World Bank Lead Economist, Eric Le Borgne discusses the focus of new support for Jordan.
Public Sector and Governance
The role of asset bubbles as an unsustainable pillar of pre-2007 world economic growth has been widely recognized. Simultaneously, analysts worry that a secular stagnation, though momentarily offset by asset bubbles, may have been already at play in major advanced economies, leading to the ongoing sluggish and feeble recovery.
The three points made in my previous post—that services particularly fail poor people, money is not the solution, and “the solution” is not the solution—can be explained by failures of accountability in the service delivery chain. This was the cornerstone of the 2004 World Development Report, Making Services Work for Poor People. In a private market—when I buy a sandwich, for example—there is a direct or “short route” of accountability between the client (me) and the sandwich provider. I pay him directly; I know whether I got a sandwich or not; and If I don’t like the sandwich, I can go elsewhere—and the provider knows that.
Few would argue against the need for policymakers to listen to people’s views when it comes to the good management of natural resources. Indeed, if there is one thing that has been stressed from the countless global experiences of mismanagement, it is the need to involve citizens in decision-making processes.
Consequently, the publishing of data is a key agenda for multilateral agencies as well as NGOs. Access to information, including contracts and sharing agreements, is considered best practice. The direct distribution of some of the cash revenues from natural resources to citizens is also often recommended as a means to fight poverty more effectively and increase accountability of decision-makers and politicians. These are good principles based on participatory processes that form the backbone of democracy.
It is close to 18 months since massive reserves of natural gas were found in the south of Tanzania. Two industry giants (British Gas and Statoil) have already arrived in the country. The authorities, with the support of development partners, are busy trying to get all the right measures in place so Tanzania doesn’t suffer the well-known ‘natural resource curse’.
But does anyone know what Tanzanians really want and expect in terms of management of natural resources?
On February 27, a high-level regional workshop kicked off in Lomé, Togo, with the participation of Ministers of gender affairs and officials from 11 economies from West and Central Africa focusing on the World Bank Group’s Women, Business and the Law 2014: Removing Restrictions to Enhance Gender Equality report. A welcome dinner prior to the official opening of the event revealed the dynamic nature of gender affairs Ministers – all women – and the common realities and issues facing their nations. Most were meeting for the first time in a unique experience that enabled sharing stories and views about laws, cultural norms and traditional roles within the family in prelude to the official discussions.
The opening remarks at the workshop reflected well the importance of gender equality for the region. In welcoming the event, Mr. Hervé Assah, the World Bank's Country Manager for Togo, noted that “underinvesting in the human capital of women is a real obstacle to reducing poverty and considerably limits the prospects for economic and social development.” Those concerns were echoed by the Minister of Social Action and Women and Literacy Promotion in Togo, Mrs. Dédé Ahoéfa Ekoué, who highlighted the importance of women’s participation in society and the economy, both in Togo and worldwide. The tone was thus set for this two-day event, which aimed at both highlighting recent reforms enacted by countries in the region and promoting the sharing of experiences, challenges and good practices among the participants in promoting women’s economic inclusion.
There is certainly much to highlight and share over these two days and beyond. Over the past two years, several Sub-Saharan African economies passed reforms promoting gender parity and encouraging women’s economic participation. For example, Togo reformed its Family Code in 2012, now allowing both spouses to choose the family domicile and object to each other’s careers if deemed not to be the family’s interests. Côte d’Ivoire equalized the same rights for women and men, and also eliminated provisions granting tax benefits only to men for being the head of household. Furthermore, Mali enacted a law allowing both spouses to pursue their business and professional activities and a succession law equalizing inheritance between husbands and wives. While the pace of reform has been accelerating in the region, it is not a recent phenomenon. In fact, Sub-Saharan Africa is the region that has reformed the most over the past 50 years: Restrictions on women’s property rights and their ability to make legal decisions were reduced by more than half from 1960 to 2010.
Back in 2003, when we were writing the 2004 World Development Report, Making Services Work for Poor People, we had no idea that it would spawn so much research, innovation, debate and changes in the delivery of basic services. Last week, we had a fascinating conference, in collaboration with the Overseas Development Institute, to review this work, and chart the agenda for the coming decade. Being a blogger, I wanted to speak about what WDR2004 got wrong, but some of my teammates suggested I should start by describing what we got right. So here are three ways WDR2004 changed the conversation about service delivery (what we got wrong will be the next post).
The recent article in Mada Masr about Egypt’s new public-sector minimum wage “falling short” makes the right point—that the increase will exacerbate inequality—but for the wrong reason. It is not because the new minimum wage is “not applied on the national level or across sectors.” It is because nearly three out of four Egyptian workers are small farmers, self- employed or work in the informal sector. These workers will not benefit from any increase in the minimum wage, whether it is restricted to the public sector or not. About 41 percent of those in the informal sector earn less than the previous minimum wage of EGP 700, and 75 percent earn less than the new minimum wage of EGP 1,200. The government has just increased the wages of those who are already earning more than about half the workforce.
Has foreign aid been helpful for development? What helps and hinders it? What does the evidence say?
The key challenge facing foreign aid globally is its effectiveness.
Research on aid effectiveness has focused on outcomes such as a country’s economic growth or quality of institutions. These studies came to mixed conclusions over whether aid can effectively promote economic development.
Microeconomic evidence paints a reasonably positive picture. The World Bank’s Independent Evaluation Group (IEG) finds that the average rates of return to aid are generally above 20%. Evidence based on randomized program evaluation techniques is also largely positive, indicating that aid-financed interventions can generate substantial benefits for individuals.
Taxing Labor versus Taxing Consumption?
Europe’s welfare systems face substantial demographic headwinds. Increasing life expectancy and the approaching retirement of “Baby Boomers” will increase public expenditures for years to come. Rightfully, much attention is focused on containing additional spending needs for pensions, health and long term care. But how is all this being paid for?
Currently, the majority of social spending, including most importantly pension benefits, in most countries in Europe and Central Asia is financed through social security contributions, which are essentially taxes on labor. This has two important implications. First, in terms of fiscal sustainability, the growth in spending is only a concern if expenditures grow faster than the corresponding revenues. Since labor taxes are the predominant source of financing for most welfare systems in both EU and transition countries, aging will not only increase spending, but simultaneously exert pressure on revenues. With the exception of countries in Central Asia and Turkey, the labor force, and hence the number of taxpayers that pay labor taxes will decline by about 20 percent on average across the region. Second, already today, labor taxes, including both personal income taxes and social security contributions account on average for about 40 percent of total gross labor costs in Europe and Central Asia (including EU member states), compared to an average of 34 percent in the OECD. This means that for every US$ 1 received in net earnings, employers on average incur a labor cost of US$ 1.67. And out of the 67 cents that are paid in labor taxes, 43 cents (or 65 percent) are directly used to finance social security benefits. By increasing the cost of labor, the high tax burden potentially harms competitiveness, job creation, and growth in countries in the region.