Overview Analytical Framework & Transformation Strategy
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Transcript of Overview Analytical Framework & Transformation Strategy
OverviewAnalytical Framework & Transformation Strategy
Policy Formulation in Developing Countries
About This Course Design, implementation and assessment of
growth-oriented development policies Collection and comparison of international best
and worst practices (not abstract theory or cross-country 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 Development is both a political process and an
economic process.
What should be doneHRD & technology
InfrastructureIntegration & competitionSystemic transition, etc
What can be doneLeadership and elites
Coalition formationPopular mindset
Administrative capacity
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.
(mainly economics) (mainly politics)
Key Relations and Coalitions1. Leadership style2. Horizontal coordination within central
government3. Vertical coordination between central and local
governments4. Relation with non-government stakeholders5. 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 LearningLatecomer 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
Emergence of new problems
Social stability & popular support
Growth policy by developmental state
START
Income & wealth gaps, environmental damage, congestion, cultural change, property speculation, macro instability, corruption…
Social policy20-30 years later
Democratic, high-income societyFINISH
Maturity of middle class and political aspiration
What Must Be Learned? 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 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 DynamicsAfter 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 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 Institutional complementarity
E.g., OJT, life-time employment, keiretsu system, main banks were mutually consistent in Postwar Japan
Strategic complementarityE.g., people in competitive society study professional
skills, people in connection society give parties & gifts.
Path dependenceE.g., because of these complementarities, a system,
once started, will have little incentive to deviate.
Forces of Systemic Change 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
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.
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?
South Korea: Unpromising Place with Inept Institution
Thailand: Haphazard Planning, Shortage of Qualified PersonnelWorld 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 requestof the Government of Thailand, The Johns Hopkins Press, 1959.
Middle Income Trap 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 trapModerate endowment Middle income trapHigh endowment High income
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.”
Trap (cont.)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
Japan
Singapore
Hong Kong
Taiwan
S. Korea
Malaysia
Thailand
Indonesia
Philippines
Vietnam
China
Speed of Catching Up: East Asia
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).
Per capita real income relative to US(Measured by the 1990 international Geary-Khamis dollars)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
Taiwan
S. Korea
Malaysia
Thailand
Indonesia
Philippines
Vietnam
China
Latin America
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).
Per capita real income relative to US(Measured by the 1990 international Geary-Khamis dollars)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
Argentina
Brazil
Chile
Colombia
Mexico
Peru
Urguay
Venezuela
South Asia
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).
Per capita real income relative to US(Measured by the 1990 international Geary-Khamis dollars)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
India
Sri Lanka
Pakistan
Bangladesh
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
Botswana
Cote d'Ivoire
Egypt
Ghana
Kenya
Madagascar
Nigeria
South Africa
Tanzania
Tunisia
Uganda
Zambia
Africa
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).
Per capita real income relative to US(Measured by the 1990 international Geary-Khamis dollars)
Russia & Eastern Europe
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).
Per capita real income relative to US(Measured by the 1990 international Geary-Khamis dollars)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
USSR
Czeco'kia
Hungary
Poland
Romania
Yugoslavia
STAGE ONE
Simple manufacturing under foreign
guidance
STAGE TWO
Have supporting
industries, but still under
foreign guidance
STAGE THREE
Management & technology
mastered, can produce high quality goods
STAGE FOUR
Full capability in innovation and product
design as global leader
Vietnam
Thailand, Malaysia
Korea, Taiwan
Japan, US, EU
Agglomeration (acceleration of
FDI)
Creativity
Glass ceiling for ASEAN countries(Middle Income Trap)
Stages of Catching-up Industrialization
Initial FDI absorption
Internalizing parts and
components
Technology absorption
Internalizing skills and
technology
Internalizing innovation
STAGE ZERO
Monoculture, subsistence
agriculture, aid dependency
Pre- industrialization
Arrival of manufacturing
FDI
Poor countries
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 partnership7. Collection and sharing of sufficient industrial
information between government and businesses
Standard Policy Menu in East Asia 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)