Fairbanks
Which is more probable: Africa becomes a virtual international province of China, the main source of its sub-soil assets, and the major component of China’s strategy for its own domestic stability; or China becomes a way African nations upgrade their economies and integrate into the global value chain for manufacturing. The answer lies in the demographics of China, and what African nations decide to do next.
The greatest challenges facing China are an ageing population, gender disparity, migration to cities, rural health care and income inequality. Poverty declined from more than 60 per cent to less than 7 per cent since 1978, eradicating more poverty than in the rest of human history. That happened because of China’s “going out” into the world strategy and Africa is, arguably, the most important part of that strategy. Read more
As part of the FT’s week-long series on the Brics emerging markets, experts on each of the four economies will contribute to the debate about the role of Brics consumers in the global economy. The last entry focuses on China, read the entries from the other countries below.
By Michael Pettis
Given the speed of its economic transformation, its sky-high bank-stock valuations, the unprecedented size of its accumulated reserves, and its much-advertised desire to change the global monetary system; it is tempting to assume that China will radically transform the world’s capital markets and financial systems with the same ruthless speed with which it has transformed export markets.
But this won’t happen. Beijing is skeptical of arguments supporting rapid financial and monetary deregulation, and policymakers continue to measure the usefulness of the financial system mainly to the extent that it serves the needs of rapid growth in manufacturing and infrastructure. This means continued heavy-handed control of the capital allocation process and the level of interest rates, the relinquishing of which are the two key measures of real financial sector liberalisation.
China’s main impact on the global financial system will continue, for the foreseeable future, to be limited to its massive accumulation of reserves. And because the US is still the only economy large and flexible enough to accommodate the high trade surpluses that the Chinese economy relies on, it will continue to accumulate dollars. Read more
By Per Kurowski
There is no reason to believe the world would be better if financial regulators provided extra incentives to those who, perceived as having a lower default risk, are already favoured by lower interest rates, or punish further those who, perceived as more risky, are already punished by higher interest rates. In fact, the opposite is probably true. Read more
by Richard Thaler
I recently had the pleasure of reading Justin Fox’s new book The Myth of the Rational Market . It offers an engaging history of the research that has come to be called the “efficient market hypothesis”. It is similar in style to the classic by the late Peter Bernstein, Against the Gods. All the quotes in this column are taken from it. The book was mostly written before the financial crisis. However, it is natural to ask if the experiences over the last year should change our view of the EMH. Read more
By Shankar Acharya
In recent years, the rise of China and India has become a salient feature of the global economic landscape. Conferences and books have proliferated with titles such as “China and India Rising” and “Dancing with Giants”. Although individual contributions have often delineated carefully the differing paths taken by these two populous Asian nations, there has been a general tendency to lump the two countries together in discussions of global economic issues ranging from international trade to climate change. Read more
By Glenn Hubbard
This week the United Nations reported that the recession has created a $4.8bn (£3bn, €3.4bn) shortfall in its 2009 aid programmes – more than half the $9.5bn it seeks. On the one hand, that is bad, because the UN does much valuable humanitarian work. On the other hand, financial constraints may force the UN to rethink the portion of its aid aimed at economic development. The UN continues to fund government and non-governmental organisations to run economic development projects. But that is not how to end poverty: only the local business sector does that. Read more
If the government of the UK wishes to find a suitable motto, it should adopt the advice of a great Scot. “Great Britain should,” wrote Adam Smith in The Wealth of Nations, “…endeavour to accommodate her future views and designs to the real mediocrity of her circumstances.” Smith offers wise counsel. The country’s circumstances are more mediocre than imagined two years ago. The question is how to respond. Read more
What will the world economy – indeed, the world – look like after the financial crisis is over? Will this prove to be a mere blip or something more fundamental? Much of the answer will be provided by the performance of the two Asian giants, China and India. Rightly or wrongly, it is widely accepted that China will continue to grow very rapidly. But what is the likely future for India? Read more
Did inflation targeting fail? Central banks have mostly escaped blame for the crisis. Do they deserve to do so?
Just over five years ago, Ben Bernanke, now chairman of the Federal Reserve, gave a speech on the “Great Moderation” – the declining volatility of inflation and output over the previous two decades. In this he emphasised the beneficial role of improved monetary policy. Central bankers felt proud of themselves. Pride went before a fall. Today, they are struggling with the deepest recession since the 1930s, a banking system on government life-support and the danger of deflation. How can it have gone so wrong? Read more
The UK has followed the US and Japan into “unconventional monetary policy”. Meanwhile, Mervyn King, governor of the Bank of England warns the UK government of the dangers of further discretionary fiscal stimulus. Yet what are the implications of the policies followed by central banks? Are these not the big threat to monetary stability? Read more
The summit of the Group of 20 leading high-income and emerging countries in London on Thursday seems set to achieve progress. But achievement must be measured not just against past performances, but against “the fierce urgency of now”. Unfortunately, it will come up short. Read more
By Jeffrey D. Sachs
Governments meet in Doha this weekend to review the global system of development financing, the means by which resources flow globally to support sustainable development. The system is broken, though the conferees are unlikely to say so clearly. Read more
By Adrian Wood
Ministers from developed and developing countries are gathered this week in Accra, Ghana’s capital, for the latest high-level forum on aid effectiveness. Learning from past successes and failures, reformers are pressing for more ownership by developing countries of aid relationships, more predictability of aid flows and less fragmentation of aid delivery. This agenda is important. If implemented, these reforms would give the taxpayers of rich countries better value for money and increase the benefits of aid to people in poor ones. Aid cannot on its own cause development, but if properly delivered and well used it can be enormously beneficial. Read more
by Pranab Bardhan
As the petro-authoritarianism of Russia flexes its muscles and the economic prowess of China struts in Olympic glory, developing countries in the world might start rethinking about the lectures on democracy and development they have heard all these years from the West. This is at a time when advanced capitalist democracies are reeling under the shock of unregulated financial overreach and years of living beyond their means, a far cry from the end-of-history triumphalism of capitalist democracy of less than two decades back.
The Chinese case in particular is reviving a hoary myth of how particularly in the initial stages of economic development authoritarianism delivers much more than democracy. This is also backed by the memory of impressive economic performance of other East Asian authoritarian regimes (like those in South Korea and Taiwan in the recent past). The lingering hope of democrats had been that as the middle classes prosper in these regimes, they then demand, and in the latter two cases got, the movement toward political democracy.
But the relationship between authoritarianism or democracy and development is not so simple. Authoritarianism is neither necessary nor sufficient for economic development. That it is not necessary is illustrated not only by today’s industrial democracies, but by scattered cases of recent development success: Costa Rica, Botswana, and now India. That it is not sufficient is amply evident from disastrous authoritarian regimes in Africa and elsewhere. Read more
Today, almost two-thirds of humanity lives in high-income or high-growth countries. That proportion is up from less than a fifth 30 years ago. Unfortunately, the remaining 2bn live in countries with stagnant, or even declining, incomes. What makes this even more important is the worrying fact that some two-thirds of the 3bn increase in global population expected by 2050 will live in countries today enjoying little or no growth. Read more
By William Easterly
The report of the World Bank Growth Commission, led by Nobel laureate Michael Spence, was published last week. After two years of work by the commission of 21 world leaders and experts, an 11- member working group, 300 academic experts, 12 workshops, 13 consultations, and a budget of $4m, the experts’ answer to the question of how to attain high growth was roughly: we do not know, but trust experts to figure it out. Read more