Five-Step Process For Sustainable Development Outlined

Five fundamental tasks lie at the core of every governments mission, without which sustainable, shared and poverty-reducing development is impossible. These include establishing a foundation of law, maintaining a non-distortionary policy environment including macroeconomic stability investing in basic social services and infrastructure, and protecting the vulnerable and the environment, says the World Development Report.

It is now evident that markets and governments are complementary: the state is essential for putting in place the appropriate institutional foundations for markets.

The governments credibility the predictability of its rules and policies and the consistency with which they are applied can be as important for attracting private investment as the content of these rules and policies.

 

A survey of local entrepreneurs in sixty nine countries shows that many states are performing their core functions poorly; they have failed to ensure law and order, protect property, and apply rules and policies predictably.

Investors do not consider such states credible, and growth and investment suffer as a consequence.

Firms were asked to rank each of several indicators on a scale from one (extreme problem) to six (no problem). Averaging the answers yields an overall indicator of the reliability of the institutional framework (normalised to the high-income OECD countries) as perceived by private entrepreneurs we call it credibility.

Once the differences in income and education and policy distortions have been controlled, there is a strong correlation between countries credibility ratings and their record of growth and investment.

The credibility ratings are based on investors perceptions. But it is these perceptions that determine investment behaviour.

High levels of crime and personal violence and an unpredictable judiciary combine to produce what the report defines as lawlessness syndrome. Weak and arbitrary state institutions often compound the problem with unpredictable, inconsistent behaviour.

Far from assisting the growth of markets, such actions squander the states credibility and hurt market development.