Transcript #4
Let us move on to the next intervention. We would like to introduce Professor Jeffrey Sachs of Columbia University-I think everyone knows him. He is a world-famous professor of development economics and his contributions are extremely great in the various developing nations and in advising various international organizations. And recently, he was appointed as a special advisor for the United Nations Secretary-General Koffi Annan on the MDGs, or Millennium Development Goals. He has been the Director for the Center of International Development and for the Harvard Institute for International Development. He moved from Harvard to Columbia in recent months. Professor Sachs has advised my team when I was working in Poland just after the 1989 revolutions in Central Europe. I have known him for many years, for his excellent advice on the development policies, particularly for the economies in transition as well as low-income countries in Sub-Saharan Africa and Latin American regions. We are very much looking forward to hear his interventions on this interesting topic today. Professor Sachs, you have the floor.
Mr. Jeffrey Sachs: Thank you very much. Let me congratulate the government of Japan for putting on this wonderful day. I think that Japan's experience and the region's experience in East Asia has an incredible amount to teach for the world. I think what Professor Ohno highlighted is very important. I want to pick up on many of those themes. I have some points where I want to make the emphasis a little bit different, but I think we really need to learn from East Asia because it is the most successful region in the world for development. And what has been done in East Asia is not the same thing as what many countries are told to do by Washington or by others, so understanding those differences is really important.
Now, I think Professor Ohno highlighted one major point with which I concur a lot, and that is that a country and a region needs a development strategy. And a development strategy and a growth strategy are not the same thing as liberalization, stabilization, or privatization. That is actually not a full or even the right growth strategy necessarily. What East Asia has done is think very hard about industrialization and technological advance, and it has been thinking that way since 1868, since the Japanese era of modern economic growth began with the Meiji Restoration, so-called, because Japan was the first takeoff country outside of Europe and it was the first takeoff country in Asia. A lot of what Japan pioneered then spread to other parts of East Asia.
Now, what I think is very important is what Professor Ohno stressed, that East-Asian development has been export-led, investment-led, and technology-led. And with technology, a lot of the technology has come via attracting foreign direct investment from the leader to the next, to the next, to the next. And as Professor Ohno showed the product cycle, say, of textile and apparel, or consumer electronics as it is diffused through East Asia, a lot of that diffusion of starting in Japan, then being produced in Korea and Taiwan, then being produced in the regions of South East Asia, came through the foreign direct investment of leading firms looking for the next site for investment. In each of those cases, to attract that foreign investment required a national strategy.
Africa has not been successful in attracting foreign direct investment outside of the primary commodity sector. Outside of oil and gas and a few agricultural products, there are very few foreign direct investors for world markets and manufacturers, and this, I think, has been one of the great shortcomings of African development. The official advice that the Bretton Woods Institutions have given have not helped you to attract foreign direct investment. That is one of the things that I think Professor Ohno is implying: that you need a specific strategy to be able to attract foreign investment. The infrastructure has to be right, the partnership and trust with the source country has to be correct, often the tax code has to be allowing tax holidays or other incentives to make investors come to places where they were not very keen on coming in the first place, and then maybe after ten years they are very happy that they came. But without the initial stimulus, those pioneer sectors would never have been developed. So East Asia pioneered the use of pioneer industry incentives. And they actually said, one country after another, 'we need to move beyond primary commodities, we need to get into electronics.' That is what is called industrial policy. That became a bad word in the world, but it was very successful in East Asia, and a lot of what has been lectured to about industrial policy, especially from Washington, has not been correct, actually. Because industrial policy is important, at least, to conceptualize 'where could the country be in ten years?' And if you look at the structural adjustment era in Africa for the last 20 years, the one thing you can say about the structural adjustment period in Africa is that there has been no structural adjustment in terms of the export structure. It remains coffee, tea, cycil, palm oil, copper, iron ore, diamonds, gold, hydrocarbons-in other words, it is almost all primary commodities without structural change which lies at the essence of the East Asian development model.
I have two big issues, though, with the way Professor Ohno described it, and that is that actually East Asia all the way back to the Meiji Restoration did what he said but also did one other thing, and that was massive investment in human capital. So, right back from 1868, actually from the 1870s, the Japanese government in those days got serious about public health, and in those days got serious about the education system. So there were always two tracks. One track was the economic growth track in terms of the business environment, and there was always a role of government in thinking: 'What next? How do we push the technology forward? How do we move from agriculture to industry?' But there was always a track of investing in human capital: education and health. And Japan actually pioneered public health, and had huge improvements in public health at the end of the nineteenth century and the early twentieth century. By children staying alive in this early development period in Japan, fertility rates came way down, which was very important so that Japan could educate each child to a greater extent, and there was a boom in the education attainment in Japan as well. So the first thing I would comment on is I agree that Japan and East Asia really have something important to teach about the growth strategy, but there needs to be a social or human investment strategy very consciously alongside it. That is particularly important in Africa because of the amount of disease burden and the low education attainment, partly because children are sick so often that they do not complete school. This is vital to complement the investment and business strategy side, and Japan could play a huge role on both of those parts.
Now, the second part that I want to underscore is that unfortunately the East-Asian model is also not a panacea and it is going to have to be adapted. The first question you would ask is, 'where is the lead goose for Africa?' You see, Japan and the United States after World War II were the lead geese for East-Asian development. The United States was a provider of technology and it opened its markets for Korean goods, for example, for Taiwanese goods. Why did it do it? For geopolitical reasons, very importantly, because a lot of the countries of East Asia were under the US military umbrella, the security umbrella, and the United States invested heavily to help build up those countries and share technologies. But where is this process for Africa? Where is the lead goose? This is a major question. Europe has not played the role. The United States has ignored Africa, really, except in fighting proxy wars. This is a major problem that we have to think about.
The second issue is: geography plays a big role in the East-Asian model. That model of investors going from one site to another is what is called the spatial diffusion model. You go to your next-door neighbor. Japan actually went the hard way to Korea and Taiwan first as the colonizer, but it left behind a marvelous set of infrastructure and industries so that those countries could become the most successful developers among the next range, the new economies, and the newly industrialized economies. So Japan really contributed to their development, but they are right next door. And then with China-and we are going to hear from a real authority on China in a moment-the big development in China is on the coastline, because it is in Shanghai or Fujian or Hainan Island or Guangdong province, on the coast, where you get the investment, and in Thailand and Indonesia and Malaysia-these are coastal-led developments.
Now, there is a point about Africa which really is a pertinent point. Do you know that 80% of Africa's population lives more than 100 kilometers away from the coast or from an ocean-navigable river? Africa is the continent with the most land-locked countries. Africa is the continent with the highest proportion of people away from the coast and therefore it is hard to participate in international trade. It is a deep, actually quite a profound geography question why that is. One reason is because in the hard tropics it is often desirable to go to the highland regions: the mountains of Ethiopia, the highlands of East Africa, Rwanda, Burundi, where volcanic soils and water are better, but that takes you 1,000 kilometers inland and then it is very hard to engage in the East Asian economic model of development because nobody goes into the interior for foreign investment of the export-led variety. Just to give you an idea: it is cheaper to send a container, much cheaper to send a container from Singapore to Los Angeles than it is to send a container from Mombassa to Kampala. That is the problem. That is a real geography problem that needs to be addressed and understood.
Well, let me conclude because time is going and because we have an outstanding speaker beyond me to get to. Let me conclude with some implications from African development. First, Africa needs to learn from the East-Asian model that real economic development is going to come from structural transformation and upgrading of technology, not simply intensifying coffee, tea, and other primary commodities. The World Bank needs to learn this also because this was the biggest blunder of the structural adjustment era: simply reinforcing the primary commodity sectors and not helping Africa to become apparel exporters, electronics exporters, from the great coastal cities. That is point number one.
Second, Africa will need a strategy for that. The coastlines will be key. It will be Dar-es-salaam, Mombassa, Maputo, Accra, Dakar, and Abidjan where a lot of the first wave of new sector investments can take place. They will require an East-Asian development mentality to get them. Every one of those cities, not just countries, cities are going to have to say, 'how do we get investors here?' Well, you need reliable power. You need an export-processing zone. You need the ports dredged and working properly. You need physical security for the production process. You need tax authorities that are friends of the exporters, not the biggest enemies.
So you need a strategy for the urban-export base model. Japan could really help a lot in this process because it has done it and helped and led that so many times. And that could be a huge benefit. But you also need tax holidays, for instance, tax incentives; and the IMF and the World Bank have to turn around 180 degrees to understand how to do that, because frankly those institutions have never had to attract foreign direct investment. They do not know how to attract a business; that is not their business. But that is METI's business, or that is the business of other development authorities around the world, and we need to get practical people that can help bring real industry to Africa, not simply in the old sectors but in the new sectors-and so that is the second point I would make.
The third point I would make is: let's not forget the social investment. What Professor Ohno says in my view is absolutely 100% right. Social investment is not enough, it is not the same as a development strategy, but it has got to be part of a development strategy. Africa's region is in urgent need of social investment, especially in health, in education, and in agricultural productivity. All three of these need technology.
Technology at the center of development was Japan's theme since 1868: 'We need to build technology, we need to develop science that is how we are going to catch up.' Africa needs a technology-led strategy also. Technology for higher agricultural productivity, technology to make the drugs that could keep people alive in the AIDS pandemic, to fight malaria, to make the rain-fed agriculture work better; and Africa needs a major campaign for education for all.
Now, in the end, one thing that I have studied repeatedly in all of this is that Africa cannot pay for all of that on its own. It faces challenges that even Japan in 1868 did not face. It faces tougher malaria, it faces an AIDS pandemic, and it faces tropical agriculture that is a lot harder than Japan's temperate zone agriculture. It faces drought conditions that come with sub-humid tropics. So it is harder and it needs help, and that is why I would close my statement by making the appeal to Japan that, as a country that pioneered modern economic development, that has been the best exemplar of it, please do not cut foreign aid for Africa. Please help Africa to do it. So keep the development assistance and do invest in Africa because you have so much practical lessons to teach in the continent. Thank you very much.
Mr. Sumi: Thank you very much, Professor Sachs, for your very interesting remarks on development which have very grave implications to the development of Africa. I just do not want to summarize such extraordinary remarks but please take note of these very unique theories and advice.
