Growing Economies Converge
I recently finished reading The Next Convergence by Michael Spence. Along the way I was a bit surprised to find it an excellent guide to economic growth both in developing countries and in advanced countries. By comparing developing countries today to the early industrial revolution it identifies causes of rapid growth, and then applies these principles to various issues facing the world economy today including how to manage growing economies and why advanced economies are slowing down.
The book does a great job of taking this new context and using it to re-frame most of the debates that are happening today. It has a very rare long-term perspective, looking at shifts in power over 50+ years and connecting them to short-term actions happening now. Nothing is left out of the analysis, from the increase in developing countries’ sovereign reserves caused by the Asian crisis in the 90s to the policies that advanced countries need to learn from experiments in developing countries.
For example, advanced countries have gone pretty far in bending and breaking the rules of growth at the same time as they encourage developing countries to follow them. In some cases there are different needs and not everyone can succeed with the same methods. But we are at a point where a lot of the debate is focused on the wrong things. This is partly because, in the absence of a clear path to growth, all that’s left is to fight over what we have now. According to Spence advanced economies could redirect government efforts to provide the conditions for further growth and let everyone benefit instead of just dividing limited resources and deciding who wins.
Some people rightly question why we need limitless economic growth. It’s true that at some point we could have enough, but the economy is made up of trade in goods and services between people, organizations, and countries. If everyone did everything for themselves there would be no economy and a much smaller population. Economic growth simply takes us up from there. Few people would agree that it’s a wise choice to disconnect from society and live an isolated life. With many people around the world not getting opportunities and even a good number in developed countries, it seems like there are a lot of areas where more people should be helping each other out and creating economic growth. The potential for sustainable growth lies in underused talents and unmet needs which are still found everywhere.
The Next Convergence paints a uniquely clear picture of the forces driving the future of the global economy and how to read short-term developments. Although it shines a light on some sharp edges of the potential future, it also gives reason for hope. If enough people around the world understand the theme of the book, a lot of today’s arguments may come to be seen as irrelevant as new market opportunities open up.
There are no guarantees though. 100 years ago people felt much the same as we do now about the economy with increasing globalization giving access to new opportunities, but there were a few setbacks along the way. It will take a co-operative mindset that keeps everyone involved to ensure our economic future.
This is not just an insightful book for investors – I hope it is widely read as a map for the future.