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Oliver Schwank
on Fri, January 18, 2013 at 03.36 pm

Now closed: e-discussion on Growth, Diversification and Structural Change

Details:

Welcome to the e-discussion on growth, diversification and structural change, which will run from today, 18 January until 22 February 2013. This e-discussion is the second in a series of four e-discussions organized on growth and employment in the post-2015 development agenda. The other e-discussions focus on jobs and livelihoods; development-led globalization; and sustainability and growth.

We are delighted that you join us in this important debate. To participate, please review the discussion questions below and post your response in the comments box. Comments are welcome in any of the languages supported by Google Translate.

We aspire toward a future free from poverty, with low inequality, decent jobs for all - a world where the basic human rights of women and men are fulfilled. However, despite the progress achieved since the world has adopted the Millennium Development Goals, these aspirations remain unfulfilled for many.

It is often argued that the key to addressing these problems is inclusive economic growth driven by economic diversification and structural change. Structural change is defined here as transformation of economies from high reliance on agriculture and exploitation of natural resources to more diversified and more inclusive economies driven by high value adding agriculture, industry and service sectors [see for example the Report of the earlier consultation in Japan on growth and employment in the post-2015 development agenda]. 

To kick off our debate and to elicit the broadest possible range of views and experiences, we invite you to respond to the questions below using your experience, ideas or research:

  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?
  2. If so, what kind of strategies and policies can lead to such structural change?
  3. What are the opportunities and key constraints in implementing such strategies and policies in your country?

We look forward to your active participation and we also encourage you to inform your colleagues and networks about this discussion.

 

Rolph van der Hoeven, Erasmus University, Rotterdam

Nicola Crosta, United Nations Capital Development Fund (UNCDF)

Uyanga Gankhuyag, United Nations Development Programme (UNDP)

Oliver Schwank, United Nations Department of Economic and Social Affairs (UNDESA)

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Anonymous from
Wed, February 6, 2013 at 07.44 am

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

David Woodward from
Tue, February 26, 2013 at 09.31 am

My apologies for coming to this discussion so late, particularly after Rolph’s excellent summary of the discussion to date.

However, I am slightly concerned at the identification of structural change with industrialisation, particularly if we also identify industrialisation with the development of relatively large-scale (and often capital-intensive) industries, often oriented towards export markets in the North. While this has been central to development in many of the most successful “emerging market” economies in recent decades, the context of the coming decades is likely to be very different as a result of the need for drastic reductions in carbon emissions to limit climate change to (hopefully) manageable proportions.

I would suggest the following propositions in this context.

  1. Global carbon emission constraints require a very considerable reduction in fossil fuel use over the coming decades, which is becoming increasingly urgent.
  2. Global carbon emissions arise primarily from consumption in the North.
  3. Limitations on the economic and technical potential for mitigation technologies, and incentive effects from potential policy approaches (eg carbon taxes/trading) means meeting reduction targets will entail at least a shift in consumption patterns in the North (and among the better-off in the South), even if their consumption growth is not slowed.
  4. Major consumption patterns likely to be adversely affected (those with the greatest and most visible carbon footprints) include:
    1. long-haul tourism;
    2. high-value perishable agricultural produce requiring air transportation (eg fresh soft fruits and vegetables; cut flowers);
    3. low-cost, low-quality manufactured goods with low utility and/or short product life.
    4. More generally, a move is likely from “material” to “non-material” consumption.
    5. Low-income countries’ comparative advantage, and their exports, are strongly oriented towards “material” rather than “non-material” production: “non-material” production is essentially limited to low-value, non-tradable services (eg local transportation, retailing and petty trading, personal services, etc).
    6. The three sectors identified in 4 above correspond with major routes towards development in an export-led model.
    7. If low-income countries seek to accelerate, or even to maintain, their growth relying on these sectors, prices will be driven down by intensified competition in markets with declining or slow-growing demand, which is likely to prove self-defeating.
    8. The main remaining sector is extractive industries (excluding fossil fuels), which generally generates very limited employment relative to the value of production, and whose demand will also be limited by a more general shift away from “material” consumption.

10. This raises serious questions about the viability of export-led development in a carbon-constrained global economy, or at least indicates a need to identify different and more environmentally sustainable and lower-carbon sectors for export development.

Combined with the concerns about capital intensity of industrial production raised in earlier posts, this reinforces the need for structural change, but also implies a very different nature of such change in the post-2015 context. Specifically, I would suggest that the need is for:

  1. a shift in focus from South-North exports to greater attention to the development of local, national and regional markets (with important implications for transport infrastructure);
  2. policies which target poverty more directly rather than growth, with benefits “bubbling up” from poverty reduction to growth rather than “trickling down” (or not) from growth to poverty reduction;
  3. an emphasis on rural development and diversification (within and away from agriculture), particularly by exploiting the potential benefits of decentralised and micro-renewable energy technologies, to generate small-scale labour-intensive production by small and micro-enterprises;
  4. coordination of demand and supply increases, orienting income-generation programmes towards increasing the supply of goods and services whose demand will be increased by poverty reduction (identifiable from household expenditure surveys), most of which can readily be produced locally (with judicious use of import tariffs where appropriate);
  5. a shift away from reliance on, and competition for, (relatively capital-intensive) foreign direct investment, and towards promotion of local and diaspora investment, with greater labour intensity and stronger forward and backward linkages in the local economy;
  6. collective action to limit exports of primary commodities with price-inelastic demand (eg through coordinated export taxes), designed to avoid negative income effects on small producers and to avoid free-riding.

On international measures, I would agree with all Rolph’s propositions. I would also add the creation of an international fund for the adaptation and application of renewable energy technologies in rural areas of developing countries, whose effectiveness could be enhanced by the price effects of accelerating the product cycle, thereby reducing costs through learning effects and economies of scale. More generally, we need a permissive global economic environment which will allow, encourage, facilitate and support sustainable human development strategies at the national level.

While this is perhaps off-topic, governance reform of global economic and financial institutions (including the IMF, World Bank and WTO), in line with accepted democratic principles and directed towards achieving genuine equality of influence, is likely to be necessary to achieve the substantive changes needed at the international level.

Margarita Starkeviciute from
Wed, February 6, 2013 at 02.50 pm

The experiencegained during the transition decade by Lithuania says that regulated markets set better conditions for growth ofeconomy other than self-regulated markets, while the most importantproblem of economic strategy is to evaluate the degree of impact of eachdeterminant on growth and to set a mixture favourable to long - term growth. It shouldbe noted that economic reforms themselves do not ensure long-term growth ofeconomy, behavioural factors also matter. A shift in structure of economy fromagriculture and industry to service sector usually lead to increasing regionaldifferences as the growth rate in regions well positioned to service sectorexpansion, i.e. capital, port city, major bigger cities, is outpacing thegrowth rate in other regions. When defining growth enhancing policy measures aspecial attention should be paid to supporting regions with a structuraldisadvantage.

When new windows of opportunity are open up it takes some time forpeople and companies to learn how to use it. A relatively rapid reform process iscostly in human development this unavoidable outcome of the economictransformation, during which the outdated economic system and managementstructure is dismantled, so the government has arole to play in providing and managing social capital and ensuring democratic values.

Therefore newways of cooperation need to be exploited and aid programmes for developingcountries have to be incorporated in the framework of global economicgovernance. Given the growingmacroeconomic interdependence

a new, broader definition of globalgovernance is needed, as well as development of cooperation programmes with a structure able to assess notonly trade flows, but also ready to use channels of transmission forinternational financial integration, introduction of a new statistical approachbased on the actual value contributed to a product from different countries intrade statistics.

Anonymous from
Fri, February 8, 2013 at 11.12 am

In the 1960s, Nigeria joined the fad in adopting Import-Substituting Industrialisation strategy and also established state owned enterprises in critical sectors of the economy. For some time, these strategies worked in generating growth and creating empolyment. However, mismanagement and corruption crippled the realisation of the long term effects of these measures. The dominance of neo-liberal principles and the adoption of same by successive governments post-military has brough about massive privatisation of state-owned enterprises. The telecommunication sector made a huge success of this initiative and it helped significantly in job creation and overall improvement in the economy. However, there are impediments to the replication of the same in the most critical sectors, that is  oil and electricity . Entrenched interests of politicians, oil importers,  and lack of strong  political will has rendered the privatisation efforts unproductive. This failure is affecting other sectors, especially the productive sector, which has a great potential to generate employment. The diversification of the economy is pertinent to any structrual transformation. But in order to achieve this, the government must carry through with the privatisation of the power sector as well as a more transparent management of the oil sector. The measures of global governance that can help in these issues is provision of technical assistance to get the privatisation in these two sectors through. Where necessary, the World Bank through the IFC can also provide equity funding for corporations willing to invest in the take of the unbundled units, especially in the pwoer sector. Refineries need to be built in the oil sector as this will have some multiplier effects on other related industries such as petrochemicals. This way, jobs will be created along the value chains from exploration to sales.

Jessie Lydia Henshaw Natural systems scientist from United States of America
Sun, July 7, 2013 at 01.36 am

It's disappointing that the discussion on growth to achieve prosperity, particularly within the sustainability community, still maintains what amounts to "the infinite earth" assumption.  Everyone speaks as if inclusive ever expanding growth in wealth is only a matter of creativity.  

Occasional voices mention the tradeoff between reduced consumption of resources by the rich to allow growth for the poor without further worsening our pressures on the earth.  Almost no one, though, struggles with how to do that, like the absolutely critical subject of how to define "enough".    Lacking that discussion “enough” is defined only by exhausting our resources and watching as our environments degrade.

The even bigger reality missing from the discussion is that growth is already being held back by running into increasing resistance from the hard limits of the earth.   The results in terms of social welfare are also very different than before, because growth that presses ever harder against the limits of the earth produces growing inequity, not inclusiveness.  

As only the most competitive parts of the economies are able to grow, and able to afford the resources they need, it quite naturally excludes more and more of the less competitive sectors, simple math.   It means the discussion here, and elsewhere too, is tending to overlook that growth can't be the general solution if when running into ever stiffer resistance from nature also makes it a direct cause of the worst parts of our problem.

Employment WorldWeWant2015 Facilitator from South Africa
Fri, July 5, 2013 at 03.27 pm

Anthony Black

Industrial policy and comparative advantage in middle income countries with very high unemployment: the case of South Africa

 

Using South Africa as an example, this short
comment makes the simple argument that industrial policy needs to be tailored
to circumstances. South Africa suffers from extremely high level of
unemployment and inequality and is struggling to free itself from the
disastrous legacy of apartheid.

 

While manufacturing is a not a major source of
employment expansion in most middle income countries, the poor performance of
the sector is a significant contributor to South Africa’s employment problem. A
striking feature has been the rapid increase in manufacturing capital
intensity, in part due to the poor performance of labour intensive sectors in
relation to the relatively rapid expansion of capital intensive sectors. While manufactured
exports have grown, it turns out that South Africa’s ‘revealed’ comparative
advantage has, somewhat paradoxically, been in capital intensive products (e.g.
steel, ferroalloys and basic chemicals). Labour intensive sectors have
struggled to compete against import competition.  

 

Assuming no large scale state intervention,
the (tradable) sectors which are likely to expand most rapidly will be those
with a growing comparative advantage. But comparative advantage is not simply a
matter of initial endowments but develops over time and is shaped, in part, by
government policy, including industrial policy. Looking at South Africa’s
revealed comparative advantage, one could easily conclude that we cannot
compete in more labour demanding sectors. But before accepting this conclusion
at face value, it is important to note that our revealed comparative advantage
has been fundamentally distorted in three main ways.

 

Firstly, the historical, systematic
undermining of black education has limited the supply of skills and, therefore,
hugely raised costs for manufacturing. Since 1994, what can generously be
described as the ‘false start’ in the rehabilitation of black education and
artisanal training has continued to militate against competitiveness in more
labour demanding sectors.

 

Secondly, the market power of large upstream
producers in sectors such as steel and chemicals has profoundly disadvantaged
more labour intensive downstream production. Upstream producers such as Arcelor-Mittal and Sasol have been able to use
import parity pricing, so that local fabricators of metal and plastic products have
derived no advantage from low domestic production costs of key inputs such as
steel, aluminium and basic chemicals.

 

The third distortion has been that heavy industry has benefited enormously from very
substantial direct and indirect state support, both before democratisation in
1994 and since.  For example, aluminium production is based
entirely on low priced electricity to process imported bauxite. However, the long history of artificially low electricity
prices has led the economy to its current predicament: where electricity supply
is inadequate and prices are rising sharply as Eskom battles to fund massive
expansion in new capacity.

 

While
the clearly stated objective of industrial policy is to restructure the economy
to promote growth and jobs, some of the very
substantial support programmes provided by government have reinforced rather
than altered the industrial development path. These have included the ‘37E’
incentive given to major resource-based projects and the Strategic
Industrial Projects (SIP) programme which provided large scale tax relief for large capital-intensive projects, mostly
in sectors such as steel, ferroalloys, aluminium and basic chemicals. Another
related government initiative has been the funding of mega projects and
industrial development zones. State support for such projects is multifaceted
including infrastructure support, industrial subsidies, cheap land and water as
well as preferential electricity tariffs.

 

So South Africa’s ‘revealed comparative
advantage’ is, in part, the outcome of its distorted pattern of development.
Powerful interests have coalesced around this capital and energy intensive
growth path. While industrial policy has increasingly sought to shift
industrial development onto a different trajectory, this has proved
extraordinarily difficult and has met with limited success.

 

Industrial policy should be concerned with promoting
structural change in order to improve economy wide efficiency. This is frequently
interpreted to mean moving up the technological ladder, for example, via the
promotion of diversification into non-traditional or high technology sectors. But
the nature of industrial policy must depend on context and the South African
context is one of massive structural unemployment. Unemployed human resources
on such a scale represent the most glaring ‘inefficiency’ afflicting the South
African economy. It follows that if industrial policy is concerned with
promoting economy-wide efficiency, it has to be centrally concerned with the
promotion of employment intensive growth, including in the manufacturing sector.
The bulk of South Africa’s unemployed labour is unskilled or semi-skilled and
can most easily be absorbed into labour intensive activities. The point is that
intuitively, it should be much easier (require less capital resources) to raise
the productivity of an unemployed worker from zero to a low number than to
achieve an equivalent productivity gain in, say, a car assembly plant, where
labour productivity is already relatively high.

 

Placing employment at the centre of industrial
policy means support for small firms and training, particularly at a basic
level and an examination of the regulatory environment. It also means providing
appropriate infrastructure and investments to improve competitive capabilities
in more labour demanding activities. This does not necessarily mean that wages
should be driven down, although policy makers do need to address labour market
rigidities in certain areas. Incentives should subsidise labour and training
rather than capital investment, electricity and infrastructure for capital
intensive firms. This kind of support will lower unit labour costs, increase
the productivity of both capital and labour and encourage more labour demanding
investment. The challenge for South African industrial policy, therefore, is to
tilt the playing field towards labour absorbing growth in order to mobilise the
huge potential of an under-employed and poorly skilled workforce.

 

Anthony Black, School of Economics, University
of Cape Town

 

 

 

 

Pedro Martins from
Wed, February 20, 2013 at 12.03 pm

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

Florian R from
Sat, February 16, 2013 at 06.57 pm

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.

Anonymous from
Wed, February 13, 2013 at 05.19 pm

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

Santosh Mehrotra from
Wed, February 13, 2013 at 06.04 am

 

  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 12th 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 12th 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 10th Plan period (2002-2007), and 7.9 over the 11th 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 12th 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 12th 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 11th 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 12th 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

 

 

    

Anonymous from
Mon, February 11, 2013 at 01.06 pm

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

Margarita Starkeviciute from
Sun, February 17, 2013 at 09.03 am

Theaim of development policy is to regain credibility and ensure social stability.It is well known from the experience of transition countries that the burden ofthe past, different histories and geographical locations explain differentincomes per capita and quality of institutions. Therefore it is very importantto have a post-2015 development framework allowing countries gradually to adoptthe best practices of institutional building and governance of economy.

Thereare different approaches could be used in setting such a framework, for exampleso-called fair rules (Olympic Games experience) model. The fair rules frameworkis more flexible because there is only one main institution for policyco-ordinations and decision making at a global level (like an Olympiccommittee) supported by technical arrangements and a number of similar nationalinstitutions. The task of a whole system is to create and implement the set ofrules for basic governance and a fair competition on the global market, whileproviding necessary assistance.

Anonymous from
Sun, February 10, 2013 at 12.25 am

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.

Pedro Martins from
Tue, February 26, 2013 at 02.23 pm

I'm attaching the paper I mentioned above.


 


 

Oliver Schwank from
Thu, February 7, 2013 at 03.39 pm

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.

Margarita Starkeviciute from
Wed, February 6, 2013 at 08.46 am

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.

Anonymous from
Wed, February 6, 2013 at 02.01 am

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

David Woodward from
Mon, February 25, 2013 at 03.40 pm

Some observations on Nkunde Catherine’s question as to why nationals are not investing in Cameroon, from someone in the diaspora with recent experience of establishing a small enterprise in the country:

Even though there are tax exemptions, the actual process of forming a company is extremely cumbersome and bribes are often required. It can take three to six months to register a company. In some countries it takes 30 minutes.

Another problem is infrastructure and equipment. It is difficult to start a company if you do not have the necessary equipment and machinery. If you invest in Cameroon, you have to import all your advanced technology, with the attendant delays and substantial additional costs for shipping, which may be further increased by customs corruption. This makes you much less competitive than someone investing in a developed country, who can purchase all the necessary equipment in one week.

A third problem is finding qualified people to run the business or work in it. And, while you can rent premises for some businesses, for others, you have to buy the land and build the premises yourself.

All this means that, despite tax breaks, the enabling environment is extremely difficult. If you are going to invest in a business with computers and you intend to run it yourself, then fine.  If you are just going to use your brains (e.g. as a consultant or accountant), then fine. But as soon as you consider involving other people or investing in equipment, or if the business requires its own premises, then the problems begin.

With all these problems, start-up is very slow, and start-up costs are ridiculously high, so that substantial economies of scale are needed to make a profit. This is a serious constraint, particularly to a small enterprise with limited start-up capital, or seeking entry into a new market; and the risk of not achieving the necessary scale is a major disincentive to investment.

Anonymous from
Thu, February 7, 2013 at 04.51 pm

Dans les pays en développement il y a beaucoup de possibilités à exploiter pour creéer d'emploi. Mais c'est l'esprit de créativité qui manque . L'éducation en est une des causes .

Anonymous from
Tue, February 5, 2013 at 03.35 am

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. 

 

Oliver Schwank from
Mon, February 4, 2013 at 04.05 pm

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.

 

Anonymous from
Mon, February 4, 2013 at 12.25 pm

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

Anonymous from
Fri, February 1, 2013 at 01.20 am

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

C. Rada from
Thu, January 31, 2013 at 09.57 pm

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.

Adam Szirmai from
Thu, January 31, 2013 at 09.26 am

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

Anonymous from
Thu, January 31, 2013 at 05.17 am

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

 

Anonymous from
Mon, January 28, 2013 at 03.33 pm

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.

Anonymous from
Sun, January 27, 2013 at 02.45 am

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,

Yorgos Altintzis from
Fri, January 25, 2013 at 05.13 pm

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.

Jinson Varghese from
Fri, October 17, 2014 at 09.51 am

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Miguel Junior from
Thu, January 24, 2013 at 12.41 pm

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. 

Anonymous from
Wed, January 23, 2013 at 05.21 pm

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.

Anonymous from
Tue, January 22, 2013 at 09.30 pm

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

Anonymous from
Wed, January 23, 2013 at 04.42 pm

Fair point. The case of South Africa is particularly challenging, given inequalities, the Apartheid legacy, extractive industries, social unrest,... - what do you think the government should do that would work for SAfrica? 

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