October 24, 2014—Information technology and globalization have caused an “unbalanced growth model” with implications for advanced and developing economies alike, best-selling economist Tyler Cowen told Nathan employees. Cowen, a professor at George Mason University, gave his assessment while discussing why “Average is Over,” also the title of his follow-up book to the best-selling Great Stagnation.
The uneven income distribution resulting from this model means young workers “will often receive wages lower than what was the case 10 or 15 years ago.” Top earners everywhere will be highly educated people who use information technology to “sell to a much larger and more productive global economy.” This suggests that those who excel in science and technology will thrive, but Cowen also thinks that skilled marketers and communicators will be in high demand. Businesses, for example, may face a scarcity of the intellectual and managerial talent necessary to act on abundant opportunity.
From a development perspective, manufacturing can’t be expected to contribute to growth in Myanmar the way it did in South Korea, or for that matter, the United States and Western Europe, where manufacturing once provided more than 30 percent of employment. “I don’t think any country today can retrace that path,” he said. “So growth will look very different. I don’t think we’ve internalized that.”
In developing countries, for example, the top 20 percent of earners will be well off and include millionaires, with most of the remaining earners in service jobs. That service-sector majority will be much better off than before, with gadgets, health care, and access to education, but not as well off as people were during industrialization. In fact, Cowen agrees with development and globalization economist Dani Rodrik that “a lot of the world is seeing a premature deindustrialization,” which Cowen attributes to the speed of automation.
Cowen, also a contributor to newspapers and magazines as well as being a blogger and food writer, spoke at Nathan’s Arlington, Virginia, headquarters as the first guest in the firm’s “Economists Present” series. The series aims to stimulate creative thinking and appreciation for the economist’s role in society. An hour-long question-and-answer session with Nathan’s economists and development experts embraced the range of the firm’s interests and activities, including infrastructure, policy, taxes and regulation, trade, and global economic trends.
China was a key concern. Cowen said China is headed for economic collapse in the next two years, harming other countries, but will rebound and grow at a more reasonable pace of about 3 percent to 4 percent a year. He is “most positive” on India—not necessarily because of the new administration of Prime Minister Narendra Modi, but rather because India is insulated from the faltering Chinese and European Union economies and energy prices are low. Catch-up growth and competition among states drive the economy internally.
“Big chunks of the world are going to see a slowdown pretty soon,” he said. “India, no.”
India is debating how to promote manufacturing to provide jobs for a burgeoning population. Cowen said India should focus first on improving infrastructure and overhauling the farm sector. States can be the testing ground for manufacturing policy, with some states having no policy. “Let’s see how it goes,” he said.
As for U.S. aid policy, Cowen said the government is not doing much to improve the quality of aid even though real data on what works are becoming available. To the contrary, he predicted that U.S. foreign aid would become “more politicized” and the quality decline. Overhauling immigration policy, with no budget cost, would improve development by attracting skilled workers to the United States. Those same workers would pass those skills back to their home countries and form joint ventures. Allowing greater foreign competition with U.S. farm products would help, but that won’t happen, he said.
Nor is a serious overhaul of tax policy likely. Cowen said that the United States needs to lower the corporate rates to OECD averages even if that means increasing tax rates on high earners. Republicans would cut the top rate for top earners too low, a policy mistake, while Democrats wouldn’t act at all.
Dani Rodrik, of Princeton University, is scheduled to speak in November.