Wolfensohn: The End of Development

♠ Posted by Emmanuel in , at 11/29/2007 01:03:00 AM
James Wolfensohn, World Bank president from 1995 to 2005, has remained active after his spell at the controversial international financial institution. In 2005, he set up a strategic consulting firm focused on emerging markets that bears his name, Wolfensohn & Associates. In 2006, he became the chairman of Citigroup's International Advisory Board. Clearly, Wolfensohn still has an affinity for taking a "big picture" view of international matters, particularly development. Though he doesn't say so explicitly, James Wolfensohn appears to be touting--you guessed it--the end of development. According to him, "the North-South divide is now obsolete" and we should "bid farewell to old development divides." Francis Fukuyama proposed The End of History, Kenichi Ohmae The End of the Nation-State, and Jeffrey Sachs The End of Poverty. If I had a dime for every End of... book purporting something which hasn't happened or isn't likely to happen, I'd be a millionaire. You know, I'd like to write The End of Books About the End if it means finishing off endless books with this sort of hanckeyed title.

Interested? Read on, by all means. BTW, YouTube has a recent interview with Wolfensohn about his post-World Bank days. And when The End of Development hits the bookstores, you can say you've been there, done that, saw the movie, bought the t-shirt...

The notion of a divide between the rich north and the poor and developing south has long been a central concept among economists and policymakers. From 1950 to 1980, the north accounted for almost 80 percent of global GDP but only 22 percent of its population, and the south accounted for the remainder of global population and 20 percent global income.

But the north-south divide is now obsolete. The dynamic process of globalization has resulted in unprecedented levels of growth and interdependence. However, while this has blurred the old division, new ones have emerged, splintering today's world into four interconnected tiers.

The first tier comprises the affluent countries, notably the United States, European nations, Australia and Japan — with a combined population of around one billion and per capita incomes ranging from $79,000 (Luxembourg) to $16,000 (Republic of Korea). For the past 50 years, these affluent countries have dominated the global economy, producing four-fifths of its economic output. However, in recent years, a new set of economies has emerged that is contesting the affluent countries' economic dominance.

These emerging economies — call them the Globalizers — constitute a second tier of about 30 poor and middle-income countries (including China and India), with per capita GDP growth rates of 3.5 percent or more, and a total population of 3.2 billion, or roughly 50 percent of the world's population. These countries have experienced unprecedented levels of sustained economic growth that may well enable them to replace the "Affluents" as engines of the world economy.

The Globalizers are a large and diverse group of countries — in size, geography, culture and history — that have learned how to integrate optimally with, and leverage, the global economy to catalyze their development.

A third tier is made up of roughly 50 middle-income countries with a combined population of 1.1 billion. They are also home to many of the world's critical natural resources, possessing around 60 percent of proven oil reserves. But these "Rentiers" have not been able to translate the rents of their natural resource wealth into sustained economic growth.

The fourth tier comprises countries that are lagging behind — the world's poorest economies, with more than a billion people. They continue to stagnate or decline economically. Mostly located in sub-Saharan Africa, these "Laggards" are largely isolated from the global economy, and they face crucial development challenges.

This emerging four-tier world presents three key challenges.

First, we need to increase our efforts to ensure that the Laggards are no longer left behind. This requires policy changes as well as more generous and more effective aid. If one considers the issue of aid flows, one finds that though development aid rose in 2005 to $107 billion, most of the increase was geared toward "special circumstances," such as debt forgiveness and for Iraq and Afghanistan. The sad truth is that development aid to Africa has decreased from $49 per person in 1980 to $38 per person in 2005. The true development needs of Laggard countries and other parts of the world are not being met, despite the rhetoric of scaling up aid.

Second, the old powers need to accommodate the rise of Globalizer economies — particularly China and India — by reforming our international order. The Affluents will continue to be major global players, but as the Globalizers' relative economic power rises, they will demand a greater role in international affairs. Most Affluents seem unprepared for this change, but such demands will need to be accommodated.

Finally, while the Globalizers have lifted millions of people out of poverty and reduced global inequality, this has not resulted in a more equal world, because star economies like India and China are experiencing a rise in domestic inequity. Whether it is coastal versus inland or rural versus urban, these countries must tackle the widening disparities, because high inequality may well threaten their very ability to continue growing as they have.

If we are to create a more equitable world, then traditional levers of development such as trade, investment, aid, and migration need to be scaled up comprehensively and coherently, and global institutions must be reformed. This would improve our ability to address global challenges and better our prospects for building a more equitable world. Otherwise, we might bid farewell to old development divides only to welcome new ones.