A Conversation with Professor Michael Spence

The conversation yesterday was titled “Sustainable Growth in Asia: Challenges as the Advanced Economies Slow in a Resource-Constrained World”. Professor Spence was a Nobel Laureate in 2001 for his work that assessed how markets try to close informational gaps.

Professor Spence identified four aspects for countries around the world to succeed in the future:

1. Tackle rising inequality and create effective inclusiveness. A good example is China. Its Gini efficient stands at above 0.4 now, reflecting the ever-increasing social tension in the country. If left unchanged, inequality would become a great barrier for sustainable economic growth.

2. Global governance. Emerging economies should share responsibilities in global issues. The global economy is deconcentrating, but it will concentrate again in 15 to 20 years’ time, away from advanced countries to the emerging ones.

3. Structural adjustment of the advanced economies.

4. Create new growth patterns taking into account our natural resource base.

Professor Spence elaborated the last point. He pointed out that bad energy policies could generate huge negative effects to the economy. How to reverse the negative impact? First we should anticipate the time and rising price and adopt a intertemporal pricing strategy; second we should find relevant low-cost ways and inform the policy makers. Professor Spence also mentioned that security is a big global problem now, and Nash Equilibrium does not seem to work here.

After Professor Spence’s talk, Andrew Sheng, president of the Fung Institute, commented on the challenges for emerging economies to take up responsibilities. He identified two difficulties. The first one is about miscalculation of economic measures. Without natural resources being counted into GDP, people are less likely to save every penny for their water. The second matter is about the subtle boundary between private good and public good. He quoted the example of Malaysian rainforest. When policy makers ask farmers to stop burning the woods and create a sustainable environment, they said they lived on this. For them, this is their natural way of life. “How to address sustainable issues to people on the street”, according to him, is a particularly important issue in developing countries.

To solve the problem of financial crisis and resource constraints, we need global coordination. Local and global efforts should be combined to make for a better future for all of us on the earth.

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