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Questions and Answers
- Why did you focus on globalization and localization?
- Most World Development Reports look at a particular issue, such poverty, the environment, infrastructure, or labor. On the eve of the new Millennium, we decided to try to understand the development landscape in which major problems and issues will have to be addressed. In a way, this report focuses more on the battlefield than on the battles. The battlefield will be changing very rapidly in the coming decades, largely because of globalization and localization.
- What aspects of globalization does the report consider?
- We examine three issues where the need for international cooperation will be especially pressing in the early part of the next century: trade, capital flows, and the environment.
- What does the chapter on trade say about the World Trade Organization (WTO)?
- The WTO plays a crucial role in establishing transparent and enforceable rules for trade-and such rules are an important recommendation of the report. We also note that some trade rules currently work unfairly against the interests of developing countries: antidumping, services liberalization, and agriculture. We highlight the steps that must be taken to turn developing nations into equal players in the world trading system. Overall we consider the GATT and WTO's contributions to the past and present, while also calling for additional reforms in the future.
- What does your report imply for the Millennium Round of trade talks?
- First, the agenda must encompass liberalization of many services and agriculture sectors. A broader agenda facilitates more trade-offs in negotiations, and is likely to yield better outcomes for all. Second, negotiations in services, agriculture and the new generation trade issues demand technical expertise which most developing nations lack. So programs to build this expertise must be accelerated. Third, the backlash against trade liberalization in industrial nations must be tackled head on. Otherwise, ratification of any agreement may be jeopardized. In sum, more than ever before, successful trade reform will require initiatives within and between nations.
- What reforms do you propose for the international financial architecture?
- We see a greater role for multilateral regional agreements in reducing financial contagion. For example, regional groups can agree on tougher standards in banking supervision and corporate governance, and in monitoring enforcement. ASEAN nations are taking steps in this direction. In addition, nations can sign regional crisis accords, committing themselves to pool reserves in defense of currencies, and not to raise trade barriers in a beggar thy neighbor manner. These regional initiatives should complement, and not substitute for, domestic reform efforts.
- Some economists argue that capital controls raise the cost of capital, breed inefficiency and rent-seeking. Yet you seem to recommend them.
- Not all capital controls are alike. Certainly many controls are flawed and have the effects you mention-but not all do. Empirical studies have shown that requiring foreign investors to deposit a fraction of the value of their investment in an interest-free account can be an effective disincentive to short-term bank loans and borrowing, the most volatile and destructive of capital flows. These requirements are also very flexible. Nations can tailor them to specific circumstances. Chile has successfully operated this type of capital control since the early 1990s.
- The environment chapter suggests that radical reforms are required to respond to global challenges presented by climate change. The rest of the Report seems far more optimistic-which position is correct?
- Climate change presents a significant challenge, particularly to developing countries. For example, a one meter rise in the sea level would displace 70 million people in Bangladesh. At the same time, poverty is also huge so there is need for policies that both reduce poverty and preserve environment. One example is to reduce energy subsidies, since these primarily benefit people with higher incomes, at great cost to the economy and the environment.
- What is localization?
- Localization is the growing power of sub-national entities such as cities and provinces in response to a grass-roots drive by people for a larger say in their government and institutions. This may be a general demand for broader popular participation in politics-in which case it translates into popular movements for democracy as we have seen in Poland and Brazil-and currently in Indonesia. Or it can be focused on demand for greater local self determination-in which case it leads to the decentralization of powers or recognition of local cultural identity.
- What are some examples of localization?
- The Ethiopian constitution now states that regions are formed on the basis of ethnic settlement patterns, language identity and with the consent of the people concerned. In 1999 Canadian Eskimos received a land of their own with the creation of a new territory. In Western Europe, where most countries have been decentralized for some time, it has taken the form of a greater recognition of local cultures (regional languages are now taught in French schools…) and the creation of new units of sub-national government that correspond to regions with a common history and culture (Scotland; Wales, Northern Ireland)
- What causes localization?
- There are many causes: rising levels of education, technological innovations which allows ideas to circulate more quickly, the economic failure of authoritarian regimes, democratization itself, the end of the Cold War and the decreased fear of external invasions. Globalization is also a factor: it can cause people to fear the loss of local culture, and to therefore invest more in protecting their values and languages. Thus in an integrated Europe France, Italy, the UK, Spain and other EU members are experiencing a revitalization of local culture, languages and identities. A recent poll in Spain showed that Catalans were prouder of being Catalans and Europeans than of being Spaniards.
- What are the implications of localization?
- Typically, democratization both at the national and local level. Since 1970, the proportion of countries considered democratic has tripled (from about one quarter to nearly two thirds of all countries). And 95% of democracies now have local elections. When not accommodated, localization can lead to secession. Twenty-two new countries have been created since 1991, most of them from the division of Eastern European countries or the former Soviet Union.
- What is your advice to countries considering decentralization or in the process of decentralizing?
- Decentralization is often a political imperative. Resisting it may not be feasible or desirable. Each country needs to adopt an approach suited to its political culture and social and economic circumstances. But there are some rules that rules that will in most countries most of the time. One is to appropriately sequence the elements of reform. The second is to enforce a firm budget constraint on subnational units.
- What is the relationship between decentralization and democracy?
- The two are closely related. By decentralization we mean that that subnational governments are able to take binding decisions in at least some policy areas, that some functions are exclusively within the competence of these entities and are not determined by the central government. Only democracies can build the autonomous constitutional, legislative and judicial systems necessary to meet this requirement.
- Can countries going too far in decentralizing?
- Yes, in the sense that it may not be economically or administratively efficient to manage higher education or national highways locally. Also, there are fixed costs associated with the creation of local governments, and it is expensive to have many tiers of subnational governments or many jurisdictions. But we need to keep in mind that sometimes governments have little choice. Bosnia-Herzegovina and Ethiopia are examples of countries where decentralization may have gone too far from a public finance point of view, but where ethnic tensions leave few alternatives.
- What is your advice in these situations?
- Avoid having too many tiers and jurisdictions. Countries like Lebanon or the Baltic states appear to have little need for a provincial tier of government. Yet even in small countries, a municipality will be better placed to manage garbage pick-ups than the central government. Weigh the economic costs and benefits of decentralizing particular functions. There is little benefit and huge costs to decentralizing defense, or the setting of standards for education and health. But there are advantages in other areas, such as increasing the responsibilities of local school administrators.
- What is an example of successful decentralization?
- In South Africa decentralization has helped the country to overcome the legacy of apartheid. Local governments and provinces are now racially mixed and democratically elected. This is helping improve service delivery to the black population which was previously underserved. From that point of view, South Africa is an example of successful decentralization-even though there are problems to do with the unclear allocation of responsibilities between central government and provinces. In Mexico and the Philippines decentralization of education has improved outcomes.
- What is an example of unsuccessful decentralization?
- Many countries are having difficulties with decentralization. Zambia is typical of a number of African countries where responsibilities where devolved on paper only. The central government interferes regularly in local responsibilities; most local governments are on the verge of bankruptcy. There is a costly local bureaucracy which has neither the means nor the mandate to accomplish anything significant. In Brazil and Russia decentralization was poorly sequenced and has been at the root of serious fiscal imbalances.
- What does the Report have to say about urban poverty?
- Cities usually contribute to improved living standards. However in many cities, poverty is rising, and living standards are declining. To reverse this and return to earlier trends, cities need to improve governance, services, and appropriate regulation, for example, of land use.
- What does the Report have to say about urban sprawl?
- Urban sprawl plagues cities in both developing and industrial countries, and it worsens with motorization-the increased reliance on private automobiles and trucks. A worldwide trend of employment decentralization and the emergence of multiple employment centers in large metropolitan areas are contributing to increased motorization and the weakening of transit systems. The best ways to contain urban sprawl is through integrated land use and transportation planning. In Curitiba, Brazil, planners have succeeded in channeling urban growth along public transit routes and reducing private car use. Of course, the coordination of transport and land use policies can be politically very difficult.
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