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The Great Era of Global Development

Posted on the 20 November 2012 by Center For International Private Enterprise
The Great Era of Global Development

(Chart: OECD)

It is easy to be pessimistic about the effectiveness of traditional international development efforts. After decades of effort and hundreds of billions of dollars, too many people around the world live in poverty, suffer from disease, and lack the economic, social, and political opportunities that those of us in developed countries enjoy.

Stephen Radelet, former chief economist for USAID and author of the book Emerging Africa: How 17 Countries are Leading the Way, tells a very different story: we are living in a great era of global development.

At a recent talk at Georgetown University, Radelet argued persuasively that “there has never been a time when there has been such income growth and economic growth in low-income countries,” where the standard of living has tripled since 1960. The growth has been even more dramatic since the turn of the 21st century: in the last 15 years, the number of people in absolute poverty has fallen by 1/3. Health outcomes have also improved — infant mortality, while still far too high, has dropped substantially, even in the poorest and worst-governed countries.

This growth has been more broad-based than is typically recognized. While economic reforms in China and India are responsible for lifting hundreds of millions of people out of poverty, broad-based economic growth has had significant impacts throughout Asia, Latin America, and even Sub-Saharan Africa. Radelet suggests that this economic shift towards prosperity for ever more of the world’s citizens could have more impact on human society than even the Industrial Revolution.

One factor driving this change that is often under-appreciated in development circles is the role of democracy. There are more democracies than ever before, especially in Africa, and democracy and economic growth seem to be linked in a virtuous circle. Radelet pointed out that when he started his development career, the prevailing wisdom was that countries needed to get rich first, then democratize, as many of the successful East Asian “tigers” had done. “Poor countries weren’t supposed to be democracies,” he said. “That story has changed in a big way.”

For one thing, as more and more economists now recognize, good governance is essential to strong, broad-based economic growth, and democracy helps to deliver that kind of governance. It is not just about elections, Radelet argued — “Democracy is a much deeper phenomenon.”

The dramatic economic and political shifts of the last twenty years have catapulted more countries into middle- and upper-income status, lifted millions out of poverty, and provided true political representation for millions more. The international development landscape also needs to change to adapt to this reality.

“Now we are working with legally elected leaders who represent their people,” Radelet said, suggesting a move away from strict conditions towards closer cooperation with governments that receive aid. Recognizing the role of democracy in development also requires an understanding of how political systems can affect other areas of development, and how traditional development actors — especially bilateral donors like USAID — can take this into account while still representing the interests of the taxpayers that fund them.

But even more important is a recognition of the growing role of the private sector. The astonishing economic growth of the last few decades was not created by donor grants — it was created by thousands of entrepreneurs and small businesses around the world investing, creating jobs, and driving innovation. Foreign direct investment in emerging markets now dwarfs official development assistance by a factor of 10. In a world of flat aid budgets and booming private investment, supporting traditional aid goals like reducing poverty, improving health, and increasing social inclusion requires new strategies that place the private sector in a much more central role.

USAID, Radelet said, has already taken steps to leverage private investment for development — for example, by building the capacity of developing-country suppliers, or guaranteeing the loans that small businesses need to grow into medium and large ones. Many other aid agencies have recognized the value of public-private partnerships for certain kinds of infrastructure projects and even for delivering essential services.

Ultimately, the shift towards the private sector needs to be more than a technical change. Donors must recognize that it is entrepreneurs and business people in developing countries that ultimately drive growth and development. Creating the right environment for them to prosper will ensure that the great era of global development continues apace.

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