A Strategy for Economic Growth
8. Three Principles Will Guide Economic Growth Programs
Three principles will be important in USAID’s economic growth work:
- First, programs should seek large and systemic impacts. The success of a few firms or communities can provide a sense of tangible accomplishment, but sustained economic growth that affects thousands of firms and millions of people depends on systemic change – especially improvements in government policies and practice that significantly improve the incentives facing all businesses.
- Second, where systemic impact is not sought, catalytic impact is essential. Demonstration projects can be valuable, but they should a) demonstrate approaches that cause a far larger number of entrepreneurs and communities to invest their own resources in similar ways and to continue doing so, or b) lead to policy changes that affect significant parts of an economy.
- Third, political economy is critical. A clear understanding of the interests and political standing of domestic groups supporting or opposing reform can help focus decisions concerning pace and sequencing, and can also help identify potential allies in the government and private sector. Where change is slow, support to reform-oriented leaders – in both the public and private sectors – to press for change can help galvanize the needed internal political will. When the will to embrace economic reform emerges, the opportunity can be short. Rapid and flexible response is important.
External factors can galvanize political support for growth-enhancing reforms, creating opportunities that should be used creatively. The fear of falling short in the global competition of Doing Business indicators and the World Economic Forum’s Growth Competitiveness Index, for example, has generated significant policy change in the last few years. The negotiation of free-trade arrangements and the prospect of joining international bodies like the European Community have also catalyzed reforms. Specific reforms required for MCA Compact status are generating momentum for change, some of which USAID can capitalize on through MCA Threshold programs.
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