A Ukrainian paradox
When Ukrainians took the streets in the winter of 2013/14, protests – sparked by the then Government’s decision to suspend the signing of the association agreement with the EU – reflected widespread discontent over deep-seated corruption. From its independence over two decades ago, Ukraine has struggled with corruption and state capture. So-called oligarchs dominate large sectors of the Ukrainian economy, extracting rents and controlling the state through direct representation in the Parliament. This allowed oligarchs to tap into rich sources of corruption, including energy subsidies, discretionary public procurement, privatization of state assets and wide spread tax fraud and evasion. These governance failures created an economy largely built around redistribution of rents. Arguably, this accounts for much Ukraine’s dismal economic performance despite an abundance of natural resources, qualified human capital and a strategic location in the center of Europe.
A Ukrainian paradox
Over the past decade there has been growing interest in using the internet and other communication technologies for conflict management and peacebuilding. Two key areas have emerged: (1) using publicly available data on events and social dynamics to monitor and predict escalations of tensions or violence, and (2) harnessing the increased access to the internet and mobile telephones to promote positive peace. In both areas exciting innovations have developed as well as encouraging results.
In the first area, perhaps the most comprehensive information source is Kalev Leetaru’s “Global Database of Society” or GDELT Project that “monitors the world's broadcast, print, and web news from nearly every corner of every country in over 100 languages and identifies the people, locations, organizations, counts, themes, sources, and events driving our global society”. The event database alone covers 300 categories of peace-conflict activities recorded in public media since January 1979, while the identification of people, organizations and locations enables network graphing of connections in media records.
انقضى أسبوع تقريبا دون أن أسمع عبارة "لا يتعلق الأمر بالكيفية بل بالسبب." ففي مجال إصلاح دعم الطاقة في الشرق الأوسط وشمال أفريقيا، على سبيل المثال، لا يتركز النقاش على ما إذا كان ينبغي إصلاح الدعم (يتفق الجميع على ضرورة ذلك) بل على كيفية إجراء الإصلاح. وتثار نقاط مماثلة بشأن تنظيم ممارسة الأعمال أو التعليم أو الزراعة أو الصحة. واعترف بأني أنا نفسي كتبت أمورا مشابهة. ولا يوجد نقص في مثل هذه المقترحات على هذه المدونة.
فالإصلاحات مطلوبة لأنه توجد سياسات أو ترتيبات مؤسسية قائمة باتت معوقة. لكن قبل أن نقترح كيفية إصلاحها ينبغي أن نسأل لماذا وُجدت هذه السياسة من الأصل، ولماذا استمرت فترة طويلة، ولماذا لم يتم إصلاحها حتى اليوم. فهذه السياسات لم تأت مصادفة. ولم تستمر لأن شخصا ما نسي تغييرها. ولن يتم إصلاحها على الأرجح لمجرد أن أحد صانعي السياسات قرأ كتابا أو مقالا أو مدونة بعنوان "كيف تصلح..."
Hardly a week goes by without my hearing the statement, “It’s not the What; it’s the How.” On the reform of energy subsidies in the Middle East and North Africa, for instance, the discussion is focused not on whether subsidies should be reformed (everyone agrees they should be), but on how the reform should be carried out. Similar points are made about business regulations, education, agriculture, or health. I confess to having written similar things myself. And there is no shortage of such proposals on this blog.
Reforms are needed because there is a policy or institutional arrangement in place that has become counterproductive. But before suggesting how to reform it, we should ask why that policy exists at all, why it has persisted for so long, and why it hasn’t been reformed until now. For these policies didn’t come about by accident. Nor have they remained because somebody forgot to change them. And they are unlikely to be reformed just because a policymaker happens to read a book, article or blog post entitled “How to reform…”
Duty- and quota-free access for exports to global markets is something developing country trade negotiators have demanded for years. Few other “stroke-of-the-pen” measures could boost employment and reduce poverty in low income countries in such large numbers. For instance if the US removed tariffs on Bangladeshi garments – which average around 13%, but for some items are as high as 33% – then exports to the US could rise by $1.5 billion from the FY13 level of $5 billion, in turn generating employment for at least an additional half a million, primarily female, workers. Examples of other countries facing US tariffs include Cambodia (12.8% average tariff rate on its exports to the US), India (4.01%), Indonesia (5.73%), and Vietnam (7.41%). Progress in trade facilitation would likely have even greater pay-offs to growth and employment, but these require structural reforms and investments, while the decision to remove tariffs is a simpler, “stroke-of-the-pen” measure.
Twenty-five years ago, I lived in a fishing village, Tanji, on the coast of The Gambia. The village came alive before sunrise: if you got up early, you could see the brightly colored "pirogues" pushing out to sea, with six or seven brave young men sailing their precarious wooden dugout canoes. This was no mean feat. The Atlantic was unforgiving and sometimes treacherous.
I worked with the fishermen as part of a European Union fisheries project and, with time, we became friends. We spoke Mandinka, drank atyre, and shared our struggles and hopes. They told me how over the years catches had declined dramatically, forcing them to sail farther and farther out; how the trawlers were creeping closer to the shore, often mangling their fragile nets.
From time to time, countries experience rapid economic growth without a significant decline in poverty. India’s GDP growth rate accelerated in the 1990s and 2000s, but poverty continued to fall at the same pace as before, about one percentage point a year. Despite 6-7 percent GDP growth, Tanzania and Zambia saw only a mild decline in the poverty rate. In the first decade of the 21st century, Egypt’s GDP grew at 5-7 percent a year, but the proportion of people living on $5 a day—and therefore vulnerable to falling into poverty—stagnated at 85 percent.
In light of this evidence, the World Bank has set as its goals the elimination of extreme poverty and promotion of shared prosperity. While the focus on poverty and distribution as targets is appropriate, the public actions required to achieve these goals are not very different from those required to achieve rapid economic growth. This is not trickle-down economics. Nor does it negate the need for redistributive transfers. Rather, it is due to the fact that economic growth is typically constrained by policies and institutions that have been captured by the non-poor (sometimes called the rich), who have greater political power. Public actions that relax these constraints, therefore, will both accelerate growth and transfer rents from the rich to the poor.
Some examples illustrate the point.
Trafficking in West Africa
Trafficking is not new to West Africa, but its magnitude is. From Northern Mali to The Gambia, smugglers have traded fuel, cigarettes and staple food for decades. Longstanding trade routes and interregional tribal connections have allowed illegal cross-border trading to grow alongside traditional commercial practices.
In an earlier blog post, we commented on the sources of corruption, the factors that have turned it into a powerful obstacle to sustainable economic development. We noted that the presence of dysfunctional and onerous regulations and poorly formulated policies, often created incentives for individuals and businesses to short-circuit them through the paying of bribes. We now turn to the consequences of corruption, to better understand why it is a destroyer of human prosperity.
Crony capitalism is the key development challenge facing Tunisia today
Last week’s Economist magazine focused on Crony Capitalism. From the powerful oil barons in the USA in the 1920s to today’s oligarchs in Russia and Ukraine, they show that such entrenched interests have been a major concern over time and around the globe. North Africa is no exception. The fortunes accumulated by the family and friends of President Zine Al-Abidine Ben Ali of Tunisia and Hosni Mubarak of Egypt were so obscene that they helped trigger the Arab Spring revolutions, with protestors demanding an end to corruption by the elite.