World Bank: World Development Report notes
h/t to Ruimin. Dr Shahid Yusuf, economic adviser at the World Bank, spoke at the LKYSPP last Friday on his recent publication, “Development Economics through the decades” – which reviewed the World Development Report series. The presentation slides, and the transcript of a similar speech he gave in Thailand, are here and here.
Here’s a summary of his most relevant points.
- TFP has hovered around 2-3% in many countries. While many have tried, it’s not clear how to raise TFP.
- Focusing on “domestic demand” for growth is a cry of desperation, and cannot be a long-term strategy. Domestic demand tends to be focused on the non-tradables in the economy, which experience lower rates of productivity increase compared to the tradables. Additionally, one should be cautious about getting countries to spend more – according to Yusuf, no country has raised saving rates after they have dropped. [maybe the current US phenomena presents a counter-point].
- Productivity growth is far lower in the Services than in Manufacturing. The only exception is Financial Services, whose contribution to GDP has doubled in recent years in countries like the US and Singapore. However Yusuf thinks that post-crisis, productivity in the financial services is unlikely to continue growing fast. On the flip side, manufacturing isn’t going to be employing lots of people in future.
On industrial policy
- The World Bank has traditionally not promoted active Industrial Policy. The trade off is between government failure (corruption, lack of business expertise) versus market failure (coordination failure ala Rodrik, discovery failure ala Haussman) . Industrial Policy worked in Singapore because government failure < market failure, but this balance may differ across countries. However guidelines on the practical implementation of industrial policy remain absent.
- Every country is asking the same “what to do next” question, and everyone is attempting to do clean tech, but the reality is that not everyone will be a clean tech champion.
- Growth remains the best way to get people out of poverty. Interventions, like micro-finance, education, and health, can only reinforce growth. Without growth, and consequently fiscal resources, these interventions cannot occur.
- Lots of countries have business schools that “teach” entrepreneurship, and even take on the role of VCs to share some of the start-up risks. Yet the entrepreneurship rate remains low. Yusuf said he was “not sure of what to say” about entrepreneurship – theoretically the stigma of failure should disappear as countries develop and mature. He related the example of Shanghai’s Microsoft Research centre, which experiences a sizeable (but not excessive) turnover, in spite of rather good salaries. But surprisingly, few of those who left (conceivably these people were in the best position to establish tech start-ups) went on to be entrepreneurs. Instead they pursued “high security” jobs.