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

2. 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

3. 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

4. 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!

5. University of Papua New Guinea Slide 4 Lecture 11: Health Michael Cornish Why should governments plan? Market facilitation –Keyfitz and Dorfman lists (Textbook p546-548) Savings gap Infant industry argument Geopolitical imperative Social objectives Political economy objectives Foreign aid

6. 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?

7. 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?

8. 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

9. 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!

10. 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

11. 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

12. 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

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

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

15. 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

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

17. 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!!

18. 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

19. 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?

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

21. 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

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