We have had gangbuster growth rates in the past. They were easily achievable. Have we reached the end of easy growth ? Bearing in mind that the world is clouded by “Knightian uncertainty”, it would not be unwise to state that we have indeed reached that point. Chicago economist Frank Knight had made an observation in the 1960s that has gained currency in engineering, geopolitics and military strategies : “There are known knowns ; there are things we know we know. We also know that there are known unknowns ; that is to say, we know that there are some things we do not know. But there are also unknown unknowns – the ones we don’t know we don’t know.” While prospects for relatively higher growth rates of our economy have certain aspects of “known unknowns” and “unknown unknowns”, there are reasons to believe that the continuing low growth rates were “known knowns” to a few apolitical analysts in the country.
GDP growth rates tell us how fast the economic wheels are spinning. But it does not tell us if we are getting anywhere. Does it make a meaningful difference whether our growth rates are 3.5, 3.6 or 3.7 per cent ? No muss. No Fuss. No need to go ballistic over our lacklustre growth performance. Ours is an economy that used to grow by over 5 per cent after all. The haggling over the decimal points reflects a dry sense of humour among decision makers but not a sense of the depth of a vicious growth trap we are in. There is no reason to be complacent about our underperformance. Wake up and smell the African coffee. Seven of the fastest growing economies of the world are in sub-Saharan Africa, the ones we used to compare our performance with in the good old days – with a sense of superiority. Shifting growth comparison with crisis afflicted advanced economies makes a good muppet show. Robert Samuelson’s metaphor conveys a message clearly : “If your neighbor’s house burns down and only half of yours does, you are relatively better off than your neighbor – but you’re (actually) worse off than you used to be.”
“Escape velocity”
The good thing, however, is that our growth rate is not in the negative territory. But the bad thing is that we are stuck in a low growth loop. Low growth tends to breed low growth. If at all the much acclaimed FDI flows have contributed to our recent growth performance, it is wondered what the growth rates would have been without them. “Resilience” of our economy has not enabled our growth momentum to attain “escape velocity”. Five years after the onset of the financial crisis, we are discovering that our faith in the resilience of the economy was misplaced. The economy is not bouncing back. Only cheques are bouncing back.
Three weeks ago, the Davos meeting had an interestingly fitting theme for discussants : Resilient Dynamism. Judith Rodin, President of the Rockefeller Foundation, came up with an insightful research paper for the occasion. Decades of research at the Rockefeller Foundation bears out five core characteristics that resilient economic systems have in common :
•     “Spare capacity.
•    Flexibility — the ability to change, evolve, and adapt in the face of disaster.
•    Limited or « safe » failure, which prevents failures from rippling across systems.
•    Rapid rebound — the capacity to reestablish function and avoid long-term disruptions.
•    Constant learning, with robust feedback loops.”

Economic resilience is built over time ; it’s not an inherent characteristic of economic systems. None of us with good faith would challenge that we used to share most of these characteristics in the not so distant past. So long as our exports had preferential access to European markets the economy, supported by a set of aggressive monetary and exchange rate and fiscal policy mix, had responsively demonstrated a considerable degree of resilience. The preferential access is gone. Rules of the game have changed. Did we build resilience ? Indeed, no. Our economic resilience has fizzled out. We no longer share most of the foregoing core characteristics with resilient systems.
That the economic recovery of the Eurozone will be the “tow truck” to will pull our economy out of the depressed growth performance is elusive. An in-depth examination of the institutional arrangements in several areas of our economic life and of the overall structure of the economy should reveal that the capacity of the economy to positively respond to external “tow trucks” has weakened seriously. Further expansion of the three foreign currency earning sectors has almost reached its limit. The only promising sector that could substantially contribute to growth is offshore financial and other related services. But it’s a highly vulnerable sector. This is a sector that doesn’t have substantial trickle down effects and as such does not have broad-based spin-off effects in the economy. Given the present state of things, our overall production possibilities cannot be infinitely elastic. Our growth rates have more or less flattened out as a result.
High growth rates…
The “tow trucks” also do no longer have the same horse-power of the years gone by ; they are exhausted. Western economies seem to have reached the limit to growth. The first industrial revolution (1750 to 1830) and the second industrial revolution (1870 to 1900) had brought about rapid economic progress. The spin-off inventions had raised productivity to new heights. Productivity declined in the 1960s ; it was much slower during the period beginning the 1970s to the mid-1990s. Development economists wondered what else could unleash another spurt of robust growth. The third industrial revolution made possible by computers, the web, mobile phones etc (1960 to mid-1990s) helped revive productivity growth between mid-1990s and 2004 but was short-lived. The industrial revolutions have run their courses. No more consequential transformative spin-off inventions are thinkable. Are we going to see the same kind of spectacular progress unleashed by the three revolutions in the future ? For Western economies high growth rates are most probably a thing of the past. Will emerging market economies come up with robust-growth igniting breakthroughs ? Time will tell. We are faced with more “known unknowns” and the “unknown unknowns”.
One thing is clear : we have reached the end of easy growth. Each country is aggressively pursuing its self-interest. Illustratively, just imagine you are physically in Tanzania and you are about to cross a fenced region. A beep sound from your cellphone alerts you of a message. It says, “Welcome to United Arab Emirates.” Are we tone deaf to happenings outside the country ? It’s not a question of either private sector or public sector initiative. It’s active state capitalism at play. The new paradigmatic waves of the 21st century are intense game changing forces. The economic challenges are unprecedented. Unprecedented challenges imperatively need unprecedented ways of seeing the world. Those countries with a mindset for old solutions to new problems will be the miserable laggards in this world. Our economy does have the kinetic force and the metabolic urge for growth. The pressure points for unblocking the growth energy are identifiable. We have lost our way. We have retained a number of institutional arrangements that ought to have been overhauled, rationalized and recast to match the exigencies of the day. We need to do away with the ad hoc project-based (still birth projects and projects that die out in the implementation stage) and the on and off approach of giving a fillip to growth. Cut a long story short : a comprehensive and integrated long-term economic strategy that envisions sustainable development backed by bold political courage should be the foremost priority of the day. Alternatively, a “nuclear option” kind of approach – with Government as an enabler rather than a disruptor – is highly desirable. We did it first with the hosting of an offshore banking centre in 1989 – in defiance of contrary advice from highly reputed international bankers and to the dislike of the Bretton Woods institutions. Our offshore sector expanded and emerged as a pillar of the economy.
While economic strategies, fiscal and monetary policies are quintessentially important in the making of a high performing economy, we need to think over what we have made of our democracy which is as important a determinant for growth as are several other considerations in our socio-economic setup. Democracy has been turned into a transactional system wherein people vote for a candidate who promises to legalize their illegal acts and to corrupt every corruptible act. Vibrant economies and societies rely on fairness – an understanding that bad things are bad and good things are good. A society that has fallen to a level whereby it affirms bad things are acceptable (and are becoming the new normal) and good things are ridiculed and are irrelevant cannot fruitfully pursue a national economic and social development agenda. Economic growth is in the end people-powered. The legendary cartoon character Pogo once said, « We have met the enemy and he is us.” These are “known knowns” to us all, I suppose.