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tv   Book TV  CSPAN  June 27, 2011 7:00am-8:00am EDT

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>> i wanted to share some of that because i found talking to investors, and others, you know, this growth that is remote from their lives is somewhat puzzling, questions like is a sustainable? and i said you have to look at the dynamics that we know seem to work and see if you can find a missing piece and so on. so that's what i was after, but i friend any much longer time horizon. something like this, that we know from the work of angus madison and others that there wasn't much growth in the period up to the british industrial revolution. and we know that the pattern changed dramatically at that point, in the u.k. and continental europe and what
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angus madison called the european offshoots. and the canadians and australians dealings. but that affected roughly 15% of the world population. and colonial systems were in place and basically the remaining 85% of the growing global population state of approximate the course they were on before with some effects of industrial election growing well. that went on for 200 years. until the end of world war ii when the colonial empires game, broke down, when a bunch of wise people created the imf and world bank, set out to make sure that the disastrous performance of the bank after world war i was not repeated. the global economy was opened up and start to function, and technology produced a huge headwind in opening the global economy. and we started something that think it's fair to say nobody
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could see at the time, which was faltering starts and various starting points, a pattern that i eventually came to call convergence which is this process of taking 15 privileged% mac -- privileged percent, i think a realistic one at the end of this century that started after world war ii which we are more halfway through. we will have, if we are lucky, 75, maybe 80% of the world population and we're well on our way. i don't want to sound flippant about this. there's a lot of hard work that goes into a standing growth like this, both within the countries and have increasingly globally to create stability in and if i'm at which you can't occur, i think it's a reasonable guess that if something really bad
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doesn't happen will triple the global gdp in the next few years. probably 20, maybe more than triple. it only takes 3.75% global. so i think what trannine -- what olivier said, i present what i think is now common knowledge among all of you, among members of the growth commission, the world of people who have worked very hard to sustain this growth so people can understand the growth model and then look to the future. and i do believe that we are at a bit of a crossroads in the global economy, where the way i try to describe it, less expert groups of people than those in this room, you know, china started growing 31 years ago at
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pretty high rates, accelerated quite rapidly somewhere around 9% growth, but if you drop back 20 years and see what difference did that make in the global economy, the answer was very little, right? fast-forward, 20 years to the present, and you get nine or 10% growth, you are talking very large shifts in the composition and whatnot of the global economy. and so, it isn't just growth. the punitive effect of growth that's interesting and i believe we're at a crossroads much emerging economies are systemically important in multiple dimensions. again, that won't come as news to you, but it isn't just growth. you can fool yourself by saying with a 34 years of high speed growth, that sort we are are living in. you can see in all kinds of places. that kinsey global institute study suggests i think quite
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possibly that the declining investment rate that we experienced in the figures after world war ii is about to reverse. essentially because the investment rates are higher and the emerging economies and their weight in the global economy is bigger. so i want to sort of anticipate some of these problems. there's a problem there when anticipate a problem, at least with respect to some part of me you are supposed to give the answer. and i don't think we have answers to many of these things. i think we're going on a journey together to try to figure them out, much as the emerging economies go on a journey to try to solve problems in a kind of experimental mode in which you don't really have the answer sort of before you start. but i think it's a fascinating time in the global economy, and i think the people -- so what
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are these challenges? one of them is clearly government. and it's a fairly rapidly moving environment. we switched over to the g20 partner with the help of the crisis. the g20 is now struggling to find a way to promote stability and coordinate policy on a global basis. i'm not pessimistic about that but i think it's realistic to think of it as a long-term project. and one that is very difficult given the relative heterogeneity of the countries that are involved in terms of their sort of state of development. you know, in china there's a real tension. china has become systemically terribly important, very, very low level of per capita income relative to any of their predecessors.
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so there's a very powerful instinct of china to say look, the growth and development domestic agenda is pretty hard, we will stick with it. and wise international advisors, and also the intro people say no, you know, it's not the best hand to play to the global responsibility with a per capita income of $4000 that it is not in hours or you're interested nor these systemic effects. and, in fact, china is going to have to conduct a balancing act in collaboration with the international institutions, and the rest of the systemically important countries advanced and emerging and sort of deal with these things, and just the fact what, india will be in the same position, though my estimate, india is at high-growth rate somewhere around 13 years behind china in the course of this. i will tell you one thing that
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josh feldman and i were talking about that is a relatively new thought. that i started to think about based on the basis conversations in asia recently. so let me say in two ways. first of all, it's pretty clear those of you who know and dutch organization, you know we measure concentration and industry, it's a kind of weird thing about how occult novelist and it will be. the share of the top two, the share of the top four. and we know i think it's obvious the global economy is -- the smaller entities are growing quickly. what i didn't realize until recently is that pattern will reverse in about 10 years. because of the size of the high-growth part of the world economy. i maybe wrong on the timing but we are going to be in a position
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in which the global economy is dominated by poor economies, europe taken together, the united states or north america, china and india. and then you have to go very much past that the sides you have two economies is nothing gets in the way. so i think one of the challenges sort of handling these global issues is that the relative size of the entities is changing very fast, sort of like a moving target. now back to asia. asia's 3.8 billion people is not quite but close to 60% of the worlds population. if we stay on approximately this trajectory that we are on now, this pattern of convergence, they will account for some very large fraction of the growth in the global economy. the absolute amount of growth is tripling or quadrupling. and what is happening in asia is
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what we think of as global issues, challenging global issues whether all kinds of problems relating to natural resources, the environment, climate changes and so on, are starting to be internalized in the big countries like china, because there's such an important part of the incremental pressure, you know, prices, consumption, and through growth, that they are starting to realize and i think this is new, its new they are it's new in the global economy that addressing these issues isn't so much a global issue for them, it's a question of long-term growth strategy and success in completing the process of marching to advance countries high-technology steps. what that means i don't think we're time to think about, but
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it changes the incentive structure of the game, or the games that surround sustainability and so on. if there's one or two players or a region that is internalized this concern to act because it's in our long-term self-interest. i will close with a little bit of a talk of terminology. so i encountered this with friends in asia under the heading of lifestyle, you know, they said our lifestyle is going to have to change. it's going to have to be different from the advanced countries and our predecessors in high-growth mode. i thought what's this got to do with lifestyle? what are we talking about? lifestyles are you were blue shirt and i were sandals and someone else has a ponytail, and when we see lifestyle we're talking about individual choices in a broad spectrum of -- were resorted think of people to make
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individual choices, nobody's business so to speak. it's not a social issue. there are relatively few constraints. what chinese mean by lifestyle is something completely different. and it doesn't fall into the realm of individual choice. it falls into the realm of collective. gaming they you build cities and what transportation system you have, and how many kids you are allowed to have because that have social consequences. and what they can drive a car and what kind of car, et cetera. and i think there's a bit of clash of civilization because in asia and the setting with lots of differences among countries, this notion that there's a very large area that's predefined constitutionally is free from interference, you know, from society, from government, is not
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an accepted proposition. and probably function itself when you're talking about that many people, you know, packed that close together. and so they feel free to have policies that affect demographics and they will feel free to constrain choices if the cost of failing to constrain the choice is to threaten the sustainability of the growth pattern, and we have i believe an upcoming communication problem. may be a values problem associated with this but certainly a communication problem because the sort of one line version of this is we are going to have to change our lifestyle. and a slightly longer version is we can't use the growth model in an unaltered form that was used by all our predecessors advanced and emerging. and that's having to invent a
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new path as you go along. and nobody knows what it is. there will be choices made and trade-offs made all the way along the line, but i would love to be reasonably confident seeing this completion of this journey that i try to describe in the book. i don't think that's a very good step. in my case, but am hoping to be around for at least a little bit longer to see some of this. i think it's really, really quite fascinating. there is a bit in the book that will talk about today, which has to do with the crisis and what was learned about the crisis, sustainability of the emerging market growth after the crisis. i think we are now pretty clear on those issues. the crisis was well handled globally, including by the emerging markets. they obviously had lots and
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learned a ton from past experience. the restoration of growth was extraordinary in china, india and brazil, brick, three of the brick. jim o'neill says by the way we can still use bricks but we can't use the term emerging economies anymore. so that leaves us with, you know, what are we going to say? so he says the high-growth economy, a fairly pessimistic version with respect to the fenced countries it and then there's the next 11. i don't find the next 11 particularly snappy way of referring to the smaller high-growth countries. but anyway, on sustainability i think we have probably a reasonable consensus that unlike 10 years ago they can probably, they mean for developing countries, the emerging ones
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leading the charge, they can probably sustain really quite high-growth, even if we limp along in europe and america for sometime. that's a big change. that degree of decoupling -- it's not completely coupling, i'm quite sure that if we have a problem on the fiscal side that produces a big downturn here or in europe, that that will slow them down. there's one other very large change that you see when looking at the emerging economies from an investment point of view. if you go back 15 years and ask how correlated with the emerging economies sort of growth rates to anything in the global economy, he would have answered they are correlated with us. and relatively uncorrelated to each other because what produce problems or decelerations were largely idiosyncratic to the country or the region. that's not true anymore. they are highly correlated to
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each other by china. and china this is a step in the middle income transition which is what they are entering, a transition in which five economies have successfully now near through at high-growth. that will flow i imagine, i'm pretty sure that will slow all of the rest of the developing world down. so that is a very different world. if you're in an emerging country other than china, and writing out risk factors, you would write out instability in the global economy financial system, a downturn in europe and america, and a downturn in china. anyway, olivier, i think that's probably enough for me this morning. i hope, i hope some of you have a chance to take a look at it and find it useful and sort of providing a frame of reference for thinking about the highly dynamic world that we are in. thank you.
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[applause] >> the floor is open. i hope there's a question. >> my question is, are we all going to benefit from this? am asking this question actually strictly from the advanced economies perspective. is echoing they're going to benefit, or will we have many losers and they weren't about how to address this? >> so, that's an extreme -- i'm awfully glad you asked that question. so, that was what i started thinking about right after writing the book, this past sort of nine months. some of you heard some of this so i apologize. part of, part of the impact of rising size and movement up, the value added jane, kind of -- a
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different pattern of the impact on this sort of structure and prices in the advanced countries. i'm kind of mid-process in trying to understand the structural changes, the correlated structural changes in the advanced economies that go along with evolution of the global economy in the emerging markets. i will just report reef as i did in march. if you look at the american economy, since 1990 up to the crisis, all of the unemployment was in the nontribal sector. if you look at the tradable sector what you find is that the ones where the united states is quite competitive, finance, computer design, multinational enterprises, consulting, there's growth in everything. there's growth in income, value
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added, there's growth in employment. and then you look at the supply chains in the things they called manufacturing, even to a lot of the components of the supply chain our services, and a lower value added parts of those are sort of moving offshore, and that's where the middle, the lower, middle to lower part of the spectrum in terms of education, income and so on on the tradable side was employed. we could've had an unemployment problem but instead the non-tradable sector essentially absorb them and then go look where it was absorbed. the answer is government, health care, construction, retail, all the big employment sectors. government and health care was 40%. you know, economists aren't supposed their crystal balls, and i certainly don't, but i at least wonder whether that trajectory is sort of, could
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contain any future. all of this evolution combined with a laborsaving technical change is consistent with the evolution of the income distribution in the country. so the bottom line is whatever the right answer is, it deserves attention, and is almost surely distributional fx which means differential impacts of the evolving structure in the global economy on subsets of the population in advanced economies. my next project is to try to sort out what the last 10 years and why there is an apparently quite different pattern both structure and growth going on now. we are kind of in the process of that. the mckinsey global institute have agreed to collaborate and try to do similar things for all the major economies of the world so we have a sense of the structural evolution. and, frankly, what i'm trying to
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do is reintroduce the idea that the sort of structural change with a long-term journey rather than a cyclical event gets to be part, overtime gets to be part of the policy discussion, not the exclusion of cyclical things and crisis recovery and so on. i suspect the effects are large, and they are getting larger. if what i said in the book is if you look at the distributional effects of globalization for the first 50 years of this 100 year pattern, it's been pretty benign. more recovery, not much unemployment, the advanced countries, trend growth rates of 2.5% in real terms, declining prices of a lot of stuff like labor intensive manufacture products. and huge amounts of growth accelerating growth, and reduction in much of the rest of
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the world. so it's hard to worry about that. so i suspect at this point that i described where lots of things are changing because of the size of effects rather than bend the accumulative effective growth will remain want to be more attention to the destitution and structure. >> thank you. as he had been -- fascinated with angus maddison were, and if you look at the work of 1910, you would love to a bunch of countries like canada and the united states, and you see it in australia, argentina. after one century you see everyone but one, argentina.
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so what was the difference? basically that the political economy model of this quite equitable countries were national and out with natural resources. very different between new zealand, austria, canada and argentina. my question is now since almost everything depends from now on on what's going to happen with, say, china, india and brazil. is your view that china could replicate in a way what japan did? because when japan was having about reengineering but china is all about -- is the political economy the way, power distributed in china in your view, could be an obstacle whenever they reach higher levels of income?
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because the check and balances, sort of the lack of democracy could eventually be a big hurdle? >> that's a wonderful question. i will preface the answer by saying i can't answer all parts of it but i do believe a political economy that is being done now, helps us understand, really understand these interactions between governments on the one hand, and the dynamics of the economic processes on the other is tremendously important. it's still got a ways to go. and i think i will just endorse your proposition under that heading that even though we don't completely understand how the political economy, you know, forces, plays itself out, they are different countries. and you said probably the most dramatic example of divergent results. and so to answer your question
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about china, i think it has froze the chinese government the wait is now, and it is evolving. but if you froze the account i would drop the chances of getting to advanced countries status by very large amounts. so there's going to be a co-evolution. none of us know exactly what it would look like, but we do know based on at least some understanding of the middle income transition that the market has to be more decisive than the states left in the economic processes, that price distortion have to be fixed, that the low return investment behavior in the public sector and the state owned enterprise sector which to less than half the net assets in the economy is going to have to be eliminated. that's easy to say until you start think about what you've got to do to get rid of the. corporate, government, diminish
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the importance of the party, give the income to the household and make them give it back if the return cases higher. i'm being a little flip but it's a huge array of stuff to try to get done. but the underlying thing is that in multiple dimensions the government structure is going to have to move alongside. and i think that space on predecessors, japan, korea and taiwan were dominant single party structures, that evolved in part because of good leadership when the economy reached a certain stage of development. so it's not a bad guess that ultimately china will end up in that position. if you go any people in china, members of the commonest party, you probably will not hear that yet. and they may invent a new model. they keep thinking they invented a new model, so some of this
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evolution, it may occur inside a shell which is the party structure. so you sort of don't see the evolution as clearly as you would with a formally different structure. >> i also have a china related question and you may have answered part of my question, but in any case let me ask. you mentioned about chinese talk about life stuck in, building cities, how many kids to have, social implications, kind of cars to drive. and you also talk about choices to preserve long-term growth, that's something they are thinking. my question is do you believe market slashed prices are much better to handle these problems than state intervention into forms that you see the one child
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policy that they have? doesn't matter? what is your view of this? >> i have a kind of -- it's a very good question and i'm not sure. i would love to sit and think about it more but i think the right answer probably pragmatically now is that market prices work better in some environments than others. i would say that the use of market prices as price signals in the area of pollution or emissions reduction in the sulfur dioxide area has demonstrated clear benefits of taking that approach, and efficiency that goes along with it. i think i wouldn't want to step out on a limb and say with respect to demographics that price systems are necessary. the best way to go it might be but i come at least i don't think i have enough of a basis for sort of making that claim.
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you know, in the emerging economies where the models, the models that we used to predict the impact of policy decisions are useful but not, but have to be modified based on the state of development of the economy. you have a pattern of behavior that i called navigating, you know, it means solving problems, making judgment. you see this everywhere. emerging markets managed the currency. we all know that if you sit on it, used all the structural transformation and if you let it appreciate you quickly, then the structural evolution, the economy can't keep up. we've gotten to that overtime. we now understand that that legion a position of making judgments rather than adopting a clean and clear model of the type that would use in the
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advanced countries. so i think it's going to be pragmatic and somewhat experimental mix, but the clash that we may have with some of the emerging markets, particularly with china, is we have very different conceptions of where the private sector should evolve and the public sector should start, even though we buried across the advanced countries. we have systems that are built on a fairly sharp distinction and they are blurred. in an economy that has, i called nine strategic sectors where they don't plan to exit, the state ownership, and so there will be lots of challenges navigating through these -- as we interact with each other, these fairly fundamental differences in the way we've decided to organize ourselves. and i don't know what the and will be but it is a challenge.
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>> what you said, aren't you surprise at how all these countries are all growing at very high rates, incredible different market, organizations? india and china i think, none of us would've expected that. i think most of us 20 years ago would have said look, we see with any has, forget it. china, for lack of democracy, fixed prices, they did find. then we of singapore, hong kong, which are different. in the in the driving force is these technological process of getting to the front to. once it's there you really have to screw up. i'm struck by how these different structures accommodate
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all these different structures which might make is sort of optimistic. >> no, no, it does. let me just elaborate on this very interesting point. the book does talk about this. the growth commission didn't spend a lot of time on a but we did start paying attention to what are the success factors of the leadership of political sites. let me just say what olivier said. if you look at high-growth countries you see the first city with respect to what i call -- and if you look at the economies that are much lower performers, you see a blizzard in term of form, of diversity. so they are failing democracy with pathologies that others have talked about and documented. and, of course, you can find easily find autocratic systems, you know, that produce
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autocratic results. if you think of it as a box, sort of democratic and autocratic, a crude approximation to the two dimensions, you can fill in every item in the box. there's highly demonstrated successful cases. and so the conclusion that led me to believe that one, the political economy research and is important and we don't really understand this, and the second one is it isn't just performers. it's something else. you can draw two conclusions from the. one is the government is very important some sense because you get all these different forms, and actually the driving forces of the economy. or you can say the government is pretty important complementary player to the private sector in an open global economy but it isn't the forum that matters.
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it competence, the intent, the objective function, the intent of the vast majority people. the ability to bring people together around pretty tough agendas with high savings rates, poor countries, building consensus and so on. i find without being -- the state has an important complementary role as regulator, investor in public goods and so one. but it isn't the form. and i think that's not good enough, relative to what we hope we know 10 years from now as result of the political economy but at least it strikes me as vaguely consistent with the facts. but it doesn't prove that the proposition -- it doesn't disprove the proposition that states sort of, there's very great degree of latitude and very forms and performance that's all consistent with very
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high economic performance. and i don't think we need to object to the hypothesis at this stage. >> one of the things you mentioned was usage were fairly comfortable, -- [inaudible] you just mentioned now there's a lot of difference in getting that going is maybe more difficult it can also, what do we have in terms of history? can we point to countries, larger in the past that they were willing to step up and internalize some of these issues? i'm talking about the environment and many other aspects as well. >> we don't have a lot of, this is one way of putting it is i could be quite wrong. when i say this is likely to
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happen in china, it's based on their historical performance, not a lot of other day. this like a number of other countries with lots of variations, a country that has a clear objective, long-term objective, very long-term horizon, ability to to persist in pursuing them. the reason every developer track record for tuesday problems to come at the next stage of growth, so it would be on the basis of that kind of track record that i think i would lean to the conclusion that they will internalize that. if you wanted to argue against it you take the point to environmental performance of the date. in the chinese economy which is probably the most extreme version of the global now deal with the consequences later, which has turned out to be an awfully big mess, and hugely costly challenge going forward. it lowers the growth rate,
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target growth rates 7%, which leads them a huge amount of leeway, given what they probably can accomplish in at least the next 10 years to deal with equity and inequality issues, social pensions is what they call it. and environmental and sustainability issues. and i think that's smart to buy themselves that degree of freedom. what they're really doing is telling down expectations on that dimension of economic performance in saying we are really moving in the direction of the multidimensional performance measure that is focused on quality and the environment, quality of life and sustainability. but you wouldn't want to use the track record to prove what i just said, for sure. yes. >> it's always somewhat risky to project growth rates, i guess
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especially high growth rates for by a decade or two. i guess we have sort of been here before in the '50s, '60s with eastern europe. to some point would say we will bury you. and similarly in the mid '80s with japan. is the sort of projected forward any suggestion that japan would become double the size of the u.s. in however many decades. how are things different this time? >> they have bigger populations. all we have to do is modify, which i think is what they are doing. accepting markets, not adopting flawed models, learning from us. many of you spent a lot of time in china. the thing that strikes most about china is the speed of learning from the rest of the world. in a world where there's lots of
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learning going on is the highest speed learning environment i've ever been income in this dimension. all of which i think doesn't point to the absence of bumps along the road or even major sudden stops. you wouldn't want to reject that, your investment mode for sure you wouldn't want. but i think the fundamental point is that they have adopted in modified form the model that the advanced countries used, and the rest of the projection is based not on outperforming us, in beijing they don't think we will disappear. they think we will be hyper competitive members of an advanced global economy. and i agree with that. i don't see any varying going on. i think in response to this
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other question i said there are some distributional and transition issues that are long-term enough that we should pay attention to them, but nobody is varying anybody as far as i can see. so that's the kind of frame of reference i think that leech in conjunction with fairly skillful navigation. the world could go different. it could be that the objectives more from -- morph into some kind of more aggressive dominant depending on how the governments and society goes. i can't tell you that we can project that hypothesis at all. but it doesn't look like the current trajectory. the bottom line is these are the future economic giants, just because their population is four times ours. >> canyon maybe say something
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good about the other figures were people live, africa? maybe contrast or what you see happening there? >> so, i think, i think there are people, living people in this room are more expert on africa than i am, but my impression, correct me if i get any of this wrong, there's been a clear pattern of growth acceleration, the reason to be successful navigation to the crisis, a generation of young leadership that takes responsibility on behalf of the country for their future. a long period of building national identity. recently successfully as a kind of fundamental foundation for sort of building a society with a set of objectives, including the economic ones. and so, i would say, and then you have the power of asia which
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wants to interact with africa as a tailwind. we didn't talk much about this, but the importance of china, middle income transition is they are going to exit the natural territory that poorer countries operate in in terms of comparative advantage. and that is going to keep, i mean, this is the imf. we know you can't, you can't have no comparative advantage, right click the exchange rate will take care of that. but in africa there has been a widespread view that the social return to public sector investment to stimulate growth is lower than the competitive power of china. this is sort of sitting there competing, and as they exit the stage then i think that return may very well, that will help accelerate growth. and not only that, he had a big
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economy that has become the major export destination, including india, brazil, korea, and it goes on. so i think for all those reasons both internal, most importantly, and external, there's a reasonable basis for optimism, notwithstanding the late start for accelerating pattern of growth. having said that, in the middle east and north africa, there's a point of maximum uncertainty of whether this will come out with reasonably solid government structures and a pattern of economic management that promotes growth or something quite a bit more chaotic. i think the jury is out on that, and that's a major risk factor for them and for the global economy. i can't risk telling you, i love operating in this violent so i learned one other thing
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recently. the japan tsunami, the nuclear problem, the destruction of the supply chain has caused one very important fact, going forward in the global supply chain can which is the people who run that, if you sit down and talk to them have realized this global supply chains are too efficient. that it is wound too tight. and so the capacity of a relatively minor, you know, in the sense of the entire global supply chain disruption, i don't mean to call what happened in japan miner, but you understand what i mean in this context, it's capable of producing sort of amplified disruption, and is a response to the. there'll be a private sector response and they will unwind this kind of characteristic so there's -- this is very much, it is a network. it's very much like networks that are highly vulnerable when
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they start to become efficient and lose their redundancy. it's just a fascinating, you know, one little dimension of the evolution of the global economy and learning from this. >> a follow-up on convergence. you look at per capita income in most countries. over a long period of time this has been remarkably stable. countries have gone up 20 points, 30 points and then they come back. countries going up and down but most i would say the majority by a big extent have ended up coming back to their starting point. eastern and western europe d.c. in these countries converging minimum with respect to the u.s., particularly as a leader?
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in this context, other countries have been able to grow in the last, they have been able to do it because of market penetration. there's more economies because they are small. china doesn't have that luxury. they are becoming large. for them to keep growing, i don't know but it seems difficult to keep going forever as a share of work great so they have to do it domestically. where they will then have the discipline that foreign markets impose terms of quality, in terms of efficiency, all those things. so they may revert to write other countries have like latin america. get to a level and then you stagnate. i wonder what you think about that. >> it's a distinct possibility. this is a treacherous path you describe actually. the key components of the, especially for big countries. so they will go up the value-added chain in the export sector but their marketshare
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regardless of what portion there and i want them in, that plus investment especially will not drive growth. it's got to come from the domestic economy. it's got to come from aggregate demand and the domestic economy. that aggregate demand has to be the right mix. because it will guide the evolution of the supply side and the economy much more prominently than happens when they were or any other country is poor in the domestic market sort it doesn't matter. and that's all exactly right, and there's lots of places where discipline or, you know, price distortions or other things. the thing that has worried china most is, there's a document very well, imf working paper's is the declining fraction of household, disposable household income from
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70 to 60%. and so, and in some sense in part, almost 50% of the population plus or minus a bit in the countryside. that iron grip of the surplus labor seems to be being relaxed. and that's based on a pattern of rapidly rising wages in the coastal sectors, starting last summer. and so they may have a tailwind in this dimension that they were not anticipating, or which they knew would come but they didn't know when. and even in as little as a year ago we were talking about the need for the government consumption on crucial services like education and health care, especially in a row sectors, being needed as the sort transition mechanism while you waited for the economy to start the relative price increase of labor in motion. it's not a done deal yet but
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that looks like it's now started, and that will give, even if they screw up and don't force the state owned enterprises, the dividend out more of their income and just park it where it is used, that will produce movement in the right direction in terms of the inside structure in the economy. but i accept your general conclusion which is that there's all kinds of places to fall off the boat. and this is a race complex set of changes in supporting policy that are needed at this stage. and i guess the best evidence is, you know, they pulled it off and all of latin america, the rest of the high-paying countries in asia didn't. so there's -- and these aren't stupid people. one thing you do not have in asia yet is you do not have gd coefficients north of .6. you do not have countries in
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which the concentrated ownership of assets even approximate the colonial legacy of latin america. and while i'm not sure we have a definitive political economy accounts, the chances that when assets including land or that concert in terms of ownership, seriously influencing the policy of the country in the direction of protecting the rent and so on the go with those assets, i don't think one should project that hypothesis. and there's too many dual economies like the ones that brazil had that fail in the mid '90s that sort of illustrate that point we basically, i sometimes describe brazil, not now, because this gathered rapidly closing, but describe it as the middle income country that consist of a advance country and a poor country living in the same borders. that is not a high growth environment. over a sustained period of time.
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>> i enjoyed the talk. what is china's demographic structure suggest for looking very long-term, the long-term growth trajectory? and perhaps long-term budgetary? >> right. a very good question. so china is aging. the experts like peter diamond and nicobar and others that have advised the government say they are still in the window where the state balance sheet which is gigantic, big enough to sort of sort this out, but it's not going to last forever. uncharacteristic i think olivier would concur with this, the tennessee could move very
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quickly when a problem is identified is not industry in the pension of social security very. knowing they've had a problem for, i don't know, probably 10 years and only now are they starting to sort of elaborate and make universal pension systems -- sorry, i'll get it. so this is a real challenge. i think it's nowhere near as serious yet as it is in europe in terms of adjusting fiscal and other arrangements, our japan for its says most extreme form. but it's not -- if they don't deal with it fairly early it could slow them down. on china's growth trajectory, demographers have different opinions on whether aging slows growth. david bloom at harvard said if you make enough adjustments including how long people work,
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how many transitions they make in their lifetime and so on, which you may or may not think our realistic assumptions, then there's no reason to think that aging slows growth. any falloff from those institutional adjustments in multiple dimensions should get slower growth, and in addition, you know, china is now, call it to doublings away from getting near the lower end of the income spectrum. you know, were like two decades. that doesn't put them anywhere near us by the way, 47,000 plus per person, but they are going to slow down on the ketchup model, starting fairly soon, you know, they probably have another slightly less than a decade of high growth. and so that plus aging will probably slow them down.
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not necessarily a bad thing. you know, to go back just briefly to an earlier question, when we say china will get there, we mean to the kind of advanced country status. whether or not they continue and become more like singapore or more like the country i live in most of the time, italy, it's a function that whole different set of considerations, you know, trade-offs, incentives, labor markets, mobility and all the things that we talk about among ourselves. so that's really a different set of considerations i think, and i have no idea, you know, how china will make those choices and where they will end up in advance country hierarchy eventually. george? >> so, how do you perceive china
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is getting off its export led growth? is that going to be something that is natural, or is that something that -- >> that's a very good question. so, there's two parts to that, it's not natural, okay? they have to solve this problem on the aggregate demand, if they are successful on social insurance and security side there'll be able to lower the household savings rate which is 30%. that will make the conjugation but you can't solve the problem with just the household saving rate. asian countries tend to save at high rates. it has to do with income. i think mostly. and then the question that both outsiders and insiders worry about is if the export sector, the labor-intensive ones, that used to exist and is about to be, you know, replaced by higher
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value added exports, and lose its relative significance relative to domestic economy, then where are the 400 million people who still have to move to the urban areas going to go? and the answer that people particularly come up with is there isn't anywhere to go because that was the route into the modern economy and the upgrade skills and so on. and i think that's wrong. i think the answer to the question where are they going to go, is into the massive service sectors that will be built in the massively expanding urban environment. that is a different route into the modern economy, but if that, if that, you know, railway closes down, and then you get the thing that you really fear which is the dual economy structure where they are
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trapped. and probably one of the reasons the chinese are a little bit cautious about the exchange rate mechanism, and probably biased towards the undervaluation, even for people outside who are sympathetic to the idea of managing that relative price, is uncertainty about the effectiveness and speed of the sort of urban services sector. and i know they have huge fear of having some version of push versus pull, you know, where people vote because there's opportunity but because in rural areas the opportunity has declined so dramatically that there's nowhere else to go. and we've seen that in other parts of the world. so they are scared to death of that. one of the reasons they drag their feet on dismantling the urban residences is precisely
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because that essentially turns this whole process of urbanization over the market and market incentives, and it can go very, very wrong. olivier, thank you very much for having me. >> thank you. [applause] >> [inaudible conversations] [inaudible conversations] [inaudible conversations] >> we would like to hear from you. tweet us your feedback, >> you are watching


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