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Gale Virtual Library Article

Five economies that work: global success stories: reining intaxes and spending may
be the wrong prescription for what'sailing the world's economies. A few success
stories--Israel,Brazil, Chile, Uruguay, and Russia--illustrate how increasedtaxing and
spending are adding bounties of new jobs andcutting poverty. The key is doing so
wisely.

"Austerity" and "limiting government spending" are popular words in the post-recession United
States and western Europe. Lawmakers in these parts of the world have been slashing
expenditures in hopes that this will rein in public debts and encourage the private sectors to start
creating jobs again.

Sadly, the hoped-for results have not materialized. Debts remain high while job creation stays
sluggish. But meanwhile, in other parts of the world, a number of countries' economies are
springing to life and posting even higher employment than they had before the global meltdown.
Even more notably, these countries--which include Brazil, Chile, Uruguay, Israel, and Russia,
among others--are achieving these results by doing the exact opposite of their wealthier
counterparts: Instead of spending less, their governments are spending more.

"It is vital to demonstrate that an alternative, job-centered approach ... exists. It is also imperative
to nurture this alternative approach with concrete examples of policies that work," states World of
Work 2012, the latest edition of the International Labour Organization's annual review of labor
and employment trends around the globe.
Many of these successful countries are, surprisingly perhaps, in the developing world. The report
notes that an astonishing 60% of developing countries have higher employment now than they
did in 2007. Even more key, three-quarters of the world's developing countries posted declines in
their national poverty rates since 2007. Some advanced economies are making great progress,
as well, although not nearly as many: The report indicates higher employment in 20% of the
world's advanced economies, Israel being one of these fortunate few.
These findings correspond with that of the International Monetary Fund (IMF), whose
country-level data on unemployment for these five countries are as follows:

Meanwhile, the United States, longstanding bulwark of the global economy, is just scraping by,
according to the same source. Its unemployment rate, at around 7.7%, is more than one and a
half times higher than the 4.6% at which it stood in 2007.
Why They Are Winning

What sets these successful economies apart from the many others whose economies remain in
the doldrums? Is it lower taxes, fewer regulations, and fiscally conservative government
expenditures--i.e., the standard policy prescriptions that many of today's orthodox economists
advise? Actually, no: While the five countries outlined above do exhibit legal structures that are
friendly to businesses and business development, if you place them all next to the United States,
you will find that each one's government collects and spends significantly higher levels of taxes
from its citizens every year. From the CIA World Factbook:

These higher tax revenues do not squelch economic growth and job creation in these countries
at all; rather, they boost them. This is because the governments wisely return those incoming tax
revenues to the people in the forms of public works projects; health-care services; education, job
training, and school-tuition assistance; and social-welfare services, such as unemployment
assistance and meal vouchers.
Public works projects create jobs directly, since every project needs workers. Education and
health care are sound investments, since citizens who pursue more education become more
employable and, even better, more productive. They acquire greater skills that can help their
businesses increase profits. Or, if they are so inclined, they could start new businesses of their
own. Meanwhile, adequate health care will ensure that workers do not compromise their
productivity by suffering from untreated illnesses or needlessly worrying about their long-term
health.
Welfare programs also contribute to economic productivity. They put spending money directly
into the hands of needy individuals so that those individuals can buy from their local businesses
and help those businesses to prosper.

In addition, such support structures actually make it easier to be entrepreneurial. An innovator


with an idea may be more inclined to take the leap and convert it into a real-life business venture
if he or she will not have to risk food, shelter, and overall livelihood in the process, notes Joseph
Zeira, an economics professor at Hebrew University in Jerusalem.
"A generous welfare system reduces the usual risks that arise from the labor force and helps
workers to take risks, move from one job to the other, and helps firms to adopt new technologies
faster and more often," Zeira says.
In sum, the governments channel tax revenues in directions that increase consumer demand for
business products, which then supports the launching of businesses that will employ people to
make the products that meet those demands. In this way, more taxes, spent properly, build more
wealth for their societies in the end.
"The money collected from higher taxes goes to increased supply of public services. And these
public services increase output and economic activity as they reduce market failures," Zeira says.
We will now look more closely at each of the five countries and the specific public programs that
it has put in place. We will see, along the way, how each country ends up building more wealth
by investing public proceeds up front.
The Wealth Builders
* Brazil. Many industrialized countries extended unemployment benefits to out-of-work citizens in
the 2008 recession's immediate aftermath, only to remove the extensions as the economic slump
wore on. Brazil opted decisively against this path. Instead, the Brazilian government took action
to actively put more spending money into the pockets of needy citizens. First, it raised its
minimum wage. Coupled with this, it expanded bolsa familia, a large income-transfer program
that gives low-income households monthly sums of money to buy basic necessities.
Although the bolsa familia program had already been in operation well before the crisis, the
government widened it and increased the amounts of money going out to recipients.
Consequently, its recipients spent more money in Brazil's marketplaces, a net positive for
businesses large and small.
This had ripple ettects. Households were able to maintain an income level to buy goods and
consume. And this had positive growth and spillover effects," observes Steven Tobin, an
International Labour Organization economist and co-author of the World of Work 2012 report.
* Chile. Since the 1990s, Chile has been sponsoring innovation and employment in the private
sector through a number of public programs carried out by several government agencies. For
instance, the National Productivity and Tedmological Development Fund (FONTEC),
administered by the Chilean National Development Agency (CORFO), provides partial financing
for private firms to undertake innovation projects. From FONTEC's founding in 1991 until 2005,
more than 2,500 private-sector innovation projects have taken wing with FONTEC funds. Studies
empirically showed that participating firms saw more innovation processes through to completion,
boosted their sales, and created 6.4% more jobs than they did before participating. They also
raised their wages by an average of 4.6%.
In 2005, FONTEC was merged with another funding program to create InnovaChile, a new
initiative that carries out the same partial funding service, albeit on a larger scale. The fund pays
for 45% of the costs of firms' new innovation programs, while the firms themselves pay the
remaining 55% on their own. Since its inception, according to CORFO materials, InnovaChile has
supported 3,100 innovation projects, thereby benefiting 9,500 companies. It has also established
24 new permanent R&D centers throughout Chile and has disbursed seed capital to successfully
create more than 400 new startup companies.
Private--public alliances are a large and very successful arm of the Chilean economy. Since
2001, Chile has supported 14 genomics-related programs, worth a total of $66 million, for
advancements in fruit and wine cultivation, salmon and trout farming, and forestry. It has also
organized 17 technological consortiums, worth $132 million altogether, for companies carrying
out R&D in cancer treatments, animal health, aquaculture, potato farming, and many other areas
of innovation.
* Israel. The Israeli government strategically invests ample tax revenues (55 a year, one of the
highest rates in the world) into R&D in telecommunications, information technology, life sciences,
and other science fields. The funds are administered through government agencies like the
Office of the Chief Scientist of the Ministry of Industry. Trade and Labor, which both provides
venture capital to early-stage technologies and helps established industries to continually refine
and improve their products.
Since the 1950s, Israel has also been consistently offering subsidies to businesses that are on
the periphery, according to Zeira, under a law of "promotion of investment in capital." This law
mandates that the Ministry of Industry select new projects on the periphery and foster them by
paying part of their initial investment and lowering their developers' corporate taxes. One might
compare this program to the U.S. Department of Energy's ARPA-E program, which subsidizes
start-up ideas in renewable energy.
Unfortunately, this periphery subsidization has not turned out to be very effective, according to
Zeira. Many peripheral ideas do not pan out, after all. Consequently, these subsidies have led to
comparably little new development and very few new job opportunities; in the last five years,
Zeira adds, the government has been cutting back on them.
Much better results come from another category of subsidies: defense funding. The army recruits
promising high-school graduates to serve in its technology and intelligence units. They will serve
for a few years, acquiring considerable new technical skills along the way, and then leave to work
in the civilian high-tech sector. As Zeira attests, these recruits are of great service both to the
military and to businesses.
"The army gains from this policy, as it gets the best minds to such service, but in this way it
implicitly subsidizes the high-tech sector," Zeira says.
Education, in general, also commands a high priority among Israeli lawmakers. The state
lavishes funds on school systems from preschool through the university level. The happy result
of this well-executed largesse of education and job creation is the presence of highly educated
workforces and firmly entrenched tech industries, which help to account for an unemployment
rate now at 6.5%, down from 7.1% in early 2012.
Complementing this is a track record of wise banking policies. The government lowered interest
rates to 0.5'1) in the wake of the economic crisis to spur investment--i.e., private-sector
spending--and keep exports competitive, and then modestly raised them as conditions improved.
* Russia. When the recession hit, Russia confronted it full-force with a massive stimulus equal to
6.1% of the GDP. This included substantial increases in pensions, education, and health care.
Deficits followed, naturally. Russia closed 2009 with a 5.9% deficit, its first deficit of any kind in
10 years, according to Sergei Alek-sashenko, scholar-in-residence at the Carnegie Endowment
for International Peace's Moscow Center.
As incoming tax revenues continued to lag, the government tapped into its Oil Stabilization Fund,
a cash reserve of extra profits from oil revenues that officials had been setting aside since the
Fund's establishment in 2004. The government split the Fund into two: an offshore $52.9 billion
Reserve Fund, to be invested in foreign government bonds, and an $89.6 billion National Welfare
Fund, to guarantee citizens' pensions.
Over the next two years, Russian officials withdrew cash from both funds and spent it
domestically: 40 billion rubles ($1.2 billion) went to housing construction in 2010, for instance,
and rescue loans went to several prominent state banks, including a 500 billlion ruble ($19.11
billion) transfer to Sberbank and 175 billion rubles ($5.9 billion) to Vneshekonombank.
More reserve-fund withdrawals went toward plugging up the lingering federal budget deficits.
Further deficit-narrowing was achieved in 2011 by raising cumulative payroll taxes to 34%, up
from 26%, Alek-sashenko reports.
As of late 2012, the worst of the recession has receded, and Russian economists now report the
highest rates of hiring in 10 years; a 2012 IMF report approvingly notes growing private
consumption and rising wages. Russia's situation was a little easier to begin with, one should
bear in mind, since huge public indus-tries--namely, the military industries, along with
state-owned utilities like natural-gas giant Gazprom and oil producer Rosneft--were already
keeping tens of millions of workers gainfully employed.
* Uruguay. Historians call Uruguay Latin America's "first welfare state." It was a pioneer in the
early twentieth century on enacting public-health programs, public pensions, and other forms of
social assistance. The country still sets high standards for poverty relief to this day. The
lowest-income 10% of households get a combination of cash transfers for health, education, and
other living needs equal to 54% of their income, with the health services benefits alone nearing
23% of their earnings, according to the World Bank. Also, around 100,000 low-income
Uruguayans get both food supplies and periodic health screenings through the country's National
Food Program.
This degree of social outreach is ambitious by global standards, but it has clearly not impeded
economic growth. An IMF staff report in January 2011 noted that "Uruguay's economy is
booming," that "unemployment is at record lows," and that some sectors were even experiencing
"labor shortages." Uruguay's high taxes, equal to 29.1% of GDP, enable sturdy governmental
support of certain lucrative export sectors. The science and technology R&D and agriculture
sectors, in particular, benefit from strong links between the entrepreneurs and the researchers.
More revenues arrive in the government coffers from de facto taxes-that-aren't-called-taxes--i.e.,
service rates that citizens pay the government's utility companies for electricity, communications,
water, and fuel. The public utilities raised their rates 6% in 2011 due to rising costs of electricity
and water cutting into their profit margins.
Smart Spending
None of this is to say, however, that a nation's government should spend with total abandon.
Each of the economic success stories named above differs from the United States in yet another
key respect: Each has done a better job of keeping debt in check. Note the figures below,
courtesy of the IMF.
The United States' five counterparts in the table above do better at restraining their public debts,
in part, through sheer fiscal discipline: They refrain from enacting programs for which funding is
not available; they eliminate costly inefficiencies within government operations and services; and
they maintain sufficiently stringent oversight of public and private banking, financing, and credit.
Frugality is only a piece of the equation, however. These countries also rely on their
aforementioned higher taxes. Because they collect higher tax receipts, they have more money on
hand to keep their public budgets more relatively balanced and to set aside money in reserve for
the unexpected but inevitable economic crunch times. "A government can increase its public
expenditures, if it wants to supply more and better public services, but such expenditures should
be financed by higher taxes," says economics professor Zeira. "Such services will not be
sustainable if there is no clear and solid will by the public to pay for them. And such payment
means taxation."
The Budget Balancers
* Brazil. Public debt was a growing concern in Brazil at the start of this millennium, when its
federal government and all of its state governments were running in the red. A sea change took
place, however, with the enactment in 2000 of the Fiscal Responsibility Law, which stipulated
that every government agency and department at every level--national, regional, provincial, and
local--was to operate within set budgetary constraints. The executive-branch Ministry of Finances
would set financial targets and compel the Congress and the state governments to abide by
them.
It also set ceilings on agency personnel spending, which includes all payrolls and pensions, at
50% of federal government spending and at 60% of state and local spending. Public officials
whose agencies exceeded the limits and failed to return to compliance within eight-month
periods would be subject to criminal prosecution and possible prison terms.
The law stated further that Brazil's public debt could not exceed 120% of revenue at the state or
local level, and that if it did, it would have to be brought back under limit within 12 months. Net
borrowing could not exceed the volume of capital spending, and loans between the national,
state, and municipal governments were outlawed. The law allowed two exceptions to the
debt-ceiling law, however: national emergency and national recession. In the event of recession,
the government would have two years to bring any over-the-limit spending back under limit.
The law's measures led Brazil's federal government to several consecutive fiscal-year surpluses,
which brought public debt from a high of 55% of GDP in 2002 to 36% of GDP by 2008. Among
the states, aggregate expenditure-revenue balances are now fully in the black, with a total
surplus equal to 4% of GDP.
While observers such as Brookings Institution scholar Carlos Pereira have expressed concerns
that some agencies might resort to "creative accounting" to elude the law's budgetary
stipulations, most agree that the law has proven itself to be an effective check on public spending
overall.
Like most other countries, Brazil enacted robust stimulus initiatives in 2009 and 2010 in response
to the recession, which required running some short-term deficits. But the government resumed
its debt-cutting mode in early 2011, when it announced that it would slash 50 billion reals ($30
billion) from spending for the coming year to offset pressure on the central bank to raise interest
rates.
Even more noteworthy is where the government made cuts. In addition to removing all the
stimulus measures, it also froze all government hiring, forced all ministries to trim spending, and
reduced funding to the state development bank. As a few examples, the government banned its
personnel from buying or renting new properties and from buying new cars. Miriam Belchior,
planning minister, told reporters at the time that finding ways to do more with fewer resources
would be the government's "new mantra." Yet, the government did not cut any social programs or
infrastructure investments, and it approved yet another increase to the minimum wage.
Thus, Brazil's government cut its own spending, but not spending on people and society. The
government cuts spending by making its own overhead cost less, while continuing to direct funds
toward the public uses that enrich citizens and create jobs. This is the picture of wise public
investment that is precisely what the World of Work 2012 report calls for.
* Chile. Chilean law requires the government to balance the "structural budget" year by year. The
structural budget is the calculation of what the government's expenditures and deficits would be if
the economy were operating at its full potential output, as opposed to the actual budget, which
records the actual dollar expenditures, revenues, and deficits of the given period.
In practice, this means that the government saves funds during boom times, when the economy
is growing; then it kicks into higher spending--deficit spending, if need be--during recessions.
Chile's government keeps a designated set of sovereign wealth funds, which is separate from the
Central Bank. These act like emergency savings accounts, in that the government allocates extra
revenues into them during boom times.
Chile's leaders need to muster political will and, at times, courage to maintain this budgetary
discipline, but they tend to enjoy vindication later. In 2008, then-President Michelle Bathelet saw
her approval ratings sink to 39% due to her refusal to increase expenditures when the country
was reaping a budgetary windfall from copper, one of its key exports, as it captured historically
high prices on the world market. Bachelet had determined to stash the windfall profits away for
emergency use. It was fortunate that she did, because the global recession hit Chile hard later
that year. Because she had those extra funds set in reserve, she was able to fund large stimulus
packages that helped the Chilean economy reenergize.
Note that this is the opposite of what the United States has done habitually for the past few
decades. In 2001, then-President George W. Bush's decision to give away the government's
surpluses as tax breaks was definitively not saving during a time of plenty.
* Israel. A severe bank crisis in the 1990s led Israeli officials to ramp up oversight of the country's
banking sector and of public spending in general, according to Tsvi Bisk, futurist and director of
the Israeli consultancy firm Center for Strategic Futurist Thinking. Today, the Israeli government
requires every ministry to run its spending increase by the treasury and for every law that the
Knesset (Israel's legislative body) passes to identify how its provisions will be paid for, Bisk
explains.
"You can't provide a service that's not going to be paid for. They [the ministries] just can't play
games with the money they're getting," he says.
This financial prudence holds sway for individual citizens, as well. Bisk says that a prospective
apartment or home buyer is typically required to make a down payment equal to 25% or more of
the cost of the property in order to purchase it.
Maintaining a solid national fiscal balance overall remains a challenge for Israel, due to heavy
defense and security expenses. It's no secret that a number of external and internal threats
demand the country's constant attention. Nonetheless, Israel keeps debt in check better than
most: Its savings rate is 18% of the GDP, while its net debt is a moderate 67% of GDP.
* Russia. Oil and gas profits made Russia very wealthy, very quickly. Although it defaulted on its
international debts in 1998, economists such as UPI business correspondent Sam Vaknin were
calling Russia a "creditor nation" by 2002. Indeed, the government was running a budget surplus
that year equal to $3.44 billion. Surging energy profits had much to do with this. But so did
spartan fiscal spending. Since its 1998 fiasco, the Russian government had been keeping
domestic expenditures to a bare minimum.
By 2004, with the public treasury now awash in fossil-fuel cash, the government could have
easily boosted domestic programs. Instead, it opted to put some of the new wealth aside in
savings by christening a new Oil Stablization Fund that year, into which it would deposit any
extra funds accrued by oil's sale price rising higher than average. The rules were that the first
500 billion rubles ($18 billion) in the Fund would be untouchable. Any additional sums in its
holding could go toward paying off debts.
Finance Minister Alexei Kudrin faced mounting pressures from politicians and interest groups
throughout 2005 to dip into the Fund for local development projects, but he resisted. The Fund
continued to grow and to serve its purposes. By January 2005, Russia had paid off all of the
debts that it still owed to the IMF. And by 2008, the Fund had topped 4.8 trillion rubles ($157
billion), or 12.2% of Russia's GDP.
The 2008 recession cost Russia, and much of the Fund was emptied subsequently to revive
private-sector commerce. Kudrin warned in 2009 that the Fund would be "exhausted" by the end
of the following year, and that Russia would have to sharply curtail spending for the government
to stay solvent.
The government listened. Spending on defense dropped by 25 billion rubles ($833 million) in
2012. As China Radio International reported last July, Russian Finance Minister Anton Siluanov
announced that his Financial Ministry and the Defense Ministry are negotiating on cutting state
weapons program funding by 200 billion rubles ($6.25 billion). With the defense budget totaling
880 billion rubles ($28 billion) in 2012, that is a reduction of more than 20%.
Meanwhile, the Oil Reserve Fund appears to be on the rebound. As the IMF reported, Russian
officials have been depositing new oil-revenue windfalls back into the account since 2011.
* Uruguay. Moody's raised Uruguay's credit rating to "positive" in January 2012, a milestone for a
country that had nearly defaulted on international debt obligations a mere decade earlier. The
Uruguayan government embarked on an aggressive reform path following the 2002 crisis, and it
achieved solid results. Moody's clearly thinks so, as one report specifically cites Uruguay's
"continued commitment by the government to fiscal discipline, a condition that has led to
moderate deficits and declining debt metrics" as the reason for the credit upgrade.
Uruguay did enact some austerity measures and substantial cuts in social services in 2002 as a
short-term remedy for the looming fiscal crisis. Like Brazil, however, it kept top-priority social
programs off the fiscal chopping block.
Uruguay was able to do this thanks to a Public Services and Social Sectors Special Structural
Adjustment Loan (SSAL II), which it procured from the World Bank in 2003. This kept social
services adequately funded from outside while the Uruguayan government set to work trimming
its own finances through a series of reforms that included upgrading the cost-effectiveness of
education and health care.
To the education system, the government added new information systems and an internal
auditing unit, both to streamline processes and to reduce irregularities and inefficiencies.
The health-care system's chief funding agency, Fondo Nacional de Recursos (FNR), went from a
deficit of 16% in 2000 to a 7% surplus in 2003. Contributing to the turnaround: The government
revised hospital budget allocation so that it would be based on a per capita criterion, it
outsourced ancillary hospital services, and it cut subsidies that private insurers would receive
from the public system.
In 2005, Uruguay was due for the second and third disbursements of the World Bank loan. But
Uruguay turned them down. By then, its budget situation had fully stabilized, and the country was
ready to stand on its own once again.
Lessons on Economy Building
"It is high time for a move toward a growth- and jobs-oriented strategy. This would help
coordinate policies and avert further contraction caused by fiscal austerity," states World of Work
2012. The report encourages countries to undertake the following program steps:
* Strengthen the labor market conditions so that wages grow in line with productivity; this would
include consistent increases in the minimum wage.
* Restore credit conditions and build a positive business environment for small enterprises; there
may be a case for more heavily taxing firms that do not reinvest their profits, and for lowering
taxes on firms that actively invest their profits and create jobs.
* Promote employment while meeting fiscal goals. In developing countries, this should center on
public investment to reduce poverty and income inequality and to stimulate domestic demand. In
advanced economies, this should center on supporting job seekers' searches for new jobs.
The United States offers some lessons in what not to do, in this regard: Its public investments
have always been disproportionately small, by global standards, and that did not change much in
the wake of the recession. But it, too, can claim some stimulus-relevant successes. The auto
industry was a target of nationalizations and bailouts in 2008. In the four years since, it has seen
steady, sizeable, and uninterrupted increases in employment--one of the only job sectors in the
U.S. economy to do so.
Perhaps similar spending on other U.S. economic sectors could lead to more founts of job
creation all around. In a 2012 paper, Economic Policy Institute scholar Joshua Bivens argues
that the U.S. economic recovery would be stronger but for the dearth of public, business, and
consumer spending. Specifically, Bivens encourages increasing public investments in education,
health care, and renewable energy. Spending in each category would generate major returns in
the longer term in human capital, productivity, and overall economic prosperity, he argues.
"Ramping up public investments (particularly if they are deficit-financed) would push the U.S.
economy closer to its potential--and the multiplier effect of these investments would be
particularly large," says Bivens.
His colleague Lawrence Mishal notes that the U.S. private sector is actually creating jobs at
almost the rate that it did during the recoveries from the recessions of the early 1990s and early
2000s. What is holding overall recovery back is cutbacks in state and federal budgets, which
means not only less government employment, but also fewer opportunities for private firms to
earn profits by contracting with government agencies. If the state and local governments had
been carrying on as they had in the earlier recoveries, according to Mishal, the United States
would have 2.3 million additional jobs and an unemployment rate somewhere between 6.7% and
7.5% instead of the 7.7% at which it stands at the time of this article's writing.
In fact, the United States has a commendable history of public-works projects that create jobs, as
Bisk points out. He cites the Erie Canal, the Transcontinental Railroad, Land Grant Colleges, the
Eisenhower-era road system, and the Internet as a few examples among many.
"I think it is clear that massive public investments in infrastructure, education, and research,
along with a nimble entrepreneurial class, have been the key to economic development since the
Industrial Revolution," says Bisk.
The ILO's Tobin is unequivocal in his assessment: Austerity has failed. It has failed not only in
the United States, but also in Europe, where it has failed to improve growth and has failed to
stimulate job creation. Unemployment still rises in Spain, and much of the continent is bracing
now for another recession. Ironically, it has even failed to stabilize public finances. European
governments' debts continue to climb.
"The premise behind austerity isn't wrong--that you want to rein in government expenses. That
premise is right," Tobin says. "But they cut the wrong things. They cut economic growth and
social measures, and this hurt public finances, because people aren't working and paying taxes.
And ironically, the call now is for more austerity, but it's like, wait a second, this didn't work the
first time!"
How a country goes about austerity also matters. Slow, gradual reductions in public expenditures
will cause less harm than swift and aggressive reductions.
"We would also argue, in some cases, that the cuts were too dramatic over too short a period of
time. They might have been more sustainable if carried out more incrementally over two years or
more," Tobin says.
Moving toward Stability
On the other hand, the five countries that we have explored in this report--Brazil, Chile, Israel,
Russia, and Uruguay--are, whether they realize it or not, exemplary case studies in the ILO's
plan of action. They illustrate the benefits that a country's people can enjoy if its government
carries it through to completion. Rather than muddle through austerity, they have been taking
proactive steps to boost domestic demand, public investment, and labor protections.
In so doing, they underscored the value of two words: work and save. These countries beat
unemployment by spending to create work opportunities, while at the same time managing to
save money from unnecessary consumer spending binges. By setting clear goals and focusing
fiscal expectations on them, they earn their ways to financial stability.
They also validate the findings of a 2005 Harvard report cautioning that, while government
shouldn't interfere too much in an economy, it should also not interfere too little.
"Economic success is more often than not the result of collaborative, private-public strategies,"
states the Harvard report, "Industrial Policy for the Twenty-First Century" by Dani Rodrik.
"Scratch the surface of non-traditional export success stories, and more often than not you will
find industrial policies, public R&D, sectoral supports, export subsidies, or preferential tariff
arrangements lurking beneath the surface."
The government can and should take a proactive role in cultivating the growth of economic
activities and sectors that will produce abundances of new jobs in the future. Many of these
sectors can thrive only with some initial government support to get them going or to coordinate
their emergence with other economic activities that can facilitate them. For example, new hotels
will make more profits if the government oversees construction of new airports in their vicinity.
This "collaborative innovation" is a recipe for growth across the board.
Of course, this proactive investment costs money--i.e., taxes. The countries that this article
assesses pay for their economic successes by levying tax rates that might seem high to
observers in the United States. Such a public-investment strategy means that these countries'
governments have funds available to encourage new industries during times of economic growth,
and to cushion the national economies when the recessions and lean times come.

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