The World in 2050-Quantifying the shift in the global economy - HSBC

EconomicsGlobal4 January 2011abcresources, partly by shielding domestic businessfrom foreign competition following Indianindependence. Through much of the ‘70s and‘80s, the government dominated industrial activityby controlling both the licensing to trade orimport and the loanable funds available for suchactivity (and this allocation was often riddled withcorruption). Time and again, this led to productionshortages and balance of payments crises. In theearly 1990s, India made significant strides incorrecting at least some of these supply-sideissues. Industrial licensing was largely removedand import restrictions were pared back on capitaland industrial inputs. While there are still certainproblems in government administration, theIndian economy has again been opened up to thedemand and technological know-how of the moredeveloped economies.7. A lack of monetary discipline has plagued LATAM’s history% Yr Inflati on% Yr100080060040020001961 1967 1973 1979 1985 1991 1997 2003 2009Chile (LHS)Argentina (RHS)Brazil (RHS)3200280024002000160012008004000Latin America, by contrast, had made itselfconsiderably more open to the competition, tradeand capital offered by the global economy butfound itself plagued through the 1970s and ‘80sby a lack of monetary control, giving rise tofrequent inflationary outbursts and debt crises(Chart 7). An improvement in governance hasplayed a key role in turning economic fortunes inparts of LATAM. This had led to other supplysideimprovements that tend to follow a period oflow and stable inflation.Behind all these individual country stories betweenthe ‘70s and ‘90s, there was a major rethink of howbest to run economies to aid economicdevelopment. The traditional thinking had been thatstate control and economic planning, publicinvestment and protection from the volatility of theworld market was the best recipe for promotingeconomic development. Self-sufficiency was thegoal, so foreign trade was seen as a hindrance andtherefore a tax opportunity.From the late 1970s, a stream of work from theNBER, World Bank and IMF started to challengethis form of governance. They began advocatingmarket-friendly and open-border policies to promoteeconomic development. This work culminated in thepublication of what was termed by some as the‘Miracle Book’ by the World Bank in 1993 2 .Source: World Bank2 The East Asian Miracle: economic growth and public policy,World Bank, Oxford University Press, 19937