A last installment from the interview with Kirk Hamilton:
One other idea is the idea of convergence and growth rates. He points out that the poor countries are growing at faster rates than the rich countries, so even though the amount or value of a country’s growth is substantially greater in teh rich countries, the idea of convergence implies the countries will eventually begin to get closer together. It supports my observation after my trip that development is a very long-term process and will not happen overnight. Here are some of his thoughts:
“Well, actually the rates of growth in high-income countries are generally quite a bit lower than low-income countries. So if the question is about rates, then average growth rates of per capita income in high-income countries are a little bit over 1 percent, right? . . . Over time . . . it would converge, that’s the whole point. If China could grow at 10 percent for decades into the future and rich countries are growing at one percent for decades into the future, they’ll catch up very quickly. So that is actually a convergence story. Many growing countries are growing at much faster rates. India, seven, eight percent growth rates over the last decade. And these are big countries. So this will have an effect on the size of the world economy and the catching up with rich countries, for sure.”
A final area of discussion revolves around the idea of sustainability. As a prominent figure at the World Bank, it is intersting to see that his concept of sustainability is broader than the common idea that it deals mainly with environmental concerns. It then leads him into an interesting observation about America and our economy.
“The notion of sustainability is, from an economic point of view, that a country is sustainable if its well-being doesn’t decline over time. So if from one year to the next you find that how well-off people are, the amount that they can consume, the things they can enjoy, doesn’t decline—if that’s true over time, off into the future— you’d say that’s a sustainable economy.
“Now, what underpins well-being, the amount we can consume and the other things we can enjoy, is assets, is wealth. So there’s a very direct line between how much wealth you accumulate—or how much wealth you use up, in the case of some countries—and whether or not you’re sustainable. And when we look at this question of saving for the future, the saving rates of countries adjusting for depletion of natural resources in particular, then we see 30 or so countries who actually have negative savings, where the wealth of the country is actually going down. That’s not a sustainable country.
“You can think of the same analogy at the household level. If you find from one month to the next that you’re running down the bank account, or if you’ve had to sell the car in order to keep food on the table in order to maintain consumption, then you would say that’s not a very sustainable household. It’s exactly the same notion that we’re looking at at the level of countries as a whole.
“And so when we see 30 countries—and it’s true every year, there are roughly 30 countries with negative saving rates, once we adjust for the depletion of nature—then this is a strong message that some of these countries do have a problem with sustainability and do need to change their development policies.
“The U.S. for a number of years has sort of been on the knife edge of almost zero accumulation of tangible wealth. And even when we include investment in human capital measured very crudely, when you’re measuring how much the U.S. spends on educating people, it’s still pretty much on the knife edge. The net creation of wealth seems to be very small.
“On the other hand we do see the American economy growing, and we do see this enormous wealth that it has, the produced, the natural, the intangible capital. So I think our savings measures, because they’re so heavily weighted towards tangible wealth, produced capital, natural capital, may be missing part of the story, which is that human capital especially is such a big part of the story of the U.S.
“It may well be that in the sense that you are continuing to grow the human capital and you’re getting those positive spillovers from human capital, the Silicon Valleys. This is a really important factor in development. It’s what makes rich countries rich.
“So the depreciation of infrastructure of course is important. If your bridges and your highways and so on are running down, having to be taken out of service because of emergency repairs or whatever, there’s a cost to society of having that happen. And when we measure the savings of the United States, that’s in there, the depreciation.
“If you choose to ignore one type of capital, and it’s the type of capital that depreciates, like highways and bridges, it will catch up with you, undoubtedly.”