Do you want to take a walk through a competitive city? Since today, October 31, has been designated as World Cities Day by the United Nations, today is an especially good day to explore that idea.
Have you ever noticed how mayors and city leaders experience life alongside their citizens? It forces them to be more focused on the local manifestations of their policy decisions. They connect with what their citizens see and experience on a day-to-day basis. Numbers are crucial, because policies need to be supported by evidence – but what if the numbers and experiences could be brought to life? What does a 5 percent annual GDP growth rate look like? For that matter, what does a “competitive city” look like?
Members of the Competitive Cities team at the World Bank Group traveled to Bucaramanga, Colombia to find out. Here, amid the city’s famously rugged topography – with no ports or railroads nearby, and almost 10 hours away from the nation’s capital, Bogota – economic development seemed to be a tough proposal. Bucaramanga, however, managed to reinvent itself and become a globally competitive city – with the fastest rates of GDP growth and job growth in Colombia, and one of the fastest growth rates in the Western Hemisphere. As part of the Competitive Cities for Jobs and Growth initiative, we had already looked at Bucaramanga’s success in numbers and had analyzed qualitatively how they managed to get things done. Now we wanted others to experience how it felt to walk through a secondary city that blossomed into a dynamic economic center.
Thanks to a donated helicopter, the use of hobbyist drone technology, a motorcycle and a hugely enthusiastic local chamber of commerce, the team captured images and videos of the places that were central to Bucaramanga’s growth story. Bucaramanga’s transformation began with the creation of a regional competitiveness commission, a public- private alliance spearheaded by the private sector. As you’ll see in the accompanying video, one single block within the city hosts the chamber, an industrial university, the enterprise center, the commerce association and important regional banks.
In Bucaramanga, Colombia, Erick Ramos Murillo (left) and Rómulo Cabeza (right) prepare to fly a 3-D camera rigged to a drone.
Public Sector and Governance
Do you want to take a walk through a competitive city? Since today, October 31, has been designated as World Cities Day by the United Nations, today is an especially good day to explore that idea.
Sometimes, the drive comes from the senior echelons of government – a reform-minded government leader, an important minister or an agency head. At times, there is pressure from donors. Often, the two combine: The initial idea comes from a donor, which a powerful person in government then takes up as an agenda.
Many reforms happen in this top-down way. But, often, there are questions about their sustainability. Commitment to reforms may not be widespread. Once donor pressure wears off, or once the bold reformer at the top moves on (or loses interest or energy), reform initiatives dissipate. Sometimes, the reforms happen on paper, but implementation remains deficient. Top-down reform initiatives often fail to take on board the front-line officials. Implementation thus suffers, especially when the attention of the top-down driver shifts elsewhere.
The 2015 World Development Report, Mind, Society and Behavior, thus points to the need to understand the motivations and behavioral characteristics of different players, such as politicians and government bureaucrats, and how these affect their decisions and actions. The WDR argues that such an understanding helps design policy interventions and reforms that stand a chance of success even in seemingly intractable situations.
This brings us to a third way of reform, less common but potentially more powerful – one that is driven by the middle tiers of bureaucracy. Reforms initiated in the trenches enjoy, almost by definition, the commitment of those responsible for implementation. Reforms may also be better designed, since the officials know exactly what is feasible and where there are pitfalls. A single bottom-up reform may not be very bold. But one reform may lead to another, and the cumulative impact may make a big difference.
Donor programs usually don’t regard mid-level officials as key drivers of reforms. It is often assumed that such officials will oppose reforms and they should thus be bypassed or, at best, co-opted in some fashion. Such assumptions lead to many lost opportunities. Mid-level officials can often be good initiators of reform if they are properly inspired and engaged. The attitudes and perceptions of this important tier of the bureaucracy have an important bearing on the formulation of policies and regulations, as well as on their implementation. These attitudes are shaped by an awareness of business-related issues, or a lack of it.
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.
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.
“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.
- First: An eloquent “grand sweep of history” essay in The Guardian by Martin Jacques – critiquing the laissez-faire the policy package broadly known as “neoliberalism” – declares bluntly that “we are witnessing the end of the neoliberal era. It is not dead, but it is in its early death throes.” Jacques discerns that “the causes of this political crisis, glaringly evident on both sides of the Atlantic, are much deeper than simply the financial crisis and the virtually stillborn recovery of the last decade. They go to the heart of the neoliberal project that dates from the late 1970s . . . [that] embraced at its core the idea of a global free market in goods, services and capital.”
- 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.
Build it well, build it wisely, and build it only once — How investing to create a permanent site for the Olympic Games, ideally in their historic home of Greece, could reduce waste, deliver economic stimulus, and avoid "white elephant" monuments to extravagance.
The jeering of angry taxpayers and frustrated favela-dwellers may drown out some of the cheering of sports enthusiasts this weekend, as the 2016 Olympic Games begin in Rio de Janeiro. The government of Brazil and local officials in Rio have certainly done their best to stage the Games successfully, addressing a range of challenges that include the Zika virus outbreak, the doping scandal among athletes and the country’s prolonged economic slump and political traumas. Yet an enduring scandal in international finance — the chronic design flaw in the way that the Games are planned for and paid for — has again imposed an enormous economic burden on the Olympic host city. Struggling economies can ill afford the extravagance of repeatedly building use-once-throw-away sports facilities.
It was surely startling to see the deep degree of scorn and sarcasm with which many workaday Brazilians, who are now enduring a deep economic downturn, hurled derision at the arrival of the Olympic torch in Rio this week. They evidently saw that Olympic arrival ceremony as a symbol, not just of athletic ambition, but of financial folly.
The anxieties that Brazil has endured on the road to Rio 2016 should underscore a longer-term, Olympic-sized concern: Mismanagement by the Games' promoters has now been thoroughly documented, underscoring the abusive way that the International Olympic Committee (IOC) and the global sports-industrial complex have habitually foisted reckless costs on the taxpayers of hapless host cities.
By goading Olympic-wannabe cities to make ever-more-extravagant financial commitments – stoking their dreams of a media moment of purchased publicity – the mega-event industry has helped shatter the finances of one host city after another. No wonder that so many cities are now shunning the IOC’s bidding process, dreading the deadweight losses that are almost certain to burden any Olympic host.
Welcome as the IOC’s recent “Olympic Agenda 2020” reform proposals may be, it’s long past time to rein in the financial excesses of mega-event promoters. With a claque of financiers and flacks who are ready to manipulate the gullibility of the would-be hosts, the Olympic spirit has fallen victim to the self-interest of construction firms, property developers and publicists who seek to profit from host cities’ overspending.
An invaluable book documenting this Olympic-scale threat – discussed in detail at a World Bank’s InfoShop book-and-author seminar in June 2015 – should be top-of-mind for Olympics-watchers this week, as Rio de Janeiro enjoys its moment in the spotlight. “Circus Maximus: The Economic Gamble Behind Hosting the Olympics and the World Cup” — by Andrew Zimbalist, a professor of economics at Smith College — can help other cities avoid an impulsive rush for momentary Olympic notoriety. A video of Zimbalist’s InfoShop presentation is archived at http://web.worldbank.org/WBSITE/EXTERNAL/PUBLICATION/INFOSHOP1/0,,contentMDK:20289125~pagePK:162350~piPK:165575~theSitePK:225714,00.html
The cement industry in Africa is one of the sectors that would benefit from stronger competition policies, which can help strengthen the economy by preventing anti-competitive behavior and collusive price-fixing.
Photo by Simon Davis / DFID — U.K. Department of International Development
What determines whether a country is able to reap the benefits of deepening regional integration and the related increases in trade, cross-border investment and economic opportunities from participating in global value chains? One of the key points in this timely discussion is ensuring that the gains from integration are not nullified by anticompetitive business practices or distortive government interventions. As economies become more interconnected, it will become ever more important to allow all businesses to compete on a level playing field. Some African economies, for example, have not benefited as expected, in part because of the continued existence of barriers to competition in domestic markets.
These concerns lie at the heart of a new publication developed by the World Bank Group in partnership with the African Competition Forum (ACF). The report explores competition issues that affect the performance of key markets in Africa, and it reviews the status of competition policy and its implementation across the continent. It is the first report to take a broad regional perspective on competition issues – and the first to be built on a partnership between the World Bank Group and a regional network of government agencies and ministries responsible for competition.
Among its findings, the report shows that reforms in input sectors, such as professional services, can boost the export competitiveness of downstream firms that use those inputs intensively. However, in many cases, trade is restricted when governments impose non-tariff barriers, including product standards or testing regimes that are more restrictive than necessary, which prevent the entry of new, lower-cost products. This is the case with fertilizer markets in both East and West Africa. Even when such non-tariff barriers are removed, it is important to prevent anti-competitive behavior, such as collusive price-fixing and market-allocation agreements among competitors – as was seen in the case of cement in South Africa, Namibia and Botswana.
The report also highlights that, in some sectors in Africa, the same firms operate in many countries and some firms may locate themselves in areas that allow them to supply markets across borders. These factors hold potential efficiencies – for example, where it leads to economies of scale – but it also makes it vital to view competition dynamics through a regional lens as well as a national one.
Bangkok, Thailand — November 25, 2011: A flooded factory in the Nava Nakorn Industrial Estate at Pathumthani.
Photo @ photonewman
“No one can tackle climate change alone.” Those words, by Abdelouahed Fikrat, General Secretary of the Moroccan Ministry of Environment, aptly summarized the challenge that we face today in dealing with climate change. He made that declaration at the recent Dialogue for Climate Action event in Vienna, organized by The World Bank Group and the Government of Austria on May 24 and 25.
The Vienna event marked the launch of six Principles on Dialogue for Climate Action — a set of tenets aimed at guiding businesses and governments as they embark on productive conversations on how to cooperate effectively to fight climate change.
The World Bank Group and 12 international partners got together to collaboratively formulate the six principles: Inclusion, Urgency, Awareness, Efficiency, Transparency and Accountability.
In endorsing the principles and signing on to the Community of Practice (CoP) for Dialogue for Climate Action, Fikrat said, “The principles of dialogue launched at this event hold potential to contribute significantly to the COP 22 agenda and offer a tool to policymakers for engaging the private sector. We need to build on the current momentum to speed up the implementation of concrete actions.”
The tone for the event was set by Dimitris Tsitsiragos, Vice President of the International Finance Corporation (IFC), who stressed in his keynote address that “stopping the catastrophic impact of climate change requires urgent, comprehensive and ongoing public-private dialogue”.
Dialogue for Climate Action in Practice
So what does this mean in practice? How do we avoid pursuing a dialogue that is devoid of action? There is significant pressure on all actors to avoid “post-Paris blues” and stagnation. There is also a need to avoid actions in a vacuum, where everyone is doing something but without cohesion and coordination.
The six principles for climate action are based on the premise that all actors, working together, will create greater results. Bangladesh PaCT (Partnership for Cleaner Textiles), a project managed by the World Bank Group, makes a strong case for that approach. The project, which was launched in 2013, aims to introduce cleaner, more environment-friendly production methods in the textile sector, and dialogue is a key pillar of its project design.
Members of the World Bank Group’s Innovation & Entrepreneurship team – along with two of the entrepreneurs supported by the team (with their affiliations in parentheses) – at the Global Entrepreneurship Summit. From left to right: Temitayo Oluremi Akinyemi, Loren Garcia Nadres, Natasha Kapil, Kenia Mattis (ListenMi Caribbean), Ganesh Rasagam, Charity Wanjiku (Strauss Energy), Komal Mohindra, Ellen Olafsen.
What do you picture when you hear of new technologies and hot startups? Perhaps a trendy office space overlooking the Golden Gate Bridge and tech moguls from San Francisco? Well, think again.
At the recent Global Entrepreneurship Summit (GES) in Silicon Valley — an annual event hosted by President Barack Obama and attended by nearly 700 entrepreneurs — one message came across clearly: Great ideas come from anywhere. And, increasingly, they’re coming from talented entrepreneurs who are overcoming the odds in cities like Nairobi, Kenya or Kingston, Jamaica.
Increasing internet and mobile-phone access is bringing new opportunities to young entrepreneurs from developing countries. More than 40 percent of the world’s population now has access to the internet and, among the poorest 20 percent of households, nearly 7 out of 10 have a mobile phone.
Businesses that can take advantage of the widespread use of digital technologies are growing at double-digit rates — in Silicon Valley, as well as in emerging markets. Ground-breaking technologies and business ideas are flourishing across the world, and a new, more global generation of tech entrepreneurs is on the rise.
The potential impact — economic and social — is significant. Entrepreneurs have a powerful ability to create jobs, drive innovation and solve challenges, particularly in developing economies, where technology can address old inefficiencies in key sectors like energy, transport and education.
“[I]n our era, everybody here understands that new ideas can evolve anywhere, at any time. And they can have an impact anywhere,” said John Kerry, the U.S. Secretary of State. “In my travels as Secretary, I have been absolutely amazed by the groundbreaking designs I’ve seen, by the ideas being brought to life everywhere — sometimes where you least expect it. By the men and women striking out to create new firms with an idea of both turning a profit as well as improving their communities.”
But for many of the brightest minds in developing countries, entrepreneurship is not an easy path.
As President Obama said during the Summit: “It turns out that starting your own business is not easy. You have to have access to capital. You have to meet the right people. You have to have mentors who can guide you as you get your idea off the ground. And that can be especially difficult for women and young people and minorities, and others who haven’t always had access to the same networks and opportunities.”
President Barack Obama on stage at the Global Entrepreneurship Summit with Mark Zuckerberg and entrepreneurs.
Before memories start to fade about a stellar springtime conference – at which several of the Bank Group’s Global Practices (including those focusing on Governance and on Health, Nutrition and Population) assembled some of the world's foremost authorities on tax policy – it’s well worthwhile to recall the rigorous reasoning that emerged from one of the year’s most synapse-snapping scholarly symposia at the Bank.
Subtitled “Protecting Developing Countries from Global Tax Base Erosion,” the conference focused mainly on the international tax-avoidance scourge of Base Erosion and Profit-Shifting (BEPS). Coming just one week after a major conference in London of global leaders – an anti-corruption effort convened by Prime Minister David Cameron of the United Kingdom – the two-day forum in the Preston Auditorium built on the fair-taxation momentum generated by the recent Panama Papers disclosures. Those leaks about international tax-evasion strategies dominated the global policy debate this spring, when they exposed the rampant financial conniving and misconduct by high-net-worth individuals and multinational corporations seeking to avoid or evade paying their fair share of taxes.
The Bank Group conference, however, explored tax-policy issues that ranged far beyond the headline-grabbing disclosures about the scheming of rogue law firms and accounting firms, like the now-infamous Panama-based Mossack Fonseca and other outposts of the tax-dodging financial-industrial complex. Conference-goers also heard intriguing analyses about how society can levy taxes on “public ‘bads’ ” to promote investment in “public ‘goods’ ” – as part of the broader quest for broad-scale tax fairness.