Economic and political development: the importance of institutions

The Kapuscinski Development Lecture was opened by dr. Anna Wróbel from the Department of Regional and Global Studies (Faculty of Political Science and International Studies, University of Warsaw) who welcomed the distinguished guest, Professor Francis Fukuyama.

Next, Professor Daniel Przastek, Dean of the Faculty of Political Science and International Studies, University of Warsaw, welcomed the guest, and expressed hope to be able to welcome Professor Fukuyama for a real life event at the University of Warsaw in the future.

Then the floor went to Martin Seychel, Deputy Director-General, EC International Cooperation and Development, who delivered opening remarks on behalf of the European Commission.

Final speaker at the introductory part of the lecture was Ivan Zverzhanovski, UNDP Regional Partnerships Advisor to welcome Professor Fukuyama on behalf of the UNDP.

Professor Fukuyama started his lecture on “Economic and Political Development: The Importance of Institutions” by pointing out that in the study of development economics, there was a period when the role of institutions was largely omitted, and it was only since the 1980s, that development economists have begun to recognize the importance of institutions. According to Professor Fukuyama it was inter alia because of the work of economists like Douglass C. North.

Yet initially inclusion of institutions into the study of development was limited, and narrowed the focus mostly to contract enforcement and property rights. Speaking of this Professor Fukuyama indicated that it is not certain whether western-style property rights were applicable globally. He stressed that there were many other institutions outside of property rights that were needed to achieve development, transparency, democratic accountability and modern state capacities. Yet it was only by the early 2000s that the institutional agenda in development studies broadened to include “good governance and anti-corruption,” but policy responses to achieve the latter have yielded disappointing results. Following Professor Fukuyama, believe in the power of markets and the disparaging of the state is destructive for development and democracy. This is why the ideas of good governance and anticorruption are that important. This is also why many development institutions today are pushing for a broader governance agenda to extend the basic state-building process and initiate more pervasive anticorruption measures. Even though various successful anti-corruption measures have been put in place, we do not know if aggregate corruption has changed. It might have moved from one sector to another, from one level of hierarchy to another. But getting rid of corruption is difficult – those in power know what they are doing. One needs to have enough power to bring about this political change, because it’s so entrenched. Professor Fukuyama expressed regret that even in countries where serious reforms were undertaken, some years afterwards, one by one these have been reversed. At this point, he indicated once again how important institutions are for development, but institutions are not efficient by themselves to bring about good results. It is because political power and money following it have been able to manipulate the institutions. It is possible to use the COVID-19 pandemic to illustrate some of the points brought about in the lecture, and it is not democracy that is the most important factor here. Other important features that increase efficiency of institutions include: 1) state capacity (inclusive health services during pandemic), 2) citizens’ trust in government, and 3) bad leadership indicating those who saw the pandemic not as a threat to general health but a threat to their personal political interests. Professor Fukuyama concluded his speech by yet again emphasizing the importance of strong institutions, and the importance to have rules, and impersonal, expert-led institutions.

Next, dr. Karina Jędrzejowska from the Department of Regional and Global Studies (Faculty of Political Science and International Studies, University of Warsaw) opened the discussion, and forwarded to Professor Fukuyama selected questions asked by the audience. The first group of questions asked related to the current state and threats to democracy. Responding to that Professor Fukuyama stated that we are living in a difficult time for global democracy. But a silver lining to the current pandemic is that it is exposing bad governance. It is revealing structural inequalities and showing what reforms are needed to make institutions effective. Next questions addressed the prospects for transatlantic cooperation, and future of economic and security multilateralism. According to the speaker, in order to have strong multilateralism, a strong hegemonic power is needed. When responding to the question on the condition of the concept of developmental state, Professor Fukuyama expressed the opinion that the idea has not lost it relevance, and the lessons drawn from implementation of this development model in East Asia still matter for development worldwide. Next, there were questions about impact of cultural diversity on development. Responding to that, Professor Fukuyama said that it is possible to govern diversity successfully, but ethnic and racial diversity can make democracy more difficult. Liberal democracy exists to accommodate and govern diversity, but – unfortunately – “human beings do not need race & ethnicity to hate each other”. In the final remarks Professor Fukuyama expressed his worries regarding the concept of transhumanism, and made some recommendations to the students of international relations at the University of Warsaw. Students were reminded of the importance of studying economics in order to get a better understanding of the surrounding world.

Next, dr. Jędrzejowska thanked Professor Fukuyama for the lecture and debate. Next, she thanked the UNDP, European Commission, and the authorities of the Faculty of Political Science and International Studies, University of Warsaw, for making the event possible, as well as thanked the participants for their attendance and questions. Then the event was closed.

The narrow corridor: states, societies and the fate of liberty

As part of the Kapuscinski Development Lecture Series, Daron Acemoğlu, Institute Professor at MIT, gave a talk on “The Narrow Corridor: States, Societies and the Fate of Liberty” – also the title of his recently-published book – on December 20, 2019 at Boğaziçi University in Istanbul, Turkey. 

Over 500 people attended the live-streamed event. It opened with welcome messages by Fikret Adaman, Professor of Economics at Boğaziçi University; İpek Cem Taha, Director of Columbia Global Centers | Istanbul; and Ivan Zverzhanovski, Head of Partnerships at the UNDP Istanbul Regional Hub.

Daron Acemoğlu then took the stage. He opened by saying that he would not give a summary of the book he co-authored with James Robinson, but would talk about some of its main themes, and what he and James Robinson wanted to achieve by writing about them.

He then showed an image of an environmental protest, something that would have been unthinkable in small-scale societies and early despotic states of years past. He stated that this kind of protest is the essence of liberty today: individuals can make their own choices without getting permission to do so.

To illustrate this, he showed a graph that simplifies economic and political history into two variables: 1) the power of society and 2) the power of the state. When the power of the state is greater than that of society, we have despotic states. When the state is weak, a complex set of norms and traditions regulate conflict and do not allow for a strongman to gain power.

In between, there is a “narrow corridor” where both the state and society become stronger together. It is here where the environmental protest that he spoke about earlier, thrives. It thrives because both the state and society have greater capacities, e.g. the state can take action against climate change, and society can foster change through its civil society efforts, elections, etc. In addition, the relationship between the state and society has changed over time such that individuals have gained a deep trust in institutions, and thus in the state.

Being a democracy does not mean that the state is in the “narrow corridor;” however, there is a positive affinity between the two. Democracies have more economic growth than non-democracies; after countries transition to democracies, their GDP per capita increases by 20% over the following 20-25 years. Infant mortality also drops as states invest more in education and health.

How do we make the “corridor” work? We look to Europe as an example. After the fall of the Western Roman Empire, two things coincided: 1) there was a blueprint for centralized administrative institutions from the Western Roman Empire, and 2) there was a tradition of “assembly politics” in Germanic tribes, allowing for society to participate in politics.

Social norms can hinder liberty. In India, the constitution prohibits the caste system, but it de facto still exists because of a cage of norms. States need to break the cage in order to democratize.

There are multiple ways of getting into the corridor. If a state is despotic, then society must get stronger. If a state is disorganized, then the state’s capacity must increase and laws must be obeyed. Leadership does matter, and that person must immediately start building trust in institutions. The state must simultaneously be strengthened while also be more open to criticism. States need to cherish the trust to stay in the “corridor.”

Daron Acemoğlu then spoke briefly about Turkey. Turkey has had several opportunities to enter the “corridor,” but has not taken them. Society’s power over politicians has to increase, and this has not happened in Turkey. Even though Turkey has had growth over the past 20 years, it has not been high-quality growth. One indication of this is that total factor productivity has been negative or zero over this time period. Turkey also exports low-tech products, whereas it should be aiming for medium-tech or high-tech exports. This creates inequality in society, which is at levels similar to those in Latin America.

In summary, entering the “corridor” not easy, while exiting it is. It is not a gift from leaders, but something that society demands. If society works at it, and the right conditions are present, then society together with better laws can help the state enter the “corridor.”

#KAPTalks interviews: democractic empowerment of majorities

Ryszard Kapuscinski’s works addressed leading development issues of the 1970s, 1980s, and (arguably to a lesser extent) the 1990s.  Have the world’s development challenges changed since then?  What was the biggest challenge then and what is it now?

There have been significant changes in the leading approaches to development: in the agents and agencies taking charge of it, in the theories and values guiding them, in the goals they prioritize, and in the academic analysis and journalistic commentary accompanying development work. Still, the real challenges are akin to what they were half a century ago. Billions of human beings still are at risk of undernourishment, malnutrition, communicable diseases or death from neonatal or maternal conditions. Billions still lack clean water, sanitation, shelter, electricity, basic health care or elementary education. Back in Kapuscinski’s day, the world was rich and productive enough to avoid these massive deprivations but instead chose to spend its riches on an incredibly expensive arms race, an incredibly destructive war in South East Asia and an extravagant but exciting space program. Today, with global average income some 130% higher in real terms and after spectacular advances in science and technology, humanity is even much more capable of avoiding such deprivations. But this will not happen so long as a small global elite runs this planet, capturing 46% of global wealth for its 36 million millionaires while confining humanity’s poorer half to less than 1%.

While inequality remains the key foe of development, there has been a significant shift from inequality’s international to its intra-national component. While the logarithmic distance between the poorest and richest countries has remained about the same, international Gini inequality has declined as some very large developing countries have been rapidly catching up to the global average.

For the world’s poor, this decline in international inequality has been nullified by significant increases in intra-national inequality – not merely in India and China, but pretty much everywhere in the world (least so in Latin America, where intra-national inequality was at nosebleed levels even in the 1960s). So the poorer half of the world’s population is still left behind economically, still socially and politically marginalized if not excluded. But the countries in which most of them live now command much more influence on the international stage. While the high-income countries peaked at 85% of the world economy in 1992 and have since declined to 64%, China’s share bottomed at 1.7% in 1981 and has since increased to 16%. Where developing countries had little or no influence on the design of the global economy 50 years ago, they have substantial influence today, especially where they engage in South-South collaboration (as in BRICS or IBSA). Today’s problem is that, all too often, this influence is exerted in behalf of small Southern elites rather than for the benefit of the majority – and also that the world’s poor find themselves increasingly disempowered, excluded and ignored by the politicians of their own countries.

Some people dismiss sustainable development as an aspirational vision, others an unattainable fantasy, and still others see it as absolutely necessary to our future. In this age where few seem interested in working for the collective good of all, what’s your argument to convince others that it is necessary to change the way we develop?

The expression “sustainable development” brings together two different projects: to avert climate change and to eradicate poverty. These two projects are superficially at odds as is often pointed out by saying: “just imagine what the world would be like if those who are now poor attained the affluent lifestyles common in Germany, Japan or Maryland! Our planet would be ruined even faster.” This appearance is often exploited and entrenched by those who, for whatever reasons, oppose either project. They are quick to exclaim either that we should not vigorously fight climate change because doing so would impose intolerable burdens on the poor or that we should not vigorously fight poverty because doing so would accelerate environmental disaster.

I have two main arguments against such claims of tension.

First, severe poverty can be eradicated through economic growth or through a reduction in economic inequality (or through some combination of the two). Adopting the former method, we might seek a quadrupling of the gross world product, hoping that doing so would “lift all boats,” thus quadrupling the income of the world’s poor as well. Such an anti-poverty strategy would court ecological disaster. But then the horrendous magnitude of accumulated inequality makes it possible for us to adopt the latter method instead: to make enormous progress against poverty even without any further global economic growth. We could, for example, quadruple the income of humanity’s poorer half (from 4.5% to 18% of gross world product) by shrinking the income share of the richest quarter by merely one sixth (from 85% to 71%). To be sure, the fourfold income increase in humanity’s poorer half would have adverse ecological effects. But these would be largely or wholly offset by the ecological benefits of reduced income in the richest quarter (fewer private planes and yachts, reduced air travel, smaller cars, less waste of consumption goods, etc.).

Second, as longitudinal and cross-country studies spectacularly confirm, poverty eradication has a massive negative effect on total fertility rates (average children per woman), especially when it comes with improved educational and employment opportunities for women and girls. Some poor populations in Africa – Niger, Angola, Mali – still have TFRs over 6, while the EU’s TFR is 1.58 and TFRs in more than 100 mostly affluent countries have fallen below 2.00 (implying that their populations will decline). Humanity’s future population size is one crucially important factor in humanity’s future ecological footprint. The UN Population Division currently forecasts that humankind will number between 9.6 and 13.2 billion in the year 2100 (90% probability), with pretty much all of the increase occurring in the less developed regions (mostly in Africa). With a serious anti-poverty offensive, TFRs among the currently poorest populations would fall much faster than predicted and humanity could peak at 9 billion in 2050 and return to the current 7.5 billion by century’s end. By reducing the size of the year-2100 population by one third (relative to the current median projection of 11.2 billion) and the size of later populations by even more, a serious effort against poverty could bring dramatic relief in the struggle to avert climate change, resource depletion and other ecological hazards.

The arguments I have sketched will convince those who are interested in working for the collective good of all. The rest are, I fear, hard to convince, especially if they are affluent. Rich people are above all mobile and can use golden passport programs to relocate away from areas that are vulnerable to the effects of climate change or poverty (into the US Northwest, perhaps, or into safe parts of Canada, New Zealand, Chile, Russia or South Africa). And they will rationally prefer doing so over giving up even just one sixth of their income for the sake of eradicating poverty and preserving our beautiful planet. Once they will have pulled out their investments – or even have gone short – they will care nothing about the fate of Venice, Mumbai, Rio, Cape Town, Christchurch, Miami or Bangladesh.

What area of development or Global Goal do you think sustainable development hinges on? Which one is at the core of all the others? 

The fundamental problem of sustainable development is the problem of political empowerment or, to put it negatively, the problem of regulatory capture. Political power in this world has been seized by a small international elite of super-rich financiers, tycoons and politicians who, abetted by armies of well-trained accountants, lawyers and lobbyists, capture an ever-increasing share of the social product. Their fortunes and machinations are shrouded in secrecy as over a hundred secrecy jurisdictions compete to keep their assets hidden under layers of anonymous accounts, shell companies and fake trusts. Such people dominate politics in most developing countries and thereby control the basic resources on which we all depend: food, fossil fuels, metals and other minerals. They dominate politics in the United States, where the practice of bribing elected politicians through future employment or contributions to their campaigns and political action committees (PACs) is protected by the Supreme Court. And through their exorbitant influence on national governments, they also dominate international rulemaking through treaties and conventions as well as through the associated international organizations and agencies (WTO, IMF, OECD, etc.) in charge of interpreting, refining and applying international rules.

These rich and powerful people are, for the most part, not evil, nor even ill-disposed toward the poor. But they do have a special affection for their own fortunes and therefore use their disproportional political power toward defending and increasing their own outsized shares of the social product. They do so by evading their tax obligations (even in civilized and public-spirited Scandinavia, the richest 0.01% of the population – with wealth above USD 40 million – evade about 30% of their taxes on average). They do so by deploying their financial and political power to reduce or eliminate taxes on the rich and social safety and social mobility programs for the rest of the population. And they do so by organizing and supporting elaborate propaganda efforts designed to show that things are getting better and better for ordinary people (the Gates-Pinker-Roser team) and that those in power care deeply about preserving our planet and “leaving no one behind” (the Millennium/Sustainable Development Goals exercises and the Paris Agreement).

This is not to say that the global elite acts in close coordination, as part of some grand conspiracy created and sustained at Davos or Bilderberg meetings. Political, finance and business leaders often compete, clash, even destroy one another as they seek to enhance their own power at one another’s expense. Still, the net effect of their exertions favors their shared interests over those of the vast majority of the human population who are feeling increasingly confused, helpless and demoralized, often blaming unloved minorities or themselves for their economic, social and political marginalization. Though disunited, the elites together maintain a public culture and institutional arrangements that systematically impede human development and keep billions in at a level of severe poverty that has long ago become wholly avoidable.

The democratic empowerment of these majorities is the fundamental problem of development. And a formidable problem it is! Over the last forty years, the elites have greatly increased their economic advantage over the rest, keeping billions in conditions of severe poverty where they must focus their energies on the survival of their families rather than on fighting for political reform. This increasing gap is magnified by huge advantages in education and especially in technology – such as surveillance, big data, disinformation, artificial intelligence, all of which are overwhelmingly used by and for the elites. Democratic movements exist (witness the Bernie Sanders campaign) and still have a genuine chance to win here and there. But without some important democratic victories in the near future, we will slide farther into a world of extreme inequality in which the lives of the vast majority will be blighted by poverty, marginalization and increasingly severe environmental burdens. We don’t have much time.

Democracy, Truth and the Perils of Information Age

When: 6th December 2017 at 12:15 am EET / 11:15 am CET (check time around the world).

Where: Assembly Hall of the University of Tartu (Ülikooli 18)

You can join the lecture by:

  • coming to the event in Tartu
  • following livestreaming from the event at kapuscinskilectures.eu
  • asking your questions to Kalensky and Lauristin via Twitter using #KAPTalks hashtag

In today’s world, new digital tools and the global reach of social media platforms have brought along a transformation of lifestyles: we order goods and services by a few clicks in an app, we rely on GPS to take us home, we prefer online sources to newspapers, and we rely on instant messages and social media to keep up with the lives of relatives, colleagues and friends. This requires us to be constantly available online, ready to receive and make sense of endless flows of information. We have come to lead our entire lives online and this has made us vulnerable.

While the perils of information age have been known for a long time, recent debates have focused on the viability of democracy in an age where everyone can easily create and disseminate information on a mass scale. The problem of “post-truth” is aggravated by the borderless world of the internet and the global reach of social media platforms. Democratic societies have limited tools to counter the threats posed by disinformation, lies and propaganda. How to control the spread of disinformation without restricting democratic principles? How to distinguish between trustworthy and non-trustworthy sources of information? How to ensure that people, the supreme sovereign, base their political decisions on information that bears at least some semblance to reality?

From crisis to stability

„We live in turbulent times.” With these words Carl Bildt, a former prime minister and foreign minister of Sweden, began his speech entitled „From Crisis to Stability” at the Department of Joumalism and Political Science at the University of Warsaw. The lecture was organised in partnership with the Faculty of Joumalism and Political Science of the University of Warsaw, and the Ronald Reagan Foundation in Poland. The event was held within the European Year for Development 2015 agenda.

In his opening remarks, Carl Bildt expressed that the world today is defined less by globalisation, and more by resurgences in geopolitical aggression and terrorism, which stand as the most significant obstacles to securing peace in the contemporary world. He discussed how conflict in the world is particularly far-reaching, and therefore requires extensive intervention on the part of the United Nations or European Union, efforts which may be diplomatic, military, or political.

Referencing his involvement in mediating a resolution at the close of the Bosnian War in 1995, he detailed the challenges of both preventing war and fostering long-term stability in war-tom regions, citing several examples which illustrate how disagreement within the international community can vastly undermine any peace-making efforts. Recounting these past experiences, MrBildt outlined several important lessons for state-building efforts in the future:

  1. „It is imperative to establish a secure environment very fast.” This goal requires not on1y disarming rival groups, but also compelling them to participate in a peaceful settlement. Intervening governments must be willing to escalate their military presence in the event of further hostilities because, without security, humanitarian workers will not be able to provide aid for the civilian population. These consequences became most obvious following recent wars in the Balkans, the Middle East, and Africa.
  2. „The central challenge is not economic reconstruction, but state building.The framework of a state must already be in place before focusing on projects such as physical reconstruction. Without a political solution, any efforts to rebuild will be for naught. By achieving a negotiated political settlement on the form of the state, there will at least be an opportunity for interested parties to establish cooperative relations.
  3. „To build a state, you need to know what to build.” The decision must be made early in the process, and it must be definitiv In a deeply divided society, state building should involve constitutional protections for all threatened groups, whether ethnic, religious, or otherwise. Competing sides also must be able to compromise in order to achieve a permanent arrangement.
  4. „There must be an early focus on the preconditions for long-term growth.” The future of a fledgling state is predicated onhaving early conditions that would enable economic Sanctions have historically been counterproductive because they drive away the middle class and enable black markets to form. Moreover, sanctions against governments only maketheir societies more economically fragile, more dependent on humanitarian, and more resentful.
  5. „There has to be a benevolent regional env” For a state to become stable, it requires stable regional neighbours that are capable of putting aside their own hostility. Regional governments must recognise the negative consequences if a neighbouring state fails.
  6. „The greater the international support, the easier the process.” Disagreement among foreign governments can serve to galvanise rival groups within a post-war territ Therefore, the UN as a whole, and the Security Council in particular, can avoid prolonged civil conflict by agreeing to a common approach, although this remains an enormous challenge due to the disparate interests within the international community.
  7. „Nation building takes a longer time, and requires more resources, than most initially believe”. Overseeing a state’s initial post-war period requires a vast amount of patience and commitment. Unfortunatelypeace-keepers around the world are limited because of the manrecent conflicts that require their involvement. A much greater volume of personnel are needed not only for security, but also for political and economic development, which further confirms the need for achieving an international consensus in solving these types of crises.

To illustrate the aforementioned points, Carl Bildt named a number of recent examples in which the international community failed to recognise or address the needs of states that had been devastated by war, ranging from Bosnia to Afghanistan, as well as the more recent conflicts in Syria and Libya. He emphasised that the international community must act decisively in order toprevent states from failing because the consequences may be felt anywhere in the world, as we have witnessed from the ongoing terror campaign by ISIL and the accompanying Syrian refugee crisis. He closed the lecture by asserting how urgent issues such as climate change and overpopulation make it even more crucial for governments to take a proactive approach in solving global issues together.

Role of civil society in global governance

The experience we’ve had fighting corruption with the help of the CSO Transparency International has shown me the impact organised civil society can have on better global governance, a complex challenge which none of the traditional actors of governance can solve alone.

To put it very briefly, Transparency International has built its success on:

  1. mobilising civil society in more the 100 countries for the diagnosis of their corruption problems design of reforms and their implementation  in their own societies,
  2. using a holistic approach, and
  3. in cooperation with other actors of governance – often an antagonistic coalition of very different actors in the public, private and civil society sector.

A close cooperation with the media for building a global consensus about the catastrophic impact of corruption – including our regular Corruption Perception Index – and with research and academia, led to a situation where today practically every significant voice castigates corruption. 

Growing support of coalition of the three actors of governance, the State as prime actor, the Commercial Sector and Civil Society Organizations have to complement each other in order to establish together better governance.

A free and vigilant civil society is essential if we are to tackle poverty and the injustice of globalization, and to dispel the climate of despair and alienation that serves as a breeding ground for conflict, war and terrorism.

Only an effective coalition of state, business and civil society can bring transparency and accountability to global governance, not only to fight corruption, but to other ills of globalization (injustice and inequity, poverty, violence, conflict, environmental destruction and climate change). There is hope for a better, more just world for everybody.