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Federation Business School

A Framework for Economic and


Sustainable Development Policies in
Developing Economies
Jerry Courvisanos
Federation Business School
Federation University Australia
Mt Helen Campus, Ballarat, Victoria, Australia

UNTL Timor-Leste Visiting Researchers Seminar


25 August 2016, 4pm; Campus Liceu
Context
September 2015, Timor-Leste (TL) became a
signatory and lead country advocate for a
series of 17 Sustainable Development Goals
(SDG)
SDG adopted by the United Nations in order
to address inequality and environmental
degradation arising from economic
development
In standard development economics theory,
adoption of the SDG is in tension with
maximising GDP growth and thus economic
progress
Purpose
Identify an alternative economic development
framework based on an economic theory which
supports sustainable development (and any related SDG
targets) that could be adopted in TL
Working in harmony and completely integrated with
economic development, tension between economic and
sustainable development disappears
This framework provides adaptive tools to support a
paradigm shift in economic policy to an economic
sustainable strategy (new economy); with experiences
from Tunisia, India, Bangladesh, China and Indonesia
Standard Development Economics

Economic development measured as GDP


(economic growth) based on neoclassical
economic theory of static equilibrium
Priority (in models based on this theory): Gain
market efficiency through supply and demand
Unrestrained competitive free markets ensure
efficient allocation of resources at equilibrium
state, and in this way economic growth
assumed to be raised and stabilised
Standard Development Economics
Joseph Schumpeter (1912): Only changes in
this equilibrium state accounts for transition
into a higher level of development
Caused by factors coming from outside
External factors of technological transfer and
innovation with strong waves of Foreign Direct
Investment (FDI) (Blomstrm et al. 2001).
No theory on external factors assume will
arise from static efficient equilibrium
Joseph Schumpeter (1883-1950)
Alternative Development Economics
From Schumpeter (1912): Focus on transition
dynamics of economic change, not statics
Nothing is outside in alternative dynamics,
based on cumulative causation, with focus on
specific relevant factors (community-based,
ecological sustainability, local capacity building)
Technological transfer and innovation integrated
into economic model outside + inside economy
Transition that transforms an economy with
innovation and sustainability framework
Alternative Innovation Path
Transformative innovation is anti-cyclical (Laperche
et al. 2011), but only if there is a clear path to
transformation to a private-public-social system of
equal sectors; need paradigm shift to this new
sustainable economy
What is sustainable development (SD)?
The essence of sustainable development is to
provide for the fundamental needs of humankind in
an equitable way without doing violence to the
natural systems of life on earth.
(Kemp and Martens, 2007, p. 5)
Alternative Innovation Path
Path to SD is non-optimal and dynamic, with
enterprises and public programs that embrace:
productive union of mind and nature
linking economic (profit), social (people) and
ecological (planet) business practices
support and close links between the local,
regional, and national community levels
Planning via eco-sustainable framework needs to
connect with macroeconomic strategies with
priority of reducing uncertainty and building
effective demand with such enterprises.
Alternative Innovation Path
Innovation path based on two economics traditions:
Schumpeter on creative destruction based on a
technological driver (in past for TL: Oil), now with
SDG, it has to be eco-sustainable technologies
(renewable energy, reuse, recycle with equity)
Severe crisis is the trigger for paradigm shift (TL has
had it)
Micha Kalecki (1962): adaptation mechanism
capital investment (infrastructure) and effective
demand (build market demand) with social learning
for eco-innovation adaptation; allows for new private
sector market power (new entrepreneurs in TL)
Micha Kalecki (1899-1970)
Eco-sustainable Framework

Made up of three processes:


1. Eco-sustainable framework elements
2. Investment planning criteria
3. Supporting implementation
based on Instrumental Analysis by
Adolph Lowe (1976)

Look at each separately


Eco-sustainable Three Elements
1. Social and ecological rules based on
precautionary principle for SD reject optimal
growth. TL has adopted SDG, need majority of
society to agree with these goals (social
learning needed)
2. Perspective planning that sets out iterative
learn-as-you-go plans that adapt to future
technologies and social attitudes
3. Cumulative effective demand that ensures
diffusion and up-scaling of eco-innovations to
reach critical mass and economic sustainability
(start small and build up)
Investment Planning Criteria
Investment planning and infrastructure need to
underpin and support framework elements
(government budgets must reflect SDG)
Resource-saving on new capital stock low real
depreciation (e.g. high maintenance of roads and
IT) and high utilisation of productive capacity
(ensure high capacity usage)
Iterative planning with bottom-up monitoring and
evaluation (e.g. decentralisation, co-ops)
Strong niche market base with feedback from lead
users (allow private and social sectors to grow)
Support Implementation Strategy

Begin with pre-analytic economia vision:


Ensure public motivation and
conformity at local/regional level for
rules and its targets (e.g. SDG)
Working backwards from targets to
develop an investment framework
Incorporate an innovation policy with
user input (with new entrepreneurs)
Framework to work requires
Success of this approach based on ability to:
Establish rules (or conventions) based on
agreed principles and goals by community in
general (SDG)
Lock-in the precautionary principle do not
action programs that threaten agreed rules,
causing uncertainty
Encourage cumulative change with
entrepreneurs and new market demand
Eco-sustainable Investment Supporting
framework planning implementation
elements criteria strategies
Social and ecological Equality across Develop and
rules urban/rural divide communicate
Sustainable long-term appropriate & agreed
carrying capacities sustainability rules
Resource-saving new (SDG)
capital stock
Perspective planning Iterative flexible ex- Establish, monitor,
ante planning evaluate and adapt
Bottom-up monitoring social & environmental
and evaluation policies for SDG

Cumulative effective Strong niche market Develop and manage


demand base for SDG public network systems
Experience from for social venture use
current eco-sustainable and appropriation, with
innovation-based social user feedback in
venture users concert with SDG
Application to public policy
Eco-sustainable Investment Supporting
framework planning implementation
elements criteria strategies
Public policy and Expanding digital Appropriate IT tools
whole-of-government technologies (esp. rural aligned to urban/rural
aligned to SDG coverage) user-capabilities
Education and training in Incentives & regulations
Public communication
new technologies (esp. rural support sustainability
and support for SDG literacy) rules

Process of
investment Methods of
Planning
strategy appropriating
framework
planning in investment
public and strategies
private
sectors
Appraise five developing countries
Framework applied in a few specific public
policies in sustainable development (SD):
Tunisia: R&D base, with bottom-up SD input
Indonesia: top-down non-SD, with no input
from community/entrepreneurs
India: strong role for private and social
entrepreneurs, as public policy fails to address
divides
China: strong top-down SD, drive to bottom
Bangladesh: women entrepreneurs strong,
weak government SD support
Tunisia

Government effort to integrate SD with


Economic Growth (GDP rise), but tension exists
R&D base strong from prior authoritarian
government policies, but GDP (1996-2013)
Use of fossil fuels for energy key for EG
Arab Spring born 17 December 2010 here
creative destruction out of crisis; but
High unemployment with large youth une.
Loss of previous strong FDI with uncertainty
Tunisia: Annual GDP growth 1996-2013

8.00
7.00
6.00
5.00 GDP growth
4.00 (annual %)

3.00
2.00
1.00
0.00
-1.00 199619982000200220042006200820102012

Source: World Bank (2015)


Indonesia
Major crises in 1997-1998; financial and social
(Peristiwa): room to move for creative
destruction
Failed to take advantage of this room
Back to top-down development
This has produced 4-6% annual GDP growth
Dominated by old industries that are
unsustainable, with little room for small
business and new innovative entrepreneurs
Largest and dominant economy in ASEAN
Barriers to applying AEC agenda
ASEAN Economic Community (AEC) aim for common
market with innovation: paradox and non-SD
Eight constraints on an effective common market:
Lock-in with traditional export-oriented industries
Weak learning capabilities
Low density of institutions
Fragmented markets and systems
Low skill base and poor mobility in labour
Large technology gaps
Limited finance available for funding radical innovation
Low intensity of innovation
India
Public policies from early 1990s both:
to liberalise into market-based economy (av. GDP
annual growth 7%, 1995-2015)
to address environmental degradation (fast progress
addressing environmental issues and improving
environmental quality)
Large entrepreneurial services sector growth has
assisted in addressing growth/SD tension
Growing inequality major SD issue with massive
urban/rural divide (digital/health/gender):
rural suffering by agriculture sector collapse and
market forces acting strongly in favour of urban India
India: Social enterprises and divides
Digital: Internet kiosks in rural areas NGO Dhan
Foundation operating 42 small kiosks with self-employed
entrepreneurs (problem many closing)
Health: Aravind Eye Hospital eye-care service and
cataract surgery at low cost with price discrimination on
ability-to-pay (47% do not pay)
Health: Apollo Hospitals Chennai (with public policy
support) health literacy of rural population (social) and
delivery of telehealth initiatives (technical)
Gender: Lijjat Papad all class co-operative making &
selling papads by women, each having power of veto
China
Traditional dependence on cheap plentiful labour
and fixed asset investment returns decline in both
working-age popn and generation of returns (60%
more capital required 2010 c.f. 1990) and non-SD
This dependence is over; as is 10% GDP annual
growth rates, down to 5-6% annual economic crisis
Transition can only occur through innovation
Challenge of shifting from imitation innovation to
modification innovation with SD
No longer top-down, need for bottom-up (build
consumer demand and small entrepreneurs)
China: Sustainable Development
SD began top-down, with national government
working on three areas:
1. Regulation: closed down polluting plants
2. R&D: science push to renewable energy
3. Infrastructure: high-speed rail, commercial
aviation, wind power, teleco equipment
Focus now on bottom-up from local enterprises to
rebalance the economy, for example:
BYD: high-tech and renewable energy innovations
Xiamen Chenggong: energy-saving equipment
Bangladesh
Economy based on cheap labour in foreign-
based Ready Made Garments, exploitative
and dangerous industry
Manufacturing (47%) - clothing, spinning
and weaving of textile, handicrafts, printing
Only 6% of the total micro, small and
medium enterprises (MSMEs) in Bangladesh
Services (23%) and agriculture (18%)
No economic diversity and poor SD
Women-owned microcredit enterprises in rural
Bangladesh - this is standard view of females in BL

This assists relieving poverty, but has no


little impact on economic development

Need major business development by


females, this is currently relatively rare
Bangladesh: Women Entrepreneurs
Women-owned firms in Dhaka capital are driving
strong sustainable businesses (profit, people and
plant)
Small women-owned firms are growing at a similar
rate to the medium firms at the same stage of their
firms life cycle
Study should encourage the Bangladeshi government
to abandon the garments export-only business
development policy non-SD
Support diversifying business development policies,
including strong support for women-owned
enterprises
Conclusion: Business Approaches
the new

Social Commercial
Entrepreneurship Entrepreneurship

less profit more profit


more social NGO less social
Business
wealth (NFP) wealth

establishment

What is the economic path for an eco-sustainable future?


Where is the Timor-Leste economy? Path to SDG?
Postscript: SDG Implementation in TL
On 10 August 2016, HE Prime Minister, Dr Rui Maria de
Araujo outlined roadmap TL implementation of SDG in
harmony with 2011-30 Strategic Development Goals:
Short-term (2011-15): Target the human
development goals of #2,4, 9 together with #5,3,6
Medium-term (2016-20): As well as entrench the short-
term 6 goals, target the economic development goals of
#8,10,11,12
Long-term (2021-30): As well as entrench all previous
10 goals, target the environment protection goals of
#7,13,14,15.
Other 3 (#1,16,17)will be ultimately achieved
Harmoniza no Prioritiza ODS iha
Etapa PED
Halakon kiak
ODS7, ODS13, ODS14, ODS15
Longu
Etapa III PED

ODS2, ODS3, ODS4, ODS5, ODS6, ODS8, ODS 9, ODS10, ODS11, ODS12

Etapa II PED Mediu

ODS5 ODS3 ODS6


2017
ODS2 ODS4 ODS9 Kurtu

Etapa I PED

5/10/2017 SDG Working Group 34


Questions for Discussion
PM Rui says none of the 17 SDG will be forgotten,
line ministries have to address their related goals;
is this a realistic and appropriate roadmap?
What strengths TL has in being able to implement
all 17 SDG? In harmony with 2011-30 Govt. Plan?
What are barriers/constraints to implementation?
Does achieving SDGs in TL enhance or diminish
economic opportunities for all?
Can the framework outlined here support the
economic and sustainable development of TL?
References
Blomstrm, M., Globerman, S. and Kokko, A. (2001), The Determinants of Host
Country Spillovers from Foreign Direct Investment: A Review and Synthesis of the
Literature, in N. Pain (ed.), Inward Investment, Technological Change and Growth:
The Impact of Multinational Corporations on the UK Economy, Basingstoke: Palgrave,
34-65.
Kalecki, M. (1962), Outline of a Method of Constructing a Perspective Plan (Based on
Polish Experience), in Osiatyski, J. (ed.) (1992), Collected Works of Micha Kalecki,
Volume III: Socialism Functioning and Long-Run Planning, Clarendon Press:
Oxford, 221-31 [1992 English translation from Polish].
Kemp, R. and Martens, P. (2007), Sustainable Development, Sustainability, 3 (2), 5-
14.
Laperche, B., G. Lefebvre and D. Langlet (2011), Innovation Strategies of Industrial
Groups in the Global Crisis: Rationalization and New Paths, Technological
Forecasting & Social Change, 78 (2), 1319-31.
Lowe, A. (1976), The Path of Economic Growth, Cambridge: Cambridge University
Press.
Schumpeter, J. (1912), The Theory of Economic Development, Cambridge, Mass.:
Harvard University Press [1934 English translation from German].
World Bank (2015), Data: Tunisia. Accessed 30 March 2016 from:
http://data.worldbank.org/country/tunisia
For more details, see my book

Cycles, Crises and


Innovation
Path to Sustainable
Development A Kaleckian-
Schumpeterian Synthesis,
Cheltenham and
Northampton: Edward
Elgar, 2012