File photo
Growth miracles have become associated with the spectacular economic performance of economies which have achieved economic growth of over 7% a year and sustained it for over three decades with an export sector coupled with an increasing share of trade in GDP as a driver of growth.
Over the past three decades the economies of East Asia, particularly the Four Tigers (Hong Kong, Korea, Singapore, and Taiwan) and China, have grown spectacularly to epitomise the growth miracle.
The powerful economic performance of these countries and sustained over a 30-year period is underscored by annual average growth rates of output per person well in excess of 6%. In China, for instance, the economy actually grew by more than 13% in several peak years.
This has improved social conditions and quality of life immensely, and thus lifted millions of Asians out of abject poverty and helped to achieve almost all the MDGs by 2015.
What has actually rewarded the Asians with sustained period of rapid growth as against the stagnation in Ghana, despite initial characteristics common to the Asian countries and Ghana during the 50s? Key to the explanation is that the Asians from the 50s apparently did it right by focusing on economic growth whilst Ghana, for the most part since independence, has focused on structural reforms and fiscal stabilization.
According to The East Asian Miracle, published in 1993, Asia's extraordinary growth was due largely to its superior accumulation of the two major determinants of growth, i.e. physical and human capital, accompanied by high productivity growth.
This has led some economists to describe the policy prescription of China in the last 40 years as solely capital and labour accumulation or mainly a focus on determinants of growth. Research on China’s economic development seems conclusive on the significant role the growth of stock of capital (formation) assets, such as new factories, buildings, machinery, and communications systems as well as labour have played as the driving force behind the economic boom.
This is, however, in sharp contrast with the growth trajectory of the Ghanaian economy. Between 1980 – 2015, for instance, the gross capital formation of China accounted for almost 40% of its GDP annually as compared to just below 19% of GDP for Ghana. Contributing to this high growth of gross capital formation in China is the high level of investment financed by an unprecedented savings record (a growth facilitating factor averaging 42.2% of GDP between 1980-2015).
In contrast it can be said that Ghana has over the years consumed an extraordinarily high proportion of its total income – steadily over 92% of its GDP between 1980-2015, leaving only a small residual of domestic savings with which to finance investment. Another characteristic common to the spectacular growth in these countries is the rapid export growth (particularly of manufactures). Between 1980-2015, for instance, percentage manufactures exports of China, accounted for over 80% of total merchandise exports. That of Ghana was equivalent to 13% over the same period.
Whilst the above mentioned factors are said to have contributed to the phenomenal growth in East Asia recent research has also suggested the significant role of sustained increases in productivity (that is, increased worker efficiency), facilitated by technical progress, for the prolonged econo¬mic boom.
Other analysts have also underscored the importance of a strong government in getting the basics right, promoting investment in fixed capital stock, nurturing human capital, and opening up to export manufacturing as well as using selective interventions to stimulate economic growth.
In getting the basics right the governments of East Asia created a growth friendly environment by, for example, ensuring an exchange rate that reflected the economic fundamentals, interest rates that yielded a positive return, a monetary policy that kept inflation under control, and a tax system that did not burden or discouraged economic activity.
Against this background it is not farfetched to see the economic miracle as the result of hard work, good leadership, political commitment, appropriate consistent economic growth policies that encouraged business investment, and—not least—a strategy to participate and compete in the global economy.
This observation thus suggests that Ghana currently endowed with human and natural resources much more than the initial conditions of the East Asians at the onset of their miracle can similarly replicate their success over a long period of time with the appropriate policy mix and strong commitment.
The appropriate policy design for Ghana to achieve sustained economic growth over time, therefore, is that which highlights the consistent rapid accumulation of capital stock, labour and technical progress.