Toespraak Koenders in ontvangst nemen World Development Report 2009

Toespraak | 26-01-2009

Gelegenheid:

Ladies and gentlemen,

‘Lagos is not catching up with us. Rather, we may be catching up with Lagos.’ This intriguing observation about the former Nigerian capital comes from the world-renowned Dutch architect and Harvard professor Rem Koolhaas. Koolhaas, who has long had a special interest in megacities, spent a few months in Lagos studying how urban centres respond to explosive increases in population. He couldn’t have picked a better place for his research: since the early 1970s, the city’s population has increased fivefold, from three to 15 million people. This number is expected to pass 24 million before 2020.

Life in Lagos is hard for many of those millions. Living in this highly unpredictable environment means improvising, networking and taking risks. It means learning to deal with roads in a state of near-constant gridlock, putting up with power cuts and water shortages that can last for days, and being constantly on guard against crime. Why is it, Koolhaas quite reasonably asks, that 21 new people settle here every hour?

The answer, as he discovered, lies in the energy and inventiveness that characterise megacities like Lagos. These qualities attract people like a magnet. People who hope to build better lives for themselves in the city. It is this energy and inventiveness that transforms every traffic jam into an open-air market, where you can buy everything under the sun. With this discovery, Koolhaas realised that Lagos should not be seen as a hopeless case, but rather as a city with a future, despite the poverty and misery. A city that has learned to respond to the processes of globalisation. Partly in line with Western standards, partly in a ‘fragile’ manner.A city with winners and losers. With urban careerists and unskilled people from the countryside that end up in slums.

I bring this up is because I’m convinced that Lagos is emblematic of many cities.
In sub-Saharan Africa and far beyond. I’m also telling you this because Koolhaas’s experience contains an important lesson for us. We can only make sense of developments overseas if we are willing and able to look beneath the surface. Do we see slums, or engines of growth? Jobless growth, or productive transformation? Globalization through jobs and technology transfers, or through corrupt networks, conflict and illegal migration.

Ladies and gentlemen,

I agree with the World Development Report that economic geography matters. We’ve known this for quite a while; yet we often fail to act accordingly. That’s unfortunate, since an appreciation of economic geography can help prevent politicians and policymakers all over the world from committing terrible blunders. Blunders that have a negative impact on the lives of many.

In this light I am pleased economic geography has been enjoying renewed interest in recent months. It all started with the decision to award the Nobel Prize in economics to the American economist Paul Krugman, for his research into trade flows and the location of economic activity. Not long after that, the World Bank published this thought-provoking report.

With this report the World Bank has once again shown itself to be worthy of the title ‘knowledge bank’. I am pleased that this knowledge is operational zed by the bank. In my view the authors of the WDR have succeeded in giving the debate on growth and distribution an extra geographic dimension. In drafting the report they have not been afraid to take potentially controversial positions. For example, they argue that governments should facilitate population concentration and economic integration both within and between countries as a way of stimulating long-term economic growth. This is a bold recommendation at a time when bleak economic news has caused many governments to turn inward.

No less controversial was the recommendation that governments must take care not to redistribute economic growth prematurely. But what is prematurely? However you look at it, growth is geographically unbalanced, and an excessive emphasis on fair distribution can ─ in the authors’ view ─ come at the expense of growth. And excessive here is maybe the appropriate word, open to interpretation. As always the devil is in the details. Divergence can be limited within countries, but is much harder to limit between countries. Last year divergence between countries slightly increased. This – unfortunately – seems to be part of a structural phenomenon. Meanwhile economic crises such as the one we are experiencing right now shift geographic balances through the cost of investment and transport.

The report even goes so far as to say that unbalanced growth can lead to broadly shared prosperity, to inclusive development. As I see it, these conclusions go to the very heart of the political debate on distribution. As a politician myself, I know as well as anyone how hard it can be to explain why the government has decided to invest in one region rather than another; in one sector rather than another; in one project rather than another. This isn’t easy, but it is necessary. It is what responsible politicians do. In their own countries but also on the world stage. However, there are limits to this. We cannot, for example, expect a Rwandan politician to write off his country simply because of its unfavourable location. Nor can he be expected to unconditionally accept the consequences of what Swedish economist Gunnar Myrdal called the ‘backwash effect’: the movement of wealth and labour from poorer, peripheral areas to more central regions of economic growth and industrial production. Peripheral areas, too, need some degree of economic development. For reasons of ethnic and political stability, and for the sake of social cohesion.

I’m pleased that this report contains a positive message for responsible politicians.
Namely: with the right mix of institutions, infrastructure and targeted interventions, any government has the potential to achieve inclusive development, however unbalanced economic growth can sometimes (temporarily) be. This message cannot be overstated.

Ladies and gentlemen,

I have a great deal to say, but unfortunately little time to say it in. So I will confine myself to addressing three important questions. The first is: what can economic geography teach us about sustainable poverty reduction? The second is: what lessons does this report hold for Dutch development cooperation? And the third is: are the recommendations of the World Bank still relevant in this economic crisis?

Economic geography and sustainable poverty reduction

I’ll begin with the first and most obvious question: what can economic geography teach us about sustainable poverty reduction? Let’s run through the three dimensions cited in the report. The first of these is density. This is the most important dimension at local level. At this level policymakers must use market forces to encourage concentration and convergence. By guaranteeing basic security, for example. Or by urban planning. Being Dutch I consider this to be a key message. Spatial planning has been crucial for the development of this country.

The second is distance. According to the authors this is the most important dimension at national level. The most important lesson that economic geography can teach us is that governments can combat poverty by reducing the distance that workers must cover to reach density. This means investing in infrastructure, including roads and railways. It also means managing labour migration. I will come back to this issue.

Finally, there is division. This dimension is of great importance from an international perspective. The sources of division are many and varied, including borders, currency and laws. The authors are right to argue that, internationally speaking, these are much greater barriers than distance. Anyone who has ever attempted to travel from Lagos to Cotonou, the largest city in Benin, will know at once what they mean. Even on a good day, you’ll have an endless wait at the visa office. Even on a good day, you could be stopped 15 times at various roadblocks. Even on a good day, you will be kept waiting for hours at the border post. And remember: this is on a good day, to cover a distance of less than 100 kilometres!

The authors also make a relevant point about the importance of regionalisation. Here in Maastricht, people have a better idea than most about the positive effects of regionalisation. Indeed for some, it’s hard to imagine what things were like when there was still a physical border running along the outskirts of the town. This was a time when people who lived along the border kept two ─ or sometimes even three ─ wallets: one for Dutch guilders and one for German marks (or Belgian francs).

But history teaches us that regional integration offers much more than just practical advantages. Research has shown that regional spillover can be substantial. In other words, if you are in a partnership with your neighbour and that neighbour grows, you also stand to benefit. Finally, regional integration makes it easier to diversify your own economy. For diversification and specialisation you need a large market ─ larger than just Benin, to stick with my earlier example.

So there are many advantages to be reaped, and yet regional integration is not an easy process. We in Europe know that from experience. If there is any area in which political economy is important, it is in regional integration processes. A good example of this are the Structural Funds allocated by the European Union to support the poorer regions of Europe and integrate European infrastructure. These Funds have proven to be very politically sensitive because each Member State wants the largest possible piece of the pie. This has led to interesting outcomes. The relatively wealthy Dutch province of Flevoland, for example, has been able to profit from Structural Funds for many years. But the country that has undoubtedly benefitted most from Structural Funds is Ireland. Another telling illustration of the way politics and economics can be intertwined in the case of regionalisation is the difficult negotiations on the Economic Partnership Agreements between the ACP regions and the EU.

In this case we Europeans are not totally without fault. So far, the EPA negotiations have achieved the exact opposite of what we set out to accomplish. In West Africa, for example, the interim agreements that have been concluded with individual countries are hampering regional integration instead of promoting it.

WDR and Dutch development policy

This brings me to my second question: what lessons does this report hold for Dutch development cooperation? I was pleasantly surprised to read the authors’ proposal for a new contract with Africa on page 282. Briefly put, this contract is intended to encourage governments in Africa to promote regional economic integration for the benefit of economic growth and distribution. The contract would seek to ensure freer movement of labour, capital, goods and services. And improved regional infrastructure and other regional public goods. In this way landlocked countries can profit from the growth of their neighbours along the coast, by being guaranteed access to ports, for example. As I said a moment ago, distance and division are the key themes in regional integration. It is heartening to see that a growing number of African leaders are recognising the value of regional integration.

But what would be the downside to such a contract? In exchange, donors would have to make a greater financial commitment to support social sectors in countries that are lagging behind. They would also have to increase their efforts to improve regional infrastructure and guarantee preferential access to products from sub-Saharan Africa, under liberalised rules of origin. It’s good to take such a differentiated look at development cooperation. Thankfully, the one-size-fits-all approach is now history.

With regard to the specifics of the proposed contract, I’d like to make a number of points:

1. I strongly agree with the authors that regional integration is crucial to Africa.
Donors must do their utmost to conclude the EPAs and intensify their Aid for Trade efforts. Having said this, we need to realise that regional integration processes are essentially about politics, rather than economics. As I explained earlier, no politician from a landlocked country can win support for regional integration with the argument that it will allow his country to supply an educated workforce to a neighbouring country with a coastline. This is why agricultural development is so important. Landlocked countries like Uganda and Zambia can be the breadbasket of industrialised countries on the coast. For more on this point I refer you to the 2008 World Development Report.

The Dutch government is doing its part on this issue: only last year I announced my intention to invest more in agriculture and rural industry in developing countries. We already support the International Centre for Soil Fertility & Agricultural Development, which uses a value chain approach to improve productivity sustainably. We also support the work of the Forum for Agricultural Research in Africa. This Forum matches the work done by research institutes to the needs of small-scale producers and entrepreneurs. Finally, our own Centre for the Promotion of Imports from Developing Countries (CBI) has developed a number of successful Aid-for-Trade instruments. In 2007 and 2008 it has helped 400 exporters attain the necessary licences to export to the European market, thereby creating 14,000 jobs.

2. I agree that more needs to be done in the area of growth-sustaining infrastructure. infrastructure is vital, both nationally and regionally. In this light, I recently reshaped ORET (our Development-Related Export Transactions Programme) into ORIO (the Development-Related Infrastructure Facility), which was given a budget of €140 million a year. ORET was mainly geared to supplying and installing infrastructural hardware. ORIO, by contrast, also supports the project development phase and the first few years of management and maintenance. This promotes sustainability. In addition, ORIO gives untied aid, which means that it is open to the international business community. As a result, countries can get the best value for their money. In assessing ORIO applications, evaluators look at their potential impact on both growth and poverty reduction (growth and distribution). For example, a road-building project will be graded higher if it not only leads to more economic activity but also gives farmers and entrepreneurs access to new markets.

3. I understand the authors’ call to invest more in the social sectors in poorer countries. Primary education and healthcare are obviously important; indeed, they are the building blocks of a healthy and productive labour force. Yet it’s my belief that in the past decade, Dutch development cooperation efforts have been too one-sided in their focus on such social services, to the exclusion of the productive sectors. This is not to say that the modern development programmes I envision will ignore social sectors. Rather, they will take a broad view of these sectors, a view that encompasses professional education, for example. I recently began supporting professional education in 10 partner countries.

4. Finally, the report proposes preferential market access and liberalised rules of origin. Sub-Saharan Africa’s preferential access to the markets of the EU is regulated by the Everything But Arms initiative (for the LDCs), and by the interim EPAs (for the ACP countries). In both cases they can export an unlimited number of products to the European market, free of tariffs. I do believe that the rules of origin should be made more development-friendly. The Netherlands is doing its utmost within the EU to achieve this.

Have we touched upon every possible element of the proposed contract? I think the agenda could be much more extensive. Here are just a few of the themes that could also be part of modern development cooperation: land rights, labour rights and the fight against corruption in partner countries; chain responsibility and policy coherence in donor countries. And then of course there are the fragile states, where the agenda starts with peace and security.

Inclusive growth in times of economic crisis

And that brings me to the third question I would like to discuss with you today: are the recommendations of the World Bank still relevant in this economic crisis? Theoretically, the answer to this question is relatively simple: of course they are. On the other hand, clearly the crisis has not made implementing these recommendations any easier.

Last week the president of the African Development Bank sounded the alarm. Without coordinated measures, many developing countries are in danger of collapse, due to the falling price of raw materials, highly volatile exchange rates and plummeting share prices. At the same time Western banks are pulling their money out of developing countries to alleviate problems at their headquarters in London and elsewhere. We see that growth has been captured more and more by high income groups. Although much “dense” growth has taken place in India, the absolute amount of desperately poor has increased to 500 million.

For late-comers in the world economy it is more difficult to find and formulate a comparative advantage which stimulated productive transformations and employment. And even the coastal zones of China find in time a time of economic downturn that they are extremely vulnerable. Exports are plunging, tens of thousands of factories are closing and tens of millions of newly employed workers are going back to their impoverished villages. Nobody wants to go back to autarky, but in a medium and long-term ecological and economic stren is enhanced through the model that is promoted in this report. In the long term this can have serious consequences for African businesses, according to the president of the African Development Bank.

I would like to add that it is not only African businesspeople who are struggling with these problems. As a result of declining private capital flows, African governments are also having a hard time finding the funds to make necessary investments in economic infrastructure. Lower export volumes, falling remittances, less tourism, less credit ─ so many negative effects are converging on the world’s poorest countries. This is especially disheartening considering how much progress has been made in recent years. Last year the World Bank determined that a large number of countries in sub-Saharan Africa had demonstrated sustained economic growth for the first time in 30 years. Of course, this was largely the result of the high price of raw materials. But still. These countries need solid growth to make investments. To diversify their economies and to pursue the Millennium Development Goals. And at a time like this, that growth is at risk.

As I see it there are four things that must happen:

1. First of all, rich and poor countries alike must join forces to limit the impact of the current crisis on the world’s poorest countries. We cannot allow them to be deprived of the opportunity for sustainable development by a crisis that is in no way their fault. The World Bank and the IMF have an important coordinating role to play in combating the crisis. Last year these institutions drew up a list of vulnerable countries that require immediate support. Now it’s up to us to ensure that the special emergency procedures that have been drafted are actually implemented.

2. Secondly, donors must follow through on their earlier commitments. Official development aid must be predictable, especially at a time when developing countries are facing uncertainty as to foreign investments and remittances. A positive sign in this regard is the fact that heads of state and government from around the world reaffirmed the crucial role of development support at the Financing for Development Conference in Doha last November.

3. Our third major task is strengthening the international system of economic governance. As we speak, serious discussions are being held on how best to reform the current system. Fundamental changes will have to be made to prevent crises like this one in the future.

4. Finally, we need to rebalance aid so that infrastructure and productive capacities receive sufficient investment, and the increasing importance of the private sector is recognised. The urgency of investing in production and productivity was dramatically underscored by the food crisis, which has been caused in large part by a neglect of agricultural productivity. Rebalancing aid is an important step in remedying the lack of progress in the global partnership for development covered by MDG 8.

Ladies and gentlemen,

I have touched on a number of subjects which, to my mind, go to the core of the current debate on development cooperation. I’m honoured to be here with you this afternoon to accept this report. I would like to congratulate the World Bank on the publication of this important document. I would also like to thank my good friend Jo Ritzen and Maastricht University for their hospitality, as well as Maastricht Debates for organising this meeting.

I’m looking forward to the discussion. I would like to conclude with a word for the students taking part in ‘Career Development in Development Work’: I hope my talk has given you some sense of how important international cooperation can be.

Thank you.