napoleon iii was on the throne. the new empire in france. there were no democracies so lincoln was appealing to the dream that we have to keep the hope alive. >> you can watch this and other programs online at booktv.org. ..

>> this is a little over an hour. >> everybody sit down. welcome. let me just say a few words to introduce mike. in 1977, when i joined the house -- harvard economic department i think it was fair to say it was not a congenial place. was basically a juxtaposition, the kingdom. and he didn't feel very welcomed. but those key people who were very different, and one of them was mike, and that's when we met. and he took me under his wing,

made life much easier for me, much nicer for me. and you have to realize at the time i was a lowly assistant professor. and he was already god, or very close to that. i mean, he had done this very crude word on signaling. he was dealing with asymmetric information, had major results. and for those of you who have worked on that information, it can get very messy very quickly. the beauty of it was mike's work was incredibly beautiful from just an aesthetic point of view. from an aesthetic point of view. so i think we're all in all of them. and that's when we became friends. and it has lasted ever since. then my decided it was too easy, i think, or something like that, and moved on to the dean of harvard and then christine at

stanford, and then dabbled in high-tech and finance, and learned a lot about the world. and we met, we met often on, but we met again in china in 2007 i think, which we were asked to analyze what was going on. we had a great time. and i would say with a lot of modesty that our work was, much of what has happened and what we think now should happen, basically we nailed. and it was just a great pleasure to work with mike, in a very different capacity since read many years earlier. and so, today we basically are going to listen to mike's ideas which are contained in the book, that you can buy.

i think outside. and i think mike has put his finger on me be the main economic event of the last 50 and the next 50 years, which is the fact that the very large group of countries, like what we call the emergency countries -- emerging countries, have basically come are catching up, i basically going from poverty to the technological front you. and this is completely changing the world in all kinds of ways, clearly for themselves but also for advanced countries. this book is an attempt to get at the issues, try to look back and try to look forward. and i think it's a very important book. i've read it. and i think it's a very important book, but let me just up here. i think my, you want to talk for half an hour and then take questions. thank you. very good.

>> thank you so much, olivier. that was awfully generous. i have to tell you, i have had many failures in my life and the ones that i regret most are the laws of a gifted faculty member, and when olivier went back to mit, that wonkette to the top of the list and it's remained there. for the rest of my life. i'd -- i'm not going to try to do everything in the book. what i would like to do is take a little bit about what's in it and why i wrote it. you know, i had the privilege of working in china with olivier and a number of others. i had a huge privilege of sharing the growth commission with a distinguished group of political policy leaders and as i said in a preference to book i i learned an enormous amount from our mood and our colleagues. and came to have a better understanding, at least than i

did of us are dynamics of high speed growth in the catch-up mode in the emerging economy, the developing world. and i wanted to share some of that because i found in talking to investors, and others, you know, this growth that is relatively remote from their lives is somewhat puzzling, so they say, questions like is a sustainable? and i said you have to look at the dynamics that we know seem to work and see if you can find a missing piece and so on. so that's what i was after. but i framed it in a much longer time horizon. something like this. that we know from the work of madison and others that there wasn't much growth in the period after the british industrial revolution, and we know that the pattern changed dramatically at that point in the u.k. and in continental europe and what

angus maddison called the offshoots, that's us. and the canadians and australians and new zealand. but that affected roughly 50% of the world's population and the cloning of systems were in place and basically the remaining 85% of the growing population stayed on approximately the course they were on before with some effects from the industrialization really well. and that one for 200 years. until the end of world war ii when the colonial empires broke down, when a bunch of wise people greeted the imf and the world bank, set out to make sure that the disastrous performance of the language after world war i was not repeated. the global economy was opened up and the gap was created and started to function and technology produced a huge headwind in opening the global economy. we started something that i think it's fair to say nobody could see at the time, which was

the faltering stars and various starting point, a pattern i eventually came to call convergence which is this process of taking the 15 privileged, percent, in his two centuries of convergence and start to close the gap with a gasp, a hopeful gas but a realistic one that the end of this century that started after world war ii which we're only halfway through, you know, we will have if we are lucky 75, maybe 80% of the world's population, and we are well on their way. to economic giants on high-growth mode. i don't want to sound flippant about this. there's a lot of hard work that goes into sustaining growth like this, both within countries and now increasingly globally. that create stability in environment in which it can occur, but i think it's a reasonable guess if something that doesn't happen we will

triple the global gdp in the next few years. probably 20, maybe more than triple. it only takes 3.7% growth globally to triple the global gdp by 2030. so i think what olivier said is right. so what i tried to do in the book is sort of set the stage, then present what i think is now common knowledge among all of you, among members of the growth commission, the world of people who have worked very hard to come out to accelerate, sustain this growth, and they look to the future. and i.t. believe that we're at a bit of a crossroads in the global economy. with what i tried to describe it, less expert groups of people than those in this room, you know, china started growing 31 years ago at pretty high rates,

accelerate quite rapidly somewhere around 9% growth. but if you draw back 20 years and see what difference does that make in the global economy, the answer was very little. right? fast-forward 20 years years to the present and you get nine or 10% growth and you are talking about very large shifts in the composition and whatnot of the global economy. and so it isn't just growth but it's the cumulative effect of growth that is interesting. and i believe we're at a crossroads in which the emerging economies are systemically important in multiple dimensio dimensions. again, that will come to news as you, but it isn't just growth. you can fool yourself by saying we've had 31 years of high speed growth, that's the what we're living in. and you can see it in all kinds of places. mckenzie global institute study on global investment rates suggest i think quite possibly

that the declining investment rate that we experienced in the 50 years after world war ii, the investment rates are higher in emergency -- emerging economies and the global economy is bigger. so i want to sort of anticipate some of these profits as a challenger challenge of unanticipated problem, at least with respect to some part of the media you're supposed to give the answer, and i don't think we have answers to many of these things. i think we're going on a journey together to try to figure them out, much as the emerging economy go on a journey to try to solve problems in a kind of experimental mode in which you don't really have the answer sort of before you start. but i think it's a fascinating time in the global economy, and i think the people -- so what

are these challenges? let me spend a moment on the. one of them clearly is governance. and it's a fairly rapidly moving environment. we switched over to the g20, partly with the help of the crisis. the g20 is now struggling to find a way to promote stability and coordinate policy on a global basis. i'm not pessimistic about that but i think it's realistic to think as a long-term project. and one that is very difficult given the relative heterogeneity of the countries that are involved in terms of their sort of state of development. you know, in china there's a real tension. china has become systemically terribly important at very, very low level of per capita income relative to any of their predecessors. so there's a very proper

instinct in china to say look, you know, the growth and development of domestic agenda is pretty hard and we'll stick with it. and wise international advisors and also the internal people say no, you know, it's not the best hand to play the global response was a per capita income of $4000 but it is not in ours or your interest to ignore the systemic effects. and, in fact, china is going to have to conduct a balancing act in collaboration with the international institutions, and the rest of the systemically important countries, and so dealing with these things. this is just the fact of life. india will be in the same position, though my estimate, india's at high-growth rate somewhere around 13 years, you know, behind china in the course of this. i will play one thing that josh

feldman and i were talking about the totally new thought that comes posted the book. that i have start to think about it is based upon, on the basis of conversations in asia recently. so let me say it in two ways. first of all it's pretty clear those of you who know industrial organization, you know that we measure concentration and industry it's a kind of way of thinking about how our galapagos take it will be. to share the top two, the share of the top four, the index and a bunch of others. and we know i think it's obvious the global economy is be concentrated because of the smaller entities are growing quickly. why didn't realize until recently his that pattern will reverse in about two years. because of the size of high-growth part of the global economy. i maybe wrong on on the timing but we are going on a 15 year

time horizon be in a position in which the global economy is dominated by for economies, europe, taken together, the united states or north america, china and india. and then you don't have to go very much for the past that you have two economic giants, assuming nothing gets in the way. one of the challenges of sort of handling these global issues is that the relative size of the entities is changing very fast. sort of like a moving target. now back to asia. asia is 3.83 billion people. it's not quite but close to 50% of the world population. if we stay on approximately the trajectory that we seem to be on now, this pattern of convergence, they will account for some very large fraction of the absolute amount of growth in the global economy, the absolute amount of growth tripling or quadrupling. of the global economy. and what is happening in asia is

that what we think of as global issues, challenging global issues where there are all kinds of free rider problems that relate to natural resources, the environment, climate change and so on, are starting to be internalized. in the big countries like china. because they are such an important part of the incremental pressure, you know, through prices, through consumption, and through growth. that they are starting to realize, and i think this is new, its new there it is new in the global economy, that addressing these issues isn't so much a global issue for them. it's a question of long-term growth strategy is completing the process, marching to advance country high-technology success. what that means i don't think we've had time to think about,

but it changes the incentive structure of the game, or the game sets run sustainability and so on. if there's one or two players or region that is internalized this and the start i because it's in their long-term self-interest. i will close with a little bit of a talk about terminology. so i encountered this with friends in asia under the heading of lifestyle. i thought, you know, they said our lifestyle is going to have to change. it's going to have to be different from the advanced countries and high-growth mode. i thought what's this got to do with lifestyle, what are we talking about? lifestyles are you wear a blue shirt and i wear sandals and somebody else has a ponytail. and when we see lifestyle we're talking about individual choices in a broad spectrum where we sort of think of people as free to make individual choices and

it's nobody's business, so to speak. it's not a social issue where there are relatively few constraints. what chinese mean by lifestyle is something completely different. and it doesn't fall into the realm of individual choice. it falls into the realm of collectively. they mean how you build cities and what transportation you have, and how many kids you of out because that has social consequence. and whether you can drive a car and what kind of car, et cetera. and i think there's a bit of, a clash of civilization because in asian settings with lots of different, this notion that there's a very large area that's predefined constitutionally is free from interference. you know, from society, from

government, is not an acceptable proposition. and probably functions themselves, you are talking about people, you know, acrobat close together. and so they feel free to have policies that affect demographics and they will feel free to constrain choices if the cost of failing to constrain the choice is to threaten the sustainability of the growth path. and we have i believe an upcoming communication problem, you know, maybe a values problem associate with this but certainly a communication problem because the sort of one line version of this is we are going to have to change our lifestyles. and a slightly longer version is we can't use the growth model in unaltered form that was used by all our predecessors advanced and emerging. and that puts you in the world of having to invent a new path

as you go along. and nobody knows what it is. there will be choices made and trade-offs made all the way along the line, but you know, i would love to be younger and be reasonably confident of seeing completion of this journey that i try to describe in the book. i don't think that's a very good bet, in my case, but i'm hoping to be around for at least a little bit longer to see some of this. i think it's really, really quite fascinating. there is a little bit in the book that i won't talk about today which has to do with the crisis and what was learned about the crisis and the sustainability of the emerging market growth after the crisis. we are now pretty clear on this issues. the crisis was well handled globally, including by the emerging markets. they obviously had largest --

had learned a ton from past experience with the restoration of growth was extraordinary in china, india and brazil, in the brick, three of the brick. jim o'neal's has by the way we can still use bricks but we can't use the term emerging economies in more. so that leaves us with, you know, what are we going to say? so he says high-growth economies. that's a fairly pessimistic version with respect to the advance country. and then there's the next 11 but i don't find next 11 a particularly snappy way of referring to the smaller high-growth countries. but in any case, on sustainability i think we have probably a reasonable consensus that unlike 10 years ago they could probably, they meaning the developing countries with emerging ones leading the

charge, they can probably sustain really quite high growth even if we limp along in europe and america. and that's a big change. that degree of decoupling is new. it's not completely coupling. i'm quite sure that if we have a problem on the fiscal side that produces a big downturn here or in europe, that that will slow them down. there's one of the very large change that you see when looking at the emerging economies from an investment point of view. if you go back 15 years and ask how correlated with emerging economies sort of growth rates do anything in the global economy, he would've answered they are correlated with us. and relatively uncorrelated with each other because what produced problems or deceleration so were largely idiosyncratic to the country or the region. that's not true anymore. they are highly correlated to each other i china.

if china misses a step in the middle income transition, which is what they are entering, a transition in which five economies have successfully near through at high-growth, that will slow i imagine, i'm pretty sure that will slow all of the rest of the developing world down. so that is a very different world in that respect. if you're in an emerging country other than china, and writing at risk factors, you would write out instability of the global economy, financial system, a downturn in europe and america, and a downturn in china. >> anyway, olivier, i think that's probably enough from me this morning. i hope, i hope some of you have a chance to take a look at it and find it modestly useful in sort of providing a frame of reference for think about the highly demanded world that we are in. thank you.

[applause] >> the floor is open. >> i hope there's a question. >> my question is, are we all going to benefit from this converging in emerging economies? i'm asking the question strictly from the advanced economies perspective it is at when they're going to benefit, or will we have many losers and to worry about how to address this? >> that's an extremely -- i'm awfully glad you asked that question. so, that was what mr. think about right after writing the book this pass for nine months. some of you heard some of the so i apologize for that, but part of me, part of the impact of rising and movement of, the value added change, is a

different pattern of impact on this sort of structure and prices in the advanced countries. my kind of mid-process in trying to understand the structural changes, the correlated structural change in advanced economies that go along with evolution of the global economy and the emerging market, so i would just report briefly as i did in march but if you look at the american economy, since 1990 up to the crisis, all of the incremental employment was in the non-tradable sector. net. if you live in the tradable sector what you find is that the ones where the united states is quite competitive, finance, computer design, managing multinational enterprises, consulting, there's growth in everything. there's growth in income. there's growth in diet added.

there's growth in employment. and then you look at the long supply chain and the things we call manufacturing company with a a lot of the components of that supply chain or services, the lower value added parts of those are moving offshore, and that's where the middle -- the lower, middle to lower part of the spectrum in terms of education income and so on on the tradable side was deployed. so we could've had an unemployment problem by said the non-tradable sector essentially absorb them and then go look where it was absorbed. the answers government, health care, construction, retail, all the big employment sectors. government and health care was 40% of the increment. you know, economists are supposed to have crystal balls, and i certainly don't, but i at least wanted whether that trajectory is sort of going to

continue in the future. all of this evolution combined with some laborsaving technical change is consistent with the evolution of the income distribution in the country. so the bottom line is whatever the right answer is, it deserves attention. and is almost surely distributional effects which means differential impact of the evolving structure in the global economy on subsets of the population in advanced economies. my next project is to try to sort out what the germans did in the last 10 years and wife there is and apparently quite different pattern, both structure and growth going on now. we are kind of in mid-process on the. the mckinsey global institute has agreed to collaborate and tried to do similar things for all the major economies of the world. we have a sense of structural evolution. and, frankly, what i'm trying to

do is reintroduce the idea that this sort of structural change, which is a long-term journey that brought a cyclical events, gets to be part, overtime gets to be a part of the policy discussion, not to the exclusion of cyclical things and crisis recovery and so on, but in addition. i suspect the effects are large and they're getting larger. is what i said in the book is if you look at the distribution of the effects of globalization for the first 50 years of this hundred year pattern of convergence, it's pretty benign. war recovery, now much unemployment in advanced countries, trend growth in real terms, declining prices is a lot of stuff like labor intensive manufacture products. and huge amounts of growth, accelerating growth and poverty

reduction in much of the rest of the world. so it's hard to worry about that. so i suspect at this point that i described, where lots of things are changing because of the size effect rather than the curative effect of growth, that we are at a different point where we might want to pay a little more attention to the distributional and structural and. yes, sir. >> thank you. as you bend, passé with medicine work, and if you look at the work in 1910, you would look to a bunch of countries like canada, even if the united states, you see an oscar you as the top -- argentina. after one century you see everyone but one, argentina.

so what was the difference? basically that the political economy model of these quite equitable countries were naturally endowed with natural resources, were very different between new zealand, australia, canada and argentina where the behavior dominated all the players get my question is now sense, almost everything depends from now on for what's going to happen with, say china, india and brazil, is your view that china could replicate in a way japan did? because when one hears that japan was reengineering, but china is all about imitation, is the political economy the way power is toshiba in china, in your view could be an obstacle whenever they reach higher levels of income?

because the check and balances in sort of a lack of democracy and could eventually be a big hurdle? >> so a wonderful question. i mean, let me preface the answer because i can't answer all parts of it, but i do believe the word in political economy that is being done at that helps them understand, really understand the interactions between governments on the one hand, and the dynamics of the economic processes on the other instruments important. it's promising but it's yielded insight and it's still got a way to go. and i think i would just endorse your proposition under that heading, that even though we don't completely understand how the political economy, you know, forces them way out, there are different countries and use ipod the most dramatic example of the verge of results. and so do and you question about

china, i think if you froze the chinese government is in the way it is now, and it is evolving, but if you froze it now i would drop the chances of getting to advanced country status by some very large amount. so there's going to have to be a co-evolution. none of us know exactly what it was applied, but we do know based on at least some understanding of the middle income transition that the market has to be more decisive and states less in the economic processes, that price distortions have to be fixed, that the low return investments behavior in public sector and the state owned enterprise sector which still has more than half the net fixed assets in the economy, it's going to have to be eliminated. that's easy to say and tell you start think about what you've got to do to get rid of it. corporate governance, diminish the importance of the financial

system, giving income households and they can give it back if the return cases harder time being being a little flip, but it's a huge array of stuff to try to get done. but the underlying thing is that in multiple dimensions the government structures going to have to move alongside. and i think a best guess based on predecessors, japan, korea and taiwan were dominant single party structures that evolved in certain parkas of good leadership in the multiparty democracies when the economy reached a certain stage of development. it's not a bad guess that ultimately china will end up in a position. if you go into the people in china, members of the comments party you probably won't hear that. yet. and they may invent a new model. they keep thinking, they invent a new model for doing various things.

some of this evolution, and they occur inside a shell which is a party structure so you sort of don't see the evolution as clearly as you would with a formally mark o'meara structure. -- formally familiar structure. >> i also have a china put a question and you may have answered part of my question, but you mentioned the chinese talk of lifestyles, building cities, how many kids do have, social implications, kind of cars to drive. and you also talked about constraining choices to preserve long-term growth. that's something they may have been thinking. my question is, do you believe markets/prices are much better to handle these problems than state intervention in the form that you see are restricting one

giant policy that they have? doesn't matter how is it done? what is your view of this? >> i have a kind of -- it's a very good question and i'm not sure -- i would love to sit and think about it more, but i think the right answer probably pragmatically now is that market prices work better in some environments than others. i would say that the use of market prices and price signals in the area of pollution or emissions reduction and the sulfur dioxide area has demonstrated clear benefits of taking that approach and efficiency that goes along with it. i think i would want to step out on of them and say with respect to certain demographics that price isn't our message of the best way to go. it might be but at least i don't think i have enough of a basis for sort of making that claim. you know, in the emerging

economies where the models, the models that we used to predict the impact of policy decisions are useful but have to be modified based on the state of developing of the economy, you have a pattern of behavior that i call navigating. you know, it means of solving problems, making judgments. you see this everywhere. emerging markets manage their currencies. we all know that if you sit on it, you stall a structural transformation, and if you let it appreciate too quickly, then you can't, the economy can't keep up. we've gotten to that overtime and we now understand it. but that leaves you in the position of making judgment. rather than adopting a clean, clear model, you know, of the type that we use in advanced

countries. so i think it's going to be a pragmatic and somewhat experimental mix. but the clash that we may have with some of the emerging markets, particularly with china is we have very different conceptions of for the private sector should stop and the public sector should start, even though we vary across advanced countries. we have systems that are built on a fairly sharp distinction and they are blurred. you know, and economy that has come let's call it nine strategic sectors where they don't plan to exit, the state ownership, and this is going to be lots of challenges of navigating through these, as we interact more with each other, these very fundamental differences in the way we've decided to organize ourselves. and i don't know what the and will be but it is a challenge.

[inaudible] >> aren't you surprised at how all these countries, emerging market companies -- countries are -- [inaudible] india and china i think, something none of us would've expected them to, i think most was 20 years ago would've said look, we see what indiana, forget it. and china, for lack of democracy and fixed prices for state fix prices which goes nowhere. they did find. and we are singapore, hong kong which organized completely different it looks as if in the in the driving force is technological progress, getting to the frontier. and once it is there somehow you have to really screw up. but i'm struck by how these different structures accommoda

accommodate, or consider all these different structures which might make us optimistic. >> no, no, it does. let me just elaborate on this very interesting point. the book does talk about this and the growth commission didn't spend a lot of time on it but we did start paying attention to what are the factors on the leadership of political side. let me just say what olivier said. if you look at the high-growth countries and see a blizzard of diversity with respect to what i call the four, and if you look at the economies that are much lower performance or even failing, you see the same blizzard in terms of form, of diversity. so there's failing democracies with apologies that others have talked about and documented. and, of course, you can easily find autocratic systems, you

know, that produced disastrous economic results. so if you think of it as a box, good attack and -- good and bad economic performance, as a crude approximation to these two dimensions, you can fill and every item in the box. and so what the conclusion that led me to believe is one, the political economy research is important we don't really understand this because it isn't performed, and the cycle and it isn't just perform. it's something else. now, you can draw two conclusions from that. one is the government isn't very important in some sense because you get all these different forms. and it's really the driving force of the economy, or you can say the government is a pretty important complementary player to the private sector in an open economy but it isn't the form that matters.

its competence, the intent, the objective function, the intent to benefit the vast majority of people, the ability to bring people together around 30 tough agenda with high savings rates in poor countries, building consensus and so on. i am inclined, without being able to print, the latter. that is the state has an important role as regulator, investor in public goods and so on. but that isn't the form. and i think that's not good enough, relative to what we hope we know 10 years or as result of the political economy but at least it strikes me as vaguely consistent with the facts. but it doesn't prove that the proposition -- it doesn't disprove the proposition that state is sort of -- there's a very great degree of latitude in both performance. it's all consistent with very

high economic performance and i don't think we can project that hypothesis at this stage. yes. >> one of the things you mentioned was usage were fairly comfortable with these countries get bigger. at the same time as you just mentioned, there's differences in terms of systems and getting the externalities going is more difficult. and also what do we have in terms of history? can we really point to countries that grow larger in the past that they were willing to step up and internalize some of these issues? talking about environment, many other aspects as well. >> we don't have a lot of evidence. so this is one way of putting it is i could be quite wrong, when i say this is likely to happen in china, it's based on their

historical performance. not a lot of other day. this like a number of other countries with lots of variations is a country that has a clear objective, long-term objective. very long-term horizon. and ability to persist in pursuing them. and a reasonably differently developed track record for anticipating problems that come at the next stage of growth. so it would be on the basis of that kind of track record that i think i would lean to the conclusion that they will internalize that. if you want to argue against it you would the environmental performance of to date in the chinese economy, which is probably the most extreme version of the deal now with environmental consequences later. which has turned out to but it's an awfully big mess and hugely costly challenge going forward. i mean, the plan lowers the

growth rate target growth rate to 7%, which leaves them a huge amount of leeway, given what they probably can accomplish in at least the next 10 years to deal with, equity and inequality issues, social pensions is what they call it. and the environmental and sustainability issues. and i think that's smart to buy themselves that degree of freedom. what they're really doing his tone down expectations on that dimension of economic performance and saying we are really moving in the direction of the multidimensional performance measure that is focus on quality of the environment, quality of life and sustainability. but you would once use the track record to prove what i just said for sure. >> it's always somewhat risky to project growth rates but i guess

especially high growth rates forward by a decade or two. before in the '50s, '60s eastern europe. at some point say we will bury with japan, this is our projected forward and the suggestion that japan would become double the size of the u.s. within however many decades. how are things different this time? >> they have bigger population. all that have to do is sort of modified to which i think is what they are doing. accepting markets, not adopting flawed centrally adopted models, learning from us. many of you spent a lot of time in turn pick the thing that strikes me most about china is the speed of learning from the rest of the world. it is coming to come in the

world where there's lots of learning going on, it's highest learning assignment i've ever been in in this dimension. all of which i think does equate to the absence of bumps along the road or even major sudden stops. and you would want to reject that. you for sure wouldn't -- that's like ignoring that distribution is a very smart. but i think the fundamental point is that they have adopted in modified form a model that the fenced countries use, and the rest of the projection is based not on outperforming us or burying us, unicom in beijing they don't think we're going to disappear. they think we are going to be hypercompetitive members of an advanced global economy. and i agree with that. i don't see any burying going on. i think in response to this other question, i said there are

some distribution and transition issues which alone could not that we should pay attention to them, but nobody is burying anybody as far as i can see. so that's kind of the frame of reference. i think that lead you in conjunction with fairly skillful navigation to do it. the world could do differently. it could more from economic development into some kind of more aggressive dominant, depending on how the government, the society goes. i can't type at you can reject that hypothesis at all. but it doesn't look like the current trajectory, so the bottom line is these are the future economic giants, just because their population is four times ours. >> can you say something about

the other big area with lots of people, africa? and maybe contrast or what you see happening there? >> so, i think, i mean, there are people, many people in show far more expert on africa than i am. but my impression, correct me if i get any of this wrong, is there's been a clear pattern of growth acceleration, reasonably successful navigation through the crisis. a generation of young leadership that takes responsibility on behalf of the country or their future. a long period of building national identity, reasonably successful as a kind of fundamental foundation for sort of building a society with a set of objectives including economic ones. and i would say, and then you have the power of asia which wants to interact with africa as

a tailwind that we didn't talk much about this, but the importance of china, middle income transition is there going to exit the natural territory that poor countries operate in in terms of comparative advantage. and that is going to create, i mean, this is the imf. we know you can't have no comparative advantage, right? exchange rates will take care of that. but in africa that has been widespread view that the social return to public sector investment designed to steal it growth is lower when you look at competitor in the power of china. sort of sitting there competing. and as they exit the stage, then i think that that return me very well rise and that will help accelerate growth. and not only that, he had a big

economy that would become the major export for developing countries, including india, brazil, korea, and it goes on. so i think for all those reasons both internal mostly, most important, and external, there's a reasonable basis for optimism about, notwithstanding the late start for an accelerating pattern of growth. you know, having said that, in the middle east and north africa, we are at a point of maximum uncertainty about whether this will come out with reasonably solid government structures and a pattern of economic management that promotes growth or something quite a bit more chaotic. i think the jury is out on the. and that's a major risk factor for them and for the global economy. i can't risk telling you, i love operating in this environment, but i learned one other thing recently that i would just point

out. the japan tsunami, the nuclear problem, the destruction of the supply chain cost one important effect going forward in the global supply chain which is the people who run that, if you sit down and talk to them, have realized is global supply chains are too efficient. they are wound too tight. and so, and so the capacity of a relatively minor, you know, in a sense of the entire global supply chain disruption, i don't mean to call what happened in japan miner, but you understand what i mean, this contest, is capable of producing sort of amplify disruption. and what you will see is a response to the and there'll be a private sector response and they will unwind this kind of tightly wound set up characteristics so that there's way more redundancy. it is a network in fact it's very much like networks that are highly vulnerable when they start to become inefficient and

lose the redundancy. it's just a fascinating one dimension of the evolution of the global economy of learning from responding to shocks. yes, sir. >> a follow-up. you look at per capita income. most countries in relations to the u.s. over longer time this has been remarkably stable. countries have gone up 20 points, 30 points and then they come back. the world leader is going up and down, but most i would say, the majority have ended up coming back to their starting points. do you exclude eastern and western europe especially from the south, or you see even these countries -- [inaudible] with respect to the u.n. as a leader.

in this context, other countries have been able to grow in the last decade. they seem to have been able to do it because of market penetration. there's economies that can grow because they are small. china doesn't have that luxury. they are becoming large. for them to keep going i don't know, but it seems difficult to keep going forever as a share of work trade. so they have to do it domestically. where they will not have the discipline to foreign markets impose in terms of quality, in terms of efficiency, all those things. they may revert as other countries have experienced. and then you stagnate. i wonder what you think about that? >> it's a distinct possibility. okay, this is a treacherous path that you described. especially for big countries. they will go up the value-added chain in the export sector but their marketshare regardless of

what portion their in and what chunk out of value-added chain is big enough, that won't drive growth. so it's got to come from the domestic becoming. it's got to come from aggregate demand and the domestic economy. that aggregate demand has to be the right mix of consumption and investment. because it will guide the evolution of the supply side of the economy much more prominently than happens when they were or any other country is poor in the domestic market doesn't matter. and that's all exactly right. in that there's lots of places where discipline or price distortions or other things. the thing that has worded china most is document very well, and imf working paper is the declining fraction of household, disposable household income and national income from 70 to 60%.

and so, and in some sense in part operating with still almost 50% of the population, plus or minus a bit in the countryside. that iron grip, the surplus labor, seems to be being relaxed. and that's based on a pattern of rapidly rising wages in the coastal sectors, starting last summer. and so they may have a tailwind in this dimension that they weren't anticipating, or which they knew would come but they didn't know win. and even as little as a year ago, we were talking about the need for the government consumption on crucial services like education and health care, especially in the rural sectors, been needed as the short transition mechanism while he waited for the economy to start the relative price increase of labor in motion. that looks like, it's not a done

deal yet but that looks like it has now started. and that will give, even if they screwed up and don't force the state owned enterprises to dividend out more of their income and just park it somewhere where it is actually used, that will produce a movement in the right direction to the demand-side structure and the economy. but i accept a general conclusion which is there's all kinds of places to fall off the boat. this is a very complex set of core data structural changes and supporting policies that are needed at this stage. and i guess the best evidence is, you know, five countries have pulled it off. all of latin america did. the rest of the high-growth countries in asia didn't. so these aren't stupid people. one thing you do not have in asia get is you do not have any -- you do not country in which

the concentrated ownership of assets, even approximate the colonial legacy of latin america. and while i'm not sure we have a definitive political economy account, the chances that assets including land or that concentrate in certain ownership, seriously influencing the policy of the country in the direction of protecting the rents and so on the go with those assets, i don't think we should reject that. it is too many dual economies like the one brazil had and so on in the mid '90s that sort of illustrate that point very basically. i sometimes describe brazil, not now, because this gap is rapidly closing, but described as the middle income country that consists of an advanced country and a poor country living in the same borders. that is not a high-growth. you know, over a sustained period of time.

>> thank you. i enjoyed the talk. what does china's demographic structure suggest for looking very long-term, the long-term growth trajectory? and perhaps the long-term budget. >> right. very good question. china is aging. experts like peter diamond and mick barr and others that have advise the government say they are still in the window with a state ballot sheet which is gigantic, think about just sort of -- it's not going to last forever. uncharacteristically i think olivier would concur with this, the tendency to move very

quickly when a problem is identified as having demonstrated in pension and social security period. and knowing that had a problem for item, public 10 years, and only now are they started to sort of elaborate and make universal pension systems -- sorry, i'll get it. just a minute. [phone ringing] this is a real challenge. i think it's nowhere near as serious yet. as it is in europe in terms of it adjusting fiscal and other arrangements, or japan where it's in its most extreme form. but it's on the horizon. and if they don't do with it necessary fairly early -- on china's growth trajectory demographers have different opinions on whether aging slows growth. david bloom at harvard says if you