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Technological advances are a driving force for development. But policy choices determine who benefits. CGD focuses on three key questions around innovation, growth, and inequality: How can governments use existing technologies to deliver services more effectively to citizens? How can international institutions help create and spread new technologies to tackle shared problems like climate change and pandemics? And how can policymakers ensure advances in artificial intelligence, automation, and communications bring shared benefits and not greater global inequality?
Happy New Year, and welcome to 2018 from all of us at CGD.
Here at CGD, we’re always working on new ideas to stay on top of the rapidly changing global development landscape. Whether it’s examining new technologies with the potential to alleviate poverty, presenting innovative ways to finance global health, assessing changing leadership at international institutions, or working to maximize results in resource-constrained environments, CGD’s experts are at the forefront of practical policy solutions to reduce global poverty and inequality.
Watch our video to hear from our experts directly, and get an in-depth look below at their thoughts on the 2018 global development landscape:
The role of international cooperation
“We’re in a difficult time for development policy. People feel as if we’re in competition with the developing world, and I think we have to get back to recognizing that we have shared problems that we need to solve together. The premise of international development cooperation—now rightly enshrined in the Sustainable Development Goals—is that we are in this together: we all benefit from shared prosperity, openness, trade, security, values, rights, and justice. We are in danger of seeing the world as zero sum—in which improvements in some parts of the world are wrongly believed to be at the expense of success elsewhere. If we allow this idea to take root, it will undermine support for development cooperation, and take us in directions that erode global cooperation and the institutions that protect and sustain our shared security and prosperity.”
The effect of transitioning away from aid: asking the right questions
“I think 2018 is going to have to be about countries transitioning away from aid, and as a result it’s going to have to be about how we invest limited resources to get the best return for that investment. What happens to social spending commitments towards global health priority areas such as vaccinations and infectious diseases, as Ministries of Finance are increasingly asked to allocate their own domestic resources to replace diminishing donor funds? How do national health insurance funds procure pharmaceutical products and other health commodities as LMICs leave purchasing clubs such as Gavi and GFATM whilst having to deal with the growing burden of chronic diseases such as diabetes and cancer? How can technological and organisational innovation address the gap left by departing global purchasing arrangements?
What are the role and responsibilities of norm setting agencies such as the WHO in shaping resource allocation at national level as countries commit to and implement universal coverage for their populations? When are aspirational targets as the ones set through standard treatment guidelines, disease specific norms or the Essential Medicines List, justified and when do they distort local spending priorities and aggravate inequalities?”
New leadership, limited funding: an opportunity for global health aid
“In 2018, I’m looking forward to seeing economists more deeply embedded in all things global health. First, Peter Sands takes the helm as new executive director at the Global Fund to Fight AIDS, Tuberculosis and Malaria where the focus needs to be value for money—more impact, more rigorously measured, for the same or less money. It’s not just the right thing to do, it’s also a requirement for a portion of future DFID funding. To get this done, better economics should be deployed to inform resource allocation within programs, implement rigorous performance verification and evaluation approaches, and select most cost-effective diagnostics, drugs, and devices for purchase.
Second, at the World Health Organization (WHO), newly elected Dr. Tedros is finalizing his General Program of Work, a 2019-2023 plan that governs the rest of his tenure as Director-General. Faced with many demands and conflicting priorities from its member countries, WHO leadership could benefit from a chief economist (more on this here and here). The goal? To help prioritize demands amid scarce funding, to promote value for money in all policies, and to make the critical link with ministries of finance.
Third, with US tax reform passed, global health aid—like the rest of discretionary spending in the US budget—may face cuts, despite bipartisan support. In the UK, there’s also an uncertain outlook. It’s a clear case of ‘hope for the best, plan for the worst.’ And that’s where the dismal science can contribute: planning for these uncertainties and contingencies, and maybe finding some opportunities for efficiencies along the way. Look to recent work on aid transitions, priority-setting, domestic resource mobilization, innovative financing, value for money, fiscal policies for health, financing global public goods, and our forthcoming work on rationalizing future global health procurement should provide some fodder for policymakers to consider.”
“In 2018, I’m very much looking forward to continuing to explore China’s emergence as a leading development actor. Increasingly, this will mean defining a leading role on international policy commensurate with China's role as a leading development financier globally. In settings like Davos and institutions like the World Bank and the IMF, Chinese officials will inevitably be more prominent in 2018 and will just as inevitably come under increasing pressure to align Chinese policy on issues like sustainable lending with international norms. All of this will likely occur against a backdrop of US retrenchment in these multilateral fora.”
“I’m really excited about the relationship between technology and development, and to begin to examine how we can master the challenges that come with integrating a set of powerful new technologies and ensuring that they deliver the best options for poor people everywhere. Technological innovation has been a driving force of development and this continues to be the case. The current revolution in digital technology, big data, robotics, and artificial intelligence holds enormous promise to deliver development services more effectively and efficiently. However, these forces will need to be harnessed to ensure that the benefits flow to all segments of society in the developing world and the ‘losers’ from this transition are supported in ways that are economically, socially, and politically sustainable. This is a fertile and urgent area for conceptual and empirical research to underpin better policymaking by developing country leaders and the international community.”
“In 2018, I’m excited about expanding our research on the policies that will most effectively help refugees and migrants integrate into their host communities. At a challenging time for migrants and refugees, we are focused on analyzing and generating solutions that can simultaneously advance outcomes for refugees, migrants, and host communities. One of our main projects will highlight policies and programs that benefit sending and receiving communities, as well as emerging innovations such as the Global Skill Partnership. Building on our work on refugee compacts, we'll expand our work on how to achieve impact with new financing mechanisms that support developing countries, which host 86 percent of the world's refugees, to deliver services to refugees and citizens. A key part of this will be research on how to increase refugees' access to labor markets and more deeply engage the private sector, so refugees can become self-reliant by finding jobs and starting businesses—and spurring local markets in the process.
Latin America’s elections: choosing the right leadership to restore peace and prosperity
“In 2018, we will witness a huge cycle of presidential elections in Latin America. My big hope for the year is that the citizenship chooses the right leadership to be able to face the upcoming challenges. The recent elections in Chile (December) and Honduras (November) will be followed by six Presidential elections in 2018: Colombia, Mexico, Brazil, Costa Rica, Paraguay and, potentially, Venezuela. This highly charged electoral cycle comes at a time when populations’ discontent with the results of democracy is on the rise as reported by the reputable poll Latinobarometro. This change in attitude follows the significant deterioration in Latin America’s economic and institutional quality indicators in recent years, reflecting both the end of the period of super high prices of commodities exported by the region and the outburst of corruption and crime in many countries. In this environment, the risk of electing populist (notably in Mexico) or authoritarian leaders (notably in Brazil) is high. Populism and authoritarianism are not strange to Latin American history and their disastrous results on economic and social prosperity are extensively documented (with Venezuela’s recent experience being the latest example). The incoming elections will test whether Latin Americans can avoid repeating the painful mistakes of the past and will choose governments able and willing to put in place the needed reforms to restore economic growth and sustainably enforce the rule of law.”
“In 2018, what I would like to see is the gender gap in financial services reduced. The gender gap in financial services is stuck at a 7 percent gap globally and a 9 percent gap in developing economies. According to the latest data, while the number of bank account holders has increased globally between 2011 and 2014, the gender gap has not shrunk. In 2018 we can do better. So far, a lot more attention has been paid to particular constraints women face in accessing financial services, than to what women actually want from financial products. Focusing on women potential clients as a distinct market segment is a first step. Second, in addition to “know your customer requirements,” the industry should have “know your bank standards” as well, and examine potential gender biases, explicit and implicit, in the delivery of financial services. Banks should examine and correct internal gender biases. Encouraging signs include the commitment of development agencies (including an 8-agency gender data partnership coordinated by Data2X and GBA) and some banks to invest in data, both supply and demand-side, and in testing innovative financial products and delivery systems to increase women’s access to financial services (including experimental evaluation work we at CGD and partners are completing this year). These and other partnerships should help shrink the gap in the short term, especially if large private sector banks globally also act.”
India’s reform of household subsidies for the purchase of LPG cooking gas stands out for a several reasons. The paper provides a detailed picture of the reform through its various stages, including how the process was conceptualized, coordinated, and implemented. It analyzes how such a reform must be able to adapt to concerns as they arise and to new information, how digital technology was used and how it is possible to use a voluntary self-targeting “nudge” to defuse potential resistance to income-based targeting.
With the biometric registration of 9.2 million adults and documentation of 4.5 million children, Malawi has made a massive stride towards SDG 16.9 which requires states to “provide legal identity to all, including birth registration, by 2030”. How has Malawi achieved universal coverage in only 180 days despite lack of key infrastructure and scarce technical resources? What are the potential digital dividends of this initiative for Malawi and its people, and what can development partners and other countries learn from it? Tariq Malik, Chief Technical Advisor of UNDP, who leads this project, will walk us through this journey of success in the heart of Africa.
What will you remember about 2017? The growing crisis of displacement? The US pulling out of the Paris agreement and reinstating the global gag rule on family planning? Or that other countries reaffirmed their commitment to the Paris agreement, that Canada launched a feminist international assistance policy, that Saudi Arabia finally let women drive?
CGD experts have offered analysis and ideas all year, but now it's time to look forward.
What's going to happen in the world of development in 2018? Will we finally understand how to deal equitably with refugees and migrants? Or how technological progress can work for developing countries? Or what the impact of year two of the Trump Administration will be?
Today’s podcast, our final episode of 2017, raises these questions and many more as a multitude of CGD scholars share their insights and hopes for the year ahead. You can preview their responses in the video below.
Thanks for listening. Join us again next year for more episodes of the CGD Podcast.
India’s Aadhaar biometric identification scheme has registered over 1.1 billion people, including almost all adults in the country and over 15 percent of the global population. Of course, initiatives of this scale cannot escape controversy. What the debate has so far lacked, however, is data. We set out to help fill that gap with a survey focused on a digital governance initiative in the state of Rajasthan.
As the price of bitcoin continues its dizzying rise—the currency briefly surpassed $19,000 yesterday—the already passionate debate about its role in the global economy has become even more heated. Over the last two months, prominent economists and financiers, including Citi CEO Jamie Dimon, former IMF Chief Economist Kenneth Rogoff, and former Chair of the US Federal Reserve Ben Bernanke have all voiced skepticism about the currency, triggering a loud response from the crypto community.
Bitcoin enthusiasts, skeptics, and the role of financial regulators
The tension between the two camps is hardly surprising. On one side are those who believe that bitcoin and cryptocurrencies like it will fundamentally change the financial system by allowing individuals to exchange value digitally—without having to rely on authorities like banks and credit card companies to facilitate transactions or government agencies to oversee them. On the other are the people working in, or closely with, those same institutions, who are naturally less keen and more skeptical about the prospect of disintermediation.
Figure 1. Bitcoin Price (USD), Dec. 2016-present
The fundamental disagreement between the two groups boils down to differing beliefs about the role and power of financial regulators. The skeptics believe that regulators will clamp down on bitcoin if it ever becomes a broadly accepted means of payment because the pseudonymity allowed by the currency makes it easier to evade laws and taxation. Just as importantly, they believe that such a ban would be effective. Bitcoin enthusiasts scoff at these notions with a mixture of the disdain for regulation common to many in the tech community (perhaps best exemplified by Uber’s regulatory-evasion business model) and a belief that, even if regulators wanted to regulate bitcoin, they couldn’t.
In one sense, the enthusiasts are right: it is essentially impossible to shut down the bitcoin network without shutting down the internet. However, it’s also true that national regulators could prohibit the use of bitcoin in their own domestic economies (or at least the regulated part of those economies), if they chose to do so. If enough governments took this path, they would set off a vicious cycle in which the currency’s reputation deteriorates as opportunities for conducting legitimate transactions shrinks. And while there is no apparent link between the value of bitcoin and its use today (indeed, the currency’s price has skyrocketed despite the fact that, as of July 2017, only 3 of the 500 largest online merchants accepted it as a means of payment, down from five a year earlier), it seems reasonable that the currency’s diminished potential would lead to a sharp fall in its value.
But here’s the catch: while national regulators can make it more difficult to use bitcoin domestically, they can’t eliminate it without solving the difficult collective action problem of getting all countries (or at least all countries tied to the international financial system) to ban it. Consider, for example, a scenario in which all countries ban the use of bitcoin except Japan, which recently became the first major economy to recognize it as legal tender. In this case, it would be easy enough for anyone in the world to exchange bitcoin holdings for yen and then exchange that yen into the currency of their choosing. As long as some gateways between national fiat currencies and bitcoin exist, the currency would survive.
What does this mean for financial inclusion?
Over the last several years, many fintech companies have touted the idea that bitcoin can help expand financial access by allowing people to bypass the costs and delays associated with traditional financial intermediaries. However, the financial inclusion community has been, for the most part, skeptical. Last month, I hosted a panel discussion aimed at unpacking this skepticism. The event featured Elizabeth Rossiello, CEO of BitPesa, a company that uses bitcoin to facilitate payments between African companies and the rest of the world, along with financial inclusion experts Greg Chen (Consultative Group to Assist the Poor), Andi Dervishi (International Finance Corporation), and Harish Natarajan (World Bank).
Rossiello noted that using bitcoin as a bridge currency allows BitPesa to provide cross-border payment services that are significantly cheaper and quicker than those provided by traditional financial actors. Compared to most other bitcoin-based remitters (many of whom have failed), BitPesa has been remarkably successful: whereas two years ago, the company processed monthly transactions worth less than $50,000, today it clears $13 million a month. Yet, despite its success, BitPesa’s experience also illustrates how fintech companies remain at the mercy of financial regulators: the Central Bank of Kenya issued a warning about using bitcoin in December 2015 and more recently prohibited bitcoin-based companies from opening or using bank accounts with local banks. As a result, BitPesa can no longer serve clients in the country where it was first established.
While the other panel members acknowledged the role cryptocurrencies could play in improving cross-border payments to countries on the margins of the global financial system, they were more skeptical about their potential to help meet financial inclusion goals like universal financial access. According to the Findex survey, the four most common reasons people give for not owning a transaction account are (1) lack of money and no need, (2) the cost of services, (3) physical distance from financial institutions, and (4) lack of appropriate identifying documents. While cryptocurrencies might help lower the cost of transactions in uncompetitive markets and solve for the problem of distance (at least where internet access exists), there is no reason to believe that they would do so more efficiently than mobile money solutions, which allow customers to send, receive, and store e-money on their phones. And mobile money platforms have the crucial advantage that they can be incorporated into existing regulatory and supervisory systems.
Figure 2. Self-Reported Barriers to Use of an Account at a Financial Institution
Bitcoin as a prototype
Regardless of what stance national regulators ultimately take, it’s clear that bitcoin currently does not function well as a means of payment due to its high volatility, limited ability to scale (which increases transaction times and fees), and the amount of energy consumed by mining new bitcoins.
Bitcoin’s proponents argue that the currency’s volatility will diminish over time, as people begin to use it to spend rather than speculate (although who wants to spend a coin that may appreciate by 100 percent in a week?) and as traders take advantage of new instruments to short the currency. The scalability challenge also seems solvable, particularly after the Segwit2 fork that occurred in November expanded the size of blocks and opened the door to solutions like the Lightning Network, which could raise the network’s limit of transactions per second to the millions. Reducing the energy required to mine new bitcoins could be more difficult to solve, particularly if the price of the currency continues to climb. Although there is a high degree of uncertainty over estimates of bitcoin’s energy use, the trend troubling. It’s possible that the Bitcoin network could shift away from its energy-intensive proof-of-work consensus protocol to a more efficient proof-of-stake protocol (as Ethereum intends to do soon), but the security provided by the latter is unproven.
Given these flaws, it seems sensible to treat bitcoin as a protocol that has shown great promise but needs significant upgrades before it can be considered fit for purpose. These upgrades could happen internally within the Bitcoin network or through a new and improved cryptocurrency that takes its place. Developing a cryptocurrency that retains bitcoin’s strengths, removes its flaws, and doesn’t give regulators heartburn is a tall order, particularly as psuedonymity is part of bitcoin’s appeal. Without these changes, however, it is difficult to imagine governments tolerating it for long. As Kenneth Rogoff notes, “the long history of currency tells us that what the private sector innovates, the state eventually regulates and appropriates.”
I was recently invited to participate in a panel discussion, titled “Artificial Intelligence and the Future of Human Labor” at the 10th edition of World Policy Conference. Preparing for this panel provided me with an opportunity to think more deeply about the ways in which artificial intelligence (AI) and automation will impact the future of work. And I came to five main conclusions.
Change is coming ready or not
Technological progress and the advancement of AI and automation will have a major impact on the nature of work in the coming decade. We are all familiar with the transport revolution where self-driving cars are now a question of “when” not “whether.” But we need to recognize that AI, robotics, 3D printing, and big data will change the nature of many different types of jobs in ways that we can already anticipate and in ways that we cannot even imagine today. And coping with this kind of widespread and rapid change—notwithstanding the gains it will bring—will raise difficult societal challenges that few countries are prepared to address.
The optimists, on the other hand, maintain that while many occupations could in theory be impacted, the actual pace of introducing new technologies into the work place will be more gradual, that in some cases robotic technology might turn out to be more expensive than traditional production methods. Thus, low paid garment workers in Bangladesh or Cambodia may simply be pressured to keep working at low wages if they want to avoid losing their jobs to robots. They also point out that it is “activities” that can be automated not “occupations.” This is certainly true but it still means that many occupations will be transformed because the activities that comprise them will be eliminated or radically changed. Finally, they point out that historically societies have been able to adapt to—and gain from—various waves of technological change and this time will prove no different. Unquestionably, the quality of life today for the vast majority of human beings is better than for our predecessors of a hundred years ago because of technology. And all along, there were people whose worries about the disruptive impact of technology proved exaggerated.
I believe that—as (almost) always—the likely outcome will be somewhere in between but the more important point is that even a slower pace of introduction of new technologies will still far outstrip the capacity of many societies to absorb the change. No one is seriously arguing that the pace of digital technological innovation over the coming twenty years will be slower than in the past two decades and it is now widely accepted that the way in which we have managed the political and social consequences of technological change in this recent past has been far from satisfactory. Therefore, it is important not to argue about the potential magnitude of the impact and instead to anticipate possible challenges that technology will create for human workers and ways in which the development community can help mitigate negative outcomes.
And not just in advanced economies
Discussions surrounding AI, automation, and the future of work tend to focus on the ways in which technological progress is affecting advanced economies. It is important to recognize, however, that the impact of new technology will be equally important for workers in developing countries. For example, Adidas employs about a million people, mostly in factories in Asia and Africa, to make about 300 million pairs of shoes every year. Last year they opened a “speed-factory” in Germany, that aims to make 500,000 pairs of shoes a year, with only 160 production jobs for human workers. The remaining jobs within the factory are automated and done by machines. Another example: FoxConn (the firm that produces Apple and Samsung products in China’s Jiangsu province) recently replaced 60,000 Chinese factory workers with industrial robots. In China as a whole, factories are projected to have more than 400,000 industrial robots installed by 2018, the highest number of any country in the world. And the jobs that will be impacted range far beyond manufacturing—many activities in agriculture, in services, and in government could be radically changed through the application of new technologies.
Policy discussions about the ways in which governments can be prepared for the radical changes in human labor that are coming must, therefore, include ways to limit negative impacts in developing countries. This includes rethinking the basic model of development pathways whereby surplus labor shed from agriculture is absorbed in simple manufacturing which raises both living standards and productivity. Technological progress that displaces workers could diminish the cost competitiveness of emerging economies that has, until now, driven their growth especially if these economies do not use new technologies to increase productivity. As manufacturing becomes increasingly automated, emerging economies will need to find strategies to decrease their dependence on manufacturing exports to boost growth. These strategies will obviously vary by country due to differences in resources, policies, and infrastructure capabilities.
New technology requires new skills
Historically we have seen that after a technological revolution, new and better jobs are created after the initial displacement of workers but that these workers need new skills to adapt to these new jobs. The need for new skills is even more critical today because of the pace and breadth of technological change. However, while many agree that our current education system is not teaching our children the skills they will need, we are not as confident about what precise skills tomorrow’s workers will need or how best to ensure that they acquire them. Continual skills training and life-long learning could help workers gain necessary skills to keep up with the changes in activities required within a job due to automation and AI. Education efforts could also help some workers shift from easily automatable jobs into less automatable jobs such as those in healthcare or childcare. However, the vast majority of workers in developing countries have no more than a high school education and it is not evident that they could be easily retrained for the skill set needed for the new economy. Nor is it clear how governments would pay for this retraining or incentivize companies to bear the costs of retraining.
Beyond jobs to relationships
AI and disruptive technologies will impact not just the nature of work but also the relationship that workers have with their employers, with colleagues, and with the state. Legal systems are already grappling with the question of whether an Uber driver is a “worker” in the traditional sense. A larger question is how to provide security of work and income to the potentially large share of the workforce that will work in the gig economy. One idea is to adopt a universal basic income (UBI) to insulate workers, whose jobs were replaced or changed by disruptive technologies, from poverty. Additionally, a UBI could enhance the ability and security for workers looking for better jobs or entrepreneurial opportunities. And a universal basic income could spur innovation and encourage people to take entrepreneurial risks because of the safety it provides. However, there are basic issues of affordability and regressiveness that need to be addressed before this idea can be applied on any large scale. There are also issues of how healthcare, pensions, and professional skills development will need to be modified in a world with many more individual contractors. This is of course more complicated in developing countries where financial resources are limited and institutional capacity is underdeveloped.
Don’t underestimate the politics
Finally, we need to recognize that this new era of technological revolution will be political as much as economic. With the rise of automation there will be winners and losers and redistribution will be necessary to compensate the losers and a failure to do so can have enormous political consequences. In the United States and Europe, a failure to adequately compensate the losers of globalization and technological change has helped lead to a rise of populism which is changing the political landscape.
Change is here. While we may not know how large this change will be or what the effects this technological revolution will have on human labor in five, ten, or twenty years, it is highly likely that the scope and magnitude of change will require considerable societal adaptation and that this process will need extensive preparation and discussion. We need to start thinking now about different development approaches that can help mitigate the negative impacts of the technological revolution in both advanced and developing countries.