14th Sir Arthur Lewis Memorial Lecture 4 November 2009 Sir Cecil Jacobs Auditorium, ECCB Headquarters St Kitts and Nevis
Dani Rodrik advocates, namely, redirect demand from exports to domestic goods, since the
world's appetite for imports and the imbalances underlying them has shifted? This serves to again raise questions about the viability of the export-led growth paradigm.
Will all this lead to more protection of domestic jobs, which is a euphemism for trade protection? Without a determined effort to retain internationalism, it well might happen.
A second key challenge of 2010 and beyond is in the area of international finance. Will increased regulation be effective in reducing systemic risks or will it merely increase the cost of finance? And as far as capital importing countries are concerned, should they rely less on foreign capital and generate more resources at home? How to do this? (two quick suggestions before I close: first, that governments do a better job of tax collecting and the second, that
there be a greater focus on governance, so that there aren't more Argentine savings in Miami than at home).
In the special report of the growth commission, issued after the crisis, a few weeks ago actually, the point is made that when all is said and done, the basic notion that growth is best
supported by open trade regimes, judicious capital flows, strong government vision, and a reliance on markets (regulated ones to be sure where the risks are high), is still the best approach.
The report notes that the crisis has embarrassed many theories. This is an accurate and severe indictment; however, that doesn't mean that we have replaced capitalism or done away with
markets. What is clear is that policymakers need to be more cognisant and more cautious. And central banks and other independent institutions need to be strengthened so that they are more effective counter-weights to the avarice and short-sightedness that Akerlof and Shiller so aptly describe.
I n t h i s p o s t - c r i s i s w o r l d i n w h i c h t r a d e w i l l b e m o r e c o m p l i c a t e d , f i n a n c e m o r e e x p e n s i v e
remittances less generous, and labor markets more scrutinised, we can expect smaller economies to fare less well.
Aid, although useful, is not the sustainable solution. So this brings us back to Arthur Lewis and the need to develop smaller and weaker economies by increasing productivity. If Singapore can do it, so can others, although I admit they lived in a good, namely, high-growth neighborhood.