Institutions, Interconnectedness, and Inclusiveness: Three “I”s for better lives in Eurasia
Today’s post is by Marcos Bonturi, Director of the OECD Global Relations Secretariat
The world has had its eyes riveted on the tensions in Ukraine. The rest of the Eurasia region in particular is facing important economic and political challenges as a result of these tensions.
The region, at a crossroads between Russia, China, India and Europe, has had some success in the past couple of decades in transitioning from a planned to a market economy. Countries have enacted sweeping reforms to diversify their economies, improve the business climate and attract foreign direct investment. As a result, from 1995 to 2013, regional gross output more than doubled from USD 144 billion to almost USD 360 billion. International investors have flocked to the region – between 1997 and 2013, net inflows of foreign direct investment increased more than six-fold, at an annual average rate of 12.4%. During the financial crisis the region managed to maintain a strong GDP growth rate, which in 2013 was as high as 4.5%. This upward growth trend has brought the majority of Eurasia countries into the middle income country bracket and lifted about 32 million people out of poverty over the past decade . Growth has been buttressed in many countries by access to vast natural resources – the Eurasia region holds mineral supplies of gold and bauxite, more than 125 years of gas reserves, 35 years of oil reserves and 10% of the world’s agricultural land.
Yet international experience has shown that strong economic growth and generous resource endowments alone are not enough to guarantee social peace and prosperity, especially in a region as diverse as Eurasia. Since the collapse of the Soviet Union, the economic development of the region has been underpinned by rising commodity prices which have attracted investment in resource-rich countries such as Azerbaijan, Kazakhstan, Mongolia, Turkmenistan and Uzbekistan. This trend has made economies of the region highly susceptible to fluctuations in commodity prices and increased their dependence on the export of natural resources. It has also led to disparities in income per capita between resource-rich countries and resource-poor countries. While some resource-poor countries such as Armenia, Belarus, Georgia, Moldova and Ukraine have acquired middle-income status thanks to the industrial legacy of the ex-Soviet Union, others such as Afghanistan, Kyrgyzstan and Tajikistan are unable to exit the lower income brackets despite growing trade with their resource-rich neighbours.
To unlock sustainable peace and prosperity in the region, countries will need to widen their approach to economic reform and tackle three underlying obstacles to their development: institutions, interconnectedness and inclusiveness.
First, Eurasian countries need to strengthen their institutions and improve governance, both in the public and private sectors. Burdensome administrative processes, insufficient transparency and broad-based corruption – especially in the resource-rich economies –undermine public trust in institutions and stifle economic growth across the region. While for the low-income countries, building basic institutions and helping firms access financing is the most urgent priority, the middle-income economies of the region need to improve their regulatory frameworks to cut red tape and increase efficiencies. Innovation policies that heighten productivity will help the resource-rich countries diversify their economies and build a less commodity-dependent growth model.
Second, countries of the region need to boost their interconnectedness to regional and global markets.
Strengthening trade links, keeping markets open, investing in infrastructure, and integrating into global value chains are priorities across the region. For the resource-poor countries, this is especially critical as stronger linkages to global value chains will bring access to new markets, technologies and know-how, and drive job creation at home. Greater connectedness will also help the resource-rich countries diversify their economies and attract investment to the non-extractive sectors. Establishing mutually beneficial trade linkages with regional “heavyweights” can also help solidify relationships with powerful neighbours.
Third, governments must take action to ensure that rising national wealth is not highly concentrated in the hands of few, but is shared more equitably among all citizens. With inequalities and youth unemployment on the rise across the region, a first step to foster inclusive growth will be to reform Eurasia’s education and training systems, which often date from the Soviet era. Governments will also need to encourage a more transparent and open dialogue between the public and private sectors and reduce barriers to small- and medium-sized enterprise development, drivers of job creation and innovation.
The OECD stands ready to support countries in Eurasia to design and implement reforms that will enhance their transparency, inclusiveness and integration in the global economy, and ultimately pave the way for a peaceful and prosperous future for all of the region’s citizens.
The OECD’s Eurasia Competitiveness Programme was established in 2008 to help the Eurasia region overcome these transition challenges, develop more vibrant and competitive markets, and uncover its vast potential. High-level representatives from Eurasia and OECD countries will meet at OECD Headquarters in Paris from 24-27 November 2014 for the first Eurasia Week, to exchange perspectives on “Enhancing Competitiveness in Eurasia”, assess progress made, and agree on a roadmap for the region’s future reforms.
 OECD calculations based on World Bank data, 2014
 OECD calculations based on World Bank data, 2014
 OECD calculations based on World Bank data, 2014
 For the current 2015 fiscal year, middle-income economies are those with a GNI per capita of more than $1,045 but less than $12,746 (World Bank).
 OECD Calculations based on World Bank (2014) “Diversified Development: Making the most of natural resources in Eurasia”, Washington D.C. and World Bank World Development database.
 BP Statistical Review of World Energy 2014
 BP Statistical Review of World Energy 2014
 OECD calculations based on World Bank data, 2014
Today’s post is by Rudolf van der Berg of the OECD Science, Technology and Industry Directorate
“Internet”, it’s a word we use daily. “Look it up on the Internet”, “I have no Internet”, “Read it on the Internet”, “Connect it to the Internet”, “Meet him/her on the Internet”, “because of the Internet”. There are so many ways the Internet has changed our lives that many of us would be hard pressed to remember daily routines without it. Perhaps, there has never been a technology capable of pervading our activities so much, so quickly and on such a global scale.
A tram (like the one in Iljitsch van Beijnum’s photo above), a train or a bus may already be connected to the Internet with few of us being aware. The number of connected devices in our homes is increasing as are the range of connected devices that we wear or are all around us, from fitness trackers to light bulbs. A new idea for a device or service developed in Shanghai, in Silicon Valley or in Stockholm can overnight be taken up by people around the world. Think of the games “Flappy Bird”, developed in Vietnam, or “Angry Birds”, from Finland, and extend that phenomenon to everyday activities across the world.
This has had an unprecedented effect on global governance. It is no longer enough to have your national governance of a sector. Unless you cut the cord, the governance of others is directly influencing yours. Whether it is access to undersea cables, satellites, harmful and illegal content, cybersecurity, health or trade, a country’s rules affect those of others.
And it is for this reason that each year the Internet Governance Forum (IGF2014) comes together. This week, 3000 representatives of business, civil society, the Internet technical community, Inter-governmental Organisations and governments come together in Istanbul to discuss the width and breadth of Internet governance. They’re primarily discussing the role of regulators, the deployment of local infrastructure, the creation of local content, the triangle of privacy-security-trust, the governance institutions, and what it all means for the Internet and future developments, such as the Internet of Things. Moreover, the topics are expanding, in parallel with the Internet’s influence, to encompass what it all means for areas such as employment, health, energy and transport.
The OECD is present at the IGF2014 since the Organisation is one of the principal forums where its 34 member countries and partners discuss issues relevant to Internet governance. The OECD publishes each year a number of reports on policies and good practices on how to preserve the open Internet, how it influences economic and social development and how to take advantage of opportunities and address challenges.
This year we are participating in a number of sessions and presenting our most recent work on the Internet economy. We will in particular have an Open Forum on Thursday at 14:30 in Workshop Room 03. The focus of this year’s forum is on the many economic layers and dimensions that make up the open Internet, in a holistic manner. The OECD will engage with policy experts, economists, the technical community and civil society to discuss the different possible approaches to assessing the economics of the open Internet. This session will provide an opportunity to update the IGF on OECD’s ongoing work in this area and to present the OECD Ministerial on the Digital Economy to be held in Mexico in 2016.
Today’s post is from Kate Lancaster, editor in charge of publications on government finance at the OECD.
Government budgets are news. Tough choices have had to be made in these challenging economic times and we’re all interested in how our governments are managing our money.
While the big headlines capture our attention – “Spending Plan: Seven More Years of Pain”, “Government Shutting Down” – do you ever wonder what’s actually happening behind the scenes? Despite the political clashes that make the news, there is still solid, steady work going on in countries, ensuring that governments can manage fiscal reforms responsibly and budget well, as OECD research shows.
Interested in the nitty-gritty of how countries create and manage their budgets? Check out the OECD Journal on Budgeting, which draws on the work of senior budget officials from around the world and whose issues include reviews of the budgetary systems of more than thirty countries.
Concerned about reforms of public administration and about the quality of services delivered to the public? Have a look at the OECD’s Value for Money in Government series.
Want to learn more about the hard truths many countries are facing, as they decide where to spend, where to save, and how to do it all efficiently? The OECD’s recent review of Greece’s ongoing welfare system reforms may interest you, as may Restoring Public Finances.
Wondering about how your country’s borrowing needs compare? The OECD Sovereign Borrowing Outlook may be the book for you.
Worried about how much your government owes? This table, which presents governments’ deficits and surpluses (as a percent of GDP), may interest you, as might this one on government debt, while you’ll find the full picture in OECD Central Government Debt Statistics.
Want to know what it’s really all about? Watch this:
In today’s post, Christian Goebel, Professor of Chinese Studies at the University of Vienna talks to Rosa Gosch of Sustainable Governance Indicators (SGI) about a new study he co-authored for the Bertelsmann Foundation “Assessing Pathways to Sustainable Growth – Need for Reform and Governance Capacities in Asia
Professor Goebel, why are some Asian nations successful while others fail?
First, we must define success. In our analysis of development in China, Indonesia, Singapore, Malaysia, India, South Korea, Vietnam and Japan, we comprehend success not only as economic growth in terms of per capita income, as is often the case. Social development, gender equality, equal access to education, environmental policies and the quality of democracy are equally important. We found that the Asian countries started with economic development, then moved into the social and environmental realm and finally, in some cases, into democratic development. How did they do this? Most governments first developed their executive capacity and only later became more accountable and sometimes more democratic.
Is there a common path for development in Asia?
There isn’t a single recipe for all countries. Development is highly idiosyncratic. Our analysis of Asia, however, shows that countries with strong governments that exhibit high executive capacity tended to be more successful than those with weak executive capacity. The governments of all the countries in our sample first invested in the improvement of executive capacity, and only afterwards in executive accountability and the quality of democracy. With the exception of India, where change has been more decentralized, government has been the main actor in bringing about economic and social change in each case. If there is an Asian model, then it is characterized by a pro-business government that increasingly seeks to govern markets as its executive capacity grows, and which prioritizes social and environmental issues that are beneficial for economic growth over those which are not.
What policy areas did you look at in your study?
We looked at economic policies, which include the transformation from an agrarian economy to a knowledge economy, innovation policies, and social policies like poverty reduction programs and education policies. We also had a close look at issues of gender equality, access to education, and environmental protection. In total, we examined nearly 150 different indicators for every country.
You group the countries in your study into four categories: long-standing democracies (India, Japan), young democracies (South Korea, Indonesia), one-party autocracies (China, Vietnam), and “electoral autocracies” (Malaysia, Singapore). Did regime type affect the performance of the countries?
No, at the aggregate level it didn’t. We didn’t find that democracies are doing better than non-democracies, for example. One of the most successful countries according to the SGI is Singapore, which is not a democracy. China is another example that is developing fast without being democratic. On the other hand, we have India and Indonesia, where development is less impressive despite them being democracies. So it’s not really the presence of democracy but the quality of democracy that matters for development. However, increasing the quality of democracy is very difficult because this requires knowledge, skills and financial resources. High quality of democracy and high executive capacity seem to feed into each other.
So, contrary to the situation in the OECD, policy performance and quality of democracy aren’t correlated in Asia?
That’s true. But that doesn’t mean that democracy doesn’t matter. We arrived at this conclusion because Singapore performs better than Japan, and China better than Indonesia. In the OECD, only democracies were analyzed, and high quality democracies perform better than low quality democracies. The same is true in Asia. Here, however, we have autocracies with high executive capacity, and they perform better than democracies with low executive capacity. This means that democratic quality can help you fine-tune the system only if you have the fundamentals in place.
In which policy areas did the Asian countries perform particularly well?
Nearly all countries did very well in the development of per capita income, poverty reduction, access to education, and access to social welfare. Most children in Asia are today able to access basic education, and the number of years of education has also increased. The gap between boys and girls in access to education has decreased, so there is more gender equality, especially at primary and secondary school level. Interestingly, South Korea – run by a female president today – is among those nations where girls and women don’t have equal access to university education.
Which other shortcomings did you come across?
The developmental models pursued in Asia demand huge sacrifices, notably in the form of inequality and environmental destruction. About half of the countries in our sample are highly unequal; the gains from economic growth are not distributed equally. China, Singapore and Malaysia, for example, have for a long time been very unequal societies with Gini coefficients above 0.45. And the developmental achievements are made at high environmental costs. Moreover, even the established democracies display serious deficits in democratic quality, especially in dimensions such as government accountability, media freedom and even civil rights.
What does your study tell us about future development in Asia?
Our explanations lead us to think about how countries develop and what kind of strategies can be chosen. It is very likely that some of the countries have learned from Japan and from each other. A report like ours should not be taken to say: This is how the world functions. We have discovered regularities, but these are not laws of nature. It should lead us to think: Are these actually good developments? Are there alternatives? We call these developments successful, but the price people pay in terms of social dislocation or environmental pollution can be huge.
What surprised you the most when examining governance in Asia?
We didn’t expect Indonesia to stay democratic, that Indonesians would keep embracing democracy the way they do. The fundamentals are not very good: executive capacity is low, corruption high, rule of law not very strong, and the country is just recovering from the second crisis that affected its economy very severely. Despite this, the country is holding on to democracy. Indonesia has the largest Muslim population in the world. That tells you something about the alleged incompatibility of Islam and democracy – even when democracy is under stress.
Professor Dani Rodrik of Harvard University discusses Asian growth models here
This week, around 30,000 children under the age of five will die from water-related diseases, one every 20 seconds. In fact unsafe water now kills more people than all forms of violence, including war, with diarrheal diseases claiming 1.8 million victims a year and causing more deaths in children under 15 than the combined impact of HIV/AIDS, malaria, and tuberculosis. Uleftae Mundeo from Manzo in Ethiopia told NGO WaterAid what that means. “Children often die here from the water. Often all of the money we earn from farming is spent on medicine.”
Uleftae uses a local pond, but often collecting water means walking a dozen or more kilometres a day carrying a heavy load, leading to chronic back pain and sometimes spinal deformities. China’s Global Times interviewed 12 year-old Mi Guie who spent her weekends helping her parents fetch water after a drought hit Yunnan Province in 2009-10. They walked for hours getting to and from the nearest river, climbing a 600 metre high cliff on the way there and back, for a few litres of muddy water each time.
In areas where supply is worst, women and girls (always them) get up in the middle of the night and queue for hours for their turn then a couple of hours more as water trickles into buckets. In urban areas, the problems are different but no less serious. Infrastructure hasn’t expanded as much as population, leaving millions of citizens with no access to piped water and modern sanitation, or forced to live near open sewers carrying household and industrial waste. One of these sewers caught fire in a shantytown in Nairobi in September 2011 after petrol spilled into it, burning to death over 100 people.
Fortunately for us, stories like these don’t take place in OECD countries, but the number of water-related disasters has increased worldwide over the last three decades, particularly floods, droughts and storms, with almost 40% in OECD countries, 30% in the BRIICS and 30% elsewhere. Only about 5% of the victims were in OECD countries, although OECD countries suffered almost two-thirds of the economic losses.
Floods accounted for well over 40% of the disasters over 1980-2009, storms nearly 45% and droughts 15%. The number of victims ranges between about 100 million and 200 million per year with peaks of 300 million or more. Almost two-thirds of the victims are due to floods, with droughts and other temperature extremes accounting for 25% and storms the remaining 10%.
Economic losses were $50-100 billion a year between 1980 and 2009, although that jumped to $220 billion following Hurricane Katrina in the US in 2005. Storms account for half of all losses, floods one third and droughts almost 15%.
With so many different factors influencing and being influenced by each other, it’s hard to define an overarching framework to think about water-related issues. Even the basic geographical categories I used above aren’t that useful in many cases. Within a single “OECD country” like France, the main concern can vary from place to place – pesticides and fertilizers polluting rivers, financing the replacement of ageing infrastructure, limiting the impact of drought on economic activity…
However, “water security” provides a useful lens through which to examine the issues, as we celebrate World Water Day, especially as this year, World Water Day is part of the UN’s International Year of Water Cooperation. Water security is emerging as one the major global challenges of the 21st century. World water use is projected to be 55% higher in 2050 than it was in 2000, and the OECD Environmental Outlook says that by mid-century, nearly half the world population will live in river basins under severe water stress. That means an additional 1 billion people compared with today. These figures are only talking about the quantity of water available. Degradation of water quality adds to the uncertainty about future water availability.
In forthcoming work, the OECD will argue that when you talk about security, you’re implicitly or explicitly talking about risk, so a risk approach may be the best way to tackle water security. Water security would be defined as maintaining an acceptable level of risks in terms of water shortage or excess, pollution, and freshwater system resilience for society and the environment, today and in the future. The main thrust of a risk approach to water security would be to secure benefits for society and the environment in a way that maximises expected social welfare.
Issues ranging from infrastructure financing to climate change influence water resources, as well as economic activities have to be considered. Some of these activities are obvious, while others may come as a surprise, energy for example. Thermoelectric power generation accounted for 39% of all freshwater withdrawals in the US in 2000, roughly equivalent to water withdrawals for irrigated agriculture. You may also be surprised to learn how much water goes into making the products you use every day, over 15,000 litres for a kilo of beef for instance, or 1500 litres for a litre of apple juice. (You can calculate your own “water footprint” here)
From a risk perspective, water governance poses three main challenges: know the risk by obtaining the information needed to make effective and informed decisions; cap the risk by setting and enforcing acceptable limits on use and standards for water quality and flood protection; and managing the risk through policies and regulations that allow equitable and efficient allocation of water resources, equitable and efficient land-use planning for flood prevention, and implementing the polluter-pays-principle.
From a water cooperation perspective, that means for example ending the institutional fragmentation and promoting a multi-level approach so that all the different needs, options, and consequences can be looked at as a whole.
The problems are undeniable, but there is room for optimism. Next week sees the first meeting of the OECD Water Governance Initiative that argues that “Managed correctly, there is sufficient water on Earth for the world’s population”. I’ll drink to that.
Water Chapter of the OECD Environmental Outlook to 2050: The Consequences of Inaction