What would a global campaign on production and industrial policy look like?

Regular readers will know that I am a big fan (as well as friend) of Cambridge economist Ha-Joon Chang (right), whose most recentbook,23 Things They Don’t Tell You About Capitalism should be at the top of any policy wonk’s reading list. Last Saturday, he gave a brilliant keynote at the annual conference of the UK Development Studies Association. Its title, ‘Bringing Production Back into Development’, was a deliberate challenge to those in the room, as he argued that the discussion on development has become like Hamlet without the Prince.

The Prince, according to Ha-Joon is ‘productive capabilities’ – the steady upgrading in skills and industry that has characterized virtually every successful experience of national development, including of course his native Korea. From Adam Smith to the 1980s, the consensus was that such upgrading was the core business of development. No longer:

Left and Right both ignore the issue: Neoclassical economics only concerns itself with how to improve the efficiency of market exchange. It assumes away the problem of how to build productive capabilities in the first place. The ‘Left’ is only concerned with regulating capitalism, taxing it properly, then spending the proceeds on the things it cares about – health, education, poverty reduction.

That focus on health and education is important in enhancing individual productive capabilities, but it is not enough. Most upgrading takes place inside large firms, so you need to consider systemic issues via industrial policy and building institutions.

I’m not sure if those in the room realized what a bombshell Ha-Joon was delivering. He was arguing that most of development’s sacred cows – Amartya Sen, the MDGs, basic needs, poverty reduction are missing the main point. I won’t rehearse his arguments any further (just read 23 Things), but over lunch, we discussed the implications for NGOs and others. Is a campaign on industrial upgrading just too weird and abstract to work? Not if you break it down into its components:

At the multilateral level, lots of NGOs have bought into this, for example, criticising intellectual property rules for blocking technology transfer, or pressing to defend ‘policy space’ within the WTO or regional trade agreements, where the powerful countries are actively seeking to reduce the ability of less powerful ones to conduct industrial policy. This is the heart of Ha-Joon’s breakthrough book, Kicking Away the Ladder, and also the subject of a South Centre pamphlet we

wrote together back in 2003, The Northern WTO Agenda on Investment: Do as we Say, Not as we Did. Ha-Joon also wrote a South Centre/Oxfam paper on WTO industrial tariff negotiations. To that could be added international campaigning for a minimum level of corporate taxation (to prevent the race to the bottom), against tax havens etc.

At a national level, NGOs could campaign for natural resource revenues to be used at least partially for industrial upgrading (which would mean they oppose the CGD proposal to spend them all on social protection). This could involve incentives to upgrade technology, train

workers and promote a decent jobs agenda. See second half of this paper by Ha-Joon for more.

More traditional NGO territory such as advocacy on strengthening welfare systems would fit in here, as social security is central to

reducing the human toll of the kind of ‘creative destruction’ involved in industrial upgrading, as firms and jobs rise and fall. Ha Joon also argues that cooperativization is a good way of pursuing upgrading, by adding value to primary products, improving marketing etc.

Politically, such a shift might well be problematic. From my experience working on codes of conduct in supermarket supply chains, I would say that trades unions are more likely to see NGOs as competitors than allies. Arguing that the state should build what we used to call a ‘national bourgeoisie’ – a class of entrepreneurs with a commitment to national upgrading, rather than ‘rent-seeking’ rip off merchants – might well be hard for staff and partners committed to working with grassroots organizations of poor people, who sometimes have a tendency to see all large private sector firms as the enemy.

You could argue that this is not our thing, that we should leave industrial policy issues to governments and other grown-ups. Ha-Joon’s point is that outside national governments, no-one in the system is trying to put the Prince back into the play – not the multilaterals, not the aid donors (who still largely oppose industrial policy as distorting the wonders of the market), and only very few heterodox economists (who he memorably likens to the heroes at Helm’s Deep in Lord of the Rings, fending off an army of neoliberal orcs).

What do you think?

Which ones support industrial policy?

OECD versus Ha-Joon Chang on agricultural policy and poverty reduction: I’m with Chang

A recent launch discussion at Chatham House (but mercifully on the record) on the new OECD book, Agricultural Policies for Poverty Reduction, (powerpoint presentation by author Jonathan Brooks here - keep clicking til it comes up) provides a nice counterpoint to the FAO study discussed over the last couple of days.  The contrast is pretty striking, especially on the role of the state, where Ha-Joon Chang’s focus on policy space and the virtues of pluralism is replaced with a much more grudging acceptance of deviations from ‘sound policies’, which should preferably be closed down as a country starts to develop.

The OECD line (and it is pretty linear, in its view of history) is deeply influenced by its understandable dislike of US and European farm policies, where it advocates a pretty minimalist role for the state of tackling market failures at source, providing public goods like roads and functioning legal systems and introducing safety nets for those who lose out. But not getting involved in the market directly (so it doesn’t much like the CAP or the US farm bill). It does, however accept that poor countries need a bit more wiggle room:

‘In low income countries, however, it has been suggested that – because of weak institutions and endemic market failures – market interventions might also be warranted. Price support, price stabilisation, and input subsidies have been proposed as ways of addressing short-term objectives with respect to incomes, poverty and food security, and of promoting long-term economic development.

In the short-term, price policies provide an easy lever for government, but are inefficient at addressing income concerns. Price support for food products is a blunt instrument because, among the poor, there are net sellers and net buyers of food – in many poor countries, the majority of farm households are net buyers. Price stabilisation (as opposed to price support) can limit the impact of adverse shocks on producers and consumers, but often proves to be fiscally unsustainable. A preferable option for the poor – both producers and consumers – is targeted social programmes, including cash transfers, although these may be difficult to implement in the poorest economies. At the same time, agricultural investments can improve farmers‘ resilience to risk.

Over the long-term, market interventions treat the symptoms of market failure and underdevelopment, rather than the causes. Price stabilisation can provide a more stable investment climate, but thwarts the development of private risk management, and can export instability onto world markets. Input subsidies can redress failings such as the under-development of infrastructure, missing markets for credit and inputs, and a lack of knowledge of the benefits of using improved seed and fertiliser, but can impede the development of private markets. In both cases, the benefits and costs of intervention need to be judged relative to the benefits and costs of tackling the underlying problems directly.

Finally, there are dangers in using market interventions to address multiple economic and social objectives. Such programmes can become an easy target for interest groups, outliving their original justification and becoming a budgetary millstone. An important priority is that expenditures on market interventions should not crowd out essential investments in support of long-term agricultural development.’

This is all reminiscent of the parallel discussion on industrial policy between those (like Dani Rodrik and Ha-Joon Chang - he does get around) who argue that policy space and pluralism are being harmfully infringed by an array of advice, trade and investment agreements, economic orthodoxy etc and those at the World Bank or in G8 governments who go for the ‘grudging acceptance of a tiny bit of wiggle room’ line. Ha-Joon Chang’s analysis  finds a much wider range of paths to success on ag than on industry, producing a more pluralist, less statist conclusion. But the minimalists (grudging wigglists?) sound remarkably similar on both issues.

The launch meeting had some fine interventions by ag policy gurus like Michael Lipton and Steve Wiggins. Lipton has little time for all these general debates and says if you want to understand agriculture you have to get into the details of farming – water, seeds, fertilisers, soils, harvest, markets and all the rest. He sees smallholders as very efficient in what matters, like managing labour and output per hectare and believes this underpins the drift to small farms in developing countries (the opposite of what is happening in the OECD). Smallholder ag’s biggest problem is dealing with the market, which is where the state and aid donors need to help out.

Wiggins expanded on his thoughts by email (as I hadn’t quite got them right first time around):

“Sort out the rural investment climate, provide rural public goods and about 10% of smallholders will be ready to go … but there’s another 25% or so [numbers vary by place, obviously, but they give a sense of scale: they're probably right plus or minus 10%] who may need a bit more from the state, NGO or socially responsible corporation, if they are to succeed.

What’s ‘a bit more’? Access to credit, technical assistance, help with marketing, etc. — links to supply chains where many smallholders are initially at a disadvantage since they are small fry living remote from cities, sometimes not speaking the same language as the bigger fish, etc. — again it will vary with circumstance.

The big point is this: we need to strive to bring that extra 25% into agricultural development, so we have around one third of smallholders going forward as largely full-time farmers, with decent livelihoods. That then allows a gentle agrarian transition — the other 2/3rds of the rural population can then either increasingly earn their livelihoods from the non-farm economy, or move to towns and cities — many of them still keeping a part-time farm, that with time will increasingly become a hobby farm and a country home as they gradually lend, rent, or sell their land to their full-time farming neighbours.

The alternative, in which up to 90% of the rural population are trying to gain most of their livelihoods off the land would be far less gentle, with rural areas resembling those of England before the 1870s — desperate poverty, many landless labourers struggling on minimal incomes, etc.”

I think I was witnessing a polite academic battering of the OECD’s arguments, but I’m not really sure (witness Steve needing to put me straight) – ag economists have been arguing over this stuff for decades, and speak in code: a single word (e.g. ‘productivity’) can be the signal for a sudden spurt of irritation and antler-locking. Trying to make sense of what’s going on is a bit like watching arguments among Trotskyists or religious sects (cue Life of Brian clip).

More History, less Maths – FP2P flashback

OK, I’m off on holidays this week, so thought I’d retrieve a few posts from the early months of the blog, back in 2008, when hardly anyone read it – recycling is a virtue after all. First up, some thoughts from July 2008 on the use of history – I’m still looking for suggestions on this….

More history, less maths. That’s a phrase that for me summed up several years of debating the role of trade in development during the Doha round of WTO negotiations. 

While CGE modelling, conducted by the elite number crunchers of the economics profession, churned out ammunition for liberalizers in the shape of inflated figures for putative gains from the indiscriminate opening up of markets (see Lance Taylor and Rudiger von Arnim’s paper  for Oxfam, critiquing the abuse of CGE in trade debates), historians uncovered an entirely different story about the role of trade in development. The classic text on this is ‘Kicking Away the Ladder’ , by my friend Ha-Joon Chang, an economic historian from Cambridge. Ha-Joon, who brilliantly captures the vital role of the state in the industrial take-off of virtually every ‘now developed country’. The concern is that many of the policies they used (infant industry protection, regulating foreign investment) are in danger of becoming illegal under WTO and other trade rules. It was fascinating watching how this message galvanized developing country delegates at the WTO, who felt far more confident in opposing the double standards of the EU and US when they realized that history was on their side.

Since then, I’ve come across similarly useful ‘lessons of history’ exercises in other areas. A great study by Santosh Mehrotra and Richard Jolly on the role of the state in guaranteeing healthcare and education for all; recent work by UNRISD looking at the broader lessons of history for social policy. Ha-Joon is currently coordinating an ambitious study for the FAO on agricultural policy in successful economies in Europe and elsewhere (Oxfam has also published a paper by Michael Stockbridge on the lessons of agricultural trade policies in take-off countries, making a qualified industrial policy argument for agriculture, as does the work of Dorward, Morrison, Kydd and Urey at Imperial College ).

The value of historical analysis is increasingly recognized – for example by Justin Lin, the World Bank’s new chief economist (see last month’s blog on Justin’s refreshing views). This is linked to renewed interest in power, politics and institution-building – all of which often matter more than particular policies in guaranteeing success, but are largely invisible to CGE-style mathematical wizardry. So if history is such a gold mine for policy wonks, why not get serious and start a ‘lessons of history’ programme? There are probably dozens of issues that would benefit from a historical analysis. Off the top of my head:

· Civil service reform: what have been the politics and economics of the shift to (more or less) meritocratic bureaucracies?
· Environmental legislation: Back in the 1940s, my grandmother died in the London smog, what policies and institutions ensured that kind of thing no longer happens (or at least only rarely) in the UK and other rich economies?

Then there’s access to justice, reconstruction after conflicts, equal rights legislation, financial sector regulation, competition policy, universal secondary education, curbing private and public sector corruption and so on.

What other candidates would people suggest for historical excavation? All we need is a few million dollars, so we can sit a bunch of bright people in a room, brainstorm on priority issues, and commission a ‘Lessons of History’ series. Any offers?

Guest blog: World Bank chief economist replies on his industrial policy proposals

Last week I wrote about Justin Lin’s intriguing suggestions for how developing countries can best pursue a low risk/high return form of industrial upgrading. Here Justin responds to some of the concerns and questions raised in that post:

“I am grateful to Duncan Green for his comments on my recent paper “Growth Identification and Facilitation”, which offer me the opportunity to clarify some of the ideas discussed there, and respond to the very pertinent questions he raised at the end of his post.

I certainly do not assume that “states possess a well informed, effective bureaucracy”. In fact development is a challenging process everywhere and all types of public policies and strategies—from education to health, from structuralist import substitution to Washington Consensus reforms— require some government capacity. However, the required capacity for the proposed Growth Identification and Facilitation framework is relatively minimal, compared to almost any other policy proposal: many of the specific instruments recommended in the paper are far easier to implement in low-capacity environments: setting up an export-processing zone for instance requires much less capacity than building infrastructure for the whole country as often advocated; implementing tax exemption  schemes for a few years to attract investments in industries with latent comparative advantage is easier than collecting large tax revenues or repressing the financial system to subsidize nonviable firms for endless years in industries that are inconsistent with a country’s comparative advantage.

Economic policy never takes place in a vacuum and there is wide consensus on the importance of having capable, credible, and committed governments to design and implement viable economic development strategies—something that is lacking, by definition, in many poor countries. The question is how to facilitate their emergence. While there is probably no ready recipe for generating effective bureaucracy, I would argue that the framework proposed in my paper would not lead to heavy-handed government interventions and large administratively-created rents. To the contrary, what I am proposing would help developing countries minimize the risks of poor governance and pervasive corruption. At the same time as the framework is easier to implement and likely to yield quick wins, the government’s commitment, credibility and capability may be enhanced as a result of following this approach.

Another important point raised by Duncan is whether ineffective leaders in developing countries actually know better which policies could lead to sustained growth but cynically choose not to implement them. The implicit assumption here is that the appropriate policies for generating and sustaining economic growth are known, but because of their bad instincts or the prevailing incentive systems, political leaders ignore them. It seems to me that things might not be that clear-cut. After all, economists have been looking for the recipe for growth for more than 200 years. The dominant theories for development policy in developing countries proposed by economic profession have been rooted in either structuralism (roughly from the 1940s to the 1970s) or in Washington Consensus-types of frameworks (from the 1980s onwards). The empirical evidence shows that both of them are inadequate.

My view is that most political leaders would like to gain legitimacy, stay in power and have a good name in history. They will be willing to do the right thing to achieve those personal ambitions if only they knew what that is and how to do it. Delivering sustained dynamic and inclusive growth during their tenures should be consistent with their personal goals.  Yet, the quest for growth has been elusive, to use Bill Easterly’s famous book title. The Growth Identification and Facilitation approach does not claim to offer a magic bullet, but it suggests a logical framework that could allow policymakers in developing countries to emulate successful strategies implemented throughout history. It is therefore compatible with prevailing political incentives.

Duncan’s last point is about the likelihood that old high-carbon growth pathways may not be an option for developing countries in the future due to the concern of climate change, rendering the industrial ladders implied in the Growth Identification and Facilitation inappropriate. One can realistically expect that as long as there will be demand for goods and services around the world, countries with the lowest production costs will be competitive in those industries. If one accepts that proposition, then two scenarios are likely to materialize: if low-carbon technology is not available at reasonable costs and the production of goods and services continuously relies on the existing technology, low-income countries could successfully move up the development ladder by using their low-wage advantage as suggested by the Growth Identification and Facilitation framework. If the new low-cost clean technology becomes available, low-income countries should adopt it and enjoy the “advantage of backwardness” in adopting new technology in their industrial upgrading process. However, the selection of their targets for industrial upgrading should still follow the methodology suggested in the Growth Identification and Facilitation Framework.”

A surprising World Bank recipe for industrial policy: new proposal from Justin Lin

Justin Lin, the World Bank’s chief economist, was in London last week and presented his new paper on ‘Growth Identification and Facilitation’. Two years ago he came through just after being appointed, promising to bring a ‘new perspective’ to the Bank (see post here). His new paper certainly does that, as its subtitle ‘the role of the state in the dynamics of structural change’ suggests.

In the paper, Lin tries to sort out good industrial policy from bad. When does state intervention lead to structural upgrading, a la East Asia, and when does it merely generate a bunch of uncompetitive companies being kept on artificial life support by state subsidies, as sometimes happened elsewhere? His conclusion is that the state should not depart too far from a country’s comparative advantage, but consciously push it towards upgrading by imitating neighbours that are similar, but have travelled further along the upgrading path – basically the East Asian ‘flying geese’ model. Think of it as the state pulling a country along by a piece of elastic – pull too little and nothing happens, pull too hard and the elastic snaps.

Highlights: first the heresy – Lin broadly agrees with Ha-Joon Chang, Dani Rodrik and various other heterodox critics of the Washington Consensus: “The historical record indicates that in all successful economies, the state has always played an important role in facilitating structural change.”

But to avoid snapping the elastic, Lin suggests a ‘six-step process’:

“First, the government in a developing country can identify the list of tradable goods and services that have been produced for about 20 years in dynamically growing countries with similar endowment structures and a per capita income that is about 100 percent higher than their own.

Second, among the industries in that list, the government may give priority to those in which some domestic private firms have already entered spontaneously, and try to identify: (i) the obstacles that are preventing these firms from upgrading the quality of their products; or (ii), the barriers that limit entry to those industries by other private firms. This could be done through the combination of various methods such as the value-chain analysis or the Growth Diagnostic Framework suggested by Hausmann, Rodrik, and Velasco (2008). The government can then implement policy to remove those binding constraints and use randomized controlled experiments to test the effects of releasing those constraints so as to ensure the effectiveness of scaling up those policies at the national level (Duflo 2004).

Third, some of those industries in the list may be completely new to domestic firms. In such cases, the government could adopt specific measures to encourage firms in the higher-income countries identified in the first step to invest in these industries. The government may also set up incubation programs to catalyze the entry of private domestic firms into these industries.

Fourth, in addition to the industries identified on the list of potential opportunities for tradable goods and services in step 1, developing country governments should pay close attention to successful self discoveries by private enterprises and provide support to scale up those industries.

Fifth, in developing countries with poor infrastructure and an unfriendly business environment, the government can invest in industrial parks or export processing zones and make the necessary improvements to attract domestic private firms and/or foreign firms that may be willing to invest in the targeted industries. Industrial parks and export processing zones also have the benefits of encouraging industrial clustering.

Sixth, the government may also provide limited incentives to domestic pioneer firms or foreign investors that work within the list of industries identified in step 1 in order to compensate for the non-rival, public knowledge created by their investments.”

What this adds up to is a kind of low-risk industrial policy-lite, in which the state spots winners and supports them, rather than tries to create them from scratch, an incremental strategy rather than a Great Leap Forward that may well lead straight into the abyss.

All quite appealing, but I think it has two main potential weaknesses:

1. Political Economy: Justin assumes that states possess a well informed, effective bureaucracy possessing what Peter Evans called ‘embedded autonomy’ – embedded in the realities and needs of local industry, but autonomous enough to be bribed or coerced into becoming a cash cow. That may have been the case in Japan or South Korea, but where it doesn’t exist, how do you create one? Justin seems naively optimistic on this, arguing in the seminar that ‘it’s not that leaders don’t want to pursue growth and create jobs, it’s just that they don’t know how to.’

2. Climate Change: neoliberals always used to argue that globalization meant that what worked in Japan was no longer relevant to the

Washington Consensus view of Industrial Policy

present (what Ha Joon Chang and I refer to as the ‘Sex Pistols’ argument – when the punk band’s lead singer was asked why he had just flatly contradicted an earlier statement, he replied ‘that was then; this is now’). Now climate change provides a green variant – what worked in a world oblivious to environmental limits may not apply to one where growing economies will have to move quickly to a low carbon growth model. No point in the flying geese following each other into a high emission dead end.

And how’s all this going down at the Bank? He says these ideas are not that distant from those of Joe Stiglitz, his predecessor as chief economist, but the intellectual environment that rejected them in Stiglitz’s time has changed, especially since the global financial crisis. He’s starting a whole research programme on economic policy and structural transformation (his preferred buzzword for all this – don’t call it industrial policy!)

Lin famously began his career by swimming across the Taiwan Strait to defect to China. He seems to be embarked on something equally heroic at the Bank.

Successful Green Industrial Policy – Brazilian biofuels

The highly polarized debate on the role of industrial policy in development is dominated by discussions of the East Asian tigers, so good to see a discussion from another continent on what makes for successful state intervention – Brazil and biofuels. Here’s the highlights from a recent article by Tarun Khanna of the Harvard Business School and Santiago Mingo of the University of Miami School of Business Administration:

“Brazil’s experience at promoting renewable fuels, beginning in the 1970’s, is directly relevant to today’s polarized views of industrial policy. A 10-year industrial policy program called Pro-álcool was crucial in the development of the industry. Today, Brazil is the world’s most competitive producer of renewable fuels, based primarily on bioethanol. Ethanol accounts for more than 50% of current light-vehicle fuel demand in the country, and Petrobras – Brazil’s energy giant and one of the largest companies in Latin America – expects this share to increase to more than 80% by 2020.

Our research shows that industrial policy was successful in promoting a competitive bioethanol industry in Brazil. A massive stimulus package, prompted by the 1970’s rise in oil prices, gave rise to an entirely new industry. But it would not have worked without the crucial role played by competition.

Brazil was attempting to become energy self-sufficient in a manner similar to modern efforts by other countries. But, as opponents of industrial policy are right to remind us, freebies never lead to a good outcome. The aftermath was the key. As world energy prices collapsed, Brazil fortuitously turned off its subsidy tap, whereupon a brutal Darwinian free-for-all ensued. This competitive rationalization was the key to the policy’s success.

The government did not bail out the underperformers, allowing market forces to restructure the industry during the post-subsidy phase. Certainly, the beneficiaries of Pro-álcool’s subsidies lobbied the state to continue the protective policies even after their usefulness – inducing the development of the industry – had expired. Fortunately, the government was not persuaded.

Brazil’s experience offers three important lessons for nations implementing renewable energy initiatives: (1) government policies must be consistent, simple, and long-lasting, providing assurance to would-be entrepreneurs that they can invest for the long haul; (2) picking winners, the familiar weakness of overenthusiastic bureaucrats, must be kept to a minimum; and (3) the state must have the discipline to dismantle subsidies when the need for them has passed.”

And sugar-based ethanol is also much better at reducing carbon emissions than the corn-based stuff being churned out in the US and elsewhere.

For a somewhat less green energy/industrial policy check out this recent Economist piece on China’s electricity boom.

Development v Climate Change: a new UN report tries to square the circle

September is the start of report season, an avalanche of global roundups from UN agencies, thinktanks etc that seems to grow in number every year. As it coincides with the party conference season, start of the college year in the Northern hemisphere etc etc, it all makes for a horrific backlog.

So to ease the collective bottleneck, here’s some highlights of one that may have escaped you. Last week, as part of the warm-up (sorry, bad choice of words) for the Copenhagen climate summit in December, the UN’s under-rated Department of Economic and Social Affairs published its World Economic and Social Survey 2009, entitled ‘Promoting Development, Saving the Planet’. It’s taking on the big ‘how do we square development and climate change’ challenge, as will the World Bank’s much higher profile ‘World Development Report 2010’ which is released next week (see what I mean about an avalanche?).

WESS’ starting point is that squaring the development-emissions reduction circle is an absolute necessity: ‘even if advanced countries begin to match their words with deeds, their efforts are, by themselves, unlikely to be sufficient to meet the climate challenge. The active participation of developing countries is now required and such participation can occur only if it allows economic growth and development to proceed in a rapid and sustainable manner.’

How to do this? The report comes up with a line somewhat similar to some of the thinking on trade – the policies required in developing countries are different from those in the rich ones. ‘While there will be similarities between the two groups of countries in terms of a subset of national policy instruments (smarter incentives, stronger regulations), developing-country Governments would need to steer resources mobilized for large-scale investments into new production sectors and new technologies. While the emphasis in developed countries is on the development of the carbon market, the preferred option for developing countries should be an emphasis on active industrial policies.’

And much more than just aid will be needed to make the system as a whole deliver the emissions reductions needed on the timescale required. The UN sets out three possible approaches: ‘the first approach means that developing countries follow the example of developed countries, either voluntarily or through some form of coercion, by adopting emissions reduction targets. Under the second option, either setting targets or undertaking actions is conditional on the availability of finance and technology from developed countries. Under the third option, developed and developing countries jointly adopt both climate and development targets.’

The Survey’s conclusion is that the first approach is bound to fail, the second approach is a necessary one, but focusing attention on financial transfers won’t deliver change at the scale or speed required. At the moment, the negotiations seem to be heading for a divisive stalemate somewhere between 1 and 2. Instead something more systemic and collaborative is needed.

Read the WESS overview yourself for its shopping list for this climate change ‘third way’ (urrgghh). The bits that jumped out at me were:

On energy: ‘developed economies may need, and will be able to afford, a substantial increase in the price of energy, especially fossil-based energy, in order to provide the right market signal to potential consumers and investors. In contrast, all developing countries face the urgent challenge of expanding the energy infrastructure and making energy services widely available at affordable prices. The estimated number of people lacking such access ranges between 1.6 billion and 2 billion, mainly in rural areas. At least for the foreseeable future, developing countries will need to subsidize energy for their middle- and lower-income groups in order to make these services affordable.’ [hmm, subsidies have a nasty way of benefiting the elites, funding damaging megaprojects, or encouraging the use of particularly nasty fuels like kerosene. Maybe a more comprehensive industrial policy type approach is needed here, combining targeted subsidies with promoting decentralized energy systems especially for rural areas]

And on financing for developing country mitigation and adaptation, where the report proposes two interesting new (for me) ideas:

A global clean energy fund. to address climate change mitigation in developing countries, established outside the existing multilateral financing institutions and with a governance structure acceptable to all parties to the United Nations Framework Convention on Climate Change

A global feed-in tariff regime. A global feed-in tariff programme could provide guaranteed purchase prices to producers of renewable energy in developing countries over the next two decades. The programme should be accompanied by provision of support to local renewable components industries to ensure that national production capacities are spurred and countries are able to satisfy a growing share of the increased demand for renewable energy locally

As well as two more standard recommendations for:
A reformed Clean Development Mechanism.  [good luck with that]
Forest-related financing mechanisms. 

Every effort will be needed to keep development on the table as the climate change talks pick up speed, and this is a helpful contribution from the UN.

Protectionism – good or bad? It depends……

I wrote this for the ‘Development and the Crisis‘ website I plugged recently, but thought I’d recycle it here:

It’s official. Protectionism is the Great Satan. Gordon Brown decries it in Davos; William Easterly crows over what he sees as Dani Rodrik’s conversion to the cause. All countries must eschew protectionism or risk a disastrous return to the trade wars that triggered the Great Depression.

Hang on a minute. For the last decade of highly polarised debates on trade and globalization, many NGOs, along with economists like Ha-Joon Chang (and Rodrik for that matter, but I’ll leave him to respond to Easterly), have argued something entirely different, namely that trade tariffs, and industrial policy in general, have played a vital role in the history of almost every successful economy, but the benefits of state intervention decline as an economy develops. Read More …

Remember the development round? Belated reflections on the WTO Doha collapse

I was on holiday when the Doha round ran into the sand at the end of July (for more see here), but reading the reports brought back memories of previous collapses (a WTO speciality) in Seattle and Cancun. If you can get past the thickets of tradespeak, the subtexts to the latest collapse carry some fascinating stories about how the world has changed since the round was launched in 2001. Read More …

So what does the World Bank’s new chief economist think about development?

Following our recent conversation (see July 4 post), I’ve been digging into the views of Justin Lin, the World Bank’s first ever developing country chief economist. Check out his Marshall lecture on development, delivered in Cambridge in November 2007, shortly before he got his new job. It gives a fascinating insight into how Lin’s interpretation of economic take-offs in China and East Asia is likely to shape the evolution of the Bank’s thinking. The paper is pretty heavy going in parts, but you can always watch the video. Read More …