ASHARED FUTURE REDUCING GLOBAL POVERTY
A Statement by the Research and Policy Committee of the Committee for Economic Development A SHARED FUTURE REDUCING GLOBAL POVERTY
A Statement by the Research and Policy Committee of the Committee for Economic Development Library of Congress Cataloging-in-Publication Data
Committee for Economic Development. Subcommittee for Globalization. A shared future : reducing global poverty : a statement on national policy by the Research and Policy Committee of the Committee for Economic Development. p. cm. Includes bibliographical references. ISBN 0-87186-145-3 1. Poverty—Developing countries. 2. Developing countries—Economic policy. 3. Economic assistance—Developing countries. 4. Economic assistance, American—Developing countries. I. Committee for Economic Development. Research and Policy Committee. II. Title.
HC59.72.P6 C66 2002 338.9'009172'4—dc21 2002067427
First printing in bound-book form: 2002 Paperback: $15.00 Printed in the United States of America Design: Rowe Design Group
COMMITTEE FOR ECONOMIC DEVELOPMENT 261 Madison Avenue, New York, N.Y. 10016 (212) 688-2063 2000 L Street, N.W., Suite 700, Washington, D.C. 20036 (202) 296-5860 www.ced.org CONTENTS
RESPONSIBILITY FOR CED STATEMENTS ON NATIONAL POLICY iv
PURPOSE OF THIS STATEMENT vii
CHAPTER 1: SUMMARY, FINDINGS, AND RECOMMENDATIONS 1 Findings 2 Recommendations 3
CHAPTER 2: INTRODUCTION: ECONOMIC INTEGRATION AND POVERTY REDUCTION 8 Open Markets Foster Economic Growth 8 Current Efforts to Reduce Poverty 11 The Need for a Long-Term Perspective, Realistic Expectations, and Prompt Action 15 The Need for Leadership and Support from Developed Countries 15
CHAPTER 3: THE NEED FOR POLITICAL LEADERSHIP AND INSTITUTION-BUILDING IN DEVELOPING COUNTRIES 18 Local Problems Need Local Solutions 18 Transparent Government and the Elimination of Corruption 19
CHAPTER 4: THE NEED FOR SOUND ECONOMIC POLICIES 24 Appropriate Macroeconomic and Microeconomic Policies 24 The Benefits of Open Markets for Trade and Investment 25
CHAPTER 5: BEYOND OPEN MARKETS: INVESTING IN PEOPLE 33 Education for All 35 Health 38
CHAPTER 6: FINANCING FOR DEVELOPMENT 48 A Perspective on Official Development Assistance 49 Conclusion 54
ENDNOTES 57
MEMORANDA OF COMMENT, RESERVATION, OR DISSENT 60
OBJECTIVES OF THE COMMITTEE FOR ECONOMIC DEVELOPMENT 61
iii RESPONSIBILITY FOR CED STATEMENTS ON NATIONAL POLICY
The Committee for Economic Develop- ing specific legislative proposals; its purpose is ment is an independent research and policy to urge careful consideration of the objectives organization of some 250 business leaders set forth in this statement and of the best means and educators. CED is nonprofit, nonparti- of accomplishing those objectives. san, and nonpolitical. Its purpose is to pro- Each statement is preceded by extensive pose policies that bring about steady eco- discussions, meetings, and exchange of memo- nomic growth at high employment and randa. The research is undertaken by a sub- reasonably stable prices, increased productiv- committee, assisted by advisors chosen for their ity and living standards, greater and more competence in the field under study. equal opportunity for every citizen, and an The full Research and Policy Committee improved quality of life for all. participates in the drafting of recommenda- All CED policy recommendations must tions. Likewise, the trustees on the drafting have the approval of trustees on the Research subcommittee vote to approve or disapprove a and Policy Committee. This committee is di- policy statement, and they share with the rected under the bylaws, which emphasize Research and Policy Committee the privilege that “all research is to be thoroughly objec- of submitting individual comments for publi- tive in character, and the approach in each cation. instance is to be from the standpoint of the general welfare and not from that of any The recommendations presented herein are special political or economic group.” The those of the trustee members of the Research and committee is aided by a Research Advisory Policy Committee and the responsible subcom- Board of leading social scientists and by a mittee. They are not necessarily endorsed by other small permanent professional staff. trustees or by nontrustee subcommittee members, The Research and Policy Committee does advisors, contributors, staff members, or others not attempt to pass judgment on any pend- associated with CED.
iv RESEARCH AND POLICY COMMITTEE
Co-Chairmen PATRICK W. GROSS RONALD R. DAVENPORT CHARLES R. LEE Founder and Chairman, Executive Chairman of the Board Chairman and Co-Chief Executive Officer Committee Sheridan Broadcasting Corporation Verizon Communications American Management Systems, Inc. JOHN DIEBOLD ALONZO L. MCDONALD BRUCE K. MACLAURY Chairman Chairman and Chief Executive Officer President Emeritus John Diebold Incorporated Avenir Group, Inc. The Brookings Institution FRANK P. DOYLE NICHOLAS G. MOORE Retired Executive Vice President Chairman Emeritus Vice Chairmen GE PricewaterhouseCoopers IAN ARNOF T.J. DERMOT DUNPHY STEFFEN E. PALKO Retired Chairman Chairman Vice Chairman and President Bank One, Louisiana, N.A. Kildare Enterprises, LLC XTO Energy Inc. ROY J. BOSTOCK CHRISTOPHER D. EARL CAROL J. PARRY Chairman, Executive Committee Managing Director President 3 B/Com Group, Inc. Perseus Capital, LLC Corporate Social Responsibility CLIFTON R. WHARTON, JR. W. D. EBERLE Associates Former Chairman and Chief Executive Chairman VICTOR A. PELSON Officer Manchester Associates, Ltd. Senior Advisor TIAA-CREF EDMUND B. FITZGERALD UBS Warburg LLC Managing Director PETER G. PETERSON Woodmont Associates Chairman HARRY L. FREEMAN The Blackstone Group Chair NED REGAN REX D. ADAMS The Mark Twain Institute President Dean RAYMOND V. GILMARTIN Baruch College The Fuqua School of Business Chairman, President and Chief Executive JAMES Q. RIORDAN Duke University Officer Chairman * ALAN BELZER Merck & Co., Inc. Quentin Partners Co. Retired President and Chief Operating BARBARA B. GROGAN LANDON H. ROWLAND Officer President Chairman, President and Chief Executive AlliedSignal Inc. Western Industrial Contractors Officer * PETER A. BENOLIEL RICHARD W. HANSELMAN Stilwell Financial Inc. Chairman, Executive Committee Chairman GEORGE RUPP Quaker Chemical Corporation Health Net Inc. President FLETCHER L. BYROM RODERICK M. HILLS Columbia University President and Chief Executive Officer Chairman ROCCO C. SICILIANO MICASU Corporation Hills Enterprises, Ltd. Beverly Hills, California DONALD R. CALDWELL MATINA S. HORNER MATTHEW J. STOVER Chairman and Chief Executive Officer Executive Vice President President Cross Atlantic Capital Partners TIAA-CREF LKM Ventures JOHN B. CAVE H.V. JONES ARNOLD R. WEBER Principal Managing Director President Emeritus Avenir Group, Inc. Korn/Ferry International Northwestern University CAROLYN CHIN EDWARD A. KANGAS JOSH S. WESTON Chairman, Commtouch Chairman and Chief Executive Honorary Chairman Chairman, Kindmark Officer (retired) Automatic Data Processing, Inc. A. W. CLAUSEN Deloitte Touche Tohmatsu DOLORES D. WHARTON Retired Chairman and Chief Executive JOSEPH E. KASPUTYS Former Chairman and Chief Officer Chairman, President and Chief Executive Officer BankAmerica Corporation Executive Officer The Fund for Corporate Initiatives, Inc. JOHN L. CLENDENIN Global Insight, Inc. MARTIN B. ZIMMERMAN Retired Chairman CHARLES E.M. KOLB Vice President, Governmental Affairs BellSouth Corporation President Ford Motor Company GEORGE H. CONRADES Committee for Economic Development Chairman and Chief Executive Officer ALLEN J. KROWE Akamai Technologies, Inc. Retired Vice Chairman Texaco Inc.
*Voted to approve the policy statement but submitted memoranda of comment, reservation, or dissent. See page 60.
v SUBCOMMITTEE ON GLOBALIZATION
Co-Chairs MATTHEW NIMETZ Non-Trustee Members Partner EDMUND B. FITZGERALD General Atlantic Partners, LLC RAYMOND OFFENHEISER Managing Director President Woodmont Associates CAROL PARRY Oxfam America President PAULA STERN Corporate Social Responsibility FRANK VOGL President Associates President The Stern Group, Inc. Vogl Communications, Inc. DONALD K. PETERSON President and Chief Executive Officer Special Guest Trustees Avaya Inc. ARNOLD B. POLLARD NANCY BIRDSALL REX D. ADAMS President and Chief Executive Officer President Dean, The Fuqua School of Business Chief Executive Group Center for Global Development Duke University GEORGE F. RUSSELL, JR. JAMES BEARD Sunshine Management Services, LLC Advisors President STEPHEN STAMAS Caterpillar Financial Services Corp. RALPH D. CHRISTY Chairman J. Thomas Clark Professor THOMAS D. BELL, JR. The American Assembly Chairman and Chief Executive Officer Department of Agricultural, Resource, Cousins Properties FREDERICK W. TELLING and Managerial Economics Vice President Corporate Strategic Cornell University * THOMAS J. BUCKHOLTZ Planning & Policy Division ISAIAH FRANK Executive Vice President Pfizer Inc. Beyond Insight Corporation William L. Clayton Professor of STOKLEY P. TOWLES International Economics LINDA M. DISTLERATH Partner The Johns Hopkins University Vice President, Global Health Policy Brown Brothers Harriman & Co. Merck & Co., Inc. ROBERT LITAN MARGARET S. WILSON Vice President and Director of W. D. EBERLE Chairman and Chief Executive Officer Economic Studies Chairman Scarbroughs The Brookings Institution Manchester Associates, Ltd. JACOB J. WORENKLEIN JOHN SEWELL HARRY L. FREEMAN Global Head of Project & Sectorial Senior Scholar Chair Finance Woodrow Wilson International Center The Mark Twain Institute Societe Generale Former President RICHARD W. HANSELMAN KURT YEAGER Overseas Development Council Chairman President and Chief Executive Officer Health Net Inc. Electric Power Research Institute Project Director RODERICK M. HILLS ELLIOT SCHWARTZ Chairman Ex-Officio Members Hills Enterprises, Ltd. Vice President and Director of FRANK P. DOYLE Economic Studies H.V. JONES Committee for Economic Development Managing Director Retired Executive Vice President Korn/Ferry International GE Project Associate CHARLES F. KNIGHT PATRICK W. GROSS Founder and Chairman, Executive Chairman of the Board MIKE BERG Committee Emerson Electric Co. Research Associate American Management Systems, Inc. WILLIAM W. LEWIS Committee for Economic Development Director, McKinsey Global Institute CHARLES E.M. KOLB McKinsey & Company, Inc. President Committee for Economic Development COLETTE MAHONEY President Emeritus BRUCE K. MACLAURY Marymount Manhattan College President Emeritus The Brookings Institution WILLIAM F. MAY Chairman and Chief Executive Officer JOSH S. WESTON Statue of Liberty - Ellis Island Honorary Chairman Foundation, Inc. Automatic Data Processing, Inc.
*Voted to approve the policy statement but submitted memoranda of comment, reservation, or dissent. See page 60.
vi PURPOSE OF THIS STATEMENT
The September 11 attack against the ACKNOWLEDGMENTS United States by foreign terrorists illustrates This policy statement was developed by all too clearly the inescapable interconnec- the committed and knowledgeable group of tion between the United States and the rest business, academic, and policy leaders listed of the world. More than ever, the United on page vi. We are grateful for the time, States stands as an example to those around efforts, and care that each put into the devel- the world who seek prosperity, as well as a opment of this report. target of resentment to those who have not Special thanks go to the subcommittee yet achieved it. co-chairs, Edmund B. Fitzgerald, Managing As the world’s economic powerhouse, the Director of Woodmont Associates and United States and the quality of its leader- former Chairman and CEO of Nortel Net- ship have long been under scrutiny. Now, works, and Paula Stern, President of The that is even more true. The United States has Stern Group, Inc. and former Chair of the clear economic, political, and security inter- U.S. International Trade Commission, for ests in staying engaged with the world and their guidance and leadership. We are also promoting solutions to global economic indebted to Elliot Schwartz, Vice President problems. In particular, alleviating poverty and Director of Economic Studies at CED, in developing countries goes beyond Everett Ehrlich, CED’s Senior Vice President humanitarian concerns. It is in our eco- and Director of Research, and Van Ooms, nomic interest to expand the markets devel- CED Senior Fellow. Thanks are also due to oping countries provide for our exports and Isaiah Frank, CED’s Advisor on International investments, and to realize the saving we Economic Policy, for his substantial contri- achieve by importing from countries that butions to this project, and to Tarek produce goods and services more efficiently. Anandan, Michael Berg, and Patricia Loh It is in our political interest to encourage a for research assistance. world that is stable, democratic, prosperous, and modern. And it is in our security interest Patrick W. Gross, Co-Chair to promote competent, friendly, and stable Research and Policy Committee nations as a means, at a minimum, of reduc- Founder and Chairman, Executive Committee ing armed conflicts around the globe. American Management Systems, Inc. Global poverty works against all these goals. Global economic interdependence— the links among nations through trade and Bruce K. MacLaury, Co-Chair investment—is not the problem; it is poten- Research and Policy Committee tially a major part of the solution to poverty. President Emeritus The challenge to the United States’ leader- The Brookings Institution ship is to see that that potential is realized. The analysis and recommendations of this report are aimed toward that goal.
vii Chapter 1
SUMMARY,FINDINGS, AND RECOMMENDATIONS
Economic integration through internation- oping countries promote economic growth al trade and investment, often characterized as and reduce poverty. We start from the globalization, has helped to raise incomes and premise that governments favor economic reduce poverty worldwide. But market forces, growth. Not all governments, however, are although powerful in generating growth, can- effectively committed to that goal. Some not alone generate significant and broad- states lack the basic institutions and political based reductions in poverty. That will require cohesion to govern effectively; others are a concerted effort by both developed and engaged in external conflicts or internal developing countries to create the conditions, repression or kleptocracy. To be successful, institutions, and policies that further econom- a country must have the political will to make ic growth and the sharing of its benefits. sustainable economic growth and poverty The stake in this effort for low-income reduction the highest priorities and to carry countries is clear: absent economic growth, out a strategy to that end. Moreover, we rec- their futures are bleak. Although considerable ognize, indeed stress, that each country is progress has been made in improving condi- different and that local conditions, institu- tions in the world’s poorest nations, their tions, and policies will primarily decide where populations on average live in poorer health and how economic development, income and die significantly earlier than their richer growth, and poverty reduction take place. counterparts. The stakes for the United States Thus the role of business, government and other advanced economies, although leaders, and the public in the advanced unchanged, have been made more evident economies can only be supportive. They can- by the September 11 terror attacks and subse- not force economic growth on developing quent events. We are now acutely aware that countries that do not take the right actions. our security, liberty, and prosperity depend on But without the support of the developed creating a more prosperous and democratic nations, the road to economic advancement world that rejects backward-looking or terror- for the 85 percent of the world’s population ist ideologies. It has never been clearer that who live in developing countries will be much the United States must provide direction and more difficult. Those countries need access to leadership to build a shared future with the the markets and the financial, managerial, developing world by helping to raise standards scientific, and technical resources of the more of living and reduce poverty globally. economically developed countries. The trans- This report is specifically aimed at U.S. fer of those resources takes place through and other global business leaders and the trade, investment, and development assis- governments of countries in which they oper- tance programs. More can be done in each ate. Our goal is to mobilize their support and of these areas to improve the economic out- recommend steps they can take to help devel- look for the people of developing countries.
1 A SHARED FUTURE
This CED policy statement explains how busi- The major determinants of economic ness and government can make this outcome growth are reasonably well known. Income more likely. growth depends on technological advance, the accumulation of capital in all its forms— financial, human, physical, and social—and FINDINGS an institutional and policy framework that Economic development and the reduction uses resources effectively, including the trans- of poverty are broad and complex topics that fer of resources and technology from abroad. have generated an enormous amount of The alleviation of poverty generally occurs in attention, research, and financial support. tandem with economic growth. On the one hand, the history of the last 50 We focus in this statement on a few key years is generally encouraging. Poverty is policy actions that must be at the core of any declining, measured both by the number of development and poverty-reduction strategy: people and percent of population that are poor. Virtually all regions of the globe have •setting sound economic policies, higher incomes today than ever before, and •improving governance and rooting out other, non-monetary indicators of human corruption, and development likewise show significant improvement. On the other hand, economic •investing in human and social capital. progress has been disappointing in terms of Sound macro and microeconomic policies the severe poverty that continues to exist in are necessary for economic development to a large number of countries, the gap in per take root and for progress to be sustained. In capita income between the highest-income general, countries that maintain disciplined and lowest-income countries, and the efforts budget policies, openness to international and resources that have been devoted to clos- trade and investment, and functioning finan- ing that gap. A new and revitalized effort is cial markets enjoy stronger long-run econom- needed. That effort can build on what has ic growth than those that do not. Foreign been learned: direct investment in particular brings not only • Economic growth is essential to the additional financial resources, but also the reduction of poverty. transfer of modern technology and business methods and wider market opportunities. It • Countries that successfully open their also frequently encourages improved labor economies to competition, both domestic and environmental practices. Opening the and foreign, grow faster than those that domestic economy to foreign trade and do not. investment can also strengthen competition • Policies that support open competition are in domestic markets. Competition leads to a not sufficient; they must be accompanied more efficient allocation of resources and by investments in people. provides powerful incentives for productivity growth, which is the source of higher living • Countries start with different advantages standards. Establishment of explicit competi- and disadvantages—some are handi- tion policies to prevent anti-competitive capped by their culture, geography, practices, similar to U.S. anti-trust policy, history, institutions, leadership, or lack of would promote this objective. resources—but none are condemned to In many countries a top priority must be permanent poverty if they take the steps effective governance—the development of necessary to promote growth. basic institutional capabilities and establish-
2 Summary, Findings, and Recommendations ment of an independent, impartial, and predictable legal system and respect for the RECOMMENDATIONS rule of law. Developing country governments In the final analysis, the policies pursued must put an end to rampant corruption, in the developing countries themselves are which drains resources and distorts markets, the key to development. But the advanced thereby impairing growth and development. economies can make a major contribution to One effective step towards this end would be facilitating the development process. Those to operate more openly, subject to scrutiny by developing country governments that are an independent judiciary, civil society groups, pursuing economic growth and poverty and a free press. Another would be to elimi- reduction generally know what they need nate regulations that reduce competition and to do. The advice they get through both provide a breeding ground for bribery. official and private channels, including the Poverty and underdevelopment are in part World Bank, regional development banks, a consequence of a lack of education and bilateral aid agencies like the U.S. Agency for good health. Investments in these areas, espe- International Development (USAID), private cially when directed at girls and women, investors, and non-governmental organiza- generally have very high rates of return and tions, is fairly consistent on the main points. in many cases are preconditions for the suc- For various reasons, however, some govern- cess of other economic policies. Foreign ments are reluctant to take the actions need- direct investment, for example, may have far ed for economic advancement. The advanced less impact if not complemented by an edu- economies also often appear hesitant about cated and healthy labor force. Developing taking actions that could help developing countries should pay special attention to the countries. economic and social benefits of investments Our recommendations clarify the actions in education, health, and social services. In that governments and businesses in the each of these areas governments should advanced economies can take to help devel- include and specifically encourage the oping countries help themselves. These participation of women — as a matter of actions are not entirely altruistic; they will also equity, to employ underutilized resources benefit the advanced economies. The most more productively, and to capitalize on the important step would be to remove the tariffs, important role women play in effecting quotas, and subsidies that impede developing social change. country exports. The second would be to sup- We recognize that these policy directions, port developing country efforts to establish although necessary for economic growth, may domestic conditions that attract foreign direct not in themselves be sufficient to sustain eco- investment. A third would be to increase offi- nomic development and poverty reduction. cial development assistance and, especially, to There are no “magic bullets.” Each country is manage it more effectively by improving its different and requires unique solutions. The allocation, its delivery, and the measurement appropriate sequencing and pacing of policy of its impact on development and poverty reforms will differ from country to country. reduction. However, even countries severely constrained by geography and natural and human Building U.S. Leadership for A Global resources can benefit from such policy Attack on Poverty improvements. A key missing ingredient in the United States and some other advanced economies is public and private support for policies that
3 A SHARED FUTURE would help developing countries help them- • Business leaders and their employees selves. Support lags in part because the public should become involved in the leading lacks sufficient knowledge of conditions in educational and social organizations that developing countries and of policies and pro- are promoting constructive solutions to grams in their own country that affect eco- the economic, health, and social problems nomic development. For example, surveys of low-income countries.* show that the U.S. public consistently overesti- mates the amount of government resources We are encouraged by the increased coop- devoted to foreign aid (official development eration between developed and developing assistance) and undervalues the benefits of countries made possible by public-private open markets for trade and investment. We partnerships, which provide a framework therefore recommend the following: for mobilizing the skills and resources of the private sector in advanced economies to • Leaders of global business, educational, provide higher quality and more efficient and social institutions should rally public public services in developing countries. and private support for a strategy to overcome global poverty.* They should • We support the formation of public- articulate a new vision of global coopera- private partnerships in developing tion based on countries to achieve carefully articulated and specific outcomes, such as building – reforms in developing countries that institutional capabilities, transferring will maintain sound economic policies, technical expertise, and delivering critical improve governance and eradicate cor- services. ruption, and invest in education, health, and other forms of human develop- Opening Markets for Trade ment; and and Investment – reforms in developed countries to Sound policies in developing countries eliminate trade distortions, support for- should be complemented by pro-develop- eign direct investment, and increase ment economic policies in developed and better manage official development countries. assistance. Trade A diverse group of educational and social The World Bank estimates that abolishing organizations are already involved in seeking trade restrictions in both developing and solutions to problems that plague developing developed countries could boost income in countries. Some, such as the Global Business the developing countries by $1.5 trillion over Council on HIV/AIDS and the World ten years; incomes in developed countries Economic Forum’s Global Health Initiative, could rise by a like amount, with Western work predominately with business executives, Europe’s consumers and taxpayers benefiting corporations, and other non-profit organiza- most from the elimination of heavy subsidies tions, while others may be more broadly for domestic agriculture. The constant drum- based or affiliated with religious, educational, beat of advice from the advanced economies, or other social organizations. Such organiza- aid agencies, and the International Monetary tions are important resources for rallying Fund for developing countries to open their public opinion and effecting change. economies to trade must be backed up by like reforms in the United States, the European Union, and Japan.
4 *See memoranda by THOMAS J. BUCKHOLTZ (page 60). Summary, Findings, and Recommendations
• The United States and other developed ethical standards, employ more transparent countries should reduce trade barriers reporting practices, and ensure that the sup- to developing country products and ply side of bribery payments is closed, which services.* The United States should take would have direct benefits for the corporation the lead in the World Trade Organization and in some countries could change the (WTO) to ensure that developing coun- atmosphere of corruption. In addition, the tries have access to developed country U.S. government should take the lead in pro- markets. It should seek to speed up the moting a multilateral investment agreement implementation of tariff reductions under that would create common rules for the treat- the Agreement on Textiles and Clothing ment of direct investments. Such an agree- (which replaced the Multi-Fiber ment would reduce risks, reassure investors, Arrangement) and tighten WTO rules on and make it easier for them to take equity anti-dumping so that only the most worthy positions in developing countries. complaints would qualify for protection. Production subsidies for domestic agricul- • All countries should ratify the OECD ture, which are especially heavy in the Anti-Bribery Convention and fully European Union and Japan, should also prosecute under national laws the illegal be eliminated. payment of bribes. CED urges multina- tional corporations to abide by interna- We recognize that there is strong domestic tionally recognized standards of integrity opposition to such market-opening measures. and consider implementing voluntary We urge, as in previous policy statements, that reporting practices that make public the policy makers explicitly address worker anxi- impact of their activities on the domestic eties about job displacement. economy. They should also comply with relevant OECD conventions and other • In conjunction with reducing trade appropriate international codes against barriers and tightening standards for bribery and corruption. anti-dumping actions, the United States should bolster its system of adjustment • The United States should push to assistance. As part of this effort, it extend the WTO’s Agreement on Trade- should adopt a limited system of wage Related Investment Measures (TRIMs) and health insurance for displaced into a more effective multilateral workers.* investment code. The primary goal of such a code should be to create a com- Investment mon set of rules for the national treat- We encourage developing countries to ment of foreign direct investment. In make the attraction of foreign direct invest- addition, countries should agree to ment one of their highest development report publicly their use of special priorities. For the most part, developed incentives to attract investment, such economies impose few restrictions (mostly as tax abatements and other financial related to national security) on outward inducements, and submit them to investments. But there are actions that devel- review by the WTO. Such transparency oped country governments and businesses could help rein in the use of such can take to help developing countries to incentives by all WTO members and attract foreign capital. For example, multina- discourage policies that might reduce tional corporations can do more to advance labor and environmental standards to attract foreign investment.
*See memoranda by PETER A. BENOLIEL (page 60). 5 A SHARED FUTURE
Beyond Open Markets: Investing in Development Assistance Education And Health Trade and investment provide the bulk of Many developing country governments the resources that flow from the developed give inadequate support to public education to the developing world. But, development and health care. Some countries undervalue assistance often provides an important supple- the economic returns from such investments ment. For the least developed nations, it can in human capital. In many cases, however, be a major resource, sometimes accounting the meager support is simply due to a lack for more than 100 percent of gross capital of financial resources. Investments in basic formation. Where a country is pursuing education, health, and nutrition enhance sound economic policies, development aid not only the productive capacity of individu- can “fill the gap” by providing critical als, but also that of the whole economy. resources until the country can achieve Governments do not have an exclusive role in sufficient domestic savings, access to interna- these investments; multinational corporations tional capital markets, and foreign direct can improve the productivity of their labor investment to meet its investment needs. forces by providing training and health Development aid works most effectively services to their employees. when it reinforces good local policies by rewarding effective performance. A recent • We encourage all relevant public and UN conference on Financing for Development private organizations to contribute to the discussed the level of aid from donor coun- improvement of education and health tries, how aid should be given, and whether outcomes in developing countries. the funding of aid should be more automatic. Developing country governments should Some business and national leaders have make it one of their top priorities to called for a doubling of aid and for automatic improve the delivery and quality of financing mechanisms, such as a tax on education and health services. Similarly, financial transactions, to fund development developed country governments should programs. Others have proposed a “common focus attention and development assis- pool” approach to aid delivery, which would tance funding on improving education and put more authority and responsibility in the health, especially in the poorest countries. hands of recipient countries. In addition, we encourage multinational Although we have concerns about how aid corporations, as employers, to provide has been allocated and managed in the past, appropriate education, training, and a strong case for more development aid can health services for their employees. be made on both economic and humanitari- • In each of these endeavors, special atten- an grounds and to strengthen U.S. leadership tion and resources should be dedicated to in policy engagement with developing coun- improving the status of women: invest- tries. But, setting an arbitrary financing goal, ments in the education and health of such as a specified percentage of Gross women have high social rates of return Domestic Product (GDP), as has been the because of their work and family roles. practice, inverts the logic of financial deci- Similarly, development programs that sionmaking. The rationale for increased assist small businesses, farmers, and development assistance must be its effective- other commercial ventures should ness, not an aggregate target. We should not recognize the unique contributions of invest scarce resources that have little return women. nor hesitate to increase spending where it will be effective.
6 Summary, Findings, and Recommendations
In this regard, our views are consistent aid budget to this account and, if successful, with President Bush’s proposal for a new adding more funds. Millennium Challenge Account within the U.S. foreign aid budget. As outlined, coun- • Donors should provide increases in official tries that improve governance and root out development assistance as long as they are corruption, encourage economic freedom confident that such aid can be spent effec- through sound economic policies, and invest tively. The allocation of aid should be in their people, would receive more aid from based on the soundness of a country’s the United States. Aid would increase over development policies and on measurable the next three years by $5 billion, resulting in improvements in specific areas such as an annual level of about $15 billion, and education and health, rather than on would be linked to measurable improvements pre-determined country allotments. To in performance. These new resources would measure the effectiveness of increased be allocated to countries that are undertaking spending, more resources should be sound economic reforms and would be con- devoted to improving the collection, centrated in areas such as health and educa- dissemination, and use of data on condi- tion, where the case for support is clear tions in developing countries. We do not because the activities are more often pro- support schemes for automatic funding grammatically sound, with measurable results. of aid programs through international CED supports this proposal and would sup- taxes or other financing mechanisms that port shifting even more of the U.S. foreign skirt the normal appropriations process.
7 Chapter 2 INTRODUCTION: ECONOMIC INTEGRATION AND POVERTY REDUCTION
The increased integration of markets Yielding to protectionism creates tempo- around the world—a process often referred to rary help for those directly challenged by as globalization—has increased the efficiency imports, but at high costs to others. Rather of resource use, widened choices available to than imposing restraints on trade, as was consumers, and boosted incomes. Some of the recently done for steel products, direct adjust- technological and economic factors that ment programs can address the legitimate underlie this market integration are almost concerns of those who bear the costs of certain to continue, such as the increased economic change, without imposing hidden speed, greater capabilities, and lower costs of costs. A well-crafted adjustment program transportation, communication, and informa- ought to provide assistance more effectively tion. However, the continuation of other fac- and efficiently than trade protection. tors, the most important being efforts by The multinational corporation (MNC) developing country governments to build the can play a significant role in overcoming the capabilities of their domestic institutions and misunderstandings that accompany economic to lower barriers to foreign trade and invest- integration. In many respects the MNC is the ment, are much less certain. A clear and con- transmission belt for information, resources, vincing case exists for further market-opening and political leadership in the global econo- policies in both developing and developed my. Many of the recommendations of this countries. Yet, in many places, including the report urge the leaders of global companies United States, the issue seems in doubt. to take a more active role in improving public The doubt stems in part from both knowledge and awareness of the global misunderstanding and basic politics. Far from economy in both developing and developed contributing to global poverty, open foreign countries and to lend the weight of their trade and direct investment are part of the support to sound economic and social solution to it. Without the growth related to policies. economic integration, developing countries will be unable to raise incomes and sustain poverty-reduction strategies. Developed OPEN MARKETS FOSTER countries, such as the United States, must ECONOMIC GROWTH understand that the rationale for economic Economies that remain closed to interna- integration is mutual benefit. Increased trade tional trade and investment cannot benefit with, and higher incomes in, the developing from the efficiencies of the global market- countries add to our prosperity and security. place. Likewise, governments that fail to Protectionist policies not only make the provide the basic institutional foundation for United States poorer, but also undercut economic growth, including respect for the growth in the developing countries and rule of law, effectively shut off their access to make the rhetoric of open markets hollow. the world economy’s resources. The countries
8 Introduction: Economic Integration And Poverty Reduction that have grown the fastest and made the economic, political, security, and humanitari- most progress in reducing poverty are those an—cannot be met unless economic condi- that have chosen to take advantage of the tions in nations with substantial populations opportunities offered in the global economy. in poverty improve. That does not mean that dysfunctional gov- Economic development, supported by ernment policy is the sole cause of poverty or globalization, holds the promise of raising that a change in economic policy will pro- incomes and significantly improving the mate- duce rapid prosperity. Culture, politics, and rial conditions in which people live. Research religion all shape a society and circumscribe confirms that economic growth and poverty its economic outcomes. Nevertheless, without reduction go hand-in-hand.3 Without eco- government policies that support sustainable nomic growth, poverty can be reduced only economic growth, the reduction of poverty by redistributing income or wealth: a political- will be much more difficult, if not doomed to ly tortuous process. In the long run, excessive failure. redistribution policies can impede growth by reducing incentives. In the final analysis, A Focus on Poverty reducing poverty means raising productivity. The gaps in incomes and living conditions Higher productivity—output per unit of between the high-income and low-income input—raises incomes; as incomes rise pover- countries and the extent of absolute poverty ty declines. Increases in productivity are are unacceptable. In addition to raising generated by improvements in the quality humanitarian concerns, such large disparities of human and physical resources and the undermine the social consensus essential for efficiency with which those resources are global political stability. A recent report of transformed into products and services. the Commission on U.S. National Security in Advances in technology, including improve- st the 21 Century recognizes the danger of ment in the management of enterprises, poverty in developing countries. It concludes: are the key. “It is a significant national interest of the Productivity increases often require invest- United States that there be economic growth ment, which requires domestic savings. abroad, to raise living standards of the poor- However, domestic resources can be supple- est and to mitigate economic and political mented through foreign trade and invest- conflict.”1 As stated by President Bush, ment. Foreign trade and investment reduce “poverty prevents governments from control- gaps in knowledge and resources that sepa- ling their borders, policing their territory, rate low-productivity and, hence, low-income and enforcing their laws. Development pro- countries from high-productivity and high- vides the resources to build hope and pros- income countries. Such economic integration perity, and security.”2 also brings greater exposure to enlightened The existence of extreme poverty in devel- thinking and practices, such as the desirability oping countries, although not caused by mar- of educating women, that can help break ket-opening policies, fuels an anti-globaliza- down customs and practices that hold people tion and anti-American backlash. To garner in poverty. States that have embraced global- support, globalization must be inclusive. It ization by liberalizing rules for trade and must demonstrate that it serves the broadest investment and putting in place sound possible collection of countries and people, domestic institutions and policies have not just the interests of the United States and grown substantially faster than those that other advanced economies or the elites in have rejected such a course. By one estimate, developing countries. In fact, U.S. interests— the number of absolute poor in developing
9 A SHARED FUTURE countries that have embraced globalization Table 1 declined by 120 million between 1993 and 1998, while poverty increased in other devel- Global Progress in Economic and oping countries by 20 million.4 Although in Human Development, 1950-1999 some cases the gap between rich and poor in 1998 individual countries may widen, research has Indicator 1950 or 1999 found no systematic relationship between Average income per capita a income inequality and either globalization (1990 dollars) or economic growth.5 World 2,114 5,709 Open markets, however, are not by Developing countries 1,093 3,102 themselves sufficient to eliminate poverty. Average longevity (years) Complementary policies and institutions World 49 66 are also needed. Investing in education and Developing countries 44 64 health, for example, ameliorates harsh condi- Share of population living on tions, improves the quality of the workforce, less than $2 a day (percent) World 63 40b and widens opportunities for the poor. Many Developing countries n.a. n.a. of the deprivations associated with poverty, such as premature mortality, significant Share of population living on less than $1 a day (percent) undernourishment (especially of children), World 42 17b persistent morbidity, widespread illiteracy, and Developing countries n.a. 26 other failures diminish productivity and make 6 Share of population literate escape from poverty difficult. In addition to (percent) opening markets and investing a high per- World 54 79 centage of GDP, countries that have achieved Developing countries 40 75 high rates of economic growth and poverty Infant mortality reduction have maintained macroeconomic (deaths per 1,000 live births) stability, stabilized political institutions, and World 156c 54 invested in human resources.7 Developing countries 179c 59 Historical Background a. At purchasing power parity. b. In 1992. Viewed from a historical perspective, c. In 1950-55. poverty is declining. Virtually all regions of SOURCE: United Nations, Report of the High-Level Panel on the globe have higher incomes today than Financing for Development, June 2000, Annex. ever before, and the percentage of people in absolute poverty has never been lower. continued to rise. Living standards have risen Indicators of human development such as far more in some countries than in others, average longevity and literacy are higher; but much of the difference can be accounted infant mortality has declined significantly. for by policy interventions in both the devel- (See Table 1) oping and developed countries. South Korea, From 1950-1973, the world saw unprece- for example, experienced 6.6 percent average dented productivity and income growth. The annual growth in per capita GDP between average annual compound rate of growth in 1965 and 1999. China and Singapore aver- per capita income worldwide during that peri- aged 6.4 and 6.3 percent annual growth in od was a remarkable 2.9 percent, high by his- per capita GDP, respectively, over the same torical standards.8 Global growth slowed after period. However, during the same period, 1973, but with the exceptions of Eastern average incomes in sub-Saharan Africa fell Europe and Africa, per capita income has by 0.2 percent annually.9
10 Introduction: Economic Integration And Poverty Reduction
The 155 middle- and low-income nations, Millennium Summit in September 2000. often collectively described as “developing They primarily address four facets of poverty: countries,” comprise a highly diverse group. extremely low income, lack of education, (See Table 2) Their average incomes range inadequate health, and environmental from less than $755 per year (63 countries) degradation. (See Box, The International to over $2,996 and as much as $9,265 (38 Development Goals) The goals seek to create countries). Their prospects differ. Some a small number of measurable outcomes to are land locked and have very few domestic facilitate setting priorities and to foster public resources to develop. Others have substantial support for providing the resources necessary economic potential but lack the political to achieve them. and social institutions to support economic The development goals are a useful start- advancement. The fastest growing countries ing point for addressing poverty. They help are those that have economic and political focus attention on the problems of develop- policies that support entrepreneurship. ing countries and their progress in meeting specific benchmarks. Numeric goals have led the United Nations and specialized interna- CURRENT EFFORTS TO tional agencies to put greater effort into mea- REDUCE POVERTY suring and monitoring the many dimensions The International Development Goals are of poverty.10 Increased efforts have also gone a set of indicators used to quantify and assess into surveying household income, living stan- the progress of the international efforts to dards, and health status. More such informa- reduce poverty. The OECD Development tion is needed. Assistance Committee (DAC) in its 1996 However, it is difficult to make these devel- report, Shaping the 21st Century, first set out opment goals operational. The specificity of the goals, but they are derived from previous the goals contrasts with the lack of specific agreements and resolutions made at United accountability and operational guidance. For Nations conferences on education, children, example, does the goal of halving poverty the environment, human rights, and women apply to poor people generally or to each during the early 1990’s. The goals are nearly country individually? Who is responsible for identical to the Millennium Development achieving the goal? How is the reduction of Goals, which were announced at the U.N. poverty to be accomplished? The most prominent goal is to reduce Table 2 by half the proportion of people living in World Bank Country Classification Scheme extreme poverty, with income less than one dollar per day, by 2015.† Viewed globally, Country Number GNI/ Average progress towards the goal is being made. Income of Capita GNI/ Classification Countries Rangea Capitaa Nearly 1.2 billion people, 23.4 percent of High Income $9266 or more world population, were estimated to have OECD 23 27,857 income of less than a dollar a day in 1998, Non-OECD 29 18,906 Middle Income Upper Middle 38 $2996-$9265 4,360 † The baseline year for the targets is 1990, which has been consistently used by the global conferences of the past Lower Middle 54 $756 -$2995 1,032 decade. The international poverty line was set at $1/day in Low Income 63 $755 or less 418 1985 purchasing power parity (PPP) terms to take into account the local prices of goods and services and a more a. 1999 US$ realistic cost of living. It has been recalculated in 1993 PPP SOURCE: World Bank, World Development Indicators Database. terms at about $1.08 a day.
11 A SHARED FUTURE a significant reduction in the poverty rate poverty level is defined at two dollars a day, from 28.9 percent in 1990. However, progress the number of people in poverty jumps to 2.8 is very uneven. Because total population in billion, nearly half the world’s population and developing countries has increased by about a slight rise since 1990. 600 million, the actual number of people liv- Much of the progress has come in the East ing on less than one dollar a day has dropped Asia and Pacific region, in particular in China only by about 100 million. Moreover, if the where the absolute number of people living
THE INTERNATIONAL DEVELOPMENT GOALS The International Development Goals (IDGs) are designed to reduce poverty, improve global health and education levels, and protect the environment. In general, the goals are set for 2015: the reference point, or base year, is 1990. The seven International Development Goals are: • Reduce Extreme Poverty • Facilitate Universal Primary Education • Promote Gender Equality • Reduce Child Mortality • Improve Maternal Health • Combat HIV/AIDS and other Infectious Diseases • Ensure Environmental Sustainability POVERTY REDUCTION • Reduce the proportion of people living in extreme poverty by at least one-half by 2015. Extreme poverty is defined as income less than one dollar per day. Although poverty reduction is explicitly addressed only with this goal, all the goals — such as improving a country’s health, education, and environmental conditions — help reduce poverty. EDUCATION • All countries should have universal primary education. • Gender disparity in primary and secondary education should be eliminated by 2005. Enrollment. Although worldwide primary school enrollment rates are increasing, over 113 million school-aged children are estimated to be out of school.11 Enrollment rates vary signif- icantly within countries (as a result of income and wealth differences), between countries, and between regions, and differences in population growth rates and resources available for education have the potential to increase educational disparities over the next decade. The percentage of children not enrolled in school ranges from a low of 3 percent in East Asia to over 40 percent in sub-Saharan Africa. While an important indicator, enrollment rates may not measure education outcomes. Many children who are legitimately enrolled in school may not actually attain basic skills. Gender Equality. Nearly 60 percent of uneducated school-aged children are girls, and girls are less likely to complete their basic education than their male counterparts. In some cases, girls are kept out of school as a result of religious or social practices. In other cases, they, or
12 Introduction: Economic Integration And Poverty Reduction in poverty was reduced by nearly 150 million Caribbean, where the annual rate of poverty despite population growth of over 100 mil- reduction is above that necessary to meet the lion.12 (See Table 3) The Republic of Korea, goal by 2015. Other regions face a far more Malaysia, and Morocco have been able to formidable task. The percentage of people reduce the number of people living in pover- living in absolute poverty is approaching 50 ty by half in less than a generation.13 Progress percent in the 48 countries of sub-Saharan has also been made in Latin America and the Africa and remains around 40 percent in the
their families, may be discouraged because of the limited employment opportunities for educated women in many developing nations. Aside from the direct benefits to women from education, gender equality in schools is important to development because educated women tend to have smaller, healthier families and provide better care for their children. Incomes of families with educated women are generally higher, and educated women are much more likely to encourage their children to be educated as well. In most societies women are important agents of cultural change. Societies that promote the education of women are also more likely to embrace other cultur- al changes that promote economic development. HEALTH • Reduce the death rates for infants and children under the age of five years by two-thirds. • Reduce the rate of maternal mortality by three-fourths. • All individuals of appropriate ages should have access through the primary health-care system to reproductive health services. A population with a high number of infant, child, and maternal deaths, is an unproduc- tive population that is incapable of escaping poverty. 11 million children under the age of five died in 1998. More than a half-million women die each year during pregnancy and childbirth.14 HIV/AIDS killed 3 million people in 2001, bringing the world total to over 20 million since the beginning of the epidemic in the late 1970s.15 Infant and maternal fatalities and deaths from infectious diseases are preventable, but most developing countries devote insufficient resources to these concerns. Improved reproductive health services would have many benefits, including the slowing of world population growth, the fighting of infectious diseases including HIV/AIDS, malaria, and tuberculosis, and the education of people to help them live healthier lives. ENVIRONMENTAL SUSTAINABILITY • Every country should have a current national strategy for sustainable development, in the process of implementation, by 2005. The world’s most impoverished people are disproportionately affected by environmental degradation, such as desertification, land degradation, water scarcity, and natural disasters. About 5 million people in developing countries die from waterborne diseases and polluted air every year.16 Economic development has the potential in the short run to lead to greater environ- mental degradation, both through the overuse of resources and the creation of damaging by-products. However, studies have shown that as national income rises, more resources are usually dedicated to environmental cleanup and preservation.
13 A SHARED FUTURE
Table 3 Progress Towards The Achievement of Poverty Reduction Goalsa Region 1990 1998 2015 Reduction Rates Annual Annual Rate Poverty Rate of Change Reduction Projected Goal < Goal % in Poverty Necessary to Population <$1/day % in Population <$1/day % in Population $1/day in (in percents) Meet Goal (millions) (millions) Poverty (millions) (millions) Poverty (millions) (millons) Poverty 1990-1998 (in percents) East Asia & Pacific 1,638.7 452.4 27.61,816.6 267.1 14.72,097 289.5 13.8 7.6 0.4 Europe & Central Asia 466.1 7.1 1.5 473.9 17.6 3.7 478 3.6 0.8 -11.8 8.9 Latin America & Caribbean 438.2 73.8 16.8 500.3 60.7 12.1 622 52.3 8.4 4.0 2.1 Middle East & North Africa 237.8 5.7 2.4 284.4 6.0 2.1 390 4.7 1.2 1.6 3.3 South Asia 1,122.1 495.1 44.1 1,304.6 521.8 40.0 1,676 369.8 22.1 1.2 3.4 Sub-Saharan Africa 508.0 242.3 47.7626.9 301.6 48.1878 209.4 23.8-0.1 4.0 Total 4,411.0 1,276.4 28.9 5,006.7 1,174.8 23.5 6,141 888.5 14.5 2.6 2.8 a. Table excludes populations of high-income countries. SOURCES: World Bank, World Development Indicators Database, and World Bank, World Development Indicators, 2001. eight South Asian countries. Many countries by strengthening and facilitating commercial will fall far short of meeting this development relationships between the United States and goal if the recent pace of change continues. the African continent.17 As a result of low economic and high pop- African governments are well aware that ulation growth rates, sub-Saharan Africa has their own efforts to liberalize and reform are the largest share of people living below one crucial. With the assistance of the World Bank dollar a day. Consequently, a great deal of and IMF, many African nations have complet- international effort has been focused on the ed Poverty Reduction Strategy Papers, which African countries. Traditionally, such efforts are required of countries that want to partici- have taken the form of official development pate in the HIPC initiative. In the past year, assistance, but in recent years the advanced African leaders have come together to form economies have focused on other types of the New Partnership for Africa’s Development assistance, including debt reduction through (NEPAD) to accomplish their pledge to eradi- the Heavily Indebted Poor Countries (HIPC) cate poverty and increase growth in their Initiative and increased market access. nations. Through NEPAD, the Africans have Europe and the United States have provided committed themselves to a broad range of trade preferences to African products measures to improve local infrastructure, through the Cotonou Partnership Agreement and promote the private sector and regional inte- African Growth and Opportunity Act, respec- gration, enhance good governance, and tively. Business leaders have formed the improve the local investment climate. While Corporate Council on Africa, a non-profit the success of the program will depend on organization that seeks to raise the profile of the ability of the group to create concrete Africa in the U.S. business community, there- regional cooperation projects, the partner-
14 Introduction: Economic Integration And Poverty Reduction ship is an important sign that African leaders Table 4 and governments are committed and deter- mined to take charge of their futures. Poverty in Developing Countries under Alternative Scenarios
$1 a day THE NEED FOR A LONG-TERM Headcount Number of ratio poor PERSPECTIVE, REALISTIC (percent) (million) EXPECTATIONS, AND PROMPT 1990 29.0 1,276 ACTION 1998 23.4 1,175 2015: base case scenario 12.6 777 Ending or significantly reducing poverty is 2015: low growth scenario 16.4 1,011 a long-term goal. Even at relatively high rates 2015: growth as in 1990s 18.7 1,157 of growth in GDP, economic development and Base case = real per capita GDP growth in developing the benefits of higher income growth take countries of 3.5-4.0 percent annually. time to materialize. Nevertheless, success can Low growth case = real per capita GDP growth in developing countries of about 2.5 percent annually. be achieved and immediate actions can have 1990s growth case = real per capita GDP growth in developing high payoffs. In China, per capita income on a countries of about 1.7 percent annually. purchasing-power-parity basis has grown from SOURCE: World Bank, Global Economic Prospects, 2001. 18 $270 in 1975 to $3940 in 2000. In each case, the percentage of population To illustrate the prospects for poverty in poverty declines. However, because of con- reduction, the World Bank has calculated the 19 † tinuing population growth, slower economic results of three alternative scenarios. In the growth leaves the number of people in pover- base case, which is now probably beyond ty at very high levels. Most important, over reach, the world as a whole would reach the this 15-year period a difference of about one international development goal of reducing percentage point in per capita income growth the share of people living on less than one has very large effects on outcomes. The dollar per day by 2015 to half of what it was in regional and country-specific variations 1990. (See Table 4) That scenario would still implied by these scenarios are also quite leave the total number of absolute poor at large. In Africa, the number of people living near 800 million, and the number of poor in poverty would increase under all scenarios. would continue to grow in sub-Saharan Africa. Under a middle scenario of relatively low growth, only East Asia would be able to THE NEED FOR LEADERSHIP meet the poverty reduction target. The total AND SUPPORT FROM number of poor in the world would be above DEVELOPED COUNTRIES 1 billion. Excluding China it would remain largely unchanged from the 1990 level. A For the developing countries, the path to lower-growth scenario, roughly equivalent to economic growth is reasonably clear. For the average rate of growth during the 1990s those inclined to listen, the advice from inter- (about 1.7 percent), leaves the number in national institutions and governments of the poverty only marginally lower than in 1998, advanced economies is consistent on the just under 1.2 billion. main points. Although developing country governments have the primary responsibility for carrying out policies that promote † These scenarios were prepared before the September 11 economic growth and poverty reduction, they attacks on the United States, and therefore do not take into account the resulting slowdown in world economic activity are not completely masters of their own fates. since then. They need the advanced economies to remove
15 A SHARED FUTURE trade distortions that hinder developing coun- A diverse group of educational and social try exports, continue to supply privately organizations is already involved in seeking financed transfers of capital and technical solutions to problems that plague developing expertise, and support increased and more countries. Some, such as the Global Business effective publicly financed development aid. Council on HIV/AIDS and the World Support from the United States and some Economic Forum’s Global Health Initiative, other advanced economies for policies that work predominately with business executives, would help developing countries to help corporations, and other non-profit organiza- themselves lags in part because the public tions, while others may be more broadly does not comprehended the relationship based or affiliated with religious, educational, between the needs of the developing coun- or other social organizations. Such organiza- tries and their own interests. Since the terror tions are important resources for rallying pub- attacks on the United States, that may have lic opinion and effecting change. Business begun to change, as news reports and media leaders and their employees should become coverage of international conditions have involved in the leading educational and social increased. But the public still does not have organizations that are promoting constructive sufficient knowledge of developing countries solutions to the economic, health, and social and our relations with them. Many are problems of low-income countries. unaware of how policies and programs in the A promising step toward the efficient and advanced economies affect the developing speedy delivery of critical services to the poor countries. For example, surveys show that the and improved cooperation between develop- U.S. public consistently overestimates the ing and developed countries is the trend amount of government resources devoted to toward public-private partnerships. Such part- foreign aid (official development assistance), nerships bring together the private sector’s and under values the net benefits of open ability to implement projects quickly and effi- markets for trade and investment.20 Thus, we ciently with the public sector’s responsibility recommend the following: in the host country to establish both its own priorities and the ground rules under which • Leaders of global business, educational, the private sector will operate and be paid. and social institutions should rally public Public-private partnerships can help even and private support for a strategy to over- the world’s poorest countries, where govern- come global poverty. They should articu- ments and people are too poor to pay for all late a new vision of global cooperation the critical water, power, transportation, based on health, and other infrastructure facilities they – reforms in developing countries that need. In these countries, the private sector will maintain sound economic policies, could take the lead in developing, financing, improve governance and eradicate cor- implementing, and operating projects ruption, and invest in education, health, deemed to be of the highest priority by the and other forms of human develop- governments of the recipient countries and ment; and by Western donor countries. Western donor countries and institutions could pay in whole – reforms in developed countries to elimi- or in part for the services provided by these nate trade distortions, support foreign projects through an agreed upon schedule direct investment, and increase and based on services delivered. This would better manage official development provide a strong incentive for efficient service assistance. delivery.
16 Introduction: Economic Integration And Poverty Reduction
Placing the responsibility for implementa- This “joint ownership” feature helps to dis- tion of these projects (and the flow of funds tinguish partnerships from ordinary contract- for these projects) in the private sector would ing and privatization programs on the one help assure that needed projects would be hand and private philanthropy on the other. implemented quickly, efficiently, and trans- Although public-private partnerships are parently, with much less potential for corrupt defined by their joint ownership, they exist in diversion of funds. Thus, it would help several different forms and have been formed address some of the key criticisms leveled in many different sectors, including health, against foreign aid in the United States and education, transportation, defense, informa- elsewhere. tion technology, and environmental protec- In partnerships, the skills and assets of the tion.21 (Examples of different public-private public and private sectors are shared in deliv- partnerships are highlighted where relevant ering a product or service to the public. In in subsequent chapters.) addition to sharing resources, the groups We support the formation of public-pri- share the potential risks and rewards of the vate partnerships in developing countries to project. Therefore, each party maintains an achieve carefully articulated and specific out- influence on the objectives and operations comes, such as building institutional capabili- of the partnership and is responsible for ties, transferring technical expertise, and ensuring the delivery of the good or service. delivering critical services.
17 Chapter 3 THE NEED FOR POLITICAL LEADERSHIP AND INSTITUTION-BUILDING IN DEVELOPING COUNTRIES
We start with the assumption that a devel- of our ability to influence the leaderships of oping country’s government and societal developing countries. For the most part, the leaders are committed to the goal of econom- path toward economic success is already well ic advancement. Lacking that commitment, marked for them, and the rewards for their little economic change is likely to occur. nations are reasonably well known. What is Economic reforms to promote development missing in most cases is the political will to generally must be accompanied by political implement needed reforms. CED urges reforms that mobilize government and soci- developing country governments to make eco- etal institutions to make economic develop- nomic growth and poverty reduction their pri- ment and poverty reduction the primary mary priorities and to begin immediately to goals. Reforms cannot come from outside— take the necessary steps to achieve those goals. the commitment must come from within the country and its leadership, who must “own” the reforms. When reforms are successful LOCAL PROBLEMS NEED they lead to a virtuous circle of economic LOCAL SOLUTIONS growth and development. Countries make The commitment and dedication of the more efficient use of scarce resources and local government leadership are necessary more external resources become available as ingredients for economic development to foreign investors provide capital and foreign take hold. Such commitments carry risks. customers buy more of the country’s output Government programs to promote develop- of goods and services. ment can generate winners and losers, and The key role played by political leadership can be destabilizing for the government that emphasizes the extent to which development launches it. In some cases, dictators, military is mainly a local phenomenon that depends governments, or kleptocrats pursue goals at highly on a country’s conditions, culture, his- odds with the welfare of the general popula- tory, and policy decisions. Each country has tion. In other cases, vested political, econom- its own social, political, and economic history. ic, and social interests oppose changes that Thus, the path to development will be differ- can undermine the bases of their power. ent in each case. As the 2002 Development Government institutions play many roles, Report of the World Bank puts it, “where and improving the functions of govern- countries are today affects where they can ment—good governance—is a key area of † go.”22 The best overall approach is a pragmat- reform. No simple solution exists to the ic one, but with specific goals and principles, that focuses on taking advantage of opportu- † “Good governance is epitomized by predictable, open and enlightened policy making; a bureaucracy imbued with pro- nities that present themselves. fessional ethos; an executive arm of government accountable As a U.S.-based organization of business for its actions; a strong civil society participating in public affairs; and all behaving under the rule of law.” World Bank, and academic leaders, we recognize the limits World Development Report 2002.
18 The Need For Political Leadership and Institution-Building in Developing Countries problem of ineffectual governance or lack of assets solves only a part of the problem. leadership. Solutions must come from inside Governments must also ensure that market the country; outsiders cannot impose them, failures in the provision of finance to small although conditionality and incentives from property holders are corrected and that the foreign government, investors, and civil overall financial system operates in a safe and groups may influence local choices. Good sound manner. Developing micro-finance local solutions are likely to be enhanced by institutions that lend to small business that strong democratic processes. Democratic and might not otherwise qualify for credit could participatory institutions help to keep govern- be one method for helping small property ments focused on meeting the economic holders. Many micro-finance institutions, such needs of the electorate and create an environ- as MicroStart in Madagascar and Pro Mujer in ment of accountability and openness to Latin America, are particularly effective at change. The existence of political and civil helping women entrepreneurs.26 rights cause governments to pay greater atten- Another critical step is creating an inde- tion to economic needs. It is a remarkable pendent judicial system that can adjudicate finding, for example, that famine has never disputes and ensure the rights to use and occurred in a functioning democracy.23 dispose of property. More broadly, a legal and Although economic development has judicial system that is respected by the society occurred under authoritarian rule, little evi- as a source of justice is required for social dence exists that authoritarian policies pro- stability. In either the broader social context mote economic growth. The right to express or the specific role of adjudicating property one’s political preferences through elections disputes, the judiciary must have ethical is closely related to basic economic rights, just integrity, independence from political inter- as the right to private property and to engage ference, and impartiality. It should also be freely in trade and investment are inextricably accessible and affordable to all classes. linked to basic personal freedoms. Thus, eco- The key impediment to reform is not so nomic rights generally are more consistent much the availability of resources, but the with a political system based on personal lib- political will to implement change. Although erty and responsibility and the diffusion of the task is daunting, developing countries can power than one based on authoritarian rule.24 find help among many public and private The key to economic growth is the cre- international groups. One significant venture ation of market-friendly policies. The rights to is a public-private partnership between the hold private property and to enforce private American Bar Association and the United contracts form the foundation for mobilizing Nations Development Program. (See Box, economic resources. Where private property The American Bar Association and the rights are secure, property owners have a United Nations Development Program much greater incentive to use their property Partnership on Legal Resources) productively and efficiently and to undertake improvements to enhance its value. A key issue facing some governments is TRANSPARENT GOVERNMENT how to establish formal title to property that AND THE ELIMINATION OF already exists in the informal sector. The CORRUPTION establishment of formal property rights, hold- In many countries, a top priority in the ing a clear title to one’s land, home, or tools, establishment of a political foundation for may allow the property to be used as collater- economic growth is to root out corruption. 25 al for a loan. However, formal ownership of Doing so would remove a significant burden
19 A SHARED FUTURE
THE AMERICAN BAR ASSOCIATION AND THE UNITED NATIONS DEVELOPMENT PROGRAM PARTNERSHIP ON LEGAL RESOURCES The American Bar Association (ABA) and the United Nations Development Program (UNDP) entered into a Project Cooperation Agreement in October 1999 to establish a Legal Resource Unit (LRU) within the ABA Section of International Law and Practice. The mission of the LRU is to provide a legal resource capability to service UNDP global gover- nance programs and projects supporting legal reform and democratic institution building. The primary task of the LRU is to assist UNDP Country Offices to identify candidates capa- ble of providing legal advice, normally on a pro bono basis, on the drafting of legislation, judicial reform, building of legal institutions including professional groups and associations, and other legal dimensions of governance. The functions of the LRU reflect UNDP program needs and include identification and selection of legal experts to work as resident and non-resident advisors, legal commentators, and legal facilitators. AREAS OF WORK LRU legal experts support UNDP program countries in a wide array of substantive legal areas. Including: • Reform of legal institutions and systems, including reform of constitutional frameworks • Support to electoral bodies and drafting of electoral laws •Improvement of legislative drafting and parliamentary practices • Reform of public-sector regulations and processes • Strengthening anti-corruption measures • Support for decentralization and strengthening of local institutions • Development of the capacity of independent lawyers associations • Legal education and judicial training • Legal services to the indigent and underrepresented • Other law-related areas as needed.
SOURCE: American Bar Association
20 The Need For Political Leadership and Institution-Building in Developing Countries firms. It exacts a substantial toll on the poor is fed by corporations based in developed by denying them regular access to vital basic countries. It requires countries to make it a services. One report estimated that the aver- domestic criminal offense to bribe a foreign age Mexican household spends up to 14 per public official. To rectify a previous practice cent of its income every year on bribing civil that supported bribery, countries are also servants, police officers, and other public required to deny the tax deductibility of such officials for such transactions as obtaining a bribes. All 29 OECD members and 5 non- driving license, obtaining a telephone, and members (Argentina, Brazil, Bulgaria, Chile, enrolling a child in school.29 Domestic firms and Slovakia) have ratified the convention.30 are more numerous and have fewer choices The OECD also has provided guidance than foreign ones, and the opportunities for to businesses by revising their Guidelines for victimization by corrupt officials are greater. Multinational Enterprises to include recom- Many multinational firms refuse to pay bribes mended measures to prevent both the to local officials. It has been illegal for U.S. furnishing and solicitation of bribes. The firms to pay such bribes since the passage of Guidelines also call for corporations to dis- the Foreign Corrupt Practices Act of 1977. close political contributions and not to make To counter corruption, governments need illegal contributions to candidates for public to establish institutions and incentives that office, political parties, and other political both lower the potential for arbitrary and dis- organizations. The OECD Principles of cretionary actions of public officials and raise Corporate Governance were also revised to the costs of engaging in corrupt practices. improve disclosure and transparency in Basing necessary government interventions financial reporting in ways that help on market mechanisms rather than on discourage bribery. bureaucratic controls reduces opportunities Some corporations have established their for corruption and is more economically effi- own anti-corruption policies, including codes cient. For example, a tariff that affects the of ethical conduct that express the company’s price of a good is preferable to a quota that commitment not to engage in or condone imposes a quantity restriction, which may bribery. Such internal codes establish a corpo- open the door for bribery rate culture that condemns corrupt behavior Democratic institutions such as regular and establishes a commitment to the interna- independent elections, a free press, and a tional anti-bribery conventions. In addition, vibrant civil society have been shown to help companies create management and audit sys- reduce corruption. One organization that has tems to monitor and review compliance annu- been working in many countries and interna- ally. This is particularly true for joint ventures tional institutions to shine a light on, and in which a global enterprise may own only a root out, corruption is Transparency minority share of the equity. International (TI). TI has been at the fore- An additional step that some global com- front of efforts to create both international panies have taken to promote transparency is conventions and national systems to support to expand the scope of reporting to include anti-corruption and good governance efforts. periodic public reports on their local activi- (See Box, Transparency International) ties. Although not directly linked to anti- In 1999 the OECD Convention on corruption efforts, such transparent reporting Combating Bribery of Foreign Public Officials in sets an example for local companies to follow International Business Transactions entered into and establishes an atmosphere of openness. force. The purpose of the convention was to A leading example is the Global Reporting address the supply side of corruption, which Initiative (GRI), which has established a
21 A SHARED FUTURE
TRANSPARENCY INTERNATIONALa Transparency International (TI) is a non-governmental organization dedicated to curbing corruption and increasing government accountability. TI, with its administrative head office in Berlin, Germany, has national chapters in 80 countries, including the United States. TI forges coalitions between public authorities, governments, and civil society to support constructive initiatives to reduce opportunities for the acceptance and payment of bribes. TRANSPARENCY INTERNATIONAL WORLD WIDE PROGRAM TI major worldwide program activities include: Capacity Building in Developing Counties TI works to support the development and growth of civil society organizations in developing countries to build support for greater transparency in government and to monitor enforcement of anti-corruption regulations and laws. Stimulating International Support for Anti-Corruption in Developing Countries TI works closely with bilateral and multilateral development assistance agencies to strengthen the focus and content of anti-corruption aspects of aid projects and programs. Developing Anti-Corruption Knowledge Management TI, through its Anti-Corruption Source Book, Global Corruption Report, Corruption Perception Index and Bribe Payers’ Index, and other publications, strengthens global knowledge of the full range of public policy and business issues related to corruption. Promoting Anti-Corruption Conventions TI has been the leading non-profit global organization campaigning in recent years for an OECD Anti-Bribery Convention and for similarly major incentives to criminalize the payment of bribes to foreign officials in a range of other international organizations. Working with Business to Curb Global Corruption TI works closely with major corporations through a series of special initiatives to strength- en anti-corruption work on a global basis. In this context, for example, TI is working with a number of defense companies on the issue of corruption in the international arms trade; TI is working with 11 major financial institutions on corruption and anti-money laundering; TI is working with a range of multinational corporations to define anti-corruption business principles. TI-USA PROGRAM The U.S. national chapter of TI is highly active in many of TI’s special issues; it works with official agencies and the business community. In addition, TI-USA, on behalf of the global TI movement, plays leading fundraising roles and enjoys strong support from numerous U.S. cor- porations, U.S. foundations, and the U.S. Agency for International Development (USAID). Procurement Reform TI-USA has worked with the U.S. Administration, the private sector, and other TI chapters to promote the conclusion of a WTO Agreement on Transparency in Government Procurement and similar agreements in the FTAA and APEC. It promotes strong transparency provisions in U.S. bilateral trade agreements and a requirement that all bidders on World Bank and regional bank financed projects have anti-bribery programs. Corporate Compliance TI-USA participated in the International Chamber of Commerce committee that drafted the revised Rules of Conduct to Combat Extortion and Bribery and contributed to Fighting Bribery, A Corporate Practices Manual. It is participating in efforts to strengthen anti-bribery com- pliance programs and developing best practices for small and medium-size enterprises.
a. The following is based on information obtained at the Transparency International websites,
22 The Need For Political Leadership and Institution-Building in Developing Countries generally accepted framework for voluntary All countries should ratify the OECD Anti- reporting of the economic, environmental, Bribery Convention and fully prosecute under and social performance of an organization.31 national laws the illegal payment of bribes. GRI’s goal is to make such reporting as rou- CED urges multinational corporations to tine and credible as financial reporting in abide by internationally recognized standards terms of comparability, rigor, and verifiability. of integrity and consider implementing volun- These reporting standards are supported by tary reporting practices that make public an increasing number of U.S.-based global the impact of their activities on the domestic corporations, such as AT&T, Ford, General economy. They should also comply with Motors, Nike, and Procter & Gamble. relevant OECD conventions and other appro- priate international codes against bribery and corruption.
23 Chapter 4
THE NEED FOR SOUND ECONOMIC POLICIES
Sound macro- and microeconomic policies stability. As a result, exchange rate flexibility, are fundamental to achieving economic devel- which allows a country to have some mone- opment goals, including the reduction of tary independence and an open financial poverty. Although no one set of prescriptions market, has become an important practice fits all countries under all circumstances, the in the wake of the Asian financial crisis. goals of economic policy remain clear and Although some small economies have success- bear constant repetition. A substantial eco- fully adopted a hard, pegged exchange rate, nomic literature shows that countries with the crisis in Argentina has dramatically under- disciplined monetary and fiscal policy, exten- scored the potential costs. sive market-based competition, and openness In general, the goal of microeconomic to international trade and direct investment policies is to allow scarce resources to flow enjoy better long-run growth performance to their most valuable uses. The importance than countries without such policies. of using market competition to improve resource allocation cannot be overstated. Developing countries lack resources. Given APPROPRIATE MACROECONOMIC such scarcity, resources need to be stretched AND MICROECONOMIC POLICIES as far as they can go. Experience has shown Macroeconomic policies—fiscal, monetary, that relatively unfettered competitive markets and exchange rate policies—do not conform provide the strongest foundation for efficient to a single rule. Appropriate policies are resource allocation, economic growth, and dependent upon specific conditions. the alleviation of poverty. Competition gives Nevertheless, most economists subscribe to powerful incentives for producers to supply the broad dictums that fiscal policy should the highest value for the lowest cost. It also be “disciplined,” meaning that governments acts as an engine for change and innovation. should live within their means, and monetary Through competition, firms are encouraged policy should aim to keep the general price to raise productivity, which is the basis for level stable. International financial market higher incomes. In market-oriented integration should also be a goal for most economies, vigorous competition has pro- developing countries since external capital is duced a significant improvement in living an important resource for economic growth. standards, including those of the very poor. Therefore, an appropriate exchange rate poli- Opening the domestic economy to foreign cy must also be part of the equation. An econ- trade and investment is one of the most omy can only pursue two out of three key powerful steps a government can take to pro- policy goals simultaneously: an independent mote competition. As discussed on the next monetary policy, financial market integration page, international trade and foreign direct with the rest of the world, and exchange rate investment introduce lower cost goods and more efficient production methods.
24 The Need For Sound Economic Policies
Not all activities, of course, should or can International Trade be left to private markets. Governments must Early in 2001, CED published a policy be able to levy taxes, correct market failures, statement, From Protest to Progress: Addressing and provide necessary public goods, such as Labor and Environmental Conditions Through national security, public health, education, Freer Trade, that made the case for freer trade. and a clean environment. Governments also The reduction of trade barriers around the may wish to establish and enforce domestic world has helped developing countries to laws in areas such as labor and environmental increase economic growth and reduce pover- policy, as many already have done. However, ty. Trade allows for greater specialization in governments need to evaluate carefully the production, which improves efficiency and consequences of their economic interventions makes possible higher incomes. Trade also to ensure that scarce resources are not wasted brings fresh competition into domestic mar- and that policies are likely to achieve their kets, thereby encouraging further efficiencies goals. through innovation and capital investment. Economic regulation of specific industries For small economies, trade provides a means or sectors of the economy should be avoided, to expand markets and gain economies of except where need has been clearly demon- scale. Empirical research in the past decade strated, as in the provision of financial ser- has shown a positive and strong association vices where experience has shown that regula- over very long periods between openness to tion is essential to safeguard the functioning trade and economic growth.32 of the entire economy. Government subsidies Developing countries have much to gain and taxes distort prices and thereby give from lowering barriers to imports. Except incorrect information to market participants in rare cases, for example when there are about the true value and scarcity of resources. very large economies of scale, the protection Complex regulation through licensing and of domestic industries serves only to raise other procedures creates extra cost for firms the costs of goods and services and distort and provides greater scope for corruption. the allocation of domestic resources.* Those costs not only raise prices but also cre- Governments of developed countries can ate barriers to market entry that create help substantially by lowering barriers to monopoly power. Cutting regulatory costs developing country exports. Recommen- would be one way to encourage greater com- dations that address this point are discussed petition from domestic firms. Another impor- below. tant reform measure would be to establish a policy, similar to U.S. anti-trust policy, to pre- Foreign Direct Investment vent anti-competitive practices and outlaw Foreign direct investment (FDI) is perhaps abusive collusion by homegrown or interna- the most important and effective source of tional cartel members. economic growth other than domestic saving. A recent study showed that, independent of domestic savings, a ten-percentage point rise THE BENEFITS OF OPEN in the ratio of FDI to GNP in developing MARKETS FOR TRADE AND countries raises the long-run steady-state INVESTMENT income level by 3 percent.33 We encourage Developing economies that are more open developing country governments to make it to foreign trade and investment grow faster one of their highest development priorities to than closed economies. Faster economic attract foreign direct investment by pursuing growth raises incomes and reduces poverty. sound economic policies and establishing a
*See memorandum by ALAN BELZER (page 60). 25 A SHARED FUTURE receptive climate for such investment. flow of FDI to developing countries, which Governments should focus on establishing was roughly equal to net official flows in 1992- the preconditions for the successful attraction 1993 and prior years, rose to 4 times the level and use of FDI: the liberalization of restric- of net official flows in 1996-2000.34 Total pri- tions on foreign ownership, a supportive and vate flows, including debt and equity financ- consistent macroeconomic policy and institu- ing, accounted for over 86 percent of long- tional framework, and the development of an term resource flows to developing countries. educated and productive workforce. Some observers have argued that the With over 800,000 foreign affiliates world- scope for FDI to help most developing coun- wide, foreign direct investment is a key source tries is limited because it is concentrated in of resource and technology transfer from the just a few developing countries. In 2000, ten economically advanced countries. FDI also countries accounted for nearly three-quarters tends to have significant spillover benefits in of all FDI in developing countries.35 The reali- the form of increased net exports, employ- ty, however, is more complex. FDI inflows ment, and productivity. FDI increases compe- were much more evenly distributed when tition in local product and labor markets, measured against countries’ gross fixed capi- which puts pressure on domestic firms to tal formation.36 By that measure, for example, improve efficiency. In contrast to other forms China (which ranks highest in total FDI) was of capital inflows, FDI tends to be more stable only slightly above the average of 12.5 percent because it is committed for a longer duration. of gross fixed capital formation. FDI in Latin The most obvious way that foreign direct America and the Caribbean region was over investment helps developing countries is 20 percent of gross fixed capital formation, through the transfer of capital. Foreign equity and for the least developed countries of the capital is a significant and stable source of Pacific it was nearly 30 percent. external resources for developing countries. The transfer of modern technology and As indicated by Table 5, private direct invest- business methods is another direct benefit ment is the only stable and growing source of that a country gains when a foreign company net long-term resource flows to developing chooses to establish or expand an investment. countries. FDI has remained relatively stable The investment a company makes when it since 1997, after growing significantly since establishes a long-term equity position the beginning of the decade. The annual net includes the transfer of technology, manage-
Table 5 Net Long-Term Resource Flows to Developing Countries (billions of dollars) Avg Avg (1991- % of (1996- % of 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 1995) Total 2000) Total Total 123.0 155.8 220.4 223.7 261.2 311.2 342.6 334.9 264.5 295.8 196.8 100.0 309.8 100.0 Official flows 60.9 56.5 53.6 48.0 55.1 31.9 42.8 54.6 45.3 38.6 54.8 27.9 42.6 13.8 Private flows 62.1 99.3 166.8 175.7 206.1 279.3 299.8 280.3 219.2 257.2 142.0 72.1 267.2 86.2 of which: Capital markets 26.3 52.2 100.2 85.6 99.1 147.8 127.2 103.5 33.8 79.2 72.7 36.9 98.3 31.7 Foreign Dir. Inv. 35.7 47.1 66.6 90.0 107.0 131.5 172.6 176.8 185.4 178.0 69.3 35.2 168.9 54.5 SOURCE: World Bank, Global Development Finance, 2001.
26 The Need For Sound Economic Policies ment expertise, and other skills and intangi- tial microeconomic distortions are unpre- bles, such as a global brand name, supply pared to benefit from foreign capital inflows. chain, and distribution network. Such invest- Another, discussed in more detail below, is ment also creates trade linkages, both within education. Most FDI from advanced and outside the recipient country through economies to developing countries has gone intra-corporate transactions and other chan- to countries with at least a minimum stock of nels. Internal linkages to suppliers, customers, human capital needed to absorb the transfer and even competitors can generate especially of technology. Research suggests that FDI significant economic benefits. Most produc- contributes relatively more to economic tive enterprises buy a large proportion of growth than does domestic investment in inputs locally. A foreign affiliate that buys situations where an educated labor force local inputs adds to domestic demand and exists.37 encourages more specialized and efficient In general, developing country govern- production. They may also provide domestic ments are very aware of the steps they must suppliers with access to improved technology take to attract foreign capital, even if they do or business methods. Unrelated firms and not act on that knowledge. Reports by private competitors may adopt these new methods or firms, such as the Frank Russell Company’s gain from access to more highly knowledge- EMPulse Reports on investor perceptions and able and skilled workers. other similar investor-oriented indices, bond In labor markets, affiliates of multinational rating agencies, and the World Bank Group firms operating in developing countries often regularly evaluate the investment climate in pay higher wages and provide more extensive developing countries. Respondents to a busi- fringe benefits than their domestic counter- ness environment survey carried out by the parts. While not all foreign investors pay World Bank emphasized the importance of more and do more for their employees, many good governance to decisions about conduct- provide employment benefits, such as health ing business in developing countries. Tax con- care and educational services that are not cessions and other incentives have very little required by domestic law. They also may attraction if the overall investment climate is improve local worker skills with advanced unsound. At the top of the list of obstacles to training methods that are often not available doing business were taxes and regulations, in local schools. Where foreign employers inflation, political instability, corruption, and provide such benefits, they help raise stan- street crime.38 Savvy foreign investors also dards in the domestic employment market. note what local investors are doing with their Several factors appear important in attract- money, since the locals know the investment ing FDI. One is the combination of good gov- landscape much better than the foreigners. ernance and good economic policies. Foreign If local capital is leaving the country, the investors are generally unwilling to commit message to potential foreign investors is quite resources to countries with unstable govern- clear. ments and unsound economic policies. The existence or history of economic, social, or Building on TRIMS to Create a political instability, while not an absolute bar, Multilateral Investment Code is a substantial discouragement to foreign Trade and investment are often viewed as investors who have global opportunities. alternative ways for a business to enter foreign Moreover, experience has shown that coun- markets. However, changes in the nature of tries with inconsistent macroeconomic poli- international business and the growth of cies, weak financial supervision, and substan- transnational corporations has meant that
27 A SHARED FUTURE trade and investment are often complements parency could help rein in the use of such rather than substitutes. About one-third of all incentives by all WTO members and discour- trade takes place among affiliates of interna- age policies that might reduce labor and tional corporations. In the case of the United environmental standards to attract foreign States, trade among units of the same global investment. enterprise accounts for 50 percent of all U.S. An aborted attempt to create an interna- merchandise trade. Of this intra-firm trade, 60 tional investment code took place in negotia- percent is within U.S.-based enterprises and 40 tions under the auspices of the OECD for a percent within foreign-based enterprises with Multilateral Agreement on Investment (MAI), corporate units in the United States. starting in 1995. The MAI was an attempt to The economic value of foreign direct foster additional investment activity by liberal- investment and its relationship to trade is izing and standardizing the diverse bilateral recognized to some degree by the World investment treaties (known as BITs) that gov- Trade Organization (WTO) Agreement on ern the treatment of foreign investment on a Trade-Related Investment Measures (TRIMs) and country-to-country basis. Unlike the WTO, by the General Agreement on Trade in Services which governs the flow of goods and services (GATS). Both agreements strive to extend the through multilateral commitments extended WTO principle of national treatment to the through “most-favored-nation” treatment, no investment arena.† A shortcoming of both international institution or agreement exists agreements, however, is that they are limited to encourage and monitor the global flow of to only certain trade aspects of investment. direct investment, with the exception of provi- TRIMs apply only to measures that affect sions of TRIMs and GATS mentioned above. trade in goods. It forbids making trade-dis- The MAI was designed to assemble the torting measures such as “local content” and elements of the various existing BITs into a “trade balancing” requirements for eligibility systematic whole. The draft agreement was for investment incentives. Similarly, GATS is defined by three major elements. It would directed at ensuring national treatment only have required countries to treat foreign com- for foreign companies that need to set up panies in the same way as local companies operations within a country in order (national treatment), banned performance to supply certain services. requirements, and established a process for The United States should push to extend effective dispute settlement procedures by the WTO’s Agreement on Trade-Related providing access to binding international arbi- Investment Measures (TRIMs) into a more tration of disputes between investors and the effective multilateral investment code. The state. By 1998, when a draft of the agreement primary goal of such a code should be to cre- was revealed, it foundered for lack of support ate a common set of rules for the national among those, including many developing treatment of foreign direct investment. In countries, who viewed the OECD as the addition, countries should agree to report wrong organization to promote such an publicly their use of special incentives to agreement and who were suspicious of both attract investment, such as tax abatements the lack of transparency in reaching the and other financial inducements, and submit proposed draft and the motives of the United them to review by the WTO. Such trans- States in promoting it. The need for a multilateral investment agreement still exists. The final declaration † National treatment means that no distinction is made between foreign and domestic firms in domestic law and of the WTO ministerial conference in Doha commerce. All are treated the same. recognized “the case for a multilateral frame-
28 The Need For Sound Economic Policies work to secure transparent, stable and pre- developed economies (as well as to other dictable conditions for long-term cross-border developing countries). Better access to mar- investment, particularly foreign direct invest- kets in developed countries is especially 39 ment.” However, negotiations were deferred important for developing countries that are until after the next ministerial conference. committed to fostering market-based econom- The TRIMs and GATS agreements do not ic growth. The United States and other devel- sufficiently establish investment rights for oped countries should reduce trade barriers international firms; nor do they address, as to developing country products and services. they should, the potential for investment The United States should take the lead in the incentives to spur a “race to the bottom.” WTO to ensure that developing countries Competition among developing countries for have access to developed country markets. It foreign investment can create a bidding war should seek to speed up the implementation that leads the host country “winner” to give of tariff reductions under the Agreement on away more in incentives than it gains in employment and income. (Similar bidding wars exist between U.S. states vying to be the FDI AND THE U.S. ECONOMYa location of foreign automobile producers and other manufacturers.) In some cases, such Globalization critics argue that out- winners have clearly overbid. In the case of a ward foreign direct investment from the United States hurts the U.S. economy, developing country, the potential benefits of especially U.S. workers. The truth is luring a major foreign manufacturer may quite the opposite. Outward investment appear so large that the government will offer by U.S.-based firms helps them perform more lucrative incentives than it should. A better. American enterprises with owner- requirement to disclose publicly the details of ship stakes in foreign production or other activities have higher worker pro- investment incentives would be an important ductivity, use frontier technologies more tool to educate all countries about the costs intensively, and report higher growth in of such incentives and could lead them to be productivity than do similar U.S. firms more judicious in the use of incentives. that are not invested abroad. Workers in the United States employed at U.S- What the United States and Other owned multinationals earn on average 18 Developed Countries Can Do percent more than at comparable-sized non-multinational firms. To the extent that developing country gov- ernments commit themselves to market-led Although individual cases exist which link a particular plant closing in the economic growth, they will gain economic United States to a specific overseas resources through foreign direct investment. investment, outward FDI is not a major The United States and other developed cause of unemployment. Indeed, countries impose few barriers to investments research indicates that at an industry abroad other than certain national security level outward FDI creates more jobs than it destroys. Jobs created are most likely to restrictions. Such investments are driven be in higher-paying sectors and the jobs almost entirely by conditions in the receiving destroyed in lower-paying sectors. country and market factors, such as proximity to markets, relative costs, and expected a. Based on Howard Lewis III and J. David Richardson, Why Global Commitment Really Matters, returns. (See Box, FDI and the U.S. IIE, 2001, and Linda Lim, The Globalization Debate: Economy) Issues and Challenges, ILO, 2001. Developing countries also gain resources by exporting goods and services to more
29 A SHARED FUTURE
Textiles and Clothing (which replaced the Multi- Figure 1 Fiber Arrangement) and tighten WTO rules on anti-dumping so that only the most worthy Peak Tariff Levels by Product Group (in percent, 1999) complaints would qualify for protection.
Production subsidies for domestic agricul- 80 ture, which are especially heavy in the European Union and Japan, should also 70 be eliminated. 60 As a result of low labor costs and other fac- tors, developing countries tend to specialize 50 in the production of labor-intensive goods— 40 often simple manufactured items such as tex- tiles and clothing—and agricultural products. 30
Although average trade barriers in developed 20 countries are relatively low, barriers to imports of agricultural products, textiles, and 10 clothing are exceptionally high. (See Figure 0 1) Developed country governments, to pro- All Primary Processed Textile andFootwear goods food food clothing tect their domestic industries from competi- ■ EU ■ Japan ■ USA ■ Canada tion via lower-priced imports, have employed tariffs and quotas to lower the supply and SOURCE: World Bank, Global Economic Prospects, 2002. increase the price of such imports. These trade barriers handicap the ability of develop- much as 1 percent of additional national ing countries to export agricultural and other income in 2015. labor-intensive products, which could provide One of the negotiating goals, and accom- additional employment and income for many plishments, of developing countries during of the world’s poor. Trade in textiles and the Uruguay rounds of trade negotiations was clothing accounts for nearly one-fifth of devel- to gain improved market access for their prin- oping countries exports of manufactures.40 cipal exports. Two agreements, the Agreement Agricultural products, in the form of food on Agriculture and the Agreement on Textiles and products and agricultural raw materials, Clothing, incorporated commitments from the account for approximately 11 percent of all developed country governments to reduce sig- developing country exports.41 nificantly barriers for agricultural, textile, and A World Bank simulation shows that clothing products. Because the agreements incomes in developing countries could rise by included long phase-in periods and other lim- an additional 5 percent by 2015 if all import itations, progress in reducing barriers for tariffs, export subsidies, and domestic produc- developing country exports has been limited; tion subsidies were eliminated and phased-in high barriers still remain. Negotiations for starting in 2005.42 The combined static and market access in these areas is now high on dynamic gains from more trade would pro- the agenda of the new trade round launched vide an estimated $1.5 trillion of additional in Doha. income in developing countries between Agriculture. The Uruguay Round Agreement 2005-2015. Developed countries would also on Agriculture (URAA) was an important, benefit as they removed subsidies and import albeit incomplete, step towards the reduction barriers, which distort their markets and of barriers to entry for agricultural goods into reduce their incomes. They could gain as high-income economies. The major achieve-
30 The Need For Sound Economic Policies ment of the agreement was the conversion of 1995, an additional 17 percent by January non-tariff restrictions, namely quotas, into 1998, and 18 percent by January 2002. The tariffs. That conversion made trade restric- remaining 49 percent would automatically be tions more transparent and harder to integrated at the end of the transitional increase. The agreement also established a period in 2005. schedule for tariff reductions, beginning in The effectiveness of the agreement in 1995.† opening markets has been limited. Developed The trade barrier reductions have been nations have been able to fulfill their legal less successful than anticipated. Barriers to commitments for the first three stages without agriculture products cost developing coun- reducing the most significant barriers. One tries an estimated $20 billion in lost exports reason for this is that half of the phase-out each year.43 The average tariff imposed by process was put off until 2005. In addition, industrialized countries on agricultural the choice of products to be to be phased out goods is still 14 percent, almost five times was left to the importing countries and higher than the average tariff on industrial framed in terms of number of products products.≠ rather than their value. Thus, although Additional agricultural trade distortions developed countries integrated one third of include production and export subsidies. the products in the first two years as required, High-income nations spend over $300 billion that only amounted to 6 percent in terms annually to support domestic agricultural of value.45 products.44 That is about six times the level of Anti-Dumping Duties. For many years all international development assistance. Such CED has advocated limits on the use of subsidies lead to over-production of agricul- antidumping cases to protect domestic pro- tural products, which depresses world prices ducers from foreign competition.46 Both the and forces developing country agricultural WTO and U.S. trade law permit an importing exports to compete at a disadvantage in world country to apply anti-dumping duties when markets. domestic producers suffer material injury as a Textiles and Clothing. The Uruguay result of imports entering the country at Round Agreement on Textiles and Clothing prices below those charged in home markets (ATC) promised the phase-out and eventual or below their estimated cost of production. elimination of quotas on textiles and cloth- U.S. law as applied to domestic trade, how- ing. The ATC replaced the Multi-Fiber ever, does not generally regard such price dis- Arrangement (MFA), which had allowed crimination as unfair unless it can be shown developed countries to maintain quotas on to be predatory, that is, unless it is aimed imports from developing countries. The ATC at monopolization of the market. Such differ- established a four-stage integration plan. ences in treatment support the contention Sixteen percent of products would be that U.S. antidumping law discriminates brought under normal trade rules by January against imports. Although the United States generally has fewer and less significant restrictions on trade † Developed countries agreed to reduce tariffs by an average than most other countries, it has been the of 36 percent over six years for all agricultural products. A heaviest user of antidumping law. It investi- minimum 15 percent reduction of tariffs on every product was also agreed to. gates more cases, imposes more and higher ≠ duties, and leaves those duties in place longer One reason why restrictions remain high is that the agree- 47 ment used a base period of 1986-1988 for the tariff conver- than other countries. Consequently, many sions, when world commodity prices were exceptionally low. developing countries have established .
31 A SHARED FUTURE similar antidumping laws to retaliate against assistance. As part of this effort, it should U.S. practice, and developing country adopt a limited system of wage and health governments have made the limitation of insurance for displaced workers. CED has antidumping cases one of their key negotiat- long recognized the need to provide adjust- ing objectives during the current round of ment assistance to workers displaced by trade, trade negotiations. This is a good example of both as a matter of equity and to reduce the a policy where a “concession” on the part of political barriers to liberalization.48 Most the United States would lead to greater eco- recently, in a policy statement supporting the nomic gains. Although some industries might upcoming trade round, we reiterated our view lose protection through denial of anti-dump- that workers displaced from their jobs by lay- ing duties, others would gain from access to offs, from all sources, should be eligible for lower-priced inputs. Consumers would clearly assistance in adjusting to new circumstances.49 be better off. Specifically, we support a program of tempo- Assisting Displaced Workers. Rather than rary supplemental wage and health assistance inhibiting competition by protecting domestic for workers reemployed at less than their pre- firms and workers, we should enhance the vious wage. Such a system, properly imple- ability of the economy to adjust to changed mented, could a go long way to reduce work- circumstances by enhancing job skills and er anxiety about economic change, expand retraining for workers. In conjunction with choice and benefit domestic consumers, reducing trade barriers and tightening stan- make it easier to lower barriers to trade from dards for anti-dumping actions, the United developing countries, and allow the people of States should bolster its system of adjustment those countries to earn higher incomes.
32 Chapter 5
BEYOND OPEN MARKETS: INVESTING IN PEOPLE
Many developing country governments do and quality of education and health services. not give adequate support to public educa- Similarly, developed country governments tion, public and private health care, and should focus attention and development assis- other basic social programs. In some cases tance funding on improving education and neglect of these programs stems from a mis- health, especially in the poorest countries. In understanding of their roles in economic addition, we encourage multinational corpora- development; in other cases it is simply due to tions, as employers, to provide appropriate a lack of resources. A common view has been education, training, and health services for that resources devoted to health and educa- their employees. tion could be better spent in support of more In each of these endeavors, special atten- directly productive activities. A more compre- tion and resources should be dedicated to hensive view of poverty that has emerged is improving the status of women: investments that low income is often a consequence of a in the education and health of women have lack of education and adequate health.50 high social rates of return because of their Spending to overcome those deficits should work and family roles. Similarly, development be viewed as investments in productive programs that assist small businesses, farm- human capital, and donors are increasingly ers, and other commercial ventures should resolved to ensure that funding is adequate to recognize the unique contributions of women. meet education and health needs. As detailed below, most governments are Investments in primary education, health, paying more attention to education and and nutrition enhance the productive capaci- health through various global conferences, ty of not only low-income individuals, but of aid agencies, international organizations, and the whole economy. Investments devoted to public-private partnerships. We are cognizant women’s education and health are particular- of these efforts; our goal is not to invent new ly important and intertwined. Literacy, for programs or add new layers of complexity, example, enables women to understand basic but to support the positive efforts of existing health information and to act accordingly, in programs. We caution, however, that for these the best interests of their children and fami- programs to be successful the policy environ- lies. Women also play a critical role as agents ments emphasized above — good gover- of change who promote social transforma- nance, sound macroeconomic policies, and tions needed for economic development.51 open markets — must also be in place. We encourage all relevant public and pri- An important effort is being taken in this vate organizations to contribute to the direction through the Enhanced Heavily improvement of education and health out- Indebted Poor Countries (HIPC) Initiative. comes in developing countries. Developing This multilateral program, which was support- country governments should make it one of ed by CED at its inception, ties debt forgive- their top priorities to improve the delivery ness for the poorest developing countries to a
33 A SHARED FUTURE comprehensive framework of poverty reduc- actions it intends to take to improve access to tion through investments in education, health, health, education, the social safety net, and and other social programs within a sound fis- for other purposes. (See Box, Poverty- cal framework.52 By reducing or eliminating Reducing Spending in PRSP) The strategy, debt payments, the program makes more developed with the assistance of the World funds available for other purposes. However, it Bank and IMF, must ensure consistency is up to local officials to determine how those between a country’s macroeconomic and funds are to be used. To participate in the social policies. HIPC program, a country must implement an Our support for the HIPC Initiative is IMF/World Bank-supported adjustment pro- predicated on its effectiveness in shifting gram during a six-year period. The most resources towards the stated poverty reduc- promising aspect of the program for meeting tion objectives. It appears that the IMF and social policy goals and enhancing prospects World Bank have taken appropriate steps to for development is the link between debt establish expenditure tracking systems to relief and poverty reduction. Each govern- ensure that funds released by debt forgiveness ment participating in the HIPC program is go towards the objectives defined in the required to develop a “Poverty Reduction PRSPs. Because funds are fungible, tracking Strategy Paper” (PRSP) that indicates the systems must cover overall government spend-
POVERTY-REDUCING SPENDING IN PRSPS PRSPs seek to shift the composition of public spending towards poverty-reducing programs. The degree of elaboration and specificity of policies and targets to achieve poverty-reduction goals varies across countries. Programs also vary in terms of the coverage, magnitude, and speed. Some countries explicitly target yearly reductions in the incidence of poverty. Intermediate targets often include goals for primary education (typically enroll- ment rates), basic health care (typically infant, child, and maternal mortality rates), and the incidence of transmissible and endemic diseases, including HIV/AIDS, improvements in social infrastructure, and in some countries, reduction in regional and gender disparities. The main features of country strategies are as follows: In general, most propose: • enhancing access of the poor to primary education, with emphasis on reducing gender and regional disparities. The strategies also promote better quality and efficiency in the education sector •enhancing access to primary and preventive health care services •emphasizing infrastructure programs in the areas of water, roads, electricity, and telecommunications. Some also propose: • Providing housing to the poor •Strengthening social safety nets to include food subsidies or other food security programs, social assistance programs, labor-intensive public works, and food for work programs.
SOURCE: International Monetary Fund and International Development Association, Tracking of Poverty-Reducing Public Spending in Heavily Indebted Poor Countries (HIPCs), March 2001.
34 Beyond Open Markets: Investing In People ing, not just those items targeted to receive In some countries both the overall and gen- HIPC-related funding. The ability to track der-specific enrollment gaps are very wide. funds relates directly to the ability of anti- poverty programs to achieve their objectives. The Importance of Universal Access More fundamentally, as pointed out by an Most experts view universal access to pri- IMF/World Bank review of the program, mary education as a prerequisite to lifting better tracking of public funding can improve people from poverty. In the right setting, the efficiency and effectiveness of all govern- education promotes economic well-being ment programs. “The management and moni- and poverty reduction by increasing human toring of public expenditures is not merely a capital. People with higher levels of education technical challenge but also fundamentally generally have better health, are more pro- a deeper governance challenge.”53 ductive, and, therefore, have increased The following analysis is meant to high- incomes. In the poorest nations, each addi- light some of the more important aspects of tional year of schooling raises earning power education, health, and social policies. It is not by 10 to 20 percent.56 Once basic education is meant to be an exhaustive treatment. Rather, more widely available, on-the-job training can our purpose is to illustrate some of the many provide higher-level skills. For societies as a ways in which development programs can whole, education has spillover benefits that make sound economic investments that can affect public health, good governance, eco- both ameliorate the immediate consequences nomic growth, and environmental protection. of poverty and attack some of its root causes. Despite these findings, 113 million chil- dren around the world, or about 14 percent of all children, have never attended school. EDUCATION FOR ALL Another 150 million children drop out Attainment of basic literacy and numeracy of school before completing five years. skills is among the most significant factors in Approximately 97 percent of these children reducing poverty and increasing participation live in developing nations, and over one-third by individuals in the economic, political, and reside in sub-Saharan Africa. As a result, one cultural life of their societies.54 Higher levels out of every three children in developing of education and workforce training rely on countries does not attain five years of basic these skills. Research by the World Bank education.57 shows that economic growth rates were espe- Many obstacles impede achieving educa- cially high in countries with high levels of tion goals. Perhaps the largest obstacle in both education and macroeconomic stability those countries with the lowest educational and openness.55 attainment is political commitment and International development goals call for leadership to make universal and gender- universal primary education in all countries equal education a priority. Other factors and the equal enrollments of boys and girls.† that impede progress include the spread of HIV/AIDS and other infectious diseases, civil war and conflict, and rapid population † † Education is considered a fundamental human right. In growth. 1948, the Universal Declaration of Human Rights recognized For other countries, the biggest hurdle is a the right to free and compulsory education as a fundamental right. The United Nations Convention on the Rights of lack of adequate funding. Many governments Children reaffirmed this right in 1989. There are currently spend too little on education. They have high 191 countries that have ratified the convention, committing themselves to ensuring the right of every child to a basic † A chronic lack of quality data on education makes both the education. The only two countries that have not are Somalia attainment and assessment of goals particularly difficult. and the United States.
35 A SHARED FUTURE student-to-teacher ratios, poorly trained teach- tion of girls and women has widespread bene- ers, and inadequate facilities. But they also fits and a high rate of return in terms of have severe budgetary constraints and must social improvements. In the most direct way, live within their means if they are to achieve the education of women gives them an ability macroeconomic goals. While developing to find employment outside the home and countries provide 98 percent of their own earn an independent income. That empower- education funding, the 2 percent from exter- ment can in turn lead to far reaching changes nal sources can be critical.58 Despite pledges in traditional societies, not the least of which by developed countries to provide adequate is to improve the health, life expectancy, and funding to all countries with a viable national welfare of women themselves. Women’s edu- action plan for education, international cation is also strongly correlated with support has been uneven and inadequate. improvements in public health especially for Overall annual education support from children and with reductions in fertility rates, OECD countries is approximately $3.5 billion. which lowers population growth. World Bank Support for basic education is about $700 mil- studies show that countries that invest in the lion, representing about 1.2 percent of total education of girls have higher rates of eco- bilateral official development aid.59 The HIPC nomic growth. Specific benefits exist in rural initiative is expected to make available an areas, where educated women have been additional $600-700 million annually for edu- shown to more readily adopt new technolo- cation spending. Estimates of the need for gies and take greater advantage of agricultur- external financing to reach agreed-upon goals al extension and credit programs to raise pro- put the cost at roughly $12 billion per year.†60 ductivity. The Importance of Gender Equality The Education for All Initiative Educating females has been identified as Global efforts to promote universal educa- having a particularly high rate of return and a tion have been supported by the Education high correlation with improvements in public for All (EFA) initiative, a program that origi- health and the slowing of population growth. nated at the World Conference on Education for Cross-country studies suggest that if the All in Jomtien, Thailand in 1990 and was reaf- Middle East and North Africa, South Asia, firmed at the World Education Forum in and Sub-Saharan Africa had been as success- Dakar, Senegal in 2000. At the Jomtien con- ful as East Asia in narrowing the gender gap ference, representatives from 155 countries in education during 1960-1990, GNP per capi- established a plan to make primary education ta in those regions would have grown substan- universal and to increase literacy. The plan tially faster.61 identified several goals, including improving Two objectives motivate the targeting of access to early childhood care and develop- gender equality for females in educational ment programs, increasing adult literacy, programs. The first is to ensure that women eliminating gender disparities in education, are given the same opportunities as men. The and providing universal access to primary second, and perhaps more important from a education. The delegates pledged to achieve development perspective, is that the educa- these goals by the year 2000. By 2000 progress had been mixed at best, † Due to differences in methodologies and population, enroll- with wide variation from region to region. ment, and expenditure statistics, estimations range between High-income countries’ enrollment rates are $8 billion and $15 billion in additional education spending. $15 billion (UNESCO/UIS), $13 billion (World Bank), $9 near 100 percent, and Latin America and East billion (UNICEF), $8 billion (Oxfam). Asia both appear to be on track to achieve
36 Beyond Open Markets: Investing In People universal access to primary education in the increased from 54 percent to 60 percent, the near future. In South Asia and sub-Saharan absolute number of primary-school-aged chil- Africa, however, enrollment rates still range dren without access to school has actually below 75 percent, with four of every ten sub- increased. Population growth in sub-Saharan Saharan African children never attending Africa is expected to increase the school-age school. (See Figure 2) population by over 34 million in the next Globally, the number of enrolled children 15 years.63 The goal for gender equality also increased between 1990 and 2000 from 600 remains unfulfilled. Nearly 60 percent of million to 680 million, which raised the total unschooled children are girls. enrollment rate from 80 to 84 percent. The The EFA initiative was renewed in 2000 in number of children without access to school the Dakar Framework for Action. The Dakar was reduced from 127 million to 113 million framework commits governments to achieve in the same period. According to the World quality basic education for all by 2015 or Bank, 76 developing countries have either earlier, with particular emphasis placed on already achieved universal primary education girls’ education. It declares that individual or are on pace to do so by 2015, 27 countries governments are ultimately responsible for have made progress but may not reach the implementing the EFA through country-spe- target, and 32 are unlikely to meet the EFA cific national action plans that set out budget goal.62 In many countries, education systems and policy priorities, and calls on developed have been unable to keep pace with popula- nations, non-governmental organizations, and tion growth. Thus, for example, although development agencies to provide, among enrollment rates in sub-Saharan Africa have other things, technical and financial support.
Figure 2 Primary-School-Aged Children in Developing Countries, by Region (in millions)
700 110 600
■ Out-of-School 500 ■ Enrolled 506 400
300
6 46 200 207 3 42 100 132 5 1 85 10 3 65 31 71 50 0 35 Most Least Sub-Sahran North South & East Asia Latin North Central & Developed Developed Africa Africa West Asia & Pacific America & America Eastern Regions Regions Caribbean & Western Europe & Europe Central Asia
SOURCE: UNESCO, Education for All 2000 Assessment, Executive Summary.
37 A SHARED FUTURE
It includes a pledge that “no countries seri- In developing countries, where nations strug- ously committed to basic education for all will gle to find the resources necessary to fund be thwarted in their achievement of this goal education systems, distance learning provides by a lack of resources.”64 a potentially low-cost avenue for students and The framework establishes strategies for workers to gain access to knowledge and the achievement of education goals and sets training. three major deadlines: Recent innovation in communications technology has helped in the emergence of • 2002 – Finalization of national plans of distance learning. Although the concept is action with concrete strategies for achiev- not new—educators have used television and ing the Dakar goals. radio as communications mediums for • 2005 – Achievement of equality for boys decades—the expansion of the Internet has and girls in access to primary and sec- greatly enhanced its applicability. Efforts to ondary education. improve developing countries access to the Internet, like those of the G-8 Digital • 2015 – Achievement of Education for All- Opportunity Task (DOT) Force, will further deadline for universal primary education enhance the effectiveness of distance learning and a 50 percent improvement in levels of methods. adult literacy. Increasingly, investing in distance learning is seen as a way to educate more people with- The Dakar meeting assigned to the United out significant additional expenditures on Nations Educational, Scientific, and Cultural local education infrastructure. It has emerged Organization (UNESCO) the responsibility as a potential means for developing countries for coordinating global EFA efforts. This to meet increases in school enrollments. effort complements those of national govern- Although distance learning has been used ments by coordinating and mobilizing partici- mostly in higher education settings, it appears pants, including multilateral and bilateral to be adaptable to primary education and funding agencies, non-governmental organi- could be used more both as an educational zations, and the private sector. Thus far, tool and as a means to bridge the so-called UNESCO has established an annual high- digital divide. level meeting to sustain political momentum, created working groups to provide technical assistance for country and regional EFA pro- HEALTH grams, and established an EFA Observatory Poverty and health are interrelated as caus- to monitor progress towards the successful es and consequences. Workers in poor health completion of EFA. have low productivity and, hence, low income. Distance Learning People with low income typically lack the In a report released in 2001, CED suggest- resources to maintain good health and diet. ed that developing countries could make Improvements in health result in increases greater use of Internet technologies to fur- in lifespan, productivity, income, and a soci- ther their economic development efforts, and ety’s prospects for economic growth. Improve- in particular to address literacy issues.65 By uti- ments in the health of the poorest through lizing modern technologies, distance learning immunizations and environmental enhance- allows people to transcend physical distance ments typically have very high social rates barriers and gain access to education sources. of return, in part because they improve eco- nomic and health outcomes for everyone.66
38 Beyond Open Markets: Investing In People
The health of the world’s poorest people been. However, where AIDS has taken its could be greatly improved by targeting a rela- deadly toll, countries have experienced a tively small set of diseases and conditions. Of reversal from previous gains. (See Figure 3) greatest impact would be the control of com- A report released at the end of 2001 by the municable diseases, such as HIV/AIDS, malar- World Health Organization’s Commission on ia, and tuberculosis, and the improvement of Macroeconomics and Health (CMH) exam- maternal and child health. Together, AIDS, ined the relationships between health and malaria, and tuberculosis (TB) cause 10 per- economic outcomes in developing countries.69 cent of all deaths worldwide, 35 percent of The Commission concluded that health is a deaths in Africa.67 necessary factor for facilitating economic According to the World Bank, each year growth, and recommended allocating about two million childhood deaths occur increased funds to the health sector by devel- due to diseases that can be prevented by vac- oping country and donor country govern- cine, 7.5 million children die during early ments alike. The CMH predicted that eight life, and 30 percent of the world is still with- million lives could be saved annually by out access to safe drinking water and sanita- increasing funding for health services. tion systems.68 At the same time, as a result of Conversely, without additional funding for new knowledge about the causes, prevention, health services, the spread of disease and the and treatment of diseases, the introduction of high number of preventable deaths will con- new policies that improve the effectiveness of tinue to slow economic growth in developing health systems, and physical improvements in countries. New technologies are not needed housing, sanitation, and water supplies, to achieve these gains against mortality. health outcomes in many developing coun- Existing technologies and known health inter- tries are better overall than they have ever ventions have the widest application in saving
Figure 3 Changes in Life Expectancy in Countries with High HIV/AIDS Prevalence (in millions)
65
60
55
50
45
40
35 1960 1965 1970 1975 1980 1985 1990 1995 1995- 2000- 2000a 2005a Botswana South Africa Swaziland Zimbabwe a. Estimates SOURCES: World Bank, World Development Indicators Database, and United Nations Population Division, World Population Prospects, 2000 Revision.
39 A SHARED FUTURE lives—the challenge is putting the right tools diabetes, mental illnesses, and cancers, many and incentives in place. of which can be effectively addressed by rela- As with most issues in developing coun- tively low-cost interventions. tries, significant differences exist from coun- A broad consensus exists that investments try to country. Problems faced by the poorest in public health, through low-level facilities countries command the most urgent atten- that emphasize preventative and simple cura- tion. In particular, the problems of sub- tive activities, would have very high rates of Saharan Africa, where disease presents a return. In particular, the reallocation of pub- significant barrier to economic growth, must lic budgets toward support of preventative be addressed as part of a comprehensive primary health care, nutrition, and sanita- development strategy.70 In general, health tion programs are estimated to be more programs in low-income developing countries effective than many current programs aimed should stress improving the effectiveness of at treatment. According to the CMH, a national public health systems. In addition, “close-to-client” system would require few public health strategies should include a hospitals and could be delivered at health broad array of programs, such as education, centers, smaller health outposts, and out- pest control, improved sanitation, and roads reach services. Recent global initiatives for that can make urbanized and better-served control of such diseases as TB, leprosy, and areas more accessible to rural patients. guinea-worm, provide useful models for such a system. Importantly, these initiatives Public Health, Women’s Health, included rigorous systems of monitoring, the HIV/AIDS Epidemic, and the evaluation, reporting, and financial control, Role of Global Businesses to ensure that resources were fully account- The subject of health in developing coun- able.72 tries is broad and cannot be treated compre- Creating public health, nutrition, and hensively in this report. Below, we consider sanitation systems to match this consensus is three high-priority subjects and examine how lagging. Resource constraints are an obvious efforts to improve health outcomes relate to problem, but some health interventions can each. We also examine the role that global be delivered at relatively low cost, especially businesses can play in improving health since labor costs are relatively low in most outcomes. developing countries. Development aid agen- cies such as the World Bank are trying to Public Health ensure that sufficient resources are dedicated Control of communicable diseases and to effective health and nutrition programs. A improved maternal and child health is at the portion of HIPC resources is to be spent in top of public health priorities in the poorest support of health programs. countries. “The main causes of avoidable The CMH recommendation is that, on deaths in the low-income countries are average, low-and middle-income countries HIV/AIDS, malaria, tuberculosis (TB), child- should increase budgetary outlays for health hood infectious diseases, maternal and peri- by 1 percent of GNP by 2007 and 2 percent natal conditions, micronutrient deficiencies, by 2015. (See Table 6) They recommend that and tobacco-related illnesses.”71 For middle- developed countries also commit additional income countries that have already reduced resources to ensure that a lack of funds does mortality from communicable diseases, non- not limit any country’s capacity to provide communicable diseases tend to be the highest health services. All donor funding should be priority. These include cardiovascular disease, conditioned on a strong and sustained com-
40 Beyond Open Markets: Investing In People mitment on the part of domestic govern- would involve a mix of state and non-state ments to implement health reforms. health service providers, the funding of which To ensure that additional resources could would be publicly guaranteed. In some poor be effectively absorbed, health-based aid countries, the public health system is so weak would be phased-in. Currently, total health- that a considerable non-governmental health based aid stands at approximately $7 billion. sector has developed based on private prac- By 2007, total assistance under the CMH rec- tice, religiously affiliated providers, and private ommendation would be increased to $27 bil- non-profit organizations. Research suggests lion, with $20 billion devoted to assistance for that having a variety of providers provides low-income countries in developing health competition and raises the quality of public systems, $3 billion to research devoted to the health programs.73 In addition, the network of diseases of the poor, and $2 billion to the existing private programs provides a safety increased delivery of global public goods valve in case of failure of the public system. through international agencies. By 2015, total One of the most effective ways that public assistance would rise to $38 billion. health issues have been addressed is through The CMH vision of a close-to-client system public-private partnerships that emphasize
Table 6 CMH Recommended Commitments for Improved Global Health (billions of constant 2002 U.S. dollars) 2001 (CMH estimates) 2007 2015 Donor Commitments Total Donor Commitments 7.0 27.0 38.0 Country-level programs: Least-Developed Countries 1.5 14.0 21.0 Other Low-Income Countries 2.0 6.0 8.0 Middle-Income Countries 2.0a 2.0 2.0 of which: Global Fund to Fight AIDS, Tuberculosis, and Malaria 0.0 8.0 12.0 Global Public Goods Program R&D (<)0.5 3.0 4.0 of which: Global Health Research Fund 0.0 1.5 2.5 International Agencies 1.0 2.0 3.0 Domestic Resources for Health Least-Developed Countries 7.0 11.0 16.0 Other Low-Income Countries 43.0 62.0 74.0 Total Commitments Donor Commitments plus Domestic Resources 57.0 100.0 128.0 a. Donor Commitments for middle-income countries: $1.5 billion of concessional aid and $0.5 billion of nonconcessional aid. SOURCE: WHO-CMH, Macroeconomics and Health, Executive Summary.
41 A SHARED FUTURE the prevention, control, and treatment of spe- clearly that care for women and girls is inferior cific illnesses. Health campaigns targeted at to that for males. Females have higher rates of specific at-risk groups can be especially effec- mortality, morbidity, undernourishment, and tive when pursued through public-private medical neglect.77 To overcome those biases partnerships of for-profit firms, non-profit experts recommend a package of essential ser- organizations, domestic governments, and vices for women that includes: prevention and international agencies. Partnership initiatives management of unwanted pregnancies, safe involving the U.S. pharmaceutical industry pregnancy and delivery services, prevention from 1998-2001 have been valued at almost and management of sexually transmitted dis- $2 billion.74 Two such efforts, aimed at accel- eases, promotion of positive health practices, erating access to treatments for HIV/AIDS and prevention of practices harmful to and at the elimination of river blindness, are health.78 The delivery of these services need highlighted below. (See Box, Health Public- not be expensive. Many services can be deliv- Private Partnerships) ered at relatively low cost or through simple Non-resource issues are a less well-recog- improvements in existing or proposed services, nized factor affecting public health.75 These such as fitting services to local conditions, social, political, or institutional considerations involving women in the design and implemen- include many of the governance issues dis- tation of programs, providing gender-specific cussed in Chapter 3. Weak governmental information, and putting greater stress on the implementation is a significant part of the education of communities to change attitudes problem. Corruption can divert drugs and and conduct that are harmful to women. other supplies for public health facilities to black markets. In countries where such HIV/AIDS Epidemic problems exist, large-scale funding would be AIDS has claimed over 22 million lives, imprudent. In those cases, potential donors three million in 2000, and orphaned more and other global leaders may need to work than 13 million children. More than 36 mil- with local nongovernmental organizations lion people, over 90 percent of whom live in and others to build local capacity and com- developing countries, are now living with mitment. HIV/AIDS. In 2000, 1.7 million people died of tuberculosis, and one million people were Women’s Health killed by malaria. Sub-Saharan Africa is Research by the World Bank shows that among the worst hit regions, having 75 per- improvement of health care for women aged cent of the total HIV/AIDS population. 15-44 offers the highest return on health care The Joint United Nations Program on spending for any demographic group of HIV/AIDS (UNAIDS) is the main worldwide adults.76 In addition to the direct health bene- coordinating agency dedicated to combating fits that accrue to the women who receive these diseases.† In addition, a “Global Fund to care, improvements in women’s health pro- Fight AIDS, Tuberculosis, and Malaria” was vide multiple benefits through the various established in 2001 to attract, manage, and roles that women play in work, childcare, and disburse resources in the fight against these the household. Improvement in the health, diseases. Estimated costs of treatment world- nutrition, and maternity care of women improves their ability to earn income and the † The eight international cosponsors of UNAIDS are: The health and life expectancy of their newborns, International Labor Organization; the World Bank; the older children, and other family members. World Health Organization; and the United Nations’ The health data reported by developing Children’s Fund, Development Program, Population Fund, Drug Control Program, and Educational Scientific and countries, especially in Asia and Africa, show Cultural Organization.
42 Beyond Open Markets: Investing In People
HEALTH PUBLIC-PRIVATE PARTNERSHIPS Efforts to improve public health services in developing countries are being enhanced through public-private partnerships that draw on the medical expertise and management experience of pharmaceutical companies. Currently, over 70 public-private partnerships in health exist, with missions ranging from research and product development to distribution and the overall strengthening of public health services. They include the Medicines for Malaria Venture (MMV), the International AIDS Vaccine Initiative (IAVI), and the Global Alliance for TB Drug Development. The most well-known health partnerships are those that focus on the development and distrib- ution of new drugs and vaccines to control the spread of infectious disease in developing coun- tries. While these collaborations frequently include philanthropic donations from the private sec- tor, the partnerships transcend the stereotype of short-term drug or vaccine donations, which are viewed as unsustainable solutions. The partnerships are created with a long-term goal of improv- ing local health services to the point that external interventions are no longer necessary. Prominent examples of such partnerships include the Academic Alliance for AIDS Care in Africa and the international effort to combat River Blindness. Academic Alliance for AIDS Care and Prevention in Africa — A new approach to partnership is this collaborative effort by Pfizer, leading HIV/AIDS researchers and clinicians from Africa and North America, and Makerere University in Uganda. The Alliance established the first large-scale AIDS/HIV clinic in Africa, now under construction at Makerere University, to train new medical personnel from across the continent on the latest options in treatment and prevention of HIV. The goal of the Alliance is to strengthen medical infrastructure, replicate it across Africa, and bring the latest medicines and practice techniques to bear in treating patients. The partnership also involves working with leading NGOs and carries the strong support of the Ugandan govern- ment, which has emerged as a regional leader in developing proactive strategies to prevent the spread of HIV. The partnership is unique because it specifically addresses one of the key chal- lenges to slowing the spread of HIV infections in sub-Saharan Africa: weak health infrastructure and the absence of opportunities for advanced training and education in clinical best practices. The MECTIZAN Donation Program in the Fight Against River Blindness — The international effort to control river blindness (onchocerciasis) is one of the most successful programs in the his- tory of development cooperation. A painful and debilitating disease caused by a parasitic worm, river blindness is endemic in sub-Saharan Africa, parts of Latin America, and Yemen in the Middle East. Approximately 120 million are at risk, 18 million are infected, and an estimated 1 million have been blinded or severely visually impaired. The discovery of Mectizan® (ivermectin) by Merck & Co., Inc. and Merck’s unprecedented decision in 1987 to donate Mectizan for as long as needed, wherever needed for the treatment of river blindness, spurred the creation of a unique multi-sectoral coalition involving Merck, the Mectizan Expert Committee, WHO, the World Bank, UNICEF, the Carter Center, dozens of national ministries of health, bilateral donors, numerous non-governmental development organizations, and many local community health workers. Today more than 30 million patients are treated annually. The transmission of the disease has been reduced and many premature deaths have been prevented. Some 16 million children have been spared the risk of infection, more than 600,000 cases of blindness have been prevented and the disease has been virtually eliminated as a public health problem in 11 countries in West Africa alone, owing to a spraying program combined with Mectizan treatment. The achievements of the program extend beyond its immediate health benefits to socio-economic improvement, capacity building, sustainability, and strengthened health systems in infected countries. As a result of this unique public-private partnership, there is now hope that the disease can be eliminated world- wide as a public health problem and socio-economic constraint within the next decade.
SOURCES: Pfizer Inc. and Merck & Co., Inc.
43 A SHARED FUTURE wide run as high as $10 billion per year. At isters agreed in November 2001 to the Doha the end of February 2002, public and private Declaration of the World Trade Organization, contributions amounted to about $2 billion, which reiterates WTO member states’ com- of which the United States had pledged $200 mitment to the TRIPS agreement and million. The Bush administration has request- respects the rights of patent holders, while at ed an additional $200 million in the 2003 the same time clarifying that countries can budget. take action consistent with the Agreement to Despite increased attention to the crisis of protect the health of their citizens. In a bal- HIV/AIDS, efforts to combat the disease face anced approach that recognizes the role of many obstacles. Prevention of HIV infection is intellectual property in promoting pharma- theoretically the most readily accessible and ceutical innovation, the declaration recog- cost-effective intervention. However, effective nizes that where there is a declared public and sustainable prevention programs require health crisis, including those related to not just more education efforts but a better HIV/AIDS, TB, malaria or other epidemics understanding of how to motivate individuals representing a national emergency or other and communities to embrace healthier circumstances of extreme urgency, extraordi- lifestyles and refrain from sexual practices, nary measures such as compulsory licensing along with drug and excessive alcohol use, of patented drugs may be justified. which increase the risk of HIV infection. This clarification is a significant develop- Recently, more attention has been given to ment. However, recent research suggests that care and treatment of individuals in the devel- patents and antiretroviral drugs have not oping world already infected with HIV, espe- been a major barrier to treatment access, 79 cially with the wide availability of numerous notwithstanding allegations to the contrary. antitretroviral drugs in North America and In Africa in particular, few antiretroviral drugs Europe, which have dramatically reduced the are patented, and several drug manufacturers morbidity and mortality of HIV/AIDS in have discounted prices to their marginal cost these regions. While the high cost of these of production or lower than cost, or have drugs is often cited as a major barrier to offered donations. This is also true of hun- increased access to HIV/AIDS drugs in dreds of essential drugs that are not under resource-constrained countries, the larger patent in Africa or other developing coun- issue is the lack of sufficient resources overall tries, and nonetheless are inaccessible to mil- for most poor countries to mount a compre- lions of people in ill health. hensive approach to HIV prevention, care, More significant barriers include a lack of and treatment. Access to affordable HIV med- political will on the part of a country’s leader- icines is but one element in addressing the ship, overall poor medical care and infrastruc- needs of those infected in most developing ture, inefficient drug regulatory procedures, countries. and high tariffs and taxes.80 To sustain success Nevertheless, access to HIV antiretroviral and improvement to health care in the least drugs and other agents used to treat AIDS- developed and developing countries, it is associated infections and illnesses has turned important that stakeholders in the global attention to the role of international trade health community focus on critically impor- rules and intellectual property rights as they tant barriers to access to medicines and ser- are applied in developing countries, based on vices in poor countries. Little progress can be an assumption that patents on pharmaceuti- made without sustainable financing, interna- cals are the underlying barrier to access to tional assistance, and additional investments HIV/AIDS medicines. To this end, trade min- in education, training, and health infrastruc-
44 Beyond Open Markets: Investing In People ture and capacity in developing countries. seeks to transform the business response to Only progress on these fundamental issues— HIV/AIDS, making HIV/AIDS a core busi- through partnership involving all stakehold- ness issue — particularly for those companies ers—will ultimately lead to better health care with interests in Africa, Asia, and Latin in least developed and developing countries. America where the epidemic is most severe. It seeks to provide leadership on the positive The Role of Global Businesses in impact business practice can have in fighting Improving Health Outcomes HIV/AIDS, by combining advocacy, policy As the spread of HIV/AIDS, TB, and development, and grassroots action with malaria has reached crisis proportions, member companies and other stakeholders. global businesses have recognized their stake The Council works in four key priorities in the crisis and have responded to it.81 areas: increased action by business, policy Businesses feel the effects of these diseases development and leadership, increasing busi- through the reduced ability of employees to ness action at the national and regional levels, perform their jobs, the erosion of short-term and changing public perceptions of the busi- profitability, and the slowing of long-term ness response to HIV/AIDS.82 growth. In addition, the spread of these dis- The Global Health Initiative (GHI) of the eases is associated with political instability and World Economic Forum was launched in reduced security. Businesses have reacted in a 2001 to help business leaders’ efforts to fight variety of ways, both individually and through these diseases. It has focused on developing international organizations. the business case for greater corporate To illustrate how business are responding, engagement, identifying best practices in we highlight two of the leading international workforce and community health programs, programs that have emerged to help global identifying the roles of business in advocacy, companies respond to the challenges of and understanding options for corporate HIV/AIDS, TB, and malaria. The Global philanthropy and partnerships.83 A GHI task Business Council on HIV/AIDS was estab- force has developed a specific set of recom- lished in 1997 to advocate for greater business mendations to guide business leaders. (See action against the epidemic. The Council Box, GHI Task Force Recommendations)
45 A SHARED FUTURE
GHI TASK FORCE RECOMMENDATIONS
Companies must commit to the fight against HIV/AIDS, TB, and malaria
• CEOs and business leaders should make the fight against HIV/AIDS, TB, and malaria a business and policy priority for their organizations.
• CEOs and business leaders should develop a strategic vision of what impact their company individually and the private sector collectively will make, in cooperation with government and other stakeholders.
Companies should take practical steps to contribute to the prevention, care, and treatment of HIV/AIDS, TB, and malaria and towards addressing the impact of these diseases in their communities
• Companies need to begin by reviewing established workplace policy and programmes to consider practical ways to extend them in addressing the current challenges of HIV/AIDS, TB, and malaria.
• Companies should look at enhancing their relationships with local communities and at expanding activities to include developing and sharing best practices throughout their spheres of influence, actively advocating for action, and using strategic philanthropy.
• Companies should also seek opportunities to be active at the national level to support national programmes and strategies and at the global level to build greater international involvement.
• Companies should consider partnerships as being crucial to the design and implementation of policies and programmes. Governments, international organizations, community groups, academic and professional institutions, the private sector, and NGOs all bring skills and experience. Partnerships are the best way to facilitate the transfer of useful knowledge and practice.
• Companies should participate in the collective sharing of national and regional experiences in order to leverage the substantial experience that has been established.
46 Beyond Open Markets: Investing In People
Companies should expand their efforts to encourage others to fight against HIV/AIDS, TB, and malaria
• Advocacy is key and is needed in order to “share the load” by building a greater, broader support base. Companies should identify opportunities to advocate for increased contributions by other key stakeholders, including:
–Other multinational and local companies so that they engage and work toward Global Goals.
– Governments of industrialized countries so that they significantly increase their levels of official international assistance.
– Governments of developing countries so that they fulfill their responsibility to care for their own citizens, through appropriate policies.
Companies can expand their efforts in other ways
• Companies should consider direct corporate philanthropy and partnerships as important elements in a comprehensive approach to HIV/AIDS, TB, and malaria.
• Companies should work with organizations to coordinate the private sector’s response and create synergies towards achieving the global goals. Examples of such organizations include the Stop TB, Partnership, Roll Back Malaria, UNAIDS, and business organizations working against HIV/AIDS, TB, and malaria such as the Global Business Council on HIV/AIDS.
• Companies and other stakeholders should consider the significant contribution to the fight against HIV/AIDS, TB, and malaria that can flow from direct economic investment in and trade reform by developing countries.
SOURCE: World Economic Forum, Global Health Initiative Resource Paper.
47 Chapter 6
FINANCING FOR DEVELOPMENT
The resources needed to pursue the policy on “Financing for Development” (FfD) took recommendations of the previous two chap- place in Monterrey, Mexico in March 2002. ters are much larger than those available The final communiqué of the heads of state domestically in most developing countries. participating in the conference, including Estimates of the additional external funds President George W. Bush, emphasizes many needed to reach the internationally agreed of the points made in this report. Our goals development goals for halving poverty, provid- are the same: “to eradicate poverty, achieve ing universal and gender-equal primary edu- sustained economic growth and promote sus- cation, and achieving various health goals tainable development as we advance to a fully total $52 billion to $63 billion per year.† inclusive and equitable global economic sys- (See Table 7) Even sums at the low end of tem.”84 And, responsibilities are clear: “Each this range would approximately double the country has primary responsibility for its own $54 billion level of development assistance economic and social development, and the from the advanced economies in 2000. role of national policies and development The issue of how such financial resources strategies cannot be overemphasized. At the might be provided has risen to near the top same time, domestic economies are now of the international economic agenda. interwoven with the global economic system A summit-level United Nations conference and, inter alia, the effective use of trade and investment opportunities can help countries Table 7 to fight poverty. National development efforts Estimates Of Additional Annual Costs need to be supported by an enabling interna- Needed to Achieve Selected International tional environment.”85 Development Goals Conference participants recognized that for most developing countries domestic Estimated Cost Goal (billions of dollars) resources will be insufficient to meet development goals; external private and Halving poverty and hunger 20 Universal and gender-equal public resources will also be needed. The primary education 12 Conference noted that external private International development goals resources, especially through foreign direct for health 20-31 investment, are a vital component of develop- Total 52-63 ment efforts: “To attract and enhance inflows SOURCES: United Nations, Report of the High-Level Panel on of productive capital, countries need to Financing for Development, June 2000, Annex and WHO, continue their efforts to achieve a transpar- Macroeconomics and Health, 2001. ent, stable and predictable investment climate, with proper contract enforcement † The World Bank has estimated these costs at $40 billion to $60 billion. and respect for property rights, embedded
48 Financing For Development in sound macroeconomic policies and institu- Millennium Challenge Account within the tions that allow businesses, both domestic U.S. foreign aid budget. As outlined, coun- and international, to operate efficiently and tries that improve governance and root out profitably and with maximum development corruption, encourage economic freedom impact.”86 through sound economic policies, and invest The heads of state also called for a substan- in their people, would receive more aid from tial increase in official development assistance the United States. Increased aid of $5 billion (ODA)† and other resources to complement annually, when phased-in over the next three domestic savings and private foreign invest- years, would be linked to measurable ment, especially in low-income countries that improvements in performance. These new are least able to attract foreign capital. The resources would be allocated to countries that United States pledged a 50 percent increase in undertake sound economic reforms and con- aid. Most important, President Bush and other centrated in areas such as health and educa- national leaders recognized that the effective- tion, where the case for support is clear ness of aid must be enhanced, both to pro- because the activities are more often pro- mote development and to build greater public grammatically sound and have measurable support for ODA programs. results. CED supports this proposal and would support shifting even more of the U.S. for- eign aid budget to this account and, if suc- A PERSPECTIVE ON OFFICIAL cessful, adding more funds. DEVELOPMENT ASSISTANCE Donors should provide increases in official We agree in principle with the call for development assistance as long as they are increased and more effective spending for confident that such aid can be spent effective- development assistance. Although we have ly. The allocation of aid should be based on concerns about how aid has been allocated the soundness of a country’s development and managed in the past, a strong case for policies and on measurable improvements in more development aid can be made on eco- specific areas such as education and health, nomic and humanitarian grounds and to rather than on pre-determined country allot- strengthen U.S. leadership in policy engage- ments. To measure the effectiveness of ment with developing country governments. increased spending, more resources should But we see little value in spending scarce be devoted to improving the collection, dis- resources that have little return. Setting an semination, and use of data on conditions arbitrary financing goal based on a percent- in developing countries. We do not support age of GDP, as has been the practice, inverts schemes for automatic funding of aid pro- the logic of financial decision-making. The grams through international taxes or other rationale for increased development assis- financing mechanisms that skirt the normal tance must be its effectiveness, not aggregate appropriations process. targets. Making Aid More Effective In this regard, our views are consistent with President Bush’s proposal for a new We do not claim to have comprehensive answers to questions about how to improve the effectiveness of U.S. development assis- † ODA is defined by the Development Assistance Committee tance; a full review of the U.S. foreign assis- of the OECD to include financial transfers undertaken by the tance program is beyond the scope of this official sector to promote economic development and provid- ed on concessional terms with a grant element of at least 25 study. Nevertheless, the effectiveness of aid is percent on loans. a critical issue that deserves some attention
49 A SHARED FUTURE here. Public support for development assis- Argentina) Although such partnerships have tance programs will only become evident been most successful in middle- and higher- when such programs demonstrate their effec- income developing countries, it may be tiveness through measurable improvements in worthwhile to explore the potential for performance. In our view, effectiveness could public-private collaborations in lower-income be enhanced by various programmatic countries, where the need is greatest. changes and greater emphasis on measuring Perhaps most important, aid should be outcomes. One such improvement would be allocated more consistently in support of to shift more resources to areas such as health states that undertake sound development and education, where the case for support is policies. Research has consistently shown that clearer because the activities are programmat- development aid works best when it rein- ically sound and the results more measurable. forces good policies and rewards good per- Another might be to make greater use of pub- formers. In allocating aid, administrators lic-private partnerships. Such partnerships should pay greater attention to the dangerous deploy private-sector capital, sometimes with combination of fungible money and inade- public-sector capital, to improve public ser- quate economic and political discipline, vices or the management of public-sector which can too easily result in aid being divert- assets.87 Notable projects exist in which public- ed from its intended goals, sometimes to pri- private partnerships have provided essential vate accounts. While aid should not be heavily services to developing countries on a com- laden with conditions, its allocation and dis- mercial basis. (See Box, Public-Private bursement should require a recipient to have Partnership for Water and Sanitation in policies that will ensure the aid’s effectiveness.
PUBLIC-PRIVATE PARTNERSHIP FOR WATER AND SANITATION IN ARGENTINA When the Government of Argentina signed a 30-year water and sanitation concession contract in 1993 for the Buenos Aires metropolitan area, with a population of over ten million, 2.6 million people in the area had no access to the drinking water network and five million people had no access to a waste treatment system. Ninety-five percent of the waste- water in Buenos Aires was discharged untreated into the environment. The concession contract for Buenos Aires was awarded after a competitive bidding process to Aguas Argentinas, a consortium of international and Argentinean investors led by an affiliate of Suez Lyonnaise des Eaux. The Buenos Aires contract is the largest water ser- vices ever awarded to a private-sector company. Since 1993, when the concession contract was awarded, Aguas Argentinas has invested over $1.6 billion in developing the needed water and sanitation facilities. This represents a yearly investment rate almost 20 times higher than the investment rate before 1993. Aguas Argentinas has extended drinking water systems to 1.6 million new people, includ- ing 0.8 million in the poorest neighborhoods. It has connected 1 million new people to the sanitation network. It has increased drinking water production capacity by 37 percent, ending summertime water shortages. And all this has been done with a lower price of water in 2001 than in 1993. Between now and the expiration of the concession in 2023, the consortium is contractu- ally bound to extend drinking water service to the entire population of Buenos Aires and to provide wastewater treatment services to 95 percent of the population (from the pre-conces- sion level of 50 percent and the current level of 60 percent).
50 Financing For Development
Such policies include those we have empha- est IMF members, who would receive most of sized throughout this report: honest govern- the SDR allocation, would donate their shares ment, reliable and transparent accounting, (estimated to be nearly $18 billion) for inter- and other appropriate economic, political, national assistance. and social policies. Even if the volume of aid Other innovative proposals focus primari- is low, allocations requiring sound polices ly on the form of aid and its means of allow donor countries to support local efforts delivery. The U.S. International Financial and maintain a dialogue with the recipient on Institution Advisory Commission (the Meltzer how best to improve those policies. Commission), for example, recommended The communiqué of the Financing for the conversion of World Bank aid from loans Development Conference calls on developed to grants. Some have suggested that bilateral countries to make concrete efforts toward the donors could improve the efficiency of aid 30-year old target of providing 0.7 percent of giving by creating a “common pool,” and gross national product for ODA. The OECD some advocates have suggested ways to countries as a group currently provide about extend the scope of debt relief offered 0.3 percent of GNP, and the United States 0.1 through the HIPC initiative, beyond that percent. It further calls for a study of “innova- described above. tive sources of finance,” including the use of Such proposals for “innovative transfers” Special Drawing Right (SDR)† allocations of have been discussed as theoretical concepts the International Monetary Fund for develop- for decades. Yet issues about their practicality ment purposes. and their ultimate consequences remain How public resources from the more eco- unresolved. Who would be accountable for nomically advanced countries might be gener- such funds? How could donors be assured ated to meet the international development that funds would be used for intended pur- goals is very controversial. Proposals for such poses? What authorities would impose an “innovative” sources of financing have not international tax? What criteria would be been lacking. United Kingdom Chancellor used for the disbursement of funds? How of the Exchequer Gordon Brown and would transparency be ensured? DaimlerChrysler Chairman Jurgen Schrempp, The proposal for an international tax on among others, have made prominent calls for foreign currency transactions illustrates some a new Marshall Plan.88 Finance ministers of of these problems. Implementation would the European Union have asked for a formal require either the creation of an international examination of how taxes on foreign currency authority to collect the tax, an unrealistic and transactions, carbon dioxide, or arms sales unappealing option, or that every national might be used to finance development goals.89 government impose an identical tax. The lat- George Soros has proposed that the IMF issue ter appears most unlikely, since countries that new SDRs for international financial assis- promote themselves as “tax havens” would be tance; in Soros’s proposal, the IMF would dis- unlikely to participate. Moreover, while such a tribute to all its members a one-time issue of tax may make sense for an individual country, SDRs equal to about $27.5 billion.90 The rich- to regulate the term structure of its debt, it would seem anomalous to tax international capital movements that promote develop- † Special Drawing Rights are an international reserve asset cre- ated by the International Monetary Fund in 1969. SDRs ment. Such a tax, if effective, would lessen the serve as a unit of account and means of payment among IMF resources available to developing countries. members. The value of an SDR is determined by the weight- ed values of the major international currencies, the dollar, Creating an automatic stream of funds might euro, yen, and pound. also put pressure on fund managers to spend
51 A SHARED FUTURE the money in ways that might not always be against other needs; it should be transparent prudent. and not hidden behind a complex financial Similarly, issuing SDRs for development transaction. offers the appeal of “free” money. However, that is an illusion that creates its own prob- The Marshall Plan and Foreign Aid lems. Although a new SDR allocation would Since the end of World War II, the United create new money, the resources that are States has provided assistance of various kinds transferred are not free and the additional and for various purposes to other countries. demand would pose the danger of additional The effort began with the Marshall Plan, inflation. Giving an international institution which assisted in the post-war recovery of the the right to create new money would set a European economies. The success of the bad precedent since it could open the flood- Marshall Plan has made it a symbol for leader- gates to global inflation. Whether to add to ship in the international economic system. the money supply is typically a decision left to (See Box, The Marshall Plan) Following the national authorities. Another supposed virtue recovery of Europe, the United States began is that an SDR allocation might be made with- directing financial and food aid to newly out explicitly taxing citizens of developed independent states and developing countries countries and with little public scrutiny. But in Africa, Asia, and Latin America. the transfer of SDRs would be the same as a The Marshall Plan had two prominent fea- transfer of real resources, and thus would be tures: the expenditure of a large amount of equivalent to a real tax. In our view develop- money and the political acceptance of the ment aid should compete in national budgets idea that it was important for the United
THE MARSHALL PLAN Two years after the Allied victory in World War II, many Europeans faced widespread hunger, unemployment, and housing shortages. The general economic dislocation and phys- ical destruction of the war threatened a breakdown of commercial, political, and social con- ditions. In that atmosphere, Secretary of State George C. Marshall proposed a bold plan for European reconstruction with financial aid from the United States. Ultimately, the Marshall Plan would transfer about one percent of U.S. GNP to European countries annually over the span of four years and be successful in helping to revive the European economies. The success of the plan has made it a symbol for leadership in the international econom- ic arena. In the more than 50 years since Marshall’s call for action, other leaders have seen similar pressing needs and echoed the call for a “new Marshall Plan.” Some leaders again are using the Marshall Plan as a reference as they call for the rebuilding of Afghanistan and the financing of international development goals. The money spent during the period from 1948 to 1951 provided scarce foreign exchange to acquire additional resources to economies that had in place the other human, political, and social requirements for reconstruction and recovery. Even much of the economic infra- structure—electricity, rail, roads, and water —had already been rebuilt. From an operational perspective, the United States was able to give money to well-functioning governments to use according to their own priorities. The conditions existing in today’s developing countries are much different and more complex. Most lack the human and physical resources that existed in Europe; political and financial institutions are generally not as strong. It is as questionable whether they could effectively absorb such large sums of money as whether the American people would be prepared to make such an economic sacrifice.
52 Financing For Development
States to act as an international leader. It is to security, whereas our European and the second feature that is most relevant in Japanese allies have specialized in develop- today’s environment. Key to Marshall’s success ment aid. was his ability to motivate and involve busi- Foreign aid today is provided in a variety ness and political leaders who had formerly of ways and for a variety of purposes. For been more isolationist in their outlook. A example development aid is provided on a group of American business leaders, in partic- multilateral basis through the World Bank ular Paul Hoffman and other founders of the and regional development banks and bilater- Committee for Economic Development, ally through USAID. The United States also played a significant role in mobilizing public provides humanitarian food aid, debt forgive- and business support for the plan. Hoffman, ness through bilateral and multilateral pro- a visionary business and political leader, grams, and aid for political and national secu- became head of the Economic Cooperation rity purposes. Although not classified as “offi- Administration, which administered the cial aid,” commercial credits for foreign pur- Marshall Plan. Marshall was also able to unite chases of U.S. goods and services and political both political parties behind his understand- risk insurance for investments are among the ing that American prosperity depended on economic programs available to help develop- our willingness to help others to achieve eco- ing countries. The United States also provides nomic development. Then, as now, the parties funds to the IMF to finance short-term bal- and the public were deeply divided over the ance of payments crises, which are now used role the United States should play in the exclusively by developing and transitional international arena. It is predominantly in the countries. exercise of leadership that the Marshall Plan In the war against terrorism, the United provides a reference point for today. States can be expected to maintain or expand In 2000, the United States provided some funding for security assistance, which aims to form of bilateral foreign assistance to over stabilize countries and regions where our 140 countries. More than 75 percent of the security interests are paramount. Where we aid, however, was concentrated in the top ten provide such assistance, we should not also recipients, lead by Israel and Egypt. Most of expect it to be very effective in support of that aid was for security rather than develop- development goals. Experience has shown ment purposes. Whereas the Marshall Plan that when security concerns are the primary channeled an average of about 1 percent of determinant of funding allocations, economic U.S. GNP to recipient countries, that figure development goals are unlikely to be met now stands at about 0.1 percent for official simultaneously. In a great many cases, the development assistance. ODA, however, is countries that receive security assistance pur- only a small portion of the public resources sue inappropriate economic policies but have provided by the United States to maintain a little incentive to improve them since the aid secure and stable international order. is not contingent on performance. International order and security, including It is reasonable to expect that humanitari- the containment of terrorism, is (however an aid, as distinct from development aid, will unfortunately) a necessary condition for also increase. The American people have a global development in today’s world. In prac- history of supporting humanitarian causes, tice, a high degree of specialization has especially when made conscious of dire need emerged among the developed countries in caused by war, drought, and famine. Such the provision of international public goods; assistance is likely to be needed at heightened the U.S. has allocated its resources primarily levels as the war on terrorism continues.
53 A SHARED FUTURE
Although we face fundamentally different can be of significant help. Until they can circumstances today than those faced by achieve sustained economic growth, many Marshall, the challenge is similar in this countries will remain dependent on develop- respect: How can the urgency of the prob- ment aid to augment their relative lack of lems facing developing countries be articulat- human, financial, and physical resources. In ed in a way that makes it clear to those in the addition, there are exceptional situations advanced economies that it is in their inter- when aid can play a vital role, such as when a ests to help craft a solution to those prob- democratically elected government replaces lems? And, how can we ensure that the a corrupt and authoritarian one and inherits resources spent in the cause of poverty a critical economic situation. In such circum- reduction reach their intended goal most stances, aid can help to secure economic efficiently and effectively? stability, especially if it is allocated to counter- As those questions are debated, we believe corruption programs and other programs it is important to keep development aid in where evidence can be secured to measure perspective. The most effective way for a gov- improvements in performance. ernment to finance development is through making the policy changes that allow the country to attract private resources. In recent years the resources available through private financing for trade and investment have vastly outstripped those available through develop- CONCLUSION ment assistance agencies. In 1999, net ODA Global economic development since the from the advanced countries was about one- end of World War II has been remarkable: quarter the amount of FDI of $208 billion to the persistence of poverty throughout the developing countries.91 Moreover, worldwide developing world should not obscure that FDI flows of nearly $900 billion indicate that fact. In the developing countries as a whole the potential flow of funds to developing per capita GDP has tripled since 1950, life countries is much greater. Experience shows expectancy has increased by nearly 50 per- that private financing through foreign direct cent, and infant mortality has fallen from investment and loans will flow to countries about 180 per 1000 births to under 60, that have the rule of law, non-corrupt govern- although progress has been uneven. Among ments, and appropriate economic policies. the factors that led to these successes have Countries such as Brazil, Korea, and Mexico been an increased reliance on markets to have for the most part graduated from devel- allocate resources, increased foreign trade opment aid to private funding in world finan- and private investment, public investments in cial markets. The recommendations of this agricultural research underpinning the report are designed to help extend the flow “Green Revolution” that changed the nature of private resources to other developing of food production, and publicly financed countries. development projects ranging from the Official development aid can be critical for building of basic infrastructure to the distrib- the least developed economies, but for many ution of food and medicines to meet basic countries it is not the most important source human needs. of external funds. For countries that are pur- Economic development is a complex suing intelligent development policies, finan- process. There is no patented formula for cial assistance through one of the multilateral success. For development to occur, govern- development banks or bilateral aid donors ments, businesses, civic organizations, and
54 Financing For Development individuals must make sound decisions that that would help developing countries to promote economic growth within the context improve their investment climates. of their unique circumstances. Debate over numeric targets for official Each nation is responsible for its own (government) aid, which has dominated polit- economic, political, and social development. ical debate, is a distraction from the more sig- That point cannot be overstressed. The role nificant sources of financial and non-financial of government leadership is vitally important. forms of support, which come from the pri- Policy choices made by developing country vate sector. Given the relative sizes of financial governments to a great extent create the envi- flows, aid is not the most important conduit ronment for economic growth or stagnation. for helping developing countries, although All developing countries face virtually identi- for the least developed it can be a critical cal external circumstances with regard to resource. In foreign aid, we would not hesi- opportunities to export goods and services tate to spend any dollar that can be spent and to import technologies and financial sup- effectively and efficiently; and there is room port. Other than conditions dictated by loca- to increase aid now. tion or natural resources, which cannot be Global businesses and their leaders have changed, the distinguishing feature that sets pivotal roles to play in various dimensions of nations apart economically is their choice of the poverty problem. In developing coun- policies to stimulate economic growth, invest tries, they demonstrate new technologies, in people, and attack poverty. provide employment and often raise employ- The United States and other advanced ment practices by providing education and economies have an important role to play as health benefits, and lend political support to well. The developed nations must maintain critical policy reforms. In many places, social- global economic and political stability, estab- ly responsible MNCs contribute substantially lishing an environment in which developing to the betterment of the communities and countries can thrive if they make sound policy nations in which they operate. In developed choices. They must also provide the necessary countries, business leaders should be taking political and financial support to help devel- an active role in support of multilateral pro- oping countries carry through on the policy grams that advance economic development choices they make. and global poverty reduction, including the Financial support flows through trade, appropriate expansion of effective foreign investment, and development aid. Of these, aid. trade and investment are the most important. In summary, policies that promote eco- Perhaps of greatest benefit to the world’s nomic growth are a prerequisite for the most impoverished would be for the U.S. gov- reduction of poverty. These policies include ernment and our OECD partners to establish market-oriented solutions to economic prob- trade policies that are more open. Ideally, lems, openness to foreign trade and invest- these policies would completely eliminate ment, and funding to improve education and trade barriers and production subsidies that health. A nation that is poor will not become hinder developing country exports. The rich over night, but it can begin to solve its effort could start by speeding up the elimina- economic problems by putting the right poli- tion of tariffs under the Agreement on cies in place. Seemingly small annual incre- Textiles and Clothing. In the area of invest- ments to income growth cumulate into large ment, we would press for a multilateral invest- changes in a country’s standard of living over ment code and provide greater support for a generation and greatly reduce the number anti-corruption measures and other policies of people living in dire poverty.
55 A SHARED FUTURE
Those of us who live in nations that have achieved a high level of economic prosperity must do what we can to see that other nations have the opportunity to enjoy a similar stan- dard of living. It is in our economic, political, and humanitarian interests to foster a more prosperous, democratic, and stable world. As advances in communication and transporta- tion shrink the distances between global haves and have-nots, we must act on the understanding that we truly share a common future. Economic integration through trade and investment, supported by sound domestic policies that build human capabilities, is a positive-sum strategy. It has the potential to raise the standard of living for all participants and to make our shared future brighter, more secure, and more prosperous.
56 ENDNOTES
1. Commission on U.S. National Security in the 21st Century, 18. World Bank, World Development Indicators Database, available Phase II Report on a U.S. National Security Strategy for the 21st at
57 A SHARED FUTURE
37. E. Borensztein, J. De Gregorio and J.W. Lee, “ How Does 56. Gene Sperling, “Educating the World,” New York Times, Foreign Direct Investment Affect Economic Growth?” November 22, 2001. Journal of International Economics, vol. 45, no. 1 (1998), pp. 115-135, as cited in Linda Lim, The Globalization Debate: 57. OECD, A Better World For All, p. 8. Issues and Challenges (Geneva: International Labor Office, 58. World Education Forum, “Who Pays for Education?” (press 2001), p. 19. release, Dakar, Senegal, April 26, 2000). 38. Guy Pfeffermann, “Poverty Reduction in Developing 59. OECD Development Assistance Committee, “Development Countries: The Role of Private Enterprise,” Finance and Cooperation: 2000 Report” DAC Journal, vol. 2, no. 1 Development, vol. 38, no. 2 (2001). (2001), p. 154. 39. World Trade Organization, Doha Ministerial Declaration 60. UNESCO, The Global Initiative towards Education for All: A (Doha, Qatar, November 14, 2001), paragraph 20. Framework for Mutual Understanding, UNESCO Education 40. International Textiles and Clothing Bureau, Agreement on Sector Working Document (2001), p. 8. Textiles and Clothing: Evaluation of Implementation, August 3, 61. World Bank, Engendering Development: Through Gender 1999, p. 1, available at
58 Endnotes
77. Sen, Development as Freedom, chapter 8. 85. United Nations, Monterrey Consensus: Draft Outcome of the International Conference on Financing for Development, para- 78. World Bank, “A New Agenda for Women’s Health and graph 6. Nutrition.” 86. United Nations, Monterrey Consensus: Draft Outcome of the 79. Amir Attaran and Lee Gillespie-White, “Do Patents for International Conference on Financing for Development, para- Antiretroviral Drugs Constrain Access to AIDS Treatment graph 21. in Africa?,” Journal of the American Medical Association (JAMA), vol. 286, no. 15 (2001), p. 1886. 87. Gerrard, “Public-Private Partnerships.” 80. Attaran and Gillespie-White, “Do Patents for Antiretroviral 88. Chancellor of the Exchequer Gordon Brown, “Speech to Drugs Constrain Access to AIDS Treatment in Africa?,” the Federal Reserve Bank of New York,” (Speech, New p. 1886. York, NY, November 16, 2001) and Frank Swoboda, “Carmaker Shares Global Vision: DaimlerChrysler Chief 81. World Economic Forum, “Global Health Initiative,” WEF Wants a ‘Marshall Plan’,” Washington Post, November 30, Resource Paper (February 2002). 2001, p. E3. 82. The Global Business Council on HIV/AIDS, “What We 89. Gordon Brown, “Speech to the Federal Reserve Bank of Do,” available at New York.”
59 MEMORANDA OF COMMENT, RESERVATION, OR DISSENT
Page 4, THOMAS J. BUCKHOLTZ Page 5, PETER A. BENOLIEL with which JOSH S. WESTON has asked to be associated. Businesses, governments, and other insti- tutions should strive to simplify the rules of A most important recommendation, society, so that all people can participate as which the U.S. Administration eschewed in actively and broadly as they desire to in the favor of higher tariffs on steel! global economy and society as a whole.
Page 25, ALAN BELZER with which Page 4, THOMAS J. BUCKHOLTZ JOSH S. WESTON has asked to be associated. Additional avenues for promoting eco- Overall, I am in agreement with the nomic growth and reducing poverty include report with one major reservation, which grassroots and interpersonal interactions. concerns the lowering of barriers to imports People throughout the world gain opportu- by developing countries. The report states nities to enrich each other’s lives. Businesses as follows: and governments should take direct and Developing countries have much to gain from indirect steps to foster international dis- lowering barriers to imports. Except in rare course among individuals and between cases, for example when there are very large people and institutions. economies of scale, the protection of domestic industries serves only to raise the costs of goods and services and distort the allocation of Page 5, PETER A. BENOLIEL with which domestic resources. JOSH S. WESTON has asked to be associated. The foregoing greatly understates the Mention should be made of the U.S. need for protection of fledgling industries in Administration’s recent implementation of developing countries. The best models of tariffs on imported steel. While primarily tar- developing countries that have had signifi- geted at steel exports of the more advanced cant economic growth are Japan, Korea, and economies, it belies and compromises the Taiwan, all of which protected their fledgling U.S. leadership in promoting the reduction industries. On the other hand, Argentina, a of trade barriers. It will also have the net small but somewhat developed country has effect of reducing steel exports from less caused havoc in its economy by a number of developed countries as well as a negative actions, the most notable being that of open- impact upon smaller domestic producers ing up to foreign competition too quickly. utilizing steel in their products. Not unexpectedly, retaliatory trade sanc- tions are imminent at the hands of the European Commission. The growing pres- ence of trade barriers can have only a nega- tive effect upon less developed economies.
60 OBJECTIVES OF THE COMMITTEE FOR ECONOMIC DEVELOPMENT
For 60 years, the Committee for Economic foundations, and individuals. It is independent, Development has been a respected influence nonprofit, nonpartisan, and nonpolitical. on the formation of business and public Through this business-academic partner- policy. CED is devoted to these two objectives: ship, CED endeavors to develop policy state- ments and other research materials that To develop, through objective research and commend themselves as guides to public and informed discussion, findings and recommenda- business policy; that can be used as texts in tions for private and public policy that will contrib- college economics and political science courses ute to preserving and strengthening our free society, and in management training courses; that achieving steady economic growth at high employ- will be considered and discussed by newspaper ment and reasonably stable prices, increasing pro- and magazine editors, columnists, and com- ductivity and living standards, providing greater mentators; and that are distributed abroad to and more equal opportunity for every citizen, and promote better understanding of the Ameri- improving the quality of life for all. can economic system. To bring about increasing understanding by CED believes that by enabling business present and future leaders in business, government, leaders to demonstrate constructively their con- and education, and among concerned citizens, of the cern for the general welfare, it is helping busi- importance of these objectives and the ways in which ness to earn and maintain the national and they can be achieved. community respect essential to the successful CED’s work is supported by private volun- functioning of the free enterprise capitalist tary contributions from business and industry, system.
61 CED BOARD OF TRUSTEES
Chairman FRANK P. DOYLE, Retired Executive Vice President WILLIAM E. BROCK, Chairman GE Bridges LearningSystems, Inc. THOMAS J. BUCKHOLTZ, Executive Vice President Beyond Insight Corporation Vice Chairmen MICHAEL BUNGEY, Chairman and Chief ROY J. BOSTOCK, Chairman, Executive Committee 3 Executive Officer B/Com Group, Inc. Bates Worldwide Inc. DONALD R. CALDWELL, Chairman and Chief TONY BUZZELLI, Deputy Managing Partner Executive Officer Deloitte & Touche LLP Cross Atlantic Capital Partners *FLETCHER L. BYROM, President and Chief GEORGE H. CONRADES, Chairman and Chief Executive Officer Executive Officer MICASU Corporation Akamai Technologies, Inc. DONALD R. CALDWELL, Chairman and Chief RAYMOND V. GILMARTIN, Chairman, President Executive Officer and Chief Executive Officer Cross Atlantic Capital Partners Merck & Co., Inc. DARALD W. CALLAHAN, Executive Vice President JAMES A. JOHNSON, Chairman and Chief ChevronTexaco Executive Officer Johnson Capital Partners FRANK C. CARLUCCI Washington, D.C. ARTHUR F. RYAN, Chairman and Chief Executive Officer JOHN B. CAVE, Principal The Prudential Insurance Company of America Avenir Group, Inc. FREDERICK W. TELLING, Vice President Corporate JOHN S. CHALSTY, Senior Advisor Strategic Planning and Policy Division Credit Suisse First Boston Pfizer Inc. RAYMOND G. CHAMBERS, Chairman of the Board Amelior Foundation ROBERT CHESS, Chairman Inhale Therapeutic Systems, Inc. REX D. ADAMS, Dean CAROLYN CHIN The Fuqua School of Business Chairman, Commtouch Duke University Chairman, Kindmark F. GREGORY AHERN, Senior Vice President, * JOHN L. CLENDENIN, Retired Chairman External Affairs BellSouth Corporation State Street Corporation KENNETH P. COHEN, Vice President Public Affairs PAUL A. ALLAIRE, Chairman Exxon Mobil Corporation Xerox Corporation FERDINAND COLLOREDO-MANSFELD, Chairman IAN ARNOF, Retired Chairman and Chief Executive Officer Bank One, Louisiana, N.A. Cabot Properties, Inc. JAMES S. BEARD, President GEORGE H. CONRADES, Chairman and Chief Caterpillar Financial Services Corp. Executive Officer HENRY P. BECTON, JR., President and Akamai Technologies, Inc. General Manager JAMES P. CORCORAN, Executive Vice President, WGBH Educational Foundation Government & Industry Relations THOMAS D. BELL, JR., Chairman and Chief American General Corporation Executive Officer DAVID M. COTE, President and Chief Executive Officer Cousins Properties TRW Inc. ALAN BELZER, Retired President and Chief STEPHEN A. CRANE, Chairman, President and Operating Officer Chief Executive Officer AlliedSignal Inc. Stirling Cooke Brown Holdings Limited PETER A. BENOLIEL, Chairman, Executive THOMAS M. CULLIGAN, Executive Vice President, Committee Business Development Quaker Chemical Corporation Raytheon Company MELVYN E. BERGSTEIN, Chairman and Chief Chief Executive Officer Executive Officer Raytheon International, Inc. Diamond Cluster International, Inc. RONALD R. DAVENPORT, Chairman of the Board DEREK BOK, President Emeritus Sheridan Broadcasting Corporation Harvard University JOHN T. DEE, Chairman and Chief Executive Officer Chairman, Common Cause Volume Services America ROY J. BOSTOCK, Chairman, Executive Committee ROBERT M. DEVLIN, Former Chairman and Chief B/Com3 Group, Inc. Executive Officer American General Corporation JOHN BRADEMAS, President Emeritus New York University
*Life Trustee JOHN DIEBOLD, Chairman RICHARD A. GRASSO, Chairman and Chief John Diebold Incorporated Executive Officer LINDA M. DISTLERATH, Vice President, Global New York Stock Exchange, Inc. Health Policy EARL G. GRAVES, SR., Publisher and Chief Merck & Co., Inc. Executive Officer WILLIAM H. DONALDSON, Chairman Black Enterprise Magazine Donaldson Enterprise WILLIAM H. GRAY, III, President and Chief IRWIN DORROS, President Executive Officer Dorros Associates The College Fund FRANK P. DOYLE, Retired Executive Vice President GERALD GREENWALD, Chairman Emeritus GE UAL Corporation E. LINN DRAPER, JR., Chairman, President and BARBARA B. GROGAN, President Chief Executive Officer Western Industrial Contractors American Electric Power Company PATRICK W. GROSS, Founder and Chairman, PHILIP DUKE, Executive Vice President (retired) Executive Committee Lockheed Martin Corporation American Management Systems, Inc. T. J. DERMOT DUNPHY, Chairman JEROME H. GROSSMAN, Chairman and Chief Kildare Enterprises, LLC Executive Officer Lion Gate Management Corporation CHRISTOPHER D. EARL, Managing Director Perseus Capital, LLC RONALD GRZYWINSKI, Chairman Shorebank Corporation W. D. EBERLE, Chairman Manchester Associates, Ltd. JUDITH H. HAMILTON, President and Chief Executive Officer WILLIAM T. ESREY, Chairman and Chief Classroom Connect Executive Officer Sprint WILLIAM A. HASELTINE, Chairman and Chief Executive Officer ROBERT A. ESSNER, President and Human Genome Sciences, Inc. Chief Executive Officer Wyeth WILLIAM F. HECHT, Chairman, President and Chief Executive Officer KATHLEEN FELDSTEIN, President PPL Corporation Economics Studies, Inc. WILLIAM HENDERSON RONALD E. FERGUSON, Chairman, President and Former Postmaster General Chief Executive Officer General RE Corporation JOSEPH D. HICKS, Retired President and Chief Executive Officer E. JAMES FERLAND, Chairman, President and Siecor Corporation Chief Executive Officer Public Service Enterprise Group Inc. HEATHER HIGGINS, President Randolph Foundation * EDMUND B. FITZGERALD, Managing Director Woodmont Associates STEVEN R. HILL, Senior Vice President, Human Resources HARRY L. FREEMAN, Chair Weyerhaeuser Company The Mark Twain Institute RODERICK M. HILLS, Chairman MITCHELL S. FROMSTEIN, Chairman Emeritus Hills Enterprises, Ltd. Manpower Inc. GLEN J. HINER, Chairman and Chief JOSEPH GANTZ, Partner Executive Officer GG Capital, LLC Owens Corning E. GORDON GEE, Chancellor HAYNE HIPP, President and Chief Executive Officer Vanderbilt University The Liberty Corporation THOMAS P. GERRITY, Dean Emeritus DEBORAH C. HOPKINS, Senior Advisor The Wharton School Marakon Associates University of Pennsylvania PAUL M. HORN, Senior Vice President, Research RAYMOND V. GILMARTIN, Chairman, President and IBM Corporation Chief Executive Officer Merck & Co., Inc. MATINA S. HORNER, Executive Vice President TIAA-CREF FREDERICK W. GLUCK, Of Counsel McKinsey & Company, Inc. PHILIP K. HOWARD, Vice Chairman Covington & Burling CAROL R. GOLDBERG, President The AvCar Group, Ltd. ROBERT J. HURST, Vice Chairman The Goldman Sachs Group, Inc. ALFRED G. GOLDSTEIN, President and Chief Executive Officer SHIRLEY ANN JACKSON, President AG Associates Rensselaer Polytechnic Institute JOSEPH T. GORMAN, Retired Chairman WILLIAM C. JENNINGS, Chairman TRW Inc. US Interactive, Inc.
*Life Trustee JEFFREY A. JOERRES, President and Chief DEBORAH HICKS MIDANEK, Principal Executive Officer Glass & Associates, Inc. Manpower Inc. HARVEY R. MILLER, Senior Partner JAMES A. JOHNSON, Chairman and Chief Weil, Gotshal & Manges Executive Officer NICHOLAS G. MOORE, Chairman Emeritus Johnson Capital Partners PricewaterhouseCoopers L. OAKLEY JOHNSON, Senior Vice President, DIANA S. NATALICIO, President Corporate Affairs The University of Texas at El Paso American International Group MARILYN CARLSON NELSON, Chairman, President ROBERT M. JOHNSON, Chairman and Chief and Chief Executive Officer Executive Officer Carlson Companies, Inc. Bowne & Co., Inc. MATTHEW NIMETZ, Partner LAWRENCE R. JOHNSTON, Chairman and Chief General Atlantic Partners Executive Officer Albertson’s, Inc. THOMAS H. O’BRIEN, Chairman of the Executive Committee VAN E. JOLISSAINT, Corporate Economist PNC Financial Services Group, Inc. DaimlerChrysler Corporation DEAN R. O’HARE, Chairman and Chief H.V. JONES, Managing Director Executive Officer Korn/Ferry International Chubb Corporation PRES KABACOFF, President and Co-Chairman RONALD L. OLSON, Partner Historic Restoration, Inc. Munger, Tolles & Olson EDWARD A. KANGAS, Chairman and ROBERT J. O'TOOLE, Chairman and Chief Chief Executive Officer (retired) Executive Officer Deloitte Touche Tohmatsu A.O. Smith Corporation JOSEPH E. KASPUTYS, Chairman, President STEFFEN E. PALKO, Vice Chairman and President and Chief Executive Officer XTO Energy Inc. Global Insight, Inc. SANDRA PANEM, Partner THOMAS J. KLUTZNICK, President Cross Atlantic Partners, Inc. Thomas J. Klutznick Company JERRY PARROTT, Vice President, Corporate CHARLES F. KNIGHT, Chairman Communications Emerson Electric Co. Human Genome Sciences, Inc. CHARLES E.M. KOLB, President CAROL J. PARRY, President Committee for Economic Development Corporate Social Responsibility Associates ALLEN J. KROWE, Retired Vice Chairman VICTOR A. PELSON, Senior Advisor Texaco Inc. UBS Warburg LLC C. JOSEPH LABONTE, Chairman DONALD K. PETERSON, President and Chief The Vantage Group Executive Officer KURT M. LANDGRAF, President and Chief Avaya Inc. Executive Officer PETER G. PETERSON, Chairman Educational Testing Service The Blackstone Group CHARLES R. LEE, Chairman and Co-Chief TODD E. PETZEL, President and Chief Executive Officer Investment Officer Verizon Communications The Commonfund Asset Management Co., Inc. WILLIAM W. LEWIS, Director RAYMOND PLANK, Chairman and Chief McKinsey Global Institute Executive Officer McKinsey & Company, Inc. Apache Corporation IRA A. LIPMAN, Chairman of the Board and President ARNOLD B. POLLARD, President and Chief Guardsmark, Inc. Executive Officer JOHN W. LOOSE, President and Chief The Chief Executive Group Executive Officer HUGH B. PRICE, President and Chief Corning, Inc. Executive Officer BRUCE K. MACLAURY, President Emeritus National Urban League The Brookings Institution NED REGAN, President COLETTE MAHONEY, President Emeritus Baruch College Marymount Manhattan College WILLIAM R. RHODES, Vice Chairman ELLEN R. MARRAM, Partner Citigroup Inc. North Castle Partners JAMES Q. RIORDAN, Chairman ALONZO L. MCDONALD, Chairman and Chief Quentin Partners Co. Executive Officer E. B. ROBINSON, JR., Chairman Emeritus Avenir Group, Inc. Deposit Guaranty Corporation EUGENE R. MCGRATH, Chairman, President and ROY ROMER Chief Executive Officer Former Governor of Colorado Consolidated Edison Company of New York, Inc. Superintendent, Los Angeles Unified School District DAVID E. MCKINNEY, President DANIEL ROSE, Chairman The Metropolitan Museum of Art Rose Associates, Inc.
*Life Trustee HOWARD M. ROSENKRANTZ, Chief Executive Officer RICHARD F. SYRON, President and Chief Grey Flannel Auctions Executive Officer Thermo Electron Corporation LANDON H. ROWLAND, Chairman, President and Chief Executive Officer HENRY TANG, Chairman Stilwell Financial Inc. Committee of 100 NEIL L. RUDENSTINE, Chair, ArtStor Advisory Board FREDERICK W. TELLING, Vice President Corporate The Andrew Mellon Foundation Strategic Planning and Policy Division Pfizer Inc. GEORGE RUPP, President Columbia University JAMES A. THOMSON, President and Chief Executive Officer GEORGE F. RUSSELL, JR. RAND Sunshine Management Services, LLC CHANG-LIN TIEN, NEC Distinguished Professor of EDWARD B. RUST, JR., Chairman and Chief Engineering Emeritus Executive Officer University of California, Berkeley State Farm Insurance Companies THOMAS J. TIERNEY, Founder ARTHUR F. RYAN, Chairman and Chief The Bridgespan Group Executive Officer The Prudential Insurance Company of America STOKLEY P. TOWLES, Partner Brown Brothers Harriman & Co. MARGUERITE W. SALLEE, Chairman and Chief Executive Officer STEPHEN JOEL TRACHTENBERG, President Brown Schools George Washington University STEPHEN W. SANGER, Chairman and Chief JAMES L. VINCENT, Chairman Executive Officer Biogen, Inc. General Mills, Inc. DONALD C. WAITE, III, Director BERTRAM L. SCOTT, President McKinsey & Company, Inc. TIAA-CREF Life Insurance Company HERMINE WARREN, President MICHAEL M. SEARS, Senior Vice President and Hermine Warren Associates, Inc. Chief Financial Officer ARNOLD R. WEBER, President Emeritus The Boeing Company Northwestern University WALTER H. SHORENSTEIN, Chairman of the Board JOHN F. WELCH, JR., Chairman and Chief The Shorenstein Company Executive Officer (retired) * GEORGE P. SHULTZ, Distinguished Fellow GE The Hoover Institution JOSH S. WESTON, Honorary Chairman Stanford University Automatic Data Processing, Inc. JOHN C. SICILIANO, Director, Global Institutional CLIFTON R. WHARTON, JR., Former Chairman Services and Chief Executive Officer Dimensional Fund Advisors TIAA-CREF RUTH J. SIMMONS, President DOLORES D. WHARTON, Former Chairman and Brown University Chief Executive Officer FREDERICK W. SMITH, Chairman, President and The Fund for Corporate Initiatives, Inc. Chief Executive Officer RICHARD WHEELER, Chief Executive Officer Federal Express Corporation InContext Data Systems, Inc. JOHN F. SMITH, JR., Chairman MICHAEL W. WICKHAM, Chairman and Chief General Motors Corporation Executive Officer DAVID A. SPINA, Chairman and Chief Roadway Express, Inc. Executive Officer HAROLD M. WILLIAMS, President Emeritus State Street Corporation The J. Paul Getty Trust ALAN G. SPOON, Managing General Partner J. KELLEY WILLIAMS, Chairman and Chief Polaris Ventures Executive Officer STEPHEN STAMAS, Chairman ChemFirst Inc. The American Assembly L. R. WILSON, Chairman JOHN L. STEFFENS, Managing Director Nortel Networks Corporation Spring Mountain Capital LINDA SMITH WILSON, President Emerita PAULA STERN, President Radcliffe College The Stern Group, Inc. MARGARET S. WILSON, Chairman and Chief DONALD M. STEWART, President and Chief Executive Officer Executive Officer Scarbroughs The Chicago Community Trust JACOB J. WORENKLEIN, Global Head of Project ROGER W. STONE, Chairman and Chief & Sectorial Finance Executive Officer Societe Generale Box USA Group, Inc. KURT E. YEAGER, President and Chief Executive MATTHEW J. STOVER, President Officer LKM Ventures Electric Power Research Institute RICHARD J. SWIFT, Chairman, President and Chief MARTIN B. ZIMMERMAN, Vice President, Executive Officer Governmental Affairs Foster Wheeler Corporation Ford Motor Company
*Life Trustee CED HONORARY TRUSTEES
RAY C. ADAM, Retired Chairman JOHN T. FEY NL Industries Park City, Utah O. KELLEY ANDERSON JOHN M. FOX Boston, Massachusetts Sapphire, North Carolina ROBERT O. ANDERSON, Retired Chairman DON C. FRISBEE, Chairman Emeritus Hondo Oil & Gas Company PacifiCorp ROY L. ASH RICHARD L. GELB, Chairman Emeritus Los Angeles, California Bristol-Myers Squibb Company SANFORD S. ATWOOD, President Emeritus W. H. KROME GEORGE, Retired Chairman Emory University ALCOA ROBERT H. B. BALDWIN, Retired Chairman WALTER B. GERKEN, Chairman, and Chief Morgan Stanley Group Inc. Executive Officer (Retired) GEORGE F. BENNETT, Chairman Emeritus Pacific Life Insurance Company State Street Investment Trust LINCOLN GORDON, Guest Scholar HAROLD H. BENNETT The Brookings Institution Salt Lake City, Utah JOHN D. GRAY, Chairman Emeritus JACK F. BENNETT, Retired Senior Vice President Hartmarx Corporation Exxon Corporation JOHN R. HALL, Retired Chairman HOWARD W. BLAUVELT Ashland Inc. Keswick, Virginia RICHARD W. HANSELMAN, Chairman MARVIN BOWER Health Net Inc. Delray Beach, Florida ROBERT A. HANSON, Retired Chairman ALAN S. BOYD Deere & Company Lady Lake, Florida ROBERT S. HATFIELD, Retired Chairman ANDREW F. BRIMMER, President The Continental Group, Inc. Brimmer & Company, Inc. ARTHUR HAUSPURG, Member, Board of Trustees HARRY G. BUBB, Chairman Emeritus Consolidated Edison Company of New York, Inc. Pacific Mutual Life Insurance PHILIP M. HAWLEY, Retired Chairman of the Board PHILIP CALDWELL, Chairman (Retired) Carter Hawley Hale Stores, Inc. Ford Motor Company ROBERT C. HOLLAND, Senior Fellow HUGH M. CHAPMAN, Retired Chairman The Wharton School NationsBank South University of Pennsylvania E. H. CLARK, JR., Chairman and Chief LEON C. HOLT, JR., Retired Vice Chairman Executive Officer Air Products and Chemicals, Inc. The Friendship Group SOL HURWITZ, Retired President A.W. CLAUSEN, Retired Chairman and Chief Committee for Economic Development Executive Officer GEORGE F. JAMES BankAmerica Corporation Ponte Vedra Beach, Florida DOUGLAS D. DANFORTH DAVID KEARNS, Chairman Emeritus Executive Associates New American Schools JOHN H. DANIELS, Retired Chairman and GEORGE M. KELLER, Chairman of the Board, Retired Chief Executive Officer Chevron Corporation Archer-Daniels Midland Co. FRANKLIN A. LINDSAY, Retired Chairman RALPH P. DAVIDSON Itek Corporation Washington, D.C. ROY G. LUCKS ALFRED C. DECRANE, JR., Retired Chairman and San Francisco, California Chief Executive Officer ROBERT W. LUNDEEN, Retired Chairman Texaco, Inc. The Dow Chemical Company ROBERT R. DOCKSON, Chairman Emeritus IAN MACGREGOR, Retired Chairman CalFed, Inc. AMAX Inc. LYLE EVERINGHAM, Retired Chairman RICHARD B. MADDEN, Retired Chairman and The Kroger Co. Chief Executive Officer THOMAS J. EYERMAN, Retired Partner Potlatch Corporation Skidmore, Owings & Merrill FRANK L. MAGEE Stahlstown, Pennsylvania AUGUSTINE R. MARUSI ROBERT M. PRICE, Former Chairman and Lake Wales, Florida Chief Executive Officer WILLIAM F. MAY, Chairman and Chief Control Data Corporation Executive Officer JAMES J. RENIER Statue of Liberty-Ellis Island Foundation, Inc. Renier & Associates OSCAR G. MAYER, Retired Chairman IAN M. ROLLAND, Former Chairman and Chief Oscar Mayer & Co. Executive Officer GEORGE C. MCGHEE, Former U.S. Ambassador Lincoln National Corporation and Under Secretary of State AXEL G. ROSIN, Retired Chairman JOHN F. MCGILLICUDDY, Retired Chairman Book-of-the-Month Club, Inc. and Chief Executive Officer WILLIAM M. ROTH Chemical Banking Corporation Princeton, New Jersey JAMES W. MCKEE, JR., Retired Chairman RALPH S. SAUL, Former Chairman of the Board CPC International, Inc. CIGNA Companies CHAMPNEY A. MCNAIR, Retired Vice Chairman GEORGE A. SCHAEFER, Retired Chairman of the Board Trust Company of Georgia Caterpillar, Inc. J. W. MCSWINEY, Retired Chairman of the Board ROBERT G. SCHWARTZ The Mead Corporation New York, New York ROBERT E. MERCER, Retired Chairman MARK SHEPHERD, JR., Retired Chairman The Goodyear Tire & Rubber Co. Texas Instruments, Inc. RUBEN F. METTLER, Retired Chairman and ROCCO C. SICILIANO Chief Executive Officer Beverly Hills, California TRW Inc. ELMER B. STAATS, Former Controller LEE L. MORGAN, Former Chairman of the Board General of the United States Caterpillar, Inc. FRANK STANTON, Former President ROBERT R. NATHAN, Chairman CBS, Inc. Nathan Associates, Inc. EDGAR B. STERN, JR., Chairman of the Board J. WILSON NEWMAN, Retired Chairman Royal Street Corporation Dun & Bradstreet Corporation ALEXANDER L. STOTT JAMES J. O’CONNOR, Former Chairman and Chief Fairfield, Connecticut Executive Officer WAYNE E. THOMPSON, Past Chairman Unicom Corporation Merritt Peralta Medical Center LEIF H. OLSEN, President THOMAS A. VANDERSLICE LHO GROUP TAV Associates NORMA PACE, President JAMES E. WEBB Paper Analytics Associates Washington, D.C. CHARLES W. PARRY, Retired Chairman SIDNEY J. WEINBERG, JR., Senior Director ALCOA The Goldman Sachs Group, Inc. WILLIAM R. PEARCE, Director ROBERT C. WINTERS, Chairman Emeritus American Express Mutual Funds Prudential Insurance Company of America JOHN H. PERKINS, Former President ARTHUR M. WOOD Continental Illinois National Bank and Trust Company Chicago, Illinois RUDOLPH A. PETERSON, President and Chief RICHARD D. WOOD, Director Executive Officer (Emeritus) Eli Lilly and Company BankAmerica Corporation CHARLES J. ZWICK DEAN P. PHYPERS Coral Gables, Florida New Canaan, Connecticut EDMUND T. PRATT, JR., Retired Chairman and Chief Executive Officer Pfizer Inc. CED RESEARCH ADVISORY BOARD
Chairman JOHN P. WHITE ALAIN C. ENTHOVEN ROBERT LITAN Lecturer in Public Policy Marriner S. Eccles Professor of Public Vice President, Director of Economic John F. Kennedy School of Government and Private Management Studies Harvard University Stanford University The Brookings Institution Graduate School of Business PAUL ROMER BENJAMIN M. FRIEDMAN STANCO 25 Professor of Economics William Joseph Maier Professor of Stanford University Political Economy Graduate School of Business Harvard University JAGDISH BHAGWATI CECILIA E. ROUSE Arthur Lehman Professor of Economics ROBERT W. HAHN Professor of Economics and Public Affairs Columbia University Resident Scholar Woodrow Wilson School RALPH D. CHRISTY American Enterprise Institute Princeton University J. Thomas Clark Professor HELEN F. LADD DAVID WESSEL Department of Agricultural, Resource, Professor of Public Policy Studies and Assistant Bureau Chief/Columnist and Managerial Economics Economics The Wall Street Journal Cornell University Sanford Institute of Public Policy Duke University CED PROFESSIONAL AND ADMINISTRATIVE STAFF
CHARLES E.M. KOLB President
Research Communications/Government Relations Development EVERETT M. EHRLICH CLAUDIA P. FEUREY MARTHA E. HOULE Senior Vice President and Vice President for Communications Vice President for Development and Director of Research and Corporate Affairs Secretary of the Board of Trustees MICHAEL J. PETRO GLORIA Y. CALHOUN Vice President and Director of Development Assistant VAN DOORN OOMS Business and Government Policy Senior Fellow and Chief of Staff CAROLINA LOPEZ Manager, Development JANET HANSEN CHRIS DREIBELBIS Vice President and Director Business and Government Policy SANDRA L. MARTINEZ of Education Studies Associate Development Associate ELLIOT SCHWARTZ VALERIE MENDELSOHN RICHARD M. RODERO Vice President and Director Conference Manager and Secretary of Director of Development of Economic Studies the Research and Policy Committee Finance and Administration ALEXANDRA BEATTY THOMAS NELSON Senior Project Director for Education Public Affairs and Communications KAREN CASTRO Manager Director of Finance and Administration MICHAEL BERG Research Associate CHRISTINE RYAN HOOJU CHOI Public Affairs Associate Database Administrator JEFF LOESEL Research Associate ROBIN SAMERS SHARON A. FOWKES Assistant Director of Communications Executive Assistant to the President NORA LOVRIEN Research Associate ARLENE M. MURPHY Executive Assistant to the President and Office Manager Advisor on International Economic Policy DENISE SMITH ISAIAH FRANK Finance and Administration Assistant William L. Clayton Professor AMANDA TURNER of International Economics The Johns Hopkins University Office Manager STATEMENTS ON NATIONAL POLICY ISSUED BY THE COMMITTEE FOR ECONOMIC DEVELOPMENT
SELECTED PUBLICATIONS:
A New Vision for Health Care: A Leadership Role for Business (2002) Preschool For All: Investing In a Productive and Just Society (2002) From Protest to Progress: Addressing Labor and Environmental Conditions Through Freer Trade (2001) The Digital Economy: Promoting Competition, Innovation, and Opportunity (2001) Reforming Immigration: Helping Meet America's Need for a Skilled Workforce (2001) Measuring What Matters: Using Assessment and Accountability to Improve Student Learning (2001) Improving Global Financial Stability (2000) The Case for Permanent Normal Trade Relations with China (2000) Welfare Reform and Beyond: Making Work Work (2000) Breaking the Litigation Habit: Economic Incentives for Legal Reform (2000) New Opportunities for Older Workers (1999) Investing in the People's Business: A Business Proposal for Campaign Finance Reform (1999) The Employer’s Role in Linking School and Work (1998) Employer Roles in Linking School and Work: Lessons from Four Urban Communities (1998) America’s Basic Research: Prosperity Through Discovery (1998) Modernizing Government Regulation: The Need For Action (1998) U.S. Economic Policy Toward The Asia-Pacific Region (1997) Connecting Inner-City Youth To The World of Work (1997) Fixing Social Security (1997) Growth With Opportunity (1997) American Workers and Economic Change (1996) Connecting Students to a Changing World: A Technology Strategy for Improving Mathematics and Science Education (1995) Cut Spending First: Tax Cuts Should Be Deferred to Ensure a Balanced Budget (1995) Rebuilding Inner-City Communities: A New Approach to the Nation’s Urban Crisis (1995) Who Will Pay For Your Retirement? The Looming Crisis (1995) Putting Learning First: Governing and Managing the Schools for High Achievement (1994) Prescription for Progress: The Uruguay Round in the New Global Economy (1994) *From Promise to Progress: Towards a New Stage in U.S.-Japan Economic Relations (1994) U.S. Trade Policy Beyond The Uruguay Round (1994) In Our Best Interest: NAFTA and the New American Economy (1993) What Price Clean Air? A Market Approach to Energy and Environmental Policy (1993) Why Child Care Matters: Preparing Young Children For A More Productive America (1993) Restoring Prosperity: Budget Choices for Economic Growth (1992) The United States in the New Global Economy: A Rallier of Nations (1992) The Economy and National Defense: Adjusting to Cutbacks in the Post-Cold War Era (1991) Politics, Tax Cuts and the Peace Dividend (1991) The Unfinished Agenda: A New Vision for Child Development and Education (1991)
*Statements issued in association with CED counterpart organizations in foreign countries. Foreign Investment in the United States: What Does It Signal? (1990) An America That Works: The Life-Cycle Approach to a Competitive Work Force (1990) Breaking New Ground in U.S. Trade Policy (1990) Battling America’s Budget Deficits (1989) *Strengthening U.S.-Japan Economic Relations (1989) Who Should Be Liable? A Guide to Policy for Dealing with Risk (1989) Investing in America’s Future: Challenges and Opportunities for Public Sector Economic Policies (1988) Children in Need: Investment Strategies for the Educationally Disadvantaged (1987) Finance and Third World Economic Growth (1987) Reforming Health Care: A Market Prescription (1987) Work and Change: Labor Market Adjustment Policies in a Competitive World (1987) Leadership for Dynamic State Economies (1986) Investing in Our Children: Business and the Public Schools (1985) Fighting Federal Deficits: The Time for Hard Choices (1985) Strategy for U.S. Industrial Competitiveness (1984) Productivity Policy: Key to the Nation’s Economic Future (1983) Energy Prices and Public Policy (1982) Public Private Partnership: An Opportunity for Urban Communities (1982) Reforming Retirement Policies (1981) Transnational Corporations and Developing Countries: New Policies for a Changing World Economy (1981) Stimulating Technological Progress (1980) Redefining Government’s Role in the Market System (1979) Jobs for the Hard to Employ: New Directions for a Public-Private Partnership (1978) CED COUNTERPART ORGANIZATIONS
Close relations exist between the Committee for Economic Development and inde- pendent, nonpolitical research organizations in other countries. Such counterpart groups are composed of business executives and scholars and have objectives similar to those of CED, which they pursue by similarly objective methods. CED cooperates with these organizations on research and study projects of common interest to the various countries concerned. This program has resulted in a number of joint policy statements involving such international matters as energy, East-West trade, assis- tance to developing countries, and the reduction of nontariff barriers to trade.
CE Circulo de Empresarios Madrid, Spain
CEAL Consejo Empresario de America Latina Buenos Aires, Argentina
CEDA Committee for Economic Development of Australia Sydney, Australia
EVA Centre for Finnish Business and Policy Studies Helsinki, Finland
FAE Forum de Administradores de Empresas Lisbon, Portugal
FDE Belgian Enterprise Foundation Brussels, Belgium
IDEP Institut de l’Entreprise Paris, France
IW Institut der deutschen Wirtschaft Koeln Cologne, Germany
Keizai Doyukai Tokyo, Japan
SMO Stichting Maatschappij en Onderneming The Netherlands
SNS Studieförbundet Naringsliv och Samhälle Stockholm, Sweden