The Next Convergence: The Future of Economic Growth in a Multispeed World [Hardcover]

Spence's new book is a profound exposition of the public policies that are lifting hundreds of millions of people out of poverty in China, India and Brazil. The book is grounded in solid data and careful examination of trends and patterns over many years. It is clear that the author has privileged access to the world players who have set these policies in place backed by a solid understanding of the evolving institutions in these countries.

Of the many books I have read in the area of economic development this book is far and away the most interesting, insightful and thought provoking! It will become a classic in its field and spawn many additional works that will help extend the successes in the developing world, I believe.

With luck this book's insights will help in some measure to check the dreadful level of political discourse on globalization in so many advanced countries. This is a must read! I found it an exciting read.

This book is about the third century of the Industrial Revolution - now. During the IRs first 200 years a minority of the world's population (about 750 million, 15%) broke out of the up to then stagnant and low-income economies that had dominated life for over 1,000 years. The process, while slow - about 2-2.5%/year, had a major impact on those affected. After WWII the pattern shifted, and the developing nations started to grow, quite slowly at first, but reaching sustained levels averaging 7%+/year. The world's economies are now converging again, to inter-nation disparity levels more similar to those pre-IR. Throughout, leadership, politics, government structures and effectiveness have played major roles - both positive and negative.

General observations from author Spence: 1)Betting against China in the recent past has not been very profitable, partly because its governance model is so different that we fail to understand and appreciate it. 1)Africa's high-level of natural-resource wealth has proven to be a curse - permitting governments to stagger along without making fundamental improvements. (Avoiding the 'Dutch disease' in which exchange rates rise to the point where natural resources are the only viable export such as was the case in 1959 Holland vs. its natural gas finds, is likely to require making overseas investments.) 3)Many people care more about values, religion, and relations with others than growth. The importance of growth, for most citizens, comes mainly in wanting their children and grandchildren to have better opportunities than they had.

Growth requires investment. (However, money spent for 'investment' programs such as education, defense/Homeland Security, foreign affairs (support for Israel), and poverty reduction is still subject to basic economics - eg. the law of diminishing marginal returns. Enormous funds are wasted today in those areas, primarily for political reasons. Many of India's northern states also have educational performance problems.) Nationalism can help build cohesion - positive, OR blind citizens to the need for change (eg. the doctrine of American exceptionalism, our 'better days' with laissez faire economics) - negative. (China has the advantage here - 90% Han ethnicity, and a society-oriented Confucianism background; the U.S. is split by races, and a tradition of freedom/personal independence.) Similarly, market incentives (eg. Chinese farmers between 1978-80) and added capital are also subject to diminishing returns. Long-term growth requires innovation - recent examples include the Toyota Production System, cell phones, the Internet, Green Revolution seeds, computers, etc.

Innovation also destroys value - eg. old U.S. blast furnaces, factory layouts). Desire for recognition and respect also drives innovation - eg. art, construction of great cathedrals, etc.

Global poverty is mostly a rural phenomenon. Thirteen developing nations grew at 7%+/year for 25 years. At that rate income and output double every decade. Their experience shows that investment needs to average at least 25% of GDP, with the public-sector component of this running 5-7% GDP. (U.S. education 'investments' in education alone exceed this figure; add in government health care expenditures, and the U.S. is spending FAR more than what is required.) Developing nations are best served by financing most investment from domestic savings, not large trade deficits. (The latter are subject to withdrawal and currency risks.)

China's allowing farmers to sell in the open market any amount over their planned market quotas was a brilliant start - prices (and production) went up, and city dwellers grumbled - but they were only 18% of the population. China's second smart move was to ask the World Bank, not for financial help, but knowledge help. This knowledge was then combined with an experimental, fact-based (not ideological) approach to improvement.

High-growth countries set economic objectives within a high-priority context, then experiment toward improved performance without allowing guidliness to become ends in themselves. They recognize that effective governments AND markets are both essential. However, the U.S. has lost the concept of needing a private-public partnership, now seeming to believe that the private sector can do it alone.

Most developing nations manage their currency to limit capital volatility and ensure that their export sector remains competitive. High-growth is not coterminous with democracy; on the other hand, famines are much less likely in democracies. Developing economies tend to staff when GDP/capita reaches mid-class levels. They fail to make the transition from a labor-intensive economy to one more reliant on R&D and intellect. China is addressing this issue. Emerging markets understand the importance of having a significant fraction of their financial sector domestically owned and amenable to working with their government to avoid/mitigate crises.

The Next Convergence is well-written and provides good coverage of how countries develop economically. The main theme of the book is the idea that the developing world is "converging" or catching up with developed countries.

The book does not really focus so much on the future as give a good review of what has happened in the past, and then it assumes that process will continue as countries like China get richer.

What I found missing was the answer to the question I think a lot of readers would find interesting: What about economic growth and employment in developed countries like the U.S.? There's not much, and I think the book misses some important trends.

In particular, the author does not seem to realize how technology is accelerating. He points out that economic growth comes from innovation, which causes productivity to increase, and that in turn results in higher incomes for most people. The problem is that in the U.S. that is simply NOT TRUE anymore. I the last 30 yrs we've had lots of innovation and productivity increases, but most average people have not seen any increase AT ALL in their wages. All the benefits of innovation are going to a tiny few a the top.

Something has changed, and it's at least partly because of technology which allows employers to do more work with less people. That will get worse and worse because technology is progressing faster and faster. This book does have a short section on automation that touches on this, but there is nothing about how things will progress going forward.

For more on this issue also check out The Lights in the Tunnel: Automation, Accelerating Technology and the Economy of the Future. It focuses on this problem and how it will affect both advanced and developing countries.

Overall, however, The Next Convergence is a good book, well worth reading. Just realize it is primrily about emerging economies.