NYU Stern Professor and Nobel Laureate Michael Spence was interviewed at this year’s World Economic Forum on the topic of global economic growth. Topics in conversation focused on productivity in developed countries, uneven growth in the developing world, the role of the state in economic development, and areas of global systemic risk.
Q: What are the systemic risks leaders should be looking out for in 2013 and beyond?
Michael Spence: Number one would be Europe – the European Union is a flawed structure and they haven’t fixed it yet. Number two would be the US, because the government is split and that will make people nervous. Number three is China. As we’ve discussed, the country has an internal debate going on about the right model, and there are powerful vested interests involved. I don’t happen to be pessimistic, but there is a scenario in which the wrong people get hold of the reform agenda and it stalls. And at this stage of its growth, for China that would produce an immediate economic implosion.
Q: What is the proper role of the state in helping to foster growth?
Michael Spence: We live in a world of increasingly densely networked interconnectedness, where the interconnectedness is way ahead of regulatory governance structures. It looks and feels potentially volatile. In that context, what you need is government –regardless of whether it’s developing or advanced – that has the resources and capacity to respond to shocks: to provide bridging demand in the case of a demand shock, to invest heavily when structural change is required.
Read the entire interview at the WEF’s Global Agenda Outlook 2013 (page 9).