As discussed in chapter 5, given that a large share of output or of the labor force is still in agriculture in many Asian countries, any development program will have to consider the situation in this sector. The traditional literature on structural change argues that the key to the development of agriculture is the transfer of resources, labor particularly, into industry and services. I have argued that insofar as the other sectors of the economy do not absorb fully the surplus labor in agriculture, conditions must be improved in the countryside to achieve full employment of the labor force. The transfer of labor to other sectors requires investment (to lift the capacity constraint discussed in chapter 2) for industrialization. The first issue (investment) is discussed here, while industrialization is discussed in detail in chapters 7, 8, 9, and 10.

Kalecki (1944) distinguished three ways to achieve and maintain full employment: (i) by government spending on public investment (e.g., schools, hospitals, highways) or on subsidies to mass consumption (e.g., family allowances, reduction of indirect taxation, subsidies to keep down the prices of necessities); (ii) by stimulating private investment (e.g., through a reduction in the rate of interest, lowering of income tax, or other measures assisting private investment); and (iii) by redistributing income from higher to lower income classes. Kalecki favored the first and third methods.

A dynamic economy requires increases in the growth rate of the capital stock (i.e., capital accumulation) in the form of, among others, investment in public transportation and in public utilities. These increases can be achieved in two ways. The first one is to increase the productivity with which capital is used.

This book discusses the implications for macroeconomic policy of the term inclusive growth, understood as growth with equal opportunities. This is a term that, in different ways (e.g., harmonious society, sufficient economy), is making its way into the policy discourse in many countries in Asia, and multilateral organizations such as the World Bank and the Asian Development Bank have also started using it. To achieve inclusive growth, Asian governments must commit efforts and resources to the pursuit of the full employment of labor to provide jobs to the 500 million unemployed and/or underemployed people in the region. The book discusses the different aspects of the link between inclusive growth and full employment, and offers a menu of policies that will have to be tailored to each country's circumstances.

A summary of the main arguments is as follows:

1. (i) The most salient feature of developing Asia's labor markets is the considerable underutilization of labor, which manifests itself in unemployment and underemployment. Having a job that pays a decent salary is the most basic measure of a person's living standard. For this reason, Felipe and Hasan (2006, 2) argue that “improving labor market opportunities for workers is the key to reducing poverty and improving standards of living for the large majority of Asia's workers and their families. Poverty reduction requires helping people as workers.” A high-employment economy is the best single tool for fighting poverty.

2. (ii) […]

Standing at the epicentre of Ireland's revolution, the hugely infl uential Sinn Féiner, Gaelic Leaguer and Irish Republican Brotherhood (IRB) man, P. S. O'Hegarty (1879–1955), played a major part in early twentieth-century Ireland's separatist movement, from its earliest days through to its culmination. Using O'Hegarty's prodigious journalism, personal correspondences and published works, this book discusses the major political and cultural concerns in the decisive decades leading up to Irish independence in 1921.

Conventional views of O'Hegarty see him as an uncritical exponent of Irish nationalism, a good example being Peter Gibbon's infl uential study, The Origins of Ulster Unionism. This viewed O'Hegarty as typical of ‘Catholic particularism’, and as representative of the worst fears held by Ireland's unionist (mostly Protestant) minority, i.e., that any inevitably overwhelmingly (mostly Catholic) nationalist majority government would lead to their unavoidable political and religious sidelining. Yet, as this book argues, O'Hegarty kept an independent and searching mind throughout his separatist career, remaining a critical observer of Irish Republicanism, on which he provides much original thinking.

Indian Students who are also Migrants

This book deals with Indian students in Australia. With ‘Indian students’ I mean Indian overseas students: students who have left India for Australia in order to continue their higher education there. As I will show in this book, many of these students are also migrants. They have chosen Australia as a study-abroad destination because Australia has very clear-cut rules when it comes to applying for a permanent residency (PR) after graduation. At the time I was doing fieldwork for this book (2005–6), there was little awareness about this connection. Within the education industry (as Australia refers to the business of making money by selling education to international students), it was clear that those involved were well aware of the connection between education and migration; your average Australian on the street, however, was hardly aware of this. Some people seemed to have their ‘suspicions’ as they had observed the Indian population grow quite rapidly in recent years, but generally Indian students were considered welcome additions to the local economy. Australia was proud of its education industry which they often referred to as one of their largest (services) export industries. Indian students, for that matter, were considered an outcome of the growth of the ‘industry’ and thus more than welcome. Indian students also experienced this themselves, though they were already highly critical of the education they received in Australia and the often difficult situation under which they had to make ends meet: having a part-time job, paying for rent and groceries, making sure they did not fail their exams and so on.

As I noted in chapter 6, countries like the People's Republic of China (PRC), Thailand, or Malaysia have been advised to shift their growth model from one based on export-led growth (ELG) to one based on domestic demand–led growth (DDLG). In this chapter, I elaborate upon this issue by analyzing both growth models and their policy implications, and discuss the possible dilemmas that policy makers face.

How Is Export-Led Growth Usually Understood?

In general, the ELG strategy consists of the encouragement and support of production for exports. The rationale, going back to the classical economists, is that trade is the engine of growth, which can contribute to a more efficient allocation of resources within countries as well as transmit growth across countries and regions. Exports, and export policies in particular, are regarded as crucial growth stimulators. Exporting is an efficient means of introducing new technologies both to the exporting firms in particular and to the rest of the economy, and exports are a channel for learning and technological advancement. In the words of Thirlwall (1994, 365): “the growth of exports plays a major part in the growth process by stimulating demand and encouraging savings and capital accumulation, and, because exports increase the supply potential of the economy, by raising the capacity to import.” In developing Asia, the Republic of Korea's President Park Chung Hee in the 1960s was probably the first one to try the ELG strategy as a mechanism to break the vicious cycle of poverty and stagnation. The country took advantage of its cheap labor to manufacture shoes and clothes and sold them to consumers in the rich countries. The strategy proved successful. Whether or not it can be emulated by other countries today is a different matter.

Indeed, as a development strategy, the classical belief was that development could be transmitted through trade. This has been confirmed by the experience of some countries that today are among the richest in the world. Traditionally, ELG has been presented as the opposite of import substitution policies, based on closing the economy to imports and encouraging domestic production, which many developing countries followed for years, and which ended up in a dead end.

Understanding Student Migration

This book started with the question of how Indian students experience the process of migration through studying abroad. It aimed at treating this process as a new form of migration, one with which, thus far, literature has not been very concerned. True, issues such as the braindrain and that of non-return had been discussed, but with the commercialization of education and the explosive numbers of full-fee paying students going overseas, the issue of migration seemed largely off the table. Yet there should be no doubt that the two are intricately linked in the case of Australia. Studying student-migration through the lenses of either migration or transnationalism studies poses serious difficulties, though. It seems especially difficult to locate agency in studies of transnationalism. In particular, this is problematic when trying to understand ‘transnationalism’ as entailing individual processes of transnationalization, processes which people do not just ‘undergo’ but also have ideas and expectations about what the process will eventually lead to. How people imagine their lives abroad and how such imaginations change over time are questions that these studies do not really have answers for. In the case of Indian students in Australia, one could argue that we are dealing ‘starting’ transnationals who imagine themselves one day living the kind of lifestyles that the study of transnationalism describes. At the same time, though, perhaps it is too easy to think that they see this as an end-goal; ‘ultimate arrival’ does not just work the way horizons keep receding; the fixity-to-place it assumes is simply not something that these starting transnationals strive for.

In chapters 5 and 6, I argued that inflation can potentially damage developing countries because it erodes the purchasing power of wages and shifts the burden of financing development to workers. This is unethical and conflicts with the idea of inclusive growth. In this chapter, I address the following three questions: (i) Can full employment be achieved without inflation? (ii) How high does inflation have to be to represent a serious problem? (iii) What causes inflation? This discussion serves as prologue to the discussion of monetary and fiscal policies in the next chapter. As the discussion in chapter 6 made clear, price increases that lead to real wage reductions (especially for the workers at the bottom of the wage distribution, for whom low inflation is a public good of special importance) are inconsistent with the notion of inclusive growth, and measures should be taken to combat it.

Unemployment and Inflation

Many economists have long accepted that a trade-off exists between unemployment and inflation (rate of change of money wages). This trade-off is summarized statistically in the Phillips curve. The degree of trade-off and the interpretation varies depending on the theory. Perhaps with the exception of the New Classicals (who think that the trade-off is an illusion), most economists believe in some sort of Phillips curve, namely, that unemployment will fall if demand expands faster than the economy's long-run productive capacity, and that if demand keeps on expanding faster than the economy's long-run productive capacity then, in the long run, inflation will rise. Why does this happen? Mainstream economists argue that this is the result of scarcity and the free market: as labor becomes more scarce because of increasing activity, pressures on wages increase. Nonmainstream economists provide a different explanation: higher activity reduces unemployment. During low unemployment, workers manage to bid up wages, and profits need not be reduced. Firms might pass on the higher labor costs to customers through price increases, setting off a wage-price spiral.

As noted in chapter 3, between the end of World War II and the early 1970s unemployment was the true test of economic performance in the developed countries. But by the 1970s, the full-employment policies (plus the creation of social security nets) that many governments had followed in the developed world could not be sustained.

This chapter expands the analysis of structural transformation in developing Asia. I rely on recent work on economic diversification, the importance of export sophistication and the product space. All this body of work has very important policy implications.

Comparative Advantage and Diversification

Recent research by Imbs and Wacziarg (2003) suggests that at low levels of income per capita, economies tend to diversify and subsequently, as their income rises, they then specialize: whatever drives economic development, it is not comparative advantage.

One of the oldest unresolved dilemmas in economics is whether market economies are naturally stable, or whether they need to be stabilized by policy. Classical and neoclassical models argue that a market economy can look after itself and that, in the absence of egregious government interference, it would gravitate naturally to full employment, greater innovation, and higher growth rates. However, Keynes emphasized the flimsiness of the expectations on which economic activity in decentralized markets is based. While the dominant intellectual paradigm since the 1970s has adhered to the idea that a market economy gravitates toward full employment, the historical record shows that the regime of the 1950s and 1960s was more successful than what followed afterwards. Indeed, other than the exceptions of the People's Republic of China (PRC), and perhaps a few more developing countries recently (e.g., India, Viet Nam), economic growth was faster and much more stable in the Keynesian golden period; its fruits were more equitably distributed and social cohesion and moral habits better maintained.

Modern analysis of economic growth started with the so-called Harrod– Domar model ( Harrod 1939, Domar 1946). This model has Keynesian and classical (mostly Ricardian) features. It is important to understand this model because subsequent modern growth models provide different solutions to the so-called Harrod– Domar knife-edge problem (discussed below). Moreover, I believe that, despite being “old,” it is still useful because it contains a fundamental feature of the experience of many developing countries, including those in developing Asia: the instability of growth. Indeed, a review of the world experience leads to the conclusion that growth is far from stable. For this reason, I consider this model an important thinking tool. Some may disagree with my view that the world experience at large is characterized by the instability of growth. For example, the United States (US), and in general the developed world, has had few downturns since 1979–1980, and these have been both short and shallow. Likewise, growth in the developing world has increased and African and Latin American economies are performing better. But the reality is that not all developing countries have done well. Indeed, episodes of high and sustained growth are not the norm across the developing world. Rather, these are concentrated in a few countries.

The Hyphen In-Between Student-Migrant

Now that we have arrived in the third semester, the group of students we will focus on is comprised of people who have found their way and are used to living in Australia. This means that most of them have found part-time jobs and have formed their own social circle with whom they interact and hang out. In chapter one, the focus was typically on that very early phase of ‘arrival’ where everything was still new; chapter two focused on how newcomers and ‘outcomers’ meet and interact; this third ethnographic chapter will work with the assumption that for most Indian students these things are now a ‘given’. They know what they can expect, what is out there, and what they have to do in order to survive from day to day. They are no longer new arrivals, and no longer simply newcomers. Yet, at the same time, they certainly have not arrived in the sense of having achieved all they came for. And for the Indian community, organized in associations falling under the umbrella of the FIAV, it remains uncertain if this is a group of people which will stay or not. This confirms their place as a group which falls in-between all sorts of categorizations that feature in more traditional studies of overseas students or migrants.

One important implication of the discussion in the previous chapters is that, in general, many developing countries find it difficult to run on a balanced development path. Achieving structural equilibrium between investment and consumption and noninflationary economic development is vital for developing countries, although virtually impossible. For developing countries under pressure to accept the effects (good and bad) of globalization, introduce market reforms, and reduce the role of government, the political obstacles to development are phenomenal. Achieving inclusive growth in these circumstances is not easy. Amsden (2007) argues provocatively that the more freedom a developing country has to shape its own policies, the faster its economy will grow.

As Keynes (1936, 320) argued, “the duty of ordering the current volume of investment cannot safely be left in private hands.” For this reason, the strategy of full employment based on stepping up investment requires “planning”, a term that, unfortunately, has acquired a bad name (see, for example, Easterly 2006, 2008), although it is done everywhere. Indeed, most, if not all, medium- and long-term development plans of both developed and developing countries specify the amount of total (public) investment as well as the allocation across sectors.

I argued in chapter 6 that a key policy to achieve full employment is to spend on investment to increase the investment-to-output ratio. This has been the basis for the policy of industrialization followed by a number of successful East and Southeast Asian economies, including the People's Republic of China (PRC). The result is that the expansion of the manufacturing sector has been the catalytic force underlying the economic transformation that East and Southeast Asia has undergone during the last three decades. As the Asian Development Bank (ADB 2007b), Felipe and Estrada (2008), and Felipe et al. (2007) document, the newly industrialized economies (NIEs), Malaysia, Thailand, Indonesia, and the PRC, have seen their economies transform in the direction of industrialization. And the structures of output and exports have changed in the direction of a higher sophistication, e.g., larger shares of electrical machinery and transport equipment. In this chapter, I provide an in-depth empirical analysis of the transformation of developing Asia's manufacturing sector. Box 9.1 presents the empirical regularities that recent research on the patterns of economic growth has highlighted. These regularities highlight the importance of the manufacturing sector. This has been well known since the work of the British economist Nicholas Kaldor in the 1960s labeled “Kaldor's Laws” (Box 9.2).

Figure 9.1 shows the scatter plot of the annual growth rate of output vis-à-vis the absolute change in the share of manufacturing in total output for the 1970s through 2000–2004. The figure documents the positive correlation between both variables. Among the countries in the first quadrant with the highest increases in the manufacturing share and in the output growth rate are Cambodia, Indonesia, the Republic of Korea, Lao People’s Democratic Republic (Lao PDR), Malaysia, and Thailand. ADB (2007b) provides evidence that growth accelerations are associated with increases in the manufacturing sector.