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On World Energy Day, Applauding an Energy Breakthrough: Innovation Strategy Drives Stronger Productivity

Christopher Colford's picture

At a moment when good economic news is in short supply, this week’s observance of World Energy Day provides a chance to celebrate some positive news – positive, at least, from the viewpoint of the world's developed economies, which have lately been struggling to recover from prolonged stagnation.

The recent plunge in global energy prices was a major factor informing a World Energy Day forum on “The Green Side of Energy Security” – convened in Washington by the European Union Delegation to the United States. The plummeting cost of energy, thanks in part to vast increases in oil and natural-gas supplies, is now poised to give advanced economies a much-needed additional stimulus. That's helping dispel some of the gloom that pervaded the economic forecasts at the recent Annual Meetings of the World Bank Group and International Monetary Fund. 

Moreover, the current global glut of oil and natural gas also highlights the success of a far-sighted innovation program that has helped strengthen productivity in the energy sector. The success of the 40-year-long U.S. program to create more effective methods of oil and natural-gas production has transformed the global energy landscape. If those new production methods can be responsibly pursued under strict environmental safeguards – and, granted, that’s a big “if” – then the economy will buy some extra time as it seeks to make the transition away from fossil fuels and toward cleaner, greener, more sustainable sources sources of energy.  

The initiative's technological breakthrough epitomizes the creativity that public-private cooperation can unleash when governments and industries, working together, patiently invest to strengthen productivity in specifically targeted industries and sectors.

The worldwide price of crude oil has fallen about 25 percent – from more than $110 a barrel in midsummer to about $80 a barrel this week – thanks to a combination of reduced demand (due to sluggish economic activity in many industrialized countries) and vastly increased oil and natural-gas production. Despite the geopolitical tensions now afflicting several major oil-producing regions, large new supplies of oil and natural gas are projected to continue arriving on the market, maintaining downward pressure on energy prices.

Much of the increased supply has its origin in North America – where “the revolution in American shale gas and ‘tight oil’ is real,” according to energy-policy scholar and historian Daniel Yergin. Writing in the Financial Times this week, Yergin noted that “U.S. crude-oil output is up almost 80 percent since 2008, supplying an extra 3.9 million barrels a day. . . . Canadian oil sands have added another 1 million barrels a day to North American supply over the same period.”

The energy revolution is poised to deliver a powerful, positive economic impact: As industries and consumers pay less for oil and natural gas, they’ll receive the equivalent of a tax cut – with Yergin estimating its benefit at about $160 billion a year, just for the U.S. economy. Such a stimulus, if it helps buoy economic activity in Europe as well, will boost economies that have been mired in what threatens to become long-term “secular stagnation.”

For motorists who are now paying less at the gasoline pump – and for home-heating-oil and natural-gas consumers who are awaiting their first chilly-season heating bills – the oil-price plunge and natural-gas glut may seem like an economic deus ex machina.

Step by step, consider how this process delivered today's energy abundance.

What inspired the arrival of these new energy supplies? New technologies and techniques – “hydraulic fracturing” and “horizontal drilling” – have helped coax once-inaccessible oil and natural-gas deposits out of underground rock formations.

And how were those techniques developed? Through well-targeted innovation programs that were initially funded by government agencies. After government-funded R&D had proven the new technologies' promise, the new industrial methods were eagerly applied by innovators in the energy industry. 

Connect the dots: This revolution was brought to you by far-sighted, government-inspired investment initiatives that helped a strategically-chosen sector of the economy promote competitive industries and innovation.

Let's come right out and say it: This is a triumph of industrial policy.

Granted, that always-ambiguous term has fallen out of political favor nowadays. And, true, such public-private investment programs can be very difficult to design and sustain: In this case, it took about 40 years of experimentation and evolution to achieve the program's goals. Yet, when this initiative was launched in the energy-starved 1970s, various approaches to industrial policy were being pursued by many economies, large and small. Put in its historical context, this example of 1970s-style industrial policy delivered, at last, its long-promised payoff in productivity.     

The initiative was launched during the Ford and Carter Administrations, in an era when repeated oil shocks were raising fears that the industrialized world would be threatened by oil-rich countries’ production cuts and price increases. Pragmatic R&D efforts on alternative oil-production methods were methodically pursued by the U.S. Department of Energy (DOE) and the U.S. Bureau of Mines, drawing on crucial technological insights from the taxpayer-supported network of national research laboratories.

Once that initial government-funded research had laid the foundation for new technologies and techniques, the private sector stepped in and played its indispensable part. A public-private partnership through the Gas Research Institute helped perfect the new techniques, while pro-innovation tax policies granted favorable federal tax treatment for investors’ R&D commitment to the energy sector. A champion of the new technologies, George P. Mitchell, evangelized for hydraulic fracturing and horizontal drilling, even when skeptics scoffed. Researchers at the Breakthrough Institute assert: “Where Mitchell proved invaluable was [in] engaging the work of government researchers and piecing together different federally-developed technologies to develop a commercial product.” 

Crowdfunding for Development: Recommendations Vs. Reality

Sam Raymond's picture
John Hogg / World Bank Group


Crowdfunding – think Kickstarter, Indiegogo or Kiva – is popular and growing. About a year ago, infoDev, a global innovation and entrepreneurship program in the Trade and Competitiveness Global Practice, released a report titled ‘Crowdfunding’s Potential for the Developing World’ in which it explored what crowdfunding, on a larger scale, could mean for high-potential enterprises in developing countries. The study quantified for the first time the value of crowdfunding, estimating a global market of $96 billion by 2025 - 1.8 times today’s global venture capital industry. The study outlined specific recommendations for policymakers and business accelerators that focus on high growth entrepreneurs and innovative ways of access to finance.
 
Now, almost a year later, infoDev is seeing the first results of the pilots it is putting in place to test the viability of crowdfunding within its network of incubators. With the support of Crowdfund Capital Advisors, infoDev’s Kenya Climate Innovation Center (KCIC) is implementing the Crowdfund Investing Pilot, a project designed to mentor and train six carefully selected Kenyan startups on crowdfunding and online fundraising campaigns.
 
With the six entrepreneurs already working on their campaigns, it’s time to reflect on a few key recommendations of the report.
 

Delivering Solutions for Growth: Promoting Competitiveness and Innovation through Activist Strategies

Christopher Colford's picture



After all the gloom, there’s a glimmer of hope on the horizon.

Front-loading the impact of its double-barreled motto, “Global Challenges, Global Solutions,” the Annual Meetings season may have finally gotten the grim “challenges” part over and done with. This week – starting at 9 a.m. on Tuesday, livestreaming via “World Bank Live” from the Bank’s Preston Auditorium – we’re about to explore one of the most promising solutions now inspiring the development community: the pro-growth, pro-jobs Competitive Industries and Innovation Program (CIIP).

The competitiveness conference will brighten the mood after last week’s barrage of bad news, which seemed relentless throughout the week as downbeat economic and geopolitical forecasts dominated the debate at the Annual Meetings of the World Bank Group and the International Monetary Fund. From Jim Kim’s exhortation that the world’s inadequate response to the ebola crisis must be strengthened, to Christine Lagarde’s stern warning of an “uneven and brittle” era of “prolonged subpar growth [with] excessive and rising inequality,” there was plenty of disheartening data. Lagarde offered a deflating new coinage: "the New Mediocre."

The sobering numbers within the IMF’s new World Economic Outlook underscored the sense that the global economy (and especially its wealthier countries) may indeed be stuck in an era of “secular stagnation.” So did the conclusion by Financial Times economic scholar Martin Wolf that the once-buoyant, now-humbled leaders of the global economy are in “an extraordinary state” of not just a gnawing malaise but a ‘managed depression’.” 

As if all that weren’t dispiriting enough, the news late in the week that the world’s leading financial regulators were holding an unprecedented “stress test” of their crisis-response system – to analyze whether its newly strengthened safeguards can indeed protect against the risk of another cross-border crash of the financial system – made some skeptics wonder, “What do those guys know that we don’t know?”

Amid all the dreary news about the futile quest for elusive growth and the imbalanced rewards in a class-skewed society, one could be forgiven for feeling downcast. Yet Largarde’s rallying cry – “With the risk of mediocrity, we cannot afford complacency” – should remind optimists that we mustn’t let momentary doubts induce a drift toward the do-nothing paralysis of laissez-faire. An array of nuanced, pro-active strategies can help revive growth and jump-start job creation – and the World Bank Group conference this week will bring together some of the world’s leading economic-policy scholars to explore those strategies.

The “New Growth Strategies” conference – on Tuesday, October 14 and Wednesday, October 15 – will explain and expand upon the pro-growth thinking that undergirds the Competitive Industries approach. Targeting investment at the sector and industry levels to strengthen productivity and unlock new job creation, a wide range of analytical, investment and advisory projects are already under way – in both low-income and middle-income countries – through the Competitive Industries and Innovation Program (CIIP), which is convening the conference.

Capping the Bank-Fund Annual Meetings: Chiding Ethics Lapses, a Spokesman for an Even Higher Authority

Christopher Colford's picture



Amid the week-long procession of buttoned-down, business-suited speakers who commanded the stage during the Annual Meetings week of the World Bank and International Monetary Fund, the most thought-provoking comments may have come from someone who was not outfitted in business attire at all – but who was instead wearing a clerical collar.

It seemed fitting that the remarks by (some might say) the week’s most authoritative participant occurred on a Sunday morning, at an hour when many Washingtonians habitually heed an authority even more elevated than the Bank and the Fund. The major attraction at the IMF’s day-long “Future of Finance” conference was the Archbishop of Canterbury, Justin Welby, whose stature lent a special gravitas to the already-serious tone of the Fund forum’s focus on scrupulous ethics as a bedrock principle of sound capitalism.

On a panel with some of the titans of worldly finance – including the leaders of the IMF and the Bank of England – only someone of Welby’s ecclesiastical renown could have stolen the show. Although he did his down-to-earth best to try to avoid upstaging his fellow panelists – quipping, “I feel rather like a lion in a den of Daniels at the moment . . . slightly nerve-wracking” – the leader of the worldwide Anglican Communion was clearly the marquee draw for the throng that packed the Jack Morton Auditorium, spilled beyond the extra overflow rooms and jammed the adjoining corridors.

Citing the need for “heroism in the classic sense” to overcome the spirit of “recklessness” that recently pervaded much of the financial industry, Welby called for a return to “ethical and worthwhile banking.” He urged everyone working in finance to aim to “leave a mark on the world that contributes to human flourishing.”

Welby – himself a former financier, who traded derivatives and futures before he joined the clergy – recounted the misgivings of the mournful bankers whom he had interviewed while serving as a member of the U.K.’s Banking Standards Commission in the wake of the 2008 financial crash. Welby recalled the lamentations of a deeply penitent banker who had been “broken by the experience” of leading his bank to ruin: In retrospect, reasoned the banker, “you can either have a big bank that’s simple, or a small bank that’s complex, [but] you cannot have a big complex bank and run it properly. . . . If only we had kept things simple.”

Welby’s call for the highest standards of conduct in the financial sector was matched by the exhortations of his fellow panelists – including IMF Managing Director Christine Lagarde, who reminded the audience that every financier must see himself or herself as “a custodian of the public good.” Lagarde's message was underscored by Bank of England Governor Mark Carney – who also leads the global Financial Stability Board – who deplored the pre-crash “disembodiment and detachment of finance” from the rest of the economy.

Only by upholding the most exacting ethical standards, said Largarde and Carney, can financiers rebuild public confidence in the financial sector – confidence that, in Lagarde's words, “builds over time and dies overnight.”

The regrets voiced by the panel’s private-sector financiers contributed to the panel’s almost confessional tone.

“If we can’t get the basic incentives right, it’ll be hard to get the right outcomes,” said Philipp Hildebrand, who had served as a senior central-bank official during the financial crisis before returning to the private sector. He reflected that “with wrong incentives, you end up with a wrong business model,” which in turn attracts “the wrong kind of people” who are prone to take excessive risks. Thus he underscored the need for “a personal transformation” within the spirit of every business leader.

Putting an even sharper point on the source of the problem, longtime financier Kok-Song Ng regretted that “a virus entered the system” in the years leading up to the crash, as financial firms deliberately recruited profit-driven “mercenaries” to run their trading desks. Those firms ignored the explosive risks being taken by their hired-gun traders, because they succumbed to “the great temptations for those in ‘the money world’ to want to make a quick buck” no matter how dangerous their tactics might be.

‘School for Statesmanship’: As the Annual Meetings Begin, a Fast-Forward Week Requires a Longer-Term Perspective

Christopher Colford's picture

Just in time for the Annual Meetings of the World Bank Group and the International Monetary Fund, along comes an insightful essay – by historians, at Harvard and Brown universities, not Bank or Fund economists – that helps put the event's meaning into perspective.

Anyone who has experienced the week-long whirl of diplomacy, economics and finance – a pop-up university amid an ad-hoc global village – recognizes the Annual Meetings and Spring Meetings as the year’s most intense hothouses of global knowledge-exchange. Bank and Fund staff anticipate every such marathon with a mixture of excitement and anxiety: As exhilarating as it is exhausting, the coming Bank-Fund week will be a tsunami of scholarship on international relations.

You will scarcely be able to cross 19th Street NW this week without spotting a Nobel Prize-winner, a Foreign Minister or Finance Minister, a portentous professor or pontificating pundit. Economists expounding, statesmen scurrying, speechwriters scribbling: Packed into the precincts around 19th and H Streets NW, the weight of the world will seem to burden every panelist at every seminar. At the end of each week-long sprint, each April and October, one often gazes into an overfilled notebook – alongside a stack of newly issued policy reports – in a state of dizzied disbelief, wondering: What does it all add up to?

Maximizing the value of such a cavalcade of expert knowledge requires a sense of global imagination, policy realism and academic insight – along with, crucially, a long-term perspective on the lessons that history can teach us about “the art of the possible.” That’s the memorable takeaway from a timely essay in the Guardian this week by Harvard historian David Armitage and Brown historian Jo Guldi, who assert that a sense of history must help shape policymaking in real time.

History “is a critical science for questioning short-term views, complicating simple stories about causes and consequences, and discovering roads not taken.” Rigorous economics always undergirds the work of the Bank and the Fund – yet those who strive for the greatest understanding from Annual Meetings week would be wise to also view the proceedings through the lens of disciplines like history, political science and sociology.

“Historical thinking – and not just by those who call themselves historians – can and should inform practice and policy today,” according to Armitage and Guldi, the authors of the new work, “The History Manifesto." That remark recalls an insight, during a recent Bank forum, by the Stanford scholar Francis Fukuyama: that the Bank and Fund should heed the viewpoints of a wider range of social-science disciplines – especially political science – even as its dollars-and-cents decisions as a lending institution are guided by economics.

(For those seeking insights into Fukuyama’s latest blockbuster, “Political Order and Political Decay: From the Industrial Revolution to the Globalization of Democracy”: Fukuyama will deliver a livestreamed speech at the New America Foundation on Wednesday, October 8 at 12:15 p.m. – in an example of the Annual-Meetings-week “knowledge spillover effect” that energizes Washington’s realm of think tanks.)

“History can upset the established consensus, expand narrow horizons and, in Simon Schama’s words, ‘keep the powerful awake at night,’ ” according to Armitage and Guldi. “In that mission lies the public future of the past.”

Is Dani Rodrik Gradually 'Going Orthodox'?

Ivan Rossignol's picture

“When my information changes, I alter my conclusions. What do you do, sir?”
 
That quote is usually attributed to John Maynard Keynes, and it was popularized by Paul Samuelson. Some say it was invented by Samuelson. It’s one of my favorites: a warning to us about confusing consistency and dogma. It has been coming to mind lately, in the run-up to to our conference on “New Growth Strategies” and its keynote address by Dani Rodrik.

This is because there seems to be an evolution happening in Rodrik’s ideas. Here at the World Bank Group, he is probably best known for his opposition to “one size fits all” growth models, such as the Washington Consensus, and his development of what is now called “new industrial policy.” This drew on extensive empirical evidence on everything from the technological sophistication of exports, to processes of cost discovery among firms, to the effect of currency devaluation. At the micro-level it led to the injunction to experiment, fail fast, and learn; and at the macro-level to the advocacy of, among other steps, real-exchange-rate depreciation. In the Bank itself, these ideas came to particular prominence under our former Chief Economist, Justin Lin.
 
But Rodrik’s recent papers may signal a subtle shift. A longstanding objection to neo-classical growth theory is that it predicts unconditional convergence between rich and poor economies, yet, instead, we’ve seen persistent divergence. So convergence is often made conditional on “fundamentals,” a catch-all term that ranges from human capital to institutions to geography.


 
In a paper in the Quarterly Journal of Economics last year, though, Rodrik showed that there is unconditional convergence, at least in labor productivity, but only in manufacturing.
 
He called such sectors “escalator industries,” because they can drive growth even if the “fundamentals” remain poor, so long as there is structural transformation. This buttressed his argument for exchange-rate depreciation, which provides large implicit subsidies to such industries. The argument is similar to Joseph Stiglitz’s that some industries “learn” faster than others (notably manufacturing), generating large externalities that merit special treatment.

But now Rodrik seems to have turned pessimistic.  At the Center for Global Development six months ago he delivered a paper on growth in Africa, citing research by Alan Gelb and Vijaya Ramachandran that costs on the continent are too high, limiting the potential for such escalator industries. This led naturally to his earlier arguments about exchange rates, but then he seemed to implicitly disavow those, stating:
 
“Yet I have the suspicion that the obstacles industrialization faces in Africa are more deep‐seated, and go beyond specific African circumstances. For various reasons that we do not quite understand, industrialization has become really hard for all countries of the world.”

He then considered alternate strategies to industrialization, including agriculture-, services- and resource-led growth, being somewhat pessimistic about all of them.

Where does that leave us? Back with only the long, slow grind of improving the fundamentals? Is this the beginning of a disavowal of "new industrial policy," or at least a much-diminished view of its potential?
 

Expanding the Mobile Apps Market: Making Mobile Work at the Base of the Pyramid

Maja Andjelkovic's picture
Arne Hoel/The World Bank


The diagram of a horizontally sliced triangle, with its wide base and pointy tip, has been used to represent socio-economic data for decades. The lowest and largest portion represents the poorest and most populous segment of society - living "at the bottom of the pyramid." In the context of mobile innovation, we prefer the alternate term, "base of the pyramid," which is closer to signifying the foundational, fundamental role of this demographic group in the health of an economy.


Regardless of semantics, the phrase has been widely used by researchers to consider the effects of various phenomena on this group of people (see select references related to digital entrepreneurship here). While many of these studies have produced insights for the development community, few have contributed practical knowledge for the entrepreneurs who live among and serve this critical group.

In 2012, infoDev commissioned country case studies on the use of mobile devices (then still mostly simple phones) at the base of the pyramid in Kenya and South Africa, with funding from the Ministry for Foreign Affairs of Finland and DFID (UK). Relying in part on a diary methodology and household surveys, the team was able to collect a rich set of qualitative and quantitative data to describe how mobile technologies were being used by the poor in their daily lives, as well as recording a series of videos with users.

They showed, for instance, that users in Kenya were willing to forego basic necessities such as food, transport or toiletries to pay for mobile credit in the knowledge that this would give them better opportunities to find work. In other words, we found that mobile phones are highly valued by and influential in the lives of people at the “base of the pyramid,” and decided to deepen our knowledge further in a way that would benefit entrepreneurs who create applications that serve this population.

Students and Stagnation: What Strategies for Growth?

Ivan Rossignol's picture

In the last couple of days, I was struck by two pieces of news. They were small but surprising, and both affect the way we think about how to strengthen an economy in a developing country.
 
One news item concerned shifting intellectual currents. Faculties of economics in seven cities announced last week that they will be revising their curriculum. They are responding to demands from students, such leading academics as Joseph Stiglitz and such policymakers as Andy Haldane at the Bank of England. Their goal is to reduce the dominance of neoclassical models and to have economics courses that will focus on the real-world responses to financial crises, inequality and other problems. This is no ordinary student rebellion: On Friday, the Financial Times published an editorial in their support. On the heels of Ha Joon Chang’s book launch (“Economics: The User’s Guide”), I found this news interesting. Is there one way to look at an economy, and can we afford to rally behind one school of thought?
                                                                                                                         
The other story was more depressing.  It concerned what former U.S. Treasury Secretary and former Harvard President Larry Summers and others are calling “secular stagnation.”  It showed that U.S. firms’ net capital expenditure was the exact same in 2013 as it was in 2000. So, even smoothing out the global financial crisis, even in the largest economy in the world – with one of the best business environments and all the innovation of places like Silicon Valley – investment has been flat for more than a decade. Summers’ argument, which he advocates in textbooks, essays and speeches, is that we have entered a period of permanently lower private-sector investment.
 

Developing local industries connected to the gas value chain: What can Tanzania learn from Malaysia?

Cecile Fruman's picture
Joining with our World Bank Group teams in the field in Kenya, Rwanda and Tanzania, I was pleased to recently see first-hand evidence of the strong impact that our Global Practice on Trade and Competitiveness is having on economic development throughout East Africa. Our projects are currently helping our clients improve their business environment, increase the competitiveness of firms in key sectors, and develop trade flows.

Des opportunités économiques évaluées à 6 400 milliards de dollars dans les technologies climatiques propres

Michael Ehst's picture


Renforcer la compétitivité, la résilience au changement climatique et les industries innovantes, améliorer l'accès à l'eau potable et à une énergie abordable, le tout en créant des emplois verts au niveau local… Ce n'est pas tous les jours que les pays en développement peuvent bénéficier de toutes ces retombées à partir d’un seul et même gisement d'opportunités !

Ce filon est celui des technologies climatiques propres, comme le montre un nouveau rapport élaboré par infoDev/Banque mondiale et intitulé Développer des industries vertes compétitives. Cette étude a consisté à évaluer les marchés potentiels pour 15 secteurs émergents dans le domaine des technologies propres dans les pays en développement. Globalement, les investissements dans ces secteurs devraient atteindre 6 400 milliards de dollars au cours de la prochaine décennie (2014-2023). Et, autre élément encore plus prometteur, sur cette somme globale, 1 600 milliards de dollars représentent des opportunités commerciales pour les petites et moyennes entreprises (PME), lesquelles constituent de puissants moteurs pour créer des emplois de qualité et renforcer la compétitivité dans les secteurs technologiques.
 

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