Promoting Effective Governments And Effective Global Markets

By M. Isi Eromosele

Effective governments and efficient markets are both essential if developing countries are to reap the benefits of globalization and to make that process work for poor people. While the market fundamentalism of the 1980s and early 1990s has been thoroughly discredited, it is now almost universally accepted that efficient markets are indispensable for effective development.

But equally important are effective governments which are both competent in carrying out their basic functions, and more accountable, responsive and democratic, with a bigger voice for poor people in the determination of government policy.

Globalization gives added urgency to the task of strengthening government systems in developing countries. Private capital is highly mobile and will go to where business can be carried out safely and where it can make the best return.

Weak and ineffective states, with problems of corruption, inadequate infrastructure and cumbersome bureaucratic procedures are not an attractive destination for these flows.

Safety and security depend on the fair and effective enforcement of the rule of law to protect the rights of individuals against each other and against the state and to uphold contracts. The absence of an effective rule of law is a barrier to the proper functioning of a market economy, a deterrent to domestic and foreign investment and a breeding ground for corruption.

For example, many banks in developing countries will not provide loans for tractors, sewing machines or other investments in small enterprise if there is no legal system to enforce the agreements made.

Effective governments are needed to build the legal, institutional and regulatory framework without which market reforms can go badly wrong, at great cost, particularly to the poor.

Whilst excessive or cumbersome regulatory barriers stifle incentives and discourage investment, effective regulation remains essential for instance to promote financial sector stability, to protect consumers, to safeguard the environment and to promote and protect human rights, including core labor standards.

Development requires the empowerment of women. Huge progress was made in the 20th century, with women enjoying greater freedom and power than ever before. But they still lag behind men in virtually all aspects of life.

Up to 70 per cent of the world’s poor are women. Gender discrimination is the most widespread form of social exclusion and discrimination. Inequalities are to be found in economic and human development, and in political representation. There can be no equitable globalization without greater equality and empowerment for women.

Making Markets Work For The Poor

The process of opening up to both trade and financial flows has to be carefully managed, to dovetail with the development of efficient and flexible markets, a strong domestic financial sector and supportive policies for private investment.

But the benefits will not automatically reach poor people, who face many barriers to participating in the market economy. While policies at the national and the international level play a vital role, the way in which government, institutions and markets function at the local level is of great importance too.

Policy needs to work at all these levels if the potential benefits of globalization are to reach the poor.

Poor people typically engage in a diverse range of economic activity in the formal and informal sectors: production, trade, selling their labor and often migrating seasonally or longer term between rural and urban economies in order to find the best opportunities for

improving their livelihoods.

They face a huge number of barriers to taking up these opportunities, ranging from lack of property rights, to limited access to credit and technology, poor infrastructure and low skill levels, poor health and lack of adequate food and water.

Poor people in remote rural areas are often physically disconnected from market opportunities, through the absence or inadequacy of basic infrastructure such as rural roads, electricity and telecommunications.

Building dirt roads in rural areas could lead to increased agricultural production because crops could be transferred to market. It will also improve access to education and health care.

Opening up the provision of financial and information services can bring major benefits. Access to credit is a particular problem for women and minority communities. Special measures are frequently needed to help micro-enterprises and small business.

These are the main source of employment in developing countries, yet these companies are often acutely exposed to bureaucratic harassment, capricious and inappropriate regulations and the buying of privilege by the well-connected.

Poor people, with no assets or savings to fall back on, are also particularly vulnerable in times of economic change. Good social policies are needed to help poor people to cope with change and to take advantage of its opportunities.

These are likely to combine state supported actions (ranging from public works and stay-in-school programs), with effective regulation (for example of banks, pension funds or social insurance schemes) and a range of activities of non-governmental organizations (including faith based organizations and charities).

M. Isi Eromosele is the President | Chief Executive Officer | Executive Creative Director of Oseme Group - Oseme Creative | Oseme Consulting | Oseme Finance

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