MILAN – In rapidly growing emerging markets, a combination of internal economic forces, supportive policies, and the shifting nature of the global economy drive high-speed and far-reaching change. The transformation of economic structures occurs so quickly that it is virtually impossible not to notice – though the complexity of the change is, at times, bewildering.
In this fluid environment, mistakes are frequently made. Arguably the most damaging is to stick to a successful growth strategy (a combination of comparative advantage and supportive policies) for too long. In the economy’s tradable sector, comparative advantage always shifts, causing structural change and creative destruction. Countries undergoing a “middle-income transition” out of poor-country status frequently try to resist these changes, but doing so causes growth to slow, if not stop altogether.
While the private sector (domestic and external) drives these shifts, government policies and public-sector investment patterns play an essential supporting and complementary role. These need to adapt, too. The policy framework that has proven to serve the major emerging economies best is one that focuses not only on macro and monetary stability, but also on adaptation, guided by a forward-looking (though inherently imperfect) assessment of coming micro and macro structural shifts and the measures needed to support them.
What of the large advanced countries? For historical reasons, the policy mindset is less flexible and adaptive. Structural change is viewed largely as the province of the private sector, and hence not as a key part of long-term policy thinking. In the postwar period, until recently, advanced economies dominated the global economy. Emerging economies’ impact on them was relatively small, and they have yet to respond adequately to the rapid structural changes in the global economy.