Let a hundred opportunities blossom!

Let a hundred opportunities blossom!

The course of history has been witness to the rise and fall of many countries. Social scientists especially economists, have studied these trajectories to identify the factors that distinguish those that have succeeded vs those that have failed. The last 40 years have been especially important in this with several countries closing the gap with the West, while we have also seen others that have tried but have not succeeded.

Development in the last 40 years

In the last 40 years, average global income as measured by GDP per capita has almost doubled, rising from $5,933 (constant 2015 USD) in 1981 to $11,000 in 2021 reflecting an increase of 185 percent. In the same period, the GDP per capita of our southern neighbor People’s Republic of China rose from $450 to $11,200 which is about a 2500 percent increase. Indian GDP per capita rose from $400 to 1940, about a 480 percent increase. At the same time there are countries that have not been as successful, for example Madagascar and Haiti, grew by 73 and 63 percent respectively. In Mongolia, GDP per capita rose from $1,428 US dollars in 1981 to $4,100 in 2021 an increase of 285 percent.

The factors to development

Social scientists attribute the difference in economic development to various factors. Within the economic development literature, there is consensus that countries with better policies and the capability to implement these policies have fared better than others. In other words, the role of policy is central to the process of development. Evidence of this is clear when we look at the countries that have endured crisis in the last 10 years. The rapid rise of Japan, South Korea and Singapore during last 60 years is not a coincidence. Although geopolitical, historical and technological factors are all relevant to their trajectories, these countries do not possess the greatest mineral resources and do not have particular demographic advantages in terms of population. Their success can be attributed to policies they devised and the fact that both their domestic and external environment were stable enough to implement them. Policies should be based on evidence and should be designed keeping in mind the ability of the state to implement them. Whether countries are building state capability or not, on the other hand, depended on institutions in countries.

Policy trinity

Hamlet once said, “There are more things in heaven and earth, Horatio, than are dreamt of in your philosophy”. Life is full of surprises. Countries all over the world create many policies, but are able to implement only a small fraction of them, while even fewer ever achieve the results they were designed for. According to Matt Andrews and Lant Pritchett of Harvard University, there are three prerequisites that must be met for policies to be at least have a chance to be successfully implemented. First, any policy must be technically correct, meaning once the policy is successfully implemented, it should solve the intended problem.

Second, policy must have political support. Third, organization that is responsible for implementing the policy must have greater capability than level of policy complexity require. The professors coined the concept as policy trinity.

The New Recovery Policy

The New Recovery Policy has been specifically designed around the “Holy Trinity” and in addition was thoroughly researched so as to be evidence based. The policy was developed upon the effort of many government employees from different ministries and agencies. In 2021, Mongolian economy was hit by impacts of COVID19 pandemic which demanded a re-evaluation of existing circumstances to formulate a policy for path forward. Prime Minister Mr. Oyun- Erdene understood urgency as well as the need and took the initiative to assign the task of developing medium-term development policy. This was how the NRP began. The space for reform widened as the socio- economic need rose and political will formed.

Growth diagnostics

The underlying rationale for the NRP was developed using “Growth Diagnostics”, which is one of the five economic reform approaches

Mongolia’s export hits an all- time high of 12.5 billion USD with trade turnover growing 60 percent.

and is considered the most effective one. The binding constraints of the Mongolian economy were determined using this methodology. As a result, energy, transport logistics and state capability were determined as binding constraints of the economy. By resolving binding constraints, industries can be reviveed, productive jobs can be created, and the countryside can be resurrected. This is the reason why the NRP has six components namely port recovery, energy recovery, industry recovery, urban and rural recovery, green recovery, and state capability recovery.

Policy in implementation

The Government of Mongolia has been taking actions towards implementing the NRP since the policy was approved by the Parliament in December 2021. Successful implementation of the NRP requires greater collaboration between the public and private sector. Renewable energy projects, including those for export, are unthinkable without the participation of private sector companies. To support rapid implementation, the Government created tax as well as non-tax incentives for investors. To assist in resolving issues encountered by investors in timely manner, the Government decreed to create a foreign investment and trade agency under the Ministry of Economy and Development. The role of the Government in implementing the NRP is also critical. The market on its own can frequently lead to market failure. Also, non- existent markets require state intervention to create competition and regulatory mechanisms to ever have the chance to be developed. This is precisely the role of government. Moreover, the NRP contains sets goals to reduce redundant processes in the delivery of public services and digitalization wherever possible to increase civil servant’s efficiency. Strengthening the accountability system and reducing corruption in tandem with other activities are part of the NRP concept on building state capability.

Let a hundred opportunities blossom!

William Shakespeare once wrote in his play the Tempest, “What’s past is prologue; what to come is in yours and my discharge”. Mongolia has set its mid- term development policy for next 10 years and the ship has sailed for relieving constraints. How to sail our boats through the realm of possibility is up to us now.

Dulguun Baasandavaa CEO, New Recovery Policy Accelerator

 From Mongolia Economic Forum-2023 special edition