Conflict – the enemy of development

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The human cost of the conflict in Côte d’Ivoire has been all too clear, with almost daily reports of deaths and casualties. 

Against that background, it can seem callous to discuss the economic cost.

But, unfortunately, it’s likely to be very real and risks hanging over people’s lives for perhaps a generation to come.

Poverty rates may well rise, with knock-on effects in areas like child mortality, education levels and access to water.

 How do we know? Simply, because it’s happened so many times before, as the latest edition of the World Bank’s World Development Report demonstrates.

The report, issued today, is further evidence for the case that conflict and violence are among the greatest enemies of development. It presents some depressing statistics:

  •  Worldwide, 1.5 billion people live in fragile states or areas afflicted by conflict or large-scale, organized criminal violence.
  •  No low-income fragile state or country afflicted by conflict has attained even one of the Millennium Development Goals.
  •  People in such countries are more than twice as likely to be undernourished as those in other developing countries, and more than twice as likely to lack clean water.

 What’s striking, also, is that the conflicts that are dominating the news right now are relatively rare these days (albeit not rare enough): Since the 1980s, says the World Bank, the incidence of war between states has declined, while deaths from civil wars now stand at a quarter of where they were. But in many cases they’ve given way to other forms of violence and crime. “In Guatemala you have more people dying now from criminal violence and from drug trafficking than you did during the civil war,” Sarah Cliffe, one of the report’s authors, told The Guardian.

Of course, there’s an element of cause-and-effect to such conflicts and violence. Countries that are poorer or have high levels of inequality are more likely to suffer conflicts, which, in turn, is likely to make them poorer still, creating a vicious cycle of poverty and conflict. Equally, once a country has experienced a civil war, it’s much more likely to experience another one within 30 years.

The World Bank says international aid and development cooperation need to focus more on breaking such cycles. That call echoes a growing strand of work in the development community, which has seen a new focus on tackling the special challenges facing fragile states, especially governance. At the OECD, a special forum to address these issues was set up two years ago, and a set of guidelines for dealing with fragile states has also been created.

The World Bank says also that the current international system is still designed to handle the conflicts of the 20th century – civil wars and wars between states – and needs to be “refitted” to address 21st century risks, as the Financial Times reports.

Overall, the Bank suggests a number of strategies for breaking the links between conflict and poverty. It calls for a strong emphasis on strengthening national institutions and governance to improve people’s security, justice and job prospects. In the post-conflict rebuilding process, citizens also need to see quick evidence that things are going to get better, for example by making “a few highly visible improvements, like free health care for small children or restoring regular electricity”, as Binyamin Appelbaum notes . But, as he also points out, that’s just the first step of a process that “takes a generation”. If donors and international agencies are to underpin that sort of process, they need to make firm long-term commitments and “end stop-go patterns of aid” .

Incidentally, last week saw the release of annual aid figures from OECD countries, which provide the bulk of the world’s development assistance. Overall, foreign aid hit a record $129 billion in 2010, representing about 0.32% of the combined gross national income (GNI) of member countries of the OECD’s Development Assistance Committee. That was the good news. Less encouraging was the news that although donors plan to raise aid spending in the coming three years, the pace of that increase looks set to slow sharply.

 Useful links

OECD work on conflict and fragility and on governance and development

OECD aid statistics, Aidflows visualiser and Query Wizard

Annual Bank Conference on Development Economics (ABCDE), hosted at the OECD in Paris, 30 May-1 June

Rats rejoice as India goes MAD

Thanks to OECD Guideline 420, we lived to see another Easter

In one of Bill Watterson’s “Calvin and Hobbes” cartoon strips, six-year-old Calvin asks his dad how they calculate the maximum weight allowances for bridges.

His father explains that they drive heavier and heavier trucks across the span until the bridge collapses; note the weight; then rebuild the whole thing.

We’re amused as much by the father never lost for an answer, as by the absurdity of the methodology he invents.

And yet a similar philosophy was applied to developing a test of chemical toxicity known as lethal dose 50, or LD50. The LD50 test establishes the dose of a substance that will prove fatal to half the test animals exposed to it. It does this by killing them.

Attitudes to animal welfare have changed since LD50 was introduced in the 1920s. The severe suffering of a substantial number of animals in LD50 was becoming unacceptable to an increasing number of people in OECD countries, but at the same time the test provided important information. Experts from the UK, Germany and the USA took the lead in developing three alternative tests.

In November 2001, the OECD agreed that the three different methods could provide sufficient information to replace LD50 (or OECD Guideline 401 for the Testing of Chemical as it was known).

The number of animals needed was drastically reduced by the new protocols, and would normally be well below one-third of those used for LD50. Moreover, one of the alternatives (Guideline 420) does not require the death of any animals at all, whereas in Guidelines 423 and 425 the expected number of deaths is typically not more than 3 compared with at least 10 in LD50.

Guideline 401 was deleted in 2002 and a number of countries now ban LD50 tests.

Animal welfare benefits from another OECD procedure too. In 1981, the OECD Council adopted a legally-binding Decision stating that data generated in a Member country in accordance with OECD Test Guidelines and Principles of Good Laboratory Practice shall be accepted in other Member countries for assessment purposes and other uses relating to the protection of human health and the environment.

In other words, with Mutual Acceptance of Data (MAD) there is no need to duplicate tests in each country before approving or banning a substance. Of course humans benefit too, and not just from safer products. Governments and industry save over 150 million euros a year from MAD for pesticides and industrial chemicals alone.

In line with the internationalisation of research, the scheme is expanding beyond OECD countries. Today, India became the third key emerging economy to sign up to MAD, after Singapore and South Africa, while Argentina, Brazil, Malaysia and Thailand are provisional adherents to the system.

That’ll keep a lot of bunnies happy.

Useful links

OECD work on chemicals testing

OECD work on animal welfare in tests

Economic recovery gaining pace

Recovery from the Great Recession is proving to be stronger than expected and is finally becoming self-sustained, meaning it’s less and less reliant on government support, according to the OECD.

“The outlook for growth today looks significantly better than a few months back,” says Pier Carlo Padoan, the OECD’s chief economist. He attributes that to a number of factors, including increasing business confidence and a global pick up in trade.

According to forecasts in the latest OECD interim economic assessment, released this morning in Paris, the G7 countries could see annualised growth of around 3% in the first half of this year. But, unusually, these G7 figures do not include Japan. The dreadful human cost of the earthquake and tsunami has been all too apparent, but there will also be an economic price. However, says Mr. Padoan, it’s “still too early to assess the impact both on the Japanese economy and the global economy”.

There are other uncertainties too: The impact of unrest in North Africa and the Middle East on oil prices, for example, and inflation, which, although still low, is tending to creep up. And, of course, there’s unemployment: On the bright side, it’s been falling in both the United States and Europe (more so in the former than in the latter), but it still remains relatively high and looks set to stay that way for some time to come.  

 Useful links

Interim economic assessment news release, presentation and webcast

Economics at the OECD

OECD Insights: From Crisis to Recovery

Why China’s economy needs some quality time

Click to see the report

China’s economy has been zooming along over the past few decades, regularly reaching and exceeding annual growth rates of 8%. Pretty stunning, and even more so when compared to the current performance of most developed economies.

Indeed, it’s fair to say that China is now the main – albeit, not the only – engine of the world economy. A comparison with ten years ago illustrates its growing role: Back then, on the eve of the slowdown in 2001, the world economy was growing by about 5%, to which China contributed just over a tenth; last year, in the wake of the Great Recession, the world economy was again growing by close to 5%, but this time China accounted for almost a third of global growth.   

Impressive, but there’s a risk of being led astray by all these numbers – as the old tailors used to say, “never mind the quality, feel the width”. True, China’s boom has been long and has brought hundreds of millions of people out of poverty. But some fear its nature – in other words, quality vs. quantity – may not be laying the foundations for long-term sustainable growth.

If they’re right, China risks joining the long and depressing list countries that got stuck in the “middle-income trap”: Of all the economies that were in the middle-income camp in the 1960s, almost three-quarters are still there, or have regressed to low-income status. Among China’s neighbours in Asia, Japan and Korea managed to make the leap; Malaysia  – so far – has not. 

Why not? In essence, the middle-income trap reflects fundamental structural issues in an economy. An economy can often go from low- to middle-income on the back of a plentiful supply of cheap labour – loads of low-paid and relatively uneducated workers assembling sneakers, TVs and cars, and so on. But to make the next leap, those workers need to start “adding value” – dreaming up fancy new products and moving to a greater focus on services, rather than just manufacturing.

China may be at the limits of this first stage. Some economists argue it has now reached the “Lewis turning point”  – the moment when industrial wages start to rise as the supply of plentiful and cheap labour from the countryside dries up. That won’t kill off China’s manufacturing strength overnight, but over the coming years it will become less of an advantage.

As part of its response, China will need to ensure urban jobs remain attractive to people in the countryside, reducing the impact of the hukou system and ensuring that rural migrants have “the right to appropriate health, education and other public services” as the OECD recently noted.

China will need to do more than that, though. Last month, it sent a strong signal of exactly what it plans to do when it released its latest Five-Year Plan. At a time when many developed economies are struggling to expand, it’s striking that the latest plan actually sets a lower target for China’s expansion than its predecessor: 7% vs. 7.5%. In part, that’s probably aimed at reducing the risk of rising inflation in an overheating economy.

“In China, slowing down economic growth is important,” as the IMF’s John Lipsky  was quoted as saying last month. If history is any guide, applying the brakes won’t be easy: Despite the 7.5% target in the last plan, China’s economy actually grew by closer to 11%, as The Economist notes.

But, as The Economist also points out, perhaps the real point of the revised target is to indicate “that the pattern of growth now matters as much as the speed”. That focus is reflected elsewhere in the plan: As Morgan Stanley’s Stephen Roach notes, the plan emphasises the need for China to develop its domestic markets – shifting “the focus away from a powerful export- and investment-led growth dynamic toward an approach aimed at drawing more support from China’s 1.3 billion consumers.”

There will also be additional resources for seven strategic and high-end industries, including next-generation information technology, clean energy sources and biotechnology, all aimed at helping China make the transition to the next phase of economic growth and promoting greener growth.

Will China succeed? We’ll know more in another five years.

Useful links

 China’s Emergence as a Market Economy: Achievements and Challenges – An OECD review of the 12th five-year plan 

OECD work on China

The OECD’s Chinese-language site – 网站 (中文)