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
Ideas & Concepts for the Course
Politics and economics
 Relationships among key players
 Policy learning
 Institutional dynamics
 Middle income traps
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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
Development is both a political process and an economic
process.
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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
(economics) as well as what can actually be done
(politics & administrative capacity).
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 players
We assume that these five relations are critical in
determining policy effectiveness.
We do not pre-impose an ideal form on each
relation. Each country must create its own.
Key Relations and Coalitions
Policy Learning
Latecomer countries must learn three kinds of policy
making:
 Growth policies
 Social policies to cope with growth-generated
problems (income & wealth gaps, migration,
traffic, housing, corruption, environment…)
 Macroeconomic management under integration
 Unless all these are learned, development effort
will stall. They can be efficiently learned from
comparative study of international best (and
worst) practices.
Growth & Social Policy: An East Asian Pattern
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, land & stock
bubbles, 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 help
from advanced countries (policy dialogue).
Learning from Other Countries
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DO NOT copy 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-patrimonialism, predatory state
--Incompetence: leaders and officials 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?
Middle Income Traps
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A middle income trap is a situation where an
economy 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 the amount of given advantages
relative to population.
Low endowment  Poverty trap
Moderate endowment  Middle income trap
High endowment  High income stagnation
Trap (cont.)
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Countries may reach certain income by liberalization,
privatization 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
people and domestic enterprises (skills, knowledge,
technology, innovation).
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.”
Why Do Countries Diverge?
Country that creates internal
value through human capital
upgrading
Per capita income
High
Skills, technology,
knowledge, innovation
Middle income trap
Middle
Initial growth by
liberalization,
privatization,
integration
Country that grows by given
advantages only – natural
resource, trade opportunity, FDI,
ODA, big projects, asset bubbles;
No creation of internal value
Low
10-15 years
Critical point
in history
Time
Speed of Catching Up: East Asia
Per capita real income relative to US
(Measured by the 1990 international Geary-Khamis dollars)
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)
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)
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)
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)
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).
Hypothesis of Policy Quality
The main determinant of the success/failure of
development (and overcoming a middle income
trap) is the quality of industrial policy.
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Policy quality is correlated with income achievement
Policy quality varies widely across countries.
Within a country, policy quality is relatively uniform
across different policy components
Other factors are also important but not critical—
location, geography, natural resources, infrastructure,
population, FDI, ODA, mega projects…
Fair
Industrial policy assessment by GDF
Singapore
$54,040
1
A+
Taiwan
$20,930
16
A
Malaysia
$10,400
6
B
Thailand
$5,370
18
B-
Indonesia
$3,580
120
D
Vietnam
$1,730
99
D
India
$1,570
134
D
NA
Productivity &
innovation
Industrial
parks
FDI policy
Export
promotion
Manufacturing
SMEs
(industrial human resource & enterprise support)
Overall
Fail
Ease of
Doing
Business
Per capita
income (WB, ranking (WB,
2013, USD) 2013, among
189
countries)
Supporting
industries
Good
Income Performance vs.
Quality of Industrial Policy
Human
resource
Very good
NA
Note: Policy assessment excludes results of external factors, private effort or foreign support.