OP-ED: “What Drives High Growth Rates? The short answer: demand, technology and investment,” by Michael Spence, Wall Street Journal, 24 January 2007, p. A13.

Very tightly packed but fabulous op-ed.

Internally, growth is associated with “a functioning market system, high levels of saving, public and private sector investment, resource mobility and the capacity to accommodate rapid change at the microeconomic level without leaving people excessively exposed to the risks inherent in creative destruction.”

Notice how an economist (and Nobel laureate) like Spence can lay out an argument like that and never mention democracy. Why should he? Because his favorite examples in the piece are Japan, Korea, Singapore and China. The first two became democracies in a real sense only when very much advanced in their development process, while the latter two essentially remain single party states and show few signs of shedding that characteristic any time soon.

But the real point in this op-ed is to argue how crucial globalization’s rise has been to enabling sustained high growth rates in these countries, since all achieved--and still achieve--their development through largely export-driven growth strategies. By tapping global demand, global technology and global investment, each has accomplished that which would have been impossible in isolation.

In that development, which was more easily achieved with connectivity to distant markets than to neighboring ones (except on FDI), rising Asia was able to “play up” to the West, taking advantage of its wealth to jump start its own accumulation process, which soon enough will become incredibly crucial to an aging West. In turn, however, because of demographic pressures similarly triggered, the East will need to turn South for all the same reasons why the West previously turned East.

Spence lays it out nicely in a manner I very much agree with:

The prospects for developing countries are, in fact, probably more favorable now than they have been since World War II. International trade is growing faster than global GDP. The benefits of decades of learning with respect to operating global supply chains are accessible. Information and technology continues to lower transactions costs and to be a powerful integrating force. But perhaps even more important, the key players in all this--the leaders in emerging economies who have the responsibility for building policies that support private sector entrepreneurship and that lead to sustained inclusive growth--have a wealth of experience to rely on. No one is in the dark.

A neat definition of what I mean when I say that the New Core sets the new rules, and therein lie the clues for how the Core as a whole will realistically shrink the Gap.

Update: Steve wrote about this same Op-Ed today: High Growth Rate Drivers