Five years into the global financial crisis, the global economic landscape remains uncheery. A depressed euro zone is struggling with high and rising unemployment. The American economic recovery is fitful. And the blistering pace of emerging market growth too has cooled. But all this gloom, uncertainty and risk is obscuring the most important piece of good news: that the golden age of global economic growth, which began somewhere in the mid-to-late 1990s, has mostly survived the recent global financial crises. Surprisingly, these continue to be the best of economic times.
My book Eclipse documented the fact that never before in recent human history had so many poorer countries and at such a rapid pace started catching up with standards of living in the advanced countries - a phenomenon called convergence. Lant Pritchett of Harvard University famously described the converse phenomenon, of a few countries pulling away from the rest in the aftermath of the industrial revolution as "divergence, big time." What we are witnessing now, despite major crises, is "convergence with a vengeance." Although there is still a long way to go, the unequal world is becoming less so. Consider some numbers.
Convergence happens when a country's rate of economic growth per capita exceeds that of the typical advanced country, say the United States. Between 1960 and 2000, the United States grew at about 2.5 per cent. During this period about 20 poor countries (comprising 30 per cent of the sample of the world, excluding oil exporters and small countries) grew faster than the United States by about 1.5 per cent on average. Amongst these were some remarkable growth miracles, including Japan, Korea, Singapore, Hong Kong, Taiwan, and most recently, China and India.
About a decade before the Lehman-triggered global crisis struck, a seismic shift occurred. Eighty countries - four times as many as in the previous period, and not just in Asia but also in sub-Saharan Africa and Latin America - started catching up with US standards of living. These countries' growth exceeded that of the United States on average by nearly 3.25 per cent, implying that this broader group was also catching up twice as fast as countries did in the aftermath of World War II. Put simply, prosperity was spreading across the globe, and at an accelerating pace.
The implications are enormous. For example, if this pace continues, sub-Saharan Africa as a group - and indeed 80 per cent of the countries in the world - could in 50 years be in a situation comparable to, say, Chile today.
Did the sub-prime and euro-zone crises set back this process? Between 2008 and 2012, the last five crisis-ridden years, the economic rate of growth of developing countries did decelerate in absolute terms from about 4.5 per cent before the crisis to about 3 per cent since. But the pace at which they were catching up with the rich countries did not significantly slow down.
These numbers also serve to clarify confused discussions about de-coupling between rich and poor countries. Cyclically - that is, in the short-run - everyone is coupled: if the US slows down, so will China; and vice versa. That is just a fact of interdependence. But the phenomenon of convergence suggests that there is structural de-coupling: in the medium- to long-run, the rise in standards of living relative to the rich world depends mostly on what developing countries themselves do and less on the external environment.
And what have they been doing? Developing countries have shed the most egregious forms of dirigisme and embraced markets, even if they have not all sung from the Washington Consensus hymnbook. New information and communication technologies have not just created investment opportunities to galvanise growth, but unleashed social and economic churn far beyond what could have been imagined and whose full consequences are yet to be felt.
Significantly, they have embraced macroeconomic stability as an end in itself and as a prerequisite for sustained growth, a lesson that industrial countries seemed to have forgotten. The failure to deliver stability lay behind the poor and volatile growth performance of Latin American and sub-Saharan Africa in the 1970s and 1980s. And macroeconomic prudence ensured that they emerged from the global financial crises relatively unscathed.
To be sure, not all is rosy about the convergence phenomenon. Poor countries on average may be catching up, but rising inequality within them will limit the gains of surging growth from being shared widely among their citizens. And corruption and weak governance are endemic across the world - which could yet hold back investment and growth.
When the world's policymakers meet in Washington later this month, the travails of the advanced countries will be the focus of attention. But for the vast majority of them in the developing world, the real challenge will be at home: to make sure that strong economic growth and the resulting catch-up with rich countries become, in John Maynard Keynes' words, "normal, certain, and permanent."
The writer is Senior Fellow, Peterson Institute for International Economics and Center for Global Development. This piece appeared in the Financial Times on April 8
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