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DIALOGUE: A World of Difference: Why Are Some Countries growing Rapidly While Others’ Stagnate?
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Interview with Dr. Frank McIntyre, Assistant Professor of Economics at Rutgers Business School.
 
altThe global economic crises of recent years has, more than ever before, exposed the stark contrasts between dynamic emerging markets and those economies that are stuck in the grips of recession, financial turmoil, and economic stagnation. On one hand, China, India, Malaysia, and Singapore, as well as many countries in the Middle East and South America continue booming, despite decreased demand from the ruined west. Conversely, while Europe and the U.S. are struggling to stimulate sustained growth, Japan remains stuck in a prolonged economic stagnation that began in the early 1990’s, and there are still parts of the world yet to experience a rapid economic modernisation. Why is it that some countries are experiencing robust economic growth, while others are lingering in stagnation and endless cycles of boom and bust? Business Tianjin talked to Dr. Frank McIntyre, Assistant Professor of Economics at Rutgers Business School, and a specialist in developing nations and global economics, to find some answers to this economic paradox. 
 

What has been the key focus of your research throughout your career?

The area that I have worked most heavily on is financial markets and looking at people filing for personal bankruptcy. I have done a fair bit of research on questions like why bankruptcy rates vary amongst different places, and looked at how institutions and the laws governing bankruptcy affect how many people file. We look, for example, at how financial incentives amongst different lawyers affects corporate decisions, like what kind of bankruptcy people are filing, and the rates of success in these proceedings.
 

What do you think will be the effects of the current global economic situation?

Well certainly, China has been growing at a phenomenal rate. There are various concerns now about inflation and how the slowdown in the financial sector in Europe will affect China, certainly in terms of raw exports. A recession or a slowdown in Europe is probably not going to be a huge problem for China, but if the financial and banking sectors hit a rough patch it will probably be hard for them.
 

Why are some countries growing quickly and not others? What are the most important factors?


Well firstly, we should recognise that countries’ not growing is really the norm. We’ve had thousands of years, and hundreds of countries that have not grown. When a person has a certain amount of capital, that individual becomes less effective as they get more capital. For instance, he or she can only use one plough or one computer. So the question is; ‘how can you get that person to use more resources and more capital?’ If you don’t, then you are just going to slow down and not keep growing. The two key answers are education, so that this person can learn to use more things and technological innovation, so that machinery is easier to use and you can use more of it. For both of these to happen, you need to have money upfront. There are many situations where countries don’t have this money, and they end up in a poverty trap. The way we usually get this money is through the financial markets, and it depends on how well they are working. You need to have good financial markets, and to do that you need to have a society, a culture, and a government that enables people to lend money and pay it back. In Greece right now, they [the financial institutions] are worried that the country is not going to pay money back. One thing we have been reminded of in the last few years is that financial markets are vulnerable. If you don’t have sound financial markets then it’s very difficult to get your country to grow.
 

Some economists say that in 2015 China will be the biggest economy in the world. Do you think we will continue to grow at 7-8% per year and achieve this target?


altI don’t know. I could guess, but we will have to wait to find out. If it’s not 2015 or 2016, it will continue to grow and if you keep growing 6, 7, or 8% and the United States grows at 2 or 3% then the math is in your favour. Sooner or later, it will become the largest economy because there are so many people producing. China has a huge return of capital spread across all these people, and if it brings people into the education system it will be a success. 
 
China is investing heavily in the quantity and quality of education but competition remains intense and the selection of talented students is still limited. Do you think China will eventually slow down because of the competition it has with the West in this regard?
Something I see in the United States is how many students from mainland China get into degree programmes in the U.S. If they go over to learn in the United States, then take those things back to their country, you will get innovation and knowledge. If you do that for a generation, then you have a generation of people with training in the right places. 
 

How is foreign aid currently helping countries in their development?

It seems like it should do more than it does. Over the last 30 or 40 years, over USD 1 trillion in foreign aid has been spent across the globe. So, there are many examples of countries receiving foreign aid, yet there is very little evidence that the foreign aid has consistently helped much at all. For every example where aid is seen to have benefited, there is an example where aid has made things worse. It is often like trying to fill a bucket with water when the bucket has a hole in it. When we think about how to structure these programmes, we need to figure out a way to fill the hole. I think the World Bank is aware of these problems, and is trying to be more effective with the kind of foreign aid that they give out, but the history of foreign aid is abysmal. On the other hand, the history with trade has been quite good. As countries trade they learn things from each other and gain new technology and investment. We need to see these sorts of things happening in Africa.
 

altAnalysts are suggesting that between now and 2050 Africa will have significant population increases (up to 4 billion) and will become more important in the global economy. What are your opinions? 





Africa has some unique challenges because of their governments, but they also don’t have great water transportation. The cheapest way to transport goods is to sail across water rather than by train or other methods. Many African countries don’t have access to good waterways. This is something that could be fixed in the long run. I don’t know whether or not Africa will boom but with all the jobs being created in East Asia and increasing wages in these countries, there will be incentives for producers to move over to Africa. In terms of population increases, Africa will either grow in population or grow economically. When a country grows economically and people get richer the population growth really slows down. So if Africa grows economically, I would expect that they won’t have 4 billion people by 2050.
 

With the current economic troubles in Europe, what are the major concerns for Chinese companies in terms of future trade with the 27 member states of the EU?


Their main concerns are not so much the direct effects on exports as much as the financial markets. If the EU comes apart and it creates another worldwide financial crisis, then I can’t think of a worse example than the effects it would have on the financial markets this time. Financial markets could completely shutdown, with no one lending or borrowing to the extent that the companies relying on this money will struggle. Having said that, I don’t think China relies very much on foreign investment. China is more of a lender than a borrower and if there is a financial meltdown, it’s better to be a lender than a borrower. So if that happens, China may be better insulated and it could be a position that they could take advantage of.
 

In the West, should policymakers act to correct the system and thus stimulate growth?

You don’t need someone to decide to do this for it to happen. If you are not making enough money, and you are spending even more than that, gravity will take care of the problems. I don’t know if you need to think about it as some agent trying to rework things, there is a sort of equilibrium. Greece has spent 50 of the last 100 years in default of one debt or another. The surprise was that they were allowed into the European Union, not that this problem has occurred. The United States and the rest of the world are heading for a debt crisis of some sort.
 

If you had USD 1 million, which currency would you buy?

(Laughs) I think I’ll pass on that! 
 

Photo by Peter Zhang

Text by Josh Cooper 
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