Governments around the world face significant challenges in reviving and then sustaining growth in an increasingly complex global economy.

Yet despite these difficulties, the reality is that governments will be held accountable for delivering quality growth - growth that provides economic and social outcomes valued by the population that are sustainable and stable over time.

To provide a perspective on how governments can deliver quality growth in a more complex and inter-connected world, it is useful to look at the experience of small, developed countries.

With their economies externally oriented, small countries have been living in this global reality for longer because they are more exposed to global forces.

For small countries there is no such thing as domestic policy; all policies are heavily influenced by the external environment, so their experiences can offer guidance on how to deliver quality growth in a more complex global environment.

In particular, governments of many small countries have recognized that they have meaningful policy choices in terms of how to deliver quality growth - and that the global environment does not impose a policy straitjacket.

Three areas

There are three particular areas in which governments will need to make deliberate policy choices.

First, ensuring that the growth path is resilient so that large costs are not imposed when negative shocks hit.

This is a particular priority because of the likely increase in economic turbulence. Governments need to respond, as they have in many small countries, by managing their risk exposures as well as through increasing the country's risk bearing capacity so that it is better able to withstand shocks when they do occur. Governments can do this by adopting prudent fiscal policies, using their balance sheet to smooth risks and providing efficient social insurance to households.

Second, building strategic capacity into policies so they can respond to a changing world.

Governments need to have a clear sense of how their economies are positioned in the changing global economy.

In many cases, a failure to deliver quality growth is not because governments do the wrong thing as much as they keep doing what were the right things for too long. A more deliberate approach to economic strategy is needed in small countries because the effects of poor policy settings are seen more quickly.

Third, developing a growth model that supports the implicit social contract by creating opportunities and performance in income distribution and employment.

History indicates that growth cannot be sustained unless it is consistent with the implicit social contract. Although this needs to be done carefully to avoid compromising growth potential, many small countries have demonstrated that there is no necessary tradeoff between economic and social goals.

Various approaches

The ways in which individual countries respond to the challenges will be context specific. There are some basic principles of good policy, but there is no one-size-fits-all approach to policy.

The countries that do well are those that set policy in a manner consistent with the environment that they face.

For national governments to do this, the global system has to allow variation at a national level - so that countries can experiment and innovate to deliver quality growth.

The globally connected world means that worldwide coordination is required, but a relatively light-touch approach is preferable to a more prescriptive global rules-based system.

Indeed, in a complex and interconnected world, achieving a degree of diversification through national differences will likely lead to a more resilient global system.

Small countries can provide some general guidance on how to deliver quality growth. Local innovation and experimentation together with light-touch global coordination on issues like trade and financial regulation are more likely to generate stable, quality growth on a sustained basis.

We live in global world, but policy is local.

The author is the founding director of Landfall Strategy Group - a Singapore-based government advisory firm - and a member of the World Economic Forum's Young Global Leaders Community

(China Daily 09/14/2011 page52)