The Comprehensive Development Framework Strategies, Policies and Processes

1. The Comprehensive Development FrameworkStrategies, Policies and Processes Joseph E. Stiglitz Senior Vice President and Chief Economist The World Bank Kampala, Uganda October 26, 1999

2. Outline • Introduction • Development as Transformation of Society • A Critique of Previous Conceptions of Development • Consensus, Participation, Ownership and Role of Outsiders • Key Economic Issues Facing Africa Today • A Vision for the Future

3. I. Introduction • Moving past prevailing conceptions towards comprehensive development framework • Too often confused means with ends: GDP growth =>means, improved living standards =>ends • Narrow definition of means and ends • Ends include democratic, sustainable, & equitable development • Means go beyond liberalization, stabilization, privatization to institution building

4. I. Introduction (cont.) • Failure of some to succeed even in narrow objectives, despite adherence to standard prescriptions • Many successful development models followed alternative courses

5. Adapting Traditional Models To African Development Issues • Traditional development prescriptions resulted as response to Latin American crisis • Ill-equipped to deal with historical origins of development problems in Africa • Largely ignored importance of institution building • Took little notice of reform sequencing needs

6. Critical to Address Development Process As Well As Policy • Lack of participation => Lack of ownership • Insensitivity to indigenous conditions & needs • Importance of right processes. Wrong processes not only fail to engender results, but undermine democratic fabric of society • Better processes lead to better & sustainable reforms • Better processes necessary for success in the key to development: Modernization, transformation of society

7. Development Possible, But Not Inevitable • Some successes, some failures • Race to eliminate poverty and better living standards has succeeded in some but not all regions

8. Regional Poverty Rates Have Fallen Worldwide

9. But Aggregate Numbers of Poor Have Risen

10. Sub-Saharan Africa Experienced Huge Decline in GDP Per Capita

11. Increasing Life Expectancies, But Still Low in Africa

12. Fertility Rates Decreasing, But Still High in Africa

13. Illiteracy Rates Falling Worldwide, But Remain Very High In Africa

14. What Makes Success More Likely? • Strategies, Policies, Institutions, Processes that enhance likelihood of success • Beyond Projects--which helpful as they are, needs to be replicated thousands of times • Beyond Policies--which necessary as they are, do not alone guarantee success • Towards Strategies--blueprints and visions for future. Unlike previous planning documents, akin to corporate strategies • Emphasizing Institutions--so necessary for strategy formulation and policy/project implementation. At heart of both dynamic private sector and effective public sector • Employing Processes--which promote participation, ownership, and democracy, thereby directly supporting equitable & sustainable development

15. II. Development As Transformation of Society • Development means more than solution to technical set of problems. • Development is transformation of society • Changes in ways of thinking • Traditional to more modern, scientific • Change is possible, desirable • Can lead to improved living standards • Greater control over one’s life • “Modernization”

16. II. Development As Transformation of Society (cont.) • Indigenous traditions can and should be incorporated within development and provide foundations for transformation • Importance of social capital • Any society blends “modern” and “traditional”, but dual economy is not developed • Needs participation, ownership, and comprehensiveness.

17. III. A Critique of Previous Conceptions of Development • Viewed development through a lens of technical barriers to growth--improving efficiency of resource allocation and increasing endowments (K), focusing on: • using government to fill market gaps • reducing government-created distortions • macroeconomic stabilization

18. III. A Critique (cont.) • Lack of historical context • successful development efforts in past involved active government role • some societies without government distortions stagnate • many societies without government interventions experience social problems and deep instability • Disparity in success of seemingly similar regions implementing same policies illustrates how standard prescriptions do not suffice (Putnam: Civic Traditions in Modern Italy)

19. But One Should Not Ignore Key Lessons • Macro-stability is crucial • Resources are limited • Distortions are costly, especially for poor countries • Governments often fail to do what they should, and often do not do well things that should be left to the private sector

20. IV. Consensus, Participation, Ownership & Role of Outsiders • Development=>transformation of society=> changes in way of thinking • Changes in way of thinking requires processes of engagement • Such changes, to last, must be formed by participatory consensus within societies

21. Participation Enhances Success • More likely to bring to bear local knowledge, relevant for success • Engenders ownership and commitment, thereby sustainability • Builds social capital, promoting social stability • Sustainability especially important in progression towards more democratic processes - must withstand vicissitudes of political processes • Empirical evidence supports conclusion (India water projects)

22. Democracy and Development • Democracy is both an end itself and a means • Statistical relationship unclear, but no longer clear trade-off between democracy and growth • Democracy may actually enhance success • Participation reaches beyond voting • Consensus building: both for democracy and to avoid strife => enormous development setback • Ethnic diversity no adverse growth effect in democracy. • Importance of free press, transparency in preventing famines, limiting role of special interests

23. Role of Outsiders • Outsiders can play a constructive role in capacity building • share global experiences • participation in development of assistance strategy • participatory poverty assessments • Cautions • outsiders may not be sufficiently sensitive to local conditions, traditions, cultures • outsiders can undermine domestic consensus • outsiders can undermine country’s confidence, leadership • outsiders can undermine very process of democracy • issues particularly important in context of building institutions, processes

24. Opposition to “imposed” reforms render them less sustainable • In the long run, may undermine reform process itself • Outside advisors sometimes have given false sense of confidence in economic prescriptions • Scientific thinking recognizes uncertainty, risk • Good advice analyses consequences, leaving choice to political processes • Recognizes that there may differences in views (democratic pluralism)

25. V. Key Economic Issues Facing Africa Today • Many African countries today have mastered macro-economic problems • Uganda has achieved low inflation, nearly balanced its budget.

26. Uganda Has Done Well

27. Which Is Reflected in Its Investment

28. Other African Countries Have Also Achieved Macrostability

29. But Good Macroeconomics Are Not Enough • Need to focus on how government budget spent • As everywhere, need to improve quality, efficiency of public expenditures • Information, decentralization => key role • Structural Issues Also Key • Reforms more complicated than adjustment in single variable • Ownership/participation even more critical to success • Central to development transformation: involves evolving basic societal institutions (e.g. finance)

30. Central Government Auditing in Africa

31. Health in Africa • Infant mortality is down, but still high • Life expectancy has risen, but still low • Incidence of child malnutrition has risen

32. AIDS Overtaking Malaria in Suffering and Cost Impact of AIDS Current life expectancy Burkina Faso 46 11.3 Cote d'Ivoire 46.7 11 South Africa 56.9 7 Zimbabwe 41.9 22.2 Brazil 61.6 5.3 Thailand 68.6 2 0 20 40 60 80 1996 life expectancy in years

33. Challenging Problems. . . • Education • Improvement in some areas (secondary school enrollment) • Deterioration in Others (Falling primary school enrollment)

34. . . .But Also Distinct Advantages • Rich Natural Resource Endowment • But natural resources here have often not led to growth, captured by special interests, exploited. • Re-emphasizes importance of institutions • Lack of Density • If it can be controlled, avoids some problems (e.g. urban crowding) facing other regions

35. Investment • Overall evidence suggests returns to investment similar (or even higher) than other regions • But incremental Output-Capital Ratio is low

36. Incremental Output Capital Ratio

37. Investment • But private investment is low, while public investment is high • No crowding out of private investment apparent, rather, compensates for deficiencies • With more competition among foreign firms, more benefits accrue to country (especially if corruption can be avoided)

38. Investment • Domestic investment per capita in Sub-Saharan Africa decreased, and this while domestic investment in other regions surged

39. FDI Historically Low, But Rising • Flows to developing countries from European Union, Japan, and U.S. increasing • And Africa taking a larger share of the increase

40. Investment Still Limited • FDI investment in manufacturing is rising, but from low base • While good macro-economics creates favorable environment for investment, countries need to do more to make investment hospitable

41. VI. A Vision For the Future • Africa has made progress in last fifty years • But differences hidden by averages

42. Worst problems are self-inflicted: civil strife • Africa loses triply • consequences of strife • military expenditures • donor hesitancy to provide aid to countries with large defense expenditures

43. Progress Particularly Impressive in Last Ten Years • Beginnings of demographic transition • Democratization • New cohort of impressive leaders, honest and dedicated to improving plight of citizens • Macroeconomic stability • Rise in investment

44. Full Benefits of Progress Yet to Be Reaped • Investors not fully aware of such changes • Advanced industrial countries have not done as much as they could to open up markets • Millennium Round may bear fruit, as might U.S. legislation before Congress

45. Potential Advances in Future Even Greater • Progress in battle against diseases • Emerging mentality beyond colonial heritage & Cold War polarity that distorted decisionmaking => seize control of own destiny • “Ownership” of structural and institutional reforms, as earlier took “ownership” in macro-reforms • International community recognizes necessity of developing new foundations of exchange with Africa, of promoting equitable and sustainable change • Within Africa, new leadership, new sense of national identity, confidence, which poise it to seize opportunities

46. Returning to Central Themes • We now know far more about what makes for successful development, modernization, transformation • Beyond projects and policies to strategies, processes and institutions • Reforms already put in place -- including macro-stability-- lay strong foundation for next stage of reforms • Structural and institutional reforms • Key in success is taking full ownership • Requires participation, consensus building • Importance of discussions such as these