Private Sector Development

Cities’ Elusive Quest for a Post-Industrial Future

What do rusting industrial cities have in common with outmoded BlackBerries? In this era of constant technological progress, talent mobility and global competition, it's striking how many similarities can be drawn between cities and companies, and the need for both to continuously adjust their industrial strategies to avoid oblivion or bankruptcy.

Cities can lose their vigor and vitality just as surely as a once-hot product can lose its cutting-edge cool. RIM, the maker of the the once-ubiquitous BackBerry,
has been leapfrogged by companies with more nimble technologies; Kodak, once synonymous with photography, went bankrupt when it failed to make the transition
from film to digital. The roll call of withering cities – once proud, yet now reduced to rusting remnants – shows how cities, like companies, can lose their historic raison d’etre if they fail to hone their competitive edge.

Heavy industries like steelmaking and automobile assembly once powered some of the world’s mightiest economic urban areas: Traditional manufacturing industries shaped their identity, giving their citizens income and pride. But globalization, competition, shifting trade patterns and changing consumer trends are continuously reshaping the competitive landscape, with dramatic impact on cities and people. Over the past century, industrialized regions like the Ruhr Valley of Germany, the Midlands of Great Britain and the north of France – along with the older shipbuilding cities around the Baltic and North Seas, and the mono-industrial cities of the former Soviet Union – have struggled to make the transition to different industries or toward a post-industrial identity. Their elusive quest for a post-industrial future has had a dramatic impact on their citizens.

The same issue has become daunting in recent decades for aging manufacturing regions in the United States, which have suffered the prolonged erosion of their industrial-era vibrancy. That kind of wrenching change is bound to soon confront other cities in the developing world, as they struggle to adapt their urban cores, civic infrastructure and industrial strategies to an era that puts a higher premium on nimble cognitive skills and advanced technologies than on bricks-and-mortar factories, blast furnaces and big-muscle brawn.

For fast-growing cities in the global South, many of which are urgently seeking solutions amid their sudden urban growth, there could be many lessons in the experience of older cities in the developed world in making such a transition.

A series of recent conferences among urban policymakers and practitioners – backed by a wide range of rigorous academic research and practical client-focused experience in building competitiveness – provide insights that city leaders and the World Bank Group’s practitioners can leverage as they craft programs for transformative urban strategies.

Settlements in cases of foreign bribery cases are big news and growing. More and more countries are allowing these procedures, and their law enforcement agencies are using them forcefully in their efforts to combat foreign bribery. The FCPA, which came into law in the US over thirty five years ago, has paved the way for many other countries to adopt similar legislations, in line with far reaching international agreements such as the OECD Anti-Bribery Convention. These are very welcome developments, which should continue unabated.

The 2003 UN Convention Against Corruption – to which almost 170 countries have become party to - has created an environment for a radical and universal change in the international landscape of anti-bribery legislation. Actual enforcement is making a difference, as illustrated by the rapid growth in settlements by companies and individuals who have contravened the law and have to face the consequences - without going to a full trial. The figures are telling: over the past decade a total of US$ 6.9 billion has been imposed in monetary sanctions through settlements - which is clearly good news in the fight against corruption.

But in the midst of this positive development, there are a number of troubling concerns (from the perspective of the countries affected by corruption). Research by the UNODC/World Bank Stolen Asset Recovery Initiative in our new report ‘Left Out of the Bargain’ has revealed that those countries whose officials have been bribed are most often unaware of the settlements, and receive very little of the moneys involved. Of the US$ 6.9 billion, nearly US$ 5.8 billion came about when the countries where the settlement took place – mostly major financial centers - were different from those of the allegedly bribed foreign public official.

StAR’s analysis of 395 cases reveals that only about US$197 million, or 3%, was returned to the countries whose officials allegedly received bribes.

“Why is America so rich and we are so poor?” The question came from a schoolboy in Ghana. It caught me by surprise. I hesitated before answering.

I didn’t have the knowledge to give him a solid answer. I was not an economist. I knew nothing about Ghana’s business enabling environment or its financial markets system. I didn’t know about the causes of poverty in Ghana, and was totally unaware of what the international donor community was doing about it. My knowledge of politics, colonialism and history was limited, although I was aware that Ghana had become independent from Great Britain on March 6, 1957.

Every schoolboy in Ghana knew that. Even me. The boy who asked the question was my classmate at Prempeh College in Kumasi. It was 1975. We were both 11 years old, and we wore the same uniform: khaki shorts and a short-sleeved green shirt. Neither of us understood that donor aid was already streaming into Africa to alleviate poverty, an effort that would later come under heavy fire.

In hindsight, it’s easy to criticize traditional poverty-fighting assistance. One of the sharpest critics is Dr. Dambisa Moyo, an international economist and author of "Dead Aid: Why Aid Is Not Working and How There Is a Better Way for Africa." Dr. Moyo notes that development aid has fueled corruption, has removed incentives for governments to become efficient, has created a culture of aid dependency, and has distorted markets. In a 2009 article in the Wall Street Journal, she points out that in spite of $1 trillion of aid delivered over 60 years, real per capita income in Africa has fallen. She argues that countries that rely on markets rather than aid are more successful, citing Ghana as an example. “Governments need to attract more foreign direct investment by creating attractive tax structures and reducing the red tape and complex regulations for businesses,” she writes.

The countries of the Western Balkans – which include the states of the former Yugoslavia, along with Albania – are not exactly world-famous for their entrepreneurial spirit. Yet if you look at their societies more carefully, you’ll soon find a surprising number of new companies dotted throughout the Western Balkans. They’re already setting their sights beyond smaller domestic markets: They’re looking to Europe, and the world.

How can we successfully design programs to promote financial literacy and financial capability – that is, not just financial knowledge in the abstract, but also the practical skills, attitudes and behaviors needed to take care of one’s everyday finances? Amid the wide-ranging scholarship on financial education, researchers have documented that there is often a strong relationship between exhibiting financial knowledge and achieving good financial outcomes (such as saving for retirement, paying bills on time or avoiding mortgage default).

You’d probably be skeptical if I told you that the Western Balkans – a region that has long suffered from social and ethnic fragmentation – now has a strong opportunity to boost shared prosperity by promoting research, innovation and entrepreneurship. Your views might not even change if I showed you that such idea is validated by preliminary studies linking research and innovation to the performance of firms and countries in the region.

You might be surprised – yet your initial assumption might be unchanged – if I told you about the kind of companies that are starting to build a different economic landscape in the region: firms like UXPassion, Pet Minuta, Strawberry Energy or Teleskin, which are all technology-based startups created by young researchers who became entrepreneurs. Click on this link (http://www.worldbank.org/en/news/video/2013/10/22/western-balkans-research-and-development-for-innovation), or on the video embedded below, to meet them and other innovators from the Western Balkans.

Indeed, the transition to a market economy and the breakup of the former Yugoslavia starting in 1991 had a severe impact on the research and innovation sector in the Western Balkans. Research capacity narrowed significantly, and R&D’s links to the productive sector of the economy disappeared. The new industrial structure has naturally a lower propensity to invest in research while the current business environment promises low returns to the enterprise investments in innovation. Efforts to revamp the region's research and innovation sector were most of the time short-lived.

As a result, the performance of the research and innovation sector in the Western Balkans is gloomy. The region’s current investment in R&D are roughly the same amount as the investment by just the second-largest university in the United States. (In 2012, for example, only 38 patents from the region were registered with the U.S. Patent and Trade Office – compared to the average of 27 patents registered by each American university.) At the same time, very little of those investments are efficiently transformed into wealth. For example, for each invention that received a patent, the region spent, on average, three times more in R&D resources than does the United States.

Building on a continuing series of efforts to reform their national innovation systems, in the hope of changing their gloomy prospects, the Western Balkan countries in 2009 committed to develop a joint regional research and innovation strategy. That strategy, developed between 2011 and 2013, was formally endorsed last month by the ministers responsible for science and education from Albania, Bosnia-Herzegovina, Croatia, Kosovo, the Former Yugoslav Republic of Macedonia, Montenegro, and Serbia. The preparation of the strategy, which benefited from technical assistance by the World Bank and from the financial support of the European Commission, involved representatives from the region’s leading universities, research institutes, private sector firms and government agencies. Discussions of the draft proposal were pursued in all seven countries as part of a large outreach exercise.

The 2014 Global Financial Development Report, released today by the World Bank Group, presents the most comprehensive review to date of research findings on an increasingly prominent issue in international economic policy: financial inclusion. It also highlights several key topics that are linked to the growing interest in this topic – advances in technology, product design innovations and the role of financial education in financial inclusion.

It’s easy to understand the focus on technology in this kind of report. Mobile phones and other telecommunications and digital technologies offer potential opportunities for the cost-effective expansion of financial services into previously overlooked or under-served markets. Technology is only part of the reason, however, for increased attention to financial inclusion. There is also a new appreciation for the role of financial services in the lives of the poor – an appreciation gained through a pioneering research effort using “financial diaries” methodology. This includes an awareness that even the best supply-side responses – often powered by new technologies – need to understand the demand side of the equation to be commercially successful and to offer value to consumers.

"Project Greenback 2.0 – Remittance Champion Cities" was launched on October 29 in Turin, Italy.

A team from the World Bank's service line on Financial Infrastructure, hosting the launch event, was thrilled to welcome a room full of migrants, market paricipants, public officials, policy researchers and private-sector observers.

Since March 2013, in partnershp with the Turin city government, the World Bank team has been preparing for the launch of Project Greenback 2.0, which aims to foster the development of a sound and efficient market for remittances. The project pursues an important new approach: It focuses on remittance senders, and its priority is meeting their needs.

In the first months of our efforts in Turin, we have been working on a survey among remittance senders, and we have been mapping and monitoring the services that are available to them when they seek to send money home. The survey focused on Romanians, Moroccans and Peruvians – the most numerous immigrant groups in Turin, who together account for more than 60 percent of the city's immigrant population.

Natural disasters – such as tsunamis, earthquakes, cyclones and floods – are costly to society, in terms of both human destruction and financial losses. Governments ultimately bear the full cost of the havoc wreaked by natural disasters, which can create an enormous strain on limited government budgets, especially in developing countries. This is even before we begin to contemplate the development impact and how the poorest of the poor are disproportionately affected.

Just last week, the world saw the widespread damage that the St. Jude storm inflicted across Europe, and we witnessed its effect on hundreds of thousands of people. Most advanced economies, however, have sufficient capacity to be able to absorb the financial losses inlicted by natural disasters. Higher-income countries enjoy (relatively) efficient public revenue systems and developed domestic insurance markets.

By contrast, developing countries do not have the same degree of access to financial and insurance markets. They face limited revenue streams, limited fiscal flexibility, and limited access to quick liquidity in the wake of an event. This is particularly so for Small Island Developing States (SIDS), such as the Pacific island nations.

Also available in: English

Assis en lieu sûr, à des milliers de milles d’ici, trois anciens pirates racontent leur passé de « fantassins », leur vie embarquée et leurs préparatifs avant d’attaquer des cargos peu suspicieux et vulnérables, au large de la Corne de l’Afrique. À l’écoute de ces témoignages, l’équipe de chercheurs que nous sommes est clouée sur place.

Nous les écoutons nous raconter comment ils sont tombés dans le commerce de la piraterie, combien cela leur rapportait, comment ils dépensaient cet argent et aussi, ce qui nous importe peut-être le plus ici, ce qu’ils savent de leurs « capitaines », ces financeurs des pirates et autres investisseurs et négociateurs.

Car ces fantassins ne sont en fait que du menu fretin, des agents subalternes payés pour détourner des navires qui ne seront rendus à leurs propriétaires qu’au prix du versement d’une rançon juteuse.

Des rançons estimées au total à 339-413 millions de dollars entre avril 2005 et décembre 2012 selon les recherches que nous avons effectuées pour notre rapport consacré aux « voies de la piraterie maritime » (Pirate Trails) au large de la Corne de l’Afrique. La fourchette d’estimation est relativement large sachant que la réticence des compagnies de navigation à dévoiler le coût des rançons tout comme celle des pirates à révéler leur butin empêchent de chiffrer un montant exact.

Cities’ Elusive Quest for a Post-Industrial Future

Settling with Justice

Who Can Answer the Ghanaian Schoolboy’s Question?

Meet the Innovators: Tech Entrepreneurs Forge a New Future for the Western Balkans

Financial Education: What Works and What Doesn’t?

Western Balkans: Through Science, Innovation and Collaboration, a Program for Shared Prosperity

Seeking Effective Policies to Promote Financial Inclusion

'Project Greenback 2.0 – Remittance Champion Cities' Launched in Turin, Italy

Innovation and Insurance: Protection Against the Costs of Natural Disaster

La circulation de l’argent de la piraterie: une économie en circuit fermé

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