33745 Outreach D E V E L O P M E N T P U T T I N G K N O W L E D G E T O W O R K F O R D E V E L O P M E N T 5 MARCH 2 0 0 3 The Private Sector Building Economic Growth W O R L D B A N K I N S T I T U T E Promoting knowledge and learning for a bet ter world Editorial Board A B O U T T H I S I S S U E SWAMINATHAN S. AIYAR ECONOMIC TIMES OF INDIA, NEW DELHI, INDIA MICHAEL COHEN NEW SCHOOL UNIVERSITY, NEW YORK, USA A S JOSEPH O'KEEFE so aptly points PAUL COLLIER out in our opening piece, it is wise for THE WORLD BANK, WASHINGTON, DC, USA thoseofusinthedevelopmentcommu- JOHN GAGE nity to remember how important the private sec- SUN MICROSYSTEMS, PALO ALTO, CALIFORNIA, USA toristotheworkwedo.Infact,forevery$1innet JOSEPH K. INGRAM THE WORLD BANK, SARAJEVO, BOSNIA long-term flows to the developing world from KWAME KARIKARI official sources, the private sector now invests SCHOOL OF JOURNALISM AND COMMUNICATIONS, $2-$3. The private sector is, according to World THE UNIVERSITY OF GHANA, LEGON, GHANA Bank Chief Economist Nick Stern, "the strongest VIRA NANIVSKA and, indeed, the driving force for sustained eco- INTERNATIONAL CENTER FOR POLICY STUDIES, KIEV, UKRAINE nomic growth" in the world. And it is in creating PEPI PATRON CATHOLIC UNIVERSITY, LIMA, PERU the framework for the private sector to flourish, that many of us in the public sector find our most J. ROBERT S. PRICHARD TORSTAR, TORONTO, CANADA challenging and valuable work. RAFAEL RANGEL SOSTMANN MONTERREY TECH UNIVERSITY SYSTEM, MONTERREY, MEXICO Having said this, privatization has had a ADELE SIMMONS sometimes rocky birth in many parts of the CHICAGO METROPOLIS, CHICAGO, IL, USA world. In infrastructure, privatization has VIVIENNE WEE increased coverage in some areas, yet has failed CENTRE FOR ENVIRONMENT, GENDER AND DEVELOPMENT, SINGAPORE in others due to poor project design, unrealistic Development OUTREACH is published three times a year by the World investment and pricing, and poor management Bank Institute and reflects issues arising from the World Bank's many learning programs. Articles are solicited that offer a range of of the political process. And although the dis- viewpoints from a variety of authors worldwide and do not represent tributional effects of privatization are less official positions of the World Bank or the views of its management. gloomy than often envisioned, according to MARY MCNEIL John Nellis and Nancy Birdsall, the process has EXECUTIVE EDITOR not been managed well from the social per- ANNA LAWTON spective. Governments, they argue, can do MANAGING EDITOR more to minimize the welfare costs of increases JOSEPH O'KEEFE in inequality caused by privatization. GUEST EDITOR MOIRA RATCHFORD In this issue we look at both the successes PUBLICATION DESIGN and failures of efforts to stimulate the private PHOTO CREDITS Cover: Andy Zito/Getty Images; Page 2: The World sector and to use its efficiency gains to better Bank/Eric Miler; Page 4: The World Bank/Yosef Hadar; Page 7: Itar- Tass Photos/Valery Matytsin; Page 8: AFP/Vassil Donev; Page 16: help the poor. Much progress has been made, The World Bank/James Fitz; Page 19: AFP/STR; Page 23: Foley & and, as we see here, much can be learned from Lardner/Jonathan Kirn; Page 25: The World Bank/James Pickerell; Page 26: Getty/Oleg Nikishin; Page 28: Getty/Alex Wong; Page 29: the experience of the past decade. KRT/Hulteng; Page 30: KRT/Pai; Page 32: AFP/Yuri Kadobnov; Page 36: Odebrecht; Page 37: Odebrecht. This magazine is printed on recycled paper, with vegetable-based inks. Mary McNeil ISSN 1020-797X © 2003 The World Bank Institute E X E C U T I V E E D I T O R W O R L D B A N K I N S T I T U T E Promoting knowledge and learning for a bet ter world World Bank Institute www.worldbank.org/wbi Frannie Léautier, Vice President www.worldbank.org/devoutreach The World Bank devoutreach@worldbank.org 1818 H Street NW Washington, DC 20433, USA Outreach D E V E L O P M E N T V O L U M E F I V E , N U M B E R O N E 5 M A R C H 2 0 0 3 P A G E 4 P A G E 2 3 P A G E 3 2 2 Development News 23 Why Corporate Governance? MIKE LUBRANO SPECIAL REPORT: THE ROLE OF THE PRIVATE Corporate governance is a priority for IFC because it ensures the long-term, sustainable growth of companies, which is SECTOR necessary to economic growth. 26 Hi-tech Booms in Russia 4 The Private Sector Drives Economic ELIKA TRIFONOVA Growth Local scientific talent and IFC's financial support helped JOSEPH O'KEEFE Russian IT companies to expand rapidly. The prospects are The reality of the global economy today is that private that they will generate higher returns for investors than western enterprise is one of the largest and most powerful levers companies. available to foster development. FEATURES 7 The Distributional Impact of Privatization JOHN NELLIS AND NANCY BIRDSALL 28 Access to Information: The Commercial Privatization has generally been good for new private owners. Side But what are the effects on the welfare of different income groups? RODERICK MACDONELL Freedom of information laws are usually adopted to increase 10 Where Do We Stand Today with Private government transparency, but the biggest users of those laws Infrastructure? are actually businesses seeking government contracts. MICHAEL KLEIN It is now clear that private participation in infrastructure is no panacea, but neither is going back to the old ways. What is 32 Media Independence: Is Self-Regulation needed is transparency, commitment, and regulatory processes. an Answer? RICK STAPENHURST 13 Improved Access to Finance: A Key to Should media be encouraged to regulate itself, or are statutory SME Growth means of government regulation necessary? Generally, opinion is polarized, with the media supporting the former option and HAROLD ROSEN governments the latter. Small and medium enterprises make up the largest portion of the employment base in many developing countries. To strengthen their role they need better access to financing from 35 Index of Articles: Development OUTREACH local banks. 1999­2002 16 A New Way to Learn and Build Networks DONALD F. TERRY 36 VOICES FROM THE FIELD A series of inter-related projects is developed and implemented as a group. This cluster approach has proven to be flexible and Brazilian Company Fights AIDS in Angola responsive to the local needs in Latin America and the SALAS NETO Caribbean. Odebrecht is investing $1,000,000 to fight AIDS among workers it employs in Angola, because government funds are 19 Responsibility Breeds Success inadequate. NIGEL TWOSE AND ZIBA CRANMER Globalization is encouraging a market-driven cycle of corporate 38 KNOWLEDGE RESOURCES social responsibility pressures that stimulates voluntary improvements at the firm level. The article brings examples 39 BOOKSHELF from Vietnam. 40 CALENDAR OF EVENTS D E V E L O P M E N T N E W S News highlights on development issues from around the world Network--Africa (MVN-A) initiative will support the Global Alliance for Vaccines and Immunization (GAVI), a public-private partnership focused on increasing chil- dren's access to vaccines in poor countries. The objective of MVN-A is to establish sustainable vac- cine training centers in Africa that will provide education and training in immunization services for national and regional immunization program managers. Training pro- grams will use World Health Organization (WHO) and other GAVI partner or internationally available source materials in curriculum development. Funding will be at a maximum of US$200,000 per year. The training programs should help increase the number and skill level of immu- nization managers in the short term, while building a model for sustainable immunization delivery infrastructure in the long term. For more information contact Dr. Elaine Esber (+1 215 652 8828,orelaine_esber@merck.com).Orvisit:www.merck.com African trade unions participate in Adolescent Health and Development poverty reduction IN FEBRUARY A VIDEOCONFERENCE on Adolescent Health UNION REPRESENTATIVES from nine African countries and Development in Africa (AHDA) was held between the joined World Bank staff in Lusaka, Zambia, in January, for World Bank headquarters in Washington DC and 16 coun- a 6-day capacity building workshop aimed at enabling tries in Francophone Africa (Active countries: Benin, trade unions to constructively contribute to Poverty Burkina Faso, Guinea, Senegal and Rwanda. The observer Reduction Strategy Papers (PRSPs). The workshop was countries were: Burundi, Cameroon, Chad, Cote d'Ivoire, intended to provide the union delegates with a deeper Congo Brazzaville, Congo, Democratic Republic, Mali, knowledge of the policy issues that labor believes are Mauritania, Niger, and Togo). Participant groups were var- important for poverty reduction. The workshop was organ- ied and ranged from ministers to youths. The objectives of ized by the German cultural organization Friederich Ebert the conference were to highlight key issues related to ado- Stiftung (FES), the Worker's Bureau of the International lescent health and overall development trends in a global, Labor Organization (ILO-ACTRAV) and the World Bank's regional and local context; enable all partners to under- Social Protection Unit. By the end of the week, these stand the strong linkages between adolescent health and organizations pledged technical and financial resources to development, and the specific issues and challenges in the support the unions' national plans. context of the Millennium Development Goals; and increase the commitment and partnership between lead- Vaccines for African children ers, development partners and relevant stakeholders at national, regional and international levels. THE MERCK COMPANY FOUNDATION is soliciting propos- The past decade saw a rapid growth in, and strengthen- als from academic institutions in developed nations, work- ing of, networks of many organizations and individuals ing in collaboration with academic institutions in Africa in working in the field of AHD. Most of these organizations infectious disease research or relat- work at four often very distinct lev- ed areas of collaboration, to develop els--international, regional, nation- new training initiatives focused on Visit us on the web at: al, and local/community. However, increasing children's access to vac- www.worldbank.org/devoutreach in most regions of the world, espe- cines in Africa. The Merck Vaccine cially in developing countries, there 2 Development Outreach W O R L D B A N K I N S T I T U T E has been a lack of a focused vision, sustainable linkages and coordination between organizations and stakeholders at the various levels. For more information contact Laurence Sage, World Bank Institute, Human Development (lsage@worldbank.org ) Philippines and Argentina scheduled for air cleanup BOTH THE CONSUMPTION AND PRODUCTION of ozone- depleting chlorofluorocarbons (CFCs) will be completely eliminated in the Philippines and Argentina through two projects approved by the Multilateral Fund for the Implementation of the Montreal Protocol (MFMP). The projects, worth a total of $18 million, will permit state and municipal agencies and private sector groups and the Philippines to phase out 2,018 ozone depleting poten- businesses, are helping people gain skills that can boost tial (ODP) tons of CFC consumption and Argentina to cease their productivity and make them more employable. All too production of 3,101 ODP tons of CFCs when Montreal often, Latin American job training services are state-run Protocol CFC phase out obligations take full force in 2010. programs with few incentives to adapt to what the market Technical and financial assistance will be directed to a requires. In Mexico, however, the Labor Department acts large number of small enterprises, especially in the servic- more like a matchmaker, helping firms link up with certi- ing sector, which is the most difficult target group under fied trainers who can supply the training they demand. The MFMP conversion initiatives. experience gained in supporting Mexico's labor market modernization has helped the IDB promote similar pro- Small entrepreneurs in Afghanistan to grams in Panama, Guatemala and the Dominican Republic. get loans Other programs are in preparation for Honduras and Nicaragua. IN NOVEMBER 2002, the IFC began the process to make its For more information contact: editor@iadb.org first investment in Afghanistan in 29 years. IFC's equity stake in the First Microfinance Bank of Afghanistan Opportunities for the disabled will (FMBA) will help create a full service financial institution reduce poverty to provide credit and savings opportunities to the poor and small businesses in a market starved for financial services THE WORLD BANK HOSTED A CONFERENCE on Disability following war and the collapse of the Taliban regime. FMBA and Development, last December. The conference focused will provide loans from about $30 up to around $1,500 to on how to prevent disability and integrating the already individuals and groups of borrowers, catering to business- disabled persons into mainstream society is central to es and entrepreneurs in the retail trade and in small scale dealing with poverty. There are nearly 500 million disabled production. people in the world, 80 percent of them living in develop- For more information contact: ddodd@ifc.org ing countries. Since they are kept from attending school or finding work, they tend to be among the poorest of the Mexican workers acquire skills poor, especially women and children. Yet, creating opportu- nities for disabled persons could be easily achieved through MORE THAN TWO MILLION MEXICANS have benefited constructing accessible infrastructure, which would provide from PROBECAT, an initiative that offers unemployed them with access to education and employment. people short-term job training assistance to improve their Participating in the conference were figures such as U.S. work skills. PROBECAT is just one of Senator Edward Kennedy and Queen the many efforts Mexico has been car- Noor of Jordan. rying out with the support of the Inter- Send your views and Visit www.worldbank.org/wbi/B- American Development Bank and comments on Development SPAN/sub_disability_confer- other multilateral institutions. These OUTREACH to: ence_2002_index.htm. efforts, which are run by the federal devoutreach@worldbank.org Department of Labor and Social Security in collaboration with several M A R C H 2 0 0 3 3 SPECIAL REPORT The Private Sector Drives Economic Growth BY JOSEPH O'KEEFE developing world from official sources, the private sector now invests $2-3. O.K.--you caught me--that's actually two facts, SUPPOSE YOU WERE ASKED to reduce the vast, complex sea of but you get the point. economic, demographic, and environmental data in the The reality of the global economy today is that--regardless debate about the prospects of the developing world down to, of what one thinks about the vices and virtues of market-based say, four telling facts. Which to choose? economics and globalization--private enterprise is one of the Perhaps you could start with arguably the best-known, oft- largest and most powerful levers available to foster develop- quoted economic fact in the World Bank Group lexicon: rough- ment in the foreseeable future. ly 3 billion people in the world live on less than $2 per day. This was not always the case. As recently as 1991, there was Then you could add in a demographic fact: roughly 200,000 still a 1-to-1 ratio between official long-term flows and private children are added to the global population each day, and some flows to the developing nations. But it hasn't been nearly that 9 out of every 10 of them are born in a developing nation. close since. In the heyday of the global economy, before the On the environment? It would be a tough choice between Asian financial crisis, the ratio had climbed at one point to citing climate change or highlighting biodiversity. Let's say roughly $9 in private sector flows for every $1 in official flows. for the sake of argument that you choose a biodiversity fact: Since then, the proportion has drifted back downward, but the world's endangered tropical rainforests, which reside in private sector flows still predominate and are likely to contin- the developing nations, cover 6 percent of the world's land ue doing so (see Table 2.1). surface, but contain terrestrial and aquatic habitats that are This fundamental change in the architecture of develop- home to more than half the known species of organisms. ment resources has been the driving force behind far-reaching So you have chosen three facts, and already they combine transformations in the developing world, such as sweeping to form a provocative moral, political, and economic chal- policy reforms, privatization programs, increased private sec- lenge. How is the world possibly going to ensure adequate tor participation in the delivery of basic services, experimen- food, water, clothing, housing, and education for so many tation with public-private hybrids, and, of course, the ascen- people without destroying what's left of the planet's environ- dance of "globalization" as a divisive political issue. Indeed, in ment? Good start. a number of recent elections in developing nations, the atti- But what is your last telling fact? It would have to be some tudes of the leading candidates toward the role of the private piece of information indicative of the way forward: how to get sector and foreign direct investment have been wedge issues. through this narrowing global bottleneck of lopsided income With so much focus on the role of the private sector allocations, increasing material demands, and diminishing throughout the developing world, this is the perfect time for ecosystems. Perhaps the answer is something about--to bor- Development Outreach to focus on the topic. The key question to row a phrase from WBG Chief Economist Nick Stern--"the ask about development in 2003 is how can the private sector strongest and, indeed, the driving force for sustained eco- be harnessed to provide economic growth and a sufficient nomic growth" in the world. quality of life to the world's poor while preserving the global That answer? The private sector. The fact: The private sec- environment. tor is larger than the public sector in all but a handful of devel- Posing such a question in no way discounts or disparages the oping countries, and for every $1 in net long-term flows to the essential and invaluable role of the public sector. Few serious- M A R C H 2 0 0 3 5 minded people in development ever frame the public and pri- investment found to have high developmental impact: finan- vate sector as antithetical or exclusive solutions anymore. Such cial services, infrastructure, information technology, health a question is simply a frank acknowledgment that the levers of and education, and small and medium enterprises. These sec- economic growth and poverty reduction have changed. tors accounted for more than 60 percent of the funds commit- There is a growing body of research showing the many ways ted by IFC for its own account and held for others for the past in which the private sector contributes to development. We fiscal year. know, for example, that the private sector is often capable of There are many paradoxes in private sector development rapid job creation, which is a significant factor in upward that have yet to be solved. Replicating successful programs for income mobility, freedom from hunger, and human fulfill- the creation and growth of small and medium enterprises, ment. One of the obvious direct benefits of those jobs is the which Harold Rosen discusses in his article, has proven enor- generation of tax revenue that governments can use to address mously difficult. Likewise with structuring private participa- the needs of their populations. We also know that private sec- tion in infrastructure projects, the topic that Michael Klein tor investment is more closely associated with overall eco- navigates for readers. nomic growth than public sector investment. It also helps in Nigel Twose and Ziba Cranmer plumb two of the most fas- intangible but critical ways, such as transmission of new tech- cinating paradoxes associated with global corporations. In nology and ideas, creation of competition that spurs efficien- many cases, there is an inverse relationship between their cy, and empowerment of disadvantaged groups. economic freedom--the ability to locate production facilities A cautionary note is in order, nonetheless. Recognizing the in far-flung countries, for example--and their social license to leading role of the private sector in economic development operate. The larger their operations grow and the more does not mean that the nature of its role is fully understood, prominent their brands become, the more they are subject to that it can guarantee poverty reduction, or that it can be easily formal and informal pressures from consumers to self-regu- guided toward achieving other desirable goals, such as long- late their behavior. term job security for huge segments of society. In fact, one The other seeming paradox is the "business case" for cor- could argue precisely the opposite: the rapid, perpetual, and porate social responsibility: the proposition that businesses decentralized process wherein countless private enterprises can increase their own profits by spending more time and enter the market, introduce products, conduct price-sensitive resources on the creation of public goods, such as clean air, commercial transactions, and exit the market is inherently clean water, health programs, and AIDS education. volatile and unpredictable. In 1990, roughly 14 percent of the money lent by the World This is all the more reason why the work of the scholars and Bank Group went to private sector development. Today it is writers in this volume is such a valuable contribution. close to one third. The findings and research presented in this Reviewing the empirical evidence about what works and what issue are, in a sense, small facts--like the facts cited at the start does not work in private sector-driven development is critical of this essay. But they are an essential step toward ensuring to making the wisest use of the public funds directed toward that we do a better job with each passing year to give those that purpose. investments the greatest developmental impact possible. 5 The International Finance Corporation, the private sector lending arm of the World Bank Group, grounds its strategy in Joseph O'Keefe is Manager of Corporate Relations for the International this experience-based approach. For several years, IFC has Finance Corporation, the private sector lending arm of the World Bank had a strategy that emphasizes five areas of private sector Group. He is Development OUTREACH guest editor. TABLE 2.1 NET LONG-TERM RESOURCE FLOWS TO DEVELOPING COUNTRIES, 1991-2001 (billions of dollars) 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Net long-term resource flows 124.2 153.7 220.9 222.4 260.2 306.6 341.4 336.7 271.8 261.1 196.5 Official flows 62.2 54.3 53.4 46.0 54.1 30.3 40.7 53.4 47.4 35.3 36.5 Private flows 62.0 99.4 167.6 176.4 206.1 276.2 300.7 283.3 224.4 225.8 160.0 Capital markets 26.4 52.2 101.0 86.3 99.3 145.5 128.2 105.0 40.1 59.1 ­8.3 Debt flows 18.8 38.2 50.0 51.2 63.3 96.5 98.1 89.4 5.6 8.2 ­26.8 Bank lending 5.0 16.3 4.1 9.3 30.9 32.2 45.6 51.9 ­23.3 ­6.1 ­32.3 Bond financing 11.0 11.1 36.7 38.1 30.7 62.3 49.6 40.9 29.5 16.9 9.5 Other 2.9 10.8 9.2 3.7 1.7 2.1 2.9 ­3.4 ­0.5 ­2.5 ­4.0 Equity flows 7.6 14.1 51.0 35.2 36.1 48.9 30.1 15.6 34.5 50.9 18.5 FDI 35.7 47.1 66.6 90.0 106.8 130.8 172.5 178.3 184.4 166.7 168.2 a. Preliminary b. Estimate Source: World Bank 6 Development Outreach W O R L D B A N K I N S T I T U T E SPECIAL REPORT The Distributional Impact of Privatization BY JOHN NELLIS AND NANCY BIRDSALL prime cause of rapidly increasing inequality. We take it as established that privatization has generally ECONOMISTS LIKE PRIVATIZATION; the average citizen does been good for efficiency and for new, private owners. What is not. Post-sale increases in firm profitability, higher returns known about its impact on the rest of society? At issue are the to owners and investors, hikes in productivity and efficiency-- effects of privatization on the welfare of different income these impress technicians. But the wider public is more struck groups or households. This, in turn, depends on the prices by the apparent social costs. Privatization is seen as harming groups and households face; their assets, including labor, the poor, the disenfranchised and workers, raising prices for human capital, land ownership and other physical or financial essential services, and giving away supposed national treas- capital, and the return on these assets. We review the bur- ures to local elites, corrupt politicians, and foreign corpora- geoning literature and calculate that almost all privatization tions and investors. For the general public, privatization is the programs have done much more to enhance efficiency than M A R C H 2 0 0 3 7 equity. At least initially, privatization has worsened wealth tably shared out among the citizens. This did not happen, and distribution and, to a lesser extent, income distribution. The the disappointmentandresentmentengenderedisstilldiscern- increase in inequality varies across countries, from slight (in able and of political import in many transition countries, to pri- Latin America) to very large (e.g., in Russia and other transi- vatization in particular, and to liberalizing reform in general. tion economies). Positive distributional outcomes in a few cases indicate that privatization does not inevitably increase inequity. For Ownership example, the Bolivian privatization program promoted both efficiency and equity, partly due to political foresight and WITH REGARD TO OWNERSHIP, troubling or disappointing clever program design, and partly to the stable macroeconom- outcomes are common. For example, privatization in many ic situation prevailing when the program was launched, allow- transition countries was accomplished by a mass and rapid ing authorities considerable financial latitude. The public's transfer of asset ownership from society at large (in theory) to perception of the program, nonetheless, remains negative. a small group of agile, daring, often unscrupulous actors. One can argue that these assets are finally and necessarily being Employment put to productive use, and that negative distributional conse- quences are regrettable, perhaps unavoidable and, it is hoped, IN THE RUN-UP TO PRIVATIZATION, public enterprise temporary--but there is no doubt that ownership has become employment numbers tend to drop, sometimes greatly. more concentrated, and asset distribution less equitable. Reductions generally continue post-privatization. One survey The ownership issue also causes concern in OECD coun- of 308 privatized firms shows employment reductions in tries. Following privatization of the electricity sector in three-fourths of cases reviewed. Details are scant concerning Britain, for example, the new private shareholders, at the the jobs people find after dismissal from public enterprises. It expense of both government and the taxpayers, captured the seems that those lucky enough to keep or get new formal sec- overwhelming bulk of the financial rewards generated by the tor jobs earn the same or more in terms of salary, but work substantial efficiency gains. Both government and con- longer hours, with reduced fringe benefits and security of sumers/taxpayers did reap some gains; the contrast is not win- tenure. Females, the less educated and especially those older ners to losers, but rather huge winners to very small winners. than 45 find it harder to obtain new jobs. Assuming that those To address the ownership issue, transition governments dismissed derive most of their income from employment, we distributed vouchers to exchange for shares. In many other conclude that, at least in the short-run, the average employ- countries shares in firms being privatized were offered to ment effects of privatization have tended to worsen distribution employees, usually at a steep discount. Both tactics reduced (though these effects tend to be overestimated in the public's citizen and employee resistance to privatization. In many perception). cases sharp increases in share prices post-sale improved the income posi- tion of the shareholders, employee shareholders among them--but the number of people touched by such schemes is too small to make any differ- ence to overall distribution patterns. The distributional impact of vouch- ers has been particularly disappointing, not only in the infamous cases of Russia and the Czech Republic, but in Mongolia, Moldova, Kazakhstan, Lithuania and elsewhere. This is not in the sense of directly worsening the position of the recipients, who obtained the vouchers for free or at a nominal price, but rather in the sense of returns on the vouchers being so much less than anticipated or promised, and so much less than the amounts gained by the agile and/or dishonest few. Indeed, the principal distributional problem may be more psychological than financial. People were told, or it was implied, that the voucher was the means whereby the mass of state property would be equi- 8 Development Outreach W O R L D B A N K I N S T I T U T E AT LEAST INITIALLY, PRIVATIZATION HAS WORSENED WEALTH DISTRIBUTION, AND TO A LESSER EXTENT, INCOME DISTRIBUTION. Prices and access tion of the overall fiscal performance of a government, since even when revenues reduce debt stock, indiscipline on the UTILITY PRIVATIZATION generally results in network expan- fiscal side can lead to those revenues indirectly financing the sion and increased access to the service by the population, government's current expenditures or increasing its space to especially the urban poor; the rural poor are still generally left borrow more. It is argued that privatization revenues in the out. This is particularly the case in Latin America, e.g., in mid-1990s merely prolonged the period during which Brazil Peru, Argentina, Bolivia and Mexico. The increase in access is tried to sustain the nominal value of its overvalued currency often substantial, and the rate of increase is far greater than and put off the day of reckoning, which finally came in 1998. before divestiture. Poorer segments of the population have The potential fiscal benefits were thus lost as government benefited, disproportionately, from these coverage increases. used reserves to protect the currency. The same failing has However, increases in access are often accompanied by been suggested in the case of Argentina. Revenues from priva- increases in prices. The amount and structure of these price tizations in the mid-1990s were significant over a period of increases--partly due to the need for the privatized firms to three or four years; despite those infusions the government raise their retail prices to cost-covering levels, and partly failed to generate the fiscal surpluses it needed. Both the because inexperienced regulators have found it difficult to national and sub-national governments kept on borrowing, hold down or reduce tariffs in privatized infrastructure and ultimately the privatization revenues were swallowed up firms--are sometimes such as to produce, in the short-run, in the collapse of the currency and debt default in 2002--with increased inequity. However, several recent studies in Latin severely negative distributional consequences. America argue that the distributional benefits of increased coverage outweigh the negative impact of price increases. Conclusion Part of the price impact stems from the elimination of ille- gal connections to electricity and water networks. In PRIVATIZATION'S DISTRIBUTIONAL RECORD is not nearly as Argentina, for example, 436,000 of the first 481,000 addi- bad as is popularly thought. But the process has often been tional subscribers to the privatized electricity system were poorly managed, particularly from the social perspective. those who had had illegal hook-ups. In economic terms the Governments can and should do more in privatization to min- shift from theft to paying status results in a clear welfare loss. imize the welfare costs of increases in inequality. They can do On the assumption that a majority of those with illegal con- so without sacrificing efficiency objectives; indeed, we argue, nections were lower-income people, the result is likely to be short-term attention to equity concerns can boost medium- an increase in inequity. term efficiency. Societies can benefit from information to guide the policies that help determine the outcome on both Fiscal effects dimensions. Some might choose an initially less efficiency- oriented approach, if only to diminish long-run risks to effi- ON AVERAGE, NET FISCAL EFFECTS OF PRIVATIZATION are ciency and growth that initial resulting inequities would receipts on the order of 1 percent of GDP over the period of undermine (through corruption or rent-seeking for exam- peak sale activity. That is a substantial amount in a single year, ple). Similarly, it may be worthwhile to minimize the percep- but modest relative to the size of economies or even of gov- tion that privatization is unfair, so as to preserve the political ernment budgets over several years. In some countries, the possibility of deepening and extending reforms. What seems critical fiscal benefit of privatization has been to eliminate clear from the first decade of post-privatization experience is direct budget transfers (that subsidized commercially unvi- that one cannot dismiss concerns with equity outcomes as able enterprises, or compensated for politically determined irrelevant, as simply the natural and temporary price to be under-pricing of an enterprise's service or products). That paid for putting assets back to productive use. We believe it is subsidy flow was substantial for politically visible public desirable and possible to design and implement privatization infrastructure services, such as energy utilities, railroads, and to maximize its potential for gains in distribution as well as telecommunications; it caused rationing of under-priced efficiency and growth. 5 services. This particularly affected poorer households, which often ended up without any services at all. The tax-financed John Nellis is Senior Fellow, Center for Global Development. subsidies provided benefits primarily to the non-poor in the Nancy Birdsall is President, Center for Global Development. form of employment at wages above the market, or under- pricing for those with access. The article has been excerpted from a larger study, "Winners and Losers: Many governments have used revenues from privatization Assessing the Distributional Impact of Privatization," Center for Global Development, Working Paper No. 6, May 2002. to reduce the stock of public debt, a sensible application. But the distributional impact of privatization revenues is a func- M A R C H 2 0 0 3 9 SPECIAL REPORT Where Do We Stand Today with Private Infrastructure? BY MICHAEL KLEIN for electricity services and water services covered on average only 60 percent and 30 percent of costs respectively (Figure DURING THE 1990s, investment world wide in almost 2,500 3). Privatization was seen as a way to help finance infrastructure private infrastructure schemes (new projects and privatiza- investments as governments had run out of money. But while tions) increased beyond all expectations from about US$20 private parties might bring efficiency gains and thus reduce billion in 1990 to some US$130 billion in 1997. It then fell costs, it could not reasonably be expected that this would be back to about US$60 billion in 2001(Figure 1). Both the boom enough to avoid eventual substantial tariff increases--given the and the decline were heavily concentrated in Latin America state of government finances. This underlying syndrome has and East Asia (Figure 2). manifested itself in various ways and privatization has to some extent been blamed for unresolved underlying problems. Blaming privatization For example, in both East Asia and Latin America, investors were initially hopeful that reform dynamics would TODAY INVESTORS ARE AS NERVOUS as critics of privatiza- unfold that would allow tariff reform to come about. However, tion are vocal. Both the nervousness of investors and the mis- particularly the big devaluations in East Asia and later Latin givings of critics are in large measure driven by the same America revealed that the cost of capital was much higher than underlying syndrome. In the beginning of the 1990s, tariffs incorporated into tariff levels. Sudden and large tariff adjust- ments in the middle of a crisis turned out to be politically impossible in most cases. From this perspective, it becomes under- Figure 1: Investment in infrastructure projects with private participation in standable why most problems with private developing countries, 1990-2001 investment and most criticism plague retail electricity and water schemes. In telecommu- 140 nications, where tariffs tended to be relatively high or in ports, airports and freight rail, 120 where wholesale customers were affected, 100 there has been relatively little criticism and not much of a boom-bust phenomenon. In billions 80 IDA countries, the (modest) trend in private US$ participation continues to be up, in part 60 because investors were more realistic from the 2001 beginning (Figure 4). 40 20 The benefits of privatization 0 DURING THE 1990s, it also became apparent 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 that private participation could bring better Source: World Bank PPI Project Database. oversight and management. The most detailed studies assessed what happened under priva- 10 Development Outreach W O R L D B A N K I N S T I T U T E tization compared to what would have happened without it (Galal et al., 1994; Shirley and Menard, 2002). They conclud- Figure 2: Investment in infrastructure projects with private ed that well designed private schemes have brought clear bene- participation in developing countries, 1990-2001, by region. fits--but not perfection. For example, in water, the most diffi- cultsector,incitiesasdiverseasBuenosAiresandLaPazaswell South Asia Sub-Saharan as Abidjan and Conakry service coverage has increased signifi- $40 billion Africa $20 billion cantly (Figure 5). Extended coverage tends to bring the biggest Middle East and North Africa benefitstohouseholdswithlowerincomes,astheypreviouslyhad $23 billion to pay much more for the service by small informal vendors. East Asia and the The cases where private participation failed, for example, Pacific in Cochabamba (Bolivia) and Tucuman (Argentina), tended to $211 billion be plagued by poor project design, including unrealistic investment and pricing provisions, and poor management of Latin America and the political process (World Bank, 2002). the Caribbean $361 billion Europe and Central Private infrastructure schemes Asia $97 billion Total = US$754 billion (in 2001 prices) IT IS NOW CLEAR THAT PRIVATE PARTICIPATION in infra- Source: World Bank PPI Project Database. structure is no panacea--but neither is going back to the old ways. Governments realize this. Out of almost 2,500 private infrastructure schemes worldwide only 48 have so far seen the exit of the private sector (20 of which are toll roads, mostly in Figure 3: Cost recovery in infrastructure under the public Mexico). Even for water in Cochabamba and Tucuman , the sector respective authorities are again considering private schemes, but better designed with more realistic investment and pric- 1.8 1.6 ing provisions. 1.4 This implies that countries can be better served with sound costs to 1.2 structuring of private schemes that involves: a) developing 1.0 regulatory regimes and strengthening regulatory capacity; b) 0.8 improving the efficiency and accountability of service provi- revenues 0.6 sion through sound contract design and targeting of subsidies, of 0.4 for example, via output-based approaches (in output-based Ratio 0.2 schemes, funds are disbursed against achievement of con- 0.0 tractually agreed outputs as opposed to traditional project Telecom Gas Power Water finance where the focus has been on financing of inputs); c) Source: World Development Report (1994) ensuring the transparency of pri- vatization or award processes, for example, disclosure of public interest items in concession- Figure 4: Investment in infrastructure projects with private participation in IDA countries, type contracts; and d) developing 1990-2001 local financial markets. 3.5 Regulatory institutions 3.0 THE HARDEST PROBLEM OF ALL 2.5 is to create regulatory institu- billions 2.0 tions that render tariff decisions US$ legitimate to the citizens and 1.5 credible to investors. Private 2001 firms are not free from greed, 1.0 and regulators are often caught 0.5 between politics and private interests. Encouragingly a recent 0.0 study of over 900 private conces- 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 sions in Latin America shows Source: World Bank PPI Project Database. that even moderately well func- M A R C H 2 0 0 3 11 of sound basics and walk away when clients Figure 5: Increase in access to water following privatization are not able to pursue sustainable projects, (percentage increase in population with access) whether public or private. In arguing for privatization, the benefits of 45 private finance must not be oversold. The 40 big issue is who pays at the end--will it be 35 consumers or taxpayers? The private sector does not pay. It can only help finance. 30 Financial engineering solutions and guar- 25 increase antee mechanisms that are not built on 20 sound fundamentals of user fees or fiscal 15 support will come to haunt clients and development agencies. Percentage 10 It is necessary to support schemes that 5 address the needs of the poor, particularly by 0 extending service coverage, but also where Abidjan, Conakry, Buenos Aires, La Paz, Cartagena, Baranquilla, Tunja, Cote d'Ivoire Guinea Argentina Bolivia Colombia Colombia Colombia possible by focusing subsidy schemes better. The question is whether the skeptical Source: Rivera (2002), Shirley and Menard (2002), World Bank (2001). citizens in client countries can be con- vinced. We know, for example, that overall support for privatization in the Latin Figure 6: Opinion poll--Peru privatization of electricity American region has declined precipitously. Recently, a poll generation in Peru, specifically exploring public opinion on currently stalled electricity distribution schemes, found that only 21 per In favor of privatization with cent of citizens supported privatization generally. But when 69% investment to expand service asked specifically what citizens felt, if privatization was done In favor of privatization if tariffs transparently, if investment commitments were adhered to and 65% authorized by regulator if prices were set by the regulatory process some 60 percent to In favor of privatization if two thirds supported privatization (Figure 6). 59% transparent process The challenge now is to do things right and to convince cit- In favor of privatization in izens of this. 5 general 21% Michael Klein is Director of Private Advisory Services and currently Source: Apoyo (2002) Acting Vice President for Private Sector Development and Infrastructure (PSI) at the World Bank. tioning regulatory agencies The World Bank, in partnership are able to restrain private References: with a number of utility regula- firms and significantly Apoyo Opinion y Mercado. 2002 Survey. Lima, Peru. tory institutions from OECD reduce the scope for oppor- and non-OECD countries, other tunistic re-negotiation of Galal, Ahmed, Leroy Jones, Pankaj Tandoon, and Ingo Vogelsang. 1994. Welfare Consequences of Selling Public Enterprises: An Empirical Analysis. multilateral organizations and contracts (Guasch, 2002). Washington D.C.: World Bank. universities has established The International Forum for Guasch Luis J, Jean Jacques Laffont, and Stephane Straub. 2002. IFUR in an effort to promote Utility Regulation (IFUR), "Renegotiation of Concession Contracts in Latin America." Preliminary Draft. regulatory capacity building Izaguirre, Ada Karina. 2002. "Private Infrastructure: A Review of Projects through training and the which has so far trained over with Private Participation, 1990-2001." Public Policy for the Private Sector exchange of information on 1,200 utility regulators Note 250. Washington D.C.: World Bank. infrastructure reforms and worldwide, remains a key Rivera, Daniel. 1996. Private Sector Participation in the Water Supply and utility regulation. contributor in this regard. Wastewater Sector: Lessons from Six Developing Countries. Washington D.C.: The knowledge to help is World Bank. there, but it requires more Shirley, Mary, and Claude Menard. 2002. "Cities Awash: A Synthesis of the rigorous action. In that Country Cases." In Mary Shirley (editor). Thirsting for Efficiency: The regard, it helps to get some key messages straight to all stake- Economics and Politics of Urban Water Reform. Pergamon Press. holders. World Bank. 2002. "Bolivia Water management: A Tale of Three Cities." World Bank Operations Evaluation Department Précis No. 222. Washington Privatization is no panacea. Underlying policy problems, D.C.: World Bank. like the level of tariffs need to be tackled and private World Bank. 2001. "Colombia ­ Water Sector Reform Assistance Project." schemes have to be designed well. Technically it is possible Report No. 21868 CO. Washington D.C.: World Bank. todothis,butpoliticallyitmaybehard.Whiletheclientswill World Bank. 1994. World Development Report: Infrastructure for ultimately choose, development agencies must not lose sight Development. Washington D.C.: World Bank. 12 Development Outreach W O R L D B A N K I N S T I T U T E SPECIAL REPORT Improved Access to Finance A Key to SME Growth BY HAROLD ROSEN commercial banks' SME lending skills and thus help tap into a potentially large and lucrative domestic market. SMALL AND MEDIUM ENTERPRISES (SMES) make up the IFC currently manages nine multi-donor IFC-managed largest portion of the employment base in many developing SME facilities around the world. These facilities, typically countries and, indeed, are often the foundation of the local funded 20 percent by IFC and 80 percent by our donor part- private sector. The entrepreneurs behind them could--and ners, are building the capacity of SME lenders in their target should--play a much larger role in development, but too often regions as part of a broader service package that also includes are held back by a lack of ready access to financing from local management training, technical assistance (TA) to businesses formal sector financial institutions. and business associations, and helping create greater employ- Viewing these smaller firms as costly, high-risk credits, ment opportunities through large company/small company many commercial banks avoid lending to them, concentrating linkages programs. instead on "safer" options such as financing larger local or multinational corporations, or holding high-yield govern- SME facilities around the world ment bonds. While understandable given current realities at many banks, this approach unfortunately dims the prospects IN VIETNAM, FOR EXAMPLE, the Mekong Project for sustainable development by ignoring the necessity of a Development Facility (MPDF) is working to improve SMEs' bottom-up capital formation--a key factor in the job creation access to finance through a Ho Chi Minh City-based commer- necessary for reduction of poverty and income inequalities. cial Bank Training Center (BTC) it launched in 2001. This ini- And we need not settle for it. Proven models of profitable tiative began with MPDF analysis that identified internal small business banking do exist that can be transferred from obstacles keeping Vietnam's banks from doing more prof- country to country, scaled up over time, and then replicated itable SME lending, leading to a BTC business plan that more widely for considerable development impact. attracted seed capital of $100,000 from 10 private local banks serving mainly SMEs. These small banks lacked the resources Project Development Facilities to organize in-house training programs, but have now come together to create a for-profit solution that will provide fee- THE WORLD BANK GROUP SME Department, a joint effort of based training courses to themselves, their competitors, and the World Bank and International Finance Corporation (IFC), similar banks in Cambodia and Laos. In its first year, the BTC is taking on this agenda, using several strategies to increase provided top-quality commercial training courses to more SME access to capital. This involves not only supporting the than 2,700 local bankers, offering 30 different courses cover- traditional WBG product of channeling of medium-term hard ing such important areas as Customer Focus and Service currency loans channeled through local banks, but also sever- Quality, Credit Risk and Lending to the Household and SME al newer capacity building initiatives started by our multi- Sectors, Risk Management in Banking, and others. donor Project Development Facilities (PDFs) to improve In its first year of operations, demand for the BTC's cours- M A R C H 2 0 0 3 13 es have vastly outstripped the supply, BUILDING ACCESS TO FINANCE and the training center has been able to meet client needs while consolidating this demand to make its operations commercially viable. Initially led by a former head of Standard Chartered Bank's external training center in Jakarta, this capacity building initiative is doing much to help local bankers learn the practical skills they need to lend profitably to small businesses. It thus has synergies with broader World Bank Group operations, supporting key objectives of the Country Assistance Strategy for Vietnam, and complement- ing IFC's own recent investments in two BCT shareholders that are emerging as model financial institutions for the country, Asia Commercial Bank and Sacom Bank. Similar objectives are being met in other countries as well. In keeping with IFC's decision to cut back its direct SME lendinginfavorofgeneratingmorefunds from domestic financial institutions, over the last year the PDFs have also The Mekong Project Development Facility (MPDF) is an IFC-managed multidonor SME recently held seminars to introduce local development initiative based in Vietnam. It has helped increase local capital flows to SMEs by launching the Bank Training Center, a commercial venture owned by 10 leading private bankers in Bangladesh, China, India, Vietnamese banks that offers training courses not only to its own shareholders, but other Indonesia and Nigeria to successful for- financial institutions as well. eign models of SME lending. This creates new opportunities for knowledge trans- fers that will enable them to take advan- tage of the vast underserved "middle" market represented by SMEs in their SHAREHOLDERS: region. VIETNAMESE BANKS In western China' Sichuan province, Housing Bank Military Bank where incomes lag far behind those of VN International JSB Eximbank the more prosperous coastal regions, Asia Commercial Bank Techcombank Sacombank Habubank the China Project Development Facility Human capacity East Asia Bank (CPDF) organized an October 2001 lending workshop for the management Office space Early stage research of Chengdu City Commercial Bank. This Best practice and development institution has a solid track record in training materials BANK TRAINING CENTER SME lending with 80 percent of its and resources loanable funds concentrated in financ- Fee-based training Skills development ing over 3,000 local SMEs. For a city courses like Chengdu that is home to more than 129,000 SMEs accounting for 99 per- cent of the total number of firms, the Joint Stock Joint Stock State Owned International "Best International SME Lending Banks Banks Banks Banks Practices" conference was an important means by which Chengdu's bankers and (shareholders) (non-member) entrepreneurs could learn about suc- cessful SME lending models in other parts of the world, thereby overcoming RESULTS: More than 2,700 Vietnamese, Cambodian and Lao bankers trained in SME Finance. the "access to knowledge" problem faced in many frontier markets. 14 Development Outreach W O R L D B A N K I N S T I T U T E Speakers at the Sichuan conference percent of the industrial work force rep- topics covered both credit risk manage- resents a key means for sustainable job ment (a framework that outlines ideas creation and economic expansion. MULTI-DONOR on how to run an SME bank) and credit The Africa Project Development IFC-MANAGED risk analysis (a framework that provides Facility (APDF) is pursuing this agenda local banks with a systematic approach as well. In Francophone West and SME FACILITIES and effective set of tools to gauge an Central Africa it has recently provided SME's strengths and weaknesses). The training in SME Credit Risk assessment awareness of SME needs generated at to 241 loan officers from 66 different · Africa Project this seminar for local banks eager to local and regional financial intuitions Development Facility better serve Chengdu's booming small spanning 13 different countries. (Sub-Saharan Africa) business sector has created strong Organized in cooperation with the demand for CPDF's concentrated European Union, this module begins · African Management efforts to develop the supply side of the with five days of group training, then Services Company SME funding equation. CPDF has also leads to five more days of in-house (Sub-Saharan Africa) finished training 100 credit officers at training where the bankers learn to the China Construction Bank (CCB) develop and adapt their new analytical · Mekong Project Sichuan branch, strengthen their skills tools, apply new skills to specific credit Development Facility in SME lending. This will equip CCB files, and work on the organizational (Vietnam, Cambodia, well as it moves forward in its decision aspects of SME portfolio management. and Laos) to enter the local small business mar- Similarly, in Ghana APDF has brought ket, a crucial source of job creation at a in facilitators from the prestigious · China Project time when China is otherwise often Lagos Business School in neighboring Development Facility shedding jobs through the restructuring Nigeria to train 20 credit officers from a (Sichuan Province) of its large state-owned industrial cross section of Ghanaian banks on top- enterprises. ics such as The Entrepreneur-Beyond · Indonesia Enterprise A similar approach is being taken by the Business Plan, Developing New Development Facility the SouthAsia Enterprise Development Business Ventures, Challenges of (Eastern Indonesia) Facility (SEDF), a newly launched ini- Growth, and Determining Working tiative funded by the IFC and other Capital Needs. · Southeast Europe donors, which has targeted its efforts Enterprise towards greater SME financing from Conclusion Development local Bangladeshi banks. In June 2002 (Bosnia and Herzegovina, SEDF kicked off operations with a con- NO EFFORT TOWARD POVERTY Albania, FRY ference similar to the one hosted by REDUCTION in developing nations is Yugoslavia, CPDF earlier, where it brought to Dhaka sustainable without growth of SMEs. FYR Macedonia, several SME finance experts and offi- One of the first steps toward a vibrant and Kosovo) cers from highly successful SME lend- SME sector is the opening of more ing institutions worldwide like Business financing channels, and ensuring that · SouthAsia Enterprise Partners of South Africa, PlantersBank they are focused on building strong Development of the Philippines and the National partnerships and trust between SMEs Facility Development Bank of Sri Lanka. Local and their local banks. This would have (Bangladesh, banks have since responded very posi- lasting impacts in helping local entre- Northeast tively to SEDF's access to finance pro- preneurs obtain the capital they need India, and gram: Dhaka Bank Limited has already to build their businesses and create Bhutan) signed an agreement with SEDF to col- more jobs in economies that sorely laborate on training and TA on informa- need new employment opportunities. · South Pacific Project tion technology (IT), marketing, human Facility (Pacific resource development and credit man- The International Finance Corporation's islands) agement. SEDF is also working with Harold Rosen is Director of the World Bank numerous other local financial institu- Group SME department. · North Africa Enterprise tions to make them aware of the prof- Shaela Rahman provided editorial assistance Development Facility itability potential of Bangladesh's large with this article. (Morocco, Algeria, SME sector. For a country of 130 million and Egypt) that is one of the poorest in the world, development of the SME sector of 200,000 companies employing over 80 M A R C H 2 0 0 3 15 SPECIAL REPORT A New Way to Learn and Build Networks BY DONALD F. TERRY projects have always been grouped in various manners on an ex post basis, the cluster approach extends this to a conscious AS EXPERIENCE HAS SHOWN, ensuring that all members of method of identifying and delivering development assistance. society benefit from economic reform is a complex and Its underlying purpose is twofold--to build networks among uncertain process. There is an urgent need to involve new those directly involved in addressing similar development communities and find better ways to create inclusive econom- challenges, and to increase the effectiveness of testing a given ic growth. The Multilateral Investment Fund (MIF) small set of interventions. demonstration projects are testing new concepts, advancing Clusters start with a policy paper that analyses specific pri- innovative ideas and broadening economic participation. vate sector issues, and suggests types of initiatives that could Among the many development agencies striving to improve be undertaken by the cluster. After approval by MIF's Donor economic conditions, MIF is equipped with a mandate and Committee, this framework paper is widely shared with resources that allow it to play a special role. potential partner NGOs, business groups and public sector It is often difficult to identify whether the results of tech- agencies throughout Latin America and the Caribbean. These nical assistance arise from the approach taken in a given proj- partners propose specific projects for inclusion in the cluster ect, or whether the outcome is due to its unique circum- so that their development effectiveness in addressing these stances. This can lead to a lot of frustration and wasted concerns can be tested with sufficient concentration to obtain resources as models are tried over and over again, until there clear results. is sufficient experience to reach some conclusions about the Clusters are supported by a coordinator who regularly vis- effectiveness of a given approach. Also, people often struggle its projects, fosters the sharing of experiences, and facilitates with very similar challenges and problems, quite unaware that project implementation. A key aspect of the coordinator's others have identified lessons that can be usefully applied. responsibilities is to report on lessons learned on an ongoing To help deal with these realities, MIF has introduced a new basis, so that best practices can be identified and shared approach to private sector development in Latin America and among the partner agencies. Seminars, workshops and other the Caribbean. Instead of funding a number of unrelated events are typically organized to help build a network among projects, MIF is now delivering technical assistance via proj- those involved in implementing the initiatives and promote ect clusters. the identification of useful practices. There are many advantages to the cluster approach. It How Project Clusters work strengthens project design and implementation, giving proj- ect teams, executing agencies, and those supervising imple- PROJECT CLUSTERS are a concept whereby a series of projects mentation access to ongoing technical expertise; promotes are inter-related from their inception, and identified, devel- communication among executing agencies facing similar oped, implemented and evaluated as a group. Cluster topics challenges and helps build regional networks; and maximizes are identified based on demand from the region and on the generic lessons learned and identification and dissemination experience gained with promising pilot initiatives. While of best practices. 16 Development Outreach W O R L D B A N K I N S T I T U T E Project Clusters in action lion. These funds are demonstrating the viability of such new financial products to finance small business start-ups and MICROFINANCE. Over the past decade MIF has invested in expansion, and are helping to expand the frontiers of private every instance of the region's NGO micro-lenders transform- equity. MIF is building on this pioneering `market-maker' role ing into regulated financial institutions. Technical assistance bysupportingreformsinregulatoryandlegislativeframeworks, has been provided to over 40 microfinance institutions to and by helping remove barriers to small business financing. strengthen financial and administrative processes, improve The importance of equity investment in small firms is control of operations, and introduce specialized credit and illustrated by the experience of Jolyka Bolivia S.R.L. risk management techniques. Investments and financing from the EcoEnterprise Fund and In the Fall of 2001, the MIF approved a highly innovative Fondo de Capital Activo de Bolivia enabled the company to project designed to link an Ecuadorian bank, Banco Solidario, realize its vision of producing hardwood flooring products with several Spanish financial intermediaries. The project is from managed Amazonian forests. Jolyka was founded in 1995 designed to both reduce the costs of remittances by and received these investments in 2000. Today, Jolyka is the Ecuadorians living abroad and at the same time provide more third largest exporter in Cochabamba. Its sales have increased resources for microenterprises in Ecuador. The line of credit 500% and it has generated 35 new jobs. Jolyka, by being com- offered through this project is allowing Banco Solidario to mitted to purchasing from sustainably harvested and well- reach out to about 2,000 entrepreneurs, with each loan aver- managed forests, has created incentives for sawmills to aging about $1000. Over the six-year life of the line of credit, become certified in responsible forest management. the beneficiary microenterprises will be able to increase pro- QUALITY MANAGEMENT. As markets around the world ductivity through financing provided for working capital. become more closely integrated, there is a growing need for EQUITY AS A DEVELOPMENT TOOL. Since its first invest- suppliers to adhere to international quality management ments in 1996, MIF's portfolio has grown to a commitment of standards (ISO) and food safety protocols. MIF's 12 projects $164 million in 33 funds, leveraging an additional $270 mil- are building regional quality management capacity, working at M A R C H 2 0 0 3 17 both the firm level as well as with the regulatory and institu- projects not only address the need to recognize and standard- tional frameworks. A special focus of the projects is to ensure ize on-the-job skills training, but also help create a more that smaller firms also benefit from the productivity enhance- effective system of private sector specialized skills training by ments that can be realized through quality management tech- clearly identifying workplace needs. niques. To date, more than 13,000 people have participated in An MIF grant to the Instituto de Hospitalidade in Bahia, general seminars to raise awareness, and 4,000 have been Brazil, had an immediate effect on the life of Paulo Gomez. trained in quality management techniques. This 35-year-old father of three, had worked 50 to 60 hour SKILLS STANDARDS AND CREDENTIALING. Workplace weeks in a variety of jobs since joining the Bahia workforce at based skills standards and credentialing systems improve the age of fifteen. After seven years with his most recent worker mobility and modernize skill assessment. Employers employer, Paulo only made slightly more than minimum cannot find enough workers already trained in needed job wage, hardly enough to support his growing family. When a skills. Workers find it difficult to have their on-the-job expe- tourism training program was introduced in his city, promis- rience appropriately recognized by new employers. MIF proj- ing job skills and growth potential, Paulo decided to enroll. ects have been working in particular industry sectors with Within four months, he had the necessary skills to serve as a both employers and labor to develop occupational skills stan- waiter in a hotel restaurant. Within a year, he became a super- dards that allow both workers and employers to train and visor, making more money than he ever dreamed of. Pablo assess performance against industry-accepted criteria. These enjoys working with people, and feels he now has a career. In Bahia's growing tourism industry, there eventually will be dozens of quality restaurants and hotels competing for some- one with his skills and positive attitude. ALTERNATIVE DISPUTE RESOLUTION. Efficient resolution The MULTILATERAL INVESTMENT FUND of commercial disputes is a key factor in small business com- (MIF), established in 1993, has become a petitiveness. MIF projects introduced ADR into the region key mechanism of the InterAmerican Bank through the establishment of a network of 16 centers offering Group in promoting inclusive economic a simpler, less costly way to resolve commercial disputes. growth in Latin America and the Caribbean. REMITTANCES AS A DEVELOPMENT TOOL. Untapped Equipped with $1.2 billion, and a mandate development potential of more than $23 billion in remit- to support innovative private sector develop- tances flows annually into Latin America and the Caribbean ment, MIF's goal is to develop broadly alone. Remittances, funds sent by migrant workers back to based growth and improve economic countries of origin, are a key economic factor in many nation- prospects for those less equipped to benefit from market reforms. al economies, often accounting for more than 10% of a coun- try's GDP. Yet the high costs of transmittal coupled with low Using both grant and investment mecha- participation rate in the financial sector have curtailed the nisms, MIF undertakes projects in partner- development potential of these massive flows. MIF is working ship with business groups, NGOs and pub- to increase the development impact of these funds through lic sector entities to build the capabilities and skills standards of the workforce, lower costs, mobilizing savings and increasing the participa- broaden the economic participation of tion of migrant communities in the financial sector. smaller enterprises and strengthen the envi- CLEAN PRODUCTION. Small businesses should see environ- ronment for doing business. mental management as an opportunity--not a cost. A series of Cleaner Production projects in the region, are helping to Over 75 percent of initiatives are with pri- vate sector partners. Average contribution reduce pollution and waste at their source, by reducing or sub- per project has increased from less than stituting inputs, recycling, and use of more efficient processes. one third in the first three years to over 50 Frequently, such measures cut costs, reduce liabilities and open percent in recent years. new market opportunities. These compliment the many envi- ronmental initiatives MIF has funded over the years to enhance Typically technical assistance grant projects are in the $1­1.5 million range. Together, eco-efficiency and improve environmental management. MIF and its partners have directed over $1.5 billion in technical assistance and Conclusion investment projects to develop the private sector throughout the region. With more THE FOCUS ON PILOTING NEW IDEAS has enabled MIF to be than 520 projects for a total MIF commit- ment of $830 million approved as of the highly flexible and responsive to the development needs as close of 2002, MIF is the major source of seen from the local level, resulting in the empowerment of technical assistance grants for micro and NGOs and business groups that are determined to improve small business development in the region. their economic future. 5 Donald F. Terry is Manager, Multilateral Investment Fund, Inter- American Development Bank. 18 Development Outreach W O R L D B A N K I N S T I T U T E SPECIAL REPORT Responsibility Breeds Success BY NIGEL TWOSE AND ZIBA CRANMER Nike, Adidas, Reebok, Timberland, Puma, Triumph, and Tommy Hilfiger. Anticipating buyer requirements for higher KHIEU THIEN THUAT IS MANAGING DIRECTOR of Coats labor standards, Coats Phung Phu spent thousands of dollars Phung Phu, a medium sized footwear and apparel factory in to receive SA 8000 certification, the most stringent corporate Ho Chi Minh City, Vietnam. Once a state owned enterprise, it social responsibility certification standard in the world today, has been equitized and is currently a joint venture. Mr. Thuat and modeled after the ISO system of quality certifications. Mr. is operating in an economy in transition, picking up signals Thuat's rationale, and the new and improved standards from his buyers about price, quality and standards rather than applied in his factory today, reveal the way that the global mar- from the state. His buyers are now primarily outside Vietnam: ketplace is learning to operate. Seattle may have botched an M A R C H 2 0 0 3 19 attempt to link labor standards to international trade; but strate supply chain integrity. The literature shows system- activists supporting the same linkages have successfully stim- atic evidence of multinational companies exposed by so- ulated market pressures that achieve the same goal. High pro- called anti-sweatshop campaigns being subsequently pun- file consumer goods companies are responding to demands ished by the market through sharp decreases in share prices. for higher social and environmental standards, not because An increasing number of consumers want reassurance governments or international organizations told them to, but about the integrity of the supply chain behind the products because of consumer and civil society pressure. they buy. Firms respond to these pressures with CSR investments, Corporate Social Responsibility often in the form of codes of conduct for their suppliers, working to ensure that these investments help protect rep- CORPORATE SOCIAL RESPONSIBILITY, or CSR, is an agenda utation and where possible create increases in productivi- as old as enterprise itself. But globalization now appears to be ty, quality, and cost savings and the supply factory level. encouraging a market-driven cycle of CSR pressures that The end of the cycle for the multi-national corporation is stimulates voluntary social, environmental and ethical often market reward or at the very least risk mitigation: improvements at the firm level. The World Bank has argued maintaining brand reputation, an increased share of exist- for some years that there is no locational race to the bottom for ing markets, access to new markets, and access to capital multinationals--that is, firms do not generally seek produc- from socially responsible investment portfolios. For pro- tion locations based on lax regulations, weak enforcement, ducers of these MNCs, one of the primary market rewards ease of pollution, or solely on the basis of cheap labor. Foreign is maintaining or winning new contracts. investors tend to be concerned about the fundamentals Of course, the drivers for CSR are not always sufficient to (macroeconomic performance, governance and political risk) realize the market reward, civil society pressure does not tar- plus their reputation in markets where high standards are get all industries or companies equally. The extent of these seen as desirable. This is the context in which the market- pressures helps determine the business case. This CSR cycle driven cycle for CSR is demonstrating how standards can be only tells half of the story, with the other half relating to the raised for sound business reasons. Under this model, firms challenge of compliance by suppliers whose capacity in this that do not perceive a business benefit are under no obligation area is often underdeveloped. to undertake CSR activities, and will not do so. The chain of market-based pressures and relationships Emerging market producers embrace that can produce a "CSR cycle" is not always logical, but an CSR example of the CSR cycle involving an MNC with a broad glob- al supply chain often looks like this: ACROSS THE WORLD, a pattern is emerging of the kinds of firms for which the CSR agenda appears particularly relevant: supply chains involving suppliers of consumer goods in emerging markets where the regulatory regime is often weak selling to buyers with consumers in developed countries; buy- ers with a contract relationship to the producers and no own- ership stake in the production facilities; buyers of "lifestyle" or image-oriented products with valuable brands to protect; labor-intensive manufacturing. Mr. Thuat had seen the CSR cycle in action in Vietnam's athletic footwear industry. Allegations of sweatshop abuse frequently arise in the apparel and footwear sectors, which are dependent on image-oriented products, labor intensive, geo- graphically mobile and highly price competitive. In 1997, a leaked audit report by international buyers was heavily critical of sweatshop conditions in footwear contractor plants in Vietnam; it received wide media exposure in the US and Europe. The global brand companies--the buyers--responded by introducing CSR codes of conduct down their supply Multinational corporations selling in the industrialized chains, with the objective of ensuring acceptable working countries of the world contract suppliers located in emerg- conditions in response to activist groups, concerned con- ing markets to manufacture their products. Suppliers are sumers and stockholders. mostfrequentlylocatedincountrieswherewagecostsarelow The brand companies were clear about the prime benefit and the regulatory environment is often underdeveloped. they sought for themselves: reputation assurance. Supplier Stakeholder groups draw media attention to environmen- factories' prime benefit has been holding on to existing con- tal and social issues within a globalizing economy, increas- tracts or gaining new business from CSR-sensitive buyers, but ing reputational risk for any firm that is unable to demon- there is emerging evidence, much of it anecdotal, that accept- 20 Development Outreach W O R L D B A N K I N S T I T U T E CSR CODES FALL INTO THREE BROAD CATEGORIES BUYER CODES, adopted by an individual buyer, for use FACTORY CERTIFICATION SCHEMES: Factories like Coats in their global supply chain. The buyers pay for Phung Phu seek certification to demonstrate to internal monitors and independent auditors; the potential suppliers that they are proactive in supplier factories pay for any remedial action and addressing labor standards. The factory pays for the infrastructure upgrades required. Buyers take labor certification process, annual audits as well as any standards into consideration when selecting suppliers remedial action and infrastructure upgrades required. and monitor them to ensure that the factories These schemes provide manufacturers with an continue meet their standards. The prevalence of opportunity to take the initiative in demonstrating codes among major companies, including discount their advanced level of commitment to labor retailers such as Wal-Mart and Target, suggest that Mr. standards; they are often adopted as a marketing and Thuat and any other Vietnamese suppliers planning to communications tool, but require a company to adopt sell into European or US markets within the next five systems and improvements that can generate concrete years will need to take CSR codes seriously. changes to the factory's operations. There are no guarantees that factory certification will lead to contracts, but these programs enable factories to anticipate scrutiny from MNCs and their initial audits of potential suppliers. OTHER TYPES OF CODES: The Base Code of the Ethical Trading Initiative (ETI), ILO Guidelines for multinational enterprises, and codes from the OECD, ICFTU, FIFA, and WFSG are all codes developed as guidelines to companies on appropriate standards. These codes do not necessarily have associated monitoring or auditing programs, and their purpose is to provide guidance and shared learning about best practice. ance of a CSR code has brought supplier factories additional in labor standards, such as: improved quality of life and health business benefits. Such reports fit the general pattern of CSR- for workers and their families; improved enforcement of the derived productivity and quality improvements reported labor law through this complementary market-based mecha- across 60 countries and 240 businesses by IFC in their recent nism; and improved national competitiveness--as more com- report `Developing Value' (see References). panies implement CSR activities, the reputation of the country For the buyers, business benefits fall into three broad cat- as a safe place to invest for CSR sensitive firms will increase. egories: protecting their brand against existing or potential The benefits achieved by an individual firm that undertakes civil society attacks; promotion of brand as sustainable prod- CSR activities clearly vary. ucts, niche market and price premium; and inclusion in socially responsible investment portfolios. For the suppliers, Codes of conduct to achieve higher the benefits appear to be: maintaining or winning contracts; standards improving productivity, innovation and quality; declining employee turnover; and improving social `license to operate.' THESE CSR-DERIVED GAINS are generally achieved through In parallel with these business benefits, we see clear evi- CSR codes of conduct. CSR codes for supply chains emerged in dence of development gains from CSR-derived improvements the early 1990s, with the first created by Levi Strauss in 1991, M A R C H 2 0 0 3 21 THE MARKET-DRIVEN CYCLE FOR CSR IS DEMONSTRATING HOW STANDARDS CAN BE RAISED FOR SOUND BUSINESS REASONS in direct response to concerns about labor conditions in sup- addressed through a cost-benefit analysis framework, but it is ply factories in developing countries. Codes stipulate the likely that for some actors, the business case does not exist - social, environmental and ethical requirements for suppliers, the risk of market sanction and the benefits of CSR imple- require monitoring of their implementation, and regular mentation are not sufficient. independent audits; in this way, they help firms implement The third challenge is an evolution away from top-down standards that go beyond those that are enforced locally. We enforcement by buyers to strategies that incorporate empow- estimate there to be perhaps 1,000 codes in existence today, erment, capacity building and training. The evidence seems developed by individual multinational companies on a volun- clear that a top-down policing approach to CSR compliance is tary basis, depending on their business needs. insufficient. A supplier who is only implementing CSR stan- The content of those initial codes varied widely, but today dards because of buyer insistence can find ways to evade com- their content is converging rapidly around standards estab- pliance without too much fear of detection. A number of buy- lished by the International Labor Organization. Most codes ers have now acknowledged the need for shared ownership of cover approximately 10 points, and represent principles cor- CSR standards throughout the supply chain, including: a focus responding to the ILO Core Conventions including: forced on the business rationale; capacity-building support at the labor, child labor, freedom of association and collective bar- factory level, for management and workers alike; and an gaining, discrimination, as well as health and safety, wages emphasis on the role of workers as guarantors of CSR imple- and hours of work. This content also overlaps strongly with mentation. national legislation, including the labor code in Vietnam. It Trade unions have long argued that empowered workers seems that the primary development gain of CSR codes is not are key to ensuring implementation of CSR standards because to create higher labor standards, except in those countries of their continuous presence at the worksite and their stake in where national labor law is less than international norms. the outcome. Some buyers and suppliers are undertaking Instead, and arguably more usefully, they provide an instru- experiments to increase the involvement of workers in their ment and accompanying process that supports enforcement of CSR implementation strategies through NGO-style participa- laws governing working conditions. tory techniques. For example, Union Footwear in Thailand was encouraged by their primary buyer Nike to implement Key challenges supervisors' skills training using a participatory interactive methodology developed by the Global Alliance for Workers OVER THE LAST 10 YEARS OF DEVELOPMENT and expansion and Communities, focused on communication skills and fac- of business-to-business CSR codes, three key challenges have tory culture issues, and then tracked productivity. According emerged: to an interview with factory management, they found 5 -10 The first challenge is one of inefficiencies and confusion. percent improvements in lines where supervisors had Inefficiencies have emerged as a result of industry structures received the training. They also tracked sick leave patterns characterized by shifting contractual relationships among after health training and health clinic improvements intro- suppliers and buyers with a lack of long-term business rela- duced by the Global Alliance: sick leave declined from 4 per- tionships, and suppliers with multiple buyers. Increasingly, cent a day to 2 percent. Similarly, Lian Thai, an apparel facto- each buyer has its own code of conduct, CSR training require- ry in Thailand, has monitored the correlation between health ments, buyer monitoring and external verification audits. The inputs (training on nutrition, exercise, first aid and peer result is overlap and repetition, with unnecessary burdens on counseling) with visits to the factory clinic: these fell from 70 both the buyers, who generally cover the cost of monitoring, to 80 patient visits per day to 5 to 10. and the suppliers who have to allocate time. Confusion about CSR among suppliers has two consequences. First, it serves as Results show the way a barrier to entry for suppliers wishing to be proactive in addressing CSR as a means of attracting or retaining clients: it MR THUAT AT COATS PHU PHUNG is convinced that the is not clear how they can best demonstrate compliance to a money invested in improving the work place and in achieving range of potential CSR-sensitive buyers. Secondly, despite SA 8000 certification was well spent. Their results are some convergence in code content (especially in labor con- impressive, both in terms of sales and employee satisfaction. tent), significant discrepancies remain in monitoring, audit- Mr. Thuat's conviction of the direct correlation between ing processes and remedial action. Confusion can undermine CSR investment and productivity gains has not gone unno- CSR code implementation. The second challenge is insufficient business justification for making the required CSR investments. Some issues can be c o n t i n u e d o n p a g e 3 1 22 Development Outreach W O R L D B A N K I N S T I T U T E SPECIAL REPORT Why Corporate Governance? BY MIKE LUBRANO CORPORATE GOVERNANCE refers to the struc- tures and processes for the direction and control of companies. Corporate governance concerns the relationships among the management, the board of directors, the controlling shareholders, minority shareholders and other stakeholders. Good corporate governance contributes to sus- tainable economic development by enhancing the performance of companies and increasing their access to outside capital. The OECD Principles of Corporate Governance provide investors and other stakeholders with a general framework for assessing the adequacy of the legal regulatory and institutional environ- ment, and the strengths and weaknesses on gov- ernance of individual companies. The OECD principles identify the key issues on corporate governance: the rights and equitable treatment of shareholders, the role of stakeholders, disclo- sure and transparency, and the responsibilities of the board of directors. They are universally applicable to all types of corporate governance systems in countries at all levels of economic development. Although the key issues are highly relevant for all types of companies, the OECD Principles were written for the case of publicly listed companies. Since they were issued in 1999, the OECD Principles have gained acceptance throughout much of the world as an appropriate framework for analyzing the corporate governance environ- ments of different markets and as a starting point for developing approaches to evaluate the FORMER SEC CHAIRMAN ARTHUR LEVITT SPEAKS ON THE ROLE OF COMPANY effectiveness of governance of individual com- BOARDS OF DIRECTORS AT THE NATIONAL DIRECTORS INSTITUTE IN CHICAGO panies. However, as a consequence of the uni- (MAY 9, 2002) versal applicability of the Principles, they do not M A R C H 2 0 0 3 23 IMPROVING CORPORATE GOVERNANCE CONTRIBUTES TO THE DEVELOPMENT OF THE PUBLIC AND PRIVATE CAPITAL MARKETS provide detailed prescriptions for good corporate governance barrier to investment even for IFC with its mandate to work in for particular countries or companies. The challenge for an frontier markets. Improving corporate governance of investee international investor in the private sector such as companies allows IFC to work in high risk environments. It International Finance Corporation (IFC) is to take this frame- should also bring an increase in the market valuation of com- work of international best practices of corporate governance panies and attract more investors. and use it to add value to the wide spectrum of emerging mar- In recent years, IFC has worked with some of its highest- ket companies. profile clients to improve their governance. By establishing best practices among high-profile clients, IFC is able to have a Why corporate governance matters for positive demonstration effect that benefits other companies. IFC clients By working with individual clients, IFC helps to increase the investment flows to developing countries. IFC involvement provides an opportunity to enhance Improving corporate governance contributes to the devel- the transparency of capital markets, strengthen pri- opment of the public and private capital markets (Claessens, vate savings, and adopt a more democratic approach to 2002). Poor governance undermines the integrity of publicly shareholding. traded securities and discourages the use of public markets as --Nicanor Restrepo, President of Suramericana, IFC client a means to intermediate savings. Poor standards of gover- in Colombia. IFC Annual Report 2002. nance, particularly in the area of transparency and disclosure have been a major factor behind instability in the financial GOOD CORPORATE GOVERNANCE improves access to capital markets across the globe. This was seen in the case of the East for client companies. Much of the attention given to corporate Asian financial crisis of 1997, where so called "crony capital- governance issues in emerging markets among policy-makers ism" combined with macroeconomic imbalances to bring an and academics has focused on the role governance can play in end to decades of outstanding economic growth. Most recently, improving access for emerging market companies to global poor corporate governance failed to prevent mis-management portfolio equity. An increasing volume of empirical evidence and fraud that led to the dramatic corporate failures in the USA. indeed indicates that well-governed companies receive high- er market valuations (Klapper, 2002). However, improving IFC's comparative advantage in corporate governance will also increase all other capital flows corporate governance to companies in developing countries: both domestic and global capital; both equity and debt; and both publicly issued IFC IS ABLE TO ADD VALUE to clients in the area of corporate securities and private capital sources. governance because of the expertise it has developed in this In addition, regardless of the need to access capital, good area over many years, advising governments, clients and oth- corporate governance will bring improved performance for ers, and structuring investments across a wide range of mar- IFC clients. Improved governance structures and processes kets and industries. will improve decision-making within the company, ensure IFC plays a leading role in the global policy dialogue on effective succession planning for senior management and corporate governance and provides technical assistance to enhance the long-term prosperity of companies, independent regulators, stock markets and others. In the former Soviet of the type of company and their sources of finance. Union and China, IFC manages a series of large donor funded technical assistance projects that help companies formalize Why corporate governance matters for their governance and improve their transparency. IFC staff IFC organize corporate governance events and carry out advisory work across the world, such as co-sponsoring the OECD CORPORATE GOVERNANCE IS A PRIORITY for IFC because it Roundtable in Latin America and establishing Networks of presents opportunities for IFC to manage risks and add value Institutes of Directors in East Asia, Central and Eastern to clients. In addition to the benefits to individual client com- Europe and Latin America. IFC staff work with the Global panies, working to improve corporate governance contributes Corporate Governance Forum, with particular responsibility more broadly to IFC's mission to promote sustainable private for assisting the work at the Forum's Private Sector Advisory sector investment in developing countries. Group (PSAG) of leading experts on corporate governance As an investor, it is in IFC's interest to reduce the risk of from across the OECD and emerging markets. In this capaci- investments by improving the governance of investee compa- ty, IFC has convened meetings of investors representing $3 nies. In the worst corporate governance environments, poor trillion in Brazil, Russia and China. governance standards and weak enforcement continue to be a Probably most important is IFC's accumulated experience 24 Development Outreach W O R L D B A N K I N S T I T U T E as an investor in developing coun- tries since 1956. Although the term "corporate governance" has only become widely used in the mass media over the past five years, IFC has worked on the key issues of cor- porate governance at the grass roots level for decades--structuring client companies, appraising investment opportunities, and nominating board members. This practical experience allows IFC to tailor glob- al principles to the realities of the private sector in developing coun- tries. Development banks and other investors working in emerging mar- kets now look to IFC for leadership on corporate governance issues in developing countries. Sustainability and corporate governance CORPORATE GOVERNANCE is one of the pillars of IFC's focus on sus- tainability, along with environmen- tal and social safeguards. A company that is well governed is one that is accountable and transparent to its shareholders and other stakehold- ers, such as, employees, creditors, customers and the wider society. Better corporate governance increases the likelihood that the enterprise will satisfy the legitimate claims of all stakeholders and fulfill its environmental and social responsibilities. Accordingly, it ensures the long-term, sustainable growth of companies, which is nec- essary to economic growth. 5 Mike Lubrano is Principal Financial Specialist and Head of the Corporate Governance unit of IFC. References Klapper, Leora F., and Inessa Love, Corporate governance, investor protection, and performance in emerging markets, World Bank Policy Research Working Paper. (April 2002) Claessens, Stijn, and Luc Laeven, "Financial development, property rights and growth". Journal of Finance, June 2002 (forthcoming). M A R C H 2 0 0 3 25 SPECIAL REPORT Hi-tech Booms in Russia While It Bombs in the West 26 Development Outreach W O R L D B A N K I N S T I T U T E BY ELIKA TRIFONOVA operating in the market and the vast majority of them are focused on making investments in diversified industries, "IT COMPANIES IN RUSSIA have seen rapid growth and rather than technology companies e.g. Delta Capital, Baring expansion over the last year or so, even while the tech sector in Vostok Capital Partners, Quadriga Capital & Norum," said the United States and Europe has been languishing," said IFC's Portnoy. Adam Portnoy, a Senior Investment Officer in IFC's Global There are only two small funds operating in Russia that are Information & Communication Technologies Department. focused on making investments in IT companies--Mint Over the last year, IFC has made a number of investments Capital, which has a $21 million fund operating in Moscow and in the Russian IT market, including a $12 million investment the Russian Technology Fund, which has a $5 million fund in Information Business Systems, Russia's largest IT compa- operating in St. Petersburg. "There were some other invest- ny, and a $1.5 million investment in Egar Technology, an ment funds operating in Russia that focused on technology, early-stage financial services software company. IFC recently but they have either shut down or stopped all technology received approval for a $6 million investment in Ru-Net investing in the aftermath of the collapse of the Internet bub- Holdings, a leading Russian IT services company, and the IFC ble in 2001, e.g., Sun Capital, Orion Capital, NetBridge, LV IT team is planning on making further investments over the Finance and Sputnik Funds. So really, there has been very lit- next 12 months. All of this activity has resulted in IFC being tle investing in Russian IT companies over the last couple of widely recognized today as the leading investor in the Russian years," said Portnoy. IT industry. Apart from providing capital to an industry that is current- "There are a number of reasons why IFC is investing in the ly not receiving much financing, IFC's investments also serve Russian IT sector," said Portnoy. "Russia has an enormous as a catalyst for further investment by the private sector in amount of scientific talent inherited from the Soviet Union; Russian tech companies. For example, both Intel Capital and and there is a lack of capital available for Russian companies Draper Fisher Jurvetson (large Silicon Valley­based technol- in this sector. IFC believes that Russian IT companies will ogy venture capital groups) have recently expressed interest in benefit from the continued growth of the Russian economy, investing in Russian IT companies. resulting in profits for investors. And IFC plays an important Since the Russian economic crisis of 1998, the Russian role by supporting an economic sector that has been in economy has grown at a healthy rate with GDP growth last year decline since the end of the Soviet Union," he said. of 5 percent and an expected GDP growth of 4 percent in 2002. With the end of the Soviet Union in 1991, Russia inherited This economic growth has been supported by the relative polit- nearly all of the Soviet Union's scientific resources. Because ical stability of President Vladimir Putin's administration. In the Soviet Union was focused on advancing the country's space addition, Russia has been somewhat insulated from the global and military-industrial sectors, the scientific establishment economic slowdown because its oil exports have generated was one of the largest in the world, with one-third more sci- strong revenues. As the economy continues to grow, the mar- entists than in the United States (Mereu, 2002). Because the ket for IT products and services increases as public and private Russian education system continues to be heavily weighted enterprises begin looking for ways to increase efficiencies in toward math and science, Russian scientists are often consid- order to better compete in the global marketplace. ered the best in the world. Consequently, Russian IT compa- According to International Data Corporation (IDC), the nies present an attractive investment opportunity because entire Russian IT industry was approximately $4.1 billion in these businesses can draw upon Russia's large "intellectual 2001, and the fastest growing segment of the industry is IT resource" of world-class scientists and engineers. services. IT services represent a segment of the industry that "These scientists and engineers also cost considerably less generates high operating margins because it provides value- than comparable professionals in western markets, which added services to its customers, such as hi-tech consulting makes Russia a very attractive market for offshore software and software development. According to IDC, these services development," said Portnoy. Scientists' salaries currently represented 20.7 percent of the overall Russian IT market in rank 10th out of the 11 employment categories in Russia, rank- 2001, and this segment is expected to grow at a compound ing above only those working in arts and culture. In practical annual growth rate of 24.7 percent over the next five years. terms, scientific professors often earn less than $100.00 per "These growth rates are much higher than forecasted month (Mereu, 2002). growth rates for North America and Western Europe over the Since 1991, Russian spending on scientific research and same time period. So, Russian IT companies, especially serv- development has diminished from over 2 percent of GDP dur- ices companies, can provide investors with the opportunity to ing the Soviet Union to less than one-third of 1 percent of GDP generate higher returns than from making investments in today (this decline is worse when taking into consideration western IT companies," said Portnoy. 5 that overall GDP has declined significantly over the same time period). Today there are only about 426,000 scientists prac- Elika Trifonova is a member of the Corporate Relations Team, IFC. ticing their profession in Russia, compared to over 800,000 during the Soviet Union (Mereu, 2002). "There is a limited References: amount of capital available for investment in Russian IT com- Francesca Mereu, "Russia: `Brain Drain' Leaves Future In Doubt," Radio Free panies. Overall, there are only a few private equity groups Europe / Radio Liberty, July 30, 2002. M A R C H 2 0 0 3 27 Access to Information The Commercial Side BY RODERICK MACDONELL With that kind of impact, it is no wonder the World Bank, the International Monetary Fund and other donors are Knowledge is of two kinds. We know a subject our- "pressing countries to adopt access to information laws as part selves, or we know where we can find information of an effort to increase government transparency and reduce upon it. corruption." (Bannisar, see References). There are now 48 --Samuel Johnson nations that have access laws, with India being the latest to join the Freedom of Information Act (FOIA) club. Indeed, the TRANSPARENCY AND FREEDOM OF INFORMATION has World Bank Institute recently published The Right to Tell, in made such robust inroads in two Southeast Asian nations that which contributors Roumeen Islam and Joseph Stiglitz argue it cost Joseph Estrada his job as president of the Philippines that enacting a FOIA can be a signal of a government's com- two years ago, and it almost sparked the demise of Thailand's mitment to openness, but that these laws can be effective only Prime Minister, Thaksin Shinawatra, shortly after he came to if there is a genuine commitment to transparency, or political power in 2002. In both cases, corruption allegations will, backing them up. unearthed through transparent government policies or free- The journalists in the Philippines and Thailand have clear- dom-of-information laws were central to the controversies. ly demonstrated the effectiveness of transparency laws in 28 Development Outreach W O R L D B A N K I N S T I T U T E FEATURE their countries and their probes into Estrada's and Thaksin's Protection Agency (EPA). undeclared wealth have given high profile to the media and As government is the largest single purchaser of goods and their use of access laws. In the U.S. and Canada, which respec- services in the United States, there are thousands upon thou- tively adopted access laws in 1966 and 1983, it was expected sands of government suppliers, from those involved in NASA that the legislation would primarily provide citizens with an space launches to those who supply stationery to the ability to hold their governments to higher levels of accounta- Commerce Department--all of which have competitors and an bility, which it has. interest in acquiring industrial intelligence that will better position them to win the next government procurement deal. Commercialization of access law Under the U.S. FOIA, the contract with the firm that tendered a winning bid is accessible to anyone who requests it, even BUT TODAY THE BIGGEST USERS of those nations' laws are foreign competitors. For obvious reasons, a supplier's Trade from the business sector, users who are either seeking gov- Secrets are not made available and are blacked out or other- ernment procurement contracts or are members of a regulat- wise removed from the documents made available to the ed environment and are trying to divine their regulators' requester. To reduce FOIA officials' labor costs, the U.S. law strategies. In both countries, an industry of business interests does not allow for copies of losing tenders to be accessible. has evolved which peppers, and in some cases, bombards gov- Hammitt says suppliers are typically anxious to review a ernments with FOIA requests. Developing nations pondering winning bid, both to learn the unit prices of goods sold to the the enactment of FOIA laws could face a similar and unexpect- government, and since price is not always the sole factor in ed outcome--that their FOIA officials will find themselves pri- determining the chosen bid, to get a sense of what the govern- marily servicing the access requests of commercial interests ment "liked and disliked" about a firm's tender. This infor- seeking to get a leg up on their competitors. Some might mation helps competing firms tailor their next bid when it object to this commercialization of access law use but a case comes time for a new contract to be put out to buy computers can be made that the heightened transparency that leads to or Jeeps or munitions, or whatever product or service is up for better prices for government procurement, translates into grabs. The U.S. Department of Defense (DOD) was hit with an better value for taxpayers' money. avalanche of such FOIA requests in the 1980s during the last The volume of business users of the American and major American arms buildup under then president Ronald Canadian laws is so significant that a U.K. group carried out a Reagan, with firms in a frenzy to determine why DOD pre- study into the phenomenon prior to the 2000 enactment of ferred their competitor's tender, and what they should do to the U.K.'s information act (more later on the U.K. study, titled win the next contract. Hammitt opines that the same mad Freedom of Information and Business). scramble will likely occur again this year as the U.S. gears up The numbers from the U.S. and Canada speak for them- for a possible war with Iraq. selves. In the U.S., the federal government responded to 1,959,959 FOIA requests in 2000, an estimated 550,000 of The "regulated" which were filed by businesses (Hammitt). In Canada in 2001 there were 21,625 access requests made to the federal govern- THUS, THE MOTIVES AND INCENTIVES BEHIND the FOIA ment, of which 9,237, or 43.4 per cent, came from business requests of government suppliers are quite clear. But what (Statistical Tables, 2001-2002). It cost the Canadian govern- ment $23,361,545 (Cdn) in operating costs for that country's access law, or about 80 cents per citizen, while administering the U.S. act cost $286 million or about $1 per citizen (Access to Information, 2002). The "suppliers" WHO IS MAKING ALL THESE BUSINESS REQUESTS and why? There are two classes of business FOIA users in the U.S., says Harry Hammitt, a former president of the American Society of Access Professionals, who publishes a semi-monthly newslet- ter titled Access Reports. These classes, he says, are the "sup- pliers" and the "regulated." The "suppliers" are those busi- nesses seeking contracts to sell goods and services to govern- ment, the "regulated" are those subject to the monitoring and oversight of a wide array of government agencies such as the Food and Drug Administration (FDA) and the Environmental M A R C H 2 0 0 3 29 about those industries that have nothing FDA intelligence is such that FOI pharmaceutical firms also seek to sell government, but who are regulat- Services Inc., a ten-person firm in the anonymity,hesays;theyarealsoadamant ed by government agencies? Drug firms Washington suburb of Gaithersburg, about protecting information they pro- which are regulated by the Food and Md. has been mining the FDA for 27 vide the federal regulator, Health Drug Administration (FDA), are one years now, digging out a wealth of infor- Canada. Rubin says drug companies are example of an industry with an insa- mation for the drug industry. The firm's so concerned about the sanctity of their tiable need to know. The object of their website (www.foiservices.com) states trade secrets that they hire experts to hunger is pure regulatory intelligence, that, "Since 1975, FOI Services has spe- submit access requests to the federal and they are prepared to pay thousands cialized in delivering unpublished U.S. government into their own companies, of dollars in FOIA search fees and wait Food and Drug Administration docu- just to see the kind of information the many months to obtain reports of ments acquired under the Freedom of government releases, and whether any inspections carried out into their rivals' Information Act. To date over 160,000 of that material is proprietary informa- dealings with the FDA, a body that documents have been acquired, cover- tion that the government should not be wields almost as much clout over drug ing the full range of products regulated providing to others. companies as a prison warden over by the FDA, including medical devices Rubin has filed thousands of access inmates. Hammitt cites the example of a and diagnostics, pharmaceuticals, bio- requests in the 20 years of Canada's Pharmaceutical Company "Y", which is logics, veterinary products and foods." access law. Sometimes as an entrepre- the subject of an inspection by the FDA. Cinde Cuevas, a senior information neur/activist, he seeks potentially By finding out what the FDA inspectors specialist with FOI Services Inc., says explosive information that he then turns were seeking at Company "Y", Company the firm's clients "request through us to around and sells to a news organization "X" is able to prepare itself to ensure it remain anonymous. They include phar- for a few hundred dollars. This form of will pass muster when FDA inspectors maceutical companies, medical device check-book journalism has served to come knocking at its laboratory. It's manufacturers and law firms. We make inform Canadians about numerous called due diligence. The pharmaceuti- FOIA requests for clients primarily to issues and events of public importance cals are "looking for insights of govern- the FDA for drug approval information, including a controversial sale of nuclear ment policy as a practical matter." adverse drug events reported to FDA, reactors to China; the abysmal safety The pharmaceuticals' appetite for medical device approval information standards of a Canadian airline that and copies of FDA inspection materials." went out of business after one of its jets The drug firms operate in a competi- crashed in Saudi Arabia in 1991 killing tive and highly secretive environment 263 passengers and crew; and reports and do not want the FDA or their com- showing that many of Canada's soldiers petitors to know who is inquiring into are in poor physical condition. their rivals' dealings with the federal The U.K. study found that, like the regulator. So using firms like FOI U.S., many Canadian businesses are Services gives them cover. The skill of "trying to determine the missing ingre- firms such as FOI is to have a sufficient- dients in their bids for government ly intimate understanding of govern- business or to find out what the govern- ment to know where to direct FOIA ment needs and wants." "There was a requests, an accomplishment in itself good measure of public interest in busi- given the size of the U.S. government, ness users acquiring information that along with an ability to draft access could lead to more competitive pricing," requests to ensure that the requests zero the report stated. "Business checking on in on the specific documents needed by business can help consumers." their customers. Rubin and his counterparts, accord- ing to a government report, are resented The case of Canada by the federal civil servants responsible for implementing the access act because IN CANADA, with one-tenth the popu- of the work they cause these officials and lation of the U.S., access experts are the resulting costs to Canadian taxpay- fewer in number, and the volume of ers. Based on the $23,261,5454 (Cdn) requests is considerably lower. Ken annual administrative costs of the act, Rubin of Ottawa, one of that country's and the 21,275 requests in 2001-2002, expert FOIA applicants, has been mak- each access request cost taxpayers an ing a living for twenty years making average of $1,093. access requests. He reports that there But Alasdair Roberts, an expert in too, pharmaceuticals are significant Canada's access law, said the adminis- users of the act. As in the U.S., Canadian trative costs of access need to be kept in 30 Development Outreach W O R L D B A N K I N S T I T U T E perspective. For example, in 1998, when the administrative Responsibility Breeds Success costs were $22 million, the federal government spent $350 million for procurement of advertising services, publishing c o n t i n u e d f r o m p a g e 2 2 and printing services and public relations and public affairs services. "Governments never complain about the high costs of public affairs services," says Roberts, who is the Director of ticed. Diep Thanh Kiet is President and CEO of WEC Saigon, a the Campbell Public Affairs Institute at Syracuse University. much smaller apparel factory. He tells the story of the factory as it used to be: poor working conditions, with terrible heat The case of the U.K. and no toilets: "We received many complaints from staff and workers for overtime working, bad relationship between mid IN THE U.K. where the study was done on the business side of managers and workers. Many workers left the company." FOIA, Robert Hazell, director of the Constitution Unit of the With support from IFC and the Ho Chi Minh City government, School of Public Policy, University College London, wrote in WEC Saigon chose to take the high road and improve stan- the foreward to the think piece: dards as the mechanism to distinguish themselves from their Freedom of Information is full of surprises. One competitors. They have trained the workforce and the man- of the surprises is that it is generally used far more agement, invested in remedial upgrades, and applied for SA by business than by public interest groups or 8000 certification which they hope to achieve by the third campaigning organizations. I first discovered that quarter of 2003. "Workers will be satisfied and faithful to the when I studied the introduction of the new FOIA company; we can set up a long term plan without any trouble laws in Australia, Canada and New Zealand in the for the human resource. The customers have confidence that mid-1980s on a civil service travelling fellowship. their products will be produced with a standard of social Business there had initially viewed FOIA with responsibility." hostility and suspicion but, while still regarding it The Government of Vietnam is studying these examples as a threat, they also quickly learnt to exploit its carefully, as they try to position Vietnam as a responsible opportunities. location for sourcing and investment. They have organized The study contains some comforting words for British seminars to understand how market-based CSR pressures business people. One key message is that "FOIA enables busi- work, and plan to improve the advice and training available to ness to find out more about the real needs of its public sector Vietnamese factories seeking to institute CSR programs. The customers and the proposals and performance of its competi- government is careful to maintain its role as a supporter of tors. New entrants seeking government contracts have most CSR, recognizing that if it ever attempted to impose a partic- to gain from FOIA. Established suppliers are likely to feel ular CSR standard or approach across all companies, an indi- more threatened, and will want their information protected." vidual firm would lose its flexibility to anticipate and respond The study has some useful words for a prime minister or jus- to market forces. But the widespread growth of CSR codes tice minister of a nation contemplating an access law. "British shows evidence that there are business benefits to be gained: companies can learn from the experience in the USA, Canada that there is a growing market for goods and services where and Australia. In the USA there is substantial use of FOIA the integrity of the supply chain can be assured and that, con- requests by business, particularly in relation to government versely, major firms fear consumers will shun their products contracts. After early problems and scare campaigns, American if the firm is seen as having poor labor conditions. From the businessisnowwelleducatedinhowtoprotectitsinformation." perspective of Vietnamese footwear and apparel producers To quote Andrew Carnegie: "While the law [of competi- and of the Government of Vietnam, CSR activities appear to be tion] may be sometimes hard for the individual, it is best for sensible investments into a value-added market segment with the race, because it ensures the survival of the fittest in every the potential for growth. 5 department." 5 Nigel Twose is Program Manager of the CSR Practice, PSAS Roderick Macdonell runs WBIPR's Investigative Journalism program. Department, The World Bank. the World Bank Institute. Ziba Cranmer is a consultant to the CSR Practice, PSAS Department, The World Bank. References Access to Information Conference Papers, March 4-6, 2002, Hua Hin References Thailand, Global Trends in Access to Information, Thomas S. Blanton, "Developing Value: the business case for sustainability in emerging markets," http://pcij.org IFC, Washington DC, 2002. Bannisar, David. Privacy International, http://www.privacyinternational.org William Fung, of Li and Fung, speaking at Global Sourcing conference, NYC, Interview with Harry Hammitt, the former president of the American Society 5 Nov 2002 (the figures are estimates). of Access Professionals. Of the 2 million annual FOIA requests 1.2 million are Veteran's Administration service related. Of the remaining 800,000, "Private Sector Development Strategy ­ Directions for the World Bank Hammitt estimates that about 70 per cent are business related. Group," April 9, 2002. The Right to Tell: The Role of Mass Media in Economic Development, The World Bank, 2002 Statistical Tables 2001-2002 Access to Information, http://infosource.gc.ca M A R C H 2 0 0 3 31 FEATURE Media Independence Is Self-Regulation an Answer? BY RICK STAPENHURST for nearly eight years--and during that time, more than two thousand journalists have been trained. THE MEDIA CAN PLAY A CRITICAL ROLE in promoting good Program reviews and evaluations suggest that such training governance and helping to curb corruption by investigating is having an impact: skills levels are higher and both the qual- and reporting incidences of corruption in a professional and ity and quantity of press reports on corruption are increasing. ethical manner (World Bank Institute, 1999). A core compo- Yet journalists are telling us that there are additional con- nent of the World Bank Institute's anti-corruption program, straints to their investigating and reporting incidences of cor- WBI has been training journalists in investigative reporting ruption, chief of which is the heavy hand of government in 32 Development Outreach W O R L D B A N K I N S T I T U T E restricting media independence, be it through the deploy- and independence with responsibility; and ment of the law as a form of deterrence--e.g. through charges standards must be applied consistently, in order to main- of contempt of government, seditious libel and criminal tain legitimacy. defamation, economic restrictions on the independent media To promote the concept of media accountability and self and the detention of journalists, editors and publishers with- regulation in the countries of the (British) Commonwealth, at out trial. These and other restrictions often lead to a more least, WBI teamed up with the Commonwealth Press Union insidious type of restriction: that of self censorship, where the (CPU) and the United Kingdom's Foreign and Commonwealth media itself refrains from reporting certain news for fear of Office to facilitate a series of inter-linked two-day regional government reprisals. Not only does Article 19 of the United seminars over the past 18 months, drawing together some of Nation's Declaration of Human Rights call for the freedom of the champions for change within the media environment in opinion and information, but more recently, freedom of those regions and providing a forum for discussion with guid- expression was endorsed as one of the underlying principles ance and advice from experts from the Commonwealth Press of good governance across the Commonwealth Union, Britain's Press Complaints Commission and, in (Commonwealth Heads of Government Meeting, 2001). But Africa, from the World Bank. how can the media thrive and play the role of democratic watchdog if its actions are constantly under surveillance by Some findings government? A common criticism one hears is that in many developing RECENTLY COMPLETED, participants in this series of semi- countries the press acts in unprofessional ways and is itself nars confirmed the findings in Islam's study (World Bank, unaccountable. How can government officials, and others, 2002)--namely that successful media self-regulatory systems seek redress from a media which abuses its own power and are underpinned by consensual ethical guidelines and codes publishes unsubstantiated allegations against them? Indeed, of conduct. While the World Association of Press Councils, the the media itself is often considered to be corrupt, prejudiced grouping of statutory press commissions has advocated a uni- and dishonest. Self-regulation vs. government regulation THE KEY ELEMENTS OF SUCCESSFUL MEDIA SELF REGULATION AS MANY OF THE PROBLEMS which surround media independ- DETERMINED BY PARTICIPANTS AT THE ence stem from a single question: Should media be encour- CPU/FCO/WBI SERIES OF WORKSHOPS aged to regulate itself, or are statutory means of government regulation necessary? Generally, opinion is polarized, with the media supporting the former option and governments the latter (Commonwealth Press Union, 1999). 1. The system should not be controlled by State It is, perhaps, easy to understand both sides of the argu- 2. It should be independently funded ment. From a government point of view, the media can often 3. It should be voluntarily delivered by universal seem over-intrusive, careless of the effects of their output on industry commitment those it concerns and in some cases possessing a tendency to 4. It should reflect national culture misreport and misstate at every opportunity. On the other 5. It should protect the right of the individual hand, the media's preference for self regulation stems from a 6. It should uphold freedom of expression, the belief that statutory methods often imply heavy-handed con- public's right to know and the media's right trol, censorship or the encouragement of self-censorship, to publish without prior restraint and the fear that the very organizations that are most often the 7. It should provide quick, free and easy subject of hard investigation--governments, state institu- resolution to complaints tions, political leaders--are writing the rules on how they may 8. It should not be overly legalistic or be covered. bureaucratic--while at the same time According to the World Bank, certain factors are more like- pursuing the principles of natural justice ly to determine the success of self-regulatory commissions 9. There should be significant lay membership, (World Bank, 2002): independently selected, on adjudication the decision to set up such a commission needs to originate panels with the media itself and reflect a desire by the media for 10. The code of conduct should be self regulation; written/approved by the industry itself commissions must carry sufficient weight that media organizations feel obliged to comply with their decisions; Source: Beales, 2002 commissions require leadership and a genuine desire among the media profession to improve on their work; developing ethical guidelines that balance media freedom M A R C H 2 0 0 3 33 versal code of conduct, participants in the regional semi- opment, there are three prerequisites: private ownership nars throughout the Commonwealth quickly dismissed the of the media, self-regulation and a media ethics regime. notion of creating a pan-Commonwealth code. They Certainly, through the CPU-WBI seminar series, it was argued that because of historical differences and because found that the strength of self-regulation is that--through local social, cultural and ethical issues vary greatly from self-financing and homegrown codes of conduct--the region to region and country to country, it would be more media is able to enhance editorial freedom and head off appropriate to develop a blueprint which could be adapted potential political interference and legal constraints, to national or regional needs. For example, in some coun- which in turn may promote higher professional standards tries, journalists have little formal training and are often and greater responsibility. For the state, too, there are underpaid; here, a Code with a strong ethical tone--aimed some powerful attractions: not least of which, following the at raising professional standards within the profession--may adoption of the principle of press freedom as one of the appear irrelevant and end up being ignored. Here, perhaps, tenets of good governance by Commonwealth Heads of aCodeofPractice,highlightingwhatisnotacceptable,rather Government in 2001, is the demonstration of modern than a prescriptive Code of Ethics might be more relevant. democratic nationhood. Similarly, while privacy is a universal issue, it does not Two years ago, media self-regulation was relatively rare have a universally high profile across countries, especially in developing Commonwealth countries: South Africa and regarding the lives of the powerful--presidents, premiers Trinidad and Tobago were among the exceptions, although and tribal chiefs--whose health and private lives are often some countries, such as Ghana had opted for semi- guarded by a combination of intimidation and tradition. autonomous regimes, often financed by parliament. Today, The death of an African tribal chief, for example, may meet the situation is very different: a number of countries, such the public interest requirements of most modern codes of as Sri Lanka, Nigeria and Kenya, have embarked on com- practice, but under tribal custom publishing the news prehensive self-regulatory schemes while others, such as might be discouraged or forbidden ahead of ritual cere- Malawi and Mozambique are more tentatively taking steps monies. More thorny issues include media coverage of eth- in that direction. Even in quite difficult situations, such as nic conflict--just before the CPU-WBI seminar in Ghana, a Zimbabwe, the lobby is growing for a new media commis- tribal chief was murdered and the government imposed a sion to replace the under-funded one which collapsed a news blackout for fear of inciting civil unrest. year ago; editors from both the government and opposition This begs the question: what should a Code not cover? In media are uniting and a codes of conduct has been adopted southern Africa, participants argued that the media should in principle by many journalists and media houses. not cover issues such as AIDS or female circumcision, for While much has been achieved, much more needs to be fear of offending local concepts of taste and decency done--and the road to self-regulation is strewn with obsta- despite the fact that these are among the important issues cles: intransigent governments; divided press industries; of the day. The final decision as to the nature and content of lack of funding; lack of public support and poor motivation. a Code must be determined in each country--with the media itself recognizing that the final sanction is the judg- Rick Stapenhurst is Senior Public Sector Management Specialist, ment of readers, listeners and viewers who can vote with The World Bank Institute their feet. Indeed, editors and managers are usually well aware of the damage they could do to the credibility of their References organizations if they cross the lines of public acceptability The Right to Tell: The Role of the Mass Media in Economic Development, too often. (Beales, 2002). Roumeen Islam, The World Bank Institute, Washington DC, 2002. Despite very substantial regional and national differ- Beales, Ian. Imperfect Freedom : The Case for Self Regulation in the ences, it was found that there was a strong commonality in Commonwealth Press, The Commonwealth Press Union, 2002. the problems faced across the Commonwealth press--and Bertrand, Claude-Jean. Media Accountability Systems for the Mass that there was therefore usually a corresponding similarity Media, unpublished paper, World Bank Institute, 2001. The Independence of the Commonwealth Media and Those Working in the solution. These common key principles, listed in the Within It, The Commonwealth Press Union, London, 1999. Box, can be summarized as : recognizing the duty of the The Role of the Media in Curbing Corruption, Rick Stapenhurst, The press to attempt to persuade the government and civil soci- World Bank Institute, Washington, DC, 1999. ety that self regulation is faster, more accessible, more flexible and has greater moral authority than a govern- ment-operated regime, which in any case would run counter to generally accepted notions of the media's role as watchdogs (Beales, 2002). Three prerequisites CLAUDE BERTRAND (World Bank Institute, 2001) stated that for the media to play its full role in democratic devel- 34 Development Outreach W O R L D B A N K I N S T I T U T E Index of Articles--Development OUTREACH 1999-2002 Abd al-Hameed, Muhammad. Clark, John D. Global Is Good, Global Heyzer, Noeleen. Violence against Matovu, George W. M. Africa and Saul, John Ralston. Globalization: The Children Worldwide Must Be Internet- Is Bad, Vol. 4, No. 1 (Winter 2002) Women: With an End in Sight, Vol. 3, Decentralization: Enter the Citizen, Vol. Choices before Us, Vol. 2, No. 1 Connected, Vol. 2, No. 2 (Spring 2000) No. 2 (Spring 2001) 4, No. 1 (Winter 2002) (Winter 2000) Clinton, Bill et al. The Global Divide in Adhar Utz, Anuja. Mapping Progress Health, Education and Technology, Vol. Homans, Hilary Yvonne. Tearing Down Mead, Walter Russell. Needed: A New Schwartz, Herman. Free Speech in on the Road to the Knowledge 2, No. 2 (Spring 2000) the Wall, Vol. 4, No. 2 (Spring 2002) Growth Srategy for the Developing Democracies: The Western Context, Economy: Brazil, China, and India, Vol. World, Vol.1 No.1 (Summer 1999) Vol. 1, No. 1 (Summer 1999) Colletta, Nat J. and Taies Nezam. Hsieh, Nien-Hê, William S. Laufer, and 3, No. 3 (Fall 2001) From Reconstruction to Reconciliation, Mark S. Schwartz. Business Students McNeil, Mary. Engaging the Poor, Vol. Sen, Amartya. The Value of Agarwal, Anil. The Value of Natural Vol. 1, No. 2 (Fall 1999) Debate Ethical Principles and Social 4, No. 1 (Winter 2002) Democracy, Vol. 1, No. 1 (Summer Capital, Vol. 3, No. 1 (Winter 2001) Impact, Vol. 4, No. 2 (Spring 2002) 1999) Collier, Paul and David Dollar. Target Meden, Natacha. From Resistance to Agénor, Pierre-Richard. Why Crises Aid to Performance not Promises, Vol. Hodges, Adrian. The Business of National Building: The Changing Role Serban, Daniel and Claudia Pamfil. Are Bad for the Poor, Vol. 4, No. 2 1, No. 2 (Fall 1999) Youth, Vol. 4, No. 2 (Spring 2002) of Civil Society in East Timor, Vol. 4, Getting Involved in Romania, Vol. 4, (Spring 2002) No. 1 (Winter 2002) No. 1 (Winter 2002) Dahlman, Carl J. Updating the Hübner, Danuta. Gender and Ahmad, Nilufar. Opportunity for Economic Incentive and Institutional Transition. The Cae of Eastern Europe Mestrallet, Gérard. Bridging the Water Shalizi, Zmarak. Development at a Women in Energy Technology in Regime for the Knowledge Economy, and the Commonwealth of Divide, Vol. 4, No. 3 (Fall 2002) Crossroads: Highlights from the World Bangladesh, Vol. 3, No. 2 (Spring Vol. 3, No. 3 (Fall 2001) Independent States (CIS), Vol. 3, No. 2 Development Report 2003, Vol. 4, No. Michon, Louis. The Global Economy: A 2001) (Spring 2001) 3 (Fall 2002) de Wit, Joop. Dynamics of Flawed Ecosystem, Vol. 4, No. 3 (Fall Aiyar, Swaminathan S. Labor, Participation in Bangalore's Slums, Johnson, Ian. Johannesburg and 2002) Smilevski, Blasko. Shaping the Governance and the Information Age, Vol. 4, No. 1 (Winter 2002) Beyond: An Agenda for Collective Future: Macedonia Children and Youth Molavi, Afshin. Supporting the Private Vol. 2, No. 1 (Winter 2000) Action, Vol. 4, No. 3 (Fall 2002) Development Project, Vol. 4, No. 2 Dollar, David and Aart Kraay. Growth- Sector, Vol. 3, No. 3 (Fall 2001) (Spring 2002) Aiyar, Swaminathan S. Using Enhancing Policies Are Good for Poor Kanbur, Ravi and Todd Sandler. A Naidoo, Kumi. Rethinking Governance: Community Empowerment to Reduce People, Vol. 2, No. 3 (Summer 2000) Radical Approach to Development Sostmann, Rafael Rangel. Monterrey The Case of South Africa, Vol. 3, No. 1 Poverty, Vol. 2, No. 3 (Summer 2000) Assistance, Vol.1, No. 2 (Fall 1999) Tech's Virtual University, Vol. 2, No. 2 Dyson, Esther. On the Internet in (Winter 2001) (Spring 2000) Alonso, Rosa. The Revolt of Russia, Vol. 2, No. 2 (Spring 2000) Kaufmann, Daniel. The Next Stage of Nanivska, Vira. What's Wrong with Argentina's Middle Class, Vol. 4, No. 1 Anti-corruption, Vol. 1, No. 1 (Summer Stapenhurst, Rick. Helping Edwards, Michael. More Social Technical Assistance: The Case of (Winter 2002) 1999) Parliaments Help the Poor, Vol. 4, No. Capital, Less Global Poverty?, Vol. 2, Ukraine, Vol. 2, No. 1 (Winter 2000) 2 (Spring 2002) Annan, Kofi. Peace and Development No. 3 (Summer 2000) Kenny, Charles and Anuja Adhar Utz. Narayan, Deepa et al. Voices of the --One Struggle, Two Fronts, Vol. 2, Korean Telecommunications Grow at Stern, Nicholas H. Engendering Filkov, German. Macedonia: The Poor, Vol. 2, No. 3 (Summer 2000) No. 1 (Winter 2000) Record Speed: A Country Profile, Vol. Development: A Comment, Vol. 3, No. Hardships of a Peaceful Neighbor, Vol. 2, No. 2 (Spring 2000) Nassery, Homira, Jennifer Brinkerhoff, 2 (Spring 2001) Ardil, Cemal. Turkey's Schools Link Up, 1, No.2 (Fall 1999) and Najma Siddiqi. Afghanistan and Vol. 1, No. 2 (Fall 1999) King, Elizabeth M. and Andrew D. Stiglitz, Joseph E. The Role of Fukuyama, Francis. Asian Values and Pakistan: At the Crossroads, Vol. 4, Mason. Engendering development Participation in Development, Vol 1, Aslund, Anders. Radical Reformers the Current Crisis, Vol. 1, No. 1 No. 1 (Winter 2002) through gender Equality, Vol. 3, No. 2 No. 1 (Summer 1999) Lead the Way, Vol. 2, No.1 (Winter (Summer 1999) (Spring 2001) Ngunjiri, Philip. Native Forest Goes to 2000) Svensson, Bent and Sascha Djumena. Gage, John. From Digital Divide to `Land Grabbers,' Vol. 1, No.2 (Fall Koro, Emmanuel. Conservation A Public-Private Partnership to Bandyopadhyay, Sudeshna. Growth: Digital Opportunity: Business Leaders 1999) Around the CAMPFIRE, Vol. 1, No. 2 Reduce Global Gas Flaring, Vol. 4, No. Quantity Versus Quality, Vol. 3, No. 1 Report from Davos, Vol. 2, No. 2 (Fall 1999) Ocampo, Luis Moreno. State Capture: 3 (Fall 2002) (Winter 2001) (Spring 2000) Who Represents the Poor?, Vol. 3, No. Koro, Emmanuel. Africa Lacks Thomas, Vinod et al. The Quality of Bebbington, Anthony. Development Is Gama, Hobbs. Africa's Brain Drain 1 (Winter 2001) Adequate Expertise to Tackle Bio- Growth: Key to Less Poverty and Better More than Just Growth, Vol. 2, No. 3 Impacts Health Sector, Vol. 4, No. 3 technology, Vol. 3, No. 1 (Winter 2001) Olorunyomi, Dapo. The African Lives for All, Vol. 3, No. 1 (Winter (Summer 2000) (Fall 2002) Century?, Vol. 2, No. 1 (Winter 2000) 2001) Koro, Emmanuel. Armed Conflicts Bellamy, Carol. We Must Invest in Gelb, Alan. Gender and Growth: Destroy African Environment, Vol. 3, Ouma Jura, Jairo. Africa's Business Tinker, Robert F. Technology and Children, Vol.4, No.2 (Spring 2002) Africa's Missed Potential, Vol. 3, No. 2 No. 3 (Fall 2001) Gets Insurance Against Political Risks, Education: The Trojan Mouse, Vol. 2, (Spring 2001) Berry, Ron. E-Commerce Eludes Vol. 3, No. 3 (Fall 2001) No. 3 (Summer 2000) Koro, Emmanuel. Linking Developing Countries, Vol. 2, No. 2 Goetz, Anne-Marie and Rob Jenkins. Conservation with Development: Papi_arko. Building Civil Society in Tooker, Gary. Wireless (Spring 2000) Gender-Sensitive Local Auditing: NEPAD Sets Goals at WSSD, Vol. 4, No. Former Yugoslavia, Vol. 4, No. 1 Communication: Linking Remote Initiatives from India to build Bidani, Benu, Homi Kharas, and 3 (Fall 2002) (Winter 2002) Areas, Vol. 2, No. 2 (Spring 2000) accountability to women, Vol. 3, No. 2 Tamar Manuelyan-Atinc. Coping with (Spring 2001) Lancaster, Carol. Aid Effectiveness: Paruwani, Agrippa. The African Van Trotsenburg, Axel. Is HIPC Debt Crisis, Vol. 2, No. 3 (Summer 2000) The Problem of Africa, Vol. 1, No. 2 Honeybee Loses Her Eco-Compass, Relief Working? Vol. 3, No. 2 (Spring Gorostiaga, Xabier. The University Is Birdsall, Nancy and Peter Hakim. The (Fall 1999) Vol. 1, No. 2 (Fall 1999) 2001) Responsible for Development: Carrot Is Better than the Stick, Vol. 2, Challenges and Solutions in Latin Léautier, Frannie. Sustainable Penton, Ronald. Roaming the Streets Vest, Charles. OpenCourseWare, Vol. No. 2 (Spring 2000) America, Vol. 3, No. 3 (Fall 2001) Development: Lessons Learned and of Eastern Europe: The Children of 3, No. 3 (Fall 2001) Birdsall, Nancy. Human Capital and Challenges Ahead, Vol. 4, No. 3 (Fall Gloom, Vol. 2, No. 3 (Summer 2000) Harris, Bruce. Street Children: Latin Woicke, Peter. The Private Sector and the Quality of Growth, Vol. 3, No. 1 2002) America's Wasted Resource, Vol. 2, No. Petkoski, Djordjija B. Developing Sustainability, Vol. 4, No. 3 (Fall 2002) (Winter 2001) 3 (Summer 2000) Leipziger, Danny. Achieving Social Young Voices, Vol. 4, No. 2 (Spring Wolfensohn, James D. Fight Terrorism Bloome, Anthony. Fighting the and Political Consensus, Vol. 2, No. 1 2002) Haws, Chris. Battle for the Planet: and Poverty, Vol. 3, No. 3 (Fall 2001) Insidious Killer: African Teenagers (Winter 2000) Mission Impossible? Vol. 4, No. 3 (Fall Piot, Peter. Africa Lifts Its Silence on Battle HIV/AIDS through ICT, Vol.4, Zaltman, Ann and Gerald Zaltman. 2002) Litan, Robert E. Accepting Foreign AIDS, Vol. 1, No. 2 (Fall 1999) No.2 (Spring 2002) Remembering the Future, Vol. 4, No. 2 Capital: Lessons from Recent Crises, Heikkilä, Pauli. New Information Quaynor, Nii. The Digital Divide in (Spring 2002) Brown, Mark Malloch. The Information Vol. 3, No. 1 (Winter 2001) Infrastructure: A Knowledge Booster, Africa, Vol. 2, No. 2 (Spring 2000) Revolution and Development, Vol. 2, Zegeye, Abebe. The Identity of South Vol. 3, No. 3 (Fall 2001) Lustig, Nora. Broadening the Poverty No. 2 (Spring 2000) African Youth, Vol. 4, No. 2 (Spring Reduction Agenda, Vol. 2, No.3 Ramphele, Mamphela. Keeping the Herfkens, Eveline. Can We Do the promise: A Better Future for Our 2002) Calvo, Sara. Exchange Rates: The (Summer 2000) Right Things? The Future of Technical Children, Vol. 4, No. 2 (Spring 2002) Targeting Debate, Vol. 3, No. 1 (Winter Zhang, Shengman. Human Capacity Assistance and Capacity Building, Vol. Madani, Dorsati, Will Martin, and John 2001) Building for the New Economy, Vol. 3, 3, No. 3 (Fall 2001) Page. The Two Battles of Seattle, Vol. Richards, Paul. The War and Reconstruction in Sierra Leone, Vol. 1, No. 3 (Fall 2001) Carothers, Thomas and Marina 2, No. 1 (Winter 2000) Heyzer, Noeleen and Martin Khor. No. 2 (Fall 1999) Ottaway. Defining Civil Society: The Zurayk, Rami and Mona Haidar. The Globalization and the Way Forward, Mashelkar, Ragunat A. The Indian Elusive Term, Vol. 4, No. 1 (Winter Dryland Predicament: Natural Capital, Vol. 1, No. 1 (Summer 1999) Innovation System, Vol. 3, No. 3 (Fall Santiago, Irene. Women and Power, 2002) Global Forces, Vol. 4, No. 3 (Fall 2002) 2001) Vol. 3, No. 2 (Spring 2001) M A R C H 2 0 0 3 35 V O I C E S F R O M T H E F I E L D Brazilian Company Fights AIDS in Angola a bit of experience in programs of this type. To assess the new program of fighting AIDS at Odebrecht in Angola, Sabine Durier, of the "IFC Against AIDS" program, and Sérgio Leão, an engineer responsible for all the Brazilian company's health and environment pro- grams, visited Luanda in August and September. Durier and Leão worked alongside Dr. Vera Michel, a physician who is in charge of this pioneer pro- gram in Angola. Talking with ANGOLENSE, Dr. Michel said the purpose of the program is to determine the prevalence of AIDS among Odebrecht workers in Angola and their families, to train educators and leaders to inform people about the risks of the disease, to increase the use of condoms and to improve medical treatment for women, BY SALAS NETO especially pregnant women, in order to reduce mother-to- child transmission of HIV. Demonstrating that the model A BRAZILIAN ENGINEERING and construction firm with a of this program can be used at Odebrecht projects in other strong presence in this country, Odebrecht is investing one countries is another of its general goals. million U.S. dollars in a pioneer program to fight AIDS According to Biagio Cersosimo, administrative and among the workers it employs under financial director of Odebrecht several of its contracts in Angola. (Angola), who accompanied Dr. The program, launched this past Michel to the interview, the company September, will cover about 30,000 "Voices from the Field" provides originally thought of investing the people, counting workers and their first-hand insight into issues of money in the overall fight against the immediate families at the firm's var- current concern to the disease in this country, but since it ious projects in Angola. The initia- development community. To would be difficult to assess the tive, planned to last 18 months, is participate, send your stories to: results, they decided to apply it on getting technical support from the devoutreach@worldbank.org. more limited scale, i.e., only to its IFC, the private sector arm of the Make your voice heard. contracts. There are five of these: World Bank, an agency that has quite Capanda, Águas de Luanda, Luanda- 36 Development Outreach W O R L D B A N K I N S T I T U T E Sul, Canal da Matala, and Mausoléu, plus the Catoca and At the same time, treatment of sexually transmitted dis- SDM diamond-mining projects in which Odebrecht has an eases - which, as we know, facilitate infection with the interest. AIDS virus - is also being given priority. Asked what Angola gains from this initiative by Fifteen positive cases Odebrecht, Cersosimo said that "it gains a lot." In his opinion, if everyone does a little bit, a multiplier effect FIFTEEN CASES OF AIDS have already been detected kicks in, that can do much to reduce transmission of the among the company's Angolan and Brazilian workers, the disease to an acceptable level. He cited the example of majority among the former. However, and in answer to our Odebrecht's involvement in the campaign against polio to reporter's question, Cersosimo assured us that no one is illustrate how important it is that someone take the first being discriminated against for having contracted the dis- step. "Given the shocking figures about people with AIDS ease. On the contrary, they get every possible support to (in Angola and the world), we can't stand idly by," he enable them to stay on the job, except in cases where their emphasized. He believes that Odebrecht's action is an health is very poor. In that event, they stop working but are example that could very well be followed by other big (for- not abandoned by the company, which continues to pro- eign) companies that do business in Angola, especially the vide assistance until the worker recovers, if that happens. oil companies. In the case of Odebrecht, which has spent Dr. Michel interrupted to say that they do not yet know some of its profits on social projects, much of the credit how prevalent AIDS is among Odebrecht workers. She goes to the efforts by Dr. Octacílio Carvalho, the company's doesn't believe they have even an approximate idea of the local president, an activist in philanthropic causes. true situation, since testing is voluntary and very few peo- Dr. Michel appealed to big companies to support the ple are willing to be tested. But, as people become aware authorities in their battle against the pandemic, since gov- that testing is confidential and that no one is dismissed ernment spending alone cannot get the job done. "Together, merely because they are sero-positive, there will be a much the companies could help tremendously," she added. greater willingness to take the tests. "This will encourage people to take the tests," the administrative and financial Salas Neto is a reporter for the newspaper, Angolense. Luanda, director of Odebrecht (Angola) emphasized, hopefully. Angola. One of the people in charge of Odebrecht's anti-AIDS program in Angola took advantage of the opportunity to This article appeared in Angolense (November 6­9, 2002). Reprinted announce that the Capanda Project was selected as the site with permission. for the first studies of the prevalence of the disease at the company, since it affords the best conditions, at the moment, in terms of health care infrastructure. Even so, as he confirmed, submission to the tests will remain volun- tary. This is why Odebrecht will redouble its efforts to publicize the objectives of the program and increase aware- ness so that people change their attitudes about the vital need to participate. Sincethereisnocureforthe disease, Odebrecht is placing great emphasis on prevention. So much so that, besides the publicity and awareness cam- paigns, it has already ordered about 120,000 condoms, includingfemale condoms, for distribution to their workers. M A R C H 2 0 0 3 37 K N O W L E D G E R E S O U R C E S Looking for development information, networking SME: WORLD BANK GROUP opportunities, likeminded partners, a professional exchange? SMALL & MEDIUM Reaching those goals is as close as your computer screen. ENTERPRISE DEPARTMENT A network of development websites will take you to the four combines the market corners of the world and will put you in touch with a perspective of the International multicultural cornucopia of knowledge. Finance Corporation with the policy expertise of the World Bank to promote local small PRIVATE SECTOR business growth in developing DEVELOPMENT is a nations. The site offers Small World Bank's site, which Business News from around the world and a variety of aims to provide departments, such as Project Development Facilities, opportunities for the Capacity Building Facility, Business Enabling poor through market- Environment, E-Business and Linkages, Diagnostic Tools, friendly, enterprise-led and SME Publications. growth, and to provide Visit: www.ifc.org/sme better services through efficient delivery systems and smart subsidies. It includes resources such as Private Sector Advisory Service, Private Participation in Infrastructure, Partnerships, and others. It also features PARALEGALS AND ADVICE rapid response buttons to request advice and information. OFFICE is a website, which Visit: www.worldbank.org/privatesector/index.htm provides free advice on laws and procedures that affect poor communities in South Africa as well as organizing tools for NGOs; and includes a range of BIZ/ED (Institute for Learning resources from small business law to violence against and Research Technology, women. Though South Africa based and produced, this web University of Bristol) is a unique model could be adapted to other contexts. service for students, teachers and Visit: www.paralegaladvice.org.za/ lecturers of business, economics, accounting, leisure/recreation, and travel/tourism. The site contains: Internet resources (a searchable and browsable catalogue of over 3000 quality KIDS DEVNEWS is a monthly e- checked Internet resources); Learning Materials publication geared toward 10-15 (worksheets, resource databases, presentations, glossaries, years old. Each issue revolves case studies, interactive questions, and more); Data (data around a different development sets and data skills materials for economics, business and topic that affects young people finance); Virtual Worlds (large-scale learning resources, around the world. The crux of including a Virtual Factory and Virtual Economy); Current the site is a monthly feature Topics (a magazine style section with newsletters, daily story, reinforced by "Global Snapshots," depicting the economics and business news). issue. The site also links to appropriate quizzes as well as Visit:www.bized.ac.uk multimedia products (radio releases or public service announcements). There is also a "Talk Back" button, giving children an opportunity to voice their opinion and ask for more information. The site is an initiative of the World Bank's External Affairs division in collaboration with WBI's Development Education Program. Visit: www.worldbank.org/kidsdevnews, and www.worldbank.org/html/schools 38 Development Outreach W O R L D B A N K I N S T I T U T E B O O K S H E L F GLOBALIZATION AND ITS developing nations struggling to adapt the free market DISCONTENTS, by Joseph E. Stiglitz. and democratic policies exported by the West. W.W. Norton & Co., 2002. ENDING AUTOCRACY, ENABLING Nobel Prize winner and former DEMOCRACY, World Bank chief economist, Joseph by Robert I. Rotberg. The World Peace Stiglitz, discusses the effects of Foundation, 2002. globalization on the population of developing countries. His position is In this comprehensive narrative of that globalization and foreign aid the political and economic evolution have already helped alleviate poverty worldwide, and can of Africa since 1960, Rotberg be a positive force for future development. But he also explains the critical events, players, argues that for this force to succeed the institutions that and policies in the continent's govern globalization, such as the International Monetary tumultuous shift toward democracy over the past forty years. Fund, the World Bank, and the World Trade Organization, A selection of his writings, which appeared in American, must increase transparency and listen to the suggestions African, and European publications, is printed in the book and concerns of their clients. along with Rotberg's commentary after-the-fact. ONE WORLD: THE ETHICS OF PUBLIC-PRIVATE PARTNERSHIP GLOBALIZATION, by Peter Singer. FOR PUBLIC HEALTH, by Michael R. Yale University Press, 2002. Reich, ed. Harvard University Press, 2002. Known for his original and courageous thinking on matters This book focuses on public-private ranging from the treatment of partnerships that seek to expand the animals to genetic screening, Peter use of specific products to improve Singer now turns his attention to health conditions in poor countries. the ethical issues surrounding globalization. In this It includes case studies of partnerships involving specific provocative book, he challenges us to think beyond the diseases such as trachoma and river blindness, boundaries of nation-states and consider what a global international organizations such as the World Health ethic could mean in today's world. Singer raises novel Organization, multinational pharmaceutical companies, questions about such an ethic and, more important, he and products such as medicines and vaccines. The authors provides illuminating and practical answers. examine the organizational and ethical challenges of partnerships and suggest ways to address them. Individual WORLD ON FIRE: HOW chapters draw lessons from successful partnerships as well EXPORTING FREE MARKET as troubled ones in order to help guide efforts to reduce DEMOCRACY BREEDS ETHNIC global health disparities. VIOLENCE AND GLOBAL INSTABILITY, LABOR MARKET PLANNING REVISITED, by Michael by Amy Chua. Doubleday, 2002. Hopkins. Palgrave Macmillan, 2002. The book illustrates the negative This book enables the reader to understand labor markets consequences arising when an in developing countries and shows how to forecast the accumulation of wealth by need for skills in those countries. The main thrust of this minorities that dominate the market combines with an book is to re-examine the manpower planning debate in increase of political power by a disenfranchised majority, developing countries, which has been quiet since the 1970s citing specific examples in Indonesia, Russia, Sierra and 1980s. The author argues that the over-simplified and Leone, Bolivia and the Middle East. The author blames the non-flexible forecasting models of the past should be West for promoting a version of capitalism and democracy supplemented with better data and improved labor unsuitable to the political and economic transitions in the analysis. In conclusion he produces a new model for developing world. As a result, the author warns, we will analyzing the needs of labor markets. continue to witness violence and bloodshed within the M A R C H 2 0 0 3 39 C A L E N D A R FEBRUARY 2003 APRIL 20-21 Editors Media Conference 14-15 China Business Summit New Delhi, India Beijing, China www.cseindia.org www.weforum.org 24-26 Training 2003 Conference & Expo MAY Atlanta, GA, USA www.trainingconference.com 6-8 Fourth Workshop on Sustainable Use Convention on Biological Diversity 24-27 UNCTAD Conference on Trade and Addis Ababa, Ethiopia Development www.biodiv.org Geneva, Switzerland www.unctad.org 23-24 World Economic Forum Geneva, Switzerland www.weforum.org MARCH 29-31 Global Forum on Governance 4-6 Water Week 2003 ­ "Water and Development" Washington, DC Seoul, South Korea www.worldbank.org/waterweek www.oecd.org JUNE 16-23 Third World Water Forum Kyoto, Shiga and Osaka, Japan 11-13 Africa Economic Summit www.worldwaterforum.org Durban, South Africa www.weforum.org 19-21 Annual Conference on contact: africasummit@weforum.org Development Economics in Europe (ABCDE-Europe) www.worldbank.org Outreach Subscription Order Form D E V E L O P M E N T SUBSCRIBERS FROM DEVELOPING NAME __________________________________________________________________________ COUNTRIES WILL CONTINUE TO RECEIVE THE MAGAZINE FREE OF CHARGE. 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Media in Economic Development Journalists have an extremely difficult job and frequently This two-week course is designed to provide par- a dangerous one as well. Through their work, some face ticipants with a solid grounding in the key issues harassment, physical intimidation, jailing, death threats, and ultimately, sometimes death itself. Despite these dangers, that arise in the labor market. It covers the design journalists continue to play an important role as investigators, and execution of government policies to address mediators, reformers, objective storytellers, and most importantly, they act as key labor issues and, through extensive use of case facilitators of the free flow of information. studies, exposes participants to policy instruments The Right to Tell: The Role of Mass Media in Economic Development contains an that different developing and industrialized coun- outstanding list of contributors--Nobel Prize winner and former World Bank chief tries have used with varying degrees of success. economist, Joseph Stiglitz to Robert J. Shiller author of Irrational Exuberance and Nobel Prize winner and novelist Gabriel Garcia Marquez. Contributors to this volume Conducted in English, the course comprises nine explore the role of the media as a watchdog of government and the corporate sector, inter-related and complementary modules, as well and the policies that prevent the media from exercising that role. The Right to Tell as expert sessions on selected topics, and partici- also evaluates the media's function as transmitters of new ideas and information, an essential ingredient for markets to operate efficiently. This publication also looks at the pant presentations on incorporating labor market damaging effects that an unethical or irresponsible press can cause to a society. issues in country poverty reduction strategies. An independent press is essential to sound and equitable economic development. Application and Contact The media helps to give a voice to the poor and the disenfranchised and allows for a free and transparent society. Shenna Ross E-mail: sross1@worldbank.org World Bank Institute Development Studies. November 2002. 332 pages. Fax: 1-202-676-0961 Stock no. A15203 (ISBN 0-8213-5203-2). Price US$35. Tel: 1-202-458-7829 To Order: Address: 1818 H street, NW World Bank Publications Washington, DC 20433 P.O. Box 960, Herndon, VA 20172-0960, USA Website: http://www.worldbank.org/wbi/labormarkets Telephone: 703-661-1580 or 800-645-7247 Fax: 703-661-1501 ADOR WORLD BANK Visit our website at Publications www.worldbank.org/publications Outreach D E V E L O P M E N T