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Institutions, Interconnectedness, and Inclusiveness: Three “I”s for better lives in Eurasia

24 November 2014
by Guest author
Photo courtesy of H.E. Ms. Ingrid BROCKOVA , Permanent Representative of the Slovak Republic to the OECD

Photo courtesy of H.E. Ms. Ingrid BROCKOVA , Permanent Representative of the Slovak Republic to the OECD

Today’s post is by Marcos Bonturi, Director of the OECD Global Relations Secretariat

The world has had its eyes riveted on the tensions in Ukraine. The rest of the Eurasia region in particular is facing important economic and political challenges as a result of these tensions.

The region, at a crossroads between Russia, China, India and Europe, has had some success in the past couple of decades in transitioning from a planned to a market economy. Countries have enacted sweeping reforms to diversify their economies, improve the business climate and attract foreign direct investment. As a result, from 1995 to 2013, regional gross output more than doubled from USD 144 billion to almost USD 360 billion[1]. International investors have flocked to the region – between 1997 and 2013, net inflows of foreign direct investment increased more than six-fold, at an annual average rate of 12.4%[2]. During the financial crisis the region managed to maintain a strong GDP growth rate, which in 2013 was as high as 4.5%[3]. This upward growth trend has brought the majority of Eurasia countries into the middle income country bracket[4] and lifted about 32 million people out of poverty over the past decade[5] . Growth has been buttressed in many countries by access to vast natural resources – the Eurasia region holds mineral supplies of gold and bauxite, more than 125 years of gas reserves[6], 35 years of oil reserves[7] and 10% of the world’s agricultural land[8].

Yet international experience has shown that strong economic growth and generous resource endowments alone are not enough to guarantee social peace and prosperity, especially in a region as diverse as Eurasia. Since the collapse of the Soviet Union, the economic development of the region has been underpinned by rising commodity prices which have attracted investment in resource-rich countries such as Azerbaijan, Kazakhstan, Mongolia, Turkmenistan and Uzbekistan. This trend has made economies of the region highly susceptible to fluctuations in commodity prices and increased their dependence on the export of natural resources. It has also led to disparities in income per capita between resource-rich countries and resource-poor countries. While some resource-poor countries such as Armenia, Belarus, Georgia, Moldova and Ukraine have acquired middle-income status thanks to the industrial legacy of the ex-Soviet Union, others such as Afghanistan, Kyrgyzstan and Tajikistan are unable to exit the lower income brackets despite growing trade with their resource-rich neighbours.

To unlock sustainable peace and prosperity in the region, countries will need to widen their approach to economic reform and tackle three underlying obstacles to their development: institutions, interconnectedness and inclusiveness.

First, Eurasian countries need to strengthen their institutions and improve governance, both in the public and private sectors. Burdensome administrative processes, insufficient transparency and broad-based corruption – especially in the resource-rich economies –undermine public trust in institutions and stifle economic growth across the region. While for the low-income countries, building basic institutions and helping firms access financing is the most urgent priority, the middle-income economies of the region need to improve their regulatory frameworks to cut red tape and increase efficiencies. Innovation policies that heighten productivity will help the resource-rich countries diversify their economies and build a less commodity-dependent growth model.

Second, countries of the region need to boost their interconnectedness to regional and global markets.

Strengthening trade links, keeping markets open, investing in infrastructure, and integrating into global value chains are priorities across the region. For the resource-poor countries, this is especially critical as stronger linkages to global value chains will bring access to new markets, technologies and know-how, and drive job creation at home. Greater connectedness will also help the resource-rich countries diversify their economies and attract investment to the non-extractive sectors. Establishing mutually beneficial trade linkages with regional “heavyweights” can also help solidify relationships with powerful neighbours.

Third, governments must take action to ensure that rising national wealth is not highly concentrated in the hands of few, but is shared more equitably among all citizens. With inequalities and youth unemployment on the rise across the region, a first step to foster inclusive growth will be to reform Eurasia’s education and training systems, which often date from the Soviet era. Governments will also need to encourage a more transparent and open dialogue between the public and private sectors and reduce barriers to small- and medium-sized enterprise development, drivers of job creation and innovation.

The OECD stands ready to support countries in Eurasia to design and implement reforms that will enhance their transparency, inclusiveness and integration in the global economy, and ultimately pave the way for a peaceful and prosperous future for all of the region’s citizens.

The OECD’s Eurasia Competitiveness Programme was established in 2008 to help the Eurasia region overcome these transition challenges, develop more vibrant and competitive markets, and uncover its vast potential. High-level representatives from Eurasia and OECD countries will meet at OECD Headquarters in Paris from 24-27 November 2014 for the first Eurasia Week, to exchange perspectives on “Enhancing Competitiveness in Eurasia”, assess progress made, and agree on a roadmap for the region’s future reforms.

References

[1] OECD calculations based on World Bank data, 2014

[2] OECD calculations based on World Bank data, 2014

[3] OECD calculations based on World Bank data, 2014

[4] For the current 2015 fiscal year, middle-income economies are those with a GNI per capita of more than $1,045 but less than $12,746 (World Bank).

[5] OECD Calculations based on World Bank (2014) “Diversified Development: Making the most of natural resources in Eurasia”, Washington D.C. and World Bank World Development database.

[6] BP Statistical Review of World Energy 2014

[7] BP Statistical Review of World Energy 2014

[8] OECD calculations based on World Bank data, 2014

Engaging people: 12 lessons for communicating about development

24 November 2014
by Guest author

12-lessonsToday’s post is from Erik Solheim, Chair of the OECD Development Assistance Committee, and Hans-Jürgen Heimsoeth, Chair of the Governing Board of the OECD Development Centre.

The financial commitment to development co-operation has never been higher. In 2013, the global total reached USD 135 billion. For the first time ever, the United Kingdom reached the target of 0.7% of national income, and this happened in times of great economic austerity. Turkey – a middle-income country – increased its official development assistance more than any other European country and is now above the OECD average. And Ireland continued its commitment to fighting global hunger — even with a severe economic crisis at home — founded on a strong public and political consensus regarding the importance of helping the world’s poorest people.

These extraordinary achievements would not have been possible without leadership and strong public support. People support development co-operation out of solidarity with people who have less. Development co-operation must therefore inspire – and be able to withstand – critical assessment from the public.

This means we must be better at telling people what an enormous success story global development has been. Extreme poverty has been halved in a few decades, bringing more than 600 million people out of poverty in China alone. The mortality rate for children under the age of five has been almost halved, saving 17,000 children every day. Life expectancy will soon pass 70 years.

Success is inspiring. It leads to support. But development partners must also be better at explaining their failures. Why did the international community fail to react at an early stage to the political crisis in South Sudan, which eventually led to ethnic warfare and a humanitarian crisis? Why did we fail to contain Ebola in its early phases in the three most affected West African countries? Public debate should be informed by facts. Criticism is a good thing when it brings the world forward.

Countries also provide official development assistance out of enlightened national interest. It is in everyone’s interest to have a planet that is not wrecked by climate change, deforestation and the pollution of our rivers and oceans. Peace and prosperity in one part of the world increase trade and reduce the risk of drug trafficking, conflict and terrorism in others. The effects are felt by developed and developing countries alike. Development co-operation is an opportunity to exert leadership in the world. It should be an integral part of foreign affairs and national strategy.

Leadership is essential. It inspires others and encourages people to take control of the future they want. President Obama’s Power Africa initiative brings US companies together to provide clean energy to Sub-Saharan Africa, where 70% of the population is without electricity. Norway is working with Brazil, Indonesia and other rainforest countries to reduce deforestation under the UN-REDD initiative. President Denis Sassou Nguesso of the Republic of the Congo broke ground by announcing a tax-per-barrel on oil to fight childhood malnutrition across the world as part of French-initiated Unitaid financing scheme!

Development co-operation can also be risky. Most people understand this. It is obviously safer to provide loans for hydropower development in China or Brazil than it is to support the government of the Central African Republic in providing basic services. Yet donors have committed to supporting fragile states, following the priorities of recipient governments and using country systems. Providers of development co-operation should not be afraid of explaining risk and helping people understand why it is important to work in difficult places. Working together also reduces risk. It is easier for a minister or an aid agency to explain why development co-operation is supporting the judicial system in Somalia when people know that this is what the Somali government has requested and that the European Union, the United States and Turkey support the same thing.

We welcome and endorse these 12 Lessons for Engaging with the Public, published today:

  1. Public engagement builds support and makes development policies more effective.
  2. Improving communication increases transparency.
  3. Understand your audience.
  4. Have a clear, strategic vision.
  5. Develop and deliver a coherent narrative.
  6. Communicate results – good and bad.
  7. Leverage partnerships to achieve objectives.
  8. Make room for creativity and innovation.
  9. Ensure branding is appropriate.
  10. Promote communication and co-ordination institutionally.
  11. Match resources and expertise with ambition.
  12. Evaluate and learn from experience.

The lessons are based on evidence and experience from Development Assistance Committee (DAC) peer reviews and from the Network of DAC Development Communicators, which the OECD Development Centre hosts and co-ordinates. The 12 Lessons offer policy makers a timely and important reminder that public support for development co-operation can never be taken for granted. They tell us that we need to be more humble when we engage with citizens and taxpayers to ensure that our efforts speak to what people think and know.

As accountable policy makers, we need to share information in a meaningful, timely and accessible way. We need to ensure that development co-operation ministries and agencies enable success by acknowledging the strategic importance of communication, awareness-raising and development education, and that they invest time, money and capacity in these activities.

Public debate around development co-operation needs to be broader and more open to better reflect the new world we live in. At the same time, we must learn to be more positive and engaging. No one has heard of a successful company advertising that the world is going under, their customers are worse off than ever, and that their products often fail!

Let’s take a cue from these 12 Lessons and use them to communicate about the positive, life-saving results of development co-operation.

Useful links

OECD work on development

OECD Development Centre work on communication and development

From aid to development (OECD Insights)

An innovative public sector?

22 November 2014
OPSI

Click for details of the forum on public sector innovation

Today’s post is by Hannah Kitchen, Policy Analyst in the Observatory of Public Sector Innovation (OPSI), of the OECD Public Governance and Territorial Development Directorate.

Last week over three hundred people from the public, private and civil society sectors descended on the OECD in Paris. Why? To discuss an innovative public sector. For some of you that might sound like an oxymoron, but over two days stereotypes were left at the door as participants shared stories and learnt about innovation in the public sector.

The conference on Innovating the Public Sector: from Ideas to Impact showcased the public sector at its best. Innovators from around the world stood on stage to give short, dynamic talks about what they were doing at home. There were talks about evidence and innovation in the United States; about police using social media in Iceland; and one about reducing visa applications in Turkey to three minutes online.

Participants also rolled up their sleeves to experiment with innovative approaches for policy making. They tried out design for public services, by mapping their own journey to the OECD and considering how it could be improved. They heard from policy makers from Chile to the United Kingdom, who shared their stories about how they are using innovation labs to build experimental, practical spaces to trial new ways of working and share what works.

Despite all this enthusiasm, the overwhelming consensus was that innovation in the public sector is still no easy feat. It’s difficult to get support from above, it’s difficult to have the time and space to come up with innovative solutions, it’s difficult to find the resources for unproven approaches, and it’s difficult rally others.

Over the past couple of years the OECD has been working with countries to develop the Observatory of Public Sector Innovation, to help them make the most of innovation. The Observatory puts the experiences of innovators from across the world at everyone’s finger tips. Want to know how the Icelandic police actually made social media work for them; or a Finnish hospital used service design to develop a better, more user friendly hospital? The Observatory contains hundreds of examples from across the OECD about how public services are developing more effective, innovative services.

It shows how countries are innovating across the whole policy making process. They are opening up policy making, so that a broader range of actors can shape policies. One way that they are doing this is by making the most of technological developments. Austria for example, is designing new strategies by crowdsourcing comments, advice and ideas from the public demonstrating how governments can involve a wider range of perspectives to source innovative ideas.

The Observatory also demonstrates that innovation is as much about the journey as the results at the end. That means rethinking how to design new services and embracing experimental approaches, prototyping, and trial and error. Public organisations need more agility, more testing and more experimenting on a small scale before investing large sums to roll out a new policy or service. In the United Kingdom for example, the use of randomised control trials is providing real evidence on the results of policy interventions on a small scale, providing a clear evidence base for action. In Australia, the Concept Lab allows the government to trial and fully evaluate potential improvements to services for families, the unemployed, care givers and parents under actual workplace conditions prior to wider roll-out.

Perhaps most importantly, the Observatory also highlights how innovation is resulting in better solutions for citizens, by responding to citizens’ needs, moving the services to them. In France, unoccupied rooms in housing are being used so that the elderly can share flats with others, at once reducing their social isolation and making use of existing underexploited resources. In Sweden, parents can now access information about their child benefits directly from their phone through an app, which also includes up-to-date information for all citizens on their old age pensions.

The Observatory is also an innovation in itself. It was built with an agile, staged approach. Users in countries were involved throughout, testing and retesting prototypes to ensure that it delivers on user needs and to enhance the user experience. More importantly it is a direct interface with innovators themselves – from local schools and hospitals to central government offices – anyone working in the public sector with a story to tell about innovation can use the Observatory to reach an international audience. Through its interactive features users can make their views heard by voting in regular polls, discuss with other users to learn about their experiences, ask questions, and even create their own groups for collaborative projects.

It is just at the beginning of its story. Over the coming months and years we hope that many more people across the public service and beyond will use the Observatory to interact with others and share their examples of innovation.

Have a glimpse of Observatory by watching this video:

The Ripple Effect: Water-Energy-Food Nexus

21 November 2014
by Guest author
Click to find out more about the Global Forum on Environment

Click to find out more about the Global Forum on Environment

Today’s post is by Naazia Ebrahim of the OECD Environment Directorate

In Rule of Experts: Egypt, Techno-Politics, Modernity, Timothy Mitchell tells how in 1942, an epidemic of gambiae malaria in Egypt was caused by a perfect storm of interactions between rivers, dams, fertilisers, food webs, and the influences of World War II. It began with the building of the Aswan Dam and its storage reservoirs around the Nile, which provided the anopheles mosquito with new breeding spots. Thanks to the dams, basin irrigation was replaced by perennial irrigation, encouraging a denser population of humans who no longer needed to disperse to avoid flooding. Government protectionism on behalf of the sugarcane industry then helped it expand at the expense of food-growing lands, while new irrigation techniques led to reduced soil fertility. When ammonia was diverted from fertilizer to explosives manufacturing for World War II, the resulting malnourishment and closely populated settlements created an easy target for this particularly social mosquito.

Splitting technological, agricultural, epidemiological, and geopolitical considerations into separate boxes led at least in part to the epidemic. The engineers building the dam could never have imagined the ripple effects their work created. But today, we know better (well, somewhat at least: it’s worth noting that deforestation has been strongly linked to the Ebola epidemic). And, with studies estimating that the global demand for water, energy, and food will increase by 55%, 80%, and 60% respectively by 2050, those ripple effects are going to be all the more critical – especially between these three areas .

Risks in one sector often correlate with risks in the others – but equally often, decreasing the risk in one sector causes it to increase dramatically in others. Figuring out how to provide enough water for wheat farming, hydropower generation, and maintaining local ecosystems, while still decreasing carbon emissions, is not an easy task.

The world is facing unprecedented stresses, and we are going to need an unprecedented response. We’re doing our best to help create that response at the OECD. Next week we’re hosting a forum on the nexus between water, energy and food. We’re looking forward to discussing (with senior private sector leaders, policy experts and government officials) ways to manage these trade-offs, co-ordinate planning across sectors, anticipate unexpected developments, engage business, and minimise risks across all three sectors. If we get it right, there’s potential for huge collaborative gains.

During all this work, it’s worth remembering that the malaria epidemic was often framed as one of intelligence versus nature. But intelligence and technological advancement were not created through externally imposed “solutions”. Rather, they were developed iteratively by engaging and interacting with the challenges. We have no doubt that the same will be true here.

Useful links

OECD work on Biodiversity, water and natural resource management

Export restrictions: facts, fallacies and shovels

20 November 2014

export restrictionsFollowing the twin discovery that governments were composed of politicians and that politicians mostly don’t look much beyond the next election, the OECD created the International Futures Programme (IFP) to encourage long-term thinking. A few years later, the UK government decided to set up a foresight unit, and in 2004 I went as IFP representative to a meeting in London where holders of stakes in different industries discussed what strategic thinking meant to them. It was much as you’d expect, with the oil industry explaining that they worked on a 50-year horizon, the pensions industry even longer, the finance industry losing interest after two seconds and going to look for something more exciting… The one surprise was the chief economist of a big mining company. “We don’t bother with strategic planning” he explained. “We get all we need from geological surveys and the market. So if the price of copper, say, is going up, we dig till there’s none left then move elsewhere. If it’s going down, we lean on our shovels until it goes back up again”.

I’d like to say they went bankrupt shortly after, but looking at the company’s performance, this charmingly down to earth approach seems to work well. At least if you already own a big enough share of the things your business depends on and everybody else needs them. That is practically never the case though for any firm, or even for a country. So as a new OECD report on export restrictions points out, since “no country is self-sufficient in every raw material, it follows that virtually all countries are vulnerable to any attempt to restrict the export of at least some commodities.”

And yet, the use of export restrictions seems to have increased over the past decade. The OECD Inventory of Restrictions on Trade in Raw Materials lists over a dozen ways this can be done, but the three most common are making exporters apply for a permit, putting a tax on exports, and restricting the quantity of a product that can be exported. All raw materials sectors are affected, from minerals and metals to forestry and agriculture products.

Emerging and developing countries use export restrictions most, although they’re not the only ones. But their citizens can suffer the most. Oxfam puts it like this: “you might think that governments would take urgent action to address fragility in the food system. But […] Governments often exacerbate volatility through their responses to higher food prices. In 2008 the global food system teetered on the edge of the abyss as, one after the other, more than 30 countries slapped export restrictions on their agricultural sectors in a giddying downward spiral of collapsing confidence”.

So why do they do it? The idea is that by restricting exports, more of the product is available on the home market, making it cheaper than it would be otherwise for local firms, thereby helping them to grow and compete on world markets. (Except for the producer of the restricted commodity). This probably works wonderfully well in countries with large reserves of iron ore whose principal activity is manufacturing lumps of iron in home-made forges for the weightlifting trade. And on the assumption that all its trading partners let it do this and don’t put up the price of anything in retaliation.

Because once you start getting into more sophisticated products, the advantages of export restrictions disappear. These days, final products rely heavily on the so-called “intermediate products” used to make them, sourced from the world’s global value chains. They can be high-tech items such as computer chips or very low tech, like wood planks, but more often than not they’re imported. The new OECD report describes an analysis of the impact in a number of sectors of what would happen if export taxes were simultaneously removed on steel and steelmaking raw materials. It finds that “When regions that apply export taxes remove these in coordination with similar action by trading partners, their downstream industries actually benefit.”

In their report mentioned above, among the solutions Oxfam proposes in relation to food, are “increasing transparency in commodities markets, setting rules on export restrictions” (they also call for “an end to trade-distorting agricultural subsidies”). This sounds very similar to the OECD report’s call for “better control, and more transparent use, of export restrictions”. The OECD report goes further though and looks at what alternatives are available to countries thinking of applying (or lifting) export restrictions. Chile for example, rather than concentrating on downstream processing, promotes a range of less capital-intensive and less energy-intensive intermediate goods and services industries linked to mining operations, as do a number of other successful minerals-rich countries.

Finally, this just in. Since I started writing today’s post, I’ve learned that my intro about the different sectors is sooo 2004 and the miner and the trader can be friends. A bipartisan report is to be presented to the US Senate today and tomorrow on Wall Street bank involvement with physical commodities. I feel like quoting whole pages of it in full, but in essence: “Since 2008, Goldman Sachs, JPMorgan Chase, and Morgan Stanley have engaged in many billions of dollars of risky physical commodity activities, owning or controlling, not only vast inventories of physical commodities … but also related businesses, including power plants, coal mines, natural gas facilities, and oil and gas pipelines.”.

I used the copper example, and so do Senators Levin and McCain and their colleagues: “JPMorgan built a copper inventory that peaked at $2.7 billion, and, at one point, included at least 213,000 metric tons of copper, comprising nearly 60% of the available physical copper on the world’s premier copper trading exchange, the London Metal Exchange (LME).” I quoted the homely image of a man and his shovel, and the Senators quote how even these days, market making isn’t all laser beams to transfer data and fancy algorithms to do high frequency trades: “Goldman approved “merry-go-round” transactions in which warehouse clients were paid cash incentives to load aluminum from one Metro warehouse into another, essentially blocking the warehouse exits”. But where we talk abstractly about risk, our men on the Hill cite “injuries, an international incident, or worse”.

That’s the world some policy makers think they can manipulate with export restrictions.

Useful links

OECD work on international trade

International trade: free, fair and open? (OECD Insights)

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