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August 3, 2017

Looks like the NGOs are stepping up on ‘Doing Development Differently’. Good.

August 3, 2017

NBA Superteams and Inclusive Growth: Doing Private Sector Development Differently

August 3, 2017
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Guest post from Kartik Akileswaran of the Tony Blair Institute for Global Change (which is what the Africa Governance Initiative Akileswaran_photonow calls itself)

For as long as I can remember, National Basketball Association (NBA) fans, analysts, and team owners have worried that the dominance of a few teams would hold back the league. Many have advocated for rule changes to counteract this trend—but is “leveling the playing field” really the best way to boost the NBA’s popularity?

This year, the same “superteams” had a shot at the Finals and the Warriors won again, yet measures of the NBA’s success are as strong as ever. Viewership records are being broken, team valuations are soaring, and the game is gaining in popularity worldwide. The lack of a level playing field may not be detrimental to the health of the NBA; rather, it may be the cause of it.

Picking winners?

Picking winners?

I see parallels between this situation and the debate in the development community between those who favor enabling environment reform (to “level the playing field”) and those who argue for industrial policy (to focus on potentially “dominant” sectors) to promote economic growth. My colleagues and I at the Tony Blair Institute for Global Change argue in our recent paper that capitalizing on high potential sectors—through modern industrial policy—is an essential complement to and guide for enabling environment efforts. Although many governments and development experts are coming (back) around to the idea that modern industrial policy is necessary, they are struggling with how to put it into practice.

Part of the answer lies in something Duncan has written about previously: applying the Doing Development Differently (DDD)/Thinking and Working Politically (TWP)/Problem-Driven Iterative Adaptation (PDIA) thinking beyond governance, to inform discussions around the “how” in other sectors. We have employed ideas from the DDD/TWP/PDIA movements to help governments avoid the pitfalls of past industrial policy efforts. Here are three things we’re learning about doing private sector development (PSD) differently.

First, PSD efforts should be driven by a focus on the right problems—that is, on the key constraints that, if relaxed, will have real benefits for the country and that local actors prioritize.

This seems obvious, but we have seen many PSD initiatives that target less promising sectors or less critical constraints. This stems from development partners’ tendency to work to their own agendas, instead of following the lead of government and firms. Granted, these local actors may need support in identifying the roots of these constraints. What’s important, though, is that the problems they want to solve remain front and center.

Our experience in Liberia underscores the point. There, we saw that government and development partners had been carrying out generic enabling environment initiatives, such as untargeted infrastructure development and property rights reform. In the meantime, the binding constraints in the sectors with “superteam” potential—such as rubber processing, oil palm processing, cocoa, and fisheries—went largely unaddressed for ten years. Due to the lack of focus at the center of government, various ministries had developed distinct plans for these sectors that were misaligned and poorly resourced. As a result, the challenges of private sector actors were not being addressed in a structured way. To relieve this gridlock, our team in Liberia worked with different government agencies to forge a consensus vision and eventually a harmonized plan focused on six agriculture value chains.

The results have been encouraging: Liberia has exported processed rubber products for the first time since the country’s conflict, and investment in oil palm processing and cocoa have increased. Critical to our support in this process is that we’ve cultivated genuine ownership among all government actors, by supporting them to home in on the most pressing problem(s) and to coalesce around them to make real progress.

Second, the common refrain “it’s the politics, stupid!” needs to be brought to life.

We’re hardly the first to make this point—encouragingly, most development organizations today agree. The challenge is applying this thinking to what they do on Monday morning, so to speak. In our aforementioned paper The Jobs Gap, we lay out some principles and examples on how to work in a politically smart way.

For instance, in Sierra Leone, rice is one of the most important agricultural commodities, but local producers struggle to compete with imported rice. Recognizing this predicament, key officials in the Ministry of Trade and Industry and the Ministry of Agriculture, Forestry and Food Security sought to tip the balance toward local production. These officials not only had to address the technical challenge of competition with imports; they also had to face up to the political challenge that the rice importers’ cartel posed, which runs a lucrative business based on preferential foreign exchange rates and connections across all levels of government.

Given this situation, our staff first supported these officials to set a goal of sourcing locally 10% of the rice demanded by public Kartik 1institutions (mainly the police, military, and prisons). This framing was vital because it made the problem more manageable and ensured that the initiative wouldn’t infringe too much on the territory of the strong importer lobby. We then worked with a range of stakeholders to plan, execute, and monitor this trial effort (implemented by the private sector), and facilitated problem solving as obstacles related to financing, procurement, and supply revealed themselves over time. Well on the way to the 10% goal, this effort illustrates the importance of building local constituencies for reform, and that starting with “small bets” is a politically savvy (i.e. non-threatening) way to do so.

Third, it is extremely useful, if not essential, to create a team inside of government that can drive action, be a focal point for coordination across government and with the private sector, and foster learning and adaptation.

Intra-government and public-private coordination are widely thought to be key for successful industrial policy, and since there’s no foolproof way to determine in advance which sectors and policies will do best, this process must include built-in mechanisms that enable governments to make course corrections over time. No matter the policies being adopted, how they are put into practice matters immensely.

In Ethiopia, for example, the government wanted to develop a new strategy for its pharmaceutical manufacturing sector. The success of this strategy exercise hinged on the establishment of a “nerve center”, staffed by the Ethiopian Investment Commission and the Institute. This team took an iterative approach, convening key stakeholders from government and the private sector on an ongoing basis to identify sector challenges. The team captured learnings from these interactions and used them to frame and refine the strategy. The outcome? A strategy that’s based on thorough analysis, fits the government’s needs, and is action-oriented. The next challenge for this team, of course, will be to help push forward implementation.

Kartik 2Our experience suggests that only when DDD tenets and approaches move beyond the governance space will their full value come to light. We have certainly found them useful in our work on PSD. We don’t have all of the answers, so we hope to hear about how others are supporting governments to discover their “dominant” sectors and thus spur growth. Following in the NBA’s footsteps wouldn’t be such a bad thing.

Kartik Akileswaran supports the Government of Ethiopia to develop and implement sector strategies as part of its overarching economic growth plan. He is an Advisor with the Tony Blair Institute for Global Change.

3 comments

  1. Lots of good stuff here (and lessons from the interventionist approach of US sports are always enlightening) but why do industrial policy thinkers always seem to be agnostic to the kinds of enterprise models that populate industries? Governance and ownership models that balance social, environmental and financial return priorities are possible (e.g. partially farmer-owned agribusinesses, manufacturers with workers on boards, services firms with charters requiring them to balance social impacts with returns to investors). These stick around longer, build local roots and circulate more value in local economies. Would love to hear about how thought-leaders like Kartik are deliberate about promoting more sustainable and equitable business structures through shaping industrial policy.

    Also, I’d argue that the NBA competes with other sports (like baseball) where there’s no salary cap and even less of an even playing field. It’s winning against these sports (except the NFL). Can it’s relative success be due to it’s more egalitarian approach (albeit less egalitarian than recent past) resulting in more competitive balance/parity compared to competitor leagues/sports? The even playing field may be the NBAs secret!

  2. Kartik, great post. I don’t know private sector development well, but it sounds like you’re saying that DPSDD (or DDD4PSD if you prefer!) is a fairly new practice. I know there’s also a robust community of practitioners and orgs around adaptive management in markets systems development (let’s call it: AM4MSD). So what’s the relationship between the two?

    What I’m gathering is that DPSDD is more about working with/through government, targeting big industries, at the macro level. In contrast, AM4MSD is a more independent facilitative approach, working with but not through government, at the more micro level.

    Is that a fair characterization or are there other differences you’d point to? And what have these two practices learned from one another? (Or are these just the same thing under different brands?)

  3. @Erinch: thanks for the comment. On your sports point, there’s clearly not a linear relationship between parity and league popularity. The NHL, for example, has much more parity than the NBA, but lags far behind in popularity. Also, the NBA competes not only with other sports, but with all other entertainment options, so clearly there are many other factors involved. I’m zooming in on the NBA itself, and saying that it’s doing so well right now (and has been on the rise for the last two decades), that a counterfactual wherein parity were greater would be hard-pressed to have produced better results for the league.

    On your point about alternative business models, I’m not against them by any means. The issue is one of prioritization: many governments already struggle with attracting/nurturing the right type of private sector actors (those that operate in sectors that have high potential and that can foster productivity growth/state capability development), and with removing constraints to their growth. This seems to be the first order problem, and should be the focus. Within this scope, alternative business models may make sense. Great, as long as they contribute to the broader goal of structural transformation. From what I’ve seen, alternative business models are discussed much more in the context of developed countries, which have already reaped the massive gains that industrialization offers.

    @David: thanks for this. I don’t meant to say that DPSDD is an entirely new thing. In fact, I’ve also been trying to work out how what we’re talking about fits with the market systems folks that you refer you.

    I think your characterization is where I’ve got to as well. We work with government on the macro policy/strategy/investment side of things, which many governments struggle with but want to get right. My view is these macro issues–achieving a coherent vision, developing a focused strategy, and creating a team to effectively coordinate and drive implementation–are critical to making real progress in transforming the economy. I’m less familiar with market systems initiatives, but as you say, it seems that they operate at the micro level, supporting the removal of constraints so that firms (often small-scale) in specific sectors can grow.

    I think these two can fit together, as they operate at different levels. In fact, we reference M4P in our paper. But framing is really important: we work to support government with their broad visions of transforming their economies, but from what I can see, the M4P framing is targeted more toward poverty alleviation. This may not seem like a big difference, but it very much is–structural transformation isn’t about making existing small firms more productive in the short run (which is good in itself, of course). It’s about shifting the allocation of capital and labor in a country to more productive firms/sectors/activities, and about finding new, more complex economic activities to engage in over time. This might be a fruitful area for exchange between us/those who do similar work to us and the M4P crowd.

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