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Technology, infrastructure, governance and anticorruption, human development, subjective wellbeing/happiness
Charles Kenny is a senior fellow and the director of technology and development at the Center for Global Development. His current work focuses on gender and development, the role of technology in development, governance and anticorruption and the post-2015 development agenda. He has published articles, chapters and books on issues including what we know about the causes of economic growth, the link between economic growth and broader development, the causes of improvements in global health, the link between economic growth and happiness, the end of the Malthusian trap, the role of communications technologies in development, the ‘digital divide,’ corruption, and progress towards the Millennium Development Goals. He is the author of the book "Getting Better: Why Global Development is Succeeding, and How We Can Improve the World Even More" and “The Upside of Down: Why the Rise of the Rest is Great for the West.” He has been a contributing editor at Foreign Policy magazine and a regular contributor to Business Week magazine. Kenny was previously at the World Bank, where his assignments included working with the VP for the Middle East and North Africa Region, coordinating work on governance and anticorruption in infrastructure and natural resources, and managing a number of investment and technical assistance projects covering telecommunications and the Internet.
Construction is a vital part of development, but it often falls prey to poor governance and corruption. Making the details of construction contracts public is one proven way to help citizens get what they are paying for.
Senior fellow Charles Kenny's weekly Foreign Policy column on Occupy Wall Street.
From the Article
As the Occupy Wall Street protests drag on into their ninth week, the movement has spawned global "occupations" from Rome to London, Toronto to Santiago, Hong Kong to Taipei. Meanwhile, the protesters continue their calls for "democracy not corporatocracy" -- revolutionary language, even if it falls just a bit short of "eat the rich." So perhaps it is no surprise that some of those more at home with the traditional occupants of Wall Street have been quick to complainthat this is just one more sign of growing class warfare.
But is the threat of conflict between the rich and the rest a good thing once in a while? Talk of class warfare rears its head when more people start thinking that the rich are rich not because of their hard work or talent but because they are lucky or because the system is stacked in their favor. That view is becoming increasingly widespread -- 75 percent of Americans back a millionaires' tax, for example. And to an extent, it's right -- not just as a matter of fairness, but as a matter of economics. A bit of redistribution might actually help make everyone -- including the rich -- better off in the long term.
Behind the protests is a growing level of frustration over the yawning income gap. The top fifth of households in the United States earn 10 times what the poorest fifth makes and more than the rest of the country combined. The incomes of the richest 1 percent are 67 times those of the poorest 20 percent of households. And over time, that gap has widened. According to the Congressional Budget Office, between 1979 and 2007, the richest 1 percent saw their after-tax incomes climb 275 percent compared with an 18 percent rise for the poorest fifth. The story is similar, if less dramatic, in other rich economies.
In the United States, a number of prominent Republicans, including House Budget Committee Chairman Paul Ryan and House Majority Leader Eric Cantor, have respondedto disquiet over this income gap by emphasizing the need for equality of opportunity for all Americans. That is surely the right focus: We want to reward both hard work and talent to ensure continued prosperity for everyone. But the evidence suggests we are a very long way from equality of opportunity in most countries, and in particular the United States. According to an analysisby economists Samuel Bowles and Herbert Gintis at the Santa Fe Institute, of children born to the poorest 10 percent of parents in the United States, more than half remain in the bottom fifth of incomes as adults.
This is a problem for everyone, rich and poor, because international evidence suggests that more equal economies grow faster. In fact, the historical evidence for the Americas, compiled in 2005 by economists Stanley Engerman and the late Kenneth Sokoloff of the National Bureau of Economic Research (NBER) suggests that an early source of wealth in the American Northeast was a colonial farming system based around small landholders that encouraged equality and the provision of public goods -- as opposed to the plantation model used in the South and the Caribbean, which favored a small elite uninterested in representative government or widespread education. Similarly, a number of East Asian countries such as South Korea started their path toward miracle growth with land reform and broad-based education, which leveled the economic playing field. More recently, New York University economist William Easterly and others have argued that a higher share of total income for the middle class is associated with improved outcomes in health, education, stability, and growth for all. Consider the economic burden of unequal opportunity on the United States today, with 9 percent unemployment, seven-tenths of a percent of the country in prison, and 28 percent of the population without a high school diploma.
Read it here.
It is widely agreed that the middle class is vital to progress because of its many virtues, but defining middle class in any meaningful way is difficult. And survey evidence suggests the middle class is not culturally unique, particularly socially progressive, or entrepreneurial.
Last week the world welcomed its seven billionth child. Whether this child is Maya (the World Bank’s virtual seven billionth child) or Danica (the UN’s symbolic but ‘real life’ seven billionth child from the Philippines), the arrival of the world’s seven billionth person has led to a renewed interest in population across many sectors of government, health, and development work.
Reaching such a substantial milestone was bound to bring about mixed reactions—and it did, from the “more the merrier” musings of Charles Kenny to concerns regarding food security and increasing poverty. But in the background of this population debate is a fertility issue that should be addressed whether or not concerns about global population are in the spotlight—adolescent pregnancy.
According to a study published earlier this year, every year there are over 14 million births to women between the ages of 15 and 19—with the overwhelming majority (over 90 percent) of these births occurring in low-and middle-income countries. In some countries adolescent fertility is stagnating or actually increasing, as in Brazil and Georgia.
Putting population issues aside, pregnancy poses a substantial health risk for adolescents. The World Health Organization reports that the health problems associated with adolescent pregnancy include increased maternal and neonatal mortality and increased incidence of preterm or low birth weight, among many other health conditions. In fact, a study from the British Medical Journal found that complications from pregnancy and childbirth were the leading causes of death for young women between the ages of 15-19 in developing countries. Due to the disproportionately high maternal mortality rates among adolescents--which are even higher for those under 15--high rates of adolescent pregnancy can have a negative effect on the achievement of Millennium Development Goals relating to maternal mortality.
Adding to health concerns for mother and child, high rates of adolescent pregnancy might have a broader economic impact. CGD’s Start With a Girl report highlighted that adolescent pregnancy in India may lead to over $100 billion in lost income, an amount equivalent to twenty years of total humanitarian assistance world-wide.
Adolescent girls in general may be an underserved population, but a subset of girls is even more underserved than the rest—married teenagers. A 2009 study of young women in Bangladesh, Nepal, India and Pakistan found that 30-70% of participants were married before age 18. Unfortunately for married adolescents, most programs that aim to reduce adolescent pregnancy are focused on their unmarried counterparts—who are less likely to be exposed to pregnancy, unsafe abortion, and short birth spacing. Although many countries have made 18 the legal age of marriage, almost 10 million teenage girls are married annually (cites).
One problem is that we don’t really know what works to address this. As of a 2009 systematic review, only two RCT of interventions to reduce adolescent pregnancy were run in developing countries. There are now more – 17 by our count – that range from conditional cash transfers to peer teaching programs. However, the efficacy of interventions varies widely, with several showing no effect at all. Given the magnitude of the problem and the fact that the “choices” that young women make today will inform whether we stop at 9 billion people in 2050 or less, is it too much to hope that renewed attention be paid to this issue?
While Maya will be “growing up” behind a computer screen, Danica will be coming of age in a world where child marriage and adolescent pregnancy are a harsh reality—with significant consequences. Hopefully, by the time she reaches 15, she’ll be living in a world where child marriage and adolescent pregnancy are no longer a common occurrence (currently in places like the Philippines, over 10% of women are married before age 18 and the adolescent fertility rate is 53 per 1000 girls 15-19), but that change will be unlikely without substantial—and smart--investments in adolescent health and education.
On Friday, I spoke at a Tech@State conference on data visualization at the Kennedy Center. There were a lot of people with whizz-bang presentations that made Hans Rosling look like a newbie with an all-text PowerPoint. For example, Aleem Walji showed how the World Bank is using maps of where in a country the Bank is doing projects, mashed up with maps of poverty rates to see how well it is targeting poverty with its portfolio.
I'm no expert in the subject --I agreed to speak mainly so I could tell my mum I had performed at the Kennedy Center. But what I said was that I do think there is a big role for better visualization to talk, analyze and learn about development. (This despite the fact my editor told me to take all the graphs and charts out of my last book because they make it look academic and reduced sales). I've found Rosling's Gap Minder an incredibly powerful tool, for example. Just run his graphic of the relationship between income and life expectancy over the past 100 years and watch the bouncing bubbles migrating upwards as people live longer and longer lives at the same income over time.
And I think the point that it isn't all about national institutions when it comes to development outcomes could be beautifully made by a grayscale global map of income per capita at the subnational regional level --I think borders would less important than we usually think using an institutional lens. We don't have that map, yet, by the way, even though we do have the data --yes, this is a blatant plea.
Recent research by Brendan Nyhan and Jason Reifler suggests visual representation of data can be a particularly powerful tool when you are trying to change people's minds: "graphical corrections are found to successfully reduce incorrect beliefs among potentially resistant subjects and to perform better than an equivalent textual correction." Meanwhile the belief that aid doesn't work is something pretty widespread. So better data and better visualization might be not only a tool to reduce waste and corruption, but also a way to persuade people their aid dollars are actually doing good.
A real issue in discussing aid effectiveness is the long causal chain from taxpayer handing over dollars to any impact. Take even the comparatively simple case of vaccination programs. Table after table after table of data making the case that tax dollars buy vaccines those drugs get delivered to countries, countries distribute them, kids receive them and vaccinated kids don't die as often would be one way of illustrating the fact that aid really makes a difference. A visual representation (perhaps cribbing from the famous March on Moscow graphic) could surely be considerably more effective.
Another way of presenting the data to make the case that aid dollars really make a difference would be to show the comparative impact of a dollar in the U.S. or Uganda. At its most basic, just a picture that demonstrates what a dollar means in terms of the average daily income of a Ugandan compared to the average daily income of an American. Or the cost of saving a year of life in the U.S. medical system compared to the cost of saving that life in Uganda. Because we should be honest and admit that the marginal dollar won't be as efficiently spent in terms of being delivered exactly where, what and how the bureaucrats want in Africa compared to the U.S. But the impact on quality of life of a few cents that actually reaches beneficiaries in Africa is far larger than the impact of a whole dollar reaching beneficiaries in the U.S. This kind of message may be far more easy to get across visually than in text --a point I may well just have demonstrated!
At same time, some of the whizz bang presentations were in a way a warning --visualization is a tool to understanding, not the only nor always the best. Which is lucky for those of us who can write the odd blog post but have all the visual arts talents of the average naked mole rat.*
As Congress returns to DC from its summer recess, it comes back to a long “to do” list. On the foreign policy front, one pressing item is what to do with our Pakistan assistance program. And from where things stand now, it looks like the funds appropriated for Pakistan this year under the Enhanced Partnership with Pakistan Act (aka the Kerry-Lugar-Berman Bill) may be both reduced in volume and tied to security conditions.
There appear to be two basic arguments for this course of action. The first is that aid should be withheld because the government of Pakistan has been at best insufficiently helpful, and at worst, actively undermining our counter-terrorism efforts in country. If we tie development funds to security outcomes, (the argument goes) we can put the Pakistani military establishment under enough pressure to make them change their ways. My colleague Wren wrote about this last month. It’s a terrible idea. It won’t change the Pakistanis’ strategic calculus, but it will serve to convince the Pakistani people that we’re not serious about partnering with them, promoting reform, or supporting the democratically elected civilian government.
A second line of argument -- for either cutting aid to Pakistan or making it more conditional -- is somewhat more convincing. It claims that until Pakistan gets its house in order, aid will not help the country, and it might make things worse. There is a larger question here of whether aid works at all, which I’ll leave to the likes of (former CGD’er) William Easterly and (current CGD’er) Charles Kenny. However, the sound question that analysts like Anjum Altaf have raised is whether aid is helpful when the question of Pakistani governance reforms remain unaddressed. Anjum feels that aid should be withheld until reforms have been made. In contrast, I believe that good development projects (both aid and non-aid) can happen simultaneously with local reform efforts, and even support them.
So it is encouraging to see two recent stories coming out of Pakistan that demonstrate small steps towards governance reform. These stories did not receive much attention in the Western press, but they are important. Although the reforms are tentative, subject to reversal, and limited in scope, they also have the potential to be down payments on larger governance reforms lawmakers in the United States (and some folks at CGD) would like to see.
The first is that on August 12, President Zardari signed into law an amendment to the Frontier Crimes Regulation that substantially increases the rights of residents of the Federally Administered Tribal Areas (FATA). It “softens” some of the harsher punishments that can be meted out under the FCR, and provides a greater degree of oversight for the political agents who are both the executive and judiciary in the tribal areas. Most importantly, it extends the 2002 Political Party Order to FATA, meaning that the 20 legislative seats based there now have political significance. This is good for FATA, since it will give Pakistan’s political parties a stake in bringing the agencies into the political mainstream. It’s also good for the Pakistani parliament, since FATA’s legislators no longer run as independents and are thus less likely be bought by the highest bidder, as has previously been alleged. This is a significant first step towards bringing a greater degree of stability to this extremely unstable area through better governance.
The second piece of news comes by way of the World Bank, which recently released a report on the impact of changes to Pakistan’s national electricity tariffs. Their analysis shows that given the current cost of electricity supply, the March 2011 tariff structure “would improve the benefit incidence of electricity subsidies for residential users and reduce fiscal burden significantly in comparison to March 2008.” The tariff adjustment has meant that the government of Pakistan is making initial steps towards recovering its outlays for power generation and distribution. In addition, the new tariffs are progressive, meaning that wealthier, higher-volume users pay more, and the poor pay less. If this trend continues, the hope is that the country will eventually be less reliant on massive electricity subsidies which currently cause a substantial drain on the country’s budget. The report is quick to point out that even with the new tariff structure, “less than 10% of consumers pay [for electricity] at cost recovery level.” There is clearly a long way to go. But it is important to recognize that any move to reduce subsidies and increase tariffs on a public service like electricity is a politically difficult one. The fact that the government has made these initial steps is therefore quite encouraging.
By themselves, neither of these recent reforms will convince Congress to follow through on America’s commitments to Pakistan’s civilian government. But they do serve as evidence that some incremental progress is being made towards reform in Pakistan, and that it is happening concurrently with development programming. The U.S. government and the development community should invest in this process, not walk away from it.
Back in June, I blogged about a meeting with Dr Maura O’Neill Chief Innovation Officer at USAID, and a very interesting discussion of the importance of learning from failure. The possibility of a USAID FailFaire –or even Fail Summit— was mooted. We’re not quite there yet. And maybe we won’t be until there’s a grand bargain on foreign assistance and/or until the debt negotiation freeze’s over. But thanks to Wayan Vota at Inveneo, there is going to be a DC FailFaire at the World Bank on October 13th. It’s not just an opportunity to hear about that one time when one little World Bank project went just a bit wrong. Everybody who takes a risk fails once in a while –just ask Donald Trump. So, attend DC FailFaire, share a failure, learn from it, receive absolution –and go out and fail again! (Well, hopefully not the last bit). I can’t be there, sadly –which is a shame, because I could have shared my complete failure to sell more than three copies of a book which was all about failure in ICT for development projects. Oh, the bitter, bitter irony.
The U.S. nominee to the World Bank presidency is attracting criticism from those worried about the "healthization" of the development field. In Bloomberg, my colleague Arvind Subramanian is quoted: “Someone who comes to the bank has to be much more than a health economist or a health person.”
“Healthization” has been going on since the early 1990s with the launch of the Global Fund and GAVI, the growth of the Bill & Melinda Gates Foundation, the creation of PEPFAR, the WHO's Commission on Macroeconomics and Health, UNITAID, and more. Much of the big new money and organizations are related to health.
Critics argue that investing in health helps with development, but is not itself development. From this perspective, development is defined as the sustained financing and provision of all kinds of basic services to the population (water, sanitation, roads, justice, education, electricity, etc.) as well as a thriving private sector to support livelihoods, poverty reduction and government revenues. In this view, health services like vaccination and ARV are easy technology fix-its whose experience cannot be extrapolated to other basic services, while the health sector has little to say on the rest.
Yet “healthization” can’t fairly be characterized as just charity and expansive spending, a marginal field of endeavor not related to the core business. Instead, better health and nutrition are major players in the development story, and the field has lots to offer the broader enterprise. Here’s why:
Health and nutrition status are the ultimate measures of well-being. "Happiness" economists use measures of self-reported health, correlated closely with objective indicators of health as well as happiness, as part of a core set of indicators of well-being. My colleague Charles Kenny has argued that health outcomes like life expectancy and infant mortality rates are better indicators of long-term well-being than growth and income poverty. Further, there is much evidence that more years of life and health are valued more than other consumption; the trend in public and private health expenditure mainly goes in one direction - up. If other goods are becoming cheaper and if health is a luxury good (we spend more as incomes rise), the emphasis on health is not misplaced.
Health and nutrition have something to do with educational attainment, productivity and -by extension- growth. John Hoddinott and co-authors' groundbreaking study in Guatemala found that improved nutrition in early childhood led to substantial increases in wage rates for men, suggesting that investments in early childhood nutrition can be long-term drivers of economic growth. Other work connects maternal and early childhood health and nutrition with improved cognitive ability and school performance. Improved health is both a cause and consequence of higher incomes; Bloom and Canning review the macroeconomic evidence here.
As an economic sector, health is growing in importance; while the U.S. is the obvious outlier at 17% of GDP, the OECD and the upper middle-income countries are all nearing or above 8% of GDP. Because medical care is labor- intensive, it is also the source of jobs. In Turkey and Mexico, the OECD reports that about 3% of the total workforce is in health, while the OECD average is 10% of total employment in 2009. Michael Clemens’ work has illustrated how health worker migration has generated large remittances to sending countries. There is also growth in and potential for between-country trade in the health sector.
Health has lots of lessons and experiences relevant for other sectors. The fiscal implications of health spending growth and evidence of inefficiencies have led to an emphasis on value for money, squeezing the most health and quality of care from the scarce health dollar. This agenda occupies much of the field (myself included), and is surely relevant to other sectors. From improving accountability via community report cards and new technology, to paying providers for better results, to transferring cash, vouchers and insurance to poor families to assure access to care, to more strategic procurement of inputs, the health sector has led on the rigorous testing and evaluation of program strategies to improve efficiency. The health sector is rife with problems of agency and misaligned incentives, as well as innovative solutions to these perennial issues.
Health includes a lot of global public good concerns –prevention and control of infectious disease, research and development of medical products, management of intellectual property-- likely to be central to global development agencies’ future agendas.
Health is one of the few places we can say with confidence that development assistance has worked. From case studies to systematic reviews, there is evidence that aid-funded health programs work to improve their target outcomes. While overall there is a limited relationship, at the macro level aid spending on infectious diseases and family planning has caused reductions in mortality.
Finally, trade-offs and uncertainty in policy and practice are part of a health economist’s daily fare. There is increasing cost-effectiveness evidence for clinical and public health decision-making, but there are always ethical, equity and other factors that need to be taken into account. Juggling these different objectives is at the center of the health enterprise and at the heart of development as well.
There are still reasons to be apprehensive about "healthization." The health sector is the most fragmented of development aid, also prone to fads and verticality, interminable and unproductive discussions on whose health system model is "best", donors and NGOs that build parallel systems without building government stewardship, and an annoying Omertà in some circles that sees dissent, analysis and criticism as a threat to successful advocacy and fundraising.
But on balance, “healthization” has plenty to offer the development field.
Thanks to Charles Kenny and Victoria Fan for their comments.
I’ve been blogging a little about technologyadoption of late. It’s a subject close to my heart: my last book was pretty much all about how new technologies and the spread of ideas were behind much of the global progress we’ve seen in the quality of life over the last fifty years.
But there are a lot of technologies that huge numbers of people in developing countries aren’t adopting, and we can say with some degree of certainty that their choice is a bad one from the point of view of development outcomes. Think parents with access to vaccination camps who don’t get their kids vaccinated. Or farmers who don’t micro-dose their crops with fertilizer. Or school kids who don’t use deworming pills. Or mothers who don’t practice skin-to-skin with newborns.
Of course a lot of the recent excitement in development economics has been around experiments to nudge people into doing what they should, using incentives or subsidies or communication campaigns. But all of this work, and especially the recent contradictory findings regarding RCTs for cook stoves, emphasizes the need for a tested theory as to why people aren’t already doing what you think they should.
In part that’s because people the world over have shown they’re quite willing to adopt new technologies and ideas incredibly rapidly if they find them attractive. The obvious case: the mobile phone. Between 2000 and 2010, the number of mobile phone subscriptions in developing countries increased from 215 million to 4.1 billion. But it isn’t just the mobile: technologies and ideas that are ubiquitously used or accepted across the world include wire, matches, plastic sheeting, bicycles, buses, radios, televisions and democracy.
Not only that, people the world over have demonstrated more than once they were right and the experts were wrong about the utility of particular innovations for their communities. On the one hand, poor people were adopting the mobile phone while the experts still viewed it as a toy for the rich. But on the other, and sticking with communications, note the fiber-wielding Broadband Commission to whom every problem looks like a data port, then think about the rural communities the world over that have failed to visit telecenters in droves. In general, there’s a big chance the reason people aren’t adopting an innovation is because it is too much hassle, or they have better things to spend the money on, or they have good reasons to think it won’t work.
Why might people not adopt a technology we are right to think they should? There are a number of possibilities: maybe it is just too expensive and credit markets don’t work; perhaps it is a public good technology (vaccines, deworming pills); maybe there are barriers of culture (examples might include traditional birth techniques, or rules about intra household land distribution); maybe there has been a failure of rational thinking (sometimes argued for fertilizer use) or there’s simply a lack of knowledge (think what to do if your kid has diarrhea).
If you have a technology that you like, but that hasn't been adopted, you might want to work through and test an idea as to why. And you might want to design (and test) your proposed response accordingly. It might be subsidies or incentives, it might be a communications campaign, it might be all of them or it might be something else entirely. For all they sound like socio-babble (or, worse, the new logframe), tested theories of change matter.
But two things are clear: first, the presumption should remain that people are smarter about what works for them than you are –at least until you can prove pretty convincingly otherwise. And second, just subsidizing stuff or giving it out for free because you think it must be good for people really doesn't cut it any more.
Good question as the world prepares for the September summit to assess progress. But this is a slightly odd debate here at The Africa Report. The UN Millennium Promise’s Charles Abugre Akelyira seems to think the MDGs are a rejection of economic policy reform:
The MDGs came from the reactions to structural adjustment programmes which dominated the continent’s policies for two decades… the MDGs halted the worst effect of liberalisation and structural adjustment programmes.
I suppose he means that the MDGs helped to catalyze increased social sector spending, which is probably true. What’s not true is the assumption that the IFIs are really about constraining social spending. Isn’t the World Bank the biggest single donor for anti-poverty spending? (And see here on why the belief by some NGOs that the IMF caps health spending isn’t right either). I sure hope the MDG advocates have better arguments for the goals than stale complaints from the 1980s about structural adjustment.
For what it’s worth, here is a quick summary of my very modest contribution to the online debate whether the MDGs are useful to Africa or not. My sense is that the MDGs are:
Great at raising money.
Inappropriate as national goals (India and Mauritania with the same objectives and targets?)
Mislabeling many high-performers as losers (Burkina Faso, Mozambique, Liberia, and others are improving strongly, but are still considered way “off track”). This only feeds aid skeptics and undermines reformers.
Wrong to claim collective accountability; when everyone is responsible then no one is.
My (skeptical but hopefully constructive) views are here and the full paper with colleagues Michael Clemens and Charles Kenny is here.
Senior Fellow Charles Kenny writes his weekly column in Bloomberg Businessweek on how the developing world avoided the debt trap in wake of the global slowdown.
The following article originally appeared in Bloomberg Businessweek.
As the sequester demonstrates new lows in America’s fiscal management and the European debt crisis drags on for its third year, it’s worth noting that most of the rest of the world’s financial health is pretty good. Developing countries used to rule the roost when it came to debt crises and defaults. But after a painful period of policy reform supported by considerable debt relief and restructuring, they were in a far stronger position by the end of the last decade. This has allowed them to follow policies that cushioned their citizens from the impact of the global slowdown, rather than having to ratchet up the pain—in contrast to the paths chosen by governments in much of Europe and now, the U.S.
In 1971, average external debt across 75 developing countries was worth less than a quarter of gross domestic product. Less than one in 10 saw ratios above 50 percent. By 1990, in the aftermath of the oil shock and two “lost decades” of growth, the average developing country had an external debt worth a little more than its GDP. More than six out of every 10 countries had ratios above 50 percent. As late as 2000, while average external debt levels had fallen to 83 percent of GDP, two thirds of countries still had external debt-to-GDP ratios above 50 percent.
The last decade brought dramatic change. By 2011, suggests the World Bank, the average external debt-to-GDP ratio fell to 42 percent and less than one in three developing countries had a ratio over 50 percent. Compare that to the euro zone, where gross external debt is worth about 125 percent of GDP. Similarly, public debt service in the developing world, measured as a percentage of exports, has fallen from 18 percent in 1990, through 8 percent in 2000, to below 3 percent in 2011.
This change involved three big factors: reform, relief, and growth. Reforms—including deficit reduction, moving to market interest rates, and introducing competitive exchange rates—were first introduced by Latin American governments in response to the debt crises of the 1980s. They were so strongly taken up by the U.S. Treasury, the World Bank, and the IMF that they became known as part of a broader package labeled the “Washington Consensus.”
The Washington troika pushed the “consensus” reform agenda, using the incentive of debt relief and restructuring. The Brady Plan, named for then-Treasury Secretary Nicholas Brady, restructured the debt of countries with considerable obligations to private banks. The multilateral lending institutions, meanwhile, introduced the Heavily Indebted Poor Countries (HIPC) initiative for the poorest countries that owed debt to the IMF and the World Bank. Under HIPC and its successor agreement, 30 African nations received over $70 billion in debt relief. Liberia and São Tomé actually received debt relief worth more than a year of GDP. Debt service paid by the HIPC countries declined from about 4 percent of GDP in 1999 to about 2 percent in 2005.
The third factor that helped with debt burdens in the last decade in particular was strong economic performance. Developing countries as a whole saw GDP expand by 79 percent from 2000 to 2010. That’s enough to reduce a constant debt stock as a percentage of GDP by about 44 percent.
Lower debt levels are associated with good things—not least, fewer debt crises. Carmen Reinhart and Kenneth Rogoff report in the American Economic Review that while more than one-third of the countries they study were in default at the peak of the 80’s debt crisis, the proportion was closer to one in 10 by 2010. The sustainability of debt has led to a distinct stability of inflation and global currencies. Reinhart and Rogoff suggest that during a five-year peak around 1990, more than half of all countries in the world saw a 15 percent or worse devaluation of their currency, with inflation scoring above 20 percent. In the last few years, this has dropped to below 5 percent.
Lower initial debt levels have also helped developing countries respond more forcefully to the global financial crisis. World Bank economists note that emerging economies didn’t sink as low during the 2008 crisis and bounced back faster than did advanced countries. In the past, they suggest, skittish foreign investors would force developing countries to cut spending and raise interest rates in the midst of a recession, worsening their slumps. This time around—thanks to lower debt, strong reserves, more flexible exchange rate regimes, and increasingly credible central bank leadership—many developing countries have possessed the ability to reduce interest rates and increase spending. And (unlike, say, the U.K.) most were smart enough to use that policy space to avoid shrinking their economies.
But the lessons for Europe aren’t straightforward, and they are even less so for the U.S. For a start, whatever restructuring or forgiveness Greece manages to milk out of its creditors is going to be considerably less generous than an HIPC settlement. Second, cutting long-term fiscal deficits and improving the current account situation is, to put it mildly, a bit late now. A “more flexible exchange rate” in the context of Greece or Portugal means to “leave the euro”—something that would carry considerable economic (and political) costs of its own. Finally, faster growth is possible at the margins, not least through greater competition in innovation, but rich economies will never expand at the pace that poor countries have managed over the last decade.
Any lessons probably apply to the next crisis—but there they apply to everyone. If what is going on in Europe isn’t enough of a defense against complacency in the developing world, the last lines of Reinhart and Rogoff’s paper might be: “There is little to suggest in this analysis that debt cycles and their connections with economic crises have changed appreciably over time.” Today Greece. The day after tomorrow: back to Latin America and Asia?
Read it here.
The scale of the turnout at the Women’s Marches across the world recently, along with President Trump’s early reinstatement of a ban on US funding for organizations that offer family planning services in foreign countries, seem to suggest an administration already at odds with an entire gender. On this week’s podcast, three CGD senior fellows weigh in on the evidence that engaging and empowering women—both at home and overseas—makes good sense, especially in an America-First strategy.
Impressed by the response to Justin Sandefur’s recent CGD blog entry, I’ve titled this post in an attempt to sex up the topic of government procurement. No need, you say? What’s hotter than one hundred pages of legalese and a bill of quantities detailing asphalt and gravel? The below is for you, and it ends with a request for your help.
Over the past couple of weeks, I’ve been pushing the idea of a global effort towards routine government contract publication –aka Publish What You Buy. There’s a new CGD policy paper on the whys and hows of publication which I co-authored with Jonathan Karver. There’s an article in the Guardian suggesting this would be a great cause for the new DFID Secretary of State, and a piece in Businessweek arguing that it’s as good an idea for rich countries like the US as for developing countries. And there’s a podcast with Lawrence MacDonald that tries to summarize it all. (If that isn’t enough, see also an earlier article on the same topic for Foreign Policy and a working paper about contract transparency in construction).
It is a good time to be pushing the idea, not least because lots of other people have already been pushing in broadly the same direction –including the Construction Sector Transparency Initiative and a new global effort being supported by the World Bank Institute on Open Contracting (take part in a survey to help shape that initiative here). But there are still considerable unknowns. Amongst them, two questions I hope to be doing more work on over the next few months: what impact might contract publication have on development outcomes and, second, what information in government contracts would it be a mistake to release –in particular around commercial secrets.
This is where the bleg comes in. I would love to hear from anyone involved with the two national contract publication systems already operating –in Colombia and the UK—about the experience with setting them up and, in particular questions about confidentiality. It would be great to hear from firms, NGOs and other contractors about their concerns. And I’d be hugely grateful to hear about any literature that has tackled the issue of the impact of greater procurement transparency (around prices, or of deliverables). Many, many thanks in advance.
Five years ago, probably the most positive you could be about global development was to argue that, despite a sluggish performance in reducing global income poverty connected to slow-changing institutions, broader quality of life in areas like education and health had improved everywhere. That’s pretty much the story I told in Getting Better. But since then, what we have learned about development progress suggests such a story isn’t nearly positive enough. Three recent publications add to the growing pile of good news.
First off, CGD visiting fellow Andy Sumner’s work on the New Bottom Billion highlights the declining number of poor countries and poor people worldwide. He’s not alone: our friends across the road in Brookings, Laurence Chandy and Geoffrey Gertz, have made a similar point: we’ve seen historically unprecedented progress in poverty reduction over the past twenty years. And the progress is truly global –not least, many countries South of the Sahara have had a great decade, as highlighted in Steve Radelet’s Emerging Africa. The number of low income countries worldwide dropped from 60 to 39 between 2003 and 2009 alone.
If income has been growing nearly everywhere, that suggests some fraying in the ‘historically determined institutions as destiny’ story. Perhaps having a high rate of settler mortality in colonial times, or lacking ocean going ships in 1500, or being on the wrong-shaped continent, for all their impact on relative wealth, doesn’t permanently condemn a country to kleptocratic rule over a subsistence economy. And despite the evidence for a slow overall rate of institutional change at the macro level, maybe governance can actually get better.
That’s where the second publication comes in. Abhijit Banerjee and Esther Duflo’s wonderful book Poor Economicscites numerous cases where politicians and bureaucrats, presented with a better way of doing things, took that knowledge on board and changed how things were in fact done. Theirs isn’t a story of failed states becoming Singapore overnight, but of officials and non-government actors working together to test the use of adjunct teachers in schools, or using bags of lentils to encourage parents to get their kids vaccinated. Add those cases up, and you get some significant change in global quality of life.
The third publication, launched today, helps with the process of adding up. It looks behind the macro trends in income and quality of life in some star performers. Mapping Progress: Evidence for a New Development Outlook from the UK Overseas Development Institute summarizes a set of country case studies of development progress across education, health, agriculture, water and sanitation, social protection and income growth. Cases include:
how Cambodia came back from the murder of three quarters of all teachers under the Khmer Rouge to close-to-universal primary education in thirty years,
the policy changes behind life expectancy doubling in Rwanda in sixteen years,
Brazil’s reduction of inequality and poverty through a cash transfer program which reaches a quarter of the population
Costa Rica’s extension of forest coverage through reforms in forest management and subsidy policies
the 500% increase in primary enrollment in Ethiopia between 1994-5 and 2008-9.
Uganda’s near-doubling of rural access to improved water sources between 1990 and 2008
Eritrea’s expected achievement of all of the health Millennium Development Goals
Mapping Progress suggests the importance of leadership, smart policies and institutional change to the success stories highlighted. In particular many of the successes were built on a changing role for government, from controlling to facilitating and enabling. This still takes an active role in overcoming market failures and providing public goods from transport to a stable currency, but it also involves delivering services in collaboration with partners from the private and non-profit sectors, decentralizing provision where possible to ensure responsiveness, and focusing as much on the demand side (removing financial barriers to education, for example) as the supply side.
History may be a significant barrier to improvement, then, but widespread advances in health, education, rights and even income growth around the world suggest that it isn’t an insurmountable one. Mapping Progress –along with Poor Economics and the New Bottom Billion—suggest that poor people and poor countries can and are charting their own course, history be damned.
The firestorm of events across the Middle East over the past few days can't be explained by long-term development factors: the link between politics and economic development (or lack thereof) is complex in the extreme. Still, the staggering lack of opportunities for young people, especially young entrepreneurs without political connections, is clearly an important part of the mix. That includes people like Mohamed Bouazizi, the 26 year old whose self-immolation sparked the protests which brought down Tunisia’s president, and which in turn set off the remarkable events unfolding in Egypt.
The Middle East has witnessed an incredible expansion of both youth populations and education over the past twenty years. Fully two thirds of the region’s population is below 24 years old. Tertiary enrollment in the Egypt has climbed from 14 to 28 percent since 1990, and in Tunisia from 8 to 34 percent. Cairo University alone has around 200,000 students.
But while educational opportunities abound, jobs do not. Unemployment among 15-24 year olds in the Middle East and North Africa is the highest of any region in the world, averaging more than 25 percent. In Egypt in 2005 that number was 34%, in Tunisia it was 31%. One big reason is anemic private sector growth. And behind weak private sector performance is exactly the kind of favoritism that drove Mr. Bouazizi to desperation.
Before coming to CGD, I worked in the Middle East and North Africa department of the World Bank for a year—not nearly long enough to become any kind of expert, but long enough to meet some. A report by some of my more seasoned colleagues looked at the region’s private sector in some depth. It noted that while Egypt might have been one of the top ten performers on the bank’s own Doing Business reform measures in recent years and other countries in the region were also rising up the rankings, there was a big gap between de jure reforms and de facto implementation:
“Firms in MENA are much older than in other parts of the world… Business managers are also older than elsewhere. Incumbent firms face less competition. Except in South Asia, fewer registered firms per capita are found in MENA... These are all symptoms of a discriminatory business environment that prevents the entry and exit of firms… the networks of privileges and the nexus between politics and business hurt the credibility of governments and reformers in particular. The perception that connections are an important source of competitiveness (some say the most important) discourages many would-be entrepreneurs…The large proportion of entrepreneurs… believe that rules and regulations will not be consistently and predictably applied explains why policy reforms may not have a strong response from investors.”
With good private sector jobs mostly limited to the few companies with political connections and government jobs largely the preserve of an older generation, there weren’t many places for young graduates to go but onto the streets. Given that, few in the Middle East or North Africa will have been surprised that frustrations have boiled over –even if the scale and early success of the protests has shaken regional leaders from the Atlantic to the Arabian Sea.
Nic van De Walle suggests term limits for heads of state would do the region a power of good. Perhaps the same should apply to the employees and managers of privileged private firms and state-owned enterprises. His CGD book, Overcoming Stagnation in Aid Dependent Countries, Nic argues that withholding aid can be a powerful lever for change—when countries are aid dependent. But it’s hard for me to see the crisis in the region as mostly a story about aid.
Net Official Development Assistance (ODA) amounted to just 4% of central government expenditure in Tunisia in 2008 according to the World Development Indicators. It’s true that in Egypt in 1990, net ODA accounted for 36 percent of government expenditures. But by 2008, that figure was 3 percent. That year, ODA and other aid to Egypt was worth only 11 percent of tourist receipts or fourteen percent of manufactures exports. And while Mubarak received a range of other types of diplomatic and military support from the United States, there are a number of long-lasting dynasties in the region that aren’t on the friends list of any major donor.
In Pakistan, like Egypt a big U.S. aid recipient that doesn’t always do what Washington would like, Nancy Birdsall emphasizes that billions of dollars in American aid can’t even guarantee the passage of fairly basic economic reforms—let alone fundamentally change the calculus of a political leader struggling to hold onto power.
All of which suggests that what happens next is in the hands of the leaders and people of the region, not the diplomats and foreign officials who are watching from afar.
Thanks to Wren Elhai for adding to this blog post.