Leading Indian economist Professor Jayati Ghosh told Myanmar government participants in an informal forum on the economy that a country’s urgent needs can only be met by government spending.
The Indian economist was speaking at an open forum for Myanmar policy makers, academic scholars, civil society, government officials and NGOs in order to share perspectives on economic development.
The meeting was held on August 25 in Nay Pyi Taw and was organized by ActionAid Myanmar and Mizzima Media.
Indian Prof. Jayati Ghosh and Prof. C P Chandrasekhar of Jawaharlal Nehru University, New Delhi India are on a four-day visit to Myanmar.
During discussions, in response to a query, Prof. Jayati Ghosh discussed the controversial issue of how involved governments should be in directing their countries’ economies.
“People keep saying giving money to the government is bad. That Government borrowing is terrible. But at the moment all of the developed countries have provided huge resources in the form of quantitative easing.
Historically, it should have been very inflationary, so this monetarist idea that money creation is necessarily inflationary is already disproved all around us. So the choice is - are you going to give it to the public sector or private sector and I think that there are urgent needs that can only be met by public spending, very critical issues,” she told participants.
“I think that there is a very interesting point about what you choose now. It is true the government has very limited resources. Do you choose social policy? Do you choose economic growth? I think this is a binary. He was talking about binary. This is a wrong binary. You look at the successful countries they did both to varying degrees. It is not the case that if you are doing economic growth you can forget about social spending and do it later. Or if you are doing social spending you are not bothering about growth. Critically I think the government really has to spend on infrastructure - physical and social infrastructure. That is to say physical infrastructure, the basics, roads to every settlement, electricity to every household, access to potable water. And social infrastructure in the form of health, education, nutrition, all of these,” she said.
“The South-east Asian experience, actually eastern Southeast Asia, there are very good examples of how they did both. They did both together. In other words, in other words, it wasn’t that they spent only on physical infrastructure. So in a way, maybe you don’t put all the money into one pot or one big dam. Maybe you put a smaller amount of money into smaller dams and more money spread into social policy. So it is that kind of choice. It is not that you do something that only generates economic growth.
“Also, social spending also generates economic growth. Every time we give way to we will do growth instead of social spending, but social spending also generates growth it is just a more bottom-up kind of growth because you are generating local demand in the local markets.
“I would say putting it like there is a choice is a wrong choice because it makes us decide we will do this or that, but all the successful economies have done both whether it is Scandinavia or eastern Southeast Asia or all of these countries,” she said.
In her speech at the introduction to the meeting, Professor Jayati Ghosh said she welcomed the invitation to come to talk.
“You are really on the cusp of a lot of changes, there is so much potential, there is so much that can happen.”
She said she could sympathize with the idea of needing to wait for a little while, to “cross the river by feeling the stones”.
“And because we know these ‘big bang’ approaches have really failed. It is a very smart idea not to do a big bang, not to go for big changes, it is good that you are thinking carefully before you do all these steps,” Professor Jayati Ghosh said.
“We also realize that we can’t just fly into a country and give you big advice about what to do, this is not what we are here for. But what we thought we might do is highlight some of the important developing issues for countries like Myanmar today. And then we could then maybe have a more informal discussion where we would like to learn from your own responses.
“So I will just highlight some of the issues we feel are significant from the point of view of the development project,” she said.
“It is clear from the economic policy documents the Myanmar government has prepared so far is the heart of development is economic diversification, moving the economy away from low value added to high value added activities.
“So maybe when I talk about the development problem, in a sense that is what I will be referring to. It is the ability to move the workers out of low value, lower paying activities, to higher paying activities. And this can happen in two ways – it can happen in a shift across sectors, in the usual pattern from primary to secondary to tertiary … and it can happen in a movement to more value-added activities inside a sector, inside agriculture, moved to higher value, inside industry and manufacturing, moving to higher value and services.
All of this requires strategies, all of this requires explicit government strategy.
As she said, you really need coordination and a medium-term strategy, which is the earlier days used to be called planning – planning has a bad name now because it is associated with direct planning – but I think many economies abandoned planning and also coordination and the medium-term. That is a mistake.
“The second thing is you can’t do this without trade and industrial policy and unfortunately these are not things recognized in the political discussions today. Industrial policy, people say they used to do it in the mid-twentieth century. Now it is no longer relevant. But actually there is no country that has developed and industrialized without active trade and industrial policy. No country. Even the ones who say they did it by themselves.
“But of course they are more difficult now. Because of the WTO, because of various other constraints. Nonetheless, in fact many of these things can still be done, including by countries like Myanmar. I would argue that you need to consider things like local content rules, raw production, which will encourage investors and producers to necessarily have more employment and more dependence of inputs from inside the economy, even if there are countries that are engaging in local content in your neighbourhood.
“There are things like export bans for raw materials and this has proved very effective. In the 2000s, in Congo, which used to be an exporter of raw copper, and they banned raw copper, and now they are exporting processed copper with a doubling of the value-added. It is possible to do this even in horticulture. In Ethiopia, in flowers, they have now insisted on processing which has improved the value-added they get from horticulture. And now they are the second largest flower exporter in the world, after Holland.
“So it is possible I believe to do this kind of thing,” Professor Jayati Ghosh said.
As she said, the one thing she wanted to talk about was the use of social policy.
“We are always told that social policy can come after you reach a certain level of development. Governments tell us we don’t have the money, how can we afford a social policy, how can we afford to give social protection, all health, nutrition, housing. We don’t have the resources. Let us reach a higher per capita income, then we will do it.
“But if you look at many successful countries, they actually used social policy as an instrument of development. And the best examples of these are the Nordic countries, Scandinavia. It is hard to believe now that countries like Finland and so on were actually poorer than India at the turn of the 20th Century and also very backward, undeveloped and so on. The Nordic countries used social policy as a tool, like an industrial policy, as a means of development.”
She said there were a number of benefits to doing this.
“The first of course is that it increases employment. All of the sectors are very employment intensive. Health is very employment intensive. Education is very employment intensive. Ensuring nutrition, ensuring a range of categories not just in terms of health.
“Where you generate employment you give incomes to these people through public funds and they spend more. They spend in the local economy and that generates a very strong multiplier effect, so you have very strong employment impact.
“The second of course is the more you spend on health and education the more you have a healthy and productive and skilled workforce. And the East Asia example, whether it is [South] Korea or Malaysia, they really show how important education was, and make sure you have skilled workers at every level of the production process. You can’t do production if you don’t have workers who are actually skilled to do those jobs. So spending much more on all of these sectors has a supply side effect as well, and that in turn is also important in countries like Myanmar I think because these phases of rapid growth, they are also phases of rapid tension.”
The economist warned about the dangers of rushing.
“Lots of things happen if there is rapid change. People lose their land. People lose traditional livelihoods, things get dramatically changed. People have different aspirations. Many tensions arise in periods of dramatic social change. And social policy is an important way of actually managing this tension. And this again is something that has been shown certainly by the Scandinavian countries but European countries, Australia, a number of them. You see how social policy played a very important role in having a stable process, politically and socially stable, not one that generates a lot of conflict, particularly in a federal situation like you have in Myanmar, where you have different ethnic groups, where you have regions that are much less developed, it can play a very important role in managing those kind of tensions.”
Social policy is important, she said.
“And of course that finally means that you have to be very conscious of social protection also. There is a lot of discussion globally on something that is call the social protection law. There is a minimum to provide to every citizen. And of course it varies from country to country. But again it is countries that are putting in place social protections of whatever kind are finding it easier to deal with things like new inequalities emerging, regional division, ethnic division, gender division. And therefore it is important to not see social policy as an add-on, something we are doing because we are nice. It is actually an important part of development.”
As she said, although Myanmar may have a lot of restraints, as an LDC the country has a lot of flexibility in the WTO. The important thing is to use it, to use the flexibility.
She said there is a lot of flexibility, to use the flexibility the WTO provides, and the flexibility within ASEAN.
Professor Jayati Ghosh said it was very important to be careful when Myanmar signs bilateral treaties. “They don’t seem a problem immediately but they have long term implications that can be very damaging.”
She gave the example of not wanting multinational companies ending up with most of the profits from natural resources, natural gas, and minerals.
“There is an investment treaty that the Indian government has developed. But what limits can you put on this to protect the interests of your own citizens?”
She said it was important to look at bilateral treaties in a way that don’t’ push the country into these problem areas.
Look less to the developed world norms, because the developed world norms are designed with their interests in mind.
“Sorry to put it that way, but that is the case,” she said.
“We should be looking at expanding the space so that we can interact with the North but on terms that suit us best,” the economist said.