WIDER Conference on Debt Relief

World Institute for Development Economics Research

No. 2/2001

WIDER Conference 2001 WIDER Annual Lecture on Debt Relief The Perils of Neglecting Horizontal Inequalities n 17-18 August WIDER held a conference which by Frances Stewart Oattracted 145 participants to discuss debt relief for Kari Räisänen poor countries, a subject that has been much in the news. Nearly 80 presentations were made in the plenary, parallel, panel, and poster sessions of the conference. Papers on all aspects of the Heavily Indebted Poor Countries (HIPC) initiative were presented, with the conference paying particular attention to improving our understanding of the poverty and developmental impacts of debt relief. Accordingly, discussion focused on the macroeconomic effects of debt relief (how debt relief affects inflation and growth) and the social impact (how the resources released by debt relief can be used for improving basic social Frances Stewart delivering the 2001 WIDER Annual Lecture services). The meeting also looked at how debt relief will urrent thinking about development places affect the total volume of aid available to poor countries, Cindividuals firmly at the centre of concern, the role of trade policy in resolving the debt crisis of poor the basic building block for analysis and policy. countries, and the merits of a complete debt write-off. This is as true of the important recent innovations in thinking led by Amartya Sen, Of those conference participants from outside Finland, which move us away from a focus purely on nearly half came from developing and transition countries incomes to incorporate wider perspectives on well- including 40 African nationals. Some 57 per cent of being, as of more traditional neo-classical welfare participants were from academic/research institutions and analysis which underpins most development policy. Both approaches neglect the key role of universities in developed and developing countries groups in human activity. Yet individuals’ (including AERC, KIPPRA, North-South Institute, and membership of groups—families, kinship groups, ODI), 31 per cent were from international organizations communities, ethnic and religious groups, social (including ADB, IMF, UNCTAD, UNDP, UNICEF, UNECA, and work place groups—are a fundamental source World Bank, and WIDER) or donor agencies (including of well- and ill-being, both directly and DANIDA, DFID, Finland’s Ministry of Foreign Affairs, and instrumentally (i.e. in the way they affect the Sida), 7 per cent were from NGOs (including Christian Aid achievement of other objectives). and the World Development Movement), and 5 per cent Here I want to focus on ‘cultural’ groups: i.e. were from government organizations in developing groups encompassing common cultural identities. countries (including the ministries of finance of Mongolia, These identities are generally based on common Uganda and Rwanda). behaviour and values. The binding agent may be ‘ethnicity’ (generally associated with a common Some 76 papers from the conference are posted on the history, language, and mores), or religion, or race, WIDER Web site together with presentations and region, or even class. Modern societies—in rich media reports: and poor countries—embody large cultural differences of this sort. In fact they seem www.wider.unu.edu particularly important today, partly because ideological differences have lessened with the end

The United Nations University J. R. Ripper/SocialPhotos of the Cold War targeted (for example, bringing cultural differ- in the 1970s, the Tutsi ences to the fore, and in Burundi killed many partly because global educated Hutus). migration has brought Other important people of different aspects of the social cultures into physical dimension are access proximity. Cultural to health services and differences lie behind housing. It is clear that most current conflicts the significance of —huge atrocities, particular horizontal such as occurred in inequalities will vary Rwanda, many civil according to the wars, much civil conditions in a given disturbance, and society: for example, indeed, today’s ‘war land inequalities may be against terrorism’. a source of conflict in Group inequality may become a source of conflict agrarian societies Don’t Neglect Groups The key issue is why in some cases (as in Zimbabwe), but are one finds that cultural differences unimportant in more industrial soci- There is much discussion on whether lead to a vibrant and multifaceted eties, where jobs matter much more. such cultural differences represent society which flourishes economi- long-term, fundamental differences cally and politically, while in others Where there are sharp horizontal between humans (the primordial development disasters ensue. My inequalities in important view), or are constructed by leaders hypothesis is that horizontal dimensions—i.e. where there are for political and economic purposes inequalities are an important part of significant differences in political, (the instrumental view). Many the answer to this question. economic and social resources groups are fluid. Their members cross Horizontal inequalities are among groups differentiated on boundaries, individuals may be inequalities between culturally cultural lines—then the society will members of multiple groups (have defined groups. I call them be conflict prone. We only need to multiple identities), the groups’ ‘horizontal’ to distinguish them from turn to the cases of Rwanda and characteristic behaviour can change our normal definition of inequality, Burundi (with the economically and over time, new groups are formed, which lines individuals or socially privileged Tutsi living side- while particular group distinctions households up from top to bottom, by-side with the impoverished gain and lose salience over time. All generally ranked by income, and Hutu), to Northern Ireland, where the this tends to support the instrumen- measures the dispersion in a vertical same situation applies to the tal view, and makes it difficult to way (i.e. measures vertical Protestants and Catholics, or to ‘catch’ the group definitively, either inequality). economic, social and political descriptively or statistically. differences between Israelis and Horizontal inequalities have many Palestinians, to show how powerful Yet group membership can have dimensions. Three are particularly inequalities between groups can be major effects, at the extreme causing important: political, economic and in provoking violence when there are people to kill or die for them. social. Each contains a number of cultural identities which coincide Individual members’ perceptions of elements: on the political dimension, with the inequalities that bind and what the group is are what is group members’ role in the mobilise the various groups to fight. important for action: group government, top bureaucracy, police differences matter if their members or army are all relevant to the power Keep an Eye on Horizontal perceive them to be important, and of different groups to change Inequality while differences may be constructed conditions, and to the resentment or accentuated by leaders for groups feel if excluded. On the It follows that monitoring horizontal instrumental reasons, for their economic dimensions, incomes are inequalities—and devising policies members the differences from others one aspect, but probably more to reduce such inequalities where often seem very real. Its because of important are jobs and assets of they are large—should be an this perceived reality that group various kinds. On the social important aspect of policy, within membership is an important aspect dimension, access to education at rich and poor countries, and between of well-being for so many people, all levels is of fundamental them. Yet this is not the case in most and the group’s relative position importance, for itself and also for the societies. Horizontal inequalities are vis-à-vis other groups can become prospects it confers for jobs and in- rarely measured; rather efforts are an important source of well-being or comes. It is no accident that in many devoted to measuring vertical resentment. conflicts, the educated members of inequality, which is, of course, opposing groups are deliberately

2 important as a cause of poverty, but Horizontal inequalities WIDER’s Annual Lectures are which rarely provokes violent published and are available on conflict. Neither the IMF nor the are inequalities between the Web site. The 2001 World Bank pays attention to culturally defined groups lecture was videotaped horizontal inequalities in their and is available to view online at: monitoring or policy advice, despite Important groups include www.wider.unu.edu. the fact that violent conflict is one of families, kinship groups, the worst causes of poverty and communities, ethnic and underdevelopment. religious groups, social and 2000 WIDER Annual Lecture There are, of course, severe work place groups ‘Globalization and Appropriate difficulties when measuring Governance’, by Professor Jagdish horizontal inequalities and Individuals’ membership of N. Bhagwati, Arthur Lehman introducing policies to reduce them. groups is a fundamental Professor of Economics and One is the fluidity of cultural groups, source of well- and ill- Political Science at Columbia mentioned above, which sometimes being University. makes it difficult to define the relevant groups. Another is that the Horizontal inequalities lie process of measurement itself can be behind most current 1999 WIDER Annual Lecture provocative. Policies to correct such conflicts, including today’s inequalities may be thwarted ‘Is Rising Income Inequality because governments themselves are ‘war against terrorism’ Inevitable? A Critique of the often dominated by one group and Transatlantic Consensus’, by unwilling to share political or To reduce conflict, monitor Professor Anthony B. Atkinson, economic power. Moreover, the horizontal inequality both Warden of Nuffield College, relatively privileged groups may nationally and internationally University of Oxford. resist any attack on their privilege, themselves sometimes taking Frances Stewart is Professor of 1998 WIDER Annual Lecture violent action. Development Economics and Director of the International ‘More Instruments and Broader Yet the objective of monitoring and Development Centre, Queen Goals: Moving Toward the Post- reducing horizontal inequalities is of Elizabeth House, at the University Washington Consensus’, by such fundamental importance if we of Oxford and co-directed the Professor Joseph E. Stiglitz, are to secure a peaceful world and research project Wave of Stanford University, 2001 Nobel flourishing economies, that these Emergencies of the Last Decade, Laureate. problems need to be tackled rather with Professors E. Wayne Nafziger than regarded as a reason for and Raimo Väyrynen, published as abandoning efforts to incorporate ‘War, Hunger, and Displacement: the 1997 WIDER Annual Lecture horizontal inequalities into Origins of Humanitarian ‘The Contribution of the New policy-making. Emergencies’ (Volume 1: Analysis, Institutional Economics to an Volume 2: Case Studies), Oxford The horizontal equality dimension Understanding of the Transition University Press for Queen should be an important aspect of all Elizabeth House, International Problem’, Professor Douglass political, economic and social policy, Development Centre University of C. North, Washington University for every multicultural society—not Oxford and WIDER. in St. Louis, Missouri, 1993 just those thought particularly Nobel Laureate. vulnerable to conflict at the moment. It should also be applied at the She was also co-director (with Judith Heyer and Rosemary Thorp) international level, to correct the of the WIDER project on ‘Group worldwide inequalities which fall 2002 WIDER Annual Lecture along cultural lines. Recent events Behaviour and Development’ which ‘The Impact of Globalization on particularly emphasise the will be published by Oxford importance of horizontal inequalities University Press in 2002, as ‘Group World Inequality’ (provisional at a global level. Behaviour and Development: Is the title) will be delivered by Market Destroying Cooperation?’ Professor Jeffrey G. Williamson, This article is a summary of the 2001 Further research on conflict and Harvard University, at the WIDER Annual Lecture on papers from the Group project are University of Copenhagen on ‘Horizontal Inequality: a Neglected available in WIDER’s Discussion 5 September. This lecture is Dimension of Development’ given by Paper series which can be sponsored by the Danish downloaded from the website: Frances Stewart in Helsinki on Ministry of Foreign Affairs. 14 December 2001. www.wider.unu.edu.

3 By Invitation Debt Relief and the Development Architecture by Nancy Birdsall and Brian Deese he now famous international Debt Relief for indeed there was no ‘debt tax’ on the Tmovement to reduce the debts Development HIPC countries. of the world’s poorest countries (culminating in the HIPC, or Heavily Faith aside, there are good reasons But in the resulting debt game, the Indebted Poor Country initiative) is to believe that debt relief can be an donors increasingly transferred part of a larger effort by the efficient mechanism to transfer resources based on a country’s debt international donor community resources to poor countries and may situation, rather than on its potential to redefine the to use resources business of devel- well. Birdsall, opment assistance, Claessens, and or better the ‘devel- Diwan (2001) show opment architec- that in the 1990s ture’. This effort those countries in is based on an Sub-Saharan Africa acceptance of with the highest historical fact: over debt (and specifi- the past two cally a high portion decades, despite of that debt owed billions of dollars to the multilateral in development institutions) assistance lending, received the bulk of there has been little transfers, independ- growth or poverty ent of their policy reduction in many of or institutional the world’s poorest environment. In this countries. group, only the lending by the World There is an emerging consensus that help transform the development Bank’s IDA remained ‘selective’. part of the reason why so much architecture to leverage positive (Among the lower debt countries, development assistance contributed change in the way the donor the donors as a group were to so little development was that the community engages with poor reasonably selective.) donor community was not very countries. selective. That is, official creditors Reducing the debt stocks of these and donors did not lend based on an The first has to do with past donor countries provides an opportunity assessment of a country’s policies, and creditor behavior. Over the past for donors to get out of this vicious institutions, or capability to use two decades the HIPC countries refinancing game and reintroduce resources effectively to stimulate the received massive amounts of selectivity in their new lending and private investment and social external assistance—almost all from grantmaking. This is good news even institutions critical to growth. official donors and creditors—while if debt relief does not end up being Therefore, much of the money went achieving low or negative per capita additional—if instead debt relief to governments who were ether growth, which resulted in an ever- simply substitutes one form of ‘aid’ unwilling or unable to use it for the increasing stock of outstanding for new loans and grants. Why? It benefit of their citizens. The success official debt. In the 1990s, the donor would liberate donors to channel of debt relief, then, involves two community resorted to a more funds to countries with leaps of faith. First that the internal combination of rescheduling and reasonably good economic problems of recipient countries— fresh additional resources in a good management and adequate corruption, lack of accountability faith effort to help these countries absorptive capacity. That could and in some cases absorptive avoid arrears and stay eligible for the initiate a virtuous circle, crowding in capacity—are receding. Second that benefits of multilateral lending and private investment in these countries the official donor community will engagement with the international and generating growth. But while reform its entrenched bureaucracy community. As Figure 1 shows, these reducing the debt stock opens and be more selective in its new additional resources exceeded the the door for this positive change lending and grantmaking. countries’ debt service burdens, and indonor behavior, it in no way

4 of projects, and, along with the PRSP, Table 1: Assistance to Sub-Saharan Africa: can encourage ownership and project versus non-project activity (%) domestic management of the poverty reduction and growth strategy. Here 1977 - 1987 1988 - 1998 again, debt relief provides an opportunity, but no guarantee, as the Project 71.5 74.3 resources released from debt relief Non-Project 16.55 13.6 are only a small fraction of the Creditors 11.9 12.1 resources needed by the highly aid (debt relief) dependent HIPCs if they are to have Total (%) 100.0 100.0 any shot at achieving the development goals put forth at last Source: Birdsall, Claessens and Diwan (2001) year’s Millennium Summit. For example, in the four countries that have received full debt relief under HIPC, the annual debt service Table 2: Continued Aid Dependence of savings represent only 14 per cent post-completion point HIPCs of official net transfers in recent years (Table 2). Yet if the PRSP really does Net Official Debt Service represent a new way of doing Transfers Relief development planning in poor 1997 - 1999 2000 - 2004 countries (and initial assessments annual average annual average are guardedly optimistic on this point), then the untied budgetary Uganda 647 50.8 resources released from debt Bolivia 482.3 125.8 relief may help solidify Mozambique 926.3 119.3 an ‘ownership’ pillar of the Tanzania 907 77.0 development architecture, working in concert with increased donor Source: Birdsall and Williamson (2001). ‘Completion Point’ is selectivity. when HIPC countries receive full unconditional debt stock relief. This article draws on Nancy Birdsall, Stijn Claessens and Ishac Diwan ‘Will HIPC Matter: The Debt Game and Donor Behavior in guarantees it. Those most the HIPC initiative). But another Africa’, presented at the WIDER passionate about securing debt result of the ‘debt game’ has been conference on Debt Relief in relief for the poorest countries should an increasing donor presence in the Helsinki in August 2001 (available at www.wider.unu.edu under debt now be equally adamant about most indebted countries that flies in conference papers) and Nancy demanding that the donors change the face of this goal. Behind the Birdsall and John Williamson with their past behavior and that positive net transfers in Figure 1 is a Brian Deese ‘A Golden selectivity is one of the pillars story of increased gross transfers Opportunity: From Debt to a New of the post-HIPC development and increased debt service. As Development Architecture’, Center architecture. Table 1 illustrates, most of those for Global Development/Institute gross transfers in the 1980s and for International Economics Ownership of Development 1990s have apparently come in the (forthcoming). Strategy form of discrete project support, which means an increasingly large Nancy Birdsall is President A second virtue has to do with the aid bureaucracy for poor country of the Center for Global nature of debt relief itself. In recent finance ministries to manage. Development in Washington DC, years the donors have begun to and was the Executive emphasize the need for the recipient Debt relief is a form of untied budget Vice-President of the Inter-American countries to take charge and ‘own’ support that may help reverse this Development Bank from 1993-1998. the design of their development trend. For countries with good Brian Deese is a Research Assistant strategies (this is the goal of the policies and institutions, debt relief at the Center for Global Poverty Reduction Strategy Paper will reduce somewhat the burden of Development. Further information (PRSP), one of the central conditions coordinating with an endless list of on CGD can be found at for the receipt of debt relief under donors and aid agencies on dozens www.cgdev.org.

5 Where do we Stand a Decade After the Collapse of the USSR? by Vladimir Popov

he economic performance of the per cent above its 1940 level by 1948. There is considerable disagreement Tsuccessor states of the former GDP in Western countries fell by an about which policies are at fault. Soviet Union (FSU) has been average of 30 per cent during the Those advocating shock therapy disappointing. GDP has fallen by Great Depression (1929-33). But by emphasise policy inconsistency: roughly 50 per cent in the FSU the end of the 1930s it had in particular the inability of from its pre-recession level of recovered its pre-recession levels. governments and central banks to 1989 (see Figure). fight inflation in Investment fell by the early 1990s. even more. And In contrast, income inequality supporters of has greatly gradual transition increased—so that blame the attempt most people have to introduce a seen a real income conventional decline—and life shock therapy expectancy has package. dropped sharply (death rates have The WIDER book risen by about 50 Transition and per cent). Institutions: The Experience of Late Russia’s GDP fell Reformers (edited by 45 per cent over by G. A. Cornia and 1989-98 and death V. Popov, OUP 2001) rates increased offers an alternative from 1 per cent in perspective. It the 1980s to 1.5 per cent in 1994. Explaining the Severity of argues that the speed of reform per They stayed at this high level the Output Collapse se (shock versus gradual transition) thereafter, which is equivalent to did not matter a great deal. over 700,000 additional deaths Why has the FSU experienced one annually, a population loss that of history’s worst declines in output Instead, the depth and length of the is equivalent to a major war. and living standards? Is the collapse recession had three main causes. due to initial conditions and First, greater distortions in the FSU’s In FSU states that were severely circumstances (i.e. predetermined industrial structure and external trade affected by conflict (Armenia, and hardly avoidable)? Or do poor patterns on the eve of the transition. Azerbaijan, Georgia, Moldova and policy choices play a greater role? Second, the collapse of state and Tajikistan), GDP was only 30 to 50 non-state institutions, which per cent of its pre-transition levels Most other transition economies did occurred in the late 1980s and early by the late 1990s. Even in the Ukraine better that the FSU states. In 1990s, resulting in crisis management (which wasn’t affected by military Eastern Europe, the fall in output instead of organised and manageable conflict) GDP fell by nearly two- continued for 2-4 years and totalled transition. Third, poor economic thirds (see Figure). 20 to 30 per cent. But at least Central policies: macroeconomic instability Europe is now above its pre- and import substitution, irrespective This output loss is unprecedented transition output level. In China of whether the reforms were gradual in recent history. During the Second and Vietnam there was no or radical. World War the national income of transformational recession at all— the USSR fell by 20 per cent over on the contrary, economic growth Supply-Side Shock Caused 1940-42. But national income accelerated from the start of reform. by Correcting Severe recovered its 1940 level by 1944 Was the exceptional length and Distortions and—despite falling again by 20 depth of the FSU recession per cent over 1944-46 as military inevitable? The FSU recession partly arose from industry was converted—it was 20 the need to reallocate resources in

6 Ara Kazandjian order to correct the distortions inherited from the era of central planning: an over-large military sector; overindustrialisation and underdevelopment of the service sector; inefficient trade flows between the former Soviet republics and between the USSR and Comecon countries; and the excessively large size and poor specialisation of industrial enterprises and farms.

These distortions were generally more pronounced in FSU than in Eastern Europe—and more so than in China and Vietnam. The larger the Many elderly people have been hit hard by economic transition distortions, the greater the reduction extreme depth, of the FSU’s competitive industries, budget defi- of output that was to be expected. recession. The exceptions— cits resulting in high indebtedness The effects are those of an adverse Uzbekistan, Belarus and Estonia— and/or inflation, together with over- supply shock (like the USSR’s post- only prove the rule: the share of valued exchange rates). These have war recession caused by the government spending in GDP in a devastating impact on output. conversion of its defence industries these countries did not decline as or the world recession resulting from much as the FSU average. In much of the FSU macroeconomic the 1973 and 1979 oil price hikes). policy was far from prudent: In contrast, strong institutions specifically, high inflation in the first Institutional Collapse explain much of the success of half of the 1990s and exchange-rate Magnified the FSU Output gradual reforms in China and shock based stabilization leading to the Collapse therapy in Vietnam—in both cases excessive appreciation of real strong authoritarian regimes were exchange rates and currency crises Institutional capacity includes the preserved and the institutions of in 1998-99. Industrial policies government’s ability to enforce rules central planning were not dismantled still favour energy intensive and regulations, collect taxes, before the creation of new market industries, thereby hiding (but not protect property and contract rights, institutions. Robust institutions also resolving) structural inefficiencies. and provide law and order. The explain much of the relative success In Russia, domestic fuel and energy failure of FSU states to perform these of radical reforms in Eastern Europe, prices are only 20 per cent of their traditional tasks imposed costs especially in Central European coun- world levels. If these prices were on companies and therefore tries (where strong democratic allowed to increase to the world level reduced growth. regimes succeeded in creating new (i.e. if restrictions for oil and gas market institutions). exports were lifted), then a painful To put it differently, the Gorbachev restructuring leading to a recession reforms of 1985-91 failed not because Weak Institutions led to would result. If they are not they were gradual, but because the Weak Policies increased, energy intensity levels will state’s institutional capacity remain among the highest in the weakened, undermining its ability to Given the inability of the state to world. Eventually, policy-makers will control the transition process. The enforce its regulations, economic have to bite the bullet and it will be Yeltsin reforms in Russia, as well as policy could hardly be ‘good’. painful. reforms in most other FSU states, Institutional capacity depends not were so costly not because of shock only on the efficiency of the Recent years have seen a resump- therapy, but because of the collapse public administration, but also tion of growth in the FSU. After the of the institutions needed to enforce on the existence of a degree of pain of devaluation, the Russian law and order and carry out the social consensus that enables economy grew at 3.2 per cent in 1999, manageable transition. governments to carry out policies 7.8 per cent in 2000, and hopefully that are opposed by particular 5 per cent in 2001. But this recent The collapse of the USSR’s state interest groups and lobbies. As a growth must be put in perspective. institutions that started in the late result, weak state institutions In 2001 Russia’s GDP was still only 1980s (and which continued in the usually imply import substitution 65 per cent of its 1989 level (after successor states in the 1990s) and populist macroeconomic falling to 55 per cent in 1998). In explains the extreme length, if not the policies (subsidies to non- contrast, China grew at 7 to 8 per

7 Vladimir Filanov/Moscow Times cent between 1997 and 2001 (and by 10 per cent annually over 1989-96), so Russia is falling rapidly behind. China’s GDP is now 240 per cent of its 1989 level, demonstrating that transition—if it is well-designed and executed by strong institutions— can yield considerable benefit. This was unfortunately not the case in much of the FSU.

Vladimir Popov is Head of the Research Section at the Russian Academy of the National Economy in Moscow and Professor of Economics at Carleton University in Ottawa. He is a former WIDER research fellow. Together with Giovanni Andrea Cornia (Professor of Economics at the University of Florence, and a former director of WIDER), he directed the Institute’s The editors of Transition and Institutions: The Experience of Gradual and project on transition, published as Late Reformers, Giovanni Andrea Cornia (left) and Vladimir Popov, present the ‘Transition and Institutions: The book to an audience in Moscow on 5 November 2001. The launch was chaired Experience of Gradual and Late by Tony Shorrocks, Director of WIDER. The book launch was attended Reformers’ which was presented at by Russian economists, academics, local and international media and a book launch hosted by the New government representatives. Economics School (NES) in Moscow. Copies of press reports and WIDER was originally established to study the economies of developing related material from the launch are countries. After the start of transition to a market economy in Eastern Europe available at www.wider.unu.edu. and the former Soviet Union, WIDER launched research projects into institutional transition, the emergence of small and medium sized enterprises, The FSU’s output loss in the regulation of the new market economy, transition’s social dimensions, and the 1990s exceeds that of the mortality and demographic crisis in transition countries. USSR in WWII and of Western Countries in the WIDER research publications on transition include: Great Depression of the 1930s The Mortality Crisis in Transitional Economies, Edited by Giovanni Correcting the distortions Andrea Cornia, and Renato Paniccià, WIDER Studies in associated with central- Development Economics, Oxford University Press, 2000 planning led to a large supply From Shock to Therapy: The Political Economy of Postsocialist side shock in the FSU Transformation, by Grzegorz W. Kolodko, WIDER Studies This was magnified by in Development Economics, Oxford University Press, 2000 institutional collapse which Democratic Reform and the Position of Women in Transitional turned transition into a Economies, Edited by Valentine M. Moghadam, WIDER Studies chaotic process that raised business costs and in Development Economics, Clarendon Press Oxford, 1994 undermined growth Post-Communist Reform: Pain and Progress, Olivier Blanchard, Maxim And weak institutions led to Boycko, Marek Dabrowski, Rudiger Dornbusch, Richard Layard and weak macroeconomic and Andrei Shleifer, WIDER World Economy Group 1992 Report, MIT industrial policies that Press USA, and UNU Press in Japan and South East Asia, 1993 reduced output even further Russia’s output in 2001 was Reform in Eastern Europe, Olivier Blanchard, Rudiger Dornbusch, Paul 65 per cent of its 1989 level, Krugman, Richard Layard and Lawrence Summers, WIDER World whereas China’s output Economy Group 1990 Report, MIT Press, USA, 1991 is 240 per cent of its 1989 Please contact the publishers for information on ordering these books. level

8 New Urgency for International Financial Reform by Stephany Griffith-Jones

The appalling attack on September first half of the 1990s, private flows a sharp fall of around 37 per cent 11th has moved the US administra- to developing countries grew very in net private capital flows to tion towards seeking multilateral rapidly. This offered the hope that developing countries this year, solutions in the fight against private flows would increasingly reflecting deepening problems in the terrorism, which is now seen as a replace official flows, and help world economy and a further increase global problem. Similarly, the US support speedier growth in in risk aversion. administration has—after the developing countries, by terrorist attacks—started to move complementing domestic savings The need for important changes to more in a multilateral direction in the and bringing in know-how. the international financial system has economic field; this is reflected for been clear for several years, during example, in the new commitment to Unfortunately, only foreign direct which they have been much constrain tax havens, as well as investment (FDI) has contributed to discussed. Recent tragic events just improve their regulation. The US and fulfilling that promise, although make them far more urgent, given the others are also now far more recent UNCTAD estimates increased risk of a global economic committed to launching a new trade (calculated before September 11th) slowdown. Hopefully the new round, which is seen as predict a six per cent fall in FDI flows commitment to global co-operation essential to restoring growth and to developing countries this year. will now increase their political confidence. All other private flows—bank feasibility.

Francis Dobbs/World Bank This new attitude is to be Ways Forward welcomed. However, further steps on the road to First, imaginative measures better global economic are urgently needed to governance are urgently encourage a return of needed, especially at a time sufficient private flows to when there is a serious developing countries, threat of a marked especially of a more stable slowdown in the world type. To help catalyse economy, with particularly private flows, creation or negative effects for the better use of guarantee and poor and vulnerable. co-financing mechanisms by multilateral banks can In important fields like trade Argentina’s debt crisis has disrupted the banking system play a valuable role. The and international finance, virtue of such mechanisms, global institutions—such as the loans and equity flows—initially if well designed, is that they can WTO, the IMF and the World boomed, but were shown to be provide leverage in the use of Bank—are already in place, volatile, sparking off crises that were official resources. providing some basis for global costly to development. Moreover, all co-operation. These institutions private capital flows to developing Second, measures that could further need to be strengthened, and they countries are heavily concentrated inhibit private flows to developing need significant adaption if they are in a few larger and usually richer countries need to be rapidly revised. to meet the new challenges of the ones. An important example is the 21st Century. And they need to be proposed changes to the Basle made far more inclusive, to better Perhaps most worrying, non-FDI Capital Accord. Although they have represent the voices and interests of flows to developing countries have several positive features, there are developing countries with the fallen significantly since the Asian serious concerns that measures such majority of the world’s population. crisis in 1997, and have remained as the introduction of the internal negative (on a net basis), as risk ratings based approach could (as Capital Flows to Developing perceptions of lending to—or currently conceived) further and Countries investing in—developing countries significantly discourage international rose significantly, whilst expected bank lending to developing One part of the international returns declined. Projections by the countries, and could further increase economy where important fault lines Institute of International Finance, the pro-cyclical nature of any have been opening up is in the made shortly after the terrorist remaining lending as well as its cost. international financial system. In the attacks in the United States, point to This could be very negative for

9 Net Private Capital Flows to Emerging Market Economies 1998-2001 US$ Billion 1998 1999 2000 2001f

Total 143.3 141.2 166.7 106.1 Foreign Direct Investment 120.7 147.6 130.2 124.4 Portfolio equity 13.6 15.5 16.3 3.8 Bank lending -54.7 -47.5 -5.8 -22.5 Non-bank credit 63.6 25.6 26.1 0.4

Source: Institute of International Finance, September 2001. Note: f forecast.

developing countries’ growth An expansion of IMF loans of the Caribbean), co-directing the prospects. levels required, either through WIDER project on ‘Capital Flows existing or new mechanisms, may to Developing Countries since the Fortunately, the Basle Committee is require additional resources. Such Asian Crisis: How to Manage their revising the current proposals. It is resources could be provided by Volatility’. Further information important that the revisions include temporary issues of Special on this project can be found at changes that reduce, or hopefully Drawing Rights (SDRs) to be used www.wider.unu.edu. The IDS Web eliminate, the excessive bias against in times of severe economic site is www.ids.ac.uk, and ECLAC’s bank lending to developing problems, either globally or within a Web site is www.eclac.org. countries. Reducing the incentive large part of the developing world. towards pro-cyclical lending, which When the situation improved, these is harmful to both developed and loans could be paid back. Such a Global institutions in trade and developing countries, is also temporary and self-liquidating issue finance need to be far more important. of liquidity would help sustain inclusive, to better represent growth, but would not pose the risk the voices and interests of Third, it seems important to ensure of creating inflationary pressure developing countries that sufficient official liquidity is when economies recovered. available to developing countries, Private flows to developing when private liquidity temporarily Indeed, recent events have shown countries are falling, and falls, especially when external shocks the importance of preparedness for existing private flows are (such as a slowdown of the world exceptional and unforeseen heavily concentrated on a economy) hit such countries. This circumstances, such as the possible few developing countries, would require a continued rapid slowdown of the world usually the larger and richer willingness for the IMF to supply economy. It is important that ones large loans to countries in crisis, as mechanisms exist to allow rapid and well as some adaptation of IMF appropriate responses to such Encourage more private facilities, to make such loans more changes, and that such mechanisms capital flows by strengthen- flexible and larger when required. also help protect developing ing the guarantee and co- countries, and especially poor financing mechanisms of the An improvement of the Contingency people, from unforeseen events. multilateral banks Credit Line (CCL) of the IMF could Measures that help encourage facilitate speedier and more higher and more sustained growth Rapidly revise measures that automatic disbursement of IMF in the developing world would help inhibit private capital flows to loans to all countries following very give greater dynamism to developed developing countries, and good policies but hit by capital country economies. take another look at the account crises caused by contagion. proposed changes to the For countries heavily dependent on Stephany Griffith-Jones is a Basle Capital Accord commodity exports, especially Professor at the Institute of heavily indebted poor ones, better Development Studies (IDS), Sussex Ensure that sufficient official IMF mechanisms should exist to University. Professor Griffith-Jones liquidity is available to provide automatic temporary is, together with Ricardo Ffrench- developing countries when liquidity, when their terms of trade Davis (UN Economic Commission private liquidity temporarily deteriorate. for Latin America and the falls

10 Institutional Capabilities and Reform Ownership in Africa by Steve Kayizzi-Mugerwa here is not a single African probably more overwhelmed than Broad Participation and Tgovernment that has not uncommitted. Thus while the Democratization are also attempted public sector reform, failure of reforms to improve policy Important for Ownership including retrenchment, in the past implementation and generate growth decade. Decentralization is back on has been blamed on the The idea that populations must be the agenda: governments no longer intransigence of African involved in the formulation of see themselves as sole suppliers of governments, the donor community policies that affect them is very social services, and now frequently shares some of the blame. Both attractive. This in turn demands the opt for partnerships with the private sides clearly underestimated devolution of power to increase sector. Efficiency and choice have the serious lack of capacities the proximity of local populations entered the language of the planning in individual countries as to policymakers and to make it and implementation units of Africa’s line ministries, and privatization is no Kari Rissa longer the controversial subject it was a decade ago. The civil service is itself at a crossroads: the old ways of doing government business are now clearly inadequate, while upgrading the skills of the ‘new’ civil service is only just beginning. However, in spite of the recent and related moves towards democracy, African leaderships have been more willing to open up economies than political systems. Are Reforms Owned?

The issues addressed in the WIDER project ‘Institutional Capabilities, Reform Ownership and Development The livelihoods of Africa’s people depend upon better institutions in Sub-Saharan Africa’ include the well as the time required for possible for citizens to monitor the extent to which reforms undertaken completing the reform process. performance of their leaders. in Sub-Saharan Africa (SSA) in However, mere proximity is not recent years have enhanced Another problem relates to external enough. Local democracy must be institutional capabilities across the financing and its implications for encouraged in order to strengthen breadth of government. To what ‘ownership’. Donor assistance has local governments in their dealings extent have the reforms been been a precondition for the success with the centre. On the other hand, ‘owned’? In other words how have of public sector reforms in Africa. central governments must also learn donor-recipient relationships Many of the interventions, when to let go. Many have held onto evolved? Can ownership and including retrenchment of the civil the purse strings claiming that this financial dependency coexist? The service, creating agencies for is the only way of ensuring project also looks specifically at the revenue collection, privatisation and accountability at the local level. impact of public sector reforms on utility regulation, have been very Decentralization without local economic development in SSA. capital and skill intensive and few responsibility, including over Looking at the evolution of public governments would have been able finances, is bound to fail (see Table sector reforms in the past decade, to undertake them without external on decentralization in Uganda). it is relatively easy, with the support. However, financial benefit of hindsight, to criticise dependency and domestic The above issues also relate to those African governments for poor ownership are not compatible. Few of transparency and accountability. implementation strategies and for countries can establish real The lack of both has been blamed on lack of commitment. However, ‘ownership’ when donors finance poor remuneration in the civil in light of the nature of the reform the bulk of their budgets (as in services. However, since corruption tasks, African countries were Mozambique for example). continues to be a problem even in

11 the new agencies where wages and and raising the technical capacities earlier decades, caused by civil other benefits are far superior to for budgeting and financial analysis, war and natural catastrophes, that those in the normal public sector, the the upgrading of laws relating to have made the most impressive causes of corruption are much more public sector functions will also be institutional and economic turn- deep seated. Financial controls necessary. Second, governments arounds (for example Uganda, Ghana within the public sector remain weak. have weak budgeting systems. In and Rwanda). For example, the security sector recent years, some attempts have continues to be a financial black hole been made to relate budgeting Ultimately, successful reform in many countries. Although it claims procedures to programme targets. demands strong political leadership. substantial budgetary resources, Much hope currently rests on the However, where influential military spending is often donor supported medium term bureaucrats remain largely not subject to official auditing expenditure framework (MTEF), indifferent or even cynical, reforms procedures. Parliamentary which it is believed will help will make little headway. Examples of committees for public expenditure countries to target their resources to successful institutional reforms are are often ineffective while the offices poverty reduction. But this is a characterized by enthusiasm across of the auditors general are poorly daunting agenda, nevertheless. the board and not just at the top. funded in many African countries. The current state of African Rule of Law is Crucial institutions is thus conflict-ridden Steve Kayizzi-Mugerwa is a WIDER and predictions about the future research fellow and the project But perhaps more serious is the lack must be guarded. The irony for director for the WIDER project on of a relevant body of law to ensure Africa is that countries that seem to ‘Institutional Capabilities, Reform that corrupt officials are punished in be making progress in their reforms Ownership and Development in a manner bound to be a deterrent. It are not necessarily those that were Sub-Saharan Africa’. He is an is not surprising to find cases of well endowed in earlier decades or associate professor in development corrupt officers punished under those that had a capitalist base economics at Gothenburg statutes from the 1960s. Thus (for example Nigeria, Angola, Kenya University, Sweden, and has also besides the modernization of the and Zimbabwe). It is often countries worked at the African Development financial and accounting systems, that suffered serious setbacks in Bank in Abidjan, Côte d'Ivoire.

Table: Decentralization in Uganda Goals Policy innovations Comments on outcomes

1. Incorporate local people Identify local problems Raising local peoples' in the management of their and find solutions to be interest in the management own affairs. implemented by locally of their affairs is probably elected organs. the strongest outcome of the decentralization effort in Uganda.

2. Democratization of the Elect local leaders instead of Local level democracy is decision-making process. having them appointed by taking longer to take central government. hold, probably for lack of precedent. Many chair- persons are said to be ‘dictatorships’ who are difficult to remove.

3. Mobilization of local Make budgets and prioritise Few local governments resources. expenditure according to are financially independent needs at the local level. from the centre and continue to be beholden to government.

4. Reduce costs for service Improve social infrastructure Scarcity of resources delivery. and expand social service makes the undertaking provision in the countryside. of extensive infrastructure and social service provisions difficult.

5. Raise efficiency and Enhance human resources by The quality of staff recruit- accountability at the appointing professional staff ment at the local level is local level. to run local services. improving, although lack of resources implies that many Source: Moses Golola ‘Decentralization, Local Bureaucracies and positions are not filled. Service Delivery in Uganda’ WIDER Discussion Paper 2001/115.

12 By Invitation Aid and Global Governance by Rolph van der Hoeven

iscussion of aid, both its level was less than 1 per cent according Towards a New System of Dand effectiveness, overwhelm- to OECD data. Only countries in Global Governance ingly focuses on issues of national Africa and some in Central America economic management. This is the and Asia have a higher percentage Better global economic governance approach taken, for example, in the of aid to GDP than 3-4 per cent. is needed to reduce the volatility of World Bank’s major 1998 report, the world economy and to protect Assessing Aid. But aid cannot be Moreover, aid shows considerable LDCs. This will increase the seen in isolation from the issue of year-on-year fluctuation. Many effectiveness of domestic reform. global governance: the efforts of poor countries Kari Rissa But proposals for to develop, and therefore change have been too the effectiveness of aid timid. The report in 2000 to them, can often be of the US congressional undermined by global commission led by events over which they Professor Alan Meltzer have little control. is a case in point. A world financial We need a new system authority is a better way of global governance, forward. This would and a new role for aid. help to co-ordinate That system must be able global growth and to deal effectively with so reduce the development in general, frequency and size of global economic shocks shocks. It would and natural disasters. The global economy ignores many of the world’s poorest people provide the framework It can also be the basis for studies have demonstrated that aid for a flow of increased concessional redistribution at a global level. flows are often pro-cyclical instead finance to LDCs, in which flows of anti-cyclical, the result of needed to compensate for economic Aid is Too Limited, Too conditionality and donor inertia. and natural shocks are clearly Inflexible, and Too Thus aid inflows often fall when distinguished from flows to build Bureaucratic public revenues decline during capacity for growth, poverty negative trade shocks, thereby reduction, and human development. Less Developed Countries (LDCs), aggravating the resulting decline in especially the smaller countries public spending rather than helping But better global governance is not exporting mainly primary products, to maintain its pre-shock level. just needed to minimize shocks and are often buffeted by negative their effects. It is urgently needed to external shocks. This frequently Finally, in countries with larger aid reduce social tensions. The current takes the form of a sharp fall in the inflows (over 5 per cent of GDP), the global policy framework is based on world price of a key export. But the process of managing the aid inflicts two often contradictory principles. amount of development aid is small significant co-ordination costs on First, the existence (or the potential) when compared to the negative recipient governments, who must of a national welfare state (including effects of external shocks. For commit considerable amounts of national redistribution) and, second, example, the Asian financial crisis of scarce administrative resources to an international system of 1998 caused a 15 per cent fall in the meeting the multiplicity of demands increasingly free trade and free producer prices of primary products. (often conflicting) of bilateral and capital flows. The latter unduly Together with a fall in the demand multilateral donors. This gives rise circumscribes choices in the former, for LDC exports, and a contraction to a paradox: aid is neither sufficient and is increasingly reducing the in capital flows, this led to a fall nor timely enough to cope with power of the nation state to engage of 3-4 per cent in their GDP in 1998. external shocks, but when it is in pro-poor redistribution. This is substantially larger than the available it adds another layer of percentage of aid to GDP provided, bureaucracy to the decision making This is leading to a crisis in political which for all developing countries process of LDC governments. participation: people feel that they

13 have increasingly little influence on This is also a better way to proceed inequality, which means monitoring national agendas—which seem to be than attempting to enforce the rights the global and national gaps overwhelmed by globalization—and of the individual by putting more between rich and poor. virtually none over the conditionality onto aid, or applying international agenda. The protests selectivity in the allocation of aid And to ensure that the reduction in and criticisms of international across countries—two arguments poverty and inequality is rapid, organizations reflect this. On the one that are often made. Rather, under a bilateral donors should provide hand they are criticized for doing too global governance framework, budgetary support to help the much and for destroying local national development pacts with implementation of national participation and, on the other hand, respect to human and development pacts once they are for doing too little to reduce child labour rights would be negotiated in agreed upon. Such a procedure labour and the influence of consultation between national would return the spending multinational enterprises on governments and national groups. authority, control, and account- domestic policies. The latter could then hold their ability to the recipient country and governments both nationally, as well diminish current donor practices that Towards Global as internationally, accountable for often undermine national decision- Redistribution the delivery of the national making processes. A monitoring development pacts. system independent of donors is Better global governance is needed necessary to deal with instances to effectively implement an agenda when the development pact is of global redistribution (thus unfulfilled, or even violated. A model complementing the redistributions ‘Better global for such a system is American aid to that take place within national governance is Europe under the Marshall Plan boundaries). For, as Nobel Laureate after the Second World War, which Jan Tinbergen emphasized in his last critical to was monitored by European writings: ‘Redistribution is the core countries themselves. political issue of the 20th century’. achieving global redistribution’ At the same time, there needs to be a This brings us back to aid. Raising general shift from many bilateral and distributing resources globally interventions to a more global and needs a better framework than the unified system of transferring current one of voluntary pledges, be resources to LDCs. Only in this way it bilateral development budgets or This would guide aid policy and, can large amounts of resources be pledges to international development critically, provide the foundation for speedily deployed to deal with the agencies. Instead, they should be better institutions, the lack of which impact of adverse global shocks, as collected as part of an international so often undermine aid effectiveness well as natural shocks, on vulnerable taxation scheme, which should (a case in point being the limited and poor countries. This calls for an include taxation of capital success, and often outright failure, improved set of global and regional movements, air transport, Internet of aid to Africa in support of institutions as lenders of last resort. use, etc. structural adjustment in the 1980s These will complement ongoing and and 1990s). It would also, as longer term efforts to create better This new framework should also Ademolo Oyejide and Gerry Helleiner (and more consultative) institutions explicitly recognize the right of the have argued, provide for a system for macroeconomic policy making, individual to development, which of equal partners in which human development, and investment includes labour rights and freedom consultation, rather than coercion, in basic infrastructure. from want. This acknowledgement is the basis of the relationship would be a cornerstone of a between aid agencies and national rights-based system of international governments. co-operation, which includes the Rolph van der Hoeven is Chief of right to a social minimum. At present Monitoring Inequality for the Macroeconomic and most discussions on such rights take Better Global Governance Development Policy Group, place in isolation, making it difficult Employment Strategy Department, to achieve complementarities and Global governance cannot be built if at the International Labour iron out inconsistencies. Including gross inequalities, both national and Organization, Geneva. The ILO Web these agendas into a process for international, persist. These will tear site is www.ilo.org. Papers on issues achieving a global framework would any institutional structures apart. of global governance can also be do much to move the issues forward. Accordingly, national development found on the WIDER Web site at pacts must pay close attention to www.wider.unu.edu.

14 The Evolving Diversity of Enterprise Ownership and Governance by Laixiang Sun

here is a widespread belief that governance structures across Following this perspective, we can Tthe only efficient ownership economies, and search for a new say that in a traditional capital- structure for a market economy is one paradigm on the ownership and intensive and vertically integrated in which firms are owned by private governance of firms. WIDER’s enterprise, highly specialized investors and that the existence of research project ‘Property Rights inanimate assets—ranging from well-defined personalized property Regimes, Microeconomic Incentives plant and machinery to world famous rights is a basic precondition for the and Development’ addresses these brand names—represent the most proper functioning of a market concerns and seeks to advance the critical resource for future growth. economy. This perspective is based debate. on the view that the placement of Curt Carnemark/World Bank property under the exclusive control of private owners makes them liable for the consequences of bad decisions, but entitled to the rewards of good ones, and thus more willing to motivate managers and workers.

Searching for a New Paradigm

However, in reality there has been a rich diversity in ownership structures even in those bastions of the free market economy, the United States and Western Europe. In the developed world, employee-owned firms have been widespread in the service professions including law, Enterprise ownership takes many forms: microentrepreneur in China accounting, investment banking and medicine. Employee stock ownership Existing Assets versus Growth Opportunities The human capital of employees is is also spreading in the industrial largely tied to these assets and sector. Institutional investors outside opportunities for this highly have become the dominant Provided that it has opportunities to specific human capital are rare. The shareholders of large publicly traded grow, an enterprise should focus on boundaries of this type of enterprise cost minimization, that is minimizing corporations. Farmer-owned are clear-cut and represented by the the sum of all costs including producer co-operatives dominate the ownership of its unique assets. markets for basic agricultural organization costs and transaction products. Mutual companies owned costs. This leaves open the important question of how, at the Joint Ownership in by their policyholders sell half of all firm’s inception, the enterprise Silicon Valley life insurance and a quarter of all should attach growth opportunities property and liability insurance in the to the assets it has. Moreover, from In modern human-capital-intensive developed world. a dynamic perspective, the key to firms like those in Silicon Valley, the success is to build a web of specific critical resource for future growth lies These facts indicate that the conven- investments around one or more with the trinity consisting of the tional perspective on the ownership critical resources that are most entrepreneur’s professional human issue is descriptively narrow. The closely linked to the best growth capital, the firm’s inanimate assets, claim that private investors should opportunities. This suggests that the and a web of information own the firm is not the logical role of the ownership and encapsulation and sharing consequence of free markets and free governance system is to ensure that arrangements. As a consequence enterprise. We need to examine the the power to make decisions is their property rights arrangements emergence of unconventional allocated to the people with the best have complex elements of ‘joint- opportunities. enterprise ownership and ownership’ with the provision of

15 bilateral option rights. That is, a For an enterprise to be dynamically economies need transitional cluster of the venture capitalists efficient, its organizational structure institutional arrangements that are (VCs) have the rights to exercise an (mainly ownership and governance) adaptively efficient. In this light, exit option against the entrepreneurs’ must be adaptively efficient. It must the transition process could be interest in bad times (liquidation be able and willing to find new and quite long. rights); and the entrepreneurs’ rights creative solutions in order to to the issued options are vested overcome shortages of resources Laixiang Sun is a WIDER research contingent on subsequent and other social/economic fellow and director of the research performance. In terms of control bottlenecks. If one path does not project ‘Property Rights Regimes, rights, there is typically a shifting work, it must be able and willing to Microeconomic Incentives and arrangement across their initiate organizational responses to Development’. He is also affiliated components. If the firm performs try new paths until successful with the Centre for Financial and poorly, the VCs obtain full control. outcomes are achieved. Similarly, for Management Studies (CeFiMS, As the firm’s performance improves, an economy to be dynamically School of Oriental and African the entrepreneur retains/obtains efficient its institutions must be Studies) at the University of more control rights. If the firm adaptively efficient. Adaptively London, the International Institute performs very well, the VCs retain efficient social institutions are for Applied Systems Analysis their cash flow rights, but relinquish capable of providing economic and (IIASA) in Laxenburg, Austria, and most of their control and liquidation political flexibility for organisations the Guanghua School of rights. and people to adapt to new Management at Peking University opportunities. They must provide in Beijing, China. Adaptive Efficiency in incentives for the acquisition of Transition Economies knowledge and learning, induce Selected Papers from innovation, and encourage risk the Project In reforming state-owned enterprises taking and creative activities. They (SOEs) and township-village must also encourage experiment and Understanding the Silicon Valley enterprises (TVEs) in a transition eliminate errors in a world of Phenomena, by Masahiko Aoki and economy such as China, the critical uncertainty, where no one knows the Hirokazu Takizawa (WIDER resource for future growth lies not correct solution to the problems we Discussion Paper 2002/11) only with existing assets and the confront. In brief, transition human capital of entrepreneurs, but Institutional Investors, Corporate Ownership, and Corporate also with the web of inter- The conventional perspective organizational relationships (Guanxi). Governance: Global Perspectives, by on property rights and Stuart L. Gillan and Laura T. Starks This web of relationships represents ownership is too narrow the firm’s organizational and social (WIDER Discussion Paper 2002/09) capital. It is capable of mobilizing The key to enterprise success Sharing Ownership via Employee scarce resources from more than one is to build a web of specific Stock Ownership, by James C. Sesil, existing channel, supplying an investments around one or elastic contract mechanism to Douglas L. Kruse and Joseph R. Blasi more critical resources that are (WIDER Discussion Paper 2001/25) facilitate continuity and efficient most closely tied with the best adaptation, and thereby reducing growth opportunities uncertainty. This web has been The Pattern and Valuation Effects of Corporate Diversification: A closely tied to the government Joint-ownership aims to system and in the early stage of the Comparison of the United States, mobilise scarce resources from Japan, and Other East Asian Chinese reforms it was fully more than one existing embedded within the old universal Economies, by Stijn Claessens, channel, supplying an elastic Simeon Djankov, Joseph Fan, and government system. That is the contract mechanism to Larry Lang (WIDER Discussion reason why joint-ownership in China facilitate continuity and Paper 2001/127) has involved local government as efficient adaptation, and Blooming Together or Wilting Alone? one of the key partners. The thereby reduce uncertainty crucial question arising here is: can Network Externality and the this web be used to facilitate market Mondragón and La Lega Most Adaptively efficient Cooperative Networks, by Stephen development in general, and to set organisational structures evolve up new bases for the emergence of C. Smith (WIDER Discussion Paper from progress in know-how, 2001/27) new market organizations and economizing behaviour in These and other project papers are institutions in particular? Recent adaptation to changes, and available on the Web site at: development suggests that, on mutually reinforcing choices balance, the answer is ‘yes’. www.wider.unu.edu

16 In recent years, substantial numbers of people have migrated—or sought to migrate—from regions that are afflicted by poverty and insecurity to more prosperous and stable parts of the world. By the year 2000, the United Nations estimated that about 140 million persons—or roughly two per cent of the world’s population— resided in a country where they were not born.

Such population flows, involving increasingly tortuous and dangerous long-distance journeys, have been both prompted and facilitated by a variety of factors associated with the process of globalization: a growing disparity in the level of human security to be found in different parts of the world; improved Oy Nord Print Ab transportation, communications and information technology systems; the print: expansion of transnational social networks, and: the emergence of a commercial (and sometimes criminal) industry devoted to smuggling people across

Ara Kazandjian international borders. design: The conference will focus on two major themes: the economic consequences of immigration, and issues associated with asylum migration. It will seek to expand the focus of existing studies on the economic consequences of legal and illegal immigration to host countries and to source countries, to place the economic study of immigration in a global context, and seek to enhance our understanding of those

Vincenzo Pinto Lehtikuva/Reuters migratory movements that are undertaken for the purpose, or with the consequence

photo: of, seeking asylum in another state.

17 WIDER Publications New Titles WIDER Discussion Papers The Policy Brief reports the main findings of the WIDER study on Launched in May 2001, WIDER changes in within-country income Discussion Papers (issn 1609- inequality over the last two decades 5775) are available from and on the links between poverty, www.wider.unu.edu. All titles are inequality and growth. It focuses on listed and are available in PDF to be inequality at the national level, i.e. downloaded, and a total of 147 the distribution of income among papers were published in 2001. people within a country. As part of If you are unable to access the Web the project, WIDER compiled the site and would like a full list of World Income Inequality Database the Discussion Papers please (WIID)—the most extensive contact us; see Ordering WIDER database on inequality trends within publications. Printed copies are countries (see page 20). mailed to libraries in developing countries and regions that do not yet Research for Action 49 The Role have generally good Internet access. of Small and Medium Enterprises Printed copies are also in Transition: Growth and produced and mailed on request. Entrepreneurship by Robert J. McIntyre, December 2001 WIDER Studies in Development Series Publications Economics, Oxford University Press, July 2001 Policy Brief 4 Inequality, Growth and Poverty in the Era of This volume reviews the Liberalization and Globalization often-neglected role of initial by Giovanni Andrea Cornia and structural and institutional Julius Court, November 2001 conditions and their subsequent development during the course of transition. Focusing on China, Russia, Central Asia and Vietnam it also covers economies such as Cuba and North Korea which are in the very early phases of the reform process.

Resource Abundance and Economic Development

Edited by Richard M. Auty Although the RFA series is now dis- continued, this study completes the in-house publications from the WIDER project ‘Transition from Below: The Role of the New Private Sector’, and is available in both PDF from the Web site and printed copy upon request from WIDER. This publication is a policy-focused brief drawing on WIDER’s research project ‘Rising Income Inequality Books and Poverty Reduction: Are They Compatible?’, jointly sponsored by Transition and Institutions: The WIDER and the United Nations Experience of Gradual and Late Development Programme (UNDP), Reformers and directed by Giovanni Andrea Cornia. Edited by Giovanni Andrea Cornia and Vladimir Popov

18 The Impact of EMU on Europe WIDER Studies in Development and the Developing Countries Economics, Oxford University Press, July 2001 Edited by Charles Wyplosz Explaining the disappointing performance of resource-abundant countries by extending the growth accounting framework to include natural and social capital, this collection draws upon historical analysis and models to show that a growth collapse is not the inevitable outcome of resource abundance and that policy counts.

Comparing Regionalisms: Implications for Global Development

Edited by Björn Hettne, András Inotai and Osvaldo Sunkel Forthcoming Books WIDER Studies in Development Economics, Oxford University Press, The Prevention of Humanitarian November 2001 Emergencies

Now that EMU is here, the ‘second Edited by E. Wayne Nafziger and generation’ of research is under Raimo Väyrynen way. This volume presents a significant sample of that research Studies in Development Economics and explores questions such as: and Policy, Palgrave, February 2002 How do central bankers who used to run their own banks now co- operate in the European Central Since the end of the cold war, civil Bank? Are labour markets going to wars and state violence have shape up? Is the euro becoming a escalated, resulting in thousands of world currency? deaths. This book provides a toolbox for donors, international agencies, Non-Traditional Export and developing countries to prevent Promotion in Africa: Experience humanitarian emergencies. The and Issues emphasis is on long-term development policies rather than on Edited by Gerald K. Helleiner mediation or reconstruction after conflict ensues. Policies include The New Regionalism Series, Studies in Development Economics democratization, reforming institu- volume 5, Palgrave, November 2001 and Policy, Palgrave, December 2001 tions, strengthening civil society, improving the state’s administrative This summarizes WIDER’s The volume contains original essays capability, agrarian reform, international research project on the by authors who have worked accelerating economic growth formation of world regions, and what together to derive lessons for through stabilization and adjustment, implications this process will African export prospects from the reducing inequalities, and have for the future world order, experiences of some of the more redesigning aid to promote stability. particularly as far as the issues of successful developing countries in peace and development are East Asia and Latin America. They War, Hunger, and Displacement: The Origins of Humanitarian concerned. This last volume present up-to-date data and Emergencies, volumes 1 & 2, edited in a series of five focuses on analysis on non-traditional by E. Wayne Nafziger, Frances comparative research, covering all exporting experience, problems and Stewart and Raimo Väyrynen important regions of the world. prospects in a sample of seven Sub-Saharan African countries. were published by OUP in 1999.

19 Poverty, Income Distribution and Well-Being in Asia during the Transition

Edited by Lu Aiguo and Manuel F. Montes

Studies in Development Economics and Policy, Palgrave, May 2002

The Asian road to the market has generally been seen as a model of success and the object of widespread admiration. This volume evaluates the actual experience and debunks some of the most widespread myths. WIDER was established by UNU as its first It does so by identifying the link between alternative transition models, research and training centre and started public policies and household responses on the one hand, and key work in Helsinki, Finland, in 1985. Through welfare changes on the other. Even in countries experiencing sustained its research and related activities, WIDER growth, there have been unmistakable signs of deep social strain. seeks to raise unconventional and frontier issues and to provide insights and policy advice aimed at improving the economic WIDER Inequality and Poverty Databases and social development of the poorest by Almas Heshmati and Maiju Perälä nations. WIDER Angle is the newsletter of the World The World Income Inequality Database (WIID), launched in 2000, Institute for Development Economics has been a much used and helpful tool for both policy-makers and Research of the United Nations University. researchers. WIDER is now updating the WIID, and is working on a new Published twice a year, the newsletter World Poverty Database (WPD) as well. focuses on the Institute’s research The WIID is the most extensive and up-to-date source for income activities. It is distributed free of charge. distribution statistics across countries. At present the WIID has 15,208 The newsletter is also available on our observations on 151 countries. We are presently contacting national Web site at: www.wider.unu.edu. statistical offices and researchers for additional data to update the WIID, Editorial contents, design and layout and further data and suggestions are very welcome. by Tony Addison WIDER also intends to create a World Poverty Database (WPD) to make (e-mail: [email protected]), available poverty data at the country level, in an easily accessed format and Ara Kazandjian (e-mail: [email protected]). similar to the WIID. The aim is to improve policy-makers’ and researchers’ access to data for monitoring poverty trends and for designing poverty-reduction strategies. We are asking individuals, UNU/WIDER UNU/INTECH Helsinki UNU/INRA research teams, and statistical agencies to help in the creation of the Maastricht Finland Accra WPD by providing us with their databases together with ideas or Netherlands Ghana information on locating data sources. UNU UNU/ILA UNU/IAS Headquarters Amman Tokyo Tokyo, Japan Please forward your information, comments and questions on the Jordan Japan World Income Inequality Database to [email protected] and on the World Poverty Database to [email protected]. UNU/INWEH UNU/BIOLAC Hamilton UNU/IIST Caracas The WIID can be downloaded in various formats with the Canada Macau Venezuela accompanying documentation from two different Internet sites: China WIDER (www.wider.unu.edu/wiid/wiid.htm) UNDP (www.undp.org/poverty/initiatives/wider/wiid.htm). WIDER Katajanokanlaituri 6 B Ordering WIDER publications 00160 Helsinki, Finland Tel. (+358-9) 6159911 The WIDER Discussion Paper series is available to download from Fax (+358-9) 61599333 www.wider.unu.edu E-mail [email protected] Web site www.wider.unu.edu Books are available from good bookshops or direct from the publishers, www.oup.co.uk and www.palgrave.com For further information on the Institute’s activities, please contact: For other inquiries and orders please contact WIDER Publications, Mr Ara Kazandjian, Mr Adam Swallow, Katajanokanlaituri 6 B, FIN-00160 Helsinki, tel. (+358-9) 61599210, Finland. e-mail [email protected]

WIDER (non-book) series publications, including available back Printed by Forssa Printing House stocks are free of charge. Finland, 2001 ISSN 1238-9544