Greater competition is crucial for creating better jobs, although there may be short term tradeoffs.
Job creation on a massive scale is crucial for sustainably ending extreme poverty and building shared prosperity in every economy. And robust and competitive markets are crucial for creating jobs. Yet the question of whether competition boosts or destroys jobs is one that policymakers often shy away from.
It was thus valuable to have that question as a central point of discussion for competition authorities and policymakers from almost 100 countries – from both developed and developing economies – who recently gathered in Paris for the 14th OECD Global Forum on Competition (GFC).
According to World Bank Group estimates the global economy must create 600 million new jobs by the year 2027 – with 90 percent of those jobs being created in the private sector – just to hold employment rates constant, given current demographic trends.
Yet the need goes further than simply the creation of jobs: to promote shared prosperity, one of the urgent priorities – for economies large and small – is the creation of better jobs. This is where competition policy can play a critical role.
Competition helps drive labor toward more productive employment: first, by improving firm-level productivity, and second, by driving the allocation of labor to more productive firms within an industry.
Moreover: Making markets more open to foreign competition drives labor to sectors with higher productivity – or, at least, with higher productivity growth. Making jobs more productive, in turn, generally increases the wages they command.
That’s in addition to cross-country evidence on the impact of competition policy on the growth of Total Factor Productivity and GDP, and the fact that growth tends not to occur without creating jobs. Thus there’s compelling evidence that – far from being a job killer, as skeptics might fear – competition (over the long term) has the potential to create both more jobs and better jobs.
The key question then becomes whether such long-term benefits must be achieved at the expense of short-term negative shocks to employment – especially in sectors of the economy that may experience sudden increases in the level of competition.
Progress toward better jobs is driven partly by the disappearance of low-productivity jobs, as well as the creation of more productive jobs in the short run. Competition encourages that dynamic through firm entry and exit, along with a reduction in “labor hoarding” in firms that have previously enjoyed strong market power.
Law and Regulation
Greater competition is crucial for creating better jobs, although there may be short term tradeoffs.
Nicholas Waddell, a DFID Governance Adviser working on ‘Governance for Economic Development’ (G4ED) explores the links between governance and economic growth.
Should I play it safe and join a governance team or risk being a lone voice in a sea of economists and private sector staff? This was my dilemma as a DFID Governance Adviser returning to the UK after a stint in East Africa. I gambled and joined the growth specialists in DFID’s newly created Economic Development arm. A year in, I now think differently about the relationship between growth and governance.
Eradicating poverty will not be possible without high and sustained growth that generates productive jobs and brings benefits across society. Historically, this has included boosting productivity within existing sectors as well as rebalancing economies towards more productive sectors (e.g. from agriculture to manufacturing). Such structural change or economic transformation has lifted millions from poverty.
Economic transformation can have a strong disruptive effect on political governance – giving rise, for example, to interest groups that push for accountable leaders and effective institutions. As countries get richer, more effective institutions also become more affordable. Over time, economic transformation can therefore advance core governance objectives.
But this is easier said than done. Economic development is an inherently political process that challenges vested interests. Often the surest ways for elites to hold onto power and profit aren’t in step with measures to spur investment, create jobs and foster growth. Shrewd power politics can be bad economics.
Sri Lanka is in many ways a development success story.
Growth of income per person in Sri Lanka has averaged a little more than 7 percent a year over the past five years. That follows average growth of just over 5 percent a year in the preceding nine years. Among the six largest South Asian countries, Sri Lanka has the highest level of economic output per person. With sustained high growth, Sri Lanka has largely eradicated extreme poverty.
All this success has helped propel the country towards middle-income status. Going forward, how successfully Sri Lanka manages its cities will determine how quickly and efficiently the country moves to higher middle-income status and beyond. Every high-income economy has achieved this status through urbanization.
Crises in access to water are making headlines around the world. Among difficult policy pathways to respond, convincing people to change their behavior and reduce their consumption can be one of the hardest.
This post gives us a promising picture from Belén, a small town in Costa Rica. Of Belén’s 21,633 inhabitants, 99.3% have access to water service, but shortages are anticipated by 2030. Our recent study demonstrated that the government could cheaply encourage citizens to save water by enabling them to compare their consumption with that of their peers.
This is a timely lesson, as the United Nations estimates that more than two-thirds of the world’s population will live in water-stressed regions by 2025. Demographic and economic pressures make water management an increasingly urgent policy priority even in water rich areas like Latin America, home to nearly 31% of the world's freshwater resources.
While Costa Rica is relatively well-endowed with water resources, current demand virtually matches production capacity Risks of water deficits and existing shortages are heightened by overdevelopment of areas with limited water supply. To help address these challenges, we partnered with local authorities in the small municipality of Belén to conduct a randomized control trial, capturing an innovative approach that can help conserve water across the country, and in similar contexts around the world.
The project built on insights from the growing field of behavioral economics, which challenges the underlying, intentionally simplified assumption of standard models: that people make rational decisions based on a self-interested cost-benefit analysis. Behavioral economics borrows from other sciences to consider the full scope of social and psychological influences on human decision-making.
South Asia can now reap the benefits of greater regional integration it once enjoyed before its partition into various countries. But first, the region must break down the barriers that impede its intra-regional trade.
With the ink barely dry on the Sustainable Development Goals, naturally the just-completed Open Government Partnership annual summit focused on how greater openness can accelerate progress toward the goals.
The open government agenda is most closely linked to the ambitious Goal 16 on Peace, Justice and Strong Institutions, which among other targets includes the objective of ensuring “responsive, inclusive, participatory and representative decision-making at all levels.” Though progress in this area is maddeningly difficult to quantify, evidence increasingly shows that participation, the next transparency frontier, matters to development outcomes. Making the target explicit, it is hoped, will galvanize efforts in the right direction.
There are many issues one could propose to tackle with citizen engagement strategies, but to narrow the topic of discussion, let’s consider just one: enabling smart growth in the world’s exploding cities and megacities.
Would it surprise you to know that one in three women worldwide have experienced physical or sexual violence from their intimate partner? Or that as many as 38% of women who are murdered globally are killed by their partners? It is a sad reality, but those are the facts.
Globally, the most common form of violence against women is from an intimate partner. The statistics are shocking. And while these numbers are widely disseminated, the facts persist. The stories repeat themselves, affecting girls and women around the world regardless of race, nationality, social status or income level.
This sad reality was the cause of Nahr Ibrahim Valley’s death in Lebanon, just months after the country's new law on domestic violence was finally passed. The new law came after several cases sparked campaigns and protests in the Lebanese capital surrounding International Women’s Day last year. Unfortunately, it was not enough to save her life, but it can be the hope for thousands of women in the country, who previously had no legal protection against this type of crime.
The World Bank Group’s Women, Business and the Law project studies where countries have enacted laws protecting women from domestic violence. The fourth report in the series, Women, Business and the Law 2016: Getting to Equal, finds that more than 1 out of 4 countries covered around the world have not yet adopted such legislation. The effects of this form of violence are multifold. It can lead to lower productivity, increase absenteeism and drive up health-care costs. Moreover, where laws do not protect women from domestic violence, women are likely to have shorter life spans.
Domestic violence, also viewed as gender-specific violence, commonly directed against women, which occurs in the family and in interpersonal relationships, can take different forms. Abuse can be physical, emotional, sexual or economic. The 2016 edition of Women, Business and the Law shows that, even where laws do exist, in only 3 out of 5 economies do they cover all four of those types of violence. Subjecting women to economic violence, which can keep them financially dependent, is only addressed in about half of the economies covered worldwide.
Taking note of headline news in recent weeks, one cannot escape the reality that efforts to fighting corruption are succeeding. A decade ago, success was a privilege to societies who -by virtue of democratic gains- could claim rights to holding public officials accountable. Today, it is not easy to get away with corruption. Not even if you are a major multinational, a senior government official, or an institution with millions of followers across the world.
Within our network- the World Bank International Corruption Hunters Alliance- we feel optimistic about all that is happening to support our mission; that of ensuring every development dollar is spent with integrity. We go to work every day and the focus is how do we prevent bad things from happening. To achieve that at the World Bank Group, we are continually advancing our investigative techniques, our preventive advice, monitoring the compliance standards of debarred entities and engaging with partners across multilateral development banks, national enforcement agencies and CSOs to strengthen this young global movement against corruption. It is critical that this momentum continues to sustain change at a global scale.
Undoubtedly we face a few challenges along the way; some more complex than others, none that cannot be overcome. Last fiscal year, the World Bank prevented approximately $138 million across 20 contracts from being awarded to companies that had attempted to engage in misconduct. This is progress that could not have been achieved without years of investigative experience invested in gathering evidence, recognizing patterns of misconduct, and documenting lessons learnt.
Today, we are able to support project teams to make smarter risk-based interventions. Whether at project design, supervision and/or evaluation; our diverse team of investigators and forensic/preventive specialists offer a solid interpretation of red flags, unusual/awkward behavior by contractors, in addition to an effective response to allegations of misconduct impacting World Bank-financed projects.
In his 2014 book, The Tyranny of Experts, Bill Easterly uses his rhetorical gifts to make the case for ‘free development’. In so doing, he takes his trademark blend of insight and relentlessness to a new level. But in this moment of history that has been described by democracy champion, Larry Diamond as a “democracy recession”[i], is it helpful to argue by taking no prisoners and not letting inconvenient truths get in the way?
Easterly, to be sure, communicates powerfully two big and important ideas. The first is that, as per his title, behind a seemingly technocratic approach to development are some inconvenient political realities. As he puts it:
“The implicit vision in development today is that of well-intentioned autocrats advised by technical experts…. The word technocracy itself is an early twentieth century coinage that means ‘rule by experts’” (p.6)
In surfacing the implausible assumptions which underlie a world view of ‘rule by experts’, Easterly does us a service. One cannot engage effectively with today’s difficult realities on the basis of a vision of decision-making which ignores the inconvenient truths of self-seeking ambition, of contestation over ends among competing factions, and of imbalances of power which marginalize the interests of large segments of society. (Of course, as this essay will explore, many of these difficult realities arise – in different ways – in both predatory authoritarian and messily democratic settings.)
The second powerful idea is The Tyranny of Experts paean to freedom – “a system of political and economic rights in which many political and economic actors will find the right actions to promote their own development”. (pp. 215-216). With eloquent libertarian rhetoric of a kind which Ayn Rand would no doubt have applauded, Easterly argues that:
“we must not let caring about material suffering of the poor change the subject from caring about the rights of the poor”. (p.339)
On Monday, the final round of discussions will get underway in Bangkok on the indicators to measure the Sustainable Development Goals that were agreed by all UN Member states in New York last month. The agreement from New York calls for the underlying indicators to “preserve the political balance, integration and ambition” of the agenda.
Target 16.3, as agreed in New York, is to “Promote the rule of law at the national and international levels and ensure equal access to justice for all.” The proposed indicators for 16.3, to be discussed in Bangkok, do not respect the ambition of the target as they both focus on the criminal justice system. Whilst criminal justice is important to many people’s lives – in truth, only a small percentage of the population comes into direct contact with the criminal justice system. Sustainable development is about much more.