Transcript Fostering True Ownership in Vietnam: beyond CPRGS and aid

Overview
Analytical Framework & Transformation Strategy
Policy Formulation in Developing Countries
About This Course
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Design, implementation and assessment of
growth-oriented development policies
Collection and comparison of international best
and worst practices (not abstract theory or crosscountry regressions)
Both positive and normative aspects (situation
analysis and policy advice)
Interactive, evolving and open-ended discussion
Creation of a Developmental State:
An Operational Question
Predatory/patrimonial state—power and state
machinery for perpetuating private benefits of
leader, his family and friends
Developmental state—policies and institutions
for value creation & competitiveness for all
people and enterprises
How can we promote DS instead of PS?
 Political approach—encourage emergence of
developmental agenda, actors and coalitions
 Technical approach—provision of pragmatic &
concrete cases of international best policy
practices for willing governments to learn & adopt
Development Policy:
Desirability vs. Feasibility
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Development is both a political process and an
economic process.
What should be done
What can be done
HRD & technology
Infrastructure
Integration & competition
Systemic transition, etc
Leadership and elites
Coalition formation
Popular mindset
Administrative capacity
(mainly economics)
(mainly politics)
Each country is unique in what needs to be done as
well as what can actually be done.
Any policy maker must work with economic and
political space simultaneously.
Key Relations and Coalitions
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Leadership style
Horizontal coordination within central
government
Vertical coordination between central and local
governments
Relation with non-government stakeholders
Relation with foreign governments
We assume that these five relations are critical in
determining policy effectiveness.
We do not pre-impose the content of each
relation. Each country must create its own.
Key Relations and Coalitions
Cf. Leftwich’s DLP
Policy Learning
Latecomer countries must learn three kinds of policy
making:
 Growth policies
 Policies to cope with growth-generated problems
(income & wealth gaps, migration, traffic, housing,
corruption, environment…)
 Macroeconomic management under integration
 Unless these are learned, development effort will
stall. They can be learned from comparative study
of international best practices.
Growth Policy & Social Policy
Economic growth
START
Emergence of
new problems
Growth policy by
developmental state
Social stability &
popular support
20-30 years
later
Maturity of middle
class and political
aspiration
Democratic, highFINISH
income society
Income & wealth gaps,
environmental damage,
congestion, cultural
change, property
speculation, macro
instability, corruption…
Social policy
What Must Be Learned?
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Policy measures
Policy procedure and organization
Policy structure—vision, strategy, action plans,
monitoring
National movement for mindset change
The purpose is to acquire capability to create policy
package suitable for each country using foreign
models as building blocks.
Government can learn by self-study or with
assistance from advanced countries.
Learning from Other Countries
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It is NOT copying some policy adopted in some
other country without local context. Ad hoc or
random copying should be avoided.
The claim that “our country is unique” should not
be used as an excuse for not learning from others.
Learn mindset and methodology for conducting
industrial strategies effectively. Learn how to
make policies.
Early achievers (Japan, Korea, Singapore…)
improvised through self-effort and trial-and-error.
For today’s latecomers, more systematic learning
is desirable.
Institutional Dynamics
After knowing current status and desired system,
how can we move from the one to the other?
Common obstacles:
--Political resistance: corruption, vested interests,
neo-partrimonialism, predatory state
--Incompetence: leaders do not know or care
--Lack of knowledge or a mistake in designing
transition steps
--Bureaucratic sectionalism: no ministry or
department has full authority or responsibility
to execute reform
Comparative Institutional Analysis
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Prof. Masahiko Aoki and others
at Stanford Univ. and Tokyo Univ.
Based on evolutionary game theory
Some questions
--Why do multiple systems emerge and coexist,
without any system dominating all others?
--What is the dynamic mechanism of moving
from one system to another?
Key Concepts
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Institutional complementarity
E.g., OJT, life-time employment, keiretsu system, main
banks were mutually consistent in Postwar Japan
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Strategic complementarity
E.g., people in competitive society study professional
skills, people in connection society give parties & gifts.
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Path dependence
E.g., because of these complementarities, a system,
once started, will have little incentive to deviate.
Forces of Systemic Change
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Collective mutation
Foreign pressure (contact with another system)
Policy as deus ex machina
--Strong leader
--Political parties, interest groups, people’s movement
--Researchers, advisors, intellectuals
Those who are inside the country but do not follow the
rules of the existing system initiate change against
resistance
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Combining policy and foreign pressure
Collective mutation
Foreign pressure
Policy
Policy and foreign pressure
Lazy Workers in Japan
(Early 20th Century)
Survey of Industrial Workers, Ministry of Agriculture and
Commerce, 1901
 Japanese workers are only half as productive as
American workers.
 They stop working when supervisors are not watching.
 Skilled workers are few, and they are often too proud
and lazy.
 Job hopping is rampant in comparison with US.
 Japanese workers never save.
 Even today’s high performers started with low
capacity in private and public sectors.
South Korea: Unpromising Place
with Inept Institution
The Lessons of East Asia – Korea, K. Kim & D.M.
Leipziger (1993)
 Heavily dependent on US foreign aid for food, fuel and
other raw materials, Korea was not seen as a promising
place for major investments.
 During the period from 1940 to 1960, the Korean
bureaucracy was a kind of spoils system.
The East Asian Miracle, The World Bank (1993)
 At late as 1960, the Korean civil service was widely
viewed as a corrupt and inept institution.
 In less than two decades, this view has been
dramatically altered. By the late 1970s, the bureaucracy
had become one of the most reputable in developing
world. How did this come about?
Thailand: Haphazard Planning,
Shortage of Qualified Personnel
World Bank Mission Report 1959
 Investments have been authorized without first trying to
find out if they would serve urgent needs, if they would
be as productive as other alternatives, or if the
particular forms of investment chosen were the best
means of attaining their objectives.
 There is a shortage of trained manpower and of
managers and administrators qualified by experience to
operate industrial concerns and government
departments efficiently.
 It will be most difficult, if not impossible, to find suitably
trained and sufficiently experienced Thai personnel who
can be spared from present assignments to fill all these
important senior positions.
Source: A Public Development Program for Thailand, Report of a Mission organized by the IBRD at the request
of the Government of Thailand, The Johns Hopkins Press, 1959.
Middle Income Trap
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The developmental trap occurs when a country is
stuck at income dictated by given resources and
initial advantages, and cannot rise beyond that
level (growth is given, not created).
The level of income where the trap may occur
depends on endowment of resources and
advantages.
Low endowment  Poverty trap
Moderate endowment  Middle income trap
High endowment  High income
Trap (cont.)
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Countries may reach certain income by
liberalization and integration, but reaching higher
income requires strong policy effort to stimulate
private dynamism, not laissez-faire.
Growth based on FDI, aid, big projects, natural
resources, or locational advantages will eventually
end. The true source of development is value
creation by humans (skills, knowledge,
technology).
Government must produce policies & institutions
that promote human capital formation. This is
possible even under globalization, but appropriate
action is different from past policies. I call it
“proactive industrial policy.”
Speed of Catching Up: East Asia
Per capita real income relative to US
(Measured by the 1990 international Geary-Khamis dollars)
100%
Japan
90%
Singapore
80%
Hong Kong
Taiwan
Taiwan
S. Korea
S. Korea
70%
60%
50%
Malaysia
Malaysia
40%
Thailand
Thailand
Indonesia
Indonesia
30%
Philippines
Philippines
20%
Vietnam
10%
China
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
1955
1950
0%
Sources: Angus Maddison, The World Economy: Historical Statistics, OECD Development Centre, 2003; the
Central Bank of the Republic of China; and IMF, World Economic Outlook Database, April 2010 (for updating).
Latin America
Per capita real income relative to US
(Measured by the 1990 international Geary-Khamis dollars)
100%
90%
Argentina
80%
Brazil
70%
Chile
60%
Colombia
50%
Mexico
40%
Peru
30%
Urguay
20%
Venezuela
10%
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
1955
1950
0%
Sources: Angus Maddison, The World Economy: Historical Statistics, OECD Development Centre, 2003; the
Central Bank of the Republic of China; and IMF, World Economic Outlook Database, April 2010 (for updating).
South Asia
Per capita real income relative to US
(Measured by the 1990 international Geary-Khamis dollars)
100%
90%
80%
70%
India
60%
Sri Lanka
50%
Pakistan
40%
Bangladesh
30%
20%
10%
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
1955
1950
0%
Sources: Angus Maddison, The World Economy: Historical Statistics, OECD Development Centre, 2003; the
Central Bank of the Republic of China; and IMF, World Economic Outlook Database, April 2010 (for updating).
Africa
Per capita real income relative to US
(Measured by the 1990 international Geary-Khamis dollars)
100%
Botswana
90%
Cote d'Ivoire
80%
Egypt
70%
Ghana
60%
Kenya
50%
Madagascar
40%
Nigeria
30%
South Africa
Tanzania
20%
Tunisia
10%
Uganda
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
1955
1950
0%
Zambia
Sources: Angus Maddison, The World Economy: Historical Statistics, OECD Development Centre, 2003; the
Central Bank of the Republic of China; and IMF, World Economic Outlook Database, April 2010 (for updating).
Russia & Eastern Europe
Per capita real income relative to US
(Measured by the 1990 international Geary-Khamis dollars)
100%
90%
80%
USSR
70%
Czeco'kia
60%
Hungary
50%
Poland
40%
Romania
30%
Yugoslavia
20%
10%
2010
2005
2000
1995
1990
1985
1980
1975
1970
1965
1960
1955
1950
0%
Sources: Angus Maddison, The World Economy: Historical Statistics, OECD Development Centre, 2003; the
Central Bank of the Republic of China; and IMF, World Economic Outlook Database, April 2010 (for updating).
Stages of Catching-up Industrialization
Preindustrialization
Initial FDI
absorption
Internalizing
parts and
components
Internalizing
skills and
technology
Internalizing
innovation
Creativity
Technology
absorption
Agglomeration
(acceleration of FDI)
Arrival of
manufacturing
FDI
STAGE TWO
STAGE ONE
STAGE ZERO
Monoculture,
subsistence
agriculture, aid
dependency
Poor countries
Simple
manufacturing
under foreign
guidance
Have supporting
industries, but
still under foreign
guidance
STAGE FOUR
STAGE THREE
Management &
technology
mastered, can
produce high
quality goods
Full capability in
innovation and
product design as
global leader
Japan, US, EU
Korea, Taiwan
Thailand, Malaysia
Vietnam
Glass ceiling for
ASEAN countries
(Middle Income Trap)
Proactive Industrial Policy:
Seven Required Principles
1. Strong commitment to global integration and
private sector driven growth
2. A wise and strong government guiding private
sector
3. Securing sufficient policy tools for latecomer
industrialization
4. Constant policy learning through concrete
projects and programs
5. Internalization of knowledge, skills and
technology as a national goal
6. Effective public-private partnership
7. Collection and sharing of sufficient industrial
information between government and
businesses
Standard Policy Menu in East Asia
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Kaizen (factory productivity improvement tools)
Shindan (SME management consultant system)
Engineering universities (King Mongkut ITK, Nanyang
Polytechnic, Thai-Nichi Institute of Technology…)
TVET-business linkage (Singapore, Thailand…)
SME finance (two-step loans, credit guarantees…)
Integrated export promotion (Korea)
Innovation by technology research institutes (Taiwan)
Industrial zone development (Taiwan, Korea, Thailand,
Malaysia, Singapore…)
Strategic FDI marketing (Thai BOI, Malaysia’s MIDA,
Penang, Singapore)
Supporting industry promotion (parts & components;
Thai auto)