WASHINGTON, DC – “The golden age of finance,” the economist Barry Eichengreen has said, “has now ended.” If that is true – and let us hope that it is – what follows will most likely be a new golden age of industrialization.
Historically, except for a few oil-exporting economies, no country has ever become rich without industrializing. Thus, all eyes nowadays should be on our economies’ real sectors. Confronted by the global financial crisis that looms over Europe, political leaders around the world are waking up to a stark new reality: unless the developed countries stop relying excessively on financial deal-making and start to rebuild from the ground up, they will lose their current standard of living.
The global community must look beyond the eurozone and sovereign-debt crises and pay attention to the opportunity of structural transformation in the developing world’s real sectors. By structural transformation, I mean the process by which countries climb the industrial ladder – their workforces move into higher value-added manufacturing sectors as their sources of production advance.
Throughout 2011, I was struck by the potential for less-developed countries – including in Sub-Saharan Africa – to emulate successful industrializing East Asian countries such as Japan, South Korea, Singapore, Malaysia, China, and Vietnam. Indeed, by focusing development efforts on the comparative advantages of poorer countries, we can rebuild confidence in the business sector and reinvigorate investment in job creation – not only in developing countries, but also in advanced economies. The current global financial crisis, which is rooted in the advanced countries’ structural problems, requires investment and innovation policies, in addition to monetary or fiscal measures.