No new answers to the age-old but urgent questions, writes Neil Robinson.
Imagine for a moment that you are an official in an economics ministry. You are off to a meeting on the other side of the world and you’re killing sometime in the airport bookshop as you wait for your flight.
Your attention is caught by a copy of Ruchir Sharma’s The Rise and Fall of Nations. It’s a good title. Then you see Sharma’s subtitle — Ten Rules of Change in the Post-Crisis World — and you’re hooked.
You and your colleagues have been pretty much clueless since 2008 (longer really, you didn’t see the crisis coming after all!).
You tried boosting the economy by printing money and launching schemes like car scrappage.
You tried an awful lot of austerity, cutting social spending to balance budgets and boost ‘competitiveness’.
Nothing has worked as much more than a band aid. People aren’t happy. Some rules to guide you and get you the economy moving would be really helpful.
So, you buy Sharma’s book to read on the plane. But when you get off the plane do you have any idea what you should now do and recommend to you colleagues and political masters?
Unfortunately, no. It’s not that there aren’t some interesting facts in the book. It’s not that some of the things that are recommended aren’t sensible. It’s just that it’s not clear who these are rules for, how they are to be applied, or what the rules actually are.
Sharma says that the rules are mostly for developing economies. But there’s a lot in the mix about developed economies and what they should do too. So which rules apply to which set of countries? All of them? All at once? Or are some more important than others, and if so for whom?
Sharma doesn’t say. He gives examples of countries where things are not good to show why it is important, for example, to have good leaders rather than bad. But this is broad brushstroke stuff and it means Sharma’s rules read more like platitudes rather than rules.
Who would disagree that investment should generally grow and should, as a rule, be greater in productive sectors rather than service sectors or construction, or that inflation should not be allowed to run wild, or that debt shouldn’t be allowed to grow faster than the economy does for too long?
The devil is, as usual, in the detail, but the details are missing. How should these rules be followed and to what extent, and when?
At what point, for example, does debt become a problem? If it’s long-term sovereign debt, is it ever really all that great a problem? Arguably, long-term debt can grow so long as it is used to fund investment rather than politicians’ personal consumption, and if its rise and fall is used to keep growth rates steady.
When should we let debt grow and when should it be stopped? Does stopping debt growth mean not borrowing more, or paying down debt? What’s the rule?
In the end, and since Sharma provides no answers, his rules don’t seem all that much different to the rules that politicians and technocrats have applied for over a generation: Watch inflation, keep competitive, and keep government on a tight rein! Across the world, these rules have not prevented crises occurring — if anything they’ve helped cause crises — or lead to their speedy resolution.
Maybe we should ask different questions about issues on which Sharma is silent. How do we make development ecologically sustainable? How to we secure growth without creating inequality?
If you’re an economics official at an airport, it might be an idea buy a notepad and a pen and think of some answers to these questions.
Neil Robinson is professor of politics at the University of Limerick.
The Rise and Fall of Nations: Ten Rules of Change in the Post-Crisis World by Ruchir Sharma
Allen Lane, €30
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