We’ll start with a close-up of a woman on her knees. She seems to be scrubbing some tiles. We track back and see that in fact she’s scrubbing the tyre tracks off a forecourt. Back a bit more and we see that she and her colleagues are in front of a huge conference centre. It’s covered with banners in Korean and English announcing the Fourth High-Level Forum on Aid Effectiveness, HLF4. There’s a metaphor there somewhere, and it’s called Busan, the host city and the world’s fifth largest port.
Busan is like a life-sized lesson for participants in the Forum. As the Korean president Lee Myung-bak reminded delegates in his speech to the conference, when he was a child, this was one of the poorest countries in the world, and Busan’s harbour was used to import food to stop people starving after the civil war. In From Poverty to Power, Oxfam’s Duncan Green makes this point too, recalling that 50 years ago Korea’s main export was wigs made from human hair.
Aid played a part in changing this, and it’s worth looking at why Korea succeed in moving from being a recipient to a member of the OECD Development Assistance Committee, the donor group that oversees Official Development Assistance (ODA).
The first lesson is that ODA has to be stable and reflect a long-term commitment. Korea could count on the US and Japan, and knew from one year to the next what funding to expect. Volatility makes programme management harder, or even impossible. I’ve heard stories from the field of health, education, and other projects that were started, were going well and then had to be stopped because promised funding suddenly dried up. The OECD says that the value of aid is reduced by 15% to 20% when it is unpredictable and volatile.
For the outsider, one of the more opaque terms of the “aid community’s” particularly opaque jargon is “ownership”. What it means is that countries receiving aid take charge of the process. Korea didn’t always agree with its partners, but the results show that it knew best what strategy corresponded to its needs and resources. It wanted non-military aid rather than the guns, tanks and planes it was being offered, and it insisted on focusing on large enterprises rather than the small and medium-sized businesses foreign development experts told it were the key to success. If Korea hadn’t decided for itself, today Samsung and Sons would no doubt have been a great little shop for the latest Japanese and American gadgets.
However, to “own” the development process a country needs to develop a whole range of skills and institutions. For instance, if it’s going to export, it needs lawyers who understand international trade rules and port managers who can get the goods onto the ships on time. This is what’s meant by “capacity building”. Countries can’t be expected to acquire all these capacities on their own, but they shouldn’t depend on outsiders either. While over 1500 foreign experts were sent to Korea between 1962 and 1971, over 5 times as many Koreans received training abroad.
Another thing about aid programmes is that the best ones become useless because they’re no longer needed. In the 1950s and 1960s, practically all of Korea’s foreign funding came from grants, but by the mid-70s, grants only represented 11% of funds, the rest being loans. The fact that Korea respected repayment conditions reassured private finance and encouraged foreign direct investment in the country.
Korea also proves that it’s possible to recover from even the most desperate situation. At the end of the 1950s this was a mainly agricultural country still suffering from a war that had killed or injured over 2.5 million civilians. If conference delegates want to see a success story, they just have to look around them. And if they want a reminder that the fruits of economic success aren’t always shared equally, they can look at those women scrubbing the ground they walk on.
In your baseline scenario, GDP growth across the OECD countries is projected to slow from 1.9% this year to 1.6% in 2012, before recovering to 2.3% in 2013. In some economies, especially the euro area, a mild recession is projected in the near term. Why are you so pessimistic?
The global economy has deteriorated significantly since our previous Economic Outlook. Advanced economies are slowing and the euro area appears to be in a mild recession. Concerns about sovereign debt sustainability in the European monetary union are becoming increasingly widespread. Recent contagion to countries thought to have relatively solid public finances could massively escalate economic disruption if not addressed. Unemployment remains very high in many OECD economies and, ominously, long-term unemployment is becoming increasingly common.
Emerging economies are still growing at a healthy pace, but their growth rates are also moderating. In these countries falls in commodity prices and slower global growth have started to mitigate inflationary pressures. More recently, international trade growth has weakened significantly. Contrary to what was expected earlier this year, the global economy is not out of the woods.
What factors underpin this assessment?
Deleveraging in the financial and government sectors remain with us. Likewise, imbalances within the euro area, which reflect deep-seated fiscal, financial and structural problems, have not been adequately resolved. Above all, confidence has dropped sharply as scepticism has grown that euro area policy makers can deal effectively with the key challenges they face. Serious downside risks remain in the euro area, linked to the possibility of a sovereign default and its cross-border effects on creditors, and loss of confidence in sovereign debt markets and the monetary union itself.
Another serious downside risk is that no action will be agreed upon to counter the pre-programmed fiscal tightening in the United States, which could tip the economy into a recession that monetary policy can do little to counter.
If this is the “baseline” scenario, are the others?
Alternative scenarios are possible, and may be even more likely than the baseline. A downside scenario would be characterised by materialisation of negative risks and the absence of adequate policy action to deal with them. An upside scenario could arise if policy action were successful in boosting confidence and no significant negative events occurred.
In the downside scenario, the implications of a major negative event in the euro area depend on the channels at work and their virulence. The results could range from relatively benign to highly devastating outcomes. A large negative event would, however, most likely send the OECD area as a whole into recession, with marked declines in activity in the United States and Japan, and prolong and deepen the recession in the euro area.
Unemployment would rise still further. The emerging market economies would not be immune, with global trade volumes falling strongly, and the value of their international asset holdings being hit by weaker financial asset prices.
What would be required for an upside scenario to materialise?
A credible commitment by euro area governments that contagion would be blocked, backed by clearly adequate resources. To eliminate contagion risks, banks will have to be well capitalised. Decisive policies and the appropriate institutional responses will have to be put in place to ensure smooth financing at reasonable interest rates for sovereigns. This calls for rapid, credible and substantial increases in the capacity of the European Financial Stability Facility together with, or including, greater use of the European Central Bank’s balance sheet. Such forceful policy action, complemented by appropriate governance reform to offset moral hazard, could result in a significant boost to growth in the euro area and the global economy.
An upside scenario also requires substantial and credible commitment at the country level, in both advanced and emerging market economies, to pursue a sustainable structural adjustment to raise long-term growth rates and promote global rebalancing. In Europe, such policies are also needed to make progress in resolving the underlying structural imbalances that lie at the heart of the euro area crisis.
Deep structural reforms will be instrumental in strengthening the adjustment mechanisms in labour and product markets that, together with a robust repair of the financial system, are essential for the good functioning of the monetary union. By raising confidence, lowering uncertainty and removing impediments to economic activity, rapid implementation of such reforms could raise consumption, investment and employment.
If combined, stronger macroeconomic and structural policies might raise OECD output growth by as early as 2013. The largest benefits would be felt in the euro area, though these could take some time to emerge. Stronger activity and trade, and the consequent rise in asset values in the OECD economies, should boost activity in the emerging market economies as well.
What is your advice to policy makers?
In view of the great uncertainty policy makers now confront, they must be prepared to face the worst. The OECD Strategic Response identifies country-specific policy actions that need to be implemented if the downside scenario materialises. The financial sector must be stabilised and the social safety net protected; further monetary policy easing should be undertaken; and fiscal support should be provided where this is practical. At the same time, stronger fiscal frameworks should be adopted to reassure markets that the public finances can be brought under control.
The difference between the upside and the downside scenarios reflects the impact of credible, confidence building policy action. Such action, as we have seen, requires measures to be implemented at the euro area level as well as at the country level throughout the OECD, especially in the structural policy domain. In the case of a downside scenario, policy action would clearly be needed to avoid the worst outcomes. But then the question arises of why policy efforts are not taken to deliver the upside scenario even if the worst case does not materialise. Why, in other words, should we settle for less?
Apart from the OECD and the Bobby Darin Dream Car, this year marks two other major anniversaries, both linked to books: the publication of the King James Bible in 1611 and DH Lawrence’s Lady Chatterley in 1961.
By the time you get to the end of this article, I hope to have thought of an OECD link for the KJB, but for the torrid tale of her ladyship and the hired help, there are a couple of possibilities, the first and most obvious being the Smoot-Hawley Tariff Act.
In 1930, this raised import duties on thousands of items coming into the US and is now widely condemned as having made the Great Depression worse, since America’s trading partners retaliated. President Hoover said that the Smoot-Hawley Act was “vicious, extortionate, and obnoxious”. Today of course, what you’d be more likely to get is something like: “While we share the concerns of Senators Smoot and Hawley, we feel more discussion is required on certain aspects of their proposed solution”.
That said, OECD Secretary-General Angel Gurría was less mealy-mouthed the other day at the OECD Global Forum on Trade when he talked about the “phantom of protectionism again showing its ugly face”. Smoot himself could actually be quite entertainingly odious. He opposed an amendment to his Act that would have stopped US customs from censoring “obscene” books using Lady Chatterley as an example, explaining that it had been written by a “man with a diseased mind and a soul so black that he would obscure even the darkness of hell”.
Lawrence’s book was published in 1928 in Italy, but the first unexpurgated version was not openly published in the UK until 1960, and in November it was prosecuted under the Obscene Publications Act (as it would be in similar trials in many other countries). The defence was based on the literary merits of the work, but the turning point for many people was when chief prosecutor Mervyn Griffith-Jones asked the jury if “they would let their wife or servants read” this kind of book. Apparently they would, and the book was published again without a problem early in 1961.
Griffith-Jones’ question was outrageous even by the standards of 50 years ago, so has much changed since? Attitudes to sex and sexism have certainly evolved, and women have improved their lives in some respects. According to the World Economic Forum’s Global Gender Gap Report 2010, the 134 countries covered, representing over 90% of the world’s population, have closed almost 96% of the gap regarding health between women and men and almost 93% of the gap regarding education. However, only 59% of the economic gap has been closed and the figure for political rights and representation is even worse, at only 18%. A report on the OECD Gender Initiative also talks about “persistent inequalities”.
How about your staff? For much of the 19th and part of the 20th century, domestic service was the main job in the urban areas of advanced economies. Manufacturing employment rose and fell, and now services are once again the main sector in OECD countries and elsewhere. The gap between masters and servants (or their modern equivalents) hasn’t closed much though, and in fact it’s been widening.
Movements like Occupy Wall Street in the US or the Indignados in Spain are one manifestation of the sentiment that even when there is progress, the rich get more than their fair share. To return to Gurría’s speech to the trade conference, he pointed out that thanks to NAFTA, his home country Mexico has annual exports “close to 300 billion dollars a year, becoming one of the top exporters in the world. But the benefits of NAFTA need to be better distributed.” According to this OECD report on the two decades before the crisis, “In a large majority of OECD countries, household incomes of the top 10% grew faster than those of the poorest 10%, leading to widening income inequality.”
So, it’s still dream cars for some and increasingly overcrowded buses for the rest.
How about that link between the King James Bible and the OECD I promised you? Well, the best I can do is that it the King James translation was actually done by a (seriously underfunded) committee and when we were preparing our booklet on the OECD 50th Anniversary, one of the invited contributions started: ”One of the most exciting things about the OECD is the impressive range of its committees”. I think some thrill-averse subeditor deleted that bit though, so if you can think of anything better, let us know.
Today’s post from Erwin van Veen of the OECD-DAC International Network on Conflict and Fragility is the first of several we’ll publishing in connection with the Fourth High-level Forum on Aid Effectiveness in Busan on 29 November- 1 December
Violent conflict wastes lives and sets development into reverse. Past investment is reduced to rubble and institutions are destroyed that took decades to build. Violence also casts a long shadow over the future. Helping countries to consolidate peace and build effective and legitimate states is essential to reduce these devastating effects and to achieving the Millennium Development Goals (MDGs). Sadly, current ways of working in situations of conflict and fragility are ineffective and, despite significant investment, the Paris Declaration and the Accra Agenda for Action, results are limited. Why is that?
Three main problems prevent progress. First, in their engagement, neither international nor national actors focus rigorously on key peace- and statebuilding goals. Second, national actors are often not given a full role and responsibility to lead their own transitions out of fragility. Finally, domestic and foreign resources are frequently mobilized in ways that do not effectively strengthen trust and increase capacities, which are critical to building peaceful states.
The International Dialogue on Peacebuilding and Statebuilding (ID) is a high-level conversation between the major donors, international development organizations (like the United Nations and World Bank) and around 15 states in situations of conflict and fragility (dubbed the “g7+”). Its aim is to identify, agree on and deliver three changes that respond to these problems:
- Agree and use five Peacebuilding and Statebuilding Goals (PSGs) to guide work in fragile states. These goals represent the key enablers for managing conflict and transiting out of fragility. They are, first of all, to foster inclusive political settlements. Second, to establish security for people. Third, to address injustices as possible and to increase people’s access to justice. Fourth, to generate employment and improve livelihoods. Fifth, to manage revenue and build capacity for accountable and fair service delivery.
- Ensure that transitions out of fragility are led by national authorities through country compacts, country-led fragility assessments, national plans and inclusive political dialogue.
- Provide aid and use domestic resources more effectively by increasing transparency, predictability of funding, tolerance to risks and use of country systems.
Effectively delivering these three changes requires overcoming major challenges. To start with, the PSGs will have to be endorsed by the United Nations General Assembly if they are to guide political focus, action and resources globally. Yet, the 2010 MDG review summit demonstrated that resistance in the UN against recognizing violence and insecurity as critical barriers to development is alive and well. Apart from almost dismissing the daily needs and struggles of millions of people for basic safety and justice, this also means that a strong political effort is required to realize the prize of UN engagement.
Country-led transitions out of fragility will work well where national authorities are legitimate, effective and functional. Unfortunately, they often aren’t. So, it will matter how these transitions are led and how priorities are established. The challenge for the g7+ is to convince their people and, through the International Dialogue international partners, that they can lead in a reasonably inclusive and increasingly legitimate manner. Trust can be built by establishing clear processes for setting priorities, agreeing early on confidence-building measures that are hard to reverse, enabling engagement and monitoring by civil society and peer review by fellow g7+ countries.
Providing aid and using domestic resources more effectively faces a double challenge. Donors and international organizations need to start by meeting their unfulfilled commitments to reduce aid volatility and improve the quality of their engagement. Failure to deliver this risks a serious loss of credibility. National authorities need to focus domestic resources more in line with PSG priorities and be willing to take innovative, exceptional and temporary measures to quickly raise the quality of their administration and their fiduciary capabilities to manage money.
The International Dialogue will agree an agenda for change at the High Level Forum on Aid Effectiveness in Busan. Its true test will lie in continuing the dialogue to deliver its “new deal”.
Today’s post is from Braden Allenby, Lincoln Professor of Engineering and Ethics, and Professor of Civil, Environmental and Sustainable Engineering, and of Law, at Arizona State University
Remember the beginning of the film 2001: A Space Odyssey where, after appropriate exposure to a mysterious monolith, an ape begins to play with some bones? At first, he’s simply an ape holding a bone; but then a fundamental change occurs: he begins to realize it’s not just a bone, it’s a weapon, a source of power that can crush skulls, and other animals. In other words, the ape integrates with the artifact to create a technology, and in doing so, becomes the prototypic cyborg.
Yet techno-human enhancement is far from just a subject of fiction. It has become a policy question, a particularly daunting one in terms of its complexity. We live in the Anthropocene (what many scientists are beginning to call our current geologic era – the age of humans) characterized by serious perturbations to biodiversity; the climate system; carbon and nitrogen cycles; and cultural, institutional, technological and economic systems. There is very little in our intellectual, institutional, or social firmament that isn’t contingent to an unprecedented degree. And the contingency that used to primarily involve the world outside humans is now firmly affecting the human itself.
Furthermore, thanks to nanotechnology, biotechnology, information and communication technology, robotics, and applied cognitive science (the so-called Five Horsemen), change is occurring across the entire technological frontier. It’s a dynamic process that calls for a dynamic response from society, its institutions and political systems.
So, naturally, our policy response to snowballing human enhancement has been appropriately sophisticated? Well, no. In admittedly over-general terms, there are essentially two policy frameworks.
One is what might be called the libertarian, free market framework: it’s my body, and I should be free to enhance as I want; the job of the government is to assure that the information on costs and benefits of various enhancement technologies is available so that the free market can work.
The problem with this approach is that it overlooks the fact that individual enhancements operate in a community. If I am in a large class taking a critical exam, for example, and one student uses psychopharma, it won’t affect the grade curve, but if three-quarters of the test-takers enhance and I don’t, then I have suddenly become the new sub-normal. Moreover, humans are not just bundles of characteristics that can be separately enhanced to everyone’s benefit; if Pol Pot or Hitler had used psychopharma that enabled them to stay awake and concentrate better for 20 out of every 24 hours, it would hardly have been a better world.
The social conservative position, on the other hand, is that human enhancement is dangerous to human “dignity,” and that a “yuck factor” should prevent any enhancement away from “human nature” (when the argument is being framed in religious terms, away from what God created, and intended). This framing raises two fundamental issues as well. First, as a factual matter, 2001 is right; humans seem to like to enhance. Psychoactive materials, from caffeine to ethanol to modafinil and Ritalin, have always been popular, and the use of surgery to enhance perfectly healthy body parts from noses to breasts is popular around the world. Kids in sports enhance; their parents take growth hormones in hopes of staying young; many people use non-human technology to stimulate their immune system (a.k.a. vaccines); and everyone googles, thus accessing a vastly more powerful memory than they are able to carry in their Cartesian selves.
These two frameworks, and their more subtle variants, fail for several basic reasons. Most importantly, they misconstrue conditions as “problems,” and thus seek policy solutions that will solve a problem, rather than understanding that the challenge is to create policies that enable management of conditions over the long term, with the compromises necessary to living with a condition. Additionally, they don’t work because they apply modes of thought appropriate for simple systems – the reductionism of the scientific method; the applied rationality of the Enlightenment; ideologies and worldviews that necessarily simplify a complex reality – to complex adaptive systems. It is not that different perspectives aren’t important contributions to the policy process; it is that any single worldview or ideology that is internally coherent is necessarily partial at best in perceiving, explaining, and providing a basis for managing, a complex adaptive system.
There are a number of potential improvements to policy development and deployment that suggest themselves. Most importantly, we need to get a lot better at creating flexible, adaptable psychological, institutional, and policy structures: when the future is unpredictable and contingent, the more fixed and rigid we are in an ever more rapidly changing environment, the more failure is built into the system. Among other things, this means that whenever possible we should lower the amplitude and increase the frequency of policy development and deployment; policy dialogs should focus on incremental shifts, and such shifts should reflect what is being learned about the subject of the policy in real time.
We can learn from institutions such as leading global firms and successful militaries that have long recognized that they face a complex and unpredictable environment, and have developed a number of tools such as structured games and scenario exercises to help them understand and adapt appropriately. The US EPA, for example, and local and state governments, should become just as adept as the US Department of Defense at using games to explore potential futures. If nothing else, such activities help develop “social option spaces” – a portfolio of possible institutional and policy responses that provide flexibility in the face of the unknown.
It is not, then, that the challenges of the techno-human condition are beyond us, even now, or that we cannot develop the capacity to respond ethically, responsibly, and rationally to them. But the inadequacy of current institutional and policy trajectories is clear, as is the concomitant need for a serious rethink of policy development and deployment.
The neighbour of a friend has a plan to supply cheap, sustainably-sourced energy using a combination of tidal power and electric eels. I can’t tell you the details because he doesn’t want the big oil companies to steal his idea, but he’s not the only one promoting crackpot schemes to fuel the world economy. The latest World Energy Outlook 2011 published today by our colleagues at the IEA describes a number of insecure, inefficient and downright dangerous approaches, known as the “business as usual” scenario.
A couple of examples: subsidies that encourage wasteful consumption of fossil fuels jumped to over $400 billion last year, and despite promises to increase energy efficiency, global energy intensity worsened for the second straight year.
Fukushima and the turmoil in the Middle East have cast doubts on the reliability of energy supply, while the sovereign debt crisis has both distracted government attention from energy policy and limited their means of intervention. That doesn’t look promising for attempts to limit global warming. The IEA warns that at present rates, emissions are consistent with a long-term average temperature increase of more than 3.5°C, and that without new policies “we are on an even more dangerous track, for a temperature increase of 6°C or more.”
Four-fifths of the total energy-related CO2 emissions permissible by 2035 in the so-called 450 Scenario for limiting global warming are already “locked-in” by existing capital stock – power plants, buildings, factories, and so on. (it’s called 450 because it means limiting the long-term concentration of greenhouse gases in the Earth’s atmosphere to 450 parts per million of CO2 equivalent.)
Without stringent new action by 2017, the energy-related infrastructure then in place will generate all the CO2 emissions allowed in the 450 Scenario up to 2035, leaving no room for additional power plants, factories and other infrastructure unless they are zero-carbon, which would be extremely costly.
Delaying action is a false economy: for every $1 of investment avoided in the power sector before 2020, an additional $4.3 would need to be spent after 2020 to compensate for the increased emissions.
All of this would be of only theoretical interest to the 1.3 billion people without access to electricity if they weren’t concentrated in poor countries that are likely to suffer most from climate change. Lack of access to cheap, safe power doesn’t just hold back development, it can kill you. As we pointed out in this post last year, if nothing is done, household air pollution from the use of biomass in inefficient stoves will lead to over 1.5 million premature deaths per year, over 4000 a day. Many of them are young children who are at home all day, breathing in the pollution from the stove.
It wouldn’t cost a fortune to provide access. Around $9 billion was invested globally to provide first access last year, but $48 billion, needs to be invested each year if universal access is to be achieved by 2030. It sounds a lot, but that’s only around 3% of total energy investment to 2030.
A change of policy could help too. Only 8% of the subsidies to fossil-fuel consumption in 2010 reached the poorest 20% of the population.
Here’s the IEA’s Chief Economist Fatih Birol presenting the main points of the Outlook:
If you can’t see the video, click here