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| >> Foreign Aid in the National Interest >> >> Chapter 2 |
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Jump to Chapter 2 Sections:
The traditional approach to economic development focused on generic macroeconomic, legal, and political conditions has delivered significant improvements in many parts of the world. But deeper efforts are needed to fully reap the benefits of past reforms. Indeed, without additional steps
the sustainability of past achievements is in doubt.
New thinking on the microeconomic foundations of competitivenessMany discussions of competitiveness focus on the macroeconomic, political, and legal features of successful economies. These features are becoming increasingly well understood. Stable political institutions, trusted legal mechanisms, and sound fiscal and monetary policies contribute enormously to a healthy economy. But they are not enough. Though they provide opportunities to create wealth, they do not create it. Instead, wealth is created through an economy’s microeconomic foundations, rooted in company operations and strategies as well as in the inputs, infrastructure, institutions, regulations, and policies that constitute the business environment in which a nation’s firms compete. To fully succeed, political, legal, fiscal, and monetary reforms must be accompanied by microeconomic improvements. Many developing countries are continuously tripped up by microeconomic failures. Growth spurts can be generated through macroeconomic and financial reforms that exploit comparative advantages, attracting floods of capital and creating the illusion of progress. But unless firms can create valuable goods and services using increasingly productive methods moving competition to higher levels-growth will be snuffed out as jobs fail to materialize, wages stagnate, and investment returns disappoint. Capital flows and investor attention will then shift elsewhere. The austerity that results from such cycles is at the core of the backlash against globalization that is becoming perhaps the world’s most pressing economic problem. page 2 |
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