Countries and regions that make optimal use of scarce resources have demonstrated sustained growth for their economies over the years. Evolving policies that are conducive to sustaining high growth are widely known, however these policies have differed in different countries. Therefore the factors that lead to growth cannot be highlighted with certainty but we can say for sure that certain ingredients over the course of time will matter for sustained levels of economic growth.
An economist cannot provide a recipe that can ensure the development of conditions that are a pre-requisite for growth. Circumstances differ with every country and therefore like a good doctor, the possible constraints on the performance of the economy need to be scrutinised. A strong comprehensive growth strategy would go on to highlight which of the constraints require the most urgent attention and which can be addressed in the long run.
At a time where the world is struggling with the global economic meltdown it is necessary for governments to focus on areas that ensure the highest incremental payoff to growth. A dilemma that policymakers have to face however is that they have to evolve these strategies through making subtle judgments with insufficient data. In today’s fast globalising world, countries need to explore a plethora of policies and according to a growth report, this can include but is not limited to, ‘accumulation, innovation, allocation, stabilisation, and inclusion’. The foremost focus of governments should be the process of accumulation by which they introduce a set of policies that promote strong and sustained public investment that aids the economy to accumulate vital infrastructure and skills, a pre-requisite to economic growth and development.
Innovation is an imperative for economies to find out of the box solutions to deeply embedded socio-economic quagmire they find themselves anchored in, venturing into a realm of unfamiliar export industries for instance.
The third and most important set of policies entail ‘allocation’ most importantly of labour and capital. If scrutinised carefully, it can be witnessed that economies that embark on sustained levels of growth find relative prices playing a pivotal role in determining micro-economic dynamics. Relative prices go on to determine the level of investment or lack thereof in different industries. In effect, allocation allows prices to guide resources and simultaneously resources to respond to prices. The fourth set of policies focus on the stabilisation of macroeconomic indicators to safeguard countries against slumps, insolvency along with the predicament of runaway inflation.
Inclusion is also interestingly highlighted for it seeks to provide equal opportunity across the spectrum to all stakeholders and once such a system is put into place, no one will seek to derail it. As Europe and the US are struggling to revive their economies through a string of austerity measures, what they do not realise is that in the absence of prudent macro and microeconomic policy, their attempts at injecting fiscal stimuli are like ‘curing a drunk with vodka.’ According to a renowned Indian economist Montek Singh, ‘International financial institutions, the IMF in particular have tended to see public investment as a short-term stabilisation, and failed to grasp its long – term growth consequences. If low income countries are stuck in a low – level equilibrium, then putting constraints on their infrastructure spending may ensure they never take off.” While most infrastructure projects are carried out by the public sector, there is a necessity to build stronger public–private partnerships that will help achieve sustained growth and extend the budget even further. However, if the governments decide to abrogate the public investment function then policy makers need to realise that it would not be replaced by private providers, due to which growth and delivery of essential services to the public will suffer.
The writer is a freelance journalist and has a postgraduate degree in Business Administration
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