An Agenda for Sustainable and Inclusive Growth for Emerging Markets

The economic performance of 2015 was the worst since the global financial crisis and, apart from the crisis itself, it was one of weakest years in recent decades. The hope is that 2016 will be better, but I believe that there is little reason to expect significant improvement. One sees weaknesses everywhere. Most significantly, there is the (long anticipated) slowdown in China, especially in its manufacturing sector, with knock-on effects especially in those countries dependent on exporting natural resources. China has been the main engine of global economic growth in recent years, especially since the global financial crisis, so it is to be expected that its slowdown would have global repercussions, especially on natural resource- and commodity-dependent emerging markets and developing countries. Most of these failed to take advantage of the commodity price boom to adequately diversify their economies. Unfortunately, as one looks around the world there is nothing likely to fill in the gap—implying that global growth will remain tepid. There is, in particular, continuing weakness in Europe. In no part of the world have misguided ideas had such adverse effects: continuing austerity is having its toll, as the gap between where the Eurozone would have been had trend growth before 2008 continued and where it is today continues to widen. (see figure below). Worse still, the Eurozone crisis is not over: it has only temporarily been put on the back burner by the Troika program of the summer of 2015 for Greece, which inevitably will ensure that Greece's depression continues. In a relative sense, the US appears as a bright spot, but even there, growth has been anemic, productivity and employment to population numbers abysmal. While it does not suffer from the kind of austerity that Europe has imposed on itself, even there is mild austerity: with some half million fewer public sector employees than before the crisis, while normal expansion would have implied an increase of some 1.6 million public sector employees in line with the growth in the labor force. Moreover, the pervasive and persistent political gridlock implies that the country will find it difficult addressing its key economic problems, some of which I will discuss below. In this paper, I seek to explain the weak global economy, and on the basis of this diagnosis to provide an agenda that would restore growth