5 - Are the advanced economies different?

Summary

“And more than the quality of its institutions, what distinguishes a developed country from a developing one is the degree of consensus in its politics, and thus its ability to take actions to secure a better future despite short-term pain.”

Raghuram G. Rajan, Fault Lines: How Hidden Fractures Still Threaten the World Economy

So far, in our exploration of economic policy making, apart from China which is a special case, I have described at some length the examples of Argentina, Belarus and Egypt, whose institutional capabilities and levels of development are below those of advanced countries. They demonstrated that in some emerging economies, with weak institutions, there is a risk that politicians have too much room for manoeuvre in their management of economic policy. Such examples also show why developed economies made certain policy decisions such as making the central bank independent or establishing fiscal rules that limit public deficits. To a large extent, it is these precise institutional characteristics that have been built up over time, thanks to the foresight of some politicians and economists, that help to differentiate between advanced and emerging economies. However, it should also be noted, that this distinction between advanced and emerging countries might be in the process of becoming less clear-cut.

In the last few decades, not only have a number of emerging economies achieved high growth rates – China above all others – improving their living standards close to those prevailing in some advanced economies, but also their management of economic policy has progressed. Were the conditions in the advanced countries to deteriorate slightly, convergence would accelerate. An example of a developed country with what many economists consider to be inappropriate economic policy management, is the recent experience of the most advanced economy in the world, namely the United States.

As already highlighted, during the presidency of Donald Trump the tension between economists and politicians has risen sharply. First, Trump's 2016 election, in part, has been represented as a victory over economists, who were accused of not understanding the frustration among a section of the electorate that had been “left behind” in general prosperity of the country, especially those social groups said to have suffered the most into international trade. from the integration of China and the rest of East Asia