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Preliminary and incomplete, 14 September, 2008

Regional integration and mutual knowledge: The case of the Community of Portuguese-speaking Countries (CPLP)1

Jorge Braga de Macedo FEUNL & IICT

INTRODUCTION

This paper provides an analytical description of the Community of Portuguese-speaking Countries (CPLP) expanding on a progress report commissioned to the Tropical Research Institute about the obstacles to reaching the Millennium Development Goals (MDG), especially among its five African member states: the first slide of the presentation of the report (IICT, 2007a) at the Development Days conference hosted by CPLP is reproduced as Figure 1. In a publication titled Think, Communicate and Act in Portuguese: 10 years of CPLP (whose cover is reproduced as Figure 2), the secretariat acknowledges that the international organization remains unknown in Angola, Brazil, Cape Verde, Guinea-Bissau, Mozambique, Portugal, São Tomé e Príncipe and Timor Leste - even though it seeks to “deepen the mutual friendship” among them2.

The reasons for the neglect of lusofonia or the “lusophone (Portuguese-speaking) community” go beyond the ignorance of the common language and widespread illiteracy among the 230 million people living in the eight states. The IICT report claims that, unless the monitoring of these common goals is based on “mutual knowledge”, diversity in terms of area, population, output and governance will render the intergovernmental organization irrelevant3.

The analytical framework of international political economy used in this paper has two pillars. One is the development paradigm based on mutual accountability that is associated to the 2002 Monterrey declaration and it is looked at both positively and normatively. The complementarity between globalization and regional integration is the

1 Prepared for presentation on September 29, 2008 at the workshop “Committing Science to Global

Development”, hosted by the Tropical Research Institute (IICT). The research agenda is part of the activities of the Tropical Antenna of the Center for Globalization and Governance (CG&G) at IICT. The newly renamed CG&G was established in April 1992 in the framework of an agreement between the Ministry of Finance and Nova University, Lisbon to promote interdisciplinary research at its Faculty of Economics (FEUNL), especially in economics, politics, law and history. 2 The preface to CPLP (2007) by the Executive Secretary reveals that the document aims at increasing

knowledge among the citizens of member-states. In spite of their geographical discontinuity, the five

African countries became a regional partner of the EU. The group, known by the Portuguese acronym PALOP, was formed in 1979, held ten summits until 1992 but then “entered in lethargy” until the establishment of CPLP in 1996 (CPLP 2007, p. 34). Together with CPLP, PALOP signed a cooperation agreement with the Commission in October 2007 during the Portuguese presidency of the EU. 3 IICT (2007) was presented by Luís Brites Pereira at the European development Days on June 5, together with a version of Contzen (2007).

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other pillar as it stresses the contribution CPLP can make to the global partnership on development.

The declaration on the MDG, approved in July 2006 during the 10th anniversary summit held in Bissau, provides an international governance innovation that may overcome the diversity in economic, political and social characteristics of the eight nation-states to the extent that it seeks to transform “mutual friendship” into “mutual knowledge”. The contribution of Portugal and Brazil to the integration of the other members in the world economic system, Cape Verde’s graduation from least developed country status and greater international use of the common language are other examples of global lusofonia mentioned in the conclusion.

Figure 1: First slide of presentation of IICT (2007a) at Development Days about here

The rest of the paper is divided into four parts. Part I offers the global framework and it places CPLP and Africa therein. Parts II and III then describe knowledge enhancing mechanisms such as peer reviews and public private partnerships, combining examples with an adaptation of European experience to show the implications of these mechanisms for good governance4. Part IV assesses the potential of global lusofonia.

Figure 2 Cover of CPLP (2007) about here

I GLOBAL POLITICAL ECONOMY

Since last summer the world economy is under the combined pressures of inflation from commodity (oil, food) price rises and deflation from financial (housing, banking) crisis. World stagflation is to be feared if no cooperative governance emerges across the Atlantic and beyond. Taking a global view helps understand that, in spite of widespread accusations of speculation on the part of financiers, the price rises are more contentious than the deflation, which involves a “reverse bubble”.

Such global view is based on the premise that the expansion, diversification and deepening of international trade and financial links over the last two decades presents an unparalleled opportunity for countries to raise their living standards. To take advantage of this opportunity requires appropriate governance responses at national, regional and global level - with the understanding that these perspectives are complementary. The interaction between Globalization and Governance (G&G) is discussed in Section 1, followed by a regional approach inspired by Nye (2002) and Cohen-Setton and Pisani-Ferry (2008). Section 3 introduces a specific G&G interaction, which pertains to democracy and the associated individual freedoms. Section 4 focuses on Africa.

1. Globalization and Governance (G&G)

Globalization has also progressively affected political and economic governance, mainly by reducing national policy space and increasing institutional and economic interdependence at various levels. As a result, regional economic integration is

4 The focus on how the political and fiscal constitution may promote good governance, rather than threaten it through “voracity” is due to Tornell and Lane (1999). In an annex to this paper (still being completed), Gonçalo Almeida Ribeiro brings out the observation that, as stable political communities reflect underlying constitutional agreements, institutional cooperation for development requires an analogous form of “constitutional integrity”.

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increasingly seen as an intermediate step toward the integration of developing countries into the world economy. In addition to benefiting from regional economies of scale, their participation in reform programs within regional organizations also facilitates domestic authorities’ work when implementing politically difficult measures. Regional surveillance and peer pressure between the various partners may also help reduce the risks of macroeconomic slippage, resulting in a more stable, predictable environment – an essential factor for the private sector to flourish.

Economic success under globalization is less a question of relative resource endowments or geographical location than it used to be. Now, it is more a question of the market perception of the orientation and predictability of national economic policies, and the accompanying institutional arrangements. For example, ten years ago, the Asian crisis showed that economic openness must be accompanied by sound macroeconomic policies, unfailing transparency, and a stable and rational regulatory and incentive framework, robust financial systems coupled with effective supervision mechanisms, and good public and private sector governance in order for developing countries to avoid crises whilst taking full advantage of globalization.

Nevertheless, progress has been attributable primarily to domestic adjustment efforts – such as the implementation of appropriate structural and macroeconomic policies designed to improve economic efficiency – rather than to membership in international organizations per se. Moreover, in most developing countries growth rates have not been high enough to reduce widespread poverty. At the same time, financial, energy and food crises around the world have focused attention on the downside risks of globalization, and concerns mount about marginalizing countries and regions.

A more integrated global economic context clearly demands a new degree of policy and institutional coherence, where important knowledge gaps need to be filled through interdisciplinary research. This need is especially evident when policymakers require more knowledge in order to better manage the process of globalization. Alternatives to both “one size fit all” and “each case is unique” development ideologies are especially needed in a context which cannot draw upon existing experiences of institutional cooperation that generate mutual knowledge and foster mutual trust. Knowledge is more limited and data harder to compare outside of the OECD, so that cooperation at the regional, sub-regional and international levels may not produce knowledge of effective policies and create conditions for their implementation.

Context-adjusted but also widely usable knowledge results from identifying an appropriate constituency for each set of related problems and challenges: indeed, according to Contzen (2007), science and technology can do more to contribute to reaching the Millennium Development Goals (MDG) than it has done in the past, for given financial resources and political will. In order to interpret the implications of this claim, standards of appropriateness for a particular constituency must be derived. Such standards are responsive not only to obvious factors such as geographical and economic kinship, but also to less familiar dimensions such as cultural, historical and strategic affinities.

The idea of producing knowledge from within a cooperative framework is referred to as mutual knowledge, a prerequisite for fostering trust, which in turn assumes a common

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development ethic. Mutual knowledge then overcomes collective action barriers and clears the ground for coherent reforms - instead of reversible piecemeal initiatives5. This fact is evidence of the imperative necessity to create conditions that foster the basic components of social capital, such as a cooperative community, interpersonal trust and a broad social conscience. Another way of saying this is that mutual control devices are only effective “among equals”.

Globalization has progressively affected political and economic governance, mainly by reducing national policy space and increasing institutional and economic interdependence at various levels. As a result, regional economic integration is increasingly seen as an intermediate step toward the integration of developing countries into the world economy. In addition to benefiting from regional economies of scale, their participation in reform programs within regional organizations also facilitates domestic authorities’ work when implementing politically difficult measures. Regional surveillance and peer pressure between the various partners may also help reduce the risks of macroeconomic slippage, resulting in a more stable, predictable environment – an essential factor for the private sector to flourish.

The idea of a club as a set of like-minded people does carry over to that of a group of like minded countries whose commitment to democracy, market economy and world development is reinforced by mutually agreed procedures for policy review and evaluation. The success of the Marshall plan reflects this fact: a reform process can only be sustained when culture is used as a vehicle for change rather than against it. While economic cultures may have been converging in the current wave of globalization, the differences in political and social cultures remain very wide. As a “reformers´ club” the OECD has contributed to the convergence in economic policy cultures and even in most other areas of non-military policies. Its collaboration with NEPAD paved the way for the African Partnership Forum, launched in Paris in 2003, which meets every year in the countries of NEPAD and G8 presidencies. Aside from aid effectiveness, the Forum seeks better links with other multilateral surveillance procedures. Nevertheless, the sharing of experiences with the agencies in the UN system and with the Bretton-Woods institutions has not reached the level attained in the run-up to the Conference of Finance for Development held in Monterrey, Mexico in February 2002.

The description offered here is based on an analytical framework of international political economy with two pillars. The development paradigm based on mutual accountability is one and it is looked at both positively and normatively. The complementarity between globalization and regional integration which underlies European integration is the other. While the second pillar might be dismissed as “Eurocentric”, its perspective is one of contributing to international governance innovation rather than praising the EU contribution to development thinking per se. A very recent example is the independent report on the MDG written for the European Commission by a very diverse set of authors based on both sides of the North Atlantic (Bourguignon et al 2008).

5 While this is related to the returns to education inducing individual accumulation of human capital, the broader issue of social capital has been emphasized by Helliwell and Putnam (2007) and Putnam (2007). It cannot be left out.

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Rather than following the vagaries of European integration from the 27 perspectives of its current member states, suffice it to say that a combination of cultural proximity and mutual knowledge has facilitated the deepening of the process of European integration from a free trade area to a single currency and the widening from the original six members through successive enlargements. Aside from the location of the CPLP secretariat in Lisbon, then, an historical perspective on the Portuguese idea of Europe would be consistent with the approach6.

With increasing globalization, the impact of stability, growth, and proper functioning of the developing economies on the economies of the more developed countries cannot be neglected. Developed countries thus stand to gain from contributing, bilaterally and multilaterally, to policies that turn developing countries into more open economies, better integrated in the world economy. But globalization can only bring lasting benefits if the governance response is appropriate. In particular, there must be trust between local and foreign partners. This trust is even more crucial in developing countries, where most of the population is in a situation of absolute poverty and the state depends on external assistance because it is virtually devoid of a working tax administration. Even in the absence of armed conflict in the country or surrounding region, trust between all the partners and entities that finance development must rest on policies that assure poverty eradication and sustained economic growth.

Reaching the MDG in 2015 presupposes sustained pro-poor economic growth in addition to better governance and more aid, as recommended by the Monterrey declaration, but there are no immediately available recipes on how to bring about a positive interaction between globalization and governance (G&G): Bourguignon et al (2008) underline the heterogeneity of country outcomes and the difficulty in finding patterns even in fragile states. This heterogeneity is no surprise: to “develop a global partnership for development”, the eighth goal, reflects disappointment with the performance of developing countries which seemed to follow the policy recommendations of the “Washington consensus” during the 1990s. As governance improvements were not commensurate with the challenges of globalization, especially in what concerns financial markets, these countries faced recurrent financial crises which interrupted the long term convergence process.

With trust between all the partners, the process of economic reform that has been going on in developing countries can transform fast growth into sustainable development. The prerequisite of institutional change revealed by such a reform process confirms the importance of good governance. Public-private partnerships help bring about policies at the national, regional and global levels capable of promoting good governance and sustaining the reform process. The use of public-private partnerships in reconciling

6 The parliamentary discussion of the topic following the Maastricht treaty shows this. Macedo (1995) refers to the ambiguity between European and lusophone allegiances: “When this ambiguity generates a positive response, the Portuguese are capable of combining their allegiance to Europe with their allegiance to other cultures, especially those where the Portuguese language is also spoken - the so-called Lusophone world. There are times, on the contrary, when competing allegiances lead to defensive responses and ambiguous stances. Like the donkey of Buridan, who died because it did not know whether it was thirstier or hungrier, the Portuguese can falter under the weight of their destiny. Instead of combining their European and Lusophone status, they may wonder whether they are more European or more Lusophone. This fate, I argue, would make us feel collectively incapable of fully achieving either status.”

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seemingly divergent interests between the public sector and private business can be extended to development areas because all parties gain from a concerted approach – but the existing institutions often discourage co-operation. To openly discuss what the interests of various stakeholders are and to seek a solution that best satisfies most interested parties is certainly preferable to imposing policies in exchange for official assistance.

As long as the G&G interaction is positive, so that the opportunity to trade goods, services and assets among countries with diverse structural characteristics remains consistent with a political environment reflecting individual participation, the dynamic combination of deepening and widening characteristic of the European integration process may apply in other parts of the world. While political rights, civil liberties and economic freedoms reflect universal values, it is the diversity of European experiences with promoting the common good that may be most useful to export to groups of countries which have not set any economic integration objective and may indeed pursue it with their geographical rather than cultural neighbors. As diversity raises transactions cost, mutual knowledge becomes decisive and public private partnerships may be a way of triggering the process.

In sum, from the perspective of the eight members of the CPLP, the global partnership for development may have broader lessons, which make diversity a benefit rather than a cost. Diversity is nevertheless very large, not just because of geographical distance between the eight capital cities (Luanda, Brasilia, Praia, Bissau, Maputo, Lisbon, Sao Tome and Dili) but also because of differences in physical, human and economic size7. Even if a common language can “deepen the “mutual friendship” invoked in the CPLP treaty, is it sufficient to overcome the diversity of circumstances in members states? Put in another way, can a development paradigm be shared by one DAC member, a former colonial power, one systemic economy of the BRIC group and six very diverse less developed states, only one of which has abandoned least developed country status? The transformation of a common language into a source of mutual knowledge is the view of global lusofonia which is been promoted by the Portuguese presidency of CPLP which is to last until mid 2010 (and will coincide with the presidency of the Iberoamerican summit in 2009). It has specific implications for the use of the language but also has broader relevance for the role of scientific knowledge in promoting MDG.

In spite of recurrent institutional leaps and bounds, what is now the EU attests to the advantages of regional integration since the 1950s. While there have been no other attempts with the same ambition in Africa, the Americas or Asia, French-speaking African countries, particularly the CFA zone countries, whose common currency is the driving force of economic policy coordination and integration, might be seen in the same light. Their long experience with a monetary policy conducted by a strong institution that must preserve its independence vis-à-vis national governments has accustomed these countries to yielding some of their economic policy matters to a regional organization. The perspective adopted here is global and hopes to encompass views from both sides of

7 Figure 4 below shows that Sao Tome records the lowest average distance between capital cities, about 5000 km, and Timor Leste the largest, about 14000. Comparative indicators from CPLP (2007) are reported in Table 6 below.

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the Atlantic in addition to the perspectives of Mozambique and Timor Leste8.

One particular implication of the view taken in this paper that economic success under globalization is mainly a question of market perception regarding the orientation and predictability of economic policies, as well as the accompanying institutional arrangements, is to compare trade expansion and financial reputation among the CPLP members relative to their neighbors. The contextualist framework helps in identifying successful development experiences based on appropriate policy and institutional reform. Comparing the linkages between cultural, institutional and economical factors that fostered growth and development in particular countries, together with their responses to interdependence and efforts at coordinating policies in the framework of their respective sub-regions is preferred to finding "a one size fits all" model. Assessing how successful the product and market export diversification strategies of Cape Verde and Mozambique were in comparison to their partners in West and Southern Africa and to other African members of CPLP is a task currently being pursued in the same research agenda as the one this paper is a part of9.

As mentioned in part III, CPLP has virtually no economic policy dimension, so that it is difficult to ground successes on its existence. If it is nevertheless possible to establish a virtuous cycle between institutions and growth in some of the member countries, though, the economic policy dimension may become stronger with benefits for all member states involved10. Depending on the specific requirements of mutual knowledge, institutional cooperation may or may not work at continent-wide (African Union) level, just as it may or may not work within CPLP or PALOP. The focus on Africa is then natural because it is the only continent where more than one member is located.

Economic policies, coherent strategies and good governance make a difference. Good progress has been made recently in strengthening democracy, however freedoms are still limited and corruption remains widespread. The main point then is that, in spite of all the

8 The CEPII database from which Figure 4 below is extracted has several indicators of distance. As indicated in the previous note, Timor is the most distant member, the second is Brazil (São Paulo but the ranking would not change for Brasília) and the third is Mozambique and Portugal. 9 Mozambique was eligible by the Millennium Challenge Corporation since its inception in 2004 and “remains a successful example of post-conflict transition, with impressive economic growth averaging 8 per cent from 2000 to 2006 and sustained macroeconomic and political stability” according to the 2008 edition launched in Maputo on 11 May. Cape Verde was above the income per capita ceiling but nevertheless signed a five year contract in 2005. As expected, it graduated to middle income status in late 2007 and, on the suggestion of Luxemburg and Portugal, also signed a special partnership with the EU. In addition, its currency has been pegged to the euro. As the experience of both the Economic Community of West African States (ECOWAS) and the Southern African Development Community (SADC) includes members with different cultural, historical and strategic affinities, assessing African successes thus requires comparisons beyond sub regional partners. This is the objective of a NBER project in which the author is involved with Luís Brites Pereira, Manuel Cabral and José Mário Lopes. 10 Determining the factors that explain export growth and the evolution of export diversification for each

country will give us insight into a deeper understanding of the specific evolution of individual countries in ECOWAS and SADC, allowing us to study the characteristics of exporting firms and to evaluate the factors that determine sectoral export performance. By combining institutional and trade variables, we will be able to see if they reinforce or weaken each other and what their combined effect on different types of MDG might be. Using simultaneously the trade-related, macroeconomic and institutional determinants and interaction terms, it should be possible to test if trade liberalization and political and economic liberalization reinforce each other, or if these give independent contributions to the development goal.

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changes, Africa has not moved fast enough relative to the rest of the world, or even relative to other parts of the developing world. The evolution of South GDP and the growing divergence of GDP per capita with Latin America have already underscored this and the same picture comes from the MDG.

The global partnership for development with targets for aid, trade and debt relief reflects mutual accountability. Like the seven quantitative goals for 2015 relative to 1990, it also requires mutual knowledge. Otherwise, the MDGs may undermine the cause of helping the world’s poor “by over-reaching on the targets and overselling the efficacy of aid” (Clemens and Moss, 2005). Critics claim that what poor countries need from rich ones is broad-based, sustained, moderate engagement—not emotional, moralistic, centralized big bangs. Aid can work, but it must be dramatically improved. Innovations like the Global Health Fund or the Millennium Challenge Account are a great start, but we need much more such experimentation and evaluation before “scaling up” makes any sense. And we need to go far beyond aid, as there are many avenues to support ongoing efforts by poor countries themselves, such as investing in key technologies (such as vaccines), opening our markets and finding creative arrangements for win-win labor mobility.

2. How many regions?

Taking a global view implies adding up very diverse economic and political units, in spite of traditional view that nation-states are equal11. In effect, in 2006, North America (US, Canada, Mexico), the 27 EU member countries and East Asia (ASEAN plus China, Korea, Japan) each accounted for ¼ of world GDP in purchasing power parities. The remaining ¼ st (ROW) has no identity but includes 53% of the world population, with significant actors, such as Brazil, Russia, India (lumped with China in the BRIC) together with salient regions, such as Africa and the Middle East12.

Table 1 Dominance matrix about here

While this global view should foster governance innovation, dominant players and associated free rider problems prevent cooperation – especially among abstract (geographical rather than historical) regions where there is no peer review. The matrix in table 1 shows a multi dimensional chessboard along the lines suggested in Nye (2002) to describe US dominance in the world system13. His three levels were security, diplomacy

11 This is the so-called Westphalian view on which traditional theories of international relations are based. Following Cooper (1964), Keohane and Nye (1977) emphasize the importance of non-state actors. See the dominance matrix in Table 1 below. 12 Global views predict a fall in world demand via the oil transfer, smaller and more inflationary than in the

1970s because emerging markets won’t stop emerging just because Atlantic potential output falls, as well as continued euro/dollar volatility with implications for bilateral rates with other major currencies, newcomers in world financial markets, some formerly pegged to the dollar (real, rouble, rupee, yuan). 13 The agenda of world politics has become like a three-dimensional chess game in which one can win only by playing vertically as well as horizontally. On the top board of classic interstate military issues, the United States is likely to remain the only superpower for years to come, and it makes sense to speak in traditional terms of unipolarity or hegemony. However, on the middle board of interstate economic issues, the distribution of power is already multipolar The United States cannot obtain the outcomes it wants on trade, anti-trust or financial regulation issues without the co-operation of the European Union, Japan and others. It makes little sense to call this American hegemony. And on the bottom board of transnational issues, power is widely distributed and chaotically organized among state and non-state actors. It makes no sense at all to call this a unipolar world or an American empire.

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(intergovernmental cooperation) and civil society (transnational relations among private actors). He concluded that US dominance on security was accompanied by decline on the other two levels. A four dimensional chessboard in US, EU and East Asia illustrates the dominance of each one plus ROW on issues of defense, finance, trade and land, i.e. endowments both for agricultural and raw materials. The North Atlantic (if not US) dimension is key in the first two, but in trade EU and East Asia dominate, whereas ROW may be the most endowed in land and raw materials. The emphasis on EU/US relations, mutual perceptions thereof and perspectives from other regions is self evident but the dominance matrix should not prevent comparisons of OECD and BRIC. The implications of this world view for Europe takes into account its immediate geographical and cultural neighborhoods, respectively: Eurozone, Schengen, EU, Mediterranean Union (MU) and EurAfrica but the challenge of governance innovations applies even more widely to Asia, Latin America and Africa, given that only the latter has a peer review mechanism.

The mutual interaction across the North Atlantic is at the heart of complex interdependence, a form of international relations which spreads within a security area such as NATO14. The domain of interdependence was restricted to the founding members of the OECD, which exclude Japan, just like the finance dimension in the matrix applies to US/euro zone rather more than to NA/ EU. The implications for world financial markets reflect the hierarchy of the so-called “Bretton Woods II international monetary system”, whereby the US economy absorbs its China and OPEC peripheries via their peg to the dollar and European economies, independently of the exchange rate regime, via substitutability between dollar and euro denominated assets. This makes financial and exchange rate issues almost as salient as defense ones (a la Triffin?) and provides focal points for international diplomacy but it goes too far. A more appropriate view rejects that assets on both sides of the Atlantic are perfect substitutes15. Rather their relative price depends on supply demand and relative returns. The portfolio view claims that the exchange rate between dollar and euro will reflect mostly capital account shocks in the short run and mostly current account shocks in the long run. Volatility will then be scaled by trade elasticities and by the ratio of imports to foreign assets, evaluated at the long run equilibrium rate. In table 2 import+exports are divided by foreign assets+liabilities: Atlantic dominance remains.

Table 2 Regional Trade & Financial Openness about here

2. Globalization and freedoms

The freedoms-democracy relationship has changed over time and a better understanding comes from taking into account regional dimensions. The tradition of financial freedom in the first and second waves of globalization varied greatly within Europe, given that only England and the Netherlands were the only states never to have registered a bankruptcy, compared to a record of 19 for Spain (table 3, figures for France are incomplete but should not be too far behind).

14 This was an elaboration by Robert Keohane and Joseph Nye of the list of the various possible responses to economic interdependence (defensive, exploitative or cooperative) presented by Richard Cooper in his 1964 classic. 15 Once known as the Yale school, reflecting work inspired by James Tobin and due to William Branson,

Pentti Kouri and others.

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Table 3 Number of bankruptcies about here

The third wave of globalization has witnessed the number of democracies grow substantially. Given very different standards of living across countries, democracy is sustained by individual freedoms, such as political rights and civil liberties. Their interaction with globalization and distance to the frontier (represented by the ratio to US GDP per capita) is illustrated in figure 3 and table 4: the impact of trade openness on freedoms is not symmetric; distance has a positive impact on freedoms and globalization; trade openness has no effect on freedoms (PRCL); the effect of capital controls is close to that of distance. The interdependence between democratic freedoms and globalization includes the effect of globalization on democracy itself. Some countries increase economic and even financial freedom whilst maintaining strict restrictions on political and civil liberties. The 2-way reinforcing relationship between globalization and freedoms depends on the distance to the technological frontier16.

Figure 3 Freedoms and Globalization about here

Table 4 Freedoms and Globalization about here

Reforms are more likely to fall prey to the second-best argument under ready-made policy packages with scant knowledge about local conditions. A more systemic approach to national economies will include the concept of complementarity as an input into economic advice. When starting a reform strategy that deliberately results, in its initial stages, in a reduction of economic coherence, countries incur a risk. While it may be rational to bear that risk, it cannot be systematically ignored without facing long-lasting negative consequences. Aside from technology, then, we find flexibility as a guide for institutional change. This includes the ability to exploit the complementarity between macroeconomic and structural reforms. Yet there is relatively little attention to the design of reform packages and its effects on economic growth, suggesting that, when there are many distortions, eliminating only few of them may threaten the sustainability of the reform process.

3. Africa

Table 5 reflects the millennial perspective on the world economy associated with Maddison to show how East (Asia including Japan, Russia and Turkey), West (Europe, North America and other offshoots) and South (Africa and Latin America) compare in population and GDP in 1990 international dollars. The decline of South is startling. As Maddison does not report regular figures for Africa before 1950, Figure 4 shows the decline of more than 20 percentage points of world GDP per capita suffered by Africa between then and the early 21th century. The decline is even more pronounced for the PALOP even though catching up in now being observed.

Africa is usually divided into sub regions, one of which – the South Mediterranean is often seen as distinctively non-African (the comparison of PALOP with sub-Saharan Africa is in Figure 5). There is also a residual habit of looking at South Africa as some kind of exception. The remaining sub regions, West, East, Central, are still very different from each other but easier to categorize as composed primary of fragile states than the

16 Aghion et al. (2007) introduce a model of industrial organization where the closer a country is to the

frontier the stronger the effect of democracy on growth.

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SADC - which includes South Africa (sometimes standing for the s in BRICs) and its former “frontline states”. Figure 6 shows the decline by more than 10 percentage points of African GDP of Subsaharan Africa relative to the continent.

Actors here are mostly partners involved in official development assistance (ODA), which is a dwindling share of total flows from rich to poor nations, while investment and transfers have risen. Nevertheless, the members of the Development Assistance Committee (DAC) of the OECD continue to be the dominant official aid providers to Africa and the only ones for which there is systematic data. Within DAC, the EU would the main player if its members (most of which in DAC) would speak with one voice. But the 27 EU member states and the European Commission have imperfectly coordinated official aid programs and differ in evaluating aid effectiveness. Europe should speak with one voice (rather than 27+1) in development and new initiatives, such as the Cotonou Agreement (revised in 2000), the 10th European Development Fund and the Economic Partnership Agreements should be implemented.

Similarly, given the transformation of the Organization of African States into the African Union, there is no tradition linking both unions, rather similar methods of regional integration applied to a very different economic environments and governance responses at national and regional level. The preparation of the 2nd Europe/Africa summit in Lisbon confirmed the weakness of the African Commission with respect to agenda setting and this may also have contributed to making the summit more symbolic than practical. Its main result, in some sense, is that it actually took place! FrançAfrique, a kind of post-colonial link also present in the acronym PALOP for the five CPLP countries from Africa suggest EurAfrica as a suitable label, at the cost of implying the absence of the US and Japan, which would be an illusion given that DAC has been at the forefront of efforts to promote aid effectiveness through harmonization of donor practices.

The links of each one of the BRIC with the US and the strong interaction between economic and security concerns since 9/11 further enhances the salience of the DAC. An alternative approach would wrap the two largest BRIC together in spite of their differences, as in “Africa from DAC to Chindia”. From an economic perspective, China is a model for strategic alliances between international corporations and local African partners while investment in new technologies could follow the Indian model. The political differences among the BRIC are also apparent in that India, like Brazil, are robust democracies.

We next deal successively with two mechanisms of knowledge enhancement for development, multilateral surveillance frameworks and public private partnerships, which may be seen as the roots of the “mutual knowledge” called for in the Bissau declaration. Part III then concludes that the CPLP secretariat can combine OECD methods and EU commitments to foster mutual knowledge if the MDG become a shared goal of the eight states.

II MULTILATERAL SURVEILLANCE FRAMEWORKS

1. The importance of peer pressure

What are the prospects for a multilateral surveillance framework and for knowledge-based public private partnerships to deliver the improvements in economic and political

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governance called for by the Monterrey declaration? This was indeed the first time the UN system, the Bretton Woods institutions, and the WTO collaborated not just at the end but throughout the process. This collaboration has not continued with the vigour needed for a new development paradigm to emerge so that the analogy made with the Marshall plan – another road not travelled before – is misleading. The innovation in the Marshall plan was the emphasis on the peer pressure system set up to co-ordinate the implementation of the plan, because it encouraged a learning process between European nations, which was inherited by the OECD and the EU, leading to "complex interdependence" among these countries (Keohane and Nye 1977). Meanwhile, the globalisation of business and the “information revolution” changed political processes in a way in which "soft power" became more important in relation to hard power. Credibility became a key power resource, giving more open, transparent organisations an advantage with respect to free information (Keohane and Nye 2000).

One way to answer the question about credible surveillance with respect to macroeconomic stability – a crucial dimension of multilateral surveillance - is thus to compare the Article IV consultations of the IMF, the Economic Development Review Committee (EDRC) country reviews at the OECD and the EU Broad Economic Policy Guidelines17. As mentioned in the introduction, looking at the EU as a more ambitious attempt to promote rules of good conduct among its members certainly helps draw lessons for other countries and regions. But it must be stressed that other international organisations also played a role in spreading the results of alternative policy paths among their member states. The wide acceptance observed suggests that national policymakers stabilised, liberalised and privatised the economy in part because they saw other policymakers do the same.

That said, the appropriate surveillance method varies with circumstances of the particular countries and the topic under consideration. In addition, the absence of good data poses a considerable challenge to the exercise of surveillance and peer review, just like it would to any other initiative for better governance. As a lending institution, the IMF has particular clout in the case of program countries – and to some extent in emerging economies too; the OECD has to rely on the quality of ideas and the relevance of comparative policy analysis and EU processes go well beyond surveillance or peer pressure, in particular through the evolution of the comprehensive "rule book" and the greater involvement of many high-level national decision makers than at the other institutions. The European institutional architecture is interpreted in a way that favours schemas of flexible integration, which have a voluntary, self selection element.

The idea of liberating the IMF from direct pressure, in particular from the larger countries, was been repeatedly put forward but it may indeed be hard to complain if some countries, by virtue of their having the capacity and the will to undertake analyses of other countries, exert more influence than others. One way of strengthening the IMF’s supervisory role would be to separate the analytical function from lending operations. It is also possible to separate high quality analysis and surveillance and then have the

17 The text follows a seminar convened by the OECD Development Center at which Neils Thygesen shared his experience of the three institutional backgrounds. While he subsequently published his contribution, the text follows the note on the event which also reflects comments from the floor (Thygesen, 2002)

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information made available for peer pressure exerted at the regional level, as such pressure is more naturally organised among smaller groups than in the context of global institutions.

Related to the need for adequate data and a well-defined analytical method, there is a cultural challenge for credible multilateral surveillance18. For example, there may be cultural perceptions about how effective peer pressure is in promoting greater national capacity and institution building. In Africa, these may interact perversely with perceptions of higher political risk relative to other developing areas. If the perception is formed for the whole continent (or close to it as in sub-Saharan Africa), then surveillance gains from having an explicit regional element. Unfortunately, few governance indicators such as those collected in the African Economic Outlook launched by the African Development Bank and the OECD Development Centre (OECD 2008) are available on a comparable basis, and this is another problem IICT (2007) confronted when attempting to compare the progress of MDG in CPLP. Moreover, the pace at which countries have been examined in NEPAD’s African Peer Review Mechanism (APRM) has not been sufficient to bring the perception of risk in line with other developing areas where such mechanisms do not even exist. Rather than stressing the limits of peer pressure among individual countries and benchmarking of best practices, linking regional and global surveillance frameworks may be the role of organizations hoping to transform mutual friendship into mutual knowledge, such as CPLP. This comes out clearly from the origins of the procedure, to which we now turn.

2. Multilateral surveillance as yardstick competition

The issue of whether peer pressure brings about improved performance has been addressed by Besley and Case (1995) in the context of “yardstick competition”, a term coming from industrial organisation which suggests comparing similar regulated firms with each other (Tirole, 1988). For any given firm, the regulator uses the costs of comparable firms to infer a firm's attainable cost level. Conversely, if the regulator equates the price to the marginal cost of the firm itself, then managers have no incentive to reduce cost. Using the costs of comparable firms (or their average excluding that of the firm itself, which serves like a fictitious "shadow firm") prevents the firm's choice to have an effect on the price it gets. As comparable firms may not exist or be observable, a scheme of yardstick competition may not fully overcome moral hazard problems, but it is certainly preferable to the traditional procedure of comparing current and future costs to past performance.

The peer pressure scheme is thus susceptible to manipulation by participating firms but the difficulty in co-operating to impose collusive behaviour makes this perverse outcome less likely. Note also that in the case where heterogeneity is observable and can therefore be corrected for, Schleifer (1985) shows that a regulatory scheme based on peer pressure should lead to a superior performance. This implies that the regulator can credibly threaten to make inefficient firms lose money and cost reduction can therefore be enforced. When national objectives are at stake, best practices can thus be achieved,

18 In an Asian context, I spelled out the importance of data, analysis and culture in OECD (2002b) and noted that these are the same initials of the Development Assistance Committee. The acronym remains useful as argued below in the text.

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rather than allowing a convergence towards the mean. Conversely, when peer pressure is used to stall reforms, rather than to promote them, the outcome is equivalent to the collusive equilibrium and an alternative yardstick must be devised.

Therefore, adapting the same reasoning to multilateral surveillance frameworks (MSF), when there is peer pressure among national policymakers to follow best practices, these are likely to become more and more accepted. Peer reviews have enhanced competition for better macroeconomic and trade policies among OECD members. Similar benchmarking has begun with respect to structural policies, especially those relating to the regulatory framework. The greater complexity of such policies makes them more susceptible to procrastination, and the same problem has been observed in the EU. This hinders institutional change and makes corporate and political governance more difficult.

When applied to corporate strategy, yardstick competition leads to benchmarking exercises which have become common. Business associations such as those gathered in the Business and Investment Advisory Committee (BIAC) of the OECD or initiatives such as the European Round Table of Industrialists have been active in promoting and disseminating comparisons of best practices in various aspects of corporate governance and investment climate. Yet these initiatives remain unusual in developing countries.

What is meant by pressure varies with the surveillance framework and the influence of advice might be a matter of managing the process through which the advice is formulated. Moreover, as countries are not just a homogenous block, it is also a question of how the advice is targeted to the different audiences within a country. It would therefore be beneficial to see how target groups can be helped to exercise pressure on their peers within a country.

In the case of the IMF and the OECD, the objectives and mandates are less clear than in the case of the EU, where the peer reviews are really a method of integrating and harmonising policies in order to obtain convergence across countries and ultimately to have a single policy process.. A cost/benefit analysis of the review processes should be conducted – especially if the mandates are not clear. There are certainly high costs, among which the political cost of renouncing the ability to introduce policies without prior scrutiny by others. The benefits accrue not only to civil society but also for governments themselves, with the emphasis on a small case g -- not for the governments of today but for governments of tomorrow: this may be difficult to explain to those in power at a particular time.

Defining what is meant by “peer” and sticking to rules once they are defined is equally important. Size matters very much – political and military importance often determines which countries can lead or block the process. This is again linked to the clarity of mandates. If the objective sought at the end of co-ordination is peace in the world , then the bigger have an interest in playing the game according to shared rules. Notwithstanding the slow pace of APRM relative to the OECD model, where peer reviews are lacking entirely is in large emerging markets like the BRIC.

In addition to identifying external vulnerabilities and supporting international policy co-ordination, surveillance as practised by the IMF may serve as advice, information gathering and dissemination to the public and to policy makers; technical assistance. The core of the policy advice that has been developed over the years though is simply

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“delivering the message” (Boughton 2001).

Banks and independent research institutes that evaluate policies and monitor economic performance and policies may fulfil most if not all of these surveillance functions. The private sector’s compliance and risk management expertise is particularly strong in making the case for financial liberalisation. More generally, only local actors control the strategic resources – leadership and political capacity – that are essential for governing the policy process. These resources also include particular local knowledge of the nature (complicit or otherwise) of the relationship between the political and business communities, which can be acutely relevant to the policy process. The same can be said about national value systems and how these relate to various policy choices: data, analysis and culture affect the credibility of surveillance.

The importance of the knowledge bases that exist in the countries under review notwithstanding, those available in international institutions, in particular certain types of technical or conceptual knowledge remain decisive for credible surveillance. In fact there is a tendency for local analysts to compare the prevailing situation with that of 10 or 15 years earlier when the more relevant and more useful standard of comparison is often the experience of other countries. It is here that the comparative advantage of international institutions resides.

Part of the “soft” co-ordination that takes place in international fora is information sharing (data produced on a comparable method, details of policies in various sectors and analysis of them). Though it has financial costs, this public good element is not emphasised enough. This is the element that could most easily be transferred from the OECD style of review to others. Some very important objectives could be met by improving information sharing. We need to think how we can improve the bigger players’ understanding of the benefits of such information sharing.

In that sense, there is a complementarity between the national discussion which is enriched by the international analysis and the feedback from the particular circumstances of national discussion which enrich international analysis. In the course of preparing country reviews, for example, the interactions with national officials, and their assistance in tailoring the analysis and recommendations to reflect their particular circumstances, are extremely useful. The output of the peer review process is not just the final report. It also includes the interactions in the course of its preparation between national officials, the Secretariat and the Committee. The meaningful standard of the effectiveness of advice, surveillance and peer pressure is then the extent to which it positively influences the domestic debate. Sometimes this can be done through putting forward ideas that have yet to be aired in domestic debate; on other occasions it can be by assisting in the penetration of ideas that have been developed by national research institutes or think tanks.

That being said, many commentators have wondered why international organisations are doing projections and macroeconomic analysis given the quality of the work being done in the private sector. In fact, a lot of what private sector analysts say is similar to what international organisations say. The issue is “Who leads?” The work of the private sector would be rendered much more difficult were the IMF and the OECD to cease producing projections. Nevertheless, there is an identification problem in the relationship between

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the work produced by international organisations and the market. It should be analysed further but the solution will surely depend on the nature of the surveillance exercise.

As implied by the reference to credible MSFs, the effectiveness of the surveillance mechanisms employed by the international organisations is very much dependent on the credibility of the review process. International organisations can add weight to local voices -- even if national think tanks have said something many times, it helps to have a credible external body say it too. Therefore, international organisations must ensure that the analysis and advice presented to the countries is not, and is not perceived to be, either tainted by special interests or weakened by the use of flawed analytical methods.

Thus international organisations have a special role to play because of their comparative advantage and greater experience in some areas of evaluation, notably the international environment and interdependencies, and because they have easier access to data. In particular, aside from "bilateral" surveillance of individual member states, the OECD and the IMF undertake multilateral surveillance, putting things into a global perspective; which clearly adds to the surveillance process. Given the ongoing process of globalisation, this makes their work especially credible for the actors involved in it.

The benefits of information sharing are evident when it comes to the prevention of financial crises. Were it possible to predict crises, those avoided should be counted as successes. Looking at the phenomenon the other way, prediction is not sufficient when there is political sovereignty -- no matter how much pressure is exerted, that substantial degree of freedom cannot be broken. Perhaps the best gauge of success is the extent to which countries are better equipped to withstand crises and whether this is due in part to the existing MSFs.

3. Comparing MSFs

The group of independent experts on IMF surveillance (IMF 1999) noted a direct negative correlation between the size of the country considered and the impact of the advice. A justification for this could lie in the fact that the larger the country the more civil servants, independent research institutes, banks and so forth there are engaged in examining and analysing the country and so there is less scope for the IMF or indeed any other international institution to say anything new. Examples of direct positive impact are hard to find, even in small countries. The impact is easier to ascertain when a new regime has been introduced following IMF advice, for example, the Czech Republic’s exchange rate policy in the early 1990s, and the introduction by Sweden of an inflation target in 1992-93.

It is clear that countries approaching crises have not been inclined to listen to advice. In the cases of: Brazil in January 1999, Czech Republic in 1996-97, Korea in 1997, Thailand in 1996-97, the Fund did offer advice (and attempted to apply pressure) to modify unsustainable policies but this went unheeded

A further complication in evaluating the success of the IMF’s surveillance is the absence in most cases of relevant policy makers from the examined country when the report is being discussed. As IMF analysts have the confidence of member countries, Thygesen (2002) labelled the whole process peer pressure by proxy. To some extent, this has been responded to by increased transparency which has increased greatly with the publication

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of the PINs and the Article IV reports. There exists in this connection a trade-off between confidentiality and transparency: governments, with good reason, object to public discussion of vulnerabilities.

The uniqueness of the OECD resides in its being a school of international co-operation: the exchanges which take place in the various committees are a unique way of making the several thousand national civil servants who each year attend those meetings aware of the international complexities and the opportunities for improvement that exist; these exchanges create, moreover, a sense of community and thereby confidence in the review process. The true benefit lies precisely in this community of policy practitioners, who bring their local knowledge to bear on the policy review process while also contributing to developing further the conceptual knowledge that they also need. This contribution to meshing conceptual knowledge with local knowledge is key part of the OECD’s value-added. This naturally raises the possibility that the IMF has too much clout relative to the rigour of its process.

The Secretariat plays an important and particular role in the OECD peer review exercises because of the quality and uncommon honesty of the background analyses, which are essential for undertaking the reviews. For this reason, it is important to safeguard the quality of those entities within the Secretariat, in particular those engaged in macroeconomic and structural analysis, which are responsible for the peer review process. Not all countries participate as examiners in each of the individual peer review exercises; this reinforces the importance of the Secretariat’s contribution and of its integrity.

In connection with the different phases of the review process, the pressure exercised by the published report is much less than the one exerted in the course of the review process from the visits that the Secretariat pays to each country and, in particular, during the actual examination itself. If this is indeed the case, then perhaps the content of the final report and what the country accepts as recommendations are less important than the advice given to policy makers in the course of the review exercise.

On the other hand, the OECD Secretariat has fewer resources to produce country surveys at regular intervals (for example, IMF missions last at least two working weeks with at least 5 people, much more than the OECD). This is important, for the determinant of the standing of the institution is the quality of the staff’s work. In order to continue to perform well, the OECD must maintain its focus on a small number of key structural policy areas for which an analytical framework can be developed. It must avoid being pushed gradually to purely sectoral issues such as energy liberalisation, under the impression that other institutions such as the IMF and the EU are doing so much in structural areas that there is only scope for this kind of work.

The OECD has had a fluctuating relationship with China; one which presents lessons for the way in which international organisations approach countries with the view to offering them assistance. In its initial approach to China, the OECD had mentioned “surveillance” and got a rather cold reception. Following a number of years of developing contacts with officials and institutes, relations improved considerably, to the extent that China is now an outstanding example of a country that knows how to benefit from the work of the IMF, the OECD and other international bodies. It is keener on the concept of “peer

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example” than “peer pressure” and is constantly looking for analyses and information. The decisions taken by the authorities are well-informed by conclusions reached on other countries’ success and failures (this is borne out, for example, in their caution with regard to capital account and banking sector liberalisation). This shows that the benefits of surveillance and peer review exercises go far beyond the impact of an individual report. This broader impact, not just for China but for other countries which are considering reforming or rethinking their policies, should not be underestimated.

In considering the issue of countries approaching crisis and their receptiveness to advice, one should also consider whether international institutions have given the correct advice. Taking the case of Thailand, according to Blustein (2001), the IMF had clearly indicated that there were problems. Though it was perhaps less successful in spotting the problems in Korea (the OECD had flagged up its concerns), once the Korean crisis had started the Fund’s analysis evolved and it put forward policies which have helped the country to get out of its problems in a remarkably short period of time.

The EDRC has occasionally experienced the situation of undertaking an examination of a country at the same time as there has been an IMF programme in place. Thinking back to the review of Turkey at the end of 2000, it was clear that the Committee itself would not want the Survey to undermine an ongoing programme or programme negotiations, while recognising that the underlying analysis should point out areas of policy where reform is needed. Turning to non-programme countries, the particular contribution of the OECD resides in its comprehensive analytical coverage, ranging across both macroeconomic and structural policies. The EDRC has requested that the Secretariat place increased emphasis on what it judges to be the key areas of structural reform that countries should focus on, rather than trying to give a comprehensive treatment of all issues.

The success of a review exercise is partly dependent on how the officials representing the examined country before the Committee choose to react to the report. In the OECD’s experience, on those occasions that officials have been defensive and elected to hold the line on all the existing policies the atmosphere has become rather confrontational; it is probably the case that the most useful report does not emerge under such circumstances. It is when officials acknowledge that the draft report contains politically difficult (in the short term) but ultimately helpful economic advice that the most useful final reports emerge. It would appear indeed that the countries that get the most out of the review process are those that try to toughen up the reports’ recommendations in order to use it as an element of persuasion for improving long-term economic performance, which is the point of the EDRC exercise. This is the case of the 2001 Brazil Economic Survey which extended the capacity of local institutions to collect the relevant data.

The peer review process is also a cultural phenomenon -- the regular participation in the peer review process leads to the development of a new frame of mind. This then raises the question, following up that on local knowledge-local capacity, “What if the message from the peer review process is incorrect -- if the collective wisdom is not wisdom at all?”.

That there are areas of overlap and complementarity in the work of the OECD and the IMF should not be taken as a criticism with the way the IMF has extended its mandate. The decisive principle governing whether or not this extension is justified is: “Is this

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element of structural policy relevant to overall economic performance over the time horizon analysed in the report ?”. In the case of the OECD, this principle could be relaxed somewhat; this is another source of complementarity between the two institutions. As stated in IMF (1999), its senior officials show a very positive attitude towards collaboration with other organisations. In a recent statement, the Executive Board had requested that the staff make more use of the work of other institutions such as the World Bank and the OECD. More could be done to that effect given the insufficient awareness within the IMF of the work on structural themes being planned for discussion at the OECD. As good bilateral surveillance is an essential underpinning for good macroeconomic surveillance, closer co-operation between the IMF and the OECD is both welcome and feasible.

The quality of the analysis is crucial to the credibility of organisations such as the OECD and the IMF; everything should be done to ensure the production of the best possible quality of work. It is also important, he said, to remain open to new academic ideas and not to bend with the prevailing view of governments.

4. EU and APRM

Within the EU there is a dynamic process moving EU member countries’ national policies towards close co-ordination and in some cases towards their integration into a single EU policy, which explains the binding nature of some recommendations. The EU uses different surveillance processes for different policy areas. Its most important surveillance instrument, the Broad Economic Policy Guidelines which set out the general directions that economic policies should follow, is becoming a very detailed policy co-ordination instrument, and includes recommendations for structural policies.

Regional integration reinforces peer alignment and, as mentioned at the outset, the case of the EU is a prime example. This aspect is qualitatively important in contributing to the atmosphere in which peer review and surveillance take place. With specific regard to the OECD (of which two thirds of the Members are European), the non-compulsory aspect, which enhances countries’ sense of ownership, also makes an important contribution to this atmosphere.

The EU and Euro area policy review processes are very intensive, with peer pressure based on elements that cannot be replicated in any looser form of international institution. There are elaborate, frequent procedures sometimes based on rules, but mostly on national commitments to which it is the task of the monitoring agencies such as the Commission and at the next level, committees, to keep countries to. For Thygesen (2002), this is peer pressure on the basis of commitments. The involvement of high-level officials is much greater that at the IMF or the OECD. In sum, the arrangements in place within the EU give by far the greatest scope for the exercise of peer pressure and supervision.

The ambiguity of the solutions reflects, once again, the complexity of the EU institutional framework. Nevertheless, the strengths of the perspective can be put to good use in the global arena, as long as the procedures underlying the Eurosystem are understood along the lines of the schemes of "flexible integration".

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The recurrent European debate about whether multiple-speed convergence towards union objectives is possible and desirable does help illustrate the complementarity between global and regional common good. One extreme position in the European debate draws on the view of a unified constitutional state, for which variable geometry is impossible. The other extreme position calls for a set of contractual arrangements, where common institutions are undesirable. From the beginning, the European Community attempted to transcend the rigid intergovernmental nature of the OECD or of the G-7 (which does not even have a permanent secretariat) in the direction of supranational institutions like the EC. But the convergence stopped far short of establishing Community-wide democratic legitimacy. As a consequence, the institutional framework became more and more complex, especially after a Union with three pillars, the Community and two intergovernmental ones was created in the 1992 Maastricht Treaty. In the process, flexibility was lost and this is why the debate about multiple-speed convergence towards union objectives has resurfaced. Another reason is, of course, the imminent enlargement.

The manifestations of flexible integration are consistent with the operation of the principle of proximity (or subsidiarity) mentioned at the outset, according to which further decentralisation is acceptable and desirable. Indeed, CEPR (1996, p. 65) mentions a generalised subsidiarity principle, where decentralisation can go towards groups of states, rather than local and regional bodies within each state. Proximity suggests governance responses at the appropriate level, through the combined action of elected officials and civil society (including business). The common good may thus be provided by regional institutions, as long as the various levels of government are appropriately combined. For these reasons schemas of flexible integration have been proposed, where the principle of proximity is generalised from geography to issue areas. Along the same lines Kolliker (2001) shows that this generalisation depends on the characteristics of the public good being provided. When there are network externalities with exclusion benefits, as is the case with the Eurosystem (also Schengen), then such flexible integration has a “snowballing effect” which may lead initially reluctant states to join in. When there are no exclusion benefits but rather free ride problems, flexible integration does not lead initially reluctant states to join in. This has been observed with respect to common resources (tax or otherwise).

For certain public goods, then, flexible integration recognises national legitimacy and democratic accountability at national level. It also stresses the role of external pressure in bringing about structural reforms resisted by the operation of domestic-vested interests through yardstick competition, as discussed above.

Flexible integration also stresses the portability of the European experience to countries in different stages of economic and financial development. It may thus facilitate enlargement and a more coherent development policy, in line with the Monterrey Declaration.

Comparability, visibility and some presence in the media would be a way of going around the excessive perception of risk in Africa. And the spread of African risk-sharing institutions, together with rating agencies and the diaspora, will also contribute to earn credibility abroad.

While each MSF serves a particular purpose, the ownership by the country is least in the

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IMF, whereas the EU is most predicated on the common goal of integration. The mutual surveillance by OECD has the greatest diversity, from overall economic policy to structural and sectoral issues in health, education, corporate governance etc. The EDRC and the Development Assistance Committee (DAC), for example, have different mechanisms, which apply to the different objectives and the different mandates of the respective committees (OECD 2002a). This diversity of models relates to the different mandates and the different degrees of commitment from soft co-ordination to mutual help.

The idea for peer review in NEPAD includes both economic management and political governance. It should be borne in mind in this connection that the lack of data is a major barrier to assisting with policy formulation in Africa; in the European Union Treaty, the one area where subsidiarity does not apply is the compilation of data – it had been recognised that unless there was agreement on the facts under consideration it would not be possible to move discussion on to the next stage. The challenge is therefore how to apply OECD methods when the data are poor.

Peer pressure may hurt good governance when indicators are not supported by data and analytical knowledge on the issues. The importance of comparable data is crucial to peer pressure, otherwise wrong conclusions could be reached. This is why the IMF has provided information to feed peer pressure in a regional context such as that which has taken place among Latin American finance ministers (notably in the context of the Brazil crisis); ASEAN finance ministers and ASEAN + 3 (China, Japan, Korea) also called the Chang Mai initiative which has held to several meetings of Finance Ministers the last under Slovene presidency.

The regional framework is promising as peer pressure is more naturally organised among smaller groups than in the context of global institutions. In the NEPAD context, the principle of self selection should help set initial standards that would not compromise the credibility of the exercise. In effect, many of the available governance indicators are very arbitrary and their use could damage peer pressure instead of promoting it. Actually, the unavailability of data and inadequate analysis are not the only reasons for the danger of available governance indicators damaging instead of promoting peer pressure. There is a third danger, which pertains to culture. The culture of sharing is in Africa's cultural inheritance, and it should be taken into account. The example that is very clear here is the role of the family. Institutions such as the family are very different in different parts of the world. We have to find a way of incorporating them in the new development paradigm coming from Monterrey.

Greater attention to data, analysis and culture is therefore imperative for peer pressure to be effective at the national, regional and continental levels. The link of the NEPAD to the newly created African Union is yet another way of looking at the link between regional and global issues which is the essence of the Monterrey consensus and perhaps of a new development paradigm. The global applicability of the European experience to the search for the "common good" hinges on the European Union being a community of nation-states. This may be enough justification for the emphasis on the EU MSF, which, in turn, derives from a particular institutional architecture.

The emphasis on security after 9/11 has brought back hierarchy, even among like-minded

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countries, but also the “globalisation of solidarity”. The importance of legitimacy is certain but multilateral surveillance frameworks also require efficiency and this can only be achieved through flexible schemas: a single MSF does not apply to diverse circumstances and the credibility of the African one has been challenge by its slow progress (Kanbur 2004).

With respect to knowledge and data, a joint report by OECD Development Centre and African Development Bank began in 2001 thanks to grant from European Commission. Since 2002/2003 the message has been that economic challenges are rooted in domestic governance rather than on external factors. Monterrey Consensus explicitly acknowledges the role of good governance and peer pressure. NEPAD does the same as it based on the twin concepts of ownership and partnership, whereby Africans themselves are in charge with the support of their development partners. Whilst convening the African Partnership Forum is relevant for NEPAD, which has led to a new dialogue between African leaders and their development partners and to a new impetus for African integration. The key may be whether pressure for appropriate policies has increased enough and stronger commitments have been made in connection with sustainable development and social and economic programs as a consequence of APRM19.

The effectiveness and credibility of the APRM can be called into question because it does not meet the three criteria of competence, independence and competition. To begin with, technical competence is essential. Academic peer review relies on the competence, authority and reputation of journal referees and editors. The OECD secretariat is central to the functioning of its peer reviews. The IMF is criticized more when it steps outside of its basic competence in macroeconomics. Second, independence. Any suggestion of influence on the reviewers, either from those reviewed or from forces extraneous to the review, would undermine the integrity of the review. In academic review, anonymity assures this independence, as well as the professional stature of the reviewers and editors. OECD peer reviews explicitly include a political phase where the reports and their conclusions are discussed, and negotiated, but there is independence of the technical work. The IMF’s independence from the interests of its major stakeholders is widely questioned by governments and civil society in poor countries. Third, competition. Peer review mechanisms work best when they are part of a wide range of assessments. When a review is perceived to be the “only game in town”, the high stakes set up a dynamic of pressures that can undermine trust. There are many academic journals to which authors rejected from one journal can take their paper; OECD peer reviews feed into a rich and ongoing policy dialogue and debate in the reviewed country; IMF reviews work like OECD reviews in rich countries not using IMF resources, but not so in poor countries dependent on them.

III. PUBLIC-PRIVATE PARTNERSHIP FOR DEVELOPMENT

1. Knowledge-based public-private partnership

19 These meetings of Ministers for Science and Technology are usual in the EU especially after the creation

of the European Research Area, enhanced in the 7th framework program for Science and Technology. AU-NEPAD Ministers for Science and Technology also meet regularly.

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Because the development paradigm based on partnership, knowledge and “ownership” coming from the Monterrey declaration has not yet been implemented, the concept of knowledge-based public-private partnership for development has remained devoid of practical application. It was introduced in the Monterrey declaration as a reflection of the new paradigm for development, which attempts to combine national ownership of policies and mutual accountability among development partners through mechanisms of peer review.

As private initiative is able to produce in greater quantity and at higher quality than a public authority, a private component should be introduced into the provision of public goods whenever the resulting governance solution can be enforced. This in turn will depend on both the characteristics of the specific goods under consideration and the social environment. Already in the 16th century, French public authorities envisioned the use of private entities to perform a public service, but the international trend of privatisation and deregulation that began in the 1980s led to a redefinition of the role of public and private actors and consequently to a renewal of the discussions on partnerships between them.

Indeed, public sector is not synonymous with government: a firm has the capacity to outperform local and regional authorities both within and between states. A sizable proportion of the public goods and services display distinctly local-level characteristics, and in practice, are supplied by local and regional authorities. The move towards decentralization has served to increase this proportion. The major public service supply groups tend to be much larger than their client local authorities. Furthermore, these major groups pursue export-related activities, which contribute to their expansion while reducing their average costs.

Prud’homme (2000) lists four criteria according to which private involvement in a public service should rise and assigns scores to various sectors based on these criteria. First, those goods and services relying most heavily on infrastructure and therefore most capital intensive prove to be the most suitable candidates for a partnership. Second, more technically oriented services readily accommodate greater levels of private sector involvement. Third, as it becomes easier to set rates for a public good or service and to collect the corresponding fees, greater private sector involvement in the provision process is also easier to introduce. Fourth, the size of local zone is an indicator of the economies of scale potentially realized by the private sector.

In terms of sectors, telecommunications, electric power, water supply, sanitation, street lighting, ground transportation, urban transit and sports and recreation received the largest scores on the infrastructure magnitude. These, together with air transport, are also technologically complex sectors, so that there is scope for considerable private involvement in the supply side. In terms of the ease of fee collection, the ranking is similar for utilities, with the greatest score attached to telecommunications, electric power, water supply and transportation – whereas in urban transit it is quite low. On the size of local zone, however, urban transit scores highest, together with water supply, sanitation, street lighting and recreation, whereas the score varies for telecommunications and electric power. The overall picture is mixed but the cases remain strong in telecommunications, electric power and water supply, followed by transportation, urban transit, sanitation and recreation.

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Knowledge-based public-private partnerships need not belong to specific sectors, however. Technological complexity is inseparable from research and, while fundamental research is global, applied research is often carried out by small and medium enterprises. Unlike national defence, fundamental research can be laid out within an international framework; for example the research and development framework programmes of the EU. On the contrary, street lighting, sanitation, water supply or urban transit remain local in scope. A service lends itself more readily to private intervention as its scope of activity becomes more locally dominated. A service’s spatial dimension entails a technical and jurisdictional focus. The private sector’s advantage tends to be stronger over smaller local - or regional - level authorities than over large-scale or State-level authorities.

A balance is needed between economic policy regimes that give a dominant role to the public or the private sector in the processes of allocation of resources, production, regulation, and distribution of public and social goods. The private sector may be more efficient, but in some crucial activities there exist “market failures” that require public intervention. In industrial economies, sectors where partnerships thrive represent approximately 20% of the GDP and include the main sectors mentioned above, aside from education and social security.

Partnerships between the public sector and civil society also strengthen social dialogue. In this context, civil society is composed by the private sector and by associations, trade unions, non governmental organisations, and pressure groups of various kinds. As such, partnerships help define the common good and their domain impacts on governance institutions. Although partnerships seem to fit better in low income and post conflict countries, developed economies also use this tool for negotiations regarding matters of public interest.

There is of course a complex interaction between these efficiency and the social dimensions of public-private partnerships. For example, identifying market failures and determining the degree of public intervention requires both levels of partnerships to promote an optimal environment for the proper functioning of markets. According to countries’ level of economic development and social conflict, the application of partnerships varies. In industrial economies, partnerships are mostly applied in a sectoral manner and prevail in the delivery of collective utilities.

Social dialogue also reflects the regulatory needs in specific markets. In low income countries, social dialogue is fundamental for sustainability of policies through social acceptance and ownership. Their use in promoting dialogue and mutual understanding between public and private partners has also led to positive outcomes in post-conflict countries. However, the current divestiture of the public sector in the developing world has called for the need to set up sectoral partnerships.

Trust between social and economic partners, an environment favourable to business development, and better co-ordination between development finance institutions may all contribute to positive governance responses. As such, they also help translate the MDG into national and global policy proposals as required by the eighth goal, which features targets for aid, trade and debt relief. In this context, public-private partnerships become an important instrument in creating an environment favourable to the normal functioning of business and the attraction of investment, an essential element in generating

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employment and creating wealth. To the extent that they broaden the knowledge base for policy dialogue between business and the public sector (points 24 and 25 of the Monterrey Declaration), public-private partnerships help to define the common good and the best ways to bring it about in each country.

The longer-term objective of public-private partnerships is to improve the environment for the domestic private sector and to build confidence and trust between partners, including the providers of finance for development. The concept is applicable to a wide range of countries wishing to respond to the challenges of good governance and to develop the private sector. Experience has shown that the transition tends to be rather slow from the usual adversarial relation between the public and private sectors to the desired partnership relationship in search of the common good and the best forms of attaining it.

Social dialogue has proven to be a successful investment in the progressive building of trust relationships between agents of the public and private sectors. For this to occur, the data and information that serves as a basis for such dialogue should be locally developed and not provided by external sources, so that the local public and private sectors can feel a sense of “ownership” of the information they use in their deliberations and decisions. The advantages of “ownership” do not override the need for the policies to have technical and economic merit. Only in this way will developing economies be able to attract the external public and private, bilateral and multilateral, resources that are indispensable for the national effort to be successful.

It is expected that public-private partnerships will lead to a closer and more effective communication between the public and private sectors. Experience shows that by participating jointly in working groups, seminars and conferences organised to discuss matters of common interest, both sectors gain a better appreciation of the concerns and interests of the other party. Over time, the initial defensive and adversarial positions give way to a partnership between different agents concerned with achieving a common objective. In addition to the process, outputs may include a composite indicator of economic activity that all economic agents may utilise to assess cyclical perspectives and innovative forms of financing that allow more firms to take advantage of positive prospects while smoothing the impact of bad times. The aim is to facilitate dialogue between national agents and to provide locally produced economic information to foreign investors and other partners.

This broadening of the knowledge base will in turn promote the adaptive capacity of society as a whole, a key to fast growth. The success of any public-private partnership will naturally depend on the preparation and motivation of each party. The better organised and prepared is the private sector, the more easily it can take coherent positions and contribute positively to discussions and to decision taking. Similarly, a local private sector that is well-organised and technically competent can more easily be an effective partner to foreign investors, avoiding foreign capture of all good investment opportunities. The provision of technical assistance in the context of a public-private partnership can thus help private sector associations to mature or, at very least, to point out the major shortcomings and indicate where assistance could most profitably be applied

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The public private partnerships described in the next sections have been used in promoting dialogue through the construction of cyclical indicators and the design of innovative sources of financing. Just like the interactions of the OECD Committees with the BIAC and the Trade Union Advisory Committee foster social dialogue and co-operation between the public authorities and the private sector in OECD Member countries, it has been found that broadening the knowledge base available to business associations in developing countries helps build local capacity to adapt to the changing global and regional environment.

2. OECD lessons for CPLP

2.1. Roots of mutual knowledge

OECD-NEPAD collaboration has involved discussing development effectiveness and improved aid management. The experience of the OECD with public-private partnerships for development has been part of the collaboration with the secretariat of the NEPAD, but it has also included countries in Asia. Quoting from OECD (2003, p. 52), “In response to a proposal from Brazil, externally funded work on the Portuguese-speaking countries was agreed on by the Advisory Board in the context of the Centre’s activities concerning the poorest countries”. Activities involved Angola, Cape Verde, Mozambique and Timor Leste and a public-private partnership was initiated in the Democratic Republic of Congo.

The complementarity between regional and global surveillance is a good example of the Monterrey consensus, which is reflected in the African Economic Outlook, a joint report prepared since 2001 with the African Development Bank (OECD 2008), which presents consistent country chapters covering macroeconomic and structural developments in a selection of countries which are not in conflict. The launch of this report successively brought to the OECD headquarters two ruling African heads of state, the presidents of Senegal and Mozambique (OECD 2003, p. 49-50).

The issues chosen for public-private partnership must be of interest to specific actors in the country. Both the “Monterrey consensus” (including the Zedillo report) and the NEPAD have stressed the importance of finance for development at both macro and micro levels (OECD 2003, p. 11-12). As a consequence, there is strong institutional support for designing instruments capable of improving conditions under which local entrepreneurs have access to credit and capital. These encompass propositions seeking to provide stable financing at low cost for large-scale projects, relying on institutions with access to regional and international capital markets. Improved access to more diversified sources of financing makes it possible for private equity and debt instruments to emerge in developing countries.

The unavailability of funds and the lack of medium term exit into public securities market limits the application to low income countries of schemes seeking to stimulate equity financing and encourage private investment in target sectors ranging from agriculture to highly innovative areas. This is why multilateral financial institutions (like the African Development Bank) should catalyse private capitals inflows through financing schemes that include risk guarantees, co-financing, exports credits, venture capital and other lending instruments. Issues relating to privatisation and institutional failures restrict such

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financing schemes to large-scale infrastructure projects, where the concept of public private partnership originates, and even there within tight limits.

As for micro-credit schemes attempting to reach the poorest sectors of the population, they are often divorced from the financial sector and their operation faces stronger obstacles in limiting financial exclusion without excessive transactions costs. A number of countries, most recently Brazil, have tried to promote such schemes domestically but few schemes in Africa have delivered results that could be comparable to those, say, in Pakistan. In this regard, raising awareness about the potential benefits of guarantee funds and micro-credit schemes is a necessary task in developing countries as well as among donors. One way of doing that is to design them in a public-private partnerships.

With respect to indicators of economic activity, their aim is to facilitate dialogue between national agents and to provide locally produced economic information to foreign investors and other partners. They help predict business cycles and improve transparency between local stakeholders. A better monitoring of business cycles helps decision-making of entrepreneurs and regulators, in the real and financial sectors. Usual in OECD countries, where it is supplemented by leading indicators and business surveys, in the African continent it was available only in South Africa when work on Mozambique began in August 2001 and benefited from help from the Economics and Statistics Directorates. The indicator was supposed to be hosted by the Mozambique Industrial Association and the governments of Ghana, Tanzania and Angola expressed interest in constructing similar indices but suitable private sector organisations were not found in these countries.

The principal objectives of the seminars convened by local business associations and the government in Maputo and Kinshasa were to improve the business environment and to assist private sector development. These meetings gathered high level official authorities, representatives from the local private sector and from international organizations. They have fostered co-operation between public authorities and the private sector in partnership enforcement, sustainable development, financing for development and the complementarities between official aid flows and private investment.

Quoting again from OECD (2003, p. 52): “Since the majority of very poor countries is to be found in Africa, and considering the theme of the 2001-2002 work programme, an initial study of the interaction between governance and development was undertaken in the Cape Verde Republic (Lourenço and Foy, 2003)”. The study recognises the remarkable performances achieved in political, economic and social perspectives. Despite its paucity in resources, the country’s levels of education and health services, and general security, are among the highest in Africa and the use that is made of external assistance and of private remittances has impressed donors. However, the private sector consists of micro and small enterprises with low job-creating capacity, providing a narrow tax base. Establishing partnerships between national and local government, the private sector and civil society, namely associations of emigrants, should promote the creation of new enterprises and employment. This would in turn help the reform of public administration and the fight against corruption. Such public-private partnership could try to exploit a strategic geographic position between the African, European and American continents in attracting other investment, of interest to the Cabo Verde diaspora world-wide.

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2.2 Social dialogue in Mozambique

Trust is essential to putting in place efficient mechanisms of participatory governance in developing countries. Although formalised public/private policy dialogue has existed for almost a decade in Mozambique, relations between business and government remained adversarial. Inadequate data was part of the problem: until recently, an up-to-date statistical base covering elements such as quarterly GDP, or quarterly or monthly industrial output, and acknowledged by both the public and private sectors as an adequate account of the state and evolution of the Mozambican economy did not exist.

The Mozambique public-private partnership pilot project was designed in order to fill this gap and culminated with a seminar in Maputo in October 2002 designed to secure: (i) a good flow of information between the private and public sectors, (ii) a mechanism for policy coherence and transparency and (iii) a regular assessment of the public-private sector dialogue. The Maputo seminar included the first estimates of a composite indicator of economic activity were presented, so as to predict business cycles, facilitate dialogue between national agents and provide locally produced economic information to national and foreign private investors. Usual in OECD countries, where it is supplemented by leading indicators and business surveys, that type of indicator was available only in South Africa when work on Mozambique began in August 2001.

According to Tibana (2003), “this dialogue between the government and the business community in Mozambique started in the mid-1980s as the country embarked on a free market economy after a decade of socialist experimentation. The partners eventually recognized the value of transparency in policy dialogue, but tools of knowledge were (and still are) scarce, as both private and public institutions of economic analysis and forecasting are either very weak of non-existent. The willingness to make the policy dialogue more fruitful to public-private partnership in development and the support of a leading international organization with reputation for independence and technical expertise (the OECD) has paved the way to the development of one particularly useful tool of knowledge”.

The indicator for Mozambique has allowed a better measure of the spillovers of the South African business cycle than a comparison of annual output growth rates, when they become available a couple of years later, but nevertheless subject to sometimes drastic revisions. While output growth rates display no correlation, the Mozambique business cycle indicator moves together with the South African coincident indicator lagged twelve months. The potential evidence on the linkages between the economies of Mozambique and South Africa would suggest that the South African indicator could be a useful statistical leading indicator to Mozambique’s. Both the implications for the analysis of linkages, and the usefulness of the South African indicator as a leading indicator to Mozambique’s are being explored for their importance for policy making and assessment of economic performance in Mozambique.

The growing interest of Sub-Sahara African private business organizations and governments towards composite cyclical indicators opens a scope for the enhancement of the steps towards, and the development of the tools for, the implementation of the peer review process envisaged under NEPAD. Alongside the maintenance and improvement of the Mozambique Indicator and an analysis of its relationship with South African

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business cycles indicators, developing and maintaining this type of indicators to other countries in the SADC region seemed within reach.

At the Maputo seminar, Santos described innovative financing methods based on the experience of loan schemes used in reactivating and stimulating the rural economy and micro, small and medium enterprises. The emergency fund implemented by USAID for the victims of the 2000 floods and surveys of the cotton and cashew nuts sectors were also presented as background, as detailed in Mantero and Santos (2002). The main conclusion of the seminar was that social dialogue based on a deeper and broader knowledge of the economy would help to improve the competitiveness of the private sector and the living conditions of the population.

2.3. Post-conflict transition in the Democratic Republic of Congo

Building on the Mozambique project, the public-private partnership on Congo was presented at a seminar in Kinshasa in April 2003. The Kinshasa seminar focused on innovative sources of financing in post-conflict situations. The initial presentation of OECD (2003a) was followed by del Castillo (2003), thus covering economic policy in a post conflict situation. Frix and Kinzonzi (2002) revived the proposal they had made at the session on strategies and instruments required to reinforce the co-operation and the partnership between public and private sectors at the DAC Partnership Forum. This involves creating an “International Investment Fund for Congo’s Reconstruction (FIRC from the French acronym)” through the conversion of part of the external debt through the enhanced HIPC initiative and the transfer to it of the ownership of potentially profitable public state-owned companies. As with other innovative forms of financing, this fund should be capable of avoiding two frequent dangers of privatisation in Africa, described in the 2003 African Economic Outlook. First, a hasty process that does not take into consideration the interests of the State and that replaces public monopolies by private ones. Second, a process that is far too slow. This excessive gradualism has been due to strong resistance to change from some of the current stakeholders, which do not wish to loose any privileges, even if the State’s portfolio risks becoming increasingly dilapidated.

Santos (2003) reviewed the development of the microfinance sector in post-conflict situation. In line with observations in post-conflict Mozambique or in El Salvador, he found technical assistance to be fundamental in order to secure better management practices among micro and small entrepreneurs in Congo. In order to reduce the additional direct and indirect costs in providing training services to clients of microfinance institutions he suggests partnerships with public institutions and with donors for the establishment of training centres, leveraging on existing management schools. This would isolate financial services from capacity building and the best and the worst performing microfinance institutions in the market would become simpler to identify. Public-private partnerships may also help maximizing the potential of credit since such partnership may constitute a valuable contact of authorities with the semi-formal and informal private sector, which accounts for such a large part of employment and where good policy making may have strong impact on supporting the most vulnerable and destitute. Public authorities and associations of microfinance institutions may also try to improve transparency of operations and, using international microfinance rating agencies, promote quality.

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The Kinshasa seminar concluded that greater visibility for public-private partnerships could emerge from a joint post-conflict strategy by the government and business associations. After the seminar, a local follow-up committee was established but did not manage to design the post-conflict strategy in the dialogue framework set up between the government and the private sector, let alone co-operation with international donors to finance a feasibility study for the FIRC.

III GLOBAL LUSOFONIA

1. The economic and business dimension

Established in 1996, after a long gestation period, CPLP remains ignored in the policies of its eight member states, because of their own fragility, because of its lack of public recognition, or both. The absence of CPLP in the international development community, in relation to say the Commonwealth or the Francophonie (French-speaking), is visible even in the corresponding expression lusofonia which continues to be divisive20. In spite of its European headquarters and of the decisive contribution of Brazilian diplomats not only for its creation but also in the remarkable joint presidency of the secretariat and of the council in 2003/2004, CPLP is (like Portugal as a tourist destination in the early 1970s) a well kept secret of culture based multilateralism, or of “the mutual friendship among peoples” to quote the CPLP treaty. In addition to this cultural basis, both of the two more advanced members feared that an economic dimension would trigger expectations of larger development assistance towards the five African states. This is why plans for a business council were not drawn until 2003 and its visibility has been even smaller than that of the intergovernmental body21.

Figure 7 shows the GDP shares of the four larger CPLP countries in 1950, 1977 and 2003 using Maddison’s estimates and notes that the combined share of the four others is never greater than 25 basis points. Except for Brazil, the maximum share is precisely 1950, with Portugal at 15%, Mozambique at 6% and Angola at 4%. In 1977 the share falls to 14% and remains roughly constant thereafter. Clearly all CPLP averages are dominated by Brazil, like the US dominates NAFTA, the difference being that the US share has declined from 90% in 1950 to 85% in 2001, whereas the share of Brazil rose from 75% in 1950 to 85% in 2003. Figure 8 shows the GDP per capita of Portugal, CPLP and world averages from 1950 until 2013, using the forecasts from the latest World Economic Outlook. There it is clear that the most impressive growth rate in CPLP has been Portugal’s and that CPLP overall has grown slower than the world average. To illustrate the geographical dispersion of CPLP member states, Figure 9 illustrates the average distance between capitals or main city.

Following the emphasis on the MDG at the Bissau Summit in 2006, which marked the 10th anniversary of the CPLP, the VII Summit was held in Lisbon, at the beginning of the two year Portuguese presidency with the theme “The Portuguese language, a common

20 For example, a meeting of ministers of culture in Luanda, Angola 2005 made May 5th the “day of CPLP culture”, which has become known as “day of lusophone culture”, probably because there is no better expression as Almeida (2008) stresses. Macedo (1995, quoted in 2008b) refers to the ambiguity between European and lusophone allegiances.

21 The Business Council of CPLP was established in 2004 largely thanks to the commitment of Brazil in

turning CPLP into a business friendly organization. Macedo (2008a) presents evidence.

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language a global future”. The objective of the Lisbon declaration is to spread the international use of Portuguese. Unlike organizations based on language (Commonwealth, Francophonie, Lusofonia), the Ibero-American Summit, which began in 1991 in Mexico is based on culture. The Secretariat (SECIB) established in Madrid in 1999 became an international organization called Secretaría General Iberoamericana (SEGIB) at the Salamanca Summit, where various issues relating to the Millennium Development Goals were addressed. The Summits managed to attract international attention22.

Stressing the contribution CPLP can make to the global partnership on development implies the identification of issue-areas where Brazil, Portugal, PALOP and Timor Leste can have the common views. So far the single example is the Bissau declaration on the MDGs, approved in 2006 insofar as it brings out the role of “mutual knowledge” in global development.

The complementarity between the national and regional common good and its implications for the complementarity between regional and global surveillance were noted: Portugal and Brazil stand to gain from contributing to the integration of the other six CPLP members in the world economic system and Cape Verde’s graduation from least developed country status is one example of the potential of global lusofonia.

It is worth recalling that, in accordance with a decision taken at the Maputo Summit in July 2000, the first CPLP Business Forum was held in Lisbon in June 2002 and decided to set up a Business Council, with a permanent secretariat at ELO, the Portuguese Association for Economic Development and Cooperation. The objectives for the Business Council were listed at the Brasilia Summit in July 2002. They were: (i) to enhance capacity building of business associations in member countries as well as to promote cooperation between them; (ii) to create a business network in the regions where enterprises operate; (iii) to encourage strategic partnerships; (iv) to promote innovative financing methods, and (v) to support local private sectors in the public-private dialogue.

Progress towards meeting these objectives was reviewed at the second Business Forum, held in Fortaleza, Brazil in June 2003 after the Brazil-Africa Forum. At the VIII Council of Ministers of the CPLP, it was decided that the Business Council should begin operation in 2004 and that the next Business Forum was held in Cabo Verde. The final communiqué also stated that CPLP Ministers welcomed the collaboration with OECD in the framework of NEPAD and encouraged further initiatives along the same lines. Similar encouragement was voiced with respect to UNESCO and the UN World Food Programme, also represented at the ministerial.

In this regard the presentation of OECD work at the first Forum for Economic and Trade Cooperation between China and Portuguese-Speaking Countries (Macau) provided a good precedent for greater visibility of CPLP and convinced the national authorities present, especially the host country, that peer review mechanisms help improve the

22 During the 17th Summit in Chile, the president of Venezuela repeatedly called a former Prime Minister

of Spain “fascist” and tried to interrupt the current one when the King interjected “why don’t you shut up?” (¿Por qué no te callas?). The 18th summit, dedicated to youth and development will take place in El Salvador in October 2008 and Portugal offered to host the 19th, as stated in the communiqué of the 22nd

Luso-Spanish Summit held in 2005. '

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governance response to globalisation and signal the rising financial reputation of emerging markets.

2. The report on the MDG

The Bissau declaration aims at monitoring progress with respect to reaching MDG, especially 1 through 6, seen as implying MDG 7, sustainable development. The declaration also emphasizes that the underlying philosophy is one of “genuine partnership for development, n which donor and recipient countries act with the commitment to reach the goals established by the Millennium Declaration”, in other words the 8th MDG.

In spite of their deficiencies, pointed out by Arndt and Oman (2006), the governance indicators of the World Bank Institute have been widely used in the allocation of Official Development Assistance (ODA). Table 8 reports six usual ones, relating to freedom and accountability (FREE), stability and absence of violence (STAB), government efficiency (EFFIC), quality of regulation (QUAL REG), quality of justice (JUSTICE) and control of corruption (CORRUP). Data are centered in zero and fitted to a normal curve so that very few values will be larger than 2,5 in absolute value. The good performance of Cabo Verde is the most strikingf feature of the Table. Besides ODA, these indicators have also been used to evaluate “fragile states” in a report to the US Congress prepared by the Center for Global Development, (a Washington um think-tank) in a perspective that is not far from that of the Millennium Challenge Account . The 6 CPLP countries classified in this report are less stable and efficient than the average but more legitimate. This seems to reinforce the role of CPLP, even though such greater legitimacy cannot be ascribed to the political and diplomatic dialogue carried out by CPLP in some of these countries. Mutual knowledge surely accrued in the process even though it is difficult to quantify.

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Table 1 Dominance matrix

US (NA) EU EAST ASIA ROW Defense YES YES NO NO

Finance YES YES NO NO

Trade NO YES YES NO

Land YES NO YES YES

Table 2 Regional T & F Openness

EA EA EU EU NA NA

1996 2006 1996 2006 1996 2006

Fgn trade 18 32 15 20 13 16

Fgn assets + liab 53 104 85 136 98 147

Trade %Finance 34 30 18 14 14 10 [*] Intra-regional trade excluded; [**] Intra-regional foreign asset holdings and liabilities excluded; data available only until 2004; Source: Cohen-Setton and Pisani-Ferry (2008)

Table 3 Number of bankrupcies

1501-1800 1801-1900 Spain 6 13

France 8 n.d.

Portugal 1 6

Germany 1 6

Reinhart, Rogoff, Savastano (2005)

Table 4 Freedoms and Globalization

(Row on Column) Tradeopen Kapcontrol PRCL Political rights, civil liberties 0.4 -0.03

Distance 1.4 -0.7 2.3

Tradeopen n.s

Kapcontrol -2.0

Source: MMP

37

Table 5 World share of East, West and South

Asia (incl JA, SU, TU) EU+WO AFLA

GDP POP GDP POP GDPb POP

1 68% 76% 23% 14% 9% 10%

1000 70% 71% 16% 13% 15% 16%

1500 60% 69% 30% 17% 10% 15%

1700 57% 71% 36% 17% 8% 12%

1820 55% 73% 40% 17% 6% 9%

1913 33% 63% 59% 25% 7% 12%

1950 28% 61% 60% 23% 12% 15%

2003 44% 64% 45% 14% 11% 22%

Source: Maddison website revised from IICT (2007a)

Table 6 Population and output indicators in CPLP

2003 POP03 GDP/POP 2006 POP06 GDP/POP

A 13,2 15 880 43,8 15,9 2752

B 492,3 181,4 2714 1067,6- 190 5619

CV 0,8 0,5 1600 1,2 0,4 2712

GB 0,2 1,5 133 0,3 1,5 207

M 4,3 19,1 225 7,3 19,8 368

P 147,9 10,4 14221 194,9 10,6 18390

STP 0,1 0,1 1000 0,1 0,2 397

TL 0,3 0,8 375 1

Source: IICT (2007a, Annex 3) with data reported in CPLP (2007) Table 7 Governance indicators in fragile states Total % CPLP %

Civil War 16 52% A/GB 67%

Conflict 7 23% TL 33%

Minor Conflict 8 26% 0%

Stability 31 100% 100%

Top 20% 14 19% 0%

80 15 21% M 20%

60 15 21% CV/STP 40%

40 15 21% A 20%

Bottom 20% 14 19% GB 20%

Capacity 73 100% 100%

Top 20% 15 21% CV/TL/STP 50%

80 14 19% M 17%

60 15 21% GB 17%

40 14 19% 0%

Bottom 20% 14 19% A 17%

Legitimacy 72 100% 100%

Source: IICT (2007a, Annex 3) with data from Weinstein et al (2004)

38

Table 8 Governance Indicators in CPLP

FREE

RESP

STAB

ABS VI

EFFIC

GOV

QUAL

REG JUSTICE CORRUP AVERAGE

A -1,4 -1,6 -1,2 -1,3 -1,6 -1,1 -1,4

B 0,3 0,2 -0,2 0,3 -0,3 0 0,1

CV 0,4 0,8 -0,2 -0,2 0,2 0,3 0,2

GB -0,7 -0,5 -1,4 -0,9 -1 -0,6 -0,9

M -0,3 0,5 -0,4 -0,6 -0,7 -1 -0,4

P 1,3 1,4 1 1,5 1,3 1,3 1,3

STP 0,5 0,6 -0,6 -0,3 -0,5 -0,2 -0,1

TL 0,2 -0,9 -0,8 -1,3 -1,1 -0,5 -0,7

Source: IICT (2007a, Annex 3) with data from World Bank Institute reported in Macedo (2004) Table 9 Governance indicators in CPLP countries (compared to benchmark)

FREE

RESP STAB

ABS VI

EFFIC

GOV QUAL REG JUSTICE CORRUP

Brazil

(BRIC)

Angola (SSA)

Cape Verde

(SSA)

Guinea-Bissau (SSA)

Mozambique

(SSA)

S. Tomé e Prínc (SSA)

Timor-Leste

(Ásia-Pacific)

Portugal

(EU)

Note: Blue above, Green below; Source: IICT (2007a)

39

Table 9 Governance indicators in CPLP countries (evolution since 2000)

FREE

RESP STAB

ABS VI

EFFIC

GOV QUAL

REG JUSTICE CORRUP

Brazil

(BRIC)

Angola (SSA)

Cape Verde

(SSA)

Guinea-Bissau (SSA)

Mozambique

(SSA)

S. Tomé e Prínc (SSA)

Timor-Leste

(Ásia-Pacific)

Portugal

(EU)

Yellow: ∆P>0&> ∆R; Blue: ∆P>0&< ∆R; Green : ∆P<0&> ∆R; Black : ∆P<0&< ∆R

Table 10 Indicators of Economic Freedom

Business Investment Financing Tax policy Government

Spending

Monetary

Policy

Brazil

Angola

Cape Verde

Guinea-Bissau

Mozambique

Portugal

Source : IICT (2007) with data from Heritage Foundation and Wall Street JournalAnnex

40

Figure 1: First slide of presentation of IICT (2007a) at Development Days

Figure 2 Cover of CPLP (2007)

Figure 3 Freedoms and Globalization

Cumprir Bissau Relatório do IICT sobre ODM/CPLP

Jorge Braga de Macedo (coordenador), Luís Brites Pereira, João Tovar Jalles, Joaquim Pina

5 de Junho, 2008 – Centro de Congressos de Lisboa:

“Dias do Desenvolvimento”

41

Figure 4 Africa and PALOP (dotted) GDP per capita % world average

15%

20%

25%

30%

35%

40%

45%

50%

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000

Figure 5 Sub-Saharan Africa and PALOP (dotted) GDP per capita in 1990K$ 1950-2006

Legend: Strong link Weaker link

Distance

Tradeopen kcontrol

Freedom

42

0,8

0,9

1,0

1,1

1,2

1,3

1,4

1,5

1,6

1,7

1,8

1950

1952

1954

1956

1958

1960

1962

1964

1966

1968

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

Source: Maddison and WEO

Figure 6 West, South % Sub-Saharan Africa; SSA % Africa GDP

62%

64%

66%

68%

70%

72%

74%

76%

78%

SSA/SUM S+W/SSA

FIRST OIL CRISIS

SECOND OIL CRISIS

APARTHEID ENDS

SADC ECOWAS

43

Figure 8 GDP 1990$ shares in larger CPLP countries in 1950 (max year, 1977, 2006, combined share of others <0,25%)

Brazil (75%, 85%, 85% )

Portugal (15%, 11%, 11%)

Mozambique (6%, 2%, 3%)Angola (4%, 1%, 1%)

Figure 7 Average distance between CPLP capitals or main city

5

6

7

8

9

10

11

12

13

14

STP AGO GNB CPV PRT MOZ BRA TMP

Source: CEPII

44

Figure 9 GDP per capita in 1990$ Portugal, CPLP and world average

1000

3000

5000

7000

9000

11000

13000

15000

1950

1955

1960

1965

1970

1975

1980

1985

1990

1995

2000

2005

2010

world

Portugal

CPLP

Source: Maddison and WEO

45