By Nazmus Sadat Khan, member of the St. Gallen Symposium's global Leaders of Tomorrow community
Growth is good, but like many good things on earth, it comes at a cost. It is true that the present economic system has given the world prosperity and moved millions of people out of abject poverty. But the ultimate goal of a growth prioritized social and economic policy should be to achieve sustainable prosperity of its people. It's an enormous task and the challenges each country faces are different.
After the financial crisis, most of the developed countries have struggled to achieve economic growth. To battle this problem they reacted with heavy artillery: expansionary monetary and fiscal policy of unprecedented size. Every pro-growth economic policy has its tradeoffs. Due to increased government spending, government debt increased. Lower interest rates and quantitative easing were supposed to increase inflation as well. Surprisingly that's not how it worked. In fact Europe, Japan and many other developed countries are struggling to raise the inflation rate and avoid deflationary pressure. It was initially believed that high debt is hampering the growth process, but many recent studies including mine, do not find enough evidence that high debt is causing lower growth. All these are encouraging developed countries to go for more pro-growth policies. This might work in the short run, until problems like inequality and climate change kicks in with greater strength.
For developing countries, the high growth policies come with greater challenges. One of the side effects of growth is its high income inequality. Though also true for developed countries, for developing countries it poses a greater threat to its prospects of prosperity in the long run. After the great depression, growth in the current developed countries was much more inclusive than today, which helped to build their institutions and strengthened the base of their economies. This ensured basic rights of education and health of the common people and a certain level of living standard for all. One of drivers of growth has always been innovation and due to access to good quality education for all, the current developed countries played a leading role in innovation. In developing countries, due to lack of inclusive growth, the development of institutions are hampered. As a result institutions are already catering the needs of privileged few. Prospects of good governance are fading away. This creates the base of social unrest and lag to even further growth in future. While growth needs to get high priority in policy making, it's important to include social inclusion in the agenda with the same priority before it's too late. There is no single ideal institutional mix for inclusive growth, every country needs to strike a balance according to their social and economic conditions.
Growth - The good, the bad, and the ugly will be debated in the light of the 46th St. Gallen Symposium (11-13 May 2016).