318 privatesector P U B L I C P O L I C Y F O R T H E NUMBER NOTE 2008 Reform Teams FEBRUARY Alberto Criscuolo and How the Most Successful Reformers Organized Themselves Vincent Palmade What do Botswana, Cape Verde, Malaysia, Mauritius, and Taiwan PRESIDENCY Alberto Criscuolo (China) have in common? They belong to an exclusive group of (acriscuolo@worldbank.org) VICE is a private sector economies that grew out of poverty in less than 30 years. They also development specialist with initially relied on a small, dedicated team of experts to get the job FIAS, the multi-donor investment climate advisory done. These teams brought to bear world-class skills along with service of the World Bank direct access to the top level of government and a large development DEVELOPMENT Group. Vincent Palmade budget. That combination of skills, access, and resources gave them (vpalmade@worldbank.org) is lead private sector the clout to steer an ambitious reform agenda through vested SECTOR development specialist in interests and layers of government. the Africa Region of the World Bank. PRIVATE Only a small number of developing economies 22 university graduates and 12 kilometers of have managed to grow out of poverty in one paved roads. Mauritius had an economy that AND This Note draws generation, sustaining GDP per capita growth at depended almost exclusively on sugar and was especially on the rates averaging more than 4 percent a year.1 preliminary findings of Alberto Criscuolo, Achieving this economic performance required Figure Out of poverty in less than 30 years FINANCIAL Starting Weak, Growing deep microeconomic reforms spanning many 1 Compound annual growth Strong: Institutions to policy areas and industries. in GNI per capita (percent) Drive High Growth How did these reformers organize them- 0 2 4 6 8 10 12 (Washington, D.C.: selves at the beginning of their development Least developed countries (1973­2006) World Bank, journey? A recent study examined that question GROUP Cape Verde forthcoming). by focusing on five cases--Botswana, Cape (1988­2006) Mauritius Verde, Malaysia, Mauritius, and Taiwan (1982­2006) BANK (China)--chosen because of their varied cul- Malaysia (1972­2006) tural and administrative heritages (ranging Botswana from strong autocratic governments to weak (1962­2006) multiparty coalitions). These economies Taiwan, China (1962­2006) WORLD achieved remarkable performance despite dire starting conditions (figure 1). Botswana was the Note: Gross national income (GNI) per capita is calculated using the World Bank Atlas method. "Least developed countries" is a United Nations classification. THE poorest country in the world in 1966, with only Source: World Bank 2007. R E F O R M T E A M S H O W T H E M O S T S U C C E S S F U L R E F O R M E R S O R G A N I Z E D T H E M S E L V E S prone to violence in the decade before inde- Economic Development Board, Chile on its pendence in 1968. Cape Verde had virtually no "Chicago boys," the Republic of Korea on its private sector and among the world's worst Economic Planning Board, and Japan on its human development indicators in 1975. Ministry of Trade and Industry. More recent examples include the Executive Office in Dubai Dedicated reform teams at the top and the Ministry of Reform in Georgia, which was Remarkably, the study found that all these ranked the top reformer in Doing Business 2007 economies initially relied on a small, dedicated and among the top 10 in Doing Business 2008 reform team that was connected to the top of (World Bank and IFC 2006, 2007). According to 2 government and in charge of formulating and Simeon Djankov, lead author of the Doing Business updating the reform strategy, building consen- reports, "The Ministry of Reform . . . has a small sus, coordinating and mobilizing resources for cabinet--20 people or so--all former bankers, implementing the strategy, and, crucially, nur- consultants, and lawyers. If I had to identify one turing the reformist political leadership over organizational feature of Georgia's success (9.4 time (figure 2).2 percent GDP growth in 2006), this would be it."3 Malaysia's team was its Economic Planning Unit, which reported directly to the prime min- The six key functions of reform teams ister. The unit started in the early 1960s with 15 Reform teams were embedded in the policy staff, half of whom were expatriates. Cape Verde process and at the same time relieved of daily relied on three returnee advisers around the administrative matters and one step removed prime minister (who was also the minister of from the political frontline. That was the best planning and development assistance) in 1975. way to leverage scarce technocratic expertise, Botswana also had an Economic Planning Unit, maximize impact on policy formulation, and which started in 1965 with two economists and perform the six key functions of these teams. soon became the core of the powerful Ministry of Finance and Development Planning. Taiwan Designing development strategies (China) had the Council for U.S. Aid (created in The reform teams were charged with designing 1948), which reported directly to the president comprehensive yet focused strategies, often in and combined some of the economy's best engi- preparation for or soon after independence.4 neering minds with top-notch U.S. economists. Focus was essential, since the teams lacked the Other star performers followed a similar capacity to fix all problems at once. approach--with Singapore relying on its Following initial attempts at import substitu- Figure How smart governments got started 2 Coordination Donors Small, dedicated Access Head of state world-class team Engaged but arm's length Advocacy and funds to support reforms Private sector Line ministries Source: Authors. tion leading to mixed growth outcomes, all the Grooming political leaders reform teams settled on export-driven strategies A sound development strategy is worth little if focusing on the industries with the strongest not backed by outstanding political leadership export potential: mining and food processing in able to make tough decisions and discipline Botswana; tourism and fishing in Cape Verde; often reluctant administrations. The five reform apparel, sugar, and tourism in Mauritius; and teams benefited from plenty of outstanding light manufacturing and then information and political leadership. For example, Botswana's communication technology in Malaysia and first president laid the groundwork for sound Taiwan (China). mining policies when he gave up the mining 3 The reform teams identified key constraints rights of his own tribe (through the historic and success factors by industry, such as ensuring Mines and Mineral Act of 1967) to the benefit good governance in mining and developing best- of the national government. practice export processing zones for light man- At the same time the continual and almost ufacturing and information and communication symbiotic engagement of reform teams with top technology. They also adapted the strategies to political figures helped groom several genera- changing conditions (such as rising labor costs) tions of political leaders. The second chairman and terminated bad experiments (Taiwan, of the Council for U.S. Aid, C. Y. Yen, later China, is one of the few economies ever to aban- became president of Taiwan (China) (Wade don an ailing automotive assembly industry). 1990). Pedro Pires, the team leader in Cape Finally, the development strategies always Verde in 1975, is now the president of the coun- included a fundamental "social contract" with try. Botswana's second president, Quett Masire, citizens on better health, education, and infra- had been in charge of the Economic Planning structure. That not only ensured social cohesion Unit for 14 years, and its third, Festus Mogae, but also aided the competitiveness of industries. had been head of the Ministry of Finance and Development Planning for 5 years. Leading the dialogue with the private sector Economic policymaking required the reform Leading critical policy negotiations teams to lead an intense but arm's-length rela- The reform teams brought unique skills and tionship with the private sector. The team in expertise to bear in key negotiations. These Mauritius, for example, strategically engaged the included negotiations with foreign companies sugar industry in pursuing access to international on mining concessions in Botswana and with markets on favorable terms. And Botswana's ini- large U.S. electronics companies on the acqui- tially relied on the entrepreneurial class of cattle sition of technology licenses in Taiwan ranchers (the "beefocracy") to advocate for an (China)--and negotiations on access to the export-oriented, private sector­led strategy of European market and on more flexible labor modernization. rules for exporting companies, both in This approach required the reform teams to Mauritius. mix top-notch knowledge of industries with rig- orous economics--a mix leading to creative and Mobilizing and allocating resources sometimes explosive tensions. One example: The teams played a key part in mobilizing the legendary "showdowns" in Taiwan (China) resources for implementing strategies, particu- between the Economic Research Unit and the larly by coordinating donor support. In Taiwan Sectoral Planning Department of the Council (China) the Council for U.S. Aid managed U.S. for Economic Planning and Development (for- aid flows. Malaysia's Economic Planning Unit merly the Council for U.S. Aid; Wade 1990). was in charge of the development budget, which In all cases the autonomy and apolitical nature amounted to a third of the national budget. of the teams enabled them to engage with the Cape Verde's Ministry of Planning was in charge business community while avoiding the risks of of mobilizing donor support. One trick it used capture by dominant interest groups--what Peter was to set up competition between donors by Evans (1995) would call "embedded autonomy." assigning each an island. Similarly, Botswana's R E F O R M T E A M S H O W T H E M O S T S U C C E S S F U L R E F O R M E R S O R G A N I Z E D T H E M S E L V E S Ministry of Finance and Development Planning India. Reform teams are not the answer to all put donors in charge of the performance of dif- problems. But they can be a good start. ferent industries--for example, Canada for min- ing and the United Kingdom for agriculture. viewpoint Compelling the administration to act Notes These central, dedicated reform teams were in 1. According to World Bank operational classifica- an ideal position to monitor progress and sug- tions and staff calculations, fewer than 15 economies grad- is an open forum to gest corrective actions to the national leader- uated from low-income to middle-income status between encourage dissemination of ship. Indeed, their unique combination of 1965 and 2006. public policy innovations for monitoring capacity and access to the top (the 2. The reform teams also led deliberate efforts to cre- private sector­led and stick) and financial and technical resources ate capable public institutions for effectively managing market-based solutions for (the carrot) enabled them to compel the economic policies. development. The views administration to act. They also experimented 3. Email message to authors, April 19, 2007. published are those of the with different organizational drivers, such as 4. These strategies were, for Taiwan (China), the authors and should not be expatriates embedded in line positions Nineteen Points Program of Economic and Financial attributed to the World (Botswana), cross-departmental task forces Reform of 1960 (Haggard and Zheng 2006); for Mauritius, Bank or any other affiliated (Taiwan, China), staff exchanges (Mauritius), the Meade Report of 1961; for Botswana, the Transitional organizations. Nor do any of and tight-knit networks of policy officials (Cape Plan for Development of 1965; for Malaysia, the New the conclusions represent Verde). Implementing agencies had little Economic Policy of 1971; and for Cape Verde, the official policy of the World choice but to come to specific agreements with Emergency Recovery Plan of 1975. Bank or of its Executive the reform teams on implementation targets, Directors or the countries budgets, and responsibilities. References they represent. Evans, Peter. 1995. Embedded Autonomy: States and Conclusion Industrial Transformation. Princeton, N.J.: Princeton To order additional copies Dedicated, multiskilled, change management University Press. contact Suzanne Smith, teams are common in the private sector. Haggard, Stephan, and Yu Zheng. 2006. "Institutional managing editor, Companies rely on them to effect radical Room F 4K-206, Innovation and Private Investment in Taiwan." World change, such as launching a new product or The World Bank, Bank Group, FIAS, Washington, D.C. 1818 H Street, NW, turning around a loss-making operation. Kikeri, Sunita, Thomas Kenyon, and Vincent Palmade. Washington, DC 20433. Governments typically use them in times of cri- 2006. "Reforming the Investment Climate: Lessons for sis, such as during a war or after an earthquake. Practitioners." Policy Research Working Paper 3986. Telephone: Most low-income countries are in a war against World Bank, Washington, D.C. 001 202 458 7281 poverty--and need radical change in the way Wade, Robert. 1990. Governing the Market: Economic Fax: their government operates. Yet they rarely rely Theory and the Role of Government in East Asian 001 202 522 3480 on such teams. Instead, governments' limited Industrialization. Princeton, N.J.: Princeton University Email: technical and financial resources typically are Press. ssmith7@worldbank.org scattered thinly, with no strategic focus and lit- World Bank. 2007. World Development Indicators 2007. tle coordination. In the absence of strong gov- Washington, D.C. Produced by Grammarians, ernment leadership, donor support typically World Bank and IFC (International Finance Inc. follows the same patterns. Corporation). 2006. Doing Business 2007: How to Reform. Understanding how reform teams operate, Washington, D.C. Printed on recycled paper what drives them to perform when others have ------. 2007. Doing Business 2008: Comparing failed, and how donors can work with them is Regulation in 178 Economies. Washington, D.C. critical. Yet these questions have been largely overlooked in the development discourse. This Note is a first step toward tackling such ques- tions, including whether the model would apply to such large economies as Brazil, China, and T h i s N o t e i s a v a i l a b l e o n l i n e : h t t p : / / r r u . w o r l d b a n k . o r g / P u b l i c P o l i c y J o u r n a l