By Shahab Sabahi – Energy and
Environment for Development – Research Group
Robert Gordon in his recent paper,
titled “Is U.S. Economic Growth Over? Faltering
Innovation Confronts the Six Headwinds”, challenges the notion
of “indefinite economic growth”. He argues that regardless of cyclical trends,
long term economic growth may grind to a halt. Over two and half century growth
of rising per capita could become a history account. The nutshell of his
argument is that growth has been driven by the genuine innovations which
led to general purpose and resource augmented
technologies. Indeed this growth trend has deeply and broadly transformed human’s
lifestyle.
The paper is deliberately provocative and suggests that fast economic
growth was a one-time thing centered on 1750-2050, and it happened because there
was no growth before 1750. He looks after 2050 or 2100 when there might
conceivably be no growth.
Opponents to Gordon’s view (see M.
Wolf, Financial Times) point out catch-up by
developing nations could still drive global growth at a high rate for long term
and the speed with which innovation is adopted is determined by finance.
Also the advocates of
efficiency improvement argue that growth can still occur as there is massive
potential for productivity improvement. The process of innovation may be
battering its head against the wall of diminishing returns. Indeed, this is
already evident in much of the innovation sector.
It holds true that the
global growth can still be achievable as long as the developing countries markets
can accommodate more consumption, and developing countries allow the
exploitation of their resources. But it should not be necessarily translated to
sustainable and long-term growth.
The opponents miss two
points.
First, inevitably finance
and risk-taking have driven innovation and growth. However, over the two
decades, this risk-taking approach has burdened external costs on societies.
The miserable pain of external costs has gradually been felt by societies. It
could change the risk-taking behavior. Thus so-called innovative finance
instruments also cannot be the utmost source of growth. Second, the share of productivity in boosting growth decreases and accounts average for 15% while the rest, 75% comes from more resource exploitation (Hulten 2001; Jorgenson and Griliches 1967; Young 1995).
Up to now, economies of scale, market expansion, trade and finance, productivity improvement and financial innovation have modestly contributed to growth. But this show cannot go on any more. Externality, limited resources and the sheer size of growth that are needed to sustain the globe expansion, will defuse the traditional influence of trade-finance in growth.
Yes, Gordon’s message is
right; a genuine economic growth needs genuine innovations.
India Millennium Deposits[IMDs]-the present scenario scheme apparently seems to be a right choice...look deeper,with long-term perspective u get to see the other side of the coin..The two are different issues..FDI provides a long-term mechanism to boost growth and productivity in the economy.It moves in search of better returns on investment.It is also true that short-term funds follow the FDI..If the latter is a trickle,the former also comes in trickle..More FDI flows where there is already experiences...when exchange volatility coupled with capital controls especially on debt flows becomes serious..FDI-equity flows feebly...NRIs and that too entrepreneurs like in case of china than pure professional largely as in case of India.Short-term funds through such schemes as the RIBs and IMDs are policy-oriented measures that are necessary to demonstrate resilience and safety of investment in the economy despite the sovereign ratings by international experts..the cost of these funds should not be calculated in comparision with that of social costs benefits....
ReplyDeleteLow price to book value ratio and low share holding,wherever they exist,make the company vulnerable as takeover target..well,it is the family run and professional business communities are facing equally the challenges of globalization and competition..However the willingness to change and adapt to the challenging environment is the key to success..Family run businesses in fact are adapting to new technology and professionalism and trying to involve professionals in management..Some companies have already begun making progressive changes in their management style by inducting professionals..the question of survival of family-run business to global competitive pressures depends on how fast these companies move or adapt to the new situation...fundamental business models are strong,they have the potential to face the competition and survive.
ReplyDeleteI agree with your final conclusion. I think the key issue in assessing whether growth has been achieved has to be looked in terms of economics, environment and society as you've rightly indicated in including externalities. Looking at economic growth without considering the other two issues is highly limiting and I may even go to the extent of claiming - counterproductive.
ReplyDeleteBut I disagree with the claim of the author regarding the band of years 1750-2050. It really depends on how growth is defined ... as I've ever asked you to consider. I'd really like some day that you will consider this by yourself after un-learning all that you have read from the great philosophers and thinkers.