The Global Challenge Foundation’s New Shape Prize

Dr. Augusto Lopez-Claros spent six years as the director of the Global Indicators Group in DEC (Development Economics) with the World Bank in Washington, DC, directing a team of some 100 professionals within the Bank´s economic research infrastructure. While on sabbatical from his position with the World Bank at the Edmund Walsh School of Foreign Service at Georgetown University, Dr. Augusto Lopez-Claros was awarded the New Shape Prize by the Global Challenges Foundation in Sweden in recognition of his work on the proposal titled Global Governance and the Emergence of Global Institutions for the 21st Century.

The Global Challenges Foundation introduced the New Shape Prize in late 2016 as the most comprehensive competition of its kind, with an overriding goal of enhancing existing frameworks for global governance and global catastrophic risk. The Foundation felt strongly that the governance system that emerged in 1945 with the creation of the United Nations and its associated organizations was no longer fit for purpose. While, against the background of the Second World War, the founding of the United Nations was an important initiative in international cooperation, it was no longer adequate to meet the challenges of the 21st century, from climate change and its multiple consequences, to nuclear proliferation, rapid population growth, persistent poverty and growing income disparities, among many others. Finding sustainable and credible solutions to these problems would require a rethinking of the global order that has underpinned international relations during the past seven decades. The proposal by Dr. Lopez-Claros and his co-authors Arthur L. Dahl and Maja Groff presented a range of reforms to the UN system intended to turn the United Nations into a problem solving organization, at the center of a system of enhanced international cooperation, building on an impressive legacy of achievements (improving the normative framework for human rights, helping to avoid superpower conflict, assisting in the process of decolonization and conflict resolution and peacekeeping), while also proposing reforms to address some of its more serious flaws, such as improving its democratic legitimacy, phasing out the power of the veto in the Security Council, boosting its financial resources, among others.

The foundation solicited submissions for more than a year before convening in Stockholm, Sweden, in May of 2018 to present the competition winners at a three-day event. More than 2,700 entries were accepted as part of the competition and submitted to international expert panels, with proposals hailing from 122 countries. Submissions came from various sectors and industries, from academics in universities and researchers in private think tanks. The semi-final panel chose three winners from the 14 that were selected for final review. Winning proposals addressed subjects as diverse as AI-supported global governance and optimizing United Nations operations. A $1.8-million prize was split among the three chosen proposals. More information about these proposals and the future of the New Shape program can be found at www.globalchallenges.org.

Why corruption is a destroyer of human prosperity

As World Bank Director of the Global Indicators Group in DEC, Dr. Augusto Lopez-Claros has spent more than 30 years in the fields of public policy and economic research. Prior to his sabbatical from the World Bank, Dr. Augusto Lopez-Claros delivered a lecture at the George Washington University School of Business (GWSB) in 2017 on the topic of sustainable economic development and corruption.

In his lecture he pointed to some of the reasons why corruption is such a destroyer of human prosperity. He referred to empirical evidence showing that corruption undermines government revenue and, therefore, limits the ability of the government to invest in productivity-enhancing areas. Where corruption is endemic, individuals will view paying taxes as a questionable business proposition. When corruption is allowed to flourish, taxpayers will feel justified in finding creative ways to avoid paying taxes or, worse, become bribers themselves.

Second, there is solid evidence that the higher the level of corruption in a country, the larger the share of its economic activity that will go underground, beyond the reach of the tax authorities. Third, corruption discourages private-sector development and innovation and encourages inefficiency. Budding entrepreneurs with bright ideas will be intimidated by the bureaucratic obstacles, financial costs and psychological burdens of starting new business ventures and will either opt for taking their ideas to some other less corrupt country or, more likely, desist altogether. In either case, economic growth is adversely affected. Corruption lowers investment and, hence, economic growth.

Fourth, corruption has disturbing distributional implications. Empirical work shows that corruption actually contributes to worsening income distribution. By lowering economic growth, corruption perceptibly pushes up income inequality. It also distorts the tax system because the wealthy and powerful are able to use their connections to make sure that the tax system works in their favor.

Fifth, corruption creates uncertainty. There are no enforceable property rights emanating from a transaction involving bribery. The firm that obtains a concession from a bureaucrat as a result of bribery cannot know with certainty how long the benefit will last. The terms of the “contract” may have to be constantly renegotiated to extend the life of the benefit or to prevent its collapse. In an uncertain environment with insecure property rights, the firm will be less willing to invest and to plan for the longer-term. A short-term focus to maximize short-term profits will be the optimal strategy, whatever the cost.

This uncertainty is partly responsible for a perversion in the sorts of incentives that prompt individuals to want to seek public office. Where corruption is rife, politicians will want to remain in office as long as possible, not because they are even remotely serving the public good, but merely because they will not want to yield to others the pecuniary benefits of high office. Where long stays in office are no longer an option, then the new government will want to steal as much as possible as quickly as possible, given a relatively short window of opportunity.

Leaving No One Behind – Establishing a Global ICT Platform

Before his appointment as senior fellow at the Edmund Walsh School of Foreign Service, Dr. Augusto Lopez-Claros was a director at the World Bank. With years of experience as a development economist Dr. Lopez-Claros has written and lectured extensively about policies that encourage growth. In a talk he delivered in 2009 at Microsoft’s Government Leaders Forum he addressed the importance of adopting an information and communication technologies (ICT) platform to remain competitive. He said that an increasingly important factor in explaining successful economic development concerned the agility with which an economy adopted existing technologies to enhance the productivity of its industries.

This is critical because technological differences have been shown to explain much of the variation in productivity between countries. In fact, the relative importance of technology for competitiveness has been increasing in recent years, as progress in the dissemination of knowledge and the increasing use of ICTs have become increasingly widespread. Technology-intensive foreign direct investment not only provides strong productivity gains and improvements in business processes, but also has a number of important spillover effects, including improvements in management practice and positive effects on human capital where new technologies provide the incentive for employees to acquire new skills. At the same time, other companies become increasingly aware of the advantages of upgrading technology, with positive repercussions for the productivity of the sector as a whole.

Innovation, of course, is particularly important for countries that have reached the high-tech frontier. While less advanced countries can still improve their productivity by adopting existing technologies or making incremental improvements in other areas, for countries that have reached the innovation stage of development, this is no longer sufficient to increase productivity. Firms in these countries must design and develop cutting-edge products and processes to maintain a competitive advantage. This requires an environment that is conducive to innovative activity, supported by both the public and the private sectors.

In particular, this means sufficient business investment in research and development, high-quality scientific research institutions, collaboration in research between universities and industry, and protection of intellectual property. As of 2018, four of the seven countries that are home to the top 100 digital companied were in Asia. The other three were in North America and Europe. In terms of figures, the global digital economy is worth $11.5 trillion, equivalent to about 15 percent of global GDP. This point is made relevant when considering countries in Africa. While Africans use technology, they face significant challenges accessing data, mobile services, and dealing with excessive data costs, among other broadband issues. These challenges directly impact social and digital sectors, e-commerce, e-health, and e-government capabilities, which prevent African countries from competing on an even footing globally.

Given the importance of innovation for long-term growth, innovation policy is currently very much at the center of economic policy in many countries. A key insight from these discussions is that innovation policies should aim to foster an environment which promotes entrepreneurship and innovation across the economic spectrum.

Supportive Legislation Can Improve Agribusiness and Create Jobs

  International Ph.D. economist Augusto Lopez-Claros was a World Bank director who previously worked as a chief economist and director of the Global Competitiveness Program at the World Economic Forum in Switzerland, where he interacted with senior policy makers and heads of the world’s largest corporations on multiple aspects of economic development. At the World Bank, Augusto Lopez-Claros was involved in the production of the annual Enabling the Business of Agriculture report, which analyzed how regulations affected the business of agriculture in countries across the world.

Agriculture has the potential to create millions of jobs, lifting a lot of people out of poverty while boosting food security. Research shows that 65 percent of the world’s poor working adults are involved in agriculture. Therefore, growth in this sector is up to four times better at raising incomes for these people as compared to growth in other sectors. However, this can only be achieved when regulations support agricultural growth rather than inhibit it. The importance of this issue cannot be overstated. While there has been much progress in the past 3 decades in reducing the incidence of extreme poverty, the progress made has been fairly uneven, geographically speaking. High economic growth in China (and, to a lesser extent, India) has contributed to pulling out of extreme poverty hundreds of millions of people. But the number of poor in Sub-Saharan Africa has actually risen over the same period.

Furthermore, the poverty line used by the World Bank to define extreme poverty is extremely austere: $1.90 per day. At a more reasonable $3.20 per day, the number of poor more than doubles and is close to some 2 billion people, which is unacceptably high. Having a dynamic agricultural sector, therefore, that provides employment and enhances food security is a vital economic goal. Furthermore, the scientific evidence suggests that climate change will have a particularly harmful effect on countries’ agricultural sectors and low-income countries—heavily dependent on agriculture—will be particularly affected. In addition, population forecasts suggest that we are rapidly headed to a world population of some 9-10 billion people by 2050, 95 percent of it taking place in the developing world and creating huge demand for food production.

Farmers and entrepreneurs in the farm-to-plate value chain face a lot of legal barriers that inhibit growth. These barriers affect various elements of agriculture from access to land, seeds, and fertilizer to the availability of credit and transport. Water use and market access are other issues. Inhibiting regulations around these issues impedes agricultural growth. For example, if the procedure for obtaining food export documents in one country is unnecessarily long, it increases business costs and causes food wastage. If legal bottlenecks make it harder to sell or use new tractors, as is the case in South East Asia, farmers cannot farm efficiently, leading to reduced yields.

Government regulations affect agriculture in many ways. The World Bank calls upon governments to implement public policies that support agribusiness growth to end poverty and ensure global food security.