Wendt Lecture, American Enterprise Institute
This is the story of a powerful historical pathway of structural transformation that is experienced by all successful developing countries; of highly important and diverse approaches to coping with the political pressures generated along that pathway; and of policy mechanisms available to keep the poor from falling off the pathway altogether. This structural transformation involves four main features: a falling share of agriculture in economic output and employment, a rising share of urban economic activity in industry and modern services, migration of rural workers to urban settings, and a demographic transition in birth and death rates that always leads to a spurt in population growth before a new equilibrium is reached.
At one level, the story is easy to tell because the statistical picture presented, both graphically and econometrically, is, well, telling. In their broad sweep and relevance, these are very robust results that have very deep historical roots. Challenging them is like challenging the tides.
At another level, the complexity of national diversity asserts itself in very important ways. This finding does not alter the pathways themselves, but rather their consequences for income distribution and the gap in labor productivity between urban and rural economies. We learn a lot about the possibilities for narrowing this gap during the process of structural transformation by comparing the historical experience of rapidly growing Asia with the rest of the world. Individual country experience is revealing as well. The stress placed on this productivity gap, how it changes during the structural transformation, and potential policy interventions to narrow it, is the major contribution of this monograph.
Making sure the poor are connected to both the structural transformation and to the policy initiatives designed to ameliorate the distributional consequences of rapid transformation has turned out to be a major challenge for policy makers over the past half century. There are successes and failures, and the historical record illuminates what works and what does not. Trying to stop the structural transformation does not work, at least for the poor. Investing in the capacity of the poor to cope with change and to participate in its benefits through better education and health does seem to work. Such investments typically require significant public sector resources and policy support, and thus depend on political processes that are themselves conditioned by the pressures generated by the structural transformation.