Ladies and gentlemen, it’s a pleasure to join you this afternoon.
The issues we’re exploring at this conference – constructing enduring and sustainable competitiveness – could scarcely be more critical to development, and to the entire international economic agenda.
These issues are especially critical to the low-income countries that the World Bank Group has committed significant resources to helping – and they’re equally important to middle-income and advanced economies.
I’m struck by the very active verb you’ve chosen for the title of this discussion – “constructing” competitiveness. Indeed, strengthening competitiveness calls for an active process, with determined policy interventions that can help spur job growth.
Wherever I travel – in developing countries as well as developed countries – I hear that the Number One economic priority is job creation.
Both business leaders and government officials are searching for ways to get the conditions and policies right, to allow for job creation that is sustainable for the long term.
Another critical part of the policy agenda must be to analyze, promote and accelerate innovation – which is a key component to competitiveness.
These steps must always be pursued in their local context – tailoring our strategies and policy interventions to fit each country’s (or each region’s) particular economic conditions. Geography and local natural-resource endowments, clearly, play a role in determining a country’s potential position in the global value chain – and thus its potential to build on its comparative advantage.
The Bank has embraced these challenges: In just the past couple of years, we have stepped up our efforts on what we call Competitive Industries and Innovation.
In my remarks today, I’ll focus on three of the factors that we in the World Bank Group believe are essential in achieving the ambitious agenda to promote competitiveness, growth and job creation:
- First: the necessity of “addressing the missing middle.”
- Second: keeping our eye on the ball. Bear with me for the moment, for being cryptic about that.
- Third: the importance of ensuring strong governance and implementation.
My first major point is this: We need to intensify our focus on the importance of the middle level of the economy – the industry level, where the private sector sits. I include in this definition manufacturing, agribusiness and the services industries.
In years past, the development community, including the World Bank Group, has tended to overlook this middle level. For example: For many years, the Bank Group dwelled primarily on the big challenges on the macroeconomic side, through our work on the Investment Climate and through our “Doing Business” indicators on the conditions for conducting business. And we also dwelled on the micro side, focusing on firm-by-firm investment, through our International Finance Corporation. Mind you, these macro and micro focal points are important and necessary.
We have now come to recognize, however, that it’s a serious error to overlook the vital role that the middle level – the industry level – plays in development. Adding that is not only necessary, but vital, for our development agenda.
Why? Because this is the level where wealth is actually created. It is at this level that the economy can be most energetic, innovative and inclusive.
And we should recall that this middle level includes not only large firms in specific industries, but also the job-creation engine of every economy – the sector of small and medium-sized enterprises: the so-called SMEs. In many of our client countries, it would also include microenterprises.
If competitiveness strategies are well-designed, attacking the job-creation problem at this industry level can yield large gains, quickly.
The World Bank Group has intensified our focus on the key factors that are critical to this process – promoting industries’ competitiveness; strengthening economies’ capacity for innovation; encouraging entrepreneurship; and incubating new technologies so they can come to market. These priorities are indispensable for success in a global economy that demands both rigor and flexibility.
Government has a constructive role to play in pursuing these goals. Governments can invest in targeted R&D, technologies, education and health care.
When the private sector is unwilling or unable to invest – because, for example, the market is still too risky – governments can step in and accelerate the process.
That brings me to my second major point: keeping our eye on the ball.
What do I mean by that? We must promote conditions that allow for, and encourage, continuous innovation and adaptation. The operative word there is “continuous.”
Various factors contribute to creating the conditions that are conducive to this ideal of innovation and adaptation.
At the macro level, such factors include good monetary and fiscal policy; a national infrastructure that puts a premium on efficiency; a responsive education system; an effective health-care delivery system; and so on.
Similarly: At the industry level, I contend there are five key areas where we need to keep our eye on the ball:
- Number One: Keeping our eye on the ball for creating an investment climate conducive and receptive to the needs of the specific industry or industries in which a country has a comparative advantage.
- Number Two: Keeping our eye on the ball for promoting workforce skills that are well-matched with the needs of those specific industries;
- Number Three: Keeping our eye on the ball on access to finance, especially serving the needs of the micro-enterprises and SMEs within a specific industrial ecology. (Some SMEs, for example, need help with their basic need for working capital. Others may need capital-intensive financing. Still others may just need solid “how to” advice on getting their basic financial infrastructure in place.)
- Number Four: Keeping our eye on the ball for a strong infrastructure matched to the needs of the players in the local industrial ecosystem.
- Number Five: Keeping our eye on the ball for innovation – a mix of product technologies and processes that are adapted to local needs, but that are competitive in the international market.
Moreover: It’s important to state that just getting an industry ecology organized is not enough. It is not something you do every now and then. Continuous adaptation and change is the prerequisite for success. Thus my emphasis on “keeping our eye on the ball” on the five factors that I enumerated. There could be many more, of course, depending on the context of the country or place we are working in.
To suggest some examples of this constant re-evaluation and re-positioning:
Is an industry (say, shoes or apparel) investing to make sure its designs are moving with the times? When should an industry (in technology, for instance) upgrade its systems, and thus “make obsolete” its current products – reinventing itself through the process of “creative destruction”? Are an industry’s skills (for example, in food processing) adapting to ever-higher levels of technology?
If industry leaders are not continually asking these kinds of questions, it will only be a matter of time before their competitors in that industry will pass them by.
Or, worse: At the economy-wide level, if industries fail to adapt – or if public policy fails to adapt – an entire country’s economy can quickly shift gears – going from a virtuous cycle of growth, higher incomes and prosperity into a vicious cycle of contraction, lower income and poverty.
Innovation, therefore, is critical in improving competitiveness. The empirical evidence is that – on average, worldwide – half of a country’s long-term growth is due to innovation and technology enhancements.
Our client countries increasingly recognize this reality.
To offer one example, from here in Europe: I met with the President of Bulgaria last winter – to discuss a comprehensive innovation and competitiveness study, which the World Bank Group presented at a practitioners’ forum in Sofia. The Bank Group is now helping the government of Bulgaria re-think its innovation strategy and core supporting instruments, helping create the capabilities to monitor and evaluate impact.
To offer another European example: A very promising innovation program is now getting under way in the Western Balkans. With the World Bank Group’s help, seven counties are coming together to explore sharing R&D capabilities and university research facilities – in a cross-border effort to make the most of regional synergies.
This brings me to my third major point: the importance of strong implementation – and the critical factor of sound governance.
The question is no longer about the “why” or the “whether” of getting the process right, but about the “how” – how to implement targeted, strategic interventions that succeed, in the context of local economic and social conditions.
Effective collaboration between the public and private sectors can unlock an economy’s innovation potential.
But sometimes – and we know this from experience – such collaborations can go wrong, and benefits can find their way into the wrong hands.
Getting the governance process right is thus absolutely essential.
There’s no point embarking on a “missing middle” strategy if it is rife with corruption, or if weak governance allows for “regulatory capture” by the most powerful. If a “missing middle” strategy does not address the need of the small players, there will be unequal growth – and, at the end of the day, that spells trouble.
There must be strict safeguards against all forms of capture, corruption and cronyism.
Having those safeguards helps each individual project succeed – and helps our clients’ overall strategy succeed – and helps the entire development process succeed.
Clearly, this is a challenging agenda. It will require all our ingenuity and all our resolve to keep development moving forward steadily, by driving these three priorities –
First: “addressing the missing middle,” by designing effective industry-level strategies;
Second: paying attention to the five “keep our eye on the ball” factors, to stay at the cutting edge;
And third: ensuring strong governance and effective implementation.
The challenge may be daunting. Yet I feel certain that by marshaling all our resources – through cooperative efforts among business leaders, government policymakers and development partners – we can offer our client countries the hope of building a more resilient economy.
The World Bank and the IFC remain committed to working with our partners –
to promote stronger competitiveness and more imaginative innovation in our client countries –
while advancing the ideals of inclusion and social cohesion, and thus fulfilling our vision of broadly shared prosperity and a world free of poverty.
Thank you very much, and congratulations to the organizers of this important conference.