Football, the beautiful game, galvanizes people from young to old and North to South in a way that no other sport or entertainment can match. Last Sunday’s final was the most watched event in human history with an estimated 1 billion viewers (many of which, in South and East Asia, tuned in well into the night). What we experienced over the past four weeks has been described by some as the closest thing to a world religion: everybody watches it and worships it; everyone has an opinion and many believe that winning the World Cup is one of the greatest achievements a country can aspire to. No wonder that even the Popes seem to care. John-Paul II once pointedly said that “amongst all unimportant subjects, football is by far the most important.”
Europe and Central Asia
Twenty-five years ago, I lived in a fishing village, Tanji, on the coast of The Gambia. The village came alive before sunrise: if you got up early, you could see the brightly colored "pirogues" pushing out to sea, with six or seven brave young men sailing their precarious wooden dugout canoes. This was no mean feat. The Atlantic was unforgiving and sometimes treacherous.
I worked with the fishermen as part of a European Union fisheries project and, with time, we became friends. We spoke Mandinka, drank atyre, and shared our struggles and hopes. They told me how over the years catches had declined dramatically, forcing them to sail farther and farther out; how the trawlers were creeping closer to the shore, often mangling their fragile nets.
The emergence of local capacity in the construction sector has long been regarded as critical for economic development. Indeed, since the early 1970s, the World Bank has provided a “civil works preference” for low income countries in Bank-financed projects in order to foster the expansion of domestic construction industries. In most regions of the world, the emergence of domestic capacity in civil works goes hand-in-hand with regional development trajectories. Large construction companies bid for, and win, contracts in their own and neighboring countries.
Nick Manning’s two recent blogs (here and here) raise an important issue. On the one hand, people interested in development have big ambitions. We want not just more, but dramatically more people to be educated, healthy and prosperous, to name only three good things. If we are lucky enough to have some influence over governments and development agencies, we might be tempted to work from the top down to get what we want, turning those ambitions into public policies and programs, and rolling them out by the yard like so much cheap office carpet.
But on the other hand, the same human values that make us want those things make many of us sympathize with the bottom-up tradition that takes individual humans or small communities as its starting point. We know how a state planning juggernaut led to the terrible famines in the Soviet Union in the 30s and China in the late 50s. We know the horrors that followed Year Zero in Cambodia. Schumacher’s Small is Beautiful and James Scott’s Seeing Like A State are touchstone texts. Likewise, some of us have an instinctive preference for ‘searchers’ over ‘planners’, ‘positive deviance’ and ‘problem-driven iterative adaptation’.
In last week’s post, I asked whether Governance and Public Sector Management (GPSM) projects are having much large scale impact. It is tempting to reduce this to the question of why don’t development projects which focus on this work more often (although their track record is perhaps not as limited as some reviews of donor assistance might suggest). From this starting point, recent thinking suggests that donor rigidity and project designs which fix the visible form without improving the underlying public management function are the problem.
The remedy, as set out most prominently in “Problem Driven Iterative Adaptation” and in the World Bank’s own Public Sector Management Approach, suggests that we should focus on the de facto rather than the de jure and adapt the nature of our support as project implementation unrolls. Problem-driven iterative adaptation (PDIA) approaches are referred to in recent reforms of Ministries of Finance in the Caribbean and reform approaches in Mozambique and in Burundi. Bank interventions in Sierra Leone and in Punjab have been cited as examples of this approach in practice.
From time to time, countries experience rapid economic growth without a significant decline in poverty. India’s GDP growth rate accelerated in the 1990s and 2000s, but poverty continued to fall at the same pace as before, about one percentage point a year. Despite 6-7 percent GDP growth, Tanzania and Zambia saw only a mild decline in the poverty rate. In the first decade of the 21st century, Egypt’s GDP grew at 5-7 percent a year, but the proportion of people living on $5 a day—and therefore vulnerable to falling into poverty—stagnated at 85 percent.
In light of this evidence, the World Bank has set as its goals the elimination of extreme poverty and promotion of shared prosperity. While the focus on poverty and distribution as targets is appropriate, the public actions required to achieve these goals are not very different from those required to achieve rapid economic growth. This is not trickle-down economics. Nor does it negate the need for redistributive transfers. Rather, it is due to the fact that economic growth is typically constrained by policies and institutions that have been captured by the non-poor (sometimes called the rich), who have greater political power. Public actions that relax these constraints, therefore, will both accelerate growth and transfer rents from the rich to the poor.
Some examples illustrate the point.
Taking the example of the major public health advances supported by donors, advances in the measurement of health impacts in the early 2000s led to major costs savings and efficiencies in HIV/AIDS and malaria programs, the Global Polio Eradication Initiative had clear impact, the annual Human Development Reports have charted some truly outstanding areas of progress and there has been some, halting, progress towards attainment of the Millennium Development Goals. However, it seems that few of these gains seem have deep roots in the improved performance of governments. Development assistance seems able to trigger improvements through standalone arrangements outside of the public sector and through logistical efforts to move material (pumps, vaccinations, and medical supplies). It does not seem to be so good at large scale governance and public sector management (GPSM) improvements.
In many economies of the Balkans high formal unemployment is often blamed on insufficient skills in the labor force. But this intuitive diagnosis glosses over two fundamental questions, namely: why are workers not training themselves to find jobs, and why aren’t firms investing in upgrading the skills of their employees? In other words, the market seems to be failing by not allocating resources where high returns can be found. In this blog post, we cast doubt on the diagnosis and look beyond the skills gap explanation to high unemployment in the Western Balkans. But this is not unique to the Balkans. Take the US construction industry, which is among the most productive in the world even though it employs many relatively low skilled workers, often immigrants from Mexico and other Latin American countries, who improved their individual productivity several fold by migrating – not upgrading skills.
There is no doubt about the problem as throughout the region unemployment – particularly formal – remains unacceptably high. Serbia is a case in point: Out of a population of 7.2 million people and a workforce of 4.5 million, only 710,000 Serbians have a formal, private sector job. If you add some 380,000 ‘sole proprietors’ – basically people who run mini-shops – you get to around 1.1 million people in the formal private sector. That means that the livelihood of the whole country is built around this 15 percent of the population. Can it really be that firms are still not able to find sufficiently skilled employees in the large remaining pool, especially given that Serbia has decent education results? If finding skilled workers in Serbia is like looking for needles in a haystack, there are surely a lot of needles to be found.
The economics book that has launched a thousand blog posts, Thomas Piketty’s Capital in the Twenty-First Country, tells a grand story of inequality past and present. One would expect that a book on global inequality would have much to say about development. However, the book has limited relevance for the developing world, and the empirical data he marshals for developing countries is weak.
Piketty’s central story is that convergence in the developed world and slower population growth will leave us with a permanently modest economic growth rate (g). Coupled with a constant return to wealth (r), concentration of capital ownership, and high rates of savings among the wealthy, the low g leads to rising wealth inequality over a longish run—something like the second half of the 20th century.
A low-g future for the developed world is a mostly uncontroversial assumption. (He assumes future GDP per capita growth of 1.2 percent for the U.S.) But Piketty draws conclusions for the world as a whole, and we are a long way from global convergence. As Branko Milanovic noted in his review, catch-up growth could fend off Piketty’s inequality dystopia for some time.
A view from Central Europe and the Baltics
Ten years ago this month the European Union expanded to include 10 new members - Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovak Republic and Slovenia. It was the largest expansion in the EU's history in terms of population and area, and of historic importance in that it brought into one Union countries that had formerly been on different sides of the Iron Curtain.
Given the Eurozone crisis from which the EU is slowly recovering, it is natural to ask if EU membership has benefitted the 2004 entrants.