Development as transformation

The evolution of the structure of an economy towards higher value-added sectors and work has been an early and continuing focus of the economics of development, lost for some decades, but now back as central.

When the second chair of the DAC, Willard Thorp, took office in 1963, bringing with him wide immersion in international debates on development strategies, he could say that both the less developed countries and the donor countries had come to recognise that we were dealing with an economic

22 Although it might have done. A nascent DAC chief economists’ group is just now emerging in the context of the COVID-19 crisis.

and social process of extraordinary complexity (OECD/DAC, 1985). In those early years, the DAC did engage in some wide-ranging discussions on development strategies. And always in the background was the alternative socialist path to industrialisation, with a number of developing countries moving along that path. Agriculture was a subject visited and revisited; and food, education and eventually population were on the agenda. In 1967, a DAC expert group studied the possibilities and limitations of quantitative models as an aid to development assistance policy. By 1973, the DAC compiled a “Performance Compendium” that classified the essential elements for development success, laying the basis for the “policy dialogue”

as it became known (OECD/DAC, 1973).

Meanwhile, at the Development Centre, a comparative study of seven developing countries led by Ian Little as research vice president, was assembled into a 1970 OECD volume published by Oxford University Press under the title “Industry and Trade in Some Developing Countries”

(Little, Scitovsky, & Scott, 1970), to become at one point the most quoted book in the development literature (Little, 2002). Its finding that market-driven export-oriented economic policies were the optimal path to successful development was indeed to become a dominating idea in the development debate. Combined with the impressive growth in OECD countries of some 5 per cent per annum through to the early 1970s, it seemed that market-oriented strategies would do the development job. For a long time the DAC hewed essentially to this line and largely abandoned its sectoral work, to focus essentially on good practices in the aid business, with the development debate moving elsewhere, to the World Bank and the North-South dialogue in the UN, with the OECD contribution there largely in the form of “policy coherence”, that is, the responsibilities of OECD countries to establish and maintain open markets and macroeconomic stability (see Chapter 15).

Ironically, it was indeed the huge open market of the US, supercharged by an (incoherent) falling savings rate and the coevolution of the “Walmart”

economy, based on low-cost labour in East Asia and low-cost logistics in the form of container shipping and computer-enabled linear programming, that provided the demand side of this economic model. On the supply side, it was Japan with the close interaction between its aid programme and Japanese global companies developing Asian supply chains through investment and infrastructure that helped Asian companies to meet US demand. This happened even before China’s investment and export-based model, in line with the Little, Scitovsky, & Scott (LSS) prescriptions but underpinned by

a “facilitating state”, emerged onto the scene (Lin, 2012).²³ In fact, Japan, South Korea and Taiwan had already traced this path, which in turn can be traced back to Robert Walpole, Alexander Hamilton, Friedrich List, and Germany’s latecomer industrialisation under Otto von Bismarck.

Since then, the whole global economy has been transformed, based on this

“Hamiltonian” activist state model (Xu & Carey, 2015a), the unspoken reality underlying the lean government agenda and the Washington Consensus, (now surpassed by a New Washington Consensus featuring an activist State, in both developed and developing countries) (Sandbu, 2021).

Ironically too, in the DAC, Japan came under a prolonged shadow for integrating its aid programming with Japanese private sector capabilities (seen as Japanese commercial interests) (Kato, Page et al., 2016). Now private sector involvement in aid programming is actively sought, although that frontier remains in dispute in the DAC. It is nevertheless hardly possible to think that the model on which the global economy now rests would have been possible without an activist state in Japan. It turns out that the LSS model born in the OECD Development Centre in the late 1960s, depends upon a developmental state. Even Singapore and Hong Kong have been activist states in this sense, with strategic investments in higher education and infrastructure, and services to investors and export platforms of various kinds.

Thus, the two DAC members who regularly found themselves at the bottom of policy coherence scorekeeping reports, the US and Japan, clearly contributed most to the supply chain-based global economy of today that broke the prison of colonial trade and production patterns and provided escape routes for the Asian economies and others. Hence transformation came back into the development agenda and into the domestic agendas of OECD countries as adjustment consequences, too long neglected, became a political agenda item (Wood A., 1994; Alden, 2016).

In the DAC, the major activist programme in this sphere has been in the field of aid for trade. The 2001 “DAC Guidelines on Strengthening Trade Capacity for Development” (OECD/DAC, 2001) were published, the fruit of close collaboration with DFID and other interested DAC members. Already at the 2000 Doha WTO trade ministers’ meeting, this author had worked with Cheidu Osakwe of the WTO secretariat in his basement quarters at

23 China’s emergence was also guided by IMF and World Bank advice (Bottelier, 2006).

the Sheraton Hotel to craft an entry on trade capacity building (paragraph 39) in the ministerial declaration that called for working with the DAC to coordinate on technical cooperation (WTO, 2001). The DAC task force, with the WTO and with World Bank participation, went on to be part of a group pushing forward the trade capacity agenda in Geneva and capitals.

At the Hong Kong WTO ministerial meeting in 2005, this group, with the UK and Canada and others prominent, managed to have a paragraph on trade capacity inserted into the Declaration and thus to make it even more of a work programme at the WTO and in the OECD. In 2005 also, a WTO-OECD programme of biennial Aid for Trade Forums was inaugurated, with Valentine Rugwabiza, then a WTO deputy director-general, as the WTO focal point. These forums have continued to this day, chaired jointly by the Director General of the WTO and the Secretary-General of the OECD.²⁴ An associated publication, “Aid for Trade at a Glance” has been a go-to point for sharing case studies (OECD/WTO, 2019).

On another critical transformation front, the DAC gave much attention to agriculture in its earlier years. The green revolution had a major impact on development thinking, including in the DAC. But agriculture too suffered a period of neglect as the DAC decided, in line with the LSS thinking and the original DAG principle, that the DAC should not get involved at the operational level. The year 1991 saw one of the biggest “boardroom”

dramas of the DAC. A proposal from the highly effective and respected DAC chair, Joseph Wheeler, that African agriculture, suffering from endemic low productivity, be included in the DAC programme of work as an emergency issue, was decisively rejected by the DAC members. Wheeler left the DAC shortly after, when his term ended, obviously affected by this failure. What was not evident at the time was the disarray, notably at the World Bank, on whether to treat agriculture as a production problem or as a rural development issue. Could a DAC work programme at that point have assisted in achieving some way forward on the African agricultural frontier, still there today?²⁵

24 The World Bank, an early partner, dropped out on the grounds that the agenda and statistical coverage, extended to capture value chain activities, had become too wide.

25 See also (Michailof, 2018) where the terrorist crisis in the Sahel is seen as a product of wrong policy choices and inaction in the agriculture-rural development nexus, as well as blowback from Afghanistan.