Main Issues Discussed and The Way Forward

1. Main Issues Discussed and The Way Forward Policy Formulation in Developing Countries GRIPS Development Forum

2. Key Relations

3. Leadership • Critical role of top leaders (cannot be out-sourced!) • Providing development vision • Organizing technocratic teams • Affecting how the system works • Different types of leadership: political, economic and developmental, etc. Issues • Sustainability of “good” (=strong & effective) leaders?; succession problems • Personal leadership vs. organizational leadership?

4. Types of Leadership and Technocrat Teams

5. Technocrats (Central Admin.) • Developmental coalition btw. leaders and technocrats is crucial (b/c leaders alone cannot design & implement policies) • Serving as a strategic core center of development management (not just donor management) Issues • The stability of professional civil services often threatened • Political interference in civil service appointments; technocrats are held “hostages” by political leaders. • Weak inter-agency coordination (within central admin., central-local admin., private sector, etc.) • Problems of monitoring & evaluation

6. Technocrats (Central Admin.) • Limitation in the quality and flow of information, preventing the govt. from making right policy decisions. • Establishing formal systems & rules does not guarantee their effective functions. • Problems of corruption • Capacity constraints: dilemma btw. what should be done (multitude of development challenges) and what can be done (govt. capacity constraints); need for prioritization • Limited bargaining power against donors; sometimes, donor-driven policy and aid decision

7. Local Administration • Need to respond to local needs (esp. public service delivery, poverty-focused programs) • Importance of “bottom-up” approach, to ensure citizen participation in the development process Issues • Sequencing? -- decentralization vs. de-concentration • Weak capability of local administration • Need for staff training, e.g., budget formulation and execution • Need to diversify local revenue sources; design fiscal transfer formula • Need for capacity to work with community organizations • Vertically divided functions, reflecting ministerial fragmentation at the central-level • Role of politicians in local governance • Use of “pork barrel” funds, with little attention to local needs

8. What Can We Do? • Influence international opinions toward greater political space (e.g., the definition of democracy, constitutional rules on re-election)? • Build a cadre of elite technocrats, to foster “organizational leadership”? -- e.g., the role of Dr. Ungphakorn, Thailand • Create a “super-ministry” which has strong authority for vision concretization and implementation of priority tasks? • Make the system transparent and rule-based (e.g., design of pork barrel funds)?

9. What Can We Do? • Should we look at alternative approaches to capacity development & prioritization? • For example, how about pursuing “dynamic capacity development” -- rather than comprehensive “good governance” approach? • Phased approach: goal orientation strategy targeted, concrete action plans • Attention to the “positives” rather than the “negatives” (binding constraints) • Reform government to execute targeted policies effectively

10. Related Issues • How to change culture? • A sense of nationalism, dedication to public services, etc. • How to change “rent-seeking” mindset (overcoming financial incentives)? • Identify and foster leaders of motivated & competent technocrats -- as a role model for others? • Reward by “non-financial” incentives (e.g., combining training with merit-based appointment; prestige)? • Political system • Presidential system vs. parliamentary system matter. Does this matter?

11. Role of External Partners • Publicize “good leaders” and promote intellectual debates on “democratic developmentalism”? • Use policy dialogues as an entry point for engaging partner countries in “dynamic capacity development”? – although this is effective only when trustful relations exist btw. external partners and countries…. • Jointly formulate policies, by sharing external perspectives (e.g., VN-Japan Joint Initiative to Improve Business Environment)? • Provide new ideas and knowledge, when specific problems have been identified by countries (e.g., Ethiopia (kaizen), Cambodia (one-window-service office, ombudsman)?

12. Role of External Partners • Act as a coordinator for large-scale, regional infrastructure (e.g., development corridors, power pools), where respective countries face different interests? • Act as a watch-dog to ensure transparency of the development process, by assuming “joint responsibility” in development management?

13. Supplementary Note: Govt.–Business Partnerships • Vision sharing and industrial policy formulation • Priority programs <Organizational arrangements: examples from East Asia> • Japan • South Korea • Malaysia • Thailand

14. Issues on Sector-level Coordination • Productive sector (industry, agriculture, etc.) faces different challenges from social/ infrastructure sectors in vision/plan formation because of: • Not public-expenditure intensive • Need to work with private agents • Importance of incentives, regulatory framework, etc. (different from public service delivery -- costing based) • Multi-sector (incl. agriculture, infrastructure, skill development, science & technology), requiring inter-sectoral coordination Cf. Mick Foster (2001): difficulty of agricultural SWAP

15. Experiences from East Asia • Govt.-business partnerships around shared vision • Large volume of high-quality information flow btw. govt.-business • Govt. initiatives in operational management of policy networks (and monitoring) • Existence of mutual confidence, making predictions and commitments credible • Evolving nature of govt.-business coordination, as the private sector grows • From govt.-led to private-sector led mechanisms for resolving specific problems

16. (1) Vision Sharing and Industrial Policy Formulation • Not all E. Asian countries formulate industry-wide policy; but they have instruments for sharing industrial visions. • Effective industrial vision formulation requires: • Constructive and continuous contacts with businesses; • Mechanism to frequently review and flexibly adjust policy implementation. • Many E. Asian countries used Deliberation Councils; but their functions & institutional arrangements are diverse. • Scope: vision/plan formulation, problem-solving & performance monitoring, information-sharing, etc.

17. (2) Priority Programs • Some E. Asian countries established Special Task Forces to plan and monitor the implementation of high-priority programs • Intensive inter-ministerial coordination (due to multi-sector nature) • Critical role of leadership and the secretariat; the secretariat was given the authority to manage • Combination of “top-down” and “bottom-up” approaches • Gathering high-quality information; linking it to decision-making • Rapid problem-solving mechanisms

18. Japan (late 50s-70s): Development and Industrial Vision Formulation • Organizational leadership • No single super-ministry • Govt. formulating MLT economic and physical plans via. deliberation councils • MITI serving as super-ministry for industrial policy • Very broad jurisdiction • Working with the private sector PrimeMinister • MLT Economic Plans • Comprehensive National Development Plans (physical planning) Participation from officials, business, academia, media, labor, consumers. DeliberationCouncils PM’s Office MOF MITI Econ. Planning Agency, Land Agency, etc. Deliberation Councils • Industrial vision • Industry-specific policies • Coordination & support to business activities (e.g., finance, technology)

19. Source: Adapted from D.Okimoto (1989) Figure 3.2 p.117 MITI Main Bureau Attached Organizations and External Bureaus Minister Politically appointed VM Administrative VM Deputy VMs Special assistants Minister’s Secretariat (incl. Research & Statistics) Int’l Trade Policy Bureau Int’l Trade Admin. Bureau Industrial Policy Bureau Industrial Location & Environment Protection Bureau Basic Industries Bureau Machinery & Information Industries Bureau Consumer Goods Industries Bureau Agency of National Resources ＆Energy Patient Office SME Enterprise Agency Agency of Industrial Science & Technology Trade & Investment Training Other (*) Industrial Structure Council: influential in the 60s (18 special committees): industrial pollution, int’l economy, consumer economy, heavy industry, chemical industry, etc. Deliberation Councils Industrial Structure Int’l Trade Transaction Export Insurance Industrial Location & Water Textile Product Safety & Household Goods Quality Indication Petroleum Aircraft & Machinery Industry Electrical Works Traditional Crafts Industry ......... ...................

20. Japan: Industrial Vision Formulation and the Deliberation Council Conduct survey; compile data MITI junior staff study group Hearing: Learned individuals Interested parties Overseas employees Local representatives Others (Prepare draft) MITI Research group (subcommittee) Outside lecturers (Feedback) (Briefings, subcommittees’ reports) Deliberation council Public relations: Publications Explanatory meetings Lectures Others (Report) Source: Ono (1992)

21. South Korea (60s-70s): Development Vision and Govt.-Business Partnerships • Direct presidential control over economic policies • EPB as super-ministry • Research institute (KDI, etc.), providing analysis for MLT economic policies • Govt.-business: close and cooperative relations • Performance-based rewards & penalties President (Blue House) Economic Secretariats State Council Chaired by Deputy PM Five-year plan Economic Minister’s Council Govt.-BusinessMeetings: Export promotion Economic briefs - HCI drive, etc. KDI EPB Deputy PM • Development planning • Public investment planning • Budget • Monitoring • Aid management MTI Business Finance Ministries/Agencies

22. South Korea： Export Drive (60s-early 80s) • Monthly Export Promotion Meetings, as the most important communication channels • Chaired by President Park • Members: economic ministries, business association leaders, governors of financial institutions, major export enterprises • Monitor the achievements of export targets; coordinating measures to eliminate impediments to export growth • Mutual responsibilities: ministries are ordered to take measures and report at the next meeting Business are rewarded, based on export performance • Monthly Economic Briefing • Chaired by President Park; managed by EPB • Members: President, EPB, business leaders, representatives of financial institutions

23. South Korea : HCI Drive (1973-79) • High-priority in the Third Five-Year DP (under President Park: targets set until Fifth Five-Year DP): • Heavy and Chemical Industry (HCI): 6 strategic industries (industrial machinery, shipbuilding, electronics, steel, petrochemicals, etc.) • HCI Promotion Committee (73) • Chaired by President Park; equivalent to State Council • Members: Prime minister, Presidential Secretary for Economic Affairs, 6 ministers (EPB, MTI, MOF, MOE, MOST, MOC) • HCI Planning Team (Special Task Force): • Managed by the Blue House (headed by Presidential Secretary for Economic Affairs) • Members: economic secretariats of the Blue House, MTI, EPB, MOF, MTI, MOC • Financial and fiscal incentives: National Investment Fund (74); tax incentives, tariff reduction, etc. • Macroeconomic implications? -- driven by the Blue House and MTI (rather than EPB and MOF)

24. Leadership Vision and Technocratic Arm: Malaysia (80s-90s) Prime Minister & PM’s Dept. • PM Mahathir’s initiative to renovate direction for economic policies and institutional arrangements (pro-Malay to strategic partnership with business) • Learning from the “Look East Policy” (1981) • The Vision 2020, announced by PM at the first Malaysian Business Council (1991) • Institutionalized the Malaysia Inc. Vision Ministry of Industry & Trade • Industrial Master Plan (IMP) 2 (1996-2005) to implement the Vision 2020 • Various initiatives to implement IMP2 Although PM provided LT vision and direction for changes, policy formulation and implementation were conducted via. multi-layered, inter-coordination mechanism.

25. Malaysia (90s): Malaysia Incorporated • Malaysian Business Council (MBC) (91) • Chaired by PM Mahathir; organized by PM’s Dept. • Members: 10 ministers, 10 officials, 55 business representatives • Modeled on the Korean Monthly Export Promotion Meetings • Shared the Vision 2020; facilitated direct communication among big business, labor and the PM • Malaysia Inc. Officials’ Committee (93) • Chaired by the Chief Cabinet Secretary of PM’s Dept. • Members: govt. officials, business associations and business leaders • All govt. branches, federal states were requested to establish govt.- business councils and annual forums • MOF: Annual budget dialogue • METI: Annual trade and industry dialogue (88-)

26. Malaysia (90s): Industrial Master Plan 2 • IMP2: industry-wide master plan to attain the Vision 2020 (together with Malaysia Inc.). Its implementation was supported by: • Industrial Coordination Council (ICC), chaired by Minister of MOI • Members: 8 officials from MOI, EPU, MOF, CB, related economic ministries (PS levels), 15 business representatives (Chamber of Commerce, FMM, major industrial associations) • Monitor the progress of IMP2 and examine problems suggested by IPIC, CWGs • Industrial Policy and Incentive Committee (IPIC): • Members: officials only (8 ministries/agencies) • Public-Private Cluster WG (18 CWGs) and Strategic Thrust and Initiative Task Force (STITF) • Participation of private sector

27. Malaysia: Mechanisms for Industrial Policy Coordination (1991-) PM Deputy PM PM’s Dept. NPC NEAC EPU (planning) ICU (monitoring) Central Bank Vision 2020 Malaysia Plan (Five-Year DP) IMP2 MOF MITI Chaired by MOTI Minister, Govt & business. Industry Coordination Council (ICC) Political Parties Budget dialogue Govt. only (8 ministries/agencies) Industry Policy and Incentive Committee (IPIC) Annual dialogue Govt.& business Malay society Chinese society Indian society Industry Cluster Working Groups (18 CWGs) Industry groups Individual firms Chambers of Commerce Source: Adapted from Takashi Torii, “Mahathir’s Developmentalism and Implementation Mechanism:Malaysia Incorporated Policy and BCIC,” ch.4, Higashi (2000), pp. 166, Figure 2.

28. Thailand (late 90s): Public-Private Partnership for Industrial Restructuring • Need for industrial restructuring, after the financial crisis • National Committee on Industrial Development, chaired by Deputy PM • Sub-committee on National Industrial Restructuring, chaired by Deputy Minister, MOI • IRP drafting • Used SAL financing (WB, ADB), but with Thailand’s ownership • Master Plans for 13 industries formulated • Institutes (6 industries; 4 thematic) • Operated and financed jointly by public & business • Each institute acts as a hub of information & consultations, drafting industry / issue-specific MP, etc.

29. Public-Private Partnership for Industrial Restructuring (Thailand after 1997) Prime Minister Cabinet Govt.-business consultation body, established in the early 80s. Economic Cabinet Meeting JPPCC NESDB Financial Sector Reform Industrial Restructuring Social Infrastructure Others Chaired by Deputy PM National Committee on Industrial Development Examine & discuss basic policy & direction Sub-committee on National Industrial Restructuring Examine & discuss detailedmeasures & actions Chaired by Deputy Minister, MOI Operated jointly by public ＆ private sectors Institutes Textile, Food, Automobile, Iron & Steel, SME, Productivity, Mgt. System Certificate, etc. Information sharing; Specific MP formulation, etc. Line Ministries Thai EXIM Bank IFCT SICGC Federation of Thai Industries Industry Associations Chamber of Commerce Commercial Banks Source: Shigeki Higashi “Industry: Business and Government in a Changing Economic Structure” ch.3, Suehiro & Higashi (2000), p.166. Figure 3