For diversity in development strategies

The developing world is far more diverse than those responsible for development strategies seem to believe. Unless projects are cut to suit circumstances more, they may be doomed to fail.
Walk in the door of the World Bank in Washington DC and you will see, above the reception, a large slogan: Our dream is a world free of poverty. Since 1999, the World Bank has touted poverty reduction as the ultimate aim of development. In September 2000, the United Nations Millennium Summit adopted the Millennium Development Goals (MDGs), a set of social targets to be achieved by 2015, with halving the ratio of people in extreme poverty listed at the top. At the same time, the World Bank is pushing its poverty reduction strategy paper (PRSP) as the key instrument to be used by the developing world for reducing poverty. But does all this make sense?From a donor’s viewpoint, maybe. The Millennium Development Goals and the poverty reduction strategy paper are now linked as the end and basically the sole means of achieving development, and all poor countries are required to draft strategy papers before receiving concessional funds from the World Bank and the International Monetary Fund (IMF). Moreover, all official development assistance (ODA) flows, including bilateral aid, are to be orchestrated by this framework. In the wake of 11 September 2001, as the poverty-terrorism nexus was rediscovered, the world hardened its resolve to fight poverty. The EU and the US have decided to increase their ODA. In 2002, a series of international conferences dedicated to poverty reduction – including the Monterrey conference in March and the World Summit on Sustainable Development in Johannesburg in August/September – have kept up the momentum, as well as the hype.But are donors doing the right thing? With only targets and procedure and without new insight, is it possible to tackle a problem as tenacious as poverty, which all the efforts of the past half-century failed to eliminate? Despite the renewed enthusiasm and determination, the global drive to cut poverty may go off track if we do not maintain a sense of balance and continuity.The trouble with the global development strategy is that it shifts too drastically every several years to follow new trends. The current universal imposition of poverty reduction strategies may lead us to wonder what became of the development mantras of macroeconomic austerity and “structural adjustment” required of all highly indebted countries in the 1980s. This intellectual cascading is partly the result of the group psychology within national and international bureaucracies. While the advocates of development goals and strategies proclaim the fight against poverty as a new global consensus, it is not really so. The UNCTAD’s new report on the least developed countries calls for the creation of global growth links, not poverty targeting, in countries with generalised poverty. Suppressed discontent with the current pro-poor fervour is detectable in all major international organisations, including the World Bank.One key problem is that poor countries are diverse in their socio-economic structure as well as causes of poverty. A globally common framework, whether for reducing poverty or otherwise, cannot possibly serve all developing countries with different needs and aspirations. The current drive has diverted our attention from this fundamental point. The World Bank economists estimate that an additional $40-60 billion – or doubling the global ODA – is required annually to achieve the Millennium Development Goals. Their calculation is based on two alternative assumptions, the one on generating growth through productive investment and the other on counting up the cost of “pro-poor” measures on health, education and so on. But we still have not figured out what combination will work in each country. This omission could deter progress at the implementation stage.Consider this classification of developing countries:Middle-income achievers – graduating from ODA and becoming competitors in the global market and partners in international co-operation (examples: Malaysia, Chile);Late industrialisers – still very poor, promoting growth by building infrastructure and new trade and investment ties while attending to social problems (example: Vietnam);Resource-rich – installing mechanisms to use revenue productively, avoid overvaluation and soften price shocks (example: Kazakhstan);Small and isolated countries – steady implementation of modest but realistic measures to support agriculture, handicraft, tourism, mining, transportation, etc. (example: Laos);Poverty alleviators – building policy and administrative capability to execute pro-poor measures and achieve social integration (examples: Bolivia, Uganda);The fragile and unstable – with international involvement, creating political stability and supplying basic needs in preparation for future development (example: Afghanistan).The list is not meant to be exhaustive, but it does at least point to the need for diversity in development policies. In formulating the development strategy, each country must be carefully diagnosed with the strong participation of its government. If the wrong medicine is prescribed to the patient, it is ineffective at best and does serious harm at worst. International organisation strategies are essentially aimed at poverty alleviators, and cannot be presented as a cure for all the others. True, Sub-Saharan Africa suffers from widespread poverty. But even so, surely it is up to each developing country, not the aid donors, to decide whether cutting poverty should be the only national goal. In East Asia, economic growth was realised by staggered participation in a regional production network linked by trade and investment. One after another, countries with different stages of development joined this network and improved domestic capability under intense market pressure. For them, development was not a question of poverty reduction but a social process of catching up with the forerunners. Poverty fell sharply, but this was the result of a successful transformation through international integration, not the cause.Vietnam became the first East Asian country to complete a full poverty reduction strategy paper in May 2002. But the strain of an externally imposed poverty reduction framework on this growth-hungry economy became apparent. The country already had a five-year plan and a ten-year strategy which defined national goals of doubling GDP by 2010 and achieving industrialisation and modernisation by 2020. All fiscal resources were mobilised accordingly. When some eager donors insisted that their poverty reduction strategies were the supreme tool for resource allocation, the Vietnamese government sternly rejected the idea. The differences were papered over, and the resulting document – renamed the Comprehensive Poverty Reduction and Growth Strategy – is lauded as a model by the World Bank! But shouldn’t we rather have supported Vietnam’s own growth strategy, instead of trying to replace it with an entirely new one?With pride and ownership, each developing country should be able to select a mix of strategies from a broad menu that includes, among other options, growth driven by trade and investment. East Asia was particularly lucky to have a regional environment which encouraged this. But even without such an advantage, individual countries can also meaningfully integrate with the world as traders and not permanent aid receivers – witness the success of Chile. There is no reason why such a strategy should be denied to Sub-Saharan Africa either.* Professor Ohno advises the Japanese government on aid policy.ReferencesDevarajan, S., Miller, M.J., and Swanson, E.V. (2002), “Goals for Development: History, Prospects and Costs,” World Bank Discussion Paper no.2819 (April). Downloadable from World Bank website (see link below).Easterly, William (2001), The Elusive Quest for Growth, MIT Press.Ohno, K. (2002), “Development with Alternative Strategic Options: A Japanese View on the Poverty Reduction Drive and Beyond,” GRIPS Development Forum Policy Note No. 1 (May). Downloadable (see link below).Ohno, K. and Ohno, I., eds. (1998), Japanese Views on Economic Development: Diverse Paths to the Market, Routledge.United Nations Conference on Trade and Development (2002), The Least Developed Countries Report 2002: Escaping the Poverty Trap (June). Downloadable at UNCTAD website (see link below).National Economic University and Japan International Cooperation Agency, Joint Research Project on Vietnam’s Trade and Industrialization Policy under International Integration. See link below.© OECD Observer No. 233, August 2002

Economic data

GDP growth: +0.6% Q1 2019 year-on-year
Consumer price inflation: 2.3% May 2019 annual
Trade: +0.4% exp, -1.2% imp, Q1 2019
Unemployment: 5.2% July 2019
Last update: 8 July 2019


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