In previous chapters, we examined trade, capital flows, aid, and migration and the interaction of these global flows with development. In each case, these dimensions of economic globalization had the ability to contribute to development under certain conditions. This chapter focuses on ideas, an often-neglected dimension of globalization, despite often being the most important. Ideas involve generating and transmitting distinctive intellectual constructs in any field that can affect production systems, organizational and management practices, governance practices, legal norms, and technological trends. Our scope here is thus very wide. Nevertheless, as with the other dimensions of economic globalization, there are distinct if subtle connections between the realm of global idea generation and dissemination and the realm of poverty and development. We attempt to convey some of these connections here.1
Ideas are the most powerful influence on history. Globalization is above all about the flow and intermingling of ideas among the countries of the world. Ideas inform the evolution of politics and economics. The ways in which ideas flow and are absorbed shapes globalization and its impact on poor people. This has been true since the first migrations of “primitive” peoples across Africa, the Americas, Asia, and Europe. That the global spread of ideas is not a new phenomenon is evident in the rise of the earliest civilizations and the development and adoption of language, early implements, and agricultural technologies.2 The spread of languages and cultures, of religion, and of specialization and trade reflect the forces of globalization. Although the expansion and then contraction of the influence of the ancient African, Chinese, Greek, Mayan, and other civilizations may be interpreted as the rise and decline of their military power, this power reflected an underlying set of ideas and technologies that shaped and informed the waxing and waning of the empires.
Development may be characterized as the application of better and smarter ways of dealing with key challenges. As a leading growth economist Paul Romer (1993a) has written, “Nations are poor because their citizens do not have access to the ideas that are used in industrial nations to generate economic value” (p. 543). Development marks the evolution of newer and more effective ideas that replace those that no longer reflect the opportunities and policy choices available to individuals and societies. The acceleration of growth and poverty reduction requires a more rapid evolution and dissemination of ideas. The challenge is the identification and assimilation of what works (and what does not work) in the fight against poverty, with local ideas addressing the uniqueness of local problems drawing on the full richness of global knowledge.3
Not all ideas are good. Indeed, some of the most negative effects of globalization can be attributed to the adoption of inappropriate ideas. One extreme case of this—the idea of mercantilism—is considered in box 7.1. However, creating barriers against the flow of ideas is not an appropriate response to the risk of adopting bad ideas. Insulating society from these flows, through intellectual autarky (intellectual self-sufficiency), is perhaps best illustrated by the Democratic People’s Republic of Korea, which—after adopting and adapting the big, far-reaching idea of Marxist-Leninism—has virtually cut itself off from the world, with disastrous consequences for its population. We might imagine that if the Democratic People’s Republic of Korea were to end its isolation and benefit from its proximity to its neighbors, the Republic of Korea and China, the dynamic effects of the new ideas flowing in would dwarf the development impact of foreign aid and even foreign investment flows.4
Box 7.1 Mercantilism
Mercantilism was one the most misguided development ideas of all time. In its myriad forms, mercantilism influenced development patterns from the mid-15th century through the end of the 19th century. This influence ranged from mild to catastrophic among the various regions of what we now call the developing world. The basic notion of mercantilism was that wealth was to be found in precious metals, primarily gold. As an admiral of Christopher Columbus stated, “of gold is treasure made, and with it he who has it does as he wills in the world and it even sends souls to Paradise.” Where gold was not to be acquired directly, through mining, it was to be acquired indirectly, by generating a trade surplus. As stated by Thomas Mun in an early mercantilist treatise, “The ordinary means … to increase our wealth and treasure is by Foreign Trade, wherein we must ever observe this rule; to sell more to strangers than we consume of theirs in value.” Gold was seen as important in part for its role in paying armies. Indeed, trade and war were closely related in much mercantilist thinking and practice, perhaps most famously in the case of the Dutch East India Company, which at its height maintained a force of 30,000 soldiers. As one of its employees wrote, “We can’t trade without war, nor make war without trade.”
It was mercantilism that provided the intellectual structure of Spain’s brutal colonial conquests and set the stage for the famous inflows of gold into the capital of its empire, Sevilla. The barren nature of mercantilist ideas became apparent with Iberian inflation and, ultimately, the collapse of the empire by the end of the 17th century. Spain itself gained few long-term benefits from its empire, no less its brutalized colonial subjects. As Adam Smith noted in his anti-mercantilist Wealth of Nations, “Wealth does not consist in gold and silver; but in what money purchases.”
In the late 1700s, Spain locked up the documents of its colonial history in the Old Exchange Building in Sevilla. In 1862, the young King Leopold of Belgium spent a month in these archives, carefully studying Spain’s application of mercantilist practice to its colonies. These he applied to his own colony in the Congo after the Berlin Conference of 1885. Again, the effect was brutal, resulting in the deaths of approximately 10 million Congolese from 1885 through 1920. Thus, the mercantilist idea extended its devastating reach across more than four centuries, with each imperial power seeking to run a trade surplus by locking its colonies into patterns of trade that prevented the colonies trading with other imperial powers or their colonies, choking what now is known as South-South trade.
Source: The Economist 1998, 1999; Galeano 1997; Hochschild 1999; Mun 1924, orig. 1664; Smith 1937, orig. 1776.
The challenge for countries and individuals is to create the capacity to identify, from the myriad idea flows, those that are most interesting and that offer the most potential—and to then evaluate, reject, and adapt those ideas in a process that leads to local innovation and progress.
This is no small challenge. The evaluation and adaptation of ideas requires local capacity in the form of both skills and institutions.5 It also requires a culture of learning and adaptation, of openness to ideas and to challenging past practices. In development projects, it requires the explicit recognition of the need for independent assessments based on accurate data, followed by frank discussions of what works and what does not, what can be improved and how.
Key Terms and Concepts
civil society organizations (CSOs)
global economy
Green Revolution
import-substitution model of trade
information gaps
intellectual property rights
knowledge gaps
market system
mercantilism
nonexcludable nature of public good
nonrival nature of public good
patent ladders
public goods
Washington Consensus
The fall of the Berlin Wall and the integration of China into the global economy, together with technological change—not least in telecommunications and transport—has been associated with an acceleration in the integration of the global economy and the reach of the particularly ubiquitous idea of the market system. As defined by Lindblom (2001), the market system “is a system of society wide coordination of human activities not by central command but by mutual interactions in the form of transactions” (p. 4). This system now informs economic governance virtually everywhere. This is not to say, however, that the system of market-based coordination is in any way monolithic, as China’s strong central management of the market economy illustrates. Economic activity exists in many forms, shaped by the interface of global ideas with local ideas and preferences. The global economy is consequently in constant evolution, as well as in coevolution with systems of governance.
The post–World War II period has been associated with an unprecedented increase and reach of the cross-border flow of ideas. It is no accident that this period also has been associated with unprecedented leaps in life expectancy and literacy, benefits brought by the spread and adoption of new policies and technologies. The combination of global knowledge and local innovation and adaptation and implementation has been particularly powerful. This is evident, for example, in the way that global knowledge about the relations between germs and diseases has been applied in local campaigns to encourage people to wash hands, and in how the biological advances in understanding HIV/AIDS have been combined with local knowledge to develop public health strategies that have saved hundreds of millions of lives. Similarly, the combination of global knowledge and local innovation provided the engine for the Green Revolution, which benefited hundreds of millions of poor people through dramatically raising agricultural productivity, particularly in Asia.
Although the rapid spread and adoption of new ideas is behind the greatest leaps in development, ignorance and the failure to learn rapidly enough is behind some of the greatest development setbacks. For example, the failure to act earlier and more decisively against HIV/AIDS in a number of countries, such as Botswana and South Africa, has already reversed the gains of the life expectancy of the past 30 years.6 However, the significance of ideas is not largely confined to health and technology. The implications of ideologies, including ideas about religion and economics, have an even more powerful influence.
Ideas of destiny, right, and might, enacted in the crusades, colonial conquest, and communism, have massive and continuing implications for development. Globalization does not appear to have diluted such ideas. Although in some senses there has been what Bell (2001, originally 1960) and Fukuyama (1992) heralded as “the end of ideology” and “the end of history,” respectively, the tenacity of ideologies remains evident. Examples range from the growth of religious fundamentalism in many parts of the world to the dogged adherence in the richest countries to protectionist policies. As discussed in chapter 3, protectionism in rich countries has a devastating impact on millions of poor people whose struggle to escape poverty is frustrated by the barriers that rich countries place on their exports.7 Protectionism in rich country agriculture is an idea that Sir Nicholas Stern (2004), the former Chief Economist of the World Bank, has characterized as “politically antiquated, economically illiterate, environmentally destructive and ethically indefensible.”8 Yet it persists.
Ideas on development cannot be divorced from the broader context of ideas of humanity, freedom, culture, and religious belief. These shape and inform economic development and globalization and, in turn, they evolve in response to the changes in their operating environment. The spread of ideas about human rights, for instance, has driven development progress.9 Important phases of this spread have included the movement for the abolition of slavery, the struggle for suffrage for woman, the anticolonial movements, and the development of trade unionism. Today, thousands of international conventions and the development of hundreds of international organizations, not least the United Nations and Bretton Woods systems to which the great majority of the world’s nations belong, have given institutional form to the globalization of ideas about rights and the broadening of our understanding of development
The rise of this global governance system developed to spread ideas about human rights, poses numerous challenges, as is evidenced in the rich and complex debate about the management, reform, and evolution of global institutions. As the outcome of past compromises, it is not surprising that global institutions are neither ideally equipped to deal with current and future global challenges nor easy to reform. Indeed, it is not difficult to identify a raft of reforms that would better equip the international community to meet the challenges of the 21st century.10 In practice, however, major structural reforms require new agreements, which are not easily reached by the relevant global constituents. More practical, therefore, is the evolutionary reform of the system and its component parts.11
In this area, civil society organizations (CSOs) and other global lobbying groups, often aided by the Internet, have demonstrated the new power of virtual networks in the international communities of ideas. Through pressure on governments and international organizations, global networks of lobbying groups can exercise a powerful influence on the evolution of policies at both the national and global level. The international networks have been associated with many reforms that have benefited poor people. Global campaigns, such as the Jubilee Campaign to Drop the Debt or the Live Aid event on famine in Africa, have proved particularly effective in contributing to increasing awareness about poverty reduction. However, the rising power of distant lobbyists is not without its dangers, as their interests and objectives and those of the local communities who are directly affected may not always coincide. For example, the activities of San Francisco–based activists against the construction of the Bujagali dam in Uganda was apparently largely uninformed by the preferences of the local communities who stood to benefit from the dam.12
Ideas can be contagious and their flow unpredictable. Recent examples include the collapse of the seemingly deeply-entrenched communist regimes in Eastern Europe, the collapse of the apartheid regime in South Africa, and the rise of religious fundamentalism. The advent of mass communication technologies, particularly global television channels and the Internet, has lifted the globalization of ideas to new heights. In addition to transferring ideas that weaken government and other national monopolies over information, mass communication has profound implications for patterns of production and consumption. This is one of the defining features of the latest wave of globalization. As John Stuart Mill in the mid-19th century observed,
It is hardly possible to overrate the value … of placing human beings in contact with persons dissimilar to themselves, and with modes of thought and action unlike those with which they are familiar…. Such communication has always been and is peculiarly in the present age, one of the primary sources of progress. (Mill 1846, volume 2, book 3, chapter 7, section 5, cited in Meier 2001, p. 5)
As we noted in the introductory chapter, perhaps the most fundamental change in ideas about development relates to our understanding of development itself. For example, our understanding of the goals of development has changed substantially even in the last 20 years. We now look beyond incomes to health, education, and human development. We now see the objectives of development as ensuring that all people have the ability to shape their own lives (“development as freedom” in the words of Sen 1999). Overcoming poverty means giving poor people opportunity, empowerment, and security. We have learned that empowerment is both an end and a means of development.13
The focus of a growing number of economists on the challenges of development has been associated with a widening recognition of the power of ideas. For example, Meier (2001) has noted that “ideas are fundamental to the future progress of development” (p. 1). The examination by Paul Romer and others of the sources of economic growth has also been responsible for a growing understanding and emphasis on the role of ideas. In Romer’s (1993b) view,
Ideas should be our central concern…. Ideas are extremely important economic goods, far more important than the objects emphasized in most economic models. In a world with physical limits, it is discoveries of big ideas, together with the discovery of millions of little ideas, that make persistent economic growth possible. Ideas are the instructions that let us combine limited physical resources in arrangements that are ever more valuable. (p. 64)
Building on Schumpeter (1949), recent innovations in growth theory emphasize the role of the evolution of ideas at the micro level in processes of firm innovation. For development to occur, ideas have to produce innovations in productive methods, including organization, sources of supply, and quality. The Schumpeterian vision is that of development being accelerated through an increase in the supply of ideas and their translation into innovations. For this to happen, the transmission and acceptance of ideas must be in a form that can be translated into capabilities. Increases in rates of growth and poverty reduction thus require both an acceleration of idea transmission and the adoption of ideas through innovations that contribute to technical and societal change.
Some time ago, Summers (1991) indicated that “To put it bluntly, since there will not be much development money over the next decade, there had better be a lot of good ideas” (p. 2). However, as Meier (2001) notes, “Although the creation of ideas is a necessary condition for development, it is not a sufficient condition. The absorptive capacity of the developing countries is crucial…. [I]f ideas on policy reforms require political conditions … and these do not exist, or if the absorptive capacity depends on institutional change that is not forthcoming [the ideas cannot be activated upon] … the preconditions must be in place for the acceptance and implementation of ideas” (p. 5). In fact, these preconditions often do not exist, especially in low-income countries.
Although it is vital to stress the importance of the capacity to absorb ideas, at least as important is the capacity to evaluate and either adapt or reject ideas. For too long, developing countries have suffered the burden of the imposition of inappropriate ideas. Although this characterized the colonial period, it is not confined to it. Tied aid and inappropriate conditions associated with financial flows have for many countries reflected the imbalance in their bargaining strength in the realm of ideas, an imbalance similar to the one they have in trade and in other dimensions of global interchange. The solution cannot be isolation, but rather judicious engagement on all key dimensions. As we discuss elsewhere with respect to trade, capital markets, migration, and aid, the question is not whether to engage, but how. In the realm of ideas and innovation, the key question for governments revolves around how they handle knowledge management.
As suggested above, the deficiency of knowledge can be a more pervasive handicap to development than the scarcity of any other factor. Knowledge, however, is in many respects a public good. Once something is known, that knowledge can be used by anyone, and its use by any one person does not preclude its use by others. This characteristic of knowledge is precisely the hallmark of a public good, and suggests that knowledge, like other public goods, will be underprovided by market systems. The challenge, then, is the effective development and management of knowledge, recognizing its public good nature.14
The World Development Report (World Bank 1999) noted that “Knowledge is like light. Weightless and intangible, it can easily travel the world, enlightening the lives of billions of people everywhere. Yet billions of people live in the darkness of poverty—unnecessarily” (p. 1). The World Bank went on further to distinguished between knowledge gaps in know-how or technical knowledge (such as birth control, software engineering, and accountancy) and information gaps in areas such as product quality, creditworthiness, and other types of incomplete information that lead to market failures.
For developing countries to address the problem of knowledge gaps, the authors of the World Development Report recommended three key actions:
To address information gaps, the World Bank report recommended that priority be given to ensuring transparency and accountability in financial flows, reducing the risk of capture and corruption, and increasing knowledge of opportunities. It also highlighted the need to overcome information deficits that discriminate against poor people and isolate them from markets, as well as those that lead to failing to account for the environment.
A vibrant media can play a vital role in disseminating knowledge. Higher literacy rates, lower printing costs, and new broadcast technologies (including the Internet) can promote the potential of the media to inform citizens and create global constituencies and commerce. At the global level, media can move currency markets and influence international trade. At the other end of the spectrum, however, are the local, vernacular media. These can help develop market opportunities for poor farmers through daily radio broadcasts of prices, for example. They can also increase awareness of local threats and opportunities, considerably improving local health and knowledge.
As emphasized by the World Bank (2002d), open information flows can promote institutional reform by affecting peoples’ incentives and by promoting the sharing of ideas and knowledge. New information can change people and culture and create demand for new institutions as well as facilitate debate and collective action. The combination of providing information and voice (the ability to access views and express them effectively) can and does facilitate social change.
The extent to which the media improve governance and support markets depends to a large extent on their ability to provide relevant information and reflect diverse ideas and social views. Too often, the capture of the media by narrow political or financial interests, coupled with weak capacity and heavy constraints on journalism, lead to the media not rising to their potential. Diversity of perspective, as well as financial and editorial independence, is vital for both state and private media. This is a major regulatory challenge, which, in the age of increasing global concentration, needs ongoing and increased attention. This challenge is not simply confined to the poorest societies, where lack of capital and capacity and the constraints placed on markets by the poverty and illiteracy of readerships and advertisers undermine the potential for the use of media in addressing knowledge deficits. In the most advanced societies, a plethora of choice and availability, as is evidenced in the more than 600 channels available on satellite TV and the unprecedented access offered by broadband Internet, is coupled with a homogenization of content. Consumers typically choose among a widening range of similar products owned and operated by a narrowing set of major multinational corporations.
Although the potential to learn about the world and develop a global citizenry has never been greater than it is now, the irony is that global and national polls do not appear to reflect a rising knowledge among consumers who spend hours a day watching television, “surfing” the Internet, or reading newspapers and journals. Clearly, content is at least as important as capacity.
Education and training in all its form is about exposure to ideas. The education of children and adults is a vital starting point for development. In particular, literacy, numeracy, and the ability to absorb and evaluate information are central. In the important phrase of development economics, education and training are all about “learning to learn.” Without this capacity, ideas have no vitality.15
Trade in goods and services and flows of capital are often packaged with ideas and innovations, and there is an extensive literature on the role of technology transfer in foreign direct investment.16 Here we go beyond the arguments of chapter 3 to discuss the particular questions of trade in knowledge products.
As stated above, knowledge has strong public good characteristics. Because of this, it tends to be underprovided by a market-based system. For example, “The innovator’s inability to obtain adequate compensation for his effort would, under a competitive system, cause too few resources to be allocated to research” (Leach 2004, p. 174). This problem is typically addressed in the coevolution between markets and governance systems through various types of intellectual property protection, a key form of knowledge management.17
The area of intellectual property rights is among the most controversial in economics. One area of intense debate concerns the role of intellectual property rights in growth. The common argument is that the presence of strong intellectual property rights spurs innovation, which leads to higher rates of economic growth and increasing benefits for all. The kernel of the argument is that, if strong property rights provide good incentives for the production of things, they must also provide appropriate incentives for the production of ideas. Boldrin and Levine (2002, 2004a, 2004b) question this, arguing that intellectual property has come to mean not only the right to own and sell ideas, but also the right to regulate their use, which can create a socially inefficient monopoly.18 They agree that for efficiency reasons ideas should be protected and available for sale, just like any other commodity. They object, however, to the idea of an intellectual monopoly, arguing that monopoly is neither needed for, nor a necessary consequence of, innovation and that intellectual property is not necessary for innovation and growth—that in fact it may hurt more than help. They suggest that, although the producers of a new product or service should have the right to benefit from its sale, they should not be able to appropriate the right of others to learn from the ideas embodied in that product, just as the producers of potatoes or French fries cannot monopolize the ideas embodied in their production.19
Intellectual property rights are designed to increase innovation by offering incentives to those who develop new techniques. As Wolf (2004) has noted, “given the role of innovation, intellectual property is not a marginal feature of the property-rights regime of a modern market economy, but its core. It is the most important example of property that only a powerful state can protect. The reason that such action is needed is because ideas are public goods” (p. 51). The problem for developing countries is that intellectual property rights are a legally sanctioned restraint of trade. They can lead to the monopolization of ideas and innovation by first-comers and those with the most well-endowed research and legal systems. Not surprisingly, their application requires careful analysis of both benefits and costs on the part of the development community if they are not to lead to further inequities, and to ensure both growth and more equitable development, benefiting poor people and poor countries.
How this can best be done is a question to which answers greatly diverge. As noted by the International Centre for Trade and Sustainable Development (2003), “since the early 1990s, Intellectual Property (IP) policy has become one of the most economically and politically contentious issues in the international arena, whether in discussions on public health, food security, education, trade, industrial policy, traditional knowledge, biodiversity, biotechnology, the Internet, or the entertainment and media industries” (p. 1). In each of these areas, consensus of the development community members on correct policy is often elusive.
As the above list of issue areas suggests, the range over which intellectual property protection can help or harm poor people is large. A summary of some of these areas, including potential costs and benefits, is presented in table 7.1.
Table 7.1 Potential Effects of Intellectual Property Protection on Poor People
| Area of concern
|
Potential costs
|
Potential benefits
|
|---|---|---|
| Health | Increased prices of essential drugs. | Greater innovation of drugs of importance to developing countries. |
| Food and agriculture | Loss of self reliance for poor farmers. Increased privatization of genetic materials and biological resources. |
Increased use of geographical indications to promote commercialization of products. |
| Traditional knowledge, folklore, and culture | Piracy of traditional knowledge in the form of medicinal plants, agricultural products, and forest products. | Increased protection of and royalties for music industries. Provision of intellectual property registration systems to indigenous peoples. |
| Access to knowledge and innovation | Restrictions of fair use of digital information. Increased licensing costs. |
Support of knowledge generation and diffusion. Promotion of inflows of private capital, especially FDI. Increased protection of textile designs and emergent software industries. |
| Education | Increased prices of educational materials. | Development of new educational resources of relevance to developing countries. |
Patents are a central concern with regard to the impact of intellectual property protection on poor people, affecting three areas of table 7.1: health, food and agriculture, and access to knowledge and innovation. As stated by Leach (2004), “The essential tradeoff in choosing the patent life is that a longer patent life raises the rate at which discoveries occur, but reduces the social benefits of each discovery” (p. 175). The proponents of stronger patent protection in developing countries argue that this protection will promote domestic innovation as well as the flow of ideas through increased FDI and exports. There is not complete agreement on this matter, however. In addition to the arguments of Boldrin and Levine (2004a, 2004b) cited above, Kash and Kingston (2001), for example, argue that, in the case of complex technologies, patent protection can actually inhibit innovation. To some extent, then, the ability of increased patent protection to deliver access to knowledge and innovation is uncertain.20
One key area regarding patent protection and the poor is in the field of pharmaceuticals and the extension of patent rights to developing countries as required by WTO membership. Although some argue that the extension of intellectual property rights may lead to more research on drugs to address developing country needs, the evidence on the short experience since this extension remains hotly contested.21 For many commentators, the relatively small size of the purchasing power in developing countries and the apparent lack of commercial interest by the pharmaceutical companies rather than patent issues explain the tiny portion of research devoted to diseases prevalent in tropical and other low-income developing countries. Whereas the average health care budget per person per year in the United States is approximately US$4,000, in Sub-Saharan Africa it averages less than US$20 per person per year; in the poorest rural areas it is even lower. With the average cost of bringing a new drug to market currently running at about US$800 million, and the annual sales from the three leading therapy classes—cholesterol reducers, anti-ulcerants, and antidepressants—exceeding US$70 billion per year, the incentives for the major drug companies are overwhelmingly skewed in favor of the primary problems facing rich countries.22
Recent years have seen a number of highly significant efforts to boost investment in research and its application in developing countries. The Measles Initiative, started in 2000 with significant support from the World Health Organization (WHO), the Red Cross, and media entrepreneur Ted Turner has contributed to reductions of 60 percent in mortality rates from measles in children in Sub-Saharan Africa. Vaccination campaigns over the past five years are estimated to have saved one million lives in this region. Despite these remarkable gains, the ongoing limited access of many people to the vaccine, which costs under $1 per dose and has been available since 1963, results in over 400,000 deaths among children a year, half of them in Africa. The Global Alliance for Vaccines and Immunizations (GAVI) is an impressive example of a new type of public-private partnership, bringing together donor and developing country governments, established and emerging vaccine manufacturers, nongovernmental organizations (NGOs), research institutes, UNICEF, the World Health Organization, the World Bank, and the Bill &; Melinda Gates Foundation.23 The devastating impact of malaria is receiving increasing attention from this widening coalition of partners, whose efforts aim to reverse the more than 3 million deaths per year, including 1 million child deaths per year in Africa alone, in the Roll Back Malaria Partnership. Malaria alone is estimated to cost Africa over US$12 billion per year in lost productivity and is closely correlated with poverty. This is both because it is most rampant where the associated drugs, bednets, and public health systems are least affordable, and because malaria itself undermines productivity, clogs public health systems, and undermines the economic and technical capacity of countries to cope with it as well as with other diseases such as HIV/AIDS.
With over 5 million people becoming infected each year, and with 15 million children orphaned by AIDS, the global community is belatedly organizing itself to meet the devastating challenge of HIV/AIDS.24 Since 1990, the number of people living with HIV/AIDS has quadrupled to around 40 million worldwide, and in 2004, 3.1 million people died from this disease, more than from any other infectious disease. Sub-Saharan Africa remains the worst affected region, with two-thirds of all cases. In nine African countries life expectancy has fallen below 40 years, and already 11 million African children have been orphaned because of the disease.
The key to combating HIV/AIDS is forthright national leadership, widespread public awareness campaigns, and intensive prevention efforts, including the availability of affordable drugs. The debate on intellectual property and incentives for innovation is being severely tested in this area. Work continues on vaccine development, and the number of people with access to anti-retrovirals has doubled in two years—to 700,000 in 2004. Given the scale of the problem, this remains grossly inadequate. With increased advocacy and coordination around UNAIDS, financing commitments for HIV/AIDS prevention and treatment jumped from less than US$400 million in the late 1990s to around US$6 billion in 2005. Research and its application remains a critical stumbling block, with questions of affordability and availability of drugs and the timing of their development, as well as the availability of skilled professionals and health care systems for their application, posing key constraints.
The recent example of the governments of Brazil, India, and South Africa challenging U.S. patents on HIV/AIDS drugs, which raised the costs of these drugs to AIDS patients in these countries, received widespread attention. In 2001, WTO members gathered in Doha Qatar for the fourth Ministerial Conference of the WTO. At this meeting, pressure over the HIV/AIDS issue was intense. As a result, the members issued a special declaration allowing for measures “to protect public health.” More specifically, the declaration reaffirmed certain “flexibilities,” including the following statement: “Each member has the right to determine what constitutes a national emergency or other circumstances of extreme urgency, it being understood that public health crises, including those related to HIV/AIDS, tuberculosis, malaria and other epidemics, can represent a national emergency or other circumstances of extreme urgency.” This was a victory for those in developing countries with a concern for AIDS and other public health issues. However, for countries with no domestic productive capacity in pharmaceuticals, the right to import cheaper, nonpatent drugs remains a contested issue.
To enhance development, it is important that intellectual property protection be extended to what table 7.1 calls “traditional knowledge, folklore, and culture,” or what Finger (2004) calls “poor people’s knowledge.” It is not only vital that intellectual property regimes allow developing countries to benefit from ideas developed in rich countries, but also that their own indigenous ideas are suitably protected. The key issue here, as expressed by Finger, is that of “enhancing the commercial value of poor people’s knowledge in which there are no worries about this use being culturally offensive to members of the community or about this use undermining the traditional culture of the community” (p. 3). Examples include the protection of the craft designs of the nearly 10 million artisans in India, Congolese wire toy designs, the recordings of the Senegal Musicians’ Association, Kente designs in Ghana, and many, many others. By enhancing the returns on these types of knowledge, intellectual property protection could help poor communities.
One suggested reform of current intellectual property arrangements is to modify rules governing patents under the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS) of the WTO to allow for patent ladders, in which the minimum extent of patent protection varies according to level of per capita income. Although designing such a system is not straightforward, this is a way to avoid what, in the case of environmental or labor standards, is called a “one-size-fits-all” approach to standardization of governance systems.
The crowding out of local ideas and culture by global brands—such as McDonalds, Nike, and Coke—is of particular concern to many who worry that this undermines local cultures and products. The appeal of many global products transcends national borders and ideologies. To the extent that they crowd out consumption of traditional or local products or are seen as a symbol of U.S. or “Western” economic and cultural domination, they have become rallying points for antiglobalization protests.25 This presents some cause for concern. As expressed by Sen (1999), “Equity in cultural as well as economic opportunities can be profoundly important in a globalizing world” (p. 241). However, Sen concludes that “The one solution that is not available is that of stopping globalization” (p. 240, emphasis added). Rather, what is required is that people, including poor people, be empowered enough to take part in social decisions about cultural issues. In the case of poor people, deprivations of access, information, participation, and education make this very difficult. Sen casts this issue in terms of “human rights in the broadest sense” (p. 242).
How governments and societies organize themselves and how they absorb ideas and allow their citizens and firms to operate is a key determinant of growth and poverty reduction. Much of the intellectual property debate is about the private appropriation of ideas, and hence is vital in considering the role of ideas embodied in technologies and processes that are developed and adopted by private firms and individuals. Until recently, for many countries and firms, the very idea of a private or market-based economic system was foreign. Through the absorption and adaptation of ideas, new economic systems have evolved, which in turn, over time, fundamentally change the way in which ideas are generated, transmitted, and absorbed.
The development community’s understanding of the most effective way to achieve development objectives has evolved over time with the accumulation of evidence and experience. Approaches that once appeared to be both correct and obvious have been shown not to work by experience and closer analysis. In the same way, our current ideas will no doubt give way to others as experience accumulates and thinking evolves. This surely reminds us to beware of simplistic solutions or “silver bullets” in development thinking. Perhaps the most important questions on which our understanding has deepened over the past decades are: What are the respective roles of governments and markets in spurring development? How do institutions fit into the picture? At the risk of oversimplification, we can identify at least three major phases in the evolution of our answers to these questions.
In practice, we recognize that there is a continuum of approaches, both in developed and in developing countries, and that the phases described here do not match precisely the evolution of thinking in any particular region. Instead, the discussion of these phases is intended to capture the broad shifts in the thinking of the development community and development practitioners. It is also the case that successful countries throughout this post-World War II period have seen both state and market play positive roles. With those caveats, this broad-brush picture can nevertheless provide a useful context for a discussion of development assistance by suggesting where that assistance is most likely to be effective.
The 1950s and 1960s were a period of great confidence on the part of the development community. Development practitioners and thinkers trusted government both for its intentions and for its ability to make economic progress happen, in both the richer and the poorer countries. Development thinking focused on market failures, which were especially prevalent in developing countries and seemed to provide a strong rationale for state intervention. The private sector was thought to be too uncoordinated, too poorly developed, and too focused on private interests to allow it to serve as the locomotive for growth. In Africa, newly independent countries searched for a postcolonial model of development and a strengthened leadership role for the national state. In many countries around the world, the confidence in government was reflected in the heavy role of central planning and in the relatively closed (import substitution) trade policy.26
This state-led approach had some initial development successes. Leading economies of Latin America, where state economic management did not completely crowd out the private sector, grew rapidly for decades under the import-substitution model. And even in some “tiger economies” of East Asia, industry managed to grow and become more productive behind high trade barriers, thanks to otherwise good economic management. Nevertheless, the costs of state economic control became clearer over time. State planners were not omniscient: they could not possibly acquire all the information needed to make decisions that reflected both efficiency considerations and people’s differing preferences.
Worse, governments revealed themselves to be collections of interests rather than disinterested and benevolent “social planners.” Even had they been effective in their role as social planners, government officials would not have been able to create the entrepreneurial dynamism essential for sustained development and change. Behind protective barriers, firms in many countries (India and Mexico, to name just two) became less efficient as they focused on obtaining government favors rather than improving productivity. Finally, fiscal and macro instability rose with the oil price shocks of the 1970s and early 1980s, contributing to the debt crisis and revealing the weaknesses in the statist model.
As a result of the disappointing results of the state-led approach, the 1980s and early 1990s saw a strong reaction that stressed the primacy of markets in development.27This reaction was a necessary corrective in many ways: it refocused attention on production efficiency and market signals, and it inspired the move to lower trade barriers as a way to spur productivity. Macro stability and balanced fiscal accounts were seen as fundamental building blocks for development and became early priorities for reform. This period saw substantial improvements in both macroeconomic stability and openness to trade and financial and other flows through much of the developing world. This important change in development thinking was summarized by Lindauer and Pritchett (2002) along the dimensions of table 7.2. These include the role of government, encouragement of savings, trade and integration, foreign capital, and development assistance. Development policy changed in each of these dimensions to reflect new thinking.
Table 7.2 Idea Changes in Development Thinking
| Dimension
|
State-led approach
|
Pro-market approach
|
|---|---|---|
| Government | Plays a central role; acts as the driving force behind development. | Plays a central role, but acts as the main obstacle to development |
| Accumulation | Is central to development process; coordination and scale problems require government involvement | Is central to development process; private sector investment is the key. |
| Trade and integration | Has no particular advantage beyond the import of capital goods and the purchase of necessary inputs. | Exports bring dynamic advantages; import competition is necessary for disciplining domestic producers. |
| Foreign capital | FDI is to be avoided, but government borrowing is acceptable, preferably from foreign sources. | Government borrowing is to be avoided, but FDI is encouraged. |
| Development assistance | Provide project-based lending of foreign exchange and resources to governments. | Quick disbursing; policy-based lending to establish conditions for FDI and domestic investment |
Source: Lindauer and Pritchett 2002.
By the mid 1990s, it became increasingly widely recognized that this purely “pro-market” school of development thinking failed to address some key points. Once countries began to achieve macro stability and greater openness to trade, it became clear that these elements were necessary but not sufficient for growth and poverty reduction. In particular, the free-market view tended to neglect the institutional foundations of effective private markets. The importance of institutions was underscored by major shifts: the economic decline in the countries of the former Soviet Union; the continued growth in China, a country that moved forward with market-oriented reforms without excessive disruption of institutional foundations; and, later in the 1990s, the financial crisis in East Asia, to which institutional weaknesses contributed heavily. Furthermore, even as it performed a useful service by spotlighting government failure, the free-market reaction had minimized very real problems of market failure that are prevalent in the developing world. As a result, growth performance fell short of expectations in many parts of the developing world.
Recent years have seen a greater recognition in the policy debate of the complementarities between markets and governments. Clearly, experience shows that the private market economy must be the engine of growth; but it shows also that a vibrant private sector depends on properly functioning state institutions to build a good investment climate and deliver basic services competently.
This view of complementarities pursued in the remainder of this chapter draws heavily on what we have learned in the past two to three decades in the more successful cases of income growth, such as East Asia and Chile. It also draws on learning from the transition process in the former Soviet Union, where a lack of institutional development combined with excessively optimistic expectations led to disappointing development outcomes and demonstrated clearly the importance of a sound state in providing the environment for growth. The role of institutions has come through more strongly than it did in earlier views of development, and particularly than it did in the policy debate in the 1980s and early 1990s. Countries that have combined institutional improvements with market-oriented policy reforms and greater engagement with the world economy saw their per capita incomes grow in the 1990s at the historically very rapid pace of 5 percent per year.28
We have also learned more about the diversity of approaches among countries that have been effective in accelerating growth and reducing poverty.
We now apply this broad perspective of complementarities to the important subjects of economic growth and development learning.
Ideas about development are constantly in flux, evolving over time and flowing from one country to another. It is therefore misleading to talk about a universal model of development. Development is about change. It is about the contesting and evolution of ideas. It involves learning about what works and what does not in particular circumstances. It is informed by historical circumstances and is intensely local. It cannot be replicated. There is little to be gained from seeking to define a universal economic model, which would suggest that we can collapse all our learning into a summary formula.29 The challenge for policy makers is to draw on a wide range of experience and to be informed by both the past and others’ experiences to identify those common factors that are associated with progress in development. In part, these factors associated with progress confirm the widely appreciated key dimensions of macroeconomic stability; trade reform; and an emphasis on health, education, and infrastructure. However, it is also a confirmation of the inherently idiosyncratic nature of development processes.
A distillation of the lessons of experience suggests that the most powerful force for reducing income poverty is economic growth. Countries that have reduced income poverty most effectively are those that have grown the fastest over a sustained period, and poverty has expanded most in countries that have stagnated or fallen back economically. As stated by the United Nations Development Programme (1991), “Although growth is not the end of development, the absence of growth often is” (p. 13). There has been no example of development without sustained and prolonged periods of high per capita growth of output that, in turn, depends upon a stable macroeconomic and institutional environment. Unstable macroeconomic conditions—often resulting from unsustainable fiscal positions—undermine the confidence of individuals and firms in making decisions to invest in their own or their firm’s future.
In the realm of economics, with the end of the Cold War and the decline of communism, there has arisen a growing acceptance of the market model as a fundamental organizing principle for economic activity. The model is far from homogeneous, however, and no two countries interpret the framework in the same way. Even within countries, and especially in large federal countries such as India, variation abounds. China is evolving on a path that in critical respects cannot be characterized as “market based.” Although far from universal, greater acceptance of the market model has opened space to explore economic options and new possibilities. This is particularly true in the formerly communist countries, but is also the case in the market economies whose policies to differing extents were shaped in opposition to communism.
The past decade has consequently been characterized by perhaps unprecedented experimentation and learning based on the absorption and adaptation of ideas from elsewhere. To the extent that leaders have been freed from ideological straightjackets and have been able to draw on, without simply replicating or copying, ideas tried by others, and to seize opportunities to find new and better ways of organizing, they have been rewarded.30 A strong contesting of the balance between market and state has become part of the norm in Europe and in a wide range of democratic developing countries, including Brazil, India, and South Africa. So, too, has been the search for new ways of doing things and the rejection by sizeable minorities of what is seen as the dominant “idea of capitalism.” This idea has not yet become common currency in many countries or is reflected in the strength of recent anti-globalization protests in Latin America and parts of Western Europe. For Friedman (2000), as for Max Weber and the economic historian Richard Tawney, this clash between the modern and traditional has a considerable distance to travel. It helps to explain the constant struggling for new ways to self-identify and new ways to confront the fears embodied in the association of globalization with integration and being molded by foreign ideas and products.
The most rapidly growing economies, and those where poverty is being reduced most rapidly, have benefited from an increasingly nuanced understanding of the relationship between states and markets. In no two countries has this interplay taken the same form. The adjustment costs of going from communism to capitalism, as well as of other major transitions, have been high. Consequently, for politicians, the challenge is to ensure that the benefits of these policy transitions are felt in the short term. The political economy of policy reform is a central challenge in the implementation of ideas. This, together with the associated institutional dimensions, remains one of the least researched and least understood dimensions of the social sciences. Clearly, however, the form of transition and the particular adjustment paths followed have a powerful impact on the outcomes and the sustainability of reform. A comparison of the Russian Federation and many other parts of the former Soviet Union, where poverty has increased over the past decade, with China, where opening the economy has been associated with unprecedented increases in income, highlights the crucial role of leadership and choices about transition paths.
If there is a new consensus, it is around the need for a more nuanced and broader approach to development.31 The intermingling of ideas evidenced over the past decade has meant that even the more orthodox economic leaders are seeking to go beyond the standard ideas, such as what came to be known as the Washington Consensus.32 In certain dimensions, such as capital account liberalization and privatization, there is a widening appreciation of the need for a differentiated approach—one that takes account of vulnerabilities, not least in institutional development.33 The importance of institutions and governance, as we emphasize below, is also increasingly seen as a vital element in development. So, too, is the need to examine the sequencing of reforms, and a recognition that their simultaneous implementation can be disruptive and even counterproductive. For example, depending on the tax structure, measures toward privatization, trade liberalization, or deregulation can, in the short term, conflict with maintaining fiscal discipline and with objectives of social peace and equity.
Some interpretations of the Washington Consensus principles pushed too rapidly for a liberalization of markets and did not pay sufficient attention to four issues that are closely related to the political economy of reforms:
Other issues related to the political economy of reforms have long been part of the discourse on reform and poverty reduction.
For example, the setbacks of the structural adjustment programs in developing countries of the 1980s, as well as the transition of the 1990s in Eastern Europe and the former Soviet Union, showed that these elements are at the heart of the development challenge. In retrospect, it was naive to think that demand for institutions and state capacity would create its own supply and that markets would “work” by themselves.34
The state is not a substitute for the market, but a critical complement. We have learned that markets need government and government needs markets. We have also learned that government action is crucial to the ability of people to participate in economic opportunities. These lessons point to the need for an active state that fosters an environment where contracts are enforced and markets can function, basic infrastructure works, there is provision for adequate health, education, and social protection, and people are able to participate in decisions that affect their lives.
Notwithstanding the importance of an active and effective state, the strongest force—indeed the driving force—for sustained economic growth is the private sector. Within the private sector, small and medium-size enterprises play a particularly important role in generating employment opportunities for poor people. The most important small enterprises in poor economies, and often the most neglected, are farms.35
Bureaucratic harassment, corruption, and organized crime are all profoundly damaging to the investment climate, imposing barriers to entry, adding to operating costs, and creating uncertainty once the firm is established. This applies to both large and small firms, but it is especially important for smaller firms and farms, with their weaker capacity to finance the costs of dealing with regulation and to use “political contacts” and other means to resist harassment. The World Bank’s Doing Business Report (World Bank 2005) highlights the extent of the burdens that frustrate private initiative and the progress made by policy makers in improving the climate for investment. Clear and predictable rules of the game are necessary, with contract enforcement evenly applied and regulations designed to facilitate, not frustrate, legitimate individual enterprise and the establishment of competitive firms.
Development activities function much more effectively if poor people are empowered—that is, if they have the ability to shape their own lives. This implies a focus on education and health but also on effective participation that, in turn, depends on information, accountability, and the quality of local organizations. Effective participation and social inclusion enhance growth and the sustainability of economic reforms. “The recent World Development Report on equity and development makes a significant contribution by highlighting through its analysis and numerous examples the ways in which equity in opportunity should be a central concern of policy makers (World Bank 2005d). It shows how improving access to education, health, and finance and broader civil participation enhances both the level and quality of growth and development.
Reform programs forced from outside, with weak societal commitment, are likely to fail. Ownership of the development agenda by a country and society is a vital ingredient for its effective implementation. Understanding the political economy of reforms in the particular country is crucial. However, there are areas where our knowledge of the development process, of what works and what does not, of the right sequencing of policies and of the responses from different groups is still weak. Under the same set of macroeconomic fundamentals, the development process can generate different results, reflecting the specific circumstances and political economy.
The quality, quantity, and affordability of physical and financial infrastructure, such as clean water, power, transport, telecommunications, and finance, strongly influence the ability of individuals to escape poverty and participate in economic activity. Infrastructure enables individuals, firms, and countries to extend their opportunities. Entrepreneurship in developing and transition countries is often smothered by failures in basic communications, inadequate and unreliable supplies of water and electricity, and inadequate telecommunications and transport. These failures undermine trade opportunities at the local levels, as well as at the regional and global levels. Infrastructure should be a priority area for policy makers. As infrastructure investments often require large, lumpy, long-term claims on budget resources, have intergenerational consequence, and have significant social and environmental impacts, they are among the most complex decisions for governments, which may particularly lend themselves to analyses and multidisciplinary support from multilateral and regional development finance institutions.
An educated and healthy workforce contributes to development and growth, with widespread basic education (primary and secondary) being especially important.36 Not all empirical analyses find such an effect. One reason that the effects of education have been hard to pin down empirically is that the quality of education matters as much as the quantity, and yet we are much better at measuring quantity than quality. Another reason is that, like physical capital, human capital in inhospitable environments may be relatively unproductive from a societal standpoint. In an environment of weak institutions, corruption, or crime, the return to illegal activities may provide the logical option, in terms of returns on education and getting employment. Although the case is not fully established empirically, strong basic education and reasonable levels of health have been a precursor to many development successes, and recent analyses suggest strongly that additional education does indeed spur development. The evidence on the substantial benefits derived from education at the microeconomic level is less ambiguous: education lifts people out of poverty, raising their earnings by some 5 to 10 percent per year of schooling.37
Education and health are key factors, but just as important is fostering mechanisms for participating in the decisions that affect individuals’ lives and those of their families. Human rights that protect security and health, for example, and contractual rights that protect livelihoods and assets are essential. All these elements allow poor people to shape their own lives, invest in their future, build assets, and be included in the society in which they live.
Stable and effective government institutions, respect for property rights, equal treatment under the law, the absence of bureaucratic harassment, a lack of corruption, and protection from organized crime all matter for growth. Investment and productivity depend on predictability, which in turn hinges on confidence that government will not act opportunistically or capriciously. The “soft infrastructure” of an effective legal and judicial system is critical for achieving economic growth, empowering poor people, and security. Good governance and controlling corruption also reduces the costs faced by producers. Sound supervision and regulation of financial institutions decreases the costs of capital to businesses and contributes greatly to macroeconomic stability. Indeed, it has been argued by Rodrik (2003) that institutional quality and governance are the underlying variables that drive all of the other growth-enhancing factors.
Recent research provides evidence that gender equality—not only in health and education, but also in voice and rights—is an important element in development (World Bank 2001; World Bank 2005d). Aside from the obvious direct benefits for women, equality in these dimensions also has instrumental benefits in terms of growth and poverty reduction. Cross-country research suggests that low investment in female education has been a barrier to growth in the Middle East and North Africa, South Asia, and Sub-Saharan Africa. East Asia closed the gender gap more rapidly. Even after controlling for income and other factors, greater participation by women in public life is associated with cleaner business and government and better governance, which in turn promotes growth. Inequalities along other dimensions—such as race, ethnicity, or religion—can also retard development.
Geography seriously impedes growth for some countries, making development much more difficult. As Gallup, Sachs, and Mellinger (1999) have argued, if a country is landlocked, mountainous, and surrounded by poor neighbors, or if its population centers are in remote areas, it may encounter additional difficulties in developing domestic markets of efficient size, engaging in international trade, or acquiring technology from abroad. In such cases, it will be especially important to build effective infrastructure links and to improve transportation and communications both domestically and internationally. Regional integration and customs unions that facilitate trade may also be important in overcoming geographic barriers. Ecological fragility is another geography-linked barrier to development: ecological stresses may most directly affect poor people, and these stresses, too, require specific policy and institutional responses.
Putting these factors together to spur sustained growth is a challenge: it requires proper sequencing and selection of reforms, as well as consistency over time, neither of which is easy to achieve.
Although our understanding of the importance of all these factors has grown during recent years, to put them together in a way that yields sustained growth remains a daunting task. One major challenge for governments is to decide where to focus their efforts as they strive to make the conditions for growth as favorable as possible. Strategies have to be determined in each country context, but it is clear that administrative capacities of low-income governments are typically so limited that an assessment of where they should be focused is essential: these governments simply cannot push ahead effectively on all fronts at once. At the same time, sequencing is necessary. It is by now widely recognized that the East Asian financial crisis of 1997–8, which exacted a substantial toll in poverty and lost output, stemmed in no small measure from financial and capital-market liberalization that proceeded before the appropriate regulatory safeguards were in place.38 Although some sequencing problems are easy to identify, finding the best sequence of steps in the context of a particular country is a great challenge, and it remains an area where our knowledge needs to expand.
The challenge is sustaining robust growth. Rapid growth episodes of a few years or a decade are not uncommon. For example, countries that successfully emerge from civil war often experience relatively rapid economic rebounds for several years.39 What has been much less common is sustained rapid growth over a period of decades, which is what is necessary to eliminate absolute poverty.40 The need for consistency underlines the importance of attaining sustained productivity growth. Only a portion of growth is driven by increases in physical and human-capital intensity of production, which can be difficult to sustain over long periods. Countries also need rapid growth in productivity.
We need to be modest about how much we understand about economic growth and eschew formulaic solutions in favor of supporting the adaptation and customization of global lessons for national and local conditions and objectives. Successful economies have demonstrated the importance of learning by doing and of an active partnership between governments and the private sector to create an investment climate that supports job creation and growth. Understanding economic growth has proved to be intractable and has preoccupied generations of economists, with the renowned economist Elhanan Helpman going so far as to refer to the “mystery of economic growth.”
We also still have a lot to learn about empowerment. However, successful efforts to empower poor people and increase their freedom of choice typically share four elements:
These four elements are closely related. Access to information is crucial for effective action, but without institutional mechanisms and accountability, citizens may not have the means to take such action. Examples of empowerment at work include community involvement in running schools, water users associations, and local health groups. According to the World Bank (2004d; 2005e), mechanisms such as these can play a powerful role in tailoring services to the needs of poor people.
Development thinking evolves continually, and this evolution has accelerated over the past 50 years. In response to the lessons of experience and analysis, development practitioners have adapted their approaches to promoting development, and even the goals of development work. We have learned that strategies that seemed obvious to many at some point—for example, both the heavily statist and minimal-government free-market approaches—have had to be reconsidered and changed as part of a continuous learning process. This is one reason why a careful and measured look at experience is so important and why the extent of openness to the flow of ideas is vital for growth.
Global action is a vital complement to national and local level policies. One important area of action is in the provision of global public goods. Public goods have benefits that are nonexcludable and consumption that is nonrival. These types of goods (for example, traffic safety) may be underprovided by market systems. Global public goods have benefits that extend across all countries.41
Demand for global public goods has grown rapidly with globalization, but supply is constrained by the difficulty of putting in place coordinating mechanisms to pay for the benefits or recoup costs. At the International Conference on Financing for Development held in Monterrey, Mexico, in 2002, global leaders established firm poverty reduction targets and highlighted the need for a clear strategy to strengthen the provision of global public goods.
In five areas of particular interest, concerted international action can yield very large benefits across borders and contribute to individual country poverty reduction.
As indicated above, infectious diseases in developing countries kill millions of people, exacerbating poverty and severely disrupting economic life. The benefits to individuals of advances in this area are vast and go beyond any attempt at measurement. These benefits, in terms of enhancing the quality of life, reducing lost workdays, and raising productivity are widely shared, even in countries or communities where other interventions or investments are ineffective. Infectious diseases are carried more and more frequently across borders through trade and travel, so fighting them is increasingly becoming a direct need for all countries.
Our water, our land, our forests, and our biodiversity are vital assets, with potentially catastrophic losses if international protective action is inadequate. Tropical countries in particular are vulnerable to projected climate change and environmental degradation, including loss in food production resulting from global warming, and an expanding range of tropical diseases. Global action must be complemented by environmental policies on national and local levels. Rich countries have a special contribution to make here because they dominate energy use and because they are the largest consumers for most natural resources and they generate the most pollutants. The demographic and growing economic weight of developing countries—together with their share of environmental resources and challenges—means that their participation in global compacts on the environment is essential (see Goldin and Winters 1995).
The fall in international transportation and communication costs has led to a rapid growth in cross-border trade in goods and services. International markets provide tremendous opportunity to developing countries to expand trade flows, provided they have market access. The WTO is dedicated to removing barriers to trade but it faces an uphill battle against protectionist interests in both developed and developing countries.
As discussed in chapter 4, the integration of global capital markets greatly increased the volume of international private capital flows. This has helped support a rapid expansion of economic activity in developing countries, but it has also brought heightened vulnerability to financial shocks and market contagion, the social burden of which often falls most sharply on the urban poor. A new framework for harmonizing supervisory practices, relying more on internal risk management, is being developed by the international institutions, including the International Monetary Fund, the World Bank, and others.
Multilateral development agencies must play a lead role in research on development and in disseminating the lessons of development experience. Initiatives such as the Development Gateway, which provides local to global connectivity, have the ability to empower local communities, build knowledge networks, and serve citizenry more effectively through enhanced and low-cost information.42 Such gains through disseminating knowledge are most effective when knowledge is a public good accessible to all.
The challenge to all of the above pressing priorities is one of cooperation.43 As noted by Kaul, Grunberg, and Stern (1999), “billions of people do not negotiate directly with each other. In many instances their governments do it on their behalf, reducing the number of negotiating partners to about 185—still an unwieldy group for creating cooperative arrangements” (p. 15). Unwieldy though this process may be, fulfilling the important promise of the global public goods idea requires the international community to forge ahead with these efforts.
To ignore the development and flow of ideas as a component of economic globalization is to miss a central feature of the globalization process, a feature that has important implications for poverty alleviation. Poverty responds to effective development, and effective development is, in large measure, the deployment of appropriate ideas in appropriate ways. As we have repeatedly emphasized here, there is no single model of how this can be done. Rather, effective development from the point of view of ideas is largely about tailoring existing, global knowledge to evolving local circumstances in ways that directly and indirectly benefit poor people.
Important connections exist among the global flows of ideas and the other globalization elements considered in this book: trade, capital flows especially in the form of foreign investment, aid, and migration. Trade, as we have shown in Chapter 3, embodies ideas reflected in technologies and processes. The benefits of foreign investment involve both basic and deep learning. These, in turn, require threshold levels of skills and education. In the case of migration, international movements of labor and experts facilitate the less formal processes of knowledge transfer. The effective deployment of ideas is therefore facilitated by the global movements of goods, services, capital, and people.
One important theme to emerge from this chapter is the theme of knowledge management. There is a fundamental tension here that remains largely unresolved from a policy perspective. As we emphasized, knowledge is a global public good that has great potential to help the poor. However, there has been a growing tendency, supported by WTO agreements, to advance the privatization of knowledge. In some respects, this can help the poor. In other respects, this is cause for alarm. In the realms of environmental and labor standards, international economists have resisted a “one-size-fits-all” approach to forming policy.44 Ensuring that this is also the case with intellectual property, so that it supports development, requires attention.
With regard to ideas concerning growth and development, the pendulum has swung back and forth between the poles of government-led and market-led policy regimes. This has clarified the features of government and markets in the processes of growth, development, and poverty alleviation. An emerging consensus in the realm of development ideas, reflected in a coevolution between market and state, offers effective institutional frameworks and accounts for local conditions.
This chapter has sought to highlight the central role of learning and ideas in development. Policy makers and practitioners require opportunities to understand what works and what does not, based on evidence and on analysis that draws on the widest possible data, experience and skills. By reducing the constraints posed by information, education, language, and access, policy makers at the global, national, and local levels can make a significant contribution to improving the chances that globalization will offer more opportunities for growth and poverty reduction.
Notes
1. Some of the elements considered in this chapter have been previously identified by Meier (2001).
2. These processes have been effectively described by Diamond (1997), who emphasizes the role of continental East-West axes in facilitating the early diffusion of agricultural technologies.
3. In international economics, the importance of local knowledge was first emphasized by Pack and Westphal (1986). The concept of local knowledge is well developed throughout the social sciences as well. See, for example, de Walt (1994).
4. The authors are grateful to F. Halsey Rogers, who contributed this scenario in the course of our discussions on the role of ideas.
5. Rodrik (2000) emphasizes that “large-scale institutional development by and large requires a process of discovery about local needs and capabilities” (p. 14).
6. Interestingly, the commitment of Bill Gates to provide unprecedented private support to combat HIV/AIDS and other preventable diseases also reflects the power of ideas. Gates, at the United Nations on May 9, 2003, stated “My personal commitment to improving global health started when I learned about health inequities … in the 1993 (World Bank) World Development Report … my wife Melinda and I were stunned to learn that 11 million children die each year from preventable diseases. That is when we decided to make improving health the focus of our philanthropy.”
7. Recall from chapter 3 that estimates of the number of people kept in poverty by rich country protectionism is at least 100 million.
8. Efforts to argue for agricultural protection in terms of the “multifunctionality” of agricultural production in the rich (but apparently not the poor) world (for example, Jules 2003) is no less an exercise of right and might than previous ideologies have exercised.
9. See, for example, chapter 10 of Sen (1999).
10. See, for example, Rischard (2002) and Nowotny (2004).
11. For an example of such evolutionary reform, see the United Nations’ recent proposals to reform to keep pace with evolving peacekeeping and security demands (United Nations 2005).
12. See Mallaby (2004) pp. 7–8.
13. A key original contribution in this area was Sen (1989).
14. In the terminology of microeconomics, the benefits of knowledge are “nonexcludable,” and its consumption is “nonrival.” As pointed out by Stiglitz (1999), knowledge is actually a global public good. We consider global public goods later in this chapter.
15. See, for example, Stiglitz (1987).
16. See Hoekman, Maskus, and Saggi (2004) as well as chapter 4.
17. The economics of intellectual property protection is a rich area of research. See, for example, the debate on optimal patent length and breadth in Gilbert and Shapiro (1990).
18. See Boldrin and Levine (2002, 2004a, 2004b) and also Shapiro (2004), who argues that excessive issuing of patents in the United States restricts competition and harms innovation.
19. The authors are grateful to Jean-Jacques Dethier for highlighting a number of the points in this paragraph.
20. See Goldin, Stern, and Dethier (2003).
21. See Cockburn and Lanjouw (2001) for examples of the hotly contested debate or evidence.
22. New Scientist 2005.
23. See www.vaccinealliance.org for an explanation of what GAVI does.
24. New Scientist 2005.
25. On concerns over cultural homogenization, see Barber (1996). For a flavor of the ideas of the antiglobalization networks, see the Web site antiglobalization.com. Klein (2000) has become core reading for those opposing globalization, and Wolf (2004) marshals many of the economic arguments for the proponents of globalization. Chua (2003) raises concerns about globalization in the context of what she terms “market-dominant minorities.” See also, for example, Mander and Goldsmith (1996) and Helleiner and Pickel (2005) on more “market-dominant minorities.”
26. The import substitution idea is skillfully reviewed by Bruton (1998).
27. Wolf (2004) is a modern advocate of this point of view.
28. We consider institutional issues further in the following section.
29. This point has been made by Adelman (2001). See also Stern (2002) and Ranis (2004).
30. We are thus in disagreement with Friedman’s (2000) notion of a “golden straightjacket” limiting policy options. Policy spaces do exist and far from being constrained, these are expanding and are an important part of the explanation for the acceleration in economic growth and poverty reduction in recent decades.
31. This section and those that follow draw extensively on Goldin, Stern, and Dethier (2003). See also Stern, Dethier, and Rogers (2004).
32. See Williamson (1990, 1994), often cited as the author of the Washington Consensus.
33. See, for example, Stiglitz (2000).
34. A theoretical explanation of why these outcomes are not likely was given by North (1990).
35. The emphasis on family farms and on bureaucratic harassment here is attributable to Nick Stern, who focused on these neglected areas in Stern (2002).
36. See Hanushek and Kim (1995) and Krueger and Lindahl (1999) on the role of education and Gupta and Mitra (2004) on the role of health.
37. See chapter 7 of World Bank (2003b).
38. See our discussion in Chapter 4.
39. See Collier and Gunning (1995).
40. See Pritchett (2000) and Easterly (2001) for a discussion of why this is difficult to achieve.
41. See Kaul, Grunberg, and Stern (1999) and Kaul and others (2003). The latter authors advocate a very general definition of global public goods: “Global public goods are goods with benefits that extend to all countries, people, and generations” (p. 23).
42. See www.developmentgateway.org.
43. The problem of cooperation is discussed by Martin (1999).
44. See, for example, chapter 13 of Hoekman and Kostecki (2001).