In September, Pakistan passed an important democratic milestone: its first peaceful handover of power from one elected government to another, breaking the long cycle of coups and military dictatorship the country has suffered through since its independence.
This moment was a long time in the making, the culmination of many efforts by many different segments of society. Could the slow-and-steady transition be a model for other countries to follow?
Not counted: Nigeria’s GDP model is based on the year 1990. (Photo: Wayan Vota)
In 2014, one small policy tweak will grow Nigeria’s economy by 40 percent, causing it to overtake South Africa as the largest in the region. A similar change in Ghana caused that country’s economy to grow 60 percent, while in Guinea-Bissau and Gambia the economy doubled in size. Even the United States increased its output by 3.6 percent using the same technique. What happened?
GDP rebasing. Simply put, these countries are all changing the way they measure their Gross Domestic Product — the sum total of all economic activity in a country in a given year — to better reflect what’s really happening the economy.
When Nigeria’s rebasing is complete, it won’t mean the country is actually producing 40 percent more goods and services. Living standards won’t jump by 40 percent — the government will just be counting more accurately. But it’s still hugely important.
Markets thrive on transparency. (Photo: Wikimedia Commons)
Many of the world’s largest and fastest-growing companies now come from emerging markets. But according to a recent report, these companies lag behind their more established peers in transparency — a handicap that could prevent them from becoming true global leaders in their fields.
Looking at 100 large multinational companies from 16 emerging market countries, Transparency International found an average transparency score of just 3.6 out of 10. A 2012 report on the world’s largest companies using the same methodology found an average score of 4.7. And while only one in five of the emerging-market multinationals had a transparency score above 5.0, just under half of the largest companies did.
These results should be deeply concerning for the executives of these companies, their investors, and the governments and citizens of countries where they operate.
Govinda explains the merits of a high-end cookstove to a potential customer. (Photo: Think Africa Press.)
The adjective “unskilled,” like many words favored by economists, can be highly misleading. Trying to survive on the streets in a Kenyan slum, for example, takes a lot of skills — just not ones that are easy for the market to value and reward.
Take Alex Govinda, for example: as a homeless youth in Kwangware, on the outskirts of Nairobi, he had to hustle every day just make enough money to eat, collecting and selling scraps — and sometimes stealing shoes or mobile phones, too. Now he is an expert salesperson, using his skills to hawk high-quality goods to his neighbors and earning a decent living in the process, thanks to a unique arrangement set up by an American NGO called LivelyHoods.
Govinda’s situation — and the solution LivelyHoods came up with to solve it — are a perfect illustration of the institutional forces holding millions of poor people around the world back to from reaching their true potential.
Democratic Switzerland is the world’s most competitive economy. China doesn’t make the top 10. (Photo: Wikimedia Commons)
The World Economic Forum has just released its latest Global Competitiveness Report, which assesses the competitiveness of 148 economies around the world. This year’s top ten includes few surprises, but does illustrate an important fact: eight of them are democracies and rated “Free” by Freedom House’s Freedom in the World index. (Singapore, which ranks second, and Hong Kong, which is under Chinese sovereignty and ranks seventh, are both rated “Partly Free.”)
Why is this important? At CIPE, we believe that democratic and economic development go hand in hand: strong democratic institutions support strong market institutions, and vice versa. But this belief is not shared everywhere. There is a growing contingent who feel that “strong” leaders in charge of highly directed economies can lead poor countries to prosperity, and that elections and debate simply get in the way.
Economist Dani Rodrik argues that democracy as we know it is a product of industrialization.
Most rich countries followed the same historical path to economic development: a period of industrialization, followed by rising productivity and a shift away from manufacturing to a service economy. But economist Dani Rodrik argues that today’s developing countries seem to be de-industrializing at an earlier, and poorer, stage — a process which could threaten the development of democracy.
In the United States, employment in manufacturing peaked at about 27 percent of the workforce, followed by a transition to a service-oriented economy which today employs less than 10 percent of its workforce in industry. Other Western countries followed similar trajectories: Germany, for example, peaked at about 40 percent before steadily declining.
But, Rodrik points out, today’s emerging economies seem to be shifting away from manufacturing at a much earlier stage. Even industrial powerhouse China seems to have never employed more than about 15 percent of its population in manufacturing — and that share is already declining, even as China’s economy continues to grow.
Yesterday, heavyweights in the world of democracy studies got together at the National Endowment for Democracy — which, like CIPE, turns 30 this year — to discuss what we know about supporting democratic transitions and what we still have to learn.
The idea of “democratic transitions” is a relatively recent one. As formerly authoritarian countries like Portugal, Spain, Greece, the Philippines, South Korea, Taiwan, and many in Latin America shifted to democratic forms of government in the 1980s — followed by many formerly Communist nations after the fall of the Berlin Wall and the collapse of the Soviet Union — a new vocabulary was needed to explain what was happening and why.
Political scientist Samuel Huntington divided these transitions into “waves”: the first occurring in the 19th century, the second after World War II, and the third beginning with Portugal’s “Carnation Revolution” in 1974 and arguably continuing through today — with most countries in the world now under some form of democracy.