CNN - Q&A with Michael Spence & Amar C. Bakshi (Part 2) E-mail
By Amar C. Bakshi

This is part II of my interview with Michael Spence (part I focused on China), the economist who won the 2001 Nobel Prize in economics with Joseph Stiglitz and George Akerlof for work on market development. Spence just published The Next Convergence: The Future of Economic Growth where he examines how emerging economies are reshaping the international order.

AMAR C. BAKSHI: Let’s focus on the United States. How do you make America more competitive? How do you address the issue of middle class jobs?

MICHAEL SPENCE: We have to have a working knowledge of the global economic forces affecting our economy. That’s one of the reasons I wrote the book. I want people to really understand that emerging markets - as they go through this process of moving up the value-added chain and becoming more like us - create competitive pressures on our economy.

Let me be specific about what we should do:

  1. Fix the tax system and remove disincentives for domestic investment in technology and/or fixed assets.
  2. Invest heavily in infrastructure because it creates employment in the short-run and creates greater competitiveness and higher returns for domestic investments over time.
  3. Remember that global economic growth is an opportunity for much of the U.S. economy. We need to exploit that to the maximum extent.
  4. Fix the ineffectiveness of parts of our education system because the more you can create human capital with good education and technical training, the better chance you will have of solving some of the unemployment, competitiveness and income distributions problems.
  5. We should have a sensible energy policy. If we keep going the way we are going, the global economy is going to raise the relative prices of energy, producing recurring negative shocks to our system.

If we did all those things successfully, over a five to ten-year period we might have taken a big chunk out of the problem. We can probably solve the unemployment problem. But I believe the global economy’s evolution probably does have distributional implications regardless of whether you’re doing all the right things in policy terms.

Over the last ten years, the Germans have gone through a major effort to restore the productivity and competitiveness in the economy by removing rigidities in the labor market, and investing in technology in parts of the advanced manufacturing sector. It’s worked. If you look at their industrial sector, it’s larger and employs more people in percentage terms.  Growth is returning an unemployment is falling.

But, in fairness, the rate of increase of wages and income has been pretty measly. The Germans seem to have looked at the situation and said, “We’ve got a choice here between rapid increases in income and increases in employment; we are going to choose employment.” They have an institutional setup that allows business, labor and government to reach that conclusion together. Then they do the appropriate thing.

Is there an economic fact that you want every American to know?

It would be nice if every American had a working knowledge of the components of the U.S. federal budget. Surveys say there’s a subset of Americans who think that if we cut foreign aid we can balance the budget. There are a lot of funny stories like that. But the point is that in democracy if you’re going to make major social and economic choices to right the ship, you need a reasonably decent, factual base that’s shared by most of the people that are making the choices. You need well-informed fellow citizens.

Also, emerging markets are complex and highly dynamic. There is tremendous diversity across continents and countries. I want people to have a framework for being able to understand the forces that are at work and a sense of what’s likely to happen in the developing world in the future.

If you wanted me to be specific, I think if more people spent some time on Wikipedia and knew: roughly where the people in the world lived; knew that almost 60% of the world’s population lives in Asia; knew where countries are in terms of growth and development; understood a little bit about why countries grow or get stuck and what can and can’t be done about it.

That’s the kind of working knowledge I tried to provide in my book.

My long-term belief is that we are going to need more elaborate global governance structures than we have now. In order to do that we have to have some shared understanding of what’s going on in the world. That understanding must run across borders. I thought maybe I could make a contribution to that journey with The Next Convergence: The Future of Economic Growth.



 
 
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