Economic Growth – Building State Capability

Can PDIA approaches help to enhance the development of Institutional Strategies in Multilateral Organizations

Guest blog written by Francisco Castro-y-Ortíz

This is a blog series written by the alumni of the Leading Economic Growth Executive Education Program at the Harvard Kennedy School. Participants successfully completed this 10-week online course in July 2020. These are their learning journey stories.

I work for a multilateral development organization—the Inter-American Development Bank—and am a citizen from a Latin-American Middle-Income Country (MIC). Because of this background, the main economic problem I am most concerned about relates to my own country—Mexico—and the Latin-American and Caribbean region (LAC) as a whole. It is about low average growth rates—for more than two decades already. Low growth matters in LAC because it increases the risks of regression, particularly to poverty and other human-development and sustainability metrics. Such an outcome may erase the hard-earned development gains of the last two decades. Furthermore, the problem of low growth is today being amplified significantly because of the COVID-19 pandemic which, if not addressed, may have devastating economic consequences on both growth and sustainable human development.

The problem of low growth and its consequences lies at the heart of multilateral organizations’ Institutional Strategies (IS) working in the LAC region. Some of them will be considering updating them because of high-level managerial changes (tenure periods are expiring), or because of the adverse exogenous shock and economic consequences of the pandemic, or both. As I learned in the 2020 Leading Economic Growth course, following the steps of a Problem Driven Iterative Adaptation (PDIA) approach may decisively help to enhance the formulation and update of the IS of multilateral organizations.

For instance, let us begin with the first steps, constructing and deconstructing the problem to develop a clear problem narrative and “provoke reflection, mobilize attention and promote targeted and context-sensitive engagement”. In the case of LAC, the region has experienced low growth rates since the 1980s consistently. Despite being acknowledged as a “middle income region”, LAC has been stuck in that stage for decades. In addition, if the numerous exogenous and internal shocks that the region has experienced, are factored in, the low growth problem becomes critical because the region does not have enough fiscal space to confront the crises adequately. Consequently, living standards recede, per-capita income decreases, infrastructure and productivity get eroded.

Leading Economic Growth in Kazakhstan

Guest blog written by Baur Bektemirov

There is an old cliché that crisis is an opportunity. In my case, the Great Lockdown has certainly become an opportunity to learn and even re-think my work as the Chief Economist for a government organization, which just recently was tasked with an expanded role to help the government to attract more investment and contribute to the economic growth.

The Leading Economic Growth program has helped me to assess, once again, the main problems and obstacles for the economic development of Kazakhstan, look for the real roots of these problems (the binding constraints), analyze possible solutions to these barriers, and even formulate a draft for solving some of them.

It does not, however, gives you a ready recipe to address current problems, instead, the program teaches and provides methodology: how to assess the problem, look for solutions, take a problem-driven iterative approach, build authority, ability, and acceptance to solve the problem in the existing political circumstances.

For example, Kazakhstan is showing all the symptoms of classical Dutch decease problem. The pro-growth policies adopted in late ‘90s—early 2000s, have led to rapid growth of the GDP at the expense of economic diversity (economic complexity). This has led to all the standard problems: strengthening of the national currency, growth of mining and non-tradable sectors of the economy with little productivity growth at the expense of other tradable goods and services. As the result, the economic growth has been stagnating for about 6-7 years now, while investment into economy has contracted, mostly due to the stagnation of banking lending.

The current pandemic does not help solving this problem either. But now, in addition to the short-term economic stimulus, central authorities must decide on economic policies, which will ensure long-term sustainable development. It is imperative to review the current model based on old pro-growth policies, which do not yield the same results as they used to 10—15 years ago.

Learning to Crawl: Can a Health Financing Reform Unshackle Ukraine’s Growth Potential?

Guest blog written by Dzhygyr Yuriy

Through past two decades, Ukraine has been steadily descending the Atlas economic complexity ranking list, going down from #30 in 2001 to #50 in 2016. At the lowest border of the second highest quintile, it is a relatively advanced economy and was assessed by Ricardo Hausmann’s international complexity simulations as having a significant potential to “move in all directions”. However, it currently remains invariably focused on agriculture and metals, exporting mainly to the immediate neighbors (Russian Federation and Poland), and has been gradually retreating from the more complex markets such as for vehicles, industrial machinery, optical and medical equipment.

The 2013-2014 social, political and economic crisis – which inspired the Revolution of Dignity, a change of government and a reversal of the geopolitical orientation – has created a hope for a new development strategy. However, five years down the road, many of the post-Maidan reforms are losing traction, calling for an audit of what went wrong.

In the hindsight, the problems targeted by the post-Maidan policies strike as remarkably astute. Most of these policies tried to address the low quality of public services – one of the core issues which enraged taxpayers and illustrated the state’s failure in 2013. But these reforms were not only in popular demand; they also happened to intuitively react to strong price signals of an extreme growth constraints.

The most striking example was the system of government-funded healthcare. By 2013, 92% of Ukrainians reported being terrified of catastrophic out-of-pocket costs if they get ill. Although the bulk of medical services in the country were tax-funded and provided by public facilities, de facto more than a half of costs were paid out of pocket through an entirely unregulated black market. Given the extreme information asymmetries, lack of competition and conflicts of interest, actual prices for healthcare in Ukraine have skyrocketed, exceeding the EU countries. Furthermore, while the state was failing to ensure quality control and continuous professional development of medical workers (reflected in the rapidly deteriorating health outcomes in the general population), selected categories of doctors were able to enjoy unusually high informal incomes despite the uncertain quality and safety of their services. The overpriced and unreliable healthcare was not only diverting private resources from productive investment, but also failed to provide the sense of economic security, social cohesion, and a robust state, ultimately depressing “animal spirit” throughout the society. This system of healthcare funding was also intrinsically obstructive to labor mobility within the country since access to services strictly dependent on the place of official residence.

Learning about Economic Growth in Angola

Guest blog written by Noelma Viegas D’Abreu

I: Key Ideas and Learning

LEG helped me demystify something very important: Economy is not only a science of accounting, finance, taxes and interest. Over the years, I was curious about economic theories and some approaches, reading and studying phenomena of leadership, change, growth, politics and development in some countries. I tried to find out why, as some countries did long jumps and others were or are stuck in the middle of their own problems and poverty, for years.

Not to mention the fact that more inclusive, democratic , with best governance, ethics and better education systems, countries are in a better “shape”, with prosperous economies, than others.

For this reason, I enrolled this course, with my country in mind and the great discrepancy between the wealth of natural resources and the poverty of the people, above all, poverty of primary goods, basic needs, essentials to life, and also lack of knowledge, education, and culture in the broadest sense.

At the beginning of the course, I feared that the challenge would supplant my area of knowledge – clinical psychology and management – but I was positively surprised by the approach, because during the 10 weeks Professors showed me how economics is really a social science, valuing the right people, in the right places, complex relationships and the importance of connectivity between people, valuing knowledge as the essence for economic growth.

In other words, this course, opened for me a world of opportunity to get different perspectives, learning deep insights, to know how and where to research and connect all “letters”, meaningful knowledge to make better decisions, identifying problems, knowing who should be envolved, framework, remove obstacles, implement programs and plans and make it all work.

I learnt a broad range of theories, mainly the importance of “productive knowledge”, the analogy or Theory of Scrabble that articulates so well, the valuable understanding that production (both private and public goods) requires many “letters” provided by the markets (consonants) and also needs “letters” provided by the state (vowels), and to write “long letters”, e.g. how important it is to articulate and connect letters so we can evolve to develop economies, as presented by Professor Ricardo Hausmann.

This makes clear how important is the interdisciplinarity approach, to understand problems and how can we find ways to remove biding constraints.

I also understand now that some problems are complementary and not necessarily binding, and what we need to understand is how to use problems driven approaches, problem driven sequences and take into consideration authority, acceptance, and ability.

II: My Progress and Insights

Professor Matt Andrews was very effective in helping me understand how important is Problem Driven Iterative Adaptation (PDIA) as an approach which rests on core principles: local solutions for local Problems (not copy paste of others; pushing problem Driven positive deviance (learn from what we have already achieved trying to get better); try, learn, Iterate, Adapt; and scale through diffusion. That is so usefull, not only for public management or decisions but also for private sector and even for some moments and important decisions in life.

Top 10 Things I learned from Leading Economic Growth

Guest blog written by Robert Trewartha

To be honest, I was “volun-told” into this course by the Mayor. I had joined her for the Bloomberg Harvard City Leadership Initiative in 2019-20 and learned a great deal. This opportunity came along at a time when we were in the height of managing the COVID-19 pandemic in our City. I was not sure I wanted to take on school on top of my 60+ hour work weeks, but I am quite glad that I did. While I am not an economist by training, I found that I was able to keep up and even more, I learned great deal.

As part of my role, I was asked to help author our City’s economic recovery framework – the foundational document of our recovery efforts for the next 2 years. Much of what I have learned in this course, the revelations, and the self-exploration helped me to write a more thorough, and I hope more effective document. Ideas such as “inclusive growth” were not ones we had explored deeply at the City level before.

I am a political staffer and I like 10 point plans and lists. So, I thought I would organize what I have learned from this course into a Top 10 list.

The Top 10 things I have learned from Leading Economic Growth:

10. Our global economy is built on weak foundations: Our local, subnational, national, and global economies are built on shaky if not crumbling foundations. This has been laid bare during the COVID-19 crisis. Markets no longer match the economic realities of billions of people on this planet as wealth continues to concentrate in the hands of a few. This negatively affects economic growth, productivity, and the health and well-being of the majority of us living on Earth.

9. The invisible hand is tied behind our back: the invisible hand of the market is not functioning the way it is supposed to because it seems to have been purposefully sidelined in the interests of a few. Our capitalist marketplace is not functioning properly, because if it were, growth would be more equitably distributed and capital would not be so concentrated. Billionaires should not be tolerated in a capitalist system. There are many vowels in the alphabet that were used to create this wealth, but very little of it is given back to the system that helped build it in the first place.

8. “This is the way we have always done it” is perhaps the most destructive sentence we can use. It holds us back from realizing our growth potential and maintains the status quo. Only through a concerted effort that aims to do things differently will we be able to properly tackle our growth problems (i.e. Sri Lankan or Singaporean examples).

7. Defining the problem is critical: Too often we believe we know what the problem is (i.e. corruption) and we decide that we are going to tackle said problem. But too often we have not done the hard work needed to define the problem and get to the root causes, which must first be addressed before the problem can be properly addressed.

6. The binding constraint is elusive: Like challenge of defining the growth problem, understanding what the binding constraint is can be equally as challenging, but just as important. Again, too often we think we know what the binding constraint based on what we can see before us, but until we fully delve into the data and talk to those involved, we will not know. And even if it is isolated, the binding constraint is not always easy to address, due to a myriad factors, including #8 on this list and political priorities.

5. Use consultants sparingly: Consultants can be useful, but they can also throttle the development of institutional “muscle” and capacity that if developed properly, can far outlast the retainer of the consultant and can continue to produce change and results well into the future. I am intrigued by the PDIA method that builds capacity within an organization, as well as political buy-in.

4. Best practices are not always best: A cookie cutter approach to growth and economic development does not always produce the best results. While a best practice may work in one jurisdiction, it is not always easily replicated in others. Like consultants, it is best to be wary of best practices as a panacea. They can be useful as a guide and a marker against which to judge your progress and results.

3. Planting more trees makes it easier for monkeys to jump: Being from Canada, we are blessed with an abundance of natural resources, but also with a diverse array of current and potential exports. As I said in Week 2, I believe we are punching well below our weight for a variety of reasons. Through PDIA and exploratory work, including investment attraction agencies, you can plant more trees and breed more monkeys. It takes a concerted effort that properly identifies the growth problem, as well as the binding constraints, and then actively seeks out new investors and talent. The Singaporean “miracle” was especially instructive in this regard.

2. Strong leaders are only part of the story: While a strong leader may be important to for public support and a focal point around which to rally, they alone cannot execute an entire growth strategy on their own. No one has that much time, bandwidth, skill or expertise. Ruling with an “iron fist,” does not allow others to take the lead, propose ideas, and develop as leaders. A more decentralized multi-agent leadership model is far more effective in developing a growth strategy than a single leader.

1. Strong growth is inclusive growth: The story of “us” must include of all of us. Our growth must leave no one behind. We measure growth in terms of GDP and job creation, but we do not often look at the impact on real people, especially the vulnerable, women, visible minorties and the disabled. Macro economic evaluations of growth may show that an economy is “healthy,” but they do not tell the entire picture. Growth that is inclusive is growth that empowers more people to be more productive.

Profit cannot be our only measurement for success; productivity is incredibly important as well.

As we head into the recovery from COVID-19, I will be using the PDIA approach to address some of our City’s fundamental growth problems. In fact, in the past week, I have raised some of the ideas learned in this course, including PDIA and inclusive growth with our Director of Economic Development. We will be developing a plan of action that involves many agents both within our City government, as well as in other levels of government and across the community.

The big challenge we will face is garnering political buy-in for our plans, as they are unlike anything we have attempted before. I suppose this one element that I hoped the course would touch on more: political influence and acceptance. Perhaps I see the world differently from my economic development counterparts as I am a political staff person, but I believe that we often underestimate the significant role that politics plays in not only providing licence to ideas and approaches, but also in championing them. The Green New Deal is a wonderful document that seems like a “no brainer,” until it is put on the floor of a legislature for debate. I know there are limits that I am just not allowed to test at this time due to the political realities in my community and my country (we’re spending $12B to build a pipeline to carry crude to a marketplace that increasingly does not want to buy crude). This course might benefit from some discussion of how to influence people at a political level to advance a novel growth strategy.

Overall, I found this course incredibly worthwhile, eye-opening, thought-provoking, and engaging. I enjoyed the weekly lectures and I actually relished my weekly assignments. I thoroughly enjoyed my Thursday evening meetings with Peer Group 22; in fact, we have agreed to keep meeting monthly outside of this course. If given the opportunity, I would definitely take another course like this one.

My sincere thanks for your time in reading and grading my weekly submissions. I wish you the best of luck in your future endeavours.

To learn more about Leading Economic Growth (LEG) watch the faculty video, and visit the course website.

Wrapping Up: My Leading Economic Growth Journey

Guest blog written by Penelope Tainton

I’ve made some interesting choices in my life. They may not always have been the best decisions for my own long-term prospects, but without fail, they have taken me on journeys of discovery and growth. Always stemming from my over-riding desire to “fix” things, to contribute, to make a difference, to bring about positive change in areas that matter to me, these have not been easy pathways to tread. But, along the way, I have met amazing fellow-travellers who care deeply, who are driven by purpose, who – twee as it may sound – make the world a better place through their thoughts, words and actions.

Given the opportunity last year to coordinate a “War Room” in the Western Cape, South Africa, brought the interesting experience of testing Problem Driven Iterative Adaptive (PDIA) methodology.

Tasked with addressing five problem statements, seen to be important in unlocking economic growth in the Province, we brought together teams of senior officials to work differently. Since this was a six-month pilot, limited resources were put behind the work. This was a real challenge: the approach was new and nothing like it had been tried before; none of us understood how PDIA worked; the hierarchical nature of the bureaucracy was stifling, with deeply-rooted animosities between some of the representatives of two different spheres of government involved; and the contestation amongst a newly elected group of politicians had not yet settled to any degree of comfort.

Cautiously setting out on this road, I met my first fellow-traveller, Professor Matt Andrews. In the way of guides on every pioneering journey, with generosity of spirit and complete commitment to the adventure and its success, he opened his map, shared his wisdom, talked us through each step, gave us a hand to climb over the hurdles, walked with us out of the valleys.

I have worked in a government environment on previous projects, and willingly admit to non-existent patience with unnecessary bureaucracy, delays, obfuscation and failure to grasp opportunities that present, and that could significantly improve the lives of the very people government is meant to serve. My country is deeply wounded, suffering the consequences of a devastatingly destructive past that twenty-six years post-democracy has not addressed. That makes me angry. And while people have individual responsibility to use opportunities presented, ultimately it is government that must provide the enabling environment that makes those opportunities available.

So I approached this challenge with great excitement. Was this a way in which we could support personal and professional development for capable government officials, encourage them to really understand their problems, deliver relevant actions that would have real impact?

The answer was a resounding “Yes”.

From Struggle to Deep Learning, then Action!

Guest blog written by Kojun Nakashima

2020 will surely be the unforgettable year for all the people around the globe. Everything has been required to be changed. Everybody has been stopped to rethink the course of life and work.

In May 2020, the first ever Leading Economic Growth (LEG) Online was launched. The timing was perfect. Everybody was gradually adjusted to new-normal lifestyle. Online meeting became common. What is more, everybody seek opportunity for being equipped for next step towards post-COVID era.

It should have been an experimental course for Harvard Kennedy School too, but it turned out to be a huge success. More than 200 students from 70 countries joined at maximum, and kept on actively enjoying and engaging with live lessons, group works and reading/writing assignments every week (though it was tough, actually).

My Struggle: Am I trapped in status-quo?

I have been working in Japan International Cooperation Agency (JICA) for 7 years. JICA is bilateral development agency, which provides ODA towards more than 180 countries with more than 90 overseas offices.

Since 2017, I have been assigned to JICA Myanmar Office and responsible for Electricity Sector Development. With total 1.2 billion USD Loan portfolio, we provide supports to Ministry of Electricity and Energy (MOEE) on developing electricity infrastructure for Generation, Transmission and Distribution together with capacity building programs for electricity development planning and engineering.

Due to COVID-19, all the operations were required to be reconsidered. But even before COVID-19, I had been struggling as one development officer. The core question was “Is our cooperation effective enough to bring real change?”

Seeking the Next Gear for a Country with 30 Years of Continuous Growth

Guest blog written by Jacek Kotrasinski

Photo of Warsaw, Poland, by Jacek Kotrasiński

Being from Poland, a country that recorded the unprecedented last 30 years of continuous economic growth, I came to the LEG Program to find out how to “Lead the Economic Growth” further.

I have lived in exceptional times in Poland over the last 40 years. I witnessed the collapse of communism in 1989 and the country’s transformation into the market economy based on the neoliberal model. Then I experienced Poland’s economic growth and integration with the Western political and economic structures – the NATO and the European Union (EU) in the 2000s. And recently, after the 30 years of continuous growth, I can observe the extension of the social market economy and take part in the quest for becoming a high-income, innovation-based developed country, just like the most advanced economies of the EU and the West.

Taking part in that history line also significantly influenced my career path. Being driven by the sense of public mission to help Poland’s socio-economic development, in the 2000s I became a civil servant. In my capacity as the Head of Unit for Strategic Management at Poland’s Ministry of Development, I worked on Poland’s most significant development strategies and investment programs. And now I am a non-profit leader and an independent expert further focused on fostering social and economic development of territories.

The growth problem that I have been concerned about, and pursued during the LEG Program journey, was how Poland can sustain its growth towards the innovation-driven, developed economy.

Over the last years, Poland has been one of the leaders in growth in Europe. Since the early 1990s, the Polish GDP has been constantly growing, being on the 2nd-longest growth line in the OECD, and having not suffered a recession even during the previous financial and economic crisis. After Poland joined the EU, between 2004-2019, the Polish GDP per head grew almost twice, and almost tripled since 1990. In the last few years, the Polish GDP growth rate was one of the highest in the EU, reaching over 5% annual rise in 2018. However, due to the COVID-19 crisis, the GDP for 2020 is forecasted to decline: according to the European Commission and the IMF by over -4% (still, the lowest decline in the EU), and according to the Polish government by over -3%.

The problem matters because, based on the international and domestic statistics, Poland’s economy is upper-middle-income, and on the edge between being efficiency-driven and innovation-driven. According to the World Economic Forum, in 2018 Poland was ranked the 37th out of 140 countries studied in terms of global competitiveness and had the economy in transition to innovation-driven. And in London’s FTSE and German Stoxx indices in 2018 Poland was just upgraded from the “emerging market” to the “developed market” status. It is needless to say that the innovation-driven economies are world’s development leaders, have the highest social and economic advancement, offer “good jobs”, allow for wealth creation and accumulation, and provide the highest living standards for citizens.

Economic Growth in Liberia: 10 Weeks to Remember

Guest blog written by Fred D. Koilor

What if this was a one-week journey? Well, many things about the Leading Economic Growth (Online) course probably would not have been the same. Firstly, I can certainly say that students would not have had ample time to digest the course materials and make adequate appreciation of knowledge acquired during the ten weeks. Secondly, the one week on campus would not have given us the opportunity to reach out to institutions and development stakeholders for vital pieces of information, which helped to shape our understanding of the lecture materials discussed during the course. During the ten-week period, I had the opportunity to meet with two departments within the Central Bank of Liberia (CBL) for data and analysis on aspects of my growth strategy. Thirdly, the span of ten weeks provided enough time for the lecture materials to be sequenced into ten weekly modules. This approach enabled the students to navigate the course in a consecutive order of logic, chronologically sequenced from week one through week ten. More importantly, it made learning a lot easier than it would have been in only a week.

In spite of my economic background, this course offered some key insights, which are not only novel, but also shaped my understanding of economic growth, especially considering the growth challenges of my country, Liberia.

The Scrabble Theory of Economic Development provides a fundamental explanation for why some countries are rich and others are poor. With the help of the scrabble metaphor, the theory explains, in very simple terms, that the wealth of nations or prosperity of economies is determined by the level of societal knowhow, which is represented as letters used to produce products, represented as words. Knowhow, described as what the society knows how to do, is not measured by the depth of knowledge individuals in the society possess, but the diversity of knowledge spread across different individuals at the societal level. With a higher level of diverse knowhow, otherwise known as letters, more complex products, otherwise known as words can be produced, thus increasing the complexity of goods and services produced by a nation. The intuition of this theory explains, to a large extent, why Liberia is economically poor, even though it is enormously endowed with natural resources. Liberia has vast deposits of rubber, iron ore, timber, gold, and palm oil, but these resources are mostly exported to other countries in their raw or unprocessed forms because the population does not have diversified knowhow (letters) to produce products of more complexity (words) that could generate higher export earnings, reduce or cancel out our balance of payments deficit, generate more foreign exchange, increase employment opportunities, spur growth of industrial activities, and improve the macroeconomic outlook. Liberia needs more knowhow to manufacture more complex products from its natural endowments. Local manufacturing will generate more jobs locally, add value to our local products, increase their worth as exports, and positively impact many macroeconomic indicators, including balance of payments, net foreign capital inflow, international trade, etc.

Leading Economic Growth in a World at Risk

Guest blog by Sharon Lewis