Dear Participants,

On behalf of the moderators, I want to thank you all for your very valuable contributions to the e-discussion on growth, diversification and structural change for employment. Below, I have posted a brief summary of what I sense has been discussed so far. Based on this and on your full contributions to this debate, we propose for the remainder of this discussion round to elaborate on the following questions:

1. Which policy measures discussed until now are implemented in your country? If they are implemented, what can other countries learn from yours? If they are not implemented, what are the impediments?
2.  Which measures of global governance have to accompany national policies to facilitate structural transformation?
3. Which policy measures discussed here can be best formulated in concrete development goals in a post-2015 Development Agenda?
4. How will developing countries, especially the least developed countries, find resources to finance diversification and structural change?

Summary:

All participants in the discussion underscored the need for structural change as key for growth, employment and poverty reduction, especially in the less developed countries. Examples of Korea, China, Thailand and others demonstrate the importance of structural change.  Based on these examples, several participants argued that greater state participation in economic processes is necessary for structural change to take place. Others added that, especially with the hindsight of the various economic crises, the focus of macro-economic policy should shift toward prioritizing employment, not inflation.

There was, however, also a caution not to overlook regional inequalities and to be mindful of an urban bias, and to focus on rural development. It should be noted here that the successes of East Asian countries that underwent a rapid structural change were precisely based on reforms in the rural sector, such as land redistribution and rapid increase in agricultural productivity, which made the labour transition to the urban areas and industrial development so effective.

Several people voiced their concerns that structural change dominated by rapid expansion of extractive industries would not have the necessary linkages with other sectors in the economy, such as manufacturing, which were important for East Asian development. Rapid expansion of extractive industries could lead to increased income inequality with little effect on poverty alleviation.

An objection often raised to a strong emphasis on structural change and the implied attention to industrial development is that industrial development does not contribute to poverty alleviation and is thus not of direct relevance to a discussion on Millennium Development Goals. The submitted United Nations University Maastricht Economic Research institute on Innovation and Technology (UNU-MERIT) paper gives various reasons that this is an erroneous proposition, since the indirect linkages as well as the induced effects of industrial development are often ignored, and it is precisely these indirect and induced effects which contribute mostly to growth, employment creation and poverty reduction. When these effects are taken into account, industrial development is shown to play an important role in poverty alleviation in interaction with other important sectors such as agriculture and services. This is especially the case when industrial policy is driven by what the United Nations Research Institute for Social Development (UNRISD) analysis has called “a developmental state”, state-led implementation of industrial policies and employment policies.

Various participants made useful propositions as to how such a developmental state could be strengthened:

• Establishment of public/investment banks or other measures to channel credit
• Establishment of state-owned enterprises in specific sectors
• Facilitating conglomeration of small and middle-sized enterprises, quality controls
• Changes in public procurement
• Investment in rural tourism (example of India)
• Strengthening of private - public sector linkages, also in agriculture
• Improvement of governance and institutions in agriculture
• Reduction in interest rates and greater exchange rate market intervention (example of Brazil);
• Subsidized research and development
• (Re)distributing the higher value-added created in industry to people in other sectors of the economy
• Investment in social infrastructure: access to education, healthcare and other public services.

The current wave of globalization, which started after the East Asian countries managed to undergo a rapid structural change, made the process of structural change more difficult to manage. Participants noted the “race to the bottom” in terms of continuous lower wages, as well as the growing inequality between the labour and the capital share in national income, observed in most countries and driving the growing income inequality all over the world. Although national policies can attenuate these tendencies of greater inequality to a certain extent, they are often not sufficient. The unfettered globalization and financialization call for changes in global governance, which would make markets work not only for finance, but also for people and their families. Some argue that the recent rapid industrialization and rising wages in China will likely make some industrial activities not profitable for Chinese entrepreneurs, creating greater space for industrial development for other countries, including Sub-Saharan African countries.

Various participants raised elements of policies that enable greater benefit from globalization for structural change, such as:

• Capital controls for monetary and financial stability
• Sound trade policy, including selected export duties and restrictions to encourage value-addition; sound tariff policy
• Foreign ownership ceilings and joint venture requirements; local content requirement
• Reconsideration of  intellectual property (IP) protection
• Coordination at a global level to introduce(or return to 1980 levels ) of various taxes on capital instead of labour.( FTT, Company tax.)

Rolph van der Hoeven

In relation to the earlier question "What kind of strategies and policies can lead to structural change?", I think most people would agree that these are likely to be context-specific. Although it is useful to outline a broad policy vision (as I have done in my previous post), it is also vital to conduct 'diagnostic' exercises at the country level. This would certainly contribute to a better understanding of the key opportunities and obstacles to the creation of productive employment and structural transformation. In a recent paper, I suggest the use of such a methodology to assess where progress has been made and where to target efforts to enable a more socially inclusive and sustainable growth path. It builds on the well-known 'growth diagnostics' framework by incorporating important 'qualitative' dimensions. If a significant number of these could be conducted in a systematic manner, we would certainly expand our current knowledge on the implications of different development trajectories and how to promote meaningful structural change.

www.developmentprogress.org/unearthing-productive-employment-diagnostic-tool-sub-saharan-africa

Pedro

• Unearthing Productive Employment - A Diagnostic Tool for Sub-Saharan Africa (Martins).pdf

Thanks for inviting me to this interesting debate. I agree with most of the other commentators here that structural change is essential for long-term and large-scale development. However – playing devil’s advocate here – I am not sure it necessarily means an affirmative answer to question 1 on whether there is a role for this topic in the post-2015 development agenda. I’d thus like to put forward some arguments for and against its inclusion.

The devil’s advocate’s thesis

The beauty of the Millennium Development Goals is that they are mostly focused on outcome measures (arguably with the exception of Goal 8). That is, they focus on achieving the rights of individuals “to dignity, freedom, equality, a basic standard of living” (http://en.wikipedia.org/wiki/Mdg). To achieve these, the MDGs outline measurable, time-bound target variables that allow one to track progress over time, and thus animate policy makers to action (You can’t manage what you can’t measure).

While the MDGs are certainly not perfect, I think this management-by-objectives-style approach lends itself to a multilateral development agenda, because it allows countries to opt-in to the global commitment without having the feeling that outsiders are meddling with how they do things. Personally I would advocate a continuation of this approach post 2015, with updated targets along the same lines.

Thus to me the question is where would the concept of structural change fit in here? While certainly desirable as a means to an end, I don’t think it fits with outcome-based variables such as reducing child mortality or promoting gender equality.

The economic historian’s antithesis

Now, as mentioned, there is Goal 8 “Develop A Global Partnership For Development”, which is a bit of a catch-all category that includes things like the special needs of landlocked countries, debt problems of developing countries, or access to affordable essential drugs. These are, of course, all means to an end, so maybe there is a case to be made that promoting structural change is equally or more important and should therefore be included here.

With a background in economic history, I would actually support that case. As has been pointed out by others in this forum, there are very few examples of economies, if any, that improved the living standards of their populations without an increase in specialization and a move towards higher-value added sectors. Some people would say such progress is not possible, if basic living standards are not provided – you need to have adequate food, shelter, health and education to be able to participate in industrialization. But, the opposite is also true: the hope and opportunity that comes with a growing and changing economy is often the pull that is needed to justify the time and money investments individuals need to make to obtain these (see e.g. Banerjee and Duflo, Poor Economics). Advocating for structural change – as opposed to purely focusing on improving the situation within the status quo of agricultural economies does thus seem to be sensible.

Synthesis

I would thus argue that if one wanted to strengthen the post-2015 goals, one should focus even more on measurable, outcome-based indicators, such as most of those covered by MDGs 1 to 7, and possibly even drop goal 8 (If you look at the variables that are tracked, only two of the six items under Goal 8 are actually measured (8F and 8D); the others are too vague to track (www.mdgmonitor.org).)

On the other hand, if the direction of the discussion goes into strengthening the process-based items of MDG 8, then one could argue for an inclusion of growth, diversification and structural change. In fact, these might lend themselves for more easy tracking, with plenty of macroeconomic variables out there that measure these.

Dear all,

The recent High-Level Panel meeting in Monrovia brought together over 80 different CSOs from around the globe for a two-day preparatory meeting, which formed the basis for discussions during the HLPs outreach day in Monrovia. This event was coordinated by the Africa CSO Secretariat, which is run by a group of African CSOs working on post-2015 issues. CSOs discussed the theme of the Monrovia meeting, which was 'economic transformation and building blocks for national prosperity', with particular refernce to the experiences and impacts on margianlised groups, such as children, women, small-scale food producers, workers, small businesses, the disabled and older people.

The two-day preparatory meeting resulted in a CSO Communique which was presented to the HLP, and distributed widely. Its content is relevant to the topic of this forum. Please find the communique here:

http://www.askafricanow.org/download/510906bae44b6

Thank you, and please let me know if you have any questions.

Tom

1. 1.                  Growth, diversification and structural change should play a prominent role in the post-2015 development agenda. Do you share this view?  In your experience, can structural change generate sustainable economic growth and decent jobs?

In December 2012 the Government of India approved its 12^th Five Year Plan, covering the period 2012-17.   The Plan articulates a vision wherein growth, diversification and structural change should play a prominent role in the 2012-17 development agenda.  The Plan recognizes explicitly the role of Industrial Policy in this process of structural change and diversification.  In this respect the Plan squarely falls within the development literature which states categorically in respect of the high performing East Asian and South East Asian economies that Industrial Policy was critical to economic growth and diversification.

            The 12^th Five Year Plan is clear in its view that per capita GDP growth by any means is not the goal; rather, structural change, decent jobs and inclusive growth are the objectives of the Plan.  India’s growth rate had been three and a half per cent between 1950-1980, at a time when population growth was 2.5 per cent per annum.  The GDP growth rate has been increasing consistently over the last three decades: 5.4 per cent per annum between 1980-1990, 6.5 per cent per annum between 1990 and 2000, 7.6 per cent averaged over the 10^th Plan period (2002-2007), and 7.9 over the 11^th Plan period (2007-12).  Remarkably, despite the global financial and economic crisis that started in late 2008, India’s GDP growth rate between 2003-04 and 2010-11 averaged 8.4 per cent per annum.  Structural change in output has certainly been taking place apace over this period, with the share of agriculture in total GDP declining to 14.6 per cent.  The share of services has grown from 48.9 per cent in 2000 to 57.3 per cent in 2009-10 and of industry from 27.3 per cent to 28.1 per cent in 2009-10.  However, the structural change in employment is much less to be observed: the share of agriculture has marginally declined from 59.9 per cent in 2000 to 53.2 per cent in 2009-10; industry and service have grown from 16.4 per cent to 21.5 per cent, and 23.7 per cent to 25.3 per cent respectively.

            Data above suggests that despite experiencing unprecedently  high GDP growth rates, the Indian economy has not witnessed a structural change in terms of employment.   This will be a top priority during the 12^th Five Year Plan period (2012-17). 

            It has long been believed in regard to other MDG goals for 2015 that, given the large size of India, if India does not achieve any of the MDGs nor will the rest of the world. There is a similar risk in regard to the post-2015 development agenda.  If India does not generate non-agricultural jobs during the 12^th Five Year Plan period and beyond, and if the experience of jobless growth between 2005 and 2010 is repeated beyond 2012, then sustained reduction in poverty will not happen.

2.  What kind of strategies and policies can lead to such structural change?

            Till two decades ago India’s growth rate was not only slower but its development strategy was relatively inward looking.  As a result, exports as a proportion of GDP in the early 1990s were only 11 per cent.  After the economic reforms began in 1991 exports grew just as the world economy was expanding.  World economic growth was sustained until 2007, and India’s exports to GDP had by then risen to an unprecedented 25 per cent of GDP.  Given the international economy is experiencing a double dip recession, the Euro-zone crisis shows no size of abating, and the US economy is unlikely to grow henceforth more than 1.5 per cent per annum in the near future, there was expectation that the international economy will remain now in doldrums  at least over the next few years and perhaps beyond 2015.  The kind of strategy this international scenario implies is not very different than the strategy that China has already recently adopted, i.e. the re-orientation towards domestic market. 

            There is another kind of strategic change that may be required for the Indian economy to be able to sustain GDP growth, and this is particularly relevant for the prospects for employment generation.  The structure of production that was encouraged by the opening up of the economy post-1991 economic reforms in India was relatively import-intensive and capital-intensive.  Growing incomes within India as well as growth in the international economy until 2008 did sustain this pattern of production, despite its import and capital-intensive nature.  However, with external demand waning sustained growth can only be achieved by not only re-orienting production towards the domestic market, but growing the domestic consumption and demand.  The latter is dependent on generating productive jobs outside of agriculture, as well as raising the growth rate of agriculture beyond the 3 per cent achieved in the 11^th Five Year Plan period (2007-12).  In other words, post-2012, or post-2015, the Indian economy’s GDP growth rate may only be sustained if employment generation at least matched output growth.  What that implies is that the sharp decline in the employment elasticity of output that India saw between 2005 and 2010 (0.01) compared to 0.44 in the period 2000-2005, is an alarm-bell ringing very loudly, and calls for a change in development strategy.

            These two changes of strategy will need to be accompanied with policies that are commensurate with a change in strategy.  Growth of the domestic market should be concentrated in rural areas where 68 per cent of the country’s population still resides.   Since 53 per cent of the country’s workforce is still employed in agriculture, increased public investment in agriculture is an important instrument of policy, if agricultural growth is to be increased beyond its recent 3 per cent per annum record.   This would also mean that wasteful subsidies on fertilizers and fuel, which are unproductive and untargeted, must be sharply reduced in order to contain the fiscal deficit (which for the Central Government alone is currently running 5.4 per cent of GDP in 2011-12 and if combined with that of the state the total fiscal deficit rises to 8 per cent of India’s GDP).  The savings from these untargeted subsidies will easily release resources for greater public investment in agriculture, which will raise output, productivity and incomes for all in rural areas.  Such a shift in policy will not only raise the output of wage goods for all workers in both rural and urban areas, and thus keep wage good prices down, but it will be raising demand for non-agricultural products. Rising domestic demand for non-agricultural products (whether it is in the form of construction, energy, manufacturer or services) will have the effect of increasing demand for less capital-intensive and less import-intensive goods and services, and hence shift the production structure in the direction of  meeting rural demand, as well as meeting the demand of lower income groups in urban areas.

3.  What are the opportunities and key constraints in implementing such strategies and policies in your country?

The key opportunity lies in the potential for raising agricultural yields in one-crop rain-fed agriculture, to at least two-crop or three-crop rain-fed agriculture.  This has been made possible by greater investment in large watershed development along with MGNREGA investment on a smaller scale (although the latter had been very widespread in nature across the country).

The key constraints to these strategies and policies are two.  One is that the normal rate of inflation, which used to be between 5 to 6 per cent per annum up until around 2007, has unfortunately shown an upward trend and, after having risen all the way to 10 per cent per annum in 2010 has also shown a decline trend, and currently ranges between 7 to 8 per cent.  Given the fact that a very significant proportion of population is still below the poverty (some 350 million people to Tendulkar estimates for the Planning Commission, which are not different from the World Bank estimates at a US 1.25 dollar a day poverty line), it is absolutely critical that inflation rates are kept low during the 12^th Five Year Plan and beyond.  Otherwise, the Indian economy risks getting trapped in an inflation-growth trade-off, which it is currently indeed experiencing for the last two financial years 2010-11 and 2011-12 and still continuing until 2012-13).

The second big constraint upon policy is poor governance levels in both the central and state governments, and in crony-capitalism driven by non-transparent allocations by government of land, spectrum, and natural resources.   All such allocations have contributed to an atmosphere of great uncertainty in the minds of investors, both domestic as well as foreign. The media, the judiciary and the citizenry reacted with great force to expose crony-capitalism repeatedly, and there is as a result a policy paralysis infecting all levels of government, especially at the top.  However, India’s democracy is a highly vibrant one, and the desire to return in power in a 5-yearly electoral cycle  is likely to compel the political classes and especially the governing elite to respond to the demands of the citizenry, and take firm policy actions along the laws suggested in the paras above.

       http://www.iamrindia.gov.in/Joblessness.pdf

http://www.iamrindia.gov.in/creatingemployment.pdf

• creatingemployment.pdf


• Joblessness and informalization in India.pdf

The first point is that words "structural change" are like a slogan. Unless one carefully specifies what structures are sought to be changed, the statement would lack analytical and empirical content.

The second point is that Kaldor remains the main apostle for structural change from agriculture as well as services to manufacturing, whether in developed or developing countries. India's case has raised the question of services, or at least some modern services as also being an engine of growth. Sukti Dasgupta and I examined this question in a paper by Dasgupta, S. and Singh, A. (2007) ‘Manufacturing, services and premature de-industrialisation in developing countries:  a Kaldorian empirical analysis’,  published in Mavrotas, George and Anthony Shorrocks (eds), Advancing Development:  Core Themes in Global Economics, Palgrave MacMillan in association with the United Nations University – World Institute for Development Economics Research (WIDER), pp. 435-456, 2007. Kaldor, in my view, remains important for any discussion of structural change and growth because he was consistent in his analysis. However, I suspect, that were he around today, he would need to adjust his theory considerably. So, it seems to me one item for serious analysis is Kaldor's theory of structural change and the extent to which it still has relevance today for rich as well as poor countries.

The post-2015 development agenda should provide an analysis of the excellent growth record of developing countries during the new Millenium (2000-2012). Countries like India and China grew at three or four times the rate of developed countries.  This superior performance of developing countries, as in this crisis period is a new event. Not too long ago, it used to be an article of faith among scholars that in a global economic and financial crisis, it is the periphery which suffers a prolonged slow-down or worse, whilst the centre is able to recover much more quickly and with much less damage. The story in the present crisis seems to be quite the opposite. Why should this be so? An important related issue is whether the good performance of the periphery can be sustained.

Here there are conflicting voices from unexpected quarters. The IMF suggests that the improvement in the position of the periphery during this crisis is due to the much greater resilience of these economies in the last twenty years. The organisation went on to observe, “Developing countries' improved performance is explained by both good policies and lower incidents of external and domestic shocks.” On the other hand, Yilmaz Akyuz, the chief economist of the South Centre in Geneva, a left wing think tank, argues that the good performance of the southern countries during the crisis has been largely due to favourable external factors eg. commodity price rises, increases in capital flows and remittances. However it is also probably the case that developing countries learnt and internalized the lessons from their previous experiences with the global crises. They improved their macroeconomic management of the economy markedly, paid close attention to the current account balance and accumulated reserves to be in a position to run counter-cyclical monetary and fiscal policies during a crisis.

Thus, to arrive at a post-2015 agenda, it will be essential  to draw policy lessons from developing countries' own experience. The global economy, most analyses show, is closely interrelated. There is little question of either developed or developing countries de-coupling from each other. The world as a whole has to take the necessary steps to simultaneously tackle the problems of huge youth employment, expected rise of population from about 6 billion to nearly 9 billion by 2050 with all its economic, social and political implications, the gigantic problems of urbanisation and the even bigger problem of the environment. The role of the U.S. in the short to medium term in leading the world economy is critical. These and related issues (eg. income and wealth distribution) need serious examination in order to define a viable and reasonable post-2015 agenda for the world economy and UN agencies.

Ajit Singh, Cambridge

I do share the view that inclusive growth, structural change and economic diversification must play an important role in a post-2015 development agenda. These are essential processes that enable economic and social transformations needed to sustainably create productive employment and raise living standards. In fact, it will be impossible to successfully eradicate poverty in the absence of these processes. I would therefore like to share some related thoughts based on my recent work.

In a recent paper, I compare the experiences of four fast-growing African countries – Ethiopia, Ghana, Mozambique and Tanzania – in order to shed some light on the different growth paths being pursued, as well as on the policy choices that might explain differences in key development outcomes. The three key messages that emerge from this analysis are:

1. The pattern of economic growth matters for poverty reduction. Growth that is driven by capital-intensive industries seems to generate limited benefits for the poor, as the experiences of Mozambique and Tanzania illustrate. This is partly because this type of growth fails to generate sufficient productive employment – i.e. more and better jobs. Ethiopia and Ghana registered lower economic growth rates (during the period of analysis) but managed to reduce poverty by significantly more, which emphasises the importance of the ‘quality of growth’.

2.  Macroeconomic stability, the business environment and labour market policies do not seem to explain differences in country performance. This suggests that, while important, they alone are not sufficient to create productive employment and thus improve living standards. A wider range of economic and social policies is therefore required to achieve better development outcomes.

3. Sector-specific policies play an important role in reducing poverty. In particular, support to agriculture was crucial to reduce the incidence of poverty in rural areas – especially in Ethiopia. Improving agricultural productivity and creating employment opportunities in higher-productivity employment-intensive activities will be crucial to accelerate the pace of structural transformation in Africa. Strategic public investments and greater availability of credit can play a vital role in this regard.

At this stage, it is probably useful to distinguish between two sets of domestic policies: (i) macroeconomic and structural policies, which can have a significantly impact on the demand for labour and promote structural change by affecting the allocation of resources; and (ii) labour market policies and social protection, which can play a crucial supporting role, especially by ensuring that the most vulnerable are able to access better employment opportunities. The next paragraphs sketch out a few policy options.

Macroeconomic and Structural Policies

Fiscal policies need to prioritise public investments in economic and social infrastructure – with a view to increasing productivity and encouraging other employment-intensive sectors – which in turn stimulate private investment and thus economic growth. Moreover, social spending needs to be targeted at enhancing human capital. In order to create sufficient fiscal space for these investments, countries will need to enhance domestic resources mobilisation – by expanding the revenue base and deepening the financial system – and attract further external finance. Monetary policies should accommodate fiscal policies by ensuring low (real) interest rates, possibly by encouraging stronger competition in the banking sector, thus encouraging domestic credit creation for the private sector. Moreover, an effective management of the exchange rate will promote currency stability and a competitive exchange rate to stimulate exports. These measures are not incompatible with – but rather reinforce – the objective of maintaining a favourable macroeconomic and business environment.

However, the design and impact of macroeconomic policies on specific sectors of activity deserve particular attention. Economic policies need to be designed to promote structural transformation through their impact on the allocation of economic resources. In the context of most African countries, that means shifting labour away from subsistence agriculture towards innovative agricultural activities, light manufacturing, and ‘modern’ services. The reallocation of labour from low-productivity to more dynamic sectors will be critical to stimulate productive employment and decent work. Public expenditures should be targeted to stimulate the development of sectors with strong employment generation potential and value added (e.g., agro-industry), while tax regimes could be designed to provide positive incentives for employment-intensive enterprises. Financial policies can also influence job creation by favouring the allocation of credit towards more productive investments in employment-intensive sectors of the economy. Public incentives to encourage financial institutions to direct credit to certain purposes (innovation) or certain sectors (those potentially competitive) can also be effective. Moreover, national development banks could be particularly effective at channelling resources towards strategic economic sectors that have high employment generation potential and support the diversification of the economy – as it has been the case of Brazil and China. Finally, a better management of the capital account (e.g., through sensible capital controls) could induce more productive and employment-rich foreign investments.

In terms of sectoral priorities, countries should seek to boost support for agriculture in order to raise agricultural productivity and incomes. This is particularly important since the livelihoods of the majority of the African population remain dependant on the sector. This may require direct measures – such as extension services and other incentives to facilitate the adoption of improved technologies – as well as indirect measures – such as increasing public investment in rural infrastructure and skills training. Moreover, pragmatic industrial policies will be vital to absorb a growing (urban) labour force. With China’s upgrading in the value chain, many countries will be well positioned to seize this opportunity and attract low-skill employment-intensive manufacturing industries. Targeted public investments (e.g., in economic infrastructure) and improved access to credit can provide vital support for the development of such industries, especially for enterprises with high-productivity potential.

Labour Market Policies and Social Protection

While macroeconomic and structural policies are critical to generate productive employment, labour market polices and social protection can play a vital supporting role by ensuring equitable access to these better employment opportunities – especially for the poor and other disadvantaged groups. While countries should strive to increase labour productivity, it is also important to create mechanisms that encourage an adequate distribution of productivity gains. This is because productivity gains are not always translated into to higher real wages and better living conditions for the population. In order to promote a sustainable and inclusive growth pattern that leads to the creation of more and better jobs, policies and institutions must to be adapted to each country’s circumstances and needs. Governments should aim to strike an appropriate balance between labour market flexibility and employment and income security. Moreover, education and training programmes need to better endow the labour force with the skills and knowledge required by the economy – in order to minimise the skills mismatch – partly by establishing closer linkages between employers and the labour force. Public works programmes are only at their early stages in Africa, but are showing some potential, especially as an important safety net.

What Role for the International Community?

The international community can support these domestic efforts by providing adequate financial resources, reforming regulatory frameworks, encouraging technical cooperation and supporting technological transfer. For instance, if foreign aid is to become a better catalyst for structural transformation, it needs to be targeted to the production sectors of the economy. Innovative financial instruments – such as public-private partnerships and partial-risk guarantees – could also be deployed to stimulate public and private investment. These could be targeted to vital socio-economic infrastructure and enterprises in employment-intensive sectors. A reform of international trade and investment regulations can also support structural change. The current rules and incentives hinder the ability of countries to escape the ‘commodity trap’ and upgrade in the value chain. For example, tariff escalation, non-tariff barriers and subsidies undermine products and sectors with significant potential such as light-manufacturing. Finally, regional cooperation and integration can help countries overcome current constraints such as infrastructure bottlenecks, skill shortages, and market size.

To inform our discussion on question 3 (concrete goals in the post-2015 Development Agenda), take a look at a paper by Claire Melamed from ODI (Economic growth and transformation in the post-2015 agreement), written as an input to the HLP Forum in Monrovia last weekend.

She suggests including specific goals and targets related to economic transformation, e.g. on infrastructure and education.

It should be noted that economic reforms themselves do not ensure long-term growth of economy, behavioural factors also matter. A shift in structure of economy from agriculture and industry to service sector usually lead to increasing regional differences as the growth rate in regions well positioned to service sector expansion, i.e. capital, port city, major bigger cities, is outpacing the growth rate in other regions. When defining growth enhancing policy measures a special attention should be paid to supporting regions with a structural disadvantage.

When new windows of opportunity are open up it takes some time for people and companies to learn how to use it. A relatively rapid reform process is costly in human development this unavoidable outcome of the economic transformation, during which the outdated economic system and management structure is dismantled, so the government has a role to play in providing and managing social capital and ensuring democratic values.

Therefore new ways of cooperation need to be exploited and aid programmes for developing countries have to be incorporated in the framework of global economic governance.

In some developing countries today, there is the tendency of a little investments by their nationals. I once wondered if it was merely an issue of restrictive investment policies, but i recently discovered that Cameroon for example has a favourable investment code. It offers tax exclusions for first five years of the opening of a new company and has other interesting offers. What i don't undertsnand is why are there still so few people investing? Governments should encourage more and more people to invest. Developing countries face unemployment problems but opening just one company can employ 50 or more persons. I'm thinking if 5 companies are opened, there's gonna be vast employment.

Also, developing countries like Cameroon seem to have forgotten how beneficial an influx of tourism could mean to the economy. Mostly, the revenue. Developing natural sites which they have in abundance and infrastructural development will serve to boost the social economy as not only foreigners but nationals will benefit from such fascilities.

Is anybody with me on this issue?

Nkunde Catherine

One question that seems to be overlooked is No. 2 - exactly how can countries pursue growth and diversification? 

Miguel Junior points out that governments need to be more actively engaged and donors should be supportive. These are both important points. But they need to be tied together with a vision. To the extent that a national strategy with a concrete vision of development is in place, both government and donor engagement will be critical components of economic development. Otherwise, active engagement can simply lead to corruption and ineffiency.

A second strategy raised by Gervais Nzoa is the need to involve the private sector in development policy. Public-private dialogues are a critical feature of modern development strategies. A public sector that understands the needs of the private sector is better able to identify bottlenecks to growth and investment. This, in turn, enables more effective targeting of assistance and prioritization of governance reforms. Cambodia's Government-Private Sector Forum (G-PSF) has been credited with enabling more effective trade negotiations for example. 

A final vehicle for diversification that has been pursued by many countries is free trade agreements. But this needs to be pursued carefully. While many studies show that FTAs promote growth enhancing policy reform and diversification, this does not hold for many least developed countries. To the extent that FTAs continue to be used as a development tool, more consideration needs to be given about how to link potential development gains with actual capacity to capture them. 

Thank you all for your insightful comments. We will shortly post a summary of the debate so far and put forward a next round of questions, focusing on the implications of our discussions for the post-2015 agenda.

In the meantime, you might want to look at the Communique of the meeting of the Secretary General's High-Level Panel of Eminent Persons on the Post-2015 Development Agenda in Monrovia, which focused on structural transformations.

The vision of the High-Level Panel is to 'end extreme poverty in all its forms in the context of sustainable development', and structural transformation plays an important role in achieving this vision through a global development agenda, by promoting good governance, growth with equity, and sustainable and transparent management of natural resources.

Structural change can mean many things. I favour clear institutions that support a transition to a greener and more social economy, but also more stability. The major international issues that I think should be tackled sooner rather than later are:

1) Financial Transactions Tax (Robin tax) (some European countries has started this)

2) Progressive income taxes everywhere; increase corporate taxes to pre 2000 level

3) Implement better indicators for wellbeing and development

4) Replace market for CO2 and other environmental markets by regulation

Thanks for inviting me for discussion.. a very good point you raised, that is people are looking for decent jobs and we need to create it... Now we have many such jobs which are not considered as decent jobs but needed and important in our day to day life.

For Example..Cattle rearing is considered as indecent occupation in the educated world but it is needed, so there is a need to identify such jobs and change those occupations in to a decent jobs. How, we can discuss it later. Similarly, many occupations, related to rural women are not given an attention or noticed, should be recognised. So, First we need to identify indecent jobs and convert it into decent jobs and in second phase, we need to create decent jobs. Thanks,

Pramod Sharma

spha99@yahoo.com

Many thanks to the moderators and the participants for a stimulating discussion. I think we all recognize that achieving a decent level of human development in all countries necessitates better paid jobs for the many and poor. A quick exploration of the history of structural transformation of the world’s economies tells me that there are no straightforward answers to the question of how to create these jobs in a sustainable manner (both at the macro level but also in terms of environmental effects).

In my opinion successful structural change especially with respect to employment distribution remains a moving target. And, unless policy makers do recognize important underlying dynamics, I think most efforts will fail to make structural change and economic growth mutually reinforcing processes and to achieve decent employment and pay for many workers. Dynamics that in my opinion are crucial and are difficult to overcome by one single economy have to do with (1) a race to the bottom in terms of real wages in middle and high income countries (2) a fallacy of composition for many competing developing countries which keeps already low real wages from rising (3) a tendency for an unusual (given income per capita) rise in the capital-labor ratio in some countries and regions at the expense of employment (India would be an example, and Sub-Sahara Africa another). The latter is not uniform across countries but worryingly present in many. I think rising capital intensities have been stimulated by cheaper financing at the global level, at least prior to 2008, by rising inequality across countries which has led the global demand to shift towards more high tech products (in case of India), and by rising demand for basic commodities and energy in the case of Africa.

The moving target analogy I have in mind can be better explained through an example: long ago when the Tiger economies were undergoing structural transformation rates of output expansion of today’s Indian economy would have been more than sufficient in rising employment shares in the so-called modern sectors.  These modern sectors were, at the time, mostly labor-intensive manufacturing. This is certainly not the case in the present: India’s labor force remains stubbornly stuck in low productivity activities (and among this subsistence agriculture) despite rapid growth rates at the macro level but which turn out to be driven by capital intensive sectors and high-tech services sector (a paper by Kotwal et al. 2011 provides a nice review). Even in the case of many developing countries that, in the 1990s, followed the Tiger model of entering low-tech labor intensive sectors I am not sure that, under current global conditions, they will manage to catch up in the manner that the Tigers have done it, or make significant progress against poverty. Global competition and virtually free movement of capital is keeping their real wages from rising or from sharing labor productivity gains. Therefore you may see structural changes in terms of employment shares but the effects on real incomes, which in the end is what matters, may turn out insufficient for significant progress on human development.

What can be done? I am not sure I have the answers, but both small and big questions as done on this site have to be asked and acted upon. With respect to the big picture, which is what I am addressing here, I think cooperation and coordination at the global and regional levels is equally important to other policies proposed here by the participants. Yes, an active state has to be part of the equation as a facilitator and stimulator of economic activity (R&D, financing, agriculture, etc) but also as a moderator such that gains are more equitably distributed and development goals are kept in sight.

As a contribution to this discussion I am uploading the summary of a report of the employment and poverty consequences of investment in manufacturing.

Eddy Szirmai, UNU-MERIT

• Summary.docx

I believe that structural changes in all spheres that impact sustainable growth and decent jobs need to be brought into the discussion. I am very strong advocate of the educational system related structural changes, as they impact job readiness directly. For e.g. in India there is a very strong need for linking the educational outcomes/ learning with the what is precisely required by the industry. There has been some initiatives taken by the Indian government where in they have introduced a framework - NVEQF (National Vocational Education Qualification Framework) which prepares student for vocational jobs from standard 9th till 12th. Similarly there is a need to make engineering, sciences, humaities etc. courses more aligned with the job requirements. The educational system at best prepares students on the Knowledge front with very little focus on Skills and Attitudes that are so essential for a job related competency.

Regards

Manish

Pour "growth and employment in the post-2015 development agenda",concernant les couches sociales affectées notamment les populations autochtones (pygmées, Mbororo,...), les handicapées, les jeunes diplômés et non diplômés, les jeunes filles mères et les femmes, les personnes vivant avec le VIH/Sida, les producteurs agricoles, pastoraux et d'objets d'art, un ensemble de mesures susceptibles d'améliorer leur condition doit couvrir les aspects ci-après:

1. Renforcer la gouvernance et les institutions de production agricole et animale, de transformation économique, de commerce et d'emploi pour soutenir l'autonomisation et la professionalisation des couches sociales affectées;

2. Identifier les moteurs et les obstacles à la transformation économique, à la production agricole, à la transformation économique, au commerce et à l'emploi pour un développement durable;

3. Renforcer le rôle du secteur privé en ce qui concerne les enjeux identifiés sur les moteurs et obstacles;

4. Mettre un accent sur les perspectives et les positions africaines sur les moteurs et obstacles à la production économique, à la transformation économique, au commerce, à l'emploi et au développement durable pour soutenir l'autonomisation des couches sociales dans la croissance économique et l'emploi.

Yes I do agree. It is need of the hour to work with innovations/diversifications. We being grass root NGO developed an innovative project entitled "Rural Tourism with local handicrafts development". In India we are having 3650 ancient monuments which are being maintained by Government of India by investing huge amount but no return. It is need of the hour to make some value addition and launch them in international market for earning huge amount. Our "Abhnaeri Circuit" which is situated on World famous Golden Triangle (Delhi-Agra-Jaipur) having Stepwell and most haunted site in Asia-Bhangarh. After that three more circuits were earmarked which would be developed in the time to come.

The Abhaneri Circuit which is having Stepwell would be declared Wolrd Heritage and the site which was not known by most people 5 years ago, now tourist traffic is started and investors are ready to invest huge amount for construction of starred hotel.

Hence, this Abhnaeri Circuit would be on world tourism map in the time to come.

So this innovative project "Rural Tourism" can be replicated/up scaled on national as well international level and can generate huge investment and employment,

Hi,

I agree with the approach of Miguel Junior. I would like to contribute a bit more on the second question and name some of the policies used by countries that achieved structural transformation. Unfortunately, many of them are not available to countries that have committed themselves to trade/investment liberalisation in international agreements - which by definition are binding- and in the WTO - equally binding.

• Channeling loans to specific sectors - needs banks to take some directions from the state
• Some public banks for the same reason
• Capital controls for monetary/financial stability - even the IMF agreed to this
• Selected export duties and restrictions - so as to 'impose' value adding activities against raw material exports
• Foreign ownership ceilings - like Finland had until 1995, in order to ensure that foreign investors do not buy innovation for cheap
• Relatively loose IP protection - it enables quicker technology transfer
• Joint venture requirements - also for technology transfer
• Subsidised R&D
• SOEs to head the development of selected sectors - experience shows that SOEs are usually a difficult tool though
• Selected 'forced' conglomerisation of SMEs' clusters
• Sound tariff policy
• Quality controls
• Local content requirements
• Aimed public procurement - so as to assist national sectors
• Agricultural subsidies - for many reasons
• and above all, a sound trade policy. 

Also investment in the social infrastructure is important. Apart from being fundamental human rights, having free education, healthcare and access to public services lower the costs of production and put basic conditions for structural transformation in place.

Em relação à primeira questão: Sem dúvida. Diria que a diversificação e a mudança estrutural são fatores essenciais para que as economias menos desenvolvidas possam atingir patamares sociais e económicos mais elevados e, eventualmente venham a igualar-se com as economias mais desenvolvidas. Exemplos evidentes do papel que exercem a diversificação  e a mudança estrutural podem ser constatados nos casos de sucesso da Coréia, China e Tailândia, entre outros.

Em relação à segunda questão: Penso que uma maior participação estatal no processo económico se afigura fundamental para guarantir que o processo de mudança estrutural seja possível. Isto porque o sector privado nos países menos desenvolvidos geralmente não apresenta condições de sozinho, e utilizando apenas mecanismos de mercado, garantir o crescimento económico, já que as deficiências estruturais são muitas. Deste modo os governos necessitam estar aptos a desenhar e implantar políticas de fomento, principalmente  industrial e agrícola. Neste âmbito, as agências de desenvolvimento internacional poderiam jogar um papel fundamental apoiando técnicamente os governos nestas iniciativas.

Em relação à terceira questão: Parece-me que um dos principais contrangimentos na implementação de políticas de fomento industrial e agrícola baseados em estratégia desenhadas pelo Estado  reside na teoria económica dominante actualmente, que preconiza que a participação estatal na economia, por ser supostamemte ineficiente, deveria restringir-se ao menor nível possivel. Como boa parte dos economistas trabalhando em agências como WB,IMF e outras foram formados com base nesta teoria económica dominante, as chances de que políticas económicas ditas "heterodoxas" venham a ser aplicadas são bastante diminutas. Outro constrangimento reside, a meu ver, no excessivo foco que a maior parte das estratégias económicas possuem em relação a inflação, o que muitas vezes, por incrível que pareça, inibe as estratégias de desenvolvimento e mudança económica. Por exemplo: existem inúmeros países em desenvovlimento que possuem níveis de inflação bastante baixos já à algum tempo, mas que continuam a ser afectados por níveis de pobreza extrema.   Julgo que deveria ocorrer uma mudança fundamental no foco das políticas económicas defendidas e implementadas pelos organismos internacionais, priorizando o emprego, náo o controle da inflação. A crise financeira de 2008 , com todos os efeitos negativos que trouxe, constitui-se em uma oportunidade para desafiar e questionar as políticas económicas implementadas nos últimos anos. Neste âmbito Iniciativas de vários países, como a do Brasil, para combater os efeitos trazidos pela crise financeira, poderiam ser consideradas em maior profundidade, especialmente as seguintes: potencialização dos bancos de investimento, redução nas taxas de juros e maior intervenção no mercado cambial. 

• Em relação à primeira questão.docx

I agree with overall approach taken here: diversification and structural transformation are key to inlcisve and sustainable growth.

One apect that I feel is too often neglegted is the territorial dimension of this: as research in both OECD and developing countries shows transformation and diversification are only possible when both rural and urban areas start realizing and exploting their potential. At present the emphasis is always placed on urban development and the 'benefits' of urbanisation and agglomerations. However, in order to diversify away from agriculture (or within agriculture) it is crucial for countries to focus also on rural development. This means adopting strategies and policies that make explicit what is a country's vision for its territories both rural and urban.

The MDGs coudl be very helpful to promote this if they included goals, targets and indicators that capture rural and urban development.

Having lived and worked in Southern Africa for over two decades, it is clear that structural change is necessary if most of these countries are to attain sustainable development. Since most countries in southern africa are dependent on extractive industries, not enough jobs are created as these industries are very capital intensive. I therefore believe that the post 2015 agenda must reflect on how to practically bring about structural transformation so that meaningful jobs are created. The discussions must however go beyond the rhetoric of diversification of the economies to concrete structural discussions that our leaders must commit to