62 Finance & economics The EconomistAugust 3rd 2019
F
ora richeconomy,a growthratebeginningwitha fivewould
be cause for ecstasy. For India, it is a huge disappointment. Its
most recent quarterly growth figure translates into an annualised
rate of only 5.8%, the fourth consecutive quarterly slowdown. That
is slower than China (a 6.2% annualised rate in the second quarter
of 2019, down from 6.4% in the first) and substantially slower than
India believes itself capable of. Recent data suggest the swoon has
since deepened (and an analysis published in June by a former ad-
viser to the Indian government also suggests that the China-like
growth rates posted in the recent past may reflect dodgy statistics).
India is hardly doomed; if it might reasonably have expected to do
better, experience elsewhere shows it could very easily have done
worse. But the slowdown is yet another sign that the emerging-
market narratives to which the world has grown accustomed are in
need of serious revision.
During most of the 20th century advanced economies outgrew
poorer ones. But around the turn of the millennium a dramatic
shift occurred. In terms of real gdp per person, adjusted for pur-
chasing-power parity, just 24% of the countries now classified as
emerging markets by the imf grew faster than America did across
the 1980s as a whole. In the decade starting in 2000, by contrast,
76% did so. Then the brics—Brazil, Russia, India and China—were
in their pomp. Poverty rates tumbled across developing countries
and the world economic order was rewritten.
Convergence continues: over the past ten years about 60% of
emerging economies have grown faster than America. But the geo-
graphic scope of catch-up growth is narrowing. Real output per
person as a share of that in America has fallen since 2011 in the Mid-
dle East and north Africa, since 2013 in Latin America, and since
2014 in sub-Saharan Africa. Estimates suggest decline this year in
the emerging economies of Europe, leaving Asia as a last outpost of
convergence—admittedly a big and important one. A wobble in In-
dia thus represents more than a blow to Indian pride.
There are two competing explanations for the slowing of con-
vergence. One is that the good times were never going to last. De-
velopment is hard, which is why so few poor countries became
rich during the 20th century. But around 2000 an unlikely combi-
nation of tailwinds temporarily suspended this age-old truism.
The emerging world found itself swept along by the most astonish-
ing experience of economic development in history: four decades
of near-double-digit annual growth in the world’s most populous
country. Simultaneously, the world enjoyed an unprecedented ex-pansion in global trade, boosted by technological changes that en-
abled firms to forge supply chains across dozens of national bor-
ders. And governments in the emerging world learned from past
crises how best to manage foreign capital. That meant they were
well placed when investors sought out better returns than the pal-
try ones on offer across the rich world.
But China could perform its miraculous rise only once. Supply
chains are as disaggregated as they are likely to get. And it was only
a matter of time before rich economies perked up and the post-cri-
sis period of extraordinarily easy monetary conditions came to an
end. Convergence is ending, yes, but in this story there is little for
countries like India to do as growth rates fall, other than wish they
had made more of the moment while it lasted.Not fade away
The second theory offers the possibility that emerging markets
still have room to grow. Poor countries catch up with rich ones
when productivity rates and the amount of capital per worker rise
towards levels in the rich world. Increasing productivity is partly
about moving workers from sectors where it is low to those where
it is high (from subsistence farming to textile manufacturing, say),
and partly about achieving steady growth in productivity within
sectors. The second of these—sustained productivity growth—is
the difference between a short-lived bout of catch-up that peters
out and sustained progress towards high incomes.
During the growth spurt of the past two decades, many coun-
tries saw their stock of capital increase. Quite a few experienced
periods of urbanisation and economic reform that helped pull
workers into factory and office employment, at higher productivi-
ty levels. And in some economies the groundwork for sustained
growth was also laid during the boom. The dense supply chains
that grew up around China served as conduits for technological
know-how, transmitting the elements of sustained innovation to
underdeveloped economies. For India, exports of commercial ser-
vices played something of the same role. India is the world’s big-
gest exporter of information-technology services bar Ireland,
where the figures are skewed by the tax-avoiding accounting an-
tics of American tech firms.
If convergence is not dead, slowing rates of growth are none-
theless cause for concern. Governments may have become com-
placent, abandoning needed reforms and skimping on invest-
ments in productivity-enhancing things like education. India
would like to overtake China, but its literacy rate, at about 70%, is
lower than China managed 30 years ago. Worse, the decades-long
march towards greater global openness may be ending. Amid ris-
ing economic belligerence, in particular from America, rich-world
companies will naturally think twice before investing abroad. A
serious breakdown in global trade, were it to occur, could harm
emerging markets’ prospects for a decade or more. Such delay
would be made even more devastatingly costly by climate change,
which poorer countries will find harder to manage than rich ones.
Still, there is hope. The obstacles that have sprung up in the way
of development might yet be cleared. President Donald Trump
could be gone in 18 months. Governments unsettled by visions of
economic mortality could discover a renewed zeal for reform, in-
vestment and liberalisation. But whichever theory is right, emerg-
ing-market dominance has been exposed as anything but inevita-
ble. To put the developing world’s billions back on the path to
rich-world incomes will take heroic efforts by governments, firms
and workers around the world—and a hefty dose of luck. 7Free exchange Close calls
Emerging-market dreams of rich-world incomes meet realityCatch as catch canSource:IMF *Ten-yearaverages †Atpurchasing-powerparitySelected regions, difference in growth rate* of GDP per person† compared
with the United States, percentage points-6-4-2024681980-1989 90-99 2000-09 10-19Emerging AsiaEmergingEuropeLatinAmerica &
theCaribbean
MiddleEast,NorthAfrica,AfghanistanandPakistanSub-SaharanAfrica