Contributions from
the Column
Focus

Germany’s DC: a foot in the door of crucial partners

World Bank: in search of strategy

Cooperation challenges

Economic development needs capacity building

What China’s success means for other countries


10/2005 		 

Self-assured partners

Governments of rich countries should not over-estimate their influence on countries like India, China, Brazil or South Africa. Emerging market economies with great populations set their own priorities. Cooperation, however, can still make sense if it contributes to improving institutions and helps people help themselves.


[ By Pratap Bhanu Mehta ]

OECD countries are struggling with the question: What is an appropriate form of partnership with countries like India, China, Brazil and South Africa? What would be appropriate form of assistance to them? At this historical juncture, changing realities will have to be taken into account.

First, some of these countries, particularly India and China, have had impressive economic achievements recently. Second, these countries will now want to exercise greater political and economic power in the global system. Their economies play an increasingly important role for the world’s financial order and its environmental well being. The architecture of the world order has to make room for their ambitions. Third, these countries are “anchor” countries in the important sense of being crucial for regional stability and growth.

However, it is also obvious that these countries face considerable social challenges as outlined in the Millennium Development Goals. In both India and China for instance, the public health infrastructure is crumbling. Both still have a large proportion of the world’s poor. China will need to make momentous adjustments in its institutional architecture in the near future. India’s public institutions also need to be made more effective when it comes to delivering basic social services that citizens rightly expect from their state.

So what would be an appropriate form of engagement with such countries for OECD nations? In her role as development minister of Germany, Heidemarie Wieczorek-Zeul (2005) has outlined a framework of engagement with “anchor countries”. Her elaborations are welcome for taking into account the complex circumstances of these countries as well as acknowledging that these countries cannot be left stranded in an intermediate zone. These countries are neither so poor that assisting them is an obvious necessity, nor are they rich enough to dispense with assistance altogether.


Over-ambitious ideas

However the circumstances are complex and policy makers in rich countries can use some humility in terms of what they may achieve. For one thing, external assistance is only going to play a very marginal role in the future of the emerging economic giants. They will sink or swim largely because of their own internal dynamics and the overall architecture of the world economy. Second, these countries will only accept assistance on their own terms. India for instance, last year suspended the receipt of overseas development assistance from countries like Canada that it presumed were not supporting its global political ambitions. So it would be presumptuous to assume that OECD countries could set the terms of assistance in light of their own concerns. This is all the more so as, third, the record of outside intervention in countries with (potentially) failing governance is at best mixed.

Some of the premises in Wieczorek-Zeul’s outline of the “anchor countries” concept are irritating. The substantive ambitions of the statement remain tethered to an old paradigm of cooperation that will simply not work. This paradigm suffers from several defects. To begin with, this paradigm is over-ambitious in what it can achieve. The catalogue of what it seeks to promote is vast: legal reform, environmental change, all the millennium development goals, political stability and pretty much every other good thing. While these are all worthy aspirations, pursuing them simultaneously is neither possible nor desirable. Indeed past experience with aid shows that it works best not when it aims indiscriminately at large ambitious goals, but when it tries to promote carefully specified interventions, in particular areas with realistic timelines and targets.

Anyone who knows anything about the health and education sectors in India, China or Indonesia knows that small assistance will not help these countries achieve the Millennium Development Goals. That will, instead, require a massive transformation in the political economy of these countries – a change that no external power is in a position to bring about.


Crucial sectors

Therefore, it would be more desirable to pick two or three critical areas with immense multiplier effects. We know from India’s experience that if money is ploughed into broad and diffuse goals, it gets dissipated. On the other hand one-shot interventions are easier to monitor and make effective. If we say, “Our goal is to improve health”, very little will happen. On the other hand, if we say, “We want every child to have polio immunisation,” the goal is easier to achieve. So rather than use the vocabulary of Millennium Development Goals, it would be more appropriate to pick specific projects.

In which sectors should these projects be chosen? From India’s point of view, as the Minister acknowledges, energy should probably be a high priority. The sustainability of India’s economic growth will greatly depend on the price and type of energy used. With environmental concerns over the use of hydrocarbons, price concerns over the use of gas and oil, India’s policy makers are seriously looking at nuclear energy. But the economics and desirability of nuclear energy is also debatable. Therefore, the development of alternative energy technologies is vital to the economic prospects of the poor in these countries.

We also know from past experience that technology interventions have the greatest multiplier effect. Developing cheap hydrogen based sources of energy for example, may be as much a catalyst for removing poverty as the development of new varieties of seeds was in the seventies. OECD countries have expressed great concern about carbon emissions from the economies of India and China. But there is no way the growth of these economies can be made compatible with reduced emissions unless robust technological alternatives are put in place.

The second sector that requires attention is health. The latest census figures from India show that on the education front, the country is making immense strides. But India’s health scenario remains grim for a number of reasons. The public health infrastructure is almost non-existent. Even the poorest of the poor have to cover medical expenses privately. In both India and China, private expenditure as a proportion of total health expenditure is of the order of eighty percent and more. This is a sector that can absorb as much assistance as it can get. But the important thing is to design projects carefully, so that their implementation is effective.

The third sector that will have huge multiplier effects is infrastructure. This includes not just fancy projects like ports, highways and airports. Studies have repeatedly shown that building roads in rural India has immense effects on the economy; indeed rural prosperity maps rural connectivity quite closely. This is an area where there is an obvious shortage of capital and foreign assistance will be welcome. These three sectors, health, energy and infrastructure, will be politically non-controversial and non-condescending.


The global system

Given the scale of social challenges in anchor countries, much can and needs to be done. But it has to be more forcefully acknowledged that these countries will be helped more by reforming the architecture of the global economy than by direct assistance. One of the features of an emerging power is that its receptivity to foreign partnerships is anchored in its larger political ambitions. Unless these countries feel that they have been given their due political recognition in important multilateral fora (the U.N. Security Council, for instance), unless they are given a prominent voice in shaping the world order, they are more likely to remain diffident partners. It would be naïve to think the desirable social goals such as the eradication of poverty are going to be completely independent of the way in which these countries are accommodated within global structures of power.

The idea of pro-poor growth is a laudable one, if it is taken to mean that it is normatively desirable that growth help the poor. But again it would be a mistake to suppose that the nature of assistance can effectively alter the structure of growth. The plain truth of the matter is this: If the international community really wants pro-poor growth, it should lower trade barriers as fast as possible. Lowering trade barriers in areas like agriculture, eliminating subsidies and protections that rich countries give to their farmers will do far more for the poor than aid.

Indeed, the biggest disparity in the growth patterns of anchor countries is the difference between urban and rural growth rates. While the slow rates of growth in rural areas has complex causes (including lack of investment in infrastructure), access to global markets will do wonders for agro-based industries in these countries. At least for countries like India, China and Indonesia, market access will be an important growth catalyst.

Finally, a controversial topic needs to be tackled: Migration can also have pro-poor effects. There is now immense evidence to suggest that out-migration can transform economies. India’s two most successful states in terms of health and education are now Kerala and Himachal Pradesh. Both particularly benefit from remittances sent home by migrants.

To put the matter somewhat simplistically, if capital remains mobile and labour immobile there will be more disparities that harm poorer countries. Of course it would be naïve to expect open borders policies. But we ought to at least operate under the recognition that the poor are poor for structural reasons not for want of aid. As the old Chinese saying goes one can either give poor persons fish or teach them how to fish. Too much assistance talk still operates within the paradigm of giving fish rather than letting people fish.

Finally, “pro-poor” rhetoric should not lead to hindering growth wherever it is in fact occurring. The real challenge to addressing the needs of the poor is strong public institutions that can translate the gains of growth into tangible welfare in areas like health and education. The issue is not one of pro-poor growth, as if governments could pre-determine the consequences of growth. The issue is the creation of pro-poor public institutions with the capacity to deliver basic social services.


Conclusion

While the minister has outlined well some of the challenges the anchor countries are facing, it is important to recognise the profound changes that are happening on the ground. Countries like India are now amongst the most intensely politicised societies in the world. Even the poor are now active participants in the political process. India is one of the few countries in the world where electoral turnout amongst the poor is larger than amongst the privileged. At the same time, we are witnessing a great unleashing of entrepreneurship across all sections of society. Any development paradigm that does not mobilise and tap into this energy is bound to fail. The real challenge is to remove the bottlenecks to entrepreneurship and ingenuity. If this is done, the people will create their prosperity.


Prof. Dr. Pratap Bhanu Mehta
is the President of the Centre
for Policy Research in Delhi. His most recent books are The Burden of Democracy (Penguin) and an edited book, India’s Public Institutions (Oxford).
pratapbmehta@yahoo.co.in


Reference:
Heidemarie Wieczorek-Zeul, 2005:
“Partners in global development”, D+C, May, 204-206