Africa: Visible Hands
Date distributed (ymd): 000816
Document reposted by APIC

+++++++++++++++++++++Document Profile+++++++++++++++++++++

Region: Continent-Wide
Issue Areas: +political/rights+ +economy/development+
Summary Contents:
This posting contains excerpts from the overview of a report
released in June by the UN Research Institute for Social
Development (UNRISD), on the occasion of the Geneva 2000 5-year
follow-up to the Copenhagen summit on social development. The
complete text of the overview (in HTML) and of the full report (in
PDF), as well as a number of related papers, are available on the
UNRISD web site at:
http://www.unrisd.org/engindex/cop5/forum/report.htm

Since May 1998, the Executive Director of UNRISD has been Thandika
Mkandawire, who served from 1986 to 1996 as executive secretary of
the Dakar-based Council for the Development of Social Science
Research in Africa (CODESRIA).

+++++++++++++++++end profile++++++++++++++++++++++++++++++

Visible Hands: Taking Responsibility for Social Development
June 2000

Chapter 1: Globalization with a human mask

The Social Summit took place in Copenhagen in 1995 at a time when
free-market enthusiasts were promising to deliver progress for
all. But there was widespread discontent with the damage caused by
neoliberal policies. Poverty and unemployment were growing
rapidly in indebted Third World countries. The collapse of the
Soviet Union exposed large numbers of people to the rigours of the
market without making adequate provision for social protection.
And the welfare state was under threat in OECD countries, where
workers were subjected to levels of uncertainty unknown for
decades. ...

In the five years since Copenhagen, events have confirmed the
incapacity of the dominant macroeconomic model to meet these
challenges. There has been relatively weak growth of global GDP,
with unusually high or low growth in some countries or regions.
This has been accompanied by falling real wages and the
degradation of working conditions for large numbers of people.

The instability of the global financial system has deepened. The
collapse of the Mexican economy, brought about by the uncontrolled
flight of capital in late 1994, was followed during 1997 by a
still larger economic crisis in some East and Southeast Asian
countries. Macroeconomic statistics suggest that these nations
have staged a rapid recovery, but millions of their people have
not.

Unemployment and poverty

The most direct impact of crisis has been on jobs. ... Even those
who do manage to find work are often obliged to accept temporary or
part-time jobs. Or they are swelling the informal sector - which,
in sub-Saharan Africa, for example, already contains at least two
thirds of all jobs.

Wages in the current labour market are generally low. Intense
competition for employment means that workers have little capacity
to bargain in most countries. And in regions struggling to cope
with long-term economic stagnation and indebtedness, the
remuneration of workers is often inadequate. Real wages throughout
much of Latin America and Africa have yet to return to levels
considered normal 20 years ago. ...

Failure to create sufficient employment has undermined the
prospects for poverty reduction. The number of people living in
income poverty fell in the mid-1990s but then started to rise
again in almost all regions. This is not because the world as a
whole has been getting poorer but because the benefits of growth
are very unevenly spread. There has been a striking increase in
inequality over the past decade.

The causes of failure

Faith in the ability of unregulated markets to provide the best
possible environment for human development has gone too far. Too
great a reliance on the "invisible hand" of the market is pushing
the world toward unsustainable levels of inequality and
deprivation. A new balance between public and private interests
must be found.

Efficient markets, functioning in a way that promotes widespread
well-being, require the contributions of a well-run public sector.
They require a healthy, well-educated and well-informed
population. And they require the social stability that grows out
of democratic governance and an acceptable level of social
security.

In fact, the greater the degree of openness of a market
economy - the greater its exposure to market forces - the more
important is the role that must be played by national governments
in the field of social policy. Yet the thrust of much of the
neoliberal agenda has run directly counter to this dictum. For
decades, the prevailing orthodoxy has counselled a reduction of
state functions. And for decades, governments without the capacity
to resist this pressure have been abandoning essential elements of
public social provision.

The response of the international community

In response to obvious failures in the current development model,
the international community has begun to move in various
directions. There is little coherent orientation to this process.
In fact, even within a single institution, it is usual to find
initiatives that contradict each other-so that what may be
accomplished through trying one new approach is largely offset by
what may be lost through another.

A renewed emphasis on poverty alleviation is perhaps the most
visible new departure. Although this is of vital importance, most
agencies and governments are adopting a technocratic approach to
a highly complex social problem. Their focus is narrowly remedial
and is all too easily associated with an attack on the principle
that public services should be extended to all citizens equally.
Creating a dual structure of social services - one aimed at the
poor and funded by the state, and one aimed at everyone else and
provided by the private sector, is good neither for social
integration nor for the quality of public services. ...

To offset the divisive incursion of market forces into areas that
are essential for social security and stability, there has been
renewed support during the past five years for some form of global
social standard-setting. When linked to trade sanctions, this has
proved extremely controversial. Since increasing globalization
requires the elaboration of shared social norms, it is necessary
to find a way out of this impasse.

New architectures?

As the social and political nature of the market becomes obvious
to a wider group of thinkers and policy makers, there is an
incipient return to the kinds of integrated approaches to
development that were in vogue in the 1960s and 1970s. The
Comprehensive Development Framework of the World Bank, for
example, tries to treat structural and social concerns in
conjunction with aspects of the macroeconomy and finance.

At the same time, there is much talk of creating a new
institutional setting at the international level, a new context
for stimulating broadly based growth and reducing unacceptably
high degrees of volatility and risk in the global economy. Useful
as it may be, this discussion is concerned above all with ensuring
the stability of the system. Movement toward alternative
development models is not visible.

Moreover, there is complete silence on how to go about creating
the social development architecture that would have to underpin
the central vision of the Social Summit. This must allow for
qualitatively new approaches to growth, based on a new
understanding of the vital role of a healthy, literate and secure
society in creating the conditions of economic progress. Yet
social policy today remains largely detached from economics, or is
seen as an add-on intended to remedy the ill effects of
misconceived economic development. ...

Chapter 2: Who pays? Financing social development

More wealth has been generated over the past few decades than
ever before. But far too little of it is being channelled into
financing social development. In fact, while levels of social
spending have generally been maintained in the advanced
industrialized countries, they have plummeted in many highly
indebted nations and in the Commonwealth of Independent States.

Debt relief

Since governments in many poor countries pay more in interest
to foreign creditors than they allocate to basic social
services, a resolution of the long-standing debt crisis is
imperative. One apparently promising response to this challenge
was the Heavily Indebted Poor Country (HIPC) initiative,
launched by the IMF and the World Bank in 1996. In the event,
the initiative has achieved little. ...

HIPCs account for only about 10 per cent of total Third World
debt. The rest is owed by less-poor or middle-income countries,
where the debt crisis of the 1990s has evolved into long-term
subjection to the international bond markets. The new debt
bondage has serious implications for democratic control over
social policy. ...

Continuing poverty and the likelihood of further crises demand
not just urgent attention to immediate debt problems but also
a fresh approach to future borrowing. This will require new
institutions for dealing with debt, including the possibility
of sovereign bankruptcy. ...

At the same time, it is important to confront the difficult
issues posed by conditionality. If anything, the conditions
imposed for potential debt relief grew more complex in the late
1990s. Now borrowers should not only carry out market reforms,
but also target relief toward the reduction of poverty. While
this is understandable, it is not likely to be effective. It is
probably more useful simply to insist that each debtor
government take its budget decisions in an open and democratic
fashion.

Development assistance

To strengthen the economies of the poorest countries, debt
relief is not enough. An increase in development assistance is
also essential. Although this was promised at Copenhagen, it
has not been forthcoming. By 1998, development assistance was
down to 0.23 per cent of donor countries' GNP.

This decline is partly a result of "donor fatigue" - disenchantment
with inefficiency and corruption in recipient countries. But
problems with aid are not entirely due to the weakness of Third
World institutions. In recent years, development assistance has had
to operate in such a generally hostile global economic climate that
its limited success is hardly surprising. Not only has a
considerable proportion of all aid been channelled toward debt
repayment, but it has also been used to finance donor-mandated
policy reforms that have produced meagre results.

As donors increasingly recognize the pitfalls associated with
conditionality, some are changing tactics. Instead of being
selective within countries - indicating areas of priority
action - they are being more selective among countries. They are
choosing partners with records of good governance and economic
reform and allowing them greater control over the use of funds.
This is progressively reducing the number of countries to which
bilateral donors provide assistance.

A way to avoid the dilemmas associated with foreign aid is
simply to replace it - perhaps with a new international
development fund that would automatically transfer money from
rich countries to poor ones. Proposals of this kind, which
frame the challenge of poverty eradication in terms of human
rights, rather than discretional giving, are often linked to
demands for new forms of international taxation.

The need for tax reform

Even if there were to be less debt and more aid, developing
countries attempting to meet the most pressing social needs of
their people must generate more of their own resources through
taxation. But their already precarious tax base has been
further weakened by recent free-market reforms. Much of their
public revenue comes from taxation on trade - a source that
diminishes brusquely as tariffs fall. A further problem-for all
countries-is the prospect of tax competition. Governments are
wary of raising taxes on foreign, or even national, businesses,
because they might relocate elsewhere. A growing informal
sector also shrinks the number of taxpayers.

The trend virtually everywhere has been to make up for growing
shortfalls by increasing consumption taxes-and particularly the
value added tax. This may raise revenue, but it is essentially
regressive - taking a larger proportion out of the incomes of the
poor.

There are more progressive options. One would be to remove tax
benefits for offshore accounts. An IMF study has calculated
that if these $8 trillion-worth of deposits earned income of
around 5 per cent per year, and this were taxed at 40 per cent,
some $160 billion would be raised annually - almost double what
it would take for all countries to guarantee basic social
services.


Mobilizing resources at the grassroots

When facing high debt payments, declining development
assistance and falling tax revenues, governments must make a
special effort to use scarce resources efficiently. In this
regard, the international development community has strongly
recommended such measures as decentralizing and targeting
services, and introducing users' fees in basic education and
health. These are not panaceas. In some cases, they are useful.
In others, they simply shift the burden for financing social
development downward, away from those who have most toward
those who have least.

Providing micro-credit has become one of the most popular forms
of assistance at the local level. These small loans alleviate
immediate problems, but they do not usually lift people out of
poverty. It is remittances - income sent back home by migrant
workers in foreign countries - that play by far the largest role
in improving the level of living of low-income groups in
developing countries. Between 1970 and 1995, global flows of
remittances are estimated to have grown from $2 billion to
around $70 billion. Providing a broader range of financial
services at the local level could enhance the usefulness of
these resources.

Chapter 4: A new mission for the public sector

Between 1945 and 1980, the public sector enjoyed unprecedented
expansion. Most people wanted their governments to play a central
part in national development. During the 1980s and 1990s, however,
some states disintegrated and many were affected by free-market
reforms.

The most pervasive and far-reaching reforms have been those that
aim for fiscal stability - concentrating particularly on cutting
public expenditure. It is significant that in the advanced
industrialized democracies, states did not succeed in cutting
expenditures by much. They faced stiff resistance from citizens who
defended existing social services and entitlements.

Developing countries faced less well-organized civic opposition and
cut expenditures much more sharply. Their resolve was stiffened by
pressure from international financial institutions. In fact,
budgetary reforms have been the single most important condition
imposed in conjunction with structural adjustment loans over the
past two decades.

Between 1990 and 1997, public expenditure as a proportion of GDP
fell from 26 to 22 per cent in sub-Saharan Africa. Meanwhile, in
the OECD countries it rose from 45 to 47 per cent. The
privatization of public enterprises was another strategy employed
to reduce budget deficits. Developing and transition countries
privatized public enterprises worth 155 billion dollars between
1990 and 1996. Governments in Latin America led the way-accounting
for more than half these sales.

With the encouragement of the World Bank and the IMF, governments
have also aimed to increase the efficiency of the public sector. In
this, they have been guided by theories of new public management,
which apply principles of economics to political and bureaucratic
processes. Generally, this means breaking activities into more
manageable parts-creating new agencies and quasi-markets within the
administration, as well as contracting services out.

Such systems can only work if there is effective monitoring based
on sound budgeting and regular flows of accurate information-areas
in which many governments of developing countries are weak. In
these circumstances, the new systems may create little more than an
empty managerial shell.

Effective public sector reform requires a skilled cadre of people
who are well educated and well paid. Yet public servants in the
majority of developing countries have seen their real wages fall
steeply, and systems of higher education in poorer countries are
often in crisis. University buildings are decaying, equipment is
non-existent and teachers - whose salaries have slumped - are
leaving in droves for the private sector or for opportunities
overseas. This is in part an outcome of forcing a trade-off between
improving "basic education" and supporting secondary and university
instruction.

Reforms of the public sector should be firmly grounded in what
citizens see as the mission for their state. In the last analysis,
these missions are not managerial; they are social. People want to
move toward societies that are more prosperous, equitable and
harmonious. Having ambitious managerial targets may be a part of
this - but only a small part. ...

Continuity or change? (from Chapter 8: Sustaining development)

The term people-centred sustainable development has reminded the
international community that development demands more than economic
growth; that some features of modernization have unacceptable
social and environmental costs; and that this requires different
economic policies and approaches to project implementation. But few
governments and international agencies have made significant
changes. Most have simply applied new terminology to what they were
already doing - perhaps with a few extra elements bolted on.

Governments and international finance and trade institutions need
to be far more sensitive to the social and environmental costs of
their policies, and to make their decision-making processes more
democratic. Popular mobilizations that got sustainable development
on the agenda in the first place still have much to do if they want
to see new ideas implemented.

In the last analysis, action depends on people's interpretation of
what is possible and right. Thus the longer-term nature of
mobilization for sustainable development depends not only on
activism, but on dominant views about the where the world could -
and should - be going. ...

Five years after Copenhagen, there is little indication that the
fundamental goals and values orienting world development are moving
toward greater social responsibility. Incentive structures in
everything from education to investment decisions have been
reoriented toward improving the options of the profit-maximizing
individual. ...

Questioning extreme individualism and the unbridled power of
money - reasserting the value of equity and social solidarity, and
reinstating the citizen at the centre of public life - is a central
challenge of our time. The "invisible hand" of the market has no
capacity to imagine a decent society for all people, or to work in
a consistent fashion to attain it. Only human beings with a strong
sense of the public good can do that.

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