Time
Theto go
policy
green?
choice
Issue 1, December 2009
l Rwanda means business: interview with President Paul Kagame
l How I became an environmentalist: A small-town story with global
implications by Phaedra Ellis-Lamkins, Green For All
l ‘We must let nature inspire us’ – Gunter Pauli presents an alternative
business model that is environmentally-friendly and sustainable
l Old computers – new business. Microsoft on sustainable solutions
for tackling e-waster
l Green industry in Asia: Conference participants interviewed
l Hot Topic: Is it possible to have prosperity without growth? Is ‘green
growth’ really possible?
l Policy Brief: Greening industrial policy; Disclosing carbon emissions
MakingIt 3
MakingIt
Industry for Development
Contents
Editor: Charles Arthur
editor@makingitmagazine.net GLOBAL FORUM
Editorial committee: Ralf Bredel,
Tillmann Günther, Sarwar Hobohm, 6 Letters
Kazuki Kitaoka, Ole Lundby (chair),
Cormac O’Reilly
8 From steam engines to human consciousness
Website and outreach: – Alfredo Sfeir-Younis believes the world needs
Lauren Brassaw
Cover illustration: Paresh Nath a new industrial revolution
Design: Smith+Bell, UK – 10 Hot topic – Anis Chowdhury asks: is micro-
www.smithplusbell.com
Thanks for assistance to finance an effective poverty reduction tool?
Donna Coleman
Printed by Ueberreuter Print
GmbH, Austria –
14 Business matters – News, trends and events
www.ueberreuter.com on PEFC
certified paper
To view this publication online and to FEATURES
participate in discussions about
industry for development, please visit 16 A changing climate for industrial policy –
www.makingitmagazine.net Wilfried Lütkenhorst on the transition to a
To subscribe and receive future
issues of Making It, please send an resource-efficient, low-carbon growth trajectory
email with your name and address to
subscriptions@makingitmagazine.net
Making It: Industry for Development
is published by the United Nations
Industrial Development
Organization (UNIDO)
Vienna International Centre,
32
P.O. Box 300, 1400 Vienna, Austria
Telephone: (+43-1) 26026-0,
Fax: (+43-1) 26926-69
E-mail: unido@unido.org
Copyright © 2010 The United
Nations Industrial Development
Organization
No part of this publication can be
used or reproduced without prior
permission from the editor
ISSN 2076-8508
The designations employed and the
presentation of the material in this magazine
do not imply the expression of any opinion
whatsoever on the part of the Secretariat of the
United Nations Industrial Development
Organization (UNIDO) concerning the legal
status of any country, territory, city or area or
of its authorities, or concerning the
delimitation of its frontiers or boundaries, or
its economic system or degree of
development. Designations such as
20 Politicizing
economic policy –
Jayati Ghosh
on state involvement
“developed”, “industrialized” and “developing”
are intended for statistical convenience and do
not necessarily express a judgment about the
in economic activity
stage reached by a particular country or area in
the development process. Mention of firm
names or commercial products does not
constitute an endorsement by UNIDO.
The opinions, statistical data and estimates
22 KEYNOTE FEATURE
contained in signed articles are the
responsibility of the author(s), including those
Towards a more productive debate – Ha-Joon
who are UNIDO members of staff, and should
not be considered as reflecting the views or
Chang argues for an acceptance that industrial
bearing the endorsement of UNIDO.
This document has been produced without policy can work, and for ‘outside of the box’
formal United Nations editing.
thinking on how to make it work better.
4 MakingIt
Number 3, July 2010
38
34 40
POLICY BRIEF
42 Revealing research results
43 The private sector and development
44 The power of patient capital
BUSINESS MATTERS
The impact of community investment.
Pursuing business activities leads
Women’s
business on to employment creation, value economic
the MDGs creation, and supply chain effects,
all of which contribute to
opportunities
economic development and
With the deadline for achieving various MDGs. Most notably, An innovative new report from
the Millennium Development commercial activities have a the Economist Intelligence Unit
Goals (MDGs) only five years significant impact on alleviating opens a window on to the
away, questions have been raised poverty (MDG1). By impacting economic landscape that women
as to the effectiveness of the poverty alleviation, MDGs 2, 4 face globally, and highlights
private sector in influencing and 5 are also impacted. which countries offer the most
progress towards their These insights highlight the opportunities.
achievement. A new study important convergence of the The Women’s Economic
assesses the contributions of 20 business case for pursuing Opportunity Index is a pilot
well-known multinational market opportunities in the effort to assess the laws,
companies towards influencing developing world with the moral regulations, practices, and
the MDGs. imperative to contribute to attitudes that affect women
One of the foremost findings is human development. More workers and entrepreneurs.
that the private sector plays a importantly, it suggests that it is It uses 26 indicators to evaluate
larger than expected role in by doing business that business every aspect of the economic and field for women over the last few
contributing to the MDGs: the can contribute most, something social value chain for women, decades, but too many women
sample group’s combined that corporations should be able from fertility to retirement. still cannot exercise their full
activities impacted more than 8.2 to embrace more By exploring the binding economic rights,” said Leila Butt,
million beneficiaries. The study enthusiastically. constraints that women face, it a senior economist at the
also reveals that the pursuit of – Business Impact Report, 2010 points to steps governments can Economist Intelligence Unit and
business opportunities in take to improve opportunities research manager for the project.
developing countries can for women and boost overall Women’s economic
positively impact MDGs just as economic performance. opportunities are influenced not
effectively as private sector “Countries have made good just by a country’s regulatory
development efforts focused on progress in levelling the playing environment, but also by social
14 MakingIt
installations reached a record 37,500
MW. China, the global leader in new
installations for the first time,
n The Third IASTED African
Conference on Power and Energy
Systems
n 4th International
Conference on CSR
September 22-24,
events
accounted for more than a third of September 6-8, Berlin, Germany n Assessing the Role of Prejudice
new installations, or 13,000 MW. Solar Gaborone, Botswana www.csr-hu-berlin.org and Discrimination in Power,
photovoltaics (including modules, www.iasted.org/conferences/ Poverty and Environmental
system components, and installation) home-684.html n The GREEN (Global Sustainability
will grow from a US$36.1bn. industry Resources Environment & October 7-10,
in 2009 to US$116.5bn. by 2019. New n CSR Asia Summit 2010 Energy Network) Expo Yaoundé, Cameroon
installations reached just over 7 GW September 14-15, Hong Kong September 28-30, www.4eppse.org/conference.html
worldwide in 2009, a sevenfold www.csr-asia.com/summit2010 Mexico City, Mexico
increase from five years earlier. www.ejkrause.com/ n Renewable Energy World Asia
Clean Edge reports that the solar n The Right Livelihood Award thegreenexpo/index.html November 2-4, Singapore
photovoltaics and wind power September 14-19, www.powergenasia.com/
industries currently account for Bonn, Germany n World Habitat Day index.html
267,562 and 563,577 direct and www.rightlivelihood.org/ October 4, Shanghai, China
indirect jobs worldwide, rla30.html www.unhabitat.org/ n Renewable Energy Africa (REA)
respectively – a total of more than Conference and Expo 2010
830,000 jobs. The report estimates n United Nations Millennium November 9-11,
that, by 2019, the number of jobs will Development Goals Summit Johannesburg, South Africa
be 2,178,919 for solar and 1,122,815 September 20-22, www.reafrica.co.za
for wind – a total of more than 3.3 New York, USA
million jobs. (Clean Edge) www.endpoverty2015.org
MakingIt 15
GLOBAL FORUM
The Global Forum section of Making It is a space for interaction and discussion, and we
welcome reactions and responses from readers about any of the issues raised in the
magazine. Letters for publication in Making It should be marked ‘For publication’, and
sent either by email to: editor@makingitmagazine.net or by post to:
The Secretary, Making It, Room D2226, UNIDO, PO Box 300, 1400 Vienna, Austria.
(Letters/emails may be edited for reasons of space).
Photo: Suzlon
dealt with these topics – with a promoting access to energy for
special focus on the the poor through the
Dominican Republic – in my combined efforts of all
academic research, I found stakeholders is a lesson for the ANC because it said it Suzlon wind
many aspects that underlined many African countries, would provide essential turbine factory
my findings. Taking into particularly Uganda, which is services such as water, health
consideration that developing good at developing policies, but care, education and electricity reconnecting about 40 houses
countries have 80% of the still fails at the implementation as a service, and not as a source every week. And what’s more,
world’s population, but of programmes. The reasons of revenue. What happened? the local police force agrees
consume only 30% of global for such policy failures include Let’s take electricity. There has with what they are doing, and
commercial energy, it’s a poor institutional framework, been chronic underinvestment officers are ‘turning a blind eye’.
obvious that an acceleration of a lack of awareness, and a lack in the state-owned power “We are giving back what
energy accessibility is of human technical resources company, ESKOM, and as a belongs to the people. It’s not a
necessary. and of financing. result ESKOM has started to luxury,” says one of the SECC
In the Dominican Republic, l Doreen Namyalo-Kyazze, raise prices beyond the reach activists.
where many households do Director, Energy Solutions of poor people. If people fail to l Ethel Red, received by email
not have access to energy, Project, Kampala, Uganda pay their electricity bills, then
private enterprises, as well as ESKOM disconnects their
Wind of change
the government, are increasing
initiatives to promote
Energy access supply altogether. So, under a
government that has failed to I would like to congratulate you
renewable energy. Households and the poor meet its pre-election promises on publishing Making It, a
in rural areas especially are to provide essential services to magazine which addresses the
being targeted for renewable “Energy for all” (Making It, the people, energy access is issues and concerns related to
energy options. One exemplary issue 2) is OK as far as declining. environment imbalances, global
enterprise is Soluz recommendations for Thankfully, in places like warming and the management
Dominicana, which is offering governments go, but at the end Soweto, some people are not of natural resources, and
photovoltaic systems on a fee- of the day nearly all the world’s just sitting back and letting this searches for alternatives in a
for-service business model. governments are primarily happen. The Soweto Electricity very lucid and understandable
In 2007, the Dominican interested in revenue. Unless Crisis Committee (SECC) is a format. The articles on wind
government passed a law that there are fundamental political group of electricians who power generation and bio-
grants numerous incentives changes, providing access to believe it is the people’s right to mimicry are of great interest.
and tax exemptions to energy will only be an option if have free power. When poor The environment is a collective
investors in renewable energy. people can pay for it. Poor people are disconnected for responsibility, and there is a
The Dominican Republic’s people will remain without failing to keep up with their need to have a comprehensive
perspectives on renewable energy access. bills, crusading electricians dialogue and an understanding
energy supply are Take South Africa, for from the SECC come round to among experts, scientists and
consequently very good, and example. In 1994 voters backed reconnect them. They are the common people.
6 MakingIt
For further discussion of the
issues raised in Making It, please
visit the magazine website at
www.makingitmagazine.net and
the social networking Facebook
site. Readers are encouraged to
surf on over to these sites to join
in the online discussion and
debate about industry for
development.
In India, the participation of aspects of business that impact support for improvements to Take, for example, the
corporations is slowly leading to on the success of an the revised European Union response of the inhabitants of
a revolution in terms of focus on entrepreneur, particularly in RoHS Directive (Restriction of the native Iñupiat village of
the development of developing countries where it is Hazardous Substances in Kivalina in North Alaska which
technologies related to non- often governments that do not electronics); specifically, a is falling into the ocean because
conventional energy generation, allow entrepreneurship to methodology for further ice, formerly a wave barrier, is
and to efforts to reduce carbon thrive. How then, in this case, restrictions of hazardous melting as a result of
footprints. One such company, has the Mexican government substances, and an immediate greenhouse gas emissions. The
Suzlon Energy, is purely a home- helped or hindered this ban on BFRs, chlorinated flame villagers refused to go quietly.
grown company, working on businessman, and is it difficult retardants, and PVC vinyl Kivalina v. ExxonMobil Corp.,
wind power generation in general for Mexican plastic. et al., (2008) arguably
technology for the last 15 years. It businessmen to be successful? On e-waste, apart from the constituted an important
has set up big wind power Does the government push for additional points for development in rights-based
generation farms. As a result of environmentally responsible information to its customers litigation against those
its efforts to popularize this kind policies, etc? on take-back and reporting on principally responsible for
of power generation, some of l Emile Potolsky, received by recycling, Microsoft is climate change. The suit
the worst polluting industries, email rewarded for engaging in an EU claimed damages related to
like cement production and the coalition supporting Individual climate change against nine oil
oil and gas industries, are opting
for wind power generation as an
Microsoft and Producer Responsibility.
l Greenpeace
companies (including
ExxonMobil, BP and Royal
alternative, clean source of Greenpeace Dutch Shell), fourteen power
power. The company has a big
presence in the states of Gujarat, Continuing the discussion
After companies and a coal company.
Their complaint echoes the
Maharashtra, and Kerala. prompted by the Microsoft article, Copenhagen rights guaranteed under the
l Anjana Upadhyay, Gurgaon, “Old computers – new business” Universal Declaration of
India (Making It, issue 1), Greenpeace has I would like to applaud Bianca Human Rights and the
responded to Microsoft’s letter in Jagger's excellent article "After International Covenant on
Entrepreneurs issue 2. In the most recent
Greenpeace Guide to Greener
Copenhagen" in your magazine
(Making It, issue 2). She is
Economic Social and Cultural
Rights in asserting that
I appreciated reading the Electronics, Microsoft has risen one absolutely right – the “Defendants’ emissions of
online interview, “Making it place in the ranking of companies’ Copenhagen climate change carbon dioxide and other
happen – An entrepreneur’s policies on toxic chemicals, recycling summit ended in a shameful greenhouse gases, by
perspective: Mexico”, because it and climate change. compromise. The end result contributing to global warming,
gave me an insight into not The Guide to Greener Electronics was a three page document – an constitute a substantial and
only the life of an entrepreneur, evaluates company policy and “Accord” (not a treaty because it unreasonable interference with
but also into a very personal practice beyond what is is non-binding, merely stating public rights”.
side of somebody living and required by regulation…. principles of which to “take The complaint cites the Arctic
working in Mexico. I think this (Microsoft) has committed to note”) which no country has Climate Impact Assessment to
kind of article is useful for removing PVC and BFRs from signed up to in any event. It has show that defendants
supporting and giving a voice its hardware products by or no lawful authority or standing “conspired to create false
to entrepreneurs throughout before 2010, and phthalates by at all – it is a mere statement of scientific debate about global
the world, especially in the end of 2010. However, it vague intent. warming in order to deceive the
developing countries. needs to put products on the In the absence of a legally- public.” The suit may have been
One thing though, I would market that are free from BFRs binding treaty for nation states, dismissed by a United States
have liked to see more of an in printed circuit boards before how about putting the pressure district court, but the spirit of
extensive interview since there it can score points for this on the multinational the action deserves support.
are obviously many more criterion. It also fails to show companies? l John Radford, Manchester, UK
MakingIt 7
GLOBAL FORUM
8 MakingIt
GLOBAL FORUM
revolution must bring about instruments, The new industrial revolution must be Business and entrepreneurship based on
processes, and forms of governance that organized around the following guidelines: inner awareness of the self, and directed to
will radically change these patterns. Respect for all forms of life, for all human the natural and human environments; on
If the core purpose has been to maximize beings regardless of race, colour, or creed, for technology design and implementation that
profits for a few corporations, to enhance nature, and for future generations. meets people’s material and non-material
the power of a few governments, and to A new eco-morality that conserves, uses, needs rather than just the profit motive; on
increase the quality of life of only a few manages, and controls natural resources; technological change that creates the
people, then, today, the new industrial that protects and restores ecological niches conditions for human inner growth and
revolution must bring about the and life forms that are being depleted; that development; and on governance and
maximization of happiness and inner brings back ecological balance, integrity, business management instruments that
wealth. It must establish the best forms of rhythm, and sound; and that engages in benefit all people.
collaboration, governance, and human production, trade, and consumption patterns Zero tolerance of war, conflict, and
interactions in order to expand the that do not harm the environment and that weapons; of poisonous substances of any
collective good to benefit all people; to are in sync with the Earth’s carrying capacity. sort; of low quality or unsafe products; of
develop the best quality of life across the Human self-realization that puts unethical behaviour; and of the destruction
planet; to empower people, create economics at the service of people and not of the social fibre of communities.
opportunities and security; and thus create people at the service of economics; that There are positive signs that this form of
a world embedded in freedom, justice, eliminates absolute poverty and ends the industrial revolution is possible if we can
abundance, and peace. processes of marginalization and exclusion; deepen and extend corporate attention and
We live at a crucial moment in history, that provides decent work so that the commitment to, amongst other things,
when choices must be made in order to workplace provides the conditions for all green labelling, corporate social
attain higher levels of human forms of self-realization; that improves responsibility, and the Equator Principles
consciousness and coherence. The judicial systems to protect the rights of of socially and environmentally-
situation demands a revolution in values, women, children and the elderly; and that sustainable financing. Without the private
turning away from economics and finance puts the focus of education and human sector’s full engagement in building a truly
(competition, independence, and resource development on inner development sustainable future, no positive collective
exclusion), and embracing the collective and the expansion of human consciousness. destiny for humankind can be expected. n
values of interdependence,
interconnectedness, solidarity,
cooperation, justice, freedom, peace,
security, human rights, sustainability, love,
compassion, caring, and sharing. These
values must be self-realized, and industry
must be the human, institutional, and
political space to be able to do this. The
corporations of the future must become
the institutional and organizational space
where human beings may attain the
highest level of consciousness, and “We live at a crucial moment
material and non-material welfare,
including health and inner peace. As the
in history, when choices must
urban population is now larger than the be made in order to attain
rural population, and as rural activities higher levels of human
acquire an ever-greater industrial
character, industrialization will continue
consciousness and coherence.
to be the most important avenue of future The situation demands a
development. revolution in values…”
MakingIt 9
GLOBAL FORUM
No miracle cure
HOT TOPIC These findings imply that credit is only
one factor in the generation of income or
In what is a regular feature, distinguished contributors consider one of output. There are other complementary
the controversial issues of the day. With all the media hype factors, crucial for making credit more
productive. Among them, the most
surrounding new online lending platforms, such as Kiva.org, the time is important is the recipient’s
right to ask if microfinance really is an effective poverty reduction tool. entrepreneurial skills. Most poor people
do not have the basic education or
10 MakingIt
GLOBAL FORUM
MakingIt 11
GLOBAL FORUM
12 MakingIt
GLOBAL FORUM
MakingIt 13
Industrial policy has a key
role to play in the transition
to a resource-efficient, low-
carbon growth trajectory.
WILFRIED LÜTKENHORST,
Managing Director of the
Regional Strategies and Field
Operations Division of the
United Nations Industrial
Development Organization
(UNIDO), considers the
implications.
A changing
climate
for industrial policy
The return, renaissance, rediscovery or come-
back of industrial policy has been widely her-
alded. This is good news. And let’s be honest:
industrial policy has never left the scene. It
has been practiced in varying shapes and
forms in all countries, developed and devel-
oping alike. The issue really is: are various
policy instruments applied in an uncoordi-
nated, ad-hoc, and at times clandestine
manner? Or are they openly embedded in a
clearly formulated and communicated strat-
egy behind which a country – with all relevant
public and private stakeholders – can unite
and move forward? It is this latter notion of an
agreed vision (where do we want our economy
to go and how do we get there?), which is back
on the agenda with a vengeance. Sadly, it ‰
16 MakingIt
Workers building
a factory near
Hanoi, Viet Nam.
Image: Andrew Wood/istock
MakingIt 17
‰ has taken a major global economic crisis to
drive home the point that markets are all
“Industrial policy today policy failure is considered as even bigger?
I would indeed argue that industrial policy
about allocation of resources and efficiency cannot be relevant, cannot today cannot be relevant, cannot be effective,
but, in and by themselves, do not take care of and cannot be credible, unless it is explicitly
long-term societal objectives. be effective, and cannot be framed in the context of natural resource
18 MakingIt
Image: Andrew Wood/istock
litical and social context from which it derives adaptation strategies will often be more press-
its legitimacy. While considerations of climate ing than mitigation needs, and energy access
change and resource efficiency are crucial, goals are likely to be more urgent than energy
other objectives have to be factored in as well. efficiency considerations. But the same argu-
These range from poverty reduction to food ment cannot be applied to middle-income
and energy security, to job creation, reduction countries. Here, energy efficiency gains in es-
of regional and income inequalities, stimula- tablished industries (specifically heavy indus-
tion of growth and productivity, encourage- tries like steel, chemicals and the like) need to
ment of innovation and entrepreneurship, etc. receive priority, and are widely considered to
Thus, it is critically important to direct re- be low-hanging fruits. Yet these fruits still
search efforts towards exploring the relation- seem to require inputs in terms of informa-
ship between these different objectives. What tion, awareness, and incentives, in order to ac-
are the complementarities and what are the tually get picked.
trade-offs, for example, between energy effi- Finally, there are general and cross-cutting
ciency, productivity and cost effectiveness; be- challenges, such as the greening of trade (i.e.,
tween pushing renewable sources of energy the reduction of the carbon footprint of entire
and broadening access to energy; between value chains) and, in particular, the promotion
adaptation measures, patterns of industrial lo- of technology transfer through a variety of
cation, and regional disparities; and between mechanisms ranging from FDI to official de-
CO2 mitigation action and industrial prof- velopment assistance and the Clean Develop-
itability? Unless a firm foundation is created ment Mechanism. State-of-the-art green
for evidence-based policy decisions, uncer- technologies tend to be high-tech and costly.
tainty and speculation will prevail. Who is going to pay for the transfer of propri-
Secondly, the conventional focus of indus- etary technology? Unless an international so-
trial policy on promoting priority sub-sectors lution for the funding challenge is found, many
(be it textiles, food processing or electronics) developing countries wanting “to go green”
may need to be revisited and subsumed under may face a genuine dilemma. Hence, there is a
an orientation towards resource-efficient strong case for global action, and some degree
technologies across the entire spectrum of of international policy coordination.
sectors. This would, among other things, call
for enhanced benchmarking efforts, an align- The high road
ment of research and development incentives Industrial policy has always been faced with
and innovation systems with the need to the perils of uncertainty, and with the need to
reduce climate impacts, and access for enter- make assessments and judgments that try to
prises to financial instruments, including ven- anticipate and shape desired future scenarios.
ture capital, for the funding of However, with the new dimension added by a
environmentally-friendly investment. global context of climate change and resource
Thirdly, investment promotion ap- scarcity, the genuine risk of a global catastro-
proaches will have to be revisited. Foreign phe “makes the most powerful case for strong
direct investment (FDI) is the key transmitter climate policy”, as recently stressed by Paul
of new technologies in many developing Krugman in the New York Times. While indus-
countries. To a large extent, FDI inflows de- try is part of the problem (accounting for 36%
termine the future technology scenario, the of CO2 emissions), it also offers great oppor-
pattern of industrial production and linkages, tunities. There will be no solution without de-
as well as learning effects for domestic busi- veloping and diffusing new industrial
ness. By applying the right policy instruments, technologies that consume fewer resources,
investments could increasingly be geared to- reduce carbon emissions, abate pollution, and
wards resource efficient technologies. In this reuse and recycle the waste generated.
context, industrial zoning approaches target- “Unless an international Establishing the framework for allowing
ing green and clean investors (aimed at this to happen, encouraging responsible pro-
demonstration and spill-over effects for local solution for the technology duction and consumption, and ultimately
businesses) or, conversely, targeting polluting
industries (to allow economies of pollution
transfer funding challenge defining a sustainable path to prosperity, are
the challenges to which industrial policy
abatement), could assume particular impor- is found, many developing today must rise. The gradual decoupling of
tance. economic growth from environmental degra-
Fourthly, it should be acknowledged that countries wanting ‘to go dation and resource depletion defines the
different groups of countries face distinct
challenges, and that policy priorities should
green’ may face a genuine high road to industrialization that countries
should strive for – both to save our planet, and
reflect this fact. In Least Developed Countries, dilemma.” to define new frontiers of competitiveness. n
MakingIt 19
JAYATI GHOSH believes that state
involvement in economic activity is now
imperative, and that such involvement must
be more democratic and accountable.
Politicizing
economic
policy
There are several reasons why we urgently and education. Ensuring universal provision
need to think seriously about appropriate in- of these things will inevitably require greater
dustrial policies. There are of course the old per capita use of natural resources and more
(or continuing) reasons: that the development carbon-emitting production. So, both sus-
project cannot really proceed without some tainability and equity require a reduction of
form of explicit or implicit industrial policy; the excessive resource use of the rich, espe-
that static and dynamic economies of scale cially in developed countries, but also among
mean that ‘late industrializers’ need to plan the elites in the developing world, in order to
methods of achieving competitive scales in adjust for the necessarily greater resource use
particular activities if they are to survive; and of the world’s poor.
that market-driven investments in a context
of economic inequality will simply not gen- Resource consumption
erate the required scales of production with- This means that redistributive fiscal and other
out some form of intervention. economic policies must be specially oriented to-
But there are also newer, and possibly now wards reducing inequalities of resource con- vatized urban transport, involving many pri-
more pressing reasons for industrial policy. sumption, globally and nationally. For example, vate vehicles and congested roads, actually
These emerge from structural tendencies (in countries’ essential social and developmental generates more GDP than a safe, efficient, and
particular the more basic forms of market failure expenditure can be financed by taxes that pe- affordable system of public transport that re-
that relate to human interaction with the natu- nalize resource-wasteful expenditure. duces vehicular congestion and provides a
ral environment), as well as conjunctural ones Some of the shift can certainly be met pleasant living and working environment.
(the fact that countercyclical fiscal policy has per- through “cleaner, greener technologies” of
force increased the role of government spending production, and this clearly requires proac- Strategic thinking
in both mature and developing economies). tive industrial policies to promote such tech- Obviously, the shift cannot be left to market
What we can now recognize as unsustain- nologies. But it also requires new patterns of forces, since the international demonstration
able patterns of production and consumption demand, since it is no longer good enough to effect and the power of advertising will con-
are deeply entrenched in the richer countries, talk about newer forms of production that are tinue to create undesirable consumer de-
and are aspired to in developing countries. based on the older pattern of consumption. mands, and unsustainable consumption and
But many millions of citizens of the develop- Instead, we must think creatively about such production. But public intervention in the
ing world still have poor or inadequate access consumption itself, and work out which market cannot be confined to knee-jerk re-
to the most basic conditions of decent life, goods and services are more necessary and de- sponses to constantly changing short-term
such as the minimum physical infrastructure, sirable for our societies. conditions. Instead, planning – not in the
including electricity, transport and commu- This is why the present focus on develop- sense of the detailed planning that destroyed
nication links, sanitation, health, nutrition, ing new means of measuring genuine the reputation of command regimes but
progress, well-being, and quality of life are so strategic thinking about the social require-
JAYATI GHOSH is professor of Economics at important. Quantitative Gross Domestic Prod- ments and goals for the future – is absolutely
Jawaharlal Nehru University, New Delhi, and the uct (GDP) growth targets, that still dominate essential. Fiscal and monetary policies, as well
executive secretary of International Development the thinking of regional policymakers, are not as other forms of intervention, will have to be
Economics Associates (IDEAS). She is a regular
simply distracting from these more important used to redirect consumption and production
columnist for several Indian journals and newspapers,
and a member of the National Knowledge goals, but can even be counterproductive. For towards these social goals, to bring about such
Commission advising the Prime Minister of India. example, a chaotic and polluting system of pri- shifts in socially created aspirations and ma-
20 MakingIt
“How can industrial policy
– and macroeconomic
policy in general – be truly
democratized?”
MakingIt 21
22 MakingIt
Towards a more
productive debate
With the discrediting of orthodox policies, and the exposure of the double
standards of the rich countries, industrial policy is no longer taboo. HA-JOON
CHANG argues for an acceptance that industrial policy can work, at least some
of the time, and for ‘outside of the box’ thinking on how to make it work better.
MakingIt 23
“As Lord Peter Mandelson For the last three decades, industrial policy – or, more precisely, selective
industrial policy, where the government intervenes in a way that discrim-
inates between industrial sectors – has been off the mainstream policy
quipped, there needs to agenda. In the English-speaking developed world where neo-liberalism
originated, industrial policy came to be denounced as ‘picking losers’ in
be more ‘real a misguided attempt to ‘pick winners’. With the intellectual and political
shift towards neo-liberalism at the World Bank and the IMF, structural
engineering’ and less adjustment programmes (SAPs) dismantled existing industrial policies
through trade liberalization, privatization, and deregulation of domestic
business activities and foreign direct investment – or what are commonly
‘financial engineering’, known as the Washington Consensus policies. The rise of Japan and other
East Asian economies forced a debate on industrial policy between the late-
recognizing that selective 1980s and the mid-1990s, but even then it was dismissed as something that
worked only because of the unique political and cultural conditions of the
industrial policy has an East Asian countries, such as an exceptionally capable bureaucracy. When
the East Asian economies got into trouble, with the bursting of Japanese
financial bubble in the mid-1990s and the Asian financial crisis in 1997,
important role to play” industrial policy was blamed as one of the key causes of their economic
problems, and declared defunct.
However, the continued economic problems in developing and tran-
sition economies that had faithfully implemented orthodox policies – ris-
ing income inequality, repeated financial crises, and, above all, a slowdown
(or sometimes a collapse) in growth – badly dented the reputation of the
Washington Consensus. By the early 2000s, even the main proponents of
the Washington Consensus started modifying their positions, even though
they fell short of changing anything fundamental. Some others have talked
of a post-Washington Consensus, although there is no consensus on what
the term exactly means.
Even in this retreat of the free-market orthodoxy, the rejection of selec-
tive industrial policy – and all the policy measures that go with it, such as
tariff protection, subsidies, regulation on foreign investment, state own-
ership of industrial and financial firms – continued. Many who were crit-
ical of free-market orthodoxy drew the line at selective industrial policy,
and argued that, while there is a case for industrial policy, it should be of
‘general’ kind that does not discriminate across sectors – education, train-
ing, infrastructure, etc. Selective industrial policy, for many, still remained
‘beyond the pale’.
However, the tide may be finally turning. The 2008 global financial cri-
sis has exposed the limits of the free-market orthodoxy even further. Up
until then, many people had assumed that orthodox policies worked in the
rich countries, especially the Anglo-American ones where they originated.
The problem, the critics argued, was that these policies had been imposed
on developing countries where they are not suitable. But the 2008 crisis
has shown that these policies are not suitable for the rich countries either.
With the crisis blowing up in the United States, the United Kingdom, and
the smaller economies that had most aggressively pursued neo-liberal
strategy based on financial deregulation (Ireland, Iceland, Dubai, Latvia,
etc.), there is a shift in opinion. As the former British business secretary,
Lord Peter Mandelson, quipped, there needs to be more “real engineer-
ing” and less “financial engineering”, recognizing that selective industrial
policy has an important role to play in the process.
At the same time, the government bail-out of GM and Chrysler in the
USA, and the subsidies provided to the automobile and other industries
by the governments of other developed countries, has exposed the double
standards that these countries had applied in advising developing coun-
tries not to use active industrial policy.
Of course, it is too early to tell whether all of this – the discrediting of
orthodox policies, and the exposure of the double standards of the rich
countries – will lead to a revival of industrial policy. However, it is undeni-
24 MakingIt
able that the terms of debate on industrial policy have changed. Industrial
policy is not a taboo any more. There is an open acknowledgment, even
among critics and sceptics, that the declaration of the demise of industrial
policy may have been premature. People are increasingly accepting that at
least some economies need to rebalance their economies away from the
over-blown financial sector, and that this may require active industrial pol-
icy. With the exposure of the double standards of the rich countries, devel-
oping countries are going to have an easier time defending their industrial
policy against criticisms by donor governments and the international
financial institutions. This may also affect the evolution of the World Trade
Organization and other elements of the world trading system.
MakingIt 25
‰ Switzerland, two countries that did practice (nearly) free trade, refused
to introduce a patent law until 1912 and 1907 respectively (on the grounds
that a patent, as an artificially-created monopoly, is incompatible with the
principle of free trade)
Third, contrary to the popular perception, developing countries did
not do poorly when they more actively pursued industrial policy during
the import substitution industrialization (ISI) period in the 1960s and
the 1970s. In fact, during the period, they grew much faster than in the
‘age of imperialism’, when they were forced into free trade and laissez-
faire industrial policy through colonial rule or ‘unequal treaties’ (which
deprived them of their tariff autonomy). Under colonial rule or unequal
“If industrial policy is so treaties, the economies of many developing countries contracted or at
best grew at anaemic rates. Their growth performance in the ISI period
bad, how is it that in every was also much better than that in the more recent period of neo-liber-
alism, when they used less industrial policy. For example, during the
1960s and the 1970s, per capita income in Latin America and Sub-Saha-
era the fastest growing ran Africa grew at 3.1% and 1.6% per year respectively. These rates fell to
1.1% and 0.2% between 1980 and 2009.
economies happen to be Individually, the above sets of evidence, as well as the evidence about
the East Asian experience that we discussed earlier, do not prove any-
those with a strong thing. However, taken together, they raise some difficult questions for
the sceptics of industrial policy. If industrial policy was not confined to
East Asia in the late-20th century, it becomes difficult to downplay its role
industrial policy?” in East Asia by resorting to some region- and time-specific “counter-
vailing forces”. Even if many countries that have used industrial policy
did not succeed, the fact that few of today’s rich countries have become
rich without industrial policy prompts us to ask whether a good indus-
trial policy may be a necessary, although not sufficient, condition for eco-
nomic development. Looking at all these sets of facts together, we are
bound to wonder if industrial policy is so bad, how is it that in every era
the fastest growing economies happen to be those with a strong indus-
trial policy: Britain between the mid-18th and mid-19th centuries; the
US, Germany, and Sweden between the late 19th and the early 20th cen-
turies; East Asia, France, Finland, Norway, and Austria in the late 20th
century; and China today.
26 MakingIt
Can the state ‘beat the market’?
One classic argument against industrial policy is that, given the limits to
information and capabilities, the state cannot “beat the market”. However,
there are quite a few examples in history where government officials made
decisions that blatantly went against market signals, only to build some of
the most successful businesses in history (e.g., the Japanese auto indus-
try, the Korean steel-maker POSCO, and the Brazilian aerospace company
Embraer).
Moreover, in order to explain these success cases, we do not need to
assume that government officials are omniscient, or even that they are clev-
erer than capitalists. Many (although not all) of the “superior” decisions
made by the state were made because the government officials could look
at things from a national and long-term point of view, rather than from a
sectional and short-term point of view.
Instead of debating whether the state can beat the market, we should be
debating how to improve the personnel and organizational conditions of
good state decision-making.
Political economy
Another set of objections to industrial policy may be described as “politi-
cal economy” arguments where critics have rightly questioned the com-
mitment of the political leadership to economic development, the coher-
ence of the state machinery, and the ability of the state to discipline the
recipients of its support.
Political economy problems need to be taken seriously. However, we
should not let the best be the enemy of the good. If we wait for the perfect
“Instead of debating
state to emerge, we will never get anything done. In the real world, suc-
cessful countries are the ones that have managed to find “good enough” whether we should target,
solutions to their political economy problems, and went on to implement
policies. In order to take the debate forward, we have to discuss how prag-
matic improvements can be made to a country’s politics.
we should debate what
We have to improve our understanding of issues like: how effective
political visions can be formed and deployed to inspire various individu- the optimal degrees
als and groups to act in a concerted manner; how to build nations and
communities out of disparate groups that may even have a very long his- of targeting are for
tory of mutual hostility and mistrust; how to work out social pacts and
build lasting coalitions behind them; how to partially accept but improve
the customs and organizational routines in the bureaucracy; and how to
different types of policies”
minimize socially-harmful lobbying and bribing, while maximizing the
flows of information between the state and the private sector. In order to
fully address these issues, we economists need to go beyond the usual
boundaries and work with practitioners (politicians, government officials,
businessmen) as well as academics from other fields (political science, soci-
ology, anthropology, psychology, cultural studies).
Bureaucratic capabilities
However willing and strong the state may be, and however “correct” its
vision may be, policies are likely to fail if the government officials imple-
menting them are not capable. Difficult decisions have to be made with
limited information and fundamental uncertainty, often under political
pressure from inside and outside the country. This requires decision-mak-
ers with intelligence and adequate knowledge.
In this context, people have argued that “difficult” policies, like (selec-
tive) industrial policy, should not be tried by countries with limited bureau-
cratic capabilities. And it is for this reason that the World Bank’s East Asian
Miracle report of 1993 recommended the South-east Asian countries (Thai-
land, Malaysia, and Indonesia), where industrial policy was quite circum-
scribed partly in recognition of the relatively low quality of their bureau-
cracies, as models of industrial policy for other developing countries. ‰
MakingIt 27
‰ At the general level, I cannot dispute the proposition that we need
capable bureaucrats in order to design and implement good policies.
However, this sensible point is often exaggerated into the policy world
equivalent of the “do not try this at home” warning that is shown on TV
when dangerous stunts are performed.
The first problem with this “do not try this at home” argument is that
there is no basis for the assumption that industrial policy is more difficult
than other policies. Second, another implicit assumption that industrial
policy requires a sophisticated knowledge of economics is also unwar-
ranted. The industrial policymakers of East Asia were not economists –
they were lawyers in Japan and South Korea, and engineers in Taiwan and
China – and until the 1970s what little economics they knew was usually of
the “wrong” kind – Marx, the German Historical School, Schumpeter, you
name it. Third, the “do not try this at home” argument assumes that high-
quality bureaucracies are very difficult to build, and that the East Asian
countries were exceptionally lucky to have inherited them from earlier
eras. However, high-quality bureaucracy can be built pretty quickly, as
shown by the examples of South Korea and Taiwan themselves. Fourth,
there is also “learning-by-doing” in policy. Without “trying”, you will never
master difficult policies. And lastly, the fact that something is “difficult”
cannot be a reason not to recommend it. After all, developing countries are
“We need capable routinely told to adopt “best practice” or “global standard” institutions
used by the richest countries, even though many of them clearly do not
bureaucrats in order to have the capabilities to effectively run such institutions. To be more pro-
ductive, rather than bemoaning the lack of bureaucratic capabilities in
developing countries, we need to have more debate on how to improve
design and implement them.
28 MakingIt
forming industries. Sooner or later it will have to upgrade its export indus-
tries into comparative advantage-defying industries, which requires even
“The global business
stronger industrial policy.
We have to move away from the sterile debate on openness and growth, landscape can change
and explore how free trade, export promotion (which is, of course, not free
trade), and infant industry protection can be best integrated with each significantly, opening up
other.
Conclusion
My main purpose here is to plead for “thinking outside the box”, and to
find the common ground for people on both sides of the industrial policy
debate. I believe that once the adversaries abandon theoretical grand-
standing, and focus on more practical issues, there are vast and fertile mid-
dle grounds to explore.
MakingIt 29
With trade, technology, and talent
becoming ever more global, and with
national economies increasingly
interlinked, DEBORAH WINCE-SMITH
believes the world needs dynamic
strategic partnerships to spur economic
growth, development, and jobs.
INTERNATIONAL
COOPERATION IS
VITAL FOR NATIONAL
PROSPERITY
In 1986, when US producers were losing their every place a potential workplace. Entrepre- have evolved into truly global enterprises.
global market share to the Japanese, the then- neurs and small firms, once constrained by Twenty years ago, trade was mostly about
CEO of Hewlett-Packard, John Young, created their size and resources, can now reach out goods that moved physically across national
the US Council on Competitiveness to bring globally for employees and customers. borders. But, today, the geographic footprint
together leaders from the private sector to de- of supply chains is global. For example, US
velop and promote a national competitiveness Emerging economies companies increasingly develop products and
agenda for the United States. The idea struck Another transformational shift is the rapid services, and serve customers through foreign
a chord among US CEOs, university presi- advance of emerging economies. Just 20 years affiliates and foreign business ventures. In
dents, and labour leaders, and next year the ago, China, India, and other emerging fact, sales from foreign affiliates of US com-
Council’s 150 members will celebrate its 25th economies would have been relegated to com- panies are more than three times greater than
anniversary. Over the span of a quarter cen- peting with commodity-based goods, slowly US exports of goods and services. We have to
tury, the economic challenges facing the working their way up the ladder of economic ask ourselves, given this data, what does a
United States have changed, as have the global development. That model has been shattered. trade deficit mean?
economic players. In fact, the very nature of As a result, in just one generation, emerging
what competition in the global marketplace economies’ shares of global imports, global Global labour force
means has evolved. exports, and foreign direct investment have The final transformation is the growth of the
Seismic shifts are radically reshaping the nearly doubled. global labour force. As billions of people in
competitive landscape. Anyone with an But the issue is not just that emerging emerging economies entered global com-
iPhone or Blackberry, or anyone who uses the economies are growing – it’s how they are merce, the effective global labour supply
Internet, knows that the digital revolution has growing. Innovation’s pivotal role in national quadrupled between 1980 and 2005, with most
been an epic force of change. It has fuelled an wealth creation, and a rising standard of of the increase occurring after 1990. Legions
unprecedented integration of the world’s na- living, have prompted many nations to adopt of educated and skilled people in emerging
tional economies. The incredible proliferation innovation-based growth strategies similar to economies are competing to perform the
of advanced telecommunications means that that of the United States. Governments world’s work. The practical effects of this
knowledge, information, capital, and techno- around the world are boosting public spend- trend: every day it is easier to ship work
logical know-how flow across national borders ing on research and development (R&D), around the globe in bits and bytes.
at the speed of light. Wireless devices make building research parks and centres of inno- As a result, companies outsource an ever-
vation, and ramping up the production of sci- widening array of work – from software de-
entists and engineers. velopment to accounting to research. If work
DEBORAH WINCE-SMITH
is president and CEO of the Another fundamental shift has been in in- is routine, rule-based, and if it can be digi-
US Council on Competitiveness ternational trade, as multinational companies tized, there is a low-cost source of labour
30 MakingIt
35% 36%
25%
23%
20% 19% 20%
18% 18%
15%
12%
10%
10% 10%
5%
0%
1986 2005 1986 2005 1986 2005 1986 2005 1986 2005
Gross Domestic Exports Imports Energy Foreign Direct
Product Consumption Investment Inflows
somewhere in the world to compete for that tices between competitiveness councils to Policy initiatives
work and those jobs. promote national competitiveness, and in In 2010, the GFCC will pursue two ground-
While the impact of these transformations turn promote global economic growth. breaking policy initiatives – the development
is global, every country is seeking to identify l Identifying emerging challenges and ob- of a set of global competitiveness principles,
policies that will serve its national interest and stacles that jeopardize national competitive- and a review of current competitiveness met-
support national prosperity. But, because of ness, global growth, and prosperity through rics used in national rankings. Modelled on the
the global nature of trade, technology, and the collaboration of leaders from competi- global “Call to Action” released at last year’s
talent, and because the world’s economies are tiveness councils around the world. Council on Competitiveness National Energy
ever more linked to each other, these polices l Establishing a model of global cooperation Security, Innovation and Sustainability Summit
cannot be enacted in a vacuum. on competitiveness that supports national and International Dialogue, the competitive-
Since the US Council convened the first prosperity based on innovation, and sustain- ness principles will be a valuable tool in in-
meeting of the Global Federation of Compet- able economic growth and development. creasing global understanding of factors that
itiveness Councils (GFCC) in Washington, affect national competitiveness in a global
D.C. in September 2009, tremendous progress economy.
has been made toward developing a greater Spearheaded by the Presidential Council on
understanding of global business and com- National Competitiveness from the Republic of
petitiveness issues. The GFCC has eight Korea, the initiative to review the current slate
founding members: Brazil, Chile, Egypt, India, of competitiveness metrics builds on a discus-
the Republic of Korea, Saudi Arabia, the sion started at the September 2009 meeting of
United Arab Emirates and the United States, the GFCC. At that meeting, participants ques-
who have pledged time and resources to en- tioned if the right metrics were in use, and what
suring a strong foundation for the new or- new metrics should be considered to ade-
ganization. “Entrepreneurs and small quately evaluate a country’s competitiveness.
The basic goals of the GFCC include:
l Creating an ongoing dialogue between
firms, once constrained by Around the world, there is growing conver-
gence in national interests that are affected by
leaders from competitiveness councils around their size and resources, global economic conditions. The growing in-
the world who are committed to their na- terdependence among nations offers a golden
tional prosperity and the prosperity of the can now reach out opportunity to move beyond static engagement
world.
l Establishing a global forum for the ex-
globally for employees to dynamic global strategic partnerships that
will spur economic growth, development, and
change of information, ideas, and best prac- and customers.” jobs. n
MakingIt 31
If 1989 saw the end of the “Second World” tion; demographics; and fragile and post-con- ing different perspectives and circumstances,
with Communism’s demise, then 2009 saw flict states. so as to build mutual interests.
the end of what was known as the “Third It is no longer possible to solve big inter- Take financial reform: of course we need
World”: We are now in a new, fast, evolving national issues without developing country better financial regulation. But beware unin-
multi-polar world economy – where North buy-in. But in discovering a new forum in the tended consequences like financial protec-
and South, East and West, are points on a G-20, we can’t impose a new, inflexible hier- tionism. Regulations agreed in Brussels,
compass, not economic destinies. archy. Nor can we address this changing world London, Paris or Washington might work for
Poverty remains and must be addressed. through the prism of the old G-7; developed big banks, but could choke off economic op-
Failed states remain and must be addressed. country interests, even if well-intentioned, portunity and growth in developing countries.
Global challenges are intensifying and must cannot represent the perspective of the Wall Street has exposed the dangers of finan-
be addressed. But the manner in which we emerging economies. cial recklessness, and we need to take heed
must address these issues is shifting. The out- and serious actions. But financial innovation,
dated categorizations of First and Third Power and responsibility when used and supervised prudently, has
Worlds, donor and supplicant, leader and led, But modernizing multilateralism isn’t all brought efficiency gains and protected against
no longer fit. about developed countries learning to adapt risk, including for development. A G-7 pop-
Today, we already see the strains in multi- to the needs of rising powers. With power ulist prism can undercut opportunities for
lateralism. The Doha Round of world trade comes responsibility. Developing countries billions.
negotiations and the climate change talks in need to recognize that they are now part of the Take climate change: it can be linked to de-
Copenhagen revealed how hard it will be to global architecture and have an interest in velopment and win support from developing
share mutual benefits and responsibilities be- healthy multilateralism. countries for low carbon growth – but not if it
tween developed and developing countries. We cannot afford geopolitics as usual. A is imposed as a straitjacket. Developing coun-
And this will be the case for a host of other ‘New Geopolitics of Multi-polar Economy’ tries need support and finance to invest in
looming challenges: water; diseases; migra- needs to share responsibility while recogniz- cleaner growth paths. Some 1.6 billion people
No more
geopolitics as
usual. ROBERT
ZOELLICK,
President of the
World Bank
Group, sees
decisions and
sources of
influence flowing
Photo: World Bank
around, through,
and beyond
governments.
Modernizing
multilateralism for
a multi-polar world
32 MakingIt
lack access to electricity. While we must take to focus on productive investments in infra- Modern multilateralism
care of the environment, we cannot consign structure and early childhood development. In the new multi-polar global economy, most
African children to homework by candlelight They want to free markets to create jobs, governmental authority will still reside with
or deny African workers manufacturing jobs. higher productivity, and growth. nation-states. But many decisions and sources
The challenge is to support transitions to This new world requires multilateral in- of influence flow around, through, and
cleaner energy without sacrificing access, pro- stitutions that are fast, flexible, and account- beyond governments. Modern multilateral-
ductivity, and growth that can pull hundreds able, that can give voice to the voiceless with ism must bring in new players, build cooper-
of millions out of poverty. resources at the ready. The World Bank ation among actors old and new, and harness
Group must reform to help play this role. global and regional institutions to help ad-
Developing country perspectives And it must do so continually at an ever dress threats and seize opportunities that sur-
Take crisis response: in a world in transition, quicker pace. This is why we have launched pass the capacities of individual states.
the danger is that developed countries focus the most comprehensive reforms in the in- Modern multilateralism will not be a hi-
on summits for financial systems, or concen- stitution’s history, including boosting de- erarchical system but look more like the
trate on the mismanagement of developed veloping country voting rights and global sprawl of the Internet, interconnect-
countries such as Greece. Developing coun- representation. Yet problems need resources ing more and more countries, companies, in-
tries need summits for the poor. Hearing the to fix them. The World Bank needs more re- dividuals, and NGOs through a flexible
developing country perspective is no longer sources to support renewed growth, and to network. Legitimate and effective multilat-
just a matter of charity or solidarity: it is self- make a modernized multilateralism work in eral institutions, such as the World Bank
interest. These developing countries are now this new multi-polar world economy. Group, can form an interconnecting tissue,
sources of growth and importers of capital Should the recovery falter, we would have to reaching across the skeletal architecture of
goods and developed countries’ services. De- stand on the sidelines. This is why the World this dynamic, multi-polar system. We must
veloping countries do not just want to discuss Bank is seeking its first capital increase in support the rise of multiple poles of growth
high debt in developed countries; they want more than 20 years. that can benefit all. n
MakingIt 33
COUNTRY
FEATURE
China
34 MakingIt
Image: Alex Nikada/istock
China’s
stunning
economicrise
In just three decades since initiating the shifted emphasis from agriculture to light
reform and opening-up policy, China has industry and export-led growth.
achieved tremendous economic success. Gross The development of the light industrial
Domestic Product growth of about 10% per manufacturing sector proved vital for a
annum since the late 1970s has helped to lift developing country working with relatively
several hundred million people out of absolute little capital. The revenues that this sector
poverty. China alone accounts for over 75% of generated were reinvested in more
poverty reduction in the developing world over technologically-advanced production and
the last 20 years. further capital expenditures and investments.
The rise of what is now the world’s third- China’s economic boom has been based on
largest economy can be traced back to the late very high levels of investment and, in recent
1970s, when the country’s leadership adopted years, on soaring export growth. China’s entry
economic reform policies designed to expand into the World Trade Organization in 2001
rural income and incentives, encourage served as a catalyst for a contraction of the
experiments in enterprise autonomy, reduce state-owned sector, a surge in foreign
central planning, and attract foreign direct investment, and explosive growth in private-
investment. The strategy for achieving these sector activity. Today, the country is one of the
aims was dubbed “socialism with Chinese world’s top exporters, and is attracting record
characteristics”. amounts of foreign investment. In turn, it is
At the local level, peasant farmers were investing billions of dollars abroad.
allowed to earn extra income by selling the As a member of the World Trade
produce of their private plots on the free Organization, China benefits from access to
market. Nationally, the main move towards a foreign markets and agrees to expose itself to
market economy saw local municipalities and competition from abroad. Relations with
provinces allowed to invest in industries that trading partners have been strained over
Shanghai: showpiece of
they considered most profitable, which China’s huge trade surplus, and this has led to
the world’s fastest- encouraged investment in light demands for Beijing to raise the value of its
growing major economy. manufacturing. China’s development strategy currency, which would make Chinese goods ‰
MakingIt 35
COUNTRY Interview with His Excellency CHEN DEMING, Minister of
Commerce of the People’s Republic of China
FEATURE
Going global
China in great strides
‰ more expensive for foreign buyers. China has achieved an impressive economic will further improve, while China and the rest
In the early 1990s, China’s manufacturing performance over the last three decades. of the world will see more win-win and all-
industry was largely characterized by the What in your view have been the keys to this win outcomes. China will not close its door
assembly-driven production of low- success? simply for the reason of protectionism, and it
technology goods, but this is no longer the The key to China’s huge economic success is will remain one of the most attractive desti-
case. Industrial policy has shifted from its firm commitment to socialism with Chi- nations for investors.
developing labour-intensive industries during nese characteristics, and to the policy of
the first two decades of reform, when China’s ‘reform and opening-up’ to the outside world. How has China tackled the global economic
competitiveness in labour-intensive export- The socialist market economy has taken root crisis and recession?
oriented manufacturing was at a peak, to in China, with non-public sectors now con- Faced with the great challenges brought on by
capital-intensive, high-tech industries. tributing to around 60% of China’s GDP and the most severe crisis since the Second World
Although sectors such as textiles still over 70% of urban and township job cre- War, the Chinese government has promptly
contribute a large share of manufacturing ation[…]. From establishing special economic reoriented its macroeconomic policy, set as its
output, a greater proportion of value added zones to opening up coastal, border, and primary task the maintenance of steady and
output is now derived from electronic goods, inland areas; from bringing in, on a large speedy economic growth, and focused on
many of which are relatively advanced. China scale, capital, technology, and talent, to going boosting domestic demand. A proactive fiscal
is now an important, and, in some cases, global in great strides, all along China has policy and a moderately easy monetary policy
world-leading, producer in industries such as kept to the strategy of opening-up. The steady have been pursued in order to step up invest-
mobile phones, integrated circuits, and advancement of reforms has greatly enhanced ment for growth, stimulate consumption for
automobiles. productivity, laid down an ever-improving in- people’s well-being, and boost employment to
The fast-growing economy has fuelled stitutional framework for opening-up, and ef- create stability.
demand for energy. China is the largest oil fectively promoted the development of an A package of countermeasures against the
consumer after the United States, and the outward-looking economy[…]. crisis has been implemented:
world’s biggest producer and consumer of By effectively utilizing both domestic and First, in order to boost domestic demand,
coal. This over-reliance on imported oil and international markets and resources, actively fiscal spending has been increased to encour-
coal, and the environmental consequences of taking part in the international division of age non-public investment. An investment
the massive increase in fossil-fuel use, have labour, and by strengthening Intellectual scheme was introduced over two years, and
prompted a government shift in favour of Property Rights protection and encouraging was worth 4 trillion renminbi (Rmb), or 14% of
clean energy. According to Bloomberg New innovation, China’s competitiveness has been China’s GDP in 2008. Structural tax cuts
Energy Finance estimates, China spent considerably enhanced. amounting to Rmb550bn. have been carried
US$34.6bn. on clean-fuel projects in 2009, Take, for example, industrial development out to enhance investment and consumption.
almost double the amount invested by the US. driven by the process of opening-up: the share Commerce is being invigorated and house-
Feed-in tariffs for wind power were brought in of the value added of China’s manufacturing hold consumption stimulated through a
last year, and the government has also sector as a percentage of the world total in- number of measures, such as providing fiscal
introduced incentives for power companies to creased from less than 1.5% in 1980 to 14% in subsidies for the replacement of used cars and
install solar panels. 2007. By 2008, China had become the biggest household appliances with new ones, and the
China aims to produce renewable energy producer of 172 categories of manufactured promotion of cars, household appliances,
equivalent to about 700 million metric tons of products, yielding over US$1 trillion in man- agricultural machinery, amongst other things,
coal, or 15% of its power, by 2020. The ufacturing value added, and was ranked as the in the countryside.
government wants to cut carbon emissions world’s second biggest exporter of manufac- Second, in order to stabilize the financial
per unit of gross domestic product by as much tured goods. market, the interest rate has been brought down
as 45% of 2005 levels by 2020, and the Reform and opening-up is a basic state five times in a row, resulting in the release of
country’s first commercial carbon capture and policy that China must maintain in the long around Rmb800bn. of liquidity, and more fi-
storage plant is expected to be operational by run. Through reform and opening-up, nancial support has been provided to agricul-
the end of the year. n China’s trade and investment environment ture and small and medium-sized enterprises.
36 MakingIt
Third, in order to revitalize industry, plans
have been formulated for ten key industries,
including automobiles and iron and steel,
with a view to promoting industrial restruc-
turing and upgrading.
Fourth, in order to stimulate technologi-
cal innovation, a National Programme for
Medium and Long-Term Scientific and Tech-
nological Development has been imple-
mented, with a special emphasis on 16 major
projects, including core electronic devices, the
development and use of nuclear energy, and
advanced numerically-controlled machine
tools. The development of emerging indus-
tries such as new energy and environmental
protection has been pushed forward.
Fifth, in order to ensure people’s well-
being, Rmb850bn. will be invested in the
reform of the medical and health care system
over three years; a rural medical insurance
programme has been introduced on a pilot
basis, covering 90 million people; and support
is being provided to the employment of col-
“The Chinese government is ready to strengthen
lege graduates and migrant rural workers. cooperation and to share the experience and
As well as expanding domestic demand,
the Chinese government has also been stabi- opportunities of development with other countries...”
lizing demand in external markets by keep-
ing the value of the Rmb stable and by tlenecks constraining China’s sound eco- perfection of the social security system cover-
enhancing trade facilitation. nomic development, boost the economy’s en- ing both urban and rural areas will be accel-
In 2009, the preliminary effects of these dogenous dynamism and sustainability, and erated, investment in social services for public
policies – GDP grew by 8.7%, fiscal revenues realize an all-round, balanced, and sustainable welfare increased, and the social safety net im-
by 11.7%, and 11.2 million new jobs were cre- development. proved.
ated in urban areas – indicate that China’s Firstly, we need to expedite industrial re- Fourthly, we need to continue to open
economy is turning for the better and con- structuring. Vigorous efforts will be made to more widely to the outside world. Efforts will
tributing greatly to the recovery of the world advance the technological upgrading of tradi- be made to steadily develop foreign trade. The
economy. tional industries, and to encourage enter- export mix will be optimized, imports in-
prises to use new technology, new techniques, creased, and the processing trade transformed
In terms of future economic development, and new equipment. New economic growth, and upgraded. The guideline to utilize foreign
what are the challenges and difficulties facing focusing on strategic, emerging industries, direct investment (FDI) will be adhered to, and
China, and how will they be addressed? will be fostered. Industrial systems featuring the structure of FDI utilization optimized.
Although China is among the first countries low carbon emissions will be built as part of FDI will be encouraged to play a bigger role in
in the world to make a rebound, there are still the effort to conserve energy and reduce emis- building the economy. The implementation
many deep-rooted problems. They are mainly sions. The development of the services sector, of the “going global” strategy will be acceler-
as follows: household income only takes a especially the services for enterprises’ pro- ated, and enterprises will be encouraged to
small share of national income and con- duction and people’s daily life, will be accel- conduct international economic cooperation.
sumers lack the impetus to spend; some in- erated in a bid to fully leverage the sector’s Multilateral and bilateral economic and trade
dustries have excessive capacity, use too much role in job creation. ties will be deepened for mutual benefit, win-
energy resources, and seriously damage the Secondly, we need to drum up household win opportunities, and shared development
ecological environment; the level of urban- consumption. Efforts to adjust national with other countries.
ization remains low, and the rural economy is income distribution will be beefed up to in- To conclude, I want to emphasize that ac-
vulnerable; and the development of social un- crease the remuneration of urban and rural celerating the transformation of the economic
dertakings is slow, with insufficient input in workers, enhance people’s consumption growth pattern is a profound revolution,
health care, education, housing, and social ad- power, and make the most of the role of con- which needs to be explored and advanced in
ministration. sumption in guiding production. practice. The Chinese government is ready to
The key to addressing these challenges and Thirdly, we need to pay more attention to strengthen cooperation and to share the ex-
difficulties, and maintaining steady, rapid eco- livelihood-related undertakings. A more perience and opportunities of development
nomic development, lies in the transforma- proactive employment policy will be imple- with other countries, so as to make a greater
tion of the economic growth pattern. This will mented to create more jobs and expand em- contribution to the stability and prosperity of
help ease the systematic and structural bot- ployment in every possible way. The the world. n
MakingIt 37
Conventional approaches failed to deliver rapid growth and
economic stability. JOMO KWAME SUNDARAM believes
that governments need to play a developmental role.
Rethinking
poverty
reduction
Last year, the United Nations Food and Agri- than 100 million people fell into poverty as a
culture Organization announced that the result of higher food prices during 2007-2008,
number of hungry people in the world in- and that the global financial and economic
creased over the last decade. In 2008, the crisis of 2008-2009 accounted for an increase
World Bank announced a significant decline of another 200 million. Delayed job recovery
in the number of poor people up to the year from the global downturn remains a major
2005. But if poverty is defined principally in challenge for poverty reduction in the coming
terms of the money income needed to avoid years.
hunger, how can announcements such as Meanwhile, measurement controversies
these be reconciled? continue to cast doubt on actual progress.
According to the World Bank’s much cited With the 1995 Social Summit adopting a wider
“dollar-a-day” international poverty line, definition of poverty that includes depriva-
which was revised in 2008 to US$1.25 a day in tion, social exclusion, and lack of participa-
2005 prices, there are still 1.4 billion people tion, the situation today may be even worse
living in poverty, down from 1.9 billion in than suggested by a money-income poverty
1981. However, as China has accounted for line.
most of this decline, there were at least 100 Inequality appears to have been on the rise
million more people living in poverty outside in recent decades at the international level
China in 2005 than in 1981. and in most countries. More than 80% of the
In sub-Saharan Africa and parts of Asia, world’s population lives in countries where
“The poorest
40% of the world’s JOMO KWAME
SUNDARAM is United
population account Nations Assistant-
Secretary-General for
for only 5% Economic Development.
of world income”
38 MakingIt
only 5% of world income, while the richest have enough policy and fiscal space to enable
20% account for 75%. them to play a proactive role and to provide
The mixed record of poverty reduction calls adequate universal social protection.
into question the efficacy of conventional ap- The last three decades also saw the divorce
proaches. Countries were advised to abandon of social policies from overall development
their national development strategies in favour strategies as a consequence of the drive for
of globalization, market liberalization, and pri- smaller government. National economic de-
vatization. Instead of producing sustained velopment strategies were replaced with
rapid growth and economic stability, such donor-favored poverty-reduction programmes,
policies made countries more vulnerable to such as land-titling, microcredit, and “bottom
the power of the rich and the vagaries of in- of the pyramid” marketing to the poor.
ternational finance and global instability, Such fads have not succeeded in signifi-
which has become more frequent and severe cantly reducing poverty. This is not to deny
due to deregulation. some positive consequences. For example,
The most important lesson is the need for microcredit has empowered millions of
sustained rapid growth and structural eco- women, while important lessons have been
nomic transformation. Governments need to learnt from the design and implementation of
play a developmental role, with implementa- such schemes.
tion of integrated policies designed to sup- Meanwhile, universal social programmes
port inclusive output and employment have improved human welfare much more than
growth, as well as to reduce inequality and targeted and conditional programmes. How-
promote social justice.
Such an approach needs to be comple-
ever, conditional cash-transfer programmes
have been quite successful in improving vari-
$$$$$$$$$$$$$$
mented by appropriate industrial investment
and technology policies, and by inclusive fi-
ous human-development indicators.
Unfortunately, poverty remains endemic, $$$$$$$$$$$$$$
nancial facilities designed to support them. In
addition, new and potentially viable produc-
tion capacities need to be fostered through
with more than a billion people going hungry
every day. Urgent action is needed, as the
recent financial and economic crisis, follow-
$$$$$$$$$$$$$$
complementary developmental policies.
By contrast, the insistence on minimal
ing hard on the heels of the food-price crisis,
is believed to have set back progress on poverty
$$$$$$$$$$$$$$
government and reliance on the market led to
precipitous declines in public infrastructure
reduction even further. There are also grow-
ing fears that climate change will more ad-
$$$$$$$$$$$$$$
investment, particularly in agriculture. This
not only impaired long-term growth, but also
versely threaten the lives of the poor.
The United Nations’ biennial Report on the $$$$$$$$$$$$$$
increased food insecurity.
Advocates of economic liberalization poli-
World Social Situation 2010, entitled Rethinking
Poverty, makes a compelling case for re- $$$$$$$$$$$$$$
cies cited the success of the rapidly industri-
alizing East Asian economies. But none of
these economies had pursued wholesale eco-
thinking poverty-measurement and poverty-
reduction efforts. For the world’s poor,
“business as usual” has never been an ac-
$$$$$$$$$$$$$$
nomic liberalization. Instead, governments
played a developmental role by supporting in-
ceptable option. Nor have the popular trends
of recent decades proven to be much better.
$$$$$$$$$$$$$$
dustrialization, higher value-added agricul-
ture and services, and improvement of
There will be no real poverty eradication
without equitable and sustainable economic
$$$$$$$$$$$$$$
technological and human capabilities.
Structural transformations should pro-
development, which deregulated markets
have proved unable to deliver on their own. $$$$$$$$$$$$$$
mote full and productive employment as well
as decent work, while governments should
l Copyright: Project Syndicate, 2010. www.project-
syndicate.org $$$$$$$$$$$$$$
“The richest
20% of the world’s
population account
for 75% of
world income”
MakingIt 39
As Mexico prepares to host the next UN Framework
Convention on Climate Change (COP16), which will take place
from 29 November to 10 December 2010 in Cancún, Making It
spoke with JUAN RAFAEL ELVIRA QUESADA, the country’s
Secretary of the Environment and Natural Resources
GREENING
Image: Ronaldo Schemidt/AFP/Getty Images
THE MEXICAN
Climate change
activists campaigning
ECONOMY
Juan Rafael Elvira Quesada was appointed by wards a ‘green economy’, Juan Rafael Elvira
President Felipe Calderón to serve as head of Quesada is clear, “Achieving sustainable devel-
against global
warming, Mexico City. the Secretariat of Environment and Natural Re- opment means that investments should be di-
sources (Secretaría del Medio Ambiente y Re- rected toward clean technologies, renewable
cursos Naturales, SEMARNAT) in December energy, and water and waste management, so
2006. He has a long and distinguished career in that every sector of the economy should become
environmental protection in Mexico, and has ‘green’. This includes the creation of green jobs,
also served as mayor of the city of Uruapan, Mi- because one of the main goals of this adminis-
choacán. tration is increasing employment.”
As the head of SEMARNAT, Elvira is re- Elvira continues, “Greening the economy
sponsible for the expansion of protected areas, means reconfiguring businesses and infra-
forestry development, improving access to structure to deliver better returns on natural,
potable water and increasing sewage treatment, human and economic capital investments,
expanding agricultural irrigation, strengthen- while reducing greenhouse gas emissions, the
ing water conservation measures, and leading use of natural resources, waste generation, and
the Mexican government’s response to climate social disparities.”
change. Climate change mitigation is a central part
Elvira says, “Our main focus is working with of the country’s national development policy.
society, for our success is strongly related to As Mexico is Latin America’s largest fossil fuel-
social involvement and compromise. Our ac- consuming country, with the majority of its
tions are reinforced by environmental educa- greenhouse gas emissions coming from energy
tion, and a strong policy of law enforcement production and consumption, priority has
and compliance.” been given to the introduction of eco-efficiency
He adds, “The Federal Government imple- measures.
ments an environmental policy where natural For Elvira, improving the environmental
resources and climate stability are considered performance of industry is a key element. “We
public assets that should be preserved.” have been working very closely with industry
Mexico, the second largest economy in Latin to improve industrial environmental perform-
America, was hit hard by the global economic ance: The Pollutant Release and Transfer Reg-
crisis and the collapse of international trade istry is a public information base that assesses
during the last quarter of 2008 and the first the performance of industry and other
quarter of 2009. Now the country’s economy is sources of pollution, and helps identify op-
starting to rebound, with economic activity portunities for emission and transfer reduc-
picking up in the second half of 2009, and off tion, while the Environmental Audit
to a strong start in early 2010. Programme assesses industries for their com-
Asked if Mexico is committed to moving to- pliance with environmental regulations, and im-
40 MakingIt
“Investments should be
directed toward clean
technologies, renewable
energy, and water and
waste management, so
that every sector of the
economy should
become ‘green’.”
Juan Rafael
Elvira Quesada,
Mexico’s top
environment
official.
plements preventative and corrective measures.” Elvira says, “We have established a goal of 1,957
Some of the large-scale basic materials in- MW in generation capacity from renewable
dustries in Mexico, such as iron and steel, and sources, which will require investments of
cement, are among the most efficient in the around US$3bn. from the private sector.” One
world. However, a large part of the country’s area of great potential is the generation of wind
industrial sector is made up of small and power, particularly on the Isthmus of Tehuan-
medium-sized enterprises that have relatively tepec – the south-eastern parts of the states of
high energy intensities, often using old equip- Veracruz and Oaxaca – where high-quality
ment, and lacking access to the know-how and wind resources could deliver some of the
finances needed to upgrade. In order to meet lowest-cost wind power in the world.
these challenges, SEMARNAT is implement- Under the leadership of President Felipe
ing an Environmental Leadership for Compet- Calderón, Mexico has pushed hard to become
itiveness Programme aiming to improve the a leading voice on environmental issues, host-
competitiveness of the supply chains for small ing a number of international summits on cli-
and medium-sized provider industries by mate change and inviting climate guru Al Gore
means of an environmental management to discuss the dangers of inaction. Elvira says,
mechanism centred on eco-efficiency. Elvira is “Mexico is recognized as a leader in the inter-
enthusiastic about the impact of this pro- national negotiations on climate change. We
gramme. have presented the Multinational Fund for Cli-
“The results are very promising: water sav- mate Change, known as the ‘Green Fund’ as a
ings of more than 61 million cubic feet – financial scheme that would complement ex-
enough to permanently provide water to 3,400 isting mechanisms and ensure the implemen-
families; annual energy savings of 190 million tation of the Convention on Climate Change.”
kWh – equivalent to the annual electricity In the run-up to the COP16 climate summit
supply for 66,000 households; and annual re- in Cancún, Mexico is talking up the prospects
ductions of almost 198,000 tonnes of CO2 and of a successful outcome, but Elvira says agree-
62,000 tonnes of waste. The participating in- ment on well-defined goals and actions will re-
dustries have achieved savings of almost quire innovative ways of negotiating. “The
US$69m.” Parties to the Convention should move towards
With regard to energy supply, demand for Cancún with something in their hands, not
electric power in Mexico has been growing again to merely plan something. We need to
faster than gross domestic product in recent work with clear signals and with mitigation
decades, and is likely to continue in the near- goals: reducing emissions from deforestation
future with associated growth in electricity use and soil degradation, and long-term financing
across the economy. Expanding renewable and fast-starting funds for adaptation pro-
energy is another key mitigation strategy, and grammes in developing countries.” n
MakingIt 41
POLICY BRIEF
Revealing
42 MakingIt
POLICY BRIEF
MakingIt 43
POLICY BRIEF
The power
‰ industrial policy. This would not be Access to finance is crucial for private
about picking winners, or providing sector development and for poverty
subsidies or import protection. Instead, it reduction. ODI research shows that access
would be about the intelligent and to savings or credit helps people across all
carefully prioritized use of government
policy to encourage and facilitate private
sector development in promising high
income groups to invest in education and
microenterprises, and to work their way
out of poverty. While the focus of much
of patient
growth sectors, and in a market-friendly
way.
donor effort has been on microfinance
institutions, the banking sector also has an
important role to play. We have also
capital
Practical proposals examined market-friendly policies that
While the Washington Consensus has can stimulate wider provision of financial
paralyzed intelligent discussion of this services by the banking sector, and our By JACQUELINE NOVOGRATZ, the founder
issue, the crisis has reopened the debate. practical policy recommendations include: and CEO of Acumen Fund, a non-profit
ODI has practical proposals on this middle l setting targets for the banking sector to global venture fund that uses
way, based on extensive fieldwork: widen access to services, and monitoring entrepreneurial approaches to solve the
l Consult business to identify growth and publicizing the results; problems of global poverty.
sectors that could be transformative – l facilitating linkages between the formal
enabling economies to move from low- banking sector and semi-formal A new field of international development
skilled commodity-based industries, to institutions that reach the poor more has emerged in the last ten years that
sectors with more scope for technological easily; seeks to harness the power of market
progress and the building of human l supporting innovative cost-saving forces. Social investors and donors are
capital. technologies and business models. n using “patient capital” to bet on
l Help these sectors grow by identifying, enterprises addressing global challenges
again in consultation with business, like the persistent threat of malaria, lack
priorities for reform. of clean drinking water, chronic
l Work with business to encourage malnutrition, and lack of education.
business models that are pro- Patient capital fills a critical gap in the aid
development. and capital markets, allows for
The private sector also has a crucial role experimentation and innovation, and has
to play in low carbon growth in developing begun to demonstrate real results.
countries, but will only fulfill its potential While traditional capital investing
when the right policies are in place. ODI focuses on maximizing financial returns,
has reviewed low carbon growth/climate patient capital recognizes the particular
change response strategies across a challenges of working in low-income
number of developing countries, and communities, including creating
identified lessons for growth policy, e.g. acceptance for new products, operating
the importance of being proactive in with poor infrastructure, and serving
identifying and capitalizing on new green customers with low levels of income and
growth opportunities. But we found that trust. Patient capital has a higher
few provide enough certainty or tolerance for risk and a longer time
information on future direction to enable horizon for investment than more
the private sector to invest with traditional capital, is often accompanied
confidence. ODI wants to facilitate by significant management assistance,
dialogue between government and the and is primarily focused on social impact.
private sector on this challenging issue, Acumen Fund was launched in 2001 to
and would welcome support for this. bring this model of development to
44 MakingIt
POLICY BRIEF
major global challenges, with an initial “What is needed most of all is programmes and the market have
focus on India, Pakistan, and East Africa. overlooked smallholder farmers,
Since then, we have invested roughly
moral leadership willing to limiting their access to critical farming
US$40 million in 40 companies that are build solutions from the technologies. In 2001, Amitabha Sadangi
forging a new path to deliver critical perspectives of poor people designed a drip irrigation technology
products and services to millions in a way that would be affordable and useful to
that is sustainable in the long run.
themselves, rather than the world’s poorest farmers. His
Acumen Fund’s portfolio includes imposing grand theories and organization, International
companies like Water Health plans upon them.” Development Enterprises – India (IDE-I),
International in India, which operates 285 initially relied on grants to build a
village-level water purification systems, prototype and learn how to market
providing over 240,000 low-income effectively to low-income farmers.
individuals with access to safe water, and Acumen Fund’s patient capital enabled
D.Light Design in India and Tanzania, him to form a for-profit company, Global
which has sold more than 200,000 low- Easy Water Products (GEWP), to build on
cost solar LED lights, providing safe, the research and marketing strengths of
affordable energy to more than 1 million IDE-I and to focus on expanding
people. distribution and tapping into export
Each of these companies provides a new markets. More than 250,000 farmers
model for large-scale sustainable change. have purchased drip products through
The challenge is to strengthen proven IDE-I and GEWP, allowing many of the
business models, and scale them up to farmers to double or triple their incomes
provide quality goods and services to tens on an annual basis.
of millions of people who want the As I write in my book, The Blue Sweater:
chance to improve their lives. Ultimately, Bridging the Gap between Rich and Poor in an
these ideas will only achieve their greatest Interconnected World, “I’ve learned that
impact through partnerships with many of the answers to poverty lie in the
mainstream private sector institutions, space between the market and charity, and
such as banks and multinational that what is needed most of all is moral
corporations, as well as with leadership willing to build solutions from
governmental institutions, that can create the perspectives of poor people
an enabling environment for innovations themselves, rather than imposing grand
to scale. theories and plans upon them.” Patient
At present, I see the funding gap both in capital is invested in entrepreneurs
incubating promising ideas, and building such solutions.
accelerating the scale-up of ideas that The world needs a new vision for
have demonstrated significant promise, development assistance. At a moment
but whose financial models are not yet when the aid system faces increasing
attractive to the traditional capital scrutiny and criticism, the global
markets. community has an opportunity to
In many cases, entrepreneurs bring a strengthen assistance programmes with a
needed perspective because, by necessity, complementary approach focused on
they must remain attuned to the needs of social innovation and entrepreneurship. n
their customers. Let’s take one example
from India. There, more than 75% of
farmers cultivate less than two hectares
of land, but for decades, both aid
MakingIt 45
ENDPIECE
HIV/AIDS –
The economic impact is particularly prevention, treatment, care and support
severe in least developed countries services directly to employees. The
(LDCs), where the combined impact of International Labour Organization and
HIV-related absenteeism, productivity UNAIDS work with companies to
46 MakingIt
ENDPIECE MakingIt
Industry for Development
FURTHER READING
Arun, Thankom and Hulme, David (Editors) –
Microfinance: A Reader
Chang, Ha-Joon – Bad Samaritans: The Myth of Free
Trade and the Secret History of Capitalism
Chossudovsky, Michel – The Globalization of Poverty
and the New World Order
Chowdhury, Anis and Islam Iyanatul – Growth,
Research: UNAIDS supports public- workplace programmes in several Employment, and Poverty Reduction in Indonesia
private partnerships, working to companies, conducted various Easterly, William – The White Man’s Burden: Why the
West’s Efforts to Aid the Rest Have Done So Much
accelerate the development of workshops and training on HIV Ill and So Little Good
preventive HIV technologies, such as prevention and treatment, and Edward, Tse – The China Strategy: Harnessing the
microbicides (a synthetic or natural developed a generic HIV policy to be Power of the World’s Fastest-Growing Economy
Gupta, Anil K. and Wang, Haiyan – Getting China and
substance in the form of a gel, cream, used by all companies. In just twelve India Right: Strategies for Leveraging the World’s
suppository, or film that can kill or months, its membership increased by Fastest Growing Economies for Global Advantage
McNeill, Desmond and St. Clair, Asunción Lera –
neutralize viruses and bacteria), 91%.
Global Poverty, Ethics and Human Rights: The Role
improved female condoms, and a The Ethiopian Business Coalition of Multilateral Organizations
vaccine, as well as advances in therapies against HIV/AIDS, created in 2004, has Rodrik, Dani – One Economics, Many Recipes:
Globalization, Institutions, and Economic Growth
such as simpler and more effective also encouraged businesses to move Sachs, Jeffrey – The End of Poverty: Economic
next-generation drugs. from providing information to its Possibilities for Our Time
UNAIDS works closely with employees to service provision. This Sanchez, Teodoro – The Hidden Energy Crisis: How
Policies are Failing the World’s Poor
companies and foundations in each includes voluntary counselling and Smith, Michael, et al. – Cents and Sustainability:
one of its priority areas, particularly the HIV testing, care for people living with Making Sense of How to Grow Economies, Build
reduction of sexual transmission of HIV, facilitating access to Communities and Revive the Environment in Our
Lifetime.
HIV, the prevention of mother to child antiretrovirals, and local referrals.
transmission of HIV (PMTCT), the
reduction of TB/HIV co-infection, and
Some businesses have even gone
beyond the workplace, extending FURTHER SURFING
the empowerment of women and girls. support to families of HIV-positive http://blogs.cgdev.org/globaldevelopment – The
Centre for Global Development’s weblog.
Examples of these partnerships employees. http://ourworld.unu.edu/en/ – Web magazine
include Chevron’s financial In Bangladesh, the US organization, focusing on climate, peak oil, food security and
contribution to PMTCT in Angola, and Pathfinder, works with local non- biodiversity.
http://rodrik.typepad.com – “Unconventional
the UNAIDS Body Shop global governmental organizations (NGOs) to thoughts on economic development and
campaign around World AIDS Day. provide factory-based health services to globalization.” Dani Rodrik’s weblog.
Over twenty years into the epidemic, garment workers, an overwhelming www.chinadaily.com.cn – The largest English portal in
China, providing news, business information, etc.
we can confidently say that early majority of whom are young, www.compete.org/about-us/initiatives/gii – The
investments in the AIDS response have unmarried women. The workplace Council on Competitiveness’ Global Initiative
had long-term benefits. For example, programmes are part of a large “seeks collaborations around the world with critical
US partners to build business environments that
we have seen how early HIV education national programme to provide clinic- support innovation at home and abroad.”
and prevention investments in Senegal and community-based essential health www.iied.org/sustainable-markets/blog/due-south –
have resulted in one of the lowest services in partnership with 41 local The International Institute for Environment and
Development’s weblog.
infection rates in sub-Saharan Africa. and national NGOs. www.networkideas.org – International Development
The message is clear ‒ if LDCs want Economics Associates is a network of progressive
economists.
Business coalitions to boost their economies, then www.oxfamblogs.org/fp2p – From Poverty to Power.
UNAIDS has supported the employers must make HIV their Duncan Green’s weblog.
development of a number of national business. By protecting their workforce www.policyinnovations.org – “The best new thinking
on a fairer globalization.”
business coalitions on HIV in regions from HIV, private companies and the www.twnside.org.sg – Third World Network of
hardest hit by the epidemic. UNAIDS is public sector can benefit from individuals and organizations involved in issues
currently working with over 30 national increased productivity and reap relating to development, the Third World, and
North-South issues.
business coalitions, helping to support financial gains. n www.wider.unu.edu – World Institute for Development
the private sector response to AIDS. Economics Research of the United Nations
In Tanzania, the AIDS Business University.
Coalition in Tanzania has made
significant headway in mobilizing
businesses to respond to HIV. It has
supported the establishment of
MakingIt 47
MakingIt
Industry for Development