Thursday, May 17, 2012

Loud thinking on economic issues just creates confusion

Book Review: Non-fiction/The Next Convergence by Michael Spence, Random House, 296 pp; Rs499 (Paperback)

Many of our most celebrated economists’ effort in surprisingly oversimplified or sensationalized rhetoric, especially in times of market uncertainty. Michael Spence has long been pointing out the fault lines that interfere with competent markets. He won the Nobel Prize in economics for working on the same theme in 2001, together with George Akerlof and Joseph Stiglitz. Here, Michael Spence’s new book, “The Next Convergence”, warns of the rough patches that arise when the world tries to accommodate both rapidly-growing emerging economies like India and China and slow-growing USA and western European economies.
This book refers that in the decades since 1950, as political, social and technological barriers fell, the growth impetus spread to populous developing economies, particularly in Asia. So far, such convergence has been unheard off- as only thirteen developing countries have managed to grow at an average rate of 7 per cent or more in first twenty five years. The formula for success is evident like buzz-embarrass the spirit of capitalism and get into the vibrant world of globalized trade. Nevertheless, nor is that easy bandwagon for success quite as achievable as many free-market economists would have us believe.
In 1950, author writes, “the average incomes of people living in these countries had raised twenty times, from about $500 per year to over $10,000 per year.” Though ironically, he missed stressing, these blocks account just fifteen percent of the earth’s total population. In recent years Spence has been majorly preoccupied with the economics of development and growth, and his active concentration in laissez-faire’s flaws has stayed with him. His book however is not sure about this nor, unfortunately, of many of the other macroeconomic policy issues he tackles. “The Next Convergence” adds hardly anything new as an overrated book and author’s relentless loud thinking on contemporary economic issues creates more confusion than solution.
The book primarily tries to survey the current state of both the growth and development economics, but without having standing to deal with the complexities of foreign aid, trade liberalisation, natural resources and the difficulty that countries experience when they begin evolving from middle-income nations to the next level economies. Any anticipation for breaking little new ground would be over expectation from this work, which is akin to rest on the broad generalities, finally leaving little in terms of outcome. The book has more questions than answers that may or not be bad enough but from readers’ perspective such mode of narration is hardly satisfying.
The crux of Michael Spence’s book exposes that future of global economy is going to be promising, in which perhaps 75 per cent of humanity will enjoy standards of living similar to those of today’s high-income countries by the middle of this century. Such unrealistic optimism seems based more on the ground of feeble research and weird hypotheses. Though, he further contradicts his own optimism by citing the potential risks against the future high growth in developing economies.
Lastly, his four findings are not new though gives the book some ideational foreground, to recognise the limits of one’s knowledge and the need to feel the way; appreciate the benefits of adversity; understand that sustainable wealth is built on people; finally, realise that governance matters. Altogether, these four are the Spence’s superstructure for “The Next Convergence” in a multispeed world!
Atul Kumar Thakur
May 17th, 2012, Thursday, 2012, New Delhi
(Published in The Financial World/Tehelka on May15th,2012)

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