By Arnold Kling
Two piece in the Wall Street Journal challenge the idea that export-led growth is the path to economic success. Amar Bhide writes,
The Indian software industry now employs around half a million professionals. Under optimistic projections, the industry will add another half million in the next seven years. But over the same period, 14 million students will graduate from Indian colleges. And of the more than half a billion Indians under the age of 25, most have not, nor ever will, attend college. Even in Bangalore, often called the Silicon Valley of India, nearly two out of three students in primary schools won’t even go on to high school.
As with any large country, the long-run prospects for the Indian economy turn on the productivity of its domestic sector. Only city-states like Singapore can export most of what they produce and import most of what they consume. For India, the low productivity of its domestic industry has impoverished it for centuries.
In a review of William Lewis’ The Power of Productivity, a book about how Wal-Mart and other retail competitors contribute to productivity growth, Hugo Restall writes,
Retailing is largely overlooked in countries like Japan and Germany, which suffer from a producer mentality, ignoring the value added between assembly line and store shelf. In Japan and Korea, regulation stymies efficiency gains by preventing large-scale stores from driving the mom-and-pops out of business. When Russia opened up, Carrefour and Wal-Mart didn’t even bother entering the market because they knew high tariffs and taxes meant that they couldn’t compete against local retailers who flout the laws. Britain’s retail industry is becoming more efficient, but only slowly, because restrictions on redevelopment make it difficult for the big stores to find space. In America people gripe about Wal-Mart, but by and large government allows it to roll on.
…Competition is unlikely to take off in poor countries until the scourge of big government is brought under control. Mr. Lewis notes that governments in Brazil, Russia and India spend more than 30% of GDP, while the U.S. and European countries, at a similar stage of development, spent less than 10%. High tax rates lead to a large informal economy, which means that an even heavier burden falls on legitimate businesses.
For Discussion. Why is export-led growth likely to prove more popular politically than its economic value would warrant?