Development Economists Debate Post-Crisis Strategies

June 8, 2010

  • At recent Stockholm conference, top economists challenge traditional approaches to development.
  • Aid effectiveness, new measures of prosperity, climate change, post-crisis recovery are among debated topics.
  • Economists agree: Striking a balance between belt-tightening versus pro-growth reforms is delicate.

June 8, 2010—Whether reconciling fiscal belt tightening with the need for policies to spur growth and jobs; finding new ways of measuring well-being, promoting aid effectiveness; or identifying the factors behind successful competition policy, economists and development experts are thinking in new ways and engaging across disciplines and continents.

“To effectively tackle the current global challenges, there is a great need for systematically researched knowledge to guide policy-making, political decisions and implementation. It should be underpinned by context-specific analyses,” said Gunilla Carlsson, Minister for International Development Cooperation, during opening remarks at the Annual Bank Conference on Development Economics, or ABCDE, held from May 31-June 2 in Stockholm.

The event attracted more than 500 experts from around the world and covered a wide range of topics—from studies of conditional cash transfer schemes, to new findings in common property management, to the roles of research and education networks as agents for transforming developing regions into knowledge societies. ‘Development Challenges in a Post-Crisis World’ was the overall theme of the event. Sweden’s Ministry of Finance and Ministry of Foreign Affairs co-hosted the conference, along with the World Bank’s Development Economics Vice Presidency (DEC).

A webcast Development Debate, which included three Nobel Prize winners as well as top thinkers from the developing world, added a new dimension to this year’s ABCDE.

The debate featured Nobel Laureates Robert Solow, James Mirrlees and Eric Maskin;  Sir Partha Dasgupta and Professor Abhijit Banerjee also participated.  The panel explored the implications of short-term policies to stimulate growth, while acknowledging that longer-term issues of poverty reduction and climate change should not be neglected.

The debate marked the first in a series organized by the World Bank Institute in partnership with DEC. Quarterly online talks, with a chance for web users to submit comments and questions online, will be held going forward, with a focus on frontier issues in development.

Interactive Platform to Debate Frontier Issues

Solow, Mirrlees, Maskin, Dasgupta, and Banerjee agreed that the direct effects of the crisis on the extreme poor did not seriously exacerbate the everyday risks and uncertainties they already face.

However, as growth-oriented policies take precedence over redistributive measures, poverty reduction may once again be relegated to the back seat. Such risks add to the widening inequality produced by globalization, an effect that is not well explained by economic theory.

A key concern is that the crisis might prompt an increase in state control by governments with limited capacity to implement their own policies.  Because the economic fallout has undermined trust in institutions, markets and government policies, it will take a long time to restore confidence in economic transactions. 

Sweden’s Finance Minister Anders Borg noted that the aftershocks of the global economic crisis and the current risks facing donors in the fight against poverty highlighted more starkly than ever before how important sustainable macroeconomic balance is in today’s world.

Yet simple macro-prescriptions fall short in a world beset by climate change, poverty traps in fragile states, halting efforts at aid coordination, and doubts over financial regulation and fiscal sustainability in high-income nations.

 “To get out of this crisis, the developing world does not just require money – we also need knowledge and research to understand the right areas for investment. We also need to tackle state capacity and governance issues if we are to succeed,” said Justin Yifu Lin, World Bank Chief Economist and Senior Vice President for Development Economics.

Another Nobel winner, Elinor Ostrom of Indiana University, delivered a speech on ‘Overcoming the Samaritan’s Dilemma in Development Aid.’ She spoke about some of the collective action problems that are at the heart of development and which perpetuate recipient passivity, donor complexity, and ‘short term-ism’ whereby annual budget goals trump long term sustainability.

Ostrom’s proposal to improve matters involves a greater number of smaller, local projects, longer field assignments for task team leaders, more frequent evaluations, and full engagement of beneficiaries in projects meant to improve their livelihoods.

Tomorrow’s Problem-Solvers

Young people made their voices heard in Stockholm with the culmination of the 2010 International Essay Competition , which had its final jury during the conference.  This year’s competition on youth unemployment attracted more than 2,000 essay and video entries from more than 150 countries (90% of submissions were from developing countries).  Eight finalists from Argentina, Singapore, Nigeria, Indonesia, Nepal, Kenya and Morocco were invited to Stockholm to present their essays.  Winners received cash prizes generously provided by the Swedish government.

First place winner, Riska Mirzalina of Indonesia, described the shoe design business she initiated in her home town of Bogor in her essay. Age 22, Mirzalina employs 12 people and uses 100% recycled textiles to create her originally designed footwear.  Currently marketing the shoes in Jakarta and Java, Mirzalina has plans to tackle international markets in the coming year.

In addressing the conference, she suggested that instead of looking for jobs, youth focus on creating their own employment.  She encouraged her peers to “tap their own creative potential, be confident in sharing their ideas and finding external mentors, form partnerships and innovate in order to become a job maker rather than a job seeker.”