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Brookings Now

Six Big Ideas to Tackle Development Challenges in Difficult Environments

Elina Saxena and Fred Dews

The 11th annual Brookings Blum Roundtable on Global Poverty takes place August 7-9 in Aspen, Colorado. Brookings experts and outside colleagues prepared draft papers for discussion at the event, representing six big ideas to tackle development challenges in the world’s most difficult environments. Join the conversation on Twitter at #Blum2014.


Increase government interaction with multinational companies

Jane Nelson (Brookings) argues that “there is a growing need for more systematic government interaction with multinational companies,” explaining that “the nature of corporate-government engagement under these circumstances is a crucial determinant of development outcomes.”

Nelson explains that:

Developing countries face an annual gap of $2.5 trillion for financing projects in the sectors that will be relevant to achieving sustainable development goals. More effective and accountable corporate-government engagement can help to leverage the resources, build the trust, and strengthen the governance and delivery capacity that are required to fill this gap and to jump-start more inclusive and resilient growth.

Nelson suggests that “public-private engagement at the national-level, sector-level and company or project-level” can help to create “an ‘enabling’ business environment and mobilizing private sector investment and innovation, and promoting responsible business conduct.” She points to four common challenges that “are often particularly important in fragile and conflict-affected situations”:

  1. Build trust through increased transparency and accountability
  2. Strengthen capacity in the public and private sector
  3. Catalyze and de-risk private investment, especially pioneer investments
  4. Take a comprehensive or systemic approach to engagement

Download and read “Innovative Platforms for Public-Private Dialogue.” (all linked papers are PDF documents)


Boost economic growth in conflict states by increasing prosperity and stability

V. Shankar (Standard Chartered Bank) suggests that “the combined efforts of governments, multilateral institutions and corporations are vital to restoring normality and stimulating growth.”

With “1.5 billion people living in countries with repeated cycles of criminal or political violence” according to a 2011 World Bank report, Shankar discusses how “conflict settings lead to economic stagnation and a range of social and political problems.” His policy recommendations stem from the notion that “the gains from boosting economic growth in conflict states will not only benefit a particular state and its citizens, but also facilitate global prosperity and geo-political stability.”

Recognizing that “long-term stability is best achieved by promoting inclusive growth that maximizes the pool of stakeholders with an enlightened self-interest in not retreating to conflict,” Shankar enumerates recommendations for both governments of developing countries and private sectors.

According to Shankar, “the three most essential areas in which governments can make a difference in attracting business are: establishing regulation, providing infrastructure and security, and promoting inclusive policies.” Additionally, “the private sector can maximize its impact and catalyze sustained economic growth in fragile states in two specific ways: by supporting the supply and demand of the labor market, and, by facilitating the growth of micro and small enterprises (MSEs).”

Download and read “Accounting for Unpredictability in Private Investment.”


Invest in the right technology to encourage use in developing countries

Diego Comin (Dartmouth College) argues that developing countries need to “invest in the right kinds of knowledge so that imported technologies can be more effectively harnessed and adapted for productive use.” Despite technology dissemination from rich to poor countries, the latter “struggle to employ these technologies with the same degree of intensity and versatility.”

Describing the Great Divergence, or the widening income gap between countries, Comin explains how by 2000, the income gap between Western countries and the rest of the world had grown to 750 percent. He analyzes the evolution of technological diffusion, arguing that “over the last 200 years, the gap in the adoption lags between developed and developing countries has narrowed continuously.” Despite this narrowing, Comin explains that the use of new technologies such as cellular communications and the Internet still differs between developing countries and developed nations.

To explain this difference in usage, Comin suggests that “technological knowledge is a key ingredient for the adoption and use of new technologies” and that users of new technology “need to know how to use a new technology before they can decide whether the technology will solve its needs.”

Download and read “
The Evolution of Technology Diffusion and the Great Divergence
.”


USAID’s new model for development assistance: Align public and private sector partners’ interests

Andrew Herscowitz (USAID) writes that the “United States Agency for International Development (USAID) understands that partnerships are critical to address today’s development challenges, particularly in transformational sectors such as power, water and agriculture, where needs and risks are well beyond the capacity of any one actor.” The approach:

  • Leverages private sector resources
  • Responds to private sector needs
  • Uses a transactional approach to development
  • Coordinates U.S. government and donor efforts

Authors

He describes the importance of “aligning public and private sector partners’ interests” and suggests that USAID’s “willingness to experiment with innovative approaches to engage the private sector has deepened the impact of its programs over the years.” The private sector investment in development, Herscowitz explains, is motivated “by sustainable investment as part of their core business.”

Download and read “Scaling a New Model of Development.”


Large investment projects can catalyze more significant development change

Homi Kharas (Brookings) observes that the direct economic benefits of large, complex investment projects “can seem big,” but that the “indirect, spillover benefits are much greater, are more important for generating truly transformational change, and can catalyze the next generation of investments.“
Kharas suggests “four indirect effects that seem to have been important catalysts for much more significant developmental change”:

(1) the articulation of transparent national and sectoral strategies and policies that provide a high-level political commitment to keep a stable and predictable environment needed for a project that has a long pay-back period;
(2) the creation of institutional capacity in project financial management expertise, experience with negotiating complex public-private partnership deals, and capacity development and learning in key ministries that permit replication and standardization across other, similar, projects;
(3) the improvement of public finance, revenue management and expenditure allocations that generate high returns in parallel with the project; and
(4) community consultations and establishment of platforms for local development that provide transformative change in a specific locality.

“Sponsors of large projects, especially on the private sector side, are often keen to maintain a narrow focus on project-specific issues and hesitate to get involved in the broader issues that are needed to go from a big project to a transformative development impact,” writes Kharas. But this risks missing opportunities “for generating truly transformational change and catalyzing the next generation of big deals.”

Download and read “From Mega-Projects to Transformative Change.”


Create economic complexity in developing countries

Muhammed Yildirim (Harvard University) observes that some countries find it difficult to shift their economies away from a dependence on extractive industry, concluding that “the best strategy” for these economies “is to attempt larger, more aggressive leaps into new areas that lend themselves to the accumulation of skills and greater diversification.”

Yildirim describes the path that countries must take to achieve economic complexity, explaining that “countries do not grow rich in a sustainable fashion by making more of the same; they change what they produce by moving to activities that are both new and more productive. The diversification process leads to increased sophistication over time.”

Download and read “Diversifying Growth in Light of Economic Complexity.”


Learn more about these and other Brookings Blum Roundtable papers and activities.