Overview Analytical Framework and Transition Dynamics

1
OverviewAnalytical Framework and Transition
Dynamics

• Policy Formulation in Developing Countries
• GRIPS Development Forum

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About This Course

• Design, implementation and review of
  growth-oriented development policies
• Both positive (what is) and normative (what
  should be) aspects
• How to move from old system to new, desired
  system
• Concrete cases rather than abstract theory or
  cross-country regressions
• Interactive, evolving and open-ended

3
Basic Questions

• Regarding some concrete problem in development
  policy--
• Why is our government/ministry unable to tackle
  this problem more effectively? Who are causing
  trouble?
• How do we draft and agree on the solution?
• Who are instrumental in executing that solution?
• Why plans and strategies are not implemented?
• How should the system be changed to make
  progress?

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Model (or Framework)

• Not just description of individual cases with no
  commonalities or comparability
• However, individual uniqueness should be fully
  taken into account
• To do this, we need a relatively simple,
  flexible, and non-mathematical framework
• This framework should help us understand, compare
  and diagnose concrete cases
• --How different factors interact to produce
  results?
• --What is the mechanism of institutional change
  and reform?

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Our Tentative Framework

• To study effectiveness of development policy and
  central administration, model should be more
  flexible than above.
• Key players
• (i) Central government (leader,
  ministries, etc) (ii) Local governments
  (iii) Non-government stakeholders (iv) Foreign
  governments
• Interactive mode among players should be left to
  each case (not pre-specified).

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Key Relations

• Leadership style
• Horizontal coordination within central government
• Vertical coordination between central and local
  governments
• Relation with non-government stakeholders
• Relation with foreign governments
• We assume that these five relations are
  critical in determining policy effectiveness.
• We do not pre-impose the content of each
  relation.

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Key Relations
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Institutional Dynamics

• After knowing the current and the desired system,
  how can we move from the one to the other?
• Common obstacles
• --Lack of knowledge or a mistake in designing
  transition steps
• --Bureaucratic sectionalism no ministry or
  department has full authority or responsibility
  to execute reform
• --Incompetence top leader or person in charge
  does not know or care
• --Political resistance corruption, interest
  groups, neo-partrimonialism

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Comparative Institutional Analysis

• Prof. Masahiko Aoki and othersat Stanford Univ.
  and Tokyo Univ.
• Based on evolutionary game theory
• Some questions
• --Why do multiple systems emerge and coexist,
  without any system dominating all others?
• --What is the dynamic mechanism of moving from
  one system to another?

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Key Concepts

• Institutional complementarity
• E.g., OJT, life-time employment, keiretsu system,
  main banks were mutually consistent in Postwar
  Japan
• Strategic complementarity
• E.g., people in competitive society study
  professional skills, people in connection society
  give parties gifts.
• Path dependence
• E.g., because of these complementarities, a
  system, once started, will have little incentive
  to deviate.

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Forces of Systemic Change

• Collective mutation
• Foreign pressure (contact with another system)
• Policy as deus ex machina
• --Strong leader
• --Political parties, interest groups, peoples
  movement
• --Researchers, advisors, intellectuals
• Those who are inside the country but do not
  follow the rules of the existing system initiate
  change against resistance
• Combining policy and foreign pressure

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Collective mutation
Foreign pressure
Policy
Policy and foreign pressure
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Tentative Hypothesis on High and Low Performers
in East Asia

• Not all East Asian countries are high performers
  some remain as poor as the low income Sub-Saharan
  African countries.
• To achieve middle income (1,000),
  liberalization, opening up and receiving FDI is
  sufficient.
• To achieve higher income (10,000), private
  dynamism and good industrial policy are both
  essential.

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Per Capita GDP in 2004 (PPP) World Bank data
Green participants in East Asian production
network
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Different Speed of Catching Up in E. Asia
Per capita real income relative to US(Measured
by the 1990 international Geary-Khamis dollars)
Sources Angus Maddison, The World Economy A
Millennium Perspective, OECD Development Centre,
2001 the Central Bank of the Republic of China
and IMF International Financial Statistics (for
updating 1998-2006).
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Ingredients for High Performance
Private Dynamism (Primary Force)
Good Policy (Supplementary)

• Each society has different capability in commerce
  and industry, largely determined by climate,
  geography and history (but sometimes mutable)
• Quick response to business opportunities
• Alertness vs. relaxed attitude toward life
• Tenacity and dedication for manufacturing
• Conservatism vs. acceptance of change and
  innovation

To break away from poverty trap and low
governance situation, leadership quality is key
(strong political will and economic literacy)
FDI, donors to align to and support good
policy
Elite group effective government
Top leader
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Lazy Workers in Japan(Early 20th Century)

• Survey of Industrial Workers, Ministry of
  Agriculture and Commerce, 1901
• Japanese workers are only half as productive as
  American workers.
• They stop working when supervisors are not
  watching.
• Skilled workers are few, and they are often too
  proud and lazy.
• Job hopping is rampant in comparison with US.
• Japanese workers never save.

? Even todays high performers started with low
capacity in private and public sectors.
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South Korea Unpromising Place with Inept
Institution

• The Lessons of East Asia Korea, K. Kim D.M.
  Leipziger (1993)
• Heavily dependent on US foreign aid for food,
  fuel and other raw materials, Korea was not seen
  as a promising place for major investments.
• During the period from 1940 to 1960, the Korean
  bureaucracy was a kind of spoils system.
• The East Asian Miracle, The World Bank (1993)
• At late as 1960, the Korean civil service was
  widely viewed as a corrupt and inept institution.
  
• In less than two decades, this view has been
  dramatically altered. By the late 1970s, the
  bureaucracy had become one of the most reputable
  in developing world. How did this come about?

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Thailand Haphazard Planning, Shortage of
Qualified Personnel

• World Bank Mission Report 1959
• Investments have been authorized without first
  trying to find out if they would serve urgent
  needs, if they would be as productive as other
  alternatives, or if the particular forms of
  investment chosen were the best means of
  attaining their objectives.
• There is a shortage of trained manpower and of
  managers and administrators qualified by
  experience to operate industrial concerns and
  government departments efficiently.
• It will be most difficult, if not impossible, to
  find suitably trained and sufficiently
  experienced Thai personnel who can be spared from
  present assignments to fill all these important
  senior positions.

Source A Public Development Program for
Thailand, Report of a Mission organized by the
IBRD at the request of the Government of
Thailand, The Johns Hopkins Press, 1959.
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Policy DesignDesirability vs. Feasibility

• Development is both a political process and an
  economic process.

What should be doneHRD technology Infrastructur
e Integration competition Systemic transition,
etc
What can be done Leadership Political
constraintsPopular sentiment Administrative
capacity
(mainly economics)
(mainly politics)

• Each country is unique in what needs to be done
  as well as what can actually be done.
• Any policy maker must work with economic and
  political space simultaneously.

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Policy Design (cont.)

• Policy advice without feasibility consideration
  cannot be implementedregardless of whether
  proposed actions are a few or many, common or
  tailor-made.Eg. macro conditionality (fiscal
  monetary austerity), transitional strategy
  (big-bang vs. gradualism), external opening,
  governance, growth diagnostics, etc.
• We need to figure out a policy sequence which is
  both desirable and feasible in each countrys
  context.
• While the government is directly responsible for
  politics, outsiders can indirectly assist in
  overcoming political problems.

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Dynamic Capacity Development

• Goal orientation long-term vision ? phased
  strategies ? concrete action plans.
• Direct most effort to perfecting your strengths
  rather than correcting your general weaknesses
  (dont worry too much about Kaufman index or
  investors ranking).
• Stop abstract thinking and start concrete action
  NoIs industrial policy useful? What is the
  role of state? YesLets build this port
  industrial zone successfully, etc.
• Achieve successes one by one, and be proud.
• Top leaders take political risk and
  responsibility to move things fast forward.

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A Comparison of East and West
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GRIPS Development Forum (GDF) Policy Advisory
Activities

• Vietnam Development Forum (2004-now)
• Industry monozukuri, supporting industries
• Macro coping with crisis, financial system
• Social issues protection of vulnerable, social
  securities
• Environment community based, coping with growth
• Ethiopia (just starting, PM Meles)
• Evaluating ADLI and Ethiopian dev. policies
  (GRIPS)
• Introducing kaizen to selected factories (JICA)
• Japanese ODA policy making (ongoing)
• Hub for discussing Japanese aid to Africa
• Japanese/E Asian style development cooperation