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In my view: The Structural Gap approach offers a new model for co-operation with middle-income countries

August 18, 2014

ECLACToday’s post from Alicia Bárcena, Executive Secretary of the Economic Commission for Latin America and the Caribbean (ECLAC), is one in a series of ‘In my view’ pieces written by prominent authors on issues covered in the Development Co-operation Report 2014: Mobilising resources for sustainable development.

Middle-income countries differ widely in their reliance on official development assistance (ODA). While for some, ODA represents less than 1% of their gross national income, for others it is more than 30%. This divergence reflects countries’ differing capacity to access financial resources and capital markets.

The DAC List of ODA Recipients shows all countries and territories eligible to receive official development assistance. The list includes low and middle-income countries, as well as the least developed countries, defined according to their gross national income (GNI) per capita. As we review the future of ODA, we need to ask: Is per capita income the best criterion for allocating official development assistance? And how can we deal with the heterogeneity of middle-income countries?

The use of income per capita as an allocation criterion relies on two assumptions: that as countries increase their income per capita they will be able to mobilise a larger pool of international and domestic resources to finance their development needs and become less dependent on ODA; and that income levels reflect a given stage of social and economic development.

Evidence shows that a country’s capacity to access external resources depends on many factors besides income per capita. These include conditions outside their control, such as country risk ratings and perceptions, external demand for the products from that country and country size (i.e. population). Similarly, domestic resource mobilisation depends on numerous factors, including levels of savings, development and strength of financial markets, and the capacity and willingness of the government to levy taxes and collect duties (Chapter 7 and 14). Evidence also shows that despite similar income levels, countries may have different development realities. For example, people may vary widely in their access to social protection mechanisms, formal financial institutions and quality education, as well as in their resilience to economic and social shocks.

Far from being a homogeneous category, middle-income countries are a widely heterogeneous social and economic grouping with a large diversity of needs. For example, in 2012 income per capita in these countries ranged from $1006 to $12,275.

As a way forward, ECLAC proposes the Structural Gap approach as an alternative criterion to that of per capita income. This approach is based on the premise that there is no single classification criterion applicable to all countries and underscores the fact that income level cannot be equated with development level. It identifies key areas where there are obstacles to sustained, equitable and inclusive growth in middle-income countries (or “gaps”): equality and livelihoods, investment and savings, productivity and innovation, infrastructure, education, health, taxation, gender and the environment. Countries themselves are responsible for identifying the main gaps that hamper their social and economic development.

In my view, the debate on the future of ODA can benefit from the Structural Gap approach, which offers a basis for inclusive and egalitarian co-operation. It should be part of the post-2015 framework, helping to reorient co-operation away from the “donor-recipient” dichotomy towards a new model of co-operation among equals, following the principle of common-but-differentiated responsibilities.

Useful links

OECD work on external financing for development

The state of the state: building confidence, trust and political will

August 6, 2014
by Guest author

1914 2014To mark the centenary of The First World War, we will be publishing a series of articles looking at what has changed over the last century in a number of domains. In his second article, Alan Whaites team leader, Governance for Peace and Development at the OECD discusses statebuilding and the role of the state.

Charles Tilly famously remarked that states make war and war makes states. The events of 100 years ago would suggest that he had a point. WWI swept away an era of empires, establishing new states and fuelling the rise of both democracy and one-party government. At the same time, the conflict increased the role of state institutions: mobilisation of entire workforces, rationing of food, increased taxation. The state began to engage in the lives of ordinary people in ways that were previously unimaginable – and ways that have left long-term legacies in terms of administrative structures and capacity.

But we should not be misled: the WWI example is far from universal – or persistent. The nature of modern warfare usually turns Tilly’s words on their head: societies making war often unmake the state. Combinations of factions, militias and gangs can emerge to provoke conflict; with state systems frequently torn apart in the process – and the effects can be prolonged. While working in Afghanistan at the end of the past decade, I was struck by the way friends and colleagues reached back to the 1960s in search of examples of government delivery systems. But then this was in a context where at the start of that decade (in 2002) a UN/World Bank preliminary needs assessment suggested that “even at the central level in Kabul, ministries or departments are war-damaged shells, without even the most basic materials or equipment, and with few experienced staff.”

Afghanistan has not been alone. For numerous communities torn apart by conflict, the state of the state can be a significant obstacle to rebuilding. Evidence shows us how the loss of the developmental scale and reach normally attributed to states can have a heavy impact on services and economic growth, even where civil society organisations are working hard to fill the gap. The African Development Bank has tried to calculate the developmental cost of conflict. Their analysis of three African countries suggests that it will take between 19 and 34 years to recover the levels of GDP lost to war and instability. The 2011 World Development Report found that the in countries most affected by violence, the poverty rate was 21% higher than in those not affected. These statistics mask very real human suffering: death, rape, malnutrition and displacement.

States, of course, are at best imperfect and may themselves be sources of predation, abuse and inequity. They may also become vehicles for political discord and exclusion, which in turn foster conflict.  Yet achieving a sustainable end to violence has long been linked to statebuilding – an endogenous process of state-society relations (as defined broadly by the OECD in 2008). This definition points to the importance of responsive country systems that have the potential to encourage trust and confidence, and the capacity to support inclusive politics.

The important role of states in enabling political settlements to develop puts a premium on the capacity of government systems. When participants met at the Fourth High Level Forum on Aid Effectiveness in Busan in 2011, they committed to using developing countries’ own systems by default when working on public sector issues. This implied a need to think differently about supporting state-society relations – a need that was in keeping with experience. A 2010 OECD report on how to avoid doing harm when supporting statebuilding found that the tendency to work through parallel (non-state) systems can have damaging effects.

The debate, however, remains contentious and is often couched in terms of risks – such as risks to providers of development assistance, although the risks run both ways. Fragile states have much to lose when resources flow through parallel or off-budget, mechanisms. In 2011, aid represented 104% of the GDP of Afghanistan, yet only 12% of it was delivered on-budget. A World Bank report indicated that much of the aid was delivered through parallel delivery systems (such as Provincial Reconstruction Teams), leaving legacy problems for the government in terms of co-ordination, maintenance and sustainability. Additionally, by keeping a tight hold on the use of development resources, external actors may actually inhibit the growth of responsive state society relations.

Recent research has challenged the assumption that certain types of service delivery – favoured by aid organisations – automatically build legitimacy and confidence in post-conflict states. One implication is that rather than delivering traditional development formulas, what matters for peacebuilding and statebuilding is responding to public fears, wishes and aspirations. To meet public demands, however, a state needs the freedom – and political will – to prioritise areas that will build confidence and trust, which are not necessarily those areas selected by consultants, advisers and funders. Yes, supporting states in determining their own priorities – in consultation with citizens – and then resourcing them to deliver does involve considerable risk for the funder, sometimes both financial and reputational. Yet one lesson from WWI is that conflict can either build or debilitate the responsiveness of states – and without confidence, political will and trust, it can become part of a prolonged and destructive cycle.

Useful links

OECD work on peacebuilding, statebuilding and security

 

1914-2014: Shifting the balance between peace and war

August 4, 2014
by Guest author

1914 2014To mark the centenary of The First World War, we will be publishing a series of articles looking at what has changed over the last century in a number of domains. In the first article in the series, Alan Whaites team leader, Governance for Peace and Development at the OECD, discusses peace-building and conflict. In a second article on Wednesday, Alan will look more in detail at the role of the state.

In the early summer of 1914 my great grandfather was a poor labourer working in the sprawling docks of the Manchester ship canal. He supported a large family in a tiny slum dwelling in the Hulme area of the city. Within a few months he was a soldier, and by the end of April 1915, after 28 days at the front, he was dead. For him, like millions of others, the political process that transformed civilians into participants in large-scale industrialised warfare was both prolonged and, at the same time, remarkably sudden.

Christopher Clark captured this duality in the title of his book, The Sleepwalkers. The actors in this drama were first lulled by a long sequence of events that slowly created the potential for conflict, and then they were carried along by a sudden chain of events. In the lead-up, the development of two major alliance systems, the purchase of new weapons and the expansion of militaries were seen by many as contributing to reducing risk. But an assassination quickly turned these precautions around, creating a system that propelled Europe towards war.

The consequences of 1914 are embedded in our collective psyche: millions dead, the horror of trench warfare, and a further chain of post-war changes that would play out through the rest of the 20th century. In essence, the fundamental problem that unfolded on a grand scale 100 years ago remains familiar, and continues to characterise many, if not most, conflicts today. Actors take steps in the belief that they are providing protection and security, often in a defensive rather than an offensive frame of mind. Over time, their positions become fixed and mechanisms for dialogue and crisis management are neglected, so that when a political crisis does occur, actions are often based on assumptions (e.g., regarding the motives of others) that may be unfounded. Von Clausewitz said that war is policy conducted by other means; in reality, it is too often an unintended consequence of actions whose repercussions seemed eminently limited and safe at the time.

This can be the case at whatever level conflict occurs. As a professional my focus is predominantly on areas of internal conflict: civil wars, insurgencies, and breakdowns of political systems because of violent competing interests. And as in 1914, the steps that lead people into such conflicts may seem rational. In Civil War is Not a Stupid Thing, Christopher Cramer points out that often there are serious, considered motivations at play. Important factors may include assessments of ideological or communal risks and interests. People think themselves into relational corners – from which conflict becomes a logical step. In 2011 the World Bank’s World Development Report pointed out that the “who” of conflict (including instigators of urban or organised crime) doesn’t necessarily change the strategic dimensions involved; behaviours centred on calculations of risk can be essentially the same.

But if the human dynamics that create the potential for conflict remain stubbornly similar across the decades, is it possible to change the outcomes? Perhaps. The challenge is to change the logic – to move the rationale towards peace, not war. While this theory is nothing new, mechanisms have been elusive. A positive change over the last decade has been the level of engagement and agreement among richer countries and conflict-affected states on collaboration in peace-building. These new approaches to co-operation are encapsulated in the internationally-agreed New Deal for engagement in fragile states.

The New Deal aims to change calculations of risks and the logic of conflict by mutually supporting factors that shift the realities for those involved: justice, legitimate politics, sound economic management, trust and focus on new ways of working. It potentially offers a framework for creating sustained support for peace; building confidence that the future lies in development – not war. Of course, human nature and politics mean that there are no guarantees of success, and changes are unlikely to be trouble-free. Shifting the balance between peace and war is often non-linear, a process of persistence buffeted by crisis and turmoil. But at least the New Deal offers a platform for local and international actors to engage and act – and to do so with fragile states themselves setting the direction.

It is important to stress that a dose of realism is still needed, or “strategic patience” in the words of Helder da Costa (general secretary of the g7+ group of fragile states). There are no miracle solutions and without real political will no approach can work. The New Deal will also come under scrutiny, potentially because of unrealistic expectations and timeframes that are far too short. But the willingness by the international community to engage constructively in these situations has clearly grown. The lessons that enabled the agreement of the New Deal – the hard-won experience of what does and does not work in changing the dynamics of conflict and distrust – offer all stakeholders something to work with when trying to resolve conflict, in whatever region or state.

It was only after a second, even more costly, world war that Europe understood the need to shift incentives to peace, and away from conflict. That of course took considerable investment, trust and new forms of partnership (including the creation of the antecedent to the OECD). The principles and needs have not changed, nor the importance of working toward long-term peace now.

Useful links

OECD work on peacebuilding, statebuilding and security

Just the numbers: How much are public servants paid?

July 28, 2014
by Guest author

In the first of a new series focusing on data and statistics, the OECD’s Matthias Rumpf looks at how much public servants are paid in some OECD countries.

Few issues are more likely to provoke a row than the pay of public servants – overpaid and underworked or selfless heroes who could be earning more in the private sector? We can’t settle that debate here, but, using data from Government at a Glance 2013, we can at least give you some sense of how public sector pay compares across some OECD countries.

The most basic approach is simply to look at annual compensation in USD – in other words, salaries paid in local currencies converted into US dollars and then adjusted for purchasing power parity, a statistical technique used to compare the cost of living in different countries.

That’s useful, but it doesn’t show how public servants’ pay compares to that of other workers in their own countries. To do that, we can look at their pay relative to all tertiary educated – in other words, people with a college or university degree. That measure is especially useful for comparing the pay of senior public servants, who typically are graduates. In OECD countries, the most senior managers in the public service earn 3.4 times more than the average graduate, suggesting that such careers are an attractive option for graduates.

One last comparison: public service pay relative to GDP per capita. “GDP per capita” is calculated by dividing the size of a country’s population into its GDP, and it gives a sense of how prosperous people feel in each country. It’s probably especially useful in making comparisons of pay for junior staffers, such as secretaries. In Poland and the Netherlands, their pay levels are well above GDP per capita but in the Slovak Republic and Estonia they’re well below.


 

Useful links

OECD work on public employment and management

Government at a Glance 2013 (OECD, 2013)

Public Sector Compensation in Times of Austerity (OECD, 2012)

 

Will a robot take your job?

July 25, 2014
by Brian Keeley
You've been replaced by Mr Microchips

Hello Mr. Microchips

In the second of two postings, we look at the impact of artificial intelligence on our societies and economies.

Back when Amazon mostly sold books, it hired writers and editors to come up with helpful reviews and recommendations. The aim was to create the atmosphere of a friendly local bookshop. But the writers and editors didn’t last. They were replaced by Amabot, an algorithm that picked up on users’ browsing and buying history.

Amabot’s buying recommendations were – and are – often eerily accurate, but even some of Amazon’s own people didn’t much like the software robot. As Steve Coll writes, one anonymous staffer even vented his spleen in a newspaper ad: “Thanks for nothing, you jury-rigged rust bucket. The gorgeous messiness of flesh and blood will prevail!”

Will it? Just over a decade since that ad appeared, the rust buckets are becoming more powerful by the day. Even sober commentators like the Financial TimesMartin Wolf speak of the dawn of a “second machine age,” one in which machines “will replace and multiply our intelligence.” And how about flesh and blood – i.e. you and me? To return to Martin Wolf’s theme, it depends on whether your intelligence is about to be multiplied or replaced.

Wolf’s theme is explored in greater depth in Average is Over by the influential economist Tyler Cowen, who argues that only a fairly small number of workers – perhaps 10 to 15% in the U.S. – will have the sort of skills that can be complemented, or multiplied, by computers. As a metaphor for the carbon-silicon partnerships that will succeed in the high-tech economy, he uses “freestyle chess,” where players are allowed to augment their skills with computers. For example, while a computer might need to scroll through all the possible moves in a chess game before making a decision, a human partner could use intuition and insight to spot an opening and then instruct the computer to focus on pursuing that opportunity. In this case, the combination of human and computer is stronger than either human or computer alone.

But what about everyone else? Well, if you can’t add value to the computer you may be at increasing risk of simply being replaced by it. According to estimates by Carl Frey and Michael Osborne, 47% of jobs in an advanced economy like the U.S. are at risk from computerization, adding to the long list of jobs that have already been lost to technology. As Bill Gates warned recently, “Technology over time will reduce demand for jobs, particularly at the lower end of skill set. … I don’t think people have that in their mental model.” But the technology revolution won’t just affect people working in low-skill, highly routinized occupations. As Tom Meltzer notes, it will also increasingly threaten the jobs of lawyers, architects and doctors (even writers won’t be immune).

Of course, these fears may be overstated. Technology has repeatedly replaced jobs in the past – think of hand-weavers and phone operators – but people still found something new to do. Still, even if we don’t head into an era of mass unemployment, there seems little doubt that the second machine age will drive an even bigger wedge into the division of economic spoils, deepening still further the trend of rising income inequality in the coming decades.

According to a recent OECD paper, earnings inequalities in countries that are today regarded as relatively egalitarian, such as Italy, Sweden and Norway, will by 2060 match levels currently found in the U.S. Most of the gap in earnings will be concentrated between high and middle-income earners.

How can societies respond? The Dutch economist Jan Tinbergen ascribed much of the widening in income gaps to a “race between education and technology”. When education levels are rising relative to improvements in technology, the gap narrows; when they’re falling, it widens. That’s why so much policy discussion in this area, including the OECD paper, emphasises education investment, especially building strong foundations in children’s early years.

But with technology now racing so far ahead of education, societies will clearly need to consider other options. These could include, perhaps, even deeper income redistribution than we see today, effectively subsidising people to work less.

That’s not such a new idea: As long ago as the 1930s, the economist J.M. Keynes foresaw a time when economic wealth and automation allowed people to work a 15-hour week. More recently, Google’s Larry Page revived the idea in an interview with The Guardian: “In Page’s view robots and machines should be able to provide a ‘time of abundance’ where everyone’s basic needs could be met relatively easily.” How would you spend all that spare time? No doubt Amabot could recommend a few good reads to fill the long hours.

Useful links

OECD work on inequality and inclusive growth

Policy Challenges for the Next 50 Years – OECD Policy Paper and Policy Note

Divided We Stand – Why Inequality Keeps Rising (OECD, 2011)

 

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