Ismail Serageldin

Speeches


Governance, Competitiveness and the African Future

 23/06/2005 | Alexandria, Egypt

 
  
The meaning of governance:
 
I have had the privilege of being friends with Dunstan Wai almost from the first day I met him. We were colleagues at the World Bank, but really started working in earnest together after the reorganization of 1987 brought the Africa region under the leadership of Kim Jaycox, with Dunstan as his assistant and myself as a director for a number of countries in west and central Africa. This is a reflection on one of the topics that involved Dunstan and myself with a few other friends in what was to become an important turning point in the Bank’s work.
 
About twenty years ago, a number of us at the World Bank were concerned about the long term perspectives for Africa. Under the leadership of Kim Jaycox, then Vice-President for Africa at the Bank, Pierre Landell-Mills, Ram Agarwala and Dunstan Wai (then Personal Assistant to the Vice-President) and myself were involved in various ways with this exercise. Some of us felt strongly that there was something more to the equation than the likely price of primary commodities, or the availability of natural resources or the productivity level of African labor. It was summed up in the view: no matter what you analyze and prescribe, we all know that unless there is a radical change in the manner in which some of these governments are run, nothing will happen. There will be no development in Zaire as long as Mobutu is in charge, there will be no development in Central African Republic (or empire) as long as a Bokasa is in charge. Dunstan organized a seminar with some leading academics. We discussed long and hard among ourselves. We benefited from the outside council of some wise African personalities not affiliated with the bank. But the World Bank strictly forbids taking political factors into consideration in assessing the viability of an operation, instructing the staff to look only into the economic justifications for the loan.
 
We thereupon hit upon the word governance  I went on in an influential internal memorandum to spell out that governance was not about whether the system was two party or multi-party, parliamentary or presidential – which would have been overtly political – but rather good governance was about transparency, accountability, pluralism, participation, the rule of law and free flow of information.   That these characteristics would also be those that would foster democracy and respect of human rights I had no doubt. However, the arguments for good governance could be framed in economic terms: In the absence of these characteristics, the economy would not attract investment, especially FDI, except for sharks using bribery, which would cost the country a lot.
 
The word governance caught on. Our Legal counsel, Ibrahim Shihata write a paper justifying the Bank’s right to be involved with it. Pierre Landell-Mills and myself organized a panel about it at the Annual Bank Conference on Development Economics (ABCDE) and we published a paper on “Governance and the external factor”.
 
From these early days, the implicit was made explicit.  Democracy, the respect for human rights and gender equality became widely accepted as key components of the concept of good governance. To these nine characteristics, a tenth can now be added: a learning environment that nurtures innovation and respects youth. All these characteristics work in concert to define a state of good governance. Thus an excessive assertion of cultural specificity cannot be allowed if it contravenes one group’s fundamental human rights or gender equality.
 
To operationalize the concept of good governance, a few words about each of these ten characteristics may be pertinent. I will come back to that in a moment. First I would like to introduce the concepts of development as freedom and sustainability as opportunity.
 
Development as Freedom:
 
Development as Freedom was brilliantly articulated by Amartya Sen in a series of lectures at the World Bank, later published in a book by the same title. Freedom of choice is fundamental to human well-being, and development is about maximizing the domain of choices for all people. A society of well-fed, well-educated slaves is not what anyone would aspire to.   Implicit in this definition is also the reduction of poverty, since the poor are circumscribed by their poverty from exercising the range of choices that others in a society are capable of.
 
From an economic point of view, we value the availability of options and the ability of persons to exercise choice as consumers, for without it, there is no functioning market mechanism. Market failures, in terms of asymmetry in information, or monopolistic or oligopolistic practices are terrible, but so is the inability of large numbers of people to participate in the market by freely exercising choices. “Good Governance”, as defined by the ten characteristics mentioned above, would nurture greater participation and lead to reduction of poverty in the sense that Amartya Sen described. Good governance is not only compatible with “development as freedom”, it is essential for it.
 
Sustainability as Opportunity:
 
The words “sustainable development” have become part of our lexicon following the Bruntland Commission Report (Our Common Future, 1987) and the widespread acceptance of the environmental agenda after the Rio earth Summit of 1992. Then the following definition was made famous: “Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.” This is philosophically appealing, but the concept is not operational. Needs are clear enough for starving people, but what does it mean for people who already own two cars and three TVs? It is the well-off in the world who consume about 85% of world output, not the starving poor. The concept of “needs” was not really operational to guide development policy.
 
A number of us went on to redefine the concept into: “Sustainability is giving future generations as many opportunities as, if not more than, we have had ourselves”… This is very close to the Bruntland philosophy but has the advantage of being operational. This means giving future generations as much or more capital per person than we have today. We went on to refine the concept to include four kinds of capital: man-made, natural, human and social capital. These were partially substitutes and partially complements. We quantified the concepts and made estimates of the real wealth of nations. We did two rounds of calculations, adding up to three hundred country studies over two time periods. The results were always the same: Human and social capital accounted for about 60% to more than two thirds of the real wealth of nations. Man-made capital (produced assets) accounts for 15-20% and natural capital (including ecological services) for the rest.
 
Instead of economists continuously refining their measurement and understanding of man-made capital that seldom accounted for more than 20% of the total, they should focus on a better understanding of the remaining 80% and especially that all important human and social capital components.
 
Human and social capital are not the same. Human capital is the embedded in the human being, and which moves with the person when they migrate. Social capital is the glue that holds society together. It builds trust, promotes shared values and allows transactions to take place while nurturing solidarity.   Thus Somalia and Yugoslavia have wide differences in the level of human capital that they enjoyed, yet both societies unraveled due to a lack of social capital that could hold sub-groups within the national framework and its presumed shared identity.
 
Social capital is essential for good governance. It is the shared values of society that enable social solidarity to exist, and it is these values that enable a society to enact laws transparently and abide by them. If the precepts of good governance were essential for the proper economic investment climate, they are even more important for the very concept of nurturing social capital. Good Governance and social capital tend to interact in a mutually reinforcing fashion, each drawing strength and reinforcing the other.
 
Indeed this was a primary result of the pioneering work of Robert Putnam in Italy (Making Democracy Work, 1993), which showed that civic mindedness, and the density of voluntary horizontally-based associative institutions of the civil society resulted in responsive government, and high efficiency of public services as well as noticeably better economic performance and social services.
 
Good Governance and Development:
 
So there we have it: Good Governance is essential for development as freedom, and it is essential for the promotion of social capital and to ensure sustainability of development. Beyond that, it is also the guarantor of human dignity. With corrupt and inefficient governments, not to mention despotic ones, citizens are at risk of being humiliated and deprived of their fundamental human rights.  It is also desirable as an end in itself, not just as a means to other laudable goals. Good governance is the embodiment of our creative involvement as responsible citizens. It is the product of our actions as citizens, it is our creation, and we should be proud of it. 
 
Globalization and the Lessons of the past:
 
But what about competition and globalization? Surely the competitive globalizing world in which we live has no place except for the fast and the powerful. Compassion is for the weak, this is the dawn of a new age, let the weak complain, for they cannot stop the march of history, etc.
 
 “...exploitation of the world market [has] given a cosmopolitan character to production and consumption in every country … All old-fashioned industries have been destroyed. They are dislodged by new industries, whose introduction becomes a life and death question for all civilized nations....In place of old wants, we find new wants, requiring for their satisfaction the products of distant lands and climes. In place of the old local and national seclusion and self-sufficiency, we have intercourse in every direction, universal inter-dependence of nations.”
 
Contemporary as they sound, these words do not come from the present. They are from Karl Marx’s The Communist Manifesto of 1848. The pangs we are feeling today are remarkably similar to those felt during the industrial revolution two centuries ago. The question before us is whether we have learned from that experience to design a more humane way of dealing with the inevitable wrenching that accompanies such processes of technological change.
 
To avoid repeating the problems of the industrial revolution, from child labor to the robber barons, from widespread urban misery to massive inequities, we must harness the emerging universal values of our common humanity, and create a coalition of the caring to ensure that good governance satisfies the basic needs of the destitute, respects the human rights of all and ensures well-being and prosperity.
 
We must recognize that the private sector will not take care of public goods, and that the public must remain engaged to deal with market failures and public goods.
 
We must change the calculus of our economics and finance, to internalize the full social and environmental cost of our decisions. Some headway is being made on this at the local level, but we have certainly not even begun to introduce the global costs of local actions at the level of national policy. We must rectify our national accounts that count a forest standing as zero and give it a positive value only if it is chopped down.
 
We should measure the growth in our capital stock not just the growth in the volume of our activities. We should be concerned with nurturing natural capital and building human and social capital as much as we are about economic growth.
 
All of that is possible. It will not diminish the vibrancy of the entrepreneurial spirit, nor will it curb economic growth, a prerequisite for effective action against poverty, nationally and globally. But it will help make new investments environmentally friendly and socially responsible.
 
Such measures will also not affect any of the positive aspects of globalization, which remains an important positive force in today’s world. Small countries of the developing world can escape the limits of small domestic markets by selling to the whole world. They can tap literally endless sources of funds if they have the ideas and the abilities. The premium on the knowledge based societies of the future means that they will be less dependent on their specific natural resource endowments. But all of that will favor the nimble and the educated. 
 
Good governance, by its inclusionary aspects, its inherent social conscience and the practice of democracy that it inevitably brings about, is a good safeguard that competition is matched with compassion, and that we do not repeat the same mistakes that accompanied the industrial revolution.
 
Free markets and competitive markets:
 
I would like to ban the word “free markets” from our lexicon, because it has been misinterpreted in so many quarters. What we really mean is “competitive markets”. If Wall Street represents the quintessential “free market” let me remind you that it is one of the most severely regulated. You have to file certain types of audited financial data. If a person acquires more than 5% of the equity of a company it has to be publicly acknowledged.   Insider trading is criminalized and prosecuted. Anti-trust laws to prevent monopoly are in place, and are enforced.
 
All competitive markets require an effective state apparatus behind them: property rights, binding contracts and effective judiciary to name but a few. A totally “free market” is an invitation to predators, as we saw in the Pyramid scheme that almost caused a civil war in Albania shortly after its independence.
 
Yet, the international capital markets are more similar to those of Albania at the time of the pyramid schemes than they are to Wall street today. The volatility is unbelievable and the inadequacy of the current level of oversight practiced by the international agencies, especially the IMF, is obvious. There is a real need to strengthen that oversight, and temper the volatility of the markets. This will require greater discipline from all countries, and a voluntary relinquishing of some of their sovereignty in the interest of all.
 
Africa Today:
 
So how does all this square with the experience and practice of development in Africa?    There is no question that to be competitive Africa needs to improve its Governance. By that I mean that African societies must ensure that they are global leaders – not reluctant followers – in the promotion of  transparency, accountability, pluralism, participation, the rule of law and free flow of information.   Democracy, the respect for human rights and gender equality  are essential. These are the qualities that promote both human and social capital, they are not incompatible with our traditions or our cultural identity. Indeed, they are part of a proper reading of the heritage in many African societies. 
 
No claim to cultural specificity can be given sanction if it deprives women of their basic human rights in the name of convention or mutilates girls in the name of custom.
 
Educating girls and empowering women is one aspect of the transformation that brings good governance and competitiveness together. For a society cannot hobble half its population and expect to compete effectively with one that nurtures the talents of all its people.   Likewise, we cannot stifle the young, and expect the imaginative designs of tomorrow to emerge from the old.   We must create a learning environment that nurtures innovation and respects youth. All these characteristics work in concert to define a state of good governance.  Will the Africans actually do all this? I say yes.
 
Africa today is moving, albeit not as fast as some of us would like.   But the path forward is full of obstacles. Civil strife, limited infrastructure, AIDS, environmental fragility and other obstacles will require a major effort by African societies. Solidarity rather than ethic conflict must be nurtured. We can look at some cases where things are moving far more than some of our critics would recognize. But that record remains uneven, with enormous disparities between individual countries, and even between different aspects within a single country.
 
 
Enter the Civil Society:
 
Reform in Africa is on every Agenda. There is so much talk that many question that the verbiage is a smokescreen for inaction. I don’t believe so. I believe that action on reform has started and will intensify. However, how you do reform is as important as what the reform is. Reform, true reform, is not by government edict alone. It involves the citizens and promotes participation. It depends on a true partnership between government and the civil society. An informed and engaged citizenry is the best guarantor of lasting success and enduring change. Enter the civil society. 
 
Mobilizing the civil society can become a very potent force for change. It creates the climate within which once unthinkable decisions become easy. It transforms the relationship between the government and the citizens. Mobilizing the civil society is done by engaging the intellectuals and working at the grass-roots. It is to build coalitions of the caring on issue after issue. It is different from building a political party, which is expected to have a coherent platform on many issues. It is different from lobbying governments for a specific purpose. Decisions achieved by behind-the-scenes lobbying in dark corridors are antithetical to the true spirit of openness that reform, true reform, should require. 
 
I have personally had experience of working with eminent civil society leaders to build vast civil society efforts on an international scale. Whether it was the call to place water on the international developmental agenda, or making micro-finance acceptable to the international financial institutions, or directing the spotlight on the issues of youth employment, or other efforts to improve the design of environmental policies, all these efforts have convinced me that it is more than just the adoption of formal resolutions by governments. Building a movement takes time, dedication and effort. It is about building alliances and getting the largest possible number of people to actually become involved in a participatory fashion to achieve results on the ground. Of course, government legislation needs to be passed, and good governance needs to be insured, but such matters are assisted and reinforced by the presence of an engaged civil society.  
 
The African Civil Society is stirring. Over a decade ago, President Obasanjo of Nigeria (who was then a private citizen) called on Dunstan and myself to join a group of distinguished Africans to help chart a course for what was called Stability, Security, Development and Cooperation in Africa (SSDCA). We met in Uganda for a big event and produced a manifesto that called for action on a wide range of governance issues.   Subsequently many of these issues became so “mainstream” that e forget how they were considered to be at the forefront of development thinking at the time.   More recently I north Africa, Arab intellectuals met and crafted a statement that would express their own aspirations, free from external interference or coaching, whether from current governments or foreign powers. The Result was The Alexandria Declaration of March 2004.   A remarkably comprehensive document, that calls for far ranging reforms in the political, economic, social and cultural arenas. Had Dunstan been able to join us, he would have been proud of the declaration, and more importantly, its effects in promoting broader acceptance of the role of the civil society in reform efforts in different parts of the Arab world. This is a relevant issue to mention here because two thirds of the Arab states are African states. 
 
Mobilizing the civil society is driven by a different logic than that which governs inter-governmental conclaves from the United Nations to the African Union. It is also very different from the widespread attitude of apathy and disengagement that prevails in some parts of Africa where everything is left to the governments to decide, and the public is there – like a spectator – to judge their performance with applause or cat-calls, but not really expecting to participate at all. It is time for the spectators to become engaged citizens, and to take charge of their destiny. That is what a civil society effort is all about, and we have only just begun.
 
But what about African Governments?
 
Government Action at the country level:
 
To respond to global shocks and make effective use of new opportunities, African governments must have effective action in some key areas:
 
First, credible macro-management of the economy. The preeminent role of government in setting and maintaining the proper macro-economic fundamentals is essential for any effective growth, as well for a well-functioning competitive economy. The costs of inflation and over regulation tend to be felt above all by the poor.
 
Second, flexible institutions.   The one common denominator of the global knowledge driven economy of the new millennium is the pace of change itself. The successful, competitive economies of the future, those that will be crating the jobs and the prosperity for their people will be the flexibility of their institutions. Institutions capable to recognize and interact with the emerging market opportunities halfway around the globe, or the new technologies, such as the Internet, or satellite mapping and telecommunications, that make the obsolescence of what we invested in an ongoing fact of life.
 
Third, facilitate the flow of knowledge and information. The world is awash in more information than ever before, and governments that try to regulate that flow will be putting their enterprises at a distinct competitive disadvantage. The future will require more access to open communications and information at a speed that will defy our current thinking and that will exceed most of what we can today imagine.
 
Fourth, investment in human and social capital. with so much emphasis being paid to the concerns of promoting economic growth an protecting the environment, we must reaffirm the essential role of human and social capital. The future is going to be a knowledge based society, and that will require enormous and continuously upgraded skills. This means that education and health and nutrition of persons are a primary competitive asset as well as being the best investment that societies can make. From both equity and economy, it is essential. But equally important is to strive to build up the shared values, the legitimacy of the institutions of mediation in a society, for that is the essential glue that holds societies together and allows them to function.
 
Fifth: to enhance inter-African cooperation: starting with trade, which is very low compared to other regions, and to learn from the European experience, and focus on the nitty-gritty unglamorous but essential tasks of customs deregulation, harmonization of banking and investment regulations.
 
Sixth: Governments should pass enabling legislation to allow the civil society to flourish.
 
The Civil societies, for their part, must be much more involved. From local to global, the civil society is the agent of change and the catalyst for transformation. Good governance and competitiveness go hand in hand. We can create a better future at home while simultaneously competing and collaborating with the rest of the world. We can retain our identities and values in tandem with opening up to the rest of the world.   We can realize our common vision for a better future.
 
A Vision of Sustainable Development:
 
Beyond competitiveness and good governance, there is the vision of a better future. 
 
A vision which sees that Development is like a tree: that it can be nurtured in its growth by feeding its roots not by pulling on its branches.  
 
A vision where Freedom and well-being are the ends for which development is the means. Freedom of choice, to all individuals must respect the fundamental human rights of all others. Societies must fashion the wise constraints that make people free.
 
A vision where Progress, real progress, is to empower the weak and the marginalized, working in harmony with nature, to become the producers of their own bounty and welfare, not the recipients of charity or the beneficiaries of aid.
 
A vision of Sustainability as Opportunity , dedicated to leave future generations as many, if not more, opportunities than we have had ourselves.
 
This is the vision of sustainable development, a vision that is people centered and gender conscious that seeks equity for all and recognizes the interdependence of all living things. An ethical vision, that will lead us to act fairly to each other, to nature and to future generations.   It is a vision worthy of Africa at the start of the new millennium.
 


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