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Public Sector and Governance

Policies for Growth E-learning Course - Apply by September 17, 2010

Ihssane Loudiyi's picture

What? E-learning course on
Policies for Growth
When? October 1-31, 2010
How to Apply? Please follow this link
 

Tentative Agenda
 

The story of growth and poverty reduction is much debated in an ever-changing world. The challenge in the 1960s was how to lift low-income countries from a low-growth trap to a reasonably high-growth path. Fifty years later we have many fast-growing emerging economies but also over a hundred countries unable to move away from low-growth and high-poverty traps.

Between 1960 and 2010, 3 major shifts impacted how we think about growth and poverty. These big shifts were from state-directed ‘commanding heights’ to market-driven approach, from structural issues of deregulation, liberalization and privatization to sectoral sources of growth, particularly agriculture and financial services, and from macroeconomic to microeconomic (and now macro-micro) approaches to growth. Somewhere along these shifts, there was a recognition that poverty reduction is a goal in itself and does not have to depend on how fast or slow a country is growing. The new wave of globalization that has swept the world during the past two decades has aided growth and poverty reduction in the developing world but the ongoing global economic crisis threatens to undo all those gains and much more.

For policy makers, practitioners and students who want to learn more about growth and poverty reduction in development economics today, the World Bank Institute is offering an e-learning course on Policies for Growth

The application deadline is September 17, 2010. Please note that a nominal fee of $250 will be assessed for accepted participants.

What Drives Productivity

Raj Nallari's picture

Productivity is the efficiency in converting inputs to outputs. It is also called TFP (total factor productivity) and measured as a residual – the difference between outputs and a set of inputs (e.g. labor, capital, and intermediate goods, including energy, land and buildings). Measurement problems plague both inputs (e.g. how do you account for quality of labor or capital) and outputs.

To wit, managers with MBAs, flexibility in labor and capital markets, fuel efficiency, relatively higher spending in IT (computers) and R&D, and policies that promote market competition, trade liberalization, deregulation of energy, and encouragement of foreign direct investment that brings in technical progress and leads to learning (catch-up) is shown to contribute to higher productivity. Exporting firms tend to have higher productivity. Inefficient firms can still survive in stable industries where technology is static, and where market competition is limited by a variety of local factors and relationships (e.g. China where the protection is afforded by local governments).

The Perennial Crisis in Governance

Raj Nallari's picture

What do we learn from the troubles of Goldman Sachs, British Petroleum, Enron, Satyam, and other modern day corporations? These are the most sophisticated corporations ever formed yet victims of their own governance failures.

Have Institutions Failed Us?

Raj Nallari's picture

Institutions matter was the oft chanted mantra for the past fifteen years. We were told that in the presence of social conflict between various groups, between haves and have-nots, political power precedes political institutions, economic institutions and economic policies. But, political power could be de jure (due to constitution, fair elections and smooth transition to political power) or de facto such as dictatorships and authoritarian leaders usurping power by coups and violence. Sixteenth century colonialism established ‘settler’ and ‘exploitative’ institutions depending on the then existing ‘climate’ in the colonized countries. For example, if the climate was unbearable and malaria-stricken, the colonial masters established an exploitative relationship of shipping out natural resources. If the climate was hospitable, they settled in with family in these countries and started administration and other institutions.

More recently good institutions were supposed to emerge when only de jure political power is in place. Also, a political and legal system that places constraints on elites is often conducive for better institutions. Following this logic, institutional economists have reasoned that advanced economies with de jure democratic political institutions have smooth transition, predictability and place constraints on elites and abuse of political power, and have strong institutions that ensure a system of checks on the executive, law and order, property rights, etc. The theory of institutions is that bad policy outcomes are the result of bad institutions and these are common in developing countries, where the distribution of political power needs to be reformed and deeper causes need to be strengthened. Others have argued that market-oriented institutions are important for economic policy management. By this categorization, advanced economies had better institutions that led to sound economic performance and consistently higher economic outcomes.

Brazil Announces Phase Two of the Growth Acceleration Program

Ihssane Loudiyi's picture

(All credits go to SECOM for this information)


President Luiz Inácio Lula da Silva announces US$ 526 billion in public and private investments over 2011-2014

Yesterday, Brazil launched phase two of the Growth Acceleration Program (PAC 2), announcing estimated investments of US$ 526 billion (R$ 958.9 billion) for the period from 2011 to 2014. PAC 2 includes new investment projects for the periods 2011 to 2014 and post-2014, as well as projects initiated during PAC 1 with activities that will conclude after 2010. For the period following 2014, the estimated investment is US$ 346.4 billion (R$ 631.6 billion). The two periods combined reach an amount of US$ 872.3 billion (R$ 1.59 trillion).

PAC is a strategic investment program that combines management initiatives and public works. In its first phase, launched in 2007, the program called for investments of US$ 349 billion (R$ 638 billion), of which 63.3% has been applied.

Similar to the first phase of the program, PAC 2 focuses on investments in the areas of logistics, energy and social development, organized under six major initiatives: Better Cities (urban infrastructure); Bringing Citizenship to the Community (safety and social inclusion); My House, My Life (housing); Water and Light for All (sanitation and access to electricity); Energy (renewable energy, oil and gas); and Transportation (highways, railways, airports).

“I consider PAC 2 as a portfolio of projects that the next administration can build from rather than starting from scratch, as there is no time to lose,” said President Luiz Inácio Lula da Silva during the announcement of the program.

PAC 2 Initiative in Detail...

Re-regulating the Financial Sector

Raj Nallari's picture

The financial system, measured by assets, profits, contribution to GDP, stock market capitalization, employment etc, has expanded rapidly since 1990. For example, global financial assets were about 50 trillion in 1989 and increased to about 200 trillion by 2007, during the same period financial depth increased from 200% of world GDP to 400% in 2007. The financial crisis has raised a plethora of issues, many of which are inter-twined. There have been failures on all fronts – market failures in the form of financial firms innovating new instruments while neglecting risk management practices, credit rating agencies failing in rating assets without much thought to risk, private auditors not checking Lehman Brothers’ assets and liabilities, government failures in the form of central bank keeping interest rates low in the run up to the crisis, and government entities such as Fannie and Freddie involved in mortgage lending and making enormous losses, and failure by regulators for not checking the books of financial firms such as Lehman Brothers that were moving toxic assets of the balance sheets, and last but least the financial economists who failed to foresee to crisis. There is plenty of blame to go around but one thing is clear: State ownership of financial firms is back. After decades of rising foreign ownership of banks (shrinking state ownership) in almost all regions, except the Middle East and South Asia, the trend could be reversed especially in the developed countries.

The crisis has shifted focus from foreign private ownership to some state ownership, from micro to macro prudential regulations, to re-assessment of deposit insurance, lender of last resort, and implicit guarantees, to consumer protection and taxpayer protection, from mark to market accounting to mark to funding, to revamping of credit rating agencies, to crisis in corporate governance and questioning of remuneration in financial firms, and to strengthening of supervision. These and a number of related issues of interest to policy makers are discussed below.

Given the large set of issues arising from the crisis, the major challenges facing countries are essentially two: (i) Government entities which are subsidizing directed credit (e.g. Frannie and Freddie in USA; similar type of ‘chaebol’ lending to industrial firms triggered the Asian crisis of 1997); and (ii) universality of too big to fail entities, where systemic important firms, often politically powerful conglomerates that are controlled by elites, have to be bailed out, which in turn leads to the moral hazard problem, where the large entity is considered worthy saving at all costs, including use of lender of last resort facilities from the Central Bank and tax payers money from the Treasury. The too big to fail entities also then knowingly max-out on leveraged lending (40 to one in case of USA) and ‘gamble’ on financially innovative instruments (e.g. mortgage-backed securities and credit default swaps in case of USA). The large entities also have the political clout to suppress regulations and/or evade regulations. Successful regulation requires that the regulator should have information on exposure to systemic risks. Too big to fail institutions were exposed to CD swaps (e.g. AIG in USA) and we knew little about its exposure. The reason is that there is data on a firm by firm but there is no agency that can put it all together. But policy makers and politicians are reluctant to address these two problems head on. Instead the focus on a large set of problems, as detailed below, and obfuscate the issues.

The Power of How

Ihssane Loudiyi's picture

What exactly do we mean by Capacity Development?

The United Nations Development Programme (UNDP) and Stichting Nederlandse Vrijwilligers (SNV Netherlands) redefine the concept through this creative new video. Enjoy!
 

Re-thinking Macroeconomic Theory and Policy

Raj Nallari's picture

If you think the US financial system is broken, then you don’t know how much more broken the macroeconomic theory is. The traditional Keynesian model of ‘depression economics’ where increasing government spending could stimulate the economy was misused by governments, particularly in developing countries, for decades during the 1950s to the 1980s.

Development Outreach: Growing Out of Crisis

Ihssane Loudiyi's picture

A global financial and economic convulsion of the magnitude we have just experienced should offer valuable lessons. The December 2009 of Development Outreach, “Growing Out of Crisis,” offers a multifaceted picture that sheds new light on the impact of the crisis from different perspectives and in different parts of the world, and discusses changes at national and international levels that would better protect us from the next crisis.

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