Time to return to basics of growth

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Time to return to basics of growth

Koreans and Korean-Americans everywhere understandably took great pride when Dr. Jim Yong Kim officially took charge this July as the newest president of the World Bank. Dr. Kim was nominated by the United States as a new kind of leader for arguably the world’s most influential development bank - neither an economist nor a former government official, but a health expert, a leader in the fight against HIV/AIDS and recent president of prestigious Dartmouth College.

Now with some 20,000 participants gathering in Tokyo for the annual meetings of the World Bank Group and the International Monetary Fund this week, numerous questions remain.

Will Dr. Kim be a strong enough leader to move the World Bank forward in its longstanding battles, both externally against poverty and internally against institutional bureaucracy and incentive systems that often seem to emphasize new loans and bigger programs over smaller, more focused and perhaps more effective efforts?

Time will tell. But the World Bank can lead the way - and further foster change at the other multilateral financial institutions serving Asia such as the Asian Development Bank (ADB) - if under Dr. Kim it is able to embrace critical reforms and changes demanded by some of its major shareholders and stakeholders.

Like the World Bank, the ADB is an international financial institution that focuses on poverty reduction and is owned by governments, and primarily lends to governments. It too also faces continued challenges in such areas as human resources and development effectiveness.

Since stepping down from my past post as, by some accounts, only the fourth U.S. ambassador of Chinese-American heritage and as U.S. executive director and member of the board of directors of the ADB, I have been asked many times for my own views on Asia, the development banks and on which nation might be next to capture people’s imaginations and investments during these troubled economic times.

Often, the underlying premise to some of these questions though seems to be that the “West” has gotten it wrong, and the “rest” will now show the way forward to more sustained economic growth. Inevitably, the “West” includes institutions such as the World Bank and IMF, which rightly or wrongly are perceived as unduly influenced by the United States and Europe.

From Korea to Malaysia, negative perceptions still linger in particular toward the IMF due to its policy prescriptions during the Asian financial crisis of 15 years ago.

The “rest” meanwhile often encompasses the large emerging “BRICS” economies of Brazil, Russia, India, China and South Africa, which have been heralded for some time as the next drivers of global growth.

Yet, they too have slowed, held back by what I have termed a lower-cased case of the “brics” - namely bureaucracy, regulation, interventionism, corruption and increasingly sectarianism. Ironically, the challenge of these “brics” writ small-scale may well in the long run stymie the sustainable rise of the BRICS and other large economies.

Diplomatic speak aside, policy makers know at some level, the prescription for future growth is simple and straightforward - improve the bureaucracy, regulate fairly, intervene rarely, stamp out corruption and reduce sectarianism. Capital and investment will follow. In looking to the future, everyday people, with everyday problems, should ask their leaders five simple questions:

Is our government bureaucracy hindering or fostering economic growth? Whether in Korea, elsewhere in Asia and the Pacific, or in the Americas, Europe or Africa, a real fight against bureaucracy is less about new organization charts, and more about assessing what works and what doesn’t. And then, getting rid of the latter. It’s not just the size, but also the service quality, of the bureaucracy that matters.

How are regulations impacting job creation? Businesses and investors are often challenged by not just too many or too few regulations, but more critically, by unequally applied and unevenly enforced regulations. Clearly, not all regulation is bad. Safeguards are essential - and indeed, the new World Bank president should commit publicly to no weakening of existing environmental and social safeguards - but policy makers must ask if near-term job creation and growth are losing out to red tape and regulatory excess.

When is government intervention appropriate? Governments in Asia, including here in Korea, have long been both praised and criticized for seeking to pick winners and losers, often distorting the market in favor of national players. Too often, however, government interventions and inefficiency can go together. Policymakers need to ensure such interventions, if any, are limited and a matter of last resort.

What more can be done to root out corruption? Corruption and cronyism frequently go hand-in-hand. Weak judicial systems, poor rule of law and limited transparency allow culprits to go free. Allegations of favoritism or leniency must be investigated, institutions strengthened and individuals held accountable if people from all walks of life are to regain confidence in their leaders and systems of governance.

What level, if any, of sectarianism is appropriate? Understandably, once disenfranchised or marginalized minorities are seeking to right past wrongs and are speaking up with their own claims to a nation’s wealth and calls for greater respect and recognition. As dictators have fallen, however, tensions and conflict have risen.

At the heart of these five simple questions is the notion that true leaders are needed to tear down new walls built of bureaucracy, regulation, interventionism, corruption and sectarianism? These “brics” are blocking the way and hindering the steps needed for sustained, private sector-led growth.

Putting an end to capital misallocations built of the new “brics” also would go a long way toward spurring business innovation, increasing the flow of investment dollars and creating the private sector jobs that are the true building blocks of economic growth.

Regardless of who runs the World Bank - Asian-American or otherwise - the message from the people most in need in Asia to the world’s bankers is likely a simple one: it is time to get back to the basics of moving the global economy forward.

* The author served as the U.S. ambassador to the Asian Development Bank from 2007 to 2010. He is now a senior fellow and executive-in-residence with the Asian Institute of Technology, and a managing director with RiverPeak Group, LLC.

by Curtis S. Chin
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