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Law and Regulation

Can the middle class really guarantee good governance?

Sina Odugbemi's picture
When social scientists and historians look back on the transformation in the quality of governance that took place in, first, Great Britain and, later, much of Europe in the course of the long 19th century, one explanatory factor often stands out: the rise of a large enough middle class.  What is large enough is, of course, a question of fact, and varies depending on the particular country context. This explanation is often contested, but it has stuck. People refer, for instance, to the revolts against monarchies that occurred across Europe around 1848 as the middle class revolutions. The sense that this explanation makes sense is so strong that when you attend seminars on improving governance in developing countries at some point or the other someone is bound to say: “Let’s be patient folks. Once these countries have a large enough middle class the pressure for improved governance will be unstoppable.”

I write about this now because I have just read an essay by Nancy Birdsall of the Center for Global Development that restates the view with some sophistication. Please see: “Middle –Class Heroes: The Best Guarantee of Good Governance.” The essay is worth reading in full. I am going to focus only on her core case. Key quote:
Having a large middle class is also critical for fostering good governance. Middle-class citizens want the stability and predictability that come from a political system that promotes fair competition, in which the very rich cannot rely on insider privileges to accumulate unearned wealth. Middle-class people are less vulnerable than the poor to pressure to pay into patronage networks and are more likely to support governments that protect private property and encourage private investment. When the middle class reaches a certain size – perhaps 30 percent of the population is enough – its members can start to identify with one another and to use their collective power to demand that the state spend their taxes to finance public services, security, and other critical public goods. Finally, members of a prospering middle class are unlikely to be drawn into the kinds of ethnic and religious rivalries that spur political instability. (Italics mine.)
 

Understand the differences, act on the commonalities in a globalized economy: How can Public-Private Dialogue be of help?

Steve Utterwulghe's picture



The Mongolian government’s economic advisors. Photo by Steve Utterwulghe


Misunderstanding, distrust, lack of genuine consultation. These are some of the words that I hear the most from various public and private stakeholders during my regular missions to developing countries.

From Bamako to Ulan Bator, where I am writing this post, the relentless echo of grievances points to the fact that the government doesn’t understand – or want to listen to – the private sector, and therefore doesn’t trust it. And likewise, the private sector sees public authorities as often incompetent, corrupt and an impediment to competitiveness and wealth creation.

While generalizing is a dubious exercise, the similarity and recurrence of complaints across the globe warrants deeper digging.

The issue of trust in policymaking is a complex field of study. The origin of mistrust of the private sector by the government in many developing countries is embedded in the socio-political culture and economic history of the state.
That being said, it is now rare to find a government that categorically denies the contribution of the private sector to the economic development of a nation. About 90 percent of the jobs are created by the private sector in the developing world, and about 50 percent of those are created by small and medium-sized enterprises (SMEs). Furthermore, as José Juan Ruiz from the Inter-American Development Bank (IDB) has written, “Policymakers realize that they need to access the deep knowledge held by the private sector in order to learn about market failure and formulate the right policies to address them.”

On the other hand, the private sector wants a stable and transparent regulatory environment in which to operate. It doesn’t want more regulations, but better regulations that will protect its investments. For that, it needs the government to listen and act in a way that will create an enabling business environment. Building trust is hard work.

Differences between public and private stakeholders certainly exist, but so do commonalities. It never takes long for parties to acknowledge that there is a clear common ground to strive for: sustainable economic development that should lead to inclusive growth. That, in turn, will spur job creation and revenue collection for the state. That’s an irrefutable win-win scenario.

Complexities of reputation management and policy making in a globalized world: Bangladesh after Rana Plaza

Sonia Jawaid Shaikh's picture

On April 24, 2013, a building called Rana Plaza in Dhaka came crashing down on thousands of workers, killing more than 1,100 and injuring more than 2,500 individuals. Unlike any other building collapse, this received widespread international attention - and continues to do so - because the building housed factories that sewed garments for many European and American clothing brands. As a result, a chunk of blame for the collapse and deaths was placed on retailers and brands that outsourced their work to Bangladesh, and particularly Rana Plaza.

Since the tragedy, these retailers and companies, both big and small, utilized several brand reputation management strategies. This, in turn, impacted the policies of the garment industry in Bangladesh. Primarily, two retailer blocs, The Accord and The Alliance, emerged which have created their own local and international dynamics.

The Accord is a legally binding agreement that has been signed by many European and North American companies and allows for factories to be vetted and shut down in case of non-compliance with safety standards. The Alliance, signed by North American groups such as Walmart and JC Penny, however, does not guarantee any such protections and allows companies to use their own rules with any legal requirements.

Interestingly, many companies who are either part of The Alliance or The Accord, choose not to publicise their participation in such agreements on their own websites. This allows them minimize any attention that could turn into criticism while still taking part in initiatives in case there ever is an inquiry from media, regulators, or other interested parties.

Opening markets: Mexico uncovers and slashes local barriers to competition

Marialisa Motta's picture

In the state of Chiapas, Mexico — where nearly 1 million people live in moderate to extreme poverty — bus fares have been too high, and the availability of buses has been limited. Over four years, consumers on a single route have paid $2.5 million more than necessary. Tortillas in states across Mexico are more expensive than they need to be. In one state, firms overcharge for road construction by an estimated 15 percent, making it difficult to provide the high-quality transport services for cargo and construction materials that are necessary to build a logistics hub to diversify the state economy beyond petroleum. Another state has a very dynamic economy, hosting a greater density of industrial parks than comparable states. Given the positive spillover effects — industrial activity boosting local employment, demand, and purchasing power — the state expected growth in retail markets. Yet, stores have not been opening. Yet another state relies on tourism to generate business opportunities and jobs, including for poor people. However, until recently, tourists found that commercial establishments in the state’s primary municipality closed in the evenings and at night, often preventing them from going shopping.
 
What do these examples have in common? Local barriers to competition.

In the past few years, the Mexican Federal Competition Authority (COFECE) and Better Regulation Authority (COFEMER), internationally recognized institutions, as well as the World Bank Group, have pointed out that subnational regulations restrict competition in local markets. In many municipalities in Mexico, regulations and government interventions allow market incumbents to deny entry to new firms, to coordinate prices, to impose minimum distances between outlets, or to grant incumbents exclusive rights to artificially protect their dominant position. In total, a lack of vigorous marketplace competition costs the Mexican economy about one percentage point of GDP growth each year – a shortfall that affects the country’s poorest households by an estimated 20 percent more than its richest households. Most countries, however, have never systematically scrutinized local barriers to competition.


 
To address such issues effectively, competition policy experts from the World Bank Group’s Trade & Competitiveness Global Practice have developed an innovative tool – the Subnational Market Assessment of Competition (SMAC) – to systematically identify, prioritize and support the removal of local barriers to competition. (The SMAC is built from the World Bank Group Markets and Competition Policy Assessment Tool, or MCPAT.) The World Bank Group designed the SMAC to prioritize the reform of the rules and practices that most severely prevent healthy competition in the primary sectors for each state’s economic development.

Why ending violence is a development imperative

Ede Ijjasz-Vasquez's picture

Each year, about half a million people are killed by intentional homicide. That means one life is lost to violence per minute worldwide.

Latin America and Caribbean is among the hardest hit by chronic violence. Today, the region still sees an average rate of 24 homicides per 100,000 inhabitants—more than twice the World Health Organization (WHO)’s threshold for endemic violence.

If violence is an epidemic, youth are—by far—the largest risk group. In Latin America, the homicide rate for males aged 15-24 reaches 92 per 100,000, almost four times the regional average. Young people aged 25-29 years, predominately males, are also the main perpetrators of crime and violence, according to an upcoming World Bank report. 

Endemic violence also translates into less productivity, poorer health outcomes and high security costs. The cumulative cost of violence is staggering—up to 10% of GDP in some countries—with negative long-term consequences on human, social, economic, and sustainable development.

Ending violence is not only a must for law and justice, but also a development imperative.

The good news is that violence can be prevented. For example, cities like Medellin in Colombia and Diadema in Brazil have dramatically reduced homicide rate over the last few decades, thanks to tailored solutions backed by robust data analysis and a “whole-of-society” approach.  

In this video, we will discuss why violence is an important development issue, how countries and cities can effectively fight violence and crime, and what the World Bank and its partners are doing to ensure security and opportunity for all—especially youth and the urban poor. 

Related:
 

Where are the gaps in the way we campaign?

Duncan Green's picture

The summer is a time for relaxed chats in my Brixton office. This week it was with a seasoned NGO campaigner who’s been on a break and wondering about re-entry into the UK/global development and environment campaign scene at the research-y end. Where are the gaps and potential niches that a bright, reflective, experienced campaigner-turned-researcher could help to fill? Here’s a few that came up, inevitably influenced by How Change Happens and attendant reading.

Implementation Gaps: A lot of successful campaigning targets the gap between policy and practice – what the government or the law has said vs. what is happening in reality. It may not have the intellectual appeal of starting with a clean sheet and saying ‘if I ruled the world, I would do X’, but the chances of getting somewhere are much higher. So how about a guide to IGap campaigning – how to identify them, work out which ones are the most promising, case studies of success, questions to ask etc?

Positive Deviance: I’m getting increasingly obsessed with this as a huge potential addition to the development repertoire. Instead of jumping in and opening a project or campaign, start by looking for the positive outliers that already exist on any given issue. Go and study them, and then use social learning to spread the message. The outsider acts as a facilitator, not a ‘doer/intervenor’. But all the positive deviance examples I’ve seen refer to programming – tackling on-the-ground problems like child malnutrition in Vietnam. What would a PD-based campaign look like? Go out and identify existing positive outliers on tax evasion, respect for human rights, or smallholders in value chains, then build a campaign to scale them up?

Toward a more durable form of globalization, beyond 'neoliberal' negligence

Christopher Colford's picture

“Globalization and technological change create huge challenges for modern economies, but they are not uncontrollable forces of nature. The economy we have is the economy we choose to build. It is time to make different choices, and show that capitalism can be remade.” — Prof. Mariana Mazzucato of the University of Sussex and Prof. Michael Jacobs of University College London, the editors of “Rethinking Capitalism.”

The shadows lengthen and the daylight shortens amid these elegiac end-of-summer evenings — but there’s a palpable feeling nowadays, in Washington and other capitals, that we’re approaching not just the sunset of a season, but the twilight of an era.

The sudden change in the policy discourse over the past year has shattered the familiar old contours of the globalization debate, with a “populist explosion” in the world’s developed economies forcing policymakers everywhere to reconsider the boundaries of “the art of the possible.” In many of the world's developed economies, a recalibration of globalization is under way.

In this insolite interim, the fraught phrase of Antonio Gramsci comes to mind: “The crisis consists precisely in the fact that the old is dying and the new cannot [yet] be born. In this interregnum, a great variety of morbid symptoms appear.”

Three incisive recent analyses illustrate the impassioned arguments that underscore this end-of-an-era feeling. Together, the analyses set the stage for the imminent publication of a new book of essays by a group of eminent economists, whose ideas may chart the way toward a more durable, more inclusive approach to globalization.

 
  • Second: Diagnosing how a phase of economic history may have run its course, Nobel Prize-winner Joseph Stiglitz (a former Chief Economist of the World Bank) in Project Syndicate asserts that the laissez-faire approach to globalization has reached its (il)logical conclusion: “The failure of globalization to deliver on the promises of mainstream politicians has surely undermined trust and confidence in the ‘establishment.’ . . . Neoliberals have opposed welfare measures that would have protected the losers [of globalization]. But they can’t have it both ways: If globalization is to benefit most members of society, strong social-protection measures must be in place. The Scandinavians figured this out long ago; it was part of [their] social contract. . . . Neoliberals elsewhere have not – and now, in elections in the US and Europe, they are having their comeuppance.”  
 
  • Third: A series of insightful columns by Martin Sandbu in The Financial Times – tracing an “insurrection [that] has been a long time coming” – explores the links among economic stress and social-class anxiety that provoked this year’s social eruption: “Over the past generation, the trajectory of the white working class has no doubt changed the most for the worse, compared with the previous generation.”


The history-minded reflections of Jacques, Stiglitz and Sandbu underscore the fact that many economists are still pondering how so many of their policy prescriptions went so badly wrong, opening the way for the global financial crisis.

Adding a legal dimension to multidimensional poverty in the Arab world and beyond

Paul Prettitore's picture

Alexandria, Egypt - Emad Abdel Hady

Earlier this year, the Metropolitan Policy Program and the Center on Children and Families at Brookings released a study on multidimensional poverty and race in America. The study shows why it’s important to look at poverty through the dimensions of low household income, limited education, lack of health insurance, concentrated spatial poverty, and unemployment, and why we should consider ways to de-cluster and reduce the links between them.

Retrofitting: A housing policy that saves lives

Luis Triveno's picture
Building earthquake-resistant housing in Peru. Photo: USAID/OFDA, Auriana Koutnik/Flickr
When a hurricane, earthquake or other natural disaster strikes a poor country, families too often suffer a double tragedy: the loss of loved ones and their most valuable (and sometimes only) asset, their home. In the aftermath of the 7.0 magnitude earthquake in Haiti in 2010, which killed more than 260,000 people, 70% of asset losses were related to housing. Ecuador faces billions of dollars in reconstruction costs from last April’s 7.8 earthquake, which killed 900 and injured almost 28,000. If Peru were hit by an 8.0-degree earthquake, an estimated 80% of potential economic losses would involve housing.
 
And while nature’s fury does not distinguish between urban and rural areas, a large majority of disaster losses are concentrated in cities, where they disproportionately affect the poor. This creates a great challenge for low and middle-income countries.  In Latin America and the Caribbean, 200 million people—1/3 of the population—live in informal settlements, where most dwellings don’t comply with construction codes and home insurance is non-existent. Perhaps unsurprisingly, LAC’s informal districts also account for the majority of disaster-related deaths in the region.
 
Yet housing policies aimed at the poor tend to focus on supporting the construction of new units instead of retrofitting existing homes to make them safer—ignoring the fact that it is mostly buildings, not earthquakes, that kill people. As a result, the deficit in housing quality is still disturbingly high: millions of families remain exposed not just to disaster risk but also to high crime rates, eviction, poor housing conditions, as well as lack of access to basic services, healthcare, schools, and job opportunities.
 
To address these issues, countries will need to tackle the housing challenge from two different but complementary angles: they have to find ways of upgrading the existing housing stock, where the majority of the poor live, while making sure that new constructions comply with building regulations. After all, if floods or earthquakes do not distinguish between old or new homes, why should policy-makers? It is time for resilience to become part of the definition of “decent, affordable housing.”

‘Smartest Places’ via smarter strategies: Sharpening competitiveness requires ingenuity, not inertia

Christopher Colford's picture

Seeking an antidote to the gloom-and-doom bombast of this election year? Try a dose of optimism about urban“hotspot hustle and cutting-edge cool” – with a book that champions smart public policy, delivered through a shrewd approach to Competitiveness Strategy.

Gazing into the rear-view mirror is a mighty reckless way to try to drive an economy forward. Yet backward-looking nostalgia for a supposedly safer economic past – with voters' anxiety being stoked by snide sloganeering about “taking back our sovereignty” and “making the country great again” – has infected the policy debate throughout this dispiriting election year, in many of the world’s advanced economies. Scapegoating globalization and inflaming fears of job losses and wage stagnation, populists have harangued all too many voters into a state of passivity, lamenting the loss of a long-ago era (if ever it actually existed) when inward-looking economies were, allegedly, insulated from global competition.


Optimism has been in short supply lately, but an energetic new book – co-authored by a prominent World Bank Group alumnus – offers a hopeful perspective on how imaginative economies can become pacesetters in the fast-forward Knowledge Economy. Advanced industries are thriving and productivity is strengthening, argue Antoine Van Agtmael and Fred Bakker, now that many once-declining manufacturing regions have reinvented their industries and reawakened their entrepreneurial energies.

Welcome to the brainbelt,” declares “The Smartest Places On Earth: Why Rustbelts Are the Emerging Hotspots of Global Innovation” (published by Public Affairs books). Now that brainpower has replaced muscle-power as the basis of prosperity in an ever-more-competitive global economy, the key factor for success is "the sharing of knowledge." Longlisted for the Financial Times/McKinsey Business Book of the Year Award, “Smartest Places” is receiving well-deserved attention among corporate leaders and financial strategists – and it ought to be required reading for every would-be policymaker.

The era of “making things smart” has replaced the era of “making things cheap” – meaning that industries no longer face a “race to the bottom” of competing on costs but a “race to the top” of competing on creativity. Knowledge-intensive industries, and the innovation ecosystems that generate them, create the “Smartest Places” that combine hotspot hustle and cutting-edge cool.





Those optimistic themes may sound unusual to election-year audiences in struggling regions, which are easy prey for demagogues manipulating populist fears. Yet those ideas are certainly familiar to readers at the World Bank Group, where teams working on innovation, entrepreneurship and competitiveness have long helped their clients shape innovation ecosystems through well-targeted policy interventions that strengthen growth and job creation.

“Smartest Places,” it strikes me, reads like an evidence-filled validation of the Bank Group’s recent research on “Competitive Cities for Jobs and Growth.” That report, published last year, offers policymakers (especially at the city and metropolitan levels) an array of practical and proven steps that can help jump-start job creation by spurring productivity growth.


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