Neil McCullochGlobalisation Team Leader

Some Random Thoughts on Growth

y = 1.17x - 0.00

R 2 = 0.52

-20%

-10%

10%

20%

-20% -10% 10% 20%

Growth in per

capita income

Growth in per capitaincome of the poor

Growth Incidence Curves

KALIMANTAN

JAVA

SUMATRA

SULAWESI

MALUKU

PAPUA

NUSA TENGGARA

BALI

KALIMANTAN

JAVA

SUMATRA

SULAWESI

MALUKU

PAPUA

NUSA TENGGARA

BALI

Reflecting big differences in real GDP Growth rates

CAD vs CAFCADCAD: firms in prioritised areas cannot survive

in open competitive markets because they are in conflict with the comparative advantages determined by their endowments They need subsidies, but these can’t

be afforded, so governments use administrative measures (e.g. Monopolies, suppressed interest rates, overvalued currencies, price controls on inputs

These controls then lead to shortages in funds, forex and raw materials

CAF• Follow the comparative advantage of the

country at every stage of development As countries develop, their

endowments change, as to relative factor prices and so the strategy can also change

Processes for effective growth policy• Ensuring that all voices are heard, including those of the poor

and marginalised • Accountability mechanisms• Dialogue – between public and private sectors• Do good technical analysis• Monitor, evaluate and kill things that aren’t working• Build effective systems for domestic resource mobilisation

Gross domestic product or ‘grossly deceptive product’?

• Non-market transactions– The ‘care’ economy (underestimation of housewives/husbands work)– Subsistence agriculture

• Distribution, nature and quality of goods produced

• Leisure time

• The hidden economy– Illegal activities– Informal sector

• Economic ‘bads’ – No distinction between green and polluting industries

Complements to GDPName Year Producer/Developer

Index of Sustainable Economic Welfare/

Genuine Progress Indicator

1989 Herman Daly, John B. Cobb

Green GDP 1993 Bureau of Economic Analysis, USA

Genuine Savings 1995 The World Bank

Ecological Footprint 1990 William Rees, Mathis Wackernagel

Subjective Well-being 1967 Warner Wilson

Gross National Happiness 1972 King Jigme Singye Wangchuck - King of Bhutan

Human Development Index 1990 Mahbub ul Haq, Amartya Sen (UNDP)

Happy Planet Index 2006 New Economics Foundation

Living Planet Index 1998 World Wide Fund for Nature

Conclusions

• We all know that growth is important • We also know that we don’t really know how to create it (far

less pro-poor, inclusive, sustainable growth)=> focus on building effective processes for deciding growth policy

• Growth is not the ultimate objective• There are several well developed measures which provide

more rounded assessments of progress=> standardise their use in the UK, EU and G20

Thank you