14th Sir Arthur Lewis Memorial Lecture 4 November 2009 Sir Cecil Jacobs Auditorium, ECCB Headquarters St Kitts and Nevis
If the distribution of income becomes progressively more skewed, then not only will the social consensus for good policy disappear, (and in some parts of Latin America this has led to populist outcomes,) but also the incentives become skewed, to the detriment of competition and equality of opportunity.
Interestingly, the pre-tax and transfer distribution of income of the US and France in 2005 was quite similar. The big difference is that the Gini coefficient drops from around .44 to around .34 after transfers in France, while is stays about the same in the US. The fact that between 2000 and 2008, 95 percent of Americans saw their real incomes either stagnate or fall should
have set off political economy alarm bells, but it did not.
Governments have to worry about basic fairness, at least in the sense that people are given a fair chance to succeed. This is central to the objective of strong investments in education in developing economies and the provision of free or subsidised opportunities even in rich countries. I, myself am a product of subsidised public university education in New York City.
Turning to the last theme, we have to be somewhat concerned with the trends towards greater economic nationalism at the expense of internationalism.
It is understandable when unemployment rates reach historic highs that politicians will veer away from global solutions. Even the consensus inside the G20 has been a fragile one, be it on stimulus packages or financial oversight or commitments to finish Doha that go beyond rhetoric. This is regrettable, and indeed dangerous.
G l o b a l i s a t i o n , d e s p i t e i t s d i s c o n t e n t s , h a s b e e n t h e p r i m e d r i v e r o f a l o t o f e c o n o m i c p r o g r e s s
in the past two decades. During this time, for example, China was able to move 400 million people out of abject poverty and Vietnam was able to reduce its poverty rate from 60 to 20 percent, while others progressed as well. Even in Africa, considerable economic gains were recorded between 2000 and 2008. This would, I submit, not have been possible without the openness in trade markets - imperfect though they were - that characterised the period. Just imagine if the East Asian tigers hadn't had the US market in the 1980s and 1990s, or if China had faced EU barriers and not U.S. barriers?
The most burning question, therefore, facing the international community is what the future face of globalisation will look like. Will the fiasco of private finance lead many, including major new economic powers like Brazil, India and of course China, to use state banks in larger
measure, with the specter of more active industrial policy? Or will countries do what Professor