It is a great pleasure to be here for the launch of the 2005 Human Development Report (HDR). In this my third week at UNDP, where the month of September is of course going to be full of events, one of the real highlights for us is the launch of the Human Development Report. As you know, the human development tradition and the tradition of the Human Development Reports is a very important one in UNDP and the UN family, something that has really caught the public imagination and has had a tremendous influence on the development debate worldwide since the 1990s and in the beginning of the 21st Century. The late Pakistani economist Mahbub ul Haq was the principal architect and advocate of the concept. But backing him were many other development thinkers and practioners, including Nobel Prize winning economist Amartya Sen, one of the leaders and intellectual powers in addressing the notion of human development and empowerment as a fundamental dimension of development
The Millennium Development Goals as a framework for human development
Why is it that this has so much caught the imagination of people? Why is it that the Millennium Development Goals – eight goals which range from halving extreme poverty to halting the spread of HIV/AIDS and providing universal primary education, all by the target date of 2015 - have succeeded where other types of frameworks and paradigms have not? While I am not saying that we have yet succeeded in reaching the Millennium Development Goals, I think the Millennium Development Goals as a framework, as a set of targets, as something that it is worth working for, has been a very successful framework. I think the reason is that the MDGs make development concrete. It really deals with very concrete indicators of the well being of people. If we had advanced this campaign asking the world to support a five percent per capita income growth, I don't think it would have worked. Of course, income growth is necessary. Without income growth, we cannot reach many of these goals, but it is not an end in and of itself. The real objective is the lives of people; it's the survival of children, the survival of mothers; the empowerment of people, of women and so on. I think this is why this framework has been powerful, and I think why we need to own it, and we need to continue pressing ahead of it. It helps us a great deal in influencing the development debate; and I think in the end the most important thing, is that it will help us all to help the people we are trying to work with and for.
2005 Human Development Report
This year’s report was timed to coincide with the 2005 World Summit. It comes both as a warning, a serious warning and wake up call that we are not on track to meet the Millennium Development Goals if we continue the way we have done since the year 2000 when the Millennium Declaration was agreed. If there is not a greater sense of urgency, we will simply not succeed. I think this is one of the basic overriding messages of the report. We need to do more, we have to have a greater sense of urgency, we have to push ahead.
On the other hand, the report also has quite a bit of data and analysis that shows that progress is in fact possible and has actually been taking place. It is not a hopeless situation. So, the other side of the message is one of optimism, is one of “we can do it” and I think this is very important.
Two dramatic numbers which I think we all always need to remind ourselves of in moments when we become discouraged, is the fact that in the last four decades life expectancy in developing countries has increased by 20 years. That's a huge achievement. People live on average 20 years longer. And adult illiteracy has been halved. So, there are some numbers which I think we have to keep remembering. Progress is possible.
Aid, trade and security
Turning to some of the immediate challenges, the report focuses on three pillars that the international community has to address if we want to win this struggle against extreme poverty. The first has to do with the resources allocated to development, where a big chunk of the report that deals with this critical issue. The second area is trade, and I think the report underlines the tremendous potential that free and fair trade rules and a development-oriented trade framework can actually achieve. In many ways it is probably more important than aid; what can be achieved by more development-oriented trade rules is at least as important if not more important than the aid amounts. And then finally the third area which the report focuses on is security, and of course we unfortunately seen great problems here. We have seen that countries that otherwise progress can lapse back and lose decades of progress because of internal governance failures, civil wars and violent conflict. And, let me say, this is not just an African phenomenon. Of course, it is unfortunately quite prevalent in Africa, but it has been the case elsewhere and even at the heart of Europe. Remember, war in Yugoslavia. Yugoslavia was a country that was supposed to be one of the more advanced Eastern European countries, with a better economic performance, more freedom, better governance and then, all of a sudden, the civil war in essence put Yugoslavia back two decades. So, that’s the third pillar that we somehow need to have the international mechanisms to help prevent state failure and to help countries recover from conflict.
I think these three pillars are the right ones. They are the most important things I mentioned of this war on poverty. The report goes into some great detail into each one of these areas. There are many and a lot of analysis, and a lot of warnings that we need to take some very firm steps on.
I. Resources for development
Now, let me say a few words on each of these areas. On resources, the issue of aid, is in some ways the most controversial to be quite frank. There is a great debate on this issue of how important aid is for human development and for growth. There are those who say look at the past, look at the last three or four decades, look at the billions of dollars that were spent, that were mobilized and at the limited results. I think that when we look at that record, we indeed see lots of failures. But we also see some successes, very important successes, not least starting with the Marshall Plan, which helped rebuild Europe after the Second World War.
I would like to make three points here, and I think I speak for the authors of the report, where Kevin Watkins and others here on the panel, will elaborate on. Nobody is arguing that resources spent without the necessary institutional framework, without the correct policy accompanying resources, without governance reforms in the developing countries, can work. This is not the message. The message is we need the resources, but the other side of the bargain is that there has to be the reforms, the efforts, the governance progress in developing countries; the kinds of things the minister is doing in Nigeria. These kinds of domestic reforms have to be there on the other side of the bargain. So, I think that should be clear and there should be no doubt on that.
The second point I would like to make is that we have to remember when you analyze past data, one always has to be careful about structural changes. In econometrics it is well known if the structure shifts your past time series do not provide a good guide for what can be achieved in the future. Now, in the past the whole development assistance effort suffered from very serious structural weaknesses. Perhaps the most important one is that there was on the whole - not always, not everywhere - but on the whole a great deal of politicization of aid. Aid was primarily offered to political and military allies. Even by the international institutions, they were under pressure to channel resources to allies. Both sides did it, the East and the West, and aid was not therefore really focused single-mindedly on development. I think that with the end of the Cold War and with the current global context, we have a much better chance as an international community to come together and to say, we are doing development assistance, we are providing ODA resources for development and not for military or strategic competition. So, it is a very important shift, and therefore some of the analyses of past data I don't think are relevant for the future.
One also has to be careful in the analysis. For example, disaster relief is of course extremely important and necessary. However, if one correlates disaster relief with growth and long-term development, it is not a surprise that you will not find a positive correlation between the two. Disaster relief means there has been a disaster and aid is trying to correct that disaster, be it after an earthquake or a flood or so on. So, if you think that the aid there will have increased the welfare of that country, obviously you would have to do the counter factual experiment of not having had the disaster. The same is true for post conflict situations. So, when one does the analysis it is important to focus on that part of aid which actually is supposed to have a positive impact on human development and growth, not aid that tries to compensate for disasters that happened. Many of the analyses on aid effectiveness do not do this.
Finally, a third point which I think is also very important is cooperation between donors - harmonization and the need to really work together in a much more effective way. Not to duplicate efforts, not to overburden small and often poor small countries with a multiplicity of missions and donor activities. Of course, every donor, even a small country, needs to fly its flag in a way and be recognized for its development efforts. We are of course extremely grateful, particularly at UNDP, for the efforts of the smaller rich countries that are often leading the development effort, but when we work in the field, when we work on operational programmes, we really need to make sure that we coordinate, and this is true within the UN system as well. We cannot have 36 missions visiting a capital in a small African country within a week, which are things that happen. And so I think here, too, we have to get our act together to achieve much better results.
So, I do believe that if we correct these aspects of the analysis, much better results can be achieved and a lot of the pessimism about foreign assistance and ODA is really not warranted.
A brief word on what is actually happening. Lots of promises have been made so far, but there has been very little actual increase in real resource flows devoted to human development. For example, debt relief is extremely important and very welcome, but when you count the stock reduction in debt as if it was an actual resource flow at that moment, obviously this is not correct. You may have to do this because of budgeting laws in the donor countries and, of course, stock reduction of debt is important, but it does not mean that the stock reduction will immediately lead to an actual flow of resources to the recipient country. So, we have to be very careful in how we account for these numbers.
And then for a whole group of countries, there are unfortunate countervailing events. For net oil importers, for example, the rise in the oil prices is a real problem. And if one adjusts for that, you will see that the net resource flows for that group of countries has in fact diminished, rather than increased. Oil exporters, of course, are benefiting from it. So, again, we have to be careful how we measure these things. Really, the increase in ODA that is hoped for in the report is ahead of us. We have not really started yet. So, whether it will generate results or not we will see, but we can't use the last few years to judge that.
II. Peace, security and long-term development
Now, in terms of the security in the area of post conflict recovery, I think here the big challenge is to be able to do humanitarian work which is needed in the immediate post conflict phase, while at the same time putting in place the incentives for long-term economic recovery. We have quite a challenge ahead of us in really analyzing the economics of post conflict recovery and putting in place mechanisms and incentives that won't create a dependency but that really stimulates production and recovery in a medium-term framework. We have not been very successful at that and this is a major challenge. But I think we know what the problem is, and we need to coordinate within the UN system, for example, with the humanitarian side of the UN, which is very important, and the more development and economics side, which is in the UN Development Group.
A word on legitimacy. Conflict and post conflict situations unfortunately require intervention. We have had situations where we did not intervene fast enough. It is very, very important that the way these interventions are determined, the way it is arrived at has legitimacy, has buy in and is really designed to fix the problem. And here the UN does of course face a big challenge. While I don't want to get into the whole debate on Security Council reform - it is not really UNDP's job to get into the debate - but, the old way of doing things, the veto rights, the under representation of developing countries, the structure that really reflects the world of 1945, is not really what will allow us to have a mechanism here that is considered fully legitimate and effective. So, I think on the conflict side, development practioners and economists can do a lot, but it is often limited by the political process and the political architecture that can slow rapid and effective intervention.
III. Pro-poor trade
Moving to trade. Again, here there has been a lot of talk so far but very little action. Pascal Lamy, who is an extremely competent leader, who knows the trade issues perhaps better than anybody else, has just taken over as head of the World Trade Organization. He is full of energy, and full of determination to help the process. As the head of the World Trade Organization, this is of course a facilitator role, not a position in which one can make decisions on behalf of the US, or Europe - or for that matter the developing countries - but I think he will play a very dynamic facilitating role and I very much hope we can work very close together.
You will be aware of the numbers: you know the massive subsides that the rich countries still provide to agriculture and to some of their industries. When I was Minister of Economic Affairs in Turkey and then when I was trying to get elected to the Turkish Parliament, during my campaign I visited Turkish cotton farmers. They are very competitive, as are African cotton farmers. But there's no way they can compete with the massive subsidies in rich countries. To somehow then ask the Turkish or the Nigerian finance minister to put equal amounts of subsidies in their budgets to countervail the subsides given by the rich countries is just not feasible. So, I lived this very practically in my own life in my own country. A much fairer system of trade is absolutely needed, and rich countries cannot talk with two voices. When it suits them, they are for free trade and open markets and free rules, and when it doesn't suit then all of a sudden they become hyper protectionists. It's not credible and it upsets people and it does harm to the whole global trading framework. So, I think a much greater degree of sincerity is needed, and a much greater degree of real openness is needed. One cannot be a free trader only in name and then whenever it suits your interests you become a protectionist.
One word here on adjustment costs. As the report shows, and as many other analyses have showed, everybody can indeed in the long run gain from freer trade and from the expansion of trade, but that doesn't mean that everybody actually wins. There are winners and losers. There are those who win from changes and there are those who lose - in developing and rich countries alike. Therefore if we want to move ahead of trade, first of all we have to allow capacity building, soft and hard capacity building in poorer countries so that they can take full advantage of the trade potential. But I would add one thing that isn't perhaps emphasized enough, and that is inside developed countries, there are also losers. While living standards and of course the general level of income and wealth is much higher than there than in poor countries, I do not think we should ignore those who suffer in rich countries in this global debate. They also need adjustment help. They also perhaps need some job retraining or a public policy framework which helps then adjust. If that isn't there, they will try to block change and everybody will suffer. So, in this whole debate on human development and trade, I think we have to remember that even in the rich countries there are pockets of poverty, there are adjustment problems and that therefore some attention to that is also required, otherwise, you will get rejection phenomenon, protectionist phenomenon, and you will get political positions which will block change.
This brings me to a wider and perhaps somewhat philosophical point, and it's not an original point, Professor Danny Roderick of Harvard, for example, has often stressed this; that globalization, more open markets, greater trade, greater international interdependence actually require, very often, more government activity, more government expenditures to deal with the adjustment problems and with the transition problems that are created by globalization. Greater openness may need greater attention by governments to the transition problems created by that openness. It's a point I want to emphasize.
The role of the private sector in development
Before I finish, let me make two more points. One has to do with private sector and private activity. This year’s HDR is focused on the three pillars of aid, trade and security. It is focused as I said at the outset, squarely on what rich countries need to do within the framework of the global partnership for development. It is a message to rich countries within an overall analytical framework. I think we all understand and we have all learned that to achieve sustainable growth private entrepreneurial activity is essential. From the very small firms to bigger companies, the private entrepreneurial drive in developing countries, as well as in developed economies, is the driver of global growth. So, I don't think that the stress on public policy and the stress on what governments need to do, and the stress even in a sense on politics, should be seen as in any way minimizing or neglecting the role of the private sector. And by private sector I mean all private activity, all private entrepreneurial activity big and small. It is very important that we support an environment where private entrepreneurship can flourish. And indeed, the kinds of things we're talking about – governance, debt and trade rules, security, the rule of law, protection of human rights for everyone - these are all things that the private sector needs for its development and for its growth.
The final point I would like to make, to come back in a sense to where I began -- and I'm sure Kevin and others will say something about it - is can we do it? Can we achieve it? If we look at the MDGs, one by one as individual goals, some of them are very tough. I mean it's going to be tough to have universal primary education by 2015 for everyone. I think we realize that. But when we look at the actual resources that it will take, and when we look at what some countries have been able to achieve, I think the overall message quite seriously and, coming from an economist, is that yes we can make it in the sense that we can get very, very close. We may miss one target somewhere by a certain little amount, but when we analyze it carefully and when we look at the resource needs, as well as the technology and the knowledge we have, I think the message is we can make it.
The real obstacle is not economic, not financial and not technical. The real obstacle - and this is of course often the case - is the institutional obstacle, the human institutional obstacle. And by that I mean both institutions in developing countries, where there has to be tremendous progress there - and global institutions, the worldwide cooperation architecture, with of course the UN playing a very important role. The big challenge is here. When you carefully look at the resources that are really needed and compare it to what is spent on military expenditure or on other things, and when you look at what has been achieved historically in some countries: yes we can meet the Millennium Development Goals.