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Competitive Industries

Structured dialogue, value chain and competitiveness: A journey through implementation, from Copenhagen to Kabul

Steve Utterwulghe's picture



Afghanistan. Photo by Steve Utterwulghe.

This latest blog post should start with a mea culpa. Indeed, my 2015 work plan for public-private dialogue (PPD) did start in Dushanbe, Tajikistan, not Copenhagen. However, who can swear that he never tweaked a title a tiny bit to make it catchier?
 
While Dushanbe hosted the very productive First Regional PPD Forum in the “stans,” the 8th Global PPD Workshop took place in March in the Danish capital. There, “more than 300 representatives from governments, private enterprises, PPD coordination units, investors’ councils, competitiveness partnerships, civil society, business organizations, and various development partners participated in the event. They represented 54 countries and a total of 40 PPD initiatives who joined the event to share their experiences and discuss lessons learned.”
 
High-powered individuals kick-started the Copenhagen event, including HRH Crown Princess Mary of Denmark, who reiterated that, to make a difference in the world, “it will take partnerships across countries, governments, and between public and private sectors.”
 
Once the keynote speeches had been delivered, the real work began among the delegates and with the PPD experts. I jumped from impromptu coffee break to coffee break and strategized with the Côte d’Ivoire delegation on how to prepare for the National Day of Partnership/Dialogue in Abidjan; discussed ways to better involve the private sector in Morocco; debriefed with the Guinea Minister of Industry, SMEs and Private Sector Promotion on how the PPD structure that we helped put in place is strengthening the local value chain for extractive industries (see below); and moderated an engaging session on public-private dialogue in fragile states and conflict-affected countries (FCS), which provided great insights as I prepared to fly out on PPD missions to Somalia and Afghanistan.
 
Aside from the buzz of international gatherings, what really matters for the delegates, from both governments and the private sector, is to get inspired and bring back home ideas that can be adapted locally and successfully implemented. Public-private dialogue is an art defined by some fundamental core principles that can be adjusted according to specific needs and environments.
 
As a reminder, PPD refers to the structured interaction between the public and private sectors to promote the right conditions for private sector development. Its ultimate function is to contribute to a prosperous economy by expanding market opportunities and enabling private initiative. This is also very much the mission of the new World Bank Group Global Practice on Trade & Competitiveness (T&C). Its Senior Director, Anabel Gonzales, wrote in one of her blog posts on Trade and Development in Africa that fostering competitiveness and strengthening supply chains is a key to development and an integral part of T&C’s offering.
 
As I reflected on the links between structured multi-stakeholder dialogue, competitiveness and supply chains, I remembered a Harvard Business Review article written by Michael Porter and Mark Kramer, entitled Strategy and Society: The Link between Competitive Advantage and Corporate Social Responsibility.
 
What particularly caught my attention at the time was the theory on interdependence between companies and society that the Harvard professors put forward. They argued that this interdependence takes two forms: the social impact that a company’s activities has on society, or “inside-out linkages,” and the social influences on the company’s competitiveness, or “outside-in linkages.”
 

An investment ecosystem: Piecing together the interventions needed for a dynamic textile and apparel cluster in Kenya

Aref Adamali's picture
For businesses and policymakers involved in Africa’s textile and apparel sector, 2001 is often seen as a watershed year, when new export opportunities opened up for African firms after the United States’ enactment of the Africa Growth and Opportunity Act (AGOA). That new law gave African firms duty-free, quota-free access to the U.S. market.
 
An initial boom for Kenya – which experienced 44% growth per year up to 2005 – was followed by stagnation, exposing dangerous weaknesses in the sector’s pattern of growth. Too much of it was based on the largesse of U.S. policymakers, as opposed to the competitiveness of Kenya’s economy and the firms within it.
 
Competitiveness challenges
 
Where do some of the ruptures in Kenya’s textile and apparel competitive framework occur? Our survey of the sector revealed some interesting data on the challenges faced in both the investment climate and at the firm level: the two dimensions – the public/macro and private/micro – that together form the building blocks of sector competitiveness.
 
Power is clearly an issue across Sub-Saharan Africa – where investors quip that investing in Africa is a “bring your own infrastructure” invitation. Kenya is no exception to that pattern. The government is actively addressing this issue, and the cost of power is coming down from levels of about 22 cents per kilowatt hour. However, it will take a while to come down to the level that China new enjoys, of between 5 and 7 cents per kwh. This is a problem for both textile and apparel firms, but textile firms feel the impact most acutely: Power accounts for about 25 percent of their operating costs. Part of the issue is that some firms in the sector are running on machines that are as much as 38 years old, so they consume a great deal of electricity by comparison to more up-to-date equipment.
 
Wages are higher in Kenya than in many competing countries. The ratio of the minimum wage to value added per worker is .92 in Kenya, compared to .53 in Lesotho and .36 in Bangladesh.  “A race to the bottom” on wages is not a competition that Kenya wants to enter, yet the issue of productivity remains a major issue In a world where “fast fashion” buyers like Inditex of Spain, which has an army of more than 300 designers in its headquarters, are capable of delivering a new design to its thousands of stores in under two weeks, supplier productivity is all-important. Kenyan firms sometimes grapple with changeover times of just two weeks.
 
This all boils down to product-level cost competitiveness issues. Consider a pair of women’s jeans, comparing Kenya to Cambodia. The two countries have about the same cost for fabric – but, beyond that factor, Cambodia begins notching up cost advantages along each step of the production process: Its costs are 16 cents less on trim, 5 cents on cut and make, 15 cents on local transport, and so on. So by the time the two countries’ products arrive in the United States, the Kenyan pair of jeans is almost 50 cents more expensive than the Cambodian pair. It is only able to compete in the marketplace because of the $1.21 tariff on the Cambodian good.

Source: Kenya's National AGOA Strategy blog: http://agoastrategy.blogspot.com/

'Mission-oriented' strategies to invest in innovation: Competitiveness via an enterprising public sector

Christopher Colford's picture
Mariana Mazzucato on "The Entrepreneurial State"


“This is the most extraordinary collection of talent, of human knowledge, that has ever been gathered – with the possible exception of when Thomas Jefferson dined alone.” That quip sprang readily to mind this week – it was coined in 1962 by President John F. Kennedy, when he welcomed a group of Nobel laureates to the White House – at a paradigm-shifting, synapse-snapping seminar featuring Prof. Mariana Mazzucato and other leading economics scholars, who convened for a think-tank symposium on innovation policy and competitiveness strategy.

The ideal of innovative, inclusive, green and sustainable economic growth is achievable, Mazzucato explained to the Information Technology and Innovation Foundation – if policymakers and private-sector firms recognize that a dynamic economy requires a “mission-oriented” approach to driving technological innovation. An acclaimed economist at the University of Sussex – and the author of, among other works,“The Entrepreneurial State: Debunking Public vs. Private Sector Myths” – Mazzucato is inspiring an increasingly wide-ranging debate over how to create higher-quality jobs in higher-value industries by sharpening economies’ competitiveness.

An essential driver of creativity is “the innovative state,” as Mazzucato recently detailed in an essay in the journal Foreign Affairs – through disciplined, deliberate public-sector investment, not just in basic research, but in risk-taking ventures as a key stimulant to economy-wide growth. That requires a forthright embrace of the public sector’s ability – and responsibility – to “actively shape and create markets, not just fix market failures.”

With a frisson of what one panelist called “the goosebump factor” enlivening the ITIF seminar – which was moderated by another top scholar of innovation and competitiveness, ITIF’s Rob Atkinson – the think-tank crowd heard Mazzucato outline the need for public-sector agencies to be, not just an occasional partner of private-sector firms, but a persistent driver of investment in leading-edge industries.

Industrial policy is finally back on the agenda,” Mazzucato asserted at the start of her ITIF remarks. Yet her vision of a competitiveness-minded public sector promoting a modernized version of industrial policy goes far beyond the long-ago experiments in heavy-handed planning that many free-market fundamentalists – forever in thrall to Thatcherism – still enjoy deriding as doomed attempts to “pick winners and losers.” Political Washington’s stale bickering over such a frozen-in-time caricature of industrial policy has long since been eclipsed, among economics scholars and practitioners, by the imaginative approaches of Mazzucato and others to energizing “the entrepreneurial state.”

Focusing the debate on the many pro-active instruments that the public sector can assert to help channel investment into innovation, Mazzucato hurled the defeatist “picking winners and losers” accusation back at the laissez-faire fatalists: “The question is not whether we should ‘pick’ but how.”

“The ‘entrepreneurial’ state, to me, means the state being willing and able to take on risk, to take on real fundamental uncertainty,” Mazzucato recently told The Financial Times. An enterprising public sector has often proven far more venturesome than short-term-focused private-sector firms, which often shy away from higher-risk, higher-reward investments that might diminish their next quarter's profits.   

“Venture capitalists themselves often enter [the innovation process] late in the game. In biotechnology, they actually came in after the state had made some of the most radical, revolutionary investments – which, after all, will often fail,” said Mazzucato. “And this is a very important point. Innovation is uncertain. It will often fail. So you need to make sure that the government budget can also fund some of the failures, cover the losses, as well as reap the return from some of the successes to fund the next round” of investments in innovation.

In his enthusiastic review of Mazzucato’s book, economics sage Martin Wolf of the Financial Times noted that energetic public-sector investment in innovation – and the abdication by private-sector firms of their oft-bragged-about, seldom-fulfilled role as bold risk-takers – has led to a “free-rider” problem that distorts incentives.

“Government has increasingly accepted that it funds the risks, while the private sector reaps the rewards,” wrote Wolf. “What is emerging, then, is not a truly symbiotic ecosystem of innovation, but a parasitic one, in which the most loss-making elements are socialised, while the profitmaking ones are largely privatised.” Neoclassical purists' continued scorn for the positive role of innovation-minded public-sector investment, Wolf reasoned, may be “the greatest threat to rising prosperity” in austerity-pinched Western economies.

Mazzucato’s analysis at ITIF reminded economy-watchers of how far the innovation-policy discussion has advanced, even as laissez-faire dogmatists belabor their weary bromides about the supposed taboo against “picking winners and losers.” Propelling a more nuanced vision of competitiveness strategy, as an improvement on earlier approaches to industrial policy, this week’s ITIF seminar advanced an enterprising agenda that Washington should weigh more often – analyzing not whether, but how, the public sector and the private sector can share the responsibility of crafting pro-growth policies and pro-jobs initiatives sans frontières. Meeting that challenge will require a paradigm-changing determination to champion an entrepreneurial public sector as a positive catalyst for creativity.

Mazzucato: "Value Creation" -- Dynamic Role for Government


 

Piggybanks for plunder: Corrupt cash flows to Global Cities, requiring transparency and complete disclosure of assets

Christopher Colford's picture



Corrupt cash from secretive international sources – deliberately funneled through ‘shell companies’ to conceal the money’s illicit origins – is often used to buy ‘Towers of Secrecy’ in leading global cities like New York, as documented by a recent New York Times investigation.

Cities exert a magnetism that’s irresistible – attracting not just the most ambitious who seek economic opportunity and the most creative who revel in cultural richness, but also lawbreakers and looters: notably nowadays, the corrupt kleptocrats and tax-avoiding oligarchs whose hot money increasingly flows into the safe haven of prime real estate in the world’s leading cities.

At least part of the trend toward soaring center-city property prices, according to many anticorruption monitors, is due to the impact of illicit financial flows. It’s not just the plutocratic One Percenters who are steadily bidding up real-estate valuesPlunderers and profiteers – often concealing their identities, with the aim of shielding their wealth from tax authorities and international asset-trackers – use prestigious parcels of center-city property as a piggybank to shelter their tainted lucre.

The most vibrant and most competitive of Global Cities – notably London, Paris, New York, Hong Kong and Singapore – have long been magnets for money, luring the world’s most enterprising entrepreneurs as well as its most desperate refugees. As their global vocation and vitality have lured the ambitious and the avaricious, however, the “priced out of Paris” syndrome has often taken over: Gentrification has morphed into “plutocratization,” notes Simon Kuper of The Financial Times, with “global cities turning into vast gated communities where the One Percent reproduces itself.”

Meanwhile, “the middle classes and small companies [are] falling victim to class-cleansing," Kuper asserts. "Global cities are becoming patrician ghettos” – with the middle class and the poor being driven ever-further out from the center-city in search of affordable housing, doomed to interminable commutes to sterile suburbs or brooding banlieues.

Most of the property price spiral in world-leading cities is surely attributable to the allure of cosmopolitan life in an age when urbanization is accelerating worldwide. But as two members of the World Bank Group’s unit on Financial Market Integrity (FMI) and the Stolen Asset Recovery (StAR) Initiative recently wrote in a StAR blog post, the melt-up of prime property prices often involves corrupt money and evasive property-registration practices.

Citing a recent New York Times investigative series that meticulously documented suspicious practices within Manhattan real-estate trends, FMI specialists Ivana Rossi and Laura Pop noted that the property-buyers “took several steps to hide their identity as the real owners of the properties. Some of these steps involved buying condos through trusts, limited liability companies or other entities that shielded their names. Such tactics made it very hard to identify the 'beneficial owner': to figure out who owned what, or who was the ultimate controller of a company (or other legal entities) since the names were not shown in the company records.”

Vast sums are flowing unchecked around the world as never before – whether motivated by corruption, tax avoidance or investment strategy, and enabled by an ever-more-borderless economy and a proliferation of ways to move and hide assets,” said the painstaking New York Times investigation, "Towers of Secrecy," by Louise Story and Stephanie Saul.

Probing “the workings of an opaque economy for global wealth,” the reporters excavated the substrata of this enduring scandal. “Lacking incentive or legal obligation to identify the sources of money, an entire chain of people involved in high-end real-estate sales – lawyers, accountants, title brokers, escrow agents, real-estate agents, condo boards and building workers – often operate with blinders on.”

In a moment of inadvertent self-revelation, a Manhattan real-estate broker confessed her look-the-other-way negligence “when vetting buyers: ‘They have to have the money. Other than that, that’s it. That’s all we need.’ ” A former executive of a property-development firm was equally blunt: “You pretty much go by financial capacity. Can they afford it? They sign the contract, they put their money down with no contingency, and they close. They have to show the money, and that is it. I don’t think you will find a single new developer where it’s different.”

No wonder that the upper reaches of the U.S. real-estate market are “more alluring for those abroad with assets they wish to keep anonymous,” the Times analysis found. “For all the concerns of law-enforcement officials that ‘shell companies’ can hide illicit gains, regulatory efforts to require more openness from these companies have failed.”      

The Times’ discoveries, asserted Rossi and Pop, thus underscore the important issues involved in asset disclosure and "beneficial ownership” rules. Many nations require that public officials fully disclose their financial holdings. Such transparency is one important safeguard against the plundering of public wealth by kleptocrats, corrupt clans or well-connected cronies in countries that are vulnerable to chronic larceny.

Yet some dishonest public officials exploit legal loopholes – or flout the law entirely: “As the StAR publication ‘Puppet Masters’ demonstrated, those that do engage in corrupt activities are likely to use entities such as companies, foundations and trusts to hide their ill-gotten wealth,” wrote Rossi and Pop. “These conclusions are also confirmed by a recent Transparency International UK report. It showed that 75 percent of UK properties in the UK, under criminal investigation since 2004 – as the suspected proceeds of corruption – made use of offshore corporate secrecy to hide the owner’s identities.”

Drawing on a new World Bank Group report (which they co-authored with Francesco Clementucci and Lina Sawaqed), “Using Asset Disclosure for Identifying Politically Exposed Persons,” Rossi and Pop argued that accurate and complete financial disclosure by officials in positions of public trust (known in the financial-integrity world as “Politically Exposed Persons”) are an essential safeguard against the diversion of assets. Such disclosures, by themselves, don’t provide a “magic bullet” solution to prevent corruption, yet they are a vital mechanism in building transparency and trust.

“Once there is an ongoing investigation, the information declared can be very helpful as evidence, both in what has been included as well as omitted,” wrote Rossi and Pop. “In many countries, intentionally leaving out information on a house or a bank account carries serious penalties. Furthermore, financial disclosures can help catch a dishonest public official whose lavish lifestyle – including real estate in a prized location – could not be supported by the resources, such as a public-sector salary, indicated in the declaration.” The key factor in ensuring integrity and combating corruption is thus the full disclosure of “beneficial ownership.”

Property prices in Global Cities are already being propelled upward by the gusher of money that is flooding, through fully legal channels, into the world’s most desirable and stable locations – thus threatening to put affordable housing, in many major cities, beyond the reach of all but the fortunate few. The last thing that already-unaffordable cities need is an unchecked flood of illicit billions and furtive real-estate transactions, which will only intensify the pressure that now threatens to create a renewed boom-and-bust cycle of unstable housing prices.

Urban advocates who are working to promote inclusive, sustainable, resilient and competitive cities will applaud the continued vigilance of asset-trackers and corruption-hunters – like the FMI and StAR units, through their work sans frontières
on the disclosure of beneficial ownership – whose efforts to halt illicit financial flows will provide an additional instrument to help ensure that cities will be as inclusive as possible in a relentlessly urbanizing age.

 

#TakeOn Corruption


The Specter Haunting Davos – Piketty as ‘Banquo’s Ghost’: Reforming 'the Mercenary Society' via an Energetic Agenda

Christopher Colford's picture



Metaphor of the month, via a deft dispatch from Davos: Thomas “Piketty was not in attendance this year – which was like putting on ‘Hamlet’ without the Prince” of Denmark, quipped Larry Elliott, the economics editor of The Guardian, as he needled ostentatious Davos-goers for only half-heartedly living up to the Davos dictum  of being “ ‘committed to improving the state of the world,’ provided nothing much changes.” 

Let’s shift the Shakespearean citation slightly, from “Hamlet” to “Macbeth”: Like Banquo’s ghost, the specter of Piketty’s analysis of inequality and injustice seemed to haunt many private-sector leaders at Davos this year – and thus the scholar from the Paris School of Economics didn’t need to be present in order to have a powerful impact at this year’s World Economic Forum.

Amid last week's self-exculpatory denialism from the unrepentant-oligarch wing of the Davos Man culture, one could almost hear the apologists for plutocracy and the free-market fatalists joining the conscience-stricken Macbeth in shrieking to Banquo's implacable apparition: “Thou canst not say I did it! Never shake thy gory locks at me!

The Davos 2015 parade of plutocrats may have been worth all the time and trouble, after all – despite its customary spectacles of self-indulgence – if the pageantry helped pique the conscience of some of the One Percenters and their courtiers, at least momentarily. “Most of the conversations between chief executives here are about Piketty-type issues. They talk about things [at Davos that] they wouldn’t be talking about back in the boardroom,” one eminent corporate leader told Elliott of The Guardian. Piketty-inspired concerns about inequality – along with fears of chronic economic stagnation and an irretrievably despoiled planetseem likely to inform this year’s top-level global policy forums, from Addis Ababa in July to the United Nations in September to Paris in December.
 
Signaling that many private-sector leaders have been awoken by, and are responding to, Piketty's landmark analysis of the intensifying concentration of capital in ever-fewer hands – which is provoking a more rigid stratification of society along hardening lines of social class – the World Economic Forum itself set the stage for Davos 2015 by publishing a 14-point agenda for promoting more inclusive growth. That analysis, searching for constructive solutions, is certainly a welcome contribution to the debate. Yet Piketty’s analysis of the widening gaps between the ultra-wealthy and everyone else – with Davos as perhaps an inadvertent self-parody of the cocooned Uber One Percent – suggests that there’s scant hope for mending a torn society unless policymakers enact policy changes on a vast scale: by (among other priorities) adopting greater progressivity in tax rates and enforcing a crackdown on cross-border tax evasion.

(An aside, regarding those who quibble with a point of Piketty-era terminology – and those who have attempted, and have conspicuously failed, to refute Piketty’s logic. Using a chicken-and-egg argument, some theorists lament the Piketty-inspired focus on the term “inequality,” insisting that inequality may be the outgrowth of, rather than the cause of, economic stagnation and social stratification. Fair enough. Yet such casuistry dwells on a distinction without a practical difference. Enacting pro-growth programs to avoid “secular stagnation” would surely be wise policymaking. Yet no serious plan would envision going back to a pre-2008-style “GDP growth at any cost” approach. The global financial crisis of 2008 revealed the recklessness of simplistic gun-the-engine, GDP-uber-alles policies that produce merely unsustainable, low-quality growthToday’s pragmatists, instead, champion a more inclusive economy that eases social divisions and sustains broader opportunity – promoting what the World Bank Group calls “shared prosperity.”)

Judging by Piketty’s esteem among Davos 2015 participants, most leaders of the private sector – all but a recalcitrant few, some of whom dwell on the free-market fundamentalist fringe – have evidently gotten the message (at last): Chronic inequality and stifled social mobility have reached a socially intolerable and perhaps politically destabilizing intensity. Yet if all but an eccentric remnant in the private sector “get it,” do public-sector policymakers – many of whom seem ever-eager to do the bidding of the most self-aggrandizing monied interests? The Davos-style ideal of “capitalism for the long term” is motivated by “enlightened self-interest,” yet many boardrooms – and those politicians who are forever at their beck and call – apparently need still more enlightenment and less self-interest.

Charting the next steps beyond Piketty's “Capital in the Twenty-First Century" – advancing from academic analysis to social action – will be the next order of business in 2015, a year with parliamentary elections in several pivotal countries. Just in time for the post-Davos and pre-election season, a newly published book seems poised to pick up where Piketty left off: emphasizing that society needs a healthier balance between private-sector dynamism and public-sector activism, undergirded by a humane sense that an economy with truly shared prosperity should prioritize social fairness.

With their appetites whetted by early excerpts published this week in The Observer, many admirers of Piketty will be eager to read “How Good We Can Be: Ending the Mercenary Society and Building a Great Country” by Will Hutton, the principal of Hertford College, Oxford. Hutton – for all his gloom about the injustices inflicted on his native United Kingdom over the past 35 years – advances an optimistic agenda that might show the way toward correcting decades’ worth of policy errors.

“Inequality has become a challenge to us as moral beings,” declares Hutton, reinforcing Piketty’s view of a society starkly stratified by social class. A callousness toward social divisions has spilled over from the economic realm into political decision-making, resulting in an “amoral deficit of integrity” – and Hutton is not shy about pointing to a specific turning point, or about naming a specific name.

“Ever since [Margaret] Thatcher’s election in 1979, Britain’s elites have relegated concerns about inequality below the existential question of how to restore our capitalist economy to economic health, a matter deemed to transcend all other considerations,” writes Hutton. “The language of the socioeconomic landscape has been commanded by words like efficiency, productivity, wealth generation, aspiration, entrepreneur, pro-business and incentives. To the extent they are significant at all, preoccupations with inequality have been seen as of second-order importance.”

The “raw trends” of the weakened power of wage-earners and the strengthened dominance of capital-owners – the outgrowth of Piketty’s iconic formula, r>g – “are then exacerbated by the reduction of taxation on capital, companies and higher earners in the name of promoting incentives and 'wealth generation.' " No wonder, Hutton asserts, that the United Kingdom has suffered “a stunning increase in inequality, the fastest in the OECD.”

Readers who were drawn to Piketty’s logic – yet who were left by "Capital" with a despairing feeling of “where do we go from here?” – are likely to warm to Hutton’s work, which extends the logic of his influential 1995 analysis, “The State We’re In.”

“Indifference to the growing gap between rich and poor, in all its multiple dimensions, is the first-order-category mistake of our times," warns Hutton. "No lasting solution to the socioeconomic crisis through which we are living is possible without addressing it.”

Recalling his years of energetic columns in The Guardian and The Observer, Hutton’s activist economic prescription in “How Good We Can Be” seems likely to include a better-focused approach to industrial policy; targeted investment in innovation capacity; pro-entrepreneurship mechanisms to sharpen competitiveness; and pro-active tax policies that ease rather than intensify the wealth divide.

Many of those who missed this year’s Davos triumph of Piketty-style reasoning are now awaiting the arrival of Hutton’s new book on this side of the Atlantic. Piketty scored the scholarly sensation of 2014 with the publication of “Capital.” My early hunch is that Hutton, with “How Good We Can Be,” just might achieve a similar agenda-setting success in 2015.
 

#TakeOn Inequality


 

Davos Sees Challenges, ‘Smart Cities’ Seize Opportunities: Finding Sustainable Solutions Via Public-Private Dialogue

Christopher Colford's picture



As the world’s policymakers and business leaders converge in Davos, Switzerland for tomorrow’s opening of the World Economic Forum, there’s certainly no shortage of global threats for them to worry about during the WEF’s annual marathon of policy seminars and economic debates. A world of anxiety enshrouds this week’s conference theme of the “New Global Context,” judging by the WEF’s latest Global Risks Report: Its analysis of 28 urgent threats and 13 ominous long-term trends offers a comprehensive catalogue of extreme dangers to social stability and even human survival.

As if the Davos data isn’t worrisome enough, several just-issued scientific studies – which document worsening trends in climate change, humanity’s imminent collision with the limits of the planet’s resilience and the intensifying damage being wrought by voracious consumption-driven growth – trace a relentlessly gloomy trajectory.

Relieving some of the substantive tension, there’s also often a puckish undercurrent within each year’s Davos news coverage. Poking holes in the self-importance of Davos’ CEOs and celebrities – with varying degrees of lighthearted humor or reproachful reproof – has become a cottage industry, springing up every January to chide the mountaintop follies of “the great and the good.” Skeptics often scoff that the lofty pronouncements of Davos Deepthink have become almost a caricature of elite self-importance, and there’ll surely be plenty of the customary sniping at the insularity of Davos Man and at the insouciance of the globalized jet set as its over-refined One Percent folkways become ever more detached from the struggles of the stagnating middle class and desperate working poor.

Despite such Davos-season misgivings, it’s worth recalling the value of such frequent, fact-based knowledge-exchange events and inclusive dialogues among business leaders and thought leaders. Some of the Davos Set may revel in after-hours excess – its Lucullan cocktail-party scene is legendary – yet the substantive centerpiece of such meetings remains a valuable venue for expert-level policy debates, allowing scholars to inject their ideas straight into the bloodstream of corporate strategy-setting. The global policy debate arguably needs more, not fewer, thought-provoking symposia where decision-makers can be swayed by the latest thinking of the world’s academic and social-sector experts. Judging by the fragmented response to the chronic economic downturn by the global policymaking class, every multilateral institution ought to host continuing consultations to help shape a coherent policy agenda.

Focusing on just one area where in-depth know-how can serve the needs of decision-makers: The World Bank Group has long been tailoring world-class knowledge to deliver local solutions to client countries about one of the trends singled out in this year's WEF list of long-term concerns – the worldwide shift from “predominantly rural to urban living.” The biggest mass migration in human history has now concentrated more than 50 percent of the world’s population in cities, leading this year’s Global Risks Report to assert that the risk of failed urban planning is among the top global concerns.

“Without doubt, urbanization has increased social well-being,” commented one WEF trend-watcher. “But when cities develop too rapidly, their vulnerability increases: pandemics; breakdowns of or attacks on power, water or transport systems; and the effects of climate change are all major threats.”

Yet consider, also, the potential opportunities within the process of managing that trend toward ever-more-intense urban concentration. What if the prospect of chaotic urbanization were able to inspire greater city-management creativity – so that urban ingenuity makes successful urbanization a means to surmount other looming dangers?

For an example of the can-do determination and trademark optimism of the development community – with the world’s urbanization trend as its focus – consider the upbeat tone that pervaded a conference last week at the World Bank’s Preston Auditorium, analyzing “Smart Cities for Shared Prosperity.” With more than 850 participants in-person, and with viewers in 92 countries watching via livestream, the conference – co-sponsored by the World Resources Institute (WRI), Embarq, and the Transport and Information & Communications Technology (TICT) Global Practice of the World Bank Group – energized the world’s leading practitioners and scholars across the wide range of transportation-related, urban-focused, environment-conscious priorities.

(Thinking of the Preston gathering’s Davos-season timing and full-spectrum scope: It sometimes strikes me that – given the continuous procession of presidents, professors, poets and pundits at the Preston podium – there could be a tagline beneath Preston's entryway, suggesting that the Bank Group swirl of ideas feels like “Davos Every Day.”)

Amid its focus on building “smart cities” and strengthening urban sustainability, the annual Transforming Transportation conference took the “smart cities” concept beyond its customary focus on analyzing Big Data and deploying the latest technology-enabled metrics. By investing in “smart” urban design – and, above all, by putting people rather than automobiles at the center of city life – the scholars insisted that society can reclaim its urban destiny from the car-centric, carbon-intensive pattern that now chokes the livability of all too many cities.

The fast-forward series of “smart cities” speeches and seminars reinforced the agenda summarized by TICT Senior Director Pierre Guislain and WRI official Ani Dasgupta – formerly of the Bank Group and now the global director of WRI’s Ross Center on Sustainable Cities – in an Op-Ed commentary for Thomson Reuters: “We can either continue to build car-oriented cities that lock in unsustainable patterns, or we can scale up existing models for creating more inclusive, accessible and connected cities. Pursuing smarter urban mobility options can help growing cities leapfrog car-centric development and adopt strategies that boost inclusive economic growth and improve [the] quality of life.”

Strawberries, Chocolate and Skill Gaps

Priyam Saraf's picture


Technological changes and globalization have transformed the kind of skills required of workers in many sectors of the economy.  Yet, with employment opportunities becoming more fluid, it has also become harder to predict the skill content of next year’s jobs than it was when Korea, Malaysia and Singapore industrialized through industrial and training policies.

It is in this context that skill gaps have entered public discourse. Employers around the world routinely report large skill gaps and warn of dire consequences for industrial competitiveness if they are not filled. Governments, from India to the United States, have taken up this call.
 
How do employers identify these "skill gaps"? What does this mean for skills delivery systems around the world? These questions were recently discussed at a conference at the World Bank Group in Washington on "New Growth Strategies." Here are some thoughts we presented to kick off that discussion.
 
That the skills gap narrative has become so prominent in recent years does not sit well, for five reasons.
 
  • First, as the 2013 World Development Report reminds us, the world is overflowing with educated workers, many of whom are unemployed or underemployed.
  • Second, the wage returns to secondary education have been falling in many countries. Secondary attainment is the education level most critical to the performance of production tasks in most internationally tradable sectors.
  • Third, vocationally trained workers often do not find jobs.
  • Fourth, employers often don’t act as if there is a skill gap: In many internationally competing sectors, they do not cast a wide net in search of skilled workers, and retention rates are low.
  • Fifth, the high-employment tradable sectors are not very education-intensive. In most economies, workers in agriculture, fishing, forestry, textiles, garments, furniture, food processing and leather-goods production are among their country’s least educated.

 
So, why does this cacophony over skills gaps arise and how can we design skill-development systems that are robust to it? 
 
The confusion arises because we have perverse incentives in place. When we ask employers to identify skill gaps, we do not usually ask them to bear, or even consider, the cost of training workers. This is much like asking them whether they prefer strawberries or strawberries covered in chocolate, without asking them to pay extra for the chocolate.  They therefore routinely report a crippling shortage of chocolate. Yet, behind this strange exercise, there are some industries that are actually seriously skill constrained and there are other industries that are not skill constrained. The way we ask the question simply does not induce them to differentiate themselves.

On World Energy Day, Applauding an Energy Breakthrough: Innovation Through Successful 'Industrial Policy'

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 on Wednesday 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 has transformed the global energy landscape. If those new production methods can be responsibly carried out, in compliance with 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 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.

There: We actually said the fateful phrase: "industrial policy."

That always-somewhat-ambiguous term, "industrial policy," may have fallen out of political favor nowadays -- but there's no real reason to shrink from the idea, even though it's currently fashionable to use a euphemism like "innovation initiative" or "competitiveness strategy."

It's true, as skeptics suggest, that it's difficult to get industrial policy right. Public-private investment programs can be complex to design and sustain: In this case, it took about 40 years of experimentation and evolution to achieve the energy program's goals. Yet, when this initiative was launched in the energy-starved 1970s, various approaches to industrial policy were being vigorously pursued by many economies, large and small. (Yes, even the United States -- and even under conservative governments, as illustrated by the Ford Administration's pursuit of this program.) Put in its historical context, this example of 1970s-style industrial policy succeeded in delivering, at last, its long-promised payoff in productivity.

Piloted during the Ford Administration and ramped-up during the Carter Administration, this effort hailed from 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.” 
 

Mitchell’s determined experimentation with the new technologies built atop the crucial government investment in R&D. His entrepreneurial zeal was even more remarkable considering the opposition of many free-market absolutists on Capitol Hill, who disdained any type of public-private partnership that tolerated an active government role. Mitchell’s team gives credit where credit is due: “DOE started it, and other people took the ball and ran with it,” according to Mitchell’s former vice president and lead geologist. “You cannot diminish DOE’s involvement.”

Indeed, the impact of lower oil and natural-gas prices has been so dramatic that some energy-policy scholars, as became clear at this week’s European Union event, understandably worry that lower energy prices may lull governments and consumers into a false sense of security. Lower energy costs may remove a price-conscious spur to continued investment in cleaner, more sustainable alternative energy sources. That concern surely poses a genuine challenge for policymakers as they craft clean-energy and anti-climate-change strategies for the long term. Avoiding any backsliding on clean-energy investment will require sustained pro-innovation initiatives, and perhaps tax-policy adjustments, that promote long-term investment in cleaner energy sources. Disincentives on the use of fossil fuels is surely crucial to climate-smart strategies, speeding the transition toward renewable sources. The recent shale-gas revolution has bought some extra time for the economy to make that transition, and, as environmental advocates insist, that time must be used wisely. 

Looking back on the process that delivered today’s shale-gas and tight-oil abundance, the lesson is clear: A well-targeted industrial policy – or, if you’d prefer to use the modernized lingo, competitiveness strategy – inspired today’s revolution in energy policy. It’s the latest proof that competitiveness strategies, with the public sector and the private sector both playing constructive roles, can contribute to positive change.

So the next time a dogmatic defender of laissez-faire passivity tries to tell you that government should always keep its hands completely off the economy – or scoffs that all forms of competitiveness strategy are merely doomed attempts at “picking winners and losers” – remind that laissez-faire fatalist about the positive economic impact of government-and-industry partnerships.

Yes, it took decades of patient public-private teamwork to trigger this energy revolution. And, yes, as environmentalists wisely warn, the new technologies must be used under strict regulation that upholds the highest degree of environmental protection. Yet, accepting all the caveats, the economy now seems ready to reap a rich reward.

Whether you embrace the term "industrial policy" or use a euphemism like "competitiveness strategy," this example of mission-focused, government-organized, private-sector-driven, technology-led progress provides dollars-and-cents evidence that activist strategies, promoting research and investment in high-priority sectors of the economy, can deliver a dramatic payoff in productivity.

 

#TakeOn Job Creation and Economic Growth

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.

Structural change, from Khartoum to D.C.

Ivan Rossignol's picture
Once again, we’re approaching the Annual Meetings of the World Bank Group and the International Monetary Fund. As they do every year at this time, Africa’s Ministers of Finance and Central Bank Governors (“the Africa Caucus”) met in Khartoum on September 4, in part to preface the discussions they will have with the World Bank Group’s President.
 

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