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Human Development

Report 2013
The Rise of the South: Empowered lives.
Human Progress in a Diverse World Resilient nations.

S
W
E

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The 2013 Human Development Report is the
latest in the series of global Human Development
Reports published by UNDP since 1990 as
independent, empirically grounded analyses of
major development issues, trends and policies.

Additional resources related to the 2013 Human


Development Report can be found online at
http://hdr.undp.org, including complete editions
or summaries of the Report in more than 20
languages, a collection of Human Development
Research Papers commissioned for the 2013
Report, interactive maps and databases of
national human development indicators, full
explanations of the sources and methodologies
employed in the Reports human development
indices, country profiles and other background
materials as well as previous global, regional and
national Human Development Reports.
Human Development Report 2013
The Rise of the South:
Human Progress in a Diverse World

Published for the


United Nations
Development
Programme
(UNDP)
Empowered lives.
Resilient nations.
Human Development Reports 19902013
1990 Concept and Measurement of Human Development
1991 Financing Human Development
1992 Global Dimensions of Human Development
1993 Peoples Participation
1994 New Dimensions of Human Security
1995 Gender and Human Development
1996 Economic Growth and Human Development
1997 Human Development to Eradicate Poverty
1998 Consumption for Human Development
1999 Globalization with a Human Face
2000 Human Rights and Human Development
2001 Making New Technologies Work for Human Development
2002 Deepening Democracy in a Fragmented World
2003 Millennium Development Goals: A Compact among Nations to End Human Poverty
2004 Cultural Liberty in Todays Diverse World
2005 International Cooperation at a Crossroads: Aid, Trade and Security in an Unequal World
2006 Beyond Scarcity: Power, Poverty and the Global Water Crisis
2007/2008 Fighting Climate Change: Human Solidarity in a Divided World
2009 Overcoming Barriers: Human Mobility and Development
2010 The Real Wealth of Nations: Pathways to Human Development
2011 Sustainability and Equity: A Better Future for All
2013 The Rise of the South: Human Progress in a Diverse World

Regional Human Development Reports: Over the past two decades, regionally focused HDRs have also been
produced in all major areas of the developing world, with support from UNDPs regional bureaus. With
provocative analyses and clear policy recommendations, regional HDRs have examined such critical issues
as political empowerment in the Arab states, food security in Africa, climate change in Asia, treatment of
ethnic minorities in Central Europe and challenges of inequality and citizens security in Latin America and
the Caribbean.

National Human Development Reports: Since the release of the first national HDR in 1992, national HDRs
have been produced in 140 countries by local editorial teams with UNDP support. These reportssome 700
to datebring a human development perspective to national policy concerns through local consultations
and research. National HDRs have covered many key development issues, from climate change to youth
employment to inequalities driven by gender or ethnicity.

Copyright 2013
by the United Nations Development Programme
1 UN Plaza, New York, NY 10017, USA

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted, in any form or by any
means, electronic, mechanical, photocopying, recording or otherwise, without prior permission.

ISBN 978-92-1-126340-4

A catalogue record for this book is available from the British Library and the Library of Congress.

Printed in Canada by Gilmore Printing Services Inc. on Forest Stewardship Council certified and elemental chlorine-free papers.
Printed using vegetable-based inks and produced by means of environmentally compatible technology.

Editing and production: Communications Development Incorporated, Washington DC


Design: Melanie Doherty Design, San Francisco, CA

For a list of any errors or omissions found subsequent to printing, please visit our website at http://hdr.undp.org
Human Development Report 2013 Team

Director and lead author


Khalid Malik

Research and statistics


Maurice Kugler (Head of Research), Milorad Kovacevic (Chief Statistician), Subhra Bhattacharjee, Astra Bonini, Cecilia
Caldern, Alan Fuchs, Amie Gaye, Iana Konova, Arthur Minsat, Shivani Nayyar, Jos Pineda and Swarnim Wagl

Communications and publishing


William Orme (Chief of Communications), Botagoz Abdreyeva, Carlotta Aiello, Eleonore Fournier-Tombs, Jean-Yves
Hamel, Scott Lewis and Samantha Wauchope

National Human Development Reports


Eva Jespersen (Deputy Director), Christina Hackmann, Jonathan Hall, Mary Ann Mwangi and Paola Pagliani

Operations and administration


Sarantuya Mend (Operations Manager), Ekaterina Berman, Diane Bouopda, Mamaye Gebretsadik and Fe Juarez-Shanahan

| iii
Foreword
The 2013 Human Development Report, The in peoples capabilitiesthrough a focus on ed-
Rise of the South: Human Progress in a Diverse ucation, nutrition and health, and employment
World looks at the evolving geopolitics of our skillscan expand access to decent work and
times, examining emerging issues and trends provide for sustained progress.
and also the new actors which are shaping the The 2013 Report identifies four specific
development landscape. areas of focus for sustaining development
The Report argues that the striking trans- momentum: enhancing equity, including on
formation of a large number of developing the gender dimension; enabling greater voice
countries into dynamic major economies with and participation of citizens, including youth;
growing political influence is having a signifi- confronting environmental pressures; and man-
cant impact on human development progress. aging demographic change.
The Report notes that, over the last decade, The Report also suggests that as global de-
all countries accelerated their achievements in velopment challenges become more complex
the education, health, and income dimensions and transboundary in nature, coordinated
as measured in the Human Development Index action on the most pressing challenges of our
(HDI)to the extent that no country for era, whether they be poverty eradication, cli-
which data was available had a lower HDI val- mate change, or peace and security, is essential.
ue in 2012 than in 2000. As faster progress was As countries are increasingly interconnected
recorded in lower HDI countries during this through trade, migration, and information
period, there was notable convergence in HDI and communications technologies, it is no
values globally, although progress was uneven surprise that policy decisions in one place
within and between regions. have substantial impacts elsewhere. The crises
Looking specifically at countries which lifted of recent yearsfood, financial, climate
their HDI value substantially between 1990 which have blighted the lives of so many point
and 2012 on both the income and non-income to this, and to the importance of working to
dimensions of human development, the Report reduce peoples vulnerability to shocks and
examines the strategies which enabled them to disasters.
perform well. In this respect, the 2013 Report To harness the wealth of knowledge, ex-
makes a significant contribution to develop- pertise, and development thinking in the
ment thinking by describing specific drivers of South, the Report calls for new institutions
development transformation and by suggesting which can facilitate regional integration and
future policy priorities that could help sustain SouthSouth cooperation. Emerging powers
such momentum. in the developing world are already sources of
By 2020, according to projections devel- innovative social and economic policies and
oped for this Report, the combined economic are major trade, investment, and increasingly
output of three leading developing countries development cooperation partners for other
aloneBrazil, China and Indiawill surpass developing countries.
the aggregate production of Canada, France, Many other countries across the South have
Germany, Italy, the United Kingdom and the seen rapid development, and their experiences
United States. Much of this expansion is being and SouthSouth cooperation are equally an
driven by new trade and technology partner- inspiration to development policy. UNDP is
ships within the South itself, as this Report also able to play a useful role as a knowledge broker,
shows. and as a convener of partnersgovernments,
A key message contained in this and previous civil society and multinational companiesto
Human Development Reports, however, is that share experiences. We have a key role too in
economic growth alone does not automatically facilitating learning and capacity building. This
translate into human development progress. Report offers very useful insights for our future
Pro-poor policies and significant investments engagement in SouthSouth cooperation.

iv | Human Development Report 2013


Finally, the Report also calls for a critical look take the time to read this Report and reflect
at global governance institutions to promote a on its lessons for our fast-changing world.
fairer, more equal world. It points to outdated The Report refreshes our understanding of
structures, which do not reflect the new eco- the current state of global development, and
nomic and geopolitical reality described, and demonstrates how much can be learned from
considers options for a new era of partnership. the experiences of fast development progress in
It also calls for greater transparency and ac- so many countries in the South.
countability, and highlights the role of global
civil society in advocating for this and for
greater decision-making power for those most
directly affected by global challenges, who are
often the poorest and most vulnerable people
in our world. Helen Clark
As discussion continues on the global devel- Administrator
opment agenda beyond 2015, I hope many will United Nations Development Programme

Foreword | v
Acknowledgements
The Human Development Report is the Guillaumont, Nanna Hvidt, Rima Khalaf,
product of a collective effort by the United Nora Lustig, Sir James Alexander Mirrlees,
Nations Development Programme (UNDP) Rajendra K. Pachauri, Samir Radwan, Rizal
Human Development Report Office (HDRO) Ramli,Gustav Ranis, Frances Stewart, Miguel
and many valued external advisors and con- Szkely and Kandeh K. Yumkella.
tributors. However, the findings, analysis and We would also like to thank HDROs stat-
policy recommendations of this Report, as istical panel, which provided expert advice
with previous Reports, are those of the authors on methodologies and data choices related to
alone. the calculation of the Reports human devel-
The publication of this Report in March opment indices: Anthony Atkinson, Rachid
2013 represents a return to the original sched- Benmokhtar Benabdellah, Enrico Giovannini,
ule of the Human Development Reports, with Peter Harper, Anthony K.M. Kilele, Ben Paul
its global launch and distribution in the first Mungyereza, Hendrik Van der Pol, Marcia
part of the year. This timing allows the Reports Quintsler and Eduardo Sojo Garza-Aldape.
composite indices to incorporate the most cur- The Reports composite indices and other
rent statistical indicators and provides greater statistical resources rely on the expertise of the
opportunity for discussions of the Reports key leading international data providers in their
findings and messages during the year. specialized fields, and we express our gratitude
Preparation of this Report was guided for their continued collegial collaboration with
by a careful re-reading of the first Human the Human Development Report. To ensure
Development Reports by Mahbub ul Haq. accuracy and clarity, the Reports statistical
In that spirit, the Report opens with a review analysis also benefited from an external review
of the current state of human development, of statistical findings by Akmal Abdurazakov,
looking at key human development trends Sabina Alkire, Virginija Cruijsen, Kenneth
and issues in the world today. It also benefited Harttgen and Claudio Montenegro.
greatly from the wise counsel of Amartya Sen The consultations held around the world
and Frances Stewart, Mahbubs close collabor- during preparation of the Report relied on the
ators, who generously provided both critical generous support of many institutions and indi-
advice and written contributions. viduals who are too numerous to mention here.
We are pleased that this Report features Consultations were held between September
signed contributions from New York City 2011 and June 2012 in Addis Ababa, Bonn,
Mayor Michael Bloomberg, Japan International Brasilia, Colombo, Geneva, New York, Rabat,
Cooperation Agency President Akihiko Tanaka Santiago and Tokyo. Support from partnering
and Turkeys Minister of Development Cevdet institutions, including UNDP country and
Ylmaz, among others. We would like to express regional offices, listed at http://hdr.undp.org/
special gratitude to the authors of research en/reports/hdr2013/consultations, is acknow-
papers commissioned by HDRO, who greatly ledged with much gratitude.
enriched our understanding of the issues we Many of our UNDP colleagues around the
set out to address: Fred Block, Nader Fergany, worldas members of the HDRO Readers
Ilene Grabel, Khalil Hamdani, Patrick Heller, Group and the Executive Groupprovided
Barry Hughes, Inge Kaul, Peter Kragelund, invaluable insights into the preparation and
Shiva Kumar, Wolfgang Lutz, Deepak Nayyar, final drafting of the Report. We would es-
Leonce Ndikumana and Ngaire Woods. pecially like to thank Adel Abdellatif, Pedro
Throughout the preparation of the Report, Conceio, Rebeca Grynspan, Olav Kjrven,
we received invaluable insights and guidance Ajay Chhibber, George Ronald Gray Molina,
from our distinguished HDRO Advisory Heraldo Muoz, Selim Jehan, Natalia Linou,
Panel, especially Edward S. Ayensu, Cristovam Kamal Malhotra, Abdoulaye Mar Dieye,
Buarque, Michael Elliott, Jayati Ghosh, Patrick Charles McNeill, Shantanu Mukherjee, Madi

vi | HUMAN DEVELOPMENT REPORT 2013


Musa, Thangaval Palanivel, Anuradha Rajivan, we are grateful for the painstaking work of
Turhan Saleh, Heather Simpson, Ben Slay, our editors at Communications Development
Mounir Tabet, Antonio Vigilante and Kanni Incorporated, led by Bruce Ross-Larson, with
Wignaraja. Meta de Coquereaumont, Christopher Trott
Several hard working, talented young col- and Elaine Wilson, and of designer Melanie
leagues made important contributions to the Doherty.
thorough fact checking of the Report. These Most of all, I am profoundly grateful to the
include Philip Bastian, Joshua Greenstein, Ni HDRO team for their dedication and com-
Gu, Diana Jimenez, Wanshan Li, Veronica mitment in producing a report that meets the
Postal and Alyssa Vladimir. highest standards of scholarship.
The Report has been blessed with many
friends of HDRO who have gone out of their
way to help strengthen it. Apart from a critical
read of the draft Report by Frances Stewart
and Jomo Kwame Sundaram and extensive Khalid Malik
review by Khalil Hamdani, Shiva Kumar, Terry Director
McKinley, Pedro Conceio and Peter Stalker, Human Development Report Office

Acknowledgments | vii
Contents
Foreword iv Notes 125
Acknowledgements vi References 131

Overview 1 Statistical annex


Introduction 11
Readers guide 140
Key to HDI countries and ranks, 2012 143
Chapter 1
Statistical tables
The state of human development 21
1 Human Development Index and its components 144
Progress of nations 23 2 Human Development Index trends, 19802012 148
Social integration 34 3 Inequality-adjusted Human Development Index 152
Human security 38 4 Gender Inequality Index 156
5 Multidimensional Poverty Index 160
Chapter 2 6 Command over resources 162
7 Health 166
A more global South 43
8 Education 170
Rebalancing: a more global world, a more global South 43
9 Social integration 174
Impetus from human development 49 10 International trade flows of goods and services 178
Innovation and entrepreneurship in the South 54 11 International capital flows and migration 182
New forms of cooperation 56 12 Innovation and technology 186
Sustaining progress in uncertain times 60 13 Environment 190
14 Population trends 194

Chapter 3 Regions 198

Drivers of development transformation 63 Statistical references 199

Driver 1: a proactive developmental state 66 Technical appendix: explanatory note for projections exercise 200

Driver 2: tapping of global markets 74


Boxes
Driver 3: determined social policy innovation 77
1.1 Fairness, macroeconomics and human development 22
1.2 Short-term cuts have long-term consequences: rising fertility rates in Africa 22
Chapter 4
1.3 What is it like to be a human being? 24
Sustaining momentum 87 1.4 Subjective indicators of well-being: increased acceptance in thinking and policy 28
Policy priorities for developing countries 87 1.5 Inequality holds back human development 31
Modelling demography and education 97 1.6 Education quality: achievement on the Programme for International
StudentAssessment 33
Impact of the rate of population ageing 100
1.7 Social competencies: human development beyond the individual 36
The need for ambitious policies 101
1.8 Povertys structural dimensions 37
Seizing the moment 102
2.1 The Souths integration with the world economy and human development 44
2.2 Acquisitions by the South of brands in the North 48
Chapter 5 2.3 Ties that bind: the mutual dependence of North and South 49
Governance and partnerships for a new era 105 2.4 Mobile phones and the Palapa Ring: connecting Indonesia 51
A new global view of public goods 106 2.5 Decent work in a competitive world 53
2.6 Final assembly is about more than low wages 54
Better representation for the South 109
2.7 Brazil, China and India at work in Zambia 57
Global civil society 110
3.1 History and initial conditions matter, but they are not destiny 65
Towards coherent pluralism 112
3.2 What is a developmental state? Need it be authoritarian? 67
Responsible sovereignty 116 3.3 Japan and triangular cooperation 68
New institutions, new mechanisms 117 3.4 Investing in agriculture 69
Conclusions: partners in a new era 119 3.5 Eastern Europe and Central Asia: where North meets South 70

viii | Human Development Report 2013


3.6 Indias Supreme Court issues a progressive verdict mandating seats for 2.6 Emerging market economies have amassed large foreign exchange reserves
disadvantaged children in private schools 79 since1995 58
3.7 Bangladesh makes dramatic advances in child survival 81 3.1 Some countries have performed well on both the nonincome and the income
3.8 Strengthening social protection in Turkey 83 dimensions of the HDI 63
3.9 Conditional cash transfer programmes and Mexicos Oportunidades 84 3.2 Current HDI values and previous public expenditures are positively correlated... 71
3.10 Why New York City looked South for antipoverty policy advice 85 3.3 ...as are current child survival and previous public expenditure on health 71
4.1 Why population prospects will likely differ in the Republic of Korea and India 88 4.1 Under the fast track scenario, education outcomes are enhanced 92
4.2 China and Ghana: who benefits from the demographic dividend? 100 4.2 In most countries, employment opportunities have not kept pace with
educationalattainment 93
5.1 The shifting line between public and private in transportation 106
4.3 At each HDI level, some countries have greater carbon productivity than others 94
5.2 A world parliament for global democracy? 112
4.4 Different environmental scenarios have different impacts on extreme poverty 96
5.3 Regional finance in Asia: Chiang Mai Initiative Multilateralization and the
AsianDevelopment Bank 114 4.5 Education policies can alter dependency ratios 98
5.4 CAF: a Latin American development bank 115 4.6 Populations are ageing more rapidly in developing countries 101
4.7 Human development prospects for 2050 are greater under the accelerated
progressscenario, especially for low HDI countries 101
Figures
4.8 Human development outcomes through 2050 improve more under the
1 Acceleration of growth on the HDI 12 acceleratedprogress scenario 102
2 More than 40 countries of the South had greater gains on the HDI between 4.9 Advances in GDP per capita through 2050 are especially strong under the
1990and 2012 than would have been predicted from their previous accelerated progress scenario 103
performanceonthe HDI 12
5.1 Under the accelerated progress scenario, the largest projected increases in
3 Brazil, China and India combined are projected to account for 40% of global theHuman Development Index are in Sub-Saharan Africa and South Asia 118
outputby 2050, up from 10% in 1950 13
5.2 Allocating a small fraction of the international reserves of the nine G20
4 The middle class in the South is projected to continue to grow 14 countriesof the South could provide substantial additional resources for
5 The exponential rise in Internet use in the South has been most notable over publicinvestment in infrastructure in Sub-Saharan Africa and South Asia 118
thepast decade 15
6 At least 15 developing countries have substantial trading relationships with
Maps
morethan 100 trade partners as both exporters and importers 16
1.1 There is a small negative connotation between homicide rates and HDI values 39
7 Official foreign exchange reserves by country group 18
2.1 Thailands export expansion, 19952011 45
1.1 Income per capita is rising to varying degrees in all four HDI groups 26
1.2 Sub-Saharan Africa has sustained income growth over the last decade 26
1.3 The lower the HDI value, the larger the gap between income poverty and Tables
multidimensional poverty 29 1.1 HDI and components, by region and HDI group, 2012 25
1.4 There is notable variation among countries in the gap between income 1.2 Top five countries that rank better on the HDI than on gross national income
povertyandmultidimensional poverty 30 percapita in 2012 27
1.5 Losses due to inequality in HDI and its components 31 1.3 Inequality and satisfaction with freedom of choice and community 38
1.6 Most regions show declining inequality in health and education and rising 2.1 Least developed countries trade with China, 20002001 and 20102011 46
inequality in income 32 2.2 Different models of development partnerships 56
1.7 Few countries show both the high HDI and low ecological footprint required 3.1 Selected developing countries that registered large reductions in HDI shortfall
forsustainable human development 35 orhigh rates of growth in gross national income per capita, 19902012 64
1.8 Development is not always accompanied by a rise in military spending 40 3.2 Share of world exports of goods and services of high achievers in human
2.1 As a share of world merchandise trade, SouthSouth trade more than tripled development, 19851990 and 20052010 75
over19802011, while NorthNorth trade declined 46 4.1 Under-five mortality rate and total fertility rate by mothers education level 89
2.2 Foreign direct investment flows to and from the South have veered sharply 4.2 Projected number of deaths of children under age 5, by education scenario,
upwardsince the 1990s 47 20102015, 20252030 and 20452050 90
2.3 Between 2000 and 2010, Internet use grew more than 30% a year in around 4.3 Population in extreme poverty under the environmental disaster scenario,
60developing countries 50 byregion, 20102050 96
2.4 Export earnings per capita and human development are highly correlated 52 4.4 Trends in dependency ratios, selected countries, 19702050 99
2.5 Current foreign direct investment is positively associated with achievements 4.5 Number of people in extreme poverty by region and selected countries, base
inhealth and education in previous years 53 caseand accelerated progress scenarios, 20102050 103

Contents | ix
It is when we all play safe
that we create a world
of utmost insecurity.
Dag Hammarskjold
Overview
One of the most heartening developments in recent years has been the broad progress in human development of many
developing countries and their emergence onto the global stage: the rise of the South. This growing diversity in voice and
power is challenging the principles that have guided policymakers and driven the major postSecond World War institu-
tions. Stronger voices from the South are demanding more-representative frameworks of international governance that
embody the principles of democracyandequity.

Just as important, many developing countries The South has risen at an unprecedented
are reshaping ideas about how to attain human speed and scale. For example, the current eco-
development. The rise of the South has resulted nomic takeoffs in China and India began with
not from adhering to a fixed set of policy pre- about 1billion people in each country and dou-
scriptions, but from applying pragmatic pol- bled output per capita in less than 20 yearsan
icies that respond to local circumstances and economic force affecting a much larger popu-
opportunitiesincluding a deepening of the lation than the Industrial Revolution did.1 By
developmental role of states, a dedication to 2050, Brazil, China and India combined are
improving human development (including by projected to account for 40% of world output
supporting education and social welfare) and in purchasing power parity terms.
an openness to trade and innovation. Even so, During these uncertain times, countries of
future progress will require policymakers to the South are collectively bolstering world eco-
play close attention to such issues as equity, nomic growth, lifting other developing econo-
voice and accountability, environmental risks mies, reducing poverty and increasing wealth
and changing demography. on a grand scale. They still face formidable
Over the past decades, countries across the challenges and are home to many of the worlds
world have been converging towards higher poor. But they have demonstrated how prag-
levels of human development, as shown by the matic policies and a strong focus on human de-
Human Development Index (HDI), a composite velopment can release the opportunities latent
measure of indicators along three dimensions: in their economies, facilitated by globalization.
life expectancy, educational attainment and
command over the resources needed for a decent
living. All groups and regions have seen notable A changing world,
improvement in all HDI components, with fast- amore global South
er progress in low and medium HDI countries.
On this basis, the world is becoming less unequal. To the casual observer, the state of affairs in
Nevertheless, national averages hide large var- 2013 may appear as a tale of two worlds: a
iations in human experience. Wide disparities resurgent Southmost visibly countries such
remain within countries of both the North and as China and India, where there is much hu-
the South, and income inequality within and man development progress, growth appears to
between many countries has been rising. remain robust and the prospects for poverty
Although most developing countries have reduction are encouragingand a North in
done well, a large number of countries have crisiswhere austerity policies and the absence
done particularly wellin what can be called of economic growth are imposing hardship
the rise of the South. Some of the largest on millions of unemployed people and people
countries have made rapid advances, notably deprived of benefits as social compacts come
Brazil, China, India, Indonesia, South Africa under intense pressure. There are also deeper
and Turkey. But there has also been substan- problems, shared by North and South: growing
tial progress in smaller economies, such as inequality in many countries, both developed
Bangladesh, Chile, Ghana, Mauritius, Rwanda and developing, which threatens global recov-
and Tunisia. ery and the sustainability of future progress

Overview | 1
and limits poverty reduction, as well as serious The changing global economy is creating
concerns about the environment. unprecedented challenges and opportunities
While focusing on the rise of the South for continued progress in human development.
and its implications for human development, Global economic and political structures are in
this Report is also about this changing world, flux at a time when the world faces recurrent
driven in large measure by the rise of the South. financial crises, worsening climate change and
It examines the progress being made, the chal- growing social unrest. Global institutions ap-
lenges arising (some as a result of that very pear unable to accommodate changing power
success) and the opportunities emerging for relations, ensure adequate provision of global
representative global and regional governance. public goods to meet global and regional chal-
The headline story of a resurgent South is lenges and respond to the growing need for
both uplifting and in some ways misleading. greater equity and sustainability.
The South needs the The South needs the North, and increasingly This phenomenon, coupled with the diverse
North, and increasingly the North needs the South. The world is get- development paths followed by these countries
the North needs the South ting more connected, not less. Recent years from the South, presents an opportunity: the
have seen a remarkable reorientation of global principles that have driven postSecond World
production, with much more destined for in- War institutions and guided policymakers need
ternational trade, which, by 2011, accounted recalibration, if not a reset, to accommodate
for nearly 60% of global output. Developing the growing diversity in voice and power and
countries have played a big part: between 1980 to sustain development progress over the long
and 2010, they increased their share of world term. These principles require reconsideration,
merchandise trade from 25% to 47% and and global institutions need greater flexibility
their share of world output from 33% to 45%. to reinforce directions that put people first and
Developing regions have also been strengthen- nudge institutions to aim forcefully at a fairer,
ing links with each other: between 1980 and more just world. Potentially, the growing diver-
2011, SouthSouth trade increased from less sity in development patterns is creating space,
than 8% of world merchandise trade to more even demands, for such a global dialogue and
than 26%. restructuring. There is scope then for inno-
Yet the United States remains the largest vation, and the emergence of global, regional
economy in the world in monetary terms and and national governance frameworks that
will remain so for the foreseeable future. If the embody principles of democracy, equity and
US recovery hesitates and Europe is unable sustainability.
to pull itself out of its current economic and The developmental paths of Brazil, China
social doldrums, there will be a large knockon and India, as well as less well recognized suc-
effect on the developing world. Global chal- cess stories such as Bangladesh, Mauritius
lenges such as climate change and stressed and Turkey, are reshaping ideas about how to
ecosystems require countries to cooperate attain human development. The success of
even more than before. While the rise of the these countries calls into question the notion
South is reshaping power relations in many of right policies, but that does not mean that
important respects, hard-won gains in human valuable lessons cannot be drawn from the
development will be more difficult to protect experiences of these successful countries. On
if cooperation fails and difficult decisions are the contrary, key drivers and principles of de-
postponed. velopment begin to emerge from the diversity
Indeed, one can go further and state that of development paths that include deepening
there is a south in the North and a north in the developmental role of states, dedication to
the South. Elites, whether from the North or human development and social welfare, and
the South, are increasingly global and connect- openness to trade and innovation. And while
ed, and they benefit the most from the enor- this Report acknowledges the positive aspects
mous wealth generation over the past decade, of the rise of the South, it also underlines the
in part due to accelerating globalization. They imperatives of ensuring that concerns of equity
are educated at the same universities and share and sustainability are fully incorporated into
similar lifestyles and perhaps values. future policies and strategies. As the 2011

2 | Human Development Report 2013


Human Development Report also stressed, con- have been underappreciated in past conceptu-
tinued human development progress is unlikely alizations of development but are proving to be
if inequality and environmental destruction are essential elements of any viable and desirable
not moved to the forefront of policy discus- long-term development path.
sions. Under worst case scenarios, a business
as usual approach to development combined Helping other countries catch up
with environmental crises could reverse human
development gains in the South or make this All developing countries are not yet participat-
progress unsustainable. ing fully in the rise of the South. The pace of
Concerns for the future apply in the North change is slower, for instance, in the majority
as well, where low economic growth, high of the 49 least developed countries, especially
unemployment rates and austerity measures those that are landlocked or distant from
threaten the high levels of human development. world markets. Nevertheless, many of these
In both the North and the South, ruling elites countries have also begun to benefit from
cannot afford to ignore these threats to social SouthSouth trade, investment, finance and
inclusion and social welfare, given the rising technology transfer. For example, there have
call for fairness and accountabilityfrom cit- been positive growth spillovers from China to
izens, communities and civil organizations at other countries, particularly close trading part-
home and abroad, facilitated by the explosion ners. To some extent, this has offset slackening
of social media. demand from developed countries. Growth
To support policymaking and research that in low-income countries would have been an
adequately address these contemporary and estimated 0.31.1percentage points lower in
emerging global realities, measures and analyt- 20072010 had growth fallen at the same rate
ics are needed that broaden the human devel- in China and India as in developed economies.2
opment concept. The Human Development Many countries have also benefited from
Report and the family of human development spillovers into important human development
indices must meet this challenge by moving sectors, especially health. Indian firms, for
beyond a focus on measuring individual capa- example, are supplying affordable medicines,
bilities to incorporate society-level capacities, medical equipment, and information and com-
concerns and perceptions. Individual achieve- munications technology products and services Individual achievements
ments in health, education and income, while to countries in Africa. Brazilian and South in health, education and
essential, do not guarantee progress in human African companies are having a similar impact. income, while essential,
development if social conditions constrain in- do not guarantee progress
dividual achievements and if perceptions about Rising competitive pressures in human development if
progress differ. The turmoil in several countries social conditions constrain
in the Arab States is a reminder that people, Nevertheless, the arrival of exports from larger individual achievements
especially the young, who are better educated countries can also have disadvantages. Large and if perceptions
and healthier than previous generations put a countries generate competitive pressures that about progress differ
high premium on meaningful employment, on might stifle economic diversification and in-
exercising a voice in affairs that influence their dustrialization in smaller countries. Yet there
lives and on being treated with respect. are examples of industrial revival following
Furthermore, the promotion of social cohe- such competitive jolts. A competitive role
sion and social integration, a stated objective today may easily turn into a complementary
of development strategies of countries such role in the future. Moving from competition to
as Brazil, is based on evidence of the positive cooperation seems to depend on policies that
development impact of a unified society. More- enable local agents to make the most of the new
equal societies tend to do better in most meas- situation.
ures of human developmentfrom teenage Increasingly, the most important engine
pregnancies to suicide ratesthan do unequal of growth for countries of the South is their
societies. This finding is borne out by studies domestic market. The middle class is growing
in both developed and developing countries. in size and median income. By 2025, annual
These society-level aspects of development consumption in emerging markets is estimated

Overview | 3
to rise to $30trillion. By then, the South will ac- Driver 1: a proactive
count for three-fifths of the 1billion households developmental state
earning more than $20,000 a year. Nevertheless,
such expansion will be hampered as well as A strong, proactive and responsible state
marred by significant pockets of deprivation. develops policies for both public and private
These disparities in the Souths expansion are sectorsbased on a long-term vision and
not only undesirable in themselves; they also leadership, shared norms and values, and rules
undermine the sustainability of progress, not and institutions that build trust and cohesion.
least by creating social and political tensions. Achieving enduring transformation requires
These trends are leading to a more balanced countries to chart a consistent and balanced
world. Instead of having a centre of industrial- approach to development. However, countries
ized countries and a periphery of less developed that have succeeded in igniting and sustaining
countries, there is now a more complex and growth in incomes and human development
dynamic environment. have not followed one simple recipe. Faced
While there is much awareness at the global with different challenges, they have adopted
and regional levels that the world is in transi- varying policies dealing with market regulation,
tion, leaders, institutions and academics seem- export promotion, industrial development and
ingly find it difficult to put forward principles, technological progress. Priorities need to be
institutions and policy recommendations that people-centred and to promote opportunities
can secure the next steps in creating a more while protecting people against downside
just and sustainable world. This may be in part risks. Governments can nurture industries that
because the world is changing so rapidly and on would not otherwise emerge because of incom-
so many fronts, making shared assessments dif- plete markets. Despite posing some risks of
ficult and collective action elusive. This Report rent seeking and cronyism, this has enabled sev-
contributes to this conversation by critically eral countries of the South to turn inefficient
assessing the contemporary global context and industries into early drivers of export success as
by promoting principles and concepts that their economies became more open.
can help a diverse world move towards human In large and complex societies, the outcome
development strategies that meet the new of any particular policy is inevitably uncer-
challenges of the 21st century, reduce or even tain. Developmental states therefore need
eliminate poverty and advance progress for all. to be pragmatic and test a range of different
approaches. Some features stand out: for in-
stance, people-friendly developmental states
Policies, partnerships, principles have expanded basic social services. Investing
in peoples capabilitiesthrough health, edu-
How have so many countries in the South been cation and other public servicesis not an ap-
able to transform their human development pendage of the growth process but an integral
prospects? Across most of these countries, part of it. Rapid expansion of quality jobs is a
there have been three notable drivers of devel- critical feature of growth that promotes human
opment: a proactive developmental state, tap- development.
ping of global markets, and determined social
Success is likely to be policy innovation. These drivers do not spring Driver 2: tapping of global markets
the result of gradual from abstract conceptions of how development
integration with should work; rather, they are demonstrated Global markets have played an important
the world economy by the transformational development experi- role in advancing progress. All newly indus-
and accompanied ences of many countries in the South. Indeed, trializing countries have pursued a strategy of
by investment in they challenge preconceived and prescriptive importing what the rest of the world knows
people, institutions approaches: on the one hand, they set aside and exporting what it wants. But even more
and infrastructure a number of collectivist, centrally managed important are the terms of engagement with
precepts; on the other hand, they diverge from these markets. Without investment in people,
the unfettered liberalization espoused by the returns from global markets tend to be limited.
Washington Consensus. Success is more likely to be the result not of a

4 | Human Development Report 2013


sudden opening but of gradual and sequenced and equity. It reduces bureaucratic and social
integration with the world economy, according constraints on economic action and social mo-
to national circumstances, and accompanied by bility. It involves communities in setting budget
investment in people, institutions and infra- priorities and holding leadership accountable.
structure. Smaller economies have successfully
focused on niche products, whose success is
often the fruit of years of state support built on Sustaining the momentum
existing competencies or the creation of new
ones. Many countries of the South have demonstrat-
ed much success. But even in the higher achiev-
Driver 3: determined social ing countries, future success is not guaranteed.
policy innovation How can countries in the South continue their
progress in human development, and how can
Few countries have sustained rapid growth the progress be extended to other countries? Few countries have
without impressive levels of public investment This Report suggests four important areas to sustained rapid growth
not just in infrastructure, but also in health facilitate this: enhancing equity, enabling voice without impressive
and education. The aim should be to create vir- and participation, confronting environmental levels of public
tuous circles where growth and social policies challenges and managing demographic change. investmentnot just in
reinforce each other. Growth is generally much This Report points to the high cost of policy infrastructure, but also
more effective in reducing poverty in countries inaction and argues for greater policy ambition. in health and education
where income inequality is low than in coun-
tries with high inequality. Promoting equality, Enhancing equity
particularly among different religious, ethnic
or racial groups, also helps minimize social Greater equity, including between men and
conflict. women and among other groups, is not only
Education, health care, social protection, essential in itself, but also important for pro-
legal empowerment and social organization all moting human development. One of the most
enable poor people to participate in growth. powerful instruments for this purpose is edu-
Sectoral balanceespecially paying attention cation, which boosts peoples self-confidence
to the rural sectorand the nature and pace of and enables them to find better jobs, engage in
employment expansion are critical in determin- public debate and make demands on govern-
ing how far growth spreads incomes. But even ment for health care, social security and other
these basic policy instruments may not empow- entitlements.
er disenfranchised groups. The poor fringes of Education also has striking impacts on health
society struggle to voice their concerns, and and mortality. Research for this Report shows
governments do not always ensure that services that a mothers education level is more impor-
actually reach everyone. Social policy has to tant to child survival than is household income.
promote inclusionensuring nondiscrimina- Projections also show that policy interventions
tion and equal treatment is critical for political have a greater impact in countries and regions
and social stabilityand provide basic social where education outcomes are initially weak-
services that can underpin long-term econom- er. This has profound policy implications,
ic growth by supporting the emergence of a potentially shifting the emphasis from efforts
healthy, educated labour force. Not all such to boost household income to measures to
services need to be provided publicly. But the improve girls education.
state should ensure that all citizens have secure This Report makes a strong case for policy
access to the basic requirements of human ambition. An accelerated progress scenario
development. suggests that low HDI countries can converge
An agenda for development transformation towards the levels of human development
is thus multifaceted. It expands poor peoples achieved by high and very high HDI countries.
assets by increasing public expenditures on ba- By 2050, aggregate HDI could rise 52% in
sic services. It improves the functioning of state Sub-Saharan Africa (from 0.402 to 0.612) and
and social institutions to promote both growth 36% in South Asia (from 0.527 to 0.714). Such

Overview | 5
policy interventions will also have a positive constraining livelihood opportunities, especial-
impact on the fight against poverty. By con- ly for poor people.
trast, the costs of inaction will rise, especially in Although low HDI countries contribute the
low HDI countries, which are more vulnerable. least to global climate change, they are likely
For instance, failing to implement ambitious to endure the greatest loss in annual rainfall
universal education policies will adversely and the sharpest increase in its variability, with
affect many essential pillars of human develop- dire implications for agricultural production
ment for future generations. and livelihoods. The magnitude of such losses
highlights the urgency of adaptation measures.
Enabling voice and participation The cost of inaction will likely be high. The
longer the inaction, the higher the cost. To en-
Unless people can Unless people can participate meaningfully sure sustainable economies and societies, new
participate meaningfully in the events and processes that shape their policies and structural changes are needed that
in the events and lives, national human development paths will align human development and climate change
processes that shape be neither desirable nor sustainable. People goals in low-emission, climate-resilient strat-
their lives, national should be able to influence policymaking and egies and innovative public-private financing
human development resultsand young people in particular should mechanisms.
paths will be neither be able to look forward to greater economic
desirable nor sustainable opportunities and political participation and Managing demographic change
accountability.
Dissatisfaction is increasingly high in both Between 1970 and 2011, world population
the North and the South as people call for increased from 3.6 billion to 7 billion. As
more opportunities to voice their concerns and that population becomes more educated, its
influence policy in order to ensure basic social growth rate will slow. Moreover, development
protection and social progress. Among the prospects are influenced not just by the total
most active protesters are young people. In part number of people, but also by the populations
this is a response to limited employment op- age structure. An increasingly critical concern
portunities for educated young people. History is a countrys dependency ratiothat is, the
is replete with popular rebellions against number of younger and older people divided
unresponsive governments. Such upheaval can by the working-age population ages 1564.
derail human developmentas unrest impedes Some poorer regions could benefit from a
investment and growth and autocratic govern- demographic dividend as the share of the
ments divert resources to maintaining law and working-age population rises, but only if there
order. is strong policy action.3 Girls education is a
It is hard to predict when societies will reach critical vehicle of a possible demographic div-
a tipping point. Mass protests, especially by idend. Educated women tend to have fewer,
educated people, tend to erupt when people healthier and better educated children; in
feel excluded from political influence and when many countries educated women also enjoy
bleak economic prospects lower the opportu- higher salaries than do uneducated workers.
nity cost of engaging in such protests. These By contrast, the richer regions of the South
effort-intensive forms of political participation confront a very different problem: as their
are then easily coordinated by new forms of population ages, the share of the working-age
mass communication. population falls. The rate of population age-
ing matters because developing countries will
Confronting environmental challenges struggle to meet the needs of an older popu-
lation if they are still poor. Many developing
Environmental threats such as climate change, countries now have only a short window of
deforestation, air and water pollution, and opportunity to reap the full benefits of the
natural disasters affect everyone. But they hurt demographic dividend.
poor countries and poor communities most. Demographic trends are not destiny, how-
Climate change is already exacerbating chronic ever. They can be altered through education
environmental threats, and ecosystem losses are policies in particular. This Report presents

6 | Human Development Report 2013


two scenarios for 20102050: a base case likely to involve an ever more complex web of
scenario, in which current education trends bilateral, regional and global processes.
continue, and a fast track scenario, in which Many of the current institutions and princi-
the countries with the lowest initial levels ples for international governance were designed
embrace ambitious education targets. For low for a world very different from todays. One
HDI countries, the decline in the dependen- consequence is that they underrepresent the
cy ratio under the fast track scenario is more South. To survive, international institutions
than twice that under the base case scenario. need to be more representative, transparent
Ambitious education policies can enable medi- and accountable. Indeed, all intergovernmen- all intergovernmental
um and high HDI countries to curb projected tal processes would be invigorated by greater processes would be
increases in their dependency ratio, thus easing participation from the South, which can bring invigorated by greater
the demographic transition towards an ageing substantial financial, technological and human participation from the
population. resources as well as valuable solutions to critical South, which can bring
Addressing these demographic challenges world problems. substantial financial,
will require raising educational attainment In all of this, governments are understanda- technological and human
levels while expanding productive employment bly concerned with preserving national sover- resources as well as
opportunitiesby reducing unemployment, eignty. While appropriate in some cases, this valuable solutions to
promoting labour productivity and increasing focus can encourage zero-sum thinking. A bet- critical world problems
labour force participation, particularly among ter strategy would be responsible sovereignty,
women and older workers. whereby countries engage in fair, rule-based
and accountable international cooperation,
joining in collective endeavours that enhance
Governance and partnerships global welfare. Responsible sovereignty also
for a new era requires that states ensure the human rights
security and safety of their citizenry. According
The rise of the South is providing both op- to this view, sovereignty is not just a right, but
portunities and challenges for the formidable also a responsibility.
problems of an increasingly interconnected The current context has profound implica-
world. Challenges such as management of tions for the provision of public goods. Among
climate change; use of global commons; and the areas meriting urgent attention are those re-
regulation of trade, finance and migration have lated to trade, migration and climate change. In
cross-border consequences. Some elements some cases, public goods can be delivered by re-
of global public goods can be provided at the gional institutions, which can avoid the polari-
regional level, but effective provision usually zation that sometimes slows progress in larger,
requires considerable multilateral coordination multilateral forums. But increasing regional
and cooperation. Neither the North nor the cooperation may have disadvantagesadding
newly influential South can sit out the regional to a complex, multilevel and fragmented tap-
or global dialogues needed to forge agreement estry of institutions. The challenge therefore is
on these issues. Countries of the South are to ensure coherent pluralismso that institu-
in a position not just to contribute financial tions at all levels work in a broadly coordinated
resources towards strengthening regional and fashion.
multilateral processes, but also to bring the International governance institutions can be
substantial experience gained through their hu- held to account not just by member states, but
man development achievements and pragmatic also by global civil society. Civil society organ-
policies in many of these areas. izations have already influenced global trans-
The South has promoted new arrangements parency and rule setting on such issues as aid,
and institutions such as bilateral and regional debt, human rights, health and climate change.
trade agreements and financial mechanisms. Networks of civil society now take advantage
Consequently, todays systems of international of new media and new communications
governance are a mosaic of old structures and technologies. Yet civil society organizations
new arrangements. And they may become also face questions about their legitimacy and
even more diverse: international cooperation is accountability and may take undesirable forms.

Overview | 7
Nevertheless, the future legitimacy of interna- investment flows can leverage foreign markets
tional governance will depend on institutions in new ways that enhance development oppor-
capabilities to engage with citizen networks tunities, such as by participating in regional
and communities. and global value chains.
Burgeoning SouthSouth trade and invest-
ment in particular can lay the basis for shifting
Priorities for a new era manufacturing capacity to other less developed
regions and countries. Recent Chinese and
Through all this, the fundamental principles of Indian joint ventures and startup manufactur-
human development remain critical. As ever, ing investments in Africa could be a prelude to
the aim is to expand choices and capabilities for a much expanded force. International produc-
all people, wherever they live. Many countries tion networks provide opportunities to speed
of the South have already demonstrated what development by allowing countries to leap-frog
can be done. But they have gone only part of to more sophisticated production modes.
the way. For the years ahead, this Report sug-
gests five broad conclusions. New institutions can facilitate
regional integration and
Rising economic strength in the SouthSouth relationships
South must be matched by a full
commitment to human development New institutions and partnerships can help
countries share knowledge, experiences and
Investments in human development are jus- technology. This can be accompanied by new
tified not only on moral grounds, but also and stronger institutions to promote trade and
because improved health, education and social investment and accelerate experience sharing
welfare are key to success in a more competitive across the South. One step would be to estab-
and dynamic world economy. In particular, lish a new South Commission to bring a fresh
these investments should target the poor vision of how the Souths diversity can be a
connecting them to markets and increasing force for solidarity.
their livelihood opportunities. Poverty is an
injustice that can and should be remedied by Greater representation for the South
determined action. and civil society can accelerate
Good policymaking also requires a focus on progress on major globalchallenges
enhancing social capacities, not just individual
capabilities. Individuals function within social The rise of the South is leading to a greater
institutions that can limit or enhance their diversity of voice on the world stage. This pre-
development potential. Policies to change sents an opportunity to build governance insti-
social norms that limit human potential, such tutions that fully represent all constituencies
as gender discrimination, early marriages and and that would make productive use of this di-
dowry requirements, open up opportunities for versity in finding solutions to world problems.
individuals to reach their full potential. New guiding principles for international
organizations are needed that incorporate the
Less developed countries can learn experience of the South. The emergence of the
and benefit from the success of Group of 20 is an important step in this direc-
emerging economies of the South tion, but the countries of the South also need
more equitable representation in the Bretton
The unprecedented The unprecedented accumulation of financial Woods institutions, the United Nations and
accumulation of financial reserves and sovereign wealth funds in both other international bodies.
reserves provides an the North and South provides an opportunity Active civil society and social movements,
opportunity to accelerate to accelerate broad-based progress. A small both national and transnational, are using the
broad-based progress portion of these funds should be dedicated to media to amplify their calls for just and fair
human development and poverty eradication. governance. The spread of movements and
At the same time, SouthSouth trade and the increase in platforms for vocalizing key

8 | Human Development Report 2013


messages and demands challenge governance progress in determining what is public and
institutions to adopt more-democratic and what is private will require strong, committed
more-inclusive principles. More generally, personal and institutional leadership.
a fair and less unequal world requires space
for a multiplicity of voices and a system of ***
publicdiscourse.
This Report presents the contemporary global
The rise of the South presents context and charts a path for policymakers
new opportunities for generating and citizens to navigate the increasing inter-
a greater supply of public goods connectedness of the world and to face the
growing global challenges. It describes how
A sustainable world requires a greater supply the dynamics of power, voice and wealth in
of global public goods. Global issues today the world are changingand identifies the
are increasing in number and urgency, from new policies and institutions necessary to
mitigation of climate change and international address these 21st century realities and pro-
economic and financial instability to the fight mote human development with greater equity,
against terrorism and nuclear proliferation. sustainability and social integration. Progress
They require a global response. Yet in many in human development requires action and
areas, international cooperation remains slow institutions at both the global and national The rise of the
and at times dangerously hesitant. The rise of levels. At the global level, institutional reforms South presents new
the South presents new opportunities for more and innovation are required to protect and opportunities for more
effectively providing global public goods and provide global public goods. At the national effectively providing
for unlocking todays many stalemated global level, state commitment to social justice is global public goods and
issues. important, as is the understanding that one- for unlocking todays many
Publicness and privateness are in most cases size-fits-all technocratic policies are neither stalemated global issues
not innate properties of a public good but so- realistic nor effective given the diversity of
cial constructs and as such represent a policy national contexts, cultures and institutional
choice. National governments can step in when conditions. Nevertheless, overarching princi-
there is underprovision at the national level. ples such as social cohesion, state commitment
But when global challenges arise, international to education, health and social protection, and
cooperation is necessaryand can happen only openness to trade integration emerge as means
through the voluntary actions of many govern- of navigating towards sustainable and equita-
ments. Given the many pressing challenges, ble human development.

Overview | 9
Across the globe, people
are uniting in a common
struggle: to participate freely
in the events and processes
that shape their lives.
Mahbub ul Haq
Introduction
When developed economies stopped growing in the 20082009 financial crisis but developing economies kept on grow-
ing, the world took notice.1 The rise of the South, seen within the developing world as an overdue global rebalancing, has
been much commented on since. This discussion has typically focused narrowly on gross domestic product (GDP) and trade
growth in a few large countries. Yet there are broader dynamics at play, involving many more countries and deeper trends,
with potentially far-reaching implications for peoples lives, for social equity and for democratic governance at the local and
global levels. As this Report shows, the rise of the South is both the result of continual human development investments and
achievements and an opportunity for still greater human progress for the world as a whole. Making that progress a reality
will require informed and enlightened global and national policymaking, drawing on the policy lessons analysed in this Report.

The rise of the South is unprecedented in its wherever possible, broad-based progress that
speed and scale. Never in history have the raises standards and expands peoples choices
living conditions and prospects of so many in all countries and communities in all key
people changed so dramatically and so fast. dimensions of human development, from
Great Britain, where the Industrial Revolution health and education and livelihoods to the
originated, took 150 years to double output personal freedom to control and improve
per capita; the United States, which indus- ones ownlife.
trialized later, took 50 years.2 Both countries Transforming the South requires changing
had a population below 10million when they the rules that underpin global relationships.
began to industrialize. In contrast, the current Most multilateral organizations were designed
economic takeoffs in China and India began to reflect an international order newly emerg-
with about 1 billion people in each country ing from the Second World War. That world
and doubled output per capita in less than view no longer resonates with the 21st century
20 yearsan economic force affecting a hun- rebalancing of global demographics, wealth
dred times as many people as the Industrial and geopolitical influence. The growing policy-
Revolution did.3 shaping influence of the South is visible in the
The rise of the South must be understood as international response to the 2008 financial
the story of a dramatic expansion of individual crisis. In the past, financial decisions were made
capabilities and sustained human development by the major industrial powers alone, as in the
progress in the countries that are home to the 1985 Plaza Accord. This time, a more extensive
vast majority of the worlds people. When group, the Group of 20 (G20), which includes
dozens of countries and billions of people move the largest developing economies, played a key
up the development ladder, as they are doing role. People in the South are also increasingly
today, it has a direct impact on wealth creation taking leadership positions in long-established
and broader human progress in all countries international organizations.4
and regions of the world. There are new op- These are just preliminary signs of change in
portunities for catch-up for less developed international institutions and of the possibili-
countries and for creative policy initiatives that ty that the new actors in the South may help
could benefit the most advanced economies as resume efforts to provide better global public
well. goods. Indeed, the rise of the South adds to the
A close look at the diverse pathways that urgency with which governments and inter-
successful developing countries have pursued national organizations will need to confront
enriches the menu of policy options for all challenges that are likely to loom large in the
countries and regions while providing insights future: equity in opportunities, civic engage-
into values and world views that can inform ment in governance, environmental sustainabil-
future development cooperation and con- ity and the demographic bulge, to name a few.
structive responses to the most severe global The next sections elaborate on specific features
challenges. The goal, as always, is to accelerate, of the rise of the South.

Introduction | 11
Figure 1 Broad-based progress
Acceleration of growth on the HDI
The 21st century transformation of the South
Number of countries has been accompanied by major advances
in public health, education, transportation,
telecommunications and civic engagement in
120
33 national governance. The human development
43
100 59 HDI 0.731 consequences have been profound: the pro-
portion of people living in extreme poverty fell
80 33 from 43.1% in 1990 to 22.4% in 2008; more
36
than 500million people have been lifted out of
60 33 HDI
33 0.615 to <0.731 poverty in China alone.5
40 30 Countries at low levels of human develop-
HDI
15 0.439 to <0.615 ment accelerated their achievements in health,
20 33
30
education and income more in the past decade
15 HDI <0.439 than in the preceding one. The number of
0
1990 2000 2012 countries with a Human Development Index
Note: Thresholds are the 25th, 50th and 75th percentiles of HDI values for 132
(HDI) value below the 25th percentile in 1990
countries in 1990. dropped from 33 to 30 between 1990 and
Source: HDRO.
2000 and was halved from 30 to 15 between
Figure 2 2000 and 2012 (figure 1). At the upper end of
the distribution, the number of countries with
More than 40 countries of the South had greater gains on the HDI between 1990 and
an HDI value above the 75th percentile rose
2012 than would have been predicted from their previous performance on the HDI
from 33 to 43 between 1990 and 2000 and
HDI, 2012 from 43 to 59 between 2000 and 2012. The
0.9
Korea, Rep. picture is more mixed in the middle quartiles of
the HDI. Overall, no country had a lower HDI
Chile value in 2012 than in 2000, in contrast to the
Mexico
Turkey Malaysia prior decade, when 18 countries had a lower
Tunisia Brazil
Thailand HDI value in 2000 than in 1990.
Mauritius
0.7 China Between 1990 and 2012, almost all countries
Indonesia improved their human development status.
Viet Nam Of 132 countries with a complete data series,
India only 2 had a lower HDI value in 2012 than in
Lao PDR Ghana
Bangladesh 1990 (Lesotho and Zimbabwe). Progress was
0.5 particularly rapid in more than 40 countries of
Uganda
Rwanda the South, whose increases in HDI value were
significantly larger than predicted for coun-
tries that were at a similar level of HDI value
in 1990.6 This includes countries as diverse as
0.3
Ghana, Rwanda and Uganda in Sub-Saharan
2

Africa; Bangladesh and India in South Asia;


01
I2
HD

Tunisia in the Arab States; China, Lao PDR


0=
99
I1

and Viet Nam in East Asia and the Pacific; and


HD

0.1 Brazil, Chile and Mexico in Latin America and


0.1 0.3 0.5 0.7 0.9 the Caribbean (figure 2).
HDI, 1990

Highlighted 18 Big improvers Others


Global rebalancing
Note: Countries above the 45 degree line had a higher HDI value in 2012 than in 1990. Blue and grey markers indicate countries with
significantly larger than predicted increases in HDI value between 1990 and 2012 given their HDI value in 1990. These countries were
identified based on residuals obtained from a regression of the change in log of HDI between 2012 and 1990 on the log of HDI in For the first time in 150 years, the combined
1990. Countries that are labelled are a selected group of rapid HDI improvers that are discussed in greater detail in chapter 3.
Source: HDRO calculations. output of the developing worlds three

12 | Human Development Report 2013


leading economiesBrazil, China and countries was barely half that of the United
Indiais about equal to the combined GDP States.
of the long-standing industrial powers of the This major increase in share of economic
NorthCanada, France, Germany, Italy, the output would not mean much in human de-
United Kingdom and the United States.7 This velopment terms, however, if it had not been
represents a dramatic rebalancing of global eco- accompanied by an unprecedented reduction
nomic power. In 1950, Brazil, China and India in deprivation and expansion of human capabil-
together accounted for only 10% of the world ities. The first Millennium Development Goal
economy, while the six traditional economic of halving the proportion of people living on
leaders of the North accounted for roughly less than $1.25 a day relative to 1990 has been
half. According to projections in this Report, met three years before the target date. This is
by 2050 Brazil China and India will together primarily because of the success of some of the
account for 40% of global output (figure 3), far most populous countries in eradicating extreme
surpassing the projected combined production poverty: Brazil, China and India have all dra-
of todays Group of Seven bloc.8 matically reduced the proportion of their people
Today, the South as a whole produces about who are income poorBrazil from 17.2% of Today, the South as a
half of world economic output, up from about the population in 1990 to 6.1% in 2009, China whole produces about
a third in 1990. The combined GDP of eight from 60.2% in 1990 to 13.1% in 2008 and India half of world economic
major developing countries aloneArgentina, from 49.4% in 1990 to 32.7% in 2010.10 output, up from about
Brazil, China, India, Indonesia, Mexico, South Broader development challenges, however, a third in 1990
Africa and Turkeynow equals the GDP of have not diminished. An estimated 1.57billion
the United States, still by far the worlds big- people, or more than 30% of the population of
gest national economy.9 As recently as 2005, the 104 countries studied for this Report, live in
the combined economic weight of those eight multidimensional poverty,11 a measure of both

Figure 3

Brazil, China and India combined are projected to account for 40% of global output by 2050, up from 10% in
1950

Share of global output (%)


60
PROJECTION

50

40

30

20

10

0
1820 1860 1900 1940 1980 2010 2050
Brazil, China and India Canada, France, Germany, Italy, the United Kingdom and the United States

Note: Output is measured in 1990 purchasing power parity dollars.


Source: HDRO interpolation of historical data from Maddison (2010) and projections based on Pardee Center for International Futures (2013).

Introduction | 13
the number and the intensity of overlapping Between 1990 and 2010, the Souths share of
human deprivations in health, education and the global middle class population expanded
standard of living. For many of the rapidly from 26% to 58%. By 2030, more than 80%
growing countries of the South, the population of the worlds middle class is projected to be
living in multidimensional poverty exceeds residing in the South and to account for 70%
that living in income poverty. And income in- of total consumption expenditure.13 The Asia
equality is on the rise in many countries. Based Pacific Region will host about two-thirds of
on calculations for the Inequality-adjusted the worlds middle class by 2030, Central and
HDI for 132 countries in 2012, almost a quar- South America about 10% and Sub-Saharan
ter of HDI value, 23%, is lost to inequality. Africa 2% (figure 4). Within Asia, China and
Between 1990 and 2005, Inequality-adjusted India will account for more than 75% of the
HDI trends for 66 countries show that overall middle class as well as its share of total con-
inequality declined only marginally, because sumption. Another estimate is that by 2025,
declining inequality in health and education annual consumption in emerging market econ-
Latin America, in was offset by rising inequality in income.12 Latin omies will rise to $30trillion, from $12trillion
contrast to overall global America, in contrast to overall global trends, has in 2010, with the South home to three-fifths
trends, has seen income seen income inequality fall since 2000 but still of the 1billion households earning more than
inequality fall since 2000 has the most unequal distribution of all regions. $20,000 a year.14 The continued expansion of
Sub-Saharan Africa has the most inequality in the middle class is certain to have a profound
health, and South Asia in education. impact on the world economy.
The sheer number of people in the South
the billions of consumers and citizens
Massive expansion of multiplies the global human development
the middle class consequences of actions by governments,
companies and international institutions in the
The middle class in the South is growing South. The South is now emerging alongside
rapidly in size, income and expectations. the North as a breeding ground for technical
innovation and creative entrepreneurship. In
Figure 4 NorthSouth trade the newly industrializing
economies have built capabilities to efficiently
The middle class in the South is projected to continue to grow
manufacture complex products for developed
country markets. But SouthSouth interac-
Middle class population (billions)
tions have enabled companies in the South to
2009 2020 2030 adapt and innovate with products and process-
World: World: World: es that are better suited to local needs. This is
1.845 billion 3.249 billion 4.884 billion
creating new business models, as companies
.032 .057 .107 develop products that can reach customers
.105 .165 .234 with lower disposable incomes. The rise of the
.181
.664
.251
.703
.313 .680 South is also diffusing technology through new
.338 .333 .322 models of extensive coverage with low margins,
which serve lower income households and
.525 reach a large number of consumers in markets
1.740 that have weak support infrastructure.
3.228 The world is also becoming more educated.
Assuming a robust increase in school enrol-
ment rates, the share of the worlds people
Europe AsiaPacific North America older than 15 who lack formal schooling is
Central and South America Middle East and North Africa Sub-Saharan Africa
projected to shrink from 12% in 2010 to 3% in
2050, and the share with secondary or tertiary
Note: The middle class includes people earning or spending $10$100 a day (in 2005 purchasing power parity terms).
education will climb from 44% in 2010 to 64%
Source: Brookings Institution 2012. in 2050. Furthermore, the digital divide is rap-
idly narrowing, giving people from everywhere

14 | Human Development Report 2013


comparable access to information, especially Countries of the South are also hosting more
through increasingly affordable mobile broad- tourists than ever from other developing coun-
band Internet. tries: by 2020, there will be nearly 1.6billion
The rapid expansion in the educated popula- tourist arrivals globally, with 75% of them ex- The rapid expansion
tion in much of the South adds to the urgency pected to be intraregional. The share of South of educated people in
of job creation on a mass scale. Countries of South trade in world commerce has more than much of the South adds
the South that experience low dependency tripled over the past three decades to 25%; to the urgency of job
rates in the future can create a demographic SouthSouth foreign investment now accounts creation on a mass scale
dividend only if the increase in the labour for 30%60% of all outside investment in the
force is matched by equally rapid expansion of least developed countries.16
employment opportunities. If enough decent There has been an exponential rise in the
jobs are not available to meet this demographic number of people in the South with access to
demand, the consequences are likely to include the world wide web (Internet). The takeoff
rising civil unrest, as demonstrated by the has been especially notable in the past decade
youth-led insurrections of the Arab Spring. (figure 5). Between 2000 and 2010, average
annual growth in Internet use surpassed 30% in
around 60 developing countries with a popula-
Unprecedented connectedness tion of 1million or more. In September 2012,
the online social networking website Facebook
Trade, travel and telecommunication exchang- recorded 1billion monthly active users, with
es are expanding worldwide at an unprecedent- 140.3 billion connections among friends;
ed pace. People are moving between countries four of the five countries with the greatest
in numbers never seen before, as business number of Facebook users are in the South:
professionals, as tourists and as migrants. In Brazil, India, Indonesia and Mexico.17
2010, first-generation immigrants accounted Interdependence in commerce is allowing
for nearly 3% of the worlds population, or more people to participate in the global mar-
more than 215 million peoplea three-fold ketplace, from Ugandan banana exporters
increase since 1960.15 Nearly half of remit- to shrimp farmers on the Mekong River. The
tances sent home by emigrants from the South global trade to GDP ratio, a conventional
come from workers living in other developing measure of trade integration, reached 22% in
countries. 1913, a dramatic increase over the estimated

Figure 5

The exponential rise in Internet use in the South has been most notable over the past decade

Internet users (millions)


South
1,500

1,200

900
North
600

300

0
1990 1994 1998 2002 2006 2011

Source: World Bank 2012a.

Introduction | 15
2% in 1800.18 Today the ratio exceeds 56%.19 Latin America and the Caribbean and China
At least 15 developing countries have substan- have risen more than 50%. The South needs the
tial trading relationships with more than 100 North, but, increasingly, the North also needs
trade partners as both exporters and importers, the South.
up from about 6 in 1996 (figure6). The South Countries of the South are also emerging
now accounts for half of global trade flows, up as natural hubs for absorbing technologies
from barely a quarter 30 years ago. These in- and developing new products. There is now
creasing trade connections are deepening even greater potential for human development
faster horizontally, on a SouthSouth basis, thanks to technology transfer from the South.
than on the traditional NorthSouth axis. Technology transfer from the North often
A substantial share of SouthSouth trade requires costly adaptation due to differences
continues to be driven by demand in the in absorptive capacity. Technological trans-
North, but the opposite is also true: develop- fer from the South has been more amenable
ing countries are major importers from the to direct adoption. 20 And technological
North. Since 2007, for example, US exports adaptation by the South has also led to new
to established partners in the Organisation for kinds of innovation with immediate human
Economic Co-operation and Development development benefits. Take the uses to which
(OECD) have risen 20%, but US exports to Africans are putting affordable Asian-built

Figure 6

At least 15 developing countries have substantial trading relationships with more than 100 trade partners as both exporters and importers

19951996 20102011
Number of export markets Number of export markets
200 200 China
Thailand
Turkey
India
175 175 Brazil Malaysia
Indonesia

150 China
Thailand 150 Viet Nam
South Africa
Brazil Ukraine
India Egypt
125 Malaysia 125 Pakistan
Turkey United Arab Emirates
Morocco Mexico
100 100

75 75

50 50

25 25

0 0
0 50 100 150 200 0 50 100 150 200
Number of import markets Number of import markets

Developing countries with more than 100 trade partners as both importers and exporters Others

Note: Values are averages for 1995 and 1996 and for 2010 and 2011. Includes only countries with bilateral trade exceeding $1.5million in 19951996 and $2million in 20102011.
Source: UNSD 2012.

16 | Human Development Report 2013


mobile phones: cellular banking is cheaper and programmesexemplify active interest in
easier than opening a traditional bank account, fostering a more equitable distribution of eco-
farmers can obtain weather reports and check nomic and social opportunities. China has also
grain prices and entrepreneurs can provide stressed the importance of such an approach in
business services through mobile phone kiosks. its strategic pursuit of a harmonious society.
These and other transformations multiply the Elements of these programmes have been emu-
possibilities of what people can do with tech- lated by many other countries in the South.
nology: participating in decisions that affect A common emphasis of these social initi-
their lives; gaining quick and low-cost access to atives has been to promote equity and social
information; producing cheaper, often generic integration, aspects that were underappreciated
medicines, better seeds and new crop varieties; in past development models but are proving to
and generating new employment and export be essential elements of any sustainable path for
opportunities. These new technologies are con- human progress. Ruling elites are increasingly
necting people in formerly isolated and mar- recognizing that social and economic progress
ginalized rural communities and in poor urban can profoundly influence their own legitimacy.
neighbourhoods. They also give them access to Investments in social welfare and public goods
valuable tools, resources and information and have become building blocks for long-term
enable them to more actively participate in the development. These exemplary initiatives
wider national and even global society. which combine health, education and eco-
nomic policies in a broader agenda of equity,
empowerment and participationhighlight
Pragmatic development policies the importance of supporting social justice not
only on moral grounds, but also as a crucial
The rise of the South spans diverse country means of advancing human development.
experiences, showing that there are multiple
ways to achieve and sustain human develop-
ment. Countries were pragmatic in adopting New partners for development
policies suited to their unique circumstances:
for example, between 1979 and 1989, no fewer The South is now in a position to influence, The South is now in a
than 40% of Chinas national regulations were even reshape, old models of development position to influence old
deemed experimental.21 There were broadly cooperation with augmented resources and models of development
shared common approaches as well. Most home-grown lessons, but it also exerts new cooperation with
fast-developing countries of the South opened competitive pressures on other aspects of bilat- augmented resources
up to foreign trade, investment and technolo- eral cooperation. The rise of the South is spur- and home-grown lessons,
gies. But that opening alone did not guarantee ring innovation in bilateral partnership and but it also exerts new
success. They also invested in their own human regional cooperation, resulting in greater competitive pressures
development capabilities, strengthened domes- options within the South for concessional on other aspects of
tic institutions and built new areas of compar- finance, infrastructural investment and tech- bilateral cooperation
ative advantage. The critical combination of nology transfer. The growing assistance from
external openness with internal preparedness the South is often without explicit conditions
allowed countries to prosper in the global mar- on economic policy or approaches to govern-
ketplace, with positive human development ance. The development emphasis on improved
outcomes for the population at large. infrastructure, for example, has been rediscov-
Active government leadership was crucial ered because of the domestic experience and
in accelerating economic progress and min- lessons of some emerging economies. Over the
imizing social conflict. Growth created the past decade, nearly half of financing for infra-
needed fiscal space for investment in health structure in Sub-Saharan Africa was provided
and education and paved the way for a virtuous by governments and regional funds from else-
synergy between economic and social policy. where in the South.22
Well known innovative programmes in Brazil, Furthermore, the extraordinary increase in
India and Mexicoconditional cash transfer capital accumulation in the fastest growing
programmes and rural employment guarantee economies of the Southexemplified most

Introduction | 17
notably by the surge in foreign exchange Figure 7
reservesrepresents a largely untapped store
Official foreign exchange reserves by country group
of development capital. Three-quarters of the
increase in foreign exchange reserves between Official foreign exchange reserves ($ trillions)
2000 and 2011 was accumulated by countries 12
of the South, partly as self-insurance against fu- World total:
$10.18 trillion
ture financial downturns and crises (figure7). 10
As early as 1995, the United Nations
Development Programme identified 23 de- 8
veloping countries as being pivotal to South
South cooperation. Over the past decade, those 6
countries have accelerated their engagement
with other developing countries.23 Outside 4 EMERGING ECONOMIES
the OECD, Brazil, China and India are the
three largest donors.24 Other countries such as 2
Malaysia, Thailand and Turkey are also impor- ADVANCED ECONOMIES
New development tant in regional development. New develop- 0
partnerships have opened ment partnerships, fashioned on win-win for 2000 2005 2008 2009 2010 2011a
opportunities for bilateral all parties, have supported development efforts
a.Preliminary third-quarter data.
trade and investment and opened opportunities for bilateral trade Note: The classification of countries follows that used by the International
exchanges, sustaining and investment exchanges, sustaining the rise of Monetary Fund (IMF); it includes 34advanced economies and 110emerging and
developing economies that report to the IMFs Currency Composition of Official
the rise of the South the South. In the process, international regimes Foreign Reserves database.
Source: Grabel 2013.
are realigning, and international organizations
are reorienting to the shifts in global economic
power due to the rise of the South. countries, and identifies some of the emerging
challenges. Chapter 3 looks at the policies and
*** strategies that have underpinned progress in
some of the more successful countries of the
This Report examines in greater detail many South. Chapter 4 asks two basic questions: can
aspects of the rise of the South and their im- this progress be sustained, and what are likely
plications for human development. Chapter to be the future challenges to sustaining human
1 takes stock of the current status of human development? Chapter 5 looks at prospects for
development globally and regionally, with an policies and principles for a new framework of
emphasis on trends, challenges and advances global and regional governance that fully rep-
in such key interrelated areas as poverty, in- resents and responds to the rise of the South in
equality, social integration and human security. the long-term interests of the South and North
Chapter 2 shows how countries of the South alike. As the Report shows, the increasingly
are emerging as significant players in the world complex challenges of the 21st century require
economy, becoming both drivers of growth new partnerships and new approaches that re-
and catalysts for change in other developing flect the realities of this rapidly changing world.

18 | Human Development Report 2013


The political problem of
mankind is to combine
three things: Economic
Efficiency, Social Justice
and Individual Liberty.
John Maynard Keynes
1.
The state of human development
From Brazil to South Africa to India to China, the largest developing countries have become major drivers of the global
economy. In 2012, however, even the most vigorous economies of the South began to be affected by the financial problems
of the North. Struggling to emerge from a debt crisis and large budget deficits, many developed countries are imposing
severe austerity programmes that are not only causing hardship for their own citizens, but are also undermining the human
development prospects of millions of other people across theworld.

The first Human Development Report in societies to be less unequal and less vulnerable
1990 laid out a vision of economic and social to shocks.5
progress that is fundamentally about people There is also evidence that deploying drastic
enlarging their choices and capabilities. Since austerity programmes too quickly can deepen
then, there has been substantial progress: many and prolong recessions. Fiscal consolidation has
developing economies continue to grow rapid- already had contractionary effects on private
ly and raise standards of human development. domestic demand and gross domestic product
The rise of the South is a feature of a rapidly (GDP)6 while weakening economic conditions
changing world. The South now accounts for and increasing unemployment.7 Rollbacks of
almost a third of world output1 and consump- health, education and other public services are
tion.2 Without the robust growth in these likely to impair the health of the population,
economies, led by China and India, the global the quality of the labour force and the state
economic recession would have been deeper.3 of scientific research and innovation for years
Nevertheless, there are signs of contagion, to come (box 1.1). This could put progress
with real concern that in an interconnected in human development on a lower trajectory
world the crisis in the North may slow devel- for some time (box 1.2). Moreover, economic
oping countries progress. In industrialized stagnation reduces the tax revenues that gov-
countries, with some notable exceptions, ernments need to finance social services and
governments are introducing harsh austerity public goods.
measures that reduce the governments wel- Much of this damage is avoidable. Historical
fare role and cut back on spending and public evidence indicates that the best time to cut defi-
services,4 leading to hardship and exacerbating cits is after economic growth has taken off.8 As
economic contractions. Living standards are John Maynard Keynes put it succinctly nearly
declining for many people in the developed 75 years ago, The boom, not the slump, is the
world. Several countries have seen major street right time for austerity.9
demonstrations and general disillusionment It is also vital to consider not just the quantity
with politicians and economic management as of public expenditure, but also its composition
a result. and how it can be changed. According to the
The world has known similar crises: in International Labour Organization, a fiscally
Europe and the United States in the 1930s, neutral change in the composition of gov-
in Latin America in the 1980s and in Asia in ernment revenues and expenditures designed
the 1990s. But this time around, well into the to foster employment and promote human
second decade of the 21st century, the crisis is development could create 1.82.1million jobs
again happening in the heart of Europe. in 33 advanced economies over the next year or
Governments are imposing austerity pro- two.10
grammes because of a legitimate concern about While countries have different degrees of
the sustainability of sovereign debt. But there is freedom to adjust their spending priorities, for
a risk that short-term measures will cause long- many there is ample scope for reprioritization.
term damage, eroding the human development For instance, military spending worldwide
and social welfare foundations that enable exceeded $1.4 trillion in 2010, more than
economies to grow, democracies to flourish and the GDP of the worlds 50 poorest countries

Chapter 1 The state of human development | 21


Box 1.1

Fairness, macroeconomics and human development

The rising income inequality in the United States and some European coun- when public investment is at a historic low. For instance, net public invest-
tries highlights fairness in how incomes are distributed and who benefits ment in the United Kingdom for fiscal year 2011/2012 is less than 2% of
from growth. These concerns are entering the mainstream political dis- GDP. A continued push for reduced government and social expenditures may
course in developed countries, though with limited impact on policies so well worsen the prospects for recovery and growth.
far. Unemployment in developed countries is at its highest level in years, Macroeconomic policies can have large consequences for human devel-
and a large share of the workforce has had no significant increase in real opment. Cutting social spending to reduce public debt can have long-term
wages over the last few decades, while the richest deciles have seen a effects. If economies keep contracting, successive rounds of debt reduction
substantial increase in income. Increasing inequality has been accompanied will do little to further debt sustainability. Cutting spending reduces aggre-
by demands by many of the better-off for smaller government and fiscal re- gate demand, which, coupled with high income inequality, makes it chal-
straint: the well-off have not only benefited disproportionately from earlier lenging to revive the economy and put people back to work. In the quest for
growth, but also appear committed to protecting their gains. It is surprising full employment, reduced aggregate demand has to be compensated for.
that in democracies, despite considerable pressure from civil society, gov- In the United States (and other industrialized countries) this was achieved
ernment agendas are dominated by austerity programmes rather than social through low interest rates, which, along with new financial instruments and
protection programmes. lax regulation, caused a bubble that eventually led to the current financial
The call for austerity measures is not limited to countries in the euro crisis. Countries in the euro area, constrained in their use of policy instru-
area. The United Kingdom plans to reduce public investment by about 2% ments, cannot use monetary policies to devalue (or inflate) their way out of
of GDP under the current austerity programme. This call for austerity comes a crisis.

Source: Atkinson 2011, 2012; Block 2013; HM Treasury 2010; Nayyar 2012; Sen 2012; Stiglitz 2012.

Box 1.2

Short-term cuts have long-term consequences: rising fertility rates in Africa

Why did fertility rates rise between 1970 and 1990 in many Sub-Saharan transition and still have high overall fertility rates. Education reduces fertility
African countries despite falling in every other region? The evolution of rates by enhancing information, changing the incentives for behaviour and
fertility rates appears to be associated with social expenditure cuts, par- empowering people to better pursue their own preferences.
ticularly in education, made as part of structural adjustment programmes In the 1980s, Sub-Saharan Africa saw a partial reversal in the progress
in the 1980s. towards demographic transition, with real expenditure per capita on educa-
Cuts in education not only limit human capabilities, but also affect the tion falling nearly 50% on average. Between 1980 and 1986, enrolment in
age structure of the population years later because of their impact on birth primary education dropped from 79% to 73% for the region as a whole (fall-
rates. Countries with lower levels of education, especially countries where ing in 16 countries and rising in 17). The reduced education expenditures had
girls lack secondary education, tend to have higher fertility rates. Almost a negative impact on female education, causing average female combined
universally, women with higher levels of education have fewer children. This primary and secondary gross enrolment rates to increase more slowly than
effect is particularly strong in countries that are early in their demographic in the period before the structural adjustment programmes.

Source: Lutz and KC 2013; Rose 1995.

combined. Even where fiscal consolidation is growth. This is partly because they have been
necessary, it need not involve cuts in welfare more pragmatic, taking countercyclical meas-
services. Consolidation through enhanced effi- ures and postponing debt reduction for more
ciency and reduced subsidies on fossil fuels, for appropriate times. Continuing demand from
instance, could leave social spending relatively the South has also helped sustain many devel-
unaffected.11 oping country exports, offsetting the effects of
The countries of the South have shown great- sluggish economic activity in the North.12
er resilience in the face of the current global At the same time, many developing coun-
economic crisis. After transitory setbacks tries continue to invest in long-term human
following the 2008 crisis, African and Latin development. They recognize a clear positive
American countries have resumed their up- correlation between past public investment in
ward trajectories of human development and social and physical infrastructure and progress

22 | Human Development Report 2013


on the Human Development Index (HDI).13 In 2012, the global average HDI value was There is a clear positive
Governments in the South have also appreci- 0.694; Sub-Saharan Africa had the lowest correlation between past
ated that sustainable progress must be based HDI value (0.475), followed by South Asia public investment in social
on social integration. Brazil and India, for (0.558). Among developing regions, Europe and physical infrastructure
example, have supported aspects of human and Central Asia had the highest HDI value and progress on the
development underappreciated in past devel- (0.771), followed by Latin America and the Human Development Index
opment models by introducing cash transfer Caribbean (0.741).
programmes and right-to-work programmes. There are large differences across HDI groups
Overall, over the past few decades, many and regions in the components of the HDI
countries of the South have made substantial life expectancy, mean years of schooling and
strides in HDI performance, not only boosting income. Average gross national income (GNI)
economic growth and reducing poverty, but per capita in very high HDI countries is more
also making large gains in health and education than 20 times that in low HDI countries (table
(discussed in greater detail later in the chapter). 1.1). Life expectancy in very high HDI coun-
This broad-based achievement is notable because tries is a third higher than in low HDI coun-
income growth does not necessarily translate tries, while average years of schooling among
into gains in other aspects of human develop- adults over 25 are nearly three times greater
ment. Growth may generate resources to invest in very high HDI countries than in low HDI
in health and education, but the link is not auto- countries. However, expected years of school-
matic. Moreover, growth may have little impact ing, which better reflect changing education
on other important human development priori- opportunities in developing countries, present
ties such as participation and empowerment. a much more hopeful picture: the average
Now more than ever, indicators are needed incoming elementary school student in a low
to capture these dimensions as well as the HDI country is expected to complete 8.5 years
environmental sustainability of development of school, about equal to the current years of
pathways. schooling among adults in high HDI countries
(8.8years). Overall, most low HDI countries
have achieved or are advancing towards full
Progress of nations enrolment in elementary school and more than
50% enrolment in secondary school.
Every Human Development Report has mon- There are large disparities in achievements
itored human progress, notably through the within HDI groups and regions. One way of
HDI, a composite measure that includes indi- assessing disparities within country groups is to
cators along three dimensions: life expectancy, compare the ratio of the highest to the lowest
educational attainment, and command over HDI values among countries in the group. This
the resources needed for a decent living. Other ratio is highest in Sub-Saharan Africa, followed
indices have delved into inequality, poverty by the Arab States, South Asia, and Latin
and gender deficits. HDI values for 2012 are America and the Caribbean. In Sub-Saharan
presented in statistical table 1. Africa, most of the disparity arises from sub-
The HDI in 2012 reveals much progress. stantial differences in income per capita (with
Over the past decades, countries across the a ratio of 70.114) and mean years of schooling
world have been converging towards higher lev- (with a ratio of 7.8). In South Asia, the dis-
els of human development. The pace of progress parities also arise primarily from differences
on the HDI has been fastest in countries in the in income per capita, with a ratio of 10.7, and
low and medium human development catego- mean years of schooling (with a ratio of 4.0).
ries. This is good news. Yet progress requires In the Arab States, and to a lesser extent Latin
more than average improvement in HDI value. America and the Caribbean, the main driver is
It will be neither desirable nor sustainable if in- differences in income per capita.
creases in HDI value are accompanied by rising Overall, the last decade has seen greater
inequality in income, unsustainable patterns of convergence in HDI values, involving accel-
consumption, high military spending and low erated human development among countries
social cohesion (box1.3). with lower HDI values. All HDI groups and

Chapter 1 The state of human development | 23


Box 1.3 Amartya Sen, Nobel Laureate in Economics

What is it like to be a human being?

Almost half a century ago, the philosopher Thomas Nagel published a fa- The recognition of complexity has other important implications as well.
mous paper called What Is It Like to Be a Bat? The question I want to ask The crucial role of public reasoning, which the present Human Development
is: what is it like to be a human being? As it happens, Tom Nagels insight- Report particularly emphasizes, arises partly from the recognition of this
ful paper in The Philosophical Review was also really about human beings, complexity. Only the wearer may know where the shoe pinches, but pinch-
and only marginally about bats. Among other points, Nagel expressed deep avoiding arrangements cannot be effectively undertaken without giving
scepticism about the temptation of observational scientists to identify the voice to the people and giving them extensive opportunities for public
experience of being a bator similarly, a human beingwith the associ- discussion. The importance of various elements in evaluating well-being
ated physical phenomena in the brain and elsewhere in the body that are and freedom of people can be adequately appreciated and assessed only
within easy reach of outside inspection. The sense of being a bat or a human through persistent dialogue among the population, with an impact on the
can hardly be seen as just having certain twitches in the brain and of the making of public policy. The political significance of such initiatives as the
body. The complexity of the former cannot be resolved by the easier tracta- so-called Arab Spring, and mass movements elsewhere in the world, is
bility of the latter (tempting though it may be to do just that). matched by the epistemic importance of people expressing themselves, in
The cutting edge of the human development approach is also based on a dialogue with others, on what ails their lives and what injustices they want
distinctionbut of a rather different kind from Nagels basic epistemologi- to remove. There is much to discusswith each other and with the public
cal contrast. The approach that Mahbub ulHaq pioneered through the series servants that make policy.
of Human Development Reports which began in 1990 is that between, on The dialogic responsibilities, when properly appreciated across the
the one hand, the difficult problem of assessing the richness of human lives, lines of governance, must also include representing the interest of the peo-
including the freedoms that human beings have reason to value, and on the ple who are not here to express their concerns in their own voice. Human
other, the much easier exercise of keeping track of incomes and other exter- development cannot be indifferent to future generations just because they
nal resources that personsor nationshappen to have. Gross domestic are not hereyet. But human beings do have the capacity to think about
product (GDP) is much easier to see and measure than the quality of human others, and their lives, and the art of responsible and accountable politics
life that people have. But human well-being and freedom, and their connec- is to broaden dialogues from narrowly self-centred concerns to the broader
tion with fairness and justice in the world, cannot be reduced simply to the social understanding of the importance of the needs and freedoms of people
measurement of GDP and its growth rate, as many people are tempted todo. in the future as well as today. This is not a matter of simply including those
The intrinsic complexity of human development is important to acknowl- concerns within one single indicatorfor example, by overcrowding the
edge, partly because we should not be side-tracked into changing the ques- already heavily loaded HDI (which stands, in any case, only for current well-
tion: that was the central point that moved Mahbub ulHaqs bold initiative to being and freedom)but it certainly is a matter of making sure that the dis-
supplementand to some extent supplantGDP. But along with that came cussions of human development include those other concerns. The Human
a more difficult point, which is also an inescapable part of what has come Development Reports can continue to contribute to this broadening through
to be called the human development approach. We may, for the sake of explication as well as presenting tables of relevant information.
convenience, use many simple indicators of human development, such as The human development approach is a major advance in the difficult
the HDI, based on only three variables with a very simple rule for weight- exercise of understanding the successes and deprivations of human lives,
ing thembut the quest cannot end there. We should not spurn workable and in appreciating the importance of reflection and dialogue, and through
and useful shortcutsthe HDI may tell us a lot more about human quality that advancing fairness and justice in the world. We may be much like bats
of life than does the GDPbut nor should we be entirely satisfied with the in not being readily accessible to the measuring rod of the impatient obser-
immediate gain captured in these shortcuts in a world of continuous practice. vational scientist, but we are also capable of thinking and talking about the
Assessing the quality of life is a much more complex exercise than what can many-sided nature of our lives and those of otherstoday and tomorrow
be captured through only one number, no matter how judicious is the selec- in ways that may not be readily available to bats. Being a human being is
tion of variables to be included, and the choice of the procedure of weighting. both like being a bat and very unlike it.

regions saw notable improvement in all HDI across HDI groups: 59.1 years in low HDI
components, with faster progress in low and countries and 80.1 years in very high HDI
medium HDI countries. East Asia and the countries. Differences across countries are
Pacific and South Asia saw continuing progress even wider, with a low of 48.1 years in Sierra
from earlier decades, while Sub-Saharan Africa Leone and a high of 83.6 years in Japan. In Sub-
saw more rapid progress in the last decade. The Saharan Africa, life expectancy stagnated at
convergence in HDI values has become more 49.5 years between 1990 and 2000, a result of
pronounced in the last decade. the HIV and AIDS pandemic. Between 2000
One of the principal components of the and 2012, however, it increased 5.5 years.
HDI is life expectancy. In 2012, average life ex- Another important influence on the HDI,
pectancy was 70.1years, with wide differences and one of the most sensitive indicators of

24 | Human Development Report 2013


Table 1.1

HDI and components, by region and HDI group, 2012

Gross national
Mean years Expected years income
Life expectancy of schooling of schooling per capita
Region and HDI group HDI at birth (years) (years) (years) (2005PPP $)
Region
Arab States 0.652 71.0 6.0 10.6 8,317
East Asia and the Pacific 0.683 72.7 7.2 11.8 6,874
Europe and Central Asia 0.771 71.5 10.4 13.7 12,243
Latin America and the Caribbean 0.741 74.7 7.8 13.7 10,300
South Asia 0.558 66.2 4.7 10.2 3,343
Sub-Saharan Africa 0.475 54.9 4.7 9.3 2,010
HDI group
Very high human development 0.905 80.1 11.5 16.3 33,391
High human development 0.758 73.4 8.8 13.9 11,501
Medium human development 0.640 69.9 6.3 11.4 5,428
Low human development 0.466 59.1 4.2 8.5 1,633
World 0.694 70.1 7.5 11.6 10,184

Note: Data are weighted by population and calculated based on HDI values for 187 countries. PPP is purchasing power parity.
Source: HDRO calculations. See statistical table 1 for detailed data sources.

human well-being, is child survival. In 2010, the The range in human development is also
global under-five mortality rate was 55 deaths wide in some developing countries. In Brazil,
per 1,000 live births, though spread unevenly for example, the highest HDI value in 2000,
across HDI groups. Low HDI countries had the the most recent year for which subnational data
highest rate (110 deaths per 1,000 live births), are available, was in So Caetano do Sul in the
followed by medium HDI countries (42), high state of So Paulo (0.92), while the lowest was
HDI countries (18) and very high HDI coun- in Manari in the state of Pernambuco (0.47).
tries (6). Poor child health can permanently China has similar, if less marked, provincial
damage a childs cognitive development and variations, with Shanghai at the top (0.91), and
later affect labour productivity as an adult. Tibet at the bottom (0.63).17
HDI comparisons are typically made between HDI comparisons are
countries in the North and the South, and on Income and human development typically made between
this basis the world is becoming less unequal. countries in the North
Nevertheless, national averages hide large varia- Another essential component of human de- and the South, and on
tions in human experience, and wide disparities velopment and the HDI is command over this basis the world is
remain within countries of both the North and resources, as measured by income per capita. becoming less unequal
the South. The United States, for example, had Between 1990 and 2012, income per capita
an HDI value of 0.94 in 2012, ranking it third rose in all four HDI groups, though in varying
globally. The HDI value for residents of Latin degrees (figure 1.1). The highest average annual
American origin was close to 0.75, while the growth in income per capita was recorded in
HDI value for African-Americans was close China and Equatorial Guinea, both over 9%.
to 0.70 in 20102011.15 But the average HDI Only 12 countries surpassed 4% growth, while
value for an African-American in Louisiana was 19 saw income per capita fall.
0.47.16 Similar ethnic disparities in HDI achieve- One of the most striking achievements has
ment in very high HDI countries can be seen in been in Sub-Saharan Africa. From 2003 to
the Roma populations of southern Europe. 2008the five years preceding the global

Chapter 1 The state of human development | 25


Figure 1.1 financial crisisincome per capita in the re-
gion grew 5% a year, more than twice the rate
Income per capita is rising to varying degrees in all four HDI groups
of the 1990s (figure 1.2).18 This upward trend
Gross national income per capita (2005 PPP $) was led by resource-rich countries that benefit-
35,000 ed from price increases in Africas main com-
Very high HDI modity exportsnotably, gas, oil, minerals and
agricultural productsthanks mostly to strong
30,000 demand from the South, led by China.
But growth was also widespread in other
countries, with strong performance among
25,000
more diversified economies and agriculture-
based economies. Despite commodity price
20,000
increases, many net commodity-importing
countries, such as Ethiopia, Rwanda and
Uganda, continued to grow fast. Sub-Saharan
15,000 African economies were also partly shielded
from global shocks by greater regional integra-
High HDI tion, particularly in East Africa.
10,000 As most Human Development Reports have
underscored, what matters is not only the level
5,000 Medium HDI of income, but also how that income is used. A
society can spend its income on education or
Low HDI on weapons of war. Individuals can spend their
0 income on essential foods or on narcotics. For
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 both societies and individuals, what is decisive
is not the process of wealth maximization, but
Note: PPP is purchasing power parity. how they choose to convert income into human
Source: HDRO calculations based on a panel of the same 161 countries and territories.
development. Table1.2 shows country successes
in this respect, as measured by the largest positive
difference between GNI per capita and HDI
Figure 1.2 ranks.19 New Zealand tops the list for very high
human development countries, and Cuba tops
Sub-Saharan Africa has sustained income growth over the last decade
the list for high human development countries.
Gross national income per capita (2005 PPP $)
Poverty
2,100

2,000 One of the worlds main priorities is to erad-


icate poverty and hunger. This is the first of
1,900 the eight Millennium Development Goals,
for which the target for 2015 was to halve the
1,800
proportion of people living on less than $1.25
1,700 a day relative to 1990. This goal was achieved
three years before that target date, primarily
1,600 because of the success of some of the most pop-
ulous countries: Brazil (where the percentage
1,500
of the population living on less than 2005 PPP
1,400 $1.25 a day went from 17.2% to 6.1%), China
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 (from 60.2% to 13.1%) and India (from 49.4%
to 32.7%).20 As a result, many fewer people are
Note: PPP is purchasing power parity.
Source: HDRO calculations. poor. For example, between 1990 and 2008,
China alone lifted a remarkable 510 million
people out of poverty.21

26 | Human Development Report 2013


Poor people do not just suffer from a lack of Table 1.2
income. Poverty has multiple dimensions, with
deficits in health and education, for example. Top five countries that rank better on the HDI than on gross national income per
capita in 2012
Moreover, an estimated 10% of the global pop-
ulation is afflicted by some form of disability,
potentially limiting their standard of living re- GNI rank
Gross national income (GNI) minus HDI
gardless of income.22 HDI group and country HDI value percapita (2005 PPP $) rank
In the early and middle 20th century, Very high human development
European countries reduced poverty not only New Zealand 0.919 24,358 26
by increasing incomes, but also by providing
Ireland 0.916 28,671 19
public goods such as health care and educa-
tion.23 When considering relative poverty Australia 0.938 34,340 15
levels, it is also important to consider the social Korea, Rep. 0.909 28,231 15
and political arenas, including whether the Israel a
0.900 26,244 13
poor can appear in public without shame.24
High human development
Translating income into a decent standard
Cuba 0.780 5,539 44
of living depends on a range of assets and
capabilities. These are all issues in which the Georgia 0.745 5,005 37
state has an important role facilitating access Montenegro 0.791 10,471 24
to health, education, and public and personal Albania 0.749 7,822 21
safety (box 1.4). How income is converted
Grenada 0.770 9,257 21
into well-being, particularly for the poor, also
depends on environmental circumstances.25 Medium human development

Poverty can be measured more comprehen- Samoa 0.703 3,928 28


sively using the Multidimensional Poverty Index Tonga 0.710 4,153 26
(MPI), which looks at overlapping deprivations Fiji 0.702 4,087 24
in health, education and standard of living. The
Kyrgyzstan 0.622 2,009 24
MPI is the product of the multidimensional
poverty headcount (the share of people who are Ghana 0.558 1,684 22
multidimensionally poor) and the average num- Low human development
ber of deprivations that each multidimensional- Madagascar 0.483 828 28
ly poor household experiences (the intensity of
Togo 0.459 928 16
their poverty). Focusing on the intensity of pov-
Kenya 0.519 1,541 15
erty enables the MPI to provide a more com-
plete picture of poverty within a country or a Zimbabwe 0.397 424 14
community than is available from headcount Nepal b
0.463 1,137 11
measures alone. In the 104 countries covered by a. The difference between GNI and HDI ranks is also 13 for Chile, Estonia and Greece, all very high HDI countries.
the MPI, about 1.56billion peopleor more b. The difference between GNI and HDI ranks is also 11 for Liberia, a low HDI country.
Source: HDRO calculations. See statistical table 1 for detailed data sources.
than 30% of their populationare estimated to
live in multidimensional poverty.26 This exceeds
the estimated 1.14billion people in those coun- (79%) and Sierra Leone (77%; see statisti-
tries who live on less than $1.25 a day, although cal table 5). The countries with the highest
it is below the proportion who live on less than intensity of poverty (deprivations in at least
$2 a day.27 The pattern holds true for all four 33% of weighted indicators) are Ethiopia and
HDI groups, though the difference is larger in Mozambique (about 65% each in 20072011),
low HDI countries than in medium of high followed by Burkina Faso (64%), Senegal
HDI countries (figure 1.3). This also holds true (59%) and Liberia (58%). Despite having a
for many of the rapidly growing countries of the smaller proportion of multidimensional poor
South (figure1.4). (lower headcount ratio) than Liberia does,
The countries with the highest headcount Mozambique has a higher MPI value (0.512)
percentages based on the MPI are in Africa: because it has the highest intensity of depriva-
Ethiopia (87%), Liberia (84%), Mozambique tion among countries with data.

Chapter 1 The state of human development | 27


Box 1.4

Subjective indicators of well-being: increased acceptance in thinking and policy

Interest in using subjective data to measure well-being and human prog- out that the approach has strong links to the utilitarian tradition but also
ress and to inform public policy has grown in recent years.1 In the United has broader appeal. Subjective measures of quality of life, however, do not
Kingdom, the government committed itself to explore the use of subjective have objective counterparts. For instance, there is no observed measure of
indicators of well-being, as suggested by Stiglitz, Sen and Fitoussi (2009). happiness, whereas inflation can be measured as either actual or perceived
Bhutan has integrated the subindicators that constitute the Gross National inflation. They further note that subjective approaches allow for a distinction
Happiness Index into its public policy measures. Subjective data can com- between quality of life dimensions and the objective factors that shape them.
plement but not substitute for objective data. Subjective measures are not without problems. They are ordinal in na-
Kahneman and Krueger (2006) lay the analytical basis for measuring ture and usually are not comparable across countries and cultures or reliable
subjective well-being on the fact that people often depart from the standards across time. Thus it can be misleading to use subjective indicators such as
of the rational economic agent. Making inconsistent choices, not updating happiness as the only or main policy criterion. However, these indicators
beliefs in the light of new information, desisting from gainful exchanges: appropriately measured and carefully usedcan be valuable supplements
all violate the assumption of rationality that underlies the translation of ob- to objective data to inform policy, particularly at the national level.
served behaviour into a theory of revealed preferences in economics. If the An important subjective indicator of well-being that can be gleaned
assumed link between observed data and actual preferences is tenuous, the from surveys is overall life satisfaction. Data for 149 countries place aver-
case for relying exclusively on objective data is weakened, and there exists age life satisfaction globally at 5.3 on a scale of 010 (see table), with a
a greater case for using subjective data as well. low of 2.8 in Togo and a high of 7.8 in Denmark (see statistical table 9). Not
Stiglitz, Sen and Fitoussi (2009) adopt subjective well-being as one of surprisingly, life satisfaction tends to be higher in countries with higher hu-
their three conceptual approaches to measuring quality of life. They point man development.

Overall life satisfaction and satisfaction with health care and education

Overall life satisfaction, 20072011a Satisfaction with Satisfaction with education


(0, least satisfied, health care, 20072009a quality, 2011
HDI group and region 10, most satisfied) (% answering yes) (% answering yes)
HDI group
Very high human development 6.7 61.9 61.3
High human development 5.9 55.2 b
58.0
Medium human development 4.9 68.7b 69.2
Low human development 4.5 50.0 56.5
Region
Arab States 4.8 54.3b 50.0
East Asia and the Pacific 5.1 b
79.5 b
68.2b
Europe and Central Asia 5.3 44.8 51.8
Latin America and the Caribbean 6.5 56.7 61.4b
South Asia 4.7 64.8 73.3
Sub-Saharan Africa 4.4 50.1 b
52.0
World 5.3 61.0 b
64.2

a. Data refer to the most recent year available during the period specified.
b. Value is not displayed in the statistical tables because data are not available for at least half the countries covering at least two-thirds of the population of the group.
Source: HDRO calculations based on Gallup (2012).

Other important subjective indicators of human well-being are sat- a low of 35% in Mali and a high of 94% in Cambodia (see statistical
isfaction with the quality of health care and education. Survey results table 8).
indicate that high-quality health care and education can be delivered In South Asia, 65% of respondents indicated satisfaction with health
at a wide range of income and human development levels. Average care quality, with Pakistan at 41% and Sri Lanka at 83%, the latter showing
global satisfaction with health care quality was 61%, with a low of that even at comparatively low levels of income it is possible to reinforce
19% in Ethiopia and a high of 90% in Luxembourg (see statistical table social perceptions about community and the state. By contrast, health care
7). Average global satisfaction with education quality was 64%, with satisfaction is 45% in Europe and Central Asia.

1. Dolan, Layard and Metcalfe 2011. Krueger and Schkade (2008) note that over 20002006, 157 papers and numerous books were published in the economics literature using data on life satisfaction or subjective
well-being.
Source: Kahneman and Krueger 2006; Stiglitz, Sen and Fitoussi 2009; Dolan, Layard and Metcalfe 2011; Stewart 2013.

28 | Human Development Report 2013


In South Asia, the highest MPI value is in Figure 1.3
Bangladesh (0.292 with data for 2007), fol-
The lower the HDI value, the larger the gap between income poverty and
lowed by Pakistan (0.264 with data for 2007)
multidimensional poverty
and Nepal (0.217 with data for 2011). The
proportion of the population living in multi-
dimensional poverty is 58% in Bangladesh, High HDI
49% in Pakistan and 44% in Nepal, and the
intensity of deprivation is 50% in Bangladesh,
53% in Pakistan and 49% in Nepal. Although Medium HDI
a larger proportion of the population (head-
count) lives in multidimensional poverty in
Bangladesh than in Pakistan, the intensity of
Low HDI
deprivation is higher in Pakistan. Moreover,
in Bangladesh and Nepal, the living standards
dimension contributes more than the health 0 10 20 30 40 50 60 70
and education dimensions, but in Pakistan, the Percent

health dimension contributes more than the Extreme income poverty (less than $1.25 a day) Multidimensional poverty
other two dimensions.
Note: Data refer to 20022011. The population-weighted averages are based on 22 countries for the high HDI group and 36 countries
Equity and human development each for the medium and low HDI groups.
Source: HDRO calculations.

An essential part of human development is


equity. Every person has the right to live a denotes inequality; the greater the difference,
fulfilling life according to his or her own values the greater the inequality.29
and aspirations. No one should be doomed to Based on IHDI calculations for 132 coun-
a short life or a miserable one because he or tries in 2012, almost a quarter of HDI value, or No one should be
she happens to be from the wrong class or 23% is lost to inequality (see statisticaltable3). doomed to a short life or
country, the wrong ethnic group or race or Low HDI countries suffer most because they a miserable one because
the wrong sex. tend to have greater inequality in more dimen- he or she happens to be
sions. Low HDI countries lose a third of HDI from the wrong class
Inequality value to inequality, whereas very high HDI or country, the wrong
countries lose only 11%. ethnic group or race
Inequality reduces the pace of human devel- Globally, there have been much greater re- or the wrong sex
opment and in some cases may even prevent it ductions in inequality in health and education
entirely. This is most marked for inequality in in the last two decades than in income.30 This
health and education and less so for inequality is partly because of the measures usedlife
in income, where the effects are more sub- expectancy and mean years of schooling have
stantial in high and very high HDI countries. upper bounds to which all countries eventually
An analysis of 132 developed and developing converge. But for income, there is no upper lim-
countries for this Report finds an inverse rela- it. Virtually all studies agree that global income
tionship between inequality and human devel- inequality is high, though there is no consensus
opment (box1.5), reinforcing the conclusions on recent trends.31 One study that integrated
of several studies of developed countries.28 the income distribution of 138 countries over
The effects of inequality on human develop- 19702000 found that although mean income
ment can be captured by the Inequality-adjusted per capita has risen, inequality has not.32 Other
Human Development Index (IHDI), which ex- studies conclude the opposite.33 Still others
amines the average level of human development find no change at all.34
and its distribution along the dimensions of life IHDI trends for 66 countries over 1990
expectancy, educational attainment and com- 2005 show that overall inequality declined
mand over the resources needed for a decent marginally due to declines in health and
living. Where there is no inequality, the IHDI education inequality being offset by increas-
equals the HDI. A difference between the two es in income inequality (figure 1.5). Most

Chapter 1 The state of human development | 29


Figure 1.4

There is notable variation among countries in the gap between income poverty and multidimensional
poverty

Population living on less than $1.25 a day (%)


90

80

Nigeria
70 Tanzania

60

50
Bangladesh

Ethiopia
40

India
30 Ghana
Nepal

20 Indonesia
Pakistan
Georgia
China South Africa
10
Kyrgyzstan
Brazil Peru
Argentina
Thailand Morocco
0 Egypt
Tunisia
0 Azerbaijan 10 20 30 40 50 60 70 80 90
Population in multidimensional poverty (%)

Note: Data refer to 20022011. Bubble size is proportional to the number of people in multidimensional poverty. Diagonal line indicates where population living on
less than $1.25 a day equals population in multidimensional poverty.
Source: HDRO calculations.

regions show rising inequality in income and Europe and Central Asia (loss due to inequality
declining inequality in health and education in education declined almost 68%), East Asia
(figure 1.6). Latin America has seen income and the Pacific (34%) and Latin America and
inequality fall since 2000, but it still has the the Caribbean (32%). In both developed and
most unequal distribution of all regions. developing countries, the average enrolment ra-
Sub-Saharan Africa has the most inequality tio for primary education is nearly 100%. And
in health, while South Asia has the most in- more children are finishing school.
equality in education. Declines in inequality in both health and
The world has made much progress in re- education may reflect corresponding govern-
ducing inequality in educational attainment ment priorities and innovations in social policy.
in both enrolment ratios and expected years There is also a link between health and educa-
of schooling over 19902010, particularly in tion. Better education for women, for example,

30 | Human Development Report 2013


tends to result in better health outcomes for Box 1.5
them and for the next generation. Thus life
Inequality holds back human development
expectancy and educational attainment may
move in tandem. Most inequality in education
HDRO research using Human Development Index (HDI) data yields robust findings of an in-
today reflects disparities in quality (box1.6):
verse relationship between inequality and subsequent improvement in human development,
many developing countries have dual-track sys-
driven mostly by inequality in health and education rather than in income.
tems, with the well-off attending good schools Using data on 132 countries for 2012, regression analysis showed the effects of multi-
and universities, mostly privately funded, and dimensional inequality (measured as the loss in the Inequality-adjusted Human Development
the poor attending inadequate, mostly publicly Index relative to the HDI) on the HDI and each of its components (health, education and in-
funded facilities.35 come) due to four explanatory variables: overall inequality in human development, inequality
Rising inequality, especially between groups, in life expectancy, inequality in educational attainment and inequality in income per capita.
can lead to social instability, undermining long- A different regression was used for each explanatory variable, and all regressions included
term human development progress. Persistence dummy variables to control for the level of human development (low, medium, high and very
of inequality often results in a lack of inter- high). Overall inequality in human development, inequality in life expectancy and inequality
generational social mobility, which can also in educational attainment showed a highly statistically significant (at the 1% level) negative
lead to social unrest. correlation, but inequality in income per capita showed no correlation. Results were robust to
different specifications, including grouping countries with low and medium human develop-
The rise in income inequality to some extent
ment on the one side and countries with high and very high human development on the other.
reflects a failure of national fiscal, and particu-
larly taxation, systems. This can be offset by so- Source: HDRO.
cial protection. In Latin America, for example,
income inequality has declined as a result of
cash transfer programmes. Figure 1.5

Losses due to inequality in HDI and its components


Gender and womens status
Loss due to inequality (%)
Gender equality is both a core concern and
42.5
an essential part of human development. All
too often, women are discriminated against
in health, education and the labour market, 37.5
which restricts their freedoms. The extent of
discrimination can be measured through the 32.5
Gender Inequality Index (GII), which cap-
tures the loss of achievement due to gender 27.5
inequality in three dimensions: reproductive
health, empowerment and labour market 22.5
participation. The higher the GII value, the
greater the discrimination. Based on 2012
17.5
data for 148 countries, the GII shows large 1990 1995 2000 2005
variations across countries, ranging from
Education Health Income Total
0.045 (in Netherlands) to 0.747 (in Yemen),
with an average of 0.463 (see statistical Note: Based on a population-weighted balanced panel of 66 countries.
table4). Source: HDRO calculations using data from Milanovic (2010).

High gender disparities persist in South Asia


(0.568), Sub-Saharan Africa (0.577) and the Between 2000 and 2012, progress in reduc-
Arab States (0.555). In South Asia, the three ing the GII value has been virtually universal,
driving factors are low female representation but uneven.36 Countries in the very high
in parliament (18.5%), gender imbalances in human development group outperform those
educational achievement (28% of women have in other human development groups and
completed at least secondary education, com- demonstrate greater parity between women
pared with 50% of men) and low labour force and men in educational attainment and labour
participation (31% of women are in the labour market participation. Even in this group, how-
force, compared with 81% of men). ever, several countries have huge gender gaps in

Chapter 1 The state of human development | 31


Figure 1.6

Most regions show declining inequality in health and education and rising inequality in income

Health Education Income


Loss due to inequality (%) Loss due to inequality (%) Loss due to inequality (%)

60 60 60

50 50 50

40 40 40

30 30 30

20 20 20

10 10 10

0 0 0
1990 1995 2000 2005 2010 1990 1995 2000 2005 2010 1990 1995 2000 2005

Arab States East Asia and Europe and Latin America and South Asia Sub-Saharan Africa Developed
the Pacific Central Asia the Caribbean countries

Note: Based on a population-weighted balanced panel of 182 countries for loss due to health inequality, 144countries for loss due to education inequality and 66 countries for loss due to income inequality. Data on
income inequality from Milanovic (2010) are available through 2005.
Source: HDRO calculations using health data from United Nations Department of Economic and Social Affairs life tables, education data from Barro and Lee (2010) and income inequality data from Milanovic (2010).

parliamentary representation. Italy, for exam- natural ratio for children ages 04 is 1.05 (or
ple, managed to increase female representation 105 boys to 100 girls). But in the 175coun-
more than 50%, but women still occupy only tries for which 2012 data are available, the
around a fifth of all seats (20.7%). In Ireland, average was 1.07, and 13 countries had a
female parliamentary representation is still be- ratio of 1.081.18.37
low 20% while in Rwanda, women outnumber In some countries, sex-selective abortion
men in parliamentary representation (52% and infanticide are artificially altering the de-
compared with 48%). mographic landscape, leading to a shortage of
Though many countries in Sub-Saharan girls and women. This is not just a concern for
Africa showed improvement in their GII value gender justice and equality; it also has major
between 2000 and 2012, they still perform implications for democracy and could lead to
worse than countries in other regions, mainly social violence.
because of higher maternal mortality ratios The high male sex ratio at birth reflects wom-
and adolescent fertility rates and huge gaps in ens status in society, entrenched patriarchal
educational attainment. mores and prejudices, which are an aspect of
One of the most disturbing trends con- deep-rooted sociocultural beliefs, the changing
cerns the sex ratio at birth, which is deteri- aspirations of urban and rural societies, and the
orating in some fast-growing countries. The dowry system in some countries.38 In recent

32 | Human Development Report 2013


years, the problem has been exacerbated by the Box 1.6
spread and misuse of ultrasound technologies
Education quality: achievement on the Programme for International Student
that enable parents to exercise age-old prefer-
Assessment
ences for boys. The key driver, however, is the
combination of patriarchal mores and greater
The education component of the Human Development Index has two measures: mean years
economic value of boys in the presence of a of schooling and expected years of schooling. But even more than years of schooling, quality
dowry system. In absence of the latterfor of education is a key factor in expanding human capabilities (see figure).
instance, in African countriespatriarchal The Organisation for Economic Co-operation and Developments Programme for Interna-
prejudices alone do not manifest in high male tional Student Assessment (PISA) collects internationally compatible data on the educational
sex ratio at birth. attainment of students and allows for cross-country comparison of average learning scores,
Redressing this imbalance will involve share of low-performing schools and consistency of quality outcomes. For example, the ad-
changing many social norms, including those vantages of a highly educated labour force, which countries such as the United States have
that affect the economic incentives of the traditionally had, appear to be eroding as young cohorts in other countries (such as Ireland,
household to have boys rather than girls. Japan and the Republic of Korea) reach and surpass the qualifications found in the United
This would include effectively ending the ex- States.
In the most recent PISA, conducted in 63 countries and territories in 2009, many coun-
ploitative dowry system,39 generating greater
tries showed impressive strides in quality of learning outcomes. Students from Shanghai,
economic opportunities for women, creating
China, outperformed students from 62 countries in reading, mathematics and science skills.
conditions for women to have greater control They were followed by students from the Republic of Korea, Finland and Hong Kong, China
over their lives and enhancing their political (SAR) in reading; Singapore, Hong Kong, China (SAR) and the Republic of Korea in math-
participation and decisionmaking within ematics; and Finland, Hong Kong, China (SAR) and Singapore in science. The United States
households. performed below average in mathematics, sharing 29th place with Ireland and Portugal;
It has often been argued that improving slightly above average in science, in 21st place; and above average in reading, sharing 15th
education for women helps raise their levels place with Iceland and Poland. Brazil, Chile, Indonesia and Peru have seen impressive gains,
of health and nutrition and reduces fertility catching up from very low levels of performance. Investments by some countries in education
rates.40 Thus, in addition to its intrinsic value quality will likely bring future payoffs in a more knowledge-driven globalized world.
in expanding womens choices, education also
has an instrumental value in enhancing health Programme for International Student Assessment scores in reading positively
correlate with HDI values
and fertility outcomes of women and chil-
dren. In this respect, low and medium HDI Reading score, 2009
countries still have some way to go. There was 600
also a gender imbalance among the unedu-
cated population in high and very high HDI
countries in 19702010, although there was 500
substantially more gender balance at all edu-
cation levels in these countries for girls and
young women currently of school attendance
age. 400
Important as education and job creation
for women are, they are not enough. Standard
policies to enhance womens income do not 300
take into account gender differences with-
in households, womens greater burden of
unpaid work and gender division of work as
200
per cultural norms. Policies based on eco-
nomic theory that does not take these factors 0.6 0.7 0.8 0.9
into account may have adverse impacts on HDI, 2012
women, even though they create economic Non-OECD OECD
prosperity.41 Key to improving gender equity
are political and social reforms that enhance
womens human rights, including freedom,
dignity, participation, autonomy and collec- Source: HDI values, HDRO calculations; Programme for International Student Assessment scores, OECD (2010b).

tive agency.42

Chapter 1 The state of human development | 33


Intergenerational equity Global Sustainability.46 Few countries are fol-
and sustainability lowing an ecologically sustainable path now,
underscoring the need for technological inno-
When one crisis follows another, it is easy to vations and shifts in consumption that can fa-
lose perspective about important long-term cilitate movement towards sustainable human
consequences of current actions. It is thus development.47
important to bear in mind that todays choices Figure 1.7 plots the ecological footprint of
can have a large and decisive influence on the consumption of 151 countries against their
choices available for decades in the future. HDI value in 2012.48 Very few countries have
Sustainable human development is about both a high HDI value and an ecological
Progress in human understanding the links between temporal footprint below the world average biocapacity
development achieved choices of different generations and about (1.79 global hectares per capita in 2008). This
sustainably is superior to assigning rights to both present and future does not bode well for the world. Over time,
gains made at the cost generations. the situation is becoming more dire. While
of future generations Clearly a balance is needed. Enhancing some high HDI countries have an ecological
peoples capabilities nowespecially the ca- footprint below the world average, their foot-
pabilities of those who are poor or live with prints have been increasing over time.
multiple deprivationsis vital as a matter of People care not only about the choices open
basic rights and part of the universalism of life to them, but also about how those choices
claims.43 Moreover, poverty and misery today are secured, by whom and at whose expense.
have negative consequences for the future. The Progress in human development achieved sus-
objective should thus be both intragenerational tainably is superior to gains made at the cost of
and intergenerational equity. future generations. Indeed, a proper accounting
Investing in people today requires a prudent system for sustainable human development
balance between debts incurred today and would include both future human develop-
the obligations they impose on future gen- ment and current achievements.
erations. As the 1994 Human Development Better ways to monitor environmental
Report underscores, All postponed debts sustainability are also needed. The 2012 UN
mortgage sustainability, whether economic Conference on Sustainable Development
debts, social debts or ecological debts.44 The called for measures that address the con-
recent economic crisis has brought to the fore nections between present and future sets of
the sustainability of economic debt, public choices. Such measures should monitor the
and private, when economies are not growing, accumulation of economic and environmental
while tending to draw attention away from debt based on the premise that every citizen on
the critical issues of social and ecological the planet, whether alive or not yet born, has
debts. On the environmental front, there is an equal right to live a comfortable, fulfilling
already extensive evidence of severe damage life. These measures should also highlight
to ecosystems from the choices of past and planetary boundaries or tipping points,
current generations. Poor countries cannot recognizing that climate change, for example,
and should not imitate the production and already imposes substantial costs, with the
consumption patterns of rich countries. And brunt of them borne by poor countries and
rich countries must reduce their ecological poor communities.
footprint because from a global perspective
their per capita consumption and production
are not sustainable. Social integration
Of particular concern now are the glob-
al challenges of climate change and fragile Human development involves expanding in-
ecosystems. An influential study concluded dividual capabilities. Yet individuals are also
that Humanity has already transgressed at bound up with others. Thus, how individuals
least three planetary boundaries, 45 a point relate to each other is important in building
repeated in the 2012 Report of the UN cohesive and enduring societies. Integrating
Secretary Generals High Level Panel on different groups can be as critical for well-being

34 | Human Development Report 2013


Figure 1.7

Few countries show both the high HDI and low ecological footprint required for sustainable human
development

Ecological footprint, 2007 (global hectares per capita)


11

LOW AND MEDIUM HDI HIGH AND VERY HIGH HDI


10

3 WORLD AVERAGE BIOCAPACITY, 2008 (1.79)

SUSTAINABLE
1
HUMAN DEVELOPMENT

0
0.25 0.35 0.45 0.55 0.65 0.75 0.85 0.95
HDI, 2012

Low HDI Medium HDI High HDI Very high HDI

Note: Ecological footprint is a measure of the biocapacity of the earth and the demand on biocapacity. It depends on the average productivity of biologically
productive land and water in a given year.
Source: HDRO calculations and Global Footprint Network (2011).

and social stability as economic success. success at achieving social inclusion and so-
Inequity and exclusion are social injustices that cial stability.
fundamentally weaken human freedoms. Some developing countries have sought to
An integrated society relies on effective address social exclusion by distributing the
social institutions that enable people to act benefits of growth more evenly in a refinement
collectively, enhancing trust and solidarity of the growth with redistribution strategy.
between groups. These institutions include But this commodity-centric view of inclusive
formal nongovernmental organizations, growth does little to end the economic and so-
informal associations and cooperatives, as cial discrimination that often has long-standing
well as norms and rules of behaviour. They historical and cultural roots. Such discrimina-
influence individual human development tion may be widespread even in countries with
outcomes, social cohesion and social stability. high income per capita. Clearly income growth
To differentiate them from individual capa- alone cannot achieve social cohesion; active
bilities, the functioning of these institutions policies are needed.
and their impact on people can be described The impact of inequity can persist over
as social competencies (box 1.7). The extent generations. For instance, a study of eight
to which social competencies foster more- developed countries found that more-unequal
cohesive societies can be assessed by their countries usually had lower social mobility.49 In

Chapter 1 The state of human development | 35


Box 1.7

Social competencies: human development beyond the individual

Individuals cannot flourish alone; indeed, they cannot function alone. The together they can acquire power collectively. Social action favouring human
human development approach, however, has been essentially individualis- development (such as policies to extend education, progressive taxation and
tic, assuming that development is the expansion of individuals capabilities minimum wages) happens not spontaneously, but because of groups that
or freedoms. Yet there are aspects of societies that affect individuals but are effective in supporting change, such as producer groups, worker associa-
cannot be assessed at the individual level because they are based on rela- tions, social movements and political parties. These organizations are espe-
tionships, such as how well families or communities function, summarized cially crucial for poorer people, as demonstrated by a group of sex workers
for society as a whole in the ideas of social cohesion and social inclusion. in Kolkata, India, and women in a squatter community in Cape Town, South
Individuals are bound up with others. Social institutions affect individuals Africa, who improved their conditions and self-respect by joining together
identities and choices. Being a member of a healthy society is an essential and exerting collective pressure.
part of a thriving existence. Societies vary widely in the number, functions, effectiveness and con-
So one task of the human development approach is to explore the nature sequences of their social competencies. Institutions and norms can be clas-
of social institutions that are favourable for human flourishing. Development sified as human developmentpromoting, human developmentneutral and
then has to be assessed not only for the short-run impact on individual capa- human developmentundermining. It is fundamental to identify and encour-
bilities, but also for whether society evolves in a way that supports human age those that promote valuable capabilities and relationships among and
flourishing. Social conditions affect not only the outcomes of individuals in a between individuals and institutions. Some social institutions (including
particular society today, but also those of future generations. norms) can support human development in some respects but not in others:
Social institutions are all institutions in which people act collectively for example, strong family bonds can provide individuals with support during
(that is, they involve more than one person), other than profit-making mar- upheavals, but may constrain individual choices and opportunities.
ket institutions and the state. They include formal nongovernmental or- Broadly speaking, institutions that promote social cohesion and hu-
ganizations, informal associations, cooperatives, producer associations, man development show low levels of disparity across groups (for example,
neighbourhood associations, sports clubs, savings associations and many ethnic, religious or gender groups) and high levels of interaction and trust
more. They also consist of norms and rules of behaviour affecting human among people and across groups, which results in solidarity and the absence
development outcomes. For example, attitudes towards employment af- of violent conflict. It is not a coincidence that 5 of the 10 most peaceful
fect material well-being, and norms of hierarchy and discrimination affect countries in the world in 2012, according to the Global Peace Index, are also
inequality, discrimination, empowerment, political freedom and so on. To among the most equal societies as measured by loss in Human Development
describe what those institutions can be and do, and to understand how they Index value due to inequality. They are also characterized by the absence of
affect individuals, we can use the term social competencies. discrimination and low levels of marginalization. In some instances anti-
Central to the human development perspective is that societal norms discriminatory measures can ease the burden of marginalization and partial-
affect peoples choices and behaviours towards others, thus influenc- ly mitigate the worst effects of exclusion. For instance, US law mandating
ing outcomes in the whole community. Community norms and behaviours that hospital emergency rooms offer treatment to all patients regardless of
can constrain choice in deleterious ways from a human development their ability to pay partly mitigates the impact of an expensive health care
perspectivefor example, ostracizing, or in extreme cases killing, those system with limited coverage, while affirmative action in a range of coun-
who make choices that contravene social rules. Families trapped in pov- tries (including Brazil, Malaysia, South Africa and the United States) has
erty by informal norms that support early marriage and dowry requirements improved the situation of deprived groups and contributed to social stability.
might reject changes to such entrenched social norms. Social institutions The study of social institutions and social competencies must form an
change over time, and those changes may be accompanied by social tension essential part of the human development approachincluding the forma-
if they hamper the interests of some groups while favouring others. tion of groups; interactions between groups and individuals; incentives and
Policy change is the outcome of a political struggle in which differ- constraints to collective action; the relationship among groups, politics and
ent groups (and individuals) support or oppose particular changes. In this policy outcomes; the role of norms in influencing behaviours; and how norms
struggle, unorganized individuals are generally powerless, but by joining are formed and changed.

Source: Stewart 2013; Institute for Economics and Peace 2012.

the United Kingdom in particular, as inequali- as parents educational attainment, race or


ty rose, intergenerational mobility declined. ethnicity, or place of birth.51 Such persistence
The 2010 Latin America and the Caribbean of income distribution patterns across gen-
Human Development Report highlighted erations is also evident in Chile and Mexico,
the link between the lack of social mobility although Mexico has seen increased intergen-
and persistent inequality.50 In Brazil, at least erational mobility in recent years.52 Generally,
a quarter of inequality in earnings is asso- Latin America suffers from low social mobili-
ciated with household circumstances, such ty, stifling opportunities for individuals at the

36 | Human Development Report 2013


bottom of the income distribution for whom Even in the European Union, where a large
performance in society is determined largely part of the population has seen rising prosper-
by background characteristics beyond their ity, some groups have been left behind. The The presence of
control. The problem is particularly intracta- Roma, for example, have been part of European inequalities can
ble in heterogeneous societies, as members of civilization for more than a thousand years. adversely affect social
deprived groups find it particularly difficult to With an estimated 79million people, they are interactions and restrict
progress. Europes biggest ethnic minority, present in all freedom of choice
Inequity and exclusion endure when the 27 EU member states. Most are EU citizens but
excluded and those at the lower ends of the continue to suffer discrimination and social ex-
distribution lack the political voice to seek clusion. As two regional Human Development
redress. More-equal and more-just societies, Reports have revealed, the Roma are often
essential for satisfactory and sustainable hu- trapped in a vicious cycle of social exclusion
man progress, thus require greater voice and that has persisted generation after generation.53
political participation and more-accountable The presence of inequalities can adversely
governments (box 1.8). affect social interactions and restrict freedom

Box 1.8

Povertys structural dimensions

The traditional agendas for reducing poverty recognize but inadequately ad- not provided financial instruments to attract the savings of the excluded
dress its structural sources. Contemporary interventions to promote inclu- and transform them into investment assets in the faster growing corporate
sive growth have tended to focus on the outcomes of development through sector.
expanding and strengthening social safety nets. While such public initiatives
are to be encouraged, they address the symptoms of poverty, not its sources. Unjust governance
The results of such restrictive interventions are reduction of income pov- This inequitable and unjust social and economic universe can be com-
erty to varying degrees and some improvement in human development. But pounded by unjust governance. Often the excluded remain voiceless in the
across much of the South, income inequalities have increased, social dis- institutions of governance and thus underserved by public institutions. The
parities have widened and injustice remains pervasive, while the structural institutions of democracy remain unresponsive to the needs of the excluded,
sources of poverty remain intact. Any credible agenda to end poverty must both in the design of policy agendas and in the selection of electoral candi-
correct the structural injustices that perpetuate it. dates. Representative institutions thus tend to be monopolized by the afflu-
ent and socially powerful, who then use office to enhance their wealth and
Unequal access to assets perpetuate their hold over power.
Inequitable access to wealth and knowledge disempowers the excluded
from competing in the marketplace. Rural poverty, for example, originates Promoting structural change
in insufficient access to land and water for less privileged segments of rural To correct these structural injustices, policy agendas need to be made
society. Land ownership has been not only a source of economic privilege, more inclusive by strengthening the capacity of the excluded to partici-
but also a source of social and political authority. The prevailing structures of pate on more equitable terms in the market economy and the democratic
land ownership remain inimical to a functioning democratic order. Similarly, polity. Such agendas should reposition the excluded within the processes
lack of access to capital and property perpetuates urban poverty. of production, distribution and governance. The production process needs
to graduate the excluded from living out their lives exclusively as wage
Unequal participation in the market earners and tenant farmers by investing them with the capacity to become
With the prevailing property structures of society, the resource-poor remain owners of productive assets. The distribution process must elevate the ex-
excluded from more-dynamic market sectors. The main agents of produc- cluded beyond their inherited role as primary producers by enabling them
tion tend to be the urban elite, who own the corporate assets that power to move upmarket through greater opportunities to share in adding value
faster growing economic sectors. By contrast, the excluded partake only as through collective action. Access to assets and markets must be backed by
primary producers and wage earners, at the lowest end of the production equitable access to quality health care and education, integral to empower-
and marketing chains, leaving them with little opportunity to share in market ing the excluded.
economy opportunities for adding value to their labour. The governance process must increase the active participation of
Capital markets have failed to provide sufficient credit to the excluded, the excluded in representative institutions, which is crucial to enhancing
even though they have demonstrated their creditworthiness through low their voice in decisionmaking and providing access to the institutions of
default rates in the microcredit market. And formal capital markets have governance.

Source: Sobhan, R. 2010. Challenging the Injustice of Poverty.

Chapter 1 The state of human development | 37


Table 1.3 and environmental challenges. The intensity
of these threats differs across the world, but
Inequality and satisfaction with freedom of choice and community human security remains a universal quest for
freedom from want and fear.
Satisfaction Satisfaction with Consider economic insecurity. In the coun-
Overall loss in with freedom of community,b
HDI value due to choice, 20072011a 20072011a tries of the North, millions of young people
HDI group and region inequality, 2012 (%) (% satisfied) (% answering yes) are now unable to find work. And in the
HDI group South, millions of farmers have been unable
Very high human development 10.8 81.5 85.9 to earn a decent livelihood and forced to mi-
High human development 20.6 66.3 76.4
grate, with many adverse effects, particularly
for women. Closely related to insecurity in
Medium human development 24.2 77.8 79.9
livelihoods is insecurity in food and nutri-
Low human development 33.5 61.8 72.2 tion. Many developing country households
Region faced with high food prices cannot afford
Arab States 25.4 54.6 67.6 two square meals a day, undermining progress
in child nutrition. Another major cause of
East Asia and the Pacific 21.3 78.7 c
80.1c
impoverishment in many countries, rich and
Europe and Central Asia 12.9 58.5 76.5
poor, is unequal access to affordable health
Latin America and the Caribbean 25.7 77.9 79.0 care. Ill health in the household (especially
South Asia 29.1 72.9 83.2 of the head of the household) is one of the
Sub-Saharan Africa 35.0 69.1 65.2 most common sources of impoverishment,
as earnings are lost and medical expenses are
World 23.3 73.9 79.0
incurred.
a. Data refer to the most recent year available during the period specified. Perspectives on security need to shift from a
b. Based on the Gallup survey question on overall satisfaction with city.
c. Value is not displayed in the statistical tables because data are not available for at least half the countries covering at least misplaced emphasis on military strength to a
two-thirds of the population of the group.
Source: Overall loss in HDI value due to inequality, HDRO calculations based on the Inequality-Adjusted HDI; satisfaction with
well rounded, people-centred view. Progress in
freedom of choice and community, HDRO calculations based on Gallup (2012). this shift can be gleaned in part from statistics
on crime, particularly homicides, and military
of choice. Subjective data can provide an in- spending.
sight into the state of social integration within
a country or community. Evidence suggests a Crime
small negative correlation between losses due
to inequality and satisfaction with freedom Freedom from fear should be reflected in low
of choice and with the community. Evidence crime rates, specifically low homicide rates.
also suggests that people in countries with a A few studies have also used homicide rates
high HDI value are generally more satisfied to assess civic engagement and trust. 55 The
with their freedom of choice and with the 2012 Caribbean Human Development Report,
community. Exploring these associations can for example, argues that violent crime erodes
offer important policy lessons for countries confidence in future development prospects,
(table1.3). reduces the competitiveness of industries and
services by imposing burdensome security
costs and damages the investment climate.
Human security Crime may also lead to a brain drain from the
country or affected community. And diverting
The 1994 Human Development Report argued resources to control crime reduces the funds
that the concept of security must shift from the available to invest in health care and education,
idea of a militaristic safeguarding of state bor- thus slowing social integration and dampening
ders to the reduction of insecurity in peoples development.56
daily lives (or human insecurity).54 In every In recent years, the global average hom-
society, human security is undermined by a icide rate for 189 countries with data was
variety of threats, including hunger, disease, 6.9 per 100,000 people,57 with a low of 0
crime, unemployment, human rights violations in Monaco and a high of 91.6 in Honduras

38 | Human Development Report 2013


Map 1.1

There is a small negative connotation between homicide rates and HDI values

Eastern Europe & Central Asia


5.5 5.5

Arab States
4.5
South Asia
3.7
Honduras 91.6
East Asia & Pacific
El Salvador 69.2 Venezuela 45.1 2.8

Latin America Cte dlvoire


& the Caribbean 56.9
Sub-Saharan Africa
22.2 20.4

Homicide rate per 100,000 people


0 to <10 30 to <40 World
10 to <20 40+
6.9
20 to <30 No data

Source: HDRO calculations based on UNODC 2012.

(see statistical table 9). There is a small neg- For several decades, the city has also had a sys-
ative correlation between homicide rate and tem of basic public services, including govern-
HDI value, with low HDI countries at 14.6 ment hospitals, schools, colleges and a low-cost
per 100,000people, high HDI countries at public transport system, which have dampened
13.0 and very high HDI countries at 2.1. the impacts of economic and social exclusion.
Homicide rates are highest in Latin America In local trains, poor vendors commonly travel
and the Caribbean (22.2 per 100,000 peo- side by side with wage labourers and white-col-
ple), followed by Sub-Saharan Africa (20.4), lar workers.
Europe and Central Asia (5.5), the Arab But when people do not have access to ser-
States (4.5), South Asia (3.7) and East Asia vices, they may be more prone to crime. A UK
and the Pacific (2.8). study of reoffending criminals, for example,
It can also be instructive to look at the noted that many prisoners are victims of a
homicide rates for cities. Contrary to popular lifetime of social exclusion60 and are effectively
perception, crime is not generally higher in excluded from access to basic services.61
poorer cities. Amartya Sen notes that Kolkata
is not only one of the poorest cities in India, Military spending
and indeed in the world, but it also has the
lowest violent crime rate of all Indian cities.58 Since the end of the Cold War, there has been
This is also true for homicide: Kolkatas average no overall intensification of militarization,
incidence of murder, 0.3 per 100,000 people, measured by military expenditure as a propor-
is lower than in much more affluent London tion of GDP, partly because of changes in the
(2.4) and New York (5.0).59 threats to national security. While interstate
Sen argues that Kolkata has benefited from its conflicts appear to be on the decline since the
long history as a mixed city, without ethnic or early 1990s, the number of intrastate conflicts
income separation between neighbourhoods. has increased since the mid-20th century.

Chapter 1 The state of human development | 39


Today the majority of security threats come 1990 and 2010, while South Asia, East Asia
not from other countries but from insur- and the Pacific, and the Arab States saw it rise
gencies, terrorism and other civil conflicts.62 43%388%.66
Conflicts in the postCold War era have Although development is often accompanied
claimed more than 5million casualties, 95% of by a rise in military spending, this is not always
them civilians.63 the case (figure1.8). The highest shares of mil-
In South Asia, for example, all nine countries itary spending as a proportion of GDP are in
have experienced internal conflict in the last very high and high HDI countries, but some
two decades, and the resulting casualties have very high HDI countries have a share below 1%
outnumbered those from interstate conflicts.64 of GDP, among them Austria, Iceland, Ireland
Moreover, since 2001, more of the conflicts and Luxembourg.
have been in the poorer regions of those coun- This is of particular significance for the rising
tries than elsewhere.65 countries of the South. Costa Rica, for exam-
In 2010, military spending worldwide for ple, has not had an army since 1948.67 It spends
the 104 countries with data available was nothing on the military and has thus been able
more than $1.4 trillion, or 2.6% of world to earmark more funds for social programmes
GDP. Most of the spending was by very and social investments.68 In 2009, it invested
high HDI countries. But as other countries 6.3% of GDP in education and 7% in health.
economies have grown, particularly medium Such choices contributed to its progress on the
HDI countries, their military expenditures HDI from 0.621 in 1980 to 0.773 in2012.
Not all countries have have been increasing. Between 1990 and Today, around 20 countries have small or
the preconditions for 2010, military spending more than tripled in no armed forces. They tend to possess small
complete demilitarization, medium HDI countries, while rising close to territories, and many of them rely on external
but most have scope for 50% in low HDI countries and 22% in very powers for national security. Not all countries
substantial slowing in high HDI countries and falling almost 47% have the preconditions for complete demilita-
their military spending in high HDI countries. Nevertheless, in the rization, but most have scope for substantial
three HDI groups where total military ex- slowing in their military spending. Particularly
penditure grew, the increase was slower than with respect to internal conflicts, India has
GDP growth. These aggregates hide consid- shown that while policing may be more effec-
erable diversity. Europe and Central Asia tive in curbing violence in the short term, re-
saw military spending decline 69% between distribution and overall development are better
strategies to prevent and contain civil unrest in
Figure 1.8 the mediumterm.69
Development is not always accompanied by a rise in military spending
***
Military spending, 2010 (% of GDP)
12
This analysis of the state of human develop-
ment is positive and hopeful. Yet much work
10 remains. Almost every country has challenges
8
to overcome and opportunities for further
progress. Of particular concern is that some
6 developed countries, in response to the debt
crisis, are pursuing austerity policies that could
4
foreclose or reduce future choices and options
2 for people in the South.
The only viable path to higher human devel-
0
opment is through active investment in enhanc-
0.2 0.4 0.6 0.8 1.0
ing capabilities and enlarging opportunities. As
HDI, 2012 the 1991 Human Development Report noted,
Low HDI Medium HDI High HDI Very high HDI People who are healthier, confident, and
skilled will be in a much better position to cope
Source: Military expenditure, Stockholm International Peace Research Institute; HDI, HDRO calculations.
with a fast-changing environment and meet the

40 | Human Development Report 2013


technological and competitive demands of the impact they are having. Later chapters will con-
international marketplace.70 sider how they have done this and examine the
The next chapter documents the extent to implication of the rise of the South for inter-
which many countries of the South have been national governance and for reshaping global
able to follow this route, as well as the global powerrelations.

Chapter 1 The state of human development | 41


When the music changes,
so does the dance.
African proverb

I do not want my house to be


walled in on all sides and my
windows to be stuffed. I want
the cultures of all the lands to
be blown about my house as
freely as possible. But I refuse
to be blown off my feet by any.
Mahatma Gandhi
2.
A more global South
A striking feature of the world scene in recent years is the transformation of many developing countries into dynamic
economies that are doing well in economic growth and trade and progressing rapidly on human development. During these
uncertain times, they are collectively bolstering world economic growth, lifting other developing economies, reducing pov-
erty and increasing wealth on a grand scale. They still face formidable challenges and are home to many of the worlds
poor.1 But they have demonstrated how pragmatic policies and a strong focus on human development can release the
opportunities latent in their economies, facilitated by globalization.

The rise of the South is noteworthy for its more difficult to arrive at a global consensus. But
diversity. This wave of developing countries en- the rise of the South could help break stalemates
compasses countries with very different endow- on some of todays global issues and lead to more
ments, social structures, geography and history: development-friendly global agreements.
for example, Algeria and Argentina, Brazil and
Bangladesh, China and Chile, Ghana and
Guyana, India and Indonesia, and Malaysia and Rebalancing: a more global
Mozambique. These countries demonstrate world, a more global South
that rapid people-centred development can
take root in a wide range of contexts. And their Global production is rebalancing in ways not
experiences and knowhow are an expanding seen for 150 years. Growth in the cross-border
source of best practice that should enable other movement of goods, services, people and ideas
developing countries to catch up. has been remarkable. In 1800, trade account-
The rapidly expanding connections between ed for 2% of world output.4 The proportion
these countries are also leading to a more remained small right after the Second World
balanced form of globalization. New trade War, and by 1960 it was still less than 25%. By
routes are flourishing: countries as diverse 2011, however, trade accounted for nearly 60%
as Morocco, South Africa, Thailand, Turkey of global output.5 The expansion it represents is
and Viet Nam each have substantial export widely distributed, with at least 89 developing
and import relationships with more than 100 countries increasing their trade to output ratio
economies.2 New and improved technologies, over the past two decades (box 2.1).6
adapted to local conditions, are boosting peo- Today, as a result of reduced trade barriers
ples productivity and enabling production to and lower transport costs, the production of
be shared across borders. manufactures is fragmented across borders,
And all this is happening as people and with many countries trading intermediate
continents are connected on a previously unim- goods.7 And changes in information technol-
aginable scale. More than 2billion people use ogy have made services increasingly tradable.
the Internet, and every year more than 1billion The result has been a remarkable rise in intra-
people travel internationally.3 industry and intrafirm trade.
This transformation is affecting the dynamics Developing countries, particularly in Asia,
of regional and global relationships. The leading have ridden these shifts to great advantage.
countries of the South played a crucial role in Between 1980 and 2010, they increased their
responding to the 2008 financial crisis. Dialogue share of world merchandise trade from about
is intensifying on the appropriate provisioning 25% to 47%8 and their share of world output
of global public goods, such as curbing climate from 33% to 45%. Today, developing countries
change, developing rules for stable financial mar- account for a third of value added in world
kets, advancing multilateral trade negotiations production of manufactured goods.9 Between
and agreeing on mechanisms to finance and 1990 and 2010, the merchandise exports of
produce green technologies. It may seem that in- eight developing country members of the Group
creasing the number of participants will make it of 20 (G20) increased 15-fold, from about

Chapter 2 A more global South | 43


Box 2.1

The Souths integration with the world economy and human development

In a sample of 107 developing countries over 19902010, about 87% can larger and more varied group than the emerging market economies often
be considered globally integrated: they increased their trade to output ratio, designated by acronyms, such as BRICS (Brazil, Russian Federation, India,
have many substantial trading partnerships1 and maintain a high trade to China and South Africa), IBSA (India, Brazil and South Africa), CIVETS
output ratio relative to countries at comparable income levels.2 All these (Colombia, Indonesia, Viet Nam, Egypt, Turkey and South Africa) and MIST
developing countries are also much more connected to the world and with (Mexico, Indonesia, South Korea [Republic of Korea] and Turkey).
each other: Internet use has expanded dramatically, with the median annual The figure below plots improvement in HDI value4 against the change
growth in the number of users exceeding 30% between 2000 and2010. in trade to output ratio, an indicator of the depth of participation in global
While not all globally integrated developing countries have made rapid markets. More than four-fifths of these developing countries increased their
gains in Human Development Index (HDI) value, the converse is true. Almost trade to output ratio between 1990 and 2012. Among the exceptions in the
all developing countries that made the most improvement in HDI value rela- subgroup that also made substantial improvement in HDI value are Indonesia,
tive to their peers between 1990 and 2012 (at least 45 in the sample here) Pakistan and Venezuela, three large countries that are considered global play-
have integrated more with the world economy over the past two decades; ers in world markets, exporting or importing from at least 80 economies. Two
their average increase in trade to output ratio is about 13 percentage points smaller countries whose trade to output ratio declined (Mauritius and Panama)
greater than that of the group of developing countries with more modest continue to trade at levels much higher than would be expected for countries
improvement in HDI value. This is consistent with earlier findings that coun- at comparable income levels. All countries that had substantial improvement
tries tend to open more as they develop.3 in HDI value and increased their trade to output ratio between 1990 and 2012
The increasingly integrated countries with major improvement in HDI are highlighted in the upper right quadrant of the figure. Countries in the lower
value include not only the large ones that dominate the headlines, but also right quadrant (including Kenya, the Philippines and South Africa) increased
dozens of smaller and least developed countries. Thus they constitute a their trade to output ratio but made modest improvement in HDI value.

Human progress and trade expansion in the South

Relative improvement in HDI value, 19902012


0.3

0.2
China
Mexico Bangladesh
0.1 Turkey
India
Brazil
0
Ghana

0.1

0.2
High HDI improvers, globally integrated
0.3
Modest HDI improvers, globally integrated

0.4 Others
0.6 0.4 0.2 0.0 0.2 0.4 0.6 0.8 1.0 1.2
Change in trade to output ratio, 19902010

1. Bilateral trade exceeding $2million in 20102011.


2. Based on results from a cross-country regression of trade to GDP ratio on income per capita that controls for population and landlockedness.
3. See Rodrik (2001).
4. Relative HDI improvement is measured by residuals from a regression of the change in the log of HDI value between 1990 and 2012 on the log of initial HDI value in 1990. Five countries with black dots in the upper
left quadrant made substantial improvement in HDI value but reduced their trade to output ratio between 1990 and 2010, though they either maintained a large number of substantial trading ties globally or traded
more than predicted for countries at comparable levels of income per capita. Countries with open circles in the upper right and lower right quadrants had modest relative improvement in HDI value between 1990 and
2012 but increased their trade to output ratio or maintained a large number of substantial trading ties.
Source: HDRO calculations; trade to output ratios from World Bank (2012a).

$200billion to $3trillion.10 But trade has also In 19951996 Thailand had around 10 trading
increased for many other countries. In 2010, mer- partners to which it exported more than $1bil-
chandise exports per capita from Sub-Saharan lion in goods each; just 15 years later it had three
Africa were more than twice those from India.11 times as many, spread across the globe (map2.1).12

44 | Human Development Report 2013


Map 2.1

Thailands export expansion, 19952011

19951996

20102011

Thailands exports
($ millions)
0 to <15
15 to <100
100 to <1,000
1,000 to <25,000
No data

Note: Data are averages for 1995 and 1996 and for 2010 and 2011.
Source: UNSD 2012.

Global rebalancing has been accompanied downturn. Countries of the South are export-
by an unprecedented linking of developing re- ing more merchandise (and manufactures) to
gions. Between 1980 and 2011, SouthSouth each other than to countries of the North, and
trade as a share of world merchandise trade rose those exports are more intensive in skills and
from 8.1% to 26.7%, with growth particularly technology.14
remarkable in the 2000s (figure 2.1). Over the Sub-Saharan Africa has become a major
same period, the share of NorthNorth trade new source and destination for SouthSouth
declined from about 46% to less than 30%. trade. Between 1992 and 2011, Chinas
These trends hold even when exports and trade with Sub-Saharan Africa rose from
imports of natural resources are excluded.13 $1 billion to more than $140 billion. Indian
SouthSouth trade has been an important companies are investing in African industries
growth stimulus during the recent economic ranging from infrastructure to hospitality and

Chapter 2 A more global South | 45


Figure 2.1 telecommunications, while Brazilian firms are
some of the largest employers in Angola.15
As a share of world merchandise trade, SouthSouth trade more than tripled over
19802011, while NorthNorth trade declined
Trade in capital goods and services
Share of world merchandise trade (%)
60 SouthSouth trade offers developing countries
access to affordable capital goods that are often
50
more appropriate to their needs than are cap-
ital goods from richer countries and that are
therefore more likely to be acquired, adopted
40 and imitated.16 Even India has benefited. In
2010, capital goods such as electrical machin-
30 NorthNorth ery, nuclear reactors and boilers dominated
SouthSouth Indias imports from China (60%) and cost
20 SouthNorth
an estimated 30% less than if they had been
sourced from richer countries.17 This still does
not reflect the full dynamism of such exchang-
10 es. For example, Chinas fourth-largest turbine
producer, Mingyang, recently acquired 55% of
0 Indias Global Wind Power, with the aim of in-
1980 1985 1990 1995 2000 2005 2011 stalling 2.5 gigawatts of wind and solar capacity
in India.18
Note: North in 1980 refers to Australia, Canada, Japan, New Zealand, the United States and Western Europe. In 20102011, crucial inputs for aug-
Source: HDRO calculations based on UNSD (2012).
menting productive capacity and infrastruc-
tureroad vehicles and equipment, industrial
machinery, professional equipment and fix-
Table 2.1 tures, chemicals, and iron and steelmade
up nearly half of least developed countries
Least developed countries trade with China, 20002001 and 20102011 ($ millions at imports from China (table 2.1). The largest
current exchange rates)
import category was textiles and leather, in-
cluding yarn and fabric that are used as inputs
Imports from China Exports to China for least developed countries exports of ap-
Sector 20002001 20102011 20002001 20102011 parel to markets in the North. Consumer elec-
Agricultural raw materials 16 105 243 1,965 tronics and apparel and footwear accounted
Food and beverages 164 1,089 378 841
for less than 20% of least developed countries
imports from China.
Fuel, ores and metals 42 323 3,126 44,244
Developing countries have also seized oppor-
Chemicals 232 2,178 1 93 tunities for trade in services. Advances in in-
Textiles and leather 1,323 8,974 14 138 formation technology have facilitated services
Iron and steel 61 1,642 0 1 trade at different skill levels: lower skill work,
as in call centres and data entry; medium-skill
Other material-based manufactures 236 3,132 44 540
work, as in back office accounting, program-
Industrial machinery 400 4,415 1 1
ming, ticketing and billing; and high-skill
Electronics 382 3,806 3 7 work, as in architectural design, digital anima-
Road vehicles and equipment 266 6,691 0 1 tion, medical tests and software development.
Apparel and footwear 266 2,577 4 129
This trend is expected to intensify as developing
countries take advantage of the benefits of scale
Professional equipment and fixtures 147 2,291 1 34
from servicing their own expanding consumer
Note: Export values are averaged for 2000 and 2001 and for 2010 and 2011 and rounded to the nearest whole number, as reported markets.
by China; import values include cost, insurance and freight.
Source: HDRO calculations based on UNSD (2012). One of the largest internationally traded
services is tourism, which accounts for as
much as 30% of world exports of commercial

46 | Human Development Report 2013


services.19 Tourists spent roughly $1trillion in In many least developed countries, a size
2010; China was among the most popular des- able share of inward FDI now originates in
tinations (more than 57million arrivals), along other developing countries, especially from
with Egypt, Malaysia, Mexico, Thailand and the fast-growing multinational corporations
Turkey. The UN World Tourism Organization based in the South.
projects that by 2020, three-fourths of more These investments generally involve links
than 1.5billion tourist arrivals will occur with- with local firms and transfers of technology
in the same geographic region. that make intensive use of labour and local con-
tent. There is some evidence of a strong region-
Foreign direct investment al dimension to SouthSouth FDI, with most
investments in countries in the same region, of-
The increase in output and trade in many ten to neighbours and to countries with shared
developing countries has been assisted by languages.22 The biggest outward investor from
large inflows of foreign direct investment the South is China, with an investment stock of
(FDI): between 1980 and 2010, the countries $1.2trillion.23
of the South increased their share of global In 1990, companies in the South made up
FDI from 20% to 50%. 20 FDI flows into only 4% of the Fortune Global 500 ranking
developing countries have been a forerunner of the worlds biggest corporations; in 2011,
of outward FDI from developing countries. their share was 22%. Today, one in four trans-
The growth rate of the Souths FDI inflows national corporations is based in the South.
and outflows rose rapidly in the 1990s and Though the enterprises may be smaller, they
early to mid-2000s (figure 2.2). FDI from are numerous: there are now more Korean than
the South destined for other countries in the Japanese multinational companies, and more
South grew 20% a year over 19962009. 21 Chinese ones than US ones. Enterprises from
the South are going global earlier than firms
Figure 2.2 from developed countries did at a similar stage
of development.24 They are augmenting their
Foreign direct investment flows to and from the
competitiveness by acquiring strategic assets
South have veered sharply upward since the 1990s
such as brands, technology and distribution
Foreign direct investment ($ billions) networks (box2.2).
800
Production networks

Inflows
The increase in trade and investment by The increase in trade
600 multinational corporations and others has and investment by
been linked to the expansion of internation- multinational corporations
al production networks, especially in Asia. and others can be
Likened to a third industrial revolution, 25 likened to a third
400 Outflows these networks split production processes industrial revolution
into multiple steps that cross national bor-
ders. As a result, developing countries have
been able to diversify their industrial struc-
200 tures and participate in complex production
processes. Developing countries engage ini-
tially in the labour-intensive segments, typi-
cally in product assembly, and then graduate
0 to component fabrication and equipment
1980 1990 2000 2010
manufacture. Meanwhile, the less complex
production relocates to less advanced neigh-
Note: Data are for developing and transitional economies as defined by the
United Nations Conference on Trade and Development. Data are converted to
bouring economies. At the same time, these
US dollars at current exchange rates. manufacturing plants create demand for
Source: HDRO calculations based on UNCTAD (2011a).
domestic firms to supply inputs and producer

Chapter 2 A more global South | 47


Box 2.2

Acquisitions by the South of brands in the North

In 2011, 61 of the worlds biggest corporations on the Fortune 500 list were JBS Friboi bought Swift, a US rival, to ease its entry into the United States.
Chinese, 8 were Indian and 7 Brazilian. Just five years earlier, China had 16 In 2011, Turkish companies made 25 deals worth nearly $3billion. One of
on the list, India 5 and Brazil 3. The South is going global through outward Turkeys famous acquisitions is Godiva, a Belgian chocolate manufacturer,
investment using mergers and acquisitions. The acquisition of venerated bought for $850million by Yildiz Holding. There are scores of lesser known
brands from the North by companies in lower and upper middle-income purchases of smaller brands from the North by companies in Southeast Asia
countries is a portent of the rise of the South. In 2005, the Chinese com- and the Arab States. (Many big purchases are also SouthSouth. In 2010,
pany Lenovo bought IBMs laptop division for $1.25 billion and took over Indias Bharti Airtel acquired the African operations of Zain for $10.7billion,
$500 million of its debt. In 2010, Zhejiang Geely purchased the Swedish and China spent $9.8 billion in 27 deals across Brazil, India, the Russian
car company Volvo. In 2011 alone, Chinese firms spent $42.9billion on an Federation and South Africa.)
eclectic mix of more than 200 acquisitions: Sany Heavy Industry Co. acquired SouthNorth acquisitions are often interpreted in patriotic terms.
Putzmeister, Germanys largest concrete pump maker; Liugong Machinery Whether the deals help short-run profitability and value creation is unclear.
Co. Ltd. purchased the Polish construction equipment manufacturer Huta In the long run, however, the strategic motives (outside the resource sector)
Stalowa Wola; and Shandong Heavy Industry Group bought a 75% stake in appear to be about acquiring proprietary knowledge, skills and competen-
Italys Ferretti Group, a luxury yacht maker. cies that will help companies expand abroad and at home. Acquiring an
Indias Tata Group acquired the Anglo-Dutch steel firm Corus for established, albeit struggling, brand from the North gives companies from
$13.3 billion in 2007 and Jaguar Land Rover for $2.6 billion in 2008. The the South a foothold in mature markets. The acquiring companies lower their
Aditya Birla Group bought US aluminium firm Novelis in 2007 and Columbian cost base by diversifying and globalizing supply chains and gain the technol-
Chemicals in 2011. Mahindra and Mahindra acquired Sangyong, a bankrupt ogy and tacit knowhow (such as risk management or credit rating in the case
Korean carmaker. Brazils food companies have also been active: in 2007, of financial institutions) to enhance operating capabilities.

Source: HDRO; China Daily 2012; The Economist 2011a,b, 2012a; Deloitte 2012a,b; Luedi 2008.

services. In this way, opportunities to partic- remittances were estimated at 30%45% of


ipate in international production have wid- worldwide remittances.30 Diasporas are also a
ened for new entrantsas for Malaysia in the source of information about market opportuni-
1970s, Thailand in the 1980s, China in the ties. Diasporas can be associated with increased
1990s and Viet Nam today. bilateral trade and FDI.31 For example, US
The North has played an important role multinational firms with a high proportion of
in this rise of the South, just as the South is employees from particular countries have less
contributing to the Norths recovery from the need to rely on joint-venture partners in coun-
economic slowdown (box 2.3). International tries with which their employees have cultural
production networks have been driven mainly ties.32
by final demand in the North. The surge in inte- Links can also be strengthened when mi-
grated production networks within Asia alone grants return to their home country. Many
resulted in a high-technology export boom of information technolog y professionals in
nearly $320billion between 1995 and2005.26 Californias Silicon Valley, for example, have
taken their ideas, capital and networks back
Personal networks with them when they return to their home
countries. Other returnees are building new
Many transnational opportunities in both trade infrastructure, universities, hospitals and
and investment arise through personal connec- businesses. Returning entrepreneurs stay in
tions, often between international migrants touch with former colleagues, facilitating
and their countries of origin. In 2010, an esti- the diffusion of business information. Cross-
mated 3% of the worlds people (215million) border scientific collaboration also dispro-
were first-generation immigrants,27 and close portionately involves scientists with diaspora
to half of them lived in developing countries.28 ties.33
Almost 80% of SouthSouth migration takes Other flows of information are made possible
place between bordering countries.29 by the widening penetration of the Internet
Migrant diasporas are a huge source of and new social media. Between 2000 and
foreign exchange. In 2005, SouthSouth 2010, average annual growth in Internet use

48 | Human Development Report 2013


Box 2.3

Ties that bind: the mutual dependence of North and South

A substantial share of SouthSouth trade, especially in manufactured parts structural engineers, who are drawing an ever-increasing share of fees and
and components, is driven by demand in the North. This makes the countries royalties from services exported to Brazil, China and India.
of the South sensitive to shocks in the North. After the 2008 global finan- Furthermore, a growing app economy supported by such companies
cial crisis, for instance, exports from Southeast Asia to Japan, the European as Apple, Facebook and Google employs more than 300,000 people whose
Union and the United States fell about 20% between 2008 and 2009. The creations are easily exported across borders. Zynga, a large company that
percentage drop in Chinas exports to these economies was also in double makes online games and mobile applications, recorded $1.1 billion in
digits. revenue in 2011, a third of it from players outside the United States. The
The North is also increasingly relying on the South to power its own re- impact of a growing consumer class in the South is felt not only in ser-
bound. Since 2007, US exports to China and Latin America and the Caribbean vices, but also in manufacturing and commodities. A third of US exports
have grown two and a half times faster than US exports to traditional mar- are now accounted for by firms employing fewer than 500 people; through
kets in the North. Helped by a weak dollar and increasing purchasing power new techniques, such as three-dimensional printing, many are recapturing
in the South, expansion of US exports involved not only traditional sectors markets once lost to imports. Emerging markets have also revived the US
such as aircraft, machinery, software and Hollywood movies, but also new, role as a commodity producer (of grains, for example). These shifting trade
high-value services such as architecture, engineering and finance. Behind patterns suggest that a slowdown in the South would halt growth in the
Shanghais booming architectural wonders (including Shanghai Towers, newly dynamic exports from the North, just as the recession in the North
which will be the countrys tallest building in 2015) are US designers and hit the South.

Source: HDRO; The Economist 2012b.

was exceptionally high in around 60develop- The capacity of people and institutions also
ing countries (figure 2.3).34 Of the 10 countries affects the benefits from FDI. Host countries
with the most users of popular social network- need to invest in the capacity of their people Host countries need to
ing sites such as Facebook, 6 are in the South.35 to identify, assimilate and develop the useful invest in the capacity of
While these rates reflect in part the low base in knowledge embedded in foreign capital and their people to identify
2000, the spread and adoption of new media ideas.37 Indeed, an educated and healthy and use the knowledge
have revolutionized many sectors across diverse workforce is often a key factor in influencing embedded in foreign
countries (box2.4). the decision of foreign investors on where to capital and ideas
locate. This positive association between FDI
inflows and achievements in health and edu-
Impetus from human development cation is evident for a sample of 137 countries
(figure2.5).38
Successful performance in trade, investment This relationship between a skilled popu-
and international production also depends on lace and inward foreign investment tends to
rising levels of human development, as illus- be mutually reinforcing. But there are out-
trated by the association between high export liers. FDI could still flow to countries with
earnings per capita and achievement in edu- modest achievements in human development
cation and health (figure 2.4). The more suc- if they are exceptionally well endowed in
cessful countries in the upper right quadrant natural resources. Between 2003 and 2009,
of the figure also tend to have better economic for instance, many resource-rich African
opportunities for women. Increased trade countries where FDI contributed substan-
draws new workers, often women, into the tially to economic growth saw some of the
labour market, expanding their choices. These lowest nonincome Human Development
new workers do not always benefit from good Index (HDI) values.39 However, the impact
working conditions; efforts to keep costs low on development is limited when such invest-
can put pressure on wages and work environ- ments are confined to enclaves and delinked
ments. Some governments may be reluctant to from the rest of the economy. Spillover
expand worker rights, if they believe it would benefits from FDI are unlikely to be wide-
raise production costs and reduce competitive- spread if there is no sustained investment in
ness (box2.5).36 peoples capabilities. In this regard, relatively

Chapter 2 A more global South | 49


Figure 2.3

Between 2000 and 2010, Internet use grew more than 30% a year in around 60developing countries

Internet users, 2000 (per 100 people)


4.0

Dominican Republic
3.5

3.0 Peru

Brazil
Tunisia
2.5

Colombia Saudi Arabia


2.0
Belarus Russian
Federation

1.5
Ecuador
China
Pakistan
1.0 Bosnia and
Herzegovina
Ukraine
Sri Lanka Kazakhstan Morocco
0.5 Egypt
India Uzbekistan
Malawi Libya Tanzania Syrian
Angola Arab Viet Nam Azerbaijan
0 Yemen Republic
0 10 20 30 40 50 60
Internet users, 2010 (per 100 people)

Note: Bubble size is proportional to total Internet subscriptions in 2010 (320,000 in Angola and 6.7million in Viet Nam, for reference). Only developing countries
exceeding the 75th percentile of compound annual growth in Internet users are shown.
Source: ITU 2012; World Bank 2012a.

resource-poor Ethiopia and Tanzania are and components. Widespread benefits accrue
noteworthy for their large increase in nonin- only when activities are scaled up (box 2.6).
come HDI value between 2000 and 2010 and However, it should also be noted that in trade
for their above-average FDI over the same of parts and components, the share of value
period. added by any one country is generally low. In
Human development is Human development is also vital for par- countries where production takes place almost
vital for participating in ticipating in global supply chains. Contrary entirely in enclaves connected to overseas sup-
global supply chains; to popular perception, an abundance of low- ply chains, with limited ties to the domestic
an abundance of wage and low-skill labour is not enough. Even economy, the benefits to the rest of the econo-
low-wage and low-skill assembling components made elsewhere can be my are limited.41
labour is not enough complex, requiring individual skills and social
competencies to coordinate and organize on Helping other countries catch up
a large scale. People can learn such skills with
appropriate education, training and policy All developing countries are not yet participat-
support. Basic human capabilities are also cru- ing fully in the rise of the South. The pace of
cial.40 China, Malaysia, the Philippines and change is slower, for instance, in the majority
Thailand in East Asia; Brazil, Costa Rica and of the 49 least developed countries, especially
Mexico in Latin America and the Caribbean; those that are landlocked or far from world
and Morocco and Tunisia in the Arab States markets. Nevertheless, many of these countries
have some of the highest trade shares in parts have also begun to benefit from SouthSouth

50 | Human Development Report 2013


Box 2.4

Mobile phones and the Palapa Ring: connecting Indonesia

Indonesia used telecommunications technology to connect its large cluster remote rural villages with Internet service and has introduced e-budgeting
of far-flung islands and to open the country to the outside world in ways and e-procurement systems for its own business operations. Perhaps most
unimaginable a generation ago. This transformation was not spontaneous: striking is the explosion of social media. In July 2012, there were 7.4million
it required extensive private and public investment and prescient policy registered Facebook users in greater Jakarta alonethe second most of
guidance from the state-run information and communications technology any city in the world, after Bangkoks 8.7million. In all of Indonesia, there
council, Dewan Teknologi Informasi dan Komunikasi Nasional (DETIKNAS). were 44million Facebook accountsalmost as many as Indias 49million.
With a diverse population stretched across a vast archipelago of nearly a Indonesia has become a country where cabinet ministers send daily tweets
thousand inhabited islands, Indonesia faced formidable obstacles in its to constituents. It has the third most Twitter subscribers in the world, and
transition to the digital age. Communications between islands was limited. environmentalists use online databases and Google Earth mapping tools to
Landline telephones were few, available to most ordinary Indonesians only publicize deforestation.
in major cities and at high cost. The human development benefits of this digital revolution are apparent,
By 2010, however, 220million mobile phones were registered in a coun- Indonesian analysts say, with mobile phones giving rural communities ac-
try of 240million people. An estimated 85% of adults owned phones, as cess to public health information, banking services and agricultural market
state encouragement and market competition slashed the prices of hand- information. Civic engagement has benefited, with online public information
sets and phone service alike. The number of Indonesian Internet users has services expanding since the 2010 passage of a far-ranging access to infor-
also grown exponentially. As recently as 2008, just an estimated 13million mation law. The economy is profiting too. A December 2011 study by Deloitte
had regular Internet access. By late 2011, more than 55million people did, Access Economics calculated that the Internet economy already accounts for
according to industry surveys. The majority of young Indonesians in urban 1.6% of Indonesias GDP, greater than the value of natural gas exports and
areas now enjoy Internet access, mostly through mobile phones, but also comparable to the share in Brazil (1.5%) and the Russian Federation (1.6%),
through the countrys 260,000 Internet cafes (warnets). though still less than in China (2.6%) and India (3.2%). Deloitte projects an
Through DETIKNAS the government has made Internet access a national increase to at least 2.5% of GDP in five years, a substantial contributor to
priority, building what it calls a Palapa Ring of fibre-optic cables throughout Indonesias International Monetary Fundpredicted annual GDP growth rate
the archipelago. It is closing in on its goal of wiring schools in a thousand of 6%7% through 2016.

Source: Karimuddin 2011; Deloitte 2011.

trade, investment, finance and technology Commodity producers in Sub-Saharan


transfer. Africa and elsewhere have benefited from a
A recent study of trends over 19882007 prolonged commodity boom arising in East
finds positive growth spillovers from China and South Asia. Cheap imports also increase
to other developing countries, particularly the purchasing power of low-income consum-
close trading partners.42 These benefits have ers and the competitiveness of export-oriented
to some extent offset slackening demand from producers. Some African countries may,
developed countries. Growth in low-income however, be hampered by the enclave char-
countries would have been an estimated acter of extractive industries, which reduces
0.31.1 percentage points lower in 20072010 the potential gains from SouthSouth trade
had growth fallen at the same rate in China and and exposes economies to the risk of Dutch
India as in developed economies.43 FDI from a disease. Nevertheless, the primary sector can
single source country, China, was credited with generate sizeable backward and forward links,
contributing substantially to growth rates in as Brazil, Chile, Indonesia, Malaysia, and
several African countries, including in 2008 Trinidad and Tobago have shown. Possibilities
2009 when other growth impulses were dissi- include agroindustry and logistics infrastruc-
pating. Between 2003 and 2009, the estimated ture, as well as demand for services (in food
contribution to growth from Chinese FDI processing and distribution, construction,
ranged from 0.04 percentage point in South repair and maintenance), all of which create
Africa to 1.9 percentage points in Zambia. The jobs, income and learning and can enable en-
contribution was also high in the Democratic trepreneurs to begin new cycles of innovation
Republic of the Congo (1.0 percentage point), and investment.
Nigeria (0.9), Madagascar (0.5), Niger (0.5) Several encouraging signs are evident.
and Sudan (0.3).44 The more recent investments from East and

Chapter 2 A more global South | 51


Figure 2.4 firms, for example, are supplying affordable
medicines, medical equipment, and informa-
Export earnings per capita and human development are highly correlated
tion and communications technology products
Log of exports per capita, 20082010 and services to countries in Africa. Brazilian
and South African companies are doing the
12
same in their regional markets. Asian FDI in
Africa has also expanded utility and telecom-
11
munications infrastructure.
10 Malta
Hungary Rising competitive pressures
75TH PERCENTILE
9 Italy
Malaysia Nevertheless, exports from larger countries can
8
also have disadvantages. Large countries gener-
ate competitive pressures in smaller countries
7
that can stifle economic diversification and
industrialization. Examples span the electrical
6
industry in Zambia, clothing in Kenya and
Senegal and textiles in South Africa.45 Clothing
5 exports from Africa would struggle to retain
their trade share in major markets without the
4 trade preferences and liberal rules of origin
available through the US African Growth and
MEDIAN
3 Opportunity Act and the EU Everything But
0.2 0.4 0.6 0.8 1.0 Arms initiative.46
Nonincome HDI, 2005
Even larger countries are not immune from
competitive pressures. Chinese exports affect
Countries with relatively low labour force participation
rates for women (less than 45% in 20092010)
Others Brazilian manufacturing through imports of
cheaper manufactures and indirectly through
competition in third markets.47 As an indirect
Note: Bubble size is proportional to the share of the nonprimary sector in output.
Source: HDRO calculations and World Bank (2012a). response, in September 2011, Brazil formally
submitted a proposal to the World Trade
Organization to examine trade remedies for
South Asia in the African commodity sector redressing currency fluctuations that lead to
show fewer enclave characteristics. And many import surges. 48 India has long sought re-
governments in the South are being more ciprocal market access for its automobiles in
pragmatic. While adopting sound macroe- China.
conomic policies, strengthening institutions To check the adverse consequence of ris-
and becoming more open, they are actively ing exports on some of its partners, China is
engaging in industrial policy and promoting providing preferential loans and setting up
entrepreneurship, education, skill formation training programmes to modernize the gar-
and technology upgrading. While supporting ment and textile sectors in African countries.49
industrial clusters and economic zones and China has encouraged its mature industries
expanding regional trade and investment, they such as leather to move closer to the supply
are also creating finance and credit facilities chain in Africa and its modern firms in tele-
for small and medium-size enterprises. Sound communications, pharmaceuticals, electronics
macroeconomic policy helps manage the risks and construction to enter joint ventures with
of large foreign exchange inflows, while smart African businesses.50
industrial policy strenghtens domestic links Moreover, there are instances where com-
and enhances market multipliers. petitive jolts have been followed by industrial
Many countries have also benefited from revival. Ethiopias footwear industry, for
technology transfer and FDI into sectors that example, was initially displaced by cheap East
contribute to human development. Indian Asian imports, resulting in large-scale layoffs

52 | Human Development Report 2013


Box 2.5

Decent work in a competitive world

The availability of decent, well paying jobs is economically empowering, International retailers and sourcing agents have a responsibility
especially for women. Yet todays competitive global environment pressures to ensure that working conditions in the firms they source inputs from
workers to do more in less time for a lower wage. From both a human de- comply with international standards. Consider the recent case of one of
velopment and a business perspective, competitiveness is best achieved by the worlds most valuable companies, Apple, and its contractor, Foxconn.
raising labour productivity. Competitiveness squeezed out through lower After a series of media exposs that documented terrible labour condi-
wages and longer working hours is not sustainable. Labour flexibility should tions in Foxconn factories, Apple asked a monitoring group, the Fair Labor
not mean adhering to practices that compromise decent working condi- Association, to investigate. When the association published its findings
tions. At least 150 countries have signed on to core International Labour of low pay, long hours and hazardous working conditions, Foxconn agreed
Organization conventions on such matters as freedom of association and to substantial reforms, eventually reducing the average workweek to
discrimination in the workplace. Labour laws on minimum wage, employ- 49 hours as required by Chinese law. As Chinas largest private sector
ment protection, working hours, social security and forms of contracts all employer, Foxconn had the power to directly improve and indirectly influ-
aim to reduce inequality, insecurity and social conflict; they also provide ence the working conditions of millions of people. Notable in this episode
incentives for businesses to pursue high-road management strategies. The was that public opinion in a country of the North (US media and advocacy
view that more regulation is always bad for business has been discredited. groups) pressured a corporation headquartered in that country to nudge
One of the World Bank Groups core Doing Business indicators on employ- a partner in a country of the South to uphold that countrys own labour
ing workers, which ranked countries on the leniency of measures related to standards. This outcome was possible only in an era when trade, busi-
hiring and firing workers, was discontinued because it falsely implied that ness practices and ethics and the universality of basic human rights are
fewer regulations were always preferable. coalescing into a global norm.

Source: HDRO; Berg and Cazes 2007; Duhigg and Greenhouse 2012; Heller 2013.

and business closures, especially in the lower


end of the market traditionally catered to by Figure 2.5
Ethiopian microenterprises. But the industry
Current foreign direct investment is positively associated with achievements in
soon rebounded, even finding its way into the
health and education in previous years
international market.51 One survey found that
78 of the 96 Ethiopian firms that reported in Log of foreign direct investment inflows, 20012010
2006 being hit hard by import competition had 27
adjusted and become competitive within a few
years. Nigerias plastics industry experienced a 25
similar revival.52
Another concern is that the current patterns 23
of demand from other countries in the South
could accentuate the chronic specialization by 21
many African economies in primary commod-
ities. The experience of the least developed 19
countries, 33 of which are in Africa, seems to
17
bear out this concern (see table 2.1). In 2011,
agricultural raw materials and fuel, metals
15
and ores made up more than 96% of least
developed countries exports to China. Total 0.2 0.4 0.6 0.8 1.0
Nonincome HDI, 2000
exports of manufactures by least developed
countries to China were less than $1billion; Note: Inward FDI (in millions of US dollars) is averaged for 20012010. Nigerias nonincome HDI is for 2005.
Source: HDRO calculations and UNCTAD (2011a).
manufactured imports from China exceeded
$38billion.
Over the longer term, however, SouthSouth and telecommunications. In Africa, after years
cooperation could undo this pattern by fos- of neglect by governments and traditional do-
tering sequential investments outside natural nors, infrastructure has again become a prior-
resource industries in agriculture and manu- ity, drawing on the experiences and support of
facturing, as well as in services such as finance the regions new development partners. Some

Chapter 2 A more global South | 53


Box 2.6

Final assembly is about more than low wages

The iPhone and iPad, two popular technology products, are assembled in a companies is managing global supply chains that involve procuring parts
firm in Shenzen, China, and sold worldwide at retail prices in the hundreds and components from hundreds of companies. This requires a rare com-
of dollars. The value of labour performed in China, at under $10, accounts bination of industrial skills, flexibility, speed and diligence at both the in-
for less than 2% of the cost of an iPad, while just 3.6% of the wholesale dividual and collective levels. For instance, an Apple executive told The
cost of an iPhone went to Chinese workers. The rest of the value is earned New York Times that the US has stopped producing people with the skills
by suppliers of parts and components headquartered in Germany, Japan, we need.
the Republic of Korea and the United States. Korean firms LG and Samsung Consider this incident from mid-2007, when Apple hastily redesigned
make the display and memory chips; Apple retains the product design, soft- the glass for the iPhones screen. The first delivery of a new load of strength-
ware development and marketing functions in the United States; and the ened, scratch-free glass arrived at a Foxconn plant in the middle of the night,
assembly firm is owned by a company from Taiwan Province of China. and work started immediately. Within three months, Apple had sold a mil-
The low share of value captured by workers in China could give the lion iPhones. It took 15 days to hire 8,700 industrial engineers to oversee
impression that assembly does not require much sophistication. This is the 200,000 assembly-line workers eventually involved in manufacturing
misleading. While Asia is attractive because of cheaper wages, espe- iPhones. Apples internal estimate was that a similar feat in the United
cially for semiskilled workers, a more important challenge for technology States would have taken nine months.

Source: HDRO; Kraemer, Linden and Dedrick 2011; Xing and Detert 2010; Duhigg and Bradsher 2012.

countries have even resorted to unique credit certification schemes for forest sustainability
arrangements to fund infrastructure, backed by and health regulations governing formalde-
supplies of commodities.53 hyde emissions. There is no evidence so far
Neither the complementary nor the com- that the shift towards emerging markets is
petitive perspective is sufficient to explain being accompanied by a ratcheting up of the
SouthSouth interactions. Because a com- technical standards they require, which would
petitive role today may easily turn into a have required upgrading workers skills and
complementary role tomorrow, these labels capabilities.56
should not be applied rigidly. Moving from
competition to cooperation seems to depend
on policies for dealing with new challeng- Innovation and entrepreneurship
es. More pessimistic pronouncements that in the South
there is no hope for industrialization in
Sub-Saharan Africa have been overtaken by In NorthSouth trade, the newly industri-
realities on the ground, which demonstrate an alizing economies developed capabilities for
ability to advance despite or maybe because of efficiently manufacturing complex products
competition. In this regard, African writers for developed country markets. But South
such as Dambisa Moyo are positive about the South interactions have enabled companies
mutually beneficial role of new actors in the in the South to adapt and innovate in ways
continent.54 that are more suited to developing countries.
The shift from traditional to emerging mar- This includes new business models whereby
kets is also affecting countries in ways that are companies develop products for a large num-
difficult to predict. Take the timber industry in ber of low-income customers, often with low
Africa, which has reoriented itself from serving margins.
a predominantly European market towards Countries of the South are also natural
China.55 In sheer volume China is the most locations for experimentation in new tech-
important market, which is good for focusing nologies and products, such as those based
business on it. The set of technical standards on the global system for mobile (GSM) com-
that China requires of exporters, however, is munications standard. Under the 2005 GSM
less onerous than those the European Union Emerging Markets Initiative, manufacturers
requires. Standards range from product spec- slashed the price of mobile handsets by more
ifications to accreditation from third-party than half and expanded the GSM subscriber

54 | Human Development Report 2013


base by 100million connections a year. This access to knowledge; producing cheaper, often
in turn stimulated investment: in 2007, mo- generic medicines, better seeds and new crop
bile operators, including South Africas MTN varieties; and generating new employment and
and Kuwaits Zain, announced a five-year export opportunities. These possibilities cut
plan to invest an additional $50 billion in across income classes, reaching down to the companies doing well in
Sub-Saharan Africa to improve mobile cover- grassroots. the South tend to be long-
age and expand it to 90% of the population. To respond to the changing needs of middle term risk-takers and agile
Indeed, the spectacular increase in phone class consumers, companies doing well in the in adapting and innovating
connectivity in Africa has been driven almost South tend to be long-term risk-takers and products for local buyers
entirely by companies based in India, South agile in adapting and innovating products for
Africa and the United Arab Emirates.57 local buyers. Consumers in the South tend to
Mobile phone manufacturers have also be younger, are often first-time shoppers for
re-engineered products for the needs of lower modern appliances with distinct in-store habits
income consumers. For example, in 2004, TI and are usually more receptive to branding.
India, a research and development centre of Companies in emerging market economies
Texas Instruments in Bengaluru, designed a have the advantage of different management
single-chip prototype for use in high-quality, approaches from those dominant in the North:
low-cost mobile phones. In 2005, Nokia, in co- majority shareholders have greater power and
operation with TI, began to market the Indian- redeploy resources more speedily than those in
made one-chip handsets in India and Africa, companies in the North.58
selling more than 20million units. Single-chip Some of these developments are based on
designs have also emerged for other devices, interactions among research and develop-
including affordable digital display monitors ment institutions, businesses and community
and medical ultrasound machines. Intel has stakeholders. In such ways, innovation and its
developed a handheld device for rural banking, benefits spread, spawning faster change. There
and Wipro has marketed a low-power desktop is greater appreciation of a broader role for the
computer for basic Internet connectivity. And state in stimulating research and development
in 2008, Tata announced the ultra-low-cost and in nurturing synergies stemming from
Nano car, exportable in kits for assembly by cooperation among private, university and
local technicians. public research institutions. For example, many
Technolog y diffusion through South African countries have emulated the early suc-
South investment is also unleashing entrepre- cess of Mauritius in attracting East Asian FDI
neurial spirit, particularly in Africa. People by creating export processing zones. Malaysias
are often self-organizing, creating buyerseller investment promotion policies have also been
relationships and becoming entrepreneurs to widely copied.
fill unmet needs in spontaneously sprouting Increasingly, the most important engine of
markets. This is evident in the uses to which growth for countries of the South is likely to
Africans are putting affordable Asian-built be their domestic market. The middle class is
mobile phones: cellular banking, for example, growing in size and income. By 2030, 80% of
is cheaper and easier than opening a bank the worlds middle class is projected to live in
account; farmers can obtain weather reports the South. Countries in South Asia and East
and check produce prices; and entrepreneurs Asia and the Pacific will alone account for 60%
can provide business services through mobile of the middle class population and 45% of total
phone kiosks. The use of mobile phones in consumption expenditure.59 Another estimate
Niger has improved the performance of the is that by 2025, a majority of the 1 billion
grain market, and Ugandan farmers are using households earning more than $20,000 a year
mobile phones to obtain higher prices for will live in the South.60
their bananas. Since 2008, Chinese, Indian and Turkish
These and other transformations multiply apparel firms have shifted production from
the possibilities of what people can do with shrinking global markets to expanding do-
technology: participating in decisions that mestic markets. Greater reliance on domestic
affect their lives; gaining quick and low-cost markets will boost internal dynamism and

Chapter 2 A more global South | 55


contribute to more-inclusive growth. Given New forms of cooperation
current trends, African consumers will continue
to benefit from increased imports of affordable Many developing countries are emerging as
products. Flourishing local markets are likely growth poles and drivers of connectivity and
to breed local entrepreneurs and attract more new relationships, opening up opportunities
investment in extractive industries as well as in for less developed countries of the South to
infrastructure, telecommunications, finance, catch up and leading to a more balanced world.
Instead of having a centre tourism and manufacturingparticularly light Instead of having a centre of industrialized
of industrialized countries manufacturing industries in which African countries and periphery of less developed
and periphery of less countries have latent comparative advantage. In countries, there is now a more complex and
developed countries, there this scenario, which has already begun to play dynamic environment. Countries of the South
is now a more complex out in the past decade and in other regions, are reshaping global rules and practices in
and dynamic environment host economies undergo structural change, and trade, finance and intellectual property and es-
indigenous industry responds to competitive tablishing new arrangements, institutions and
pressure from imports and investment inflows partnerships.
by upgrading production. But the process is
proving difficult in countries where technolog- Development assistance
ical capabilities and infrastructure are less well
developed. The rise of the South is influencing develop-
Such expansion of domestic markets will be ment cooperation bilaterally, regionally and
hampered by substantial pockets of deprivation globally. Bilaterally, countries are innovating
and lagging regions within large developing through partnerships that bundle investment,
countries. Although South Asia, for example, trade, technology, concessional finance and
reduced the proportion of the population liv- technical assistance. Regionally, trade and
ing on less than $1.25 a day (in 2005 purchas- monetary arrangements are proliferating in
ing power parity terms) from 61% in 1981 to all developing regions, and there are pioneer-
36% in 2008, more than half a billion people ing efforts to deliver regional public goods.
there remained extremely poor.61 Globally, developing countries are participat-
These disparities undermine the sustainabil- ing actively in multilateral forumsthe G20,
ity of progress because they create social and the Bretton Woods institutions and others
political tensions. In India, the Maoist rebels and giving impetus to reforms in global rules
are active in a large swathe of the countrys and practices.
hinterlands; in neighbouring Nepal, Maoists A rising number of developing countries
evolved from an ill-equipped militia to become provide aid bilaterally and through regional
the countrys largest political party within 12 development funds. Often, this involves en-
years. twining conventional development assistance
with trade, loans, technology sharing and
Table 2.2 direct investments that promote economic
growth with some degree of self-reliance.
Different models of development partnerships Countries of the South provide grant aid on
a smaller scale than traditional donors do but
Paris Declaration principle Traditional donors New development partners also give other forms of assistance, often with-
National development strategies National leadership articulates out explicit conditions on economic policy or
Ownership
outline priorities for donors need for specific projects approaches to governance.62 In project-based
Shared arrangements to minimize Fewer bureaucratic procedures to lending, they may not always have been very
Harmonization
burden on recipients minimize burden on recipients transparent, but they do give greater priority
Recipient-led performance Focus on delivering aid quickly to the needs identified by receiving countries,
Managing for results
assessment practices and at low cost ensuring a high degree of national ownership
Greater accountability through Mutual respect of sovereignty;
(table2.2).
Mutual accountability Brazil, China and India are important
targets and indicators policy conditionality eschewed
providers of development assistance, which
Source: Adapted from Park (2011).
is substantial for countries in Sub-Saharan

56 | Human Development Report 2013


Africa.63 Brazil has transplanted its successful Box 2.7
school grant programme and its programme
Brazil, China and India at work in Zambia
for fighting illiteracy to its African partners.
In 2011, it had 53 bilateral health agreements
The model of bilateral cooperation being practiced by new development partners from the
with 22 African countries.64 China has comple-
South has been changing rapidly. Until recently, the contribution of the new partners to
mented its investment flows and trade arrange- Zambias overall development finance was small. Of the total $3billion in grants and loans
ments with finance and technical assistance that Zambia received between 2006 and 2009, disbursements by Brazil, China and India
for building hard infrastructure. In July 2012, made up less than 3%.
China pledged to double concessional loans In November 2009, China and Zambia announced that China would extend a $1billion
to $20billion over the next three years.65 The concessional loan, in tranches, to Zambia for the development of small and medium-size
Export-Import Bank of India has extended enterprises. This is the equivalent of 40% of Zambias total public external debt stock. In
$2.9billion in lines of credit to Sub-Saharan 2010, the Export-Import Bank of China extended a $57.8million loan to Zambia to procure
African countries and has pledged to provide nine mobile hospitals. Also in 2010, India announced a line of credit of $75million, fol-
an additional $5 billion over the next five lowed by another line of credit of $50million, to finance a hydroelectric power project.
years.66 Between 2001 and 2008, countries and Brazil has invested heavily in mining equipment at the Konkola Copper Mines in the North-
western province of Zambia (managed by an Indian company). The large Brazilian mining
institutions from the South met 47% of offi-
company, Vale, is in a joint venture with the South African company Rainbow in copper
cial infrastructure financing for Sub-Saharan
prospecting and mining in Zambia, with an initial investment of about $400million. Brazil
Africa.67 and Zambia have also signed technical cooperation agreements covering livestock and
The new development partners from the health.
South follow their own model of bilateral co-
operation (box 2.7). The scale of their financial Source: HDRO; Kragelund 2013.
assistance, combined with their approach to
conditionality, can enhance policy autonomy
in less developed countries.68 Less developed Development partners in the South have not
countries can now look to more emerging part- sought to engage with or overturn the rules of
ners for development support.69 This expands multilateral development assistance. But they
their choices, as foreign powers compete for have indirectly introduced competitive pres-
influence, access to local consumers and favour- sures for traditional donors and encouraged
able investment terms. them to pay greater attention to the needs and
The regional development assistance concerns of developing countries. In contrast
architecture is also evolving through the to many traditional donors focus on social sec-
regional development banks: the African tors, new partners have in recent years invested
Development Bank, the Asian Development heavily in new infrastructure across low-income
Bank and the Inter-American Development countriesresulting in, for instance, a 35% im-
Bank. In 2009, playing a countercyclical role, provement in electricity supply, a 10% increase
the regional development banks together in rail capacity and reduced price of telecom-
provided 18.4% ($3.4billion) of the aid pro- munications services.73
vided by all multilateral institutions, a 42%
increase over 2005. Development assistance Trade and financial agreements
from the Arab States has also made impor-
tant contributions, reaching $6 billion in Africa, Asia and Latin America have seen an
2008.70 Some of the largest financiers of in- expansion of trade agreementsbilateral,
frastructure in Sub-Saharan Africa between subregional and regional. In South Asia, these
2001 and 2008 were regional banks and regional agreements have trumped political
funds based in Arab States.71 Development differences. In East Africa, greater regional There is much scope
assistance from regional development banks integration has helped shield economies from to strengthen regional
may become more important to low-in- global shocks.74 There is scope to strengthen integration through
come countries in the coming years (as may regional integration through practical meas- practical measures such
SouthSouth development assistance) if ures such as streamlining transit, transport and as streamlining transit and
policymakers in wealthy countries curtail aid customs procedures and harmonizing national transport procedures
commitments because of domestic economic regulatory schemes. There is also scope to lower
and political challenges.72 tariffs on SouthSouth trade in final products,

Chapter 2 A more global South | 57


Figure 2.6 which are higher than those on NorthSouth
trade.75
Emerging market economies have amassed large foreign exchange reserves
In the aftermath of the 1997 Asian financial
since1995
crisis, several countries of the South devel-
oped new monetary arrangements, which are
China
transforming the financial architecture and
creating space for countries to craft home-
Japan
grown policies. The new lending arrangements
United States
emphasize pragmatism over ideology and
conditionality.
Russian
In addition, the global financial architecture
Federation is being shaped by the rising Souths vast finan-
Saudi Arabia cial reserves. A number of countries, not just
Brazil, China and India, but also Indonesia,
India the Republic of Korea, Malaysia, Mexico,
Thailand and others have amassed pools of
Korea, Rep. foreign exchange reserves as self-insurance
against future financial downturns and crises
Brazil (figure 2.6). Between 2000 and the third quar-
ter of 2011, global foreign exchange reserves
Switzerland rose from $1.9trillion to $10.1trillion, with
a dominant share of the increase accumulated
Hong Kong, by emerging and developing countries, whose
China (SAR)
reserves totalled $6.8trillion.76 Some of these
Singapore countries used their reserves to stimulate
growth in the aftermath of the 2008 global
Germany financial crisis. In a reversal of roles, these
funds have been sought by the International
Thailand Monetary Fund for assistance with the finan-
cial crisis inEurope.
Algeria
Developing countries with large reserve
holdings generally transfer part of these to
France
sovereign wealth funds. According to data by
the Sovereign Wealth Fund Institute, these
Italy
funds had an estimated $4.3trillion in assets
at the end of 2010, with $3.5 trillion held
Mexico
by developing and emerging economies and
Malaysia
$800billion in East Asia alone.77 As of March
2011, developing and emerging economies
Libya
held 41 sovereign wealth funds, 10 with assets
of $100$627billion.
Indonesia Large foreign exchange reserves and sover-
eign wealth funds are not the most efficient
insurance against financial shocks. This un-
0 500 1,000 1,500 2,000 2,500 3,000
precedented accumulation of foreign exchange
Foreign exchange reserves ($ billions)
has opportunity costs both for the countries
1995 2010 holding the reserves and for other developing
countries.78 The resources could be deployed
Note: Includes holdings of gold.
Source: World Bank 2012a.
in more productive ways to support the pro-
vision of public goods, to provide capital to
projects that enhance productive capacities
and economic and human development and

58 | Human Development Report 2013


to promote regional and subregional financial ways intended to enable capacity building,
stability by increasing the resource pools of technical standardization and agreements on
regional institutions. issues such as readmissions. They have lowered
Overall, the rise of the South is infusing barriers to communication and provided a ven-
new patterns of resource accumulation into ue for countries to come together, understand
the global financial system and building a each others perspectives and identify common
denser, multilayered and more heterogeneous solutions.
financial architecture for the South. These These dialogues can be credited with pav-
arrangements sometimes substitute for the ing the way for subsequent successful efforts
Bretton Woods institutions, but in most cases, on migration, most ambitiously the Berne
the emerging institutions and arrangements Initiative 20012005, the 2006 High Level
complement the global financial architecture. Dialogue on Migration and Development
The changing financial landscape in the South hosted by the UN General Assembly and the
has the potential to promote financial stabil- subsequent creation of the Global Forum on
ity and resilience, support the development Migration and Development.81 As the 2009
of long-run productive capacities, advance Human Development Report recommended,
aims consistent with human development such efforts could improve outcomes for
and expand national policy space. Moreover, migrants and destination communities by lib-
emerging economies are having a transform- eralizing and simplifying channels that allow
ative effect by pressing the Bretton Woods people to seek work abroad, ensuring basic
institutions to respond to concerns about rights for migrants, reducing transaction costs
representation, governance principles and the associated with migration, enabling benefits
use of conditionalities. from internal mobility and making mobility
The G20 has expanded its participation in an integral part of national development
such key global financial governance institu- strategies.82
tions as the Financial Stability Board, tasked
with ensuring greater accountability in institu- Environmental protection
tions that set international financial standards.
Likewise, all G20 countries, among others, are The UN Conference on Sustainable
now represented in the Basel Committee on Development in Rio de Janeiro demonstrated
Banking Supervision and the International the promise of regional arrangements, as gov-
Organization of Securities Commissions. ernments from the South showed how they
The South is also gaining influence in the are coming together to manage the resources
International Monetary Fund, where China has they share. One initiative, negotiated by gov-
filled a newly created deputy managing director ernments from the AsiaPacific region, will
post and stands to become the third largest protect the Coral Triangle, the worlds richest
shareholder.79 At the World Bank, the voting coral reef that stretches from Malaysia and
power of developing and transition economies Indonesia to the Solomon Islands and provides With climate-related
rose 3.13percentage points in 2010, reaching food and livelihoods to more than 100million natural disasters
47.19%.80 people. In the Congo River Basin, countries and rising sea levels
are working together against the illegal timber threatening to undermine
Migration policy trade to conserve the worlds second largest human development
rainforest.83 At Rio+20, a group of regional progress, countries
Regional organizations such as the Association development banks announced a $175billion recognize that they
of Southeast Asian Nations, the African Union initiative to promote public transportation have little choice but
and the Common Market of the South have and bicycle lanes in some of the worlds largest to formulate policies
added migration to their agendas. Some of cities.84 on adapting to climate
this activity is through regional consultations, The rise of the South is also reflected in change now and
which are informal, nonbinding processes ded- an array of bilateral arrangements to tackle mitigating climate
icated to finding common ground among coun- climate change. With climate-related natural
change for the future
tries. Many of these processes are interregional disasters and rising sea levels threatening to
and straddle origin and destination regions in undermine human development progress,

Chapter 2 A more global South | 59


countries recognize that they have little choice there are higher returns and more-secure
but to formulate policies on adapting to climate opportunities for SouthSouth investment.
change now and mitigating climate change for There is potential to expand development
the future. Countries are, for example, agreeing partnerships and regional and interregional
to cooperate on technology development and cooperation.
to establish region-specific carbon markets. A The rise of the South has underpinned rapid
partnership between China and the United economic growth in Sub-Saharan Africa and
Kingdom will test advanced coal combustion enhanced opportunities there for human de-
technologies, while India and the United States velopment progress. Many of the fastest grow-
have forged a partnership to develop nuclear ing economies in this century rank low on
energy in India.85 human development. While some have made
Countries in the South are also developing progress on nonincome indicators, others have
and sharing new climate-friendly technologies. not.
China, the fourth largest producer of wind Governments should seize the growth mo-
energy in 2008, is the worlds largest producer mentum and embrace policies that convert
of solar panels and wind turbines.86 In 2011, rising incomes into human development.
Indias National Solar Mission helped spur a Policies that build human capabilities and do-
62% increase in investment in solar energy to mestic productive capacity will enable coun-
$12 billion, the fastest investment expansion tries to avoid the commodities trap and
of any large renewables market. Brazil made an diversify economic activity. SouthSouth co-
8% increase in investment in renewable energy operation can help bring out the learning and
technology to $7billion.87 diffusion potential in trading, investing and
Regional, bilateral and national initiatives partnering in all industries, even commodi-
in the South to mitigate climate change and ties. SouthSouth partnerships can facilitate
protect environmental resources are positive industrial diversification through FDI and
steps. But climate change and the environment joint ventures, technology sharing through
are inherently global issues that require global peer learning, and provision of affordable
resolution through multilateral agreements. products and innovative uses that meet the
The cooperation and participation of rising needs of the emerging entrepreneurial class.
economies of the South in such agreements are This cooperation is already happening and
vital to their success. Regional collaboration can be scaled up substantially in the years
and agreement may be a step in this direction, ahead.
indicating genuine interest in tackling the cli- All said, the rise of the South has been
mate challenge. dramatic but is still in its early stages. The
breadth of social, economic, technological
and entrepreneurial connectedness among
Sustaining progress in developing countries today is unprecedented.
uncertain times The daily headlines may carry dismal mes-
sages about world events. But interspersed
The rise of the South was facilitated by a his- among these discouraging notes are frequent
toric global expansion of trade and investment. snippets reporting on entrepreneurial ven-
More than 100developing countries recorded tures and common-sense applications of new
growth in income per capita of more than 3% technologies by enterprising people in unex-
in 2007. Recently, the economic slowdown pected places.
developing countries in developed countries has nudged the South Multiply each story by the number of people
trade more among to look towards regional demand.88 Already, in developing countries and the cumulative
themselves than with developing countries trade more among them- potential for a rising South across all regions is
the North, and this trend selves than with the North, and this trend can astounding. Chapter 3 explores this potential
can go much further go much further. SouthSouth trade blocs by identifying some of the core drivers that
remain riddled with nontariff barriers that have enabled leading countries of the South
constrict the scale of trade possibilities. Large to make rapid progress, offering inspiration to
foreign exchange reserves remain idle when other countries that might follow.

60 | Human Development Report 2013


Global prospects are uncertain, and the orientation,89 the promise of sustained human
economic downturn in the North is ad- progress is stronger as a result of the shift with-
versely affecting the South. With the right in the world economy brought about by the rise
reforms, however, including a shift in policy of the South.

Chapter 2 A more global South | 61


We cannot expect that
all nations will adopt like
systems, for conformity is
the jailer of freedom and
the enemy of growth.
John F. Kennedy

Wisdom lies neither in fixity


nor in change, but in the
dialectic between the two.
Octavio Paz
3.
Drivers of development transformation
How have so many countries in the South transformed their human development prospects? Given their social and political
diversity and their contrasting natural resource endowments, their trajectories have often diverged. Yet some underlying
themes have been consistent. This chapter looks at the experience of some of the more successful countries and at three
of their common drivers: their proactive developmental states, their capacity to tap into global markets and their focus on
social policy innovation.

Many countries have made substantial pro- countries that have been more successful
gress over the past two decades: the rise in closing the human development gap,
of the South has been fairly broad-based. as measured by the reduction in their HDI
Nevertheless, several high achievers have not shortfall (the distance from the maximum
only boosted national income, but also had HDI score).2 Table 3.1 lists 26 countries that
better than average performance on social were among either the top 15 developing
indicators in areas such as health and educa- countries that registered the largest reduction
tion. One way to identify high achievers is to in HDI shortfall over 199020123 or the top
look at countries with positive income growth 15that registered the highest rates of annual
and good performance on measures of health growth in income per capita during the same
and education relative to other countries at period.
comparable levels of development. These The first set of countries successfully sup-
high achievers include some of the largest plemented fast economic growth with social
countriesBrazil, China and Indiaas well policies that benefit society more broadly, es-
as smaller countries, such as Bangladesh, pecially the poor. China, for instance, reduced
Chile, Ghana, Indonesia, the Republic of its HDI shortfall more than all other countries
Korea, Malaysia, Mauritius, Mexico, Thailand,
Tunisia, Turkey, Uganda and Viet Nam Figure 3.1
(figure3.1).
Some countries have performed well on both the nonincome and the income
This chapter analyses the performance of
dimensions of the HDI
a set of countries that, since 1990, have sub-
stantially improved both income growth and Deviation from expected performance of nonincome dimensions of the HDI, 19902012
the nonincome dimensions of human devel- 0.3
opment, namely health and education. Some Uganda
countries were more successful in one aspect 0.2
Tunisia Indonesia
Brazil Turkey
Bangladesh
than the other: Brazil and Turkey did better 0.1 Mexico Korea, Rep.
on the nonincome dimensions of the Human Ghana Viet Nam
Malaysia China
India
Development Index (HDI), whereas Chinas 0
performance over 19902010 was dominated Thailand
Mauritius
0.1
by growth in income (in part because when Chile
reforms began in the late 1970s, Chinas 0.2
achievements in health and education were
0.3
already high).1 Furthermore, as mentioned
in chapter 1, the group of countries whose 0.4
improvements on the HDI stood out relative 0.04 0.02 0 0.02 0.04 0.06 0.08 0.10
to the performance of peers between 1990 and Growth in GNI per capita, 19902012 (%)
2012 includes least developed countries, such
as Lao PDR, Mali, Mozambique, Rwanda and High achievers in human development Others
Uganda.
Another way of identifying high achiev- Note: Based on a balanced panel of 96 countries.
Source: HDRO calculations.
ers in human development is to look for

Chapter 3 Drivers of development transformation | 63


Table 3.1 reduction in HDI shortfall despite years of
internal conflict.4
Selected developing countries that registered large reductions in HDI shortfall or Indias economic performance has also been
high rates of growth in gross national income per capita, 19902012
impressive, averaging nearly 5% income growth
a year over 19902012. Nevertheless, Indias
Average annual growth per capita income is still low, around $3,400 in
Reduction in in gross national
HDI shortfalla income per capita 2012; to improve living standards, it will need
HDI
(value) (%) Rank (%) Rank further growth, since it is difficult to achieve
Country 1990 2012 19902012 19902012
much poverty reduction through redistribu-
tion alone at low income. Indias performance
Korea, Rep. 0.749 0.909 63.6 1 4.2 8
in accelerating human development, however,
Iran, Islamic Rep. 0.540 0.742 43.9 2 2.5 32 is less impressive than its growth performance.
China 0.495 0.699 40.5 3 9.4 1 Indeed, Bangladesh, with much slower eco-
Chile 0.702 0.819 39.4 4 3.8 13 nomic growth and half Indias per capita in-
come, does nearly as welland better on some
Saudi Arabia 0.653 0.782 37.3 5 0.4 77
indicators.
Argentina 0.701 0.811 36.9 6 3.5 18
Among the top 15 countries in reducing
Malaysia 0.635 0.769 36.6 7 3.6 17 HDI shortfall are Algeria, Brazil and Mexico,
Tunisia 0.553 0.712 35.6 8 2.9 29 even though their growth in income per cap-
Turkey 0.569 0.722 35.5 9 2.5 33
ita averaged only 1%2% a year over 1990
2012. Their experience points to the second
Qatar 0.743 0.834 35.3 10 3.2 22
broad strategy that has paid human develop-
Mexico 0.654 0.775 35.0 11 1.3 58 ment dividends: giving primacy to state in-
Algeria 0.562 0.713 34.4 12 1.0 69 vestment in peoples capabilitiesespecially
Panama 0.666 0.780 34.3 13 3.9 11 their health, education and nutritionand
Brazil 0.590 0.730 34.1 14 1.7 50
making their societies more resilient to eco-
nomic, environmental and other threats and
Brunei Darussalam 0.782 0.855 33.4 15 0.4 87
shocks.
Viet Nam 0.439 0.617 31.8 21 5.9 3 There is a lesson here: countries cannot
Mauritius 0.626 0.737 29.8 25 3.6 14 rely on growth alone. As the 1993 and 1996
Dominican Republic 0.584 0.702 28.3 28 3.9 12 Human Development Reports argued, the link
between growth and human development is
Myanmar 0.305 0.498 27.8 30 7.9 2
not automatic.5 It needs to be forged through
Sri Lanka 0.608 0.715 27.3 31 4.4 7 pro-poor policies by concurrently investing in
Guyana 0.502 0.636 26.7 36 5.3 4 health and education, expanding decent jobs,
Lao PDR 0.379 0.543 26.5 39 4.4 6 preventing the depletion and overexploita-
India 0.410 0.554 24.5 45 4.7 5
tion of natural resources, ensuring gender
balance and equitable income distribution
Bangladesh 0.361 0.515 24.1 47 3.9 10
and avoiding unnecessary displacement of
Trinidad and Tobago 0.685 0.760 23.9 49 3.6 15 communities.
Mozambique 0.202 0.327 15.6 72 4.1 9 This is not to say that economic growth does
a. Reduction in the distance from the maximum HDI score.
not matter. Poor countries with many poor
Note: Based on a balanced panel of 96 developing countries. people need higher incomes. At the national
Source: HDRO calculations.
level, faster growth can enable countries to re-
duce debts and deficits and generate additional
except Iran and the Republic of Korea. The public revenues to step up investment in basic
Republic of Korea, despite lower economic goods and services, especially in health and
growth than China, had the biggest gains in education. And at the household level, income
HDI value. Viet Nam also fared well, ranking growth helps meet basic needs, improve living
third in income growth and among the top standards and enhance quality oflife.
20 in HDI improvement. Sri Lanka, too, has Nevertheless, higher income does not neces-
had high income growth as well as a notable sarily produce a corresponding improvement in

64 | Human Development Report 2013


human well-being. Populations in large cities, the diverse human development experiences
for example, typically report high income per of these countries? Indeed, what are the driv-
capita, but they also have high levels of crime, ers of transformation? This chapter identifies This chapter identifies
pollution and traffic congestion. In rural areas, three: three drivers of
farming households may see income grow while A proactive developmental state. transformation: a
lacking a village school or health centre. Initial Tapping of global markets. proactive developmental
conditions have considerable influence on the Determined social policy innovation. state, tapping of global
pace of countries current and future develop- These drivers are not derived from abstract markets and determined
ment. Nonetheless, they are not the only things conceptions of how development should work; social policy innovation
that matter (box 3.1). rather, they are demonstrated by the transfor-
In fact, the links between economic growth mational development experiences of many
and human development have snapped several countries in the South. Indeed, they challenge
times. The 1996 Human Development Report preconceived and prescriptive approaches: on
identified six unwelcome types of growth: job- the one hand, they set aside a number of col-
less growth, which does not increase employ- lectivist, centrally managed precepts; on the
ment opportunities; ruthless growth, which other hand, they diverge from the unfettered
is accompanied by rising inequality; voiceless liberalization espoused by the Washington
growth, which denies the participation of the Consensus.
most vulnerable communities; rootless growth, These drivers suggest an evolution towards a
which uses inappropriate models transplanted new approach, in which the state is a necessary
from elsewhere; and futureless growth, which catalyst that pragmatically adjusts its policies
is based on unbridled exploitation of environ- and actions in line with new realities and the
mental resources.6 challenges of global markets. This new per-
What accounts for the superior generation spective recognizes that development does not
of growth and its conversion into human de- happen automatically and that transformation
velopment? What are the policy lessons from cannot be left to markets alone. Instead, the

Box 3.1

History and initial conditions matter, but they are not destiny

Initial conditions have profound impacts, as certain characteristics are high human capital and more equal distribution of wealth. Because of
not only difficult to change, but also often perpetuated by institutions and abundant land and low capital requirements, most adult men operated as
policies. In societies that began with high inequality, elites can establish a independent proprietors.
legal framework that locks in their influence, which in turn enables them to Haiti today is the poorest country in the Western Hemisphere. On the
maintain high inequality to their benefit. Take, for example, the Americas, eve of its revolution in 1790, it was probably the richest country in the
where three distinct types of colonies took shape in the 1700s, depending New World. Similarly, after the Seven Years War between the British and
on the initial conditions of soil, climate and native inhabitancy. the French (17561763), the British debated whether to take Canada or
In the Caribbean, soil and climate made colonies suited for the pro- Guadeloupe as reparation. Several centuries later the former proved to be
duction of large-scale lucrative commodities. The distribution of wealth more successful than other economies in the hemisphere.
and human capital was extremely unequal, advantaging the elite who Yet history and initial conditions are not insurmountable barriers. About
could assemble large companies of slaves. In Spanish America, abun- half the progress in development, measured by the HDI, over the past 30
dant in minerals and natives, authorities distributed land resources to years is unexplained by the initial HDI value in 1980. Countries that start at
the Spanish colonists. Elites served the Spanish crown and maintained a similar levelsuch as India and Pakistan, Chile and Venezuela, Malaysia
their status after independence. Income inequality persisted across ra- and the Philippines, or Liberia and Senegalhave ended up with differ-
cial lines, with ownership of large tracts of land being a requirement for ent outcomes. As the 2010 Human Development Report argued, if countries
citizenship. In Peru today, as in many other countries, severe horizontal in- with similar starting points go on divergent development paths, but average
equalities persist between indigenous populations and those of European global achievements have not changed, we can infer that it is national forc-
descent. In the northern parts of the Americas the native population was es policies, institutions, social context and idiosyncratic shocks that drive
not abundant, and soil and climate did not lend themselves to economies national development outcomes. No country remains a prisoner of history
of scale. Thus, there was reliance on labourers of European descent with for long if it wants to break out.

Source: Engerman and Sokoloff 2002; Hoff 2003; Thorp and Paredes 2011; UNDP 2010a.

Chapter 3 Drivers of development transformation | 65


state needs to mobilize society through policies participation of people, in the sense that they
and institutions that advance economic and are being listened to, that their views are taken
social development. into account in decisionmaking and that they
However, this is not a universal prescription. are actively involved in setting the agenda, is
The way these three elements are translated conducive to sustainable long-term develop-
into policies is context-specific, depending on mentas is consistent political leadership
country characteristics, government capacities backed by strong technocratic teams that can
and relationships with the rest of the world. ensure institutional memory and continuity
of policy (box 3.2).9
There is no simple recipe for connecting
Driver 1: a proactive human development and economic growth
developmental state or for accelerating growth.10 One study using
cross-country data for 19502005 found
Development is about changing a society to en- that the vast majority of takeoffs in growth
hance peoples well-being across generations are not generated by substantial economic
enlarging their choices in health, education reforms and that most substantial economic
and income and expanding their freedoms and reforms do not yield takeoffs in growth. 11
opportunities for meaningful participation in Successful countries have grown fast by
society. gradually removing binding constraints to
A common feature A common feature of countries that have progress, not by implementing a long list of
of countries that brought about such transformations is a policies and reforms. The state has a critical
have brought about strong, proactive statealso referred to as role in that. Countries that have succeeded
transformational a developmental state. The term refers to a in igniting sustained growth, have faced
development is a strong, state with an activist government and often an different sets of challenges and adopted var-
proactive state apolitical elite that sees rapid economic devel- ying policies on market regulation, export
also referred to as a opment as their primary aim. Some countries promotion, industrial development and tech-
developmental state go further and add an additional feature: a nological adaptation and progress.12 When a
bureaucracy with the power and authority to country is already growing fast, the challenge
plan and implement policies. High growth is to remove or anticipate future constraints
rates and improved living standards in turn as they become actually or potentially bind-
provide the state apparatus and the ruling ing. Positive terms of trade shocks, like the
elites their legitimacy.7 recent commodity boom as a result of the
In some notable cases, development progress rise of the South, can help begin growth
is guided by a long-term vision, shared norms acceleration but not sustain it. However,
and values, and rules and institutions that build focused economic and institutional reforms
trust and cohesion. Further, viewing develop- appear to have statistically and quantitatively
ment as transformation demands consideration significant impacts on how sustained growth
of these intangible factors as well as an under- accelerationsare.13
standing of how they affect the organization In many high-performing developing
of society and interact with individual policies countries, the state operates differently from
and reforms. the conventional welfare state, which aims to
Country ownership of development correct market failures and build social safety
strategy, strong bureaucratic capacities and nets while promoting market-led growth.
appropriate policies are essential elements Instead, developmental states have been pro-
that together shape the transformation pro- active: initiating and monitoring transforma-
cess.8 Policies must be aimed at facilitating tions in peoples lives.14 Rather than merely
transformation by identifying barriers to and being market-friendly, these states have been
potential catalysts of changes. In this process, development-friendly. Those with strong,
institutions, societies and individuals need innovative social programmes are often also
to set their own objectives and identify the people-friendlya necessary progression in
strategies and policies that can achieve them. the move from a focus on growth to human
Although not pursued everywhere, broad development.

66 | Human Development Report 2013


Box 3.2

What is a developmental state? Need it be authoritarian?

The recent literature on developmental states has grown out of the expe- was closely integrated with strategies to promote structural change towards
riences of the East Asian miracle economies: Japan before the Second high-productivity sectors.
World War and Hong Kong, China (SAR), the Republic of Korea, Singapore The United States has a long history of being a developmental state, going
and Taiwan Province of China in the second half of the 20th century. back to the early days of the republic. Alexander Hamilton, the first US treasury
Recently, China and Viet Nam (as well as Cambodia and Lao PDR) can be secretary, is widely considered the father and inventor of the infant industry
seen as developmental states. Common traits include promoting economic argument. Between 1830 and 1945, the United States had some of the highest
development by explicitly favouring certain sectors; commanding competent trade barriers in the world. In the same period it invested heavily in infra-
bureaucracies; placing robust, competent public institutions at the centre of structure (Pacific railways, Midwestern canals and agricultural infrastructure),
development strategies; clearly articulating social and economic goals; and higher education, and research and development. Even after the Second World
deriving political legitimacy from their record in development. War, when the United States had attained industrial supremacy, and despite
That some East Asian developmental states were not democracies has the rise of market fundamentalism, the developmental state survived.
prompted many to think that the developmental state model is also auto- Block (2008) argues that the state has focused on translating cutting-edge
cratic. But evidence of the relationship between authoritarianism and de- technological research into commercial use through cooperation among a net-
velopment is mixed. Democratic countries such as Japan and the United work of people with high levels of technological expertise situated in state
States have functioned as developmental states. After the Second World agencies, industries, universities and research institutions. Developmentalism
War France initiated planning by the Planning Commission, with sectoral has lived in the shadows of US policy because acknowledging the states cen-
industrial policy led by elite bureaucrats and the aggressive use of state- tral role in promoting technological change is inconsistent with the claim that
owned enterprises. Since the 1950s, the Scandinavian countries have also the private sector should be left alone to respond to market signals autono-
acted as a type of developmental state, where political legitimacy is derived mously. Yet, although limited in scope due to a lack of legitimacy, unstable
from the welfare state and full employment rather than from rapid growth. funding and other limitations caused by its hidden nature, the US develop-
The Swedish state developed strategic sectors through public-private part- mental state has been quite successful. In many sectors, the United States has
nerships (iron and steel, railways, telegraphs and telephone, and hydroelec- developed international competitiveness through public funding for research
tric power). It also provided targeted protection to support the emergence and development and through public procurement for defence (computers, air-
of heavy industries, promoting research and development. Its welfare policy craft, Internet) and health (drugs, genetic engineering).

Source: Evans 2010; Chang 2010; Edigheji 2010; Block 2008.

Another characteristic of developmental and subsidy interventions favouring specific


states is their pursuit of industrial policies to industries, whose efficacy depends on country
redress coordination problems and externali- circumstances. There is no global prescription, One characteristic of
ties by managing comparative advantage.15 though: what worked in East Asia may not developmental states is
For example, the state may foster industries work in Latin America. their pursuit of industrial
believed to have a latent comparative advantage Japan. Japan has long acted as a develop- policies to redress
or seek to elevate those that are stuck in static mental state. By the 1870s, it had a group of coordination problems
comparative advantage. As a result, several well-educated, patriotic businessmen and and externalities by
industries that benefited from tariff protection merchants and government that were focused managing comparative
subsequently succeeded in world markets. 16 on economic modernization.17 Many subse- advantage
Nonetheless, it can be difficult to attribute quent reforms created the infrastructure of a
the success or failure of a particular industry modern country, including a unified curren-
to specific trade policies because government cy, railroads, public education and banking
interventions are guided by multiple motives, laws. The government built and operated
from revenue generation to protection of spe- state-owned plants in industries ranging from
cial interests. cotton to shipbuilding. It also encouraged
Evidence across industries from studies domestic production by raising import tariffs
of the benefits of industry protection is on many industrial products. Since the end
ambiguous. However, there is a distinction of the Second World War, Japan has under-
between the general desirability of soft gone a fundamental transformation from aid
industrial policies, such as improving infra- recipient to donor (box3.3).
structure and technological adoption, and Republic of Korea. Between 1960 and 1980,
hard industrial policies, such as direct taxes the Republic of Korea had significant

Chapter 3 Drivers of development transformation | 67


More important than success. After 1961, the government downside risks. Getting policies and policy
getting prices right, a achieved a position of dominance over its priorities right raises the equally important
developmental state business class through a series of reforms, issue of getting policymaking right. Governing
must get policy priorities including measures that increased the insti- institutions and policies are profoundly and in-
right. They should tutional coherence of the state, such as the extricably linked; one cannot succeed without
be people-centred, creation of the Economic Planning Board, the other. It is thus important to have policy
promoting opportunities but centred on control over finance. It also processes managed by committed people in
while protecting against avoided the capture of state policies on effective and responsive government structures.
downside risks subsidies. Subsequently, it was able to guide Policies also change at different stages of de-
a shift from import substitution to export velopment: at early stages, for example, many
promotion.18 countries prioritize job creation and poverty
Other rising countries of the South have reduction.
pursued similar policies. Governments have Indonesia. From the mid-1970s, sup-
partnered with the private sector to develop ported by revenues from newfound oil
comparative advantage in the most promising wealth, Indonesia complemented import-
sectors while ensuring effective macroeconomic substituting industrialization with a major
management and promoting innovation. They thrust in agriculture and rural development
have also paid special attention to expanding (see box3.4 for the transformative poten-
social opportunities by setting policy prior- tial of strategic investments in agriculture).
ities, nurturing selected industries, fostering This strategy of balanced growth increased
state-market complementarities, committing to the demand for labour, thus reducing un-
long-term reforms, having strong political lead- employment and increasing real wages. 19
ership, learning by doing and boosting public Then in the mid-1980s, as oil income
investment. began to decline, Indonesia shifted from
import substitution to outward-oriented
Setting policy priorities industrialization, drawing in surplus labour
from agriculture to work in manufacturing,
More important than getting prices right, a which offered higher wages. By the early
developmental state must get policy priorities 1990s, when the supply of surplus labour
right. They should be people-centred, pro- had been exhausted, poverty reduction con-
moting opportunities while protecting against tinued primarily through wage increases.

Box 3.3 Akihiko Tanaka, President, Japan International Cooperation Agency

Japan and triangular cooperation

Bolstered by the remarkable economic performance of emerging countries, number of years before finally becoming only a donor as the first Asian
SouthSouth cooperation and triangular cooperation have grown rapidly in member of the Organisation for Economic Co-operation and Development
recent years. They have outgrown their traditional role as complements to in 1964.
NorthSouth cooperation and are now an indispensable source of knowl- This development pathway led Japan to believe that sharing develop-
edge sharing and innovation for many developing countries. ment experience, knowledge and appropriate technology among developing
There are four virtues and merits of SouthSouth and triangular coop- countries can play a very useful role in development cooperation and thus
eration: the benefits accrued from sharing knowledge and experience among warranted donor support.
peers to find more effective solutions; sharing appropriate technology and A prime example is the cooperation among Brazil, Japan and
experience that can promote convergence with NorthSouth cooperation Mozambique. Japan helped Brazil develop its own tropical savannah region,
goals; respecting real ownership, with the South in the drivers seat; and known as the Cerrado, making it a leading producer of soybeans and other
developing countries rapidly emerging as new donors. agricultural products. The two countries now extend collaborative support to
As early as 1975, Japan recognized the value of SouthSouth and Mozambique to develop that countrys vast savannah.
triangular cooperation and began a large-scale triangular training pro- An emerging challenge now is to scale up SouthSouth and triangular
gramme. Japan had experienced a development trajectory similar to that cooperation as a central approach in development cooperation, while avoid-
of some emerging countries today, having first been a net foreign aid re- ing excessive aid fragmentation among an increasing number of develop-
cipient then playing a dual role as aid recipient and emerging donor for a ment actors.

68 | Human Development Report 2013


Box 3.4

Investing in agriculture

Strategic investments in the agricultural sector can have transformative Agricultural Sciences, universities and the Chinese Academy of Science,
effects. Higher crop yields not only lead to improved livelihoods for farm- which together comprise of more than 1,100 research institutions. China is
ers, they also increase demand for goods and services in rural areas, giving becoming a leader in SouthSouth cooperation with African countries, many
rise to new opportunities for economic development. They may also lead to of which are now benefiting from its research.
lower food prices, reducing the share of food in household expenditures and Agricultural technology has also been a strength of Brazil, where an
creating markets for other sectors of the economy. estimated 41% of 2006 agricultural research spending in Latin America oc-
Agricultural research is a public good and tends to be underpro- curred. The System for Agricultural Research and Innovation has contributed
vided by the private sector. Consequently, governments can make use- greatly to the nearly fourfold growth in agricultural efficiency per worker.
ful contributions in this area. Recent studies on several African, Asian The Brazil Agricultural Research Corporation, a state-owned enterprise, has
and Latin American countries show that increased public spending on been instrumental in increasing the land area used for cultivation. Similarly,
agriculture is particularly good for promoting growth. Disaggregating many of Brazils agricultural programmes were developed with sustainability
agricultural expenditure into research and nonresearch spending shows in mind. For example, to qualify for price support and credit programmes,
that research spending is especially effective. Provision of other public farmers must respect zoning laws. Another programme, Moderagro, pro-
goods, such as agricultural extension services and irrigation systems, is vides farmers with credit to improve agricultural practices and preserve
also beneficial. natural resources, Produsa provides credit for planting on agricultural land
China has the worlds largest agricultural research and development that has degraded soil and Propflora uses credit to encourage the planting of
system in the world. Its research is based at the Chinese Academy of forests (particularly palm oil).

Source: OECD 2006, 2011a; Fan and Saurkar 2006; Fan, Nestorova and Olofinbiyi 2010; Stads and Beintema 2009; World Bank 2012a.

Each phase thus involved a people-centred correlation between previous public expend-
approach in which the growth strateg y iture per capita on health and education and
was modified in response to changing current human development achievement (fig-
conditions. ure3.2). Also, higher previous public spending
per capita on health is associated with better
Enhancing public investment child survival and lower under-five child mor-
tality rates (figure3.3). Such outcomes natural-
Traditional economic and social policy ly depend on a countrys stage of development
thinking, as emphasized by the Washington and on how well the money is spent. Countries
Consensus, focused on getting economic fun- should put in place checks and balances to
damentals right as a precondition for economic prevent reckless borrowing sprees and wasteful
growth, arguing that other human development spending.
improvements would follow. A human devel- There has been much debate about whether
opment approach, on the other hand, demands public investment crowds in or crowds out
that improvement in poor peoples lives not private investment. Both outcomes are pos-
be postponed. Thus, people-friendly develop- sible because of the many different uses of
mental states are those that expand a number public capital in developing countries. From
of basic social services (box3.5).20 In this view, the lower levels of health, education and
investing in peoples capabilitiesthrough infrastructure development in South Asia investing in peoples
health, education and other public servicesis and Sub-Saharan Africa than in the high- capabilitiesthrough
not an appendage of the growth process but an performing countries of East and Southeast health, education and
integral part ofit. Asia, it is reasonable to infer that public in- other public servicesis
In addition to the levels of public expendi- vestment, as well as its composition, performs not an appendage of
tures, their composition and the efficiency with a critical role. the growth process but
which they are delivered, all taken together, in- Bangladesh. Bangladesh has sustained an integral part ofit
fluence the effective delivery of public services growth in part by increasing the rate of pub-
and expansion of capabilities. The effectiveness lic investment over time while avoiding the
of public expenditure differs across countries. fiscal deficits that have plagued the rest of the
A global cross-country analysis shows a positive region.

Chapter 3 Drivers of development transformation | 69


Box 3.5

Eastern Europe and Central Asia: where North meets South

Connecting the North and the rising South is the transforming East. Eastern for inclusive growth and societies. Abruptly abandoning areas of respon-
Europe and Central Asia accounts for 5% of world population and output. Its sibility by the state or insisting on rapid privatization of all state-owned
experience in managing a rapid transition from centrally planned to market companies may prove very costly for societies in the long run. Yet at the
economies holds useful policy lessons for developing countries elsewhere. same time, retaining these responsibilities does not mean keeping the
The first phase of the transformation began with a sharp drop in living stan- earlier structures intact. On the contrary, reforms to strengthen national
dards and human development. While each country managed a subsequent institutions transparency and accountability and to limit the scope of cor-
recovery under varying political and economic conditions, theoverall experi- ruption are necessary to improve the quality of governance and efficiency
ence underscores the importance of social inclusion and a responsible role of governments.
of the state. Many countries of the region are now active members of the European
The 2011 Regional Human Development Report for Europe and the Union. They, together with Croatia, Kazakhstan, the Russian Federation
Commonwealth of Independent States showed a negative correlation be- and Turkey, have also become emerging donors, with aid disbursements
tween Human Development Index values and measures of social exclusion exceeding $4billion in 2011. The emerging donors are also active in bi-
in Eastern Europe and Central Asia. It noted that economic variables ac- lateral or trilateral exchange of knowledge with countries with common
counted for less than a third of the risks contributing to individual exclu- heritage or beyond. In recent years Romania has shared its experience
sion. Labour informality, corruption and lengthy procedures for business conducting elections with Egypt and Tunisia, Poland has helped Iraq
startups were associated with high social exclusion.By contrast, because with small and medium-size enterprise development, the Czech Republic
employment facilitates inclusion, functional and accessible labour market has cooperated with Azerbaijan on environmental impact assessments
institutions were found to be important. A major lesson from two decades and Slovakia has assisted Moldova and Montenegro in public finance
of transition is that the state has a critical role in creating an environment management.

Source: HDRO; UNDP 2011b.

India. India increased central government controlled trade and investment, creating
spending on social services and rural devel- a system that became increasingly laden
opment from 13.4% in 20062007 to 18.5% with bureaucratic intricacies (the licence
in 20112012.21 And social services as a pro-Raj).23 During these years, however, there
portion of total expenditure rose from 21.6% was a deliberate policy to build human ca-
in 20062007 to 24.1% in 20092010 and pabilities and invest in world-class tertiary
to 25% in 20112012. education, though perhaps neglecting pri-
mary education. Following the reforms of
Nurturing selected industries the 1990s, these investments paid off when
India was unexpectedly able to capitalize
Governments can encourage a market- on its stock of skilled workers in emergent
disciplined private sector by adopting a information technolog yenabled indus-
dynamic view of comparative advantage, tries, which by 20112012 were generating
A dynamic view of nurturing sectors that would not other- $70 billion in export earnings. Another
comparative advantage wise emerge due to incomplete markets. 22
industry built during the inward-looking
has enabled several Although this poses some political risks of years is pharmaceuticals. India granted
countries to turn rent seeking and cronyism, it has enabled sev- patents only to processes, not to products,
inefficient industries eral countries of the South to turn industries which encouraged firms to reverse engi-
unable to withstand previously derided as inefficient and unable neer and become world leaders in generic
foreign competition into to withstand foreign competition into early drugs.24 Similar tales of capacity building
drivers of export success drivers of export success once their economies can be told for Indias automobile, chemi-
once their economies became more open. cal and service industries, now vigorously
became more open India. For decades after independence in tapping into world markets.
1947, India followed a strategy of state- Brazil. For long stretches, Brazil also
led, import-substituting industrialization. experimented with inward-oriented eco-
It inhibited the private sector while be- nomic strategies. During these periods,
stowing wide powers on technocrats who individual firms that benefited from large

70 | Human Development Report 2013


domestic markets were not encouraged to Figure 3.2
export and compete globally. But when they
Current HDI values and previous public expenditures are positively correlated...
did so, they were able to rely on capacities
built up over decades. Embraer, for example, HDI, 2012
is now the worlds leading producer of region- 1.0
al jet commercial aircraft of up to 120 seats.25
0.9
The countrys steel and shoe industries also
grew under public ownership, with research 0.8
and development augmenting capabilities for 0.7
domestic innovation.
0.6
Prioritizing job creation 0.5

0.4
Pragmatic policies aimed at creating secure
and remunerative jobs are likely to strength- 0.3
en the link between economic growth and 0.2
human development. Evidence from Asia
6 7 8 9 10 11 12 13 14
suggests that countries with simultaneously Log of public expenditure on health and education per capita, 2000
high rates of growth and poverty reduction
also rapidly expanded employment. This was Source: HDRO calculations and World Bank (2012a).
true for Malaysia and Thailand in the 1970s,
China and Indonesia in the 1980s and India
and Viet Nam in the 1990s.26 The first genera- Figure 3.3
tion of fast-growing Asian economiesHong
...as are current child survival and previous public expenditure on health
Kong, China (SAR), Republic of Korea,
Singapore and Taiwan Province of China Log of under-five mortality rate, 20102011
expanded employment 2%6% a year before 6
the 1990s, while raising productivity and
wages. Such patterns of growth were often 5
led by small-scale agriculture as in Taiwan
Province of China and by labour-intensive ex- 4
port-oriented manufacturing in Hong Kong,
China (SAR), the Republic of Korea and 3
Singapore.27
The success of some Asian countries 2
such as the Republic of Korea and later
1
Thailandholds lessons for less developed
economies, especially in Sub-Saharan Africa,
0
because they created jobs two to three times
2 4 6 8 10 12 14
faster when they were at a comparable level
of development. For example, over the past Log of public expenditure on health per capita, 2000

10 years, Africas labour force expanded by Source: HDRO calculations based on World Bank (2012a).
91million people but added only 37million
jobs in wage-paying sectors.28 With proactive
government policies in labour-intensive sub- improving infrastructure aimed at economic
sectors of manufacturing and agriculture, as diversification and removing obstacles to pri-
well as retail, hospitality and construction, vate entrepreneurship, such as lack of finance
Africa is projected to create up to 72million and onerous regulations.30
jobs by 2020, an additional 18 million jobs Mauritius. The possibilities of labour-
over present growth levels.29 Such policies, intensive growth are higher when countries
however, require not only investing in young are at a lower level of industrialization.
peoples education and training, but also Analysing the performance of Mauritius

Chapter 3 Drivers of development transformation | 71


over two decades, one study finds that stable jobs in agriculture increased from
during the first decade (19821990), 80% 519,000 in 1960 to nearly 3 million in
of annual economic growth was accounted 2008. Overall, in the 1990s alone, Thailand
for by new employment and capital accu- increased its share of stable jobs by 11 per-
mulation.31 Unemployment dropped from centage points (as Brazil did between 1970
20% to below 3%, with the number of jobs and 1988).37
growing 5.2% a year. Economic growth in Indonesia. Indonesia before the 1997 Asian
the next decade (19911999), however, financial crisis stood out for pursuing growth
was driven less by accumulation of capital that had a high labour intensity. Real wages
and more by the productivity growth of increased at an average annual rate of 5% for
workers, a result of investment in human two decades preceding the crisis. Between
capabilities.32 1990 and 1996 alone, formal nonagricultural
Bangladesh. The more rapid decline in pov- employment increased from 28.1% of the
erty in the 1990s compared with the 1980s33 workforce to 37.9% and the share of work-
was attributed to both the expansion of force in agriculture declined from 55.1%
labour-intensive exports (such as garments to 43.5%.38 Post-crisis, when some of the
and fisheries) and the increase in employ- development gains were reversed, the pro-
ment in the rural nonfarm sector (compris- portionate increase in poverty was lowest for
ing small and cottage industries, construction agricultural workers.39
and other nontradable services). The stim- As these examples suggest, patterns of growth
ulus, however, came less from productivity are rarely consistently pro-poor over consec-
improvements within this sector than from utive decades. This is because developmental
rising demand facilitated by an increase in transformation is synonymous with the change
crop production, an inflow of remittances in the structure of production and sectors differ
and growing exports.34 in their capacities to create jobs. Skilled and un-
Rwanda. Expansion in jobs does not always skilled jobs, for example, require a different mix
have to come from export-oriented manufac- of complementary inputs, such as formal edu-
turing. In Rwanda, jobs in tourism services cation and industry-specific training. The larger
have increased over the past decade. The point is that human developmentoriented
sector now sees export earnings that exceed policies require both growth and an equitable
those from coffee and tea and employs nearly expansion of opportunities. Developmental
states have to be 75,000 people.35 states, therefore, have to be conscious that the
conscious that the Uganda. Like Rwandas, Ugandas high nature of growth (and the intensity of labour
nature of growth (and the growth during the 1990s was poverty alle- use in sectors that drive growth) evolves as the
intensity of labour use in viating because of income growth in agricul- economy transforms, and they need then to
sectors that drive growth) ture through large scale absorption of labour, respond with matching investments in peoples
evolves as the economy especially in the cash crops sector that was skills.
transforms, and to respond buoyed by world prices and improvement in
with matching investments agricultures terms of trade.36 Fostering statemarket
in peoples skills Thailand. Developing countries endowed complementarities
with arable land can continue to create
stable jobs in agriculture, even though its Both markets and governments can fail, but
share in total output typically declines over there are synergies when they work togeth-
time. This is the case in Thailand, whose er. Development progress cannot be left to
employment pattern of the 1960s is compa- markets alone. Some markets not only fail
rable to that of many Sub-Saharan African to function, but may not exist at all at early
countries today. While Thailand has since stages of development. Most successful de-
become a manufacturing powerhouse, velopmental states have introduced industrial
millions of stable jobs continue to be cre- and related policies that enhance the private
ated in nonmanufacturing sectors such as sectors potential to contribute to human de-
retail, hospitality and construction, as well velopment, especially by creating jobs in new
as in commercial farming : the number of sectors.

72 | Human Development Report 2013


Turkey. The state created favourable econom- the world to a powerhouse of international
ic conditions that encouraged construction trade.45 The scale of these changes required
and the manufacture of furniture, textiles, a committed state pursuing a long-term vi-
food and automobilesall industries with sion to build the necessary institutions and
a high capacity to absorb labour. Turkeys capacities. The leadership deliberately re-
export basket has since moved towards prod- placed the old guard, who might have been
ucts that involve more processing, higher expected to resist change, with a younger,
technology content and the use of skilled more open and better educated government
labour.40 bureaucracy. By 1988, a remarkable 90% of
Tunisia. Since the early 1970s, Tunisia has officials above the county level had been
relied on financial and fiscal incentives appointed since 1982.46 Capacity upgrading
to attract foreign and domestic capital to is still a priority, and the education levels
export-oriented industries, particularly for of officials have risen continuously. The
garment production.41 Various forms of Chinese bureaucracy has been designed
businessgovernment relations have en- with a strong results orientation, linking
hanced industrial upgrading and promoted career development to the achievement of
industry clusters. Today, Tunisia is among the central objectives of modernization and
top five exporters of apparel to the European economic progress.47
Union.42 It also has the potential to export People-friendly developmental states need People-friendly
health services by providing treatment to vis- strong political leadership committed to eq- developmental states
itors from neighbouring countries, to a value uity and sustainability. Effective leadership need strong political
equivalent to a quarter of Tunisias private aligns the long-term goals of policymakers and leadership committed to
health sector output.43 enables constituencies to appreciate the states equity and sustainability
Chile. After returning to democracy in the work in fostering individual capabilities and
1990s, Chile encouraged investment and social integration for human development. This
technological upgrading in sectors where requires a balanced approach to development
the country had an intrinsic comparative and an ability to convert crises into opportu-
advantage. It subsidized the formation and nities for introducing broad-based economic
operation of innovation-based consortia reforms.
between private firms and universities and Brazil. By the time the Brazilian transfor-
engaged in other innovation-promoting mation to a developmental state began
activities.44 (around 1994), the government had imple-
mented macroeconomic reforms to control
Committing to long-term hyperinflation through the Real Plan and
development and reform concluded the trade liberalization that had
begun in 1988 with tariff reductions and
Achieving enduring transformation is a long- the removal of other restrictions.48 Trade
term process that requires countries to chart a openness and prudent monetary and fiscal
consistent and balanced approach to develop- policy followed, as did innovative social pro-
ment. Some technical or managerial solutions grammes that reduced poverty and income
may appear to be attractive quick fixes, but they inequality.
are generally inadequate. In large and complex societies, the outcome
China. Since market-oriented reforms in the of any particular policy is inevitably uncertain.
late 1970s, China has experienced a com- Developmental states need to be pragmatic and
plex and interlocking set of changes: from a test a range of different approaches.
command to a market economy; from rural China. Chinas reform and opening resulted
to urban; from agriculture to manufactur- from an explicit choice in the late 1970s to
ing and services; from informal to formal relax constraints on peoples participation
economic activities; from a fragmented set in economic decisions. But the institution-
of fairly self-sufficient provincial economies al innovations that went on to underpin
to a more integrated economy; and from Chinas transformation resembled Deng
an economy that was fairly shut off from Xiaopings approach to crossing the river

Chapter 3 Drivers of development transformation | 73


by feeling the stones.49 Between 1979 and of gradual and sequenced integration with
1989, no fewer than 40% of Chinas nation- the world economy, according to national cir-
al regulations were deemed experimental. cumstances, and accompanied by investment
The first set of agrarian reforms permitted in people, institutions and infrastructure.57
farmers to lease land, submit a share of Country studies confirm that what is needed
produce at fixed prices to the state and sell is a package that involves the interaction of
the surplus. Next came the expansion of reforms in trade, exchange rates, and fiscal,
the township and village enterprises.50 The monetary and institutional policies. 58 A re-
gradual approach reflected the pragmatism cent study finds that more decisive benefits
of Chinese leaders. Another reason for this come from trade liberalization embedded in
pragmatism was the perception that the broader reforms: in the post-liberalization
transition was impossible to plan, com- period between 1950 and 1998, the countries
pounded by disillusionment with the whole that were considered to have implemented
planning system. such policies posted growth rates that were
1.5 percentage points higher, investment rates
that were 1.52 percentage points higher and
Driver 2: tapping of global markets trade to output ratios that were 5 percentage
points higher.59
A common element of the fast-developing As countries develop, they tend to disman-
countries of the South has been to strengthen tle trade barriers and become more open.60
As countries develop, the capabilities of people and the competencies HDRO analysis of the association between
they tend to dismantle of firms while embracing global markets. This the change in trade openness and relative im-
trade barriers and has enabled them to source intermediate inputs provement in HDI value between 1990 and
become more open and capital goods at competitive world prices, 2010 supports this conclusion (see box 2.1 in
adopt foreign knowhow and technology and chapter 2). Not all countries that increased
use them to sell to global markets.51 All newly trade openness made big improvements in
industrializing countries have pursued a strat- HDI value relative to their peers. But those
egy of importing what the rest of the world that did make big improvements in HDI value
knows and exporting what it wants.52 Indeed, typically increased their trade to output ratio
few countries have developed successfully by or established a global network of trade links of
shunning international trade or long-term substantial bilateral value. In a sample of 95 de-
capital flows; very few have sustained growth veloping countries and transitional economies,
without increasing their trade to output ratio, the average increase in trade to output ratio of
and there is no evidence that in the post-war countries considered to be rapid improvers on
period inward-looking economies have system- the HDI between 1990 and 2012 was about
atically developed faster than those that have 13 percentage points higher than that of more
been more open.53 modest improvers.
This experience does not mean, however, As discussed in box 2.1 in chapter2, almost
that countries can ignite growth simply by all countries with substantial improvement in
dismantling trade and investment barriers. HDI value over the past two decades have also
Some influential cross-national studies in the become more integrated with the world econ-
1990s purported to show that rapidly opening omy. Table 3.2 reconfirms this for a selected
up would automatically lead to high economic group of high human developmentachieving
growth. But these were subsequently found to countries discussed in this chapter, which have
have significant methodological limitations.54 vigorously tapped opportunities presented by
In particular, growth cannot be sufficiently globalization by expanding their share of ex-
explained by average tariff and nontariff ports in world markets between 1990 and 2010.
barriers.55 The only exception in this group is Mauritius,
Actual development experiences from the one of the first countries in the South to pur-
South have demonstrated a more nuanced sue an export-oriented development strategy,
consensus.56 In this view, successful and sus- whose share in world exports peaked in 2001.61
tained progress is more likely to be the result As the more populous countries deepen their

74 | Human Development Report 2013


integration with the world economy, they have Table 3.2
accelerated their structural diversification in
manufacturing and services and boosted ag- Share of world exports of goods and services of high achievers in human
development, 19851990 and 20052010 (%)
ricultural productivity, helping lift hundreds
of millions of people out of poverty in a few
decades. Country 19851990 20002010

Bangladesh 0.042 0.089


Gradual and sequenced integration Brazil 0.946 1.123
Chile 0.232 0.420
Rather than opening suddenly to world mar-
China 1.267 8.132
kets, some of the more successful countries have
opened gradually, as the situation demanded. Ghana 0.029 0.041
China. A rapid opening up in China would India 0.519 1.609
have shut down state enterprises without Indonesia 0.624 0.803
creating new industrial activities, so the
Malaysia 0.685 1.197
state reformed gradually. To attract foreign
Mauritius 0.038 0.027
direct investment (FDI), create jobs and
promote exports, the state established spe- Thailand 0.565 1.095
cial economic zones, often in less built-up Tunisia 0.116 0.118
areas.62 At the same time, China increased Turkey 0.449 0.852
the competencies of its workers and firms
Note: Values are averages for 19851990 and for 20052010.
by requiring foreign firms to enter joint Source: World Bank 2012a.
ventures, transfer technology or meet high
requirements for domestic content. By the
early 1990s, China was ready to expand its over the next two decades to reach about
external interactions, building on invest- 8% in 2009. Restrictions on manufactured
ments in health and education during the consumer products were gradually lifted
1960s and 1970s and on the newly acquired and phased out by 2001, 10 years after the
competencies of farmers and firms. Between reforms began.67 In 2010, Indias trade to
1993 and 1996, China was already the des- output ratio was 46.3%, up from only 15.7%
tination of more than 10% of worldwide in 1990. FDI also reached a peak of 3.6%
FDI inflows.63 Its trade to GDP ratio nearly of GDP in 2008, up from less than 0.1%
doubled, from 21.7% in 1980 to about in1990.68
42% in 19931994. By 2011, China had
completed 10 years of membership in the Building up industrial competencies
World Trade Organization and overtaken for global markets
Germany as the second-largest exporter of
goods and services.64 Several countries have built up industrial com- Several countries
India. Domestic reforms began in India petencies under periods of import substitution have built up industrial
in the mid-1980s and expanded after the that they have subsequently used to supply competencies under
19901991 external payments crisis. Before overseas markets. periods of import
the reforms, India had import quotas and Turkey. Trade performance after the 1980s substitution that they have
high tariffs on manufactured goods and rested on production capacities built in the subsequently used to
banned imports of manufactured con- pre-1980 era of import-substituting indus- supply overseas markets
sumer products. 65 Early reforms focused trialization in Turkey.69 Between 1990 and
on dismantling the systems of licences for 2010, its trade to GDP ratio rose from 32%
industrial activity and ending restrictions to 48%, a substantial jump for a middle-
on investment.66 Quantitative restrictions income country with a large domestic mar-
on manufactured capital goods were ended ket. In 2011, the top exportsautomobiles,
in 1993. Tariffs on manufactured goods iron and steel, and household appliances and
were reduced quickly from 76.3% in 1990 to consumer electronicswere all from indus-
42.9% in 1992, but further cuts were spread tries that had grown under trade protection.

Chapter 3 Drivers of development transformation | 75


Republic of Korea. When the Republic of Indonesia and some other East Asian coun-
Korea and some of the other East Asian tries established export processing zones,
economies went through a phase of mod- bonded warehouses and duty drawback
erate import substitution for consumer systemsall requiring a competent bureau-
goods, they did not protect domestic pro- cracy. When countries felt they lacked that
ducers of capital goods.70 Even when they capacity, they resorted to unconventional
were ambivalent about FDI in the 1980s, approaches. For a period Indonesia even
Having weathered the they chose to import technology under privatized its customs administration. 76
Asian financial crisis licensing agreements and to develop links Having weathered the Asian financial
in 1997, Indonesia with multinational firms. The goal was to crisis in 1997, Indonesia today stands out
today stands out for build indigenous capabilities for the long for effectively managing its commodity
effectively managing haul by borrowing and assimilating foreign exports.77
its commodity exports technologies.
Thailand. Thailands manufacturing prowess Piggybacking on niche products
continues to strengthen through the coun-
trys participation in international produc- One option for smaller economies is to tap into
tion networks. In 20092010, its exports world markets for niche products. The choice
of parts and c omponentsnotably in the of successful products is not accidental; it is
automotive and electronics industrieswere often the result of years of state support and
valued at $48 billion, a quarter of its mer- facilitation that build on existing competencies
chandise exports. The government is keen to or the creation of new ones.
establish Thailand as the Detroit of Asia, Chile. With active support from the state,
not only a cluster for logistics, but also a Chilean firms have had major success in
high-tech hub that forges research collabora- expanding exports of processed agricul-
tion among firms, universities and the public tural food and beverages and forestry and
sector.71 fish products. For example, in the 1960s,
Malaysia. Malaysias pre-eminence in the there was substantial public research and
electronics industry began in the early days development in the cultivation of grapes
of the international division of labour, with for wine production. There has also been
its courting of multinational companies from a long history of subsidized plantations in
countries in the North. Free trade zones, forestry, and the state has made major ef-
established primarily for manufacturing elec- forts to turn the wood, pulp and paper, and
tronic goods,72 helped the country develop furniture cluster into a major export in-
rapidly between the 1970s and the 1990s. dustry.78 Similar support from a nonprofit
Today, however, Malaysias economy is seen corporation, Fundacin Chile, has helped
to be in a middle-income trap, no longer make the countrys commercial salmon
able to compete with low-cost production cultivation one of the most prolific in the
in neighbouring countries and lacking the world.79
skills for high-end tasks in global production Bangladesh. Bangladesh took advantage of
networks.73 The governments own advisory market distortions in world apparel trade.80
council is concerned that a slowdown in FDI But without the initiative of its entrepre-
inflows could affect the prospects for gradu- neurs, it could easily have squandered the
ating to high-income status.74 Malaysias good opportunity. In 1978, the Desh Company
record in secondary education does not seem signed a five-year collaboration agreement
to have produced a strong enough base for with Daewoo, a Korean company, that con-
an innovation-driven economy: Malaysias nected Bangladesh to international standards
future progress is hampered by inadequate and a network of apparel buyers. Daewoo
research and development capacity and a lack trained Desh employees in production and
of design and process engineers and technical marketing in the Republic of Korea. Within
and production workers.75 a year, 115 of the 130 trainees had left Desh
Indonesia. In the 1990s, to avoid the high to start their own garment export firms.81 By
costs associated with aspects of protection, 2010, Bangladeshs share of world apparel

76 | Human Development Report 2013


exports had increased to about 4.8%, from Driver 3: determined social
about 0.8% in 1990.82 policy innovation
Mauritius. With limited arable land, an
expanding population and overreliance on Evidence shows that substantial public
one commodity (sugar), Mauritius had to investmenteffectively deployed not just
seek a larger, overseas market. Asian gar- in infrastructure, but also in health and
ment exporters, constrained by quotas, were educationis key to achieving and sustaining
attracted to the country. Until the 1990s, human development. Development strategies Development strategies
Mauritius was one of the most protected cannot succeed without a commitment to cannot succeed without
economies, but it provided duty-free access equality of opportunity, giving everyone a fair a commitment to equality
to imported inputs, tax incentives and flex- chance to enjoy the fruits of growth. Indeed, of opportunity, giving
ible labour market conditions, including there is strong multicountry evidence that pro- everyone a fair chance to
supporting the entry of women into la- moting higher human development levels helps enjoy the fruits of growth
bour-intensive jobs in the export processing accelerate economic growth.86
zones.83 A good test of a governments commitment
Ghana. Cocoa has been at the heart of to equality of opportunity is its determination
Ghanas economy for decades. In the 1970s to provide education, particularly to girls.
and early 1980s, however, the sector faced Countries that have sustained high long-term
near-collapse. Ghana restored its interna- growth have generally put considerable effort
tional competitiveness with reforms begun into educating their citizens and deepening
in 1983, especially by devaluing the cur- human capital.87 Investing in education is
rency, increasing the capacity of the private important for improving cognitive skills, as
sector in procurement and marketing, and measured by the performance of students on
giving farmers a much higher share of pric- mathematics and science tests.88 However, the
es received. Between 1983 and 2006, the benefits derive from investment not so much
country doubled its production of cocoa in the production of specialist skills but in ed-
per hectare, and today the sector supports ucation for all.89 Similarly, improvements in
the livelihoods of 700,000 people.84 Over public health help growth by boosting labour
the past 10 years, Ghana has also diversi- productivity.90
fied into services, with the telecom sector Growth accompanied by high or rising in-
growing fast and augmenting the capacity equality generally involves slower advances in
of farmers to connect to sources of market human development, poor social cohesion and
information. A recent survey found that slow reduction in poverty. Moreover, it is usu-
around 61% of cocoa farmers owned mobile ally considered unsustainable.91 Thus the aim
phones.85 should be to create virtuous cycles in which
A common thread that runs through the growth and social policies reinforce each other.
economies that have had meaningful engage- Growth has frequently been much more effec-
ment with the world is their investment in tive at reducing poverty in countries with low
people. Tariff reform, at home or in partner income inequality than in countries with high
countries, may provide an unexpected opening income inequality. Growth is also less effective
into export markets; some countries may en- in reducing poverty when the distribution of
joy resource windfalls or ride a wave of short- income worsens over time.92
term success by mimicking others. However, The exceptions seem to be China and Brazil.
the lesson is that development cannot be sus- Over the last 30 years, as a result of very high
tained without adequate investment in peo- rates of growth, China has reduced poverty
ples skills to constantly upgrade the quality despite increasing income inequality. Similarly,
of products and production techniques. The in the early 2000s, Brazil used targeted pol-
countries discussed here began from diverse icies to reduce poverty despite high income
initial conditions and have become adept at inequalitythough income distribution be-
tailoring nurtured domestic strengths to reap came more equal over this period.
external opportunities presented by world Promoting equalityespecially equal-
markets. ity across groups, known as horizontal

Chapter 3 Drivers of development transformation | 77


equalityalso helps reduce social conflict. advanced countries, there is persistent discrim-
The sharpest contractions in growth after ination against certain ethnic groups in labour
1975 occurred in countries with divided soci- markets.97 Nonmarket discrimination can be
eties (as measured by indicators of inequality equally severe and destabilizing. Moreover,
and ethnic fragmentation). They also suffered historical discrimination has long-lasting ef-
from weak institutions for conflict manage- fects. Ensuring nondiscrimination and equal
ment, with poor quality government institu- treatment, including providing special pro-
tions that had less capacity to ensure the rule grammes for disadvantaged groups, is becom-
of law, democratic rights and social safety ing increasingly critical for political and social
nets.93 stability.
Education, health care, social protections, In the South, too, different levels of
legal empowerment and social organization all achievement often have historical or colonial
enable poor people to participate in growth. originsfor instance, in India, between up-
But even these basic policy instruments may per and lower castes, and in Malaysia, among
not empower disenfranchised groups. Poor Bumiputras (Malays), Chinese and Indians.
people on the fringes of society struggle to Economic prosperity alone cannot end group
voice their concerns, and governments do not discrimination that leads to horizontal inequal-
always evaluate whether services intended to ity. To bridge inequalities and correct historical
reach everyone actually do.94 Often, problems disadvantages, both India and Malaysia have
are exacerbated by external shocks, but in many adopted deliberate policy interventions, such
cases policies are implemented where local as affirmative action.
institutional capacity and community involve-
ment are low. Providing basic social services
Uganda. In post-conflict Uganda, a se-
providing public ries of macroeconomic reforms, from the States can underpin long-term economic
services that contribute loosening of price control and exchange growth by providing public services that
to a healthy, educated rates to changes in state-owned enterprises contribute to a healthy, educated labour
labour force helps and the civil service, paved the way for a force. Such measures also help build national
build national stability, wide-ranging poverty reduction plan in stability, reducing the likelihood of political
reducing the likelihood 1997. Uganda went on to become one of unrest and strengthening the legitimacy of
of political unrest and the few Sub-Saharan African countries to governments.
strengthening the have halved extreme poverty before the Developing countries sometimes receive
legitimacy of governments Millennium Development Goal deadline of policy advice urging them to view public ex-
2015, from 56.4% in 19921993 to 24.5% penditures on basic services as luxuries they
in 20092010. However, increasing income cannot afford. Over the long term, however,
inequality has slowed the pace of poverty re- these investments pay off. Although not all
duction.95 On balance, the economic success services need be publicly provided, a mini-
of these efforts show that programmes are mum universal level of basic health, education
more effective when the national leadership and social security needs to be established
is committed to reducing poverty, notably to ensure that all citizens have secure access
by enhancing the consistency of goals and to the basic requirements of human devel-
approaches across government agencies.96 In opment, whether from public or private
turn, such progress can have a profound in- providers. Compulsory public primary and
fluence on the legitimacy of leaders and their secondary education has contributed deci-
governments. sively to human development in Europe and
in some developing countries, such as Costa
Promoting inclusion Rica.

All countries have, to a greater or lesser ex- Access to high-quality education


tent, multireligious, multicultural, pluralistic
societies, and different groups generally have Growth in HDI value is associated with growth
different levels of human development. Even in in public spending on education. On average,

78 | Human Development Report 2013


countries with higher government expenditures the focus came back to access, this time for
on health and education have experienced high secondary education. The next major round
growth in human development, although local of reforms took place in 1987. The most
variations may remain. significant aspect of the curriculum reform
Indonesia. During Indonesias economic was to provide children with literacy in three
boom years (from 1973 onwards), the gov- languagestwo Ghanaian languages and
ernment funded the construction of schools Englishas well as modern farming skills,
for basic education through development vocational skills and practical mathematics
programmes, and in the following decade skills.
public expenditure on education more than Mauritius. The government of Mauritius
doubled. developed a national consensus on providing
India. Following the constitutional amend- high-quality primary, secondary and tertiary
ment to make education a fundamental right schooling free of charge.
for every child, India has taken progressive Bangladesh. The Ministry of Primary and
steps towards ending discrimination in its Mass Education was established in 1992
school system (box3.6). with the goal of universalizing primary edu-
Ghana. One of the earliest initiatives in in- cation and eliminating gender and poverty
dependent Ghana was the 1951 Accelerated gaps in primary education in Bangladesh.
Development Plan for Education, which Demand-side interventions, such as the
aimed at a massive expansion of primary Female Secondary School Assistance
and middle school education. The 1961 Program and the Food for Education pro-
Education Act removed fees for elementary gramme, broadened coverage, particularly
education so that households had to pay only for girls.
a modest amount for textbooks. Enrolment China. In 1986, Chinas National Peoples
in public elementary schools doubled over Congress passed a law proclaiming the
the next six years. Between 1966 and 1970, compulsory provision of nine-year basic
the public discourse on education moved education regardless of gender, ethnicity or
from access to quality. In the early 1970s, race. From 1990 to 2000, the average years

BOX 3.6

Indias Supreme Court issues a progressive verdict mandating seats for disadvantaged children in private schools

Most schools in developing countries are government run, but demand for schools must be sites for social integration, private schools do not exist
private schools is expanding in response to the failures of public schools: independently of the state that provides them land and other amenities,
bad infrastructure, overcrowded classrooms, poor access, teacher shortages the social obligation of private schools cannot be waived by contending
and absenteeism. Parents with enough money send their children to private that only children whose parents pay their fees have a right to be in these
schools, creating a society in many countries divided between public and schools and the requirement to admit at least 25% of students from disad-
private school students. vantaged groups is fair given that these groups constitute around 25% of
India has made education free and compulsory for children ages 614. the population.
The vast majority of children are enrolled in government schools, especially In a landmark judgement on 12 April 2012, the Supreme Court of India
in rural areas. But most children from elite householdsthe rich, the politi- upheld the constitutional validity of the act, making two points in support
cal class, government employees and the growing middle classare sent of its decision. First, since the act obligates the state to provide free and
to private schools. In many instances, boys are sent to private schools, and compulsory education to all children ages 614, the state has the free-
girls to free government schools. dom to decide whether it shall fulfil its obligation through its own schools,
To reduce these trends towards segregation, India passed the Right aided schools or unaided schools. The 2009 act is child-centric and not
of Children to Free and Compulsory Education Act in 2009. It requires pri- institution-centric. Second, the right to education envisages a reciprocal
vate schools to admit at least 25% of students from socially disadvantaged agreement between the state and the parents, and it places an affirmative
and low-income households. In turn, private schools are reimbursed for burden on all stakeholders in our civil society. Private, unaided schools sup-
either their tuition charge or the expenditure per student in government plement the primary obligation of the state to provide free and compulsory
schools, whichever is lower. The act was based on the following rationales: education to the specified category of students.

Source: Government of India 2009; Supreme Court of India 2012.

Chapter 3 Drivers of development transformation | 79


of schooling for people ages 15 and older in sanitation, increased energy provision, and
rural areas rose from 4.7 years to 6.8. public and private investments in health.
Uganda. School fees for primary education Bangladesh. To improve child survival
were abolished in Uganda in 1997 with the rates, Bangladesh has taken a multisectoral
aim of universalizing primary education. approach: expanding education and employ-
Initially this strained the education infra- ment opportunities for women; improving
structure.98 To improve quality, the Ministry womens social status; increasing political
of Education emphasized five areas: curric- participation, social mobilization and com-
ulum development, basic learning materials, munity participation; disseminating public
teacher training, language of instruction and health knowledge; and providing effective,
quality standards. The early drops in quality community-based essential health services
and completion rates have since been re- (box 3.7).
versed, and the gains have been solidified and Health service provision has been heavily
extended. skewed towards the better-off, who have
Brazil. State-led investments in education been more likely to have good access to the
have dramatically improved development public services and pay for private ones.
outcomes in Brazil. The transformation of Those with greatest access to health care
education started with the equalization of have been workers in the formal sector, who
funding across regions, states and munici- have partly financed their needs with annual
palities. The national Development Fund contributions. Workers in the informal sector
for Primary Education, created in 1996, are more difficult to provide for. In India, for
guaranteed national minimum spending per example, there are no clearly identified regu-
student in primary education, increasing lar employers who can contribute on behalf
the resources for primary students in the of the estimated 93% of the workforce in the
Northeast, North and Centre West states, informal sector.99
particularly in municipally run schools. Everyone should be entitled to the same
Funding followed the student, providing quality of health care, and several countries
a significant incentive for school systems have attempted to provide and finance univer-
to expand enrolment. Similarly, states were sal health coverage. Some have done so through
required to share resources across munic- public health services targeted to the poor.
ipalities so that all state and municipal This is neither desirable nor efficient, generally
schools could reach the per student spend- resulting in a health care system in which poor
ing threshold. As a result of this investment, people receive inferior quality services, often in
Brazils math scores on the Programme public facilities, while the nonpoor get better
for International Student Assessment rose health care services from the private sector.
52 points between 2000 and 2009, the Health services targeted to the poor generally
third-largest leap on record. remain underfunded partly because the more
powerful people who are not poor have no
Access to high-quality health care stake in making the system better. Also, spe-
cial insurance schemes for the poor miss the
Advancing health requires Advancing health requires more than advantages of pooling risks across the whole
more than high-quality high-quality health services. Previous Human population and are thus likely to become finan-
health services. Development Reports have shown that human cially unviable, often diverting resources from
Many countries are poverty is multidimensional. Many countries preventive and primary care to more-expensive
discovering that they need are discovering that they need simultaneous tertiary care.
simultaneous interventions interventions on multiple fronts. Algeria, Governments also attempt to finance health
on multiple fronts Morocco and Tunisia, for example, have seen care through user fees. However, there is near
striking gains in life expectancy in the last 40 unanimous consensus now that such fees have
years. Possible explanations include improve- adverse consequences, especially for the poor.
ments in health and drug technology, wide- They discourage the poor from using servic-
spread vaccinations, information technology es and generally mobilize little in terms of
advances, better access to improved water and resources.100

80 | Human Development Report 2013


Box 3.7

Bangladesh makes dramatic advances in child survival

In 1990, the infant mortality rate in Bangladesh, 97 deaths per 1,000 live much better knowledge about health among participants in credit forums
births, was 16% higher than Indias 81. By 2004, the situation was reversed, than among nonparticipants.
with Bangladeshs infant mortality rate (38) 21% lower than Indias (48). Third, the higher participation of girls in formal education has been en-
Three main factors seem to explain the dramatic improvements. hanced by nongovernmental organizations. Informal schools run by thenon-
First, economic empowerment of women through employment in governmental organization BRAC offer four years of accelerated primary
the garment industry and access to microcredit transformed their situ- schooling to adolescents who have never attended school, and the schools
ation. The vast majority of women in the garment industry are migrants have retention rates over 94%. After graduation, students can join the for-
from rural areas. This unprecedented employment opportunity for young mal schooling system, which most do. Monthly reproductive health sessions
women has narrowed gender gaps in employment and income. The are integrated into the regular school curriculum and include such topics as
spread of microcredit has also aided womens empowerment. Grameen adolescence, reproduction and menstruation, marriage and pregnancy, fam-
Bank alone has disbursed $8.74billion to 8million borrowers, 95% of ily planning and contraception, smoking and substance abuse, and gender
them women. According to recent estimates, these small loans have issues. Today, girls enrolment in schools exceeds that of boys (15 years ago,
enabled more than half of borrowers households to cross the poverty only 40% of school attendees were girls).
line, and new economic opportunities have opened up as a result of Womens empowerment has gone hand-in-hand with substantial im-
easier access to microcredit. Postponed marriage and motherhood are provements in health services and promotion. With injectable contracep-
direct consequences of womens empowerment, as are the effects on tives, contraceptive use has surged. Nearly 53% of women ages 1540 now
child survival. use contraceptives, often through services provided by community outreach
Second, social and political empowerment of women has occurred workers. BRAC also provided community-based instruction to more than
through regular meetings of womens groups organized by nongovernmental 13million women about rehydration for children suffering from diarrhoea.
organizations. For example, the Grameen system has familiarized borrow- Today Bangladesh has the worlds highest rate of oral rehydration use, and
ers with election processes, since members participate in annual elections diarrhoea no longer figures as a major killer of children. Almost 95% of chil-
for chairperson and secretaries, centre-chiefs and deputy centre-chiefs, as dren in Bangladesh are fully immunized against tuberculosis, compared with
well as board member elections every three years. This experience has pre- only 73% in India. Even adult tuberculosis cases fare better in Bangladesh,
pared many women to run for public office. Women have also been socially with BRAC-sponsored community volunteers treating more than 90% of
empowered through participation in the banks. A recent analysis suggests cases, while India struggles to reach 70% through the formal health system.

Source: BRAC n.d.; Grameen Bank n.d.; World Bank 2012a.

The lesson from global experience is that the by the government, with a budget in 2011 of
main source of financing for universal health $34million$70 for each insured person
care should be taxation. Most countries in which accounts for 5.9% of the national
Southeast Asia, for example, have embraced the budget.102
idea. Governments have sought to reduce pri- Mexico. In 2003, the Mexican state ap-
vate out-of-pocket spending, increase pooled proved Seguro Popular, a public insurance
health finance and improve the reach and scheme that provides access to compre-
quality of health services, although coverage hensive health care for poor households
varies.101 Identifying and reaching poor people formerly excluded from traditional social
remain challenges, and resource-poor develop- security. Public resources for health have
ing countries such as Lao PDR and VietNam increased and are being distributed more
have relied heavily on donor-supported health fairly. Access to and use of health care ser-
equity funds. vices have expanded. Financial protection
Thailand. Thailands 2002 National Health indicators have improved. By the end of
Security Act stipulated that every citizen 2007, 20million poor people were benefit-
should have comprehensive medical care. ing from the scheme.103 Mexico is a leader
By 2009, 76% of the population, about in moving rapidly towards universal health
48 million people, were registered in the coverage by adopting an innovative financ-
Universal Health Coverage Scheme, which ing mechanism.
provides free inpatient and outpatient Rwanda. Access to health services has
treatment, maternity care, dental care and been expanded in Rwanda by introducing
emergency care. The scheme is fully financed community-based health insurance. Health

Chapter 3 Drivers of development transformation | 81


care providers were given incentives by link- the state introduced El Plan de Acceso
ing resources to performance. As a result, Universal de Garantas Explcitas, which
health care became more affordable in rural guarantees a medical benefits package con-
areas. And there were visible improvements sisting of a prioritized list of diagnoses and
in health outcomes. Under-five mortality fell treatment for 56 health conditions, as well
from 196 deaths per 1,000 live births in 2000 as universal coverage for all citizens.
to 103 in 2007, and the maternal mortality Providing universal health care and at least
ratio declined more than 12% a year over nine years of compulsory education requires
20002008. Rwanda is on track to reach the strong state commitment, involvement and
Millennium Development Goal for maternal consistency over time. The challenge for coun-
health. tries in the South is to ensure equity in access to
One concern in a number of countries is the health and education services and basic quality
emergence of dual-track services. Even if public standards to prevent a dual-track service indus-
provision is universal in principle, quality and try that provides low-quality public services
access may be poor, driving people towards (or none at all) to the poor and higher quality
expensive private providers. private services to the rich.
China. Much of Chinas health care success Universal public health and education pol-
took place between 1950 and 1980, when icies can be designed and implemented with-
the government established a three-level sys- out sacrificing quality for the sake of greater
tem of village clinics, township health cen- coverage. Poor people have no alternatives to a
tres and county hospitals in rural areas and public system, while wealthier people can pay
health centres and district hospitals in urban for private services. Such dynamics entrench
areas. Since the 1980s, however, the health inequalities, reduce social integration and
Universal public health sector has been driven by a fee-for-service undermine sustainable human development.
and education policies model. As a result, while Chinas overall New programmes, such as those in China,
can be designed and health status has continued to improve, dis- Mexico and Thailand, illustrate the possibili-
implemented without parities have grown between the eastern and ties of ensuring that basic services are univer-
sacrificing quality for the western provinces and between rural and sal and of reasonable quality. When financial
sake of greater coverage urban areas. In many parts of the country resources are adequately provided, publicly
quality health care has become unaffordable provided services need not be inferior to pri-
for the poor. vate services.
Chile. Before 1980, Chiles health system
was publicly financed through social secu- Increasing social cohesion by
rity and public funds. After health reform broadening development
in 1981, however, risk insurance was in-
troduced, and market mechanisms began Transforming development requires that all
to regulate levels of protection. By 2006, a citizens feel vested in the broader goals of
dual system of coverage was in place. The society, showing respect and compassion for
National Health Care Fund, funded by others and a commitment to building social
federal government tax revenues and by pre- cohesion. This requires that states and citizens
miums from beneficiaries, covered 69% of understand that human development is about
the population, but its resource constraints more than just enhancing individual capabili-
have prevented it from ensuring timely and ties. Individual capabilities are embedded in
quality services. Private health insurance a broader social system whose health requires
companies covered 17% of the population. enhanced social competencies (see box 1.7 in
The National Health Care Fund offers a chapter1).
universal health plan. This dual system has More effective social protection systems are
been criticized because it leaves low-income also needed to help individuals and communi-
and high-risk populations to be treated ties manage risks to their welfare. Globalization
mainly in the public system, which is poorly has contributed to the dismantling of some
resourced and thus tends to provide lower aspects of social protection and social insur-
quality service. In 2004, aware of the risks, ance, especially for systems relying on universal

82 | Human Development Report 2013


coverage and large government expenditures. health care is in short supply. Similarly, giving
At the same time, it has increased the need for cash to households so that they can choose
social protection, as fluctuations in economic their school is unlikely to help the poor if few
activity become more frequent. Thus, social schools offer high-quality education. Nor can
policies become as important as economic pol- cash transfers substitute for incomes earned
icies in advancing human development. In fact, through decent work.
social and economic policies can hardly be dis- India. Indias National Rural Employment
entangled because their goals and instruments Guarantee Scheme provides up to 100 days
are analogous.104 of unskilled manual labour to eligible rural
In many parts of the South, states have poor at the statutory minimum agricultural Cash transfer
introduced and provided social protection labour wage. This initiative is promising be- programmesimportant
programmes to integrate poor people into the cause it provides access to income and some in reducing poverty
new economy. Cash transfer programmes have insurance for the poor against the vagaries and improving income
been particularly important in reducing pover- of seasonal work and affords individuals the inequalitycannot
ty and improving income inequality through self-respect and empowerment associated substitute for public
redistribution. But transfers cannot substitute with work.105 In addition, it aims to help provision of essential
for public provision of essential goods and build economies in rural areas by develop- goods and services
services (box 3.8). At best, they can supple- ing infrastructure. The scheme has inno-
ment resources of the poor. Offering cash so vative design features such as social audits
that households can buy health care of their and advanced monitoring and information
choice is unlikely to work where high-quality systems.

Box 3.8 Cevdet Ylmaz, Minister of Development, Turkey

Strengthening social protection in Turkey

As recently as 2002, an estimated 30% of Turkeys people lived below the Similarly, the expansion and modernization of health services have
governments poverty threshold of $4.30 a day. Government spending on so- had a direct, measurable impact on public health. Health insurance is
cial protection accounted for just 12% of GDP, less than half the EU average now available to the entire population. Under the Health Transformation
of 25%. And expenditures on social assistance for the poor accounted for Programme launched in 2003, family practitioners were assigned to fami-
only 0.5% of GDP, prompting criticism that Turkeys social support systems lies to strengthen basic health services, with primary and emergency health
were both fragmented and insufficient. care provided free of charge. The results have been swift and encouraging.
Over the past decade, however, Turkeys strong economic performance, For the first time, almost all children are getting free regular vaccinations.
pro-poor approach to social policies and targeted assistance with greater Seven million schoolchildren get free milk every day. Iron and vitamin D
resources have helped accelerate poverty reduction. Key policy changes supplements are provided without charge to mothers and children. Infant
include systematic strengthening of social assistance programmes, condi- mortality rates have fallen sharply, to 10 per 1,000 live births in 2010, down
tional cash transfers, social security reforms and an ambitious transforma- from 29 in 2003, according to government figures. This two-thirds drop
tion of the national public health system. Under the conditional cash transfer greatly exceeds the reduction targeted under the Millennium Development
programme alone, launched in 2003, more than 1million children have re- Goals.
ceived health care support, and about 2.2million have benefited from educa- Pro-child policies go beyond health care and education, to broader as-
tion aid. School children have received more than 1.3billion textbooks since sistance for their home communities. The government started a new Social
2003 under a new free schoolbook programme, and nearly 1million now get Support Program in 2008 to develop social cohesion and ensure social inte-
free transportation to school. gration, particularly in the less-developed eastern regions of the country. Its
As a result of these and other initiatives, the share of the population projects aim to increase participation in national economic and social life
living on less than $4.30 a day fell sharply, to 3.7% in 2010, and the share of by disadvantaged people marginalized by poverty and social exclusion. The
GDP devoted to poverty assistance and related social services nearly tripled, goals of the programmes several thousand projects to date go beyond job
to 1.2%. creation in these lower income regions to include support for young people
The share of social expenditures in Turkeys GDP is still less than the EU and women to express themselves through cultural, artistic and athletic
average, and social assistance schemes have not yet had the desired impact accomplishments.
on poverty rates. To increase their effectiveness, the government is working More important, though, is what these improvements already mean to
on new methods of poverty measurement and social protection, new ap- the lives of ordinary Turkish families. Throughout the country, parents and
proaches to in-kind and cash assistance, stronger links to job opportunities children alike can now look forward to healthier, more secure, more fulfilling
and continuing consultations with targeted communities and households. livesthe underlying goal and core principle of human development.

Chapter 3 Drivers of development transformation | 83


China. The Minimum Livelihood Guarantee unified targeting system under streamlined
Scheme is the Chinese governments main administration. By 2009, Bolsa Familia
response to the new challenges of social covered more than 12 million households
protection brought about by increasing pri- across the country, or 97.3% of the target
vatization and engagement with the global population. These programmes have also
market. It guarantees a minimum income in broken ground in terms of programme ad-
urban areas by filling the gap between actual ministration and female empowerment by
income and a locally set poverty line. So, de- developing innovative distribution channels,
spite increasing income inequality in China, such as ATM cards for low-income mothers
there is potential for redistributive policies to without bank accounts. The result has been
reduce poverty and enhance food security. In substantial declines in poverty and extreme
addition, extending equal rights to migrants poverty and reduced inequality.106
in cities can have a decisive impact on their Chile. In response to findings that state sub-
ability to access comparable social services. sidies were not reaching the extreme poor,
Brazil. Despite slower economic growth than Chile Solidario was launched in 2002 to
in China and India, Brazil has reduced in- reach the extreme poor with a combination
equality by introducing a poverty reduction of aid and skill development. Focusing on
programme, extending education and raising household assistance, it takes the view that ex-
the minimum wage. Its conditional cash treme poverty is multidimensional, extending
transfer programme Bolsa Escola, launched beyond low income to include other depriva-
in 2001, followed the conceptual foundation tions in basic capabilities such as health and
of others in Latin America, such as Mexicos education. Furthermore, poverty reduction
Progresa (now called Oportunidades; requires the mitigation of vulnerability to
box3.9). In 2003 Bolsa Escola was expand- common events, such as sickness, accidents
ed to Bolsa Familia by folding several other and unemployment. Together with other
cash and in-kind transfer programmes into a social policies, the programme has increased

Box 3.9

Conditional cash transfer programmes and Mexicos Oportunidades

Conditional cash transfer programmes are designed to increase beneficiaries Oportunidades transfers, given bimonthly to female heads of house-
incomes and their access to health and education by making transfers condi- hold, have two parts. The first, received by all beneficiary households,
tional on requirements such as visits to health clinics and school attendance. is a fixed food stipend, conditional on family members obtaining preven-
They target certain beneficiaries (typically individuals from low-income or tive medical care, and is intended to help families spend on more and
disadvantaged households) and provide support in cash instead of as in-kind better nutrition. The second comes in the form of education scholarships
benefits, with the transfers conditional on activities related to health and and is conditional on children attending school a minimum of 85% of the
education. Moreover, the programmes can be designed to allow rigorous im- time and not repeating a grade more than twice. The education stipend
pact evaluation. For instance, the Tekopora programme in Paraguay has been provided for each child under age 18 enrolled in school between the
shown to have positive impacts on nutrition, health, education and poverty third grade of primary school and the third (last) grade of junior high
reduction without having negative impacts on labour supply. varies by grade and gender. It rises substantially after graduation from
Mexicos Oportunidades is a conditional cash transfer programme tar- primary school and is higher for girls than for boys during secondary and
geted to poor households conditional on childrens school attendance and tertiary school. Beneficiary children also receive money for school sup-
medical checkups and parents attendance at community meetings where plies once a year.
information is provided on personal health and hygiene. The programme is Conditional cash transfer programmes cost less than traditional in-
designed to break the intergenerational transmission of poverty. Originally kind social assistance interventions. Brazils Bolsa Familia and Mexicos
called Progresa, it aims to alleviate current and future poverty by giving par- Oportunidades, the two largest programmes in Latin America, cost less than
ents financial incentives (cash) to invest in the health and education of their 1% of GDP. In some cases they have been perceived as tools to provide
children. The programme, which started in 1997, is one of the largest condi- access to universal basic rights such as health and education, but in others
tional cash transfer programmes in the world, distributing about $3billion to they have led to the exclusion of some localities due to the inadequate sup-
some 5million beneficiary households in 2012. ply of services.

Source: Hailu and Veras Soares 2008; Ribas, Veras Soares and Hirata 2008.

84 | Human Development Report 2013


the take-up of health and education services protecting common resources; and introducing
during boom times, while playing a counter- land reform where relevant. It improves the
cyclical role in economic downturns by pro- functioning of state and social institutions to
viding a much needed safety net to the poor. promote equitable growth where the benefits
The rising South is thus developing a broader are widespread. It prioritizes rapid growth in
social and poverty reduction agenda in which employment and works to ensure that jobs are a broader social and
policies to address inequalities, institutional of high quality. It reduces bureaucratic and so- poverty reduction
failures, social barriers and personal vulnera- cial constraints on economic action and social agenda is needed
bilities are as central as promoting economic mobility. It holds leadership accountable. It in- in which policies to
growth. This follows from an increased under- volves communities in setting budget priorities address inequalities,
standing that social challenges extend beyond and disseminating information. And it focuses institutional failures, social
income poverty; they also include lack of access on socialpriorities. barriers and personal
to education, poor health, social inequality and Many countries of the South have demon- vulnerabilities are as
limited social integration (box3.10). strated what can be achieved through a devel- central as promoting
opmental state. But even in higher achieving economic growth
*** countries, continuing success is not guaranteed.
Countries across the world are facing a series of
An agenda for development transformation challenges, from rising inequality to spreading
that promotes human development is multi- environmental degradation. The next chapter
faceted. It expands peoples assets by universal- addresses these threats and considers what is
izing access to basic social services; extending needed to sustain future progress in human
credit to the population, especially the poor; development.

Box 3.10 Michael Bloomberg, Mayor, New York City

Why New York City looked South for antipoverty policy advice

In New York City, we are working to better the lives of our residents in many In 2007, the centre launched Opportunity NYC: Family Rewards, the first
ways. We continue to improve the quality of education in our schools. We conditional cash transfer programme in the United States. Based on similar
have improved New Yorkers health by reducing smoking and obesity. And programmes operating in more than 20 other countries, Family Rewards re-
we have enhanced the citys landscape by adding bike lanes and planting duces poverty by providing households with incentives for preventive health
hundreds of thousands of trees. care, education and job training. In designing Family Rewards, we drew on
We have also sought to reduce poverty by finding new and better ways lessons from Brazil, Mexico and dozens of other countries. By the end of
to build self-sufficiency and prepare our young people for bright futures. To our three-year pilot, we had learned which programme elements worked in
lead this effort, we established the Center for Economic Opportunity. Its New York City and which did not; information that is now helpful to a new
mission is to identify strategies to help break the cycle of poverty through generation of programmes worldwide.
innovative education, health and employment initiatives. Before we launched Opportunity NYC: Family Rewards, I visited
Over the last six years, the centre has launched more than 50 pilot Toluca, Mexico, for a firsthand look at Mexicos successful federal con-
programmes in partnership with city agencies and hundreds of community- ditional cash transfer programme, Oportunidades. We also participated
based organizations. It has developed a customized evaluation strategy for in a NorthSouth learning exchange hosted by the United Nations.
each of these pilots, monitoring their performance, comparing outcomes and We worked with the Rockefeller Foundation, the World Bank, the
determining which strategies are most successful at reducing poverty and Organization of American States and other institutions and international
expanding opportunity. Successful programmes are sustained with new pub- policymakers to exchange experiences on conditional cash transfer pro-
lic and private funds. Unsuccessful programmes are discontinued, and re- grammes in Latin America, as well as in Indonesia, South Africa and
sources reinvested in new strategies. The centres findings are then shared Turkey.
across government agencies, with policymakers, with nonprofit partners and Our international learning exchanges are not limited to these cash
private donors and with colleagues across the country and around the world transfer initiatives; they also include innovative approaches to urban trans-
who are also seeking new ways to break the cycle of poverty. portation, new education initiatives and other programmes.
New York is fortunate to have some of the worlds brightest minds work- No one has a monopoly on good ideas, which is why New York will
ing in our businesses and universities, but we recognize there is much to continue to learn from the best practices of other cities and countries. And
learn from programmes developed elsewhere. That is why the centre began as we adapt and evaluate new programmes in our own city, we remain com-
its work by conducting a national and international survey of promising an- mitted to returning the favour and making a lasting difference in communi-
tipoverty strategies. ties around the world.

Chapter 3 Drivers of development transformation | 85


Each generation will reap what
the former generation has sown.
Chinese proverb

We have to free half of the


human race, the women,
so that they can help to
free the other half.
Emmeline Pankhurst
4.
Sustaining momentum
Much of the news about developing countries in recent decades has been positive, especially their accelerated progress in
human development. But what of the future? Can these countries continue to advance human development at the same rapid
pace, and can other countries in the South share in the benefits? Yes, with the right policies. These include enhancing equity,
enabling voice and participation, confronting environmental pressures and managing demographic change. Policymakers
will need to strive for greater policy ambition and to understand the high cost of policy inaction.

Over the next few years, policymakers in de- processes, challenging decisionmakers to
veloping countries will need to follow an am- be more accountable and expand opportu-
bitious agenda that responds to difficult global nities for open public discourse. Restricted
conditions, notably the economic slowdown, opportunities for political participation, at
which has decreased demand from the North. a time when unemployment is rising and the
At the same time, they will need to address economic environment is deteriorating, can
their own urgent policy priorities. fuel civil unrest. Expanded opportunities for
political participation, along with greater
government accountability in ensuring that
Policy priorities for basic human needs are met, can foster human
developing countries freedoms and sustain human development.
Strong political participation by the relative-
Four policy priorities stand out for developing ly deprived provides an important source of
countries over the next few years if they are to support for prohuman development policy
continue the gains of recent decades and if the change.
benefits are to extend to countries still lagging Confronting environmental pressures.
behind: Climate change and local stresses on natu-
Enhancing equity. Equity and social justice, ral resources and ecosystems are increasing
valuable in their own right, are important pressure on the environment in almost all
for expanding capabilities.1 Progress in hu- countries, regardless of their stage of de-
man development is difficult to sustain in velopment. Unless action is taken urgently,
the face of growing or persistent inequity.2 future progress in human development will
Inequity in specific capabilitiesfor exam- be threatened. Building on scenarios devel-
ple, proxied and measured as disparities in oped for Human Development Report 2011,
health and education outcomes, as well as this Report argues for aggressive action
in incomealso impedes progress in hu- nationally and internationally to tackle these
man development, though the effects may challenges.
be less pronounced. At the core of these Managing demographic change. In some de-
negative relationships is gender inequality: veloping countries, mostly in Sub-Saharan
womens health and education are crucial to Africa, large cohorts of young people are
addressing demographic and other human entering the workforce. In other countries,
development challenges. Although some notably in East Asia, the share of working-
countries in Latin America and elsewhere age people in the population is falling as
have greatly reduced income inequality, not the share of elderly rises. New policy inter-
all countries recognize the importance of ventions are needed to generate sufficient
addressing inequality in health, education productive employment while meeting the
and income.3 growing demand for social protection.
Enabling voice and participation. As educa- There will be other challenges to human
tion levels rise and access to information and development, including volatile commodity
communication technologies spreads, people prices, especially for food and fuel. In an in-
are demanding more participation in political creasingly globalized world, these and other

Chapter 4 Sustaining momentum | 87


concerns will make for a complex environment others), is not only valuable in itself, but also
with attendant risks, including progress rever- essential for promoting human development.
sals, rising insecurity and greater inequality. One of the most powerful instruments for
Forecasting is difficult in such a complex advancing equity and human development is
environment because modelling may miss key education, which builds peoples capacities and
variables, such as technological progress, that expands their freedom of choice. Education
can dramatically change both production and boosts peoples self-confidence and makes it
personal possibilities. Nevertheless, modelling easier for them to find better jobs, engage in
scenarios are helpful for illustrating policy public debate and make demands on govern-
choices and their implications. ment for health care, social security and other
entitlements.
Enhancing equity Education also has striking benefits for
health and mortality (see box 4.1 on differences
Greater equity, including between men and in education futures in the Republic of Korea
women and across groups (religious, racial and and India). Evidence worldwide establishes that

Box 4.1

Why population prospects will likely differ in the Republic of Korea and India

Educational attainment has risen rapidly in the Republic of Korea. In the For India, the picture looks very different. Before 2000, more than half the
1950s a large proportion of school-age children received no formal educa- adult population had no formal education. Despite the recent expansion in ba-
tion. Today, young Korean women are among the best educated women in sic schooling and impressive growth in the number of better educated Indians
the world: more than half have completed college. As a consequence, elder- (undoubtedly a key factor in Indias recent economic growth), the proportion
ly Koreans of the future will be much better educated than elderly Koreans of the adult population with no education will decline only slowly. Partly be-
of today (see figure), and because of the positive correlation between educa- cause of this lower level of education, particularly among women, Indias
tion and health, they are also likely to be healthier. population is projected to grow rapidly, with India surpassing China as the
Assuming that enrolment rates (which are high) remain constant, the most populous country. Even under an optimistic fast track scenario, which
proportion of the population younger than age 14 will drop from 16% in 2010 assumes education expansion similar to Koreas, Indias education distribu-
to 13% in 2050. There will also be a marked shift in the populations educa- tion in 2050 will still be highly unequal, with a sizeable group of uneducated
tion composition, with the proportion having a tertiary education projected (mostly elderly) adults. The rapid expansion in tertiary education under this
to rise from 26% to 47%. scenario, however, will build a very well educated young adult labour force.

Comparative population and education futures in the Republic of Korea and India
Republic of Korea, constant enrolment ratios India, fast track scenario
Population (millions) Population (millions)
50 2,000

TERTIARY
40 TERTIARY
1,500
TERTIARY

30 SECONDARY
SECONDARY SECONDARY
1,000
20 PRIMARY
PRIMARY PRIMARY
NO EDUCATION
500
10 NO EDUCATION

0 0
1970 1980 1990 2000 2010 2020 2030 2040 2050 1970 1980 1990 2000 2010 2020 2030 2040 2050

Source: Lutz and KC 2013.

88 | Human Development Report 2013


better education of parents, especially of moth- lower among better educated mothers. In
ers, improves child survival. Moreover, working some countries, such as Nigeria, much lower
women and more-educated women (who tend child mortality is associated with primary
to complete their schooling before bearing education; in others, such as Liberia and
children) are likely to have fewer children. 4 Uganda, the decisive difference is associated
Educated women also have healthier children with secondary education.
who are more likely to survive (table 4.1), thus A modelling exercise conducted for this
reducing the incentive to have a larger family.5 Report projects the impact of differences in
Educated women also have better access to con- education levels on child mortality over 2010
traception and use it more effectively.6 2050 under two scenarios. The base case
Drawing on Demographic and Health scenario assumes that current trends in educa-
Surveys and micro-level surveys, research for tional attainment at the national level continue a mothers education
this Report reinforces these arguments, finding without substantial new funding commitments is more important to
mothers education to be more important to or policy initiatives. Under this assumption, her childs survival
child survival than household income or wealth the proportion of each group of children than is household
is. This has profound policy implications, po- categorized by age and genderadvancing to income or wealth
tentially shifting emphasis from efforts to boost the next education level remains constant (see
household income to measures to improve girls Technical appendix).
education. The fast track scenario assumes much
This relationship can be illustrated by data more ambitious education policy targets,
on child mortality (see table 4.1). Many similar to those achieved in recent decades
African countries, most notably Mali and by the Republic of Korea, for example, with
Niger, have a high under-five mortality rate. the proportion of schoolchildren advancing
But in every country, the mortality rate is to the next education level steadily increasing

Table 4.1

Under-five mortality rate and total fertility rate by mothers education level
In selected countries, most recent year available since 2005

Under-five mortality rate Total fertility rate


(per 1,000 live births) (births per woman)
Secondary Secondary
Country Survey year No education Primary or higher Overall No education Primary or higher Overall

Bangladesh 2007 93 73 52 74 3.0 2.9 2.5 2.7


Egypt 2008 44 38 26 33 3.4 3.2 3.0 3.0
Ethiopia 2005 139 111 54 132 6.1 5.1 2.0 5.4
Ghana 2008 103 88 67 85 6.0 4.9 3.0 4.0
India 2005/2006 106 78 49 85 3.6 2.6 2.1 2.7
Indonesia 2007 94 60 38 51 2.4 2.8 2.6 2.6
Liberia 2009 164 162 131 158 7.1 6.2 3.9 5.9
Mali 2006 223 176 102 215 7.0 6.3 3.8 6.6
Niger 2006 222 209 92 218 7.2 7.0 4.8 7.0
Nigeria 2008 210 159 107 171 7.3 6.5 4.2 5.7
Rwanda 2007/2008 174 127 43 135 6.1 5.7 3.8 5.5
Uganda 2006 164 145 91 144 7.7 7.2 4.4 6.7
Zambia 2007 144 146 105 137 8.2 7.1 3.9 6.2

Note: Data refer to the period 10 years before the survey year.
Source: Lutz and KC 2013.

Chapter 4 Sustaining momentum | 89


over the years. The results from the fast track seems likely, child deaths will decline to about
scenario show substantially fewer child deaths half a million by 20452050, less than a third
as mothers level of schooling rises. The model of the current level.
A greater emphasis also shows that a greater emphasis on progress Projections are less optimistic for some
on education can in education would substantially and contin- other countries. Under the base case scenario,
substantially reduce ually reduce child deaths in all countries and child deaths in Kenya, for example, would
child deaths in all regions, as a direct result of improvements in rise from about 582,000 in 20102015 to
countries and regions girls education (table 4.2). about 1.6million in 20452050. Under the
India has the most projected child deaths fast track scenario, the number of deaths
over 20102015, almost 7.9million, account- over 20452050 would drop to 371,000,
ing for about half the deaths among children much better, but not far below the level in
under age 5 in Asia.7 In the final projection 20102015.
period, 20452050, nearly 6.1million children The projected declines in child deaths re-
are projected to die under the base case scenario flect the combined effects of better educated
but just half that many (3.1million) under the women having fewer children and of fewer
fast track scenario. of those children dying. The projections also
China has more people than India but is pro- show that policy interventions have a greater
jected to have less than a quarter (1.7million) impact where education outcomes are initially
the number of child deaths over 20102015. weaker.
And due to Chinas advances in education, These results underscore the importance
projections look optimistic under both scenar- of reducing gender inequality, especially in
ios. If China follows the fast track scenario, as education and in low Human Development

Table 4.2

Projected number of deaths of children under age 5, by education scenario, 20102015, 20252030 and
20452050 (thousands)

20102015 20252030 20452050


Country or region Base case Base case Fast track Base case Fast track
Country
Brazil 328 224 177 161 102
China 1,716 897 871 625 526
India 7,872 6,707 4,806 6,096 3,064
Kenya 582 920 482 1,552 371
Korea, Rep. 9 8 9 7 7
Mali 488 519 318 541 150
Pakistan 1,927 1,641 1,225 1,676 773
South Africa 288 198 165 134 93
Region
Africa 16,552 18,964 12,095 24,185 7,495
Asia 15,029 11,715 8,924 10,561 5,681
Europe 276 209 204 196 187
Latin America and the Caribbean 1,192 963 704 950 413
North America 162 160 155 165 152
Oceania 11 11 11 12 10

Note: See Technical appendix at the end of this Report for a discussion of the base case and fast track scenarios.
Source: Lutz and KC 2013.

90 | Human Development Report 2013


Index (HDI) countries. Gender inequality is largest increases were in countries of the North,
especially tragic not only because it excludes followed by those in the Arab States and Sub-
women from basic social opportunities, but Saharan Africa.9
also because it gravely imperils the life pros- People in the North have been protesting
pects of future generations. against austerity measures and reductions in
public spending and jobs, as in France, Greece,
Enabling voice and participation Italy, Spain and the United Kingdom. Citizens
have challenged governments to address the
In the 1995 Human Development Report, social consequences of their policies, pointing
Mahbub ul Haq highlighted that unless people out that the burden of austerity is being borne
can participate meaningfully in the events and disproportionately by the poor and socially
processes that shape their lives, national human disadvantaged.10 Other focuses of unrest have
development paths will be neither desirable nor included food prices, unemployment and
sustainable. pollution:
Equitable and sustainable human devel- Rising food prices. Riots in response to high
opment requires systems of public discourse food prices in 2008 challenged stability in
that encourage citizens to participate in the more than 30 countries in Africa and the
political process by expressing their views Arab States.11
and voicing their concerns. People should be Unemployment and low wages. Workers are
able to influence policymaking and results, demanding that governments respond to
and young people should be able to look for- their needs. The unemployed are voicing
ward to greater economic opportunities and their dissatisfaction in many countries.12 In
political accountability. Exclusion from this Viet Nam strikes doubled in 2011 as workers
process limits peoples ability to communicate struggled to gain higher wages in the face of
their concerns and needs and can perpetuate inflation.13
injustices. Environmental pollution. Mass protests
Autocratic regimes impose restrictions against environmental pollution are also
that directly counter human development by widespread. Protesters in Shanghai, China,
restraining essential freedoms. But even in for example, fought a proposed wastewater
democracies, poor people and poor groups pipeline,14 and in Malaysia local residents
often have limited access to information, voice have been opposing the construction
or public participation. Poor people need of a rare earth metal refinery in their
to work together to effectively exercise their neighbourhood.15
political voice. Yet in many countries, organiza- Among the most active protesters are youth,
tions representing the poor are not supported in part a response to job shortages and limit-
but discouraged. Democracies can also extend ed employment opportunities for educated
accountability from what is often a narrow young people. In a sample of 48 countries,
constituency of elites to all citizens, particu- youth unemployment was more than 20%
larly those who have been underrepresented in in 2011, well above the 9.6% overall rate.16
public discourse, such as women, youth and the Youth discontent in response to rising un-
poor. employment is even more likely in areas with
Governments that do not respond to citi- an educated population. 17 Education alters
zens needs or widen opportunities for politi- peoples expectations of government and Dissatisfaction is on the
cal participation risk losing their legitimacy. instils the political skills and resources need- rise as people call for
Dissatisfaction is on the rise in the North and ed to challenge government decisions. This more opportunities to
the South as people call for more opportu- is not to say that the educated have greater voice their concerns and
nities to voice their concerns and influence rights. But unless governments give greater influence policy, especially
policy, especially on basic social protection. priority to job creation, they are likely to face on basic social protection
According to a recent International Labour increasing youth dissatisfaction as education
Organization report, government dissatisfac- coverage expands (figure 4.1).18
tion, measured by the Social Unrest Index, rose At the same time, mobile broadband Internet
in 57 of 106countries from 2010 to 2011. The and other modern technologies are opening

Chapter 4 Sustaining momentum | 91


Figure 4.1

Under the fast track scenario, education outcomes are enhanced

Base case scenario Fast track scenario


Population (billions) Population (billions)
8 8

TERTIARY TERTIARY
6 6

SECONDARY SECONDARY

4 4
PRIMARY PRIMARY

NO EDUCATION NO EDUCATION
2 2

AGES 014 AGES 014

0 0
2010 2020 2030 2040 2050 2010 2020 2030 2040 2050

Note: See Technical appendix for a discussion of the base case and fast track scenarios.
Source: HDRO calculations based on Lutz and KC (2013).

new channels through which citizens, particu- systemic discrimination to unfair and unjust
larly young people, can demand accountability. exclusion.21
They are also enabling people in different coun- Participation and inclusivity, valuable in
tries to share values and experiences, bringing their own right, also improve the quality of
Participation and them closer together. policies and their implementation and reduce
inclusivity, valuable in their The Internet and social media, as low-cost the probability of future upheaval. Failure to
own right, also improve aggregators of public opinion, are amplify- build an accountable and responsive polity
the quality of policies and ing peoples voices. In China, for example, may foment discontent and civil strife. This can
their implementation and the post-1990 generation is highly educated, derail human development. History is replete
reduce the probability politically aware and outspoken on social with popular rebellions against unresponsive
of future upheaval media.19 Less than a week after the July 2011 governments, as unrest deters investment and
high-speed train accident in Wenzhou, Chinas impedes growth and governments divert re-
two major microblogs (weibos) had distributed sources to maintaining law and order.
some 26 million messages commenting on In recent years, countries in both the North
the accident and expressing concerns about and the South have faced escalating crises of le-
safety.20 gitimacy that have pitted citizens against their
Social movements and media draw attention institutions. Millions of people in the Arab
to specific issues, but this does not always re- States have risen to demand opportunities,
sult in political transformations that benefit respect and dignity as well as fuller citizenship
the broader society. In India, for example, the and a new social contract with those who
Anna Hazare movement against corruption govern in their name. As a result, Egypt, Libya
created pressure for change. Critics, however, and Tunisia have seen autocratic governments
point out that such movements can favour pol- deposed, Yemen has embarked on an interna-
icies that may not be supported by the wider tionally brokered political transition, Jordan
electorate. Thus, it is important to institution- and Morocco have undertaken political re-
alize participatory processes that can adjust forms and Syrian Arab Republic is in the throes
the political balance by providing a platform of civil war.
for excluded citizens to demand accounta- One way to foster peaceful change is to
bility and redress of inequities, ranging from allow civil society to mature through open

92 | Human Development Report 2013


practice. Even under autocratic governments, people should be educated only if there are
Egypt and Tunisia, for example, had fairly jobs for themin the human development
well developed associational structures and paradigm, access to knowledge and education
self-d isciplined political opposition move- is an end in itselfbut recent social upheavals
ments. By contrast, Libya lacked such expe- show that a mismatch between education and
rience, which contributed to an all-out civil economic opportunity can lead to alienation
war. Building political cohesion after conflict and despair, especially among young people.
is difficult in countries that lack a tradition Of the 20 countries with the largest increases
of civic participation. Diverse experiences in mean years of schooling over 19802010,
show that changes in political regimes do not 8 were in the Arab States (figure 4.2). In most
automatically enhance voice, participation, in- of these countries, employment opportunities
clusion or accountability or make states work failed to keep pace with educational attain-
more effectively. ment. Most countries that were part of the
Accountability and inclusion are vital not recent unrest in the Arab States are in the lower Accountability and
only in the political sphere, but also in eco- right quadrant of figure 4.2, because they had inclusion are vital not only
nomic and social areas, through promoting major gains in educational attainment but in the political sphere,
job creation and social inclusion, especially in below-median employment to population but also in economic and
societies with a large and growing educated ratios.23 social areas, through
population. This requires effective mediating It is hard to predict when societies will promoting job creation
institutions; otherwise, modernization can reach a tipping point. Many factors precip- and social inclusion
be destabilizing.22 This is not to suggest that itate demands for change. When educated

Figure 4.2

In most countries, employment opportunities have not kept pace with educational attainment

Employment to population ratio (%)


85 Qatar

80

75 United Arab Emirates

70

65
Bahrain
60 MEDIAN

55

50 Libya
Sudan Morocco Saudi Arabia
45 Egypt
40 Syrian Arab Yemen Tunisia
Republic Algeria
Jordan
35 Iraq
30

25
MEDIAN
20
1 0 1 2 3 4 5 6 7
Change in mean years of schooling, 19802010 (years)

Select Arab States Others

Note: Analysis covers 141 countries. Employment to population ratios are for the most recent year available during 20062010.
Source: Adapted from Campante and Chor (2012) using updated data.

Chapter 4 Sustaining momentum | 93


young people cannot find work, they tend responded to demands from civil society and
to feel aggrieved. Average years of schooling labour unions to regulate the market and ex-
have risen over the past 30 years in all coun- tend social protection so that the market served
tries with data available. 24 Yet grievances society rather than society being subservient to
alone do not trigger upheavals. The public the market.27 Many governments introduced
can be angry, but if people believe that the regulations to constrain the activities of firms
cost in time and effort to engage in politi- and improve working conditions and ex-
cal action outweighs the likelihood of real tended social services and social protection.
change, they may not act.25 Mass protests, Governments also assumed power over macro-
especially by educated people, tend to erupt economic policy and introduced some restric-
when bleak prospects for economic opportu- tions on international trade. The time may be
nities lower the opportunity cost of engaging right again for a transformation, appropriate
in political activity. These effort-intensive for 21st century concerns and conditions.28
Around the world forms of political participation26 are then
people are calling on easily coordinated through new forms of mass Confronting environmental pressures
governments to become communication.
more accountable to Around the world people are calling on A major challenge for the world is to reduce
citizens and to expand governments to become more accountable to greenhouse gas emissions. While it might seem
public opportunities to citizens and to expand public opportunities to that carbon productivity (GDP per unit of car-
influence policymaking influence policymaking. Such transformations bon dioxide) would rise with human develop-
have taken place in the past. For example, Karl ment, the correlation is quite weak (figure 4.3).
Polanyi documented the Great Transformation At each HDI level, some countries have greater
of 1944, where governments in the North carbon productivity than others.
Consider medium HDI Guatemala and
Figure 4.3 Morocco, countries with nearly identical
HDI values. Guatemalas carbon productivity
At each HDI level, some countries have greater carbon productivity than others
($5.00 per kilogram in purchasing power parity
Carbon productivity, 2008 (PPP $ per kilogram) terms) is nearly twice that of Morocco ($2.60).
40
Differences can be just as great among prov-
inces or states within countries, as in China.29
These findings reinforce the arguments that
progress in human development need not wors-
30 en carbon use and that improved environmen-
tal policy can accompany human development.
To sustain progress in human development,
far more attention needs to be paid to the
20 impact human beings are having on the envi-
ronment. The goal is high human development
and a low ecological footprint per capita (the
lower right quadrant of figure 1.7 in chapter1).
10 Only a few countries come close to creating
such a globally reproducible high level of
human development without exerting unsus-
tainable pressure on the planets ecological
0 resources. Meeting this challenge on a global
0.275 0.375 0.475 0.575 0.675 0.775 0.875 0.975 scale requires that all countries adjust their de-
HDI velopment pathway: developed countries will
need to reduce their ecological footprint, while
Low HDI Medium HDI High HDI Very high HDI
developing countries will need to raise their
Note: Carbon productivity is GDP per unit of carbon dioxide. PPP is purchasing power parity.
HDI value without increasing their ecological
Source: HDRO calculations based on World Bank (2012a). footprint. Innovative clean technologies will
pay an important part in this.

94 | Human Development Report 2013


While environmental threats such as climate HDI value would be 8% lower by 2050 than
change, deforestation, air and water pollution, under the base case scenario, which assumes
and natural disasters affect everyone, they hurt a continuation but not a worsening of current
poor countries and poor communities most. environmental trends. Most dramatically, the
Climate change is already exacerbating chronic average regional HDI value in both South Asia
environmental threats, and ecosystem losses and Sub-Saharan Africa would be 12% lower
are constraining livelihood opportunities, under the environmental challenge scenario
especially for poor people. A clean and safe than under the base case scenario. Under a
environment should be seen as a right, not more severe environmental disaster scenario,
a privilege. The 2011 Human Development the global HDI value in 2050 would fall 15%
Report highlighted that equity and sustainabil- below that under the baseline scenario22%
ity are inextricably linked. Sustainable societies below in South Asia and 24% below in Sub-
need policies and structural changes that align Saharan Africa, effectively halting or even
human development and climate change goals reversing decades of human development pro-
through low-emission, climate-resilient strat- gress in both regions.
egies and innovative public-private financing This Report looks more specifically at the
mechanisms.30 impact of these environmental scenarios on
Most disadvantaged people contribute little the number of people living in extreme income
to global environmental deterioration, but poverty (figure 4.4). Some 3.1 billion more
they often bear the brunt of its impacts.31 For people would live in extreme income poverty in
example, although low HDI countries contrib- 2050 under the environmental disaster scenario
ute the least to global climate change, they are than under the accelerated progress scenario Some 3.1billion more
likely to experience the greatest loss in annual (table 4.3). Under the base case scenario, by people would live
rainfall and the sharpest increases in its varia- contrast, the number of people in extreme in extreme income
bility, with dire implications for agricultural income poverty worldwide would decline poverty in 2050 under
production and livelihoods. The magnitude of by2050. an environmental
such losses highlights the urgency of adopting Some 2.7billion more people would live in disaster scenario than
coping measures to increase peoples resilience extreme income poverty under the environ- under the accelerated
to global climate change.32 mental disaster scenario than under the base progress scenario
Natural disasters, which are increasing in case scenario, a consequence of two interrelated
frequency and intensity, cause enormous eco- factors. First, the model shows an increase of
nomic damage and loss of human capabilities. 1.9billion people in extreme income poverty
In 2011 alone, natural disasters accompanying due to environmental degradation. Second,
earthquakes (tsunamis, landslides and ground environmental calamities would keep some
settlements) resulted in more than 20,000 800million poor people from rising out of ex-
deaths and damages totalling $365 billion, treme income poverty, as they would otherwise
including loss of homes for about a million have done under the base case scenario (see
people.33 The impact has been severe for small Technical appendix).
island developing states, some of which have These outcomes underscore a central mes-
incurred losses of 1% of GDPand some as sage of this Report: environmental threats are
much as 8% or even multiples of their GDP. among the most grave impediments to lifting
St. Lucia, for example, lost almost four times human development, and their consequences
its GDP in 1988 from Hurricane Gilbert, for poverty are likely to be high. The longer
and Granada lost twice its GDP in 2004 from action is delayed, the higher the cost will be.
Hurricane Ivan.34
The 2011 Human Development Report ex- Managing demographic change
amined several environmental scenarios. The
environmental challenge scenario factored Between 1970 and 2011, the world popu-
in the anticipated adverse effects of global lation swelled from 3.6 billion to 7 billion.
warming on agricultural production, access to Development prospects are influenced by the
clean water and improved sanitation, and pol- age structure of the population, as well as its
lution. Under this scenario, the average global size.35 Declining fertility rates and shifts in

Chapter 4 Sustaining momentum | 95


Figure 4.4

Different environmental scenarios have different impacts on extreme poverty

Sub-Saharan Africa South Asia


Population in extreme poverty (millions) Population in extreme poverty (millions)
1,200 1,200
Environmental
disaster
1,000 1,000 scenario
Environmental
disaster
800 scenario 800

600 600

400 400
Base case
200 scenario 200
Base case
scenario
0 0
2010 2020 2030 2040 2050 2010 2020 2030 2040 2050

Note: Extreme poverty is defined as $1.25 a day in purchasing power parity terms. See Technical appendix for a discussion of the base case and fast track scenarios.
Source: HDRO calculations based on Pardee Center for International Futures (2013).

Table 4.3

Population in extreme poverty under the environmental disaster scenario, by region, 20102050 (millions)

Difference
From
From accelerated
Increase, basecase progress
Region 2010 2020 2030 2040 2050 20102050 scenario, 2050 scenario, 2050

Arab States 25 25 39 73 145 120 128 144


East Asia and the Pacific 211 142 211 363 530 319 501 522
Europe and Central Asia 14 6 17 32 45 30 41 44
Latin America and the Caribbean 34 50 90 138 167 134 135 155
South Asia 557 530 738 978 1,207 650 1,126 1,194
Sub-Saharan Africa 371 377 496 709 1,055 685 788 995
World 1,212 1,129 1,592 2,293 3,150 1,938 2,720 3,054

Note: Extreme poverty is defined as $1.25 a day in purchasing power parity terms. See Technical appendix for a discussion of the base case and fast track scenarios.
Source: HDRO calculations based on Pardee Center for International Futures (2013).

age structure can have considerable effects on Over 20102050, however, dependency ra-
economic growth.36 Over 19702010, the de- tios are likely to rise in medium, high and very
pendency ratio (the ratio of younger and older high HDI countries, particularly in developed
people to the working-age population ages 15 countries and in East Asia and the Pacific. In
64) declined sharply in most regionsmost poorer regions, such as South Asia and Sub-
dramatically in East Asia and the Pacific, where Saharan Africa, dependency ratios will contin-
it dropped 39.5%, followed by Latin America ue to fall, but more slowly.
and the Caribbean and the Arab States, where Changing demography will profoundly affect
it fell 34%. most countries in the South in coming decades,

96 | Human Development Report 2013


but in very different ways. Some poorer coun- HDI countries (figure 4.5). Under the fast
tries will benefit from a demographic dividend track scenario, the dependency ratio for low
as the share of the population in the workforce HDI countries drops 21.1 percentage points
rises.37 Richer regions of the South, however, over 20102050, more than twice the decrease
will confront the challenge of rising depend- under the base case scenario. The dependency
ency ratios, with ageing populations and full ratio rises more slowly under the fast track sce-
school enrolment mirrored by a decline in the nario than under the base case scenario for me-
number of people earning incomes. dium HDI countries (6.1 percentage points)
In the long term, both demographic chal- and high HDI countries (4.9 percentage
lenges can be mitigated by raising educational points); however, this rise is less pronounced
achievement. First, education accelerates for very high HDI countries.
reductions in fertility rates where they are Under the base case scenario, the share of
still high. Second, education can boost labour the elderly in the population rises for all HDI
productivity in richer countries with smaller groups: 3.9 percentage points for low HDI
workforces. At the same time, governments countries, 17.7 percentage points for medium
will need to foster job creation more actively to HDI countries, 20.2 percentage points for high
expand opportunities for productive employ- HDI countries and 22.3 percentage points for
ment for younger and older workers alike. very high HDI countries.41 Over 20102050,
The failure of economic opportunity and the share of the young population is project-
productivity to keep pace with these demo- ed to fall in all HDI groups. For low HDI
graphic changes can not only keep countries countries, the dependency ratio will decrease
from benefiting from the demographic divi- because the decline in the share of the young
dend, it can also threaten social stability, as seen population is greater than the rise in the share
in many countries in recent years. of the elderly population.
In the Arab States, South Asia and Sub-
Saharan Africa, the dependency ratio is pro-
Modelling demography jected to decline under the base case scenario
and education and even faster under the fast track scenario. In
Sub-Saharan Africa, for example, the depend-
Demographic trends are not deterministic, ency ratio falls 11.8 percentage points under
however. They can be influenced, at least indi- the base case scenario and 25.7 percentage
rectly, by education policies and sometimes by points under the fast track scenario.
migration policies.38 Effective policy options In East Asia and the Pacific, Europe and
can be identified by modelling demographic Central Asia, and Latin America and the Demographic trends
and education trends.39 Two scenarios for Caribbean, the dependency ratio is projected are not deterministic.
20102050 illustrate the impact of different to increase. East Asia and the Pacific will see a They can be influenced
policy responses: the base case scenario, in striking increase in the share of the elderlyup by education policies
which enrolment ratios remain constant at each 25.8 percentage points, which is an even greater and sometimes by
level of education, and a fast track scenario, in rise than in very high HDI countries. migration policies
which countries with the lowest initial edu- Brazil and Chile demonstrate the potential
cation levels embrace ambitious education for ambitious education policies to alter de-
targets.40 pendency ratios. In Brazil, the dependency ra-
The dependency ratio is an increasingly tio rises 15.6 percentage points under the base
critical concern. A high dependency ratio can case scenario but only 10.8 percentage points
impoverish a country and lead to reversals in under the fast track scenario (table 4.4). Chile
human development. The base case scenario would see a similar increase, 20.2 percentage
projects a 9.7 percentage point decline in the points and 17.3 percentage points.
dependency ratio over 20102050 for low The challenges differ considerably by country
HDI countries, a 9 percentage point increase under the two scenarios. Under the base case
for medium HDI countries, a 15.2 percentage scenario, China would experience a more rapid
point increase for high HDI countries and a increase (27.3 percentage points) than, say,
28.7 percentage point increase for very high Thailand (23.9 percentage points) or Indonesia

Chapter 4 Sustaining momentum | 97


Figure 4.5

Education policies can alter dependency ratios

Low HDI Medium HDI


Dependency ratio Dependency ratio
0.95 0.95

0.85 0.85

0.75 0.75

0.65 Base case 0.65

Base case
0.55 Fast 0.55 Fast
track track

0.45 0.45
1970 1990 2010 2030 2050 1970 1990 2010 2030 2050

High HDI Very high HDI


Dependency ratio Dependency ratio
0.95 0.95

0.85 0.85
Base case
Fast
0.75 0.75 track

0.65 0.65
Base case
Fast
track
0.55 0.55

0.45 0.45
1970 1990 2010 2030 2050 1970 1990 2010 2030 2050

Note: See Technical appendix for a discussion of the base case and fast track scenarios.
Source: HDRO calculations based on Lutz and KC (2013).

(8.7 percentage points), countries where even a the short run, given that differences in the
more ambitious education policy would have speed of the demographic transition across
only a limited impact on dependency ratios households give richer households an initial
because education levels are alreadyhigh. advantage. Declining fertility rates and shifts
Countries can respond to a declining labour in age structures can affect economic growth.43
force in various ways. They can reduce un- Reinforcing the cross-country analysis con-
employment, promote labour productivity ducted for this Report, a recent study finds that
and foster greater labour force participation, youth dependency ratios tend to be higher for
particularly among women and older workers. poor households and lower for wealthier ones,
They can also outsource work to offshore pro- especially in Latin America and Sub-Saharan
duction and attract international migrants.42 Africa, and that differences in youth depend-
Without proper policy measures, demo- ency ratios between rich and poor dissipate
graphic dynamics can increase inequality in over time.44 During demographic transitions,

98 | Human Development Report 2013


Table 4.4

Trends in dependency ratios, selected countries, 19702050

Country 1970 1980 1990 2000 2010 Scenario 2020 2030 2040 2050

Base case 0.462 0.434 0.433 0.481


Bangladesh 0.929 0.946 0.859 0.704 0.560
Fast track 0.457 0.422 0.418 0.465
Base case 0.443 0.484 0.540 0.637
Brazil 0.846 0.724 0.656 0.540 0.480
Fast track 0.437 0.460 0.499 0.589
Base case 0.471 0.549 0.609 0.659
Chile 0.811 0.629 0.564 0.540 0.457
Fast track 0.467 0.531 0.582 0.630
Base case 0.408 0.450 0.587 0.655
China 0.773 0.685 0.514 0.481 0.382
Fast track 0.404 0.434 0.562 0.628
Base case 0.704 0.656 0.643 0.645
Ghana 0.934 0.946 0.887 0.799 0.736
Fast track 0.686 0.595 0.548 0.532
Base case 0.518 0.496 0.491 0.511
India 0.796 0.759 0.717 0.638 0.551
Fast track 0.510 0.474 0.463 0.480
Base case 0.452 0.457 0.504 0.571
Indonesia 0.868 0.807 0.673 0.547 0.483
Fast track 0.451 0.454 0.501 0.567
Base case 0.426 0.488 0.576 0.656
Thailand 0.904 0.756 0.532 0.447 0.417
Fast track 0.425 0.484 0.570 0.650
Base case 0.458 0.467 0.504 0.585
Turkey 0.850 0.787 0.671 0.560 0.478
Fast track 0.450 0.443 0.473 0.547

Source: HDRO calculations based on Lutz and KC (2013). See Technical appendix for a discussion of the base case and fast track scenarios.

the wealthiest people tend to lead the decline and least among the poor; in Namibia, it fell
in fertility, producing a short-term increase in most in the middle of the income range; and
income inequality as they capture the benefits in Peru, it fell across the board in roughly equal
of demographic change first. Then the middle amounts.47 See box 4.2 for a discussion of the
class catches up as its members educate daugh- distribution of the benefits of the demographic
ters and plan families, followed by the poor. dividend in China and Ghana.
Eventually fertility is lower across all income In 13 of 18 countries with a declining de-
groups, and the economic benefits of the demo- pendency ratio and rising female education
graphic dividend are spread more evenly.45 This over 19702010, rising labour productivity
is consistent with previous studies for Latin over 19802008 and falling unemployment
America and Africa.46 over 20052010, the female labour participa-
This short-term rise in inequality is not tion rate grew faster than the overall labour par-
inevitable, however, and can be influenced by ticipation rate over 20002004 to 20052010,
public policies, especially in education and indicating greater gender balance in the labour
reproductive health, that enable the benefits market. Employment, however, did not nec-
of the demographic transition to reach all essarily become easier as education levels rose.
income groups at the same time. Consider Indeed, in some countries, the labour market
the three countries with the largest declines in situation became tighter for better educated
child dependency ratios: Cte dIvoire (with a female workers. Additional policy measures are
GDP per capita in 2011 of $1,800), Namibia needed to promote labour market conditions
($6,800) and Peru ($10,300). In Cte dIvoire, that offer productive opportunities for a more
the dependency ratio fell most among the rich qualified and expanded labour force.

Chapter 4 Sustaining momentum | 99


Box 4.2

China and Ghana: who benefits from the demographic dividend?

The global trend towards slower population growth and population ageing Ghana
is driven partly by China, the worlds most populous country, which is going In 1970, Ghana had a population of 8.7 million. The largest share of the
through a demographic transition. For Sub-Saharan Africa, a fast track edu- population was young people, resulting in a high dependency ratio (0.934).
cation policy with incremental enrolment gains could accelerate the demo- The share of the population without formal education was also high, es-
graphic transition and generate a demographic dividend for the region. The pecially among women. By 2010, Ghanas population had nearly tripled, to
cases of China and Ghana illustrate what can happen. 24.4million. Its age structure had changed little, although improvements in
life expectancy rounded out the middle of the pyramid. The youth popula-
China tion, though smaller than in 1970, remained large, and the dependency ratio
In 1970, youth constituted the largest share of Chinas population, resulting in was still high, at 0.736. Education levels, however, had improved consider-
a high dependency ratio of 0.770, with 1.08 boys for each girl among infants ably, and the share of people with primary and secondary education had
ages 04 (figure 1). By 2010, Chinas population pyramid looked completely dif- increased.
ferent. As fertility rates fell, the share of the working-age population rose faster Ghanas prospects for 2050 differ markedly under the two education
than the share of the youth population, lowering the dependency ratio to 0.382. policy scenarios. In the base case, which assumes constant enrolment ratios
The gender imbalance became more pronounced among infants, with 1.18 boys over 20102050, Ghanas population pyramid would remain triangular, with
for each girl. The productive-age population (ages 3550), currently the largest a large share of young people and a high dependency ratio (0.645; figure 2).
population share, will reach retirement in 1525 years. By 2030, China will thus The population is projected to reach 65.6million in the base case scenario,
face the challenge of an ageing population, putting more pressure on the social but just 48.2million in the fast track scenario.
sector and raising the dependency ratio. At retirement, this cohort will have a Under the fast track scenario, the demographic outlook would change
higher educational attainment than its predecessors 40 years ago. considerably as falling fertility rates lower the dependency ratio to 0.532,
Under the fast track scenario, with strong education policies, the age struc- mainly because of the decrease of the youth as a share of Ghanas total
ture of Chinas population in 2050 will be transformed, with the population ages population. The share of working-age people with no education would also
6064 becoming the largest cohort. The education level of the working-age fall, implying a rise in productivity and improved capacity for benefiting from
group will rise considerably, contributing to a more productive workforce. A the demographic dividend, provided that job creation matches the labour
more skilled and productive workforce could offset some of the negative effects supply of these new cohorts.
of a high dependency ratio and a large share of older people. In this scenario,
the ratio of boys to girls will fall to 1.06, close to the global average.
Figure 1 Demographic prospects for China Figure 2 Demographic prospects for Ghana
2010 2050 2050, base case scenario 2050, fast track scenario
Age Age
100+ 100+

90 90

75 75

60 60

45 45

30 30

15 15

0 0
70 60 50 40 30 20 10 0 10 20 30 40 50 60 70 70 60 50 40 30 20 10 0 10 20 30 40 50 60 70 35 30 25 20 15 10 5 5 10 15 20 25 30 35 35 30 25 20 15 10 5 0 5 10 15 20 25 30 35
Men (millions) Women (millions) Men (millions) Women (millions) Men (millions) Women (millions) Men (millions) Women (millions)
Ages 014 No education Primary education Secondary education Tertiary education Ages 014 No education Primary education Secondary education Tertiary education

Source: Lutz and KC 2013. See Technical appendix for a discussion of the base case and fast track Source: Lutz and KC 2013. See Technical appendix for a discussion of the base case and fast track
scenarios. scenarios.

Impact of the rate of more than a century (from 1865 to 1980) in


population ageing France, 85 years in Sweden, 83 in Australia and
69 in the United States. Ageing is progressing
Populations are ageing faster than in the past, faster still in developing countries. In eight of a
as fertility rates decline and life expectancy sample of nine developing countries, the share
rises.48 For example, for the share of the elderly of the elderly population is projected to reach
population to double from 7% to 14% took 14% in 30 years or less (figure 4.6). The only

100 | Human Development Report 2013


exception is Ghana, where it is expected to take Figure 4.6
50 years or more.
Populations are ageing more rapidly in developing
The rate of population ageing matters be-
countries
cause if developing countries are still poor after
the demographic transition, they will struggle
Bangladesh 20302050
to meet the needs of an older population. Many
developing countries have only a brief window Brazil 20102035

of opportunity to reap the full benefits of the Chile 20002025


demographic dividend of a larger working-age
China 20002030
population.49
Ghana 20502100+

India 20252055
The need for ambitious policies
Indonesia 20252040

To accelerate and sustain development progress, Thailand 20052025


countries need to adopt ambitious policies
Turkey 20202040
that expand womens education and that have
cross-cutting benefits for human development. 0 10 20 30 40 50
Timing is critical. Countries that act promptly Years until share of population
ages 65 and older reaches 14%
to take advantage of the demographic dividend
and avoid further environmental damage can Source: HDRO calculations based on Lutz and KC (2013). See Technical
appendix for a discussion of the base case and fast track scenarios.
reap substantial gains. Countries that do not
could face high costs that would be compound-
ed over time. Figure 4.7
The importance of bold, prompt policy ac-
Human development prospects for 2050 are
tion can be demonstrated through two more
greater under the accelerated progress scenario,
scenarios that show the impact of different pol- especially for low HDI countries
icy measures on projected HDI and its compo-
nents in 2050. The base case scenario assumes
Very high HDI
continuity with historical trends and policies
in recent decades. The accelerated progress
scenario sets some of the choices and targets
along 12 policy dimensions for aggressive but High HDI

reasonable interventions to reduce poverty,


expand infrastructure and improve governance.
Examples of ambitious targets are a doubling of Medium HDI
lending by international financial institutions
over 10 years, a 50% increase in migration over
20 years,50 a 20% increase in health spending Low HDI
over 10 years, a 20% expansion in infrastruc-
ture over 30 years and a 20% improvement in
governance over 10 years. World
The projections of the base case scenario are
fairly optimistic in that they carry forward the 0.4 0.5 0.6 0.7 0.8 0.9 1.0
momentum of advances over recent decades, Projected HDI in 2050
including dramatic improvements in human
Base case Accelerated progress
development. Countries do much better under
the accelerated progress scenario, with progress
most rapid in low HDI countries (figure4.7). Note: See Technical appendix for a definition of the base case and accelerated
progress scenarios.
Aggregate HDI rises 52% in Sub-Saharan Source: HDRO calculations based on Pardee Center for International Futures
Africa (from 0.402 to 0.612) and 36% in (2013).

South Asia (from 0.527 to 0.714). Low HDI

Chapter 4 Sustaining momentum | 101


countries thus converge towards the levels of The two scenarios show notable differences
human development achieved by high and very in the individual dimensions of the HDI. In
high HDI countries. Sub-Saharan Africa, life expectancy rises from
Ambitious, fully integrated policies can 53.7 years in 2010 to 69.4 in 2050 under the
thus provide strong leverage for advancing base case scenario, partly in response to sus-
human development (figure 4.8). The effects tained progress against HIV/AIDS and other
are strongest for Sub-Saharan Africa and South communicable diseases, but to 72.9 under the
Asia, followed by the Arab States and Latin accelerated progress scenario. Over the same
America and the Caribbean. The impacts are period, the average years of formal education in
weaker in Europe and Central Asia and in East Sub-Saharan Africa are projected to rise from
Asia and the Pacific. 4.3 to 6.7 under the base case scenario, but to
Across all regions, the greatest impacts result 8.1 under the accelerated progress scenario.
from policy interventions in health and educa- The gains under the accelerated progress
tion. In Sub-Saharan Africa, for example, am- scenario are even larger for GDP per capita (fig-
bitious policies raise HDI value in 2050 from ure4.9). This is true for all HDI groups, where
0.612 under the base case scenario to 0.651. differences across scenarios are considerable in
In most regions, improving governance has both cases. Globally, GDP per capita would
the next greatest impact through progress on rise from $8,770 in 2010 to $17,873 in 2050
reducing corruption, strengthening democratic under the base case scenario and to $27,995
institutions and empowering women. In South under the accelerated progress scenario. The
Asia and Sub-Saharan Africa, however, infra- largest differential gains would be in Sub-
structure investment is even more important. Saharan Africa and South Asia. In Sub-Saharan
Africa, GDP per capita would rise from $1,769
Figure 4.8 in 2010 to $5,730 in 2050 under the base case
scenario and to an impressive $13,210 under
Human development outcomes through 2050 improve more under the accelerated
the accelerated progress scenariomore than
progress scenario
double the level under the base case scenario.
HDI Accelerated Under the accelerated progress scenario, South
1.00
progress scenario:
very high HDI
Asia would see a stunning rise from $2,871 to
countries $23,661.
0.95 Base case scenario: The differential rise in income directly influ-
very high HDI ences poverty reduction. Under the base case
countries
0.90 scenario, income poverty almost disappears in
China but decreases only marginally in Sub-
0.85 Saharan Africa, as the population continues to
Accelerated grow, and remains high in India, which would
progress scenario:
0.80 low, medium and still have more than 130million poor people in
high HDI countries
2030. Under the accelerated progress scenario,
0.75
the number of poor people falls much more
Base case scenario: rapidly, nearly disappearing in some countries
low, medium and
0.70
high HDI countries and regions (table4.5).
Substantially reducing poverty by 2050 de-
pends on ambitious policy measures. Failing to
0.65
act boldly to avert the environmental disaster
scenario, for instance, would severely inhibit
0.60
poverty reduction.
0.55
2010 2015 2020 2025 2030 2035 2040 2045 2050
Seizing the moment
Note: See Technical appendix for a definition of the base case and accelerated progress scenarios.
Source: HDRO calculations based on Pardee Center for International Futures (2013). Greater progress in human development is
both possible and imperative. But accelerating

102 | Human Development Report 2013


progress will require coordinated policy Figure 4.9
measures across development fronts. One of
Advances in GDP per capita through 2050 are especially strong under the accelerated
the most important of these is equity, because
progress scenario
more-equitable societies fare better in most
aspects of well-being and are more sustainable. GDP per capita (2000 PPP $ thousands)
Another is reducing child mortality: rapid 60
Accelerated
progress is possible in all countries through progress scenario:
education, particularly of women. very high HDI countries
Policies also need to consider other forces 50
that will influence development, especially peo- Base case scenario:
ples meaningful participation in the processes very high HDI countries
that shape their lives. Demand for participation 40
grows as people become more educated and
more connected. Other major issues are envi-
ronmental and demographic change; countries 30
need to act during brief windows of oppor-
Accelerated
tunity to avoid high costs in forgone human progress scenario:
development. low, medium and
20 high HDI countries
Most of the opportunities for sustaining and
even accelerating the momentum in human Base case scenario:
development lie in the hands of national gov- 10
low, medium and
high HDI countries
ernments. In an increasingly globalized world,
however, governments do not act alone. The
final chapter considers the complex web of in-
0
ternational arrangements with which national
2010 2015 2020 2025 2030 2035 2040 2045 2050
governments need to engage and how regional
and global institutions can work more effec- Note: See Technical appendix for a definition of the base case and accelerated progress scenarios.
tively for sustainable humandevelopment. Source: HDRO calculations based on Pardee Center for International Futures (2013).

Table 4.5

Number of people in extreme poverty by region and selected countries, base case and accelerated
progress scenarios, 20102050 (millions)

2050,
2050, accelerated
Region or country 2010 2020 2030 2040 base case progress

Arab States 25 19 17 16 17 1
East Asia and the Pacific 211 74 42 29 29 9
China 94 13 5 1 1 0
Europe and Central Asia 14 2 3 3 4 1
Latin America and the Caribbean 34 29 26 27 32 13
South Asia 557 382 243 135 81 13
India 416 270 134 53 21 2
Sub-Saharan Africa 371 333 297 275 267 60
World 1,212 841 627 485 430 96

Note: Extreme poverty is defined as $1.25 a day in purchasing power parity terms. See Technical appendix for a discussion of the base case and fast track
scenarios.
Source: HDRO calculations based on Pardee Center for International Futures (2013).

Chapter 4 Sustaining momentum | 103


Let us join hands to try to
create a peaceful world where
we can sleep in security
and wake in happiness.
Aung San Suu Kyi

The forces that unite us are


intrinsic and greater than
the superimposed influences
that keep us apart.
Kwame Nkrumah
5.
Governance and partnerships
for a new era
Todays systems for international development and global governance are a mosaic of old structures and new arrange-
ments. The rise of the South will make these systems more diverse: international cooperation is likely to involve an even
more complex web of bilateral, regional and global processes. All these structures, however, will need to work better in
concertparticularly for the provision of public goods. Duplication of effort and failure to agree on common norms and
goals are not just inefficient, but potentially counterproductive, setting back human progress. It is vital to strengthen both
global and regional organizations while extending representation and accountability to a wider group of states and stake-
holders to reflect the emergence of these new forces. This chapter considers options and offers conclusions for this new
era of partnership.

Countries of the South have been developing respects, progress has become more difficult.
rapidly, and many are much more actively en- Country groups are in flux, their coordination
gaged on the world stage. They have been pur- mechanisms have become increasingly unwieldy
suing their individual and collective interests and in many cases deliberations among groups
through a variety of channels, particularly re- have come to a near standstill.1 The growing
gional arrangements and bilateral partnerships diversity of voices in international governance
that permit them to engage on issues of their thus brings both opportunities and challenges
choosing, often very much on their own terms. for human development.
Brazil, China, India and other emerging econo- At the same time, there are signs of a more di-
mies have forged deeper and stronger economic verse global civil society.2 New voices from the
relations with their neighbours and across the South are calling for more accountability and
developing world: they are rapidly expanding broader representation. Civil society organi-
their global markets and production; they zations have already influenced global trans-
have presented innovative complements to the parency and rule setting on aid, debt, human
Bretton Woods financing institutions; they are rights, health and climate change. Civil society
increasingly influential in global regulation of networks can now take advantage of new me-
trade, money and finance; and they are influ- dia and new communications technologies that
encing culture, science, the environment, peace make it easier to establish links between local
and security. and transnational activists and allow people to
The new arrangements promoted by the share ideas and concerns and to generate collec-
South and the resulting pluralism are challeng- tive perspectives in a global public sphere.
ing existing institutions and processes in the tra- In an interconnected world, every countrys
ditional domains of multilateralismfinance, actions have implications for its neighbours
trade, investment and healthsometimes and, ultimately, for people everywhere, today
directly and sometimes indirectly through alter- and in the future. Responsible sovereignty re-
native regional and subregional systems. Global quires carefully and conscientiously taking into
and regional governance is becoming a multi- account the global and regional consequences
faceted combination of new arrangements and of national behaviour.
old structures that need collective nurturing in Some major challenges can be addressed
multiple ways. Reforms in global institutions constructively at the regional or bilateral level,
must be complemented by stronger cooperation including regional trade and security issues.
with regional institutionsand in some cases But these issues also require longer term in-
broader mandates for those regional institu- ternational solutions. The continuing impasse
tions. The accountability of organizations must in negotiations at the Doha World Trade
be extended to a wider group of countries, as Organization (WTO) round impedes progress
well as to a wider group of stakeholders. In some towards agricultural self-sufficiency and the

Chapter 5 Governance and partnerships for a new era | 105


eradication of poverty and hunger in Africa what our respective responsibilities are. Public
and elsewhere in the developing world. Other provision of goods is important at the national
urgent issues such as climate change can be re- and global levels, but coexistence of the public
solved only globally, and failing to act on them and the private is inevitable (box 5.1). For ex-
collectively today will make them even more ample, in responding to climate change and the
acute and costly in the future. depletion of natural resources such as coal, oil
and water, governments have partnered with
the private sector to invest in research and de-
A new global view of public goods velopment for alternative sources of energy.
Areas of global Areas of global international concern merit-
international concern This changing world has profound implications ing urgent attention and cooperation include
meriting urgent attention for the provision of public goods such as clean trade, migration, climate change and devel-
include trade, migration, air and other shared resources that the market opment. Each area, along with its governance,
climate change and alone produces or allocates insufficiently or not has been significantly altered by the rise of the
development. Each at all and for which state mechanisms are es- South. At the same time, the new position of
area, along with its sential.3 Desirable global public goods include the South presents opportunities for agreement
governance, has been a stable climate and a healthy global commons. and improved cooperation.
significantly altered by They require rules for more stable financial
the rise of the South markets, progress on trade reforms (such as Trade
those involved in the Doha round of trade
negotiations) and mechanisms to finance and Countries throughout the South would ben-
produce green technologies. efit from the completion of the far-reaching
To that end, we need to rethink what is international trade agreements envisioned by
public and what is private, what is best pro- the Doha development round of the WTO.
vided unilaterally and what multilaterally, and, However, the Doha round remains stalled
importantly, when taking collective action, while an increasingly complex web of bilateral

Box 5.1

The shifting line between public and private in transportation

Whether mass transportation is provided publicly or privately has an impor- more-affluent people generally prefer private transport, the answer is to
tant bearing on shared development goals of sustainability and affordable make public transport less of an inferior good by ensuring safety, efficiency
access. A society more concerned with equitable outcomes is more likely to and reliability.
provide greater amounts of public transportation. Cost savings from econo- Public-private partnerships could be one way forward. They tend to result
mies of scale are passed on to the public in the form of relatively cheap in more efficient construction and operation of projects. The public partner
access to public transportation. In more egalitarian societies, low-earning safeguards property rights, provides the regulatory framework and some-
groups, including students, the elderly and the disabled, are likely to receive times uses subsidies to meet the gap between private and social returns.
further discounts and subsidies. The idea is to reduce the excludability of Most railway projects in Latin America and the Caribbean have been
transportation services. implemented through public-private partnerships. India has one of the most
Mass public transport can minimize the congestion and carbon emis- rapidly expanding public-private partnership programmes in transport; be-
sions from vehicles traditionally associated with private transportation. tween 1995 and 2006, about 230 public-private partnership projects costing
When a sizeable public transportation system already exists, it can be more $15.8 billion were implemented. China has extensively used the build-
amenable to the quick introduction of greener technologies. For example, operate-transfer model of public-private partnerships for toll roads and other
New Delhi mandates the use of compressed natural gas in public buses, a infrastructure, especially since the 2000s.
much greener fuel than gasoline (the buses are run by both the public and Spurred by increasing gas prices, private companies are likely to conduct
the private sectors). research on greener fuels and technologies on their own account. However,
Environmentally conscious societies tend to incentivize the use of public public funding and incentives are also required to ensure socially optimal
over private transport through congestion and carbon taxes on private ve- levels of research into greener fuels and technologies. Indeed, green tech-
hicles, as in London, Milan and Singapore (and considered by San Francisco). nological breakthroughs are one of the most essential global public goods
Making public transportation affordable is not the only challenge. Because and must remain in the public domain.

Source: World Bank 2003, n.d.; Cheng, Hu and Zhao 2009.

106 | Human Development Report 2013


and regional trade arrangements has developed. exceeding 10% of GDP. Yet governance of
These arrangements, involving fewer and some- migration is largely unilateral, by destination
times more-homogeneous players, can align countries or bilateral. There are few mecha-
interests and realize mutual gains for those nisms for multilateral coordination.8 Real hu-
engaged, without the deadlock encountered at man development concerns are at stake, most
the multilateral level. importantly, the rights of migrants. While re-
Subregional trade and investment groups, mittances provide income for poor households,
such as the Economic Community of West social upheaval and disruption also come with
Africa States and the Common Market of large-scale migration. Multilateral mechanisms
the South, have facilitated greater economic could liberalize and simplify channels that
interaction and policy cooperation in other allow people to seek work abroad, ensure basic
areas as well, from security to water resource rights for migrants, reduce transaction costs as-
management. These bilateral and regional sociated with migration and improve outcomes
arrangements offer opportunities for further for migrants and destination communities
SouthSouth economic integration and pro- alike.9
vide a training ground for building competitive With the rise of the South, migration pat- With the rise of the
strengths.4 terns are changing. Nearly half of remittances South, migration patterns
Still, despite the benefits of bilateral and re- sent home to countries in the South come from are changing. Nearly
gional trade agreements, without better global emigrant workers in other developing coun- half of remittances sent
trade rules and coordinating mechanisms there tries. In recent years, regional organizations home to countries in
are considerable efficiency costs. While en- and economic integration processes have added the South come from
couraging freer trade among members, trading migration to their agendas. These include the emigrant workers in other
blocs tend to erect barriers to free trade with Association of Southeast Asian Nations, the developing countries
each other, ultimately reducing global welfare.5 African Union, the Common Market of the
Other efficiency losses can result from the South and the Southern African Development
increased market power that countries gain by Community.10 In 2012, the Global Forum on
consolidating into trading blocs.6 As research Migration and Development held discussions
for this Report has shown, freer and fairer trade on SouthSouth migration for the first time.
rules can accelerate human development when While the governance of migration is not
coupled with sustained public investment in inevitably or exclusively a multilateral issue,
human capabilitiesincluding health, educa- international coordination mechanisms could
tion and other social servicesand essential provide a supporting framework for the emerg-
infrastructuresuch as modern transportation ing networks of regional and bilateral agree-
and telecommunications links. ments. The beneficial impact of these dialogues
Many aspects of a freer, nondiscriminatory could be multiplied by global initiatives on
trade regime are best overseen by a stronger, migration issues.
reinvigorated set of multilateral agreements, With the continuing growth in annual
but since regionalism may be here to stay, one international migrationfrom an estimated
way forward is to gradually multilateralize re- 70 million four decades ago to more than
gionalism. This would involve the WTOs ini- 200 million today, originating largely from
tiating soft-law ideas, such as the negotiation the Souththere is a growing need for rules
of voluntary best-practice guidelines for new to protect the rights of migrants and provide
regional trade agreements and modifications agreed international norms for the flow of im-
of existing ones: the WTO could, for example, migrants between source and host countries.11
organize a hierarchy of guidelines for North Such rules would benefit all parties, in both
North, NorthSouth and SouthSouth re- economic and social terms, while the costs of
gional trade agreements.7 inaction will continue to mount. These costs
are not solely or even primarily financial: they
Migration include the profound human costs of forcibly
prolonged family separation, all-too-common
In 2010, at least 25 economies of the South mistreatment in the workplace and the unnec-
reported remittance inflows from migrants essary and indefensible degradation of human

Chapter 5 Governance and partnerships for a new era | 107


dignity when foreign resident workers are not Development cooperation
accorded basic legal rights.
An essential component of more-inclusive
Climate change international governance should be more-
inclusive andmore-effective forms of develop-
Climate change is perhaps the most widely ment cooperation. Developing countries are
recognized issue that requires global cooper- increasingly providing development assistance
ation through multilateral agreements. The and investment bilaterally and regionally,
South is going beyond bilateral approaches by through new financing arrangements and tech-
incorporating ways to tackle climate change nological cooperation that offer alternatives
into national development strategies. China to or complement the approaches of tradi-
has pledged to reduce its carbon intensity tional donors and strengthen choices for aid
(carbon dioxide emissions per unit of GDP) recipients.
40%45% from 2005 levels by 2020.12 In 2010, In 2011, developing countries and civil
India announced voluntary targeted reductions society organizations endorsed the Busan
of 20%25% in carbon intensity.13 Korean law- Partnership for Effective Development Co-
makers approved a national emissions trading operation at the 4th High Level Forum on
programme in March 2012 to reduce emissions Aid Effectiveness in Busan, Republic of Korea.
from factories and power plants.14 At the UN Ownership, focus on results, inclusive develop-
Conference on Sustainable Development ment partnerships, mutual accountability and
in Rio de Janeiro in 2012, Mozambique an- transparency were selected as the underlying
nounced a new Green Economy Roadmap. pillars for a new global monitoring framework.
And Mexico recently enacted the worlds first Stronger emphasis was placed on country sys-
comprehensive climate change law, aiming to tems as the way of doing business, coupled with
cut emissions and build the renewable energy a demand on behalf of partner countries to
sector.15 explain any deviance. Traditional Organisation
Addressing climate Addressing climate change requires true for Economic Co-operation and Development
change requires true multilateralism. For example, to reduce global (OECD) donors recognized that a different
multilateralism greenhouse emissions by the amount required, governance structure would be needed to sup-
the North and the South have to reach a mu- port a broader partnership and accommodate
tually acceptable and fair agreement on how emerging economies.18 Based on the core prin-
to share responsibilities while ensuring that ciples of national ownership and capacity, this
the legitimate development aspirations of the partnership would establish an international
South can be met. governing mechanism and indicators for assess-
The 2012 UN Conference on Sustainable ing progress.
Development in Rio de Janeiro created oppor- Along with traditional donors, new de-
tunities for collaboration and alliances among velopment partners, including Brazil, China
groups of rich and poor; public and private; and India, endorsed the principles of national
and civil, corporate and state bodies. For ex- ownership and capacity building. However, the
ample, Unilever, Coca-Cola and Walmart were Busan Declaration noted that these partners
among 20 large multinational corporations have domestic development challenges of their
that committed, through the Consumer Goods own and have their established methods of
Forum, to eliminating deforestation from foreign cooperation. This was reflected in the
their supply chains.16 Microsoft promised to text of the declaration, which stated that for
go carbon-neutral by 2012. And FEMSA, the these countries the principles, commitments
Latin American soft drink bottler, said it would and actions agreed in Busan shall be the ref-
obtain 85% of its energy needs in Mexico from erence for south-south partnerships on a vol-
renewable resources.17 Despite many promising untary basis.19 Moving forward, the OECDs
initiatives though, a wide gap remains between Development Assistance Committee and the
the emissions reductions needed, on the one United Nations Development Programme are
hand, and the modest reductions promised, on to jointly support the new Global Partnership
the other. for Effective Development Cooperation

108 | Human Development Report 2013


through the UN Development Cooperation long-term development progress. Many were
Forum. Despite signatories commitment to designed, long before the rise of the South, for
transparency, the outcome document does a postSecond World War order that does not
not contain any other time-bound measurable match contemporary reality.
commitments or targets to which citizens can As a consequence, these institutions greatly
hold them to account. underrepresent the South. Voting quotas in the
The post-Busan architecture has yet to Bretton Woods institutions are weighted to-
take shape. But some intermediate priorities wards countries in the North, despite changing
have surfaced. One is for traditional donors global economic realities. For example, China,
to meet their commitments from the 2005 which is the worlds second largest economy
Group of Eight Gleneagles summit to increase and holds more than $3 trillion in foreign
aid and to deliver on better coordination and reserves, has had a smaller voting share in the
alignment.20 Traditional donors can also work World Bank than both France and the United
with emerging donors, who can contribute Kingdom.
knowledge and experience from a developing Similarly, the United Nations Security
country perspective. The United Nations, with Council makes decisions on global peace and
its universal membership, is well positioned security with a permanent membership that
to engage partners from the South in such tri- reflects the geopolitical structure of 1945. At
lateral development cooperation through the the 2012 United Nations General Assembly
UN Development Cooperation Forum. One meeting in New York, several heads of gov-
of the main tasks is to achieve better alignment ernment from the South again voiced their
between NorthSouth and SouthSouth de- long-standing demands for permanent seats on
velopment cooperation and global norms. the council for Africa, Latin America and such
The Busan agreement marks a first step in re- unrepresented developing country powers as
shaping development cooperation so that it can India.22
be more effective and better harness the poten- The major international institutions need
tial of emerging countries. As with other global to be more representative, transparent and ac-
public goods, once common understanding is countable. The Bretton Woods institutions, the
reached at the global level, operationalizing the regional development banks and even the UN
principles can in most cases be decentralized to system all risk diminishing relevance if they fail
national governments using the agreed com- to represent all member states and their people
mon policy frameworks. Take the Millennium adequately. These bodies need to respect and
Declaration of September 2000 and the global draw constructively on the experiences of both
agreement on the Millennium Development the South and the North and to aim for equi-
Goals that eventually emerged. Agreement table and sustainable outcomes for present and
on these goals gave impetus to a wide range of future generations.
activities and institutions by highlighting a sim- At the same time, the rising South has to
ple truth: enhancing the capabilities of people assume more responsibility on the global stage,
and advancing the development of all societies in line with its increasing economic power and
are important global public goods.21 The actual political clout, including by contributing more
progress in the achievement of these goals has resources to multilateral organizations.23 The
been very much at the country level, through South has to take larger leadership roles at both current institutions
national initiatives and ownership. the regional and global levels. Greater transpar- and principles for
ency and accountability in global institutions, international governance
while desirable in and of themselves, will facili- require rethinking to
Better representation tate more such participation by the South. accommodate the
for the South There have been some positive moves in this growing diversity in
direction. Developing countries are already voice and power and
The current institutions and principles for in- playing a greater role in the Bretton Woods in- to sustain long-term
ternational governance require rethinking or at stitutions and in global dialogues through the development progress
least recalibrating to accommodate the growing summits for Group of 20 (G20) heads of state.
diversity in voice and power and to sustain The OECD has opened membership to some

Chapter 5 Governance and partnerships for a new era | 109


developing countries. Developed countries effectively in global governance through bet-
should welcome these changes, as the success ter access to information, technical assistance
of the South extends benefits to the North and and finance.
advances the prosperity of all. Citizen participation. Drawing on the wealth
Indeed, some intergovernmental processes of ideas and views emerging from citizen
would be invigorated by greater participation networks and from participants previously
from the South, which can bring substantial sidelined from the global discourse.
financial, technological and human resources. International organizations are becoming
Emerging economies could lead in achieving more inclusive and sensitive to the require-
the Millennium Development Goals, innovat- ments of a rapidly changing world. The United
ing in climate change mitigation and conclud- Nations Economic and Social Council, for
ing the Doha development round. example, has established the Development
Global organizations that are more represent- Cooperation Forum to promote more broad-
ative of the worlds countries would in principle based discussion of development assistance.
be accountable to the worlds people through There is scope for renewed multilateralism.
national governments. However, state media- However, there have been only modest gov-
tion alone is inadequate. International govern- ernance reforms at the International Monetary
International governance ance is increasingly influenced by a multitude Fund (IMF) and the World Bank. The United
is increasingly influenced of voices and actors through global movements Nations Security Councils core structure re-
by a multitude of voices and transnational activist networks. Indeed, mains unchanged, despite decades of debate.
and actors through this has been the thrust of antiglobalization More-determined reform is needed for multi-
global movements movements, sometimes self-described as glob- lateral institutions to facilitate cross-national
and transnational al democracy movements, which cut across a collaboration on stalemated global issues in
activist networks range of issues, articulate diverse concerns and ways viewed as fair and just by all countries.
embrace an almost endless variety of political
messages but share the basic concern of making
transnational power and governance accounta- Global civil society
ble to civil society.
To this end, todays multilateral institutions International governance institutions can be
are encouraged to recalibrate their representa- held to account not just by member states, but
tion and guiding principles, in areas such as: also by global civil society, which can shape the
Voice. Matching the circles of stakeholders exercise of power and act as a countervailing
and decisionmakers so that all have an ef- force to states and markets. All kinds of volun-
fective voice in global matters that concern tary associationsincluding nongovernmental
them. organizations, social movements, advocacy
Public goods. Building bridges across organ- groups, unions and community groupshave
izational lines to facilitate the multilevel, used channels of influence such as elections,
multisector, multiactor production that lobbying, media and public campaigns to be-
many global public goods require. come drivers of social change within many lead-
Leadership. Encouraging global leaders, state ing countries of the Southincluding Brazil,
and nonstate, individually or collectively, to Egypt, India and South Africa. In the Indian
exercise leadership to assist the international state of Kerala a rich history of civic engage-
community on issues that are caught in glob- ment influenced the government to prioritize
al policy stalemates and problems that are extensive social rights and equity-promoting
reaching crisis proportions. public policies. In Brazil, the Sanitarista move-
Convening. Realigning existing organizations ment of health care professionals played a
to reflect changing global economic and central role in developing the countrys public
political realities, and vesting them with the health care system and expanding services to
authority and expertise to effectively mediate the poor.24
among different stakeholders. National civil society groups are increas-
Information and resources. Helping poorer ingly using their experience engaging with
countries in the South participate more national governments to open up independent

110 | Human Development Report 2013


networks of NorthSouth and SouthSouth International Federation of the Red Cross and
dialogues outside traditional official interna- Red Crescent Societies. More recently, global
tional governance channels. These transnation- civil society networks have been influential in
al networks are laying the groundwork for an institutionalizing antiland mine legislation,
emerging global civil society that is pushing for more open access to AIDS medicines and cam-
action on issues ranging from climate change to paigns opposing violence against women.
migration policy to human rights. While global civil society holds much
The potential for global civil society to influ- potential for influencing international gov-
ence decisionmaking on critical global issues ernance norms and decisionmaking, the likely
has been greatly magnified by the Internet contribution of civil society organizations
revolution, which enables hyperconnectivity and transnational networks should be kept in
of disparate groups and offers platforms for perspective. Higher levels of resourcing lead
citizens ideas and concerns to spread rapidly the international nongovernmental organiza-
around the globe. People can speak to peo- tions of the North to wield disproportionate
ple, and communities of scientists and other influence in the global civil society space. 26
professionals can share ideas, unmediated by The international human rights regime, for
state power or markets. This new ease of global example, often emphasizes civil and political
communication is fuelling creative partner- rights, which are of particular concern to civil
ships, empowering individuals and social or- society in Eastern Europe, rather than social
ganizations, leading to new forms of solidarity rights, which figure much more centrally in
and allowing people to interact and express the demands of popular movements in the
their values internationally. South. Limitations on civic space as well as
The recent uprisings in several Arab States other constraints can affect the capacity of civil
countries, the culmination of complex histori- society organizations to function.27 A further
cal developments, have shown that social media consideration is one of transparency, as it
is a force that world leaders and global institu- can be unclear how autonomous civil society
tions ignore at their peril. The rapid spread and groups are from state and market forces. When
wide response to the video Kony 2012, about civil society organizations become extensions
indicted war criminal Joseph Kony of the Lords of state power, economic influence or tra-
Resistance Army, showed that social media can ditional authority, civil society activity may
engage many millions of people in discussion magnify rather than reduce inequalities and
of important issues within days.25 There may be instability.28
disagreement over the legitimacy of particular The future legitimacy of international gov-
concerns and platforms, but the rapid sharing ernance will depend on the capabilities of in-
of information across social networks clearly stitutions to engage with citizen networks and
sways public opinion on issues that matter to communitiesunderstanding their concerns
the global citizenry and ultimately influences and borrowing from their ideas and approaches
international governance. to find direction for their own efforts and ener-
Indeed, one of the most valuable tools of gies. Such engagement will maximize the legiti- global civil society has
global civil society is the ability to diffuse new macy of their actions and ensure accountability the ability to diffuse new
norms that transform the behaviour of state and to the citizens of member states (box5.2). The norms that transform
private actors. By taking up and framing issues idea of ecological citizenship, for example, the behaviour of state
and pressuring states, civil society networks may be a promising way to construct from the and private actors
can put new issues on the table and influence ground up global public opinion on the provi-
government and international action towards sioning of global public goods.29
new treaties, stronger enforcement mechanisms To be effective, international organizations
and even direct intervention. Classic examples need to form productive partnerships with so-
of civil society influence on global norms cial media communities and nongovernmental
include the global diffusion of the womens organizations in the South and North alike.
suffrage movement, the antislavery movement They should engage with citizen groups to sup-
and the Red Cross movement that led to the port policy changes and a transition towards
production of the Geneva conventions and the more-equitable principles and institutions of

Chapter 5 Governance and partnerships for a new era | 111


Box 5.2 Jo Leinen, Member of the European Parliament

A world parliament for global democracy?

Legitimacy and representativeness of the worlds people in global decision- a body would have a high level of representativeness and political ac-
making are imperative for the governance of global issues, but global countability. A world parliament would serve as a link between national
decisionmaking bodies have no institutional mechanisms for effective and policymaking and global decisionmaking, providing incentives for national
influential citizen participation. At a time when intergovernmental decision- parliaments and governments to consider the implications of decisions be-
making has shown its limits, the quest for equity and sustainability and the yond national borders and instilling national parliaments with knowledge
urgency of addressing defining challenges for our planet require the engage- and experience on governing global issues.
ment of the global citizenship. This assembly could have one extended annual session, during which
A world parliament would complement the United Nations General it would issue recommendations and add agenda items to the UN General
Assemblyeither formally integrated in the UN system or instituted as a Assembly and, by a qualified majority, submit agenda items to the UN
separate body. This idea is not new, but as it matures, it is receiving increas- Security Council for debate and decisions. The deliberations would possess
ing support from civil society actors and regional parliaments (including the a high moral and political authority, although the final decisionmaking power
European, Latin American and African Parliaments) and was recently high- would remain with national governments. The composition of each national
lighted in the Manifesto for Global Democracy put forward by a multina- delegation could be determined either by national parliaments or through
tional group of intellectuals.1 special elections allowing citizens to choose representatives for the world
A world parliament would be composed of delegates from national par- parliament. Delegation size would be proportional to a countrys population,
liaments, representing multiple political parties from each country. Since an approach considerably different from international bodies where voting
the great majority of national parliaments are democratically elected, such quotas are based on monetary contributions.

1. Beeston 2012.

international governance. The World Health with shared norms and goals supporting varied
Organization, for example, has had to man- yet complementary regional and global devel-
age state interests carefully and adjust to the opment initiatives.
emphasis on privatizing health services that Recent experience in much of the South
became dominant in the 1980s. Its core com- has shown that some public goods can be
mitments to public health and its ties to civil effectively provided at the regional level. As
society, however, have enabled it to continue to noted in chapter 2, regional institutions can
pursue policies that emphasize a rights-based sometimes respond to regional needs faster and
approach to health.30 more efficiently than can global forumsfor
example, programmes for eradicating endemic
diseases, protecting shared ecosystems and
Towards coherent pluralism removing barriers to intraregional commerce.
The challenge facing In such c ases, it makes sense for like-minded
the multilateral system The challenge facing the multilateral system in neighbouring states to address these challenges
is not a false choice response to the rise of the South is not a false cooperatively while pursuing global responses
between older structures choice between globalism and regionalism or to these issues where needed.
devised by the North and between older structures devised and managed Increasing regional cooperation can also have
newer arrangements by the traditional powers of the North and disadvantagesadding further complexity to
responding to the newer arrangements responding to the needs of an already diverse array of multilateral institu-
needs of the developing the developing world. Rather, it is integrating, tions, with all the attendant risks of exclusion,
world. It is integrating, coordinating and in some cases reforming these duplication and interagency competition. In
coordinating and in institutions so that they can all work more many areas, regional institutions have the po-
some cases reforming effectively together. Diversity and flexibility in tential to complement global structures, even if
these institutions so global governance mechanisms can be net pos- that kind of coordination seems rare or inade-
itives for the international system but cannot quately synchronized today.
that they can work more
substitute for the global pursuit of solutions to Global governance arrangements must
effectively together
problems that are inherently global in nature. respect the mixed strategies that countries
Policymakers working both regionally and are choosing. It is clear that developing and
internationally should strive towards a more emerging economies are choosing to cooperate
coherent pluralism in multilateral governance, in different waysbilaterally, regionally and

112 | Human Development Report 2013


internationally. Over time, as new sets of chal- and transforming. The South in turn is more
lenges have emerged, countries have created likely to use and fully support multilateral in-
new forms of governance to deal with these. In stitutions that are seen to be acting as much in
finance, for example, countries want to diversi- the interests of the South as in the interests of
fy their exposure and their insurance policies. developed countries.
They seek to use a mixture of national reserves,
bilateral credit lines, regional arrangements and Financial architecture: redesign
the IMF. The international regime needs to be for the rising South
pluralist while ensuring that cooperation at the
regional and subregional levels is consistent The rise of the South is creating new patterns of
with mechanisms and policies at the interna- resource accumulation, potentially leading to a
tional level. denser, multilayered and more heterogeneous The ultimate purpose
The ultimate purpose of this coherent financial architecture. This could promote of coherent pluralism
pluralism is to ensure that institutions at all financial stability and resilience, support long- is to ensure that
levels work in a coordinated fashion to provide run productive capacities, advance human institutions at all levels
global public goods. The complementarity not development and enlarge national policy space. work in a coordinated
just between global and regional institutions, In some cases, these emerging institutions fashion to provide
but also across public, private and civil society and arrangements could substitute for some global public goods
organizations, has the potential to be construc- of the functions of the Bretton Woods institu-
tive, even if it may appear fledgling and inade- tions, but in most cases, they complement the
quate at present. Where new arrangements and existing global financial architecture. Moreover,
new partnerships arise to meet the gaps left by emerging institutions may prove transformative
old arrangements, they should be encouraged, by prodding the Bretton Woods institutions to
avoiding duplication to the greatest extent pos- respond to concerns about representation, gov-
sible. New arrangements at all levels must work ernance principles and conditionalities.
in concert with each other and in step with The South has already developed several al-
existing multilateral organizations, aligning ternative institutions and approaches, including
interests and sharing responsibilities. regional monetary and support arrangements:
While pluralism and greater diversity are The Chiang Mai Initiative emerged in the
welcome developments, duplication and ineffi- wake of the 1997 Asian financial crisis, tak-
ciency occur among the plethora of new organ- ing the form of a series of swap arrangements
izations. Moving towards a coherent structure, among Asian countries. It evolved into the
some organizations will survive, and others will Chiang Mai Initiative Multilateralization,
be deemed redundant. which allows members to draw on the
The governance of global public goods for multilateral swap facility to address bal-
sustained progress in human development re- ance of payments and short-term liquidity
quires effective multilateralism. International difficulties.
institutions can also provide guidance on hu- The Arab Monetary Fund, founded in 1976
man rights and other universal principles and by the 22 member countries of the League of
arbitrate in such areas as public international Arab States, has some $2.7billion to support
law. However, multilateralism will need to be emergency financing for member countries
more flexible to deal with new challenges and as well as broader monetary cooperation.
geopolitical realities. In a coherent pluralistic There is also an aspiration for a unified Arab
system, international institutions can serve as currency.31
coordinating bodies, playing a catalytic or con- The Reserve Bank of India recently an-
vening role for all stakeholders. To do this, they nounced a $2 billion swap facility for
need the mandate and sufficient expertise and members of the South Asian Association for
resources to mediate and facilitate, to analyse Regional Cooperation.32
and respond to often divergent interests and The Latin American Reserve Fund, with a
to propose workable and mutually beneficial capitalization of about $2.3 billion, offers
outcomes. To fully engage the South, many balance of payments support to members.
international organizations need updating It also guarantees third-party loans and

Chapter 5 Governance and partnerships for a new era | 113


facilitates reserve investments and regional to political concerns and economically appro-
coordination of monetary policies. Its po- priate, with light-touch surveillance and less
tential is limited by its incomplete regional emphasis on conditionality.
membership; Brazil, the regions largest Some institutions, such as the nascent Bank
economy, does not participate.33 of the South,36 renounce conditionality al-
The Andean Development Corporation is together. Others, including the Chiang Mai
gaining attention due to its fourfold growth Initiative Multilateralization and the Arab
in lending over 19912007 and almost Monetary Fund, use conditionality only in
exclusive ownership by members, nearly all specific circumstances, and it remains a point of
of which are developing countries (except discussion among members. Still others, such as
Portugal and Spain).34 the Latin American Reserve Fund, apply sur-
Such regional arrangements, however, do not veillance but do not use the IMFs top-down
necessarily reduce the role of the IMF. Large approach and instead collaborate with borrow-
disbursements from the funds can require bor- ing governments.
rowing countries to be under IMF surveillance
programmes, as with the Chiang Mai Initiative Regional trade agreements
Multilateralization (box 5.3).
The evolving regional financial architecture Regional and subregional trade arrangements
fostered by countries of the South offers re- have expanded and deepened in Africa, Asia
newed space for policies that emphasize prag- and Latin America, even as the Doha round
matism rather than ideology and ensures that of global trade negotiations has stalled.
conditionality is narrow and appropriate to Agreements that open up SouthSouth trade
the country (box 5.4).35 Regional institutions hold enormous potential, with benefits at
that lend closer to home are also more likely least as large as those providing greater access
to design programmes that are more sensitive to markets in the North. OECD estimates

Box 5.3

Regional finance in Asia: Chiang Mai Initiative Multilateralization and the Asian Development Bank

The current financial crisis has been a powerful impetus for expanding Multilateralization. Its purposes are to monitor and analyse regional econ-
the scope of the Chiang Mai Initiative, a regional agreement among the omies and to contribute to the early detection of risks, implementation of
Association of Southeast Asian Nations, plus China, Japan and the Republic remedial actions and effective decisionmaking by the initiative. Some ob-
of Korea (ASEAN+3). In early 2009, the initiative was multilateralized and servers have noted the tensions over the mandate and the continuing re-
renamed the Chiang Mai Initiative Multilateralization. At that time, dis- luctance in Asia to criticize the policies of regional neighbours and thus the
bursements of more than 20% of the credits available to a country required obstacles to conducting firm surveillance.
that the borrowing country be under an International Monetary Fund (IMF) Prior to the global financial crisis, the Asian Development Bank (ADB)
surveillance programme to address the difficult task of devising and imple- was already lending more in the region than the World Bank was. The crisis
menting regional surveillance. accelerated this trend. In some cases, the ADB responded more quickly and
ASEAN+3 members have continued to deepen the Chiang Mai Initiative with larger loans than the IMF and the World Bank did, and it introduced
Multilateralization. In May 2012, the size of the currency swap pool was dou- new types of temporary rapid financing programmes and countercyclical
bled to $240billion. For 20122013, the need to be under an IMF programme lending facilities to support developing and low-income countries. In April
does not become operative until the swap drawn equals 30% of the maximum 2009, Indonesia proposed that a portion of the IMFs new financing be
for the country (40% in 2014, pending the outcome of current discussions). The devolved to the ADB. With Group of 20 backing, the ADB introduced the
maturity of both the IMF-linked and the delinked swaps were lengthened. And Countercyclical Support Facility to provide up to $3billion to economies in
for the first time, a precautionary credit line facility was introduced, allowing Asia affected by the crisis.
members to draw on swaps governed by a formula based on country size. (The Between 2008 and 2009, the ADBs lending commitments grew 42%
Asian Bond Market Initiative was also expanded in May 2012.) and its disbursements 33%. Other regional development banks quickly fol-
The ASEAN+3 Macroeconomic Research Office opened on 30 January lowed the ADBs example and were granted a portion of the new funds com-
2012 to conduct IMF Article IVtype monitoring of members. It describes mitted to the IMF to establish new regional lending facilities to promote
itself as the regional surveillance unit of the Chiang Mai Initiative rapid countercyclical support within their region.

Source: Woods 2010; Chin 2010, 2012; Ocampo and others 2010; ADB 2009; Ciorciari 2011; AMRO 2012.

114 | Human Development Report 2013


a welfare gain for the South of $59billion if other without jeopardizing their most favoured
SouthSouth tariffs were lowered to that of nation obligations.
NorthSouth levels.37 Even within Africa, Bilateral arrangements can facilitate trade
given appropriate institutional arrangements flows when multilateral negotiations stall.
for more open agricultural trade, there is huge Other options such as preferential trade ar-
potential for increasing the trade of the regions rangements for furthering the goal of freer,
many and diverse crops. nondiscriminatory trade could be overseen by a
An example of a successful regional arrange- global multilateral institution like the WTO or
ment is the Sao Paulo Round in 2010, in which by regional bodies.
22 developing countries agreed to reduce tariffs Take, for example, negotiations aimed at
at least 20% on about 70% of the trade among reducing the massive production and export
themselves. The reductions were negotiated subsidies in agriculture given mainly by de-
within the 1989 framework of the Global veloped countries. Those subsidies distort
System of Trade Preferences, established to take world trade and expose farmers in developing
advantage of the enabling clause within the countries to unfair competition. However, this
agreements of the WTO, which allows devel- issue is almost impossible to settle satisfactorily
oping countries to provide concessions to each in a bilateral or regional setting; it requires

Box 5.4 Enrique Garcia, President, CAF

CAF: a Latin American development bank

When established in 1970, the multilateral bank CAF had five Andean coun- to shareholders when financing has become scarce have been especially
try members (Bolivia, Colombia, Ecuador, Peru and Venezuela). Today, its valuable. In addition to channelling funds from international markets to the
shareholders include 18 countries from Latin America, the Caribbean and region, directed mainly to infrastructure projects, CAF, together with its
Europe as well as 14 private banks, and it obtains most of its funding in member countries, has designed and implemented an ambitious agenda of
global financial markets. CAF promotes sustainable development and re- programmes and projects supported by grants aimed at tackling some of
gional integration through credit operations, grants and technical support Latin Americas major obstacles to growth.
and offers financial structuring to public and private sector projects in Latin CAF borrows in international capital markets through a funding strategy
America. Its headquarters are in Caracas, and it has offices in Asuncion, that aims to diversify sources of financing to mitigate interest rate and cur-
Bogota, Brasilia, Buenos Aires, La Paz, Lima, Madrid, Montevideo, Quito rency risks while matching the average maturity of its assets and liabilities
and Panama City. Over the last decade, Latin America has experienced rapid to maintain sufficient liquidity in its portfolio. CAF obtained its first credit
economic growth thanks to a favourable external environment, which has ratings in 1993 from the three main rating agencies, and its ratings have
resulted in higher commodity prices, a stable macroeconomic environment steadily improved, even during economic crises in the region. CAF is now
and greater domestic demand due to poverty reduction and higher income. the highest rated frequent bond issuer in Latin America. Since 1993 CAF
CAF has helped its member countries take advantage of these favourable has borrowed more than $13.9billion through 87 bond issues in the most
economic conditions through a comprehensive development agenda that in- important international capital markets in the Asia, Europe Latin America
cludes projects and programmes designed to support the regions productive and the United States. Prudent financial policies have made CAF a profit-
transformation and its competitive participation in the global economy, to able institution that reinvests, through grants and technical cooperation, in
improve the quality of institutions and to promote environmental conserva- programmes and projects to support its member countries.
tion. CAF has provided substantial financing at times when markets were CAFs performance has been distinguished due to capacity to adapt
dry and other international financial institutions were imposing stringent to a changing and challenging environment. Of particular importance has
conditions on their financing. been its governance structure. Since its foundation, CAFs shareholders have
Among the reasons for CAFs success in the region are its Latin American given the institution the autonomy to design and implement operational poli-
essence, the strong political and financial commitment of its member coun- cies without political pressure. Member countries have always supported
tries, the maintenance of prudent financial policies (especially in times of the institution. Never in CAFs history has a member country defaulted on its
economic stress) and its policy of nonconditionality. Today, CAF is one of obligation, even during economic crises. With an ownership that is almost
the main sources of multilateral financing for infrastructure and energy in entirely Latin American (Portugal and Spain are minority shareholders due
the region, with approvals of more than $10billion at the end of 2011, or to their historical ties to the region), CAF has avoided the conflicts that have
some 30% of total multilateral lending for Latin America (compared with arisen in other multilateral institutions where donors and recipients aims
and $12.4billion for the Inter-American Development Bank and $13.9billion are not always aligned. In this regard, CAF is recognized as an institution run
for the World Bank; see Ocampo and Titelman 2012). CAFs countercyclical by and for Latin America, providing a useful example of pragmatic financial
role in times of economic turbulence in international markets and its support integration.

Chapter 5 Governance and partnerships for a new era | 115


multilateral disciplines that can be negotiated regional and global policies provide a context
only at the WTO. Most countries accept the for national policymaking. Countries and
necessity of a strong multilateral body to refer- regional and multilateral organizations must
ee the rules of world trade while knowing that come together and align national policies
regionalism is here to stay; one way forward is towards common international goals. In an
to gradually multilateralize regionalism.38 increasingly globalized and interconnected
world, this is a matter of enlightened self-
interest: decisions taken at the national level
Responsible sovereignty today can affect people in all countries for gen-
erations to come.
While most governments support the prin- If national leaders are unable to look beyond
ciples of multilateralism, they are also under- narrowly conceived immediate national inter-
standably concerned with preserving national ests, the potential gains from cooperation will
sovereignty. Overly strict adherence to the pri- be lost, and the costs of inaction will mount.
macy of national sovereignty can encourage National policies will undermine rather
cross-border rivalries and zero-sum thinking. than reinforce and complement each other.
Countries on their own are less able to defend Examples include public spending and stimu-
themselves from the contagion effects of finan- lus policies in the wake of the global financial
cial crises or the ill effects of global warming. crisis: coordination by central banks around
National action does not ensure that a coun- the world to lower interest rates in concert
trys citizens have access to global public goods. helped avert further deepening of the world-
Some governments are unable to sufficiently wide recession.
protect the human rights of their citizenry. A The South, due to its rising economic stat-
responsible sovereignty better strategy is responsible sovereigntythat ure and political influence, is an increasingly
takes the long-term is, taking the long-term interests of the world important partner in global decisionmaking.
interests of the world as a as a whole into account when formulating na- The rise of the South, accompanied by strong-
whole into account when tional policy. er cross-border links, makes decisionmaking
formulating national policy Most global public goods depend on the more interdependent than ever. The North
effective management of cross-border conse- and the South must find common ground for
quences and an adequate provision of national meaningful progress on todays pressing global
and regional public goods, and thus on national problems.
institutional capacity and a willingness to co- Responsible sovereignty also requires that
operate regionally and globally. Countries must states honour agreed universal human rights
take into account their respective international and obligations towards people residing in
responsibilities in providing public goods their territories and ensure their security and
and avoid undermining the collective welfare safety. The Responsibility to Protect initiative,
and the well-being of other countries, such as for example, is an attempt to develop a new
through pollution or other abuses of the global international security and human rights norm
or regional commons. Responsible sovereign- that can address the international communitys
ty includes taking steps towards collective failures to prevent and stop genocides, war
endeavourssuch as trade liberalization and crimes, ethnic cleansing and crimes against
climate change mitigationthat, if designed humanity. In this view, sovereignty is seen
effectively, could greatly enhance global collec- not just as a right, but also as a responsibility.
tive welfare. While a positive step towards establishing
In a highly interconnected world, effective guiding principles on global governance in
national decisionmaking cannot be carried out human security, the initiative lacks procedures
in isolation from regional and global policies. to ensure that the principles are upheld.39
National policies have regional and global There are no agreed thresholds of violations
consequences; examples include protectionist or atrocities that would automatically activate
national responses to international economic international interventions. This mismatch
downturns and the failure to regulate over between principles and procedures highlights
fishing and ocean pollution. At the same time, the importance of building capacities into

116 | Human Development Report 2013


international governance systems to hold gov- must reach $1.8$2.3trillion a year by 2020, or
ernments and political systems accountable to about 6%8% of GDP, compared with current
the people they represent. Without binding levels of $0.8$0.9trillion a year, or about 3%
mechanisms for holding states accountable to of GDP.41 One means of enabling and facilitat-
their citizens, the legitimacy of institutions ing such investments would be through a devel-
such as the United Nations Security Council opment bank for infrastructure and sustainable
is brought into question. But agreement on a development. That could bolster developing
principle of responsible and mutually support- country borrowing to finance economically
ive sovereignty will be forthcoming only if the productive infrastructure.
preconditions of global fairness and justice Because borrowers need to be concerned
aremet. about debt sustainability, efforts are required to
go beyond domestic government borrowing by
leveraging other forms of financial assistance. A
New institutions, new mechanisms new institution could crowd in the right type
of capital through guarantees and other instru-
The rise of the South presents opportunities ments.42 New institutions will be more effective The rise of the
for innovative new structures for development if they work in concert with existing regional Southpresents
partnerships and new approaches to devel- and global institutions, filling gaps in funding opportunities
opment policy, both globally and regionally. and investment. for innovative
The substantial foreign reserves accumulated Chapter 4 presented an accelerated progress newstructuresfor
by the leading economies of the South could scenario that set ambitious targets for raising development partnerships
be leveraged for development financing in less the Human Development Index (HDI) value and new approaches to
developed countries, for example. New mech- in all regions by 2050 through a series of pub- development policy, both
anismsfor aid, trade and technology exchange lic spending initiatives. This scenario assumes globally and regionally
within regions of the developing world can about 20% improvement in infrastructure by
usefully parallel and complement existing ar- 2050, universal access to electricity by 2030,
rangements. The countries of the South them- elimination of solid fuels as the primary
selves could take greater leadership roles in the source for heating and cooking in the home
global policy dialogue about the most urgent by 2030, renewable energy production 50%
international development needs and about the above the base case by 2050 and universal
most effective ways to meet these 21st century access to mobile telephone and broadband by
challenges. 2030. The largest projected increases in HDI
value under this scenario are in Sub-Saharan
Infrastructure development banks Africa (65%) and South Asia (47%; figure
5.1). Current average public investment in
The rise of the South is also creating new possi- Sub-Saharan Africa and South Asia is around
bilities for financing equitable and sustainable 7.7% of GDP.43
human development. Brazil, China, India, the Allocating a small fraction of the interna-
Russian Federation and South Africa, for ex- tional reserves of the nine G20 countries of
ample, have proposed a BRICS Development the South could provide substantial additional
Bank that would draw upon their considera- resources for public investment in infrastruc-
ble reserves to finance projects in developing ture in Sub-Saharan Africa and South Asia
countries. 40 Like the European Bank for (figure5.2). Depending on the share of reserves
Reconstruction and Development, such a bank allocated, public investment would rise 17.6%
could offer a range of instruments, including 52.8%. In fact, allocating just 3% of liquid in-
loans, equity and guarantees. In addition to ternational reserves of the nine G20 countries
financing productive projects, this flow of re- of the South would increase the share of public
sources would also assist with global financial investment in these countries 4.1%11.7% of
rebalancing. GDP, close to the average level of public invest-
An important use for such reserves would be ment for all developing countries.44
building infrastructure. To meet urgent needs, For reserve-holding countries and their sov-
infrastructure spending in developing countries ereign wealth funds, investing in developing

Chapter 5 Governance and partnerships for a new era | 117


Figure 5.1 countries is financially attractive, allowing
them to diversify while gaining higher profits
Under the accelerated progress scenario,
without added risks.45 Sovereign wealth funds
the largest projected increases in the Human
Development Index are in Sub-Saharan Africa and have long investment horizons and low risk
South Asia of redemption, enabling them to make long-
term investments. Since many give priority to
Arab States
28% social over private returns, they can also take
socially responsible positions. For example,
East Asia and the Pacific Norway has applied global sustainability
24%
criteria to its sovereign wealth fund invest-
Europe and Central Asia
18%
ments through the Norges Bank Investment
Management, committing to the UN Global
Latin America and the Caribbean Compact Norms and investing in initiatives
16%
to reduce deforestation in Guyana, Indonesia
South Asia and Tanzania.46 The governance challenge is
47%
to operationalize socially responsible invest-
Sub-Saharan Africa ment, define suitable benchmarks and pro-
65%
vide sovereign wealth funds easier access to
0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 investments with a high human development
HDI impact.47
Institutions from the South, ranging from
2010 2050 (projected)
the BRICS Bank to the Chiang Mai Initiative
Note: See chapter 4 for discussion of the accelerated progress scenario.
Multilateralization to the African Union,
Source: HDRO calculations based on Pardee Center for International Futures have considerable potential to influence
2013.
international governance. Collective action
requires a shared vision. The premise for this
Figure 5.2 vision cannot be taken for granted. The pro-
liferation of regional and other arrangements
Allocating a small fraction of the international
shows that governments recognize the bene-
reserves of the nine G20 countries of the South
could provide substantial additional resources for fits of, and have a commitment to, collective
public investment in infrastructure in Sub-Saharan development.
Africa and South Asia
A new South Commission?
Additional resources for public investment ($ billions)
140 52.8% rise
(4.1% of GDP) In 1987, leaders of the Non-Aligned Move-
ment established the South Commission to ex-
120
plore policy options and areas for cooperation
100 for the countries of the South. Its final report
35.2% rise
(2.7% of GDP) in 1990, The Challenge to the South, pro-
80 duced under the leadership of Julius Nyerere,
then-president of Tanzania, and the economist
60 Manmohan Singh, future prime minister of
17.6% rise
(1.4% of GDP) India, was a seminal and prescient analysis.48
40
It identified climate change as a priority and
20 underscored challenges that stubbornly persist
today, such as poverty, social exclusion and
0 the widening gap between rich and poor.49
1% 2% 3%
Equally important, the South Commission
Share of reserves allocated
looked closely at the then-emerging possibil-
Note: Numbers in parentheses are the increase in public investment as a share ities of greater SouthSouth cooperation in
of GDP.
Source: HDRO calculations based on World Bank (2012a). aid, trade and other aspects of international
policymaking.

118 | Human Development Report 2013


The world and the South have been countries of the South are now weighty players
thoroughly transformed over the past two on the global stage, with the financial resourc-
decades. The South of the 21st century is es and political clout to sway international
led by fast-growing economies with trillions decisionmaking.
of dollars of foreign exchange reserves and This was already evident during the early
trillions more to invest outside their bor- years of the 21st century, as China and other
ders. Businesses from the South number emerging economies accumulated vast re-
among the worlds largest. The possibilities serves, which they held as US Treasury bonds,
for collective action have never been greater; effectively propping up the US dollar. But the
however, agreement on this cannot be taken situation came into sharper relief after 2008,
for granted. The institutions for SouthSouth following the banking crisis and subsequent
cooperationthe Group of 77, the Non- economic shocks that pushed some of the rich-
Aligned Movement and South Summits er countries into recession and threatened the
were forged in the crucible of decolonization, survival of one of the worlds major currencies.
which created strong political, economic, so- Now the countries of the North are looking to
cial, and cultural bonds among the emerging those of the South to keep the global economy
countries of the developing world. That form- moving forward.
ative experience is increasingly distant from In practice, each group of countries needs
the current generation, and the commitment the other more than ever. The North needs the
to South solidarity common to their elders is most vigorous countries of the South to sus-
in many cases now giving way to the pursuit of tain demand for exported goods and services,
national interests. especially as a number of their own economies
The new realities of the 21st century require and societies are weakened by fierce austerity
a fresh look at these issues and at institutions programmes. The South needs the North not
led by the countries of the South themselves. only as a mature market, but also as a source of
A new South Commission, building on the innovation and complex technologies.
legacy of the first commission but reflecting the The rise of the South demonstrates that the
strengths and needs of the South today, could world has become more diffuse and cross-
provide a fresh vision, based on recognition of connected. One consequence is that rather rather than looking to
how the diversity of the South can be a force than looking to the North for inspiration, the North for inspiration,
for a new kind of solidarity, aimed at acceler- developing countries are looking to their peers developing countries are
ating human development progress for decades in the South for appropriate development looking to their peers in
to come. The economic links within the South models. Here, rather than seeing a sterile the South for appropriate
and the mutual benefits of cooperation are menu of ideological options, they can examine development models
likely to provide further incentives to establish what has worked, under what circumstanc-
such a body. es, and choose the most appropriate tools.
Chapter3 provided examples of programmes
and policies that have worked to improve hu-
Conclusions: partners in a new era man development in emerging economies of
the South, from investments in public health
The rise of the South has to some extent and education to conditional cash transfer
caught the world by surprise. The previous, programmes. Such examples can inspire sim-
if unspoken, assumption was that developing ilar policies in other countries, but with un-
countries would steadily approach the stand- derstandings of specific national conditions,
ards of human development in industrialized institutions and needs.
countries (convergence) but that the indus- This Report has summarized some of the
trialized countries would remain in a strong, most effective drivers of development: a pro-
leading position. In many respects, that is still active developmental state, the capacity to
the case: average HDI values are substantially tap into global markets and the promotion
lower in many countries of the South. What of social inclusion and broad-based human
has caught the world unawares, however, is that development. Within each of these there are
even at lower levels of human development, the multiple options but no universal solutions.

Chapter 5 Governance and partnerships for a new era | 119


What worked in one country might have stood be done, but they have gone only part of the
little chance in another. way. For the years ahead, this Report suggests
Nevertheless, the most successful coun- five broad conclusions.
tries have demonstrated that innovative and
sometimes counterintuitive options can work. Rising economic strength in the
Paying parents to take their children to health South must be matched by a full
clinics may seem unnecessary, but as the case commitment to human development
of Mexico illustrates, it can work to improve
childrens health; its conditional cash transfer Investments in human development are justi-
programmes have sparked interest around the fied not only on moral grounds, but also be-
world. Similarly, using a mobile phone for cause good health, education and social welfare
banking made eminent sense in Kenya and are key to success in a more competitive and dy-
the Philippines to people who had never had namic world economy. In particular, these in-
a personal bank account before and often lived vestments should target the poorconnecting
nowhere near a bank office. them to markets and increasing their livelihood
The countries of the South have thus been opportunities. Poverty is an injustice that can
using their own ideas and energy to create a and should be remedied by determined action.
new momentum for human development. In a There are sufficient global resources to achieve
complex global political, economic and social that goal, if they are directed towards that
environment, however, this dynamism may still purpose.
Good policymaking not yield sustainable outcomes. Already there Good policymaking also requires greater
requires greater focus are signs of rising inequality and frustrated focus on enhancing social capacities, not just
on enhancing social expectations that could lead to violent social individual capabilities. Individuals function
capacities, not just strife. And there are serious concerns that over- within social institutions that can limit or
individual capabilities exploitation of global resources combined with enhance their development potential. Policies
the effects of climate change could wreck the that change social norms that limited human
earth for future generations. potential, such as new legal strictures against
That is why this Report has also focused on early marriages or dowry requirements, can
what is needed to ensure that human develop- open up additional opportunities for individu-
ment proceeds in ways that are both productive als to reach their full potential.
and sustainable. This includes measures aimed As this Report highlights, one consequence
at enhancing equity, enabling voice and partic- of the rise of the South is that most countries
ipation, confronting environmental pressures now have growing policy and fiscal space to set
and managing demographic change. bold targetsto eliminate poverty, push for
Addressing these issues will demand con- full employment commitments and innovate
siderable skill and commitment from national towards low-carbon pathways. More countries
governments and civil society. As this chapter are unencumbered by conditionalities often at-
has argued, it will also demand much more tached to international aid and resource trans-
fruitful global cooperation as national gov- fers, and the recent rise in commodity prices
ernments, international organizations and a has reversed the long decline in terms of trade
nascent global civil society feel their way to- faced by many primary goods producers.50 This
wards new models of mutual understanding provides a cushion of resources that can be
and cooperation. Some of these will involve managed in ways that enhance national human
refashioning existing institutions to accom- development by governments committed to
modate a new global power balance. Others avoiding the resource curse.
may take any number of new institutional Projections presented in chapter 4 reinforce
forms. this point. They show that with strong com-
Through all this, the fundamental principles mitment to human development and prudent
of human development endure. As ever, the macroeconomic policies, it is possible to reduce
aim is to expand the choices and capabilities for poverty dramatically in Sub-Saharan Africaa
everyone, wherever they live. Many countries of region where baseline scenarios show a likely
the South have already demonstrated what can future increase in the number of poor people

120 | Human Development Report 2013


because population growth outpaces economic vehicles. Importantly, the sharp drop in the
growth. price of capital goods as a result of intense
global competition led by China and India
Less developed countries can learn could accelerate the creation of manufactur-
and benefit from the success of ing production capacities in many developing
emerging economies in the South countries. Such production can be adapted to
the income levels and tastes of local consum-
The unprecedented accumulation of finan- ers. This dynamic has the potential to provide
cial reserves and sovereign wealth funds in the poor access to consumer goods, while
the South ($6.8trillion) as well as the North innovators create jobs and develop producer
($3.3 trillion) provides an opportunity to capabilities.
accelerate broad-based progress. Even a small
portion of these funds dedicated to human de- New institutions and new partnerships
velopment and poverty eradication could have can facilitate regional integration
a large effect. As mentioned, public investment and SouthSouth relationships
in South Asia and Sub-Saharan Africa could
increase to 11.7% of GDP using just 3% of New institutions and partnerships can help
international reserves from some of the largest countries share knowledge, experiences and
economies in the South. technology.
At the same time, SouthSouth trade and In finance and aid, the South is already
investment flows can leverage foreign markets actively establishing regional governance insti-
in new ways, such as participating in regional tutions. Regional alternatives to the IMF, such
and global value chains to facilitate the spread as the Chiang Mai Initiative Multilateralization
of ideas and technologies. Burgeoning South and the Latin American Reserve Fund, have
South trade and investment in particular can freed up policy space for countries to pro-
lay the basis for shifting manufacturing capacity tect national priorities while also addressing
to other less developed regions and countries. balance-of-payments problems and short-term
Recent Chinese and Indian joint ventures and liquidity issues.
startup manufacturing investments in Africa The foundations exist for strong regional The foundations exist
serve as a prelude to a much expanded force institutions, but more can be done to accelerate for strong regional
that this potential represents. To harness the and deepen these relationships and ensure in- institutions, but more can
full extent of this potential, new and innovative clusiveness. As wealthy countries have curtailed be done to accelerate
institutions may be called for. International aid to address domestic issues, regional devel- and deepen these
production networks provide opportunities to opment banks and bilateral aid relationships relationships and
speed up the development process by allowing provide additional resources for development ensure inclusiveness
countries to leap-frog to more sophisticated projects. These new aid mechanisms also
production nodes while offering the double tend to emphasize pragmatism over ideology.
benefit of protection against the vagaries of Infrastructure development banks, for example,
foreign exchange fluctuations. offer new possibilities for development finance.
SouthSouth development cooperation and Brazil, China, India, the Russian Federation
technology transfer hold immense potential and South Africa have proposed a development
to support human development. Technology bank to mobilize their considerable reserves to
transfers from the North require costly adap- finance projects across developing countries.
tation due to differences in absorptive capacity, Building infrastructure would be an important
but technological transfers within the South use of such reserves.
are more likely to need little adaptation and Trade with other developing countries now
to involve more-appropriate technologies and accounts for a majority of merchandise and
products. Growing markets in developing manufactures exports from developing coun-
countries provide companies in the South an tries, and these exports are increasingly skill-
opportunity to mass market innovative and and technology-intensive. Stronger institutions
affordable versions of standard products, in- are now needed to facilitate these South
cluding food, clothing, appliances and motor South trade and investment links. Expanded

Chapter 5 Governance and partnerships for a new era | 121


SouthSouth trade and investment can reduce The rise of the South presents
vulnerability to economic downturns in the new opportunities for generating
North and provide opportunities to leverage a greater supply of public goods
foreign markets in new ways.
Regional trade and investment relationships A sustainable world requires both better gov-
can also be strengthened by streamlining tran- ernance and a greater availability of global
sit, transport and customs procedures; harmo- public goods. Global issues today are increasing
nizing regulatory schemes; investing in regional in number and urgency, from mitigation of
transport infrastructure; and lowering tariffs on climate change and international economic
SouthSouth trade in final products. Lowering and financial instability to the fight against ter-
such tariffs could yield collective gains of an rorism and nuclear proliferation. They require
estimated $59billion for the economies of the a global response. Yet in many areas, inter
South.51 national cooperation continues to be slow
A new South Commission for the early 21st and at times dangerously hesitant. The rise of
century could help bring a fresh vision of how the South presents new opportunities for pro-
the strength and diversity of the South can be viding global public goods more effectively and
a global force for development solidarity. The for unlocking todays many stalemated global
key elements are there: different endowments issues.
provide a basis for expanded exchange, diverse Publicness and privateness are in most
experiences are ripe for sharing, new cross-bor- cases not innate properties of a public good
der partnerships can compete in world markets but social constructs. As such, they represent a
and, above all, the recognition and implemen- policy choice. National governments can step
tation of win-win strategies can motivate new in when there is underprovision at the national
forms of SouthSouth cooperation. level, but when global challenges arise, interna-
tional cooperation is necessary and can happen
Greater representation for the South only by voluntary action of many governments.
and civil society can accelerate Given the many pressing challenges, progress in
progress on major globalchallenges determining what is public and what is private
will require strong, committed, personal and
The rise of the South is leading to a greater institutional leadership.
diversity of voice on the world stage. This
represents an opportunity to build governance ***
institutions that fully represent all constituen-
cies that would make productive use of this di- The rise of the South is fundamentally the
versity in finding solutions to world problems. story of the fast-paced transformation of the
New guiding principles for international developing world and its profound impact
organizations are needed that incorporate the on diverse facets of human development.
experience of the South. The G20 incorporates Global discussions of this phenomenon so far
their experience, but the countries of the South have focused almost exclusively on economic
also need more-equitable representation in growth in the biggest developing countries.
the Bretton Woods institutions, the United This Report uses a human development lens
Nations and other international bodies. to cast a wider net and show that the impacts
Active civil society and social movements, are widespread in terms of the large number of
both national and transnational, are using the developing countries involved and the inter-
media to amplify their calls for just and fair twining of ever-growing global challenges and
governance. The spread of movements and in- possibilitiesfrom environmental sustainabil-
a fair and less unequal creasing platforms for vocalizing key messages ity and equity to poverty eradication and the
world requires space for a and demands challenge governance institutions reform of global institutions. The changes are
multiplicity of voices and a to adapt more-democratic and more-inclusive occurring at unprecedented speed and scale,
system of publicdiscourse principles. More generally, a fair and less une- propelled by interaction with the wider world
qual world requires space for a multiplicity of through trade, travel and telecommunications
voices and a system of publicdiscourse. in ways that were not possible before.

122 | Human Development Report 2013


The fast-developing countries chose their The Souths progress is propelled by inter
own distinct development pathways. Yet they connections with developed countries and
share important characteristics, including increasingly with the developing world. In
effective leadership from governments, open fact, economic exchanges are expanding
engagement with the world economy and in- faster horizontallyon a SouthSouth
novative social policies addressing domestic hu- basisthan on the traditional NorthSouth
man development needs. They also face many axis. People are sharing ideas and experiences
of the same challenges, from social inequalities through new communications channels and
to environmental risks. And they have devel- seeking greater accountability from govern-
oped their own domestic policy approaches ments and international institutions alike. The
with increasing autonomy, for their own sov- South as a whole is driving global economic
ereign national reasons, without the strictures growth and societal change for the first time in
of enforced conditionality or imposed external centuries. The South still needs the North, but,
models. increasingly, the North also needs the South.

Chapter 5 Governance and partnerships for a new era | 123


Notes
Overview 7 In purchasing power parity terms, the 2 IMF 2011b. 13 HDRO calculations show that
standard GDP and GNI calculus in 3 Iley and Lewis (2011); see also IMF countries as disparate as China and
1 Atsmon and others 2012.
Human Development Reports. (2011b). the United States have benefited in
2 Samake and Yang 2011.
8 Japan is not included in the long-term 4 HDRO calculations based on data the long term from government invest-
3 The demographic dividend is
historical comparison between the on general government expen- ment in health and education (see
considered a window of opportunity
other Group of Seven economies and diture on social protection from chapter 3 for more details).
for additional economic growth when
Brazil, China and India because it the Organisation for Economic 14 Given by the ratio of GNI per capita
the proportion of the working-age
did not industrialize until late in the Co-operation and Development show for Seychelles ($22,615) and the
population increases. As fertility
19th century and did not emerge as a that some industrialized countries, Democratic Republic of Congo ($319).
levels fall in a demographic transi-
major world economic power until the including Australia, Austria, Denmark 15 HDRO calculations based on Burd-
tion, the number of children declines
second half of the 20th century. and Norway, increased expenditure Sharp and Lewis (2010).
while the working-age population
9 In current US dollars. on social protection between 2007 16 These disparities are of a similar
increases, lowering the dependency
10 Proportion of the population living and 2010. order of magnitude as the dispar-
ratio. A country can reap the benefits
on less than $1.25 a day (in 2005 5 For some countries confronting high ity between the HDI values of, say,
of increased productive capacity
purchasing power parity terms), ac- debt levels (such as Greece, Italy and Mexico (0.78) or Ecuador (0.72)
associated with the lower proportion
cording to World Bank (2012a). Japan), the subprime crisis spiralled on the one hand, and Nigeria,
of dependents. As fertility levels
11 Estimates refer to years between into a sovereign debt crisis, leaving Senegal or Mauritania (0.47), on the
continue to decline, however, depen-
2002 and 2011. little fiscal space to postpone fiscal other. Subnational HDI values are not
dency ratios eventually rise with the
12 The measures usedlife expectancy consolidation. Holland and Portes directly comparable with national
increase in retired workers.
and mean years of schoolinghave (2012) suggest that, while in normal HDI values because they consist of
upper bounds towards which develop- times fiscal consolidation would different indicators and are for differ-
Introduction ing countries tend to eventually lower debt to GDP ratios, under cur- ent years.
1 According to World Bank (2012a), converge. There is no upper threshold rent circumstances, in the European 17 These disparities are of a similar
the average GDP growth rate in of convergence for income. Union, it will likely lead to higher debt order of magnitude as the disparity
2009 for high-income members 13 HDRO calculations based on to GDP ratios in the region in 2013, between the HDI values of Belgium
of the Organisation for Economic Brookings Institution (2012). The with the exception of Ireland. (0.90), on the one hand, and Honduras
Co-operation and Development was middle class includes people earning 6 Guajardo, Leigh and Pescatori 2011. or Kiribati (0.63), on the other.
3.9%, compared with 7.5% in East or spending $10$100 a day in 2005 7 ILO 2012. 18 Based on a balanced panel com-
Asia and Pacific, 7.4% in South Asia, purchasing power parity terms. 8 Sen 2012. parison and data from World Bank
3.6% in the Middle East and North 14 Dobbs and others 2012. Ali and 9 Keynes 1937. (2012a).
Africa and 2.1% in Sub-Saharan Dadush (2012), using car ownership 10 ILO 2012. 19 Since income is a flow variable and
Africa. as a proxy for the middle class, sug- 11 Throughout the crisis, the solutions education and health outcomes are
2 According to Maddison (2010), GDP gest that there are up to 600million implemented (such as fiscal consoli- stock variables, sometimes a positive
per capita (in international dollars) people in the middle class in the dation and easy monetary policies) difference between GNI per capita
rose from $1,250 in 1700 to $2,330 in developing G20 countries, about 50% have been criticized for reaching their and HDI rank can emerge when a
1850 in the United Kingdom and from more than previous estimates by limits, for their secondary effects and country has built up its development
$1,257 in 1820 to $2,445 in 1870 in Milanovic and Yitzhaki (2002), who for their transitory nature. In some achievements but its income falls in
the United States. counted people earning $10$50 a countries, the solutions have caused the short term (as in Zimbabwe).
3 Atsmon and others 2012. day in purchasing power parity terms the economy to contract, and in 20 United Nations 2012a.
4 In addition to increased voting as belonging to the middle class. others, they have pushed short-term 21 World Bank 2012a.
shares and senior appointments at 15 UNDP 2009; World Bank 2010a. interest rates in key money markets 22 United Nations Enable 2012.
the International Monetary Fund and 16 UNCTAD 2010. close to zero. These policies run the 23 Sen 2007.
the World Bank, in recent years, the 17 Zuckerberg 2012. risk of creating new asset bubbles 24 Smith 1776.
South has held leadership positions at 18 Estevadeordal, Frantz and Taylor and exporting inflationary pressures 25 UNDP 2011a.
the International Labour Organization, (2003); the trade to GDP ratio is the to countries in the South. See Naqvi 26 Estimates refer to years between
the World Health Organization, sum of exports and imports of goods and Acharya (2012 , pp. 1112) for 2002 and 2011.
the World Trade Organization and and services divided by total output. more detail. 27 World Bank 2012b.
the World Intellectual Property 19 The current trade ratio is a five-year 12 IMF (2011b, p. 29) points out that 28 See, for example, Wilkinson and
Organization. average from 2006 to 2010, obtained emerging and developing economies Pickett (2009).
5 Chen and Ravallion (2012) using the from World Bank (2012a). account for about half of global out- 29 Inequality in the HDI components is
$1.25 a day poverty line. 20 Hamdani 2013. put and two-thirds of global growth in measured by the Atkinson inequal-
6 For example, in 1990, Ugandas HDI 21 Heilmann 2008. purchasing power parity (PPP) terms. ity index, which takes into account
(0.306) was comparable to that of 22 United Nations 2012a. Moreover, it argues that although the inequality in distribution within and
Benin, Central African Republic and 23 United Nations 2012a. share of emerging and developing across groups consistently. In addi-
Gambia. By 2012, Ugandas HDI had 24 Based on data between 2005 and countries consumption (measured as tion, it puts more weight on the lower
increased to 0.456, a substantial 2008 from Kharas, Makino and Jung consumption in constant US dollars, end of the distribution, thus account-
improvement compared with its (2011) and extrapolation thereafter. not as GDP in purchasing power parity ing for child mortality, illiteracy and
peers (and statistically significant terms) does not make up for the lower income poverty better than the Gini
at the 95% level). Benins increased Chapter 1 consumption contribution of advanced coefficient.
from 0.314 to 0.436, Central African economies on their own, it is large 30 OECD (2011b) shows that in the
1 This is in nominal terms. In purchas- enough to rebalance when combined context of Organisation for Economic
Republics from 0.312 to 0.352 and
ing power parity terms, the share is with US (or European) consumption. Co-operation and Development
Gambias from 0.323 to 0.439.
about 46%.

Notes | 125
countries, the provision of health 46 United Nations Secretary-Generals school; and in at least one instance, 10 The eight countries are Argentina,
care, education and acceptable living High Level Panel on Global although 70% of those entering the Brazil, China, India, Indonesia,
standards have important direct and Sustainability 2012. prison had a drug misuse problem, Mexico, South Africa and Turkey.
indirect redistributive effects, espe- 47 Global Footprint Network 2011. 80% of them had never received However, the least developed
cially among population groups at 48 The ecological footprint is a measure any drug treatment services (United countries saw only about an eightfold
high risk of poverty. Among a range of of humanitys demand on nature that Kingdom, Office of the Deputy Prime increase, from less than $20billion to
public services, health and education takes into account the quantity of Minister, Social Exclusion Unit 2002). $150billion.
contribute by far the most to reducing land and water area that a country 62 Pinker 2011; Center for Systemic 11 When service exports are added to
inequality. uses to provide all it takes from Peace 2012. merchandise exports, the difference
31 Anand and Segal 2008. nature, including areas used to 63 Branczik 2004. in export earnings per capita between
32 Sala-i-Martin 2006. He uses produce the resource it consumes, the 64 Dahal and others 2003. Sub-Saharan Africa and India narrows
population-weighted GDP per capita space for accommodating its buildings 65 Iyer 2009. from $221 to $130. Smaller countries
to calculate the mean of country- and roads, and the ecosystems for 66 Since a large number of participants tend to engage more in international
level distributions and obtains the absorbing its waste emissions such in internal conflicts are nonstate trade than larger ones such as India,
dispersion around each mean from as carbon dioxide (Global Footprint actors, there are no official records of whose intranational trade is high.
micro surveys. After estimating a Network 2011). their expenditure on armaments. Data Furthermore, African exports are
distribution of income for each coun- 49 Blanden and others (2005); Wilkinson on military expenditure refer to ex- dominated by commodities whose
try and year, he constructs the world and Pickett (2012). penditure by governments alone and prices increased in the 2000s.
distribution of income by integrating 50 UNDP 2010b. not expenditure by nonstate actors. 12 Based on 2011 nominal values
all country distributions. 51 Bourguignon, Ferreira and Menndez 67 Bird 1981. adjusted to be comparable to 1996
33 Milanovic 2009. 2007. 68 Green 2010. values.
34 Bourguignon and Morrisson 2002. 52 De Hoyos, Martinez de la Calle and 69 Justino 2008. 13 Removing fuel, metals and ores from
35 The Supreme Court in India recently Szkely 2009. 70 UNDP 1991, p. 37. aggregate trade statistics means that
upheld a government mandate that 53 Ivanov and others 2003; Ivanov and the share of SouthSouth trade in
private schools offer a quarter of their others 2006. Chapter 2 world trade rose from 6.3% in 1980
seats to underprivileged children, 54 UNDP 1994. to 26.1% in 2011 and that the share
a measure with the potential to 55 Rosenfeld, Messner and Baumer 1 Three-quarters of the 1.6billion of NorthNorth trade declined from
substantially dilute the economic (2001) hypothesized that civic people who are multidimensionally 50.6% in 1980 to 31.4% in 2011.
segregation in access to education. engagement and trust, core elements poor live in middle-income countries 14 The traditional classification of goods
36 Based on 78 countries for which the of social integration, are associ- of the South. as high or low technology has become
GII is available. ated with strong social organization 2 HDRO calculations based on UNSD less meaningful as trade in parts and
37 China (1.18), Azerbaijan (1.15), and therefore are indicators of low (2012). components has increased.
Armenia (1.14), Georgia (1.11), criminal violence. 3 Internet-related data are from World 15 Romero 2012.
Republic of Korea (1.10), Solomon 56 UNDP 2012. Bank (2012a); tourism data are from 16 AfDB and others 2011.
Islands (1.09), India (1.08), the former 57 Data refer to the most recent year UNWTO (2011). 17 Gupta and Wang 2012.
Yugoslav Republic of Macedonia available between 2005 and 2012. 4 Estevadeordal, Frantz and Taylor 2003. 18 Hook and Clark 2012.
(1.08), Montenegro (1.08), Papua New Homicide data suffer from reporting 5 World Bank (2012a). These ratios 19 Tourism-related statistics in this
Guinea (1.08), Samoa (1.08), Serbia errors in the Supplementary Homicide are based on gross values, not value paragraph draw on UNWTO (2011).
(1.08) and Suriname (1.08). Reports and inconsistency among added in exports and imports, for 20 Based on United Nations Conference
38 Dowry here refers to the payment of reporting systems at the country level, which globally comparable data are on Trade and Development data. Its
cash and gifts by a womans family among other problems. not yet available. The World Trade category of developing economies,
to her husbands family at the time 58 Sen 2007, p.106. Organization (WTO) has an ongoing which includes Hong Kong, China
of the wedding. Many countries 59 The average incidence of murder initiative, Made in the World, to (SAR), the Republic of Korea,
have dowry systems that involve is 2.7 per 100,000 people across measure and analyse trade in value Singapore and Taiwan Province of
small or moderate gifts, but in some all Indian cities and 2.9 in Delhi. In added. China but excludes Commonwealth
countries, such as India, exorbi- comparison, the incidence is 2.4 in 6 Based on a balanced panel of 127 of Independent States countries,
tant amounts can be extracted in London, 5.0 in New York, 8.8 in Los developing countries. Based on accounted for 5.3% of overall FDI
dowry from the brides family during Angeles, 21.5 in Johannesburg, 24.0 HDRO calculations, when the trade inflows in 19901991 and 8% in
marriages. in So Paulo and an astonishing 34.9 to output ratio is adjusted to cover 20092010.
39 For instance, the Dowry Prohibition in Rio de Janeiro. only trade with the South, 141 of 144 21 UNCTAD 2011b.
Act of 1961 makes giving or receiving 60 United Kingdom, Office of the Deputy economies (for which data are avail- 22 Furthermore, SouthSouth FDI is less
dowry illegal in India. However, the Prime Minister, Social Exclusion Unit able) increased trade with the South deterred by differences in institu-
practice continues, sporadically fuel- 2002. Many prisoners have been so- between 19901991 and 20102011 tional quality between host and
ling both female feticide and dowry cially excluded all their lives. Relative (the exceptions were the small receiving countries. By similar logic,
deaths of new brides. to the general population, prisoners economies of Dominica, the Maldives employment of local personnel and
40 Cleland 2002; Drze and Murthi 1999; are much more likely to have been in and Tuvalu); in contrast, 92 decreased lower overhead costs are likely to
Martin and Juarez 1995. state care as a child (13 times), to be trade with the North. make SouthSouth FDI more resilient
41 Elson 2002. unemployed (13 times), to have had a 7 World Bank (2008). Contrary to popu- to local crises. Because the motives
42 Fukuda-Parr 2003. family member convicted of a criminal lar perception, real prices of air and for investing and selecting sectors
43 As indicated in the 1994 Human offence (2.5 times) and to be HIV posi- maritime transport have not changed often differ, SouthSouth FDI does
Development Report (UNDP 1994), the tive (15 times). much since the 1970s, but the not necessarily displace NorthSouth
universalism of life claims advocates 61 Many prisoners were effectively decreasing weight to value ratio of FDI; it can even attract more of it
equality of opportunity, not equality of excluded from access to services. An international shipments and the grow- (Bera and Gupta 2009; Aleksynska and
incomethough in a civilized society estimated 50% of prisoners had no ing use of air transport have favoured Havrylchyk 2011).
a basic minimum income should be physician before coming into custody; time-sensitive goods such as fashion, 23 This figure is for 2010 and includes
guaranteed to everyone. prisoners are more than 20 times processed food and electronics. Hong Kong, China (SAR).
44 UNDP 1994, p. 18. more likely than the general popula- 8 HDRO calculations based on UNSD 24 The evidence in this paragraph draws
45 Rockstrm and others 2009, p. 32. tion to have been excluded from (2012). on Hamdani (2013).
9 World Bank 2012a.

126 | Human Development Report 2013


25 Blinder 2006. 47 Jenkins and Barbosa 2012. Bank, under their prevailing charters, method is completely satisfactory
26 UNIDO 2009. 48 ICTSD 2011. is empowered to modify their (Ranis and Stewart 2005).
27 UNDP 2009; World Bank 2010a. 49 Davies 2011. ownership structure in any substantial 3 Excluded from this list are all
28 These HDRO calculations are based 50 Brutigam 2009. way. The United States retains veto developed economies in 1990 as well
on the bilateral migration matrix in 51 Sonobe, Akoten and Otsuka 2009. power over changes in the capital as Hong Kong, China (SAR), Israel,
World Bank (2010a). 52 Brutigam 2009. base, which has narrowed the policy Singapore and countries from Central
29 Ratha and Shaw 2007. 53 United Nations 2012b. space in the two organizations. If, and Eastern Europe that have joined
30 As explained in World Bank (2006), 54 Moyo 2012. for example, the Asian Development the European Union. This gives a bal-
estimates of SouthSouth remittances 55 According to Hiemstra-van der Horst Bank were to be reconstructed as a anced panel of 96 countries between
depend on which explanatory variable (2011), China now accounts for a third fully Asian entity that retained the 1990 and 2012.
is used to apportion the aggregate of the world furniture market. flexibility to establish its own policy 4 The internal armed conflict also
remittance received by each country 56 Kaplinsky, Terheggen and Tijaja 2011. space, it would need to reconstitute meant that national statistics often
among the destination countries of 57 United Nations 2012b. its ownership structure by assigning excluded the northeast of the country.
its migrant nationals. The estimate 58 These points draw on Dobbs and much larger contributions and voting 5 UNDP 1993, 1996.
of SouthSouth remittances is higher others (2012); surveys found that rights to countries such as China, 6 UNDP 1996.
(30%) when flows are a function of positive product recommendations India and the Republic of Korea 7 Abe 2006.
migrant stock and lower (18%) when from friends and family were, for (Sobhan 2013). 8 For elaboration of the concepts of
they are a function of migrant stock example, three times as important for 73 Mwase and Yang 2012. ownership and capacity for develop-
plus average incomes of host and consumers in Egypt than in the United 74 Zuzana and Ndikumana forthcoming. ment, see Fukuda-Parr, Lopes and
sending countries. The upper limit of Kingdom or the United States. 75 Developing countries could gain an Malik (2002).
45% is obtained when Saudi Arabia is 59 HDRO calculations based on estimated $59billion from lowering 9 See Commission on Growth and
counted as a developing country. Brookings Institution (2012). SouthSouth tariffs to NorthSouth Development (2008).
31 See Felbermayr and Jung (2009) and 60 Dobbs and others 2012. levels (OECD 2010a). 10 For example, Rodrik (2004) empha-
other citations in Kugler and Rapoport 61 World Bank 2012a. 76 Grabel 2013. sized that no short list of evident
(2011). 62 In 2008, SouthSouth aid amounted 77 Grabel 2013. policy reforms can be applied to yield
32 Foley and Kerr 2011. to $15.3billionabout 10% of total 78 Opportunity costs capture the benefits growth in developing countries.
33 See The Economist (2011a) and works aid flows (UNDESA 2010). that can be obtained from alternative 11 Hausmann, Pritchett and Rodrik 2005.
cited therein. 63 Based on data for 2005 and 2008 in uses of these resources. See Rodrik 12 Serra and Stiglitz 2008.
34 HDRO calculation based on data Kharas, Makino and Jung (2011) and (2006) and IMF (2011b). 13 Hausmann, Rodrik and Velasco 2005.
for 144 countries from World Bank extrapolated for later years. 79 China has the fifth largest voting 14 Arrighi (2007) argues that self-
(2012a) and ITU (2012). 64 Kragelund 2013. share, but an agreement reached in regulating markets are not the means
35 socialbakers.com 2012. A more recent 65 United Nations 2012b. 2010 by the Board of Governors, if to development and that governments
update by Zuckerberg (2012) is that 66 Its wide-ranging technical assistance implemented, will make China the must play a leading role in organizing
there are now 1billion active monthly initiatives include, among others, third largest voteholder (IMF 2010). market exchange and divisions of
users of Facebook, with the largest broadband connectivity of African 80 World Bank 2010d. labour.
number of users located in Brazil, health and education institutions with 81 Hansen 2010. 15 A country is said to have comparative
India, Indonesia, Mexico and the centres in India and bringing some 82 UNDP 2009. advantage in an economic activity
UnitedStates. 1,600 young Africans to study in India 83 Leape 2012. if it can undertake that activity at a
36 The labour force consists of employed each year (United Nations2012b). 84 Romero and Broder 2012. lower opportunity cost than another
people and unemployed people 67 United Nations 2012b. 85 Keohane and Victor 2010. country can.
actively seeking employment. 68 The larger developing countries 86 Li 2010; Bradsher 2010. 16 See Harrison and Rodriguez-Clare
37 Fu 2008. have had long-standing, if modest, 87 REN21 2012. (2010) for single-industry, cross-in-
38 When the sample excludes developed development assistance programmes 88 See Jacob (2012); Chinese infra- dustry and cross-country evidence on
countries, the correlation coefficient to Africa. Indias Technical and structure companies in Africa are, for infant industry protection and other
remains statistically significant but Economic Cooperation Programme instance, boosting demand for heavy forms of industrial policy. Succeeding
drops from 0.66to 0.48. was launched in 1964. The Brazilian machinery and other capital imports. in world markets is just one criterion
39 See Whalley and Weisbrod (2011) for Cooperation Agency was established 89 Akyuz (2012) argues that large (Mill test) for justifying government
estimates of the contribution to an- in 1987. Chinas cooperation with countries need to change course. support. Such success can come at a
nual growth rates attributed to inward Africa has an even longer history, Developing countries benefited net welfare cost to the economy and
Chinese FDI in resource-rich countries though it is now formalized in the unusually in the 2000s from the fail the Bastable test, which re-
such as Angola, Democratic Republic Forum on ChinaAfrica Cooperation, unsustainable consumption patterns quires the discounted future benefits
of Congo, Niger, Nigeria, Sudan and established in 2000 (Kragelund 2013). in advanced economies; since the to compensate for short-term costs
Zambia. Average FDI inflow into these 69 Bremmer 2012. global financial crisis, developing of protection. According to Harrison
six countries nearly quadrupled from 70 World Bank 2010c. countries have relied more on domes- and Rodriguez-Clare (2010), more
$2.4billion in 19902000 to $9billion 71 According to United Nations (2012b), tic demand. instances of industrial policy satisfy
in 20012011, according to UNCTAD they were the Islamic Development the Mill test than the Bastable test.
(2011a). Bank, the Kuwait Fund for Arab Chapter 3 17 Rodrik 2012, p. 9.
40 Jones and Kierzkowski 2001. Economic Development, the Arab Fund 18 Chibber 1999.
41 Vos 2010. for Economic and Social Development, 1 Life expectancy, for example, had 19 Osmani 2005.
42 IMF 2011a. the Arab Bank for Economic nearly doubled from 35 years in 1949 20 Ranis and Stewart 2005.
43 Samake and Yang 2011. Development in Africa, the Saudi Fund to 67.9 in 1981 (UNDP 2008). 21 India Ministry of Finance 2012.
2 One caveat is that the identification
44 Whalley and Weisbrod 2011. for Development and the Abu Dhabi 22 Rodrik 2005.
45 Hazard and others 2009; Kamau, Fund for Development. of rapid improvers on the HDI through 23 See Das (2000) and DeLong (2004).
McCormick and Pinaud 2009; 72 These regional institutions have this method is biased towards coun- 24 UNCTAD 2003.
Kaplinsky 2008. tended to draw their policy inspiration tries with high HDI values. But iden- 25 Done 2011. Between 1996 and 2005
46 See Kamau, McCormick and Pinaud from the Bretton Woods institutions. tifying rapid improvers by calculating Embraer delivered 710 regional jets
(2009) for the Kenyan case; Kaplinsky Neither the Asian Development Bank simple percentage improvement on around the world (Baer 2008).
and Morris (2009). nor the Inter-American Development the HDI provides a bias towards coun- 26 Pasha and Palanivel 2004.