UNIVERSITY OF PENNSYLVANIA - AFRICAN STUDIES CENTER
Africa: Visible Hands
Date distributed (ymd): 000816
Document reposted by APIC
Issue Areas: +political/rights+ +economy/development+ Summary Contents: This posting contains excerpts from the overview of a report released in June by the UN Research Institute for Social Development (UNRISD), on the occasion of the Geneva 2000 5-year follow-up to the Copenhagen summit on social development. The complete text of the overview (in HTML) and of the full report (in PDF), as well as a number of related papers, are available on the UNRISD web site at: http://www.unrisd.org/engindex/cop5/forum/report.htm
Since May 1998, the Executive Director of UNRISD has been Thandika Mkandawire, who served from 1986 to 1996 as executive secretary of the Dakar-based Council for the Development of Social Science Research in Africa (CODESRIA).
Visible Hands: Taking Responsibility for Social Development June 2000
Chapter 1: Globalization with a human mask
The Social Summit took place in Copenhagen in 1995 at a time when free-market enthusiasts were promising to deliver progress for all. But there was widespread discontent with the damage caused by neoliberal policies. Poverty and unemployment were growing rapidly in indebted Third World countries. The collapse of the Soviet Union exposed large numbers of people to the rigours of the market without making adequate provision for social protection. And the welfare state was under threat in OECD countries, where workers were subjected to levels of uncertainty unknown for decades. ...
In the five years since Copenhagen, events have confirmed the incapacity of the dominant macroeconomic model to meet these challenges. There has been relatively weak growth of global GDP, with unusually high or low growth in some countries or regions. This has been accompanied by falling real wages and the degradation of working conditions for large numbers of people.
The instability of the global financial system has deepened. The collapse of the Mexican economy, brought about by the uncontrolled flight of capital in late 1994, was followed during 1997 by a still larger economic crisis in some East and Southeast Asian countries. Macroeconomic statistics suggest that these nations have staged a rapid recovery, but millions of their people have not.
Unemployment and poverty
The most direct impact of crisis has been on jobs. ... Even those who do manage to find work are often obliged to accept temporary or part-time jobs. Or they are swelling the informal sector - which, in sub-Saharan Africa, for example, already contains at least two thirds of all jobs.
Wages in the current labour market are generally low. Intense competition for employment means that workers have little capacity to bargain in most countries. And in regions struggling to cope with long-term economic stagnation and indebtedness, the remuneration of workers is often inadequate. Real wages throughout much of Latin America and Africa have yet to return to levels considered normal 20 years ago. ...
Failure to create sufficient employment has undermined the prospects for poverty reduction. The number of people living in income poverty fell in the mid-1990s but then started to rise again in almost all regions. This is not because the world as a whole has been getting poorer but because the benefits of growth are very unevenly spread. There has been a striking increase in inequality over the past decade.
The causes of failure
Faith in the ability of unregulated markets to provide the best possible environment for human development has gone too far. Too great a reliance on the "invisible hand" of the market is pushing the world toward unsustainable levels of inequality and deprivation. A new balance between public and private interests must be found.
Efficient markets, functioning in a way that promotes widespread well-being, require the contributions of a well-run public sector. They require a healthy, well-educated and well-informed population. And they require the social stability that grows out of democratic governance and an acceptable level of social security.
In fact, the greater the degree of openness of a market economy - the greater its exposure to market forces - the more important is the role that must be played by national governments in the field of social policy. Yet the thrust of much of the neoliberal agenda has run directly counter to this dictum. For decades, the prevailing orthodoxy has counselled a reduction of state functions. And for decades, governments without the capacity to resist this pressure have been abandoning essential elements of public social provision.
The response of the international community
In response to obvious failures in the current development model, the international community has begun to move in various directions. There is little coherent orientation to this process. In fact, even within a single institution, it is usual to find initiatives that contradict each other-so that what may be accomplished through trying one new approach is largely offset by what may be lost through another.
A renewed emphasis on poverty alleviation is perhaps the most visible new departure. Although this is of vital importance, most agencies and governments are adopting a technocratic approach to a highly complex social problem. Their focus is narrowly remedial and is all too easily associated with an attack on the principle that public services should be extended to all citizens equally. Creating a dual structure of social services - one aimed at the poor and funded by the state, and one aimed at everyone else and provided by the private sector, is good neither for social integration nor for the quality of public services. ...
To offset the divisive incursion of market forces into areas that are essential for social security and stability, there has been renewed support during the past five years for some form of global social standard-setting. When linked to trade sanctions, this has proved extremely controversial. Since increasing globalization requires the elaboration of shared social norms, it is necessary to find a way out of this impasse.
As the social and political nature of the market becomes obvious to a wider group of thinkers and policy makers, there is an incipient return to the kinds of integrated approaches to development that were in vogue in the 1960s and 1970s. The Comprehensive Development Framework of the World Bank, for example, tries to treat structural and social concerns in conjunction with aspects of the macroeconomy and finance.
At the same time, there is much talk of creating a new institutional setting at the international level, a new context for stimulating broadly based growth and reducing unacceptably high degrees of volatility and risk in the global economy. Useful as it may be, this discussion is concerned above all with ensuring the stability of the system. Movement toward alternative development models is not visible.
Moreover, there is complete silence on how to go about creating the social development architecture that would have to underpin the central vision of the Social Summit. This must allow for qualitatively new approaches to growth, based on a new understanding of the vital role of a healthy, literate and secure society in creating the conditions of economic progress. Yet social policy today remains largely detached from economics, or is seen as an add-on intended to remedy the ill effects of misconceived economic development. ...
Chapter 2: Who pays? Financing social development
More wealth has been generated over the past few decades than ever before. But far too little of it is being channelled into financing social development. In fact, while levels of social spending have generally been maintained in the advanced industrialized countries, they have plummeted in many highly indebted nations and in the Commonwealth of Independent States.
Since governments in many poor countries pay more in interest to foreign creditors than they allocate to basic social services, a resolution of the long-standing debt crisis is imperative. One apparently promising response to this challenge was the Heavily Indebted Poor Country (HIPC) initiative, launched by the IMF and the World Bank in 1996. In the event, the initiative has achieved little. ...
HIPCs account for only about 10 per cent of total Third World debt. The rest is owed by less-poor or middle-income countries, where the debt crisis of the 1990s has evolved into long-term subjection to the international bond markets. The new debt bondage has serious implications for democratic control over social policy. ...
Continuing poverty and the likelihood of further crises demand not just urgent attention to immediate debt problems but also a fresh approach to future borrowing. This will require new institutions for dealing with debt, including the possibility of sovereign bankruptcy. ...
At the same time, it is important to confront the difficult issues posed by conditionality. If anything, the conditions imposed for potential debt relief grew more complex in the late 1990s. Now borrowers should not only carry out market reforms, but also target relief toward the reduction of poverty. While this is understandable, it is not likely to be effective. It is probably more useful simply to insist that each debtor government take its budget decisions in an open and democratic fashion.
To strengthen the economies of the poorest countries, debt relief is not enough. An increase in development assistance is also essential. Although this was promised at Copenhagen, it has not been forthcoming. By 1998, development assistance was down to 0.23 per cent of donor countries' GNP.
This decline is partly a result of "donor fatigue" - disenchantment with inefficiency and corruption in recipient countries. But problems with aid are not entirely due to the weakness of Third World institutions. In recent years, development assistance has had to operate in such a generally hostile global economic climate that its limited success is hardly surprising. Not only has a considerable proportion of all aid been channelled toward debt repayment, but it has also been used to finance donor-mandated policy reforms that have produced meagre results.
As donors increasingly recognize the pitfalls associated with conditionality, some are changing tactics. Instead of being selective within countries - indicating areas of priority action - they are being more selective among countries. They are choosing partners with records of good governance and economic reform and allowing them greater control over the use of funds. This is progressively reducing the number of countries to which bilateral donors provide assistance.
A way to avoid the dilemmas associated with foreign aid is simply to replace it - perhaps with a new international development fund that would automatically transfer money from rich countries to poor ones. Proposals of this kind, which frame the challenge of poverty eradication in terms of human rights, rather than discretional giving, are often linked to demands for new forms of international taxation.
The need for tax reform
Even if there were to be less debt and more aid, developing countries attempting to meet the most pressing social needs of their people must generate more of their own resources through taxation. But their already precarious tax base has been further weakened by recent free-market reforms. Much of their public revenue comes from taxation on trade - a source that diminishes brusquely as tariffs fall. A further problem-for all countries-is the prospect of tax competition. Governments are wary of raising taxes on foreign, or even national, businesses, because they might relocate elsewhere. A growing informal sector also shrinks the number of taxpayers.
The trend virtually everywhere has been to make up for growing shortfalls by increasing consumption taxes-and particularly the value added tax. This may raise revenue, but it is essentially regressive - taking a larger proportion out of the incomes of the poor.
There are more progressive options. One would be to remove tax benefits for offshore accounts. An IMF study has calculated that if these $8 trillion-worth of deposits earned income of around 5 per cent per year, and this were taxed at 40 per cent, some $160 billion would be raised annually - almost double what it would take for all countries to guarantee basic social services.
Mobilizing resources at the grassroots
When facing high debt payments, declining development assistance and falling tax revenues, governments must make a special effort to use scarce resources efficiently. In this regard, the international development community has strongly recommended such measures as decentralizing and targeting services, and introducing users' fees in basic education and health. These are not panaceas. In some cases, they are useful. In others, they simply shift the burden for financing social development downward, away from those who have most toward those who have least.
Providing micro-credit has become one of the most popular forms of assistance at the local level. These small loans alleviate immediate problems, but they do not usually lift people out of poverty. It is remittances - income sent back home by migrant workers in foreign countries - that play by far the largest role in improving the level of living of low-income groups in developing countries. Between 1970 and 1995, global flows of remittances are estimated to have grown from $2 billion to around $70 billion. Providing a broader range of financial services at the local level could enhance the usefulness of these resources.
Chapter 4: A new mission for the public sector
Between 1945 and 1980, the public sector enjoyed unprecedented expansion. Most people wanted their governments to play a central part in national development. During the 1980s and 1990s, however, some states disintegrated and many were affected by free-market reforms.
The most pervasive and far-reaching reforms have been those that aim for fiscal stability - concentrating particularly on cutting public expenditure. It is significant that in the advanced industrialized democracies, states did not succeed in cutting expenditures by much. They faced stiff resistance from citizens who defended existing social services and entitlements.
Developing countries faced less well-organized civic opposition and cut expenditures much more sharply. Their resolve was stiffened by pressure from international financial institutions. In fact, budgetary reforms have been the single most important condition imposed in conjunction with structural adjustment loans over the past two decades.
Between 1990 and 1997, public expenditure as a proportion of GDP fell from 26 to 22 per cent in sub-Saharan Africa. Meanwhile, in the OECD countries it rose from 45 to 47 per cent. The privatization of public enterprises was another strategy employed to reduce budget deficits. Developing and transition countries privatized public enterprises worth 155 billion dollars between 1990 and 1996. Governments in Latin America led the way-accounting for more than half these sales.
With the encouragement of the World Bank and the IMF, governments have also aimed to increase the efficiency of the public sector. In this, they have been guided by theories of new public management, which apply principles of economics to political and bureaucratic processes. Generally, this means breaking activities into more manageable parts-creating new agencies and quasi-markets within the administration, as well as contracting services out.
Such systems can only work if there is effective monitoring based on sound budgeting and regular flows of accurate information-areas in which many governments of developing countries are weak. In these circumstances, the new systems may create little more than an empty managerial shell.
Effective public sector reform requires a skilled cadre of people who are well educated and well paid. Yet public servants in the majority of developing countries have seen their real wages fall steeply, and systems of higher education in poorer countries are often in crisis. University buildings are decaying, equipment is non-existent and teachers - whose salaries have slumped - are leaving in droves for the private sector or for opportunities overseas. This is in part an outcome of forcing a trade-off between improving "basic education" and supporting secondary and university instruction.
Reforms of the public sector should be firmly grounded in what citizens see as the mission for their state. In the last analysis, these missions are not managerial; they are social. People want to move toward societies that are more prosperous, equitable and harmonious. Having ambitious managerial targets may be a part of this - but only a small part. ...
Continuity or change? (from Chapter 8: Sustaining development)
The term people-centred sustainable development has reminded the international community that development demands more than economic growth; that some features of modernization have unacceptable social and environmental costs; and that this requires different economic policies and approaches to project implementation. But few governments and international agencies have made significant changes. Most have simply applied new terminology to what they were already doing - perhaps with a few extra elements bolted on.
Governments and international finance and trade institutions need to be far more sensitive to the social and environmental costs of their policies, and to make their decision-making processes more democratic. Popular mobilizations that got sustainable development on the agenda in the first place still have much to do if they want to see new ideas implemented.
In the last analysis, action depends on people's interpretation of what is possible and right. Thus the longer-term nature of mobilization for sustainable development depends not only on activism, but on dominant views about the where the world could - and should - be going. ...
Five years after Copenhagen, there is little indication that the fundamental goals and values orienting world development are moving toward greater social responsibility. Incentive structures in everything from education to investment decisions have been reoriented toward improving the options of the profit-maximizing individual. ...
Questioning extreme individualism and the unbridled power of money - reasserting the value of equity and social solidarity, and reinstating the citizen at the centre of public life - is a central challenge of our time. The "invisible hand" of the market has no capacity to imagine a decent society for all people, or to work in a consistent fashion to attain it. Only human beings with a strong sense of the public good can do that.
Message-Id: <200008162315.TAA03803@server.africapolicy.org> From: "APIC" <email@example.com> Date: Wed, 16 Aug 2000 20:01:15 -0500
Subject: Africa: Visible Hands
Editor: Ali B. Ali-Dinar
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