Today’s post is by Michael Mullan of the Climate, Biodiversity and Water Division of the OECD Environment Directorate
Compared with species extinctions, heat waves, and hunger, the prospect of lousy coffee was, unsurprisingly, not a major focus of the latest IPCC Fifth Assessment report. Yet, a minor inconvenience for consumers could be a serious challenge for Ethiopia and Colombia, two major coffee producing countries facing growing risks from climate change. A new OECD report describes what they’re doing to sustain development in a changing climate.
Coffee first grew in Ethiopia (although the story of the dancing goats is probably a myth) with the temperate highlands providing ideal conditions for cultivating high-quality Arabica beans. Coffee production accounts for about one-third of export earnings and it supports millions of households. Historically, agricultural productivity has been low but this is now changing. As part of the rapid growth of the wider economy, coffee production has increased dramatically in the past decade. Continuing this growth will help to realise Ethiopia’s goal of reaching middle-income status by 2025.
Climate variability and climate change could knock these plans off-track. Ethiopia’s coffee farmers depend on rainfall rather than irrigation, but it’s hard to predict how climate change will affect precipitation: projections for Ethiopia in the 2050s range from 25% drier to 30% wetter. And as temperatures increase, the area of land suitable for cultivating Arabica coffee will shrink. There are practical steps that can be taken now, such as planting more trees for shade, but these will only go so far. New varieties of coffee could be required – and these can take decades to develop. By the time that climate change manifests itself, it would be too late. Preparations must start now.
To do this, the government has launched the Climate Resilient Green Economy initiative. As part of this process, 1000 potential adaptation options were identified for the agricultural sector and, from these, 41 immediate priorities were identified. These range from improved provision of weather data to enhancing access to credit and supporting economic diversification.
The striking thing is that 38 of the 41 priorities identified for agriculture were already being implemented to some extent. The primary need is to scale-up and support co-ordination of these actions, rather than radically change course. This makes sense given uncertainty about the future changes and the potential to change course in response to new information.
Despite Colombia having a very different context to Ethiopia, there are parallels between their approaches to building resilience to climate change. Coffee accounts for $2.8 billion of exports from Colombia and coffee growing supports hundreds of thousands of people. However, the Economic Commission for Latin America and the Caribbean (ECLAC) estimated that agricultural productivity (including coffee) could decline 45% by the end of this century. A formal adaptation strategy will be released this year, but there has already been considerable progress made: gathering evidence on likely impacts; building capacity of farmers to prepare for climate change; and implementing adaptation measures.
Looking outside of agriculture, Colombia relies heavily upon hydropower for energy, but limited storage capacity means that the system is vulnerable to droughts. Climate change is projected to increase this risk. In reconciling climate change and the energy demands from economic growth, the government has identified a range of measures: improving energy efficiency, diversifying supplies, and conserving watersheds and ecosystems. As was the case for agriculture in Ethiopia, these measures all have the potential to yield near-term benefits while building resilience to potential risks.
Climate change is sometimes viewed as being too big, too complicated or too uncertain to prepare for. Ethiopia and Colombia are showing how it is possible to “cross the river by feeling the stones” – identifying practical steps to address current issues, while preparing for the longer-term consequences of climate change.
The broken record of recent years, “Global Financial Crisis”, is finally giving way to a classic hit about long term prospects. While it is good to see the gradual strengthening in economic growth, there is still the major challenge of lifting the long-run drivers of growth and living standards, especially given the “grey bump” of population aging in developed countries. Productivity is the most important of these drivers.
A new paper written by the OECD Economics Department and published by the New Zealand Productivity Commission challenges the way we traditionally think about lifting productivity. This paper looks at the case of New Zealand and shows that the conventional explanations of investment in physical capital and years of schooling don’t explain New Zealand’s sizable productivity gap. Yes, these are still key areas with room for improvement. But the paper points to new avenues for increasing productivity, which will have important consequences for policymakers throughout the OECD.
At the start of this year, HSBC described New Zealand as a “rock-star” economy, with growth set to outpace most developed country peers, partly due to ongoing terms of trade increases and the Christchurch rebuild following the 2010 earthquake. Labour productivity has also improved over the last few years and we have a high proportion of the workforce employed overall.
But the bigger picture remains a concern. Labour productivity growth throughout the 2000s and post-Global Financial Crisis has been low in international comparison despite a sizeable gap in productivity levels.
As the paper shows, New Zealand’s broad policy settings should generate GDP per capita 20 per cent above the OECD average, but the actual result is more than 20 per cent below average. We may be punching above our weight, but that’s only because we are in the wrong weight division!
According to the OECD, New Zealand has reasonably good policy settings, and ranks towards the top of the class on product market regulation and other indicators. Our paradox is that this hasn’t been translated into productivity performance. Canada and Denmark are in a similar situation. It seems that some of the conventional reasons for poor productivity, such as a lack of investment in physical capital or low average education, can’t fully explain what is going on.
Instead, the paper points the finger at our weak international connections, which account for over half of New Zealand’s productivity gap relative to the OECD average. New Zealand firms face reduced access to large markets and limited participation in global value chains, where the transfer of advanced technologies now often occurs. Indeed, global value chains – which can require intensive interaction and just-in-time delivery across borders – may have worsened the impact of New Zealand’s geographic isolation on trade in goods.
Most of the rest of the New Zealand’s productivity gap reflects underinvestment in knowledge-based capital. In particular, R&D undertaken by the business sector is among the lowest in the OECD, reducing the capacity for innovation and the ability of firms to absorb new ideas developed elsewhere. The quality of management is also low, with poorly run firms surviving for longer than they would in more competitive economies. This reduces the ability of firms to adjust and extract maximum productivity gains from new ideas and technologies.
These reasons for New Zealand’s poor productivity track record are interrelated – international connections and innovation go hand-in-hand. To overcome the tyranny of distance, we should be harnessing ICT and creating the ideal conditions for knowledge-based companies to grow and participate in global value chains. The cloud-based accounting software provider Xero is a good example of the new business model which can succeed in global markets.
Knowledge-based capital now plays a larger role in production than ever before. But as Alain de Serres, Naomitsu Yashiro and Hervé Boulhol point out in their OECD paper, the challenge in harnessing the increasing returns of knowledge-based capital are considerable and the costs of policy mistakes may be increasing. Adding to that, New Zealand’s small size and great distance from international markets magnify the impact of any policy weakness.
The Commission was set up in 2011 to investigate specific issues relating to New Zealand’s productivity. Three years on, our experience has been that every time we conduct an inquiry – be it on housing affordability, international freight transport, local government regulation, the services sector, or regulatory institutions and practices – we discover considerable room for improvement.
The Commission is working on different aspects of New Zealand’s policy settings to improve productivity and wellbeing. With small domestic markets, New Zealand would benefit from greater integration into global value chains in innovation-intensive industries with fast-moving technological frontiers. That is easier said than done, but our small size means we can be agile and the window of opportunity for global economic integration irrespective of physical distance is slowly opening.
An International Perspective on the New Zealand Productivity Paradox, New Zealand Productivity Commission Working Paper 2014/01, by Alain de Serres, Naomitsu Yashiro and Hervé Boulhol, OECD Economics Department.
“There are few more confused policies than this Government’s on foreign aid, which has seen the budget soar by a staggering 28 per cent in the past year, to £10.6 billion. This figure, revealed by the OECD, represents probably the biggest percentage increase in a single year ever enjoyed by any department in British peacetime history. And it has happened for no obvious reason. […] The fact that the overseas aid budget is one of the few to be ringfenced often feels more like a public relations exercise than an act of good governance. Rather than boasting of their compassion, ministers should provide more concrete evidence of what our spending has achieved.” That’s the UK Daily Telegraph’s reaction to what it calls “Profligate spending on foreign aid” after seeing the latest figures published by the OECD Development Assistance Committee (DAC).
Today and tomorrow, over 1500 “development leaders” will join Enrique Peña Nieto, President of Mexico, UN Secretary-General Ban Ki-moon and OECD Secretary-General Angel Gurría in Mexico City to discuss the kind of evidence The Telegraph is asking for. The first High-Level Meeting of the Global Partnership for Effective Development Co-operation will review global progress in making development co-operation more effective; agree on actions to boost progress; and “anchor effective development co-operation in the post-2015 global development agenda” – the set of goals and policies that will take over from the UN’s Millennium Development Goals after their 2015 target date.
The UN and OECD will be presenting Making development co-operation more effective: 2014 progress report. The OECD DAC’s data show that aid rose by 6.1% in real terms in 2013 to reach the highest level ever recorded, despite continued pressure on budgets in OECD countries since the global economic crisis. Donors provided a total of $134.8 billion in net official development assistance (ODA), marking a rebound after two years of falling volumes. In all, 17 of the DAC’s 28 member countries increased their ODA in 2013, while 11 reported a decrease. Net ODA from DAC countries stood at 0.3% of gross national income (GNI.) Five countries, including the UK, met a longstanding UN target for an ODA/GNI ratio of 0.7%. At the same time, the fall in the share of aid going to the neediest sub-Saharan African countries looks likely to continue in the years to come.
The 2014 progress report looks at whether this money was well spent, based on data provided by 46 countries that receive aid, or “development co-operation” as the book sometimes calls it. This isn’t the only piece of jargon you’ll need to know to be able to understand the report. The assessment starts by looking at “country ownership”. The case of Korea, where the Global Partnership was created in 2011 at a conference in Busan, illustrates what this refers to. It means that countries receiving aid take charge of the process. Korea 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. History shows that the Koreans knew better than anybody else what they needed.
Like many aspects of international cooperation, this sounds like common sense, but people involved in actual projects can often tell of money wasted because the experts didn’t know enough about local conditions – building industrial plants without bothering about where the energy to power them would come from for instance. Country ownership appears to be strengthening, but it’s too early to say whether this is translating into increased use of developing countries’ own ways of assessing results to guide cooperation.
Country ownership should reduce the number of useless projects, especially when it is combined with another Busan indicator – untying aid. Many projects that failed in their stated objectives, or contributed little to helping most people in a country improve their lives, were financed to help businesses in the donor country. The money was given on condition that it was spent in a certain way, on certain suppliers, even if the same goods or services could have been obtained more cheaply elsewhere or the funds spent on something more useful. In 2012, 79% of ODA was untied, compared with only 50% at the start of the millennium.
A common criticism of aid is that it ends up in the offshore bank accounts of kleptocrats. And the critics aren’t just in donor countries complaining that income from taxes should be spent at home. Writing in The Nigerian Voice, Gambian journalist Matthew K. Jallow argues that “… a major debilitating by-product of foreign aid to Africa is the culture of corruption that has taken root at every level of every government. Today, corruption has become the way of life in every country in Sub-Saharan Africa”. Jallow’s strategy for fighting this is transparency, accountability, and good governance. Making development co-operation more effective takes a similar view, stating that the “drive for transparency is starting to show results”, although the report also warns that there’s still a lot to be done by donors and recipients alike. “Inclusiveness” is one way to boost transparency. In other words, include non-state actors in national systems and accountability processes. Unfortunately, a government-centred, North-South perspective is still common.
Overall, the report concludes that there are some encouraging signs that “longstanding efforts to change the way development co-operation is delivered are paying off”, and that the quality of this co-operation is improving, but we still haven’t met the targets that the Global Partnership set for 2015, and we won’t meet them without more effort.
Here’s a quote from Making Innovation Policy Work: Learning from experimentation, a book by the OECD and the World Bank being launched today in Washington. “River blindness is the result of a parasitic infestation of the eye. The parasite is transferred by the bite of the blackfly.” Moses Katabarwa, senior epidemiologist for the Carter Center’s River Blindness program told CNN what the disease means for people infected. They don’t all go blind, but the itching is so bad they may break clay pots to scratch themselves with, and other attempts to relieve the symptoms include pouring boiling water over themselves, or running a red-hot machete up and down the spine. It’s not a fatal disease, but as Katabarwa says, the itching, disfigurement and insomnia it provokes make life so miserable that some sufferers are driven to suicide.
The fight to eradicate river blindness (onchocerciasis) is one of the examples quoted by Making Innovation Policy Work to show how innovation can help to improve the lives of those at the “bottom of the pyramid”, the world’s poorest citizens. The disease was eliminated by 2002 in 11 West African countries thanks to the Onchocerciasis Control Programme (OCP) a 20-year programme to spray insecticide to kill the flies, but because of the extensive forest cover and larger distances, this approach was not feasible in Central and East Africa, where 70 million people were still affected. The breakthrough came thanks to a drug developed by Merck to treat cattle parasites that also proved effective against the onchocerciasis parasites. Merck was prepared to donate the drug ““to anyone who needed it, for as long as it was needed.” but didn’t have a distribution partner until 1987 when William Foege, Director of the Carter Center, agreed to lead a programme at the Task Force for Child Development and Survival, an affiliate of Emory University.
The project shows that successful innovation doesn’t just mean inventions or technologies. Logistics and programme management can be innovative too. The African Programme for Onchocerciasis (APOC), launched in 1995, pioneered a community-directed treatment through which hundreds of thousands of communities, trained by the public health systems and participating NGOs, organised and managed the treatment (as well as distributing other drugs). Another thing that was new at the time was “Africanisation”. In the 1970s programme, 75% of the OCP’s professional staff were expatriates, but by the 2000s 99% of the staff of both the OCP and APOC were African).
Another success factor was the built-in operational research component, representing 10% of the annual budget. This made it possible to adjust the programme as it evolved. For example when monitoring showed that the blackfly became resistant to the original insecticide, seven back-up insecticides were use in rotation to break the resistance. Operational research was also critical in determining whether community-based approach would be cost-effective and what level of participation would be necessary. It also mapped the disease throughout Africa so that APOC operations could be scaled up as necessary.
It’s great to learn about the successes, but “learning from experimentation” also means learning from failures and mistakes – being allowed to “fail & learn fast”. The Indian government’s Akash Tablet Computer, intended to take advantage of the potential of computers and the Internet to revolutionise education in India ran into a number of design, procurement and production problems. Manufacturers didn’t have the capacity to meet the specifications for example, but they in turn argue that the specifications were unrealistic for a low-cost device. The first models were unsuccessful, but later products benefitted from a number of improvements. The project demonstrates the importance of clear specifications and testing procedures and of transparency in the procurement process.
Many of the devices were actually made in China, showing that to stimulate innovation and to get a reliable product at the lowest cost it is necessary to open procurement to the global market. That’s exactly what India did to find a cure for rotavirus, the most common cause of severe diarrhoea among infants and young children. India has the most rotavirus deaths in the world – almost 10% of all under-5 deaths. The Ministry of Science’s Department of Biotechnology lead an international effort involving public research institutes, universities, a local biotech firm and the Gates Foundation to develop India’s first indigenous rotavirus oral vaccine, that will be sold for less than a dollar a dose.
Finally, what’s true of innovation is also true for innovation policymaking and policy makers. Policy makers need to learn from experience and mistakes that they make, and understand how to encourage more entrepreneurial experimentation and appropriate risk-taking in policy making itself.
Any mystified adult trying to figure out the settings of a mobile phone knows there’s only one thing to do – find someone younger. Roused from their slumbers, even sleepy-eyed teens seem instinctively to know how to set up Wi-Fi, program the dishwasher (not that they ever would) and connect that cable whatsit to the TV’s thingamajig.
But are some teens better at these tasks than others? The most recent round of the OECD’s PISA student assessments set out to investigate how well the world’s 15-year-olds do when it comes to tackling real-life, interactive problems – “creative problem solving” – so demonstrating their capacity to reason outside the classroom. Results from the assessments are released today.
If you followed the first set of results from PISA 2012 late last year, you won’t be surprised to learn that, once again, youngsters in East Asia have done very well. Top of the heap is Singapore, followed by Korea and Japan. Chinese-speaking cities and economies fill out the other top seven places. (But note the usual health warnings with these country rankings. PISA is a survey, so there are margins of error in the results; country rankings may be based on differences that are not statistically significant.)
What sort of problems were the students asked to solve? Some weren’t too dissimilar from the challenges mentioned above. Among the tasks were figuring out the fastest route on a map, operating an air-conditioner and buying subway tickets from a vending machine (click on the links or here to take the tests yourself).
Students took the tests on computers, which meant that the problems could be designed to be interactive. That allowed students to receive feedback on their efforts, which, say the PISA people, meant they had to be “open to novelty, tolerate doubt and uncertainty and dare to use intuitions”. Those sorts of attitudes and skills, it’s generally agreed, are increasingly in demand in the workplace. According to the OECD’s adult skills survey, 10% of workers have to deal every day with complex problems that require at least 30 minutes to solve.
There are some interesting contrasts between these latest findings on creative problem-solving and the previous results from PISA released late last year. In general, and not too surprisingly, students who did well in problem solving also did well in mathematics, reading and science. But, in some countries, for example the Unites States, Italy and Australia, students did rather better than might have been expected from the earlier results. This may be evidence that schools are not making the most of students’ potential in core subjects.
Another group also did better than might have been expected: students from disadvantaged families. Although they didn’t match the performance of better-off students in problem solving, they weren’t as far behind as in the traditional PISA subjects. One reason for this may be that – regardless of family background – all young people have opportunities to use and develop practical, problem-solving skills outside the classroom.
As for differences between the sexes, boys generally did better than girls, especially among the top-performing students, where on average there were three boys for every two girls.
PISA 2012 Results: Creative Problem Solving (Vol. V) (OECD, 2014)
OECD educationtoday blog
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