For: THE MESSENGER, Georgian Daily Newspaper in English
On Democracy (V): What works? Eight Lessons about Sustainable Economic Development
By Guenther Baechler*
Wednesday, July 3
Recently the Report of the High-Level Panel of Eminent Persons – among them Ellen Johnson Sirleaf and David Cameron – on the Post-2015 Development Agenda was released. Under the title: “A New Global Partnership” (UN Publications, 2013) the High-Level Panel aims to eradicate absolute poverty and transform national economies through sustainable development. The Panel praises the Millennium Declaration and its significant results achieved so far. However, it also states that the world must go beyond the MDGs since they did not focus enough on the poorest and the most excluded people. The Goals “were silent on the devastating effects of conflict and violence on development. The importance to development of good governance and institutions that guarantee the rule of law, free speech and open and accountable government was not included, nor the need for inclusive growth to provide jobs. Most seriously, the MDGs fell short by not integrating the economic, social, and environmental aspects of sustainable development …” (see: Executive Summary).
Indeed the Eminent Persons’ visions and recommendations reflect some hard lessons learnt during the last decade or so; although one may say that in the context of the MDGs half a billion less people fall below the poverty line and child death rate decreased by 30%. One may also conclude that there are less armed conflicts with less battle deaths than in the years after the end of the Cold War. At the same time one has to shed light also on some dark clouds of the past ten years’ human development: the spread and failure of neo-liberalism which as a consequence triggered growing social exclusion, widening societal inequalities, large scale economic crimes, widespread elite corruption, increasing unemployment, unbearable state debts, global crisis of the financial sector, and last but not least devastating environmental damages and climate change.
Against the ambivalent picture I would like to discuss eight hypotheses about successful economic development of countries in transition. The hypotheses are drawn from in-depth as well as comparative research about “good performers”. The idea is not to talk about what governments should or should not do rather, my guiding question is: What did ultimately work and why? Lessons can be learnt from quite a diverse group of countries: some new EU member states, the South East-Asian “tigers” (like South Korea and Taiwan), some newly developed countries in Africa (like Ghana), and to some extent also the BRIC states:
1. Growth without development induces modernization without democratization. Of course transition countries do need growth; and even quite steep growth rates. Growth is induced by modernization of infrastructure, the financial sector, and the technological capital, however, not exclusively so. In the long run growth and modernization depend on much more than that. It encompasses a balanced and simultaneous development of agriculture, industries, and services and this in combination with viable state institutions, good governance, and a well educated work force. A structural coherence of the economic, environmental, societal, and political domain is both a precondition as well as an objective of sustainable development. Against this complex fabric the purely quantitative measurement of growth in terms of CNP is quite tricky indeed. The figure as such does not reveal that CNP might be composed of very different kinds of rather unproductive growth rates such as expenditures for natural catastrophes, repair work, unsound state interventions, or prestige objects without any link to the local economy. We also know from history that anti-cyclical military expenditures my block necessary innovation in the industrial sector.
2. Sound economic development starts with the agricultural sector. Industrialization in any country is based on enhanced productivity of the agricultural sector; in some cases complemented by the exploitation of non-renewable resources. Without enhanced agricultural productivity a given economy does not produce the resources needed in order to engage the local workforce, to develop the rural areas and sub-regional service and trade centers, or to create a viable link between agriculture, services, and industries. Agriculture lays the fundament for long term development for a country to become less dependent on imports for consumption, on foreign debts, and on foreign direct investment. Primacy on big industries and FDIs without developing the rural sector leads to crises of productivity, high unemployment rates and as a consequence to societal divides with regimes that tend to become more authoritarian. In order to overcome both the “urban bias” as well as the “rural poverty” the emphasis on the production of “productive values” in the context of local traditions, strengths, and capacities is more important than just the import of goods and capital.
3. The creation of a productive internal market starts with the production of relatively simple goods for mass consumption and not with highly sophisticated techno-parks. Industrialization and the providing of services may indeed start in coherence with the agricultural sector but has to go beyond farming. There is quite a series of goods and productive values that may enhance interdependence of productivity between agriculture, industries, and services as well as to substitute imports to a certain extent. Viable rural areas comprise industrialized food processing, modern storage and cooling facilities, transport infrastructure, but also the production of tools, machines, and equipments for a modernized agricultural sector. Why to import expensive and heavy machinery that degrades soils rather than producing machinery for small and medium scale farmers that are adapted to the local conditions? Beyond, access to information is as important in rural areas as it is in urban centers.
4. Small-scale inequalities in the distribution of land, income, and capital triggers sound economic competition at the sub-national level. For long the critics of large scale and growing inequality where focusing on “equality” as a normative societal concept. As we know nowhere in the world absolute equality has ever been established. Communism failed after seventy years because it was not able to come any closer to equality at all but created a nomenclature instead that distanced itself from the generalized and repressively controlled poverty in the system. What we know from empirical research is that a certain level of inequality may become a motor for development, productivity, ingenuity, and innovation. It may stimulate private initiatives and engagement rather than lead to social protest or despair. It is a question of local culture, societal structures, and good governance to define the level of inequality in terms of income, property, land resources etc. that might be productive for a society. It is a matter of good governance and of socially sensitive government interventions to avoid a level of inequality that might lead to polarization and societal divides.
5. The mobilization of human resources and competencies is crucial for sustainable development. Such mobilization has to be based on a multi-facetted and decentralized education system to which may belong: state and private universities, technical high schools, vocational training centers, and professional on the job training and education. It is the “capital of mind” that ultimately mobilizes innovative resources, promotes productivity, explores new options, takes care of natural resources, and forms the basis for both a balanced national economy and international economic integration. Sustainable development of the capital of mind consequently leads to a transition from a traditional to a modern and socially differentiated society. Educated modern people request further training, higher incomes, and political participation (organization, civil society, associations) which all together are drivers for democratic advancement.
6. A foreign trade and export orientation (although modestly at the beginning) strengthens the domestic production and distribution system. Two strategies proofed to be fundamentally disastrous for transition countries: a) the complete opening of the local economy for foreign investments and goods; b) the complete closure (autarky) of the local economy. Economic integration is not about high walls or no walls at the state border at all. The recipe is a well designed and selective mix of protection measures of young sectors and of export promotion of matured ones. We learnt that protectionism is poisonous for the world market and therefore as a consequence also for national economies. Nevertheless, well performing governments around the world are engaged in defining some transitional protective measures for new industries and sectors. There must be a basket of activities and measures in order to achieve the national development goal (customs, subsidies, regulatory mechanisms, incentives, tax exemptions, etc.). However, new sectors should neither suffer from undue state interventions nor from measures that are not flexible and adaptable or removable over time.
7. Socially exclusive modernization coincides with repressive reactions of elites that benefit most from growth without broad-based development. Ironically, modernization is based on heavy anti-liberal state interventions which go hand in hand with anti-democratic pressure on the majority of people that is simply left behind. Today, OECD counts forty fragile states around the world. Those states deserve special attention of the world community in order to strengthen their performance and to not let them down. As a rule those states or struck by various dimensions of fragility ranging from the collapse of the agricultural sector, overuse of natural resources, and weak economic performance till societal and ethnic divides or clashes, radicalization of political movements, criminal and terrorist violence, and failing state institutions. The group of fragile states provides lessons about what does not work in terms of sustainable development, participation, and social mobilization.
8. In the transition phase regional development and integration is more important than access to global markets. With new sectors that are still vulnerable good performers focused on regional integration first before they started to compete on the world market. It is true that for transition countries and newcomers it is not easy to find niches for productive and innovative sectors. They have to access and open up markets that are not overcrowded yet; and they have to compete with highly productive companies that are already dominating the world market. It seems that environmentally sensitive investments in infrastructure (housing), energy, and communication may have a big chance to become a pathfinder. Therefore, green technologies in all fields as well as the sound use of renewable resources may prominently contribute to successful transitions in the future. Moreover, may be each newcomer needs one or two flagship sectors that serve as pilots for economic trust building and public relations.
There is a lot of evidence that countries which successfully managed transition and national development have taken the eight lessons into due consideration. Of course nobody is perfect and some of the countries mentioned above may still suffer from major shortcomings. There is also no guarantee whatsoever that succeeding governments may get everything right. Nevertheless the general policy orientation and strategies are important. Lessons from “good performers” teach us that democracy and economy are systemically interlinked. Economic modernization without development undermines democracy and societal integration. Democratization without economic development has its clear limits, too; it leads to the “socialization” of the debts and shortcomings.
With the Eminent Persons’ Report an old debate that concerned myriads of scientists after both the decolonization of the South as well as the Cold War in Europe is finally reaching its well deserved end. The core question always was: what shall be first, democracy or development? As we have observed: the African “developmental state” with an authoritarian “non-party system” ended in a mere catastrophe (genocide in Rwanda in 1994). The “modernization state” with growing state expenditures, maraud financial sector, and falling productivity is another model that recently came under tremendous pressure (Greece as only one example).
Against this the Eminent Persons’ Report may in the same way as the MDGs did provoke a huge leap forward in terms of sustainable development, social inclusion, and democratic peace. The five big transformative shifts the Panel proposes are not really new as such – at least not to development experts. If taken seriously by eminent leaders and democratically legitimized governments all over the world they may indeed lead to a shift of paradigm. The political program reads: 1) leave no one behind; 2) put sustainable development at the core; 3) transform economies for jobs and inclusive growth; 4) build peace and effective, open and accountable institutions for all; 5) forge a new global partnership. Well, let us become partners to implement the program right from today.
*Guenther Baechler, Ambassador of Switzerland in Tbilisi, holds a PhD in political science and is a visiting professor at the Institute for European Studies at the University of Basel.