Life Impact | The University of Adelaide University of Papua New Guinea Economic Development Lecture 13: Economic Governance

University of Papua New Guinea Slide 1 Lecture 11: Health Michael Cornish Overview Introduction Why should governments plan? Development planning models Plan failure The Washington and Post-Washington Consensus Political economy and governance –Case Study: Botswana and corruption The role of civil society

University of Papua New Guinea Slide 2 Lecture 11: Health Michael Cornish Introduction ‘Good and bad conversations’ Endogenous growth model Economic governance Civil society Development planning

University of Papua New Guinea Slide 3 Lecture 11: Health Michael Cornish Why should governments plan? Market failure: –Externalities and undersupply/oversupply –Factor price distortions –Abuse of market power –Information gaps –Coordination failure –Low-equilibrium traps –Lack of market!

University of Papua New Guinea Slide 4 Lecture 11: Health Michael Cornish Why should governments plan? Market facilitation –Keyfitz and Dorfman lists (Textbook p ) Savings gap Infant industry argument Geopolitical imperative Social objectives Political economy objectives Foreign aid

University of Papua New Guinea Slide 5 Lecture 11: Health Michael Cornish Development planning Aggregate growth models –Variants of Harrod-Domar (or AK models) –Target the savings rate –ΔY/Y = (s/k) – d –ΔY/Y = (((s π – s w )( π /Y) + sw )/ k ) - d –Problems: Average ‘k’ versus marginal ‘k’ Is it a plan?

University of Papua New Guinea Slide 6 Lecture 11: Health Michael Cornish Development planning Multisector models –Input-output / inter-industry model –Severe limitations –Over-complexity v over-simplification –Use the actual economy?

University of Papua New Guinea Slide 7 Lecture 11: Health Michael Cornish Development planning Social cost benefit analysis –Social prices (‘shadow prices’) –Measurement issues: Inflation and currency overvaluation Current factor prices Protectionism Savings deficiency Social rate of discount

University of Papua New Guinea Slide 8 Lecture 11: Health Michael Cornish Development planning Conclusions –Multi-tiered planning –Consultation, communication, coordination –Monitoring and evaluation –The need for action!

University of Papua New Guinea Slide 9 Lecture 11: Health Michael Cornish Plan failure Big plans… Weak data External shocks Institutional weakness Lack of political will Problems of government intervention

University of Papua New Guinea Slide 10 Lecture 11: Health Michael Cornish The Washington and Post-Washington Consensus IMF and World Bank: 1980s shift to free market approaches (‘neoliberalism’) –Structural adjustment loans –Neoclassical growth model Growth first (and only!) Recap: role of the IMF & World Bank Post-Washington Consensus –Endogenous growth model

University of Papua New Guinea Slide 11 Lecture 11: Health Michael Cornish Political economy and governance Self-interest standard of rationality –‘diffuse gainers and concentrated losers’ –The need for a crisis? Democracy v autocracy Corruption –Rent-seeking and opportunity cost –Worse for the impoverished

University of Papua New Guinea Slide 12 Lecture 11: Health Michael Cornish Corruption as a regressive tax…

University of Papua New Guinea Slide 13 Lecture 11: Health Michael Cornish Rule of law v GDP per capita

University of Papua New Guinea Slide 14 Lecture 11: Health Michael Cornish Case Study: Botswana and corruption Transparency International Corruption Perception Index: Botswana ranked 33 rd best in world How? –Legislative framework –Dedicated government agency –Public education

University of Papua New Guinea Slide 15 Lecture 11: Health Michael Cornish Rre Boammaruri (‘Mr. Honesty’)

University of Papua New Guinea Slide 16 Lecture 11: Health Michael Cornish Case Study: Botswana and corruption Effect? –Hard to measure exactly –GDP per capita: approx. USD 14,000 –High growth rates –…but high income inequality Gini coefficient 0.6!!

University of Papua New Guinea Slide 17 Lecture 11: Health Michael Cornish Political economy and governance Decentralisation –Making the decision closer to the problem –More decentralisation -> less capacity? Participation and empowerment –Who has the knowledge about the problems? –Resource mobilisation –Limited capacity / expertise

University of Papua New Guinea Slide 18 Lecture 11: Health Michael Cornish The role of civil society The citizen sector: NGOs NGOs as international charities NGOs as special interest groups NGOs against development Local NGOs The role of NGOs in development?

University of Papua New Guinea Slide 19 Lecture 11: Health Michael Cornish Goods Typology

University of Papua New Guinea Slide 20 Lecture 11: Health Michael Cornish The role of civil society NGO contribution to poverty alleviation: –Innovation –Program flexibility –Technical knowledge –Local public goods –Management of common property –Increase productive capacity –Representation and advocacy

University of Papua New Guinea Slide 21 Lecture 11: Health Michael Cornish