Nobel Prize winner: Peace and progress inextricably linked

The Nation, February 3, 2008

Finn Erling Kydland of Norway, winner of the Nobel Prize in 2004 for economics, told me the other day that peace and economic development in the age of globalization are interconnected to a certain extent and suggested that governments around the world should not put roadblocks to efficient economic management.

At the invitation of the International Peace Foundation's “Bridges - Dialogues Towards a Culture of Peace", Kydland, who is based at the University of California, Santa Barbara and Carnegie Mellon University in Pittsburgh, will deliver a keynote speech on this topic at the University of Thai Chamber of  Commerce.

Kydland said governments, for instance, ought to remove policy uncertainties whenever possible in order for the economy to perform more efficiently. In order to avoid falling behind other nations, governments also need to compete by creating a political environment that is friendly to foreign investment, since investment leads to jobs and a better standard of living for the population.

In his opinion, political stability and policy continuity are essential to success in economic development since it takes five to 20 years, or even longer, for long-term investment schemes to materialize and yield economic benefits for the population.

Asked if frequent government changes, as has been the case in Thailand, could be regarded as a barrier to efficient economic development, Kydland said frequent changes might be unfavorable in general, but the most important thing is whether the country's broad economic policies remain intact.

He cited Norway as an example, saying that a socialist government could be in power for four or eight years and then voters could switch to a government with more centrist policies and there wouldn't be a problem so long as the big picture remained unchanged.
On former premier Thaksin Shinawatra's populist policies aimed mainly at the grass roots population, Kydland said that most forms of welfare payments are not economically efficient in the long run.

On the role of central banks, he said, a sound monetary policy needs to focus on long-term objectives, such as inflation management and price stability, rather than short-term goals reflecting the ups and downs of markets.

Hence, he isn't an advocate of interest-rate cuts, which have become an urgent measure used by the US Federal Reserve to deal with the serious consequences of the sub-prime loan crisis.

The Fed has already cut its policy rate twice by a total of 125 basis points in the hopes of avoiding a possible economic recession in the US, which, if it were to happen, could wreak havoc on the global economy given that the US is currently the world's largest economy and market for emerging countries.
As far as globalization is concerned, Kydland believes that the trend is positive since it makes trade and investment freer, goods and services cheaper, and the movement of knowledge over borders easier, among other positives. However, he also said that there have been losers due to globalization and that there should be compensation for these persons.

An economist by training, Kydland earned his first degree in economics from the Norwegian School of Economics and Business Administration and his PhD in economics from Carnegie Mellon University. Besides the chair in economics at the University of California, Santa Barbara, KydIand is a research associate at the Federal Reserve Bank of Dallas. He was awarded the 2004 Nobel Prize jointly With Professor Edward C Prescott for the pair's research on business cycles and macroeconomic policies, specifically the driving force behind business cycles and the "time consistency" of economic policy.

Their work led to further research on the credibility and political feasibility of economic policy and later influenced the reforms of central banks and the design of monetary policy.
And when it comes to peace and economic development, Kydland strongly believes efficient economic management moves towards peace, even though there are other factors such as religious differences or other firms of confrontation that could hinder the peace process. He added that it's also a big challenge for political management to be as efficient as economics.