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Policy Reform for Broad-Based Growth: a Research Workshop

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Policy Reform for Broad-Based Growth: a Research Workshop POLICY REFORM FOR BROAD-BASED GROWTH: A RESEARCH WORKSHOP FINAL REPORT Submitted to: Robert C. Young APRE/SMIE (Rm 3214-NS) U.S. Agency for International Development Washington, DC 20523 Submitted by: < DEVRES, Inc. 7201 Wisconsin Avenue Suite 500 Bethesda, MD 20814 Telephone: (301) 951-5546 Fax: (301) 652-5934 11x: 440184 DEVR UI Contract No.: PDC-0085-1-9089-00 "'- Delivery Order No. 13 May 13, 1991 ~ '"+ ,......... - TABLE OF CONTENTS TABLE OF CONTENTS .... .... .............. ..... .......... .. ..... LIST OF ANNEXES v EXECUTIVE SUMMARY. ........................................ .. Vll A. The Workshop's Background, Purpose, and Scope Vll B. Research Priorities for Policy Reforms Supporting Broad-Based Economic Growth VIll 1. Determinants of productivity and broad-based growth Vlll 2. Strategies for achieving productivity and broad-based growth x C. Development of an Analytical Framework x D. Workshop Agenda Xlll I. INTRODUCTION: THE PURPOSE AND OBJECTIVES OF THE WORKSHOP ON RESEARCH PRIORITIES FOR POLICY REFORMS SUPPORTING BROAD-BASED GROWTH AND DEMOCRACY ...........I II. THE EMPLOYMENT AND ENTERPRISE POLICY ANALYSIS (EEPA) PROJECT:' WORK COMPLETED AND REMAINING QUESTIONS-- COMMENTS BY DONALD SNODGRASS AND GUSTAV RANIS 3 A. Project Background ....................................... 3 B. EEPA's Approach and Findings . 3 C. Policy Implications for the Involvement of SMEs in the Development Process . 4 D. Ranis' Critique of the EEPA Project . 5 1. Constructive contributions . 5 2. "M'IssedopportunItIes " " . 5 E. Snodgrass' Response to Ranis' Critique . 7 I ~ •..~ :". "- F. Audience's Response to Snodgrass' and Ranis' Prese~tations ........ .. 7 1. The transition from small/micro fIrm to larger, more productive fInn . 7 2. Policy support·and use of performance based assistance' 8 III. ECONOMIC AND DEMOCRATIC REFORMS AND LINKAGES: RESEARCH PRIORITIES--COMMENTS BY STEPHAN HAGGARD 9 A. The Relationship Between Democracy and Economic Reform 9 B. Sequence of Policy Reform 9 C. Implementation of Reform ...... .. 10 1. The pace and size of reform ..................... .. ... .. 10 2. Compensation ................................ :. ... .. 10 D. Role of Decision-Making Institutions " , 10 E. Suggestions for Research ................................. .. 11 1. Methodologies ..... ;............................. .. 11 2. Proposed areas of research 11 F. Audience's Response to Haggard's Presentation 12 1. How do we determine to whom and how we will provide . assistance? .. .................................... .. 12 2. Conditionality. .................................. .. 12 3. Supporting an "environment" for political reform 12 4. Ethnocentric biases of our approach to democratic reform 13 5. Using the successes of past experience 13 6. Is there need for insulation of policy makers? 14 7. Theory of the state ..... ~ .......................... .. 14 8. Equitable distribution of public goods 14 9. Reform "packages" 14 10. Institutional pluralism :.................. 14 IV. ECONOMIC POLICY RESEARCH PRIORITIES--COMMENTS BY GARY FIELDS AND HENRY BRUTON 17 A. Research Priorities for Broad-Based Growth--Comrnents by Gary Fields .. 17 1. DefIning broad-based growth 17 a. How has poverty changed over time? 17 b. How has inequality changed over time? ............. .. 17 11 ~ ".> ., ... 2. What types of growth have been most broad-b~sed? ........ .. 18 a. Labor intensity of growth 18 b. I;>istribution of productive assets: education 18 c. Government regulation and private enterprise . 18 d. Trade and industrialization strategies 19 3. Policy-relevant development research 19 B. Broad-Based Growth: Concepts and Processes--Comments by Henry Bruton .. ....................... .. ................... .. 20 1. Stylized facts of sustained growth 20 2 Principal areas for more research 20 C. Audience's Response to Fields' and Bruton's Presentations 21 1. The role of secondary distribution 21 2. Undervalued exchange rates 22 3. Investment. .................................... .. 23 4. Wage-setting mechanisms--a dilemma? 23 5. Collective action as a source of inequality ................ .. 23 v. PRlORlTY RESEARCH TOPICS FOR POLICY REFORMS SUPPORTING BROAD-BASED ECONOMIC GROWTH 25 A. Priority Research Topics .25 1. Detenninants of productivity and broad-based growth .. ...... .. 25 2. Strategies for achieving productivity and broad-based growth .... 26 B. Development of an Analytical Framework ; 27 iii ~ -.0- •• ..- LIST OF ANNEXES Annex Number 1 The Role of Small and Medium Manufacturing Enterprises in Industrialization and Economic Deveiopment--Paper Presented by Donald Snodgrass 1-1 2 EEPA Research Critique--Paper Presented by Gustav Ranis 2-1 3 Notes on the Political Economy of Policy Reform--Paper Presented by Stephan Haggard ............................................ 3-1 4 Policies for Broad-Based Growth--Paper Presented by Gary Fields 4-1 5 Broad-Based Growth: Concepts and Processes--Paper Presented by Henry Bruton 5-1 6 List of Conference Attendees 6-1 v EXECUTIVE SUMMARY A. The Workshop's Background, Purpose, and Scope Numerous fora have stressed the importance of sound economic policies for broad­ based economic growth and the efficient development of small enterprises. l Accordingly, 2 A.LD. 's Office of Small, Micro, and Infonnal Enterprise (SMIE ) has promoted analyses of the impact of economic policies upon broad-based growth, and paIticularly on small, micro and infonnal enterprises. Since the beginning of Fiscal Year 1985, this concern has been manifest through the Employment and Enterprise Policy Analysis Project (EEPA), conu"acted with the Harvard Institute for International Development (HIID) and subcontracts involving Michigan State University (MSU) and Development Alternatives, Inc. (DAI). In the process of developing its future work program, with Devres, Inc.'s collaboration, SMIE arranged for outstanding leaders in the policy analysis field to assist SMIE with three principal tasks: o Reviewing the work by HllD, MSU, and DAI; o Synthesizing the state of the art relating to the impact of policies on broad­ based growth; and o Identifying research priorities relating to the impact of policies on such . development. The present report represents the results of a workshop focused on those tasks. The workshop was held on November 9, 1990, at the Department of State in Washington, D.C., and was attended bY,60 participants from A.LD., the World Bank, academia and the private sector (see Annex 6).' After welcoming and introductory comments by the Asia and Private Enterprise Bureau, EEPA's project coordinator, Donald Snodgrass, presented his paper, "The Role of Small and Medium Manufacturing Enterprises in Industrialization and Economic Development" (included as Annex 1), summarizing the findings, conclusions, and recommendations of the EEPA project. Subsequent to the 1 For example, a recent seminar on the informal sector in developing countries (at the OECD, Paris, 13-14Dec90) concluded, "donors should prioritize their actions first to sort out policy-related problems, improve'effectiveness and efficiency of institutions, and lastly to focus on direct, supply-side support." (U.S. Dept. of State cable, Paris 37936, 20Dec90). 2 In A.LD. 's Bureau for Asia and Private Enterprise. Vll discussion of Snodgrass' paper, the four Devres papers were presented by their authors, all distinguished academicians well respected for their policy research and advisory capabilities: o "EEPA: Research Critique", by Gustav Ranis, DepaI:tment of Economics and Economic Growth Center, Yale University (see Annex 2); o "Notes on the Political Economy of Policy Reform", by Stephan Haggard, Department of Government and Center for International Affairs, HarvaI"d University (see Annex 3); o "Policies for Broad-Based Growth", by Gary Fields, Department of International and Comparative Labor, Cornell University (see Annex 4); and o "Broad-Based Growth: Concepts and Processes", by Henry J. Bruton, Department of Economics, Williams College (see Annex 5). Each paper was followed by vigorous discussion, the essence ofwhich is captured in the following sections. B. Research Priorities for Policy Reforms Supporting Broad-Based Economic Growth In the final session of the Workshop, participants discussed research priorities for policy reform to support broad-based growth. Those research priorities are presented here as . sets of potential research questions which reflect key issues that threaded throughout the presentations and ensuing discussions.· Approaching broad-based economic growth as a process, the priority research questions are organized to address the determinants of productivity and broad-based growth, and the strategies that can best influence those detenninants to promote productivity and broad-based growth. The development of appropriate analytical frameworks for approaching the proposed research priorities is u"eated in Section C, below. 1. Determinants of productivity and broad-based growth The emphasis placed on productivity growth in the Workshop discussion reflects a need to understand better what causes productivity growth and the nature of the linkages between growth in productivity and broad-based growth. Related research priorities focus on: (1) how productivity growth can be promoted, and (2) how it can be directed to facilitate more equitable distribution of income. Toward the achievement of these priorities, an initial set.of research questions centers on the identification of the determinants of productivity growth and of broad-based economic growth.
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