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Panel Detail:

Tuesday, April 29, 2008
2:15 PM - 3:30 PM

Harnessing Growth to Break Poverty's Grip on the Developing World

Moderator:

A. Michael Spence, Nobel Laureate, 2001; Philip H. Knight Professor, Emeritus, and former Dean of the Graduate School of Business, Stanford University

Ricardo Hausmann (left) makes a point to fellow panelists Myron Scholes, Maria Eitel and A. Michael Spence.

Panelist Ricardo Hausmann of Harvard's Kennedy School of Government opened his presentation with a startling fact: 58 percent of developing nations surveyed experienced a peak in per capita income before the year 2000. A humorous and effective use of monkeys and trees aided Hausmann as he explained why so many nations are worse off now than they were 30 years ago. With trees representing products and monkeys serving as proxy for firms, he illustrated that the trees of industrialized nations are bunched closely together, making it easier for the monkeys to move from tree to tree. In the weakest of economies, the isolation of trees makes the movement of monkeys much more difficult. Using his research to illustrate that "it matters what you make," Hausmann explained the positive correlation between the increasing sophistication of the export package and the increasing speed of future growth.

Maria Eitel of the Nike Foundation turned the attention from the trees to programmatic investment in adolescent girls as one of the most effective ways to fight poverty. As the Nike Corporation has played a pivotal role in the growth of the manufacturing sector in several developing nations, the Nike Foundation has recently turned its efforts to reinvesting in the communities in which it operates. A decision to focus on well-being of adolescent girls stemmed from the economic rationale that this population segment provides the "most inclusive, long-term, high-return investment in fighting poverty," creating a wide ripple effect.

Myron Scholes of Platinum Grove Asset Management, also a Nobel laureate, returned the conversation to growth at the national level with a presentation that focused on the other side of investment and growth: risk management. The ability to plan for the absorption of risk and "understanding susceptibility to shocks" are critical components to successful economic development. Explaining that "correct capital structure for financing is crucial" and capital allocation is "one of the most important decisions you can make," Scholes stated that many developing nations are not and cannot be diversified. Closing his presentation was an explanation of the three tools of successful risk mitigation: diversification, reserves and insurance. Although these strategies are expensive and present opportunity costs of their own, he maintained that they are essential, because "when shocks occur, decision time stops." In order for an economy to survive, there has to be a ready path for reinvestment and redirection of activities to occur.

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