Development with Alternative Strategic Options
A Japanese View on the Poverty Reduction Drive and Beyond ∗Kenichi Ohno
National Graduate Institute for Policy Studies (GRIPS)
2-2 Wakamatsu-cho, Shinjuku-ku, Tokyo 162-8677
kohno@grips.ac.jp
May 20, 2002
(revised)

Development must be achieved on cumulative efforts, not impulsive shifts. The
recent global passion for cutting poverty may have gone to extremes. Poverty must
be reduced, but in a way that permits pursuing other development goals andstrategies reflecting the diversity of poor countries. To supplement the current
pro-poor policies, Japan proposes an alternative, more dynamic concept ofdevelopment assistance for the purpose of helping latecomer countries to be
integrated in the world economy as active trading partners. It is up to eachdeveloping country, and not donors, to decide whether the ultimate national goal ispoverty reduction, industrial dynamism, or otherwise. Japan hopes to continue to
use ODA for supporting global causes as well as East Asia’s dynamism. Japan is
also prepared to transfer East Asian experience to other developing areas wheresuch aspiration is embraced and conditions are right.

∗

Prepared as a background paper for the OECD Forum, Paris, May 13-15, 2002. The author
has benefited greatly from the inputs of a large number of Japanese officials and scholars
participating in the ongoing discussions for reshaping Japan’s development cooperation policy.
While this paper reports an emerging consensus among them as the author sees it, it is not an
official statement. All responsibility for its contents rests with the author alone.
11. Strategic convergence on poverty reduction
Despite intense effort in the last half century, development remains an unresolved
problem. Some countries have succeeded brilliantly in catching up with the forerunners,
but too many others continue to be trapped in social and economic stagnation. Many
strategies were tried to lift them out of poverty, from socialist planning to laissez-faireand from health and educational support to building roads and power plants. But theworld has not yet found a single cure that works in all cases. Maybe there is no suchpanacea in the first place.
But the international economic organizations are constantly in search of one miracle
solution. The World Bank’s policy focus has shifted from infrastructure and industrial
projects in the 1960s to basic human needs in the 1970s, “structural adjustment” in the
1980s, and privatization and institution building in the 1990s.1 A few years ago, its policy
again shifted dramatically to an exclusive attention to poverty reduction. Certainly,
poverty is a very legitimate concern in development. Furthermore, adjusting policies tochanging reality is not only desirable but necessary. But the transformation of what theWorld Bank considers the key policy ingredient is a bit too fast and too radical; wisdom of
the past should not be thrown out so quickly when the Bank staff stampede to a new
development credo (especially after the inauguration of a new Bank president).
By now, poverty reduction has captured the hearts of aid officials around the globe,
making it synonymous with the entire development process. In 1999, World Bank
President James Wolfensohn launched a new initiative called the comprehensive
development framework (CDF) and poverty reduction strategy paper (PRSP). Of these,
CDF provides the basic ideas and procedure for policy formulation stressing ownership(i.e., leadership) of the developing country and partnership among various development
actors. On the other hand, PRSP is a document that concretizes targets and needed
actions and allocates them among actors. Initially, only a small number of poor countries
asking for debt reduction were supposed to prepare PRSPs. But the scope of PRSP was
subsequently enlarged, and all poor countries are now required to engage in this process.
Once agreed, PRSP becomes an overarching framework for budgeting, prioritizing,project selection, evaluation, and donor coordination for that country. This situation
reminds us of “structural adjustment” reforms universally applied to countries withWorld Bank economist Easterly also critically reviews the shifting ideas in development in
the last half century (William Easterly, The Elusive Quest for Growth, MIT Press, 2001).

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balance-of-payments difficulties in the 1980s.
Furthermore, the United Nations Group has linked up with the World Bank in fighting
poverty. The UN Millennium Summit in 2000 adopted the Millennium Development
Goals (MDGs) that called for concrete social achievements by 2015, including halving theratio of people in extreme poverty. The World Bank’s PRSP is going to be used as the
instrument to achieve these goals. The Bank economists estimate that this would require$40-$60 billion in additional external assistance per year, implying roughly doubling thecurrent global ODA.2
In the current global excitement over MDGs, the EU and US are to bolster their aid
spending to levels unthinkable from their past stinginess. The EU has promised toincrease ODA to 0.39 percent of GNP (amounting to an additional $7 billion or so peryear) while the US has declared to add $5 billion annually during the next three years forthe benefit of poor countries with “good practice.” There seem to be two reasons for theoutburst of goodwill particularly in 2002. The first is the newly found nexus between
terrorism and poverty after the September 11 attack, making some countries moregenerous. The second is a series of international conferences in 2002 that featuredevelopment.3 With so many opportunities for publicity, it is natural that national andinternational bureaucracies strive for greatest visibility.
The renewed global interest in development is welcome, but we have some worries. We
are not worried too much about the fact that even the superb generosity of the EU and US
will fall short of the required ODA targets calculated by the World Bank. Nor do welament exceedingly that Japan, the top donor until 2000, is unable to participate
quantitatively in this humanitarian effort due to its fiscal crisis. Our concern is over the

For the contents and costing of MDGs, see S. Devarajan, M.J. Miller and E.V. Swanson,“Goals for Development: History, Prospects and Costs,” World Bank Discussion Paper no.2819,
April 2002; and “The Costs of Attaining the Millenium Development Goals,” World Bank
pamphlet at Monterrey, Mexico, March 18-22, 2002. However, it is puzzling that all additional
funding for growth or poverty reduction is assumed to come from ODA, not from private ordomestic sources. If policies are improved (as the authors assume), even poor countries shouldbe able to mobilize these sources. To deny this is to underestimate their potentiality as well as
to contradict many of the World Bank’s own programs for private sector development andfinancial sector reform.
3 These include the World Economic (Davos) Forum in New York (January-February),
UN-hosted International Conference on Financing for Development in Monterrey, Mexico(March), OECD Ministerial Summit in Paris (May), G8 Summit in Kananaskis, Canada(June), and the World Summit on Sustainable Development in Johannesburg, South Africa(August-September), in addition to the regular World Bank-IMF annual and development
committee meetings.
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strategic soundness of poverty reduction rather than its finances. With all enthusiasm
and determination, the global drive to cut poverty may go off track if the sense of balanceand continuity is lost. Poverty has always been a tough problem in human society. We are
now confronting the toughest part of it, extreme poverty in the poorest countries, whichpast efforts failed to eliminate. To succeed, cool heads, not just religious fervor or herd
instinct, should be in the driver’s seat.
The Japanese government has supported the current poverty reduction initiative, butwith caution. First, we do not think jumping from one idea to another every several years
is the right way to promote development. Ideas and policies should be more stable andcumulative. Second, strategic convergence is positively harmful. Reflecting the great
diversity in the social and economic conditions of poor countries, there should be morethan one path to development from which they can choose. Whether or not cutting
poverty should be the principal national goal is up to each developing country to decide.
2. East Asian development as a catching up process
The current approach presupposes developing countries with weak capability. It assumes
a world where politics is unstable, growth is low, industrial promotion invariably fails,
and foreign debt forgiveness is taken for granted. Such countries cannot hope to relieve
mounting social misery by their efforts alone, so external help is requested. Even underthe best scenario, it is unrealistic to expect them to surge as “factories of the world”
challenging the high-tech industries of advanced countries. Under such circumstances,development must necessarily take a humanitarian turn. The immediate policy goal
should properly be to lift as many individuals, families and villages as possible out of theabject and dehumanizing condition of extreme poverty. Though fairly gloomy, this is one
legitimate idea of development. Unfortunately, there are many countries that thisdescription largely fits. Among them, failed development in Sub-Saharan Africa isespecially striking as a collective, regional phenomenon.
But this is surely not the entire picture. At the other extreme, developing countries in
East Asia have emerged from dire poverty and social instability into the state ofindustrial competitiveness and much higher living standards within a few decades.
During the 1950s and early 60s, real income and living conditions in East Asia weresimilar to—and sometimes below—those of African societies. East Asia has had its shareof crises including hot and cold wars, military coups and threats, economic stagnationand currency attacks. Moreover, there were differences in development stage and growth
performance among them. But despite all this, over time and as a region, their4socio-economic achievements have been truly outstanding.
Their success was not a matter of sheer luck. East Asian growth was realized bystaggered participation in the regional production network through trade and investment.
The supply linkage was first formed between Japan and NIEs (Korea, Taiwan, Hong
Kong and Singapore), then spread to include ASEAN4 (Malaysia, Thailand, Philippines
and Indonesia). Later, China and Vietnam joined. Once captured by this regional
dynamism, each country was under constant pressure to master technology, improve
human capital and enhance competitiveness for survival. Multinational firms (including
Japanese) played a key role as bringers of capital, technology and management as well as
agents of economic integration (Figure 1). On the demand side, it is noteworthy that East
Asian growth depended heavily on the existence of huge external markets, especially
American.
Figure 1. Japanese Firms as Builders of Asian Production Network
International Transactions of Asian Affiliates of Japanese Firms

Input Procurement (% of total)

Output Sales (% of total)

60

60

50

50

40

40

Other
Asia
Japan

30
20

Other
Asia
Japan

30
20

10

10

0

0

1992

1998

1992

1998

Note: the remaining procurement and sales are domestic.
Source: Shujiro Urata, “A Shift from Market-led to Institution-led Regional Economic Integration in
East Asia,” presented at the Conference on Asian Economic Integration, RIETI/UNU, April 2002.

For East Asian countries, development was not poverty reduction but a social process ofcatching up with the front-runners, driven by national pride and the acute sense of threat
and inferiority. Their strategy consisted primarily of generating high economic growthand managing the negative aspects of such growth. In most cases, a strong state, notnecessarily democratic by Western standards, orchestrated the entire process. For East
Asia, the concept of poverty reduction was too static; instead, more dynamic objectives,
such as coping with emerging income gaps and maintaining social equity in the growth
process, were preferred. The incident of poverty also fell sharply, but this was the resultof their successful development, not the cause (Figure 2). By now, East Asia has already5attained the principal target of MDGs, namely, cutting extreme poverty in half between
1990 and 2015.
Figure 2. East Asia Cuts Poverty Despite Currency Crisis

Population in Extreme Poverty (%)
60
50
40

1990
1999

30
20
10
0

East Asia

Latin America

South Asia

Sub-SaharanAfricaSource: S. Devarajan, M.J. Miller and E.V. Swanson, “Goals for Development: History, Prospects andCosts,” World Bank Working Paper no.2819, April 2002.

Development as poverty reduction and development as a catching up process are two
entirely different phenomena, which must be clearly distinguished. East Asiandevelopment experience and aspiration can hardly be discussed or interpreted within theframework of poverty reduction, which is too narrow. In addition to the current
development approach centered on poverty reduction, we propose an alternative
approach consistent with a national desire for industrialization under global integration.
It is odd that the lessons of East Asia as a developing region with highest performance
have not so far been firmly incorporated in the policies of the international organizations.
That will be the first step toward strategic diversity in development. We hope there will
be even more approaches in the future reflecting the multiplicity of development
experience.
Some may object that the East Asian model is an exception that cannot be easilytransferred to other regions. We agree that it presupposes certain conditions which wehope to elucidate on another occasion. It may be more realistic to expect that only a few
countries can make a full use of this model at first. But outright denial of transferability
is tantamount to discounting the ambition and potentiality of poor countries. We knowthat many developing countries outside East Asia share an earnest desire to be
integrated meaningfully into the world, not as permanent aid receivers but as active
players in the global trade game.

63. Japan’s ODA vision: for Asia and for the world
Japan is in the process of reformulating its economic cooperation policy. This is partly due
to ODA budget cuts necessitated by fiscal austerity. But more fundamentally, Japan hasreached a point where it can no longer remain a silent partner to the global development
trend with which it feels considerable unease. Intense donor coordination and poverty
reduction drive in the last few years have made it impossible to ignore what others are
doing and pursue its own development agenda. Japan is challenged to cast off passivity
and make its position clear, contributing actively to global aid schemes where suchsupport is warranted but speaking out loudly where it thinks improvements are needed.
Without such engagement, Japan runs the risk of being marginalized in development
cooperation and forced to provide money and personnel for the cause not of its own.4
It is not that Japan wants to depreciate the importance of attacking poverty on a global
scale. Japan also wishes to contribute positively to environmental protection, educationand healthcare, refugee assistance, elimination of epidemics and other common causes of
the world. But at the same time, we want to support industrial development andeconomic integration of developing countries where such goals are entertained andconditions are right. We want to continue to use ODA as one of the tools for such support
as we did in the past. We hope that global aid philosophy will not only accommodate but
actively embrace this type of ODA.
In Tokyo since last year, a group of economists including myself have advanced a vision ofJapanese ODA consistent with the dual aspects of Japan’s policy goals noted above. Thisvision, called the two-track approach to economic cooperation, urges the Japanese
government to proclaim contributing to global goals and supporting Asian dynamism as
two pillars of development cooperation, and conduct external policies including ODA
accordingly (overlapping of the two goals is permissible). We have advocated this in the
Study Group on Asian Dynamism of the Ministry of Economy, Trade, and Industry(METI), policy consultation with officials from the Ministry of Foreign Affairs (MOFA)
and ODA implementing agencies, as well as through media and conferences. Official
reception has been very favorable. Our next step is to present more visually andIn the area of financial and exchange rate policies, projection of Japan’s own ideas onto theworld already began with the New Miyazawa Plan for helping Asian crisis-hit countries(1998) and the Chiang Mai Initiative for regional central bank cooperation (2000). These were
triggered by deep dissatisfaction with the IMF’s policy response at the time of the Asian crisis.
In trade, Japan concluded a free trade agreement (FTA) with Singapore (2001) and proposed
FTAs with Korea, Mexico, ASEAN and so on. But similar activism has been slower in comingin the area of ODA policy.

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concretely what the East Asian experience is for external dissemination.5
The two-track approach to economic cooperation is not really new. It is simply anaffirmation of Japan’s dual identity, engraved by its history since the mid 19th century, as
an Asian nation on the one hand and as a member of the developed West on the other.
Our proposal is to turn this dual identity, which plagued the policy makers in the past,
into an advantage for active and flexible use in economic diplomacy. It should provide aframework for interpreting, appreciating, and expanding Japan’s economic cooperation.
Looking back, Japanese ODA has contributed significantly to building infrastructure,human resource development, technical transfer, growth of small and medium
enterprises, crisis response and so on, with East Asia as a main target. Simultaneously,
Japan has cooperated constructively with developed countries in Europe and North
America to tackle issues of global dimension. Asian dynamism and global concern havelong been the two pillars of Japan’s external contribution which are unlikely to go away.
Affirmation of this situation will enable Japan to do both even better. It also permits
Japan to moderate global development trends which sometimes go to extremes. But mostimportant of all, the two-track approach will restore pride and confidence to the Japanesein their conduct of development cooperation.6
4. Industrial support in the age of globalization
To promote industries in East Asia and elsewhere, supporting policies must be the ones
suitable for open and market-driven economic environment. The old-style industrial
policy of fostering baby industries under the high wall of import protection is no longer
available in our age of globalization. Newcomer countries are required to liberalize theirtrade regimes at much earlier stages of development than Japan and the West in the past,or even Korea and Taiwan in the 1960s and 70s. Policy innovation in industrial promotion
is called for.
This hardly means that the government should stand idle. The experience of ASEAN

The World Bank’s famous East Asian Miracle report (1993) did not win full approval ofJapanese economists partly because it gave only a hedged nod on what East Asian officials
considered as the essence of their development experience, and partly because it failed toanalyze the region’s production network as an enabling external environment for synergic
growth; the report evaluated the policies of each country separately.
6 For more on this approach, see I. Ohno and K. Ohno, “Global Development Strategy andJapan’s ODA Policy,” GRIPS Development Forum Discussion Paper no.1, March 2002; and K.
Ohno, “Reconfiguring Japan’s ODA,” Japan Echo, February 2002.
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clearly indicates that the key to industrial development in open economies is attracting
foreign direct investment (FDI) in both quality and quantity and using its impact to raise
domestic capability over time. To accumulate FDI, economic opening is not enough. To
offer superior locational advantages and low costs of doing business, additional targetedmeasures to improve domestic skills, infrastructure and institutions are needed. Efficient
government services and good management of industrial and export processing zones also
help. Primary education is important, but that alone will not upgrade domestic industries
unless engineers and managers are also supplied. Traditional factors such as domestic market
size, natural resources and low wages have become relatively less important.

At regional and global levels, policies are also required to supply international public
goods, correct externalities and market failures, cope with international income gaps,
coordinate macroeconomic and other policies, integrate economies and harmonize
procedures, prevent and manage crises, and so on. We believe that the case for collective
official action in the international arena is strong, especially when countries withdifferent stages of development are involved.
Surely, these are not top-down, heavy-handed state intervention but much lighter,market-enhancing policies. Nevertheless, they must be executed well in order to take fulladvantage of foreign impact and build domestic capability. Laissez-faire policy will not do.
In this area, too, ODA and other forms of economic cooperation can go a long way tosupplement domestic efforts.
5. Vietnam: does PRSP work in East Asia?
Vietnam is a country with typical East Asian aspiration. It is located in the heart ofdynamic Asia, but its economy has lagged seriously behind its neighbors due to the long
period of wars and economic planning. The Vietnamese government is keenly aware ofthis situation, and hopes to catch up with the ASEAN forerunners as soon as possible.
Domestic economic liberalization called doi moi began in 1986. From around 1993,
Vietnam ended self-imposed isolation and normalized relations with internationalorganizations and Western countries, including the US. It also joined ASEAN in 1995 andAPEC in 1998.
A decade of international integration has transformed the Vietnamese society enormously.
The economy has grown at an average rate of 7 to 8 percent, despite a mild slowdown in
the recent years. Growth is driven mainly by external stimuli including FDI, ODA,
tourism, and remittances from overseas Vietnamese and migrant workers. The export
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base has already shifted significantly from primary commodities (crude oil, rice, fish,coffee) to manufactured products (garments, footwear, electronic components). However, a
decade is not enough to escape from backwardness. Vietnam’s market economy remains
seriously underdeveloped and technology and competitiveness are very low. The percapita GDP in 2000 was still as low as $390 (World Bank data). Vietnam’s national goal isindustrialization and modernization by 2020 and the key official documents for this are
the Ten-Year Strategy and the Five-Year Plan. In sum, Vietnam is trying to participate in
the East Asian production network as a latecomer—as its neighbors have done in thepast.7Since 1999, the World Bank and other donors (led by UNDP, UK, and Nordic countries)
have introduced an aid coordination scheme for poverty reduction in Vietnam. Vietnam
became a pilot CDF country and produced an interim PRSP (2000) and a full PRSP (2002).
It is of great interest to know how PRSP, intended for a country with weak initiative, isreceived by the Vietnamese policy makers with strong pride and beliefs. Other countries
in the region which must draft their own PRSPs (Indonesia, Laos, Cambodia, etc.) as well
as some African countries are carefully watching the evolution of Vietnam’s PRSP.
On the surface, Vietnam’s PRSP is considered a great success by the World Bank and theinternational community at large. The main reason for this is Vietnam’s strong

ownership of the PRSP process, with a national team drafting the main report andadjusting its contents (it is hardly like that in most poor countries). The process has beeneven renamed to the Comprehensive Poverty Reduction and Growth Strategy (CPRGS),
adding the term growth which the Vietnamese side insisted. At first, the authorities andthe World Bank were at odds over the prioritization of growth versus direct poverty
measures, but both sides exercised restraint so the process proceeded “successfully.” Allagree that growth and poverty reduction are closely related, but the precise relationshipbetween them is left unclear.
Aid donors want to influence Vietnam’s policies through CPRGS, but whether that will be
acceptable to Vietnam is moot. Besides Japan, there are some donors in Vietnam who
remain skeptical. My seven years of research experience in Vietnam also tells me it ishighly unlikely. Compared with the Ten-Year Strategy and the Five-Year Plan, public

The Japan International Cooperation Agency is conducting a joint research project with
Hanoi’s National Economic University on Vietnam’s industrialization strategy underglobalization. This is a typical Japanese-style intellectual ODA featuring real-sector concern
and respecting the individuality of each country and sector. See http://www.neujica.org.vn/ fordetails.
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recognition of CPRGS is very low. If CPRGS goes beyond simply copying andsupplementing the existing official documents and begins to tilt the budget and public
investment towards pro-poor policies, it will surely meet stiff resistance. For Vietnam,
equitable growth is the declared goal which must be realized by a combination of growthand social policies (Figure 3). Poverty reduction as an exclusive national goal is an alien
concept to the Vietnamese who fought long wars for independence and freedom. CPRGS
can survive only as long as neither side rocks the boat by raising this issue.
Figure 3. Different Views on Growth and Poverty(b) East Asian View（a）PRSP Approach
Goal:

Poverty Reduction

MDGs

Goal:

Equitable Growth

CDF/PRSP

Means:

Means:
Pro-Poor Policies

Declared national
vision and targets
for development

Growth Policies

Growth Policies

Social Policies

Vietnam’s experience already clearly shows the impossibility of fitting East Asian
aspiration into the PRSP framework. The deep conceptual gap may be papered over, but
no real gain can be had by such a bureaucratic act. In a country with such strong
ownership, we must ask fundamentally: why do we need a PRSP at all?
6. Not just in East Asia
I have argued—and the Japanese government is beginning to argue—for respecting themultiplicity of development experience. There should be diverse paths to prosperity, fromwhich each developing country can select the right mix with ownership. At present,
country ownership is limited to active participation in the common poverty reduction
framework laid out by the donors, which is not enough. Furthermore, even goals ofdevelopment should be many, since it is for each country to decide whether or not
individual welfare and self-esteem should be always held above national pride anddynamism. For efficiency, aid procedures can be harmonized. But strategic convergenceshould be rejected in a world of great diversity. Difficulty emerges when procedure andstrategy are not easily separable.

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ODA for poverty reduction is charity in its essence, a benevolent transfer of income andknowledge from rich to poor. By contrast, ODA for active participation in global trade is
aimed at releasing a young country’s potential to become an equal partner or evencompetitor in the future. This may be too difficult for some of the poor countries toundertake today. But the door should always be open. We have no right to tell them thatfighting poverty should be their only dream.
This is true for Sub-Saharan Africa as well. In fact, there are countries in Africa, Central
Asia, Middle East, Latin America and elsewhere with high aspiration for excellence as in
East Asia. They may not be in the majority yet, but policies should not be designed only
for the majority. To help them, conditionality, policy matrices and other bureaucratic
micromanagement are often counter-productive. Excellence is contagious. Good
performance by a country galvanizes its neighbors. Let them copy good practice, butmake sure to fully respect their autonomy and pride. From the sideline, donors can
support them with proper encouragement, knowledge transfer and financial assistance.
At its best, Japanese ODA in East Asia has had this character. Despite failures anddisappointments, we have never lost faith in development assistance based on theprinciple of self-help. Outside East Asia, however, Japanese effort in this direction has so
far been modest. It is time that the demonstration effect of excellence should be extended
globally.

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