The Comprehensive Development FrameworkStrategies, Policies and

ProcessesJoseph E. Stiglitz

Senior Vice President and Chief Economist

The World Bank

Kampala, UgandaOctober 26, 1999

Outline • Introduction

• Development as Transformation of Society

• A Critique of Previous Conceptions of Development

• Consensus, Participation, Ownership and Role of Outsiders

• Key Economic Issues Facing Africa Today

• A Vision for the Future

I. Introduction

• Moving past prevailing conceptions towards comprehensive development framework

• Too often confused means with ends: GDP growth =>means, improved living standards =>ends

• Narrow definition of means and ends• Ends include democratic, sustainable, & equitable development

• Means go beyond liberalization, stabilization, privatization to institution building

I. Introduction (cont.)

• Failure of some to succeed even in narrow objectives, despite adherence to standard prescriptions

• Many successful development models followed alternative courses

Adapting Traditional Models To African Development Issues

• Traditional development prescriptions resulted as response to Latin American crisis

• Ill-equipped to deal with historical origins of development problems in Africa

• Largely ignored importance of institution building

• Took little notice of reform sequencing needs

Critical to Address Development Process As Well As Policy

• Lack of participation => Lack of ownership

• Insensitivity to indigenous conditions & needs

• Importance of right processes. Wrong processes not only fail to engender results, but undermine democratic fabric of society

• Better processes lead to better & sustainable reforms

• Better processes necessary for success in the key to development: Modernization, transformation of society

Development Possible, But Not Inevitable

• Some successes, some failures

• Race to eliminate poverty and better living standards has succeeded in some but not all regions

Regional Poverty Rates Have Fallen Worldwide

0

10

20

30

40

50

East Asia& Pacif ic

EasternEurope &CentralAsia

LatinAmerica

MiddleEast &NorthAfrica

SouthAsia

Sub-SaharanAfrica

Total

1987

1998(Estimated)

Source: World Bank Voices of Poverty and Trends of the Poor Report. Note that these numbers describe 88% of the w orld's population.

Pou

latio

n P

erce

ntag

e Li

ving

Und

er U

S$1

/ Day

But Aggregate Numbers of Poor Have Risen

Worldw ide Poor

1100

1150

1200

1250

1300

1350

1987 1990 1993 1996 1998

Milli

ons

of P

eopl

e Li

ving

Und

er u

s$1

/ Day

Source:Voices of Poverty and Trends of the Poor Report, World Bank .

Note that these numbers describe 88% of the world's population and that the 1998 numbers are estimated.

150

300

450

1987 1990 1993 1996 1998

African Poor

Source:Voices of Poverty and Trends of the Poor Report, World Bank .

Note that these numbers describe 88% of the world's population and

that the 1998 numbers are estimated.

Sub-Saharan Africa Experienced Huge Decline in GDP Per Capita

0

100

200

300

400

500

600

1970 1997

$ U

S p

er c

apita

$525

$336

Source: World Bank.

Increasing Life Expectancies, But Still Low in Africa

40

50

60

70

80

East Asia &Pacif ic

LatinAmerica &Caribbean

Europe &CentralAsia

Middle East& NorthAfrica

South Asia Sub-SaharanAfrica

1980

1997

Ye

ars

, at b

ort

h

Source: SIMA database, World Bank.

Fertility Rates Decreasing, But Still High in Africa

0

2

4

6

8

East Asia &Pacif ic

LatinAmerica &Caribbean

Europe &Central Asia

Middle East& NorthAfrica

South Asia Sub-SaharanAfrica

1980

1997

Nnu

mbe

r of

chi

ldre

n pe

r w

oman

Illiteracy Rates Falling Worldwide, But Remain Very High In Africa

01020304050607080

1970

1975

1980

1985

1990

1995

1997

East Asia &Pacific

Latin America& Caribbean

Europe &Central AsiaMiddle East &North Africa

South Asia

Sub-SaharanAfrica

Per

cent

of

15+

Adu

lts

Source: SIMA database, World Bank

What Makes Success More Likely?• Strategies, Policies, Institutions, Processes that

enhance likelihood of success• Beyond Projects--which helpful as they are, needs to be

replicated thousands of times

• Beyond Policies--which necessary as they are, do not alone guarantee success

• Towards Strategies--blueprints and visions for future. Unlike previous planning documents, akin to corporate strategies

• Emphasizing Institutions--so necessary for strategy formulation and policy/project implementation. At heart of both dynamic private sector and effective public sector

• Employing Processes--which promote participation, ownership, and democracy, thereby directly supporting equitable & sustainable development

II. Development As Transformation of Society

• Development means more than solution to technical set of problems.

• Development is transformation of society

• Changes in ways of thinking• Traditional to more modern, scientific

• Change is possible, desirable

• Can lead to improved living standards

• Greater control over one’s life

• “Modernization”

II. Development As Transformation of Society (cont.)

• Indigenous traditions can and should be incorporated within development and provide foundations for transformation

• Importance of social capital

• Any society blends “modern” and “traditional”, but dual economy is not developed

• Needs participation, ownership, and comprehensiveness.

III. A Critique of Previous Conceptions of Development

• Viewed development through a lens of technical barriers to growth--improving efficiency of resource allocation and increasing endowments (K), focusing on:

• using government to fill market gaps

• reducing government-created distortions

• macroeconomic stabilization

III. A Critique (cont.)

• Lack of historical context• successful development efforts in past involved active

government role

• some societies without government distortions stagnate

• many societies without government interventions experience social problems and deep instability

• Disparity in success of seemingly similar regions implementing same policies illustrates how standard prescriptions do not suffice (Putnam: Civic Traditions in Modern Italy)

But One Should Not Ignore Key Lessons

• Macro-stability is crucial

• Resources are limited

• Distortions are costly, especially for poor countries

• Governments often fail to do what they should, and often do not do well things that should be left to the private sector

IV. Consensus, Participation, Ownership & Role of Outsiders

• Development=>transformation of society=> changes in way of thinking

• Changes in way of thinking requires processes of engagement

• Such changes, to last, must be formed by participatory consensus within societies

Participation Enhances Success• More likely to bring to bear local knowledge,

relevant for success

• Engenders ownership and commitment, thereby sustainability

• Builds social capital, promoting social stability

• Sustainability especially important in progression towards more democratic processes - must withstand vicissitudes of political processes

• Empirical evidence supports conclusion (India water projects)

Democracy and Development• Democracy is both an end itself and a means

• Statistical relationship unclear, but no longer clear trade-off between democracy and growth

• Democracy may actually enhance success

• Participation reaches beyond voting

• Consensus building: both for democracy and to avoid strife => enormous development setback

• Ethnic diversity no adverse growth effect in democracy.

• Importance of free press, transparency in preventing famines, limiting role of special interests

Role of Outsiders• Outsiders can play a constructive role in capacity

building• share global experiences

• participation in development of assistance strategy

• participatory poverty assessments

• Cautions• outsiders may not be sufficiently sensitive to local conditions,

traditions, cultures

• outsiders can undermine domestic consensus

• outsiders can undermine country’s confidence, leadership

• outsiders can undermine very process of democracy

• issues particularly important in context of building institutions, processes

• Opposition to “imposed” reforms render them less sustainable

• In the long run, may undermine reform process itself

• Outside advisors sometimes have given false sense of confidence in economic prescriptions

• Scientific thinking recognizes uncertainty, risk

• Good advice analyses consequences, leaving choice to political processes

• Recognizes that there may differences in views (democratic pluralism)

V. Key Economic Issues Facing Africa Today

• Many African countries today have mastered macro-economic problems

• Uganda has achieved low inflation, nearly balanced its budget.

Uganda Has Done Well

-200

20406080

100120

Inflation GovernmentExpenditures*

1982-90

1991-98

Source: SIMA database, World Bank and UNCTAD FDI in Africa. *Dates for Government Expenditures (as %

of GDP) refers to 1980-90 in Period 1 and 1990-97 in Period 2.

Which Is Reflected in Its Investment

Net Foreign Direct Investment

0

20

40

60

80

1985-91 1992-98

Milli

ons

Cur

rent

$U

S

Source: SIMA database, World Bank.

Other African Countries Have Also Achieved Macrostability

-100

10203040

Botsw

ana

Ethiop

ia

Equat

orial

Guin

ea

Ghana

Namib

ia

Inflation

Governmentdeficit/surplusP

erc

en

tag

e

Key Macroeconomic Indicators, 1990-98

Source: SIMA database, World Bank. Note Government deficit numbers reflect most recent data (Ethiopia 1995, Ghana & Namibia 1996).

But Good Macroeconomics Are Not Enough

• Need to focus on how government budget spent

• As everywhere, need to improve quality, efficiency of public expenditures

• Information, decentralization => key role

• Structural Issues Also Key• Reforms more complicated than adjustment in single

variable

• Ownership/participation even more critical to success

• Central to development transformation: involves evolving basic societal institutions (e.g. finance)

Central Government Auditing in Africa

Health in Africa• Infant mortality is

down, but still high

• Life expectancy has risen, but still low

• Incidence of child malnutrition has risen

0204060

80100120

InfantMortalityRate (per1,000 livebirths)

MalnutritionPrevalence*

(% ofChildren < 5)

LifeExpectancy

at birth(years)

1990

1997

Source: SIMA database, World Bank. * Malnutrition refers to years 1989 and 1995 respectively.

AIDS Overtaking Malaria in Suffering and Cost

1996 life expectancy in years

46

46.7

56.9

41.9

61.6

68.6

11.3

11

7

22.2

5.3

2

Burkina Faso

Cote d'Ivoire

South Africa

Zimbabwe

Brazil

Thailand

0 20 40 60 80

Current life expectancy Impact of AIDS

Challenging Problems. . .• Education

• Improvement in some areas (secondary school enrollment)

• Deterioration in Others (Falling primary school enrollment)

0

5

10

15

20

25

30

1980 1994

Schoolenrollment,secondary

Schoolenrollment,secondary,female

Source: SIMA database, World Bank

15%

24%

27%

10%

Gross Primary School Enrollment Rates

73

73.5

74

74.5

75

75.5

76

1985-87 1990-97Per

cent

age

of S

choo

l Age

Chi

ldre

n

Source: SIMA database, World Bank.

. . .But Also Distinct Advantages

• Rich Natural Resource Endowment• But natural resources here have often not led to

growth, captured by special interests, exploited.

• Re-emphasizes importance of institutions

• Lack of Density• If it can be controlled, avoids some problems (e.g.

urban crowding) facing other regions

Investment

0

5

10

1520

25

30

35

40

1983

1985

1986

1989

1991

1993

1995

1997

Africa

Asia andPacific

Latin America& Carribbean

DevelopingCountries

Average Rates of Return on U.S. FDI

Source: UNCTAD.

Pe

rce

nt

• Overall evidence suggests returns to investment similar (or even higher) than other regions

• But incremental Output-Capital Ratio is low

36

Incremental Output Capital Ratio

Investment

• But private investment is low, while public investment is high

• No crowding out of private investment apparent, rather, compensates for deficiencies

• With more competition among foreign firms, more benefits accrue to country (especially if corruption can be avoided)

Investment

• Domestic investment per capita in Sub-Saharan Africa decreased, and this while domestic investment in other regions surged

0

50

100

150

200

250

300

Sub-SaharanAfrica*

East Asia

1970

1997$

US

per

cap

ita

Gross Domestic Investment

Source: World Bank. * Sub-Saharan Africa excludes South Africa

FDI Historically Low, But Rising• Flows to

developing countries from European Union, Japan, and U.S. increasing

• And Africa taking a larger share of the increase

0

20000

40000

60000

80000

1987 1989 1991 1993 1995

DevelopingCountries

Africa

2%

10%M

illion

s of

US

$

Source: Foreign Direct Investment in Africa, UNCTAD

Investment Still Limited

• FDI investment in manufacturing is rising, but from low base

• While good macro-economics creates favorable environment for investment, countries need to do more to make investment hospitable

0

1

2

3

4

5

6

7

8

9

10

1980-85 1988-92Less

Corrupt

Most

CorruptUganda's Corruption Index

Source: Transparency International

VI. A Vision For the Future• Africa has made progress in last fifty years

• But differences hidden by averages

0

10

20

30

40

50

No. of Countries GDP per capita (%Grow th)

GDI Grow th(%) Current AccountDeficit

Budget/GDP(%)

All SSA countriesCountries w ith Social StabilityCountries w ith Social & Macro StabilityCountries w ith Social & Macro Stability and Resource Allocation Eff iciency

PAYOFFS

• Worst problems are self-inflicted: civil strife

• Africa loses triply » consequences of strife

» military expenditures

» donor hesitancy to provide aid to countries with large defense expenditures

Progress Particularly Impressive in Last Ten Years

• Beginnings of demographic transition

• Democratization

• New cohort of impressive leaders, honest and dedicated to improving plight of citizens

• Macroeconomic stability

• Rise in investment

Full Benefits of Progress Yet to Be Reaped

• Investors not fully aware of such changes

• Advanced industrial countries have not done as much as they could to open up markets

• Millennium Round may bear fruit, as might U.S. legislation before Congress

Potential Advances in Future Even Greater

• Progress in battle against diseases• Emerging mentality beyond colonial heritage & Cold War

polarity that distorted decisionmaking => seize control of own destiny

• “Ownership” of structural and institutional reforms, as earlier took “ownership” in macro-reforms

• International community recognizes necessity of developing new foundations of exchange with Africa, of promoting equitable and sustainable change

• Within Africa, new leadership, new sense of national identity, confidence, which poise it to seize opportunities

Returning to Central Themes• We now know far more about what makes for successful

development, modernization, transformation• Beyond projects and policies to strategies, processes and

institutions• Reforms already put in place -- including macro-stability--

lay strong foundation for next stage of reforms• Structural and institutional reforms• Key in success is taking full ownership• Requires participation, consensus building• Importance of discussions such as these