Development with
Alternative StrategicOptions
A Japanese View on the Poverty
Reduction Drive and Beyond
Kenichi Ohno
National Graduate Institute for Policy Studies

Background
Ongoing global poverty reductionpartnership Japan is uncomfortable--It feels current strategy is unbalanced--Fear of marginalization--New engagement effort is begun--Catalyst for a group of LDCs/donors?

1

Recent Poverty Cutting Drive
World Bank’s CDF/PRSP UN’s Millennium Development Goals
 Poverty-terrorism nexus
 EU and US pledge to increase ODA
 Many international conferences fordevelopment in 2002
Japan’s Concern (Domestic)Due to fiscal crisis, Japan’s ODA is to becut (now top donor)
 Popular demand for transparency andaccountability
 Groping for new ODA vision – fromquantity to quality2

Japan’s Concern (External)
With partnership approach, ignoring
global trend is more difficult
 Japan’s policy silence may lead tomarginalization--Too much focus on poverty; too little on
growth and industries--From ODA loans to grants?
--Less aid for middle-income countries?

Japan’s External Initiatives
Disappointment with IMF’s handling ofAsian Crisis -- Chiang Mai Initiative,New Miyazawa Plan
 WTO’s slowness -- Japan-Singapore
FTA (2001); proposals for Japan-ASEAN
and other FTAs
 Unease with PRSP/MDGs -- ?????
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For Reshaping ODA Policy
MOFA’s ODA reform effort
 METI’s study on ODA for “AsianDynamism”
 IDEA, WSSD (2002); TICAD3 (2003)
 GRIPS Development Forum Washington DC Development Forum Inputs to Vietnam’s PRSP (starting)Targeted Audience
Governments and scholars in East Asia
 Same in other developing regions
 Sympathetic donors
 Aid professionals with little exposure toEast Asia--We don’t expect unanimous approval--Research must proceed in parallel

4Japan’s Proposed Agenda
1. Critique of current global strategy
2. East Asian development as analternative approach (whereconditions are right)
3. Japan’s two-track development
assistance vision

Agenda (contd.)
4. Industrial support in the age ofglobalization
5. PRSP is too small for East Asianexperience or aspiration
6. Transferability to other regions,especially Africa?

51. Critique of Current Strategy
World Bank’s policy shifts are too quickand radical Industries (60s), BHN (70s), SA (80s),
privatization & institutions (90s), now
poverty (cf. Easterly 2001)
 Development strategy should be morestable and cumulativeJapanese Views
Strategic diversity, not convergence Real-sector concern, not just framework Deeper studies of each sector/country
required, rather than policy matrices orcross-country regressions
 More patience, respect, ownership fordeveloping countries (incl. selection ofgoals and strategies)
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Costing of MDGs: some Q’s$40-$70 billion, or doubling global ODA
Devarajan, Miller, Swanson (WB Apr 2002)
Why assume only ODA funding?
--Even poor can generate resources (FSR/PSD)Are two calculations consistent?
--Investment-output-poverty linkage vs. adding up
pro-poor expenditures

No problem with aid absorption capacity?

2. East Asian Dynamism
Development as poverty reduction vs.
development as catching up
 Meaningful participation in regional/
global production network throughtrade and investment
 Higher and more dynamic aspiration(health, primary education not enough)7

Increasing Linkage (1)Asian Affiliates of Japanese Firms

Input Procurement (% of total)
6050403020100

OtherAsia
Japan1992

1998

Increasing Linkage (2)Asian Affiliates of Japanese Firms

Output Sales (% of total)
60
50403020100

OtherAsia
Japan1992

1998

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East Asia Cuts Poverty
Population in Extreme Poverty (%)
60
50403020
1001990
1999

East Asia

Latin
AmericaSouth Asia

SubSaharanAfricaRegion’s Enabling Environment
World Bank’s East Asian Miracle (1993)
assessed policies of individual countries Asian growth as collective phenomenon Region provides enabling environment
for growth and structural change From market-led to institution-led
regional integration (cf. EU) Crisis impact? Back to normal9

3. Japan’s Two-Track ODA
One pillar for global contribution,
including poverty and environment
 Another pillar for supporting East Asian
dynamism as a production network
 Two pillars have always been present,
just affirm them (Japan’s dual identity)
 Do both with more confidence andflexibility

4. Today’s Industrial Support
Infant industry support with subsidies
and protectionism no longer allowed FDI attraction is key: understandagglomeration and fragmentation, andvirtuous circle (Southern China)
 Simple opening is not enough

10Support (contd.)Policies for offering superior locational
advantages and low costs of doing
business are needed--Improving domestic skills, infrastructure,institutions; efficient public services; goodmanagement of IZs and EPZs, etc.

Case for regional public action is strong--Narrowing gaps, integration, harmonization,
crisis prevention, externalities, etc.

Theories of Flying Geese
1. Factor-proportion view
Industries shift as capital-labor ratios change
through accumulation

2. Technical ladder view
Technology is transferred from low-tech to hightech by learning

3. FDI dynamism view
Industries arise where a critical mass of FDI isaccumulated (no capital/technology needed)11

5. PRSP in East Asia?
Vietnam with typical E Asian aspiration
 National goal: Industrialization &Modernization by 2020
 10-Year Strategy & 5-Year Plan CDF pilot country; full PRSP in 2002
 How does it really work? Indonesia,Laos, Cambodia, (Africa) are watchingVietnam’s CPRGS
Considered “great success” because ofstrong country ownership PRSP renamed to “Comprehensive
Poverty Reduction & Growth Strategy”
 Policy inputs through CPRGS? Unlikely Enthusiastic donors, skeptical donors
 Growth-poverty link left ambiguous
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PRSP Approach
PovertyReduction

Goal:

MDGs
CDF/PRSP

Means:
Pro-Poor Policies

Growth Policies

East Asian Aspiration
Goal:

Equitable Growth< Vietnam >Industrialization &Modernization
5-Year Plan & 10Year Strategy

Means:
Growth Policies

Social Policies

13Governments in East Asia
Very strong interest in narrowing intraregional gaps (original ASEAN vs CLMV)
 Also interested in infrastructure, HRD,
trade, FDI attraction
 Rejection of narrow “poverty reduction”
approachGovernments in EA (contd.)
More, not less, economic cooperation
including middle-income countries
 ODA is but one tool of cooperation
among many

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6. Not Just in East Asia
There are countries with similar growth
aspiration outside East Asia
 Transferability?
--Initial step is disseminating information--Partial or revised implementation possible--Academic debate can go on in parallelConcentrate on a few pilot projects/countries (not many)

Dissemination Plan
Japanese research papers to be selected,summarized and translated in readable
form, for policy impact
 Non-profit organizations should support
government Use (or convene) international
conferences for announcement of policies15