Resilience in Developing Nations

Vital Interests: Thank you for participating in the Vital Interests forum. You have worked for many years in the field of international development and witnessed many changes. Can you provide an overview of the wellbeing of people in developing nations and how their prospects have changed in the past decades?

Nancy Birdsall: There have been huge changes for the good for most people in the developing world. If we look back, even just 30 years to the early 1990s, the story of development is one of amazing success in several dimensions, of millions of people living better lives, as my colleague Charles Kenny at the Center for Global Development documents. You have a dramatic increase in life expectancy due to access to health care. We now have a world where almost every child goes to primary school. There is better access to prenatal and maternity care so far fewer women have to worry when they're pregnant that they're literally going to die in the process of having a child. Infant and child mortality have been declining for decades.

According to UN statistics, since the 1990s there has been a 36% reduction in the percentage of the world’s population living in extreme poverty, which is below $1.90 a day. This is a substantial achievement and gives hope that ending extreme poverty is within reach.

These are all meaningful successes. Some emerging nations like China and India accomplished impressive development with relatively little aid from rich countries.  Other developing countries, especially in public health, benefited thanks to globally managed and coordinated campaigns -- for example, the near-elimination of polio and recent reductions of malaria prevalence. In this moment of a terrible pandemic, it is worth noting how important globally coordinated programs have been, particularly in combating infectious diseases. Those are great stories of development success.

Despite the advances made in the past decades, there is still much work to be done. While most children in the world have access to schooling, in South Asia and in Sub-Saharan Africa as many as two-thirds of children cannot read more than a sentence or two when they finish primary school.  

Consider the poverty issue. Most working people in the developing world do not have stable, paystub jobs. They are informal workers, like the gig economy workers in the U.S., or those who run mom and pop small businesses. Informal workers make up 60% of the labor force in Mexico, and 80% in “middle-income” countries like Indonesia and Ghana. They are not the “extreme poor” living on $1.90 a day (the World Bank definition of extreme poor), but neither are they members of anything close to the middle class by Western standards. They are a group of vulnerable, near-poor “strugglers” between the very poor and the stable, materially secure middle class – in households with income of at least $10 a day per person, or about $7,000 a year for a family of three or four. Defined that way, the middle class in the developing world is still small – in Africa and South Asia making up less than 20 percent of the population in most countries. 

Even a small shock in these near-poor households, one person losing a job or a child needing hospital care, will drive you right back close to or below poverty. These are people on the wrong side of the dividing line that now is so exposed in the U.S. with the coronavirus, between people who have a steady income and can work from home, and people who depend on contract and freelance work - Uber drivers, Walmart and McDonalds workers whose work shifts are uncertain, and the whole community of local performing artists.

There are two ways to look at progress in the developing world context. I think the right way to look at it is that there has been tremendous success. The downside is that, as we see with the threat of COVID as well as the risk of more natural disasters because of climate change, that they and the economies in which they live and work, are vulnerable - lacking resilience, obviously, especially now.

That is also a political issue in that you now have millions and millions of people in developing nations who have moved out of $1.90 a day poverty during the last several decades, entering the better-off but hardly secure in-between or struggler group. They  have expectations of further mobility, for them and their children, and will be frustrated and angry with the setback a global recession is bringing, threatening their hard-fought gains. 

The only other thing I'd say about development is the deeper question of how you build political and social institutions that can provide the kind of resilience that we used to take for granted in the U.S. but is now, with our weak social safety net, exposed. With COVID19 in America we are mirroring many of the problems of developing countries, including the reality that many families that appear reasonably secure are in fact extremely vulnerable economically.

VI: The vulnerabilities for the developing world as the COVID pandemic deepens include public health but also widespread economic distress. With no safety net, what will be the most immediate needs of the populations of developing nations - medical care, clean water, adequate food supplies?

Nancy Birdsall: Well, the needs are all the above. The fundamental problem in most developing countries is lack of fiscal space and so lack of resources to suddenly equip their health centers and hospitals with oxygen and ventilators for intensive care facilities and PPE for their workers; and lack of resources simply to maintain current levels of spending on health, education, and other services, and to increase spending on direct cash transfers to households. They cannot do the monetary policy equivalent of the Federal Reserve, creating dollars (some big emerging market economies have access to “swap lines” the U.S. Federal Reserve has created but most do not and none of the poorest countries do). They cannot finance the equivalent of the U.S. CARES Act, covering unemployment pay and providing $1200 for every adult under a certain income. With exports down, remittances down, and many countries paying high levels of debt service in dollars, they cannot increase spending as the US and the Europeans are doing without risking financial instability and inflation as their currencies weaken.

It is terrifying to see the difference between the ability of the rich countries to ramp up spending – with the United States increasing spending by more than 10 percent of GDP – and now the European Union considering issuing its own debt to help its weakest economies weather the storm-- compared to the plight of most developing countries. Pity the poor finance ministers in developing countries.

So, they need huge amounts of financial assistance from outside (the IMF and the United Nations have called for $2.5 trillion at least), including via temporary or permanent debt relief, to protect their populations in the first instance from daily hunger. Financial assistance that is not traditional aid, in project-by-project form with specific conditions and specific blueprints about disbursements, but rather block grants to central governments, to shore up beleaguered health systems and put money in the pockets of poor and vulnerable people, ideally in the form of cash.

Some developing countries are capable of expanding already existing and successful cash transfer programs. Mexico, Brazil and other countries in Latin America have pre-existing programs targeted to the poor that they can expand and deepen during the crisis. India and Pakistan have impressive digital ID systems – in India the “Aadhar” system has a billion of their 1.3 billion people registered. In principle, they could do a universal basic income transfer through that ID system but most countries don't have the fiscal resources to do that in any way that's comparable to the quick cash distribution (the $1200 per person) that the U.S. CARES ACT has financed.

Some countries have good health care systems. At the time of the Ebola crisis I was in Liberia and Ebola jumped to Nigeria and it was impressive how quickly the Nigerians got on top of it. It made me remember that we have a lot of competent Nigerian doctors here in the United States. There are millions of capable health care workers in most developing countries managing their public health institutions. The problem is, as it has been here in the US, that health systems can be quickly overwhelmed.

But most developing countries face short-term and long-term problems if the virus takes hold. As in the United States, there is also the problem of pre-existing inequalities, of access to health care and inequality of income in general – along racial, ethnic, and gender lines (women are at greater risk everywhere, including to domestic violence). That means the pandemic creates a political risk too, of social instability.

I hope the whole question of how to construct better social safety nets will become more prominent given the pandemic has exposed the reality of vulnerability of so many people, and so the importance of safety nets and the need to build systems of social protection.

VI: What about the global food supply chain? Many nations depend on the importation of key grains at accessible prices.

Nancy Birdsall: The concern is a nationalist response, countries that produce staples like rice and wheat imposing export controls to keep prices down at home. That would be a disaster. There is no food supply problem on the production side, but restrictions on exports could lead to panic and price spikes in the global market as in 2008 – that would be a disaster for the poor around the world. Vietnam has imposed some restrictions on exports of rice, as have a few other countries on other staples, but so far restrictions have been limited and availability of food at a reasonable price is not the problem. 

The real problem now is loss of daily income for millions of poor people in developing countries, the money to buy not just calories derived from staples, but healthy calories – vegetables, fruit, proteins, especially for children. It's having the money to buy food, not the overall global scarcity that is a threat. It is the demand-side problem, basically, with the effects of the lockdowns.

Of course, with lockdowns there is also likely to be local disruption of supply chains. What we've been reading about in the U.S., about shortages of meat, is carried to an extreme in developing countries where so many people rely on local, open markets. The social distancing and stay at home restrictions really upset these markets.  

VI: Where will the leadership come from to meet these real challenges? UN Secretary General Antonio Guterres is calling for $8 to $9 billion dollars to help aid nations impacted by the pandemic. The likelihood that he will be able to secure this level of funding is probably slim. Where does this financial wherewithal and leadership come from to support pandemic relief efforts?

Nancy Birdsall: The financial wherewithal must come from the international financial institutions, our multilateral institutions. Not just the IMF and the World Bank, but also the regional banks, including the African Development Bank, that can increase their grants and lending given the situation.

There's a lot of discussion going on now about how much more funding the IMF should have to work with. Ideally the IMF would get members’ approval for a new issue of Special Drawing Rights (SDRs) and the World Bank and the multilateral banks to leverage more of their capital to allow for more lending. Debt relief is also on the table; the G20 ministerial meeting in April agreed in principle on a standstill of debt service for developing countries by all official bilateral creditors. 

In the end, the decisions in the multilateral institutions are driven by their powerful members. I think the biggest problem for the world right now is that there's not the accustomed leadership from the United States – and there’s no single influential alternative. For most of my lifetime I took U.S. leadership for granted.

That means a need for more vocal and public support for the multilateral institutions, including of course the WHO, the IMF and the multilateral development banks.  We  need a movement in countries, especially in the U.S. and Europe about what it means to be not just a citizen of your own country, but a global citizen. We must educate our children about the logic of international cooperation in a totally interdependent global system. The coronavirus is the poster child for the need for global cooperation, a fast moving, hard to ignore version of what equally catastrophic climate change already is for poor countries. Corona and climate: when one country is exposed, all countries are in the end exposed.

VI: The COVID pandemic has led to questioning the offshoring of supply chains. When essential medical equipment is foreign-sourced, getting adequate supplies in an immediate time frame is a challenge. The U.S. trade representative is proposing policies to encourage “reshoring” of manufacturing, to provide more jobs for Americans and more secure supply chains. Is it feasible for, say textile industries, to relocate back to the United States from countries like India, Bangladesh, China, and Vietnam? 

Nancy Birdsall: It's hard to imagine how easily and quickly industries can pull back. The first thing to say is that the reaction in the U.S. to globalization and the fact that  it is perceived as the cause of many societal problems is understandable. But we also have to keep in mind it's been a good thing for developing countries. A really good thing. And that at the heart of the problem in the US is not globalization itself but the stagnation of the median wage, our growing inequality, and our grossly underfunded social safety net.  

Prosperity in developing countries is a kind of global public good – a good thing for rich countries too. When more countries are prosperous and stable that contributes to security in the global community. The anti-globalization sentiment has been building up, especially since the global financial crisis in 2008. I feel the world is now in an unstable equilibrium between this nationalist protectionist instinct, which the Trump administration has emboldened other nations to take, and the realities of decades of global interdependence which, though imperfect, have contributed to the growth and development successes we talked about at the beginning.

VI: For years a mantra in international development has been sustainable development, which has to do with the ability of countries to manage growth in a way that protects the rights of their populations and preserves their environment. Will that be jeopardized as this pandemic impacts development policies?

Nancy Birdsall: I hope not but I don't know. It depends so much on international cooperation, and at the moment that seems in short supply. Does the world become more protectionist, more nationalist, more populist? Or does it lean, through some excellent leadership from somewhere, toward more cooperation?

Climate change is hitting developing countries hard – the typhoon in Bangladesh and Kolkata, India; the locusts in Kenya; recurrent drought in southern Africa. More and more rich country aid will be going to humanitarian assistance and disaster relief. The world has done badly on climate change, and like COVID19, it is the poor and vulnerable that are hit the hardest, exacerbating pre-existing inequalities and injustices. It is a problem with the sovereign system and human nature to fail to take adequately into account what is changing slowly and seen as a distant threat. Maybe the pandemic will be a wake-up call on climate change.

The world still looks for leadership on global issues to the United States. The U.S. is still the leader of last resort. On that I still have hope. Our election this fall is not only about the future of the US. It’s about the future of the world.

VI: We're coming to the end of the time. Thank you for this interesting conversation on the developing world and how the COVID pandemic emergency will impact it. Also you have talked about the opportunities that this pandemic may, in fact, bring to the fore about the pressing need to confront global challenges - certainly climate change is a priority for global cooperation. Let's hope that that can be the positive outcome to this dire episode confronting the global community.

Nancy Birdsall: Very well said.

This post originally appeared on Vital Interests, a blog from the Center on National Security at Fordham Law.