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.
Amid the week-long procession of buttoned-down, business-suited speakers who commanded the stage during the Annual Meetings week of the World Bank and International Monetary Fund, the most thought-provoking comments may have come from someone who was not outfitted in business attire at all – but who was instead wearing a clerical collar.
It seemed fitting that the remarks by (some might say) the week’s most authoritative participant occurred on a Sunday morning, at an hour when many Washingtonians habitually heed an authority even more elevated than the Bank and the Fund. The major attraction at the IMF’s day-long “Future of Finance” conference was the Archbishop of Canterbury, Justin Welby, whose stature lent a special gravitas to the already-serious tone of the Fund forum’s focus on scrupulous ethics as a bedrock principle of sound capitalism.
On a panel with some of the titans of worldly finance – including the leaders of the IMF and the Bank of England – only someone of Welby’s ecclesiastical renown could have stolen the show. Although he did his down-to-earth best to try to avoid upstaging his fellow panelists – quipping, “I feel rather like a lion in a den of Daniels at the moment . . . slightly nerve-wracking” – the leader of the worldwide Anglican Communion was clearly the marquee draw for the throng that packed the Jack Morton Auditorium, spilled beyond the extra overflow rooms and jammed the adjoining corridors.
Citing the need for “heroism in the classic sense” to overcomethe spirit of “recklessness” that recently pervaded much of the financial industry, Welby called for a return to “ethical and worthwhile banking.” He urged everyone working in finance to aim to “leave a mark on the world that contributes to human flourishing.”
Welby – himself a former financier, who traded derivatives and futures before he joined the clergy – recounted the misgivings of the mournful bankers whom he had interviewed while serving as a member of the U.K.’s Banking Standards Commission in the wake of the 2008 financial crash. Welby recalled the lamentations of a deeply penitent banker who had been “broken by the experience” of leading his bank to ruin: In retrospect, reasoned the banker, “you can either have a big bank that’s simple, or a small bank that’s complex, [but] you cannot have a big complex bank and run it properly. . . . If only we had kept things simple.”
Welby’s call for the highest standards of conduct in the financial sector was matched by the exhortations of his fellow panelists – including IMF Managing Director Christine Lagarde, who reminded the audience that every financier must see himself or herself as “a custodian of the public good.” Lagarde's message was underscored by Bank of England Governor Mark Carney – who also leads the global Financial Stability Board – who deplored the pre-crash “disembodiment and detachment of finance” from the rest of the economy.
Only by upholding the most exacting ethical standards, said Largarde and Carney, can financiers rebuild public confidence in the financial sector – confidence that, in Lagarde's words, “builds over time and dies overnight.”
The regrets voiced by the panel’s private-sector financiers contributed to the panel’s almost confessional tone.
“If we can’t get the basic incentives right, it’ll be hard to get the right outcomes,” said Philipp Hildebrand, who had served as a senior central-bank official during the financial crisis before returning to the private sector. He reflected that “with wrong incentives, you end up with a wrong business model,” which in turn attracts “the wrong kind of people” who are prone to take excessive risks. Thus he underscored the need for “a personal transformation” within the spirit of every business leader.
Putting an even sharper point on the source of the problem, longtime financier Kok-Song Ng regretted that “a virus entered the system” in the years leading up to the crash, as financial firms deliberately recruited profit-driven “mercenaries” to run their trading desks. Those firms ignored the explosive risks being taken by their hired-gun traders, because they succumbed to “the great temptations for those in ‘the money world’ to want to make a quick buck” no matter how dangerous their tactics might be.
"The future need not run in the ruts of the past. It is possible to jump the tracks and take a new direction. Only by delving deep into the past can we hope to project ourselves imaginatively [for] any meaningful distance into the future." -- "The History Manifesto"
Just in time for the Annual Meetings of the World Bank Group and the International Monetary Fund, along comes an insightful essay – by historians at Harvard and Brown universities, not Bank or Fund economists – that helps put the event's meaning into perspective.
Anyone who has experienced the week-long whirl of diplomacy, economics and finance – a pop-up university amid an ad-hoc global village – recognizes the Annual Meetings and Spring Meetings as the year’s most intense hothouses of global knowledge-exchange. Bank and Fund staff anticipate every such marathon with a mixture of excitement and anxiety: As exhilarating as it is exhausting, the coming Bank-Fund week will be a tsunami of scholarship on international relations.
You will scarcely be able to cross 19th Street NW this week without spotting a Nobel Prize-winner, a Foreign Minister or Finance Minister, a portentous professor or pontificating pundit. Economists expounding, statesmen scurrying, speechwriters scribbling: Packed into the precincts around 19th and H Streets NW, the weight of the world will seem to burden every panelist at every seminar. At the end of each week-long sprint, each April and October, one often gazes into an overfilled notebook – alongside a stack of newly issued policy reports – in a state of dizzied disbelief, wondering: What does it all add up to?
Maximizing the value of such a cavalcade of expert knowledge requires a sense of global imagination, policy realism and academic insight – along with, crucially, a long-term perspective on the lessons that history can teach us about “the art of the possible.” That’s the memorable takeaway from a timely essay in the Guardian this week by Harvard historian David Armitage and Brown historian Jo Guldi, who assert that a sense of history must help shape policymaking in real time.
History “is a critical science for questioning short-term views, complicating simple stories about causes and consequences, and discovering roads not taken.” Rigorous economics always undergirds the work of the Bank and the Fund – yet those who strive for the greatest understanding from Annual Meetings week would be wise to also view the proceedings through the lens of disciplines like history, political science and sociology.
“Historical thinking – and not just by those who call themselves historians – can and should inform practice and policy today,” according to Armitage and Guldi, the authors of the new work, “The History Manifesto." That remark recalls an insight, during a recent Bank forum, by the Stanford scholar Francis Fukuyama: that the Bank and Fund should heed the viewpoints of a wider range of social-science disciplines – especially political science – even as its dollars-and-cents decisions as a lending institution are guided by economics.
(For those seeking insights into Fukuyama’s latest blockbuster, “Political Order and Political Decay: From the Industrial Revolution to the Globalization of Democracy”: Fukuyama will deliver a livestreamed speech at the New America Foundation on Wednesday, October 8 at 12:15 p.m. – in an example of the Annual-Meetings-week “knowledge spillover effect” that energizes Washington’s realm of think tanks.)
“History can upset the established consensus, expand narrow horizons and, in Simon Schama’s words, ‘keep the powerful awake at night,’ ” according to Armitage and Guldi. “In that mission lies the public future of the past.”
“When my information changes, I alter my conclusions. What do you do, sir?”
That quote is usually attributed to John Maynard Keynes, and it was popularized by Paul Samuelson. Some say it was invented by Samuelson. It’s one of my favorites: a warning to us about confusing consistency and dogma. It has been coming to mind lately, in the run-up to to our conference on “New Growth Strategies” and its keynote address by Dani Rodrik.
This is because there seems to be an evolution happening in Rodrik’s ideas. Here at the World Bank Group, he is probably best known for his opposition to “one size fits all” growth models, such as the Washington Consensus, and his development of what is now called “new industrial policy.” This drew on extensive empirical evidence on everything from the technological sophistication of exports, to processes of cost discovery among firms, to the effect of currency devaluation. At the micro-level it led to the injunction to experiment, fail fast, and learn; and at the macro-level to the advocacy of, among other steps, real-exchange-rate depreciation. In the Bank itself, these ideas came to particular prominence under our former Chief Economist, Justin Lin.
But Rodrik’s recent papers may signal a subtle shift. A longstanding objection to neo-classical growth theory is that it predicts unconditional convergence between rich and poor economies, yet, instead, we’ve seen persistent divergence. So convergence is often made conditional on “fundamentals,” a catch-all term that ranges from human capital to institutions to geography.
In a paper in the Quarterly Journal of Economics last year, though, Rodrik showed that there is unconditional convergence, at least in labor productivity, but only in manufacturing.
He called such sectors “escalator industries,” because they can drive growth even if the “fundamentals” remain poor, so long as there is structural transformation. This buttressed his argument for exchange-rate depreciation, which provides large implicit subsidies to such industries. The argument is similar to Joseph Stiglitz’s that some industries “learn” faster than others (notably manufacturing), generating large externalities that merit special treatment.
But now Rodrik seems to have turned pessimistic. At the Center for Global Development six months ago he delivered a paper on growth in Africa, citing research by Alan Gelb and Vijaya Ramachandran that costs on the continent are too high, limiting the potential for such escalator industries. This led naturally to his earlier arguments about exchange rates, but then he seemed to implicitly disavow those, stating:
“Yet I have the suspicion that the obstacles industrialization faces in Africa are more deep‐seated, and go beyond specific African circumstances. For various reasons that we do not quite understand, industrialization has become really hard for all countries of the world.”
He then considered alternate strategies to industrialization, including agriculture-, services- and resource-led growth, being somewhat pessimistic about all of them.
Where does that leave us? Back with only the long, slow grind of improving the fundamentals? Is this the beginning of a disavowal of "new industrial policy," or at least a much-diminished view of its potential?
The diagram of a horizontally sliced triangle, with its wide base and pointy tip, has been used to represent socio-economic data for decades. The lowest and largest portion represents the poorest and most populous segment of society - living "at the bottom of the pyramid." In the context of mobile innovation, we prefer the alternate term, "base of the pyramid," which is closer to signifying the foundational, fundamental role of this demographic group in the health of an economy.
Regardless of semantics, the phrase has been widely used by researchers to consider the effects of various phenomena on this group of people (see select references related to digital entrepreneurship here). While many of these studies have produced insights for the development community, few have contributed practical knowledge for the entrepreneurs who live among and serve this critical group.
In 2012, infoDev commissioned country case studies on the use of mobile devices (then still mostly simple phones) at the base of the pyramid in Kenya and South Africa, with funding from the Ministry for Foreign Affairs of Finland and DFID (UK). Relying in part on a diary methodology and household surveys, the team was able to collect a rich set of qualitative and quantitative data to describe how mobile technologies were being used by the poor in their daily lives, as well as recording a series of videos with users.
They showed, for instance, that users in Kenya were willing to forego basic necessities such as food, transport or toiletries to pay for mobile credit in the knowledge that this would give them better opportunities to find work. In other words, we found that mobile phones are highly valued by and influential in the lives of people at the “base of the pyramid,” and decided to deepen our knowledge further in a way that would benefit entrepreneurs who create applications that serve this population.
In the last couple of days, I was struck by two pieces of news. They were small but surprising, and both affect the way we think about how to strengthen an economy in a developing country.
One news item concerned shifting intellectual currents. Faculties of economics in seven cities announced last week that they will be revising their curriculum. They are responding to demands from students, such leading academics as Joseph Stiglitz and such policymakers as Andy Haldane at the Bank of England. Their goal is to reduce the dominance of neoclassical models and to have economics courses that will focus on the real-world responses to financial crises, inequality and other problems. This is no ordinary student rebellion: On Friday, the Financial Times published an editorial in their support. On the heels of Ha Joon Chang’s book launch (“Economics: The User’s Guide”), I found this news interesting. Is there one way to look at an economy, and can we afford to rally behind one school of thought?
The other story was more depressing. It concerned what former U.S. Treasury Secretary and former Harvard President Larry Summers and others are calling “secular stagnation.” It showed that U.S. firms’ net capital expenditure was the exact same in 2013 as it was in 2000. So, even smoothing out the global financial crisis, even in the largest economy in the world – with one of the best business environments and all the innovation of places like Silicon Valley – investment has been flat for more than a decade. Summers’ argument, which he advocates in textbooks, essays and speeches, is that we have entered a period of permanently lower private-sector investment.
Renforcer la compétitivité, la résilience au changement climatique et les industries innovantes, améliorer l'accès à l'eau potable et à une énergie abordable, le tout en créant des emplois verts au niveau local… Ce n'est pas tous les jours que les pays en développement peuvent bénéficier de toutes ces retombées à partir d’un seul et même gisement d'opportunités !
Ce filon est celui des technologies climatiques propres, comme le montre un nouveau rapport élaboré par infoDev/Banque mondiale et intitulé Développer des industries vertes compétitives. Cette étude a consisté à évaluer les marchés potentiels pour 15 secteurs émergents dans le domaine des technologies propres dans les pays en développement. Globalement, les investissements dans ces secteurs devraient atteindre 6 400 milliards de dollars au cours de la prochaine décennie (2014-2023). Et, autre élément encore plus prometteur, sur cette somme globale, 1 600 milliards de dollars représentent des opportunités commerciales pour les petites et moyennes entreprises (PME), lesquelles constituent de puissants moteurs pour créer des emplois de qualité et renforcer la compétitivité dans les secteurs technologiques.
Fortalecer la competitividad, la capacidad de adaptación al cambio climático y las industrias locales innovadoras. Sin mencionar, el mejoramiento del acceso al agua potable y a la energía asequible y, al mismo tiempo, la creación de empleos locales ecológicos. No todos los días estos múltiples objetivos confluyen en una oportunidad que está lista para que sea aprovechada por los países en desarrollo.
¿Cómo se puede conseguir esto? Tal como lo destaca el nuevo informe del Banco Mundial/infoDev “Building Competitive Green Industries: The Climate and Clean Technology Opportunity in Developing Countries” (Fortalecimiento de las industrias ecológicas competitivas: La oportunidad que ofrecen el clima y la tecnología limpia en los países en desarrollo), los países que desarrollan con éxito empresas de tecnología limpia y relacionadas con el clima pueden realizar progresos significativos hacia estos diversos objetivos.
El estudio evaluó el mercado potencial de 15 sectores emergentes de tecnología limpia en el mundo en desarrollo. En conjunto, se calcula que las inversiones en estos sectores podrían alcanzar hasta US$6,4 billones durante la próxima década (2014-2023). Lo que es incluso más prometedor, US$1,6 billones de esa suma representan oportunidades de negocios para pequeñas y medianas empresas (pymes), que son importantes impulsoras de la creación de empleos de alta calidad y de la competitividad en los sectores tecnológicos.
Did you know 25% of economies covered by the 2014 Women, Business and the Law pilot indicator on protecting women from violence have no laws in place on domestic violence? The Women, Business and the Law dataset and report provide a breakdown of the legal framework affecting women’s ability to contribute to entrepreneurial and economic activity in 143 economies.
The report, which is fully available online for download as of today, covers legal differences that affect women’s economic empowerment including areas such as personal capacity, property, and employment legislation. For the first time, the report also includes data on violence against women legislation.
It is important that men are part of the discussion about the inequalities faced by women and girls around the world. The actor Emma Watson, in her speech on behalf of the HeForShe campaign at the United Nations this week, called on men to be part of the change. But the process of change should not stop there—around the world, women need enforceable legal protection and mechanisms that guarantee their rights.