How the World Works
Jobs and Structural Transformation as Keys to Development
27 August 2014
The themes of the new UNU-WIDER work programme—transformation, inclusion, and sustainability—were the focus of the WIDER Development Conference held in Vietnam in June this year. Each represents a formidable challenge. Taken together, they seem an almost impossible set of conundrums for development. How to transform economies so that labour is employed in productive and fulfilling jobs? How to ensure an inclusive economy that works for the many and not just for the few? How to ensure that sustainability is achieved? Not just that the economy runs without recession and massive dislocation, but that it is also environmentally viable in the long term? This is particularly crucial as the impacts of climate change become more pressing.
Add to these challenging questions the attractions of a top line up of international speakers and a location in one of the most dynamic economies of recent years—plus the drawing power of a top Vietnamese think tank and the UNU-WIDER network—and all the key elements were in place for a top-class conference.
And so it proved.
This article can only cover a few aspects of the event, and I want to focus on some of the research on jobs and structural transformation.
Economics is a social science
World Bank Chief Economist Kaushik Basu is an engaging presenter with a huge amount to tell us. He comes at economic problems with a fresh approach. As he spoke, I was reminded of the old joke that an economist is someone who sees something working in practice, and tells you why it cannot work in theory. Basu is not like that—he wants to find out how and why things work the way they do, what people’s motivations are, and how to improve things. Just one example. He told us about a suggestion which he made which created a storm in Indian policy circles. He argued that there is a case for treating some sorts of bribe as non-symmetrical. He cited ‘harassment bribes’, where you go to a public official for something which you need (for instance, a passport or a licence to do business) and to which you are entitled and it is made clear to you that you will not get it without a ‘little extra’. Basu suggested only punishing the bribe taker, the office holder, thereby breaking the incentive structure which otherwise sets up collusion between the bribe giver and bribe taker who would both be punished under the normal set up. He stressed the complexity of making laws which actually work for justice and economic efficiency.
Well-meaning legislation which is not well designed to take account of actual behaviour can often serve to displace rather than eradicate corruption. This is just one insight into the type of issues being looked at in the World Development Report 2015 on ‘Minds and Mindsets’ which promises to be a challenging read. Social norms, roles and expectations do make a difference to how an economy functions—gender roles are one obvious and pervasive example.
Another example of having to deal with unintended consequences was given by Haroon Bhorat, who explained why the South African economy is hooked into a high-unemployment trajectory. Over 2001-12, 700,000 jobs were lost in the agricultural and mining sectors in South Africa. The introduction of the minimum wage in agriculture has been a contributory factor. To understand why one has to know about the apartheid-based historical land-ownership patterns and the size and structure of white-owned farms. Introduction of the minimum wage has encouraged savings of labour costs and/or further methods of increasing productivity per worker and mechanization. Bhorat indicated how difficult it is to create an inclusive economy in South Africa, not least because of the spatial dimensions of the economy. Both in the rural and still largely divided urban settings, poor people (still meaning black people) have difficulty accessing even the jobs which are available.
Further contributions which are germane to the discussion of work and employment also provided considerable food for thought. Naila Kabeer’s analysis of employment-centred safety nets in South Asia, his comments on women’s involvement in programmes in India and Bangladesh, and the paper by Pham Thu Hien on inclusive growth and gender equality in Vietnam, are two examples worthy of mention.
The new structural economics and light manufacturing
So, what can one say about how to transform an economy? Justin Lin provided a magisterial overview of the new structural economics. In terms of diagnostics, Lin has developed an approach termed ‘growth identification and facilitation’, which should help a country ascertain which industries to support and develop. At the same time, they must avoid the dangers of an over-ambitious industrial strategy which does not correctly identify the stage of development or the endowments which characterize the present-day economy (for example Zaire, now DRC, trying to establish a car industry).
Hinh Dinh’s presentation and further work complemented this. He and colleagues have done a huge volume of detailed work on Asian and African economies and shown the key role which light manufacturing plays in the industrialization process. On this occasion, he presented on ‘Local Industrial Policy in China: The Role of the Provinces and Municipalities’. He shows how local governments in China act to support the emerging businesses and compete to ensure that their local industries are well supported. The industries studied are apparel (clothing), leather products, wood products, metal products and agribusiness. His approach is then to look at the constraints to this kind of manufacturing and how, in successful examples, these have been removed. The policy and spatial characteristics of industry location are key. Both his work on Light Manufacturing in Africa, and his more recent work on how China and other countries have harnessed light manufacturing as an engine for development, are strongly recommended.
His presentation gave an easy way in to the comprehensive treatment of the issue. It bears out the UNU-WIDER analysis in the ReCom position paper on Aid, Growth and Employment which underlines that development agencies need to give the issue of employment much more urgent and complete attention. It is only the second time in 35 years that the WDR has addressed the topic. Perhaps this indicates a growing recognition that the fastest route to poverty eradication is a productive and sustainable economy.
Gary Fields is known for his book with the self-explanatory title Working Hard, Working Poor. The main asset of the poor is their labour. In his presentation, Fields emphasized the need for ‘improvements in people’s material standards of living’ both by increasing the opportunities for paid employment and by raising the returns for wage labour and self-employment. This requires different and more intelligent approaches to the informal sector, because half of the people in work (about 1.5 billion of the 3.1 billion working) are in agricultural labour or self-employed.
This quick review gives a flavour of some of the key presentations on economic transformation and employment from the conference, and some more good news is that the presentations and videos are already on the event website.
Roger Williamson is an independent consultant, and Visiting Fellow at the Institute of Development Studies at the University of Sussex, United Kingdom.