Human development

Ministry of Social Welfare and Labour

NUM School of Economic Studies

Swedish International Development Cooperation Agency

Academy of Management

HUMAN DEVELOPMENT TEXT BOOK SECOND EDITION

First edition by: Selim Jahan Batnasan Namsrain Second edition (in Mongolian) edited by: Solongo Algaagiin

Ulaanbaatar 2008

HUMAN DEVELOPMENT 2ND EDITION

ISBN 978-99929-897-3-6 Copyright © 2007

About the second edition: The second edition incorporates some textual refinements in response to remarks and comments from students and main users of this textbook.Further references on global and national human development reports, their specific characteristics and values, and the methodology for estimating human development index and other indices are also included.

Authors (First Edition) Selim Jahan, Doctor Ya. Dolgorjav, Doctor and Professor, Honored Teacher of Mongolia B. Suvd, Doctor and Professor P. Uvsh, Doctor and Professor Ch. Khashchuluun, Doctor N. Batnasan, Doctor N. Naranchimeg, Doctor R. Otgonbayar, Professor A. Solongo, PhD student B. Otgontugs, PhD student Editors (First Edition) Selim Jahan, Doctor. Senior Advisor and Cluster Leader, Strategies and Policies for Poverty Reduction Poverty Group, Bureau for Development Policy, UNDP Batnasan Namsrain, Academic Secretary of the School of Economic Studies, National University of Mongolia (Second Edition) Solongo Algaagiin, Director and Lecturer at the Population Training and Research Center of National University of Mongolia Production team Thomas Spoorenberg, Visiting Researcher and Lecturer, Population Teaching and Research Center, National University of Mongolia UNDP/SIDA “Poverty Research and Employment Facilitation for Policy Development” Project: P.Tsetsgee, National Project Manager; E. Solongo, Administrative and Financial Assistant; B.Zolzaya, Assistant Lay out: Printed: BCI Printing Co., Ltd, Mongolia.

CONTENTS PART ONE: HUMAN DEVELOPMENT: PARADIGM, MEASUREMENT AND POLICY ISSUES 11 Chapter 1. Human development concept and its measurement Introduction 1.1 Human development - a holistic approach 1.2 Measuring human development 1.3 Human Poverty 1.4 The global and national human development reports Bibliography and additional reading materials Chapter 2. Developing capabilities and creating opportunities Introduction 2.1 Developing capabilities 2.2 Creating opportunities Bibliography and additional reading materialskh

12 14 17 32 35

45 46 51

Chapter 3. Economic growth for human development - an analytical framework Introduction 3.1 Three tensions in economic growth 3.2 Links between growth and human development 3.3 Pro-poor growth – growth for human development Bibliography and additional reading materials

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Chapter 4. Policies and institutions for human development Introduction 4.1 Policies and strategies: an analytical discussion 4.2 Policies for human development – specific characteristics 4.3 Policies for capability enhancement and opportunity expansion 4.4 Human development policy options – global scenario Bibliography and additional reading materials

69

59 61 63

70 74 77 83

PART TWO: HUMAN DEVELOPMENT IN MONGOLIA

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Chapter 5. Human development in Mongolia Introduction 5.1. History, culture, population and political system of Mongolia 5.2. The status of human development indicators in Mongolia 5.3. Achievements in human development 5.4 Setbacks in human development 5.5 Access to social services and industrial resources Bibliography and additional reading materials

102 102 107 114 117 120

Chapter 6. Economic growth and income in Mongolia: means to human development 128 Introduction 6.1 Economic growth in Mongolia 128 6.2 Distribution of assets, welfare and income 133 6.3 Employment – the missing link between growth and poverty reduction 138 6.4 Policy implications 142 Bibliography and additional reading materials

Chapter 7. Livelihood, vulnerability, security and human development of Mongolian people 147 Introduction 7.1 Vulnerability – a conceptual framework 147 7.2 The middle class and its living 153 7.3 Policy alternatives for reducing vulnerability 159 Bibliography and additional reading materials Annex 1. Composite vulnerability indices for 112 developing countries Annex 2. Mathematical and statistical estimation Chapter 8. Gender equality in human development in Mongolia Introduction 8.1 The contributions of women 8.2 Gender issues 8.3 Policy issues Bibliography and additional reading materials

170 170 181 186

PART THREE: PRO-HUMAN DEVELOPMENT POLICIES IN MONGOLIA

195

Chapter 9. Policy alternatives and institutional development Introduction 9.1 Pro-poor macroeconomic policies 9.2 Human development policies 9.3 Resources for human development 9.4 Good governance for human development 9.5 Creating environment for human development 9.6 Reform policy options 9.7 Cooperation and partnership Bibliography and additional reading materials

196 196 201 209 214 220 226 229

FOREWORD We, people of the 21st century are destined to live in and witness a remarkable period of the human history. With the break-up of the socialist system, the time has come to sprout and expand human freedom and democracy and the countries’ sense of development is becoming closer. Meanwhile, people in developed and developing countries are exploring into the essence and true nature of development, rather than the accumulating the material wealth. For many decades, development was narrowly viewed as being synonymous with economic growth. People were seen merely as inputs in the growth process. The human development paradigm, the central message of this textbook, is built upon the conceptual foundations of the capability approach, developed by Nobel prize economist and philosopher Amartya Sen. The human development approach offers a simple but powerful truth – that people are the real wealth of any nation. It radically changes the nature of development dialogue by bringing people and the quality of their lives into the centre of policy attention. It maintains that development is ultimately the process and outcome of expanding human choices and opportunities – economic, political, social and cultural. Human development perspective is not new, for thousands of years outstanding philosophers and thinkers were seeing the development in much broader framework than the material wealth. Many Asian countries including Mongolia shared their view. The Mongolian word for “economy” embodies the meaning that humans are to improve the possessing not the possessing does towards the people. Human development is not in conflict with economic growth. Indeed, human development cannot be sustained without economic growth and an expansion in people’s incomes. The human development paradigm views growth as a means of development, not the final objective, thereby puts the economic growth in due place. The priorities of Mongolia have been rapidly changing. In the 1990s, the State’s priorities were to stabilize the economic system, recover from the setbacks caused by the collapse of the communist block, adopt a new democratic system, and be recognized as an equal partner in the world. Today, the economy has stabilized and the macroeconomic environment has improved. Nevertheless, reducing poverty and inequality, providing better access to water and sanitation, preserving family ties and the social fabric, sustaining achievements in health and education, and ensuring that all Mongolians have meaningful and rewarding jobs to live in dignity have emerged as new development priorities. In a country so committed to democracy and freedoms, it is hoped that this textbook will add a new dimension to development dialogue and thereby contribute to the plurality of development thought. It is expected that this textbook will be widely used by students, researchers, policy makers and development professionals in Mongolia to shape the policies of tomorrow and to extend the frontiers of global development thought, action and experience.

S. CHINZORIG Vice Minister for Social Welfare and Labour, Mongolia

Pratibha Mehta UN Resident Coordinator & UNDP Resident Representative, Mongolia

PREFACE The countries like Russian Federation, India and Israel developed textbooks and reference materials on human development. The Mongolian human development textbook is a new piece of work which has added to the literature on this important subject for the Mongolian readers. This textbook consists of three parts and nine chapters. Part One introduces the conceptual foundations of the human development approach to readers. Part Two offers readers an understanding of human development in the Mongolian context, by analyzing different aspects of capabilities and opportunities – present and emerging – that most concern the people of Mongolia. Part Three offers an insight into pro-human development policy formulation in Mongolia. Part 1: Human Development: Paradigm, Measurement and Policy Issues. Chapter One of the textbook introduces the concept of human development and its measurement. Chapter Two delves deeper into the idea and discusses two key constituents of the human development approach – capabilities and opportunities. It also examines the more operational aspects of how to develop capabilities and create opportunities. Chapter Three deals with the linkages between economic growth and human development and analyzes the types of growth and implications for the poor. Chapter Four looks at human development policies and strategies, their formulation, implementation, monitoring and evaluation. It also explores the role of institutions for human development. Part 2: Human Development in Mongolia. Chapter Five brings the human development perspective into the Mongolian context, presenting the history of human development in Mongolia, and trends in the expansion of capabilities and opportunities. It contains a discussion on education and health in Mongolia. Chapter Six examines the relationship between human development and economic growth in Mongolia, and on distribution of wealth, inequality, unemployment and poverty. Chapter Seven analyzes livelihoods and vulnerabilities in the lives of Mongolians. Chapter Eight explores issues relating to gender equality in Mongolia. Part 3: Pro-Human Development Policies in Mongolia. Chapter Nine, the last chapter, analyses policies and examines the evolution and prospects of different institutions that promote human development in Mongolia. In addition to discussing key concepts of human development, this textbook has been enriched by a number of practical examples, explanations and experiences from across the world. A reading list at the end of each chapter suggests additional materials that readers might wish to refer to for more in-depth discussions. Human development offers a comprehensive perspective but it is also an evolving concept. Though the idea is quite old, its application to policy formulation is quite recent. To that extent, this textbook will be revised and amended as the concept and practice of human development further evolves. The authors’ team looks forward to your valuable comments on the textbook.

ACKNOWLEDGEMENTS “The Human Development Textbook” is the first of its kind in Mongolia. This textbook, written and published with technical and financial support of UNDP and the Swedish International Development Agency (SIDA), is a product of two years of cooperation and participation of many people, within and outside of the UNDP. The authors deeply thank a team of academics who contributed to writing chapters and sub chapters of the textbook. They are a team of the School of Economic Studies, National University of Mongolia (Dr. Ch. Khashchuluun, Dean, Professor B. Suvd, A. Solongo, Director of the Population Teaching and Research Centre, B. Otgontugs, Lecturer), a team of academics from the Academy of Management (Professor Ya. Dolgorjav, Advisor to the President, Professor P. Uvsh, N. Naranchimeg, Director of the School of Social Management, Dr. R. Otgonbayar). The appreciation also goes to Ms G. Uyanga, Economist of UNDP Mongolia, G. Batkhuu, Member of Parliament, Dr. G. Chuluunbaatar, Advisor to the Parliament Speaker, B. Delgermaa, former Advisor to the Prime Minister, Ts. Adyasuren, former Minister of Nature and Environment and Director of “Eco-Asia” College for their comments on the textbook content and Dr. Kh. Tsevelmaa, a lecturer of the School of Economic Studies, National University of Mongolia for copy-editing the textbook. The authors want to warmly thank the UNDP Resident Representative, Pratibha Mehta, who provided unfettered support and leadership to the engaging and yet difficult task of producing this textbook. We also acknowledge the encouragement and technical support provided by UNDP Mongolia (Melaia Vatucawaqa, Deputy Resident Representative, M. Sarantuya, former Assistant Resident Representative and G. Uyanga, Economist), as well as S. Chinzorig, Deputy Minister of Social Welfare and Labour and the National Project Director and P. Bolormaa, National Project Manager of the Poverty Research and Employment Facilitation project. We would also like to thank the Swedish International Development Agency (SIDA) and UNDP Mongolia for their generous financial support to this endeavour. The textbook also benefited from the contribution of peer reviewers. The former Minister for Health P. Nyamdavaa, former advisor to the Prime Minister B. Delgermaa, Director of the Institute of History, Academy of Sciences Sh. Dashdavaa, former President of Mongolia P. Ochirbat, former Prime Minister P. Jasrai, national consultant for International Conference of New and Restored Democracies Kh. Khulan, Dr of Philosophy Ts. Balkhaajav, Director of Social Welfare Department, MoSWL, Ch. Davgadorj, Member of Parliament S. Oyun, advisor to the Speaker G. Chuluunbaatar, former Minister of Nature and Environment, Director of “Eco-Asia” College Ts. Adyasuren, former member of Parliament N. Gerelsuren, Executive Director of Citizen’s alliance, NGO, Dr of Philosophy G. Ochirbat, officer of the Poverty Research Group, MoF P. Byambadorj, Director of “Kharkhorum” College J. Batsuur, Director of Education Department, MOSTEC R. Bat-Erdene, senior officer, MIT B. Zoltuya, Executive director, Centre for Social Development R. Gantumur, senior analyst, Centre for Social Development Ts. Erdenechimeg, Director of Academic Affairs,

National University of Mongolia N. Batchimeg and Dr. Sarthi Acharya, Director, Institute of Development Studies, Jaipur, India. We thank them for sharing their sincere insights into the global and Mongolian dimensions of human development.

Editors Selim Jahan Batnasan Namsrain

PART ONE

HUMAN DEVELOPMENT: PARADIGM, MEASUREMENT AND POLICY ISSUES

CHAPTER 1. HUMAN DEVELOPMENT CONCEPT AND ITS MEASUREMENT

Sub section: Introduction 1.1 Human development- a holistic approach 1.2 Measuring human development 1.3 Human poverty 1.4 Global and national human development reports and their importance Bibliography and additional reading materials The chapter introduces the definition and basic concepts of human development. The Human Development Index as well as other indices and indicators that comprise the human development mea surement system are examined. Read ers will understand that the human development paradigm has a wider frame that the human de velopment indicators and is a complex concept.

INTRODUCTION People are the real wealth of a nation. The basic objective of development is to create an enabling environment for people to enjoy a long, healthy and creative life. This may appear to be a simple truth, but it is often forgotten in the immediate concern with the accumulation of commodities and financial wealth. For too long, we have been preoccupied with creation of wealth and material opulence. In that pursuit, we often forgot that development is all about people. In our preoccupation with economic growth, we systematically pushed people more and more from the centre to the periphery of development debates and dialogues. The publication of the first Human Development Report by United Nations Development Programme (UNDP) in 1990 was a modest attempt to reverse this trend. With the introduction of the concept of human development, construction of a composite measure for it and a discussion of the relevant policy implications, the Human Development Reports, have changed the way society ought to look at human progress. Human development can be simply defined as a process of enlarging choices. Every day human beings make a series of choices – some economic, some social, some political, some cultural. The ultimate objective of development is not to create more wealth, or to achieve higher growth, but to enhance this range of choices for every human being. Human development is both a process and an outcome. It is concerned with the

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Chapter 1. Human development concept and its measurement process through which choices are enlarged. And it also focuses on the outcomes of enhanced choices. Human development, thus defined, represents a simple notion, but with far-reaching implications. First, human choices are enlarged when people acquire more capabilities and enjoy more opportunities to use those capabilities. Human development reflects a balance between the two and if there is mismatch between the two, human frustration may result. Second, according to the concept of human development, economic growth is just a means, albeit an important one, not the ultimate goal for development. Income makes an important contribution if its benefits are translated into human lives, but the growth of income is not an end in itself. The end of development must be people themselves. Third, human development, by concentrating on choices, implies that people must influence the process that shapes their lives. In other words, they must participate in various decision-making processes, the implementation of those decisions, and their monitoring. In the ultimate analysis, human development is development of the people, development for the people, and development by the people. Development of the people refers to building and strengthening human capabilities through human resource development. Development for the people implies that the benefits of growth must be translated into the lives of people. And development by the people emphasizes that people must participate actively to influence the processes that shape their lives.

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Part one. Human development: paradigm, measurement and policy issues

1.1 HUMAN DEVELOPMENT - A HOLISTIC APPROACH The way of looking at development from a human development perspective is not really new. The idea is that social arrangements must be judged by the extent to which they promote human wellbeing goes back at least to Aristotle. “Wealth is evidently not the good we are seeking for it is merely useful and for the sake of something else” –said Aristotle. He argued for seeing the “difference between a good political arrangement and bad one” in terms of its successes and failures in facilitating people’s ability to lead “flourishing lives”. Human beings as the real end of all activities are a recurring theme in the writings of most of the early philosophers. The same motivating concern can be found in the writings of the early leaders of quantification in economics such as William Petty, Gregory King, François Quesnay, Antoine Lavoisier and the author of concept of gross national product and gross domestic product, Joseph Lagrange. It is strongly present in the writings of leading political economists such as Adam Smith, David Ricardo, Robert Malthus, Karl Marx and John Stuart Mill. The notion of human development, as introduced in the first Human Development Report in 1990, was an extension of that long, but forgotten tradition. It questioned the relevance of the unique preoccupation with equating gross national product (GNP) with development. It put back people where they belong, at the center of development debates and dialogues. And it created an impact which was beyond the imagination of the original conceivers of the Report in 1990 (Box 1.1). Human development is more holistic than other approaches. Human resource development emphasizes human capital only and treats human beings only as inputs in the development process, but not as its beneficiaries. The Basic Needs Approach talks of minimum requirements of human beings, but not about their choices. Human welfare looks at people only as recipients, and not as active participants in the processes that shape their lives. Human development, by encompassing all these aspects, represents a more holistic approach to development. Human development is closely linked with human rights, human security, gender equality, environmental sustainability and the Millennium Development Goals (MDGs). Human development and human rights are closely linked as they have a common denominator – human freedom. Human development, by enlarging human capabilities and opportunities, enhances the freedom of choice and human rights protect that freedom. Human development and human rights are thus mutually reinforcing. The concept of security has for too long been interpreted narrowly: as security of territory from external aggression, or as protection of national interests in foreign policy, or as global security from the threat of a nuclear holocaust. It has been related more to nation–states than to people. Forgotten was the legitimate concern of common people who sought security in their daily lives.

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Chapter 1. Human development concept and its measurement

Box 1.1: Impact of the Human Development Reports The Human Development Reports (HDRs) over the last 15 years have covered a series of issues as their themes. These themes range from public expenditure for human development to participation in economic growth and human development. Such issues as gender, human development, human poverty, human development in a globalised world, human rights and human development and technology for human development have also been addressed in various HDRs. All these reports with their analysis, data and policy discussions have significant impacts in various development quarters. First, they initiated new policy debates and dialogues at the national level and influenced policy makers to come up with new policy strategies. Second, they encouraged in disaggregating various human development indicators in terms of gender, religions, ethnic groups etc. Such data clearly indicated inter-country disparities and inequalities and helped governments to direct necessary resources to formulate required policies. Third, the reports have been used as advocacy documents by development activists, NGOs and institutions of civil society. Fourth, a series of academic research were undertaken to expand the frontiers of human development, in terms of analytical framework, indices and statistical work and policy recommendations. Fifth, HDRs are being used as reference materials in universities and academic institutions. Apart from global human development reports, more than 260 national human development reports have been produced in over 120 countries. All these NHDRs have become important documents for national policies and strategies, for serving as a depository of innovative data and also crucial advocacy tools. Various regions of the world have also produced regional NDRs. Source: S. Jahan(2001)

For many of them, security symbolized protection from the threat of disease, hunger, unemployment, crime, social conflict, political repression and environmental hazards. For most people, a feeling of insecurity arises more from worries about daily life than from the dread of a cataclysmic world event. Human security has been treated narrowly concerning protecting the national territory from foreign occupation, embedding the national security in foreign policies and protecting from nuclear power. But all these are relevant to states rather than to people. The notion skips the security of people in their everyday lives, i.e. the freedom from certain deprivations as well as freedoms from specific perceived fears. People’s aspiration to security reflects with freedom from income poverty, hunger, diseases, unemployment, crimes, social conflicts, political repression and environmental pollution. For many people the desire to security stems from concerns over their daily lives rather than world disasters. For example, freedom from income poverty and hunger refers to security in terms of actual deprivation, whereas the desire to be secure from violence or personal assault may imply security against perceived threats. The notion of human security should not be equated with human development. Human development is a broader concept – defined as the process of widening the ranges of people’s choices. Human security

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Part one. Human development: paradigm, measurement and policy issues means that people can exercise these choices safely and freely. There is of course, a link between human security and human development: they are mutually reinforcing. Progress in one area enhances the chances of progress in the other, but failure in one area also heightens the risk of failure in the other. Gender equality is at the core of human development, which emphasizes that development, if not engendered, is endangered. The human development framework firmly believes that any development strategy or effort, which bypasses half of humanity, cannot be sustainable. It believes in enhancing the capabilities of women so that gender-gaps in capabilities are reduced. It also argues for equal opportunities of women in all spheres of life – economic, social, cultural and political. It is opposed to targeted discrimination against women, violation of their rights and specific threats to them – e.g. their personal safety, domestic violence, or sexual abuse at all places. Human development focuses on the choices not only of the present generation, but also of the future generations. The choices of the present generation should be expanded, but not by limiting or destroying the choices of the future generations. All form of capital and social assets – physical, human and environmental – should be replenished so that future generations have at least, and possibly better, choices than the present generation. The issue of sustainability is, thus, key to human development. The Millennium Development Goals (MDGs) are time-bound quantitative targets for overcoming human poverty. The human development perspective provides a strong analytical framework for attaining the MDGs and MDGs are based on human development perspectives (Box 1.2). Box 1.2: Analytical linkage between human development and MDGs Human Development Directly enhancing human capabilities dimensions Long and healthy life

Knowledge

Decent standard of living

Contextual dimensions Participation

Environmental sustainability

Human security

Gender inequality

Millennium Development Goals MDGS 4, 5, 6 Child mortality Maternal mortality HIV/ AIDS

MDG 2

MDG 1

MDG 7

MDG 3

Universal primary education

Extreme income poverty Hunger

Environmental sustainability

Gender inequality in primary education

A holistic approach of human development is more in detail reflected in contents of Human Development Reports (HDRs).

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Chapter 1. Human development concept and its measurement

1.2 MEASURING HUMAN DEVELOPMENT A concept is always broader than any of its proposed measure. No measure can fully capture the richness and the breadth of a concept. This is true for the notion of human development as well. In principle, human choices can be infinite and changing over time. At all levels of development, however, the three essential choices are for people to lead a long and healthy life, to acquire knowledge, and to have access to resources needed for a decent standard of living. If these essential choices are not available, many other opportunities remain inaccessible. The Human Development Report 1990 has constructed a composite index, namely the Human Development Index (HDI) incorporating these three essential choices.

The Human Development Index (HDI) The HDI focuses on three basic dimensions of human life – a long and healthy life, knowledge and a decent standard of living. The index contains four variables – life expectancy at birth to represent the dimension of a long and healthy life; adult literacy rate and combined enrolment ratio at primary, secondary and tertiary levels to represent the knowledge dimension and real GDP per capita (PPP$) to serve as a proxy for resources needed for a decent standard of living. Some observations on the HDI are given below: First, the HDI is not a comprehensive measure of human development. It focuses on three basic dimensions of human development and does not take into account a number of other important dimensions of human development. Second, it is composed of long-term human development outcomes. Thus it does not capture input efforts in terms of policies nor can it measure short-term human development achievements. Third, it is an average measure and therefore masks disparities and inequalities within countries. Disaggregation of the HDI in terms of gender, regions, races and ethnic groups can unmask the HDI. Fourth, income enters into the HDI not in its own right, but as a proxy for resources needed to have a decent standard of living. All the quantitative information about human development and its various indicators constitute what may be termed as human development accounting. This accounting has a focus dimension or composite indices and a breadth dimension or other indicators on various human development aspects. The HDI is therefore limited in scope and does not provide a complete picture of human development. It has to be supplemented with other useful indicators in order to get a comprehensive view. Thus it is human development accounting, not the HDI,

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Part one. Human development: paradigm, measurement and policy issues which can portray the complete picture. Yet, the HDI has its strength. It is as basic as the GNP per capita, but not as blind as the GNP per capita to broader issues of human well-being. The analytical framework of the HDI can be discussed with respect to its focus, its variables, and its formula. Focus: The focus of the HDI is to measure average achievements in human development in a society. It builds on three basic dimensions of human life – a long and healthy life, knowledge, and a decent standard of living. The HDI measures basic human capabilities in these dimensions. Three issues can be raised with regard to its focus. First, does the concentration of the HDI on three basic dimensions of human life mean that other aspects of human life are unimportant? The answer is: no. It simply means that the three basic capabilities are essential for human well-being and when they are achieved, doors for other opportunities open. Aspects like human rights, participation, non¬discrimination, even though not captured in the HDI, are essential for human development. When significant levels of basic human development, as measured by the HDI, are achieved, doors for participation, ensuring security and other significant aspects of social life open up for all people. Variables: The following variables have been chosen to represent the dimensions of human well-being included in the HDI: life expectancy at birth as a surrogate for a long and healthy life, adult literacy rate and combined gross enrollment ratio at primary, secondary and tertiary level as a surrogate for educational attainment; and GDP per capita (PPP$) as a surrogate for a decent standard of living. There are three critical issues with regard to these variables. 1) Scaling: In constructing the HDI, each variable is normalized through a process of scaling. In this process, for each variable, a maximum and a minimum value are selected and the difference between the maximum and the minimum value defines the scale. The normalized variable is constructed in the following way. First, the difference between the observed value and the minimum value is identified. This shows the distance covered by the society in the selected variable. Second, this difference is shown as a proportion of the difference of the maximum value and the minimum value – a difference, which represents the total distance to be covered by every society in the variable in question. Thus the normalized variable, which is a pure number, shows for a particular variable, the distance covered by a society as a proportion of the distance to be covered. Thus if a society for a particular variable remains at the minimum, the normalized value of the variable will be 0 and if it has attained the maximum value, the normalized value of the variable will be 1. Thus the scale is set for each variable between 0 and 1. Scaling and the normalized value are required for two reasons. First, the variables included in the HDI have different units. Life expectancy is measured in years, adult literacy rate is in percentages and the GDP per capita is in Purchasing Power Parity (PPP) US$. By normalization, one gets rid of units and derives pure numbers. Such a transformation is needed for additive purposes while constructing a composite index. Second, scaling enables one to undertake comparisons as to how countries have fared relatively along the different dimensions. 2) Weights: In the composite index, the variables of life expectancy at birth,

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Chapter 1. Human development concept and its measurement educational attainment and GDP per capita are given equal weights. They are given equal weights not because of simplicity, but because of the philosophical principle that all the dimensions included in the HDI are equally important and desirable in their own right for building human capabilities. Furthermore, there is no assumption of substitution among these dimensions or the variables representing them. Therefore the amount of income to be given up in order to get an additional year of life is irrelevant in the HDI framework. If there was substitution among the dimensions or the variables, then equal weights would not have made sense. But the absence of any substitution makes the assumption of equal weights defensible. In the HDI, there is, however, an assumption of transformation – education is transformed into knowledge that enhances human capabilities and income is transformed into other dimensions of human development not entirely captured in the HDI. 3) Treatment of income: Income is a means to human development, not an end by itself. This dictates the way income enters into and is treated in the HDI. Income enters into the HDI not in its own right, but as a proxy for all the dimensions not included in HDI. The issue here is how income is transformed into enhancing human attainment in those areas. There is also the notion that one does not need unlimited income for enhancing human development. Even with little income, a lot can be achieved in human development. This perspective and also the concern that income should not dictate the value of the HDI have led to adjusting income as it enters the HDI. Higher values of income are adjusted downwards through mathematical treatment (logarithmic transformation) before it enters into the HDI. Thus an extra dollar when the income is US$10,000 adds a lower value to human development than the same extra dollar when the income is US$100. Formula: Once all the variables are normalized with the necessary adjustments, the HDI is computed by taking a simple mean of the three sub-indices. The maximum value of the HDI is 1 and the minimum value is 0. Before computing the HDI, the index value for each variable is calculated. To estimate the indexes of life expectancy, literacy and GDP, the maximum and minimum values for each index is chosen as follows: • • • •

Life expectancy at birth: 25 and 85 years Adult literacy( 15 years and above): 0 and 100 percent Combined primary, secondary and tertiary enrolment: 0 and 100 Per capita GDP (in PPP US$): 100US$ and 40,000US$ (PPPUS$).

HDI is a simple average of these three indices (Box 1.3). Absolute value – Min value Index = ------------------------------------Max value –Min value

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Part one. Human development: paradigm, measurement and policy issues

Refinements in the methodology of the HDI over time Since its launch in 1990, the HDI has caught the attention of academics, researchers, policy makers, and development activists. Several articles analyzing the HDI have appeared in academic journals. Some have praised the HDI for its broader perspective of human well-being but others have criticized its weaknesses in the analytical framework, its methodology, and its data shortcomings. Some have also questioned its internal consistency, robustness, and predictive power. Most of the articles have offered constructive criticisms of the HDI and suggested different refinements to its methodology. Policy makers have also been interested in examining whether the HDI can hold its relevance in diverse situations and serve as a useful policy guide. Development activists have been concerned with more innovative use of the index for advocacy purposes. The requirements were evident to refine HDI in terms of methodology and improve the use of quantitative data for the HDI calculation. The Human Development Report Office (HDRO) has responded to the challenge quite effectively, and has, over the years, guided by Nobel laureate Amartya Sen and Professor Sudhir Anand, introduced several modifications and refinements to the HDI. As a result, the analytical framework and methodology of the HDI improved. When the HDI was first introduced in the Human Development Report 1990, it presented the following five characteristics. First, the HDI was constructed from a ‘deprivational’ perspective. The composite of average deprivation was estimated first by identifying deprivation for each variable and then the HDI was defined as 1 minus the composite average deprivation. It reflected a round about way of deriving the HDI. Second, in the educational attainment component, there was only one variable – adult literacy rate. Third, in terms of discounting income, the logarithmic value of income was taken regardless of the level of income. Fourth, for each variable, the maximum and minimum values were the observed ones for the particular year. Fifth, the HDI was constructed only for 130 countries. As time went by HDI and related issues have become more specific and its computing methodology has been refined responding to scientific criticism, policy measures, and development actors’ concerns. The major refinements that have been introduced in the computation of the HDI are as follows:

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•

Direct calculation of the HDI: Starting from 1991, the HDI began to be calculated directly to avoid the round about way and also to give it a positive spin. That tradition still continues.

•

Educational attainment variable: In the HDR 1991, mean years of schooling was added as a second component to adult literacy to form the variable for educational attainment. A second variable was included to have a sense of educational attainment of people not covered by adult literacy. Adult literacy was given two-thirds weight and mean years of schooling one-third weight, as adult literacy is more representative of stock variable for attainment. But the mean years of schooling were constructed in a fuzzy way and some of the data

Chapter 1. Human development concept and its measurement

Box 1.3 The calculation of the Human Development Index The calculation of the HDI used 2002 data for Mongolia.

1. Calculating the life expectancy index The life expectancy index measures the relative achievement of a country in life expectancy at birth. The life expectancy for Mongolia is 63.51 years and the life expectancy index is 0.642.

2. Calculating the education index The education index measures a country’s relative achievement in both adult literacy and combined primary, secondary and tertiary gross enrollment. First, an index for adult literacy and one for combined gross enrolment are calculated. Then these two indices are combined to create the education index, with one-thirds weight to adult literacy, two-thirds weight to combined gross enrollment. For Mongolia, adult literacy rate is 97.8 and combined gross enrollment rate is 82.2. Thus adult literacy index is 0.978 and combined gross enrolment index is 0.822. The education index, which is a combination of these two, has the value 0.884.

Education index=2/3(adult literacy index)+1/3(gross enrolment index)=2/3( 0.978)+1/3(0.822) = 0.884

3. Calculating the GDP index The GDP index is calculated using adjusted GDP per capita (PPP US$). In the HDI income serves as a surrogate for all the dimensions of human development not reflected in along and healthy life and in knowledge. Income is adjusted because achieving a respectable level of human development does not require unlimited income. Accordingly, the logarithm of income is used. For Mongolia, with a GDP per capita of $2,125.35(PPP US$), the GDP index 0.510.

4. Calculating the HDI Once the dimension indices have been calculated, determining the HDI is straightforward. It is a simple average of the three dimension indices. The Mongolia HDI is 0.679. HDI=1/3(life expectancy index)+1/3(education index)+1/3(GDP index) =1/3(0. 642)+1/3(0.844)+1/3(0.510)=0.679

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Part one. Human development: paradigm, measurement and policy issues

•

•

did not seem to be reflecting the reality. Therefore, in 1995, it was replaced by combined gross enrolment at primary, secondary and tertiary level. Maxima and minima: Until 1994, in normalizing variables, observed maxima and minima were used. It created some serious problems. First, there was no way of knowing whether the changes in the HDI value of a country are because of its improved performance or because of changing the goal posts. Second, since the observed maxima and minima change from year to year, representing changes in goal posts themselves, any meaningful inter-temporal comparison was not possible. In 1994, fixed maxima and minima as goal posts were introduced. These were no longer observed, but rather based on the trends of the variables, and their probable values over the next 25 years. Fixing the maxima and minima for variables made it possible to carry out meaningful trend analysis of the HDI. Treatment of income: Even though in 1990, income was logged in the HDI, for the next eight years, income above a cut-off point was adjusted drastically using a highly regressive formulation. Three observations are pertinent to this adjustment. First, the cut-off point was the average world income on the assumption that every person as a member of the global community should have at least this level of income for building basic capabilities. Second, the adjustment was so drastic that US$35,000 (above the US$5,000 cut-off point) was reduced to US$321 by this adjustment. Third, this formulation penalized middle income countries unduly. In order to rectify all these, the formulation of logging income all through was again introduced in 1999.

It is necessary to mention that along with these methodological refinements, attempts to generate more reliable, consistent and robust data over time were also conducted. In this area, the HDRO played a leading roleby expressing the need for better and relevant data in different areas, interacting with various United Nations agencies and international organizations to demand the production of such data, and urging the national statistical offices to generate them. It should be stressed that the National Human Development Reports (NHDRs) have played a major role in becoming a good depository for innovative and disaggregated data at the country level. Without improvements in data the methodological refinements in HDI could not have been tested. In order to be credible to its users and also to encourage a productive discussion on these adjustments, all methodological modifications as well as changes in data series or sources should be properly and timely documented. In recent times, the HDRs and the HDRO have been quite careful in providing such documentation, thereby enhancing the transparency of the exercise. This has led to very constructive debates on the index and the reliability of data underlying the construction of the HDI.

Achievements of the HDI When the HDI was first introduced in 1990, its proponents did not have the slightest idea that its influence would be so far-reaching in terms of having an impact on policy thinking, of being used as a major advocacy tool, and of becoming the focus of serious academic inquiries. Over the years, five distinctive achievements of the HDI can be mentioned:

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Chapter 1. Human development concept and its measurement First, the HDI has diluted considerably the notion that income is the sum of all human lives. It has re¬affirmed the point that per capita income cannot be the measure of human well-being. This perspective has changed the way development is looked at and analyzed. And today development is viewed broader than the sole economic growth. As a result, development with a human face no longer remains rhetoric. The new human development paradigm has had implications for policies, resource allocations and institution building. Macroeconomic policies of various developing countries in Asia, Africa and Latin America started to explicitly take various issues of human development into consideration. Policy makers in these countries have moved away from a growth-centric perspective of development and have begun to concentrate on broader dimensions of human well-being. In many parts of the world, new and emerging development concerns have started to dominate the development discourse. Thus, in countries like Botswana and South Africa the implications of HIV/AIDS for development have become a serious issue. In March 2001 the President of Botswana made a decision to provide free access to anti-retroviral (ARV) drugs for the 17 percent of the country’s population with HIV/AIDS. The erosion of basic social services in Eastern Europe and the CIS has dominated policy dialogue in that region. And the human impact of the East Asian crisis has drawn attention of policy makers since the 1990s. The focus of development on basic human concerns has also changed the ways resources are allocated. The first Egypt National Human Development Report pointed out that Upper Egypt was lagging behind the Cairo region in every area of human development. This led to a serious policy discussion between the Governors of 17 provinces in the country on the issue of resource allocation. And it changed the entire resource allocation pattern, with more funds going to Upper Egypt. The HDRs have led to asking questions and identifying reasons for shortfalls in human development. In the Philippines with the publication of its 1997 NHDR, the issue of allocating a threshold amount for basic social services at the level of local governments was identified as a crucial factor for development. Accordingly, a presidential directive was issued requiring all local governments to devote at least 20 percent of domestic revenue to human development priorities. At the global level, the relevance of the HDI for allocation of bilateral aid or the core funds of multilateral agencies is being explored. In many countries, with the HDI at the centre stage, new institutions have evolved to move forward the agenda for human development. In Bolivia, a new ministry for human development has been established to give proper priority to this issue. Second, the HDI has started a desirable and healthy competition among countries to surpass their neighbours or favourite competitors in rankings. With the yearly publication of HDR, the first thing that draws attention of different quarters is the ranking of a relevant country vis-à-vis the ranking of its favourite neighbour. Thus in Norway, people look out for its ranking as compared to that of Sweden. Similarly, India’s relative ranking vis-à-vis that of Pakistan is what evokes considerable interest. Such competition forces policy makers to review why their country is lagging behind its neighbours and encourages them to introduce policies to overcome the shortcomings. It necessitates a

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Part one. Human development: paradigm, measurement and policy issues thorough examination of development strategies, a review of priorities and an assessment of resource allocation patterns guiding the nation’s development. Third, the HDI has served as an instrument of public communication for strong advocacy. It has also contributed significantly to policy debates and dialogues. NGOs and institutions of civil society in different countries have used it for highlighting their demands and pressing the governments on various issues. For example, regional disparities revealed by the disaggregated HDIs in the Brazilian NHDRs have prompted institutions of civil society in that country to highlight the issue of inequality and demand measures to reduce it. Brazil is now constructing HDIs at the State, district and municipal levels. Such exercises have been carried out in other countries like Venezuela, Poland, Bulgaria and India. The HDI has also been used as a strong advocacy tool during different international and global events. In 1995, at the Fourth World Conference on Women in Beijing, the disaggregated HDI in terms of gender was used by NGOs to highlight the disparities women face both in terms of capability building and opportunities. At the Habitat Conference in Istanbul in 1996, differences in rural and urban HDI across many countries were emphasized by various institutions of civil society to highlight the disparities in housing. Fourth, the HDI has promoted the practice of monitoring and evaluation and prompted the production of more systematic and reliable data. At the global level, the HDI has been used to provide the contextual backdrop for monitoring the Millennium Development Goals and for preparing the UN Wide Common Country Assessment (CCA) Framework. In Kuwait, the Ministry of Planning has used the HDI framework to monitor human development and develop key indicators for strategic planning. The HDI has also led to mobilization of new and more systematic data both at the global and national level. Fifth, the introduction of the HDI has generated considerable academic research and empirical studies on the issue of theoretical refinements and statistical sophistication of the index. The academic research has not only concentrated on a substantive review of the index – its consistency, statistical properties, its robustness and predictive power–, but has also examined various refinements to its present form. Some of the research has concentrated on the issue of including other dimensions of human development in the index. Yet some others have explored the possibility of using other innovative indicators to represent the dimensions represented in the HDI. For instance, a number of NHDRs and sub-national HDRs (e.g. the HDR of Madhya Pradesh in India) have experimented with indicators more relevant to the Madhya Pradesh context to reflect the dimensions of the HDI. More than 10 student degree thesis focused on HDI and many scientific periodicals publish researchers’ articles. Some of them highlight the quantitative indicators and their refinements.

24

Chapter 1. Human development concept and its measurement Limitations of the HDI While recognizing the achievements of the HDI, it is equally important to have a clear idea of its limitations. This will help in preventing misuse or abuse of the index. While the HDI should not be denied the recognition that it deserves, at the same time it should not be used to highlight things that it does not stand for, nor should it be criticized or undermined for the things that it does not or cannot claim to capture. The HDI is not a perfect index, which fully captures the concept of human development. In fact, any concept is broader than its proposed measurement, because the measurement cannot fully reflect the concept. Thus there is no pretension that HDI fully and perfectly captures the whole of human development. The HDI does not take into account every aspect of human development. It focuses on three dimensions of basic capabilities – a long and healthy life, knowledge and a decent standard of living. The HDI in no way undermines the fact that other aspects of human life, such as participation, political freedom and human security are equally important. However, the rationale for concentrating on three basic dimensions of human lives is that if these three basic capabilities are achieved they would open up opportunities in other dimensions of human lives valued by people. The HDI does not provide a comprehensive picture of human development in any situation. Nor can it substituted for all the rich information that is contained in the HDRs or in the various tables on human development indicators. It is necessary to complement the HDI with rich and qualitative information in order to get a proper assessment of human development in any society. The HDI – Looking Forward Within the decade the HDI has established itself as an important measure of development. Its advocacy role, its importance for policy guidance and its potential for inducing further research are well recognized by now. However, to continue to play a constructive and provocative role in all these areas in future, it has to look forward and be subjected to constant scrutiny, refinements and innovation. In the coming years, the following issues ought to be kept in mind: Keeping it simple. The HDI is a measure of average achievements in basic human development. Its universality, advocacy value and policy relevance derive from the fact that it is simple. It should therefore be kept simple. In this regard, two basic points ought to be noted. First, there are certain aspects of human life and well-being where qualitative assessments may be more meaningful. Such areas may cover, for instance, human rights, culture and political freedom. Experiences with the Human Freedom Index in 1991 and the Political Freedom Index in 1992, for example, have clearly shown that quantitative assessments based on subjective judgment tend to be misleading and unproductive. Every aspect of human life cannot be and should not be captured by a number, particularly when that number represents a subjective valuation. Second, even in the area of quantitative indicators, renewed attempts should be made to explore new possibilities in such areas as environment, sustainability and governance. The idea however should not be to include all these in the HDI because that would overburden the HDI and destroy its simplicity and predictive power. For

25

Part one. Human development: paradigm, measurement and policy issues example, in earlier years, attempts were made to ‘green’ the HDI, but it was soon found that such a measure cannot be universal as there is no common set of environmental indicators that captures the realities of both developed and developing countries. Refining the variables. Several efforts have been made to refine the variables entering the HDI. For instance, there are serious methodological and data problems associated with mean years of schooling and the combined gross primary, secondary and tertiary enrolment ratios. There is the issue of combining a stock variable (adult literacy) and a flow variable (combined enrolment ratio). Suggestions have been made to come up with such variables as years of school expectancy. However, to construct data for years of schooling, one would need data on age-specific net enrolment ratio. These are not readily available. Short-term changes in human development. The HDI is composed of stock variables and therefore does not effectively capture short-run changes in human development. It is also not very sensitive to policy changes; this weakness may prove frustrating for policy makers. The Human Development Report Office is engaged in collaboration with a number of UNDP Country Offices to come up with short-term progress indicators that will capture average achievements, deprivation and inequalities. These indicators would be more sensitive to policy changes and would also be able to monitor short-term progress. A proposed structure of such perspectives has been presented in the Human Development Report 2000. More innovative indicators. The value and relevance of the HDI are enhanced if the rest of the human development accounting is strengthened. Since the release of the HDR in 1990, there have been continuous searches for relevant and meaningful indicators on various aspects of human development. There have also been several experiments to provide a new policy twist and adopt innovative approaches to present them in a user-friendly way. All these have been guided by three considerations. First, human development is broader than the composite indices. As Prof. Amartya Sen observes, “In contrast with the coarse index of HDI, the rest of the Human Development Reports contains, in extensive collections of tables, a wealth of information on a variety of social, economic and political features that influence the nature and quality of human life”. Second, policy twists to basic human development indicators can guide policy-makers. Thus, for example, a traditional indicator like military expenditure as a percentage of GDP may offer little policy guidance. This is because by merely looking at such figures, there is no way of determining whether military expenditure at 5 percent of GDP is worse than 2 percent of GDP. If the GDP in the first case is US$100, while in the second case, it is US$10,000 then, in absolute terms, more resources are spent on military in the second case than in the first. The point is that percentage figures do not convey this information. On the other hand, if military expenditure is shown as a ratio of expenditures on health and education, then almost immediately, it has the potential of revealing misplaced priorities in terms of resource allocations. Third, if the users of human development indicators do not find the presentation of data attractive, then the purpose of using them for advocacy, policy dialogues and social debates will be lost. New, improved, robust and reliable data. Whatever innovative indicators and indices are proposed for monitoring human development, one cannot go far if reliable, consistent, robust and timely data are not available. Today, economic data are more readily available than social sector data. More up-to-date data are available at the country level, but internationally standardized data at the global level are not so easy to obtain.

26

Chapter 1. Human development concept and its measurement Sometimes snapshot information can be obtained, but it is difficult to get panel data to look at changes over time. Serious efforts at strengthening the database have resulted in three things. First, more and better national data have been made available to respective UN agencies and international organizations in a timely fashion thereby reducing the lag between the availability of data at the national and the international level. Second, new processes are being carried out at the national level to collect more social data, more disaggregated data and more innovative data. National HDRs have played a role in this respect. And third, there is now more emphasis on building the statistical capability at the country level with support, wherever needed, of the international community. Much more, however, needs to be done. Otherwise one cannot make a number of desired refinements to the measurement of human development. For example, it is not possible to use years of school expectancy as an indicator for educational attainment in the HDI because agespecific net enrolment ratio within the primary school age group is not available. Similarly, it would have been possible to construct more meaningful measures of Gender-related Development Index (GDI) and Gender Empowerment Measure (GEM) (see below) if gender disaggregated income data was available. Again, the absence of reliable data on access to health services has forced the estimate of Human Poverty Index-1 (HPI-1) to rely on the other two variables included in economic provisioning. Non-availability of data has also limited the computation of GDI, GEM and HPI-1 to less than 100 countries. Cooperation between international organizations and their close work with country statistical offices ought to build networks for initiating new sample surveys, data collecting mechanisms, and for putting a framework for reliable and standardized data and publishing them regularly. Going beyond the HDI Even though the HDI, within a few years after its introduction, was widely appreciated as a major policy instrument and a useful policy tool, it was recognized early as a measure of average achievements in human development. It can neither reflect the distributional aspect of development, particularly the issue of inequality, nor can it measure the deprivation aspect of development. Over the years, attempts have been made to address these shortcomings of the HDI. First, in 1995, composite indices (GDI and GEM) were constructed to capture gender inequalities in human development. Second, in 1997, a composite index was proposed and constructed for measuring the multi-dimensionality of poverty. Third, these composite indices were disaggregated in terms of regions, states and provinces, by gender, race or ethnic groups and according to rural and urban locations. Gender-related Development Index and Gender Empowerment Measure The Gender-related Development Index (GDI) and a Gender Empowerment Measure (GEM) were introduced in 1995 to capture gender inequality in achievements of basic capabilities (GDI) and gender inequality in economic and political opportunities (GEM). The GDI measures achievements in the same dimensions and uses the same variables as the HDI does, but takes into account inequality in achievements between women and men. The greater the gender disparity in human development, the lower is a country’s GDI compared to its HDI. The GDI is simply the HDI adjusted downwards for gender inequality. The GEM indicates whether women are able to actively participate in economic and political life. It focuses on participation by measuring gender inequality in key areas of economic and political participation and decision-making. It thus differs from the GDI,

27

Part one. Human development: paradigm, measurement and policy issues an indicator of gender inequality in basic capabilities. The computation of the GDI and GEM have established that greater gender equality in building human capabilities or providing opportunities to women does not depend on income level or stage of development. And it can be achieved across a range of cultures. Both the GDI and the GEM have served useful purposes. First, the GDI, through its construction, incorporates the degree of aversion to gender inequality in society and as such reflects social choices in this regard. Both the GDI and the GEM have been used extensively by women’s groups, feminist activists and civil society movements for advocacy. They were extensively used in World Women Conference 4 held in Beijing in 1995. Policy makers have found the GDI and GEM extremely relevant for formulating and tracking pro-women policies and programmes. The gender-related development index (GDI)

While the HDI measures average achievement, the GDI adjusts the average achievement to reflect the inequalities between men and women. The calculation of the GDI involves three steps (box 1.4). First, female and male indices in each dimension are calculated. Box 1.4 The calculation of the GDI The example is based on the 2002 data of Mongolia.

1. Life expectancy index: Female

Male

Life expectancy:

66.5

60.8

Population share:

0.504

0.496

66.5-27.5 Female life expectancy index = 0.642 87.5-27.5

Male life expectancy index =

60.8-22.5 0.638 82.5-22.5

Calculation of equally distributed life expectancy index is based on these two indices. Equally distributed life expectancy index={[0.496(0.638)-1]+[0.504 (0.642)-1]}-1=0.643

2. Calculating the equally distributed education index Female

Male

Population share:

0.504

0.496

Adult literacy rate:

97.5

98.0

Adult literacy index:

0.975

0.980

Gross enrolment ratio:

73.0

66.3

Gross enrolment index:

0.730

0.663

Female and male education indices are calculated according to the formula in HDI calculation.

28

Chapter 1. Human development concept and its measurement Female education index=2/3 (0.975)+1/3 (0.730)=0.893 Male education index=2/3 (0.98)+1/3 (0.663)=0.874 Equally distributed education index ={[0.504(0.893)-1]+[0.496 (0.874)-1]}-1=0.884

3. Calculating the equally distributed income index Female

Male

Population share:

0.504

0.496

GDP per capita (PPP US$):

1950.4

2303.2

Female income index=

Male income index=

Equally distributed income index ={[0.504(0.495)-1]+[0.496(0.524)-1]}-1=0.509

4. Calculating the GDI The GDI is a simple average of three equally distributed indices of life expectancy, education and earned income. GDI=1/3(life expectancy index)+1/3(education index)+1/3(income index) =1/3(0.643)+1/3(0.884)+1/3(0.509)=0.679

Second, the equally distributed indices are calculated according to the following formula: Equally distributed index={[female population share (female index1-E)]+[male population share (male index1-E)]}1/1-E E measures the aversion of inequality. In general, the higher the value, the larger the aversion for inequality. In GDI calculation E=2. Thus equally distributed index for GDI is a harmonic mean of the female and male indices. Fixed minimum and maximum values for GDI calculation: • Female life expectancy at birth: 27.5 years and 87.5 years. • Male life expectancy at birth 22.5 years and 82.5 years. • Adult literacy rate (age 15 and above): 0 percent and 100 percent. • Combined gross enrolment ratio: 0 percent and 100 percent. • GDP per capita (PPP US$): $100 and $40,000 (PPP US$). Third, the GDI is a simple average of three equally distributed indices. The gender empowerment measure (GEM) Focusing on women’s opportunities rather than their capacities, the GEM captures gender inequality in three key areas: • Political participation and decision-making power, as measured by women’s and men’s percentage shared of parliamentary seats.

29

Part one. Human development: paradigm, measurement and policy issues

Box 1.5 Calculating the GEM The calculation is based on the 2002 data for Mongolia as whole. 1.Calculating the EDEP for parliamentary representation The EDEP for parliamentary representation measures the relative empowerment of women in terms of their political participation. Female

Male

Population share:

0.504

0.496

Parliamentary share:

10.53

89.47

EDEP for parliamentary representation={[0.504(10.53)-1]+[0.496(89.47)-1]}-1=18.67 Indexed EDEP for parliamentary representation=

=0.373

2.Calculating the EDEP for economic participation The EDEP for economic participation is calculated using the percentage share of administrative and managerial positions and the percentage share of professional and technical positions. Female

Male

Population share:

0.504

0.496

Percentage share of administrative and managerial positions:

36.4

63.6

Percentage share of professional and technical positions:

58.1

41.9

EDEP for administrative and managerial positions={[0.504(36.4)-1]+[0.496(63.6)-1]}-1=46.2 Indexed EDEP for administrative and managerial positions=

=0.923

EDEP for professional and technical positions={[0.504(58.1)-1]+[0.496 (41.9)-1]}-1=48.8 Indexed EDEP for professional and technical positions=

=0.975

EDEP for economic participation is an average of two indexed EDEPs. EDEP for economic participation =

=0.949

3.Calculating the GEM Women’s and men’s earned income (PPP US$) is estimated.

30

Female

Male

Population share:

0.504

0.496

Estimated earned income (PPP US$):

1950.7

2303.2

Chapter 1. Human development concept and its measurement •

•

Economic participation and decision-making power, as measured by two indicators - women’s and men’s percentage shares of positions as legislators, senior officials and managers and women’s and men’s percentage shares of professional and technical positions. Power over economic resources, as measured by women’s and men’s estimated armed income (PPP US$).

For each of these three dimensions, an equally distributed equivalent percentage (EDEP) is calculated, as a population-weighted average, according to the following general formula: EDEP={[female population share (female index1-E)]+[male population share (male index1-E)]}1/1-E

E measures the aversion to inequality. In the GEM (as in the GDI) E =2, which places a moderate penalty on inequality. The formula is thus: EDEP={[female population share (female index-1)]+[male population share (male index-1)]}-1 For political and economic participation and decision-making, EDEP is then indexed by dividing it by 50. The rationale for this indexation is that, in an ideal society, with equal empowerment between sexes, the GEM variables would equal 50 per cent; i.e. for each variable, the women’s share would equal the men’s share. The GEM is calculated as a simple average of the three EDEPs. Female income index= Male income index= The female and male indices are then combined to create the equally distributed index: EDEP for income={[0.496(0.055)-1]+[0.504 (0.046)-1]}-1=0.050 4. Calculating the GEM Once the EDEP has been calculated for the three dimensions of the GEM, determining the GEM is straightforward. It is a simple average of three EDEP indices. GEM

= 0.458

31

Part one. Human development: paradigm, measurement and policy issues

1.3 HUMAN POVERTY Poverty manifests itself in the deprivation of the lives that people lead. Poverty involves not only the lack of the necessities of material well-being, but the denial of opportunities for living a decent life. For some people, poverty makes their life difficult, painful or hazardous. For others it can deprive of knowledge and communication. And poverty affects dignity, confidence and self-respect as well as the respect of others. All these are aspects of poverty that limit and blight the lives of many millions in the world today. If human development is about enlarging choices, poverty means that the most basic opportunities and choices to human development are denied (i.e. the opportunity to lead a long, healthy, creative life and to enjoy a decent standard of living, freedom, dignity, self-respect and respect for others). Concerns with identifying people affected by poverty and the desire to measure it have at times obscured the fact that poverty is too complex to be reduced to a single dimension of human life. It has become common for countries to establish an incomebased or consumption-based poverty line. Although income focuses on an important dimension of poverty, it gives only a partial picture of the many ways human lives can be blighted. Someone can enjoy good health and live quite long but be illiterate and thus cut off from learning, from communication and from interactions with others. Another person may be literate and quite well-educated but prone to premature death because of epidemiological characteristics or physical disposition. Yet others may be excluded from participating in the decision-making processes affecting their life. None of these deprivations can be fully and effectively captured by the level of their income. Also, people perceive deprivations in different ways. Each person and community may differently define deprivation and disadvantages that affect their lives. Poverty of lives and opportunities – or human poverty – is multidimensional in character and diverse rather than uniform in content. The concept of human poverty was first introduced in the Human Development Report 1997. In addition to being broader than income poverty, human poverty offers a different way of evaluating development. Human development focuses on advances made by all groups in each community from the rich to the poor. In the human poverty perspective, development is judged by the way the poor and the deprived fare in each community.

Human Poverty Index (HPI) The Human Development Report 1997 introduced a composite measure for multidimensional poverty – the Human Poverty Index (HPI). The idea was first, to look at human development from a deprivation perspective and second, to assess how the benefits of human development – as measured by the average achievements represented by the HDI – are distributed. People sometimes argue that HPI-1 is a measure of deprivation, but this is not correct. It measures shortfalls in average achievements. The HPI was constructed both for developing countries (HPI-1) in 1997 and for industrial countries (HPI-2) in 1998. The HPI measures deprivations in basic human development in the same dimensions

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Chapter 1. Human development concept and its measurement as the HDI and additionally includes the aspect of participation or social inclusion (see box1.6). Box 1.6 Calculating the Human Poverty Index (HPI) HPI-1=[1/3(P1a+P2a+P3a)]1/a Where, P1= probability of people born today who will not to survive to age 40 P2= The percentage of illiterate adults in total population P3= The average of the proportion of population who has no access to drinking water (W), and the proportion of under weight children below 5 years old in total chidren who have normal weight (H)

a=3 Unweighted average=[1/2(W)+1/2(H)] Example. The Republic of Central Africa, 2004 W= 30 per cent. H= 23 per cent Unweighted average= [1/2(W)+1/2(H)] =1/2(30)+1/2(23)=26.5 P1=55.3 per cent P2 =51.8 per cent P3 =26.5 per cent HPI-1=[1/3(55.33+51.83+2653)]1/3=47.8 Shortage of decent living standard is 47.8 HPI-2=[1/4(P1a+P2a+P3a+P4a)]1/a Where, P1- probability of people born today who not expected to survive to age 60. P2- The percentage of illiterate in total population P3-The proportion of the population living below poverty line which calculated based 50 percent of low income groups P4- long-term unemployment rate /12 months and above/

a=3 For HPI-1, the deprivation in long and healthy life is measured by the percentage of people born today who will not survive to age 40; deprivation in knowledge is measured by the adult illiteracy rate, and deprivation in economic provisioning by the percentage of people lacking access to health services and safe water and percentage of children under five who are malnourished. Two observations are pertinent. First, for economic provisioning in developing countries, public provisioning may be more important than private income. At the same time, more than four-fifths of private income is spent on food. Thus in developing countries, lack of access to health services and safe water and the level of malnutrition capture deprivation in economic provisioning more practically and meaningfully than other indicators. Second, the absence of a suitable indicator and lack of data prevent the HPI-1 from reflecting deprivation in social inclusion in developing countries.

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Part one. Human development: paradigm, measurement and policy issues For the HPI-2, the deprivation in long and healthy life is measured by the percentage of people born today who not expected to survive to age 60; deprivation in knowledge is measured by the percentage of adults who are functionally illiterate; deprivation in economic provisioning is measured by income Poverty incidence (as private income is the most important source of economic provisioning in developed countries); and deprivation in social inclusion by the long-term unemployment rate. The HPIs have served a number of purposes. However imperfect, they have provided a single measure of the multidimensionality of poverty. They have established that if income is not the total sum of human lives, lack of it cannot be the total sum of human deprivation either. They have been effective in showing the distribution of the average achievements of human development as reflected in the HDI. They provided recognition to the fact that poverty is not only a developing country phenomenon; it is very much a developed country problem as well. HPI-2 has helped to differentiate the human development situation among countries whose average achievements in human development are extremely close. A high human development does not automatically imply low levels of human deprivation.

Disaggregation of Composite Indices Disaggregation of all the composite indices has provided a mirror to societies to see the real picture. The composite indices have been disaggregated in terms of regions, states or provinces, races, ethnic groups, and according to rural and urban locations. In a number of cases, these exercises have been carried out by individual researchers. In other cases, studies have been commissioned by the HDRO. In a majority of instances, such exercises have been spearheaded by the National Human Development Reports (NHDRs). All these exercises have highlighted disparities in human achievements or deprivations across races, ethnic groups, regions, states and provinces. Three observations on the disaggregated composite indices are pertinent. First, disparities in human development are not exclusive to developing countries. There are serious human development disparities in the developed world as well. Second, in many countries, disaggregation of human development composite indices and indicators has been carried out at the district level (Venezuela) and at the municipal level (Brazil). These have provided new insights for local level policies and programmes. Third, in many countries, disaggregation of composite human development indices has had important impacts on policy dialogues and decisions.

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Chapter 1. Human development concept and its measurement

1.4 GLOBAL AND NATIONAL HUMAN DEVELOPMENT REPORTS, THEIR IMPORTANCE Global Human Development Report In 1990 UNDP produced and released a first global human development report. Since then it has been producing the global reports every year embarking on specific themes. The first five series of reports were published under the initiative and masterful efforts of Mahbud Ul Huq leading Pakistani economist and first architect of the human development perspective. Namely these series masterfully led by Mahbud Ul constituted a basis for human development perspective to reach and spread worldwide. The credit also goes to prominent Indian Economist and Nobel Prize Winner Amartya Sen who has made significant contribution to advance the human development perspective. Global Human Development Report aims to promote the appreciation and cognitive measures of human development in each region and place and serve a provoking source of alternative views and thoughts around the development agenda. Global Human Development Report 1990 This first global human development report (GHDR) analyzes the links between economic growth and human development. The report states that the ultimate goal of development is to achieve human development through expanding human choices, and income represents one of the important means to implement these choices. The report, furthermore, emphasizes that health, education, physical environment and freedom reflect also important choices. It gives hence a thought to move away from traditional notion which states the higher economic growth and income are the better human development. The report evokes the attention of policy and decision makers by distinguishing the quality and non quality growth which is measured by where the economic growth stems from, whether the growth and income is translated in equitable distribution to people, and whether they lead to employment growth. The first GHDR recommends the developing countries to make their development strategies and plans focusing on quality growth and preventing from non quality growth. Global Human Development Report 1991 This report thoroughly reviews the financing mechanism of human development issues to show the availability of sufficient financial resources. Inefficient budget expenditures stem from inadequate political will and mind set of high level decision makers rather than from shortage of financial resources and capital. The second global report shows the inefficient resource expenditure and foregone costs through the examples of increasing army expenditures, ineffective funding for public factories, financing unnecessary projects, and corruption costs. Further the

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Part one. Human development: paradigm, measurement and policy issues report estimates 50 billion US$ which could have been saved from restructuring the government expenditures and effectively invested into pro human development investment. Global Human Development Report 1992 The report assesses the equal participation and access to market opportunities among citizens, countries, regions and worldwide. As stated the economic gap between rich and poor people has doubled in the last thirty years. The poorest people making up 20 percent of the world population have accessed to 1.3 percent of income from gross output, 1 percent of total trade and 1.3 percent of total investments. The third GHDR well proves that political freedom is one of the important components of human development. Since this report the political freedom index is added into HDI. The political freedom index is a composite of five variables: individual security, rules, freedom of expression, people participation in politics, and access to equal opportunity. Global Human Development 1993 This report emphasizes the citizen participation in governance and recommends policy and decision makers to implement the following two strategies to enhance the citizen participation in governance. First is to activate the civil society, and second is to transfer the governance and economic powers from central to local areas. The report highlights the importance of participation of NGOs which can influence decision and policy makers in the issues of environment, women, gender, and human rights. While revealing that less than 10 percent of budget goes to local budget expenditures in developing nations against25 percent in developed countries, the report recommends optimal distribution of local empowerment in governance to be a key measure to reduce both urban and rural divide and migration, and support local development. Global Human Development Report 1994 The break-up of the communist regimes and the end of the ideological war have affected the conception of human security and safe living. The concept has taken a new dimension which is reflected in 1994 GHDR that examines the human security in new terms. Human security has evolved from individual, country and regional boundaries to stand at global level. During the cold war it was believed that a country security guarantees an individual security. However, this notion is no longer true in the 21st century. Human security is jeopardized by drug trafficking, infectious diseases, environmental pollution, and terrorism all of which can spread across the countries.

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Chapter 1. Human development concept and its measurement The report describes the trends of these factors threatening the human security and recommends actions and strategies to implement. One of the recommendations is the implementation of the ‘20:20 strategy’ for developing countries in the areas of basic education, health, drinking water provision and other services. This strategy requires spending 20 percent of annual budget and 20 percent of donor and international organizational assistance on services to meet the basic needs of the people. Global Human Development Report 1995 Gender inequality has been reflected in global human development reports. The 1995 GHDR makes an indepth analysis of human rights and inequality, especially gender inequality. The report defines that “reaching gender equality is not technocrat goal, rather it is a political process to make fundamental changes in mindset.” For the first time ever, the 1995 eport presented the calculation, of both the gender development index (measuring the gender inequality) and the gender equality index (measuring women and men participation in decision making). Even though women capability and their political participation improve, the countries still differ on this aspect and women still stand lower than men. The report exposes that women are underpaid and in some cases not paid at all despite their considerable contribution to economic production. The cause for such a situation should be sought in the status and position of women in society, not in accounting and justice principles. The report reveals that the improvement of women’s social status, their role in social and market development activities, and the recognition of their work value should be treated as one single issue.. Global Human Development Report 1996 From a human development perspective, economic growth is seen as one of the important means to realize people’s opportunities and choices. Nonetheless, the current development process embodies two characteristics in itself. First, over the last 15 years, economic growth has not been translated into effective means to realize people’s opportunities and choices in over 100 countries where one third of the world population live in. Second, the link between economic growth and human development is weak and different in many countries. Some countries experience high economic growth with low human development while in others low economic growth did not lessen high human development achievement. The main subject of the report is the link between economic growth and human development. According to the report the reasons for the weak link between economic growth and human development are associated with the following five types of growth. They are as follows: jobless growth or economic growth which fails to produce employment; non-egalitarian growth or economic growth benefiting few people at the detriment of the majority which remains poor; voiceless growth or economic growth with limited democracy and market opportunities; rootless growth or growth leading to the destruction of cultural values; and futureless growth or

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Part one. Human development: paradigm, measurement and policy issues growth which depletes the resources at the cost of future generations. The report indicates that the link between economic growth and human development is weak in presence of one or several of these growths.

Global Human Development Report 1997 The report questions what we should do to eradicate poverty which has been persistent over long time. It mentions the importance of economic policies and economic adjustments to reduce poverty. But what really matters is political policies which should define what to do and what not to do. The important missing area is not financial resource and economic solutions, but political participation. If political reform takes place regularly and simultaneously with economic reforms, countries can make progress in poverty reduction, as recommended in the report.

Global Human Development Report 1998 Human development reports have reflected the interdependence between livelihoods of individuals and countries and their increasing consequences. Especially, the interdependence is defined by consumption pattern of working population and its impact on environment. The 1998 GHDR provides a detailed analysis of the trends and forms of the current unequal consumption and their potential consequences. Unsustainable consumption has become a catalyst for environmental degradation and overburdened the poor countries. The report shows that population in some countries tends to over consume while in other countries people’s basic needs cannot be satisfied yet.. The environmental degradation stems from both of these consumptions as shown in specific cases in the report.

Global Human Development Report 1999 The report examines globalization from a human development perspective. Addressing the impacts of globalization on income, employment, education and other factors, the report analyses the pros and cons as well as the influence of globalization on development policies of countries. The 1999 GHDR critically comments many surveys focusing on the impacts of globalization. The surveys treated humans as labour units or basic inputs in the production process, undermining thus the issues related to human care and welfare. One of the challenges faced by both developed and developing countries is to reduce negative consequences of international migration, emigration and illegal employment.

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Chapter 1. Human development concept and its measurement Global Human Development Report 2000 Human rights and political freedom are a major component of the human development perspective. Though the first series of GHDRs advocated that human rights and political freedom are a key component of HD, the situation in these areas has not improved in many countries. The 2000 GHDR fully captures the link between human rights and human development and recommends to decision makers to give priority political and civic freedom.

Global Human Development Report 2001 The 2001 GHDR focuses on the link between technology and human development. It states that technology is not a means to increase incomes, but rather a means to advance and reward human development. Authors of the report criticize that too much attention is given to the impacts of technology on economy and productivity rather than to its impacts on people’s livelihood, employment and income. For the first time the report counts the technology access index to measure the distribution of technique and technology among countries.

Global Human Development Report 2002 Poverty reduction has much to do with sound economic policies, fair distribution of economic gains, and democratic political governance as well as voices of the poor in governance. Political forces which enable poor people to enhance their economic and political opportunities and choices are essential to fight and reduce poverty. In order to meet basic human development goals governance at all social levels should become democratic. The 2002 GHDR analyzed the characteristics of democratic governance and its impact on human development at all levels (including global level). Through facts and surveys, the report highlights both direct and indirect impacts of democratic governance on poverty and human development.

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Part one. Human development: paradigm, measurement and policy issues Global Human Development Report 2003 The report fully captures the recommendations on how to achieve the MDGs. Heads of states of 189 countries gathered at the UN Millennium Summit in 2000 to proclaim the Millennium Declaration and join eight targets of halving poverty, stopping HIV spread and eradicating illiteracy by 2015. The report recommends developing countries on policies that can be pursued in political, economic and social areas and on a framework of priority assistance activities by donors and international organizations.

Global Human Development Report 2004 In some countries, it is common to observe that people are deprived of opportunities to participate in local and national political activities and have no access to employment, education, health, and other social services because of their religion, belief, ethnic minority or races. The report embarks on cultural diversity and cultural rights and sets forth most optimal policy alternatives to address these issues.

Global Human Development Report 2005 The 2005 GHDR addresses the international relations and trade, and conflicting issues between developed and developing nations in today’s globalizing world. Critical review encompassing a broader framework reveals the incompatibility of the loans and grants from international financial organizations and developed countries with the development policies and strategies of the beneficiary countries and the trade barriers and obstacles faced by these countries. The report also manifests the depletion of natural resources and their rational distribution.

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Chapter 1. Human development concept and its measurement Global Human Development Report 2006 This report presents the drinking water shortage; the most vulnerable and pressing challenge faced by the world. The main causes and consequences of shortage of drinking water for 1.2 billion people and inaccessibility of treated drinking water for 2.6 billion people are carefully analyzed. The 2006 GHDR identifies the social and economic factors leading to shortage of drinking water and puts forward the policy recommendations to address this issue both globally and nationally. Similarly, proposals for water management and regulation of trans-boundary rivers at international level are expressed.

National Human Development Reports Since the release of the first global human development report in 1990 UNDP has supported the countries in producing their national human development reports. National Human Development Reports (NHDRs) examine the development of a country using human development indicators and human development perspective that are more sensitive to the country context. These reports try to accurately describe people’s perceptions and aspirations, setbacks and progress in capabilities and opportunities for men and women, promote human-based -policies, and provide means for development planning and methodological recommendations. In this sense NHDRs have become a key instrument for national policy debates. NHDRs endeavour to reflect the true situation of a country, its challenges and priorities, resources, opportunities, obstacles, and development trends.

Mongolia is one of the 120 countries to have produced a NHDR. Since the first report release in 1997, NHDRs are produced with a three year distance each reflecting specific themes. The first Mongolian HDR in 1997 assessed the living and wellbeing of people during the transition period while the second report in 2000 made an analytical review of the State roles to give rise to nationwide debate on people expectations from the State.

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Part one. Human development: paradigm, measurement and policy issues The third NHDR in 2003 embarked on urban and rural divide of human development. The report highlighted the increasing urban and rural divide despite the economic progresses of the country. It revealed that urban areas have higher income poverty and that inequalities contribute to internal migration, faster urbanization, and higher poverty in urban areas. According to the migration survey, half the Mongolian population is expected to concentrate in Ulaanbaatar by the year of 2015. The 2003 NHDR analyzed the urban and rural divide through the human development perspective and the responses of the State and the people to the increasing divide. Recommendations for policy options to reduce the gap between urban and rural areas are given.

The theme of the 2007 NHDR is employment and poverty. This document is of importance in developing poverty reduction strategies as it describes the key characteristics of Mongolian economy and proposes diverse policy options to face these issues.

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Chapter 1. Human development concept and its measurement BIBLIOGRAPHY AND ADDITIONAL READING MATERIALS Amartya Sen. 1999. “Development as Freedom”. Anchor Books, New York. - 1999. “A Decade of Human Development”. Journal of Human Development, 1(1), New York, Carfax Publishing. Anand, Sudhir and Amartya Sen. 1993. “Human Development Index: Methodology and Measurement”. Human Development Report Office Occasional Paper No.12, UNDP, New York. Angus Deaton. 2004. “Measuring Poverty”. Research Program in Development Studies, Princeton University. Atkinson, A.B. 1998. “Social Exclusion, Poverty and Unemployment”. (J Hills ed.). Exclusion, Employment and Opportunity, CASE paper 4, London School of Economics, London. Barbara Harriss-White. 2002. “A Note on Destitution”. QEH Working Paper Series No. 86, University of Oxford. Caterina Ruggeri Laderchi, Ruhi Saith and Frances Stewart. 2003. “Does It Matter That We Don’t Agree on the Definition of Poverty? A Comparison of Four Approaches”. Oxford Development Studies, 31(3), 243¬-274. Chronic Poverty Research Centre. 2004. “Chronic Poverty Report 2004-2005”. Institute for Development Policy and Management, University of Manchester. Glenn Firebaugh. 1999. “Empirics of World Income Inequality”. American Journal of Sociology, 104: 1597-¬1630. Kay Sharp. 2003. “Measuring Destitution: Integrating Qualitative and Quantitative Approaches in the Analysis of Survey Data”. IDS Working Paper 217, Institute of Development Studies, Brighton. Mark McGillivray and J.Ram Pillarisetti. 2004. “International Inequality in Wellbeing”. Journal of International Development 16: 563-574. Narayan-Parker, D., and R.Patel. 2000. “Voices of the Poor: Can Anyone Hear Us?”. Oxford, Oxford University Press. Robert Chambers. 1997. “Whose Reality Counts? Putting the First Last”. London, Intermediate Technology Publications. Sakiko Fukuda-Parr, A.K. Shiva Kumar (eds.). 2004. “Readings in Human Development: Concept and Policies for a Development Paradigm”. New Delhi, Oxford University Press.

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Part one. Human development: paradigm, measurement and policy issues Stefan Dercon. 2001. “Assessing Vulnerability to Poverty”. Department of Economics, Oxford University. - . (ed.). 2004. “Insurance against Poverty”. Oxford University Press, Overview, Chapter 1, 8 and 19. Stephen Devereux. 2003. “Conceptualising Destitution”. IDS Working Paper 216, Brighton: IDS. Todaro, M.P. 1997. “Economic Development”. (Sixth Edition), Longman, London and New York, pp 139¬-150. ul Haq, M. 1995. “Reflections on Human Development”. (Part One), Oxford University Press. UNDP (United Nations Development Programme). 1990. Human Development Report 1990. “Concept and Measurement of Human Development”. New York, Oxford University Press. - . 1997. Human Development Report 1997. “Human Development to Eradicate Poverty”. New York, Oxford University Press. - . 2004. Human Development Report 2004. “Technical Note 1: Calculating the Human Development Indices”, New York, Oxford University Press.

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CHAPTER 2. DEVELOPING CAPABILITIES AND CREATING OPPORTUNITIES Sub section Introduction 2.1 Developing capabilities 2.2 Creating opportunities Bibliography and additional reading materials The chapter discusses the importance of developing human capabilities and creating opportunities for enlarging people’s choices. In addition to un der standing factors affecting development of human capabilities and oppor tuni ties, the chapter also examines measures directed to wards vunerable social groups.

INTRODUCTION Human development is about enlarging people’s choices. As we learned from the previous chapter, every day human beings make a series of choices – some economic, some social, some political, some cultural. The ultimate objective of development is not to create more wealth, or to achieve higher growth, but to enhance this range of choices for every human being. Exercising choices however first requires capabilities on the part of people. For example, if people want to make political choices as to choose their representatives, they cannot effectively do so unless they are capable of making a comparative judgment about the candidates. That judgment cannot be made unless people are capable of understanding the issues, assessing the positions of various candidates, and realizing the implications of electing a particular representative. Education and knowledge are important inputs for making the right choices. Capability itself is a necessary but not a sufficient condition to ensure that people exercise their choices. Opportunities must be there to enable people use their capabilities. Using the earlier example, even if people are capable of making right choices, if opportunities for a free and fair election are not present, effective choices cannot be made. Enlarging human choices is therefore critically linked to two issues – capabilities and functioning on the one hand, and opportunities on the other. The functioning of a person refers to the valuable things the person can do or be (such as being well-nourished, living long and taking part in the community). The capability of a person stands for the different combinations of functioning the person can achieve; it reflects the freedom to achieve functioning. Capabilities cannot be used unless opportunities exist for using those capabilities – for leisure and productive purposes or for being active in social, political or cultural affairs. Economic opportunities can be created through better access to productive resources including credit and employment opportunities. Political opportunities need favourable political environment and other conditions. Human development thus represents an equation. The left-hand side of the equation reflects human capabilities and the right-hand side economic, political, and social opportunities to use those capabilities. A balance between the two is crucial for human development.

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Part one. Human development: paradigm, measurement and policy issues

2.1 DEVELOPING CAPABILITIES Enlarging choices for a person implies formation or enhancement of capabilities. Human capabilities are enhanced when a person is in good health, is knowledgeable and skilled, and enjoys a decent standard of living. It partly implies building human capital through human resource development. Building human capabilities would thus require good nutrition, access to basic health services, sound education and skill formation, access to safe water and basic sanitation. Good nutrition Both the cognitive and non-cognitive aspects of human life are dependent on good nutrition. Good nutrition is essential not only for physical growth of human beings, but also for their mental and emotional development. Food, well-balanced diet, access to health and proper care are a pre-requisite for good nutrition. Today, there are about 830 millions malnourished people in the world (Table 2.1). The majority – 334 million – lives in South Asia, followed by 193 million in East Asia and the Pacific and 184 million people in Sub-Saharan Africa. Table 2.1: Number of malnourished people, 1998-2000 Regions

Numbers (in millions)

Sub-Saharan Africa

183

South Asia

334

East Asia and the Pacific

193

Arab States

32

Latin America and the Caribbean

55

Central and Eastern Europe and the CIS

30

Source: Global Human Development Report (2004)

Capability enhancement for future generations is constrained by wide-spread malnourishment among children in the developing world. In many African countries (for example, Ethiopia, Mali and Niger) two in every five children are under-weight. The same is true in some South Asian countries like Bangladesh, India and Nepal. The issue of good nutrition is closely related to food consumption and the intake of balanced diet. Food consumption is a function of both production, and more importantly of entitlement. Over time, it has been found that from a production perspective, the country may be self-sufficient in food, yet there may be wide-spread hunger and starvation. This is because, even though food is available in the markets, poor people may not have the necessary purchasing power to establish command over it (or simply purchase it). This is a pure entitlement issue. And is the story of most famines throughout human history. In general, famines have occurred not because there was not enough food, but because people who lost their livelihoods did not have access to food. There are of course situations where production has been disrupted because of natural disasters, droughts and other reasons. And the distribution system may also have been jeopardized for a variety of reasons. Ultimately, the issue of food security is more an

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Chapter 2. Developing capabilities and creating opportunities entitlement issue than an issue of production and availability of food grains. The issue of a balanced diet is also important for nutrition and for developing human capability. The simple calorie approach is wrong as a measure of nutrition. In many parts of the world, poverty forces people to become calorie deficient.

Access to health services A long and healthy life is a fundamental aspect of human capabilities. Without a long and healthy life, people cannot lead productive and creative lives. Access to health services, particularly basic public health is a key to a long and healthy life. By the end of the last decade, only 49 percent of those living in the least developed countries had access to health services. In Sub-Saharan Africa, it was only 53 percent. In countries like Benin, Rwanda and Zaire, two in every three people did not have access to basic health services. Today 30 percent of children in the developing world are not immunized against measles or tuberculosis. There are less than 5 doctors per 100,000 people in countries like Gambia, Nepal and Tanzania. Sixty two percent of births in South Asia are not attended by skilled health personnel. Less than half of the people in Angola, Cambodia, Haiti, and Kenya have access to essential drugs. Access to health services reveals striking disparities in terms of gender, income groups and ethnicity. In India, for example, whereas 57 percent of children with diarrhea taken for medical treatment were girls, 64 percent were boys. Similarly, for children with respiratory diseases, the corresponding figures were 60 percent for girls and 70 percent for boys. Access is also dependent on income. In Cambodia, while 56 percent of women in the bottom quintile have access to basic health services, for the top quintile, the proportion is 75 percent. Public health expenditure is less than 3 percent of GDP in most developing countries. It remains even less than 1 percent of GDP in countries like the Democratic Republic of Congo, India and Nigeria. Subsidies in the health sector also do not go to people who need them most (Table 2.2). Table 2.2: Pro-rich subsidies in health Countries

Share of the top quintile (%)

Share of the bottom quintile (%)

Guinea (1994)

49

4

Ghana (1992)

33

12

Cote d’Ivoire (1995)

32

11 Source: Global Human Development Report (1999)

In recent times, the epidemic of HIV/AIDS is causing havoc in terms of human capability building. In most countries, the incidence is highest among the age group 25-45 years, the prime working age population. For example, by 2020, Zambia is expected to lose nearly 20 percent of its labour force. During 1985-2000, countries like Burundi and Rwanda lost 7 years of life expectancy because of HIV/AIDS. Child mortality rates have gone up in Cambodia, Cote d’Ivoire and Tanzania between 1990 and 2001. In Central African Republic, primary school enrolment among AIDS orphans was 20 percent lower than among children with parents. In Malawi, illness and deaths rates among health care workers have escalated six-fold. In Zambia, due

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Part one. Human development: paradigm, measurement and policy issues to HIV/AIDS, school teachers are dying at a rate that exceeds the annual replenishment capacity of teachers’ training colleges and mortality rate among nurses is 3 percent. Access to safe water and basic sanitation Access to safe water and basic sanitation is critical for a long and healthy life. In the developing world, more than a billion people do not have access to safe water and more than 3 billion people to basic sanitation. Water-borne diseases kill around 3 million people every year. Lack of basic sanitation contributes to unhealthy living conditions for millions of poor people. Table 2.3 provides data on non-accessibility to safe water and basic sanitation in the developing world. Table 2.3: Access to safe water and basic sanitation, 2000 Regions

People without access People without access to basic to safe water (percent) sanitation (percent)

Developing world

78

51

Least developed countries

62

44

82

61

World average

Source: Global Human Development Report (2004)

There are significant rural-urban, gender, and income group disparities in access to safe water and basic sanitation. For example, in 2000, while 92 percent of the urban people in the developing world had access to safe water, the corresponding figure for rural areas was only 69 percent. Similarly, 77 percent of the urban people in the developing world had access to basic sanitation, much higher than in rural areas. In Cambodia, while only 28 percent of women in the bottom quintile had access to safe water in 1997 the corresponding proportion for women belonging to the top quintile was 56 percent. In areas of both health services and provisioning of safe water, the issue of the payment to be covered by users is extremely important. Often this issue is raised in the context of efficiency of services as well as with regard to cost recovery. However, one has to keep in mind that efficiency and cost recovery are not the only concerns. Issues of equity and access of poor people to these services are crucial for decent living. The imposition of tariffs sometimes makes it impossible for poor people to access basic social services. The main issue here is not that poor people do not want to pay the costs, but that the fixed tariffs are not affordable for them.

Education Knowledge is powerful as it opens immense capability for a person. This ranges from being better informed to being better skilled and better able to participate in activities. Education is a major means to knowledge creation and enhancement. It may vary from basic education which provides people with fundamental skills to higher education or to vocational training for skills formation. Literacy is a basic ingredient for capability building. Today there are more than 800 million adult illiterates in the world of which more than 300 million are women. Among the younger people (15-24 years), the illiteracy rate is about 16 percent in the developing world and 34 percent in the least developed countries.

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Chapter 2. Developing capabilities and creating opportunities School enrolment is a major step for education. The net enrolment ratio in developing countries is close to 82 percent. More than 100 million children in the relevant age group are out of school. The secondary enrolment ratio is about 60 percent in the developing world. Nearly 25 percent of students in the developing world do not complete Grade 5. Tertiary enrolment ratio is less than 20 percent in most developing countries. Of all the tertiary students, less than half are in science, mathematics and engineering. In the mid1990s, there was one R&D scientist and technician per 300,000 people in developing countries. There is a gender dimension to education as well. The female adult literacy rate in the developing world is only 67 percent against 87 percent among males. Among younger females, the literacy rate is around 80 percent whereas the overall rate is 84 percent. The net primary enrolment rate for girls is 79 percent, lower than that for boys. Women’s education has multidimensional and inter-generational benefits. For example, in Cambodia, it has been found that with primary education, female earnings go up by 32 percent, with secondary education by 65 percent, and with upper and post-secondary education by 80 percent. Moreover, with mothers’ education, the enrolment ratio of children increases significantly. If mothers have primary education compared to no education, the gross enrolment ratio among children in Cambodia jumped from 87 percent to 99 percent. At the secondary level, it went up from 12 to 29 percent. The positive impacts of female education on nutritional levels of children and other family members, on infant and child mortality rates, on the fertility rate and maternal mortality ratio are well-known and well-documented. Disparities in educational outcomes and access among social groups or between regions persist across many countries. For example, in Nepal, the female literacy rate in the mountains is only 13 percent, while in the plains, it is 31 percent. Table 2.4 illustrates the differential educational outcomes and access among different social groups in India. Public expenditure on education remains low in most developing countries where less than 5 percent of GDP is devoted to education. Subsidies to education are enjoyed mostly by the rich. Thus, for example, in Tanzania, while 37 percent of the education subsidies went to the top quintile, only 13 percent went to the bottom quintile. In Uganda, it was 32 percent and 14 percent respectively. In Madagascar, 41 percent of the education subsidies went to the top quintile and only 8 percent to the bottom quintile. Table 2.4: Different social groups and diversified educational outcomes for men in India

Lower casts

Muslim population

Hindu population

Literacy rate (percent)

53

60

66

Primary net enrolment rate (percent)

70

66

78

Discontinuation rate (percent)

6

3

5

Completing (percent)

7

8

12

secondary

level

Source: Selim, Rasheda (2003)

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Part one. Human development: paradigm, measurement and policy issues The quality of education is a major concern in many developing countries. Lack of qualified teachers, out-of-date curricula and teaching methods, and inadequacy of other educational facilities are having serious qualitative impact on educational attainments. Inefficiency in the public educational system in many developing countries has led to the mushrooming of private schools at all levels of education. However, in many instances, the provisioning of private education has become a business without much attention being paid to quality or equity. Indiscriminate growth of private educational institutions is not the solution to tackling inefficiencies in the public educational system. Access to education assumes special importance as differences in educational opportunities and outcomes account for persistent inequality in many societies. As studies from Latin America clearly indicate, it is not the inequality in land distribution but the inequality in educational access and outcomes that explains the overall disparities in society.

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Chapter 2. Developing capabilities and creating opportunities

2.2 CREATING OPPORTUNITIES Access to productive resources is essential for creating opportunities to enhance capabilities. Such productive resources may include productive assets such as land, credit, and physical infrastructure. Sometimes, a combination of these assets creates an environment where human capabilities can be best used.

Access to land People need physical and financial resources to take advantage of economic opportunities and participate in markets. One of the greatest obstacles for a dynamic economy is an excessive concentration of land and business assets. A family with some land can earn not only a reasonable income but also enjoy a sense of security and ownership, recognition, and social stature. However, in many parts of the world, land distribution is profoundly unequal. As Table 2.5 indicates, the Gini coefficient of land distribution – which ranges from 0 to 1 (the closer to 1, the more unequal the distribution) – is high in many countries. Table 2.5: Inequality in land distribution Countries

Gini coefficient

Paraguay

0.94

Uruguay

0.84

Saudi Arabia

0.83

Colombia

0.70

Chile

0.64

Sri Lanka

0.62

Jordan

0.57

Source: Global Human Development Report (1996)

Disturbingly, the Gini Coefficient is getting worse in some countries. In Uganda, it rose from 0.47 to 0.59, in Pakistan from 0.41 to 0.54, and in Turkey, from 0.47 to 0.52 between 1990 and 2002. Radical land distribution, elimination of absentee land ownership, imposition of ceilings for holdings, and programmes of resettlement can be powerful forces for improving access to opportunities and empowering the dispossessed. Socialist states such as China, Cuba and the People’s Democratic Republic of Yemen established collective or cooperative farms. But their productivity was low because agricultural production requires flexibility and skills often lacking in centrally planned production. Redistributing land to small family holding has yielded better results. And many countries have attempted or are pressing ahead with such programmes. Brazil and South Africa, for instance, are making progress in this regard. Kenya enjoyed a good measure of success with its land settlement programmes launched at independence; more than 60,000 families were settled on farm land owned by 1,000 farmers. But all these programmes are complex with serious political repercussions as evidenced by the case of Zimbabwe. Land reform takes more than merely redistributing land. Mexico’s agrarian reform

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Part one. Human development: paradigm, measurement and policy issues programme could be considered as the most extensive and ambitious effort on that matter. Over three decades starting in 1936, nearly 43 percent of the agricultural land was re-distributed, benefiting 44 percent of rural families. But the question remains: Did this reform empower the peasants economically, socially and politically as it was intended to do? Indeed, not adequately because the associated developments were inadequate. One major issue regarding land access is the bias against women. In many developing countries, women have limited land rights as they cannot inherit land from their parents or husband. Indeed, there is a general bias against women in agrarian reform and agricultural development. A recurrent weakness in most agrarian reforms is that they discriminate against women. In El Salvador, Honduras and Mexico, during the past three decades, fewer than 30 percent of beneficiaries have been women. The governments gave land titles to men assuming that they are the household heads. In Kenya, a woman has access to land only if she has a living husband or son. Moreover, she stands less chance of benefiting from government’s agricultural extension services.

Access to capital Many people are self-employed, own small businesses or work in family enterprises and farms the incubators of employment opportunities. However, they have access to only a small share of the institutional credit. For example, in the Philippines, in the 1990s, small enterprises received barely 8 percent of institutional credit. Enterprises in the informal sector find it particularly difficult to access credit. In Costa Rica, small enterprises get less than 15 percent of formal credit, and in Kenya, barely 5 percent. The discrimination against small farmers and enterprises is surprising. They employ up to two-thirds of the labour force in some countries; they make the largest contribution to the value-added products in a fairly efficient way. However, commercial banks are reluctant to extend them loans because of the perceived lower likelihood of repayment and the cost of administering many small loans. In Bangladesh, for instance, large owners of land, who constitute 7 percent of the rural household, received 37 percent of institutional credit in the 1990s. Small enterprises in Ghana report that shortages of working capital leave up to 50 percent of their capacity idle. Small farmers and entrepreneurs in the informal sector find it difficult to get credit. Women have the worst access to loans. In many African countries, women account for more than 60 percent of the agricultural labour force and contribute up to 80 percent of total small-scale food production. And yet they receive less than 10 percent of credit to small farmers and only 1 percent of total credit to agriculture. Although women make up 18 percent of the self-employed in developing countries, they are only 11 percent of the beneficiaries of formal credit programmes in Latin America and 10 percent in the Philippines. The bias is similar in the case of loans from international sources. In 1990, multilateral banks allocated about US$6 billion of rural credit to developing countries and only 5 percent reached rural women. Without access to

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Chapter 2. Developing capabilities and creating opportunities formal credit, many poor people are forced to turn to money-lenders who charge usurious rates (in Bangladesh, 70 percent of the rural credit comes from money lenders in spite of the presence of institutions like the Grameen Bank). One common mechanism in many countries is a five-six arrangement, in which a borrower receives five pesos in the morning and repays six pesos in the evening which amounts to a staggering 20 percent interest per day. Access to capital goods is also constrained by the trade and tariff regime in many developing countries. In Sierra Leone, for instance, small farmers pay 25 percent more than large farmers for capital goods. In Pakistan, they pay 38 percent more. In the Philippines, the sectors dominated by the large-scale enterprise enjoy effective rates of tariff protection ranging from 25 percent to 500 percent, while sectors providing twothirds of small-scale employment have negative rates of effective protection. Similarly, the protective tariffs in Malaysia tend to be higher the larger the plant size.

Access to physical infrastructure What is infrastructure? The definition most economists have in mind consists of investments in various types of physical assets and services. These investments can be differentiated from standard capital stock on the basis of industry features or ownership. Specifically, infrastructure investments are characterized by economies of scale and externalities, and hence they are mostly but not entirely publicly owned. The World Bank’s 1994 World Development Report includes the following services in the category of physical infrastructure: Public utilities

- power, telecommunications, piped water supply, sanitation and sewer age, solid waste collection and disposal, and piped gas. Public works - roads and major dam and canal works for irrigation and drain age. Other transport sectors - urban and interurban railways, urban transport, ports and wa terways, and airports. Infrastructure is a wide concept that encompasses physical infrastructure such as roads, bridges and highways; transport and ports; basic utilities such as power, water, and sanitation; and also schools, health care facilities, and public buildings. However, it is not infrastructure per se, but infrastructure services that are more relevant for creating opportunities. Infrastructure can be defective, huge, nation¬wide, or small, local and community-based, and well maintained. Infrastructure services create opportunities through synergies among such services as network infrastructure (roads, bridges, telecommunication) and fixed point service infrastructure (schools, hospitals, markets); network infrastructure and production-enhancing infrastructure (irrigation, land reclamation, and land improvements); production-enhancing infrastructure and utilities (water, electricity, sanitation); as well as among different types of utilities projects (electrical pumps needed for water projects) and even different types of water projects (safe drinking water, irrigation, flood control). Capturing these synergies requires balancing and coordinating the needs of individual communities with regional and national requirements.

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Part one. Human development: paradigm, measurement and policy issues The nexus between physical infrastructure and the creation of opportunities is complex. Infrastructure development has an impact on the creation of opportunities, both directly and indirectly. Infrastructure services create opportunities for people by contributing to economic growth. But the links between the two are neither automatic nor unidirectional. Important and complex issues are involved in the process: noneconomic rationale dictating infrastructure projects, lack of proper feasibility study and cost-benefit analysis and insufficient provisions for operations and maintenance. Thus even if infrastructure development and services have contributed in some cases to economic growth, benefits have often not been translated into improvements in the lives of poor people partly because of design problems, partly because of non-participation of poor people in the formulation and implementation of initiatives, partly because of their adverse social and environmental impacts, and largely because they are not conceived to be local and community-based. Infrastructure services create income and employment opportunities by enhancing agricultural productivity (for instance, through irrigation), reducing transportation costs (by better roads), and generating more jobs (through infrastructure construction itself, through multiplier effects or through increasing mobility of people). In fact, physical infrastructure services help to build human capabilities by improving access of people to health and educational services, by providing them with safer water and basic sanitation facilities, by ensuring better access to information and communication technology and by providing them with cleaner energy. Infrastructure development and services also create opportunities for people by enhancing human security (particularly of poor people), by contributing to food-, job-, health-, community-, personal-, and environmental-security. These services assume a special role in post-conflict transition stages in conflict-ridden countries.

Social safety nets It is always the case that despite all the capabilities being built and opportunities being created in society, there will still be groups of people who would be left out. These groups would typically include older people, people suffering from illnesses, people with disabilities and other vulnerabilities. These groups, because of their specific situations, may not be able to take advantage of new opportunities being created. They would require appropriate social safety nets for their survival and wellbeing. In such a context, issues of the care economy and social protection become of special significance.

Social welfare economy Traditionally, much of the cares that the groups like older people, people with sickness and disabilities, and children need is provided within families and communities, largely by women. Most of the care work is unpaid, even though sometimes care work is paid for informally or formally. For example, care for needy members of the family may be provided by mothers, wives and sisters free of cost, and without any remuneration. This is unpaid care work. In terms of paid care work, baby-sitters are paid but they may belong to an informal system. On the other hand, nurses hired for looking after sick people are paid as part of a formal structure. It is therefore

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Chapter 2. Developing capabilities and creating opportunities important to recognize that not every care work is paid, and not every unpaid work is in the care economy. The dynamics of the care economy, however, is transforming rapidly under the changes affecting the size and structure of the family, and the globalization process. Families are increasingly becoming nuclear families. As a result, the care work provided by members of the extended families is no longer available. In earlier times, within extended families, grandparents used to baby sit children. But in nuclear families, this will likely disappear. With globalization, as more employment opportunities are becoming available for women and as things are getting more difficult for many families, more and more women are entering the labour markets. This is because women want to be economically active. It is also because families need a second income to survive. This is putting a huge pressure on certain categories of care providers. In various parts of the world, particularly in Sub-Saharan Africa, more than 100,000 children became AIDS-orphans after the lost of both of their parents. In this situation, grandparents have become the primary care givers to their grandchildren. However, the point is that the grandparents themselves, being old people, are in need of care. If care is to be provided to those who need it, importance of public provisioning can hardly be overemphasized. The public sector used to play a major role in the provision of care in many economies particularly of Eastern Europe and the CIS. However, with transition in these economies, public provisioning of care has deteriorated over the years, both in terms of quantity and quality. For example, public childcare centres have closed down in many of these countries. There have been talks of providing care through the private sector. But the prices of the welfare services provided by the private sector are often expensive and thus not affordable for poor people. Furthermore, the welfare services provided through private sector can never be as widespread or universal in coverage as the publicwelfare services.

Social protection Social protection can take the form of social insurance (such as old age pensions) or it can take the form of social assistance (such as child support payments or food coupons). These provisions are not wide spread in developing countries, though they are quite prominent in developed economies and also in transition economies. Social protection systems in many countries are, however, facing serious bottlenecks. First, with the increased longevity of people, more and more people are in the older age bracket. This has increased the pressure on the social insurance system in many of these countries. For example, in industrial countries, general government expenditures have increased from just less than 30 percent in 1960 to more than 50 percent in 1995. More than half of the increase has been due to higher social transfers, up from 9 percent of GDP to 20 percent over the same period. Second, the revenue base of many of these countries has been shrinking as a result of globalization. Less and less resources are available for the social protection system. For example, tax revenue as a percentage of GDP in high-income countries has declined from 18 percent during 1981-85 to less than 14 percent during 1995-96.

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Part one. Human development: paradigm, measurement and policy issues At a general level, there is a debate over how substantial these safety nets ought to be. If they are too firm and reassuring, they may discourage people from working. If they are too open and ineffective , they may let the genuinely deserving fall through. The latter has more often been the problem than the former in developing countries. Where the need is the greatest, the safety nets are often the weakest – accounting generally for no more than 5 percent of GDP. Poor people need social safety nets most during a crisis – be it financial or natural disasters. The financial crisis of the 1980s and 1990s highlighted the need for countries to: • target poor people through public works programmes and food subsidies; • protect public spending on basic social services for poor people; • put in place formal protection measures such as unemployment insurance; • avoid excessive fiscal restraint; and • align macroeconomic policies to ensure their compatibility with social protection. Measures to enhance capabilities and create opportunities depend on the specific contexts prevailing in a country. For example, in some countries, access to health services may be more urgent than access to education for building capabilities. Similarly, for creating opportunities, access to land may be more important in some situations compared to access to capital. The balance between capabilities and opportunities may vary from country to country.

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Chapter 2. Developing capabilities and creating opportunities

BIBLIOGRAPHY AND ADDITIONAL READING MATERIALS Amartya Sen. 1990. “Development as Capability Expansion”. (Knight, J. and K.Griffin eds.). Human Development and International Development Strategy for the 1990s, Macmillan in association with the United Nations, London. -. 1999. “Development as Freedom”. Anchor Books, New York. Knight, J. (Ed.). 1990. “Human Development and the International Development Strategy for 1990s”. MacMillan, London. Qizilbash, M. 1996. “Capabilities, Wellbeing and Human Development: a Survey”. Journal of Development Studies, 33 (2), 143-162. Sabina Alkire. 2003. “The Capability Approach as a Development Paradigm?”. Material for the training session preceding the 3rd international conference on the capability approach, September 2003. Sakiko Fukuda-Parr. 2002. “Operationalising Amartya Sen’s Ideas on Capabilities, Development, Freedom and Human Rights - the Shifting Policy Focus of the Human Development Approach”. Mimeo, UNDP. Sakiko Fukuda-Parr, A.K. Shiva Kumar (eds.). 2004. “Readings in Human Development: Concept and Policies for a Development Paradigm”. New Delhi, Oxford University Press. Steward, F. 1995. “Basic Needs, Capabilities and Human Development”. Greek Economic Review, 17(2). UNDP (United Nations Development Programme). 1990. Human Development Report 1990. “Concept and Measurement of Human Development”. New York. -. 1993. Human Development Report 1993. “People’s Participation”. New York.

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CHAPTER 3. ECONOMIC GROWTH FOR HUMAN DEVELOPMENT - AN ANALYTICAL FRAMEWORK Sub section Introduction 3.1 Three tensions in economic growth 3.2 Links between growth and human development 3.3 Pro poor growth and growth for human development Bibliography and additional reading materials The chapter gives the distinction between ends and means of development, ex amines the complex linkages between economic growth and development and reviews human poverty and anti human policy measure.

INTRODUCTION What is the ultimate goal of development? Is it to have material opulence or to enlarge the choices of people? From a human development perspective, the ultimate objective of development is to enlarge people’s choices. Sure, one of the choices would be a concern with enlarging incomes. But that is only one of the choices even it may be the most important choice for many people. For income is not the sum total of human life. The simple yet powerful message that income is not the only choice that matters is often forgotten given our extraordinary preoccupation with material wealth. It was once widespread believed that producing a larger and larger quantity of goods and services is sufficient and perhaps the best way to improve people’s well-being. Economic growth has been seen for long as the magic potion which can take care of every aspect of human choice – economic, political, social and cultural. Many quite mistakenly believed that having sufficient income is the only way to address all aspects of human deprivations. As a result, this translated at the policy front into a concern with how to maximize economic growth. Policymakers seldom asked the questions growth of what, for whom and by whom. There did not seem to be any worry that economic growth is not a benign phenomenon; it has a cost too. In order to maximize growth, environments have got degraded or equity considerations have taken a back seat. Is this desirable? Policies that are merely pro-growth ignore the real purpose of growth, that is, to enhance the well-being of people.

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Chapter 3. Economic growth for human development - an analytical framework

3.1 THREE TENSIONS IN ECONOMIC GROWTH Ends versus means The traditional perspective considers that economic growth is an end in itself. This helped in building the development paradigm in which the altar of growth became the most revered one. There was a strong belief that once economic growth is achieved, development process will be accomplished. Throughout history, however, there have been alternative voices as well. The great Indian writer and Nobel laureate Rabindranath Tagore sounded clear warnings: “We have for a over a century been dragged by the prosperous West behind its chariot, choked by the dust, deafened by the noise, humbled by our own helplessness and overwhelmed by the speed. We agreed to acknowledge that this chariot-drive was progress, and the progress was civilization. If we ever ventured to ask, ‘progress towards what, and progress for whom’, it was considered to be peculiarly and ridiculously oriental to entertain such ideas about the absoluteness of progress. Of late, a voice has come to us to take count not only of the scientific perfection of the chariot, but the depth of the ditches lying in its path”. Long before Tagore, Aristotle wrote: “Wealth is evidently not the good we are seeking, for it is merely useful and for the sake of something else.” And Immanuel Kant emphasized: “So act as to treat humanity … in every case as an end, never as a means only”. Thus, enhancing people’s well-being and human development is the ultimate goal; economic growth is only a means to this end.

Necessary, not sufficient Human development is often portrayed as anti-economic growth. Nothing can be farther from this assertion. Human development requires economic growth. No human development outcome can be sustained unless it is accompanied by economic growth. In the absence of sustained economic growth, the pursuit of human development may end up in sharing of shortfalls. Human development puts the relevance of economic growth in a proper perspective. Economic growth is an essential – may be the most essential – means for human development. However, it is only one means among others. In other words, economic growth is necessary but not sufficient for human development. Contrary to those who believe in the growth paradigm, there is no automatic link between economic growth and human development (Table 3.1). The growth process and its outcomes must be influenced through policy interventions to ensure that benefits of economic growth are translated into tangible improvements in the lives of people. Table 3.1: Economic growth and human development – no automatic link Countries

Per capita income growth (1985-97)

Reduction in HDI shortfall (1985-97)

China

8.3%

45%

Republic of Korea

6.5%

35%

Pakistan

3.5%

Uganda

3.4%

Stronger links

Weaker links 17% 5%

Source: Global HDR (1999)

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Part one. Human development: paradigm, measurement and policy issues

Exogenous, not endogenous Earlier theories of economic growth emphasized that distribution was exogenous to growth. The idea was to grow first and then distribute. As a result, there were all kinds of post-growth redistributive policies. Experiences have shown us that in many parts of the world, economies have grown quite satisfactorily, but their outcomes have not been distributed equitably among people. Indeed distribution is endogenous to growth. The distribution of growth benefits is determined by the organization of the growth process and the techniques chosen. For example, if a labour-intensive technique is chosen in a growth process, the benefit of labour force would be higher than that of capital holders. Similarly, if growth is organized through a participatory process, the ownership of the process by people would be higher.

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Chapter 3. Economic growth for human development - an analytical framework

3.2 LINKS BETWEEN GROWTH AND HUMAN DEVELOPMENT Economic growth expands the material base for the fulfillment of human needs. But the extent to which these ends are met depends on the allocation of resources among people, and uses and distribution of opportunities. As argued earlier, the link between economic growth and human development is not automatic. However, the link can be strengthened through sensible policy actions. There is also a key backward linkage. Human development requires, among other things, considerable investment in education, health and nutrition. The result is a healthier and better educated population that is capable of being economically more productive. Growth can also be linked to many other elements of human development such as political freedom, cultural heritage and environmental sustainability. The links between human development and economic growth can be mutually reinforcing. When the links are strong, they contribute to each other. If, on the other hand, the links are weak or broken, they can become mutually stifling as the absence of one undermines the other. Unbalanced links are the result of rapid human development with little growth or of fast growth with slow human development. In the long-run, economic growth and human development generally move together and tend to be mutually reinforcing. A cross-country study found, for instance, that economic growth has a positive impact on several human development indicators. This is not to say, however, that economic growth will invariably and automatically fosters human development if other important conditions are not in place. Countries differ in their levels of human development efficiency (HDE) which links income to human development. For instance, between 1960 and 1992 Indonesia saw a 3 percent increase of its real GDP per capita while all non income HDE indicators went down. For the same period non income HDE indicators in Pakistan fell by 26 percent. Per capita GDP equaled 600US$ in Guinea, Senegal and Sri Lanka whereas HDI in these countries varied significantly, e.g. GDP in Sri Lanka was three times higher than in Guinea and Senegal. Some countries like China, Costa Rica or Sri Lanka with different income levels are very efficient in translating income and growth into human development and stand on the forefront of human development efficiency. These countries, together with others that lie very close to the frontier, such as Chile and Jamaica, have the highest human development efficiency. It is possible for countries to improve their efficiency of translating growth into human development. China, Indonesia, Jordan, Malaysia, Tunisia and Turkey showed remarkable increases in efficiency between 1960 and 1992. Other countries, such as Costa Rica and Sri Lanka, which have the highest efficiency among developing countries, experienced only moderate growth in efficiency after 1960, and their advances in human development reduce. Argentina, Hong Kong, Paraguay and Singapore that reported fairly high efficiency in 1960 have shown little improvement since then.

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Part one. Human development: paradigm, measurement and policy issues Other countries have an efficiency shortfall relative to their income. Hong Kong and Singapore, even with incomes comparable to those of many industrial countries, fall far short on many human development indicators. Several countries that have grown rapidly such as Botswana and Mauritius – do not show corresponding achievements in capabilities. Among the least efficient at converting income into human development are Congo, Gabon, Guinea and Senegal. The efficiency of transforming income into human development shows that similar levels of human development can be achieved with markedly different levels of income (Table 3.2). Human development’s main concern is with the range of human capabilities available to an individual; income is relevant only to the extent it can help in enhancing those capabilities. Table 3.2 Income and human development – varying scenarios in 2001 Similar human development, different incomes

Mongolia Gabon Egypt

Per capita income (US$)

HDI

433

0.661

3,437

0.653

1,754

0.648

Different human development, similar incomes Thailand

1,874

0.768

Jordan

1,755

0.743

Guatemala

1,754

0.652

Source: Global Human Development Report (2003)

What are the mechanisms linking economic growth to human development?

•

Human development impacts economic growth through human resource development, building of human capital, and the enhancement of skills of workers and farmers, entrepreneurs and managers. All these increase employment and production, which are further enhanced through R&D and technology – a function of human capabilities again. Ultimately, the composition of outputs and trade is influenced by the nature of economic growth.

•

Economic growth affects human development through the distribution of private and public resources. Household decisions affect the former and public policiesinfluence the latter. - In the first instance, economic growth creates employment and income, which deter mines household activities and expenditures. In this relationship, household expendi tures on basic needs become a critical factor determining the impact on human de vel opment. - Policy mechanisms work through government actions and expenditures and ulti mately through social priority spending. Social reproduction is a major aspect of both economic growth and human development.

• •

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Institutions and governance, social capital, and civil society organizations affect both economic growth and human development.

Chapter 3. Economic growth for human development - an analytical framework Thus economic growth contributes to human development and human development also contributes to economic growth. In each case, the links can be strong and together they can form circles of reinforcing causality which at their best can help a country to accelerate human development and economic growth. But in contrast (if links are weak or unstable), a country can go through periods of uneven human development and irregular growth. The links can be strong and mutually reinforcing only if the economic growth is sustainable.

3.3 PRO-POOR GROWTH-GROWTH FOR HUMAN DEVELOPMENT The growth paradigm has always placed primary emphasis on the quantity of growth. Maximization of economic growth has emerged as the mantra in the literature. It is important, however, to note three relevant points. First, economic growth is not a completely benign phenomenon. It has a cost as well. If we maximize growth by degrading the environment, that type of growth has a costly impact on future generations. Second, there is no guarantee that the benefits of growth will automatically be translated into human development. Third, even if there is a link between economic growth and human development, there is no automatic mechanism that growth benefits will be equitably distributed among various groups. Often the benefits of growth tend to get concentrated in a few hands. From a human development perspective, the quality of growth is as important as its quantity. Along the question of the amount of growth, the question of the kind of increase, its actors and beneficiaries, is as well important.. These questions help us to identify five essential characteristics of economic growth if growth is to contribute to human development.

Jobless growth – or job creating A vital component of human development is a secure livelihood. For most people this means having a job. However, one of the most disturbing trends in both industrial and developing countries is that economic growth has not been creating enough employment. In addition to depriving people of a livelihood, a lack of employment opportunities deprives them of their ability to contribute and undermines their dignity and self-respect. In some cases, jobs may be lacking simply because growth has been too low to generate employment. Countries undergoing stabilization and structural adjustment, for example, have frequently been plunged into recession, putting many people out of work. However, even economies that have been growing fast have often failed to generate enough jobs. In both the industrial and the developing world, many countries are suffering from jobless growth. In Pakistan, for example, real GDP grew by more than 6 percent annually between 1975 and 1992. However, employment went up by only 2.4 percent. Again, between 1977 and 1990, the annual increase in employment was only 2 percent whereas GDP grew annually by 7 percent. In Ghana, between 1986 and 1991, GDP grew by 5 percent, but employment dropped by 13 percent a stark example.

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Part one. Human development: paradigm, measurement and policy issues On the other hand, some countries have achieved rapid growth of both income and employment. Botswana, China, Indonesia, Malaysia, Mauritius, the Republic of Korea, Singapore and Turkey are among countries that recorded annual per capita income growth of more than 3 percent between 1980 and 1990. In all these countries, employment grew much faster than the labour force. Some were also able to combine employment growth with significant growth in productivity. The bottom line is that human development requires growth that is job-creating, rather than jobless.

Voiceless growth – or participatory growth Economic growth is not always accompanied by greater participation, empowerment, and democracy. Many countries that have promoted economic growth have been far from democratic. The East Asian economies have shown that trade unions may be repressed and workers’ rights may be denied even when incomes are rising rapidly and are fairly equitably distributed. Economic growth does not necessarily take place at the cost of democracy. Many industrial countries have combined democracy with development. And many developing countries such as Barbados, Botswana, Costa Rica and Mauritius have had democratic regimes and good growth records. A participatory process can support economic growth in several ways. More open and transparent forms of governance can reduce corruption and arbitrary rule. A participatory process is useful on three other counts. First, a participatory process always helps to identify priorities in growth – growth of what and for whom. Second, it helps with the proper organization and design of growth taking into account contextual realities. Third, a participatory approach is useful for generating ownership of the growth process and outcomes by people. In many ways the question of whether participation is positive or negative for growth misses the point. Participation and empowerment are valued in themselves whether they enhance growth or not. The real issue is whether growth enhances participation. Many people argue that too much importance is given to the virtues of participation and that the freedom to eat is more important than freedom to vote. Indeed, once material security is achieved, people are eager to take greater control over their lives. However, much also depends on how greater material welfare is achieved through a participatory process or not – and on the patterns of economic growth. People must have a voice in the events that affect their lives including economic growth especially if it is to be sustainable and equitable.

Ruthless growth – or egalitarian progress In many countries, economic growth has been accompanied by widening disparities with the rich getting richer in the midst of widespread poverty. This is ruthless growth. In many countries, rising inequality is associated with increased integration in the world economy even as the forces of globalization intensify disparities within countries. Some countries in Latin America provide examples of ruthless growth. Few countries in this region have made serious attempts at land reform. Schooling policies have

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Chapter 3. Economic growth for human development - an analytical framework generally helped the wealthy, not the poor. Moreover, until recently industrial policy had been based on import substitution, often involving capital-intensive production and a bias against agriculture. No wonder that poverty (measured in terms of a dollar a day) in the region increased in percentage terms during the 1990s. Many East Asian countries, by contrast, have based their growth on the redistribution of assets, on improvements in human capital, and on employment that is both skill- and labour-intensive. This has enabled the countries to make rapid progress in reducing poverty. Between 1990 and 1999, East Asia was able to almost halve its poverty (measured in terms of a dollar a day) from 31 percent in 1990 to 16 percent in 1999. There are wide variations in experiences with regard to how economic growth impacts income poverty. In some cases, the linkages are positive; in others not. Growth inevitably induces changes and adjustments that harm the poor. This often takes the form of cutbacks in government employment, social services, and expenditures. Even less automatic are the links between economic growth and reductions in other aspects of human poverty such as illiteracy, a short lifespan, ill health, and lack of personal security. However, if economic growth is egalitarian, it can contribute positively to human poverty reduction and enhancement of human development.

Rootless growth – enriching culture Another effect of many forms of modern economic growth has been to homogenize diverse cultures. There are thought to be about 10,000 distinct cultures though many are being marginalized or eliminated, some deliberately. At some point, many national leaders across countries felt that traditional cultures were a drag on modernization and development. A pattern of growth that is inclusive and participatory can nurture and enhance cultural traditions. It can open tremendous opportunities for people to share their cultures in a mutually reinforcing way. On the other hand, a pattern of growth that is exclusive and discriminatory can destroy cultural diversity and thereby affect everyone’s lives. Mahatma Gandhi eloquently expressed his view on cultural diversity:” I do not want my house to be walled in on all sides and my windows to be stuffed. I want the cultures of all the lands to be blown about my house as freely as possible. But I refuse to be blown off my feet by any”. Government repressions of cultures may result in rootless growth. But sometimes, more important than government repression is the effect of market forces. Consumer products and media on the global market are superimposing a uniform and stultifying view of the world. While the world’s more than two billion TV sets can help spread knowledge and understanding and assist governments in their actions, they can also give rise to a new form of cultural domination. Does this really matter? Not everything about traditional cultures should be an object of uncritical adulation. But many aspects of cultural homogenization represent a serious loss for society and for people who lose their heritage. In some Latin American countries, indigenous cultures are still considered to be an impediment to development. Mauritius is an example of a

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Part one. Human development: paradigm, measurement and policy issues rapidly growing developing country that has been strengthened by its ethnic diversity. The country is a densely populated rainbow nation of descendants of immigrants from all over the world and where the world’s major religions are practiced. Rather than trying to impose uniformity, the country prides itself on its diversity and social and religious tolerance. Just as the diversity of plant and animal species in the natural world represents a valuable resource, the diversity of cultures and languages in human society offers a treasury of different ways of looking at the world and living together.

Futureless growth – sustainable development Growth can be physically destructive if it destroys forests, pollutes rivers, and depletes natural resources. While these effects are undesirable enough for people living today, there are even greater concerns for future generations, as growth of this kind cannot last forever nor can it be sustainable. Growth may be destroying the very foundations of the economy and society. People in many countries are already in debt to future generations. Issues of sustainability go beyond environment. A flexible and resilient social and economic system can offer resistance to shocks and crises, and safeguard the interests of future generations. Protecting possibilities for tomorrow requires not burdening future generations with internal and external debt, and not bequeathing them an unstable and undemocratic political system. Even countries to be lauded for combining economic growth with advances in human development have a history of rapid depletion of their natural resources. Thailand, which has done well both on growth as well as on human development, has been denuding its country side. Between 1961 and 1988, Thailand’s forest cover fell from 55 percent to 28 percent. Facing disastrous flooding, Thailand banned logging in 1989. If environmental costs are taken into account, the GDP of many countries would be much smaller than they actually appear. For example, the environmentally adjusted GDP for Mexico in 1986-90 was almost 13 percent lower than the conventionally measured GDP. A case study from Papua New Guinea for the same period showed similar results. When such findings are more widely known to both the public and economic policy-makers, the nature of economic growth can be evaluated in new and more realistic terms. Eliminating poverty is also closely related to sustainability. A concern of equity between generations does not imply that the lack of equity within the present generations can be ignored. Patterns of growth that perpetuate current levels of poverty are neither sustainable nor worth sustaining. It is now clear that not any high economic growth is favourable to human development. It requires growth that is job-creating rather than jobless; participatory rather than voiceless; egalitarian rather than ruthless; culturally enriching rather than rootless; and environmentally sustainable rather than futureless.

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Chapter 3. Economic growth for human development - an analytical framework

Pro-poor growth The preceding discussion establishes that human development requires economic growth that • • • • •

generates full employment and security of livelihoods; fosters people’s freedoms and empowerment; distributes benefits equitably; promotes social cohesion and cooperation; and safeguards future human development.

Table 3.3: Growth: pro-poor or pro-rich? Annual overall per capita Annual per capita income growth income growth rate (%) rate (%) of the bottom quintile Pro-poor growth Ecuador (1970-90) 2.5 6.5 Malaysia (1967-89) 4 5.5 Costa Rica (1971-89) 1 5 Pro-rich growth Kenya (1970-92) 2 1 Brazil (1971-89) 3 0.9 Countries

Source: Global HDR (1996)

These are the characteristics of pro-poor growth. When these conditions are met, poor people can participate in the growth process as equal partners and benefit from it equitably. Pro-poor growth will imply three things: • • •

a higher rate of growth of per capita income than the overall growth rate of the bottom quintile (Table 3.3) broader and better access to poor people to basic social services as well as productive resources; and more protection of the poor against risks and vulnerabilities associated with economic growth.

Ultimately, if economic growth has to contribute to human development, it has to be pro-poor. Pro-poor growth alone can help building capabilities of people who need it most and create opportunities for them. Pro-poor growth can assure the livelihoods of poor people, can give them a voice, can be equitable, can help build social capital, and can protect the environment. Pro-poor growth can protect poor people against risks and vulnerabilities. Pro-poor growth can ensure the rights of poor people by increasing their choices and enhancing their freedoms.

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Part one. Human development: paradigm, measurement and policy issues BIBLIOGRAPHY AND ADDITIONAL READING MATERIALS Ann Pettifor. 2003. “The Real World Economic Outlook”. Palgrave. Amartya Sen. 1992. “Inequality Reexamined”. New York and Oxford: Russell Sage Foundation, Clarendon Press. -. 2000. “Social Justice and the Distribution of Income”. (Atkinson A.B., and F. Bourguignon eds.). Handbook of Income Distribution, Volume 1, Oxford: Elsevier Science, pp. 59-85. FitzGerald, Valpy. 2002. “The Security of International Finance”. (Barbara HarrisWhite ed.). Globalization and Insecurity: Political, Economic and Physical Challenges, Basingstoke: Palgrave, pp. 149-172. Fields, G.S. 2001. “The Meaning and Measurement of Income Inequality”. Distribution and development: a new look at the developing world, New York, London: Russell Sage Foundation, MIT Press. Frances Stewart. 2001. “Horizontal Inequalities: A Neglected Dimension of Development”. Centre for Research on Inequality, Human Security and Ethnicity (CRISE) Working Paper 1, University of Oxford. Gustav Ranis, Frances Stewart and Alejandro Ramirez. 2000. “Economic Growth and Human Development”. World Development, 28(2), pp197-219. Herman E. Daly. 1991. “Steady-State Economics”. Second Edition with New Essays. John Strauss and Duncan Thomas. 1998. “Health, Nutrition and Economic Development”. Journal of Economic Literature, American Economic Association, Vol. 36(2). Polly Vizard. 2001. “Economic Theory, Freedom and Human Rights”. The Work of Amartya Sen, Briefing Paper, Overseas Development Institute. Sakiko Fukuda-Parr, A.K. Shiva Kumar (eds.). 2004. “Readings in Human Development: Concept and Policies for a Development Paradigm”. New Delhi, Oxford University Press. Sanjaya Lall. 2003. “The Employment Impact of Globalization in Developing Countries”. QEH Working Paper Series No. 93, Oxford University. S.R. Osmani. 2003. “Exploring the Employment Nexus: Topics in Employment and Poverty”. Joint ILO-UNDP Programme on Employment and Poverty. UNDP (United Nations Development Programme). 1996. Human Development Report 1996. “Economic Growth and Human Development”. New York. -. 2001. “Macroeconomic Policy, Growth and Poverty Reduction”. (Terry McKinley eds.), Palgrave. Watkins, Kevin. 1997. “Globalisation and Liberalisation: Implications for Poverty, Distribution and Inequality”. Human Development Report Office, Occasional Paper No. 32, UNDP, New York.

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CHAPTER 4. POLICIES AND INSTITUTIONS FOR HUMAN DEVELOPMENT Sub section Introduction 4.1 Policy and Strategies: an analytical discussion 4.2 Policies for human development: specific characters 4.3 Policies for capability enhancement and opportunity expansions 4.4 Human development policy option- global scenario Bibliography and additional reading materials This chapter is an introduction to research on policy development, strategies as well as governance and institutions related to human development.

INTRODUCTION Human development is neither a spontaneous process nor an automatic outcome. It needs to be monitored, nurtured and sustained. Policies and strategies play a major role in monitoring human development outcomes. Policies determine whether capabilities of people will be enhanced or not. They determine whether or not people will enjoy more opportunities to use their capabilities. In concrete terms, for instance, policies that influence access to health services, safe water, and sanitation significantly impact people’s longevity and creativity. Human development strategies impact economic outcomes. At one level, for instance, if human resources are developed through education and skill training, productivity will be enhanced; and this can translate into higher and faster growth. A more knowledgeable and skilled workforce is more likely and prepared to adopt new technologies and methods that can yield higher economic dividends. Changes in skill patterns within in a country can also impact the nature and composition of tradable goods and ultimately growth. Human development policies and strategies, however, cannot be formulated and implemented in a vacuum. They need an institutional structure with rules, norms and frameworks. Nowadays, development is too big-scale and complex an issue to be left to any single development actor. Thus it is imperative that alliances are built and partnerships are forged among various development actors – government, civil society, private sector, and international development partners. Institutions and partnerships affect both the process and the outcomes of human development. Capacity building is one of the major issues regarding human development policies and institutions. Unless national capacities are developed on facts, policy making and strategy formulation tend to remain purely theoretical exercises permanently depending on external agents and processes. This is neither desirable nor sustainable. Lastly, today countries and people operate and live in a globalised world. To

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Part one. Human development: paradigm, measurement and policy issues that extent, therefore, national policies and strategies are very much influenced by the international situation. The global economic system and the governance structure have significant impacts on national policies and institutions.

4.1 POLICIES AND STRATEGIES: AN ANALYTICAL DISCUSSION Policies, simply speaking, are instruments to achieve development goals. This is a simple statement but bears profound implications, because this straightforward definition immediately implies that policy and strategies require: 1. 2. 3. 4. 5.

setting of goals selection of policy instruments addressing the resource issue implementation of policies monitoring and evaluation

Setting of goals Goal setting is the first and perhaps most important step in the formulation of policies and strategies. Policies and strategies without goals are like ships without direction. Logically speaking, policies and strategies cannot even be discussed without a clear idea of the goals that a society wants to achieve. In many cases, even good and sound policies may fail to deliver the desired results because of ambiguity in goals. Goal setting should not take place in a vacuum. No policy is going to be effective if it is not owned by the country, its people and society. A major requirement for ownership is a broad-based dialogue among relevant actors – governments, communities and civil society, private sector, and international development actors. The dialogue should not be limited only to the national level; it should take place at the local level as well. Localization of goals is a fundamental aspect of goal setting. This is because if development problems are localized, they cannot be overcome at the national level without setting goals locally. One of the tensions in goal setting is whether to be ambitious or pragmatic. Both aspects have pluses and minuses. Goal setting without ambition becomes business as usual and goal setting without pragmatism becomes pure aspirations. The two need to be balanced. One has to set ambitious goals, but without losing sight of the ground reality. One has to be strategic in the identification of goals. The list of goals should not become endless. The most effective strategy in goal setting is to identify the most important goals, those having synergetic externalities, and those concerning the more people. The challenge here is to prescribe the essential set that satisfies these criteria. In goal setting, there could be ultimate goals with intermediate targets. The rationale for such an approach is that sometimes intermediate targets are more easily and

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Chapter 4. Policies and institutions for human development directly influenced by policies. Once these are identified and polices are geared towards them, it is easier to affect the ultimate goals. For example, it is well known that maternal mortality rate can be significantly reduced if more trained and skilled personnel attend to deliveries. Policies can be more easily tuned towards this intermediate goal of universalizing access to safe delivery through the presence of a trained birth attendant. Therefore, in this context, reduction of maternal mortality remains the long-term goal, whereas increasing the proportion of births attended by skilled and trained personnel serves as the intermediate target. Accordingly, it is important to find appropriate instruments to influence the intermediate target.

Selection of policy instruments Regardless of ultimate goals or intermediate targets, identification of policy instruments becomes an important task. Five rules of thumb serve as useful guides in the identification of appropriate instruments: • First, the traditional approach to develop policy instruments has been to arrive at a one-to-one relationship between goals or targets and instruments. Consequently, the number of policy instruments should equal the number of goals. This has been termed the sufficient condition according to the Law of Tinbergen. But today, it is well recognized that policies have externalities and synergies; and the attempt should be to select a minimum set of policies that can address all goals or targets. For example, improving girls’ education has a positive impact on fertility rates. It also contributes to women’s economic and political empowerment and increased their participation in society. Girls’ education is also known to produce educated and conscious mothers and this in turn lowers infant, child, and maternal mortality. Thus, policies aimed at promoting girls’ education are likely to yield multiple benefits well beyond the education sector. To that extent, the selection of policy instruments must be guided by an understanding of all such synergies and externalities. The policies with the minimum negative impact should be identified and privileged. •

Second, in the selection of instruments, there should be a balance between economic and social policies. Too much dependence on one set of policies may not only fail to produce the desired results it could also create all sorts of imbalances. Equity must be a major criterion in the selection of policy instruments. Efficiency and equity together make for effective policy sets.

•

Third, policies are not benign. Often they produce undesirable results or create risks and vulnerabilities for some groups in society. This particular aspect should be given prominence in the selection of policies in order to minimize such risks and vulnerabilities.

•

Fourth, policy instruments should be selected through a consultative process at the technical level.

•

Fifth, capacities to formulate and implement policies should be important considerations in the selection of policy instruments.

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Addressing the resource issue Achieving development goals and targets requires resources. Therefore, assessing needs and identifying resource requirements as well as the sources of funding are essential parts of the policy and strategy nexus. Certain points are however important to bear in mind: First, it is essential to recognize that achievement of goals is not totally dependent on resources. Resource is a necessary condition for reaching development goals, but not a sufficient condition. A resource-centric approach to development goals is risky as it tries to undermine the importance of strategy and institutions in the context of development goals and targets. It also encourages governments not to implement unpalatable yet essential policy and institutional reforms. Second, resource needs and availability should be looked at from the perspective of both financial and human resources. Too much concentration on financial resources sometimes leads policy-makers to underplay the importance of human resources. Third, it is not only the amount of total resources that is important, but it is also equally important to ensure efficiency in resource use. Even with the same amount of resources, more can be achieved with better efficiency in use. Leakage and wastage in resource use are major problems in the achievement of development goals and targets. Fourth, mobilization of resources can be external and/or internal. Sometimes, too much importance is given to external resources and often this issue is addressed independently of the internal sources. The assessment of external resources should be done in the overall context of the total resource envelope and public resource management. Fifth, the issue of internal resource mobilization should be given proper importance in the context of goals and targets – both for political and substantive reasons. In the first place, too much dependence on external sources let national governments off the hook to undertake fundamental reforms in monetary and fiscal areas. At the same time, the issue of fiscal space needs to be revisited. Policies to mobilize more non-tax income are needed. Reforms in tax laws and tax administration are essential. Proper care should be taken to ensure that there is equity and the tax system is progressive. Sixth, the issue of costing is important in resource discussion, since it gives an indication of the resource needs. Nevertheless, a few points are worth noting. One, the issue of costing should be pursued and discussed in the context of the overall resource envelope and the management of public resources. The issue of costing can produce different arrays of results depending on unit cost assumptions, the synergies and externalities of expenditures across sectors, the efficiency in resource use and so on. Furthermore, costing can be meaningful only when it is discussed in a country specific context. Issues cannot be really settled through a theoretical discussion of models and frameworks. Finally, it should always be remembered that the figures produced by costing exercises are only indicative. They do not provide a firm estimate of resource requirements.

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Implementation of policies Implementation of policies is as important as policy formulation. The implementation of policies encompasses a number of dimensions: First, there should be a properly designed implementation plan. The plan must clearly spell out the steps to be taken, their timing, the necessary sequencing as well as the identification of responsibilities. Second, institutions must be identified, developed, reformed and made responsible for implementing the policies and strategies. Central to implementation are the identification of comparative advantages of various entities, clear identification of responsibilities, co-ordination and harmonization. Third, institutional reforms in many cases would require recognizing and accepting the rule of the law. In others, they could mean public sector reforms through appropriate incentive structures. But above all, institutional reforms should put in place a system of accountability and transparency from the perspectives of claimants and duty-holders. Fourth, internal capacity building is a major requirement. Effective implementation and sustainability of policies are at stake if required capacities are not available or cannot be developed internally. Fifth, partnership development is a major issue for policy implementation. An effective alliance must be forged between government, communities and civil society, the private sector, and international development partners. Monitoring and evaluation A major aspect of policies and strategies is monitoring and evaluation. Policies must be monitored, the process should be assessed and policy impact must be evaluated. Monitoring and evaluation require certain basic things: First, baseline survey is the first step to monitor and evaluate policies. In many cases, the absence of a baseline survey makes it impossible to undertake monitoring and evaluation. Second, a proper monitoring and evaluation framework with clearly-defined methodologies, tools and reference points should be put in place. Third, the quality of data – their robustness, reliability and time-series aspects – and the system of data collection, processing and dissemination should be improved and strengthened. There should be refinements in sampling methodologies and survey techniques. Efforts should be made to further strengthen the statistical system. Fourth, efforts should be made to extend the coverage of surveys to include new indicators and data. At the same time, more disaggregated data should be collected with disaggregation in terms of gender, regions, rural-urban divide, ethnicity, and socio-economic groups. Fifth, the lessons learnt from the evaluations of a set of policy instruments should serve and benefit the policy formulation process. Development goals need to be revisited; strategies should be reassessed; the resource envelope ought to be reexamined; and implementation plans continuously reviewed.

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4.2 POLICIES FOR HUMAN DEVELOPMENT – SPECIFIC CHARACTERISTICS In the context of the general policy framework outlined above, what would be the specific characteristics of human development policies? Surely, there would be goal setting, selection of policy instruments, mobilization of resources, formulation of implementation plans, and provision of monitoring and evaluation. However, what are the specific characteristics that would make human development policies different from other set of policies? At least the following characteristics can be put forward: •

•

•

•

•

•

•

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First, in any human development policies set, people – not economic growth, industrialization, or trade objectives – would be placed at the centre. Human development is about enlarging people’s choices. And so whatever policy is formulated, it should be seen through the lens of human development. Since people are the core, human development policies should firstly focus on them. Second, often it is claimed that human development policies are relevant for softer areas like health, education, and basic social services and not so much for hardcore areas like macroeconomic frameworks, trade policies, and employment strategies. Nothing can be further from the truth. The human development approach deals with macroeconomic policies and all other so called hardcore issues head on, but with a constant concern in mind: the impact on the people. Thus human development policies address the issue of growth but from a pro-poor perspective. Third, human development policies look at human deprivations in their totality. Human development treats poverty as a multidimensional phenomenon. Poverty from a human development perspective is not limited to income poverty, but encompasses various aspects in the broader concept of human poverty; including, in addition to the lack of income, ill health, lack of knowledge, nonparticipation, and human insecurity and other manifestations of deprivations. Fourth, human development policies look at inequalities and disparities not only in terms of income, but also in terms of capabilities and opportunities. Disparities in access to basic social services as well as productive resources are a major dimension of human development policies. These policies address inequalities in terms of gender, regions, rural-urban divide, ethnicity, and socioeconomic groups. The issue of intra-household disparities is a major concern of human development policies. Fifth, gender equality is not a secondary, irrelevant aspect for human development policies. It is a critical dimension of human development. Therefore, all human development policies must have a gender perspective. Gender issues are mainstreamed within the human development paradigm. Sixth, human development policies take into account inter-generational issues. In this sense, environmental sustainability is a critical dimension of human development policies. Sustainability in these policies is not limited only to environmental concerns, but it also encompasses institutional sustainability, social cohesion, and political stability. Seventh, human rights are closely intertwined with human development poli-

Chapter 4. Policies and institutions for human development

•

•

•

cies. This is because both human rights and human development share a common denominator – human freedom. Eighth, in goal setting, policy formulation, and developing implementation plans, human development policies adopt a participatory approach. Goals are set through broad-based dialogues; policies are formulated through a consultative process; and strategies are implemented through an alliance of relevant partners and stakeholders. Ninth, the human development approach emphasizes self-reliance in resource mobilization. In expenditure plans, the focus is on human priorities spending. In order to achieve the latter, human development policies stress the need for restructuring of expenditures towards basic social services like education, primary health care, access to safe water and basic sanitation. Tenth, in monitoring and evaluation, human development policies are evaluated first on the basis of their impacts on human development indicators – both composite measures such as the HDI and other indicators. The impacts are then evaluated in terms of disaggregated data in order to get a true picture of the diversified situations. Altogether, this is what is known as human development accounting.

Human development strategies Human development strategies range from macroeconomic policies that provide a broader economic and social policy framework to policies enhancing human capabilities and opportunities, or growth strategies. Human development strategies also include employment strategies and external sector policies. They encompass microlevel measures and targeted interventions. Taken together, they represent a policy framework for human development and human poverty reduction. Human development strategies have a global dimension that needs to be recognized and addressed. These dimensions address issues like global market opportunities, financial inflows including official development assistance (ODA), debt issues, intellectual property rights, and so on.

Macroeconomic policy framework The major characteristics of the macroeconomic policy framework for human development are not so much about the distinctiveness of means and instruments, but rather about the perspectives privileged. The macroeconomic framework for human development operates through monetary, fiscal, and trade policies, as well as through employment strategies; but, in regard to the human development perspective, the improvement of people’s well-being serves as the ultimate indicator. A macroeconomic policy framework for human development requires macroeconomic stability – low inflation, low deficits in national budgets and the balance of payment. However, the basic point in the human development perspective is that macroeconomic stability is a means, not an end in itself. In many situations, in the name of macroeconomic stability, expenditures on basic social services are cut to reduce budget deficit and money supply is constrained to keep inflation low. These are done when it is necessary to

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Part one. Human development: paradigm, measurement and policy issues keep effective demand from falling and to access basic social services to the poor. In the name of macroeconomic stability, budgets are balanced through unbalancing human lives. The macroeconomic framework for human development emphasizes that stability should not be at the cost of human development. A question is often raised: is structural adjustment with human development possible? There is no internal conflict between the two; it depends on how both are managed. In the 1980s, many developing countries like China, Colombia, and Indonesia managed to adjust and improve macroeconomic balances, become more competitive in the world markets, and also achieve growth and human development. However, it should always be remembered that stabilization policies, if not properly managed, can contribute to contraction of human development. New forms of adjustments are needed to promote both growth and human development. Adjustment through reallocation of growth rather than adjustment through contraction is one option to explore. This means maintaining investments in human, physical and natural resources while reallocating them to activities that respond to market opportunities. Monetary policy in human development should not go for simple monetary contraction. Rather it should adopt flexible approaches to meet the requirements of human development objectives. Pure inflation targeting cannot be the ultimate objective of human development monetary policy. Similar approaches are needed for interest rates. There may be a band of interest rates, particularly geared towards the needs of the poor. Redefining the notion of security is a major issue in monetary policy. In fiscal policies, both revenue as well as expenditure side issues should be addressed. On the revenue side, the notion of fiscal space needs serious attention for resource mobilization. The base for tax revenues ought to be re-examined and the progressiveness of tax rates needs to be ensured. Dependence on indirect taxes should be reduced and more revenues should be generated through direct taxes. Introduction of value-added taxes is also an option. The potential for non-tax revenues is a critical issue. Revising tax laws and enhancing the efficiency of tax administration are two major ways of reducing leakages in the tax system. It is essential from a human development perspective that the tax structure is not only efficient, but also equitable. On the expenditure side, human development requires a restructuring of the expenditure patterns with more resources going to basic human priority spending. Reduction of defense expenditures and redirection of resources to basic health and education can do wonders for human development. More resource to basic social services is a necessary condition for human development, but not a sufficient one. Care must be taken, for instance, to ensure that even within the social sectors, more resources are devoted to basic education than to tertiary education and to primary health care in rural areas than to urban hospitals. Subsidies too should be directed more towards the poor than the rich and it should be ensured through policy interventions that most of the subsidies are enjoyed by the poor. Efficiency in resource use is a major consideration. Macroeconomic policy framework for human development requires an examination and analysis of existing macroeconomic framework as well as the identification and removal of biases against poor people.

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4.3 POLICIES FOR CAPABILITY ENHANCEMENT AND OPPORTUNITY EXPANSION Capability expansion for people requires increased access to basic social services – primary health care, basic education, access to safe water and basic sanitation. Through policy interventions, such access can be assured if three A’s are ensured – adequacy, affordability, adaptability. •

First, the coverage of such services should be adequate so that they are easily accessible to people. This includes spatial coverage.

•

Second, services should be affordable for people, particularly to poor people. This raises the issue of user fees. A rigid approach towards this issue may reduce the affordability to poor people.

•

Third, people should be adaptable to these services. It means that provisioning should be sensitive to local cultures.

Three major issues need to be looked at. First, the quality of services is as important as their quantity. For example, quality in health services and in education is essential. Second, private provisioning of these services is not a substitute for public provisioning. Private services are often not affordable for poor people and they have limited coverage. In the absence of proper regulatory frameworks, private services may not be good and reliable. Therefore, if public provisioning is inefficient, improvement measures should be adopted, rather than accepting widespread privatization. Third, in the provision of services, attempts should be made to go for the least cost option. Capability enhancement requires proper nutrition for people. In this context, food security is a major issue that must be ensured through agrarian policies. However, the availability of food in the market is not a sufficient condition to ensure that people have access to it. The entitlement to food can only be ensured through proper pricing policies that guarantee sufficient purchasing power in the hands of people. Meanwhile, land policy is relevant to access and availability of productive resources. In the area of access to productive resources, land ownership and usage policies that include radical land distribution, the elimination of absentee land ownership, the imposition of ceilings for holdings, and programmes of resettlement can be powerful instruments for expanding opportunities Redistribution of land to small family holdings can be another major route. With regard to access to capital, human development policies need innovative approaches. Most of the recent innovations in credit provision to the poor have come from NGOs. Some basic approaches to ensure better access to credit would include a better distribution of other assets so that the issue of collateral can be addressed. Similarly, special access to credit for vulnerable groups could be ensured either through government action or through informal credit schemes, such as cooperatives, savings groups

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Part one. Human development: paradigm, measurement and policy issues and credit unions. These innovative approaches would require redefining the issue of collateral to include, for example, community solidarity as collateral which has been successfully used by the Grameen Bank in Bangladesh. It would also imply that an integrated programmes package can be pursued – credits should be provided along information and basic training on financial aspects. The idea of One-Stop Service – different services delivered through one single desk – can be experimented. In many countries, commercial banks have begun a bold experiment to provide simple banking services to the poor. India, Indonesia, Malaysia, Pakistan and South Africa now impose minimum quotas for small enterprises in the lending portfolios of commercial banks. In Botswana, the Financial Assistance Policy is aimed at job creation by encouraging investment in small industry.

Promoting pro-poor growth The key elements of a pro-poor growth strategy naturally depend on the specific situation of a country. However, everywhere, an essential precondition is to make poverty reduction a priority objective of the national development strategy. The second essential precondition is to ensure that it is equitable – both in terms of providing equal opportunities to people and in terms of benefits of growth. Other important priorities for most developing countries include: • • • • • • •

establishing a pro-poor economic policy framework; accelerating the enhancement of human capabilities and expansion of human opportunities; raising the productivity of small scale agriculture; promoting micro-enterprises; stressing labour-intensive industrialization to expand job opportunities; reversing environmental degradation especially on ecologically fragile lands; and stemming the spread of HIV/AIDS among poor people through multi-sectoral, people-centered programmes

The first two issues have already been discussed. For pro-poor growth, the macroeconomic policy framework should contain redistributive policies as corrective measures. In terms of human capabilities, disparities in educational access and educational attainments have become the biggest cause of inequality in many countries. Thus equality in access to education is a major instrument for stimulating pro-poor growth. Raising the productivity of small-scale farmers would need policy measures that ensure better access to technology, good prices, and improved access to land and other agricultural inputs. In agriculture, much less progress has been recorded with respect to poor farmers’ crops and poor farmers’ conditions. Prices are too often biased against agriculture. One of the most common problems is an overvalued currency. One of the keys to well-distributed growth is well-distributed land. Critical ingredients to ensure successful micro-enterprises are access to financial credit and savings mechanisms, security of housing rights, improved infrastructure for market

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Chapter 4. Policies and institutions for human development access, better energy sources and information on market conditions. For the informal sector enterprises, the issue of the legal acceptability is of paramount importance. Strategies for employment-led growth The traditional belief has always been that economic growth will generate employment on the assumption that there is an automatic link between economic growth and employment creation. Over the years, experiences have shown that growth-led employment does not always materialize and situations of jobless growth arise. Productive and remunerative jobs are an essential means for human development. On the one hand, they provide people with incomes and livelihoods, and they also provide them with the scope for participation, a sense of self-respect, and dignity. At a macro level, employment is a critical condition for equitable growth. It is the missing link between economic growth and poverty reduction. The debate therefore is more about having employment-led growth rather than growth-led employment. Policies for employment-led growth include: • a clear political commitment to full employment; • faster employment-led growth; • sustained investment in people so that they can climb the ladder of skills, productivity and wages; • pro-employment incentives and other interventions in the labour market; • encouragement of the informal sector; • equitable access to productive assets and basic social services; and • expanded opportunities for disadvantaged, vulnerable groups. Some of the policy interventions such as equitable access to productive assets and basic social services have already been touched upon. Where employment creation has been most successful, it has generally been the result of a deliberate strategy. Rather than assuming that employment will materialize automatically, political leaders have identified it as a central policy objective. The priority given to employment has driven the choice of development strategy and led to reversal of long-standing policies. Employment needs to be restored to its place among the top policy concerns of economic management. Employment targets, essential for human development and sustained growth, should be set in every economy. Employment-led growth should be led by labour-intensive sectors. However, staying in labour-intensive, low–skill sectors do not improve productivity and incomes. Long-term development strategies must set out to move from low-skill, low-productivity sectors to more skill-intensive and higher productivity ones. This would require sustained investments for people to climb the ladder of skills and productivity. One of the major requirements in this regard is the flexibility of workers in terms of skills so that they can move both horizontally and vertically. Education and skill training should be geared towards labour market demands – not on the short term, but on a medium and long-term horizon. This should take into account the changing labour markets in the globalised world – where new opportunities are being created

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Part one. Human development: paradigm, measurement and policy issues and where jobs are moving across borders while workers remain less mobile. Government interventions in the labour market have traditionally been oriented to regulation. However, labour regulations to enforce decent working conditions and prevent exploitation are needed now more than ever before. In addition, governments should play a rigorous facilitating role to ensure smooth adjustment by enhancing information flows and by retraining workers. Worker retraining can be promoted not only through public training programmes, but also through financing schemes backed by special funds. Smoothing labour market adjustments is the responsibility of not just governments, but also of employers. Support for small-scale enterprises should not be limited to the formal sector. It must be extended to the informal sector without reducing the courage and vitality of its enterprises. The objective must be to promote the transition from informal to formal production systems. Government policies often discourage the expansion of the informal sector, either inadvertently or because of concerns about enforcing tax and health laws and other industrial regulations. Several conditions including zoning laws, laws prohibiting informal firms from selling their products in the most profitable locations and harassment by local police seeking bribes tend to stifle the urban informal sector. Similarly, government interventions in labour, raw material and capital markets can distort prices in favour of small formal businesses, reducing competitive edge of the informal sector. A more positive approach would be to recognize the valuable contributions of the informal sector to employment. And to take actions that encourage its expansion. Improving the productivity and working conditions of the informal sector will be the key. Interventions must build on the entrepreneurial vitality of the informal sector to ensure quick results in improving living conditions and employment opportunities. Such interventions should create an enabling environment for informal sector growth through deregulation, assistance to micro-enterprises and access to raw materials, markets and technology. Institutional development is also necessary to allow informal sector operators negotiating collectively supportive regulations and services to their activities. Some groups of people such as women, older people, ethnic minorities, disabled people, and people with HIV/AIDS face discrimination in the labour markets. Positive actions are needed to overcome these constraints. External sector policies for human development Trade policies for human development at the national level should concentrate on two fundamental issues: how to capture global opportunities and how to protect people against vulnerabilities. Capturing global opportunities is often discussed in the context of enhancing trade, attracting capital but at the same time controlling its volatility, and capitalizing the most from migration. In the area of enhancing trade, the standard policy prescription has always been to liberalize trade and provide incentives to produce for exports. Exchange rate policies like devaluation and export promotion schemes have often been advocated. The experiences have always been mixed in terms of trade enhancing human development. But the lessons are clear: countries can accelerate economic growth through trade liberalization if they have sound macroeconomic management, good physical and social infrastructure, and strong governance with an appropriate institutional framework. But does growth automatically translate into human development? The answer is negative.

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Chapter 4. Policies and institutions for human development That • • •

can only happen if the following are present: A pro-poor growth strategy with a commitment to poverty reduction; Bold economic reforms and a focus on price reforms; Institutions oriented to the market with restructuring of banking and financial institutions; • An emphasis on rural areas and agriculture with widespread land reform; • Extensive public provisioning of social services; • Redistributive income policies, creating more labour-intensive employment and instituting measures for social protection.

Capturing trade opportunities is often complicated by labour and environmental standards. A non-respect of those affects directly human development. Does lowering labour and environmental standards, therefore, give developing countries a competitive edge in capturing trade opportunities? Are these countries penalized if they improve their labour and environmental standards? The answer to both questions is negative. Maintaining such standards is good for human development. Countries should realize this for their own good, not because of pressure and conditionality from their trading partners. Private capital flows, particularly foreign direct investment (FDI), have helped developing countries to grow and enhance human development. However, here again, the links are not automatic. To attract FDI, the traditional macroeconomic package calls for liberalizing capital, providing incentives, formulating a conducive industrial policy, and implementing pragmatic technology and labour policies. But what does it require from FDI to contribute to human development? First, investments should be on infrastructure and services that have a direct impact on human development. Second, FDI must be tailored to national priorities and towards activities that have spillovers in creating more employment, bringing in high technology, and building future human capital. Third, countries need to minimize the adverse impacts of FDI (such as creating inequalities) and provide domestic enterprises with necessary incentives and protection. National action on multinational corporations should focus on providing appropriate incentives, bringing the operations of multinationals under national rules and ensuring social responsibility. The volatility of short-term capital should be managed. This can be done through a gradual opening of financial markets, introducing a cap on bank lending, capital control and so on. Setting up of Overseas Employment Units to send workers abroad, proper remittance policies with institutional frameworks, stronger legal frameworks for the protection and well-being of workers and adequate policies for rehabilitation of returning migrants are needed in order to benefit the most from migration. Policies are needed to protect people, particularly the poor, against vulnerabilities of globalization and to help them cope with changing labour markets in the global world. The new vulnerabilities in labour markets call for: • expanding employment by creating reasonably productive jobs; • constantly upgrading the skills of workers, particularly the unskilled, through training and vocational training, dissemination of technical know-how and building flexibility in skills to move around; • maintaining reasonable compensation, minimum wages and accepted labour

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Part one. Human development: paradigm, measurement and policy issues • • •

standards; increasing the productivity and competitiveness of the informal sector through tax holidays, duty exemptions, lower interest rates and access to credit; supporting the unemployed finding jobs; and managing transitional labour markets.

To minimize the social shocks generating from financial crisis the following policies should be implemented: • • • • •

supporting the poor through public works programmes and food subsidies; not reducing or maintaining the budget allowed to basic social services for the poor; establishing formal and full functioning systems of unemployment insurance etc.; avoiding too many fiscal limitations; reviewing and readjusting the macroeconomic policies tuned to poverty reduction goals.

Targeted measures A human development policy framework should provide for special measures for people who need specific attention. These people may need targeted interventions because they operate outside the markets or the purview of policy actions. Poor people without access to formal credit may be helped with credit through micro-finance. The NGOs have been very active in this area for quite some time. However, there should be more public action to reach those who are excluded from any formal structure. Social safety net is a major area of targeted intervention under human development policies. Part of it covers social insurance and social assistance that need restructuring of the welfare system, upgrading the entitlements of the elderly, single mothers with children, the long-term unemployed and the chronically sick. It also means managing food stocks and prices in favour of the poor, when harvests are bad and better public provisioning of care work for those who need it.

Strategies for overcoming human poverty The preceding discussions so far emphasize that reduction of poverty would require: empowering individuals, households and communities to gain greater control over their life and resources; • • • • •

strengthening gender equality to empower women and release their vast underused energy and creativity; accelerating pro-poor growth; improving the management of globalization – nationally and internationally – to open opportunities, not close them; ensuring an active State; and taking special actions in the face of special situations.

National policy making for poverty reduction should have some essential elements: clear national objectives; national assessment of the causes of poverty; mainstreaming poverty reduction within national economic policy; mobilizing broad support; setting the pro poor budget and monitoring to assess progress.

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4.4 HUMAN DEVELOPMENT POLICY OPTIONS – GLOBAL SCENARIO Trade barriers and distortions Developing countries face great challenges as they attempt to participate in world trade. Much of this has to do with their inability to diversify their exports, reduce the cost of doing business and improve transportation, communications, energy systems and the international trade structure. Domestic economic policies of developed countries and lack of market access are also equally responsible. Tariff escalation in the international trade regime makes it difficult for many countries to access much needed markets as well as to diversify towards high value added processed goods. In fact, tariff peak rates of about 15 percent are often concentrated in exports from developing countries such as agricultural products, clothing and textiles. The average tariff imposed by developed countries on agricultural products and clothing has increased between 2000 and 2002. It has been reduced marginally for textiles. The World Bank estimates that the cumulative loss resulting from adverse terms of trade over (1970¬1997) for African non-oil exporting countries (excluding South Africa) amounted to 119 percent of the combined GDP of these countries in 1997. Compared to 1980, the overall terms of trade have deteriorated for 17 LDCs. Subsidies for agricultural producers in the developed countries act to keep out exports from the developing countries. For example, cotton subsidies by the U.S and EU caused a loss of up to US$300 million in revenue to Africa as a whole in 1997, which is more than the total debt relief (US$230 million) approved by the World Bank and the International Monetary Fund (IMF) under HIPC Initiative to nine cotton export countries in West Central Africa in the same year. Preferential market access and special, differential treatment have been granted to many countries under the Generalized System of Preferences (GSP), the Global System of Trade Preferences (GSTP), and special trade preferences for LDCs like the EU Everything but Arms (EBA) initiative and the US African Growth Opportunity Act (AGOA). However, half of the market access preferences granted under these schemes remain underused mainly due to supply-side constraints, lack of trade-related capacity and non-tariff barriers, notably rules of origin and product standards. The termination of the Agreement of Textile and Clothing (ACT) in January 2005 raised serious concerns among countries specializing in textile and export. Preliminary studies suggested that Asian countries with the strongest textile export specialization could be most likely affected. There is also a significant gender dimension as most of the workers in the garments industry are women. Closing of enterprises and laying-off workers would affect women more and result in different kinds of economic and social problems. The ultimate impact of the ACT will depend, however, on whether the unilaterally granted preferential market access for these countries can counterbalance the negative effects of this phase-out.

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Flow of financial and human resources Many countries still depend largely on foreign aid to fund large amounts of government spending, consumption and investment. For example, official development assistance (ODA) accounts for more than 50 percent of Uganda’s budget, 60 percent of Rwanda’s and 70 percent of Mozambique’s budget. This is worrisome in the current context of decreasing trends of external assistance to many countries. For example, the proportion of ODA provided to help build trade capacity of LDCs is only 1.5 percent of total ODA. The proportion of ODA going for human priority concerns in LDCs is not going to be high. Low flow of capital remains a problem as this contributes to the low rates of saving and investment in many countries. The net FDI flows to Sub Saharan Africa, for example, were US$8 billion. But this limited flow was concentrated only in a few countries. While the capital inflow has been constrained, capital outflow has been quite significant. New data for 30 African countries show that capital flight over the past 27 years amounted to around US$187 billion. The data further show that roughly 80 cents on every dollar that flowed into Africa as foreign loans flowed back as capital flight in the same year, suggesting widespread capital flight fuelled by debt. Lack of migration opportunities and barriers to movement of labour, particularly unskilled labour from developing countries, continue to constrain the development efforts of these countries. The labour force in these countries tends to operate in significantly segmented labour markets. While the highly skilled people can take advantage of the global labour market, the unskilled people would have problems in selling their services even within their national boundaries. Brain drain continues to erode human capital in developing countries. Since 1990, Africa has been losing 23,000 professionals annually. Today, 300,000 professionals reside outside of Africa. During 1980-91, Ethiopia lost 75 percent of its skilled workforce. To fill in the human resource gap created by brain drain, Africa employs 150,000 expatriate professionals at a cost of US$4 billion per year. The reverse brain drain, which is taking place in countries like China and India, is not happening in other parts of the developing world. Issues of remittances and the welfare of overseas labour are two concerns which need to be addressed at the global level.

Debt burden and debt relief The debt burden has become unsustainable in many developing countries, crippling governments and limiting their ability to provide basic services and public goods to their citizens as well as undermining economic growth. For LDCs as a whole, the debt-servicing ratio is about 8 percent of exports of goods and services. However, in the case of some countries, it is extremely high – 59 percent for Burundi, 32 percent for Sao Tome and Principe and 27 percent for Zambia. The high debt-servicing ratio implies that countries do not have enough resources to channel to human priority concerns like health, education, nutrition and human security. For example, for some LDCs, debt service payments are nine times their primary health expenditure and four times their primary education expenditure. The international community should not

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Chapter 4. Policies and institutions for human development force any country to spend money on debt servicing while that country does not have enough money to reduce the number of children dying of treatable or preventable diseases. Recognizing the deleterious effects debt servicing can have on countries, and especially on their citizens and human development, many developed countries, along with international financial institutions, have bilaterally and multilaterally agreed upon debt reduction and cancellation arrangements. For example, in order to address problems of aid and debt, the HIPC initiative of World Bank/IMF has attempted to stabilize the ratio of external debt to exports. While this is a step in the right direction, it must be kept in mind that fiscal sustainability goes beyond the country’s external debt to the sustainability of aggregated public sector debt including both foreign and domestic debt. The established debt sustainability ratio and the time it takes to become eligible for HIPC initiative does not allow these countries the support and the breathing space needed to restore growth and accelerate human development. For example, in Uganda, the first country to graduate from the enhanced HIPC programme in 2000, the net present value of debt to exports ratio increased from 170 percent in 2001 to 200 percent in 2002 and to around 208 percent in 2003 – all of which are well above the HIPC threshold of 150 percent. Terms of trade losses have additionally contributed to the debt overhang of African countries. The HIPC initiative is aimed at providing debt relief to heavily-indebted countries. Of the 38 currently HIPCs, 32 are in Sub-Saharan Africa. Looking at the per capita outstanding debt and debt relief, it is obvious that debt-relief in general is insignificant compared to the debt burden. Will debt relief work in terms of generating resources for countries concerned? Most people seem to think that it is unlikely to free up sufficient resources for three main reasons: •

•

•

First, several countries with significant debt burdens are not included in the initiative. The problem is, first of all, that the threshold levels to measure debt sustainability are arbitrary and still too high. A related problem is that sustainability is defined in economic terms and not in terms of human and social development, in spite of the fact that many in the international community think that debt needs to be consider in a broader context and that a human development perspective must be incorporated into the HIPC Initiative. Second, the debt reduction offer is too small. Niger and Zambia will actually pay more after the initiative than they did before. In addition, some countries will see much volatility in debt servicing, severely disrupting government budget processes. Third, different sets of conditionality are piling up. The introduction of the Poverty Reduction Strategy Paper (PRSP) as a condition for debt relief not only involves a change of emphasis, but also an extension of policy conditions. And many countries find themselves struggling to meet different benchmarks and measures to fulfill their commitments.

Governance and institutions Governance and institutions for human development encompass two themes: institutions and partnership and capacity building

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State and governments Promoting sustainable democratic governance and addressing the challenges of development critically hinge on building a legitimate, capable, enabling and responsive State, that is both inclusive of and accessible by all people in society. Legitimate State institutions encompass certain characteristics that persuade citizens to support and view them as legitimate and competent. These characteristics include: •

•

•

•

Effective institutional design for upholding democratic principles like the separation of powers, a system of checks and balances, independence of the judiciary and civilian control over the armed forces. Predictability in performance, closely related to rule of law and referring to the need for institutions to regulate interactions in accordance with prescribed rules and regulations. This is a critical attribute that allows for democratic changes in the political leadership in a peaceful and rule-bound manner. Responsiveness and adaptability, namely, the ability to respond and adjust successfully to changing political, social and economic environments through sound flexible policies and standardized rules and norms. Sustainability and self-reliance, namely the ability to raise resources and revenues in order to afford the running and upkeep of State institutions and ensure their absorptive capacity.

Apart from social acceptance of State institutions on the basis of their statutory characteristics, legitimacy in the eyes of the citizenry is conditioned by an institution’s ability to undertake essential developmental and governance functions with specific considerations for the vulnerable and marginalized groups in society. These developmental functions of state institutions include: • •

• •

Provision of security and the protection of rights. Provision of key basic services that cannot be left to market forces alone, namely, those services which require uniform territorial coverage, entail sizeable investments for medium to long-terms returns and so on. Regulatory functions including the formulation, implementation and enforcement of laws and regulations. Certain redistributive functions for furthering social justice, namely, furthering gender equality, correcting regional and sectoral imbalances.

The issue of a capable, efficient and responsive State must be contextualized against the backdrop of the obligations of the State as a duty-holder. State capacity in a democratic context encompasses both the capability and the (political) willingness to perform key government functions for the benefit of all. These key government functions include ensuring peace and security, protecting the social, economic and political rights of the population, making critical development choices, providing basic social and economic services, and managing public resources efficiently and effectively. Protection of the social and economic rights of the population through effective provisioning of social and economic services is crucial as this directly impacts human development. Without the public provisioning of basic infrastructures and services,

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Chapter 4. Policies and institutions for human development development becomes moot as equitable access to opportunities and distribution of benefits are not feasible and as people are obstructed from actively participating in their own development. The State must have the capacity to implement a development agenda that will be effective in meeting human development within a broader democratic governance context. State capacity refers to both human and institutional capacity. While human capacity is the knowledge, skills and know-how of individuals acquired through formal and informal training and education, institutional capacity is the institution’s potential to successfully perform and apply its skills and resources to accomplish goals and satisfy stakeholders’ expectations. It is, however, important to note that capacity rarely exists in isolation; it needs to be addressed within the web of complex interrelationships that characterize institutional environments within which the State operates. In the process of building State capacity to establish a capable and responsive State, it is essential to recognize three essential characteristics of capacity building: • •

•

Local capacities always exist, even in situations of conflict, and these should be the starting point for capacity building work; Unleashing capacities go hand-in-hand with political leadership that is empowering and provides space for engagement to both the State and non-State actors; and Both governments and external partners should recognize capacity building as both a process and goal of development, which contributes to instrumental efficiency for delivering on development, and also to the direction and content of development policies.

In democratic governance systems, the boundaries between traditional administration and the rest of society are permeable. The State does not operate in isolation, but is a part of a broader system often characterized by conflicting goals, strategies and uncertain outcomes. Supportive measures for capacity building of State institutions therefore require a two pronged approach that focuses both on improving the structure of institutions as well as their functioning. The State needs to be responsive and should act as a social and economic promoter, capable of ensuring equitable distribution of opportunities, sustainable management of resources and equitable access to opportunities. Sound financial management and accountability in the way the State manages its financial and human resources not only contribute to sound national macro-economic stability; they also reduce corruption, increase revenue and positively impact productivity and social spending. Improved revenue mobilization will ensure a lesser level of dependence on external financial assistance. A capable administration can provide the enabling regulatory environment to support rapid private sector growth and industrial and finance development. Improving the functioning and management of the public service is increasingly seen as more than just modernizing State institutions and reducing civil service costs. It depends on the State’s ability to increase levels of competence, commitment and motivation of its personnel towards pro-poor objectives as well as ensure broad

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Part one. Human development: paradigm, measurement and policy issues participation of citizens in decision making. The public administration needs to be democratic so that it protects and promotes the economic and social rights of everyone, including women and other marginalized and vulnerable groups. This requires the civil service to be inclusive, representative and responsive both in its employment structure and in its daily functions. Gender dimensions in the civil service in particular have to be considered. Ensuring the legitimacy as well as the proper design and organization of the State administration is not enough if the institution does not effectively provide basic services for its citizens, with specific consideration for the vulnerable and marginalized groups in society. Ensuring social safety nets is crucial for protecting people from insecurities that threaten human survival or the safety of their daily life, imperil the natural dignity of men and women, expose human beings to the uncertainties of disease, and subject vulnerable people to abrupt penury arising out of economic dangers. The State, as the duty bearer, is responsible for providing the social safety nets, and thereby protecting and promoting human rights as well as empowering people, so that citizens can cope with and when possible, overcome insecurities. Provisioning of social services and basic infrastructure has significant impact on the alleviation of individual and household deprivation. It can empower individuals, households and communities to escape poverty and improve their livelihoods. Conversely, the absence of services can impoverish a family and mire it in despair and deprivation. Effective service delivery requires linkages that coordinate efforts amongst the different tiers of government and society in an expedient and participatory manner. These linkages should exist between local and central government, local level authority and the community, and sub-national authorities within a country and in a region.

Decentralization According to countries and times, Decentralization takes various forms and yields diverse results. The process of decentralization enables the emergence of innovative central-local relationships. It increases local autonomy and the level of diverse opportunities to learn ways of solving problems, creating innovative occasions for change and opening venues for new agents of change. While there are several competing definitions of, as well as, various distinct approaches to decentralization, common to all of these initiatives is a transfer of authority and resources from the central government to some other agency or authority ‘closer’ to the public to be served. Central control versus local autonomy cannot be clearly and absolutely dichotomized and thus, decentralization is best seen along a continuum of governance involving both. The basis of the transfer of authority and sharing of responsibility under decentralization can be territorial or functional, with context-specific variations in the ways in which these measures are undertaken. This involves different kinds of arrangements between the central and sub-national levels including devolution, delegation and deconcentration. De-concentration involves the transfer of responsibility for implementation of policies decided at the national level to local offices; delegation involves limited transfer of decision-making powers over funding and policy to local governments which acting

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Chapter 4. Policies and institutions for human development as agents become ultimately responsible to the central government; and devolution involves the transfer of resources, responsibility and decision-making to the local level. The kind of decentralization undertaken is greatly influenced by the size and population of a country, its geographical and ethnic diversity, historical precedent and the political climate. It is important to recognize however, that considerations for types of decentralization undertaken cannot simply be based upon one factor or another. Ultimately, it is the central government’s role to rectify regional inequities, and therefore formulas for decentralization need to be based on more than simple criteria such as population size and ethnic diversity. The potential advantages of decentralization are considerable. When undertaken effectively, it can lead to improved efficiency, governance, equity, development and poverty reduction. There is growing evidence that improved local governance practices, such as the adoption of local-level participatory planning and budgeting, do result in gains of efficiency and effectiveness in the delivery of local infrastructure and services. Despite the many advantages of decentralization, most observers caution that decentralization of the government alone is not a magic bullet to remedy complex problems of poverty reduction and democratic deficits. The success of decentralization is not merely dependent on undertaking certain political reforms per se. It is a result of the establishment of a three-way dynamic interaction between local government, civil society and an active central government. This three-way dynamic improves local governance and the efficacy of basic service delivery for the poor when: •

•

•

A capable central authority is committed to fostering democratic governance at the sub-national level, is not threatened by sharing power with regions, and is able to exercise adequate oversight roles; An empowered local authority is committed to improving services to respond to local needs, and is not hijacked by local elites for patronage and rent-seeking; and, An engaged and informed citizenry is able to engage in deliberations, influence policy and exercise downward accountability for effective service delivery and poverty reduction.

Considerations of the necessary criteria that establish both the legitimacy and the efficacy of State institutions capable of undertaking the development agenda and achievement of human development entail two distinct components. First is regarding the characteristics of State institutions that make them legitimate and competent; and second is the capability of these institutions to perform certain functions efficiently and effectively.

Civil society Human development requires the existence of constant and efficient linkages between governments and all members of society. Civil society is distinct from society in general since it refers to people organizing and acting together in the public sphere to reach collective goals, express their ideas and views, exchange information, improve State institutions and make them more accountable, among many other functions.

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Part one. Human development: paradigm, measurement and policy issues It provides a platform where State institutions and members of society consult each other, interact, and exchange views and information on public matters. It also creates institutional spaces for the active participation of diverse groups, including minorities and vulnerable groups, in the decision making process and for increasing political representation of these groups and interests in State institutions. However, civil society is not a homogenous group; it encompasses a broad range of formal and informal organizations, associations, and social movements from different social groups. This intrinsic diversity in origin and ideas is one of the main contributions to democracy. Despite their legitimacy, democratic governmental systems are faced in many countries with problems related to their functioning, representation and legitimacy. These problems are related to the lack or weakness of mechanisms of dialogue and participation that would enable civil society and the people at large, especially the poorest and most marginalized in society, to be more involved in policy decisions and monitoring procedures. Civil society participation seen as the collective capacity of groups to articulate their policy proposal and to gain access to processes and institutions of democratic decision-making, thus employing their rights as right-bearing citizens is the key to effective democratic development. Acting as a bridge between the individual and the State, civil society contributes to deepen democracy beyond its formal structure and to ensure accountability of governments to its citizens. Thus, civil society not only balances State power, it also legitimises State authority when that authority is legally based. Civil society recognizes the principle of State authority, the rule of law and the need for the protection of an institutionalised legal order to prosper and be secured. Civil society organizations are essential in promoting government policies that are responsive to society’s needs and interests. An active civil society contributes to develop, deepen and consolidate democracy in many ways: Watchdog role of civil society: The most general function of civil society is to provide checks and balances to State power. In this context, civil society is seen as a watchdog of democratic institutions to ensure their accountability to their constituencies. Civil society promotes State accountability in many cases by empowering and making the State’s checks and balances work efficiently. In other instances, where State mechanisms of accountability do not exist, civil society can exert pressure to create them in the first place. Civil society in this sense is not an adversary of the State, but a force that helps the State to improve and maintain its democratic nature. By exposing abuses of power and State wrongdoings, increasing expectations on State performance and creating political pressure, civil society can promote State mechanisms to act and to target corrupt, inefficient, and unaccountable practices. However, in some cases, the capability of civil society to make the State accountable is constrained by restrictive laws. Civil society organizations promote State accountability by participating in institutional arenas for monitoring and policy making. Yet, they also can promote government accountability by using non¬institutional tools like mass mobilization and media denunciations. Here the pressure that they exert is more symbolic, but none the less important.

Communication and information sharing: Another essential way in which civil society contributes to deepening democratic governance is through its role 90

Chapter 4. Policies and institutions for human development in generating and exchanging information on public issues. By doing this, civil society empowers people in their collective pursuit and defense of their interests and values. An important element for the promotion and defense of human rights is the existence of “rights literacy” among the population. Civil society can play a substantial role in generating and disseminating knowledge about rights as well as documenting and denouncing State abuse of those rights. The free exchange of ideas and information is an essential tool against corruption and abuse of power. More than ever before, education for democracy has become an explicit focus of civil society organizations. Civil society organizations (CSOs) have played a crucial role in educating the public about their civil and political rights, so that they can hold the government accountable to the adherence of these rights. For instance, CSOs have provided crucial information about health problems in order to better inform the public on these issues. In many instances, civil society has relied on free and independent media to provide often hard-to-reach community members with access to information regarding issues of environmental degradation. When information reaches these remote communities, they have in turn demanded more information, which has encouraged the circulation of ideas, the formation of a more inclusive civil society, and greater government accountability to the needs of its citizens. Civil society organizations have a better understanding of the issues affecting citizens’ lives, their tradeoffs and implications, and can express their viewpoints on these matters and ensure that these are reflected in government policies. Civil society has worked to promote women’s empowerment through dissemination of information on women’s rights, gender-based and domestic violence, particularly in post-conflict settings where gender abuses have often been used as a tool of warfare during conflict. It has also played a major role in creating awareness and undertaking public and policy advocacy such as with HIV/AIDS including pushing forward access to HIV/AIDS drugs in the context of TRIPs. Civil society has played a positive role in peace and reconciliation processes by creating and providing the space for circulation of information on peace process, reconciliation and government’s efforts. CSOs have significantly contributed to the peace process especially in countries affected by civil war. These organizations have developed plans to address the post-conflict situation, specifically dealing with resettlement of displaced migrants and persons, reconstruction, and service delivery. Improving State policy: Civil society promotes democratic governance by providing State policy makers with information on the needs and demands of citizens and directly collaborating in the decision-making process. Through community and grassroots organizations, civil society can effectively communicate the needs of vulnerable groups that are often voiceless and can serve as a bridge among them and government institutions. CSOs are better able to articulate, aggregate, and represent interests of the population, especially those traditionally excluded from access to power and representation like women, minorities, indigenous peoples and serve as brokers with political parties and State institutions. By doing this, CSOs can contribute to make State policies more sensitive and responsive to the needs and opinions of these groups.

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Part one. Human development: paradigm, measurement and policy issues Civil society can strengthen and improve State policy when these organizations collaborate with State institutions. Collaborative policy-making processes seem especially well suited to address a wide range of difficult and complex social concerns such as the environment and sustainable development; crime and aspiration for safe communities; discrimination and social justice; and poverty and the establishment of a more equitable society. Establishment of a development structure integrating participation of civil society and government at the local and village, intermediate and commune level, or district, regional, provincial and national levels within a single coherent framework is of paramount importance. This integration can help countries to capitalize, in policy terms, on experience gained at the community level and to institutionalise grass-root participation into decision-making. Experience shows that involvement of civil society organizations in post-crisis relief and recovery efforts can significantly contribute to success and sustainability. Conversely, exclusion of civil society contributes to inefficiencies and failures. International and national NGOs can be most useful when partnering with local implementing NGOs. In many instances, such as natural disasters, famines, conflicts, civil society organizations can be crucial in providing the early warning systems.

Partnerships in service delivery: Community organizations and NGOs can provide information necessary for understanding the needs and expectations of poor people on service delivery. At the same time, they complement the skills that the State and the private sector may lack. In many countries, these organizations have played a very important role in providing basic social services where governments have not been able to respond adequately to citizens’ needs. Civil society provisioning of social services has filled gaps left by State institutions. Yet, most of these organizations are overwhelmed and struggle with challenges caused by lack of resources and support. Nonetheless, it is important to bear in mind that civil society cannot and should not substitute State provision of basic social services. Indeed, the State should be responsible for setting legal frameworks, and guaranteeing that services are provided to all citizens. Civil society organizations need to be provided with sufficient resources to respond to the high expectations that have been placed on them. However, in spite of all these roles, CSOs in LDCs face a series of challenges. Among the most salient challenges is financial dependency. Most civil society organizations in LDCs are dependent on either international donors, international non-governmental organization (INGOs), and to a lesser extent, on the State to develop their activities. This has serious consequences for development of civil society in LDCs. Dependency on resources reduces the capacity of civil society organizations to sustain their activities when international support is not present. Most of the funds going to civil society organizations are project-based and once the project ends, many of these organizations tend to disappear. Moreover, dependency on foreign resources often means that donors and NGOs set the agenda of these organizations, limiting local ownership and empowerment. Funding for civil society organizations that provides social services is problematic given their intention to remain independent of the government in spite of their reli-

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Chapter 4. Policies and institutions for human development ance on public funding for some of their services. Often, resources will only come in exchange for political support, compromising the independent spirit of many of these organizations. Yet, once civil society organizations gain credibility in a community for their work, monetary contributions from governments either for services rendered or annual grants do not compromise their independence. Another salient challenge is legal constraints and the issue of internal accountability. Civil society activities get limited because of a weak regulatory framework. In many LDCs, laws and norms regulating the activities of civil society organizations limit the potential of CSOs to effectively influence policy making and to function as a mechanism of control over the State. On the other hand, many NGOs lack accountability and transparency that they demand from the governments. Many civil society organizations need to improve their internal governance in order to be able to legitimately demand State accountability. Lack of adequate internal accountability seriously hampers civil society’s capability of receiving and absorbing financial resources. In order to play its role most effectively, civil society requires an enabling environment that includes legal norms facilitating its recognition and institutionalisation, and also a culture of dialogue and transparency (which both civil society and the State contribute to developing) and the material resources (including their provision by the State) necessary for making a meaningful contribution to social debate. Insufficient knowledge and training present the next challenge. In order to effectively contribute to good governance, CSOs require knowledge and training on different public matters. For instance, many NGOs in LDCs require training on public policy design, implementation and monitoring. Lot of them does not know how State institutions, like the Parliament, function. Moreover, civil society organizations in LDCs require training in administrative and managerial skills as well.

Private sector and public-private partnership The private sector is a major actor and duty-holder in the democratic governance structure. Securing and maintaining peace, stability, and good governance depend in part on economic and employment opportunities that provide enough income to improve living standards. In this sense, the private sector is an essential source of opportunities for productive employment and economic growth. Availability of opportunities generated by the private sector initiatives characterizes a vibrant society, gives people an opportunity to use their energy in a creative manner and to be involved in social activities. Thus, development results from the creative interaction between three agents of change: the State, the civil society and the private sector. Private sector development is crucial to ensure the emergence of economic or entrepreneurial pluralism. But it is important to distinguish among private sector entities as their structures, objectives and modus operandi may be asymmetrical. The private sector need not only to be strong, but also responsive to society in order to promote equitable growth, gender balance, environmental preservation, and expansion of economic opportunities for the poor. The private sector can promote peace, stability and good governance by maintaining fair and competitive markets; ensuring that poor people (especially women and other vulnerable groups) have

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Part one. Human development: paradigm, measurement and policy issues equal access to economic opportunities, productive employment and credit; fostering enterprises that produce jobs and opportunities; attracting investment and helping the transfer of knowledge and technologies, particularly for the poor; providing incentives for human resource development; and protecting the environment and natural resources. The challenge is to capitalize on advances in macroeconomic stability and democracy and to launch reforms that bring about further changes in institutional frameworks to unleash and foster the private sector. Increasing the flow of development aid and reforming the global trading system to provide fair economic opportunities to producers from developing countries are essential for promoting rapid growth in domestic private investment. Equally important is the fact that the private sector should respect the rule of law and be held accountable to the State and society. As a duty-holder, it has to fulfill its social responsibilities as well. Addressing the challenges of development requires that States and their development partners (private sector, local communities, civil society organizations, and others) combine efforts and resources for improving the delivery of quality basic services to all citizens, with special attention to those who need them most. UNDP defines publicprivate partnerships as the “spectrum of possible relations between public and private actors for the co-operative provision of infrastructure services”. At its best, private and public partnerships can combine the best of public and private sectors: the public sector’s notion of public accountability, and social and environmental responsibility with the private sector’s values of managerial efficiency and entrepreneurship, as well as efficient use of resources and technology. However, these private and public partnerships have to face the challenge of guaranteeing access to social services to all citizens while maintaining profitability. In many cases, service delivery is largely carried out by public partnerships with the private sector and civil society. Experiences have shown that there is no single recipe for this type of partnership. As a result of public-private partnerships, local communities have been empowered to actively participate in creating basic social service systems to meet their needs and many of the initiatives are innovative and inexpensive. Democratic governance at the national and local level should promote an appropriate environment for overcoming obstacles and creating trust and understanding among the public and private sector. Public and private partnerships in many cases demonstrate that institutional, political and legal deficiencies are the main obstacles that undermine these partnerships and the provision of services for poor people. One of the reasons is that the absence of clear legal and institutional frameworks generates extended corruption and discourages private sector investment in these areas. In addition to this, it is essential to clearly distribute responsibilities between national and local governments and to clearly set the role of the State as provider and regulator. Private sector, on the other hand, should provide social services to the community complying with agreed standards and without exploiting any monopoly situation that may exist.

External development partners External development partners assume a critical importance in the democratic governance process for meeting challenges of human development. This is because on

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Chapter 4. Policies and institutions for human development one hand, they can contribute by filling in resource gaps, by opening trade opportunities for countries concerned, by developing capacities, and by positively influencing policy discourse and reforms. On the other hand, they can also impede the development process by imposing conditionality, by ignoring domestic realities and national priorities, and by pursuing an uncoordinated process. In many cases, the scenarios change depending on whether the donors are bilateral or multilateral and whether they are financial institutions or non-financial organizations. In recent times, international NGOs have also become important external development partners. The role of external development partners in a country is to act as a catalyst to a development process that has to be home-grown and nationally owned. Such partners should appreciate local realities and respect national priorities. In the light of these realities and priorities, gaps need to be identified and the optimal role of the external partners is to fill in the gap. The ultimate test for the effectiveness of their contribution is the development of local capacities and lesser dependence on their assistance. Areas where external development partners can make significant contributions include creating space for policy debates and dialogues, strengthening institutions and developing capacity, improving service delivery, forging partnerships, extending resource support and opening global opportunities. However, to achieve the maximum possible, external development partners should set their objectives in the context of national realities and priorities and pursue their actions in a coordinated manner. Transparency and accountability are crucial for their credibility. Although international support has contributed to the expansion of NGOs, it has also meant that actively or passively, international donors tend to impose their own agendas onto national and local level NGOs. Although this may promote advances in terms of certain issues, it raises the question of local empowerment and ownership. Sometimes, international NGOs work within developing countries in ways that generate more suspicion than appreciation. These institutions should have the same kind of transparency and accountability as are demanded from local organizations.

Rules of engagement In the democratic governance structure, each actor is committed to a specific mandate. However, it is the interaction of actors and the synergetic outcomes that make democratic governance truly effective in addressing, among other things, the development challenges of countries. These interactions and partnerships can facilitate people’s participation in public decision-making, empower local groups to take charge of their livelihoods, and allow citizens to advocate for policy reforms with public officials and political figures. These interactions comprise the mechanisms, processes and institutions through which actors articulate their interests, exercise their rights, meet their obligations and mediate their differences. These processes of continuous interaction among the various actors and their environment result in complex systems that require clear rules of engagement. These rules predict how accountability and public scrutiny will be exercised and therefore contribute to limiting State power and abuse. They ensure that stakeholders operate and defend their interests within the boundaries of the law and

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Part one. Human development: paradigm, measurement and policy issues the Constitution. These rules of engagement are the values that are constitutionally upheld and rooted in the social and political practices in a country to protect the rights. They also establish the preconditions for an enabling environment for economic, cultural, social and political life. Such rules of engagement need basic principles and relevant instruments. The basic principles of engagement consist of inclusion and mutual respect, equity and fairness, voice and choice, and transparency and accountability. An engagement can neither be effective nor sustainable if it is not inclusive. Engagement in democratic governance for overcoming challenges of development should be based on mutual respect, irrespective of the size and the power of the participants involved. That brings in the issue of equity and fairness. In an engagement, no party should be marginalized nor should they be unfairly treated. Engagements should not be choice-less, rather it should be based on real sets of choices. The actors engaged should have a voice in the choice they make. Otherwise, engagement becomes notional, rather than real. Finally, engagement, if it is to be effective and sustainable, must be based on trust, for which transparency and accountability are of prime importance. Once the principles are agreed upon, the relevant instruments and mechanisms for engagement in democratic governance for addressing challenges of development have to be identified. At one level, political space, citizen forums, and civil society public-private partnership may be seen as the mechanisms for engagement. There are also specific mechanisms such as consultative groups or round tables for engagement with external development partners. These are, however, more space-notioned mechanisms of engagement. At a more fundamental level, constitutions, the rule of law, the judiciary system are the real mechanisms for engagement. In the context of external development partners, neutrality, non-interference in internal affairs and a catalytic role may reflect the deeper mechanism. This is because these provide both norms and mechanisms for engagement in democratic governance. For example, the rule of law encompasses rules and norms that are constitutionally upheld and rooted in the social and political practices in a country. It includes both the obligations of the State to respect, protect and fulfill human rights and the entitlement of all citizens to those rights. There are different mechanisms through which the State guarantees human rights and the rule of law. These are laws consistent with international human rights standards; institutional separation of powers, which includes an independent judiciary; effective functioning of courts, judiciary and law enforcement as well as independent human rights institutions or ombudsman offices. The rule of law has to be accepted by all, clearly defined and socially and culturally embedded. This implies that these laws ought to be followed and enforced. The rule of law connects democratic interactions between the State and social and economic agents and sets the terms of engagement. Horizontal and vertical accountability mechanisms are required in order to operationalise and exercise the rule of law. The respect of human rights and the rule of law promote an empowered and a participatory citizenry that can demand accountability and transparency from the State and counter exploitative political and economic interests in society. It is important that norms are known to all, applied in law and reality, and there are mechanisms for compensation.

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Chapter 4. Policies and institutions for human development In turn, the interactions between individuals and groups in society must reflect these principles. Although the primary guarantor of human rights is the State, rights-based rules of engagement cannot be realized without the commitment of society to these norms and rules as well.

Capacity building Capacity building may be defined as the ability of people, institutions and societies to perform functions, solve problems, and set and achieve objectives. Fundamentally it is a broad goal achieved over time. Capacity building as an objective corresponds to the goal of people wanting to learn and increase their options and choices. This applies similarly to institutions and societies as a whole. Capacity building is also an approach, a process in development and a means by which individuals, institutions and societies are empowered to make choices and chart their own development course. Finally, the far reaching nature of capacity building not only makes it an objective, an approach, a process and a means, but also an outcome. Such a definition of capacity development immediately implies the following: • • • •

•

•

•

Capacity building has many facets. It is an objective, an approach, a process, a means and an outcome. It can take place at several levels – individual, institutional and societal; and they are mutually reinforcing. Capacity building is voluntary and it stems from one’s motivation and desire to do things and do them well. Key capacities include competencies that permit all concerned to influence their own destiny – such as the ability to set objectives, strategize, plan and implement those plans. There are underlying capacities that lead to development effectiveness, including self-esteem, facilitating change, leadership development and knowledge networking. Capacity building takes time and it is dynamic. Developing sustainable capacities is a decades-long endeavour. As life and societies are constantly changing, so do the needs and the nature of capacity building. Capacity building is case-specific and it is based on existing capacity. Development of capacities is not something abstract, rather it is highly contextual. Each generation learns from the preceding one. Capacity building at any point in time builds on preceding results. Capacity building is an endogenous process that takes place in every society. It can be supported or distorted through external intervention.

Three principles are crucial for capacity building. First, ownership is critical. Second, leadership matters. Third, capacity building requires changes in mindset and overcoming vested interests and power. Two misconceptions must however be avoided. First, capacity building is not synonymous with socio-economic development, even though developing capacities to conceive and carry out relevant tasks is crucial to the advancement of human well-being. Second, another term – capacity building – is often used interchangeably with capacity building. The latter is more comprehensive, however, connoting the initial stage of creating and building capacities, as well as the subsequent use and retention of such capacities. Capacity building, which is not

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Part one. Human development: paradigm, measurement and policy issues self-sufficient in and of itself, is thus a subset of capacity building. In the areas of advocacy and awareness building for human development, the following need to be done for capacity building: • •

Encourage innovative approaches by media and civil society to enhance their capacities for formulating a creative awareness strategy; Promote training and education of various actors on human development so that they become effective partners in national debates and dialogues. Develop capacities of NGOs and other institutions of civil society to enhance their effectiveness.

Capacity building in policy formulation for human development would need to focus on the following: •

•

• • • •

Better techniques, improved skills and institutional strengthening for mobilization of data and information for situation analysis, needs assessment and impact analysis for poverty reduction; Development of knowledge, skill and competence (human resource development) for formulating robust and credible policy alternatives in areas of propoor policies, ranging from macroeconomic framework to sectoral strategies to public resource management including costing to such cross¬cutting themes as gender equality; Capability of articulating and negotiating alternative points of views, highlighting that money changes hands, but ideas change minds; Developing a proper incentive mechanism for the public sector to fulfill its public mandate effectively; Scope for developing partnerships with like-minded actors on pro-poor policy issues and developing a united stand; Developing instruments and means for transparency of the process and making it broad-based. Enhancing the capacities of NGOs and other institutions of civil society to become effective partners in policy debates and dialogues and play a better watchdog role.

Capacity building for improving governance and developing institutions in the context of human development would require focusing on the following: •

•

•

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Improving the legal framework, particularly its implementation and better access to poor people. For example, in order to deal with the issues of rights of women, institutional reform in areas of the Family Code, the Labour Code, inheritance laws, laws on gender equality need to be properly formulated and enforced; A more capable and committed public administration structure that can operate with greater efficiency. This would require more human resources and financial resources, skill development, proper incentive mechanism, improved transparency and accountability structures; An able, efficient and effective decentralized system with clear mandates and division of work, adequate human and financial resources, and a good system

Chapter 4. Policies and institutions for human development •

• •

of monitoring and evaluation; Improving capacities and the environmental contexts for addressing the issue of corruption through better laws, improved pay structures and incentive mechanisms, and public vigilance; Instruments and channels for public participation in decision-making at all levels, enlarging the scope of free media and enhancing its capabilities; Developing a vibrant, efficient and effective civil society.

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Part one. Human development: paradigm, measurement and policy issues

BIBLIOGRAPHY AND ADDITIONAL READING MATERIALS Gustav Ranis and Frances Stewart. 1996. “Strategies for Success in Human Development”. Oxford University. -. 2000. “Strategies for Success in Human Development”. Journal of Human Development, 1(1), 49-70. Joseph E. Stiglitz. 1998. “Towards a New Paradigm for Development: Strategies, Policies, and Processes”. World Bank. Lidija R. Basta. 2001. “Decentralization - Key Issues, Major Trends and Future Developments”. University of Fribourg. Paul Streeten. “Components of a Future Development Strategy: The Importance of Human Development”. Finance and Development. Sakiko Fukuda-Parr, A.K. Shiva Kumar (eds.). 2004. “Readings in Human Development: Concept and Policies for a Development Paradigm”. New Delhi, Oxford University Press. UNDP (United Nations Development Programme). 2005. “New Public Finance”. New York. World bank. 2004. “Environmental Challenges of Urban Development”. Monitor 2004.

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PART TWO

HUMAN DEVELOPMENT IN MONGOLIA 101

CHAPTER 5. HUMAN DEVELOPMENT IN MONGOLIA Sub sections 5.1 History, culture, population and political system of Mongolia 5.2 The status of human development indicators in Mongolia 5.3 Achievements in human development 5.4 Setbacks in human development 5.5 Access to social services and industrial resources Bibliography and additional reading materials This chapter offers a brief introduction to the geography, history, demography, culture of Mongolia. In addition, it introduces Mongolian human development trends and status.

5.1 HISTORY, CULTURE, POPULATION AND POLITICAL SYSTEM OF MONGOLIA Geography Mongolia is one of the least populated countries in the world. Covering 1.565 million square kilometers, the country encompasses an area larger than the combined size of Great Britain, Germany and France. Located in the plateau of Central Asia, far from seas and oceans and main road and transport networks, the geography of this vast country is characterized by high mountains in the west, wide-open steppes in the east, the great Gobi desert in the south and taiga forests in the north. Its climate is characterized by long winters with frequent snow blizzards and dzud; springs with persistent winds; hot and dry summers with low precipitation; and a short vegetation season. These characteristics affect the living conditions of people and also pose challenges to both livestock husbandry and land farming. Over the centuries, however, the Mongols have adapted well to the recurrent four seasons and harsh climatic conditions. Changes in climate and erroneous human activities including desertification, soil erosion, the drying-up of springs and rivers, water scarcity, loss of biodiversity and air pollution have significantly affected Mongolia’s ecosystems over the past four decades. These forms of environmental degradation continue to adversely affect the livelihoods of urban and rural populations. Many Mongolians are beginning to abandon their traditional nomadic lifestyle and migrate from rural to urban areas. This is leading to land being abandoned and also to an over-concentration of the population in certain regions – both of which could hinder human development.

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Chapter 5. Human development in Mongolia

History of Mongolian society Ancient Mongols have left an indelible mark in the history of humanity. Nomadic tribes of Mongolian ethnicity built the first state in Central Asia in 3 B.C and formed powerful states and confederations, including Xiongnu (Huns), Xianbei, Moyun, Toba, Jujan, Turk, Uighur, Kidan and the Great Mongol Empire. People in these States were actively engaged in livestock husbandry, crop cultivation and handicraft production. They established cities and towns, and forged close social, economic and cultural ties with neighboring countries. They established a rich tradition of education and culture. The history of the Mongols is the history of a nation that has experienced both advances and setbacks in the course of more than two thousand years. The Mongols, starting in the 13th century, through a series of wars that lasted for more than 100 years, had conquered many of Asian and Eastern European countries to build one of the largest empires ever known in history. But in the late 17th and early 18th centuries, the Mongols lost their independence and were brought under the control of the Manchu (Qing dynasty). Foreign colonization that lasted for nearly 200 years resulted in serfdom and considerable unrest. As a result, at the beginning of the 20th century, Mongolia remained underdeveloped and fell far behind the rest of human civilization. Its people endured unbearable suffering and faced unlimited pressures; they were also denied the freedom of expression. Between 1900 and 1918, population growth rate was as low as 0.1 per cent as half the new-born babies died before their first birthday and almost 13.2 per cent of mothers died while giving birth1 . Only one out of every hundred persons was literate; livelihood opportunities were few and the majority of Mongols led lives of extreme deprivation. The 20th century was a century of renaissance. Mongolia declared its independence in 1921 following the victory of the national democratic revolution. This enabled the country to undertake a series of deep and comprehensive reforms across all sectors political, economic and social and to embark on charting a new history. Under socialism, Mongolia was able to overcome centuries of neglect. Dramatic improvements were recorded in people’s standards of living, education and health. During these years 98 per cent of the country’s population had become literate and the average life expectancy had tripled2 . Despite the improvements in social conditions, the socialist political system deprived individuals of freedoms and human rights, and the interests of the political party were placed above the interests of people. The collapse of the Soviet Union and the breakup of Eastern Europe led to a peaceful democratic revolution in the early 1990s. Within a short period since then, Mongolia was able to introduce many important changes in the political and economic systems including the establishment of democratic governance that respects human rights and freedom; strengthening of civil society organizations and political parties that aim to express interests of different social groups; and increased public participation in the development process. In addition, an open economic system based on free competi1.NSO. 2003. “Mongolian population in 20th century” 2.“Materials of “Mongolian medicine – 80” scientific conference UB 2001 page 7, “Mongolian statistical yearbook- 2004”

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Part two. Human development in Mongolia tion and private ownership has been established. After a brief period of setbacks in the initial years of the historical transition to a democratic society and a market economy, Mongolia has succeeded in overcoming many of the early constraints to human development. Today, the changes in the political and economic spheres have greatly enhanced people’s capabilities and expanded opportunities for them to live, work and lead creative lives.

Demography Mongolia’s population has grown from around 647,5003 in 1918 to 2.5 million4 in 2004. The average annual population growth rate was around 0.3 per cent in the first half of the 20th century when the country’s development was relatively weak. However, in the second half of the same century, it increased to 2.3 per cent against 1.3 per cent for the world population and 1.9 per cent for the Asian population5. The population increase was made possible by government’s pro-natalist policy of supporting births, improving access to contemporary health care and reducing morbidity and mortality rates6. Population grew rapidly between 1970 and 1980 and this led to the emergence of a relatively young population. By 1980, the average annual population growth rate reached 2.7 per cent7 and the median age of the population declined to 17.3 years8. But this situation did not last long. The sharp economic decline during the initial years of transition in the 1990s caused people to take necessary actions to prevent deterioration in their livelihoods. People responded by reducing the birth rate, increasing the interval between births and delaying age at marriage and child-birth. Between 1990 and 2004, the average annual population growth rate was 1.1 per cent. As a result of the slowing down of population growth rates, the proportion of children 0-14 years declined by 9.1 per cent to 32.6 per cent of total population by 2004. A trend towards ageing of the population was observed with persons aged 15-64 years accounting for 63.9 per cent of the population and those aged 65 and above for 3.5 per cent of the total population9. Mongolia has undergone dramatic changes since the transition period. Foreign relations have expanded. Rural-urban disparities have deepened, significantly contributing to internal migration and emigration of the population. Many people and families have moved from rural areas to cities and from cities to foreign countries in search of better opportunities, education and better-paid jobs. Although internal migration has eased social pressure in rural areas, it has been accompanied by some adverse consequences including a shortage of qualified staff in rural areas, increased social 3. I.M.Maiskii. Modern Mongolia (Autonomous Mongolia in the Beginning of the 20th century). 1921, NSO 2005. ”Mongolian statistical yearbook 2004”. 4. NSO 2005. “Mongolian statistical yearbook 2004” 5. I.M.Maiskii. Modern Mongolia (Autonomous Mongolia in the Beginning of the 20th century). 1921, NSO 2005. Mongolian statistical yearbook 2004”. 6. MPDA, PTRC, UNFPA. “Demography”. Journal 2004/11 page 34 7. MPDA, PTRC, UNFPA. “Demography”, Journal 2004/10 page 15 8. MPDA, PTRC, UNFPA. “Demography”, Journal 2004/11 page 35 9. NSO 2003. “Mongolia in the market» statistics”, “Mongolian statistical yearbook – 2004” UB 2005

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Chapter 5. Human development in Mongolia burdens on cities and deterioration in the quality of and access to social services. Migration has led to a rapid growth of urban communities. Today, more than one-third of the country’s population lives in the capital city of Ulaanbaatar. It has also affected people’s lifestyle: marriage rate has declined and the number of single people and couples cohabitating in de facto relationships has increased.

Culture and traditions of the Mongols National culture and traditions of Mongolia have greatly enriched the lives and choices of Mongolians. The survival and development of the Mongolians cannot be construed separately from their native culture which in turn has been deeply influenced by many generations of a nomadic lifestyle characteristic of tribal communities that inhabited the Mongolian land. The Mongolian culture that has been shaped and nurtured is constituted of a number of closely interrelated components including a sense of national pride, a distinct national language and script, religion, art, customs, values and special features of lifestyle and consumption. Local customs and traditions have influenced the norms of daily lives; language and scripts serve as instruments for communication; and art, religion, aesthetic education and beliefs shape people’s mindsets. Socialism maintained that the national culture, religion and tradition were outdated, feudalistic and opposed to the dominant ideology. However, the nomadic lifestyle, culture, custom and intellectual qualities have remained to this day. It reflects both the resilience of Mongolian culture and traditions as well as the strong foundations of the nomadic civilization. The 20th century witnessed a major transformation of the culture, customs and traditions of Mongolians when settlements were imposed, and the cultures of Europe, Russia and former Soviet countries began to permeate the lives of ordinary citizens. During the socialist era, religion, traditional culture and customs were considered as primitive feudalist ideology. Despite of this, the traditional nomadic way of life, its customs, and the attitude of the people of Mongolia survived until today thanks to the strong nomadic civilization and traditional ideology of Mongolians. The introduction of democracy in the 1990s significantly expanded people’s cultural freedoms. It gave a boost to people’s efforts to retain and protect their own national culture and traditions, and also to learn from cultural achievements of humanity. As a result of recent changes in the social life of Mongolians, people’s behavior and intellectual values are also changing. According to some observers, there has been a general shift among Mongolians away from traditionally valuing wisdom and intellect, caring for nomadic traditions of paying respect to the aged and valuing kinship ties towards the pursuit of pleasure, luxurious lifestyles and profit. The pace of change in the intellectual and social tradition is dramatically different in rural and urban areas. The traditional way of undervaluing the importance of time, ignoring wastefulness and being passive with a blind belief in destiny are more common among rural than urban people. Despite these changes, the core character of Mongolians has not changed significantly. Evidence for this is found in the peaceful democratic reforms of the 1990s, recognition of pluralism and of co-existence of religions, and absence of religious conflicts. Curiosity, a natural trait of Mongolians, still helps them to easily adapt to

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Part two. Human development in Mongolia surrounding environments and to quickly acquire and learn new skills. This distinguishing characteristic of the Mongolian people of learning from different cultures can potentially help capitalize on the advantages of globalization.

Development of political system in Mongolia The overall political system that existed in Mongolia until the beginning of the 20th century protected the interests of a minority of the population, i.e. those of either the ruling class or foreign dictators. In 1921, with the victory of the national democratic revolution, State power assumed central significance. But the socialist political system was not democratic in nature as it restrained individual rights and freedoms and put the interests of the leading political force ahead of people’s interests. In the early 1990s, when the socialist system became incapable of governing and leading society, Mongolia initiated radical political and economic reforms in order to enhance human development. The country opted to promote a public democracy that respects human rights and freedoms and, at the same time, adopt a market-oriented economic system based on competition and many forms of property ownership. From a human development perspective, the choice made by Mongolia was indeed inevitable especially since it was accomplished rapidly and peacefully. In seeking to establish a humanitarian and democratic society, Mongolia has taken several important steps in its transition to a democratic political system. According to the new Constitution, the legislative, executive and judicial powers are distributed between State institutions such as the Presidency, the Parliament, the Government and the Supreme Court. The Parliament and the President are elected through free public democratic elections. The roles of political parties and civil society organizations have increased and their activities and structures have strengthened. Reforms in the political sphere have abolished discrimination of members of the society on the basis of their views and have declared freedoms of speech, publication, expression and assembly. In addition, they have guaranteed citizens the right to possession of property, enhanced people’s efforts to work and live by mobilizing new opportunities and expanded people’s choices. Article 3 of the new Constitution of Mongolia adopted in 1992, for instance, specifies that “State power will be vested in the people of Mongolia. The people shall exercise state power through their direct participation in the state affairs as well as through the representative bodies of state power elected by them.” This provision which is ingrained in every citizen underlies many issues including wide public participation in governance, pluralism, individual political rights and freedoms, representative democracy and parliamentary governance. The notion of political democracy, however, is much wider than just the exercise of voting rights and regular elections. It is important from a human development perspective to nurture a political system that assures citizens their fundamental rights and freedoms as enshrined in the Constitution and ensures a steady and sustained improvement in the quality of their lives.

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5.2. THE STATUS OF HUMAN DEVELOPMENT INDICATORS IN MONGOLIA Since the first calculation of the Human Development Index, Mongolia has been in the group of medium human development countries. According to the latest Human Development Report for 2005, Mongolia with its HDI value of 0.679 ranks 114th amongst the 177 countries up 3 ranks from the previous year. The Report has Norway with a HDI value of 0.963 at the top of the list and Niger with a HDI value of 0.281 in the last place10. In 1990, Mongolia with a HDI value of 0.737 was ranked 61st out of 130 countries11. However, the economic downturn, the emergence of unemployment and the decline in the living standards during the transition period of the early 1990s resulted in a decline in the country’s HDI value to 0.634 in 1995 reflecting a serious setback to human development. Mongolia, of course, was not the only country to face the human hardships of the transition. Between 1990 and 2005, the HDI value fell across a number of countries and so did their rankings: Poland slipped by 3 ranks, Hungary by 5 places, the Republic of Kirgizstan by 13, Romania by 23, China by 20, Bulgaria by 28, Vietnam by 33 and Mongolia by 53 places12. It took almost the decade of the 1990s for Mongolia to regain the HDI levels that characterized the economy in 1990. By 2005, according to the World Bank, even though Mongolia had completed the transition, it had still not regained its pre-transition position in terms of certain human development indicators. In terms of HDI ranking, Mongolia has registered lower performance than the average of developing countries and the world average. There are 113 countries with a higher HDI value and only 63 countries lower than Mongolia on the HDI ranking. More specifically, in terms of the individual HDI indicators, according to Human Development Report 2005, Mongolia was ranked • • •

117th in terms of average life expectancy, 53-58th place in terms of education performance and 137th place in terms of GDP per capita (PPP US$)13

In 2000, one in every 4 persons aged 15 years and above in developing countries was illiterate as against one in every 5 persons in countries with medium human development levels. In Mongolia, one out of 50 people was illiterate14. Whereas 2 out of every 3 children of school going age in countries with medium human development levels attended school of any level, in Mongolia, 3 out of every 4 children were enrolled in school. This superior achievement in education is the result of strong government policies as well as the Mongolian tradition of cherishing wisdom and knowledge. 10. UNDP 2005. Human development report 2005 11. UNDP 2005. Human development report 2005 12. Comparison of “Human development Reports” of 1990 and 2005 13. UNDP 2005. Human development report 2005 14. UNDP 2005. Human development report 2005

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Part two. Human development in Mongolia Although Mongolia has shown relatively good performance in educating its people for a number of years, it has been falling behind in such areas as increasing per capita income and the average life expectancy. In 2003, for instance, GDP per capita in Mongolia was nearly 60 times lower than the average of high-income countries, 11 times lower than the world average, and 2.7 times lower than the average of developing countries15. Similarly, in 2003, the average life expectancy in Mongolia, 64 years, was considerably higher than that of low-income countries. Nevertheless, it was almost 3 years lower than the average life expectancy of the world average, one year lower than the average of developing countries, 3 years lower than the average of countries with medium levels of human development, and nearly 14.8 years lower than the average of high-income countries16.

World

..

67

GDP per capita (PPP $)

67.1

Combined gross enrolment ratio

0.741

Adult literacy rate

Life expectancy at birth

HDI rank Countries, regions

Human development index

Table 5.1 Human development index: by world, regions, countries

8229

High-income OECD

0.911

78.9

..

95

30181

Developing countries

0.694

65.0

76.6

63

4359

Least developed countries

0.518

52.2

54.2

45

1328

High human development

0.895

78.0

..

91

25665

Medium human develop- 0.718 ment

67.2

79.4

66

4474

Low human development

46.0

57.5

46

1046

0.486

High income

0.910

78.8

..

94

29898

Middle income

0.774

70.3

89.6

73

6104

Low income

0.593

58.4

60.8

54

2168

East Asia and the Pacific

0.768

70.5

90.4

69

5100

Mongolia

0.679

64.0

97.8

74

1850

Neighbouring Russia

0.795

65.3

99.4

90

9230

Neighbouring China

0.755

71.6

90.9

69

5003

Source: UNDP, 2005.Human Development Report 2005, p.219-222

15. UNDP 2005. Human development report 2005 16. UNDP 2005. Human development report 2005

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Chapter 5. Human development in Mongolia Mongolia does not fare so favorably along some other indicators of human development. According to the Human Development Report 2005, for instance, Mongolia ranks 90th out of the 140 countries in terms of the Gender-related Development Index (GDI) – an index that measures gender equality in human development; and 69th out of the 80 countries in terms of the Gender Empowerment Measure (GEM) – another index that measures empowerment of women in economic and political spheres. At the same time, Mongolia ranks 38th out of the 95 developing countries on the Human Poverty Index (HPI-1) that measures deprivations in human development. Table 5.1 provides data on human development levels in Mongolia and other regions and countries of the world. Data reveal that in the early 21st century, Mongolia’s per capita income was substantially lower than the world average. This is partly due to the economic decline and setbacks during the initial years of the transition and also due to what Mongolia has always had to contend with for generations in terms of its geophysical characteristics: an unfavorable geographical location. To an extent, the poor performance also reflects shortcomings in public policies as well as deficiencies in the capacities of individuals and institutions to advance human development.

Progress in human development and its current status in Mongolia It is difficult to go far back in history to trace trends in Mongolia’s human development. Statistical records including data on Mongolian demographic characteristics, education, marriage and death rates were almost non-existent prior to 1921. Available records reveal that at the beginning of the 20th century, Mongolia was amongst the most remote and desolate regions in the world characterized by chronic economic backwardness and extremely low living standards. It not only lagged behind other countries in terms of education and knowledge, but life expectancy was low, levels of morbidity and mortality were high, population had stopped growing and medical sciences were extremely under-developed. The majority of the country’s population, engaged for centuries in non-intensive livestock husbandry, was poor and deprived of a decent standard of living. Later studies on the state of human development during that period reveal17 that people’s intellectual capabilities were not fully developed “because none out of ten people knew even the Mongolian scripts”. People were severely impoverished18 , “half of all new born babies died before the age of one”, “13.2 per cent of all mothers died while giving birth”, “almost one out of two persons had venereal diseases” and “over 30 per cent of women were infertile”. Between 1862 and 1918, Mongolia’s population declined by 4.5 per cent or 25.0 thousands19. As a result of the high death rates and widespread diseases, the average life expectancy in pre- revolution Mongolia was also considerably low. I.M. Maiskii, a Russian historian and researcher, well-known for his scholarship on Mongolia’s social and economic condition before the revolution, comments on the situation in his book Contemporary Mongolia: Autonomous Mongolia at the threshold of the 20th century published in Irkutsk. Writing in 1921 – the year of publication of the book , Maiskii states: “[…] in the last seven centuries, Europeans have advanced fast to meet their future, while Mongolians have made no progress, staying the same 17. Mongolian Academy of Sciences 2003. History of Mongolia Volume 5, Ulaanbaatar, p. 96 18. NSO 2003. Mongolian population in 20th century 19. Ministry of Health 2001. “Mongolian medicine – 80” scientific conference material, p. 8

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Part two. Human development in Mongolia as they were before […]. The life expectancy of Mongolians is not very long. One can rarely meet white-haired old people in Mongolia […]. It is common that a Mongolian man is already toothless at the age of 50-60 […]. It is not accidental that the census of 1918 categorized men aged above 50 as the elderly [...] (p. 43) […]. An average Mongolian man has forgotten about the past of his country and has no idea about the history of its nation. They are illiterate. Only 10 per cent of population can write and read in Mongolian.” (p. 50). Using data from the census of this period, Maiskii also calculated that an average Mongolian household had five family members, three camels, 14 horses, 13 cows, and 90 sheep and goats20. For most Mongolians, prospects of a bright future seemed bleak at the beginning of the 20th century. They were too weak and vulnerable compared to even their ancestors in the medieval period who were often called “the God’s whip” for invading numerous countries, conquering half of the world with extraordinary speed and establishing the largest empire in the history of humanity. Their destiny seemed to be at peril. This even led some scholars to a conclusion that the “Central Asian nomads will remain wild barbarians as they are at present for a long time. But when the time comes, they will meet their end following their destiny, and the same as we see the aborigines of America and Australia dying out at present, we will see them completely disappear.21” This prophecy obviously has not come true. At the beginning of the 20th century, Mongolia witnessed radical changes in the world, particularly, in Russia and China, and the Mongolian people opted for a new development path under very different socio-economic conditions. The history of Mongolia in the 20th century is a history of renaissance and enlightenment. It is the story of a poor, underdeveloped nation on the brink of extinction turning the corner in an incredibly short period of time and recording advances in all sectors society, economy, culture, education and science. Impressive and dramatic improvements in human development were recorded in the around seven decades when socialism dominated every aspect of social life of Mongolia. During the socialist period, the population became healthier and better educated and their living standards improved, resulting in impressive gains in human development. In the last century, infant mortality rate dropped 15-fold and maternal mortality rate fell 80-fold, contributing to a fourfold increase in population. Mongolia attained a high position among developing countries in terms of key health indicators22. One of the remarkable achievements of Mongolians in the 20th century was the rapid rate of population growth accompanied by longer life expectancy. Average life expectancy of a Mongolian increased from 22 years23 in 1915, to 64.6 years24 in 2004.Even over the past three decades, average life expectancy of Mongolians increased by 10 years25. Following the 1921 Revolution, the Mongolian government established a new system of modern civic education with scientific foundations with the goals to achieve universal literacy, establish an education system with universal access, renew the education cur20. I.M. Maiskii. 2002. Modern Mongolia: Autonomous Mongolia in the Beginning of the 20th century. Ulaanbaatar, p. 165 21. N.M. Przewalski. Third journey. p. 151 22. Ministry of Health 2001. “Mongolian medicine – 80” Scientific conference material, Ulaanbaatar, p. 52 23. Ministry of Health 2001. “Mongolian medicine – 80” Scientific conference material, Ulaanbaatar, p. 52 24. “Mongolian statistical yearbook- 2004” 25. UNDP 2004; Human development report 2004, p 170

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Chapter 5. Human development in Mongolia riculum, improve the schooling system and provide complete secondary education for all. However, during the socialist era, social development was the priority before individual development. The official policy and ideology of this period did not pay proper attention to human development. Instead, its objectives were to retain and strengthen the socialist patterns of arrangements in production and social relations and to educate the masses in the principles of socialism and communism under the Marxist ideology. Although there was much progress in human development in Mongolia during this period, human development could not be fully promoted in an old society where monist ideals dominated and the single party ideology deprived people of private property and human rights. The concept of a humane, civil, democratic society entered mainstream discourse as a result of the democratic changes in the 1990s and with the adoption of the new Constitution of Mongolia. The foreword to the Constitution reads: “We, the people of Mongolia: - Strengthening the independence and sovereignty of the nation, cherishing human rights and freedoms, justice and national unity, inheriting the traditions of national statehood, history and culture, - Respecting the accomplishments of human civilization, and - aspiring toward the supreme objective of developing a humane, civil, democratic society in the country, hereby proclaim the Constitution of Mongolia.”26 With the establishment of pluralistic democratic governance that upholds human rights and freedom, ordinary citizens benefited of greater opportunities to contribute and participate more actively in social life. Democracy has provided legal guarantees of human rights and freedoms and has enlarged people’s choices. The exercise of freedom of expression and assembly promotes numerous people’s initiatives. Several NGOs have been established and the country’s civil society organizations, though in their nascent stage, are now more vibrant than ever before. Soon after pluralism, democracy and a market-oriented economic system were established in Mongolia following the democratic reforms in the 1990s, the living conditions of people deteriorated. There were setbacks to human development during the transitional crisis. The transition period was disappointing: real incomes declined, unemployment rose, poverty increased, people’s standards of living declined and the quality of and access to social services deteriorated. Education and health performances slipped and the situation was worse than in the pre-1990s. Human development index in Mongolia From the mid-1990s, however, the country’s situation began to change. GDP has experienced a slow and steady growth. Inflation was brought under control, private sector performance has shown improvement, and the social sectors have shown some positive changes. Human development indicators have recorded a gradual improvement and a positive trend. This is also borne out by visible changes and positive progress in the quality of life of Mongolian people. According to the Human development report 2005 human development indexes were 0.668 in 1985, 0.673 in 1990, 0.633 in 1995, 0.657 in 2000, and 0.679 in 2003, respectively 27. 26. Mongolia 1997. The constitution of Mongolia. Ulaanbaatar, 1997, p. 3 27. UNDP 2005. Human development report, p. 225

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Part two. Human development in Mongolia

Life expectancy index

GDP per capita(PPP.US$)

Combined primary, Secondary and tertiary gross enrollment ratio ( per cent)

60.4 54.3 57.0 62.0 66.0 69.6 69.6 69.7

1,640 1,266 1,267 1,356 1,706 1,838 1,968 2,125

0.645 0.638 0.647 0.669 0.636 0.636 0.639 0.642

HDI

96.5 97.7 98.9 96.5 97.8 97.8 97.8 97.8

GDP index

63.7 62.8 63.8 65.1 63.2 63.2 63.4 63.5

Education index

1990 1992 1995 1998 1999 2000 2001 2002

Adult literacy rate ( per cent, 15 age and above)

Indicators Year

Life expectancy at birth (years)

Table 5.2 Changes in Human Development Index of Mongolia

0.845 0.824 0.849 0.850 0.872 0.884 0.884 0.884

0.467 0.424 0.424 0.435 0.472 0.466 0.497 0.510

0.652 0.626 0.635 0.651 0.661 0.669 0.674 0.679

Source: Government of Mongolia, UNDP 2003. Mongolian Human Development Report 2003, p. 8

The increase in the HDI is directly attributable to improvements in education and health conditions and in the quality of life of the population. The adult literacy rate increased from 96.5 per cent in 1989 to 97.8 per cent in 2000; and the school attendance rate of people aged 8-22 reached 71.6 per cent in 2003. Figure 5.1 Human Development Index Comparison Figure 5.1 Human Development Index Comparison

International Comparison 1 0.9

Countries

0.8 0.7 0.6 0.5

0.910 0.895

High Income Countries High Human Development Index

0.774 0.74 0.718 0.694 0.679

Middle Income Countries Developing Countries Middle HDI Developing Countries Mongolia

0.593

Low Income Countries

0.486

Low HDI

0.4 2003

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Chapter 5. Human development in Mongolia Mongolia’s average life expectancy increased from 63.2 years in 2000 to 64.6 years in 2004. If the current trend continues, it is expected that the average life expectancy could reach 70 years for men and 74.7 years for women by the year 202528. The country’s per capita income, however, increased modestly, from PPP US$ 1,706 in 1999 to PPPUS$ 2,125 in 2002. Progress by Mongolia’s humane and democratic society is intensifying, and this has contributed to the lives of Mongolian people becoming more diversified. People, by and large, lead better and more enriched lives today than before, and the quality of life has improved. However, a significant part of the population is still trapped in poverty and vulnerability. And human security remains a matter of great concern especially as some groups experience falling standards of living and an increasing incidence of crime.

Percentage

Figure 5.2 GDP Comparison by countries

250.0

GDP GROWTH

200.0

1980-1990 Growth trend projection

150.0

1990-2005 Real growth

100.0

1990-1995 Growth Trends

50.0 1990

1995

2000

2005

Years

28. NSO, 2002. “Population projections”, Ulaanbaatar, Mongolia

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Part two. Human development in Mongolia

5.3 ACHIEVEMENTS IN HUMAN DEVELOPMENT According to the Mongolian Human Development Report 2003 that focused on urban-rural disparities, there are vast disparities between urban and rural areas caused by differences in geographical location, population density, infrastructure development, resource distribution and access to information. People have unequal access to the benefits of democracy and markets depending on their place of residence. Education, health and cultural services, consumer goods and jobs are concentrated in a few large cities where the delivery of services is cheaper due to the higher population density. According to data from the NSO, levels of human development are higher in large cities and aimags (provinces) of the central region than in any other region. This can be seen from the classification of human development levels in aimags and cities shown in Table 5.3. Despite the recent progress, human development in Mongolia is marked by several disparities across rural-urban areas, between regions and social groups, among women and men. Table 5.3 Human Development Index for aimags and cities

Classification

HDI level for Mongolia Aimags and Cities

Low human development

Up to 0.630

Bayankhongor, Dornod, Uvurkhangai, Uvs, Khuvsgul

Medium human development

0.631-0.700

Arkhangai, Bayan-Ulgii, Bulgan, Govi-Altai, Dornogovi, Dundgovi, Zavkhan, Umnugovi, Sukhbaatar, Selenge, Tuv, Khovd, Khentii, Darkhan-Uul, Govisumber

High human development

0.701 and above

Ulaanbaatar, Orkhon

Source: Mongolian Human Development Report 2003, page 25 The asymmetric development of rural and urban areas is borne out by several recent studies. For instance, a recent study shows that four out of five children aged 8-15 years who are out of school live in rural areas29. Similarly, the share of illiterate people in rural areas is almost four times higher than in urban areas30. Moreover, in rural areas, the share of people who have primary education or less is three times greater and the portion of people with a diploma and university degrees is three times lower compared to urban areas. This reflects inadequate capacity of rural areas to provide for and absorb people with education31. In addition, the low quality of education of rural schools is a cause of population migration. For example, between 2002 and 2003, 29,500 students migrated within their aimags and cities, and 15,700 students moved to other aimags and cities32. 29.Ministry of Education, Culture and Science 2003-2004. Statistical Bulletin 30.NSO, 2002. “Calculation of Human Development Index” 31.NSO, WB, UNDP 2004. Main Report of Household Income and Expenditure Survey/Living Standards Measurement Survey, Ulaanbaatar, pp. 47-48. 32.Ministry of Education, Culture and Science, 2004. The statistical bulletin on statistics of the education, culture, science and technological sectors. Ulaanbaatar.

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Chapter 5. Human development in Mongolia Inadequate conditions for health care, low quality of and poor access to health services, and relatively high mortality and infant mortality rates have contributed to the relatively short average life expectancy in rural aimags. Life expectancy rate in Ulaanbaatar is 0.7 years higher than the average for the country33. Life expectancy at birth is highest in Dundgobi (67.2 years), Bayan-Ulgii (66.9 years) and Govisumber (66.8 years) and the lowest in Dornod (59.6 years) and Bayankhongor (61.4 years).

2002

2001

Human Development Index

82.5

2,468.19

Rural

63.21

96.7

61.2

1,244.15

0.637

0.849

0.421

0.635

Total

63.18

97.8

66.0

1,706.78

0.636

0.872

0.474

0.661

Urban

63.04

99.2

82.5

2,895.53

0.634

0.936

0.562

0.711

Rural

63.21

96.7

61.2

1,163.54

0.637

0.849

0.410

0.632

0.634

0.936

GDP index

99.2

Education index

63.04

Life expectancy index

Combined primary, secondary and tertiary gross enrolment ratio (per cent)

Urban

GDP per capita (PPP, US$)

Adult literacy rate (per cent, 15 age and above)

2000

1999

Life expectancy at birth (year)

Table 5.4 Human Development Indicators, urban vs. rural

0.535

0.702

Total

63.18

97.8

69.6

1,838.12

0.636

0.884

0.486

0.669

Urban

63.39

99.2

82.5

3,057.64

0.640

0.936

0.571

0.716

Rural

63.21

96.7

61.2

1,253.22

0.637

0.849

0.422

0.636

Total

63.36

97.8

69.6

1,968.29

0.639

0.884

0.497

0.674

Urban

63.54

99.2

82.5

3,423.37

0.642

0.936

0.590

0.723

Rural

63.37

96.7

61.2

1,245.54

0.640

0.849

0.421

0.636

Total

63.51

97.8

69.7

2,125.35

0.642

0.884

0.510

0.679

Source: Mongolian Human Development Report 2003, page 25

Recent health data suggest that the majority of maternal morbidity was among rural herdswomen and housewives. In 2004, herdswomen accounted for 38.6 per cent, and housewives for 45.5 per cent of maternal mortality. Unequal provisioning of basic social services explains to a large extent the disparities in human development that characterize Mongolia. Inequalities between men and women in Mongolia have increased from the early years of transition. Recent studies show that in the last three decades, educational attainments of men declined somewhat while those of women increased34. It is also interesting to note that the higher the education level, the larger the proportion of women. This is a phenomenon not usually found in many developing countries. Women account for 49.6 per cent of all students of primary schools, 53.2 per cent of all students of secondary schools, and 59.8 per cent of all university students35 . According to the National Statistical Office of Mongolia, average life expectancy was 67.8 years for women and 61.6 for men in 2004 – a favorable differ33. NSO, 2006. Mongolian statistical yearbook-2005, p.81, Ulaanbaatar 34. NSO 2001. Results of Population and Housing Censuses of 1979, 1989 and 2000 35. NSO, WB, UNDP, 2004. Main Report of Household Income and Expenditure Survey/Living Standards Measurement Survey, Ulaanbaatar, p. 113.

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Part two. Human development in Mongolia ence of over six years36. Women fare better than men in educational attainment and average life expectancy. However, they have fewer opportunities to participate in economic and political life. While women comprise more than half of the total population, their share of parliamentary representation is only 10.5 per cent. Similarly, as compared with men, women’s share of administrative and managerial positions is around two times lower and their incomes are also considerably lower than men’s. Weak authority in making decisions has had a negative bearing on their capacity and limited women’s chances to reap the benefits of economic growth. As a result, Mongolia has not fully benefited from tapping the potential of women to contribute to the development process despite their higher educational achievements compared with men. Along with gender gaps and inequalities between urban and rural areas, inequalities between social groups that emerged during the transition period have tended to deepen further. Successive research studies show that low-income, poor people in Mongolia are more likely to become sick due to their living environment, and have poor access to education and health services due to insufficiency of income.

2000

2001

2002

Female Male

Female Total

F e - Male male

GDP

Equally distributed income index

Male

GDP per capita

Equally distributed educational attainment index

Adult literacy Combined prirate (per cent, 15 mary, secondage and above) ary and tertiary gross enrolment ratio)

Equally distributed life expectancy index

Table 5.5 GDI, and its indicators, urban vs. rural, 2002

Urban

99.4

99.1

78.3

86.5

2,896

2,738

3,063.6

0.639

0.937 0.561 0.712

Rural

97.1

96.4

58.6

63.7

1,164

1,054

1,272.2

0.636

0.849 0.408 0.631

Total

98.0

97.5

63.7

75.5

1,838

1,702

1,977.3

0.638

0.883 0.485 0.669

Urban

99.4

99.1

78.3

86.5

3,058

2,593

3,549.9

0.642

0.937 0.568 0.715

Rural

97.1

96.4

58.6

63.7

1,253

1,159

1,346.4

0.639

0.849 0.421 0.636

Total

98.0

97.5

63.7

75.5

1,968

1,747

2,194

0.641

0.883 0.496 0.673

Urban

99.4

99.1

78.3

86.5

3,423

3,072

3,793.2

0.644

0.936 0.588 0.723

Rural

97.1

96.4

58.6

63.7

1,246

1,177

1,313.6

0.641

0.849 0.421 0.637

98.0

97.5

66.3

73.0

2,125

1,951

2,303.2

0.643

0.884 0.509 0.679

Total

Source: Mongolian Human Development Report 2003, p. 26 (in Mongolian)

According to the 2002-2003 Household Income, Expenditure and Living Standards Measurements Survey, 7.4 per cent of the poor had fallen ill in the month previous to the survey as compared to 4.6 per cent of the non-poor. The survey also shows that the richest 20 per cent of the population spend on their health nearly seven times more than the bottom 20 per cent. And the better-off people spend one third of total expenditures on medicines as against three quarters of low-income people that treatment expenditures tend to consume. At the same time, it is observed that children of poor and very poor families are more likely to suffer from emaciation and vitamin deficiency due to their poor nutritional status. A division of students based on 5 equal household quintiles shows that, one out of 40 students of the lowest-income quintile obtains higher education, while one out of every 4 students of the highest-income quintile obtains higher education37. 36. NSO 2005. “Mongolian statistical yearbook 2004” 37. NSO, WB, UNDP 2004. Main Report of Household Income and Expenditure Survey/Living Standards Measurement Survey, Ulaanbaatar, p. 112

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Chapter 5. Human development in Mongolia

5.4 SETBACKS IN HUMAN DEVELOPMENT During the early years of transition until the mid-1990s, the Mongolian economy was in a state of steep decline. People’s livelihood deteriorated, unemployment and poverty rose, and inequality deepened. As a result, human development slipped and there still remains much ground to be covered along many dimensions of human development. Declining standards of living, rising impoverishment and deterioration in quality of and access to social services led to higher rates of sickness, mortality, school drop-out and illiteracy among population. This situation also resulted in increased environmental pollution, higher incidence of crime and greater human insecurity. Several industrial enterprises were closed down and many people lost their jobs, following the end of huge subsidies provided to Mongolia by the Soviet Union and other socialist countries. Economic recession accompanied by high inflation rates saw a rapid decline in the purchasing power and incomes of people, especially during the very first years of transition. This further pushed a large number of people, especially the poor, into deeper poverty and vulnerability as they did not own any property in the socialist era. According to the three living standards measurement surveys (1995, 1998, 2002-2003) that were conducted nationwide the poverty headcount was 36.3 per cent in 1995, 35.6 per cent in 1998 and 36.1 per cent in 2002. These surveys show that rural poverty is expected to surpass urban poverty which was higher in the early period. The poor comprised 38.5 per cent of population in 1995, 39.4 per cent in 1998 and 30.3 per cent in 2002 in urban areas, and 33.1 per cent, 32.6 per cent, 43.4 per cent of population respectively in rural areas. Although the poverty rate has become stable, the number of poor people is increasing. In the Human Development Report 2005, Mongolia ranks 44th out of 103 developing countries for which the Human Poverty Index was calculated. Estimates based on 2002 data show that Mongolian Human Poverty Index (HPI-1) is 18.5 per cent. The Report is indicating that 19.1 per cent of population is not able to satisfy their basic human development needs. As indicated in this report, 27 per cent of population in our country lives on less than US$1 a day, and 74.9 per cent survives on less than US$2 a day. Mongolia has also been witnessing an increase in the inequalities in the distribution of income. This is captured by the Gini coefficient, a measure of income equality, which rose from 0.31 in 1995 to 0.35 in 1998 and further to 0.44 in 2002. Gini-coefficient, 1995, 1998, 2002

2002

Figure 5.3.

1995

1998

0.44

0.35

0.31

Source: Mongolia Human Development Report 2003 p.29

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Part two. Human development in Mongolia Rural women are more likely to give birth to infants with low birth weight due to their difficult living and working conditions. The share of infants with low birth weight in total number of births is 5.4 per cent in urban and 5.7 per cent in rural areas38. The early years of transition, in particular 1992-1993, witnessed increasing rates of school drop-out and illiteracy. The situation has improved considerably in the past years because of economic growth, reforms in the education sector, special efforts to reduce school drop-out rates, and positive changes in the attitude towards education.

School drop-out rates peaked at 8.8 per cent in 1993-94. Since then, it has declined slowly and has stabilized by the mid 1990s. Despite the progress, nearly 10,000 children drop out of school annually which is equal to 2-3 per cent of all students enrolled in general education schools. The consequences of dropping out of school are quite serious. Studies suggest that the incidence of child labour is several times higher among children who are out of school. Also, some of these children are engaged in unsafe and hard labour. They tend to remain uneducated, they suffer prematurely from ill health and they are more likely to be trapped in the vicious cycle of inter-generational deprivation. At the same time, the demand for labour in rural areas, especially for boys, keeps many of them out of school at the secondary level. Today, boys, for instance, account for more than 60 per cent of children who drop out of school39. In addition, the lack of adequate educational opportunities at the secondary and tertiary levels hinders access to highly-paid, specialized jobs in the future. Mongolia faces several environmental threats as well. In recent years there has been an increasing over-concentration of population in cities. This has led to an increase in the levels of respiratory tract infections. It has also contributed to an increase in the number of diseases and in the spread of various communicable diseases. Levels of air and soil pollution in cities, particularly in Ulaanbaatar, have exceeded permissible limits. Besides, the number of injuries and deaths due to accidents has increased. Rural areas continue to suffer from a variety of challenges, including overgrazing of pastures, desertification, deforestation and shortage of water resources. Threats to the country’s biodiversity have increased. Rising levels of consumption by the population and industry, inefficient industrial technology, poverty, inequality, urbanization, migration combined with environmental degradation, shortage of resources, emission of industrial hazardous substances, wastes, soil and air pollution, and potable water scarcity are adversely affecting the health and living conditions of people across the country. Mongolia has witnessed many encouraging changes that have positively impacted

38. NSO, 2004. Mongolian statistical yearbook 2003 39. Statistical information of the Ministry of Education, Culture and Science 2003-2004

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Chapter 5. Human development in Mongolia human development and opened up windows for future progress. Yet there have also been reverse changes that have hindered the process. For instance, the deteriorating standards of living have affected the peaceful and stable livelihoods of people. Internal and international migrations have dramatically increased. The number of people migrating to foreign countries to get better education and high-paid jobs has increased substantially with the expansion of Mongolia’s foreign relations. However, there is lack of detailed data on the number of international migrants, their educational attainment acquired abroad, the kind of activities they work at, and their living conditions. The growing affluence of a few has gone hand-in-hand with a decline in social values and moral deterioration among some members of the society. The number of cruel criminal offences has increased and corruption and bribery have become widespread. The number of murders has nearly doubled in the past five years alone40. Urbanization and the sedentary lifestyle have been accompanied by some “risky” behaviors of addiction to alcohol, tobacco, narcotics and psychotropic drugs. One out of every two adults is reported to be regularly consuming alcohol. Nearly half the children below 16 years, and more than two-thirds of population aged up to 20 years have tried alcohol at least once41. The negative consequences of alcohol addiction are reflected in a rising incidence of violence and divorce, crime, injury, accidents and suicide. By 2004, only five cases of HIV infection were reported in Mongolia. This low prevalence of HIV/AIDS should not be a cause for complacency. Within a year, this number rose to 15 cases; and the numbers are likely to grow further. Also, the population remains at risk given several factors such as the large percentage of young population, widespread sexually transmitted diseases, growing prostitution and increasing internal as well as international migration. Unless appropriate and adequate measures are taken, Mongolia faces the threat of an AIDS/HIV-inflicted fall in life expectancy. The challenge for Mongolia is to overcome the factors that are likely to impede human development.

40. NSO, 2005. “Mongolian Statistical Yearbook – 2004” p. 272, “Mongolian statistical yearbook – 2005” p. 369 41. D.Oyunchimeg, S.Dulamsuren, G.Tsetsegdari “Current Status and Future Goals of Health Promotion Activities” Social Health in the New Century, 2001, Ministry of Health

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Part two. Human development in Mongolia

5.5 ACCESS TO SOCIAL SERVICES AND INDUSTRIAL RESOURCES Both the achievement and setbacks in human development depend upon access to social services and other resources. For instance, life expectancy at birth and mortality rate depend upon people’s access to health services, educational level depends upon school enrollment, and income level depends upon access to other livelihood resources. Access is, therefore, critical. The country is divided into 21 aimags that are scattered across the vast territory ranging up to a distance of 2,000 km from the capital city. Aimags are subdivided into 341 soums which in turn are located far from the aimag centers. And soums are further subdivided into rural baghs many of which are hundreds of miles away from their soum centers. Ensuring universal reach and coverage of essential social services to such a highly dispersed population becomes costly as well as difficult given that people practice both nomadic and sedentary lifestyles, infrastructure is poor and climatic conditions are extremely harsh. In the last decade of the 20th century, Mongolia faced a number of obstacles including a steep decline of its economy and increase in unemployment, poverty and inequality, which hampered efforts aimed at raising the standards of social services for the population. Therefore, many health and education indicators have fallen back from their previous levels and the country has to cope with a number of challenges never encountered before. This circumstance forced the Government to provide social services at minimum cost and to undertake more efficient and fruitful measures for specific social target groups. In order to improve efficiency of functioning of organizations that provided social services, the Government has taken actions to introduce paid services, to restrain the scope of activities of some organizations, to implement programmes targeting specific goals and to decentralize and privatize the social services sector. Moreover, the Government started to seek new alternative means to provide education and health services for people at minimum cost. Financing of the education and health sectors has undergone major changes following the transfer from a socialist to a market-oriented economic system. Expenditures on these sectors are now financed not only from the state budget but from many other sources as well, including income from paid services, the health insurance fund and grants from international organizations. For instance, 67 per cent of the health sector’s expenditures are met by the State budget, 24 per cent is covered through income from paid services and 9 per cent comes as funding from international partner organizations42. Thanks to the additional sources of funding, the share of education and health sectors in the consolidated state budget of Mongolia has not declined significantly. In 2004, Mongolia spent 18.5 per cent of its consolidated state budget on education services and around 10 per cent on health services43. More recently, number of private schools 42. Calculation based on individual payments in public hospitals 43. NSO, 2005. “Mongolian statistical yearbook 2004”

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Chapter 5. Human development in Mongolia and hospitals have been established and are providing paid services. This has eased the burden on the government and accelerated competition for quality of services in the social sector.

Health services In recent years, the health sector has shifted its focus from technical health care services related to diagnostics, treatment, rehabilitation, prevention from diseases, injuries and chronic health problems, and care during pregnancy and birth to the provisioning of social health services. This is with the intention of concentrating on surveillance, monitoring, curative care, protection and strengthening of people’s health status, health education and medical training, scientific research and addressing factors that negatively affect health outcomes. Significant efforts have been made by the State to improve treatment and nutritional status of the poor and vulnerable social groups and their children. In addition, considerable effort has gone into reducing infant mortality that comprises a large proportion of total mortality. In 1993, Mongolia introduced a comprehensive immunization programme. Under this programme, children born since 1991 are immunized against infectious diseases including poliomyelitis, whooping cough, tetanus, measles, hepatitis B, tuberculosis and diphtheria. The outcomes have been impressive. According to recent data, the coverage of the preventive vaccination is between 97-99 per cent; and this has contributed to reductions in infant mortality and decline in the incidence of sickness and infectious diseases among children. Emphasis has been placed on improving the quality of health services, including delivery care and emergency treatment, upgrading the qualifications and skills of physicians and specialists and renewing hospital equipment. Between 1990 and 2004, number of new born babies fell by around 40 per cent and crude birth rate fell from 34 to 18 per 1000. The crude death rate declined from 7.9 per 1000 population in 1990 to 6.1 by 2000, and under-five mortality rate declined to one-fifth of the levels that prevailed in 199044. The declining birth and death rates have been accompanied by better care provided for children by parents, and by improvements in the primary health care services offered across the country.

Accessibility and supply of safe water Provisioning of safe drinking water has become one of the major challenges confronting Mongolia. This is due to the location of almost one-third of the soums of Mongolia in the permafrost zone, to a significant part of the land area occupied by the Gobi desert, and to the highly dispersed population in rural soums and baghs. Recent years have witnessed reduced reserves and increased pollution of surface water due to global warming, droughts and erroneous human activities. These are further aggravated by the fact that 60 per cent of wells that were built during the socialist period have become non-operational. 44. Calculation based on statistical year books.

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Part two. Human development in Mongolia According to the Ministry of Nature and Environment, in 2003, an estimated 12.3 per cent of total rivers and streams, 15.5 per cent of total springs and 18.1 per cent of total lakes and ponds had dried up45. Water pollution has increased as a result of increased mining production, in particular, gold mining. Moreover, local water pollution is also observed to be high in rural areas due to improper usage of water and contamination in settlements at the source of springs. Only 60 per cent of the Mongolian population has access to safe drinking water. Ger dwellers on the outskirts of the capital city and residents in the centers of aimags and soums get water from groundwater sources, water wells connected to the centralized network and from distant sources that are delivered by trucks and tankers. A significant share (45.3 per cent) of the population in the aimag centers and large cities obtain their water from the centralized system. There are vast differences in the quality of and access to water in urban and rural areas. Two thirds of rural dwellers use water from unprotected wells, rivers, rain or snow, compared to about a tenth of urban residents46. There are vast discrepancies in the status of connection to the centralized water system among social groups. It is about 45.3 per cent in capital city47. In urban areas, only one quarter of the poor have access to piped water from central sources compared to one half of the nonpoor.48 Ger residents pay more for their water, but use less water compared to apartment dwellers. Today, apartment residents have been allotted around 230-400 liters of water per day. In contrast, ger residents usually consume between 4 to 8 liters per capita per day. This last amount is three to four times lower than the world average and the minimum daily consumption recommended by the WHO49. Access to safe drinking water and sanitation that meets hygienic requirements is critical for leading a healthy life. Better health services alone cannot avert sickness and improve health conditions of people if people continue to live in unsanitary conditions and use unsafe water. Inadequate access to water increases greatly the probability of various communicable diseases among population. For example, residents of the Gobi aimags use water with high levels of minerals and low levels of fluoride, and this leads to relatively high levels of kidney and urinary tract diseases, thyroid disorders and tooth decay in these aimags.

Basic education Between 1989 and 2000, corresponding to two census dates, the share of educated population increased marginally by 0.2 per cent and the percentage of people with higher education rose by 0.6 per cent. On the other hand, there was a fall in the proportion of people with primary and incomplete secondary education as a result of the high rates of school drop-out at primary and secondary level during the transition. In 2002, Mongolia reported a combined primary, secondary and tertiary level enrolment rate of 70 per cent. This was higher than the average of 60 per cent for developing countries, 64 per cent for countries with medium human 45. Website of the Ministry of Nature and Environment: http://www.gate1.pmise.gov.mn/mne/land/php 46. Government of Mongolia, UNDP, Mongolian human development report 2003. 47. The World Bank ‘Mongolia Environment Monitor 2004: Environmental Challenges of Urban Development” p 17 48. NSO Calculation for Human development report 2003. 49. The World Bank “Mongolia Environment Monitor 2004: Environmental Challenges of Urban Development” p 17.

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Chapter 5. Human development in Mongolia development, and the average of 64 per cent for the world. The relatively high rates of school enrolment can be attributed in part to the renewed efforts of the Mongolian government to improve quality and access to basic education. The State has been spending a significant amount of the national budget on education and is committed to providing eight years of formal schooling to all free-ofcharge. The rise in enrollment can also be attributed more specifically to comprehensive measures taken to reduce school drop-outs and to reform the curricula, methods and approaches to education. New measures have been put in place to improve the study environment and to ensure that every child attends school. As a result, access to basic education has improved and the net enrolment rate for children aged 8-15 years reached a peak at 90.4 per cent in 2004 the highest level since the early 1990s.50 Between 2000 and 2004, the number of children dropping out of school declined by one-third.51 Mongolia intends to transform the present 10-year education system into an 11-year system, and eventually into a 12-year system in order to improve the quality of general education and also provide a professional orientation to students. This is expected to raise the school attendance rates even further in the coming years.

Access to land, loans and infrastructure Asset ownership is an important factor in determining living standards and human well-being. Assets enable people to secure livelihoods, find jobs and generate income. Access to income, in turn, enables people to establish command over resources needed for a decent life. Ownership of productive resources enhances people’s livelihoods and also protects them from the adverse impacts of economic and social instability. It is a key determinant of whether or not people are able to benefit from an expansion in economic opportunities. Between 1992 and 2000, Mongolia initiated a two-phased privatization programme in order to ensure that all of its citizens have claims of ownership over property. The government of Mongolia distributed free of charge “pink vouchers” to all citizens that permitted purchase of ‘very small’ enterprises with less than 50 employees. And “blue vouchers” that allowed for the purchase of small and medium scale state owned enterprises and service organizations. In practice, however, people had little understanding of privatization and many recognized its value too late. This, combined with inadequate privatization mechanisms, resulted in a failure of this initiative. According to the survey Privatization, Income Distribution and Poverty: the Mongolian Experience conducted in 2003, major stakeholders increased their shareholding from 42 per cent in 1992 to 56 per cent in 2002. At the same time, however, workers reduced their proportionate share of enterprises from 33.3 per cent at the time of privatization to 12.7 per cent and managers increased their share from 34.8 per cent to 57.5 per cent. The survey revealed that although assets were distributed to the entire population during the early years of transition, most of people sold their vouchers and, consequently, found themselves without any claims on assets. 50. Statistical information of the Ministry of Education, Culture and Science 2003-2004 51.Statistical information of the Ministry of Education, Culture and Science 2003-2004

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Part two. Human development in Mongolia During 1991-1993, the Mongolian government privatized the herd stock to members of negdels or livestock cooperatives free of charge. As a result, experienced herders, members of prominent households and those with many children became owners of a large number of livestock, while small families, female-headed households and young herders received fewer animals. In addition, non-herder employees of the negdels also received herds. Thus, privatization of herd stock was not equitable. According to estimates made during the privatization of herds in 1992, 5 per cent of herder households had herds of more than 200 animals, whereas 42 per cent had herds with fewer than 31 animals.52 Privatization of animal fences was also unfair and unequal in rural areas. According to the Household Income and Expenditure Survey and the Living Standards Measurement Survey conducted in 2002, 7.2 per cent of households in urban areas and 54.5 per cent in rural soums and baghs hold livestock. The average number of livestock per capita among herder households is 1.9 cows, 2.4 horses, 0.7 camels, 8.2 sheep and 4.5 goats in urban areas; and 2.3 cattle, 2.9 horses, 1.1 camel, 12.4 sheep and 12.5 goats in rural areas. To make a reasonable living based only on income from livestock husbandry, a herder household should have a herd of around 300 animals. From this perspective, a majority of rural citizens lack sufficient assets. According to a survey conducted by the Academy of Management in 2003 covering 1,000 herders of 6 aimags, 7.8 per cent of the sampled population was categorized as wealthy, 45 per cent as poor and 47.2 per cent as having medium living standards. In May 1997, the State launched the privatization of apartment buildings to current residents. By 2000, 78.3 per cent of rural dwellers and 28.3 per cent of urban dwellers lived in gers53; so not all were covered under the privatization of the apartment buildings. According to the Household Income, Expenditure and Living Standards Measurement Survey, about 13 per cent of total population was engaged in growing crops and vegetables.15 per cent of urban people and 7 per cent of rural people have monetary savings. The under development of banking and financial services in rural areas along with annual interest rates of over 30 per cent, sometimes over 60 per cent i some savings and loans cooperativeslimit the opportunities of poor and low-income households and small entrepreneurs, who have little or no financial guarantee, but really want to take a loan and improve their livelihoods. Although a micro financial market has begun to develop in Mongolia since the mid1990s, it has failed to play a significant role in poverty alleviation due to its limited framework of activities and the low level of financial capacity. According to the Mongolian Microfinance sub-sector review - 2004, access to loans has improved up from 1 per cent of total households in 1998 to 26 per cent of total households in mid-2004. But this does not mean that the majority of low-income households in rural areas have access to financial service. As noted by the study, the major reason for micro-financial institutions not expanding their activities in rural soums is the high transaction costs compared to the expected profit due to low population density in rural soums. 52. K. Griffin, 2003, Poverty reduction in Mongolia. 53. Government of Mongolia, UNDP. Human development report 2003, page 34.

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Chapter 5. Human development in Mongolia Disparities in access to social services – by gender, income groups and urban- rural areas Declining standards of living, rising impoverishment and deterioration in quality of and access to social services led to higher rates of sickness, mortality, school drop-out and illiteracy among population. There are large rural-urban gaps in access to social services. A number of factors including geographical location, working and living conditions of population, development of communications and infrastructure, transportation costs, budget allocations and living standards account for the disparities. There is a strong urban-rural bias in access to health care and services, because major health centers and treatment and diagnostic laboratories that operate nationwide as well as the majority of physicians, nurses, and pharmacists are concentrated in the cities. Only one third of total physicians, one fifth of total pharmacists and half of total nurses54 work in rural areas where the three-fifths of total population lives, so the number of patients per doctor or nurse is skewed. There is, on national average, one physician for every 360 persons, but this indicator varies greatly from 209 in Ulaanbaatar to over 700 in Arkhangai, Bayankhongor, Khuvsgul, Uvs and Tuv aimags55. Moreover, the differences in technical equipment, knowledge and skills of physicians and staff of clinics in rural and urban areas should also be taken into account. One of key determinants of access to education services is the school drop-out rate which varies greatly across and between rural-urban areas and social groups. Higher school drop out rates are observed among children from vulnerable and poor social groups, households with many children, and full and half orphans. According to the National Poverty Assessment Results which was conducted in 2001, children account for 47 per cent of all extremely poor people and one out of every five children of very poor households is out of school.56 School drop-outs are widespread among children of families who are very poor or have many children because their parents usually lack the capacity to pay for their clothes, school items and dormitory fees. Some studies have shown that 7 out of every 10 children of very poor families leave school due to this specific reason.57 Budget allocation plays an important role in access to social services. The Mongolian Human Development Report 2003 indicated: “Although there is a need to increase finances allocated to social services in remote aimags, in reality this does not seem to happen. Calculations show that in 8 aimags located at distances of up to 400 km from the capital city, the amount of budget allocated per person was 15.0 per cent higher than the average for the country; in 8 aimags located at a distance of 400900 km from the capital, it was 3.4 per cent lower; and in 5 aimags at a distance of between 900-1,600 km, it was 0.6 per cent lower than the average. In 8 aimags with the lowest population density the amount of budget per capita was higher than the national average by 11.5 per cent. Data for local budgets shows that urban areas are closer to being able to self-finance their activities, while aimag budgets are in deficit and continue to require subsidies from the centre.”58 54. NSO, 2002. “Mongolian Statistical Yearbook 2002” 55. Government of Mongolia, UNDP 2003. National human development report 2003 56. MSWL, 2001. “National poverty assessment report” 57. MSWL, 2001. “National poverty assessment report” 58. Government of Mongolia, UNDP, 2003. Human development report 2003

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Bibliography and additional reading materials Government of Mongolia. 1992. “Constitution of Mongolia”. Ulaanbaatar, Mongolia. Government of Mongolia, UNDP (United Nations Development Programme). 2003. “National Human Development Report 2003”, Ulaanbaatar, Mongolia. I.M.Maiskii. 2002. “Modern Mongolia: Autonomous Mongolia in the Beginning of the 20th century”. Keith Griffin (ed.). 2003. “Poverty reduction in Mongolia”. Asia Pacific Press, Australian National University, Canberra. Ministry of Education, Culture and Science. 2003. “Statistical Bulletin”, Ulaanbaatar, Mongolia. -. 2004. “Statistical Bulletin on Statistics of the Education, Culture, Science and Technological Sectors”. Ulaanbaatar, Mongolia. Ministry of Health. 2001. “Mongolian Medicine – 80”. Materials of Scientific conference, Ulaanbaatar, Mongolia. -. 2003, 2004. “Health Indicators”. Ulaanbaatar, Mongolia. Mongolian Academy of Sciences. 2003. “History of Mongolia”. Volume 5, Ulaanbaatar, Mongolia. MPDA (Mongolian Population and Development Association), PTRC (Population Teaching and Research Center), UNFPA (United Nations Population Fund). 2002-2004. “Mongolian Population Journal”. NSO (National Statistical Office). 2001. “Mongolian Population in 20th Century”. Ulaanbaatar, Mongolia. -. 2001. “1979, 1989 and 2000 Population and Housing Censuses: The Main Results”. Ulaanbaatar, Mongolia. -. 2002. “Mongolian Statistical Yearbook 2001”. Ulaanbaatar, Mongolia. -. 2002. “Projections of Human Development Index”. Ulaanbaatar, Mongolia. -. 2004. “Mongolia in Market System”. Statistical Yearbook 1989-2002, Ulaanbaatar, Mongolia. -. 2004. “Mongolian Statistical Yearbook 2003”. Ulaanbaatar, Mongolia.

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Chapter 5. Human development in Mongolia -. 2005. “Mongolian Statistical Yearbook 2004”. Ulaanbaatar, Mongolia. -. 2005. “Mongolian Statistical Yearbook 2004”. Ulaanbaatar, Mongolia. NSO, World Bank, UNDP. 2004. “Main Report of Household Income and Expenditure Survey/Living Standards Measurement Survey 2002-2003”. Ulaanbaatar, Mongolia. D.Oyunchimeg, S.Dulamsuren, G.Tsetsegdari. 2001. “Current Status and Future Goals of Health Promotion Activities”. Social Health in the New Century, Ministry of Health, Ulaanbaatar, Mongolia. UNDP. 1990. Human Development Report 1990. “Concept and Measurement of Human Development”. New York, Oxford University Press. -. 2004. Human Development Report 2004. “Cultural Liberty in Today’s Diverse World”. Palgrave Macmillan, New York. -. 2005. Human Development Report 2005. “International Cooperation at a Crossroads: Aid, Trade and Security in an Unequal World”. Palgrave Macmillan, New York. World bank. 2004. “Environmental Challenges of Urban Development”. Mongolian Environment Monitor. Web site: Website of Ministry of Nature and Environment Mongolia: http://www. gate1.pmise.gov.mn/mne/land/php

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CHAPTER 6. ECONOMIC GROWTH AND INCOME IN MONGOLIA: MEANS TO HUMAN DEVELOPMENT Sub sections Introduction 6.1 Economic growth in Mongolia 6.2 Distribution of assets, welfare and income 6.3 Employment – the missing link between growth and poverty reduction 6.4 Policy implications Bibliography and additional reading material This chapter discusses about the following: economic growth of Mongolia, distribution of assets, welfare and income to the people of Mongolia, employment, linkages between economic growth and poverty, and the devepment policies in regard to human development.

INTRODUCTION Economic growth and human development are closely interrelated. The major goal of economic growth is not the creation of wealth, nor the achievement of a higher growth rate. Economic growth must improve the quality of life, and create an enabling environment for people to enjoy healthy, happy and creative lives. Economic growth should expand economic, social, political, cultural choices for all, not just a few. But the link between economic growth and human development is not automatic. Nor does every type of growth enhance human development. The quality of economic growth is as important as its quantity. Policy interventions ought to influence the nature of growth so that it reduces poverty and enhances human capabilities.

6.1 ECONOMIC GROWTH IN MONGOLIA At the beginning of the last century, Mongolia was one of the most underdeveloped countries in the world. Most Mongolians led a nomadic life style and pastoral livestock breeding was the major source of their livelihood. Following the victory of the national democratic revolution and the declaration of independence in 1921, Mongolia embarked on a socialist path of development. With the assistance of the former Soviet Union, the 1930s saw the setting up of several factories in Ulaanbaatar, a felt factory in Hatgal, a coal mine and food processing units in Nalaikh. These enterprises became the core of Mongolia’s domestic industries. Following a massive campaign launched towards the end of the 1950s, almost 260.0 hectares of virgin

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Chapter 6. Economic growth and income in Mongolia: means to human development lands were brought under cultivation by the 1960s to grow various crops, vegetables and livestock fodder. Industrial production increased steadily during the socialist era; and between 1940 and 1990, the share of the processing industry went up from 12 per cent to 49 per cent of total industrial production. Over the same fifty year period, steady progress took place in development of transportation, communication, trade and service sectors. However, the share of the livestock breeding sector decreased from an estimated 76 per cent in 1940 to 14 per cent in 1990. Gradually, the Mongolian economy came to depend on both industrial and agricultural sectors; and Mongolian development reflected a combination of nomadic and settled lifestyles. Development of such new sectors as manufacturing, crop cultivation, transportation, communication and service fueled economic growth and played an important role in meeting people’s demand for food and consumer goods. It also led to the creation of thousands of jobs. According to experts, Mongolia’s economic growth peaked from the 1970s to the middle of the 1980s. During the last decade of the centrally planned system, the Mongolian economy grew on average by 8 per cent per year. Financial assistance from the former Soviet Union and other member countries of the Council for Mutual Economic Assistance (COMECON) was essential for Mongolia. A majority of investments and over 30 per cent of Mongolia’s recurring expenses were financed by loans or grants by former socialist countries. Trends in growth and sources of growth Between 1990 and 1993, during the initial years of transition, Mongolia’s GDP decreased by 20 per cent and many industries collapsed. Between 1990 and 1992 alone, the volume of production of over 80 out of 90 types of major industrial products (with the exception of four) declined. In 1991-1992 GDP was lower by 9 per cent compared to the previous year. Drastic economic decline led to a fall in total domestic consumption and public investments. Public spending fell as well. These changes affected profoundly the lives of ordinary people. Unemployment and poverty soared. In addition, the system of social services and social welfare suffered as a result of severe budget cuts. As living standards declined, people started limiting the number of childbirths, delaying marriages, migrating and seeking employment in the informal sector to protect themselves from vulnerability and devastation. Between 1994 and 2004, GDP per capita grew on average by 2 per cent. However, in comparison to 1989, it was lower by 1.3 per cent. The growth of GDP per capita was not only a result of economic expansion, but also a result of reduced fertility rates. Economic conditions, however, started improving quite quickly. In 2003, economic growth reached 5.6 per cent surpassing the goal of attaining at least 5.2 per cent economic growth set out in the Main Guidelines for Economic and Social Development. Real GDP grew even further by 10.6 per cent in 2004. Mongolia’s GDP per capita reached US$ 511.9 in 2003 an increase of 12.6 per cent over the previous year; and in 2004, it rose further to US$ 605.5 an increase of 18.3 per cent over 2003. In terms of comparative prices of 1995, real GDP per capita reached 282,200 togrogs in 2003 and increased by 4.4 per cent over the previous year. For

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Part two. Human development in Mongolia 2004, the increase was 9.2 per cent.59 In 2000, agriculture accounted for 29 per cent and industry accounted for 20 per cent of the Mongolian GDP. By 2004, the share of agriculture declined to 21 per cent. And the share of industry in Mongolia’s GDP increased to 26 per cent. Growth in trade and service sector has been relatively stable in recent years, comprising the major part of GDP. Relatively favorable weather conditions in 2003 and 2004 positively influenced growth of the livestock breeding sector. The output of the agricultural sector increased by 18.9 per cent in 2004. The number of livestock reached 28 million and this contributed to an improvement in the living standards of the rural population. In 2004, close to 138,500 tons of crops, 80,200 tons of potatoes and 49,200 tons of vegetables were harvested. Within the industrial sector, between 2000 and 2004, the mining sector grew by 31.9 per cent, energy production by 6.3 per cent, but output of the raw material processing industry declined by 7 per cent. The growth in the mining sector was led by gold mining which recorded a 75 per cent increase over the previous year. Garments manufacture showed a decline as a result of unfavorable foreign trade conditions. The share of the service sector in the total economy of Mongolia went up from 49 per cent in 2000 to 50.5 per cent in 2004. The contribution of hotels and restaurant services increased sharply in 2004 as a result of the relative increase in the number of foreign tourists. The number of workplaces in the service sector grew and this led to much-needed job creation. The more recent growth of the Mongolian economy can be attributed to the improved performance in services and agriculture. The service sector maintained a growth rate of more than 3 per cent between 2000 and 2004. After registering negative growth rates during 2000-2002, in 2003, the agricultural sector registered a growth rate of 1.4 per cent in 2004.

Constraints to growth The acceleration of economic growth in recent years is based on growth in agriculture, mining and essential services. As a result, it cannot be regarded as sustainable; nor is it largely employment generating in character. There is urgent need for a more efficient industrial sector to be developed. At present, mining and food are fast developing industries. However, machinery, equipment, chemicals and manufacturing of electric appliances that require high intellectual capacity, engineering knowledge and advanced technologies can fuel greater economic growth. But these are not well developed sectors in Mongolia. Natural disasters such as drought and dzud, and fluctuations of commodity prices in foreign and domestic markets tend to destabilize the Mongolian 59. The GDP data for later years are from IMF (2005), `Poverty Reduction Strategy Paper Progress Report: Mongolia, International Monetary Fund, Washington D.C. November

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Chapter 6. Economic growth and income in Mongolia: means to human development economy. Mongolia has always carefully identified raw materials for exports that could contribute to economic specialization in the former socialist countries. Even today, raw materials account for most of the country’s exports. However, exploitation of non-renewable natural resources has started in order to meet the growing export demand for raw materials. The mining industry has been the largest contributor to economic growth growing, on average, by 10.1 per cent every year since 1991. However, the mining industry, being capital intensive in nature, does not usually create many jobs. Besides, most of the operators in the mining sector are foreign companies, resulting in a transfer of wealth abroad. Many experts feel that the recent economic growth which is directly based on exploitation of natural resources is environmentally unsustainable and, in the future, might have negative consequences on the next generation of Mongolians and their quality of life. Inflation has stabilized since the mid-1990s, the private sector has gained strength and the GDP has grown, on average, by 3.2 per cent every year. However, the GDP growth rate has fluctuated greatly and has not reached 5.5 per cent – the growth rate targeted as necessary for reducing poverty. Implementation of the “shock therapy” by the Government in the initial years of transition to a market oriented economy, lifting of controls on prices, tariffs and currency, adoption of privatization and trade liberalization have had both negative and positive impacts on people’s lives. Moreover, the withdrawal of assistance and loans from the former Soviet Union and member countries of the COMECON exacerbated the situation in Mongolia.

Nature of growth The socialist regime prior to 1990 offered considerable security and a decent standard of living to people. Characterized by monopoly of state property, a system of equal common ownership, a well-functioning system and a strong network of social protection, pursuit of socialism contributed meaningfully to improvements in the quality of people’s lives. The socialist ideology was widely acknowledged by citizens who benefited from universal access to social services and the virtual absence of unemployment and income poverty. At the same time, economic growth under the socialist regime created thousands of jobs and its benefits were relatively equally distributed among the people. Despite the assurance of social and economic security, socialism as practiced in Mongolia undermined people’s loyalty to and appreciation of their national culture, religion and tradition. It also curbed people’s political freedoms and stifled voices of individuals thereby severely limiting their potential to contribute to development. Economic growth in the socialist era also ignored the desires and aspirations of individuals and was based on authoritarian control rather than on free enterprise and competition that would encourage people’s entrepreneurship, creativity and innovation. As a result, the direct connection between economic growth and human devel-

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Part two. Human development in Mongolia opment was not sufficiently strong during the socialist regime. Though many positive changes took place during the socialist regime especially in education, health, living standards and quality of life, the Mongolian economy remained under-developed as a result of the denial of political and social freedoms. The democratic revolution in 1990 was followed by political, social and economic changes that deeply affected the life of every Mongolian. Human rights and individual freedoms were granted by law. This opened up several opportunities for individuals to participate in the country’s social and political life. Individuals also got an opportunity to enjoy their economic rights by starting private enterprises, engaging in domestic and foreign trade, owning property and managing their own wealth. Today, economic growth rates are no doubt high in Mongolia and projections table on a further acceleration in economic expansion in the coming years. However, there is growing concern that many people may not derive benefits from the economic expansion as sufficient jobs are not being created. Lack of adequate jobs results in income deficit and constrains people emerging out of the poverty trap or even preventing themselves from slipping into poverty. At the same time, economic growth varies significantly between urban and rural areas, across regions and between different sectors. In addition, economic growth has been unstable. This is a major reason for growth inequalities across the country. It has emerged as a major factor behind intensive migration. For instance, according to the National Human Development Report of Mongolia 2003, between 1999 and 2002, GDP per capita increased by 38 per cent in urban areas but remained almost unchanged in rural areas. Large and widening disparities between rural and city dwellers are reflected by the fact that GDP per capita in cities is 2.8 times higher than GDP per capita in rural areas. Opportunities for job creation remain poor in aimags and soums largely because of insufficient investments. Consequently, levels of unemployment and poverty as well as the poverty headcount ratio have not declined in rural areas where half of the country’s population lives. State budgets play an instrumentally significant role in channeling the benefits of economic growth to people. Although government expenditures account for a relatively high percentage of GDP, and most of the budget is allocated to education, health and social care and service sectors, the levels of per capita public expenditure are still low. In conclusion, economic growth in recent years has failed to be beneficial for all segments of society. Poverty rate has not declined, the number of poor people has not decreased and unemployment levels remain high.

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6.2. DISTRIBUTION OF ASSETS, WELFAER AND INCOME The failure of growth to benefit all segments of society equitably is influenced by the capacity of growth to generate jobs as well as by the distribution of income and assets in society. If the initial asset distribution is pro-poor, it is likely to generate more equitable growth. Furthermore, appropriate re-distributive policies can ensure a more fair distribution of the income generated and also of the benefits of growth. The significant changes took place in property distribution and ownership in Mongolia over the centuries. At the beginning of the 20th century, and in particular before 1921, property in Mongolia was distributed extremely unequally. The rich who constituted around 7.8 per cent of the population at that time owned 49.5 per cent of livestock – regarded as the major wealth of the nation. On the other hand, the common people who accounted for 92.2 per cent of the country’s population owned 50.5 per cent of the livestock. After the 1921 revolution, the national government seized property and wealth from the noblemen and state administrators who constituted the affluent class at that time. This process also affected many religious lamas and Buddhist monks who owned assets; their voices too were repressed. In the 1960s, during the campaign for establishing collective farms and negdels, livestock wastransferred completely to government ownership. During the socialist era, the State owned all organizations and enterprises and implemented a policy of equal distribution of social wealth. The government followed a policy of providing free education, health care and other social services to every citizen. A strong social care system was put in place. All this contributed to a rapid improvement in many dimensions of human development across the country. However, socialism did not recognize an individual’s entitlement to own property. All the wealth was publicly owned. This discouraged the desire for individual entrepreneurship and creativity. Under the socialist era, the living standards of the people in Mongolia were relatively equal given the ideological commitment to equality. This has changed since 1990. The government of Mongolia distributed free of charge “pink vouchers” to all citizens that permitted purchase of ‘very small’ enterprises with less than 50 employees, and “blue vouchers” that allowed for the purchase of small and medium scale stateowned enterprises and service organizations. The government implemented privatization through a public campaign using the vouchers. In the first phase of privatization which was conducted between 1991 and 1995 around 4,500 factories and entities were privatized. At the same time, the Mongolian Stock Exchange was established in January 1991 to facilitate trading and purchasing of shares. The Mongolian government privatized the herd stock to members of negdels or livestock cooperatives free of charge. As a result, experienced herders, members of prominent households and those with many children became owners of a large number of livestock, while small families, female-headed households and young herders

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Part two. Human development in Mongolia received fewer animals. In addition, non-herder employees of the negdels also received herds. According to estimates made during the privatization of herds in 1992, 5 per cent of the herder households owned herds of more than 200 animals, whereas 42 per cent possessed herds with fewer than 31animals. The second phase of privatization began in 1996 and continued until 2000. Over 900 enterprises, entities and real estate firms were privatized through tenders, auctions and use of the stock exchange. According to the States Property Committee, during 1991-1999, 1,146 state manufactures and service organizations were privatized with the pink and blue vouchers or cash at closed and open auctions. The privatization campaign brought to the state budget approximately 48 billion togrogs (around US$ 65 million). In May 1997, the State launched the privatization of apartment buildings to current residents. By 2000, 78.3 per cent of rural dwellers and 28.3 per cent of urban dwellers lived in gers; so they were not involved in the privatization of the apartment buildings. According to a survey conducted by the Academy of Management and Public Administration in 6 aimags among 1000 herders, 7.8 per cent of them lived a comfortable life, 47.2 per cent had an average livelihood, and 45 per cent lived in poverty.

Productive assets – access and distribution Asset ownership is an important factor in determining living standards and human well-being. Ownership of productive resources not only positively affects people’s livelihoods, but sometimes it may protects them from the impacts of economic and social vulnerability. Animal husbandry: Almost half of the labour force is engaged in agriculture, especially in animal husbandry. Each of the main five types of livestock contributes to the household livelihood. Raising goats provides opportunities to participate in cashmere business; breeding sheep or camels allows families to engage in wool trade; and cattle and horses give dairy products and meat that can be processed and traded. Four out of ten people in Mongolia own livestock. The 2002-2003 Household Income and Expenditure Survey (HIES) indicates that 7.2 per cent of urban population and 54.5 per cent of rural soum and bagh population were engaged in livestock breeding. While on average there are 1.9 cattle , 2.4 horses, 0.7 camels, 8.2 sheep, 4.5 goats per city dweller, per capita livestock in rural areas is higher - 2.3 cattle, 2.9 horses, 1.1 camels, 12.4 sheep and 12.5 goats. The survey highlighted that there exists a high correlation between those engaged in livestock breeding in rural areas and poverty. As the size of per capita livestock increases, poverty incidence falls in both rural and urban areas. In urban areas, the larger the livestock owned by a herder household, the lower the poverty incidence. In rural areas, a person is considered poor even with over 20 livestock animals per capita. In urban areas, population engaged in livestock breeding earns less income compared to population engaged in other activities. And so herders in urban areas tend to be poorer than those living in rural areas. Land: Land is an important asset for households engaged in agriculture. According

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Chapter 6. Economic growth and income in Mongolia: means to human development to the 2002-2003 HIES, 13 per cent of the Mongolian population uses land for crop cultivation and vegetable production. But engaging in agriculture does not create enough opportunities for improving living standards. Compared to the non-poor, the poor are mostly engaged in agriculture. Some 17 per cent of the poor and 11 per cent of the non-poor are engaged in agriculture. Financial assets: One of the main assets of the family is money. According to the 2002-2003 HIES, 15 per cent of the urban and the 7 per cent of the rural population own cash assets. Levels of savings are low in Mongolia. Around 90 per cent of the survey respondents identified insufficiency of income as the reason for not saving. Only 5 per cent of poor households and 15 per cent of non-poor households have some savings. Housing: A substantial proportion of Mongolians lives in gers the common type of housing. According to recent estimates, around 44 per cent of the population lives in gers, 33 per cent in private houses and 20 per cent in apartment buildings. In rural areas, over 70 per cent of the rural poor live in gers, 25 per cent in houses and only 4 per cent in apartment buildings. In rural areas, the character of housing is affected by the distribution of population over vast territories. As a result, three out of four persons live in gers, and only one out of four lives in houses. In rural areas, there is no discernible association between the type of housing and poverty. The situation is different in urban areas. In urban areas, poverty incidence is relatively higher among ger residents and lower among apartment building residents. The probability of poverty among apartment dwellers is half that of among ger and residence house dwellers. Infrastructure services: Living standards and human well-being are enhanced through provision of comprehensive infrastructure services such as safe drinking water, sanitation facilities that meet hygienic requirements, power supply and central heating. Close to 60 per cent of the population has access to safe water sources, half to sanitation facilities, three quarters to power, and 40 per cent households have access to all of them. Living conditions and drinking water supply in ger districts are highly inadequate. In comparison to the households living in apartment districts, there are 30 times more households in ger districts of Ulaanbaatar that use unsafe drinking water sources. People in ger districts have to queue at wells for long hours and sometimes are left without water overnight. Living conditions of households that have access to all infrastructure services are better compared to others. As would be expected, poverty incidence is higher among households that have little or no access to the service.

Income inequality Owing to the principle of equal distribution followed under the socialist regime, people’s living standards were relatively equal. However, inequalities between males and females, different population groups and regions widened after 1990, with the

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Part two. Human development in Mongolia introduction of a new policies aimed to price and tariff liberalization, establishment of a new economic structure and acceleration of economic growth. Mongolia’s per capita consumption based Gini-coefficient for disparities was estimated at 0.329 in 2002-2003. It increased from 0.310 in 1995, but it was lower compared to 0.340 in 1998. Consumption of the wealthiest 20 per cent of population was 5.5 times greater than that of the poorest 20 per cent. As highlighted in the Human Development Report of Mongolia 2003, income disparities between urban and rural population are prominent. According to the Report, income disparities between cities, between urban areas and remote aimag centers, between rural soum and bagh centers have grown even greater depending on physical distances and their geographical location. Poor rural populations with a nomadic lifestyle dispersed over vast territories are at the bottom of the income ladder. Income disparities between rural and urban dwellers often motivate rural people to migrate to urban centres.

Income inequality and income poverty Income inequality is connected to relative poverty (to be distinguished from absolute income poverty). There was a time when it was accepted that income inequality and income poverty were closely correlated. Empirically, this is no longer always the case. Thus in some societies, it is possible that while absolute income poverty is declining, relative income poverty or income inequality may be increasing. Poverty has emerged as the biggest challenge for Mongolia since the transition to a marketoriented economy. Poverty was never an issue under the socialist regime within a centrally planned economy and a social security structure that provided people with equal opportunities and decent living standards. Poverty as a new phenomenon emerged during the transition to free market economy. The sudden cut of the huge flow of foreign aid from the former Soviet Union and socialist countries and the closure of many factories lead to substantial increase in unemployment. Consequently, economic condition of the country deteriorated, and inflation rate rose up; the most manifest consequence of this was income shortfalls. But more recent evidence suggests the prevalence of human poverty, namely deprivation along dimensions of life other than income. According to the three living standards measurement surveys (1995, 1998, 20022003), there has not been any perceptible decline in the levels of poverty in Mongolia. The poverty headcount ratio which was 36.3 per cent in 1995 fell marginally to 35.6 per cent in 1998 and again rose to 36.1 per cent in 2002. Although the poverty headcount ratio has been relatively stable between 1995 and 2002, the number of poor people is increasing. In 2002, the poverty depth index for Mongolia was 11 per cent and the poverty severity index was 4.7 per cent. Both the depth and severity of poverty were higher in rural than in urban areas. Rural areas reported a poverty depth index of 13.2 per cent and a poverty severity index of 5.6 per cent. In urban areas, the poverty depth index was 9.2 per cent and the poverty severity index was 4 per cent.

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Chapter 6. Economic growth and income in Mongolia: means to human development The surveys also revealed that while urban poverty began to decline, rural poverty was on the rise and surpassed urban poverty levels. According to the 2002-2003 HIES, income poverty is directly related to the number of household members. Poverty incidence increases uniformly with the size of the household. The probability of a household with up to three members being poor is around 10 per cent. One fifth of Mongolians lives in households with up to 3 members, and they account for one-tenth of the total poor. Between 24-34 per cent of households with 4-5 members fall in the poor category. These households comprise around half the population and two-fifths of the poor. Almost 50 per cent of households with more than five members are poor. Among households with eight and more members, seven out of 10 (70 per cent) are in poverty and these people comprise one-fifth (20 per cent) of the total poor population. Income poverty also varies across regions. Poverty incidence in the Western region is high where nearly 50 per cent of the population lives in poverty. Similarly, around 38 per cent of the population in Khangai region and 34 per cent in Central and Eastern regions are poor. Poverty incidence is the lowest in Ulaanbaatar with one third of the population in the capital city being classified as poor. Income poverty has a seasonal character in Mongolia. Even though the poverty incidence in 2003 was 36 per cent, it was 29 per cent in the first quarter and went up to 41 per cent during the fourth quarter of the year. Similar trends are observed in the measurement of poverty depth and severity. These varying conditions of poverty within a year can be attributed to specifics of economic turnover as well as to climate and weather conditions in Mongolia.

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6.3 EMPLOYMENT – THE MISSING LINK BETWEEN GROWTH AND POVERTY REDUCTION Employment is a key instrument for equitable growth. It ensures that benefits of economic growth are shared more broadly. As equitable growth is essential for poverty reduction, employment is the missing link between economic growth and poverty reduction. Productive and remunerative employment not only contributes to livelihood of people, but it also provides opportunities for participation in social life, a sense of self-esteem and dignity. Sustainable economic growth is the main source of poverty reduction, thus, employment is the main linkage for economic growth and poverty reduction. It has often been argued that economic growth creates employment. But experience shows there is no automatic link between economic growth and employment generation. In many cases, growth-led employment has not occurred and has given rise to the phenomenon of ‘jobless growth’. As a result, people have argued for employment-led growth, where both growth and employment are simultaneously generated, giving rise to a win-win situation.

Labour market in Mongolia It is useful as a background to briefly trace the history of labour markets in Mongolia. At the beginning of the 20th century, the Mongolian economy was dominated by nomadic livestock breeding. Mongolian labour markets consisted largely of herders, with the exception of few craftsmen and crop farmers. After the revolution of 1921, the State set up numerous education and health institutions. Since the 1930s, many factories and collective farms were established. This gave rise to several new professions doctors, teachers and professional workers across a range of services. Agricultural developments in the 1960s led to the cultivation of various crops and vegetables. Large manufacturing centers and mining industries were established in Darkhan, Erdenet and Baganuur. As a result, the labour market underwent many changes and became diversified. What also influenced the labour markets were progress in the education sector, particularly in vocational training, improvements in health and pro-natalist policies to encourage births. Between 1960 and 1990, over a 30-year period, the number of those employed in Mongolia doubled. The largest numbers have been employed in agriculture and livestock sectors. The second largest category has been manufacturing and construction followed by public service, culture and education, health, financial institutions, and service sectors. However, in terms of trends, the number of employees in the industrial sector had been constantly increasing. In the 1960s, industrial workers were around 20 per cent of herders and farmers. By the 1970s, the proportion had risen to one-third; by 1990, the number of industrial workers equaled those engaged in herding and farming. Between 1960 and 1990, an important changes occurred on the labour market: the

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Chapter 6. Economic growth and income in Mongolia: means to human development percentage of employees in non industrial sector, social sectors such as culture, education, health, social insurance and financial sectors has been increasing gradually, as the result of the state policies. At the same time, privatization and trade liberalization processes taking place in the course of the 1990s triggered deep changes in the labour market. Most of the changes occurred between 1990 and 1993. Sectors that had not been developed before 1990 thrived. For instance, most of the workers found new jobs in wholesale and retail trade, hotels, restaurants, cafeterias and real estate services. In 2004, there were 1.5 million people in the working-age groups out of a total population of 2.5 million. Out of these 1.5 million, 959,000 constituted the economically active population. Mongolia’s population in recent years is growing at an average annual rate of 1.2 per cent whereas the population of working age is increasing by 3.4 per cent. Young people aged 16-29 years dominate the working population.

Structure of employment and the nature of unemployment In 1995, 46.1 per cent of the workforce was employed in agriculture, 14.1 per cent in industry and 23.4 per cent in services. By 2003, the composition had changed with 36.5 per cent of the workforce engaged in agriculture, 16.6 per cent in industry and 28.8 per cent in services. The share of workers engaged in agriculture has declined, whereas that in industry and services has increased. This is related to the decline in the number of livestock animals as a result of droughts and dzuds in recent years as well as to the rural-urban migration. More than 45 per cent of the economically active population are women and 83 per cent of them are employed in the formal sector. The number of working retired persons increased in 2003, showing both a true interest as well as a need on the part of the retired to work and enhance their incomes. In 2004, over 8,000 foreign citizens from 65 countries were employed in Mongolia. Close to 38 per cent of these workers were employed in the mining sector and 18 per cent in construction. Unemployment has emerged only since 1990 as a new phenomenon in the social and economic life of Mongolia. This was caused by the drastic economic decline in the initial years of transition to free market when many factories closed. As a result, many thousands of people lost their jobs. The problem of unemployment continues to be today one of the most acute social problems. According to the 2000 Population and Housing Census, 17.5 per cent of working age population were unemployed. Of these, 24.1 per cent were aged 16-24 years, 33.2 per cent were aged 25-34, 30.2 per cent were aged 35-44, and 12.5 per cent were aged 45-59 years. In other words, 57.3 per cent of the registered jobless people were 34 years old and younger. Mongolia has recorded unemployment rates officially since 1992. Persons of working age who are registered as unemployed with the office of aimag and city labour department, and who actively seek for job are considered unemployed. But these

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Part two. Human development in Mongolia official numbers are not a reliable measure of unemployment in Mongolia. People are not likely to register by employment offices for many reasons including low confidence to find a job through the employment office, poor regulation of labour markets and the inability of the government to grant adequate unemployment allowances. Hence there are typically large discrepancies between the officially recorded unemployment rate and the real rate of unemployment. This has given rise to a new concept of the unemployed in Mongolia. A person who has lost all hopes of finding a job is considered as unemployed. Official records indicate that since 1992, the unemployment rate for women has always been higher than among men. According to the Population and Housing Census 2000, for instance, 85.7 per cent of officially registered unemployed were women. The majority of the registered women were students and housewives. During the transition years, many women, particularly those working in light industries and social services, were fired because of restructuring. In general, women are more likely to be unemployed and thus women are more often poor. Of the registered unemployed, 72 per cent have no vocational education, and 58 per cent are youth aged 16-34 years. In 2004, 35,500 people were registered as jobless of whom 9.7 per cent had higher education, 8.6 per cent had a special technical education, 10.5 per cent had vocational training degrees and 72.6 per cent did not have any profession. People responded to unemployment by working in non-formal sectors, or emigrating to work abroad. Most people who were previously employed in state-owned enterprises were absorbed into wholesale and retail trade business and many started to work in the informal sectors. Those in soums and baghs started to migrate to more centralized areas in search of job opportunities. Many people have emigrated to foreign countries to find jobs and improve their lives. Detailed information on the well-being of these people is not readily available and their numbers can only be estimated by bank remittances. Many people tend to move from rural area to urban area believing to find more and better job. This phenomenon is called internal migration. The population movement directed to foreign countries is called international migration. These may be regarded as people’s responses to poverty and unemployment. One of the complicated issues in the labour market is the wage rate. Even those who are employed may be poor due to low wages. While employees wish to set wages as high as possible, employers are interested in keeping wages as low as possible. State intervention to regulate wages may become necessary if the market mechanism fails to establish a fair wage that is not exploitative of the poor. Since adequate wages and salaries are critical for protecting families and individuals from slipping into or remaining in poverty, it often becomes incumbent upon the government to regulate wages and to make adjustments for erosion in real incomes as a result of inflation. The government of Mongolia has from time to time announced the

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Chapter 6. Economic growth and income in Mongolia: means to human development minimum level of wages. The minimum wage was 18,000 togrogs in 2000, 24,750 togrogs in 2001, 30,000 togrogs in 2002 and 40,000 togrogs in 2004. This was prescribed in order to ensure that those employed in the private sector got reasonable salaries and that their wages went up as well. In 2004, the average salary in Mongolia was 93,100 togrogs. On average, employees in the public sector earned higher wages than those in the private sector. Wages in mining, construction, transportation and communication, service and financial institutions were considerably higher than wages in the agricultural sector though agriculture accounts for a majority of jobs in rural areas. While the average salary in the financial sector was 125,400 togrogs, the earnings in agriculture and livestock husbandry sectors was on average 52,600 togrogs.

Informal sector and its dynamics In Mongolia, informal business unit defines all activities outside the agricultural and animal husbandry activities, not owned by government, and employing 1-4 people in full-time positions. An estimated 126,000 people work in the informal sector. Of these, around 101,700 (over 80 per cent) are engaged in non-agricultural activities. There are close to 10,100 small scale entities that employ 4 to 5 persons in full-time positions giving employment to around 383,000 workers. Thus from a broader perspective, the informal sector in Mongolia consists of around 22,900 privately owned entities with 4 to 5 employees each accounting for a total employment of 484,900 persons. The informal sector can positively influence economic growth by creating jobs and generating incomes through wages. However, two-thirds of income from the informal sector is spent on formal sector goods and services. It cannot be denied therefore that the informal sector contributes to poverty reduction and eases Government’s burden of implementing social care programmes. However, it is also widely known that conditions of safety are poor for informal sector employees and a majority is left out of the social protection system. For example, manual gold mining, working in mines and on the streets in harsh weather conditions adversely affect human health. Unfortunately, it is also common for the informal sector to employ children and to employ them in hazardous, harsh and inappropriate working conditions.

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6.4. POLICY IMPLICATIONS Discussed below are the policy implications of meeting the challenge of inclusive growth along five important dimensions: macro-policies for pro-poor growth; employment strategies; targeted interventions at micro-level; redistributive measures and institutional issues.

Macro-policies for pro-poor growth The Mongolian economy began growing gradually after the crisis of the initial years of transition in the mid-1990s, but this was not accompanied by sufficient progress in the lives of poor people. Over the last decade again, Mongolia has recorded a growth in its GDP and today its GDP per capita exceeds the level reported in 1990. However the poverty rate has not declined and the number of poor people has grown. It is common that governments reorient the social welfare system in order to ensure flow of the benefits of economic growth to the poor. Increasing expenditures for social care and services place a heavy burden on the state budget. It also requires that additional resources are generated through an appropriate system of taxation. Tax increases can affect economic growth adversely. Therefore many governments consider the path of promoting social welfare systems as inadequate for addressing the problems of poverty and unemployment. More importantly, the traditional approach does not focus on building of human capabilities. It is only by enhancing people’s capabilities and expanding opportunities that people will benefit from growth. Mere income transfers and offering unemployment compensation packages are unlikely to yield desired results; nor can such measures be sustainable in the long run. Macroeconomic stability is a pre-requisite for pro-poor growth. But macroeconomic stability should not be pursued in a mechanical way as an end in itself. Budgets should not balance at the cost of unbalancing people’s lives. Pro-poor policies must ensure that poor people gain equitable access to basic social services (e.g. health, nutrition, education, safe water etc.) and to productive resources (land, inputs, credit etc.). Generating productive and remunerative employment for the poor so that they get an equitable share of the benefits of growth must be a priority of macroeconomic policy. Pro-poor growth requires a balance between growth strategies, measures for addressing poverty and policies for reducing inequalities. Sometimes policies in these areas are presented as trade-offs, but that is not always true. It has been shown that inequality reducing policies are also good for growth and reduction of capability poverty helps generate further growth. Pro-poor growth strategy should recognize that strategies should target people who are in poverty. This may require in some cases targeted interventions for the poor. In implementing a poverty reduction policy, it is important to have information on where poor people work, where they live, the occupations they pursue and the kind of products they use. The poverty alleviation policy implemented in Mongolia during

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Chapter 6. Economic growth and income in Mongolia: means to human development the transition failed to fully take into account these features. As a result, poverty increased in rural areas. A pro-poor growth strategy must create jobs and enable poor people to work and earn income while keeping the costs of their basket of goods and services low and stable. It is important to keep in mind that a sound pro-poor growth strategy may reach a majority of the people. But there will always be specific vulnerable groups (e.g. older people, people with disabilities, children, etc.) who will be left out. Special efforts to reach these vulnerable groups must be initiated.

Employment strategies A framework of macroeconomic policy should include measures to promote employment and hold inflation at the lowest possible level. Creating jobs for poor people is a major way to reduce poverty. Some of the policy actions that could help create jobs are listed below: • Encourage foreign investments in animal husbandry and agriculture where a large number of poor people are employed rather than in mining industry which does not create much jobs but requires capital expenditures. • Support development of textile and sewing factories where many women work. • Establish small and medium scale industries because of their flexibility to adjust to local needs and their ability to create jobs. • Reduce interest rates on loans in order to encourage investments and bring banking services closer to the poor especially in areas where poverty rates are high and for the agricultural sector where many poor people are employed. • Intensify trade in agriculture and textiles. • Remove export barriers at home and make necessary efforts or arrangements with foreign countries to allow Mongolian exports of agricultural and textile products without tariff and non-tariff barriers. For instance, the European Union has removed quotas on exports of approved Mongolian textile and knitted products. • Initiate ‘white revolution’ and ‘green revolution’ programmes in rural areas, where unemployment and poverty are high.

Policies at the micro level Income and job creation for poverty reduction require careful support to those sectors which can absorb many poor people. By supporting development of such sectors, the government can generate employment for the poor. Identifying and developing such sectors can enhance incomes and reduce vulnerability. This would call for micro-interventions. In the case of Mongolia, most of the poor people live in soum and baghs of rural areas. Therefore, concentrating on local animal husbandry and agriculture development can create jobs for poor people and offer new opportunities for self-employment. The government can assist poor herders in improving their livestock breeds and provide poor farmers with good quality crop and vegetables seeds. Construction is

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Part two. Human development in Mongolia another sector that can potentially create many jobs and contribute towards improving living conditions of the poor. Intensifying construction at the outskirts of cities, in particular, where many poor people reside can open up job opportunities for them. At the same time, strengthening and widening of micro-financial services can be an effective instrument. Providing comprehensive services such as insurance, bank transfers, payment, provision of loans and savings for poor or low income families, individuals and small businesses can help significantly with income generation. Provisioning of appropriate information on credit and financial services can also help poor and very poor borrowers. Development of financial services occurred since the mid-1990s. But this did not turn out to substantial poverty reduction. According to the 2004 Micro credit study, in 1998 only one per cent of poor households have had an opportunity to borrow a micro credit. In 2004, this proportion increased to 26 per cent. However, this does not mean that all rural poor households have had an access to micro credit.

Re-distributive measures Taxation policy is an important instrument for the redistribution of income. Reducing taxes in sectors that employ a significant number of poor people and directing investment flows into such sectors can have beneficial impacts on job creation for poor people. Tax incentives can be instrumental in the export sector for creating jobs and reducing poverty. Regions with higher poverty rate can also benefit from reduced taxes. Reducing taxes on sectors that produce goods for poor people may also help lower costs of living for the poor. The two-phase tax system implemented in Mongolia since the 1990s has helped to support and generate pro-poor growth. The current taxation system rightly supports medium and small entities that can create jobs and can be established in rural areas. State budgets are another important tool for re-distributing the benefits of growth. Even if expenditures for social care and services account for a large percentage of the budget, it is still likely that most poor people may not be able to access even basic social services. It is important for the State to assess the quantum of resources that would be required to assure every citizen a decent quality of life. The state should also re-examine the basis for allocation of resources within the country and ensure that imbalances are corrected. For instance, regions which have higher poverty rates and a lower human development level certainly ought to qualify for a larger share of funds. Similarly, bank loans and foreign aid need to be directed to poor people and regions with higher poverty rates and towards sectors that employ more poor people.

Institutional issues Institutional deficiencies have constrained Mongolia from reducing poverty in the past. Government actions taken in poverty reduction were not well monitored and

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Chapter 6. Economic growth and income in Mongolia: means to human development administered; as a consequence, results have not been optimal. The Ministry of Finance plays an important role in monitoring implementation of the poverty reduction strategy and in supporting economic growth. Each ministry in turn develops and implements programmes within a sector-specific action framework. Resources required for such programmes consume around 40-45 per cent of GDP each year. Poverty reduction should be considered a priority at all levels of the government administration, not only by a few ministries. For this purpose, it is important to undertake some of the following measures: • Develop appropriate laws and trade contracts. • Reform the administrative and accountability structures within government. Clarify roles and responsibilities at different levels. • Clearly articulate the goals and targets of poverty reduction programmes. • Improve financial efficiency in programme implementation. • Encourage and improve participation of individuals, public and NGOs and coordinate their activities. • Develop a proper mechanism for re-distribution of resources. It is important to conduct the systematic evaluation and monitoring on poverty reduction programmes and make necessary revisions to ensure better outcomes.

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Part two. Human development in Mongolia Bibliography and additional reading materials Bill Bikales, Ch.Khurelbaatar and Schelzig, K. 2000. “The Mongolian Informal Sector: Survey Results and Analysis”. USAID Economic Policy Support Project, Ulaanbaatar, Mongolia. NSO (National Statistical Office). 2001. “2000 Population and Housing Census: The Main Results”. Ulaanbaatar, Mongolia. -. 2002. “2000 Population and Housing Census: Economic Activities”. Ulaanbaatar, Mongolia. -. 2002. “2000 Population and Housing Census: Education and Literacy”. Ulaanbaatar, Mongolia. -. 2002. “2000 Population and Housing Census: Internal Migration and Urbanization”. Ulaanbaatar, Mongolia. -. 2002. “2000 Population and Housing Census: Marital Status”. Ulaanbaatar, Mongolia. -. 2002. “2000 Population and Housing Census: Population Growth Perspectives in Mongolia”. Ulaanbaatar, Mongolia. -. 1993-2006. “Mongolian Statistical Yearbook 1992-2005”. Ulaanbaatar, Mongolia. NSO, World Bank. 2001. “Participatory Living Standards Assessment 2000”. Ulaanbaatar, Mongolia. NSO, ADB (Asian Development Bank). 2004. “Main Report of Labour Force Survey 2002-2003”. Ulaanbaatar, Mongolia. Sakiko Fukuda-Parr, A.K. Shiva Kumar (eds.). 2004. “Readings in Human Development: Concept and Policies for a Development Paradigm”. New Delhi, Oxford University Press. School of Economic Studies, National University of Mongolia. 1999. A Handbook “Mongolian Economy, Transitional Economy”. Ulaanbaatar, Manchester. UNDP (United Nations Development Programme). 1996. Human Development Report 1996. “Economic Growth and Human Development”. United Nations, New York. -. 2001. “A Strategy for Poverty Reduction in Mongolia”. Report of Mission led by Keith Griffin, and with team members M. Brenner, A. Ickwitz, T. Kusago and T. McKinley, Ulaanbaatar.

-. 2002. “Mongolia: Industrial and Trade Development Policy Review”, Ulaanbaatar. UNCTAD (United Nations Conference on Trade and Development). 19962002. “Trade and Development Report 1996-2005”. United Nations, New York and Geneva.

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CHAPTER 7. LIVELIHOODS, VULNERABILITY, SECURITY AND HUMAN DEVELOPMENT OF MONGOLIAN PEOPLE

Sub sections 7.1 Vulnerability – a conceptual framework 7.2 The middle class and its living 7.3Policy alternatives for reducing vulnerability Bibliography and additional reading materials Annexes The chapter deals with issues of livelihood, vulnerability, security and human development. The concept of vulnerability is introduced and analyzed from dif ferent perspectives. Results of surveys and research coducted in Mongolia are presented.

7.1. VULNERABILITY – A CONCEPTUAL FRAMEWORK People in developing countries face many conditions of vulnerability. The poor in particular find themselves more vulnerable to risks. Therefore, vulnerability is one of challenging human development issues in Mongolia. Vulnerability is an important composite indicator that reflects the quality of human life and the level of human development. The literature on vulnerability offers different approaches to the interpretation of this term. According to the United Nations, vulnerability is defined as “the risk of being negatively affected by unforeseen events”60. Vulnerability is one of the most complicated human development issues confronting Mongolia. Contributing to people’s vulnerability are features of the country’s economic and social life including unemployment, poverty incidence, inequalities in income distribution, disparities in development, extremely harsh climatic conditions, and the specific nature of livelihoods. Vulnerability is an ex-ante exposure to threats associated with an inability to cope with them. In other words, vulnerability is conceptualized as the likelihood of suffering a loss of welfare below some socially accepted norm caused by risky events. Chaudhuri and Dercon define vulnerability as “expected poverty”, whereas Ligon and Elbers regard vulnerability as “low expected utility”. 60. UN “Vulnerability and Poverty in a Global Economy” Report of the Committee for Development Policy on the first session (26-30 April 1999), New York.

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Part two. Human development in Mongolia Vulnerability in Mongolia is commonly associated with “vulnerable groups”. The Social Welfare Law adopted in 1998 includes the following people in the category of “vulnerable groups”: single elderly people who are unable to sustain their living and who have no relatives to rely on, the disabled, fully orphaned children, extremely poor elderly people, parents with many children and extremely poor people. Accordingly, poverty reduction efforts have been targeted in particular at these groups. However, concepts of individual vulnerability, vulnerabilities of the household, of society, and of socially vulnerable groups differ from each other although they share some common features. In other words, the notion of vulnerability cannot be construed as affecting only vulnerable groups. It is a broad concept that concerns individuals, households, social groups as well as the country at large. In reality, there may be various sources of people’s vulnerability: age, health, living conditions, sanitation, geographical locations, local administrative structures and organizations, as well as the quality of public services. Vulnerability can be defined as economic, environmental and political. Rural and urban areas of Mongolia, for instance, exhibit different levels and sources of vulnerability due to disparities in living conditions and differences in activities of people living in rural and urban areas. The agricultural sector, and in particular livestock breeding, plays an important role in the society and economy of Mongolia. This is because the livestock sector produces food and various traditional commodities for Mongolians, contributes significantly to exports and provides direct and indirect means of livelihood to thousands of people. For instance, earnings from livestock products are the main source of income for herders. In addition, many people engaged in processing, transportation and sale of livestock products depend for their incomes on livestock breeding.

Vulnerability of herders - impacts of environment, disasters and urban-rural disparities Agriculture, including livestock breeding, is an important sector of the Mongolian economy. However, there is overwhelming evidence from several surveys to suggest that low levels of productivity and salaries in this sector have led to vulnerability and poverty among rural people. The working conditions, food consumption, health and income levels of rural herders and farmers are in many ways dependent on natural and climatic conditions. Heavy snow, dzud (severe winter), floods, winds, storms, drought and other natural disasters add to the vulnerability and insecurity of livelihoods of rural people who heavily rely on pastoral livestock breeding and extensive agriculture to make a living. Employment condition, food consumption, health and income related issues of the rural herders, agricultural workers are very much dependent on environment and the weather. The Household Income and Expenditure Survey/Living Standards Measurement Survey (HIES/LSMS) conducted in 2003 suggests that the share of the employed among

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Chapter 7. Livelihoods, vulnerability, security and human development of Mongolian people the poor in the countryside was 85.2 per cent, while in Ulaanbaatar and in aimag centers it was 47.8 and 57.9 per cent respectively. These figures illustrate that the key cause of poverty incidence among rural herders is associated with low income or low productivity of livestock breeding. Additional evidence available from this study reveals that GDP per capita for rural area is almost 174.8 per cent lower61 than that of urban areas. Between 1998 and 2002, the poverty (headcount) ratio declined from 34.1 per cent to 27.3 per cent for Ulaanbaatar, whereas it increased from 32.6 per cent to 43.4 per cent for rural soums and baghs. Though the estimates cannot be strictly compared because of different methodologies used, both surveys point to a sharp rise in poverty levels in rural areas. As a result, there has been an increasing divide between the livelihood opportunities of people living in rural and urban areas. Remoteness from markets is a decisive factor accounting for the vulnerability of rural herders. The poverty incidence among herders who live closer to large markets is 28.5 per cent in Ulaanbaatar, whereas it is 50.5 per cent among herders in aimag centers and 38.5 per cent among herders in the countryside. The vast distance from markets has not only affected incomes of rural herders but also limited their opportunities to deposit or protect their assets from risks. Another factor that has contributed to the vulnerability of rural populations is increasing disparity between rural and urban areas as a result of deterioration in the quality and access to social services in rural areas. According to the Human Development Report of Mongolia 2003, the rural HDI places Mongolia at a rank of 124 in the world, whereas the urban HDI ranks 102nd at the global level. This reveals large differences between the human development environment in rural and urban areas of Mongolia. Extensive research conducted by the School of Economic Studies of the Mongolian National University reveals that higher levels of educational attainment are associated with lower vulnerability to poverty experienced by households. It is evident from the HIES/LSMS that educational attainment levels are higher among urban than rural adults. For instance, the percentage of urban residents with complete secondary education is 50 per cent higher than that of residents in rural areas. The share of urban residents with higher education diplomas is twice, and that of persons with university degrees is almost five times greater than the number of persons with corresponding education levels in rural areas. Again, according to the HIES/LSMS, the probability of illness is similar across rural and urban areas, but rural dwellers and the poor are less likely to use health facilities for treatment; and their expenditures on health is low. The urban spending for hospital services is almost twice as much as rural expenditures. The non-poor spend over seven times more than the poor for hospital services. These figures show that rural residents and the poor are more vulnerable than urban residents. Although urban residents are engaged in production and services that are not dependent on nature and climate, they suffer from air pollution which makes their lives 61. in PPP US$

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Part two. Human development in Mongolia vulnerable in terms of their health. Ger dwellers in the outskirts of the city face higher risks of suffering from natural disasters and various kinds of crime. In ger districts, people who have built their dwellings at the ravines and flood protective belts are more vulnerable to the threat of flooding. Those living near high voltage lines are at higher risk of fire outbreaks. Because of relatively low levels of living standards associated with high levels of poverty in ger districts, the majority of ger dwellers lack ways and means to get out of this situation. Several factors affect vulnerability at the national level62. These include ecological factors such as natural disasters, climatic changes, deforestation, loss of biodiversity, soil erosion, air and water pollution, solid waste disposal; economic factors such as income scarcity, low productivity, dependence of production and consumption on foreign markets, high transportation costs; and social factors such as social services infrastructure and the social welfare structures, deficiency of per capita social expenditure as well as relationships between members in the society.

Economic and political vulnerability Vulnerability, to a large extent, is affected by the place of residence, one’s own and family income levels, occupation, assets and family structure. People in least developed countries are not only more vulnerable but also have weaker capabilities to deal with losses on account of their vulnerabilities. Vulnerability of a household is defined as the probability of a household falling into poverty in the future, i.e. the propensity that household consumption will fall below a designated poverty line. A study carried out by the School of Economic Studies of the National University of Mongolia shows that vulnerability levels are likely to be high for households where heads of households are either public servants or unemployed. Similarly, higher levels of vulnerability are observed among households dwelling in gers compared to those living in apartments or houses. In addition, the vulnerability level among femaleheaded households is more than 10.1 per cent higher than that of male-headed households; and it is 25 per cent higher for households engaged in the private sector compared with those employed in the public sector. Such vulnerabilities are generally associated with individuals, whereas economic and political vulnerability depends on the level of socio-economic development of the country. Widespread economic vulnerability among Mongolians can be traced to a large extent to the process of transition to a market economy, deficiencies in coordination of the market by the state, weak social welfare systems and capital deficiency. Commenting on the situation in Mongolia and the economic vulnerability of people in transition economies, Professor Keith Griffin from the University of California wrote in 1999: “The transition to a market economy has been accompanied not only by a lower average level of income but also by greater variability of incomes. This greater variability of incomes has exposed households to greater economic security. During the socialist period, insecurity was low: everyone was guaranteed to a job, everyone had a steady source of income (even members of the negdels or livestock coopera62. A report by P.Ochirbat, in “Human security in the globalised world” (2000, Ulaanbaatar), is used in this part.

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Chapter 7. Livelihoods, vulnerability, security and human development of Mongolian people tives), and everyone had access to a wide range of social services that enabled them to cope with temporary illness, permanent disability, loss of the principal income earner, old age, and so forth. All this has disappeared or diminished during the transition to a market economy.” People in advanced market economy countries are also exposed to economic insecurity. However, these countries have constructed an elaborate welfare state to protect the unemployed, the aged, the ill and the impoverished. In Mongolia, on the contrary, the pre-existing institutions of a comparable welfare state have been weakened precisely when the need for them has increased. This is a consequence of the shrinking role of the state and the failure to recognize that historically the expansion of the market has been accompanied by an expansion of the state, not by its contraction. In other words, the state and the market are complementary, not competitive. In the absence of state support, households manage increased risks in a variety of ways. For example, they do so by diversifying sources of income within the household, by building up assets that can be liquidated during periods of crisis, by strengthening kinship ties and by forming mutual aid groups, and by borrowing from informal credit lenders in an emergency. Like survival strategies, these are largely responses to a fall in the number of risk-reducing institutions. Such informal arrangements are almost always inferior to formal institutions they attempt to replace63. Economic vulnerability needs special attention. As defined by the United Nations, the category of least developed counties covers low-income countries that suffer from a shortage of well-qualified human resources and are exposed to a high degree of economic vulnerability. At its first session in April 1999, the UN Committee for Development Policy noted that “…vulnerability should be taken explicitly into account in the least developed countries’ identification criteria”. The Committee therefore recommended that the former Economic Diversification Index (EDI) be replaced by an Economic Vulnerability Index (EVI) in the designation of least developed countries. The Economic Vulnerability Index (EVI) of a country’s level, i.e. at the macro level, measures external factors, the exposure to shocks and the resilience of the country to react to the shocks under given circumstance. The EVI measures five indicators that capture the economic susceptibility: 1) export concentration; 2) the instability of export earnings; 3) the instability of agricultural production, to show the resiliency to resist shocks; 4) the share of manufacturing and modern services in Gross Domestic Product (GDP); and 5) the population size. Resiliency is essential for overcoming shocks, reducing risks and incurring as few losses as possible. Shocks can be caused by natural and external economic conditions. The UN Committee for Development Planning at its 32nd Session agreed that a distinction needs to be made between economic vulnerability and ecological fragility. At the same time, the Committee also pointed out that economic vulnerability originates partly from ecological factors such as hurricanes, cyclones, earthquakes and drought. 63. Keith Griffin “Poverty reduction in Mongolia” p 15

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Part two. Human development in Mongolia In dealing with economic vulnerability, an important distinction should be made between structural vulnerability which results from factors that are relatively impervious to national policies, and vulnerability derived directly from economic policy. Let us take the example of Mongolia. Growing national insecurity implies increasing vulnerability. In Mongolia, reliance of production and consumption on foreign markets makes people’s income and consumption vulnerable. Economic vulnerability of Mongolia is caused by the country’s narrow range of exports and the need to transport the products via transit countries. Adding to vulnerability is also the reliance on energy imports and fuel needed for productive activities. Mongolia, being a small economy and relying excessively on a narrow range of export products that make up its primary production and exports, is heavily affected by volatility in prices and by changes in demand and supply in the world markets. Price volatility of its export products in the world market has had a strong impact on the revenues of workers in the livestock and mining sectors. As a result, the living standards, incomes and consumption of Mongolians who rely on production for and consumption from foreign markets are vulnerable. A structure of direct dependence on a narrow range of products is a structural form of vulnerability. However, the risk associated with the disposal of revenue received from such exports depends on the policies pursued. Political vulnerability Developed countries over the centuries have promoted a sound legal environment under democracy that enables them to overcome a political crisis in society through peaceful means. However, most transition economies have started to build the legal environment for democratic governance only from the beginning of the 1990s (over the last 15 years). They therefore lack experience in fully enforcing such principles as the rule of law, peaceful and lawful resolution of disputes, the practice of engaging in public debates and discussions on priority development issues, finding amicable solutions within the given political culture. A sad example of this is the outbreak of armed conflicts, the loss of thousands of lives, and the escape and migration of thousands people from their homelands in the process of building a democratic society in many of the former socialist countries such as Albania, Georgia, Moldavia and the former Federal Republic of Yugoslavia. The political situation of some of these countries is still vulnerable. The reason for such political vulnerability is often linked to socio-economic distress, unemployment, poverty and inequality in income distribution that emerged during the transition period. One way of resolving these problems is to establish a democratic governance system so that voters are able to learn about and select one party out of those that contest elections. Examining the policies of different parties during the election period offers people an opportunity to exercise their choice in favor of a particular party or candidate. However, it is also possible for the groups of interest to emerge and address issues of widespread poverty, social distress and income disparities and accomplish their political and economic ends.

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Chapter 7. Livelihoods, vulnerability, security and human development of Mongolian people Countries with a long history of democracy tend to accumulate appropriate experience in resolving problems by avoiding violence. They evolve refined mechanisms of conflict resolution. But transition economies find themselves relatively more prone to political instability as a result of the deep political and economic crisis of the transition period and the short time that has elapsed since the break up of the one-party rule. This adds to political vulnerability. Political vulnerability in transition economies reflects the fact that people have only a vague understanding of politics and of democracy and that social strata and organizations to protect democratic governance are not fully developed. Political vulnerability can have negative effects on economic growth and development. Political vulnerability could be accompanied by such adverse phenomena as instabilities in state policies and business environments, breach of law and inadequate monitoring. This situation may increase risks for private investors and discourage them from making investments. Political instability may force wealthy citizens to transfer their assets to foreign countries. As a result, countries could experience a decline in foreign investments, increase in unemployment, slowdown of economic growth and the onset of an economic crisis. Researchers agree that the middle class plays a particular role in reducing political vulnerability and maintaining political stability.64

7.2 THE MIDDLE CLASS AND ITS LIVING The share of the so-called “middle class”, i.e. the middle income groups in the total population, and their income levels are viewed as principal indicators of social and economic development levels and political situation of any country. In countries with a dominant middle class, the middle income groups constitute a major part of the labour force and are the main consumers of goods and services. Therefore, higher income and better welfare of the middle-income groups imply a richer and wealthier country. In contrast, lower incomes and shrinking job opportunities for the middle-income groups imply a low-income country with weak economic development. Employment is relatively low among the rich who have exceedingly high levels of income and the poor who have very low income and weak capacities. Middle income groups therefore typically make up a significant part of the specialized labour force and account for a substantial share of workers and owners of small and medium sized enterprises. In general, social and political conditions of a country with a large middle class and a relatively small share of low-income and high-income classes in the total population are relatively stable. The higher the share of the middle income group, the lower the shares of the high-income and low-income groups in the overall population, contributing to a relatively equitable income distribution. The wide gap in incomes between the rich and the poor often leads to disparities in income distribution in many developing countries. Inequalities in income distribution cause social and economic instability, with the rich or oligarchs establishing military dictator64. Selim Jahan. “The Middle Class” UNDP study

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Part two. Human development in Mongolia ships in order to protect their wealth from the poor. This is a story reminiscent of many countries. If the majority of the population lives in extreme poverty, it could encourage some to opt for violent political means in order to redistribute or divide income. However, if the middle class commands social status and assets, this lends stability and balance in society. As a result, it is possible to work towards a compromise and peaceful resolution of conflicts. On the other hand, often it so happens that since the middle class constitutes a majority of voters, their interests dominate. This is reflected in policies and politics that are biased in their favour. The poor tend to get ignored or bypassed in the process. To sum up, since the middle class often forms the basis of sustainable growth and they aspire to acquire a dominant social status, they tend to earn relatively larger incomes and accumulate wealth.

The middle class structure As all productive assets were state-owned during the socialist era, income distribution in Mongolia was relatively equitable. Income variability was also considerably low during this period. In the beginning of the 1990s, the transition to an open economic system based on free competition and multiple forms of ownership led to the emergence of different groups with varying income and wealth. At present, as discussed earlier, a third of Mongolia’s population is either poor or extremely poor, and the rest of society is made up mostly of the middle class. A survey conducted by the School of Computer Technology and Management of the University of Science and Technology in 2004 estimated that the average monthly income of a middle-income household was 155,700 togrogs and whereas their monthly expenditures averaged 189,500 togrogs. Households of four members with a per capita income above the poverty line and with monthly earnings of 100.000-200.000 togrogs in 2002 were categorized as middle-income households by the survey. The middle class in Mongolia is made up of public servants, specialized workers, herders and white-collar workers. A survey of middle income groups in 65 2004 reveals that among middle income groups, 37.8 per cent are civil servants, 25.2 per cent are self-employed, 26.7 per cent are employees in the informal sector, and 10.3 per cent are herders. A majority or 62.2 per cent of middle-income people were employed in non-governmental institutions. Of middle income households, 40.7 per cent live in Ulaanbaatar and the rest, 59.3 per cent, live in rural aimags. Again in 2004, among middle income groups, 26.4 per cent were employed in public service, 30.3 per cent in the education and health sectors, 12.5 per cent in trade and intermediary services, 8.7 per cent in production, 6.2 per cent in agriculture and 5.4 per cent in the transport and communications sectors. These figure shows that public servants, physicians and teachers whose wages and salaries are provided from the public budget form a significant part of the middle income groups. Employment patterns of middle-income groups however vary across regions as shown in Table 7.1 65. MOFE, UNDP, 2004. “Examining the livelihoods of middle income groups and pro posals for reducing their vulnerability, the risk of falling into poverty”, Ulaanbaatar

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Chapter 7. Livelihoods, vulnerability, security and human development of Mongolian people Per centage

Table 7.1 Employment patterns of middle income groups Public sector

Private sector

Informal sector

Herders

Total

37.2

32.0

30.8

-

100.0

No

Regions

1

Ulaanbaatar city)

2

Central region (Dundgovi aimag)

41.7

9.7

19.4

29.2

100.0

3

Eastern region (Sukhbaatar aimag)

33.6

16.0

28.2

22.2

100.0

4

Western region (Zavkhan aimag)

35.4

33.9

22.4

8.3

100.0

Khangai region (Uvurkhangai aimag)

42.7

20.1

30.0

7.2

100.0

5

Total

37.8

25.2

26.7

10.3

100.0

region

(Ulaanbaatar

Source: Measures on prevention of middle-income persons slipping into the vulnerable group, Ulaanbaatar 2004

Income and expenditure of the middle income group It has been estimated that the average monthly per capita income of a middleincome household is 37,950-56,925 togrogs in Ulaanbaatar and 29,000-46,125 togrogs in rural areas. In terms of the overall composition of income, wages account for 47.7 per cent, income from livestock and sales of raw materials for 16.7 per cent, and pensions and allowances for 14.4 per cent. Monthly income and expenditure levels of middle-income households vary across geographical locations. Table 7.2. Income and expenditure of middle income households (Togrogs) Indicators

Income

Western region

Khangai region

Central region

Eastern region

Ulaanb aatar

Average income /expenditure

112.3

137.0

110.8

124.3

210.4

155.7

Expenditure 150.5

155.1

138.9

148.4

251.2

189.6

Source: Measures on prevention of middle-income persons slipping into the vulnerable group, Ulaanbaatar 2004

Table 7.2 reveals that both income and expenditure levels of middle-income households are higher in Ulaanbaatar compared to other regions. Table 7.3 presents data on the structure of income and expenditures of middle-income households.

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Table 7.3 Structure of total income and expenditure of middle-income households (by sources, percentage) Indicators

Ulaanbaatar

Aimag center

Soum center

Bagh (herders)

À. Main income 1

Wages and salaries

55.5

66.0

43.1

10.3

2

Pensions, benefits, allowances

15.1

11.9

13.2

16.0

5.8

1.7

B. Additional income 1

Production and services

11.2

9.0

2

Trade

11.9

10.4

8.6

3.8

3

Income from sale of livestock and agricultural products

2.1

1.2

28.9

68.1

4

Rent, interests and other income

5.0

1.3

3.4

0.1

100. 0

100. 0

100. 0

100. 0

Total

Source: Measures on prevention of middle-income persons slipping into the vulnerable group, Ulaanbaatar 2004

Monthly incomes of middle-income households are 150-225 per cent above the poverty line. These households lead relatively wealthy lives in comparison with poor households. Some of the middle income households live in their own apartments while others own immovable assets such as summer houses, rental apartments, small shops, kiosks, repair shops, small cafes, and other properties. According to a recent estimate, 68.9 per cent of middle-income households own summer houses or wooden houses; 11.5 per cent have production and services enterprises; 16.8 per cent own cultivated agricultural land, animal corrals or wells; 95.7 per cent possess household electrical appliances; and 43.8 per cent own private vehicles. Table 7.4 Pattern of property of middle-income households No

Types

1

Summer house

33.1

3.2

18.1

2

Wooden house with fences

48.8

52.7

50.8

3

Small shops, small cafes, garages, repair shops

10.8

6.2

8.5

4

Production and services centers

3.7

1.1

2.4

5

Resorts and sanatoria

0.6

0.5

0.6

6

Cultivated land

3

1.2

2.1

7

Animal corrals

-

28.7

14.4

8

Wells

-

0.7

0.3

9

Ulaanbaatar

Electrical generators and other Total

R u r a l Country area average

-

5.7

2.8

100. 0

100. 0

100. 0

Source: Measures on prevention of middle-income persons slipping into the vulnerable group, Ulaanbaatar 2004

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Chapter 7. Livelihoods, vulnerability, security and human development of Mongolian people An average middle income household in rural areas owns over 200 animals. However, access to credit is limited for herders as the value of their fixed assets is often quite low. Table 7.5 Value of real estate/immovable property/ of middle-income households (in thousand togrogs)

No

Indicators

Ulaanbaatar

Rural area

Country average

1

100.0-500.0

26.1

34.8

30.4

2

501.0-1000.0

12.2

25.8

19

3

1001.0-3000.0

28.4

19.2

23.8

4

3001.0-5000.0

16.2

11.2

13.7

5

5001.0-9000.0

7.6

3.5

5.6

6

9001.0 and above

9.5

5.5

7.5

100. 0

100. 0

100. 0

Total

Source: Measures on prevention of middle-income persons slipping into the vulnerable group, Ulannbaatar 2004

Human development aspects of the middle income group Among the leading concerns of the middle class are education and health. According to a recent survey, middle-income households in Mongolia spend a sizeable amount of money on education and health. A large number of households have more than one member with higher education. Out of total members of middle-income households, 23.9 per cent have higher education, 14.4 per cent have vocational qualifications, 25.2 per cent have completed secondary education, 18.7 per cent have an incomplete secondary education, 13.2 per cent have completed primary school education and only 4.2 per cent have no formal education. A majority of middle-income household members attends some kind of training. They spend a considerable amount of money on education. Some 58 per cent of middle-income households spend up to 550,000 togrogs, 31 per cent spend up to 850,000 togrogs, and 9.6 per cent spend 1,350,000 togrogs a year on education. Of all the students belonging to middle income households, a mere 15.8 per cent in Ulaanbaatar and 12.7 per cent in rural area had received loans and assistance from the Government. Tuition fees of students from middle-income households were paid by household members (35.8 per cent), the government (25.6 per cent), contractor organizations (2 per cent), or by students themselves (31 per cent). Table 7.6 Education level of middle-income groups (percentage) No

Indicators

1

Primary

14.2

12.9

13.6

2

Incomplete secondary

15.8

21.5

18.7

3

Complete secondary

23.5

27

25.2

4

Vocational

12.4

16.5

14.4

5

Higher

30

17.8

23.9

6

Non-educated

4.1

4.3

4.2

100. 0

100. 0

100. 0

Total

Ulaanbaatar

Rural area

Country average

Source: Measures on prevention of middle-income persons slipping into the vulnerable group, Ulaanbaatar 2004

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Part two. Human development in Mongolia An important indicator of the human development status of middle-income citizens is their health condition which is dependent upon access to health services and spending on health services. The study revealed that for three out of four middle-income households, one member gets sick or seeks treatment. Almost 30 per cent of middle income households receive health services from aimags, city, soums and districts hospitals, whereas 38 per cent and 28.5 per cent visit private hospitals and family practitioners for health services. Again, 43.8 per cent of middle income households spend 10-20,000 togrogs a year on health, 25.9 per cent spend between 25-50,000 togrogs, 21.1 per cent spend between 51-100,000 togrogs and 5.2 per cent spend over 150,000 togrogs a year. Though middle income households earn relatively higher incomes compared to poor households, it does not necessarily mean that their living standards are far superior or that the livelihood of these households is more secure. In 2004, the average middle income household in Ulaanbaatar earned 210,000 togrogs, a month or around 2.5 million togrogs a year. This works out to approximately US$2,000 which is considerably low by international standards. For instance, in 2003, in the United States, households with annual incomes between US$25,000-75,000 were classified as middle-income, and the median annual household income was US$43,318. 66 Although the cost of goods and services in the USA is generally higher, the nominal value of the average household income in Mongolia is 20 times lower than in the United States. It is however expected that sustained growth over the next few years will improve the livelihoods of Mongolians and improve the lives of the middle class even further. The middle class has benefited immensely from economic expansion in most developing countries. This has led to dramatic improvements in their social and economic conditions. For instance, incomes of highly educated specialists working in the information technology sector have increased sharply in India thanks to the boom in the sector. A 30-year-old computer specialist, who works in a branch of an American company in India, is reported to earn on average an income of US$20,000 a year.67 Similarly, high economic growth rates in China have considerably enhanced the earnings of the middle class which now accounts for 46 per cent of the country’s population. A survey conducted by the Beijing-based CTR Market Research Company that polled 340,000 business people and senior-level officers in Beijing, Shanghai, Guanchjou and Tienjin revealed that the average annual income is around US$10,000, while the average annual household income is US$15,85368. Consequently, there is a belief that the recent growth would support Mongolians living, particularly, the living of the middle class.

66. DeNavas-Walt Carmen, Bernadette D. Proctor and Robert J. Mills, US Census Bureau, “Current Population Reports, P60226, Income, Poverty, and Health Insurance Coverage in the United States: 2003,” U.S Government Printing Office, Wash ington, DC, 26 Aug 2004. 67. USA Today, D. Lynch, Imported jobs building a new, middle-class India, 21/3/2004 68. Asia Times Online, The Great Wall of shopping, Pepe Escobar, Jan 14, 2005.

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Chapter 7. Livelihoods, vulnerability, security and human development of Mongolian people

7.3 POLICY ALTERNATIVES FOR REDUCING VULNERABILITY The people of Mongolia used a variety of methods to prevent risks and reduce vulnerability during the early years of transition. Many avoided possible risks by migrating, others by changing their professions and business fields, and yet others by expanding their businesses or diversifying their activities. Other responses included savings, insurance, mutual help and strengthening of kinship and friendship ties. Reducing vulnerability of the population is one of the most important goals of the socio-economic policy of the government.

Linking of herders’ activities with market demand Herders are faced with inadequate domestic capacity to fully process meat, milk and animal raw materials they produced. At the same time, demand for the products is irregular and sustainable channels for sale of such products are limited. As a result, herders are often forced to reduce prices for raw materials and sell them cheaply. This reduces their earnings and prevents them from the highest return on their investments. This in turn has contributed to a greater incidence of poverty and higher inequalities. Remoteness from markets, the seasonal character of production, and the scarcity of income and working capital further compound the problems faced by herders. This situation has adversely affected the lives of herders as well as food supply and consumption. Reduced availability of raw materials has impaired the functioning of processing factories and this has affected the livelihoods of workers. A priority task for Mongolia is to enhance herders’ incomes and improve livelihoods by reducing problems caused by their remoteness from both markets and manufacturers. There are also additional problems of seasonality of production and risks of natural disasters to contend with. There are two principal ways by which these objectives can be achieved. The first initiative should be to generate demand for raw materials in local areas and bring market and production centres closer to herders by promoting small and medium sized enterprises for raw materials processing in rural areas. The second intervention should be to bring herders nearer both the market and manufacturers, and to reduce costs of agricultural production by encouraging intensive farming near cities and settlements. The first option can help create jobs by bringing production and markets for raw materials nearer to rural areas. But there may be a problem of finding entrepreneurs who will be willing to invest, especially since both specialized technologies and skilled technical workers for developing small and medium sized enterprises for raw materials processing in rural areas are likely to be inadequate. The second option involves bringing herders closer both to the market and production. This will reduce the risks associated with livestock breeding production, improve livestock productivity and increase incomes of herders.

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Part two. Human development in Mongolia However, herders will need to acquire new knowledge, methods and skills for intensive livestock breeding. Both the options will require coordinating herders’ work with economic and production needs, upgrading herders’ knowledge of market and development of their skills.

Strategies for reducing herder’s vulnerability Natural disasters including drought and dzud have added to the vulnerability of herders in many ways. In 1999-2000 and 2000-2001, Mongolia was hit by consecutive dzud disasters69. According to the National Statistical Office, close to 12 million livestock were lost during the dzud disaster of 1999-2001. 20 aimags were adversely affected by the 2000-2001 dzud. According to a study by the Mongolian Red Cross Society, by 2000, almost 450,000 people living in rural areas had suffered from dzud disasters. Over 15,000 herders lost all their animals during the 1999-2000 dzud. This natural disaster severely affected herders’ livelihoods. For example, the drought and dzud disasters of 19982002 pushed almost 36.7 per cent or 24,900 residents of the Gobi-Altai aimag to below the minimum subsistence level. Some 1,100 households lost all of their herd stock. And 59 per cent of people surveyed in Uvurkhangai aimag were categorized as very poor after the loss of their animals in dzuds. The government of Mongolia and UNDP three years project on protection of herders from natural disasters has been implemented. In a survey of 652 herders and 66 local administrative officials, 54 per cent of respondents answered that the living standards of herders had deteriorated since 1998. 92 per cent attributed the decline to natural disasters.70 The survey revealed that 92 per cent of respondents lost some of their herds, 53 per cent lost more than half of their herds and 17 per cent lost all of their animals due to natural disasters that occurred over the last 5 years. Privatization of the livestock breeding and other sectors has contributed to this significant loss of livestock. Privatization of livestock offered an opportunity for people to increase their incomes, while privatization of factories and enterprises was accompanied by downsizing and unemployment. According to the Survey on Impact of Privatization on Poverty and Inequality, 50.8 per cent of the surveyed enterprises responded that they have undertaken downsizing after privatization. Moreover, 25.6 per cent of the enterprises have closed down after privatization. This situation caused urban residents who lost their jobs to migrate to rural areas in an attempt to raise their living standards. This also meant an influx of new and inexperienced herders. The Mongolian Human Development Report 2003 indicates that the entry of a large number of inexperienced herders intensified the impact of dzuds of 1999-2002. It is common for herders who lose their animals, the main source of their livelihood, to move to urban areas and settlements. According to another study, 42 per cent of 109 households who migrated to Bulgan aimag in 2002 were poor. 80 per cent of extremely poor people covered by the survey were jobless. To a question “Why are 69. S. Boldbaatar, Mongolian dzuds: how herders are reducing their risks, Rural Subsistence Habitats, UN. 70. R. Oyun, Summary of Mongolian experience in risk assessment among herders, “Know Risk”, UN.

160

Chapter 7. Livelihoods, vulnerability, security and human development of Mongolian people you jobless?” most of them responded that they could not find jobs or lacked professional training. Several studies undertaken by the Poverty Research Group, the Ministry of Finance, since 2000 address the issue of protecting herders from natural disasters. The Parliament has approved a Law on Disaster Protection which provides the basis for the establishment of the National Center for Protection against Natural Disasters. MIDAS (the Mongolian Information Technology Development Association) has developed a natural disasters data management system and Agrosoft Co., Ltd has established a website on risk reduction (www.agronet.mn).71 In 2002, the Government of Mongolia and UNDP launched a 3-year project to protect herders from natural disasters and establish an integrated information network. In addition, NOAA satellite data and images are processed regularly in the national center. Also, Incomnet Co., Ltd and Khan Bank have been involved actively in information transmission between Ulaanbaatar and aimags. In order to help recover part of the losses caused by natural disasters, drought and dzud, herders have been provided with livestock under credit and aid from donors and international institutions. For example, credit from the World Bank has been used for making available 103,000 herds of livestock to 1,728 households in 5 aimags, and using credit from the International Fund for Agricultural Development (IFAD), 767,000 herds were distributed to 1,276 households that suffered from drought and dzud in two aimags.72

World markets and international trade related vulnerabilities and policies for its reduction In practice, several indices have been used to assess the vulnerability of countries. For instance, the South Pacific Applied Geosciences Commission (SOPAC) uses the Environmental Vulnerability Index; the Caribbean Development Bank uses the Economic Vulnerability Index; and the Commonwealth Secretariat (United Kingdom) uses the Composite Vulnerability Index for the diagnosis of vulnerabilities of countries. In 1998 and 2000, the Commonwealth Secretariat undertook an exercise of constructing Composite Vulnerability Indices for 112 developing countries by using econometric methods to estimate the impact of both economic and natural factors on the growth of GDP or domestic production (output volatility). A coefficient was developed to capture economic vulnerability and rank countries. Variables constituting the Index include susceptibility to natural disasters, export dependency (ratio) and export diversification index (EDI) developed by the United Nations Commission for Trade and Development (UNCTAD) as these are found to be statistically significant for economic growth. CVI = β0 + β1Vuln1 + β2 Exdep1 + β3 EDIi +Ei where: Vuln = vulnerability to natural disasters

(1)

71. S. Boldbaatar, Mongolian dzuds: how herders are reducing their risks, Rural Subsistence Habitats, UN. 72. Ministry of Finance and Economy ”Economic Growth Support and Poverty Reduction Strategy Paper”

161

Part two. Human development in Mongolia Exdep = export dependence EDI = export diversification index of the UNCTAD (defined as the absolute deviation of the country from the world foreign trade structure. The calculation includes those products that are greater than US$100.000 of the country’s total exports or imports based on statistical information at the three-digit figure). Statistical analysis of over 100 developing countries yields as coefficients for β0, β1, β2 and β3 values of 1.412, 0.0096, 0.0322 and 3.3442 respectively. Based on these figures, the Economic Vulnerability Index of a given country is estimated as follows: CVI = 1.4142 + 0.0096 Vuln + 0.0322 Exdep + 3.3442 EDI

2)

For 2004 Mongolia’s vulnerability to natural disasters was 113.9 and the export dependency ratio was 61.97.73 , According to UNCTAD, the export diversification index was 0.88. Using these values, the Composite Vulnerability Index for Mongolia has been calculated to be 7.466.* Mongolia ranked 20th out of 112 developing countries for which the vulnerability index was calculated by the Commonwealth Secretariat. Further analysis reveals that in order to reduce its economic vulnerability, Mongolia needs to diversify its exports, increase the number of external energy resources, reduce the share of raw materials in the export and promote development of processing industries.

73. UNDP, 2005. “Economic and Ecological Vulnerabilities and Human Security in Mongolia, Ulaanbaatar; P.Ochirbat, 2000. , in “Human security in the globalised world” (2000, Ulaanbaatar); MoFE, 2003. Economic Growth Support for Poverty Reduction Strategy; R. Oyun, Summary of Mongolian experience in risk assessment among herders, “Know Risk”, UN.

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Chapter 7. Livelihoods, vulnerability, security and human development of Mongolian people

Bibliography and additional reading materials S.Boldbaatar. “Mongolian Dzuds: How Herders Are Reducing Their Risks”. Rural Subsistence Habitats, United Nations. De Navas-Walt, Carmen, Bernadette D. Proctor, and Robert J. Mills, 2004. “Income, Poverty and Health Insurance Coverage in the United States 2003”. United States Census Bureau, Current Population Reports, Washington, D.C. Francois Bourguignon, Chor-ching Goh and Dae ll Kim. 2004. “Estimating Individual Vulnerability to Poverty with Pseudo-panel Data”. Policy Research Working Paper 3375, World Bank. Keith Griffin. 2003. “Poverty Reduction Strategies in Mongolia”. United Nations Development Programme. NSO (National Statistical Office), UNDP (United Nations Development Programme). 1999. “Living Standard Measurement Survey 1998”. Ulaanbaatar, Mongolia. NSO, World Bank. 1995. “Population Living Standards Measurement Survey”. Ulaanbaatar, Mongolia. -. 2004. “Living Standards Measurement Survey 2002”. Ulaanbaatar, Mongolia. -. 2001. “Participatory Living Standards Assessment 2000”. Ulaanbaatar, Mongolia. Pepe Escobar. 2005. “The Great Wall of Shopping”. Asia Times Online, Jan 14. School of Economic Studies, National University of Mongolia. 2004. “Evaluation of Vulnerability to Poverty of Mongolian Households”. Survey report, Ulaanbaatar, Mongolia.

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Part two. Human development in Mongolia

ANNEX 1.

Economic status of developing countries

Rank

Composite vulnerability Index

Rank

Vanuatu

161

2500

53

3.61

90

13.295

1

Antigua and Barbuda

65

5369

86

13.38

3

11.246

2

Tonga

93

3740

73

13.18

4

10.439

3

Bahamas

268

16180

110

7.37

25

10.433

4

Botswana

1401

5220

85

10.21

12

10.158

5

Swaziland

809

2940

58

11.17

10

9.633

6

Gambia

1042

1190

27

7.67

22

9.331

7

Fiji

758

5530

89

6.84

32

8.888

8

Maldives

236

2200

47

2.97

97

8.654

9

Singapore

2821

19350

111

3.35

94

8.651

10

Solomon Islands

354

2266

49

11.21

9

8.398

11

Dominica

71

3810

76

6.12

41

8.122

12

Rank

Output volatility

Real per capita GDP, PPP US$

Population, thousand people

Table 1. The composite vulnerability indices for 112 developing countries

Guyana

816

2140

45

11.87

5

7.953

13

Djibouti

557

775

14

11.60

6

7.932

14

Grenada

92

3118

61

6.89

31

7.848

15

Bahrain

535

15500

109

5.22

61

7.748

16

Sao Tome

127

600

4

4.23

79

7.690

17

Jamaica

2411

3180

63

3.43

91

7.484

18

St Lucia

139

3795

74

6.59

35

7.449

19

Mongolia

2407

1740

39

4.90

66

7.446

20

Samoa

167

3000

59

6.92

30

7.371

21

Equatorial Guinea

379

1800

39

11.26

8

7.029

22

Malta

361

11570

106

2.36

107

6.857

23

Belize

204

4610

82

9.63

15

6.652

24

St Vincent

11

3552

69

6.08

43

6.563

25

Libya

5048

6125

94

6.05

46

6.536

26

Namibia

1461

3710

72

10.13

13

6.527

27

Mauritius

1091

12510

107

6.72

34

6.510

28

164

Chapter 7. Livelihoods, vulnerability, security and human development of Mongolian people Seychelles

72

4960

84

5.90

51

6.375

29

St Kitts

42

9340

103

5.97

50

6.362

30

Papua New Guinea

4110

2530

55

5.03

65

6.308

31

Angola

10276

674

9

2.91

100

6.282

32

Gabon

1248

3861

77

7.64

23

6.229

33

Mauritania

2161

1610

35

4.27

77

6.068

34

Lesotho

1943

980

20

4.44

72

5.985

35

Congo

2443

2750

57

8.84

17

5.961

36

Malaysia

19247

8360

99

5.29

60

5.903

37

Jordan

4936

4380

80

7.03

26

5.743

38

Barbados

260

10570

105

4.34

74

5.670

39

Cote d’Ivoire

13316

1620

36

5.36

59

5.626

40

Oman

1992

10420

104

7.77

21

5.582

41

Zambia

8936

1110

25

4.77

67

5.549

42

Cyprus

726

14060

108

2.66

102

5.474

43

Comoros

607

1130

26

2.39

106

5.425

44

Nigeria

105264

1540

33

6.48

37

5.416

45

Bhutan

1596

790

16

4.30

76

5.390

46

Honduras

5335

2100

43

2.43

105

5.373

47

Paraguay

4701

3340

67

8.32

19

5.346

48

Guinea

6306

1800

39

4.04

82

5.282

49

Trinidad and Tobago

1278

8670

101

8.75

18

5.264

50

Yemen

13196

1600

34

6.07

44

5.259

51

Togo

3885

1020

22

6.07

44

5.248

52

Malawi

10520

710

12

4.65

68

5.200

53

Algeria

26722

5570

90

2.32

108

5.198

54

Congo, Dem. Rep.

41231

300

1

6.39

39

5.186

55

Nepal

20812

1000

21

4.41

73

5.173

56

Chad

6010

690

10

13.49

2

5.120

57

Costa Rica

3270

5680

91

4.21

80

5.090

58

Mali

10135

530

3

4.57

70

5.083

59

Kiribati

78

1475

32

16.60

1

5.082

60

Sri Lanka

17897

3030

60

3.30

95

5.076

61

Tunisia

8570

4950

83

2.52

104

5.060

62

Sierra Leone

4297

860

18

6.93

29

5.060

62

Benin

5086

1650

37

5.81

53

5.060

62

Ecuador

10980

4400

81

2.92

99

5.050

65

Ghana

16446

2000

42

5.52

55

5.044

66

Tanzania

28019

630

5

6.01

48

5.035

67

Senegal

7902

1710

38

2.94

98

5.026

68

165

Part two. Human development in Mongolia Chile

13822

8900

102

6.58

36

5.016

69

Panama

2538

5890

93

7.00

28

4.995

70

Iran

64169

5380

87

10.11

14

4.976

71

Zimbabwe

10739

2100

43

6.12

41

4.969

72

Niger

8550

790

16

5.10

62

4.957

73

Cape Verde

370

1820

41

9.08

16

4.956

74

Cameroon

12522

2220

48

7.01

27

4.952

75

Kenya

26391

1400

31

3.77

87

4.935

76

Burundi

6026

670

8

3.96

83

4.929

77

Burkina Faso

9772

780

15

3.73

89

4.923

78

Suriname

414

3670

70

7.56

24

4.921

79

Nicaragua

4114

2280

50

5.51

57

4.920

80

Mozambique

15102

640

6

5.50

58

4.907

81

Venezuela

20913

8360

99

5.76

54

4.887

82

Uganda

19940

910

19

3.78

85

4.876

83

Dominican Rep.

7543

3690

71

5.52

55

4.858

84

Syria

13696

4196

78

6.83

33

4.830

85

Central African Rep.

3156

1050

23

5.10

62

4.802

86

Rwanda

7554

740

13

11.42

7

4.797

87

Pakistan

132941

2160

46

2.07

110

4.795

88

Ethiopia

51859 420

2

6.02

47

4.786

89

Madagascar

13854 700

11

3.37

93

4.785

90

Morocco

25945 3270

64

4.52

71

4.772

91

Bangladesh

115203

1290

29

4.58

69

4.744

92

Egypt

60319

3800

75

2.90

101

4.723

93

Bolivia

7063

2510

54

2.61

103

4.691

94

Sudan

26641

1350

30

5.98

49

4.655

95

Philippines

64800

2590

56

4.31

75

4.595

96

Haiti

6893

1050

23

5.86

52

4.474

97

Peru

22886

3320

66

8.32

19

4.461

98

El Salvador

5517

2360

52

4.18

81

4.434

99

Guatemala

10029

3400

68

3.18

96

4.431

100

Myanmar

44596

650

7

10.48

11

4.392

101

Uruguay

3149

6550

96

6.48

37

4.378

102

3270

64

3.76

88

4.301

103

Thailand

57585 6350

95

3.78

85

4.264

104

South Africa

39659 3127

62

3.38

92

4.222

105

Colombia

33985 5790

92

1.59

111

4.078

106

Turkey

59597 4210

79

3.88

84

4.076

107

Indonesia

166

Chapter 7. Livelihoods, vulnerability, security and human development of Mongolian people India

901459

1240

28

2.12

109

3.782

108

China

1196360

2330

51

4.84

66

3.744

109

Argentina

33780

8350

98

6.19

40

3.539

110

Brazil

156486

5500

88

4.25

78

3.433

111

Mexico

90027 7010

97

5.05

64

3.194

112

ANNEX 2.

MATHEMATICAL AND STATISTICAL ESTIMATION74

Vulnerability of the household is defined by the function below:75 Vit = pr (1ncit+1<1nc │Xit,Xit+1,βt+1, ơ 2Eit+1) where the indices i and t refer to household and year respectively, Xit represents household characteristics, Xit + 1 is expected household characteristics, βt+1 is a coefficient of future income (for example, it may include future income growth), ơ 2Eit+1 is an indicator of the impact of a macro economic shock on the household. Deriving the vulnerability to poverty at the household level (Vit ) gives, based on information available, the household’s future consumption ( 1ncit+1) and the probability of falling below the poverty line (1nc). In the empirical study of vulnerability to poverty, it may be suitable to use (panel) dynamic household data that are not available not only for Mongolia but also for other countries. As proposed by Francois Bourguignon and Chor-ching Goh (2004), under the assumption that household earning dynamics obey some basic properties and follow a simple stochastic process, the main parameters of this process can be recovered from (repeated cross-sectional]) data on households. Knowledge of these parameters then permits to estimate vulnerability to poverty.

Estimation of consumption function The research team of the School of Economic Studies of the National University of Mongolia made an assessment of vulnerability to poverty of households based on their collected data76. Assuming that household consumption changes follow a logarithm process as indicated below, many indicators were used in the calculation of consumption, including income, age and gender of the household head, dependency ratio, household size, educational attainment, residence, infrastructure supply and housing conditions.

74. Additional information contained in this annex is not necessarily to be studied at courses other than economic and non-business studies. 75. Francois Bourguignon and Chor-ching Goh, Estimating individual vulnerability to poverty with pseudo-panel data, World Bank Policy Research Working Paper 3375, August 2004.32 76. In this section, study report on “Evaluation of vulnerability to poverty of Mongolian households’, prepared by researchers of the Department of Economic Theory, School of Economic Studies, National University of Mongolia, was used.

167

Part two. Human development in Mongolia lnac = a1+a21ny+a3lny+a4lnr+a5lnf+a6com+a7sex+a8mar+a9d1+a d +a11d3+a12w1+a13w2+a14res1+a15res2+a16el+a17e1+a18e2+a19dd1+ 10 2 a20dd2+a21dd3+a22dd4+a23dd5 (1) Here, 1ny is an average annual income of the household; 1n a the age of the household head; 1n r the dependency ratio; 1nf the number of household members; com a dummy variable of households with telephone communications; sex the sex of the household head mar the marital status of the household head; if the household head has attained primary education; d2 if the household head has attained secondary education d3 if the household head has attained higher education; w1 household with water supply from the central system; w2 supplied by deep water well; res1 residing in apartment; res2 residing in gers; el electricity supply; e1 if the household head is employed in the public sector; e2 if the household head is employed in the private sector; dd1 Arkhangai aimag; dd2 Dornogovi aimag; dd3 Khentii aimag; dd4 Bayanzurkh district; dd5 Songino-Khairkhan district.

Table 2. Weighted per capita consumption logarithm function Coefficient

t - statistics

Fixed

3.08961

2.28527

Income (log)

0.7986

57.86477

Age of household head

(log)

-0.1605

-4.953993

Per cent of dependents in household

(log)

-0.074

-2.687458

Number of household members

(log)

-0.756

-26.93236

Communication

0.0745

2.247470

Education of household head

0.119

2.879742

0.127

2.911504

Secondary (dummy) Education of household head: Higher (dummy) Housing : ger (dummy)

0.191

8.257932

Electricity supply (dummy)

-0.056

-4.651414

public sector (dummy)

-0.149

-7.744100

Local area: Arkhangai (dummy)

0.766

34.24154

Local area: Dornogobi (dummy)

0.404

6.307935

Local area: Songino-Khairkhan district (dummy)

0.173

3.171747

Employment of household head:

The findings from the assessment show that the household’s income has a major impact on the household’s per-capita consumption. As estimated, sensitivity of per capita consumption relying on the household’s income is 0.8 per cent.

168

Chapter 7. Livelihoods, vulnerability, security and human development of Mongolian people The household income is influenced negatively by some indicators such as household size and number of dependants, whereas it is positively associated with education. The contribution of education increases with the (additional) level of educational attainment. For instance, a higher education has a larger impact on the consumption.

Estimation of vulnerability The vulnerability to poverty of a household using the estimated consumption function will equal: Vit = Pr (ci1t+1≤1c)=Φ(1nc β Xh√ơ) Where Φ is the standard normal density function; β Xh the mathematical mean consumption logarithm; and ơ the standard deviation. If the mean vulnerability level is 0.5, then 63 per cent of the total households face the risk of poverty, illustrating a higher level of vulnerability.

169

CHAPTER 8. GENDER EQUALITY IN HUMAN DEVELOPMENT IN MONGOLIA

Sub sections 8.1 The contributions of women 8.2 Gender issues 8.3 Policy issues Bibliography and additional reading materials This chapter focuses on women’s contribution to the society and gender inequality in Mongolia.

8.1. THE CONTRIBUTIONS OF WOMEN The Human Development Report 1995 argued that development, if not engendered, is endangered. It pointed out that human development is a process of enlarging the choices for all people, not just for one group in society. If women cannot benefit from development and progress, it is an unfair and discriminatory process. Limiting opportunities of women in social and economic life hinders society’s overall progress. Women’s capacities Patriarchy and an unjust system of serfdom governed Mongolia up to the beginning of the 20th century. Society then followed old traditions and backward customs and looked down contemptuously upon women as “they have long hair and no brain”. Women by and large led extremely constrained lives. They lived since the Hunnu era as “men’s slaves, domestic servants” in difficult conditions made even more difficult by the nomadic lifestyle and traditional division of labour. Things changed after the 1921 revolution. The government gave special attention to providing equal rights to men and women. Implementing multidimensional policies to increase the role of women in development changed the status of women in every aspect of life. Women’s status improved, their capabilities expanded and opportunities for human development widened. Mongolian women became full citizens of their country along with men, their role in political, economic and social life increased, their level of education and knowledge rose and their average life expectancy went up. As discussed earlier, according to the Human Development Report 2003, in 2002, Mongolia ranked 94th out of 144 countries in the world on the Gender Development Index. Since the quantitative value of the GDI that measures inequality of men and women is the same as the quantitative value of HDI, i.e. 0.644, no substantial disparities are observed between men and women along the major dimensions of human development captured by the Human Development Index.

170

Chapter 8. Gender equality in human development in Mongolia Today, women who constitute 50.4 per cent of Mongolia’s population live on average to the age of 67.77 years – some 6.13 years longer than men77. Nearly 75 per cent of women aged 8-22 years study in school, and women earn income equal to two-thirds of the income earned by men78. Their median age at marriage (computed for women aged 25-49) is 21.6 years79 and have, on average, two children80. Education is the most important factor in promoting women’s participation in the development process, in obtaining knowledge and skills, in acquiring self-confidence, and in feeling empowered. Women’s education levels have been increasing steadily throughout the new history of Mongolia. The state launched a massive campaign to promote literacy and education in the 1930s when women accounted for only 40 per cent of total enrolment in primary schools. This proportion has increased gradually since then. Women today represent 54 out of every 100 pupils enrolled at general education schools, 53 out of every 100 students of vocational training institutions, 68 out of every 100 students pursuing a bachelor’s degree and 62 out of every 100 students pursuing master’s and doctor’s degrees81. According to the Population and Housing Census 2000, the proportion of women is higher compared than men among levels beyond secondary schooling as can be seen from Figure 8.1.

40 35

Percent

Figure 8.1. Percentage of the population with educational level higher than complete secondary among population aged 15 and over, by age group and sex Male Female

30 25 20 15 10 5

Age group

0 15-19

20-24

25-29

30-34

35-39

40-44

45-49

50-54

55-59

60-64

65- 69-

70+

Source: NSO, 2002. Gender in Mongolia, Analysis based on the 2000 Population and Housing Census, Ulaanbaatar

According to the Population and Housing Census, women’s literacy rate has risen continuously, and the gap between male and female literacy rates has decreased steadily. According to the 1963 census, 64.8 per cent of women were literate. This proportion grew to 75.3 per cent in 1969 and to 90.2 per cent in 1979 and to 95.7 per cent in 1989. The male literacy rate which was 80.5 per cent in 1963 grew to 88.9 per cent in 1969 and to 96.5 per cent in 1979 and 98.4 per cent in 198982. According to the latest Population and Housing Census 2000, Mongolia’s female 77. NSO, 2005. “Mongolian statistical yearbook 2004” 78. Government of Mongolia, UNDP, 2003. Human development report 2003. 79. NSO and UNFPA, 2004. Reproductive Health Survey 2003 – National Report, Ulaanbaatar, National Statistical Office, p. 59. 80. NSO and UNFPA, 2004. Reproductive Health Survey 2003 – National Report, Ulaanbaatar, National Statistical Office. 81. Sustainable development and gender center, 2002. Gender Data. Ulaanbaatar 82. NSO, 1997. Literacy rate of Mongolian population, Ulaanbaatar.

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Part two. Human development in Mongolia literacy rate (97.5 per cent) is now higher than what it was before transition, whereas among men, the rate has decreased marginally to 97.6 per cent83. As a result, over the past 40 years, the gap between the male and female literacy rates has fallen from 15.7 per cent to a negligible 0.1 per cent.

Example 8.1 Reasons and consequences of gender inequality in the education sector of Mongolia REASON

CONSEQUENCE

More investment in girls’ education among families

Less access to information Unequal access to education

Imbalance in sex ratio among teachers

CHALLENGING ISSUES

Poverty, deterioration in living standards

Imbalance in sex ratio in education

Migration towards city

Child labour

Inability to be covered by livelihoods improvement programs

High school drop-out rate among boys

Increased family divorces, alcohol use, crimes

Less opportunity to find jobs

Less self-confidence Livestock privatization

Less family, social and political participation

Sharp economic decline in the beginning of the transition and livestock privatization resulted in school drop-outs among boys who were needed to help their families with cattle rearing and income generation. This has contributed in part to the increase in female literacy rates. The relatively higher educational attainment by women than men in recent years can be linked to the fact that women have paid even more attention to obtaining education than previously. On the other hand, during the difficult transition period when poverty and inequality reached high levels, it became even more important for young boys and men to assume responsibility for the livelihood of their households. Although all citizens have the right to free basic education, all specialized educational institutions have been demanding tuition fees after the transition. Direct expenses related to education have increased. Limited budgets of households have been spent predominantly for education of girls. There is a rather traditional conception among parents that “higher education provides a guarantee for the future of their daughters”, assuming that boys may “try their luck in the livestock sector or any other business.” This has had a negative impact on the education of boys who are drawn into work in the countryside more frequently than girls and young women. 83. NSO, 2002. thematic survey on “Gender disparities in Mongolia” based on Population and housing census 2000, Ulaanbaatar.

172

Chapter 8. Gender equality in human development in Mongolia Many changes both positive and negative – took place in the lives of women during the transition period. Because of the economic decline of the 1990s, privatization and the policy of austerity and budget cuts implemented in the public sector, unemployment, poverty and inequality increased while standards of living declined dramatically affecting a large majority of the population including women. Along with livestock privatization and transfer of livestock breeding production to the household, preschool facilities and service centers, that positively impacted the participation of women in social life, closed down. This increased the load of unpaid domestic labour of women. Numerous women became unemployed or employed in inappropriate environments, under unsafe and unhygienic conditions, earned low salaries and worked during long hours. Their rights were breached. Women’s participation in economic and political life There are substantial disparities between men and women in levels and aspects of participation in economic, social, cultural and political life despite the fact that Mongolian women fare better than men on some of the commonly used indicators of human development. The socialist era witnessed a significant growth in the participation of women in social life. Employment and wages grew; and an equal number of women as men worked earning almost equivalent wages. The situation changed with the transition and, as indicated earlier, conditions of many women regressed as they were pushed out of the labour market. With the State abandoning the earlier system of social security, many were left unprotected and excluded from the reform processes underway. People need to be provided with opportunities to increase their productivity, generate income and acquire paid jobs. From a human rights perspective, both women and men must enjoy equal opportunities. This was achieved during the socialist era when women’s participation in economic development increased, and so did their sense of independence and empowerment. However, even during this era, where women enjoyed relatively equal rights as men, women had to carry a double burden of “valued paid work” and “unpaid work” at home. The economic decline and structural reforms during the transition period induced major changes in the structure of employment. It intensified disparities in participation between men and women. For instance, women who account for over half of total population today account for 48 per cent of the total workforce and for 55.2 per cent of the registered unemployed. Since women have limited opportunities for employment, for work in more favourable conditions84, for better paid jobs, for promotion, they are often left with no choice but to work in low-paid, low-skilled positions for long hours in the informal sector. It can be argued that social welfare issues of people engaged in the informal sector have been left out. While the occupations that are male-dominated are often in sectors with high wages and a relatively rapid growth rate such as mining, exploration, energy and infrastructure facilities, women’s employment is highly concentrated in textile industry, 84. MOECS, MPDA, 2002. Survey on gender of professional staff, Ulaanbaatar.

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Part two. Human development in Mongolia retail and wholesale trade, public services sectors with low profit and low wages. The formation and development of the private sector is an integral part of the privatization process. The private sector has grown since the transition and today accounts for 75 per cent of Mongolia’s GDP. The number of women engaged in the private sector has increased sharply. However, men have benefited more than women from the privatization process. Men continued to occupy managerial positions in privatized enterprises because they had greater access to the ownership and disposal of such assets. In the private sector, women are mostly engaged in retail trade, catering and other service sectors, where competition is high and opportunities for accessing loans and expanding business are limited. This partly accounts for low wages. Women face several disadvantages in the labour market. Employers tend to refrain from hiring female workers because they need to be offered more favourable social welfare conditions than men. Women are more likely to be affected by downsizing. They tend to work in insecure or precarious work conditions that often fail to conform to occupational hygienic regulations and safety requirements. In many cases, employers tend to explicitly discriminate against women while hiring them on grounds of their age and physical appearance. Several indicators can be used to measure women’s participation in political life. The list can include, for example, the share of women in legislative, implementation and judicial institutions, at decision making level in rural areas, participation of women in political parties and NGOs and so on. In 2002, Mongolia recorded a value of 0.429 for the Gender Empowerment Measure (GEM) – an index that measures gender equality of men and women in opportunities in economic and political areas. Mongolia ranked 62nd out of 78 countries for which the GEM was computed. Mongolia was placed ahead of countries with higher HDI such as Ukraine, Saudi Arabia, Fiji, Turkey, Paraguay, Sri Lanka, Georgia, Iran and Honduras, and behind countries with lower HDI such as Namibia, Botswana and Swaziland. The low level of GEM in Mongolia demonstrates low participation of women in policy and decision making and their limited authority. Table 8.1. Candidates for Parliament and elected members, by year Year

Candidates for Parliament election Total

Women

Elected MPs Total

Women

1992

298

23

76

3

1996

302

28

76

7

2000

603

66

76

9

2004

262

36

76

5

Source: General Election Committee of Mongolia, 2004

In countries that rank in the top five on the GDI, women account for 26-35 per cent of top managerial positions.85 The corresponding proportion for Mongolia is 34.5 per cent 86. However, in these countries women occupy 23.6-45.3 per cent of the seats in Parliament87 , whereas in Mongolia it is only 6.6 per cent.88 85. Government of Mongolia, UNDP. 2003. Human development report 2003. 86. NSO calculation 87. Government of Mongolia, UNDP. 2003. Human development report 2003. 88. NSO calculation.

174

Chapter 8. Gender equality in human development in Mongolia Table 8.2 Proportion of women at decision-making positions, by election year Positions

1997

President

2001

2004

Total

Women

Total

Women

Total

Women

1

0

1

0

1

0

Parliament Speaker

1

0

1

0

1

0

Deputy Speaker of Parliament

1

0

1

0

1

0

Prime Minister

1

0

1

0

1

0

Parliament members

76

8

76

9

76

5

Minister

9

1

11

0

13

1

Governors of all levels*

373

9

338

11

338

Ambassadors

28

0

30

1

30

1

Civil Representative Khurals of all levels*

22

0

22

0

22

1

Note: *aimag, city, soum, district Source: Information, Research and Reference Unit of the Parliament, 2005

Representation of women in Mongolia’s Parliament had been increasing between 1992 and 2000, but it almost halved in 2004. In addition, the target set internationally of crossing 30 per cent threshold as a minimum share of positions held by women in legislative bodies has not been achieved. At the same time, the share of women in Parliament is very low and fluctuating. Women have always been under-represented in senior positions of executive governance. In the Coalition Government formed after the 2004 Election the situation remained unchanged. A small number of women occupying senior-level positions associated with unequal power sharing may lead to the condition where by any challenging social issue would be decided upon without proper consensus or genderorientation. It could also lead to a situation where resolution of common women’s concerns may suffer from policy neglect. The situation is the same in rural areas. Not a single Box 8.1 Women Executives aimag or city governorship is held by a woman at local levels. Although statistical data show The Coalition government women’s concentration in the executive branch, formed after the 2004 election most of them work in junior and middle positions is conducting activities through with little or no authority for decision-making. Although representation of women is generally high in judicial institutions, men also occupy most of high-ranking positions at courts, prosecutor’s office and police institutions. Barely 12 per cent of judges of the Supreme Court are women although women represent 42 per cent of chief judges and 63 per cent of judges89. The sex ratio of students studying to become legislators shows a positive change and it could lead to an increase in the share of female judges in the future.

13 ministries with 55 departments and 19 divisions. Only one member of the government, one of state secretaries of ministries, 10 of heads of departments, 6 of deputy heads of departments, 6 of division heads are women. Source: Government of Mongolia, Cabinet Secretariat, 2004.

89. Research Center of Supreme Court, 2001

175

Part two. Human development in Mongolia In highly developed countries with a strong tradition of political democracy, charters of political parties contain provisions for ensuring gender balance. Mongolian political parties have also included such provisions in their charters as a step to increase the political participation of women and to enhance women’s influence on political life, and at the policy and decision-making levels. Recently established civil society organizations including interest groups and nongovernmental organizations that are emerging as a major social and political force exhibit a considerably higher level of women’s participation compared with men. The increasing number of NGOs is beginning to expand and play an important role in deepening democracy, increasing political participation of women, preparing female politicians, building domestic and foreign relations, ensuring openness and improving access to information. Before 1990, there was only one institution concerned with women’s issues in Mongolia. By 2003, the number of women’s organizations went up to 76. They have come together under the banner of the Mongolian Women’s NGO Coalition to ensure women’s inputs into development policy formulation. Despite the fact that no laws exist in Mongolia that prohibit equal participation of women in political life, measures to ensure equal participation of women at the policy and decision making levels have, in practice, yielded unsatisfactory results. As a result, women who constitute over half the total population continue to play a minority role in public policy and public decision making.

Valuation of paid and unpaid work of women Differentials in wages paid to women and men as well as the ratio of paid to unpaid labour are important indicators of gender equality in economic life. According to the International Labour Organization, compared with men, the average wage coefficient for women during 1972-84 fluctuated between 75 and 92 across 14 developing countries. A number of factors influence wage differentials. Women in many countries, relative to men, are engaged in low-skilled activities with low productivity (such as light industry, trade and services). Moreover, women have relatively low educational and specialization level and short working period since they often are required to take long leave on account of marriage, child-bearing or caring for sick people and elderly. Mongolian women are responsible for their families, raising their children, caring for their husbands and elderly family members, along with implementing their reproductive role. Although significant progress was made in Mongolia during the socialist era in ensuring equal rights for men and women in social labour, women carry a triple load bearing a reproductive role as mothers, being wives in the families and participating in development as citizen. Men are predominantly preoccupied with the latter role. The load of unpaid labour of Mongolian women is heavy. Many of kindergartens and nurseries have closed down90, or the fees for their services have gone up. 90. While in 1990 there were 1350 pre-school organizations, in 1996 only 705 remained, i.e. almost half closed down.

176

Chapter 8. Gender equality in human development in Mongolia The State has reduced its contribution towards childcare and living expenses have increased. Opportunities for women to work and upgrade their training and professional skills have become limited, and their workload at home as well as at work has grown. Although the contribution of women to development is high, they are not valued sufficiently. To better understand the issues, detailed analysis of factors such as time spent by women and men on unpaid labour and wage disparities should be examined and addressed. Scheme 8.2 illustrates a breakdown of paid and unpaid work. Some surveys show that men work on average for 45.5 hours over 5 working days a week whereas women work 41.7 hours. But this leaves out the fact that 56 per cent of total working hours of women are unpaid work and that women receive 14.2 per cent lower wages than men. Similarly, a survey conducted among 6,400 participants showed that men spend 1 hour 45 minutes a day on housework, while women spend 2.4 times more on household chores91.

Box 8.2

In observing advantages and disadvantages that men and women have, it is necessary to compare on the one hand the efforts made towards achieving the set goals and the losses, and the outcomes and benefits derived by them on the other hand . Their sum is helpful in understanding better gender inequality in the modern world. Efforts and contribution made by women without asking for appropriate award is something that needs to be studied and explained. Source: Sudhir Anand and Amartya Sen ”Gender inequality in Human Development: Theories and Measurement” Readings in human development, p. 210

Example 8.2 Main activities for action ¯íýëãýýòýé õºäºëìºð Paid work

IncomeIn industrial Õºëñ ¯éëäâýðëýëèéí generating òºëäºã, and õ¿ðýýíäsector: ýðõëýõ paid work îðëîãî áóñàä àæèë: Unpaid work in îëäîã - additional - additional business àæëóóä ™ òóñëàõ àæ business - family business àõóé, - household - family business ™ ãýð á¿ëèéí economy áèçíåñ -household ™ ºðõèéí economy àæ àõóéä ýðõëýõ

¯íýëãýýã¿é Unpaidõºäºëìºð work

Repeated work within Áóñàä: Other: Ãýð á¿ëèéí the frame of ãèø¿¿äèéã àñðàõ, ™ ͺõºí ¿ðæèõ¿éí - responsibilities - responsibilities housework, provision undertaken before õàëàìæëàõ àæèë áà àæèë ¿¿ðýãbefore undertaken of care for family the community äàõèí äàâòàãäàõ ™ õàìò îëîí, îëîí members: the community öèêë á¿õèé ãýð íèéòèéí reproductive function -- reproductive function– - taking care of children, elective work work ininlocal local îðíû áóñàä àæèë: áàéãóóëëàãàä elective administrative - cooking ™ õ¿¿õýä àñðàõ õ¿ëýýñýí ¿¿ðýãò administrative organizaorganizations or tasks ™ õîîë óíä water, àæëóóä - fetching tions or tasks gathering firewood áýëòãýõ ™ íóòãèéí çàõèðãààíû ™ óñ ò¿ëýý áàéãóóëëàãûí

In both urban and rural areas, women spend more time on unpaid work than men (Table 8.3). The majority of rural employment consists of non-wage work; thus both men and women spend large amounts of time on unpaid work. However, growing unemployment and poverty rates have introduced heavier workloads on women, on their time and resources that cannot be compensated.

91. NSO, UNDP Pilot survey on time use, 2000

177

Part two. Human development in Mongolia Table 8.3. Average time spent for SNA* and other activities, by location and sex Activities

Urban

Rural

Men

Women

Men

Women

Total

100,0

100,0

100,0

100,0

Paid work

62,1

45,7

13,4

10,5

Unpaid work

37,9

54,3

86,6

89,5

Of which: extended SNA activities 30,9

49,6

20,6

52,1

Note: * SNA – System of National Accounts Source: NSO, 2000. Time Use Survey, Ulaanbaatar

Rural women spend extensive amounts of time on unpaid housework, as technical appliances that reduce housework load are not commonly used; nor is it easy and affordable to use electrical appliances. In addition climate and poor infrastructure add to a woman’s workload. Rural women today are required to work longer hours in official jobs than before privatization. Although everyone is aware of the enormous load on women herders of unpaid labour, it remains difficult to measure and evaluate this burden due to the lack of appropriate methodologies. It is nevertheless important to estimate and compile the value of voluntary and unpaid household work and care provided by women in the household and extended family levels, as well as at the neighbourhood and administrative levels. It is especially important to provide and ensure equal rights to women for enhancing their social status in society. Although the legal groundwork for equivalent remuneration for equal work has been established, there is still a gender pay difference within professional and occupational categories. Since men occupy high earnings managerial positions within a category, there is a wide gap between male and female mean monthly earnings. At all professional categories except the category of engineering and technical workers, men are paid more than women92. However, work in mining and construction has usually a seasonal character, so their income during the year is not stable. Furthermore, it is important to note that working conditions are hard and the work is extremely hazardous. A high concentration of Mongolian female employees occurs in social services such as education and health, where earnings are on average lower than in other sectors. For instance, the average salary in the education sector, where women account for 75 per cent of total workers, is 5.3 per cent lower than the average national salary; the average salary in health where women comprise 80 per cent of total workers is 14.2 per cent lower than that the national average.93

92. NSO, 2001. Quarterly report of the number, wages and income of employees, 3rd quarter, 2002, Ulaanbaatar. 93. Calculations based on the statistical Yearbook 2004

178

Chapter 8. Gender equality in human development in Mongolia

Box 8.3 Productive work: This work produces goods and services for exchange in the market place (for income). Some analysts, especially those working on questions of equality between men and women, include the production of items for consumption by the household under this definition, even though they never reach the market place, regarding this form of consumption as non-monetary income. Both men and women contribute to family income with various forms of productive work, although men predominate in productive work, especially at the higher echelons of remuneration. Historically, in most societies, changes in economic structure, and hence in the structure of productive activities, have led to changes in the sexual division of labour and gender relations. Reproductive Work: This work involves all tasks associated with supporting and servicing the current and future workforce – those who undertake or will undertake productive work. It includes child-bearing and nurture, but is not limited to these tasks. It has increasingly been referred to as “social reproduction” to indicate the broader scope of the term to include activities beyond those associated with biological reproduction. Socially reproductive activities include childcare, food preparation, care for the sick, socialisation of the young, attention to ritual and cultural activities through which the society’s work ethic is transmitted. It also refers to community sharing and support which is essential to overcome economic stress. That reproductive work is the essential basis of productive work is the principal argument for the economic importance of reproductive work, even though most of it is unpaid, and therefore unrecorded in national accounts. The intersection of peoples’ productive and reproductive responsibilities with policy priorities, which has repercussions throughout all levels of economy and society, is the principal focus of a gender analysis. Source: UNDP,2001. Gender in development Programme “Learning & Information Pack:

Gender Analysis”, p. 43.

Thous.Tg

Figure 8.3. Average monthly salary, by sex 90

80.3

80 70

73.1 64.7

70.3 61.2

59.8

60 50

Male

50 40

Female

30 20 10

2000

2001

2002

Years

Source: NSO, 2003. “Labour force and salary”, Ulaanbaatar

179

Part two. Human development in Mongolia It is unfortunate that despite their relatively higher educational levels, women are not able to take advantage of its benefits as men do. Although women outnumber men at every level of education and their literacy level is higher, unemployment among women in the labour market, employment in low paid jobs, work in unfavorable conditions and environment, long hours of work are widespread. For instance, according to data available (Figure 8.3), female average monthly earning is lower by 10,000 togrogs compared to men. However, this does not imply that women are not qualified for positions with high salaries; rather it is an issue of gender disparity. The consequences of differential wage earnings are many. At a minimum, inequalities in employment between men and women lead to income disparities between them and create conditions for unequal access to social services which should not be left unaddressed. In addition, there is also the issue of society failing to recognize fully and equally the role and contribution of women.

180

Chapter 8. Gender equality in human development in Mongolia

8.2 GENDER ISSUES The rights and social status of women During the socialist era, Mongolia achieved distinct success in ensuring equal status between men and women in social development. However, it was not based on individual rights and freedoms, but was achieved through the use of such methods as administrative measures and egalitarian distribution. As discussed earlier, the economic crisis of the transition period, which brought unemployment and poverty, led to enormous development disparities between rural and urban areas. Disparities between men and women increased. Moreover, privatization of main assets such as housing, herds and land benefited men more than women since property was more often registered under the name of the household head , mostly men. This, in turn, affected women, restricting their capabilities to use such assets as collateral for loans and other business activities, reducing competitiveness and limiting opportunities of women in the informal sector. The privatization process has also sharply increased the load of unpaid labour of female herders in rural areas and reduced women’s opportunities for study, leisure and health protection. In general, economic reforms of the transition period have had a heavier impact on women thus leading to inequalities between men and women in terms of realizing opportunities arising from newly emerging markets. Radical changes have taken place since then on the issue of provision of equal rights to men and women. The legislative system was reformed, the new Constitution was approved in 1992 and other related laws and regulations have been put in place to guarantee equal rights to men and women. As a result of these changes in the legislative system, women enjoy an entitlement to numerous rights such as participation in political activities, freedom of expression and association, ownership of assets, freedom of worship, freedom of external and internal travel. Nevertheless, a study conducted by UNDP in 2000 94 concluded that the status and authority of Mongolian women in social, cultural, political and economic spheres is unequal to that of men; and in most cases, men are in positions of relative advantage compared to women. Since representation of women at the policy and decision-making level is low, distribution of resources is marked by low gender sensitivity; opportunities for women to resolve their pressing problems remain limited. Although some steps towards gender sensitive planning, budgeting and analysis in development policies and programmes are being made, they are at the introductory stage. Discrimination on grounds of sex is legally prohibited. Nevertheless, gender discrimination in employment has emerged 94. UNDP, 2000. Gender Briefing Kit, Facts and Figures in Mongolia, Ulaanbaatar.

181

Part two. Human development in Mongolia in the labour market and work places largely on account of contradictions in legal articles, low representation of women in decision- making levels, and wide disparities in wages and salaries. In order to earn more, many women extend their hours of work. Since many thousands of women of working age with four or greater number of children were forced to take early retirement on “privileged” conditions, they have found it difficult to re-enter the labour market. Advertisements about job vacancies placed in mass media state the age, sex and appearance of preferred candidates which is offensive and violates human rights. Due to low levels of development in rural areas, opportunities for employment are few. Women, especially those who are heads of household with a small number of livestock, are severely handicapped when they encounter shortage of markets as well as limited access to basic social services. The load of unpaid labour for rural women is heavy and poverty among them is widespread. Although women who migrate from rural areas to the city are not income poor, their education lags far behind that of urban residents which reveals that they are still suffering from capability-poverty. Traditions, customs and stereotyping of lifestyles make it difficult for women to enjoy equal rights in society and in the family. Although in general all Mongolians agree that women in livestock breeding sector do the main work and are responsible for the success in this sector, it is still customary to offer recognition (in the form of State orders and medals, titles of an “Owner of a thousand herds”, “Lead herders”) to men as heads of herder households. Recent changes in the lives of Mongolian women are also characterized by a sharp decline in the fertility level, a phenomenon observed in other former socialist countries as well. This is, on the one hand, a response to economic hardships faced by families, and on the other hand, the outcome of a substantial improvement in women’s education and increased labour participation. A falling birth rate associated with improving educational levels among young women has been a precondition for women to lead an independent life. This is reflected partially in the increase in the share of female-headed households from 7.4 per cent in 1993 to 11 per cent in 200495. It is also related to the fact that women have a higher educational level compared to men and co-habitation (instead of marriage) is becoming popular among men and women. Although the fertility rate has declined at the national level, it is still high among women from poor families and with low education levels compared to other social female groups. For these women, giving birth and receiving maternity benefits under social welfare coverage has become the main source for survival. All said and done, however, higher educational and labour participation levels of women have changed the traditional relationships between wives and husbands, providing women with opportunities to have equal rights in the family, to share household work, to be economically independent from their partners and to have more control over fertility decisions. 95. NSO Mongolian Statistical yearbook 2003

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Chapter 8. Gender equality in human development in Mongolia

Disparities within households As mentioned before, during the process of privatization, livestock was distributed to herders and ownership of housing was transferred to residents. As a result, households became owners of assets, giving them an opportunity to set up their own businesses. Household members and relatives started working together to engage in livestock breeding, crop cultivation, small and medium enterprises, and provision of services. This has led to further strengthening of economic ties within and between families. Mongolia is still a traditional patriarchal society where men are seen as heads of family and breadwinners, and women as housekeepers and care-givers. However, some men are unable to fulfill their duties and responsibilities towards their family. They are incapable of taking the heavy stress and pressure put on them by the family and society. They loose their self-confidence, become disappointed and angry, turn to alcohol abuse, or get involved in crime. Participation of other men in social life has also weakened, and their contribution to development process has decreased. However, changes have taken place in terms of rights and responsibilities of family members and division of labour within the household. There is increasing inequality between husbands and wives in terms of income earnings and expenditures, decisionmaking, rest and leisure. Incidence of temporary or casual employment is increasing among women, and this expands the space for independent activities. Household earnings have become more dependent on women. However, although women benefit from this, it is mostly men who exercise control over family resources. The number of female-headed households is increasing across the world, and this trend is observed in Mongolia as well. This can be attributed partly to the growing disregard of marital status as a social criterion (although it was also the case during the socialist regime), increasing divorce rate and high death rates among men. In 1989, the death rate was 124.3 men per 100 women. In 2004, it went up to 152.9 men for 100 women. And the share of men in death rate has increased sharply. Research shows that alcoholism and stress affect greatly men’s mortality. As a result, the number of female-headed families nearly doubled between 1989 and 200496. Contributing to the phenomenon of womenheaded households are also the fact that women are more educated, they get married later, and the opportunities for them to lead a single and independent life have expanded substantially.

Box 8.4 Women’s rights are violated in 3 main directions: - Discrimination in economic, political, and social life; - Inequality in the frame of the family, including decisions on marriage and reproductive issues; - Gender violence, starting with abuse in the family, by the State and to rape during armed conflicts. The strategy on protection of women’s rights should be directed towards providing them with power and authority to control their economic resources, their bodies and their life. Source: Human Development report 2000, p. 117

183

Part two. Human development in Mongolia The incidence of poverty is higher among female-headed compared to male-headed families. This affects the increasing inequality. Close to 43.8 per cent of female-headed households, which account for 11 per cent of total households, live in poverty. This indicator is 7.7 per cent higher compared to the national average and 9 per cent higher than that among male-headed households97. Gender and violence Violence is the most serious violation of human rights. Violence against women increased sharply during the transition period; and the perpetrators of a majority of it are family members and relatives. As a result of domestic violence, sexual harassment and violence in the living environment, many women develop a deep psychological crisis, become passive and even commit suicide. The difficulties of daily living, unemployment and poverty that emerged during the transition period have severely affected the lives of some people. Disappointment and anger born from these conditions have pushed people into crime. At the same time, the living environment has changed; and the influence of old traditions, customs and religion that could prevent and contain violence is on the decline. Alcoholism has become a social phenomenon and the number of crimes committed by the people under the influence of alcohol has increased sharply. Violence against women in Mongolia has soared. Of 6,310 persons who appealed to the National Centre against Violence between 1995 and 2002, 827 women were provided with shelter services because their lives were under threat. Figure 8.4. Victims of Domestic Violence, Ulaanbaatar

Source: National Centre Against Violence, 2000. Report on Crimes within Households in Mongolia, Ulaanbaatar

96. Statistical Yearbooks 1993-2004 97. NSO, World Bank, UNDP, 2004. Main report on household income, expenditure/living standards measurement survey, 2002-2003, Ulaanbaatar

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Chapter 8. Gender equality in human development in Mongolia Domestic violence undermines the social status of women, reduces their interest in work and participation in community work, causes loss of self-confidence and loss of respect of their community, isolates them from friends and co-workers, chokes information flow and severely limits their participation in social life. Domestic violence may affect anybody irrespective of education, social status or occupation. One of patterns of domestic violence is that it is largely invisible and as a result, women and children usually become major victims of physical and emotional abuse. A study on issues of violence in Mongolia showed that every third women and every second child in Mongolia is subject to some kind of violence, and every tenth woman is beaten98. As a result of stresses and dislocations resulting from the transition period associated with unfavorable domestic and family conditions, alcohol abuse and numbers of street children and prostitutes have increased. In particular, women, children and aged people have been disproportionately affected and victimized by family conflicts and violence99. In 1985 the International Labour Organization proclaimed sexual harassment to be a kind of crime as it threatens human security and health, contains features of discrimination, creates unacceptable, intolerable conditions in working environment and contains a form of violence especially against women. The United Nations has developed a Model Law on Domestic Violence, and by 2005, 53 countries of the world have included articles on fighting and preventing domestic violence in their legislation. Roles played by individuals in economic and social life and their attitudes towards gender equality affect sexual harassment in greater extend compared to their biological sex. Pressure of this kind is mostly exerted by officials and male colleagues in positions of authority towards women in the form of psychological, physical, and sexual pressure. This translates into attitudes of disrespect to human rights and disregard for equality between men and women, discrimination against women, and the viewing of women only as sexual objects. Sexual harassment is one form of power inequality at the workplace. Women are the main victims of sexual harassment and this situation is caused by their lack of authority, lack of self-confidence, subordinate positions at work, and attitudes that require problems to be solved discreetly. A survey of 500 respondents conducted in 2002 in Ulaanbaatar revealed that 210 of them knew a victim of sexual harassment. Since men dominate in politics and have more authority and higher positions compared to women, even women politicians have become victims of sexual harassment. In Mongolia there is a widespread tradition to respect “a male” as a head of the family. This gives men or heads of family higher authority compared to other family members. That is why many women often continue to suffer from domestic violence or pressure in order to keep the reputation of their families and spouses intact. The majority of crimes related to causing injuries to women are acts of their husbands who beat them; they also cause emotional or physical damage (Figure 8.4). In 2004, following the lead taken by women’s non-governmental organizations, the 98. UNDP, UNIFEM, 2003. A Gender Lens on the Rural Map of Mongolia: Data for Policy, Ulaanbaatar. 99. MOH, UNFPA, Gender Centre for Sustainable Development, 2003. Gender Equality Concepts, fact sheets

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Part two. Human development in Mongolia Parliament of Mongolia passed the Law on Fighting Domestic Violence. Although a legal framework has been established, mechanisms to monitor the exercise of equal rights of men and women are weak. Moreover, women lack satisfactory legislative knowledge to enjoy their rights and enforce legislation. Clearly, a number of measures are required to be taken to further improve legislation and enforce law in order to develop a strong culture of social ethics against violence and to protect women’s rights. To begin with, it is important to raise public awareness on violence and involve communities in work against violence.

8.3 POLICY ISSUES Ensuring gender equality in macro policy Radical economic, social and political changes which took place in Mongolia in the transition period have had a significant impact on the quality of people’s lives. However, the Government of Mongolia has not been able to pay sufficient attention to mitigate the effects of these changes on gender equality. The country needs to implement gender sensitive policies and programmes directed towards expanding opportunities and choices of all people, women and men. It is necessary to ensure that development policies and programmes do not generate negative impacts on gender equality. On the other hand, efforts must be made to face the problems of gender inequality that have accumulated since the transition period. These would include, for instance, education issues such as higher school drop out rates among boys, gender disparity in Box 8.5 education; healthcare problems such as high mortality rate among men, high maPower relations that become obstacles to healthy and creative lives of women are ternal mortality rate; economic problems prevailing at all levels of society starting such as unemployment among women, with the individual. In order to change poverty, unpaid labour, low wages, penthis situation it is necessary to implesions and low allowances of women; lement policies and programmes directed gal problems such as discrimination of towards improving opportunities of women and violence against them. These women to lead comfortable lives, to own problems can be solved by gender sena property. sitive policies and programmes directed towards meeting the needs of certain Along with this, heavy loads of family segments of men and women. duties of women should be eased, obstacles to their participation in social life should be eliminated and their social activity should be increased with the assistance of education and information programmes. Source: Action Programme approved by the International Conference on Population and Development in Cairo.

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In reality, for many years, development policies were planned and implemented without much attention being paid to gender issues. This was because of the longstanding domination of men in decision-making and lack of sufficient understanding of gender equality. Policy-makers, for instance, are not often aware of

Chapter 8. Gender equality in human development in Mongolia the unequal distribution of income and are not fully conscious of the relative differences in the amount of unpaid labour of men and women within the household. Neither are they aware of ways to reflect these issues in macro policies. As a result, macroeconomic policies, including the restructuring policy, do not adequately take into account unpaid labour of women and its impact on their health. It is therefore necessary to develop a gender sensitive policy. Box 8.6 A gender sensitive budget shows ways of planning polices related to income generation and distribution of its expenditures along with methods of evaluating impact of such policies on men and women, boys and girls. A gender sensitive budget is not one which serves women in greater extent, nor does it mean that men will be approached differently. It does not mean that the state resources will be distributed to men and women equally 50:50. Although this ratio seems equal from a mathematical point of view, from the economic and social relations point of view such distribution is not only unequal but also ineffective. A gender sensitive budget analyzes the budget from the gender perspective, looks how the budget meets the needs of men and women, and advices where resources should be distributed to meet such needs. By efficient allocation of limited resources in the sectors with the highest need, it aims to reduce inefficiency of the budget. Source: MOF, Japanese women’s development Fund, UNDP “Reflecting gender concepts in economic transition policies: Experience of Mongolia and other transitional economies in developing gender sensitive budgets”, UB 2005, p21-22

Results of research and analysis of legal documents in the social care sector show that awareness of and the level of knowledge of policy-makers is low and that it is extremely unsatisfactory especially at aimag and soum levels100. While reflecting gender issues in policies, it is necessary to pay attention to strategic needs such as gender division of labour, realization of rights provided by laws, elimination of violence, provision of equal wages, provision of opportunities for self-control to women rather than only to gender needs related to such issues as clean drinking water, food, health care, income that are faced by men and women in everyday life. Meeting practical needs of people might be important for improving their living conditions, but such provisioning cannot change their social standing and reduce inequality. Inculcating a gender sensitive participatory attitude provides an opportunity to hear women’s voices and to resolve their problems. In order to provide gender equality, the State needs to change its stereotypical attitude of paying special attention to women in implementing polices at the micro level. The problem of inequality is more related to the low level of social development rather than to the individual situation. For instance, some studies reveal that over 60 per cent of capital from the State budget allocated for employment generation goes to women101 and that 92.8 per cent of the total beneficiaries of social welfare activities are women102. 100. MOFE, UNDP, 2004. Gender analysis of the national budget resources spent on social care, Ulaanbaatar, p. 56. 101. MOFE, UNDP, 2004. Gender analysis of the national budget resources spent on employment sector, Ulaanbaatar, p. 77. 102. MOFE, UNDP, 2004. Gender analysis of the national budget resources spent on social care, Ulaanbaatar, p. 54.

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Part two. Human development in Mongolia Many experts feel that gender equality exists only on paper. In reality, the situation is very different. However, gender gaps can be eliminated with well thought development policies and programmes. First of all, it is important to identify how problems related to gender inequality have emerged in society and recognize what is the extent of these problems. Studies prove that lack of information affects a proper evaluation of the gender situation in Mongolia. Proper assessment requires addressing deficiencies in the collection of gender sensitive statistical data. Only with such detailed disaggregated gender data would it be possible to assess the situation systematically and identify strategic gender needs. It is important to reflect a gender perspective development policy if poverty reduction efforts in Mongolia are to more favorably affect women. This is necessary as a higher level of poverty is observed among women compared to men, poverty among women is deeper and trends towards impoverishment are more widespread, especially among women heads of households. For instance, there are twice as many poor female-headed households in Ulaanbaatar as there are male-headed households 103 . Again, by promoting exports, it is possible to increase the number of jobs in the textiles and garments sector where women work in large numbers and to increase salaries and wages of workers as well. Making policies gender sensitive will ensure that impacts of such changes are calculated and factored into decision making and more importantly, used to address issues of disadvantage to certain groups of men and women. The Government of Mongolia has taken several steps to promote gender equality. For instance, the government developed the “National Programme for the Advancement of Women” (NPAW) in 1996 and the “National Programme on Gender Equality” (NPGE) in 2002 in an attempt to empower Mongolian women, to improve their educational, professional and cultural positions and to promote their participation in development. However, major constraints to implementing the NPGE are lack of funds, non-existence of special programmes to address the goals, and lack of performance-based monitoring.104

Gender sensitive budgets The national budget has a relatively different impact on men, women and different social groups by the way it affects production of goods and services, pensions and allowances, compensation, taxes, creation of employment opportunities especially in the state sector, and the overall effect it has on employment, the general price level, investment and total demand. By making the budget gender sensitive, it is possible to reflect interests of women and other social groups whose participation is often low. A gender sensitive budget is not a special budget for women and girls. It is a budget that is sensitive to the unequal opportunities faced by women and men and seeks to correct the imbalances. 103. NSO, WB, UNDP, 2003. Household Income and Expenditure Survey/Living Standards Measurement Survey, 2002-2003. 104. World Bank, Asian Development Bank, 2004. Country Gender Assessment, Mongolia, Ulaanbaatar

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Chapter 8. Gender equality in human development in Mongolia Gender sensitive budgets mean that not only allocations but also revenues and expenditures should be gender sensitive. Formulating a gender sensitive budget has gained global recognition over the past few years as an important tool for eliminating the gap between objectives put forward by the government and budget spending conditions. It is, on the one hand, a process and a method of channeling the State budget towards specific policy goals and objectives, and on the other hand, it is a mechanism for improving effectiveness and flexibility by reflecting gender issues in macro economic policy and budget planning. It also offers a framework for monitoring the implementation of goals and objectives of promoting gender equality. The Government of Mongolia has been introducing a set of economic policies and programmes for poverty reduction and to improve the functioning of the State sector. A gender analysis of budget resources allocated in social security and employment sectors shows that many issues related to gender have accumulated in these sectors. Alongside, the Government has also taken some steps to make the budget gender sensitive. Government policy to address poverty has been consolidated into a more comprehensive approach in the “Economic Growth Support and Poverty Reduction Strategy” (EGSPRS) in 2003. This strategy paper focuses in detail on removing gender disparities in land privatization and working hour allocation of women in household production. The EGSPRS has also prepared the groundwork and initiated the process for gender sensitive budgeting. Although law prohibits discrimination by sex, research data prove that invisible discrimination still exists. For instance, the amount of pension received by women is lower than that of men and the minimum wages are similarly lower for women. This leads to a situation where many retired women in particular live in vulnerable and poor conditions. Since women work mostly in sectors and professions with low salaries, the average salary of women is lower than that of men and the gap is continuously increasing. Since the national budget of Mongolia is allocated mostly in the formal sector, the informal sector, where many women work, has for many years been left out of the budget policies. There are many examples that illustrate gender inequality and violation of the laws. But the government has not taken adequate measures to address the problems. The experience of many countries shows that very often the resources allocated for poverty reduction do not reach the poor. Moreover, very often, development goals and objectives do not fully match the objectives of improving economic, political and social situation of women. In this context, gender sensitive budget planning plays an important role in aligning economic objectives with those of the social sector. Ensuring adequate, effective and fair allocation of resources can contribute significantly to reducing women’s poverty and promoting gender equality. The first step towards introducing gender sensitive budget planning is training aimed at building capacity for gender analysis and gender sensitive budget development. A recent research report observes: “this kind of training should cover such issues as the concept of gender equality and equal rights, research, analysis and calculations, main directions and methods of reflecting the gender factor in development policies and

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Part two. Human development in Mongolia planning, the gender process, gender results, development process and development outcomes and links between them, their interrelations, theoretical and methodological basis, new trends, methods and models of reflecting gender factors in development policies and planning at national, sector and local level, planning and reporting”105. One of the priority objectives should be to make accounting and reporting systems gender sensitive. Some efforts at initiating training have begun. For example, the UNDP and Ministry of Finance and Economy MoFE are supporting the preparation of learning materials for training on capacity building in developing gender sensitive budgets for officials at the national and local levels.

Targeted measures on women’s issues Women are not only beneficiaries of development but also actors of development. By increasing the role and participation of women in development, it is possible to accelerate development. It is also an important way for resolving unemployment, poverty and other urgent social problems and improving the well-being of women. However, for increasing women’s contribution to development, it is necessary to: create conditions for equal sharing of reproductive responsibilities by men and women at the household level; provide women with equal opportunities for education, skill upgrading and access to resources; and eliminate legal, structural, and cultural barriers that hinder women’s participation in economic life and political decision-making.

In order to achieve these objectives, it is necessary to make policies and programmes at the macro level more gender sensitive and at the same time increase participation of women in public decision making. A gender-sensitive industrialization policy, for instance, could encourage foreign and domestic investment in light industry and service sectors where women work, give tax concessions for production and sales in these sectors, and offer export incentives in order to expand job opportunities for women. Again, it is noticed that in sectors such as mining and exploration, construction and production of construction materials, power, roads and communications where intensive technological reforms are being undertaken, men earn more than women and at the same time the proportion of women workers is much lower than men. This is related to the fact that relatively few women have engineering education. Improving opportunities for women’s education, including technical and professional education, can open up new opportunities for women to participate in these sectors as well. The growth of the micro-finance market in recent years played an important role in meeting women’s financial needs. The share of women is higher than that of men in the micro-finance market.106 It is related to the fact that men access large-scale loans, 105. MOFE, UNDP, 2004. Gender analysis of the national budget resources spent on social care, Ulaanbaatar, p. 56. 106. UNDP, MLSW, 2002. Survey on the micro-finance sub-sector in Mongolia, Ulaanbaatar

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Chapter 8. Gender equality in human development in Mongolia whereas women take small loans. In order to reduce poverty among women and provide them with livelihood opportunities, especially in the countryside, it is necessary to create employment opportunities for women by supporting Small and Medium Enterprises (SMEs), improve their access to financial services, and expand women’s access to loans. Many women will also benefit from measures that increase salaries of workers in the civil service and also from increasing the minimum level of pensions and allowances. Such measures can improve livelihoods of disabled, retired women and those on maternity leave.

Ensuring that both women and men enjoy equal opportunities to enter the labour market and get covered by the social care system can greatly help in reducing poverty and gender inequality. Similar opportunities should be created for women working in the informal sector as well. In seeking to introduce these policies, it is important for policymakers not to view women as a separate category but to pay more attention to establishing equality between men and women.

Women’s participation in decision-making, implementation, and monitoring Human progress is a process of development of the people, development for the people, and development by the people However, women who constitute over half the population do not participate sufficiently in economic, social, cultural and political life and they lack authority to influence policies and make decisions. Their voices are not heard when economic, social, cultural, and political decisions concerning them are made. Laws and regulations as well as policies are often insufficiently gender sensitive and women’s rights are quite inadvertently and unintentionally violated. Low levels of participation by women in decision-making reflect the subordinate social status of women in any society. It is also a comment on the level of democracy in the country. Low representation of women in central and local legislative and administrative organizations and in managerial positions at all levels is another indicator of the limited rights enjoyed by women. For instance, women constitute less than 7 per cent of the total members in the legislative governance institutions and even this number has been fluctuating over the past few years. The low representation of women in politics has little to do with women’s knowledge and skills. It is because the present election system is not able to contribute to the elimination of gender inequality. Political parties are not interested in active involvement of women in politics, and civil society organizations have not brought sufficient pressure for change. At the same time, it is believed that women lack courage and self-confidence to enter the political arena, and their lack of experience in decision making affects their participation. Since women’s participation in decision-making, implementation, distribution of benefits and evaluation of outcomes is low, they not only lack self-confidence and are dependent on men but also have limited opportunities for realizing their capacities and dedicating themselves to promoting the well-being of the community.

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Part two. Human development in Mongolia Checklist of effective participation People: • • • • If • • • •

What are outcomes of supporting participation?

Are there equal opportunities for healthcare and physical well-being? Is there equal access to knowledge, skills, information, technologies? Are there equal rights? not, where do the reasons lie: In legislative system? In administrative regulations andmethods? In social values and norms? In distribution of income and capital?

• • • •

Increase in budget spending on priority human development issues? Elimination of market barriers? Strengthening of democratic governance? Strengthening of the civil society structure, for instance, organization of people, NGO, free press?

Source: Human Development Report 1993 Women’s participation and authority in policy and decision-making need to be stepped up in order to develop optimal policies, to align them better with practical needs, to reduce poverty and inequality, to strengthen democracy and social justice, and to accelerate economic growth and progress. The opportunity to open the doors to women in order for them to use their potential and competitiveness lies with government, political forces and civil society organizations. Women candidates should be supported, and a quota system reserving seats for women should be introduced among candidates and political positions. The sooner the opportunities are provided for women to have more authority, the faster will be the realization of benefits. Active participation of women in decisionmaking should be a continuous process rather than an occasional event. Promoting equal opportunity and viewing women as equal contributors to society must become ingrained in the way men relate to women, and in the way society relates to women.

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Bibliography and additional reading materials ADB (Asian Development Bank) and World Bank. 2004. “Mongolia Country Gender Assessment”. Ulaanbaatar, Mongolia. Anand, Sudhir and Amartya Sen. 1993. “Human Development Index: Methodology and Measurement”. Human Development Report Office Occasional Paper No.12, UNDP, New York. Ò.Amgalan, Kh.Oyuntsetseg. 2003. “Gender Definition: Basic Terms and Understanding”. Ulaanbaatar, Mongolia. Association of Democratic Socialist Women, 2002. “Increasing Number of Women in Management and Decision Making Level”. Discission of Political Parties, Ulaanbaatar, Mongolia. Felice D Gaer. 2001. “Mainstreaming a Concern for the Human Rights of Women Beyond Theory”. (Marjorie Agosin ed.). Women, Gender and Human Rights-A Global Perspective, United States, Rutgers University Press. Government of Mongolia. 1996. “National Programme to Improve the Status of Women”. Ulaanbaatar, Mongolia. -. 2004. “National Programme for Gender Equity”. Ulaanbaatar, Mongolia. Government of Mongolia, UNDP (United Nations Development Programme). 2004. “A Gender Analysis of the Public Budget in the Social Security Sector”. Ulaanbaatar, Mongolia. Human Right Commission of Mongolia. 2002. “Report on the State of Human Right and Freedom in Mongolia”. Ulaanbaatar, Mongolia. Ingrid Robeyns. 2000. “Is There a Feminist Economic Methodology?”. (Translated and published in Italian, in Paola Di Cori and Donatella Barazetti, Gli Studi della Donne in Italia. Una Guida Critica. Roma: Carocci, pp. 119-145). -. 2004. “Sen’s Capability Approach to Welfare Economics”. (co-authored with Wiebke Kuklys), Cambridge Working Papers in Economics 0415. Korean Women’s Development Institute. 2000. “Gender Equality through Science and Technology Regional Cooperation in North-East Asia”. Gender Training Manual, Seoul, Korea. Kikakyushu Forum on Asian Women. 2004. “ICT and Gender”. Journal of Asian Women’s studies, Volume 2, Korea. Martha Nussbaum. 1995. “Human Capabilities and Female Human Beings” (Martha Nussbaum and Jonathan Glover eds.). Women, Culture, and Development, New

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Part two. Human development in Mongolia Delhi: Oxford University Press. Ministry of Health, UNFPA (United Nations Population Fund). 2003. “The Concept of Gender Equality”. Facts Sheet, Centre for Sustainable Development and Gender, Ulaanbaatar, Mongolia. Ministry of Finance, Public Administration and Management Department. 2003. “Reflecting Gender Goncept into Development Policies and Programmes”. Ulaanbaatar, Mongolia. Ministry of Finance, Council for Gender Equity, World Bank, Federation of Mongolian Women, Centre for Sustainable Development and Gender. 2002. “Economics and Gender”. Compiled Workshop Materials, Ulaanbaatar, Mongolia. Ministry of Education, Culture and Science, MPDA (Mongolian Population and Development Association). 2002. “Gender Analysis of Technical Human Resources”. Research study report, Ulaanbaatar, Mongolia. NSO (National Statistical Office). 2004. “Mongolia in Market Economy”. Statistical Yearbook 1989-2002, Ulaanbaatar, Mongolia. NSO, World Bank, UNDP. 2004. “Household Income and Expenditure Survey/ Living Standard Measurement Survey 2002-2003”. Ulaanbaatar, Mongolia. NSO. 2002. “2000 Population and Housing Census: Gender Inequality in Mongolia”. Ulaanbaatar, Mongolia. Sara B. Kuk. 1996. “Use of Gender Related Research Studies in Policy and Planning”. Ulaanbaatar, Mongolia. Santosh Mehrotra and Mario Biggeri. 2002. “Social Protection in the Informal Economy: Home Based Women Workers and Outsourced Manufacturing in Asia”. Innocenti Working Paper No.97, UNICEF. UNDP. 1995. Human Development Report 1995. “Gender and Human Development”. New York, Oxford University Press. UNIFEM (United Nations Development Fund for Women). 2002. “Women in Mongolia: Mapping Progress Under the Transition”. Ulaanbaatar, Mongolia. UNDP, UNIFEM. 2003. “Gender Issues in Rural Part of Mongolia: Facts and Numbers to be Reflected in Policy Documents”. Ulaanbaatar, Mongolia. -. 2004. “Report on the State of Human Right and Freedom in Mongolia”, Ulaanbaatar, Mongolia. UNFPA (United Nations Population Fund). 2001. “UNFPA Gender Training Manual”. Gender Issues Branch, New-York.

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PART THREE

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CHAPTER 9. POLICY ALTERNATIVES AND INSTITUTIONAL DEVELOPMENT Sub section 9.1 Pro- poor macroeconomic policy 9.2 Human development policies 9.3 Resources for human development 9.4 Good governance for human development 9.5 Creating environment for human development 9.6 Reform policy options 9.7 Cooperation and partnership Bibliography and additional reading materials This chapter discusses about the pro-poor macroeconomic policy, good gover nance for human development, creating the environment for human development, and the participation of the State, government and non government organi zations, citizens and community in the development.

9.1. PRO-POOR MACROECONOMIC POLICY Macro economic and financial stability From a human development perspective, the ultimate objective of macroeconomic policy should not merely be the achievement of economic and financial stability. Outcomes of macroeconomic policy interventions can be measured by various indicators such as GDP growth, containment of inflation, budget and foreign trade balance. These are no doubt important. However, it is equally important to link these key parameters with an assessment of people’s living standards. Economic stability should lead to an expansion of people’s capabilities and an improvement in the quality of life they enjoy. The Government of Mongolia adopted a “shock therapy” approach to implement drastic economic reforms in the early 1990s. This led to a precipitous economic decline and a sharp deterioration in living standards. In response, the government of Mongolia initiated a series of economic stabilization policy measures, such as, keeping the interest rates at higher level, implementing the tight monetary policy in order to keep inflation rates at certain levels, restructuring of state budget organizations, cutting of staff numbers, and limiting the raise of salaries for public servants. A “tight monetary policy” of increasing interest rates and restricting money supply was pursued to contain inflation. As a result of the adoption of the tight monetary policy, the inflation rate declined and the purchasing power of people began to stabilize.

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Chapter 9. Policy alternatives and institutional development As part of economic restructuring, the Government soon realized that it was necessary to revitalize domestic production and improve competitiveness. The Government initiated the privatization of publicly-owned enterprises that had low productivity and competitiveness. As a result, many people acquired assets but the transfer of privatized assets went to the hands of inadequately qualified or inexperienced people. Consequently, many factories and enterprises went bankrupt and large numbers of people were rendered unemployed and redundant. Similarly, dissolution of collective farms and cooperatives known as negdels and privatization of the herd stock to people who had little experience in livestock breeding added to the vulnerability of livelihoods of rural residents. In addition, many herders lost their privatized herds in harsh winters during dzud and were impoverished. However, the high rates of interest discouraged domestic investment and curtailed employment-generation opportunities. Additional measures to reduce budget deficits included the restructuring and downsizing of government organizations and imposing restrictions on the rise of public employees’ wages. It is true that the macroeconomic stabilization policies resulted in many positive outcomes including a decline in the inflation rate and a growth of GDP in the mid 1990s. However, the conservative policies aimed at promoting economic stability and reducing budget deficits negatively affected delivery and quality of social services. Restrictions on the growth of wages in the public sector kept low-paid public employees poor and vulnerable. Secure livelihoods for people cannot be assured unless the creation of new jobs surpasses the increase in the labour force and the wage rise surpasses the inflation rate. From a human development perspective, the policy measures were not much of a success as they contributed to high levels of unemployment and poverty. Macroeconomic policy ought to be guided by the need to ensure adequate livelihoods and promote human security. Indeed, conventional “stabilization policy” loses its value when stabilized inflation rate, reduced budget deficits, privatization of state assets and downsizing of the public institutions adversely affect employment, public service delivery and human security. From a human development perspective, ensuring economic stabilization requires both a higher level of employment and a lower rate of inflation. But, in theory, achieving both within a macroeconomic policy framework is often difficult. Demand has to be restricted for prices to be kept stable. In order to limit demand, wage increases need to be contained especially if employment levels are to be maintained. As noted by Milton Friedman, a well-known economist, “accepting inflation or unemployment is all about the time”. Accepting a higher inflation rate could lead to larger budget deficits and place more tax burdens on future generations. On the other hand, accepting unemployment could lead to a decline in the living standards of the present generation. Achievement of stabilization requires a policy alternative aimed at delivering economic benefits to the socially disadvantaged groups and enhancing their participation in economic life.

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Pro-poor economic growth In the initial years of transition, during the mid 1990s, Mongolia faced a sharp economic downturn, growing inequalities in income distribution, rising unemployment and increasing poverty. The Government was confronted with the challenges of achieving macroeconomic stability and at the same time promoting economic growth and human development. Specific measures were taken including the establishment of market institutions, promotion of economic liberalization and facilitation of economic reconstruction. As a result of wide-reaching liberalization initiatives, conservative policies and reconstruction measures, Mongolia’s economic situation stabilized and the volume of investment increased. GDP also began to grow. However, the Government failed to influence the quality of growth as a result of which economic expansion did not contribute significantly to reduction of unemployment and poverty. According to official statistics, real GDP per capita grew by 0.25 per cent between 1995 and 2004107. And the number of the poor, instead of decreasing, gradually increased. The decline in labour-intensive manufacturing offset the growth trends in capital-intensive production sectors. As a result, there was no substantial increase in the number of jobs. For instance, the share of the mining and exploration sector in GDP rose from 12 per cent to 17 per cent, but the proportion of workers in the sector went up only modestly by 1 per cent from 2.4 to 3.5 per cent. With investments concentrated largely in Ulaanbaatar, economic growth has not adequately benefited people in rural areas where unemployment and poverty are still pervasive. Between 2000 and 2005 the share of Ulaanbaatar’s contribution to GDP increased by 7.5 per cent, whereas the contribution of rural aimags to GDP fell by the same proportion. Several conclusions follow from this. First, economic growth has been uneven across urban and rural areas and within economic sectors. Second, the gains from economic growth have been unevenly distributed across urban and rural areas and among social groups. Third, investments have been mainly concentrated in the mining and exploration sector which is capital-intensive, but generates few jobs. Fourth, investment has not made the consumption basket of the poor less expensive. Fifth, there was very little investment in poverty-stricken rural areas and in livestock and agriculture. These features suggest that the efficiency and equity gains from Mongolia’s economic growth, from a human development perspective, have not been adequate. In general, benefits from economic growth can be delivered, among other ways, through income redistribution and investment policies. Redistribution policies can support livelihoods of vulnerable groups and the poor in the society. However, overestimating its significance could slow down economic growth and hinder human development. Therefore, priority should be given to generating new jobs, increasing wages and incomes by promoting appropriate investments within an inclusive growth framework. The priority should be given to implement the economic growth policy inclusive the investments which will lead to more job creation and poverty reduction. This will call for investments in small and medium enterprises and labour-intensive sectors that generate employment opportunities. In addition, for growth to be pro-poor, investments should be promoted in poverty-stricken regions and in those sectors that can effectively meet 107. Calculation using relevant statistical yearbooks.

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Chapter 9. Policy alternatives and institutional development the employment needs of the poor. Patterns and levels of investment should make living expenses less costly. Without incorporating this basic and essential feature into policy, the gains from economic growth may not sufficiently reach people, in particular, the poor and the unemployed.

Trade policies In general, trade has the potential to boost human development; but this does not occur automatically. Only if managed properly can trade help countries efficiently allocate resources, improve the use of production capacities, generate economies of scale and promote economic savings. From a human development perspective, expanding trade is not the objective, but trade must be seen as an instrument for enhancing capabilities. For trade to contribute to human development, trade policies must be interrelated with growth policies and growth policies, in turn, should be linked to specific human development priorities of the country. With the collapse of the former Soviet Union and the COMECON, Mongolia lost its export markets. Since then, the country has actively pursued a trade liberalization policy aimed at opening up its market and reducing the role of the State in trade. Such a policy of trade liberalization has affected the lives of Mongolians both positively and negatively. The impact on different economic sectors, geographical regions and groups of people has been uneven. Elimination of the State monopoly in international trade and reduction of trade barriers led to an expansion of market opportunities for exporters, reduction in the domestic shortage of goods, and containment of prices. At the same time, however, the inflow of cheap imports adversely affected domestic industries and resulted in significant cuts in employment. The textile sector that largely employed less educated people was particularly hard hit, although its production and exports have grown in the past years. In addition, reduction of import tariffs and various tax exemptions granted to promote exports have resulted in decreasing fiscal revenues from trade, and this in turn has led to a decline in public spending on social services. International trade theories postulate that all countries participating in trade have an opportunity to gain from trade by using their comparative advantage. However, Mongolia being a landlocked country faces several challenges. To begin with, it has only a small number of commodities with limited international competitiveness that can be exported. And transport costs are often large. Such a dependence on the export of few commodities makes the economy and the livelihoods of its people dependent on international markets and thus extremely vulnerable. Mongolia, with its small population and low incomes, is attractive for international traders and foreign investors not in terms of its market size, but in terms of its natural resources. This interest has often conflicted with the national interests of Mongolia, such as generating jobs, reducing poverty and unemployment by developing labour intensive industries and trade. The mining sector, for instance, contributes around one-fifth of GDP; and wages in this sector have been growing consistently. However, the growth of the mining industry that relies on technical education and skills as well as capital investments is not contributing to the promotion of livelihoods among less educated, unskilled and poor people. The growth of mining exports, at the same time, is environmentally degrading and has a negative impact on

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Part three. Pro-human development policy in Mongolia living environments and consumption of future generations. Over the past decade, since 1997, following the accession of Mongolia to the World Trade Organization (WTO) and the implementation of progressive trade liberalization policies, the value of both Mongolian exports and imports has almost tripled. However, this growth, largely based on an expansion in minerals exports with limited labour intensity, has not generated sufficient jobs or significantly reduced unemployment and poverty. Trade is related to human development through many ways. Export growth, for example, can generate new jobs. Growth in imports can expand people’s choices and reduce the cost of consumption. At the same time, trade can impact human development positively if revenues from trade are spent on improving the quality of and access to social services. It is important to understand the correlation between trade and human development. The likely effects of trade policies on livelihoods of people, especially poor people, on regions, economic sectors, inequalities between them and productivity need to be analyzed carefully. In order to generate jobs and reduce unemployment and poverty, the objective of promoting labour-intensive industries and export is important. However, this strategy cannot be successful if these products cannot be effectively exported. In the case of Mongolia, it is important to focus on generating demand for metals in international markets, promote refining of metal ore and thereby create more jobs. This will help with improving the trade deficit. Costs of production of exports need to be reduced in order to improve exports competitiveness. An important strategy for reducing costs would be to purchase raw materials domestically, or reduce transportation costs by producing light goods. This objective can also be achieved by refining metal ore in the country. Increasing trade with countries in the region and establishing free trade agreements with major trading partners could be another way of reducing costs. The accession of China to WTO and preparation of Russia for membership opens up enormous market opportunities for Mongolian exporters. Cashmere products that are produced from domestic raw materials have low transportation costs and are based on renewable resources. This is a strategic product that has the highest potential to compete in the international markets. Final processing of cashmere products and production of cashmere textiles – a labour intensive process – can result in generating large numbers of new jobs. Developing and exporting services that are not dependent on distances, such as arts and culture services, high technology information services might be another important strategy. Development of Small and Medium-size Enterprises (SMEs) in rural areas for final processing and export of agricultural materials is important in order to generate jobs in rural areas and to connect people and trade with external markets. This would be an effective strategy for reducing poverty and unemployment in rural areas where both investment and labour are limited.

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9.2 HUMAN DEVELOPMENT POLICIES Poverty reduction strategies James Grant, the late Executive Director of UNICEF, once remarked: “The problem is not that we tried to eradicate poverty and failed, the problem is that no serious and concerted attempt has ever been made”108 Successful poverty reduction requires both the processes of generation and distribution of income to have a pro-poor focus. It should be pointed out, however, that giving too high a priority to distribution of income in order to remove the gap between the rich and the poor, while ignoring growth, may hinder human development. The Government of Mongolia has so far placed an emphasis on social welfare policy for vulnerable groups and the poor segments of society. Much less attention has been paid to pro- poor economic policies. Although the government spends significant resources on social welfare, it has failed to create efficiency and equity gains. There is a compelling argument to be made for organizing all social resources properly in order to reduce poverty especially since levels of development and incomes in the country are still low. Mongolia’s economic growth policy cannot be regarded as being pro-poor. Evidence points to the fact that there has been an increase in the number of the poor despite the slow and steady GDP growth rates since the mid1990s and the expansion in social welfare spending. Clearly, this raises among other questions the type of channels other than the social welfare system that ought to be used in order to make economic growth pro-poor. How should poverty reduction with economic growth be managed at the macro level? Experiences of many countries show that, in the absence of a well-defined poverty reduction strategy that links poverty reduction to macroeconomic growth policies, substantial success cannot be achieved by relying solely on redistribution policies that promote equality. It is important for poor people to not only access the benefits of economic growth but also be able to contribute to it. In doing so, serious consideration should be given to a set of critical questions. What sectors offer employment to the poor? In what regions do the poor live? What resources do the poor possess? And what products do the poor produce and consume? A “pro-poor growth strategy” entails much more than just income generation, job creation and supply of cheap products to the poor. It should address other issues as well such as provisioning of quality services to the poor, making consumption less expensive, provisioning of care and protection for those living in poor and disadvantageous conditions, and expanding opportunities for their participation in market activities as well as in the social and economic life of the community. The challenge, therefore, is to devise and implement broad-based integrated policies that encompass budgetary, monetary, investment and other human development considerations. 108. UNDP, 2004. Fifth International Conference of newly democratic and democracy re-establishing countries “Gathering of research and final documents” Ulaanbaatar, p. 187.

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Part three. Pro-human development policy in Mongolia “Pro- poor economic growth strategy” is a much broader concept than the income and job generation for poor, provision with cheaper goods and services. But it covers the issues regarding the delivery of better services, reduction of consumption costs, protection and caring of vulnerable groups, opening the opportunities for participation in the social development. Therefore it is important to develop a comprehensive strategy covering the challenging issues like budgeting, money, social care and protection, employment, trade, investment, etc. Prior to the adoption of the Economic Growth Support and Poverty Reduction Strategy Paper (EGSPRSP) in 2003, Mongolia did not have a policy or strategy that attempted to link poverty reduction with macro-economic policy and economic growth. As a result, the National Poverty Alleviation Programme (NPAP), implemented between 1994 and 2000 with financial support from external development partners, failed to achieve its main goal of reducing the number of the poor to 10 per cent of population or less by the year 2000. The EGSPRSP is the first attempt by Mongolia to orient the collective efforts of the government, development partners and the general public towards alleviating poverty. With one third of the population living below the poverty line, it becomes critical to link poverty with economic growth and macro-economic reform policies rather than rely solely on aid and social safety nets. However, the EGSPRSP too has failed to address a broad range of human development issues. Equitable expansion and distribution of income is essential for reducing poverty. This should be reflected in regional development policies as well.

Employment generation strategies Employment is the principal means for people to benefit from development, to earn income, and to provide for their own as well as family needs. By engaging in employment, people open new opportunities for themselves, enjoy rights and have confidence in the future. Increasing employment can create a more equitable and fair distribution in society and alleviate poverty. Thus, employment is a key link between economic growth and poverty reduction, but a link that is often lost. Because of this lost link, the growth in employment tends to lag behind economic growth rates. In the case of some countries, there is even a reduction in employment against the backdrop of positive economic growth. Both GDP and the number of employed people in Mongolia have grown starting from the mid-1990s. However, growth in employment has always been lower than GDP growth. Between 1995 and 2004, the GDP grew annually on average by 3.5 per cent, whereas employment growth averaged 2.1 per cent109. Similarly, there has not been a significant reduction in poverty. There are numerous examples of high economic growth accompanied by slow reductions in poverty, and also of slow economic growth but large reductions in poverty. Benefits of economic growth for poor people largely depend on spend109. Calculation using NSO, 2004. Mongolian statistical yearbook 2004 - ‘Mongolia in market economy’

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Chapter 9. Policy alternatives and institutional development ing of resources generated from growth on social services, and on directly increasing incomes and enhancing capabilities of poor people. The ability of economic growth to reduce poverty depends on the following factors.110 First, there is the growth factor. Economic growth can lead to increased incomes for all, including poor people. The extent to which this happens will depend, to a considerable extent, on redistribution of incomes. Second, there is the elasticity factor. The employment elasticity of growth determines whether employment is increasing, in both quantity and quality terms, following the growth in production. This elasticity, in turn, depends on the presence or absence of labour-intensive industries, use of high labour-content technologies, and conduciveness of international trade conditions for labour-intensive sectors. Third, there is the integrability factor. The ability of poor people to benefit from economic growth depends on the degree of congruence between new economic opportunities and skills of poor people. Thus, in order to channel economic growth towards poverty reduction, it is important to develop sectors that create decent employment or to improve the employment elasticity of sectors and to improve the competitiveness skills of poor people for their employability in high job-growth sectors.

Box 9.1 Decent Work The International Labour Organization defines decent work as work that provides opportunities for people to realize their aspirations, is productive, enables earning decent and fair income, provides occupational safety, enables the employed to enroll the family in social protection, and provides opportunity to the employed to grow on the job and participate in social life. Decent work provides equal opportunities to men and women, as well as opportunities to participate in decisions that affect their lives.

Like many developing countries, the social protection system in Mongolia is not effective at protecting poor people. Therefore, it is common for people to engage in temporary, seasonal, and ad hoc employment that involves lessthan-full working day employment in low productivity jobs. Such activities are common in the informal sector and result in low earnings to the employed. Many people can therefore be considered to be working poor. Looking at Mongolia’s experiences, creating jobs alone cannot result in poverty reduction. The government needs to simultaneously address deficiencies in human capabilities – by addressing for instance, dimensions of health, skill upgrading, education, and so on. This can be achieved, for instance, by promoting investments in labour-intensive sectors that do not require high skills and where the poor have the opportunities to compete by offering their labour, rather than in capital-intensive, low employment sectors. It can also be achieved by introducing policies to develop labour-intensive industries in regions with high poverty. For instance, it may be necessary to promote textile manufacturing in rural regions and urban areas with large concentration of poverty that have low levels of employment of women. Similarly, 110. S.R.Osmani, 2002. “Exploring the Employment Nexus: Topics in Employment and Poverty”, UNDP, ILO.

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Part three. Pro-human development policy in Mongolia in order to increase productivity it is necessary to upgrade skills of workers through retraining and enhancing value-addition. At the same time, efforts should be made to reduce interest rates and increase access to financial services in rural areas in order to promote investment in the agricultural sector where most of the poor people are employed, especially in regions with high levels of poverty. In 2006, annual interest rates of many banks were over 30 per cent, while interest rates in some saving and loans cooperatives exceeded 60 per cent. This acts as a major deterrent for investment. In addition to policies to reduce interest rates, it is important to reduce inactive savings and encourage investments by developing the stock market. Priority and support must be given to the promotion of small and medium enterprises that are flexible to local needs and are good at creating employment. Trade policies should strive to eliminate or reduce barriers to exports of agricultural products and textiles – sectors where the poor are likely to be employed, and to reduce taxes and levies on the exports of these products. Development of low-labour intensity sectors in coordination with other sectors can increase the returns to people working in such sectors. Encouraging cooperation between enterprises in the formal and informal sectors will increase opportunities for them to jointly supply their products to large enterprises. It would be appropriate to focus on training of future employees in sectors such as Information Technology (IT) and biotechnology that require high level of skills and knowledge, and also increase opportunities for poor youth to participate in such training. It is also important to promote practices that enable children of poor households to acquire professional education regardless of their wealth or social status and to encourage young people to access higher levels of education.

Measures for promoting gender equality Mongolia has made significant progress in advancing equality between Box 9.2 Gender mainstreaming men and women. During the period of political and economic transtion, Gender mainstreaming refers to the process of incorporating into any planned however, the rate of women’s paraction, including legislation, policies ticipation in the political life noticeand programmes solutions that can ably declined and income gaps meet the needs of and promote equality between men and women widened. between men and women. This should It is therefore important to evaluate be preceded by an assessment of its imthe integration of the gender equalplications for men and women. ity perspective into the legal system and incorporation of gender equality into policy and legislation. It is also important to make the budget gender sensitive and address gender concerns in state policies and programmes. At the same time, it is useful to assess the impact of measures for achieving gender equality in all levels of political activities.

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Chapter 9. Policy alternatives and institutional development In Mongolia, democracy, rule of law, human rights and freedoms are regarded as the main principles to be pursued within the legislative framework. But no law has made the principle of gender equality a main guideline. It is therefore important to review and change national legislation on gender related issues and to make them compatible with international legislative norms and standards, to pay more attention to incorporating gender equality concerns in laws and legislative acts issued by the competent public institutions, to facilitate involvement of civil society and communities in the lawmaking process and to put in place more effective implementation and monitoring mechanisms. The failure of State policies to fully promote gender equality has led to widening wage disBox 9.3 Gender quota parities between men and women employed in Gender quotas are used as an public sector organizations. It is also not clear instrument for setting in the whether or not sufficient financial resources legislation percentages of the have been devoted to promoting gender equalrepresentation of men and ity and expanding women’s opportunities. women in public institutions. Quotas are based on the contemporary concept of equality and are aimed at empowering women and enhancing their participation in the decisionmaking level. In contemporary practices of social development, two types of quotas are used: first, national quotas which set the percentages of men and women in legislative bodies; and second, political party quotas, which set in the charters of political parties the ratio of men and women in election nominations. Internationally, the use of the latter type of quotas tends to prevail.

Implementing the policy of gender-sensitive budgeting will enable a gender analysis of how allocation and distribution of the budget meet the needs of men and women. It will also help to articulate immediate needs of both men and women, and thereby, promote a more balanced allocation of resources. The goal of achieving equal participation of men and women in the development process lies at the heart of social development, as its fulfillment plays an important role in establishing a just and equal society. Any of the following two approaches can be used: first, mainstreaming gender concerns in the design, implementation and monitoring of all programmes; second, providing support for women-specific activities.

In recent years, Mongolia has taken the initiative to conduct gender monitoring of its existing policies and programmes. But tracking progress and performance have not been easy due to insufficient data and non-availability of specialized gender-sensitive statistics. It is therefore important to undertake measures to make statistical data and reports gender-sensitive; to equip people with skills and techniques to conduct monitoring and evaluation; to develop and apply appropriate evaluation methodologies; to develop in detail monitoring indicators and to ensure their practical use in monitoring. In addition, the following actions can be of considerable significance in translating gender equality into practice: strengthen national capacity to design and implement gender-sensitive policies; provide all-round support to women’s NGOs; facilitate partnerships between the government and women’s NGO’s; increase wom-

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Part three. Pro-human development policy in Mongolia en’s representation in the decision-making level; and introduce a quota system that ensures improvements in women’s participation in public affairs.

Expenditure on basic social services In Mongolia, as in many countries with a market economic system, a large proportion of spending on education and health and on social welfare services is allocated from the State budget. In 2004, the expenditure of the country’s consolidated state budget equaled two-fifths of GDP; and expenditure on basic social services comprised half of public spending: a relatively high level of social expenditures for a developing country like Mongolia. However, due to the fact that Mongolia falls in the category of low income economies in terms of its GDP per capita, its per capita spending on social services is low. The government’s budgetary policy can contribute in many ways to the goal of establishing a just and fair society. Concerns of the poor and the disabled, in this context, need to be taken seriously within the framework of the budgetary policy. In the case of Mongolia, the levels of expenditures on social services vary between urban and rural areas and across social groups. Studies show that the non-poor spend on their health more than three times as much as the poor, and the richest 20 per cent of the population spend on their health seven times the amount spent by the poorest 20 per cent.111 Similarly, non-poor households spend on education more than the poor - on average 60 per cent more at both primary and secondary levels.112 Improving the quality and accessibility of social services to socially disadvantaged groups and to residents of remote areas is a well recognized human development priority. However, current public spending displays a different pattern. As the 2003 Mongolian Human Development Report notes: “Although there is a need to increase finances allocated to social services in remote aimags, in reality this does not seem to happen. Calculations show that in 8 aimags located at distances of up to 400 km from the capital city, the amount of budget allocated per person was 15.0 per cent higher than the average for the country; in 8 aimags located at a distance of 400900 km, it was 3.4 per cent lower; and in 5 aimags between the distance of 900-1,600 km, it was 0.6 per cent lower than the average. In 8 aimags with the lowest population density the amount of budget per capita was higher than the national average by 11.5 per cent. Data for local budgets shows that urban areas are closer to being able to self-finance their activities, while aimag budgets are in deficit and continue to require subsidies from the centre.” 113 Another matter that needs attention is the issue of efficiency of expenditures on basic social services. Much of spending on health and education sectors is on salaries and payment for electricity and heating. Only a very small amount is spent on the purchase of textbooks and diagnostic and treatment equipment. Under the existing financing system, schools and hospitals receive funding in relation to the numbers of students or people covered under health insurance within their respective 111. NSO, World Bank, UNDP, 2004. “Main report of Household Income and Expenditure Surevy/Living Standards Measurement survey, 2002-2003” 112. Government of Mongolia, UNDP, 2004. Mongolian human development report 2003, Ulaanbaatar, pp. 57-58. 113. MOFE, UNDP, 2004. “ Gender analysis of the national budget resources spent on social care” Ulaanbaatar

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Chapter 9. Policy alternatives and institutional development jurisdictions. However, the rationale of this system may only be in its cost-efficient and budget-saving nature. From a professional viewpoint, such a system may not improve the quality of services and may provide inadequate incentives to teachers and physicians. Services and goods provided free of charge tend to be of poor quality. Expenses on treating sickness rather than costs of preventive measures make up the majority of spending in the health sector. Lack of appropriate incentives makes employees in these sectors reluctant to work to their full potential and skills. Efficiency in use of funds has been unsatisfactory as the recipient base for social care services has been too large. Starting in 1993, the resident population has grown by around 16.6 per cent whereas the number of recipients from social nursing service has doubled. Particularly between 2000 and 2005, the budget for social assistance has increased three times and one in every four people has benefited from some kind of social pension, allowances and assistance.114 Despite this, many of the recipients still remain trapped in poverty as the levels of pensions and benefits have not been correlated with the minimum subsistence level and the rise in commodity prices. It is impossible to claim efficient use of funds when recipients of pensions and benefits live in poverty. Enhancing the effectiveness of the spending on basic social services requires several steps to be taken. Within the framework of the decentralization policy, attention should be paid to devolving financial power to local administrations, strengthening local capacity and promoting public participation in planning and implementation of local budgets. There is an opportunity to bring quality education and health services closer to people and to establish schools and hospitals that are far better than the existing ones. This will however require additional funding and human resources. Financing of education and health organizations should however be correlated with their performance results. Skilled workers are typically reluctant to work in the social sectors due to low salary levels of employees. Rural aimags and soums in particular face a shortage of physicians and teachers. Attracting qualified workers to this sector by increasing the salary levels of employees in social services could be a practical way of improving the effectiveness of public spending in this sector. Measures for target groups It is extremely critical to undertake targeted welfare measures designed to support specific social groups that live in disadvantaged and difficult circumstances arising out of social inequality, gender discrimination, and rural-urban disparities. These measures are essential not only for generating equal development opportunities and ensuring equality among individuals, but also for maintaining human security and stability in the country. Disadvantaged people living in difficult conditions of human development may be identi 114. MOFE, UNDP, 2004. “ Gender analysis of the national budget resources spent on social care “ Ulaanbaatar.

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Part three. Pro-human development policy in Mongolia fied, in addition to the poor, as the elderly, orphaned children, the disabled and those who cannot make a living on their own and whose living depends on others. Also, in the context of Mongolia, several other social groups should be added to this category, namely: people residing in remote areas with poor infrastructure and underdeveloped markets; rural herders and farmers facing extreme vulnerability especially from harsh climatic conditions; people working in difficult and toxic conditions; those discriminated on the grounds of gender; as well as working children. There is need to abolish the practices of the social care system of the socialist period that treated the disabled and the elderly as people with restricted capabilities and so provided them with special care and assistance. Rather, strengthening their living capabilities is crucial for enhancing their capabilities, making them more active and promoting social interaction. There is considerable inertia arising out of the outdated thinking of the socialist period as many vulnerable groups still look to others to assist them. This mindset needs to be altered immediately. Supportive measures that target vulnerable groups in the society are no less important than allocation of resources. Such measures should aim at fulfilling the aspirations of vulnerable groups to make their lives better, to help them acquire knowledge and skills, to provide inspiration and to boost their self confidence. Initiatives to help vulnerable groups in the society should not be considered a responsibility of the central government alone. Here, the decentralization strategy and involvement of local governments, NGOs and business entities are crucial. Any measure that targets these groups needs to be implemented in a way that gives priority to people’s collective and coordinated activities, structure and organization, and social partnership. Opportunities for herders to participate in markets became constrained, participation in social life weakened and the quality of social services deteriorated significantly with the breakdown in the system of assistance following the dissolution of the negdels and privatization of the herd stock during the early years of transition. As livestock breeding was transferred from the collective unit into households, herder households were faced with challenges to perform on their own tasks that were earlier undertaken by negdels and cooperatives, including getting veterinary services, preparing hay and fodder, building fences and constructing wells. This led to a sharp increase in the vulnerability of rural herders who are engaged in nonintensive pastoral livestock breeding. Moreover, heavy losses of herd stock due to extreme droughts and harsh winter dzuds have pushed a great number of herders into poverty. Establishing cooperatives and partnerships among rural herders would enable them to undertake collective tasks that they may not be capable of doing on their own. This can no doubt contribute to reducing their vulnerability. Though the longstanding tradition of Mongolians to generously help their relatives and friends in need is still present to this day, one cannot also deny the fact that there has been a weakening in the friendly relationships among rural people who tended to help each other in times of hardships. It should be pointed out that preserving this custom can play an important role in reducing social vulnerability.

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9.3. RESOURCES FOR HUMAN DEVELOPMENT Fiscal policy options for domestic resource mobilization Limited resources are the main obstacle for resolving human development problems in Mongolia, particularly for reducing unemployment and poverty. Under such circumstances, mobilization of domestic resources, including human resources, natural resources and financial resources with the highest possible level of efficiency becomes critical. Without economic growth, human development cannot be sustained. As one of fundamental objectives set in the MDGs based National Development strategy, the key source to growth is mobilization of all internal resources as well as investment activities in these resources. Jobs created in the process of foreign or domestic investment, public or private investment are essential for reducing unemployment and poverty. An important issue then is to create a favorable environment for investment that could alter incentives for reducing consumption and increasing investments. In all market economies, the key public finance issue is to raise revenues and ensure effective redistribution. Today, the border between the public and private sectors is becoming increasingly blurred. Public finance policy is increasingly viewed as a coordinating mechanism between the State and the market, public and private sectors, external and domestic sectors, and between various economic sectors. Governments compel producers to improve efficiency and productivity by implementing social policies through tax and fiscal policies and by encouraging domestic competition. Fiscal policy, by raising revenues and ensuring its redistribution, can significantly impact people’s lives. Public finance policy is often used to correct market failures, but there is also the possibility of running into risks by over emphasizing the role of the market.

Box 9.4 The Law on Corporate Income Tax approved in 1998 provides that enterprises with annual sales of up to 100 million MNT are taxed at 15 per cent, while those with sales exceeding this level are taxed at 30 per cent. This two-bracket tax system has been encouraging small and medium enterprises that employ collectively large numbers of people, and has been promoting employment in rural areas, thus playing an important role in containing the growth of poverty. However, many large enterprises are using the loopholes in the system by breaking up into a number of small companies to avoid taxation. This has led to a debate on the need to change the two bracket tax system. However, there are no estimates whether gains from a one bracket system outweigh those from a two-bracket system.

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Part three. Pro-human development policy in Mongolia Mongolia has given priority to lowering the budget burden on the economy and reducing the fiscal deficit in order to overcome the initial shocks of the transition and to promote economic growth. As a result of this policy, the share of budget expenditures in GDP declined from 61.9 per cent in 1990 to 39.5 per cent in 2004, while the budget deficit declined from 9 per cent of GDP to 0.9 per cent.115 Measures to contain the fiscal deficit, taken as part of macroeconomic stabilization policies, however, led to a contraction of the social sector which combined with the increased burden of taxes has adversely affected human development. Between 1998 and 2004, the share of corporate income taxes in GDP grew from 3.8 per cent to 5.4 per cent, while that of personal income tax increased from 1.2 per cent to 2.1 per cent.116The increased burden of taxes and reduction in investments reduced employment, while the decline in social sector expenditures resulted in a deterioration of opportunities for education and healthy living. Revenue shortages and a high level of inappropriate expenditures constrain human development. Insufficient revenues result from a weak tax base, large presence of the informal sector and poor tax collections. Ineffective public spending is often a result of the absence of a long-term financial strategy and policies, lack of public participation in collection and redistribution of public revenues, over-centralization of expenditure mechanisms, lack of coordination and corruption among public employees. Financial resources of any country are composed of public and private financial resources. Therefore, it is important through fiscal and tax policies to encourage activities of both public and private sectors to be pro-human development. The following measures could be considered after careful evaluation: provide tax exemptions to labour-intensive sectors and small and medium enterprises in rural areas with high levels of unemployment and poverty; provide support to household enterprises and micro enterprises; improve use of human and physical resources by creating a loan fund for employment of poor or low-income people; privatize State-owned enterprises and improve their management in order to improve efficiency.

External finance – Foreign Direct Investment (FDI) and Official Development Assistance (ODA) External finance has an important role to play in financing human development since domestic resources in developing countries tend to be limited. There are in general two main sources of external finance: foreign direct investment (FDI) and official development assistance (ODA). There are important differences between the two. Foreign investments, direct or indirect, are intended for making a business profit and the majority is allocated in the private sector. This is a reason why FDI may not flow into sectors in the recipient country where need for financial resources such as in health and education may be the highest. The concept of official development assistance includes grants and loans provided by donor countries and international organizations. Loans are provided on conditions of repayment, while grants need not 115. Calculation using NSO, 2004. Mongolia statistical yearbook 2004 - Mongolia in market economy. 116. Calculation using NSO, 2004. Mongolia statistical yearbook 2004 - Mongolia in market economy

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Chapter 9. Policy alternatives and institutional development to be repaid. Loans provided by donor countries and international organizations to developing countries have favourable conditions such as low interest rates and long periods for repayment and do, in general, have the character of aid. Many developing countries with low income populations or countries hit by natural disasters or economic crisis are often provided with such loans and grants. Foreign direct investment typically creates new jobs and income sources, increases knowledge and skills of workers, and improves their productivity. It plays an important role in advancing human development because income from FDI accruing to the State budget can potentially be allocated for social security and social service provisioning. Mongolia, since the beginning of 1990s, has witnessed a rapid increase in the amount of foreign direct investment. By 2004, Mongolia ranked 9th in the world in terms of a commonly used indicator, namely, the share of FDI in GDP. In general, densely populated, high-income countries attract investors by their market capacity. On the other hand, it is often the natural resource base of sparsely populated developing countries that attracts foreign investors. Foreign direct investment in Mongolia, for instance, has been attracted by the country’s natural resources. Half the total capital investment has gone into the mining sector. Foreign investments are almost non-existent in such sectors as education, science, health care and culture. Between 1990 and 2004, for instance, of the total US$1.28 billion worth investments made in Mongolia, only US$18.5 million went into education, science, health care and culture. Foreign investments made in industrial and service sectors add to domestic supply and reduce the costs of living. However, since investments in Mongolia are concentrated mainly in the capital-intensive mining industry, they do not contribute substantially to reducing costs; nor did they generate sufficient jobs. On the contrary, investment in mining has caused degradation of natural environment and deterioration in the quality of the living environment of people. Although FDI has contributed to overcoming Mongolia’s economic crisis, it has been concentrated mainly in major cities. This has further widened and deepened urban rural disparities and led to population migration. Effective government policies for attracting and regulating FDI can, on the other hand, have a positive impact on innovation of industrial technologies, industrialization, generation of new jobs and overall human development. A well-thought policy can suitably attract FDI and tap the potential of a highly educated labour force and natural resources especially if labour costs are relatively low. An educated and well-trained labour force can attract high-intellectual capacity investments and sophisticated technologies. Since the population of Mongolia is relatively low-skilled, many companies with foreign investments tend to employ foreign labour force. Several measures can increase the impact of foreign direct investment on human development. First, it is important to link FDI policies to the human development situation in the country and ensure that unemployment, poverty and inequality are addressed. Second, it is necessary to strengthen capacity at the decision making level. And third, it is important to train and educate the labour force if the benefits of FDI are to be reaped.

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Part three. Pro-human development policy in Mongolia Small developing countries benefit from concessional loans and grants from other countries. Although ODA plays a significant role in reducing inequalities between countries, it is obvious that one-sided loans and grants cannot strengthen partnerships between countries. Mongolia, even in the initial years of transition, started receiving ODA from countries such as Japan and USA, and from international agencies such as the World Bank, IMF and UNDP. Of the US$ 2.1 billion dollars worth of ODA received between 1990-2004, (including US$ 1.2 billion worth of loans), 50 per cent was allocated to infrastructure and 20 per cent went for policy support. Large inflows of ODA however started exerting pressure on economy and this further fuelled dependence on more ODA. As a result, Mongolia ranked fifth in the world among countries dependent on ODA.117 As of 2003, Mongolia ranked 16th among 177 countries in terms of ODA as a percentage of GDP. ODA is typically provided for financing a project or programme in a particular sector. ODA provided to Mongolia by donors has tended to be in the form of financing projects, not sectors. Flow of finances intensifies State policies and programmes implemented in the sectors, provides opportunities for better coordinating expenditures, and facilitates better coordination of the efforts of external development partners. Although loans and grants may be necessary for promoting human development, only their careful allocation and utilization can bring good results. In order to improve contribution of ODA, Mongolia needs to determine accurately long-term goals and objectives of human development in the country, create a structure for its implementation and a mechanism for its monitoring with public participation, and calculate the exact needs of foreign and domestic financing. If the needs are determined accurately, donors can consider moving away from financing single projects or sectors to supporting the government budget. Although loans and grants are not a long-term development option, it is nevertheless important to allocate and utilize them with the highest efficiency. In the case of Mongolia, weak national capacity and an underdeveloped macroeconomic programme have meant that ODA has not been effectively spent on many projects and programmes. A number of measures can help improve returns from ODA. It would, for instance, be important to develop effective policies directed towards reduction of unemployment, poverty and inequality; improve monitoring of spending of loans and grants; conduct structural and organizational reforms; organize interim meetings on implementation of projects and programmes; ensure public and local participation in initiating, formulating and implementing priority directions for ODA. New directions for public expenditure State and local budgets are the main sources for financing basic social services, paying for salaries and wages of civil servants, resolving social problems, and generating jobs through public capital investment. With the transition to a market economy, significant changes have taken place in the financing of social services. From being totally financed by the State during the socialist era, budgeted expenditures have declined substantially as a result of the economic liberalization and privatization policy adopted by Mongolia. Although new sources of funding social services are emerging, the national budget still plays a decisive role in financing education, health care and other social services. 117. MoFE, UNDP, Mon/01/U01 Project Report “Capacity building for gender sensitive budgeting”, 2004.

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Chapter 9. Policy alternatives and institutional development Between 1996 and 2005, 27.1 to 44.2 per cent of Mongolia’s GDP was allocated through the budget; and expenditures on the social sector accounted for 12.3-22.5 per cent of GDP. Expenditures on social services alone accounted for 44.3 to 54.9 per cent of total budget expenditures. The sharp economic decline during the transition period and a shortage of budgetary resources meant that social services had to be provided at low costs. The bulk of expenditures in education and health care services is being spent on salaries, wages and heating of schools and hospitals. Only a small part is spent on supplies including textbooks, computers, essential equipment and internet access which are necessary for provision of quality education and health care. Of the total expenditure on primary and secondary education, for instance, 29 per cent is spent on heating, electricity, water supply and transportation related to school buildings and dormitories, 55 per cent is spent on salaries and additional wages of teachers and staff and only 0.2 per cent is spent on teaching materials. The Law on Financing and Management of Budgetary Institutions introduced in 2003 transferred the budget authority to the top management of the sector. This contradicted some of the objectives put forward previously to decentralize and increase the authority of local administrative institutions and adversely affected the opportunity to resolve problems at the local level. In framing policy reforms on budget allocation, it is necessary to examine several issues. It is important, for instance, to assess the impact of increasing the authority of local administrations to allocate and control the budget. It is equally necessary to identify activities that would be financed at the national and local levels. Improving the efficiency of allocated budgetary resources becomes critical. Typically, local bodies do not have sufficient authority for planning and allocating the budget. As a result, there is often a mismatch between budgetary allocations and real conditions of social life. Moreover, resources are spent ineffectively as public participation in budget planning and spending is limited. Positive growth trends observed in the recent past have contributed to a growth in per capita expenditures on education and health care services. Per capita expenditures on social services have grown sharply. For instance, between 1998 and 2004 per capita expenditures on health care services increased from US$ 13 to US$ 23.118 However, access to and quality of social services have not improved significantly. This calls for a reassessment of efficiency of budget expenditures. Since the mid-1990s, a special index has determined the amount of per student expenditure in the education sector. Funding of schools has been determined on the basis of multiplying the index by the total number of students studying in the particular school. Funding of health clinics depends on the population covered by medical insurance in the area. However, this system is not able to relate income of the educational or healthcare organization and salaries of the staff with the quality of services they provide. Under such conditions, it is doubtful whether budgeted resource allocations can be efficient. Although Mongolia follows the principle of equality in provisioning of social services, numerous studies point out that populations in remote areas and socially vulnerable, poor groups are unable to access social services equitably.

118. Ministry of Health, 2002. “Maternal mortality reduction” p.61.

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9.4. GOOD GOVERNANCE FOR HUMAN DEVELOPMENT The rule of law Rule of law is the cornerstone of modern democratic societies. The rule of law is about developing legislation that is responsive to the will and interests of people and is compatible with accepted legal norms; it is also about enforcing governance without providing excessive power to a single entity. From a human development perspective, the rule of law is particularly important for two distinctive roles in the society. First, the rule of law ensures that all citizens are equal in the face of the law and all have rights to be protected by law. By providing a guarantee of equality before the law to all people, regardless of their ethnic Box 9.5 The objective of the rule of law origin, race, sex, religion, political and other views, nationality or social sta“Constitutional rule is similar to bread, tus, wealth and place of birth, the rule water and air for citizens. The real valof law protects common citizens and ue of the democratic rule of law lies in poor people from discrimination and it being the only institution that is able to protect the constitutional rule. Thereprotects their rights to actively particifore, the main objective of the rule of pate in social life. Second, the rule of law grounded in the constitutional rule law obligates organizations and offiis to bring up the political power to cials in the social sectors to implement abide by the law, to ensure inclusion of their activities within the limits provided all political powers under independent by the law. and fair court and to ensure citizens’ Economic, social and political stability is stronger in countries where civil freedoms are protected by the law and many State institutions operate within the law. In such countries, people respect the rule of law not out of fear but because of their convictions that laws are beneficial and appropriate. Any entity that is related to the State, while enjoying their rights, should also respect and abide by their legal obligations.

rights, freedoms and aspirations. In other words, the mission of democracy and the role of law is to secure basic citizens’ rights through legal norms, to limit the power of the state by the law, to ensure parliamentary and courts oversight by allocating the authority; the main objective also lies in ensuring participation of people in political and social life, and to ensure immunity of civil rights and freedoms at all levels.” Gustav Rabrooch

Legislation is more stable in countries with a strong rule of law; and it is not easy to change laws and rules outside of the set procedures. The stability in legislation leads to stability in the business environment. The stability of the business environment creates a favorable environment for foreign and domestic investment. High levels of investments mean job creation in large numbers and reduction in unemployment and poverty. Civil rights and freedoms protected by the law are the main conditions for the respect

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Chapter 9. Policy alternatives and institutional development of human dignity and the foundation for human development. The rule of law ensures participation, especially participation of vulnerable and poor people by enforcing the principle of equity of the law. Only when development is inclusive of all members of the society can progress and development be wider, more rapid, more equitable and fairer. In this regard, the rule of law is as indispensable for human development as air and water. Mongolia has acknowledged, as part of the legal reforms implemented since 1990, the main principles of human rights reflected in documents such as the United Nations Human Rights Declaration (1948), the United Nations Pact on Civil and Political Rights (1948) and the Pact on Economic, Social and Cultural Freedoms (1966). Human rights principles are incorporated in the new Constitution passed in 1992 and in other legislative documents. As such, these represent important moves toward instituting the rule of law. However, violation of human rights that are protected by the law, violation of laws by state organizations and civil servants and corruption still occur. Loopholes in legislation, low participation of people in monitoring the activities of public organizations, unreasonable public administration structures, prevalence of appointing civil servants on the basis of political considerations, and weak legal knowledge among citizens are major factors impeding a more widespread acceptance of the rule of law. According to experts, making the legislative process more open and transparent, improving participation of citizens in this process, improving the system of training and upgrading professional skills of civil servants and improving legal education of citizens are essential for instituting the rule of the law in Mongolia. The practice of recent years shows that while greater attention is given to prosecution of violators of the law, limited attention is paid to prevention of such violations. This is the reason for the consistent increase in grave crimes in recent years. The rule of law cannot be put in place just by punishing the violators and improving the workings of governance institutions. Partnership between the State and the society is of utmost importance in this matter.

Efficient, capable civil service One of the main characteristics of good governance is the capability of government institutions to efficiently spend resources on meeting the needs of the society including that of households and individuals. Efficiency in everyday activities of State institutions is directly dependent on the performance of civil servants. For governance to be effective, civil servants must be high-skilled as they serve as a bridge between the State and its people, and are responsible for reaching the general public with State services and reflecting public opinions in policy decisions. Professional skills, leadership, ability to identify oneself and others, adaptability, communicative skills are some of the skills that civil servants ought to possess. Unwarranted delays, stifling bureaucracy, over-concentration of authority, corruption and lack of principles reflect inefficiencies of the state mechanism. In order to make governance systems pro-people, these problems should be overcome. When the civil service is over-dependent on politics, such fundamental features as capabilities and specialization, accessibility to citizen fade out and a trend of servicing politicians emerges.

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Part three. Pro-human development policy in Mongolia In recent years, one-eighth of the total labour force in Mongolia has been working in the civil service. However some changes have taken place in the structure of civil service. The number of political and special staff has increased and the number of service staff has declined. Dismissal of civil servants, appointment without any selection procedures and “temporary” appointments are widespread – these do not meet the requirements for civil servants being capable professionals. Evaluation of official positions of civil servants, detailed description of positions and standards are almost non-existent and criteria for working in the civil service are unclear. As a result, appointment of inexperienced persons without appropriate knowledge to positions requiring high professional skills, irresponsibility of civil servants, and passive attitudes towards their duties are often observed. To improve efficiency of State institutions, it is necessary to constantly upgrade the quality of services and to organize activities in a way that assists clients. This requires from the staff high professional skills and adaptability. Executives especially in the middle and senior levels of management require high professional skills. The following measures need to be taken in order to improve the efficiency of the civil service in Mongolia: recruit capable staff, select tasks that can assist in provision of State services to general public, evolve flexible forms of organization, improve use of resources, enhance cooperation and links at all levels of governance, and establish close relationships with communities, civil society and private sector. It is possible to improve efficiency of governance institutions by strengthening capacities at all levels of governance. Along with this, there is a need to develop criteria for selection of workers and to implement a programme for upgrading their professional knowledge and skills.

Decentralization From a human development perspective, a centralized system, by acting through its inflexible and hierarchical bureaucratic system, restricts citizen’s participation in decision-making that affects their lives, leads to inappropriate allocation of resources, and promotes decisions that fail to respond to local needs and preferences. During the decade-long transition into a democratic and legal State system, within the scope of legal reforms, Mongolia has adopted many important laws for promoting decentralization by improving the structure, organization and division of power and responsibility of the State, central and local-level authorities, facilitating self-governance, strengthening local administrations, increasing the role of NGOs and civil society in governance and enhancing local ownership of assets. “The regional development concept” is another option of the decentralization policy. The decentralization policy framework identifies the political, administrative, budgetary, and market concentrations that need to be decentralized. However, as the Mongolian practice shows, partial or fragmented realization of these challenges cannot bring about tangible results. Although Mongolia has succeeded in terms of decentralizing administrative and market concentration through the transfer of local management authority to its residents, privatization of State property, and devolution of some functions to local authorities, some dependency of local administrations from central authority still remains within the administrative, budgetary and financial frameworks.

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Chapter 9. Policy alternatives and institutional development Since the early 1990s, Mongolia has been implementing the decentralization policy by redistributing government authority, management and financial responsibility among different levels of the government; promoting de-concentration; transferring some functions to semi-autonomous organizations that are dependent upon the (central) government; effective delegation; transferring authority for decision-making to local government; and promoting devolution. However, in the context of the de-concentration policy, central State organizations have created in local areas structures that are heavily dependent upon them. This has curtailed the independent functioning of local authorities. In accordance with the Public Sector Management and Finance Act that came into force in 2003, there has been a transfer of the budget spending authority to sectoral bodies and the establishment of a vertical management system for accumulation in the centralized fund and reallocation of budget funding. However, local fiscal authority and independent functioning have been curtailed, and this has led to an increased dependence of local authorities upon the central government. Ordinary citizens are faced with various problems that are imposed by the unbalanced distribution of power among the central and local governments, concentration of budgetary, financial and other power in the hands of the central government, and insufficient involvement and inadequate performance of local governments. Conflicting legislation, uncertain law enforcement mechanism, weak staffing capacity in local governments and low level of public participation have also exacerbated the above problems. Because the design of policies and programmes of the central government fail to reflect local views, they are not responsive to the community’s needs. Since such policies and programmes fail to reflect local specifics, they are not consistent with long-term objectives of local development. As a result, implementation of such policies and programmes is likely to be ineffective. Compared with the center, however, local administrative organizations better feel and respond to local specifics and people’s living conditions. As such, local governments can be more effective in alleviating the existing inequality among the population. The key objective of decentralization is to deepen democracy by improving efficiency of resource distribution and services, enhancing transparency and accountability in the public services management, reducing bureaucracy, cutting down the number of procedures, and enhancing public participation in government functions. If not properly designed and carefully implemented, the decentralization policy could even cause a crisis by increasing public expenditures and weakening power and impacts of local level authorities. For Mongolia with a highly dispersed population and numerous small administrative units over its vast territory, there is a need to make administrative units larger in order to improve the quality of public services, to bring services closer to people, to improve efficiency of budget funding and to enhance local management capacity within the framework of the decentralization policy. There are certain prerequisites to successful implementation of the decentralization policy. First, there must be a strong commitment to promote decentralization at both central and local levels. Second, enabling legal frameworks must be put in place. Third, there should be active participation by citizens in local decision-making. Fourth, transparency in reporting by decision makers must be

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Part three. Pro-human development policy in Mongolia instituted. Fifth, people must have the necessary educational attainment required for decentralization; and finally, serious efforts must be made to build strong local capacity for decision-making.

Transparency and accountability Box 9.6

Only under conditions of a democratic, open and accountable governance system can the State provide accessible, efficient and quality services to its citizen. That is why transparency of governance and accountability of State institutions and civil servants are considered the main features of pro-human development good governance.

Democratic, open and accountable governance in all sphere of society is a cornerstone of human based development of society. Adapted from Declaration of World Summit for Social Development, 1995

Transparency means that decisions are made and implemented in accordance with laws and regulations, information about decisions is disseminated through accessible mass media and access is open to all people and social groups. Transparency can however be limited due to reasons of security and personal confidentiality. Monitoring of activities of governance institutions and officials by civil society tend to increase and the public get an opportunity to participate in social life as the ability to receive information about activities of the governing body and opportunities for cooperation increase. The more transparent the governance, the greater will be the responsiveness of citizens and the higher will be the levels of public satisfaction. In general, transparency of governance can be measured by confidentiality of information and information flow. The Constitution of Mongolia states that “citizens have a right to seek for and receive information from the State and its organizations on any issue apart from those that are protected under the special law”.119 This legalizes transparency of activities of the State. However, traditional practices such as red tape, long and manystaged processes, “asking permission from the boss” to give information that persist still make the system closed for the general public. Law on the State Secret and the Law on the List of State Secrets were approved in 1995 and 2004 respectively. However, implementation of these laws shows that some state organizations do not disclose information because they do not agree with the list of secrets and regulations on their protection, while some other institutions include the list of their secrets to secrets120. This limits the rights of citizens to access information guaranteed to them by the Constitution. To change the situation, it is necessary to improve independent information sources and encourage free channels and electronic information services that are not directly dependent on any institution or an official. An important step taken in this direction is the E-governance programme implemented by the government. Governance should be accountable to people if it has to work for them. If the governance institution or officials are not able to implement their duties or they misuse their authority, they should be accountable for their decision or a wrong action. This is a fun119. Government of Mongolia “The Constitution” 2-13-17. State Information Bulletin, 1992, No 1. 120. Global International NGO, 2004. “Transparency status of public organizations and information right of citzens” Survey report. Information Freedom. /A handbook for citizens/, Ulaanbaatar

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Chapter 9. Policy alternatives and institutional development damental feature of “good governance”. The system of accountability can be formulated as following approved or agreed procedures to achieve certain results from organizations or officials. Accountability is generally illustrated by decision-making and activities of organizations and officials. Without transparency, even if the rule of law is in place, accountability can not be reached. Not only state organizations but also the private sector and civil society organizations should be accountable to the general public and its members. The accountability system has two directions: vertical and horizontal. The vertical system is characterized by accountability of state organizations and elected officials to citizens who elect them; the horizontal system includes mutual reporting and monitoring of implementing agencies and officials on their decisions and activities. Accountability of the governance system requires first, planning of activities to be implemented by governance institutions; second, existence of criteria to measure the quality and implementation of activities; third, clear description of duties, responsibilities, salaries and incentives for executive staff; and fourth, establishment of an effective information and record keeping network. The Constitution of Mongolia and other related laws and regulations provide a legal basis for the balanced distribution of authority to legislative, executive and judiciary organizations and for their mutual monitoring.121 However, inadequate development of governance institutions, unclear terms of reference and evaluation criteria of organizations and officials and overlapping of authorities have led only to a marginal decline in the irresponsibility of State organizations and officials. Results of the survey on evaluation of the state of governance conducted by the World Bank Institute (Governance Matters) show that indicators of “listening to opinions of citizen, accountability” and “control over corruption” in Mongolia show a declining trend. Results of other surveys conducted in the last years reveal that the trust of the general public in governance institutions, especially the parliament and the government has declined122. Transparency and accountability are the main ways of eliminating inefficiency, red tape and corruption in governance organizations. By establishing a transparent, accountable system, governance activities can be directed towards working not in promoting the interests of a certain group of people, but in enhancing public interest. For improving transparency and accountability, it is important to have a sincere political aspiration among the electorate and governance organizations to make a change. It is necessary to implement the following measures to improve transparency and accountability in Mongolia: improve structure and organization of governance organizations, enhance distribution of authority and duties, eliminate overlapping of responsibilities, develop evaluation criteria for results; give priority to the issue of strengthening capacity of governance organizations, make state organizations more open to citizen and civil society organizations, and make radical changes in providing them with information.

121. The Constitution of Mongolia, 25-6, 42-2, 43-4. 122. Political Barometer. Sant Maral Foundation. www.forum.mn, Value of democracy and changes in it. 2004. Joint survey report

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9.5 CREATING ENVIRONMENT FOR HUMAN DEVELOPMENT Promoting physical infrastructure for human development The infrastructure sector, which transmits heat and warmth to urban residents during cold seasons and connects rural and urban areas of Mongolia with its scattered population and vast territory, has a crucial role to play in the lives of people. In landlocked Mongolia situated far from oceans, seas and other countries of the world, access to public services and human development opportunities directly depend on infrastructure. This is especially true for rural people living in remote areas.

The infrastructure sector encompasses a wide range of activities, including energy, transportation, information communications and community services. During the communist years, it was treated as a non-manufacturing sector, neither cost-effective nor productive, requiring large volumes of investment. As a result, inadequate emphasis was placed on infrastructure development. The situation deteriorated during the initial years of transition. In the 1990s, the share of investment in the transportation sector was 2-3.5 per cent of GDP for developing countries, whereas in the case of Mongolia, it was a mere 0.8 per cent of GDP.123 Mongolia’s underdeveloped infrastructure adds to the costs and poses a challenge to all spheres of human activity as it covers energy, water supply, transportation, foreign and domestic trade and manufacturing. Infrastructure development can ensure human security and protect the health of people, especially those living in isolated rural areas. Moreover, it can promote active participation in social life. Infrastructure development and economic growth are directly interrelated. Infrastructure development leads to improvements in economic competitiveness, terms of trade and investment climate. This in turn enhances people’s living environments, expands their choices and upgrades their living standards. However, through taxes and budget allocation, investments in infrastructure can impose a burden on people. In promoting infrastructure development, therefore, a balance between economic and social policies must be maintained. Mongolia has witnessed an increase in infrastructure investment from foreign and domestic sources in recent years. The increased share of the infrastructure sector in GDP from 16.3 per cent to 20.9 per cent between 1999 and 2003 has led to the creation of new jobs. It has also had a favorable impact on remoteness and isolation and has provided equal development opportunities for both rural and urban residents. Moreover, implementation of such major projects and programmes as “The Millennium 123. Ministry of Infrastructure, 1998. “Transport Strategy”

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Chapter 9. Policy alternatives and institutional development Road”, “The Consolidated Energy Grid” and a “Master Programme for Information Technology Development” has slowed down the flow of population migration to metropolitan areas and helped to establish a sound business environment. Improving the productivity of the infrastructure sector requires that the structure, organization, management, planning and activities of this sector be strengthened and improved. Reflecting human development issues in policies and strategies of the infrastructure sector requires emphasis on a number of issues. First of all, it is important to ensure that the design of any project or programme for infrastructure development involves community input. It is equally important to assess whether such a project or programme will generate employment, income and opportunities for all people, in particular, for the poor with low living standards. Care must be taken to ensure that the design of any project or programme for infrastructure development pays attention, in addition to creating economies of scale, to expanding choices of people, including those of the poor, improving their livelihoods, securing sustainable living environments, promoting equality and narrowing the gap between human development opportunities across and within regions, rural and urban areas and social groups. A careful assessment of the social costs and benefits of infrastructure projects must be undertaken.

Environmental Strategy Environmental and natural factors such as low density of the population over vast lands, four seasons and a harsh continental climate make the livelihoods of Mongolians more difficult and more costly. Particularly prone to the nature and disasters are livelihoods of rural people engaged in pastoral livelihood breeding and extensive crop cultivation. Their livelihoods are extremely vulnerable and they are the first victims of any changes in ecosystems. Disasters such as droughts, snows and dzuds, fires, floods and strong wind storms lead to loss of human lives and livestock, impoverishment of herders, loss of harvest and threats to human security. Similar to the powerful impact of the environment on the lives of the people, human activities have also been increasingly affecting virgin nature and leading to environmental degradation. Several external and internal factors such as the growing demands of people and industries, poverty and inequality, growth of the mining sector, expansion of foreign trade particularly based on mining, wasteful practices in production, outdated technologies and global warming have resulted in a depletion of various resources and deterioration of the environment. Forest resources have declined, pastures have deteriorated and water sources, rivers, streams and springs have disappeared. Biodiversity is also under threat due to inappropriate human activities. Furthermore, these activities also lead to air, water and soil pollution in the capital city that exceeds permissible levels. Due to depletion of forest resources, people have begun facing a scarcity of wood for construction and firewood; soil erosion has increased and soil fertility has de-

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Part three. Pro-human development policy in Mongolia clined. As a result, there is an increasing deterioration of pastures, decline in their output, and a reduction in productivity of the livestock and crop harvest. Shortage of water resources is especially affecting the livelihoods of rural people who depend on crop cultivation based on precipitation as well as the livelihoods of people living in Gobi steppe areas scarce in water. Furthermore, scarcity of water is starting to affect aimag and soum centres and suburban areas of the capital city. High levels of water, air and soil pollution in cities, especially in Ulaanbaatar, are responsible for persistently high levels of various infectious and respiratory diseases. Mongolia’s environment and natural resources need to be protected not only for the creation of favorable environments for living and working, but also in order to safeguard the interests of future generations by leaving them with resources necessary for their livelihoods. Identifying why people are destroying the environment is important in order to protect the environment. Available evidence suggests that emergence of inequality, poor livelihoods, and poverty are the reasons for environmental degradation. Depletion of common natural resources occurs when poor and low income households use excessive amounts of natural resources for income generation, food and firewood needs. On the other end, the wealthy group is concerned with doing business using natural resources, paying little attention to restoration of resources. The main victims of environmental degradation are herders, farmers and low income or poor people who depend on natural resources for their livelihoods. The very degradation of the environment and scarcity of resources are in itself contributing to poverty. Following actions need to be taken to protect Mongolia’s environment: develop environmental protection institutions; create public participation in making decisions on environmental issues; engage in production and services that are suitable for the ecological capacity of the area; reduce density of population in areas where population exceeded the ecological carrying capacity; lease on a long term basis the pastures and forests to local residents and ensure their protection of the resources; take actions to promote technologies, activities and initiatives for using renewable energy sources and natural gas as the source of energy; find replacement organic fuels; implement activities that aim to eliminate outdated technologies and wasteful production practices; increase fees on use of natural resources and levies for environmental pollution; and reduce wasteful use of resources by having the biggest pollutants and users of resources pay the most.

Access to markets Access to markets is a central theme on the human development agenda for Mongolia given that it is a landlocked country with an economic structure specialized in a narrow range of products. This is particularly true for rural areas where people’s well-being excessively rely on markets owing to the fact that the majority of rural people, who are engaged in extensive nomadic livestock breeding, are supplied with their necessary goods from the capital city. In a vast majority of cases,

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Chapter 9. Policy alternatives and institutional development they deliver and sell their raw materials to the city. Due to high transportation costs from rural areas, the farther the place from the center, the higher the prices of commodities and the lower the prices of raw materials sold by people in remote areas. Similarly, the farther the place from the centre, the lower the human development indicators and the higher the levels of unemployment and poverty. Rural households may appear to be wealthy based on possessions of herd stock and cash income. But in reality, their income levels and purchasing power are significantly lower than urban residents. In addition, they have a seasonal character. In most cases, rural people are short of cash and earn for their living by barter trading which yields almost no profit to them. Moreover, the income gap and inequality between rural and urban areas are widening as the added value generated by rural people in the exchange of commodities for agricultural raw materials are actually transmitted through foreign and domestic trade as incomes to urban residents. Access to markets is a more challenging issue for the vast majority of people residing in rural areas, from aimags to soums, from soums to baghs. However, market development opportunities are limited in rural areas of Mongolia due to remoteness from central areas, poor roads and transport networks, a semi nomadic lifestyle, a high dispersion of the population over a vast territory, and a limited scope for social and economic interactions. Further compounding the problems of rural areas are several other factors such as inadequate access to information, low educational attainments and slow changes in rural attitudes and perceptions regarding markets made worse by the slower than expected market development. Facilitating market development and promoting market relations in rural areas would require serious consideration to be given to improving access to information and increasing the education and skill levels of rural populations. In addition, issues of geographical isolation, market capacity, population density and dispersion, and absence of adequate cash and credit arrangements should receive more attention. Towards this end, it is critical to initiate policies and programmes aimed at increasing the concentration of the local population, enhancing market capacity, promoting roads and financial infrastructures and raising incomes of rural population. These challenges could be met by establishing larger administrative units, promoting their regional development and founding regional pillar cities. Macro-Micro linkages The approach for solving problems during transition in Mongolia still carried the features of the top-down approach of the socialist system. As a result, development of macro policy was too general and yielded poor results. In general, there are many examples of macroeconomic policies not reaching benefits to the people, or even having a negative impact on human development. Lack of or outright absence of links and coordination between macro policies and micro interventions is a frequent phenomenon in social development practice. When such links are non-existent, macro policies are often formulated not on the basis of clear information and analysis, but on the basis of rumours, speculations, politics or ideology. Similarly, when such links are absent, corruption becomes a powerful factor to

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Part three. Pro-human development policy in Mongolia shape decision-making. A package of macroeconomic stabilization policies named the Washington Consensus was implemented in Mongolia to overcome the initial shocks of the transition. However, these policies were poorly grounded in the reality of the country and were implemented without careful assessment. As a result, their impact on people’s livelihoods and on the social and economic situation of the country was negative. Even today the negative impact of these policies remains. Problems with human development occur at a household or individual level. Therefore, micro-level initiatives are better for offering information about ground realities. Experiences accumulated at the micro level play an important role in shaping macro policies. Only well-designed macro policies are successfully implemented at the micro-level. At the same time, micro-level interventions tend to be temporary in nature, involve few people or otherwise are limited in scope; they lack coordination between themselves and sometimes tend to become temporary relief actions, not based on consideration of macroeconomic factors. They then end up not being very effective. The livestock restocking initiatives implemented during 1999-2001 in the aftermath of dzud disasters can be mentioned as an example of micro level initiatives. These programmes were important in providing livestock to herders, who lost their main source of livelihoods, but they were poorly coordinated and “failed to make a significant impact on the livelihoods of poor herder households”.124 In general, the impact of the restocking programmes was not sufficient.

Box 9.7 The concept of micro and macro is very relative and can be defined variously at political, economic, social, administrative and regional contexts. Issues that are macro at the national level become micro issues at the global level. The macro level usually covers institutions that have the authority to initiate and implement policies, as well as institutional and administrative mechanisms that have centralized authority for allocation of resources. Macro level encompasses the whole country or large parts of it in terms of authority or scope. The micro level involves groups of people or institutional levels that have the authority over certain regions and certain activities or projects. Districts, soums, baghs, small villages, communities, households, local voluntary organizations are all examples of micro level institutions. In considering micro and macro levels, it is important to take into account the meso level. This is the level between the micro and macro in terms of political, administrative or regional arrangements. Aimag or capital city administration and other institutional units are examples of institutions at the meso level. * Adapted from UNDP “Assessment of Micro - Macro Linkages in Poverty Alleviation: South Asia” New York, 2005

Four factors have been identified as being the key to missing links between macro policy and micro initiatives:125

124. MoFE, PRG, 2003. Study report “An examination of the effectiveness of herd restocking strategies in building and secur ing the incomes and the livelihoods of herder households” 125. UNDP, 2003. “Assessment of Micro-Macro Linkages in Poverty Alleviation: South Asia” N.Y.,

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Chapter 9. Policy alternatives and institutional development Attitudes and sensitivities of macro policy planners and micro programme implementers towards each other; 2. Lack of effective information exchange between the two levels; 3. Differences in institutional arrangements between the objective and the mechanisms for its implementation 4. Unequal power relationships 1.

Unequal power relationships Enhancing linkages between the state and the micro levels – households, communities and individuals – is critical for ensuring success of pro-poor interventions. Equally important is to promote top-down and bottom-up linkages in order to make macro policies and micro programmes successful. Such links will depend upon effective management and institutional structures, resources, knowledge and information. Strong macro-micro linkages are important for mobilizing resources. In order to strengthen these links, it is essential to strengthen administrative arrangements between the state and citizens by improving analytical methods and information exchange between them. Administrative arrangements ought to promote openness in information-sharing and communication and empower civil society and political institutions by introducing administrative reforms. Research and analyses of the impact of macro policies on households, individuals and other micro level units ought to inform policy formulation and implementation. Over-centralization of the governance system, unequal power relations between central and local institutions in terms of authority and access to financial resources, a ‘half-open’ system of legislative and policy decision-making126 and low involvement of communities and individuals weaken macro-micro linkages. It is impossible to ensure efficient use of resources and ensure reach of policies, programmes and social services to the micro level without providing people with knowledge and information and giving them the authority to implement activities. Several measures can help to strengthen macro-micro linkages. These would include, for instance, changes in the unequal relations between the State and the citizens; introduction of the principles of democracy, transparency and accountability in governance; improved knowledge and skills of civil servants, especially in local governments; reduction in bureaucratic delays and corruption; strengthening partnership between the State and the civil society; and promoting the freedom of press in order to improve transparency in information and communication. At the same time, administrative reforms ought to give greater authority to people and strengthen local authority because of the benefits of decentralization for better addressing local needs.

126. The 9th goal of the MDGs: Working group report on “Indicators of Democratic Governance”

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9.6 REFORM POLICY OPTIONS Countries’ interests in transit transportation An International Conference held under the aegis of the United Nations in Almaty in September 2003 adopted a Declaration that recognized landlocked countries as a special group among the poorest of developing countries with limited capacities and dependence on a very limited number of commodities for their export earnings. Landlocked countries face high transportation costs while exporting and importing goods; as a result, goods produced by landlocked countries have low competitiveness on the world market. Owing to their limited export earnings, such countries tend to have access only to poor technologies, exhibit low productivity, and are characterized by low incomes and low living standards. Landlocked countries, in general, also have lower-than-average human development indicators compared with maritime countries. Some studies suggest that the GDP per capita of landlocked countries is lower by 57 per cent and the average life expectancy is 3.5 years less than among maritime countries. Education index scores have also been found to be lower compared with those of maritime countries. 127 Mongolia is one such landlocked country sandwiched between two giant neighbours – Russia and China – and being situated in the Central Asian plateau, very distant from the seas. The geographical remoteness isolates Mongolia’s entrepreneurs from markets, as well as consumers from producers. High transportation expenses incurred on exports and imports increase both the production costs as well as people’s costs of living. Studies for Mongolia reveal, for instance, that the ratio of freight charges to merchandise imports was 6.4 per cent.128 Mongolia is located at a distance of over 1700 km from the nearest seacoast.129 In terms of transit transportation, therefore, Mongolia relies excessively on its neighbours. In addition, underdeveloped infrastructure and weak development of road networks pose significant obstacles to accessing world markets. Mining and livestock raw materials that account for most of Mongolian exports are also bulky and this further increases the costs of transportation. Selling these products at regular world prices requires the production costs of such products to be less than in coastal countries. However, Mongolia’s exports enjoy the lowest global competitiveness as the opportunities for substantial cost reductions are extremely limited. High transportation costs impose limits on Mongolia’s ability in terms of production and exports of a variety of products. Options are limited in terms of promoting ex127. N. Batnasan, 2003. “Foreign trade” operational management, organization, legal coordination”, Ulaanbaatar . 128. Michael L,Faye, John W.McArthur, Jeffrey D.Sachs and Thomas Snow, 2004. “The Challenges Facing Landlocked Developing Countries”, Journal of Human Development 5(1),. 129. UNDP, 2005. “Economic and Ecological Vulnerabilities and Human Security in Mongolia” Ulaanbaatar

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Chapter 9. Policy alternatives and institutional development port-oriented manufacturing, generating new employment opportunities and raising incomes of the people. Especially limited are the possibilities to export agricultural raw materials, meat, milk and vegetables. Addressing issues relating to transit transportation therefore becomes critical for Mongolia. Resolving obstacles associated with transit transportation can help Mongolia to reduce the transportation costs and thereby the prices of commodities, expand people’s choices, increase consumption, create jobs and raise incomes. There are several obstacles that influence foreign trade of landlocked countries. These include, for instance, administrative barriers and conditions prevailing in transit neighbours, the road infrastructure of neighbours, relations with neighbours, and economic and political stability of neighbours. Landlocked countries need to obtain benefits assured to them under the 1965 New York Convention on Transit Trade of Landlocked States, the 2003 Almaty Declaration and the WTO Agreement. Domestic economic policies should seek to reduce exports of raw materials and manufacturing products in which transportation costs account for a small percentage of their prices. Attention ought to be placed upon working actively towards simplifying transit transportation and reducing associated costs. Two major issues need to be addressed for minimizing constraints. They are promotion of road infrastructure development and accession into regional integration.

Regional trade regime The history of modern economic development indicates that least developed countries, due to low levels of development and weak economic capabilities, lack the capability to devise and implement trade policies that promote both efficiency and human development. This happens despite liberalization of trade and establishment of favourable terms of trade for these countries. In the light of unequal opportunities for trade participation, the gains from trade are distributed unevenly across and within regions, countries and people. In modern times, trade liberalization has three principal forms: one, removal of selfimposed barriers to trade and services by countries; two, removal of cross-country trade barriers within regions; and three, multilateral trading arrangements. These forms of trade liberalization differ in terms of the benefits they bring to the countries concerned. Compared with multilateral trade arrangements, regional trade agreements (RTAs) more adequately take into account the interests of countries and localities in respect to their economic development and poverty reduction objectives. Therefore, RTAs become the priority especially for the least developed countries. Competitive and profitable markets typically emerge in regional countries that enjoy similar development and income levels and that require less transportation costs in trading. In the new era of globalization, every country aims to boost its people’s incomes and the quality of life by improving the terms of trade using demand opportunities in for-

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Part three. Pro-human development policy in Mongolia eign markets, increasing the efficiency of trade participation and improving the trade balance. In doing so, sound and strong policies are needed that target well-defined market segments, particularly in specific geographical regions. RTAs provide benefits through free trade, customs unions, common markets and preferential arrangements and foster development among member countries. Evidence from many studies suggests that free trade agreements and integration among regional countries have been growing in number and they have also become more active in recent years. Such regional agreements and integration provide member countries with more reliable partners and more secure markets. A regional trade policy should be synchronized with a country’s overall development policy. Moreover, it should ensure sustainable economic development of the country, open up opportunities for manufacturers in terms of access to markets, provide balanced trade and promote human development. Trade deficits are not often desirable as they translate into lower wages, lack of jobs and higher poverty. It is extremely important to consider the impact of a more active participation in regional trade on the purchasing power of the people, especially in low-income segments. At the same time, it is necessary to assess the changes that are expected to be made in people’s incomes and consumption patterns; and to examine how trade will impact income and gender equalities. Regional trade opens up new markets, promotes competition, creates jobs and expands people’s consumption choices. It promotes the diffusion of new knowledge and technology transfer needed for enhancing productivity. Regional trade expansion also benefits people through better resource allocation and improved capacity utilization. While regional trade can enhance people’s capabilities, promoting human development can also significantly impact trade. Experiences of many countries show, for instance, that a healthy and skilled workforce coupled with new knowledge contribute to rapid economic growth and better trade outcomes. The North East and South East Asian countries are seen as strategically important partners for Mongolia due to their geographical proximity. They can be expected to have a significant economic impact via foreign trade and investments in Mongolia. However, economic integration is almost impossible among these regional countries which are dramatically different from each other in terms of their political and economic systems, cultures and ethnic roots. Cooperation opportunities are further constrained by competition between countries such as Japan, China and Russia that seek to spread their influence in the region.

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9.7 COOPERATION AND PARTNERSHIP Community Establishing communities is all about empowering people to protect their interests and cope with stressful times, prompting them to assume responsibility for one another and enabling them to share associated risks. Through communal life, people learn about democracy, which helps to promote a more open and equal society. Mongolians place a high premium on communal living as they recognize the power of collective force, communal bonds, friendship support and solidarity as opposed to loneliness, individualism and alienation. Many activities related to human development are planned and implemented at the national level and at administrative units. Nevertheless, people spend most part of their lives in the community which serves as a bridge binding people to the social life. The nature of organization of Mongolians was weak compared to sedentary civilizations as nomadic pastoralism had been the dominant way of life from ancient times. However, the socialist form of communal labour organization adopted under the socialist regime enabled people to learn the ways of life and develop habits linked to the common norms of social life. However, under the socialist system, human rights, freedoms and interests of people were circumscribed and restricted. Traditionally, Mongolians have maintained a strong sense of belonging to their local area and its people. This sense is still strong in rural areas. In this context, the agricultural cooperatives that emerged during the negdel movement in the 1960s became not only administrative units but also a local communal unit, providing vital impetus to human development in rural areas. Agricultural cooperatives espoused many values of community life by bringing social services closer to people, preparing fodder, constructing wells and providing veterinary services for herders. The dissolution of the negdels, which were targets of harsh criticism in the initial years of transition, however, increased inequality and damaged people’s livelihoods and the quality of social services in rural areas, adding to the vulnerability of rural population. Many rural residents migrated to urban areas leaving their birth place and facing higher vulnerability, insecurity and risks. Although the dissolution of the negdels was smooth, however, no new institution was created to replace them. Transition to a new democratic market-oriented society has transformed the conventional concept and perception of community. It has led to the emergence of specific forms of communities in the contemporary society of Mongolia. Today, people are willing to live and work together by sharing their experiences and by building specific forms of community that reflect such common identities as specialization, locality, interests, beliefs, abilities, ethnicity, age and sex. However, these forms of community have proved to be incapable of fully meeting human development needs. Some people still feel alienated and vulnerable. This is the outcome of a variety of factors ranging from inequality and conflict of interests to excessive centralization of authority and insufficient independence of local self governing bodies.

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Part three. Pro-human development policy in Mongolia Different forms of people’s organizations need to be encouraged in order to foster involvement of citizens in governance, incorporate inputs from ordinary citizens, in particular, from the poor, into existing government policies, bring more people into active participation in social life and to reduce vulnerability of low-income and poor people. The strong ties of kinship, locality and acquaintances among Mongolians need to be studied and integrated into policies and strategies of human development.

Civil society organizations Civil society organizations are essential pillars of pluralism and democratic governance. They bring the voices of people to decision-makers and influences policy through closer proximity to socially disadvantaged groups and to the poor and better awareness of local conditions. Civil society, however, is a vast terrain, populated by a wide range of stakeholders, including non-governmental organizations, human rights activists, professional groups and other associations committed to advancing public interest. Civil society interfaces with the state and markets. It provides an essential link between the ordinary citizen and the State by promoting dialogue and collaboration between them. The strength of civil society often manifests itself in strong public advocacy, dissemination of knowledge and experience, and networks established among various social groups to advance specific causes. Civil society has a central role in ensuring that State policies reflect public needs and real social conditions. It fills the void left by the activities of governance institutions. Civil society organizations can be accountable and innovative while at the same time being largely autonomous. Therefore, they tend to perform the watchdog function over implementation of State human development policies. Civil society not only strengthens the capacity and improves the quality of people’s participation but it also serves as a useful platform for representation of diverse viewpoints. Box 9.8 Non-governmental organizations are registered with the Ministry of Justice and Home Affairs under the 1997 Law on Nongovernmental organizations. There are over 4700 registered NGOs. It is widely believed that most of the NGOs exist mainly on paper. Possibly, only about one-fifth of them operate on a regular basis. NGOs differ widely by their institutional capacity and influence on society and are concentrated in urban centres. The few NGO umbrella bodies that exist are mostly ineffective. “State of civil society in Mongolia” p. 12

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Chapter 9. Policy alternatives and institutional development Table 9.1 Areas of activities of non-governmental organizations Areas

Percentage

Children, youth

13.83

Gender, family

12.23

Human rights, civil society, society, de- 10.64 mocracy Social welfare, vulnerable groups, the 9.57 disabled Economy, agriculture, production and 9.04 services Sport, tourism, recreation

7.45

Education, science, technology, research

7.45

Information, mass media

5.32

International friendship and coopera- 5.32 tion Health

4.79

Professional and interest groups

4.79

Law

3.19

Environment, natural disasters

2.66

Culture, literature, history

2.13

The elderly

1.06

Regional and local development

0.53

The emergence of civil society organizations is quite recent in Mongolia. It began in the 1990s during the period of economic and political transition when Mongolians started enjoying freedom of expression, freedom of association and the right to advance their interests. However, like in many developing countries, Mongolia’s civil society suffers from weak voice and low capacity. As a result, a strong linkage has not yet been established between civil society, public institutions and officials, though decision makers often experience strong public pressure for change.130Civil society organizations (CSOs) in Mongolia depend largely on funds obtained for implementation of foreign and domestic projects and programmes. Many play a passive rather than a pro-active role within the community. Recent studies reveal that civil engagement is low among marginalized groups such as rural herders, the poor and low income people, whose rights and interests need to be protected urgently.131People in these categories are afflicted by another form of poverty - participation poverty - as they remain reluctant to join coalitions or associations or to participate in social life. Good governance that promotes public good is strengthened when citizens work together towards a common goal of protecting their interests. Civil society needs to be supported in all aspects in order to create good governance for human development and to foster participation of people in political life. 130. D.Sukhjargalmaa. “Financial state of Mongolian NGOs” 131. “State of Civil Society in Mongolia”, p.81.

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Part three. Pro-human development policy in Mongolia Towards this end, government ought to create an enabling legal environment that can provide a more favourable climate for the development of the civil society, expand the involvement of CSOs in implementing some of the government programmes, intensify training and advocacy for enhancing public participation, and ensure equitable distribution of information by encouraging civil society networks of information and communication. It will be equally important to strengthen the structural, financial, technical and management capacity of civil society organizations, apply principles of democracy in civil society organizations, improve analytical and monitoring skills of CSOs so that they can evaluate performance of public institutions and enhance the managerial effectiveness and capacity of NGOs in local areas.

Private sector Generating three-quarters of Mongolia’s GDP, the private sector plays a key role in establishing favorable conditions for human development, generating incomes and employment, and providing sustainable livelihoods for people. The private sector with a large capacity and adequate resources can play a decisive role in reducing poverty and improving living conditions of the people. The private sector, by filling an empty market space, has contributed to improve access to public services and fulfill the need for quality services particularly in education and health. Private sector activities, extended to social services, tend to promote competition for quality services. Services provided by the private sector also appear to be more efficient than public services. Moreover, they reduce the pressures on the State budget. The real challenge however is to deepen privatization and improve the quality and access to education and health services in a manner that benefits the poor. In this regard, the government should seek various ways of cooperation and partnership with the private sector in order to promote sustainable human development. This is important given, on the one hand, the growing economic entrepreneurship and the insufficiency of government resources, on the other. Specific measures need to be implemented to ensure that the pursuit of human development goes hand in hand with the profit-seeking goal of the private sector. For the private sector to make tangible contributions to human development, it is necessary to ensure that private sector activities are consistent with human development objectives. Towards this end, the government support for the private sector should be closely aligned with the goals of poverty eradication and employment promotion, especially with generation of job opportunities for vulnerable groups and women in the society. The private sector in Mongolia however does not appear to have made a meaningful contribution to reducing unemployment and poverty. Although the private sector has started playing an important role in the economy, it is not sufficiently conscious of the human development agenda. This is in part due to low competitiveness and low productivity of the private sector in domestic and foreign markets. The low competitiveness of the private sector has limited job creation and restricted incomes as a number of still people are compelled to consume expensive and lowquality goods.

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Chapter 9. Policy alternatives and institutional development The most tangible contribution that the private sector can make for human development is the creation of new jobs. The government should use taxation and incentive mechanisms to orient private business interests towards such forms and sectors that have a large potential for generating new jobs. Small and Medium-size Enterprises (SMEs) can play a significant role in reducing unemployment and poverty, and improving people’s well-being. Experiences of many countries show that SMEs, by engaging in labour-intensive production, have succeeded in generating more jobs and making income distribution more equitable compared to larger enterprises. In addition, SMEs contribute to employment generation, especially among low-income segments of society such as poor households and women. According to a report of the United Nations Industrial Development Organization (UNIDO), the prices of products and services produced by SMEs as well as wages of workers in SMEs, both in the formal and informal sectors, are more flexible compared to large enterprises. Compact size and effective networking by SMEs give them a better ability to coordinate their activities and address disparities in human development opportunities between urban and rural areas. Therefore, the current two-tier taxation system that charges relatively low taxes from SMEs should be retained. At the same time, private sector activities in such labour-intensive sectors as agriculture, construction and textiles that create a greater number of jobs should receive support through tax exemption and other incentives. Any support provided to the private sector by the government has both direct and indirect impacts on enhancing human development outcomes. This occurs with an increase in the supply of goods and services, reduction in prices and expansion of choices of goods and services. Moreover, it has implications for a balanced regional development and people’s migration. Once the private sector is developed to the point when it can produce goods that are competitive on world markets, Mongolia can take a more active stance on the international labour division, and can reap more benefits in terms of improving the quality of life of its people. Enhancing private sector development requires promoting a competitive economy, sound business environment and highly productive employment. However, the private sector continues to face a number of constraints including the absence of innovative ideas, skilled leaders, specialized workers, well developed information networks and so on. Broadly speaking, a lot can be done to improve the efficient functioning of the private sector. Attention should also be paid to strengthening public and private partnership and encouraging new private sector institutions. Well-formulated policies, programmes and active steps are seen as the main instruments for public and private partnership and cooperation.

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Responsible international development partners International partnership for development has a pivotal role to play in human development. Such partners can also help to promote world peace and security and provide access to open trading systems, seas and markets. The globalization process and its complexity increasingly diminish opportunities of countries to cope with the many challenges they face. Mongolia, like many other developing countries, needs to build partnerships with foreign countries and international organizations in order to achieve its development goals. Through building partnerships for development and sharing financial and knowledge resources with its partners, Mongolia will be enabled to accelerate economic performance and human development. Mongolia’s partnership has diversified during the transition period through cooperation forged with other governments, international organizations, foreign NGOs and the private sector. Partnerships established with donor countries and international organizations, including the World Bank, International Monetary Fund, Asian Development Bank and the United Nations specialized institutions, together with aid provided by them, have helped Mongolia to overcome the obstacles of the transition period and establish a market-oriented system. Programmes and projects implemented with donor loans and grants cover not only the economic sphere but also social, intellectual, cultural and educational areas, thereby providing a vital impetus to equipping people with new knowledge and new skills and disseminating new development ideas and concepts. There are however some negative fallouts of increasing partnerships. Mongolia has received since the beginning of the 1990s, development assistance amounting to US$2.4 billion as grants or loans. As a result, the foreign debt as a share of GDP stood at 89.5 per cent at the end of 2004. Foreign debt burdens lead to mounting tax pressure on the population. Though foreign direct investment has increased steadily, it has mostly been concentrated in the mining sector, causing environmental degradation. Managing partnerships in the future can prove to be an extremely effective strategy for advancing human development in Mongolia.

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Bibliography and additional reading materials Anton Dobronogov. 2003. “Social Protection in Low Income CIS Countries”. World Bank. Ashraf Ghani. 2002. “Economic Development, Poverty Reduction, and the Rule of Law: Successes and Failures”. N.Batnasan. 2003. “Foreign Trade: Management, Organization, Legal Arrangements”. Ulaanbaatar, Mongolia. Caterina Ruggeri Laderchi, Ruhi Saith and Frances Stewart. 2003. “Does It Matter That We Don’t Agree on the Definition of Poverty? A Comparison of Four Approaches”. Paper for WIDER Conference on Inequality, Poverty and Human Wellbeing, Helsinki. Dan Ben-David, Håkan Nordstrem and Lalan Winters. 1999. “Trade, Income Disparity and Poverty”. World Trade Organization. David Coady, Margaret Grosh and John Hoddinott. 2004. “Targeting of Transfers in Developing Countries: Review of Lessons and Experience”. World Bank, Washington, D.C. David P. Coady. 2004. “Designing and Evaluating Social Safety Nets: Theory, Evidence and Policy Conclusions”. International Food Policy Research Institute, Washington, D.C. Dani Rodrik. 2001. “The Global Governance of Trade as if Development Really Mattered”. United Nations Development Programme. Elio Londero. 2003. “Measuring Benefits, Tracing Distributive Effects and Affecting Distributional Outcomes”. Washington, D.C. Government of Mongolia. 1992. “The Constitution of Mongolia”. Ulaanbaatar, Mongolia. Government of Mongolia, UNDP (United Nations Development Programme). 2002. “Rural Development Conference”, Conclusion Document, Ulaanbaatar, Mongolia. Government of Mongolia, UNDP. 2004. Human Development Report Mongolia 2003. “Urban-Rural Disparities in Mongolia”. Ulaanbaatar, Mongolia. Government of India, UNDP. 2002. “Effectiveness of ODA for Human Development”. New Delhi. Gustav Ranis and Frances Stewart. 2000. “Strategies for Success in Human Development”. Journal or Human Development, 1(1).

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Part three. Pro-human development policy in Mongolia IMF (International Monetary Fund), UNEP (United Nations Environment Programme) and World Bank. 2002. “Financing for Sustainable Development”. Washington. Jeni Klugman, John Micklewright and Gerry Redmond. 2002. “Poverty in the Transition: Social Expenditures and the Working Age Poor”. Innocenti Working Paper No. 91, UNICEF. Joseph E. Stiglitz. 1998. “Towards a New Paradigm for Development: Strategies, Policies, and Processes”. World Bank. Lidija R. Basta. 2005. “Decentralization – Key Issues, Major Trends and Future Developments”. University of Fribourg. Ministry of Infrastructure. 1998. “Transportation Strategy”. Ulaanbaatar, Mongolia. Michael L.Faye, John W.McArthur, Jeffrey D.Sachs and Thomas Snow. 2004. “The Challenges Facing Landlocked Developing Countries”. Journal of Human Development, Volume 5, No.1. Nancy Birdsall and Miguel Szekely. 2003. “Bootstraps Not Band-Aids: Poverty, Equity and Social Policy in Latin America”. Center for Global Development. Naila Kabeer. 2002. “Safety Nets and Opportunity Ladders: Addressing Vulnerability and Enhancing Productivity in South Asia”. Institute of Development Studies, University of Sussex. Nicholas Minot and Bob Baulch. 2002. “The Spatial Distribution of Poverty in Vietnam and the Potential for Targeting”. World Bank, Development Research Group, Macroeconomics and Growth and International Food Policy Research Institute. NSO (National Statistical Office), World Bank, UNDP. 2004. “Main Report of Household Income, Expenditure Survey/Living Standard Measurement Survey 20022003”. Ulaanbaatar, Mongolia. S.R. Osmani. 2003. “Exploring the Employment Nexus: Topics in Employment and Poverty”. Joint ILO-UNDP Programme on Employment and Poverty. Paul Streeten. 1999. “Components of a Future Development Strategy: The Importance of Human Development”. Finance and Development. Paul Streeten, Sahid Javet Burji, Mahbub ul Haq, Norman Hicks, and Francis Stewart. 1982. “First Things First: Meeting Human Needs in the Developing Countries”. World bank, Oxford University Press. Raghav Gaiha and Katsushi Imai. 2002. “Vulnerability, Shocks and Persistence of Poverty - Estimates for Semi-Arid Rural South India”.

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Chapter 9. Policy alternatives and institutional development Robert Chambers and Cordon Conway. 1991. “Sustainable Rural Livelihoods: Practical Concepts for the 21st Century”. Institute of Development Studies, Sussex University. Sanjay G. Reddy and Thomas W. Pogge. 2005. “How Not to Count the Poor”. Columbia University. Selim Jahan Robert McCleery. 2005. “Making Infrastructure Work for the Poor: Synthesis Report of Four Country Studies Bangladesh, Senegal, Thailand and Zambia”. United Nations Development Programme. Stephen Devereux. 2002. “Social Protection for the Poor: Lessons from Recent International Experience”. Institute of Development Studies, Working paper 142, Brighton:IDS. UN (United Nations). 2002. “Global Challenge, Global Opportunity: Trends in Sustainable Development”. UNDP. 2001. “Macroeconomic Policy, Growth and Poverty Reduction”. (Terry McKinley ed.). Palgrave. -. 2001. “Modernizing Governance in Vietnam”. Hanoi. -. 2002. Human Development Report 2002. “Deepening Democracy in a Fragmented World”. New York. -. 2003. Human Development Report 2003. “Millennium Development Goals: A Compact Among Nations to End Human Poverty”. New York. -. 2003. “Strategy for Resource Mobilization and Strategic Partnerships”. Mozambique. -. 2003. “Assessment of Micro-Macro Linkages in Poverty Alleviation: South Asia”. New York. -. 2004. “Implementation of MDGs in Mongolia”. National Report, Ulaanbaatar, Mongolia. -. 2004. Human Development Report 2004. “Cultural Liberty in Today’s Diverse World”. New York. -. 2005. “New Public Finance”. New York. -. 2005. “Making Global Trade Work for People”. -. 2005. Human development report 2005. “International Cooperation at a Crossroads: Aid, Trade and Security in an Unequal World” New York. -. 2005. “Economic and Ecological Vulnerabilities and Human Security in Mongolia”.

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Part three. Pro-human development policy in Mongolia Ulaanbaatar, Mongolia. UNEP (United Nations Environmental Programme). 2002. “Global Environmental Outlook 3”. UNESCAP (United Nations Economic and Social Commission Asia and Pacific). 2001. “Reduce Disparities: Balanced Development of Urban and Rural Areas and Regions within the Countries of Asia and Pacific”. New York. UNESCO (United Nations Educational, Scientific and Cultural Organization). 2002. “Social Capital and Poverty Reduction: Which Role for the Civil Society Organizations and the State?”. World Bank. 2003. “Volatility, Risk, and Innovation: Social Protection in Latin America and the Caribbean”. -. 2004. “Environmental Challenges of Urban Development”. Mongolia Environment Monitor 2004. World Food Programme. 2003. “Cost-Effective Safety Nets: What Are the Costs of Reaching the Poor?”. Washington, D.C.

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