Cape Verde and Israel: Exemplars of Good Governance

Cape Verde and Israel: Exemplars of Good Governance

by

Omar S. Abdulla

New England College

5 July 2013

Strategic Capstone

MG/PO 6975

Mr.Callahan

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Abstract

Cape Verde and Israel: Exemplars of Good Governance

Omar Abdulla

The purpose of this paper is to examine the issue of good governance and how has it been

achieved by Cape Verde and Israel. The paper will examine a key question given the fact that both of

these nations have no natural resources: how is it that both of these nations who have no natural

resources can do very well economically and developmentally wise when other resource rich nations

have poorly peformed in these two areas? Answer: good governance. Cape Verde was in the past

defined as a low economic status nation. Now, it has moved to middle economic status. As well, Israel,

a nation that is surrounded by many enemy Arab nations has achieved the economic miracle that it has

through its high tech industry and innovation in products and services. More, importantly good

governance has great implications for the world in that good governance is crucial to the success or

failure of people, cities, communities, nations, and the international system in terms of economic

prosperity and development. A study in good governance through the examples of Cape Verde and

Israel would enhance the knowdlege and the skill set in the field of good governance in that good

governance can help to prevent and solve many future problems that afflict humanity.

Chapter 1 gives an overall view of the project and its component parts. Chapter 2 is the

literature review of the project. Chapter 3 is the research design, methods, and methodology. Chapter 4

is the conclusion and recommendation for the project. I believe that the information presented in my

report will support my thesis statement. Chapter 5 is the actual research paper with findings and

conclusions.

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TABLE OF CONTENTS

PG

1 ABSTRACT

2 TABLE OF CONTENTS

4 CHAPTER 1: INTRODUCTION

4 CHAPTER 1: BACKGROUND

5 CHAPTER 1: THESIS STATEMENT AND SOLUTION

6 CHAPTER 1: SECONDARY RESEARCH

7 CHAPTER 1: PROJECT APPROACH AND METHODOLOGY

8 CHAPTER 1: IMPLICATIONS OF RESEARCH

8 CHAPTER 1: PROJECT LIMITATIONS

9 CONCLUSIONS AND RECOMMENDATIONS

10 CHAPTER 2: LITERATURE REVIEW

10 CHAPTER 2: BACKGROUND

11 CHAPTER 2: SUSTAINABLE DEVELOPMENT AND COUNTER VIEWS TO IT

11 CHAPTER 2: PROBLEMS OF DEVELOPMENT AND GOVERNANCE

12 CHAPTER 2: HOW HAS CAPE VERDE FARE WITH ITS DEVELOPMENT AND

GOVERNANCE?

13 CHAPTER 2: ANOTHER VIEW ON SMALL STATES IN TERMS OF THEIR

ADVANTAGES/DISADVANTAGES AND WHETHER THEY ARE OVER-AIDED OR UNDER-AIDED

14 CHAPTER 2: HOW HAS ISRAEL FARED WITH ITS GOVERNANCE AND DEVELOPMENT?

15 CHAPTER 2: CONCLUSIONS AND IMPLICATIONS

15 CHAPTER 3: RESEARCH DESIGN

15 CHAPTER 3: PRIMARY RESEARCH DESIGN

16 CHAPTER 3: DATA COLLECTION DESIGN: APPROACH AND METHODOLOGY

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17 CHAPTER 3: CHOOSING THE RIGHT TOOL

17 CHAPTER 3: PRE-TEST/POST-TEST TOOLS

17 CHAPTER 3: ETHICAL ISSUES AND PROJECT LIMITATIONS

18 CHAPTER 4: STRATEGIC PLAN

18 CHAPTER 4: CONCLUSIONS AND RECOMMENDATIONS

20 CHAPTER 5: THE RESEARCH PAPER

20 MAP OF AFRICA: SHOWING WHERE CAPE VERDE IS

21 MAP OF CAPE VERDE

69 TABLE 1. NORDIC LIVING STANDARDS: A QUICK LOOK

139 ANNOTATED BIBLIOGRAPHY

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CHAPTER 1-INTRODUCTION

BACKGROUND

Since the begginning of humanity, all people, communities, cities, and nations have had to

grapple with the issue of governing. But the more important task is to govern in order to achieve

economic prosperity and human development. Economic prosperity came first in terms of this equation

of economic prosperity and human development. The human development dimension has been around

for the last 20 or 30 years. The United Nations has been the biggest proponent of it with its UN

Millenium Development Goals.

All people have to grapple with the neccessities of life and daily needs. The question is how to

achieve those neccessities of life and daily needs. The answer is governance. And not just any kind of

governance will do. There has to be good governance that achieves the necesities of life and daily needs

of the people. Economic prosperity and human development are the end products of good governance.

They are essential for order and the rule of law to be achieved and maintained. If you do not have good

governance then you will not have these two vital components. The situation descends into chaos and

disorder.

Good governance is a simple thing achieved. It is a very complicated process. There are a lot of

ingredients and components that go into good governance. Governments need to take a holistic

approach to problems that people and nations face when it comes to the necessities of life and daily

needs. Their approach has to encompass economics, development, public administration, health care,

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education, etc. in order to achieve good governance. Governments have to do a good job in these areas

to achieve good governance in order to achieve economic prosperity and humand development. This is

a stepping stone process in that one thing or several things either done well or not at all leads to a

cascade affect.

Some nations do well and some do not do well in terms of good governance. Cape Verde and

Israel do not have any natural resources. However, both nations have made great progress in terms of

their economc and human development. Cape Verde was a former Portuguese colony that gained

independence immediately after the 1974 Portguese Revolution. At its independence, Cape Verde was a

very poor country. However, it placed itself on a plan to move from low economic and development

status to middle tier economic and development status. It implemented good goverance and partnered

with international organizations such as the UN, World Bank, and the International Monetary Fund to

incorporate good governance practices and receive financial assistance and technical know-how when it

comes to good goverance. In the last few years, Cape Verde has moved from low economic and

development status to middle economic and development status. This is incredible for a nation that

lacks natural resources.

Israel also is another nation that does not have any natural resources. But Israel has managed to

have a vibrant information technolgy and computer industry that produces more start-ups than other

nations such as India, China, and Japan. This is incredible because Israel is a nation that is surrounded by

enemy Arab nations since its birth in 1948. These nations have placed economic and trade embargoes

on Israel. Israel, then decided that since it cannot really export to these Arab nations that it must export

around the world and to be innovative. Being innovative, thrifty, and creative is part of the Israeli and

Jewish culture. The government has taken steps to encourage it’s IT and other industries that give Israel

this economic edge and prosperity.

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THESIS STATEMENT AND SOLUTION

The burning question is why do nations like Cape Verde and Israel who lack natural resources do

so well economically and development wise and other nations who are resource rich do not do well

economically and development wise. The answer to this question is good governance. But the more

important question is how do you conduct or achieve this good governance. It is not an easy endeavor

to take but it is vital to any nation’s economic and development success. A study of how good

governance is achieved is in order and that is why it needs to be undertaken. There is no one size fits all

in terms of good governance. But there are approaches and lessons that can be learned from Cape

Verde and Israel that can serve as a loose template or guideline to achieve good governance.

SECONDARY RESEARCH

The logic of my approach to the literature review of my capstone project has several layers to it.

The first layer of my approach to the literature review will be to research sources that will give me a

good overall background on the issue of development and economic prosperity, Cape Verde’s current

situation in terms of economic and human development, and Israel’s current situation in terms of

economic and human development. The second layer of my approach to the literature review is to

research sources that will give me the basics of sustainable development and counter arguments to it.

The third layer of my approach to the literature review will be to research sources that will illuminate on

the subject of problems of governance and governance. The fourth layer to my approach to the

literature review will shine light on the question of how has Cape Verde fared in terms of it’s

development(economic and human) and governance and how has Israel fared in term’s of it’s

development(economic and human) and governance. The fifth layer of my approach to the literature

review is to research sources to present another view on small states in terms of their advantages and

disadvantages and whether they are under-aided or over-aided. This paper will be presented as a

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component area of debate in my subject matter. The sixth layer of my approach to the literature review

is to research sources to see how Israel has fared in terms of its development (human and economic)

and governance. I will need to do extensive research on this area because my current literature review

outline has only 15 sources. I will add more areas and approaches to my literature review should they

be relevant to my capstone project.

PROJECT APPROACH AND METHODOLOGY

My approach to this project is going to be holistic in that it is going to gather data and

information that will support and oppose my thesis statement. I will not suppress unkind data and

information to my thesis. I believe given both kinds of information that it will create a good solution to

my thesis question/problem statement.

I will gather data and information from all sources. I will screen them to see if they are relevant

to answering or shaping my thesis/problem statement. My information and data will be mostly

qulitative however quantitative data will be used to support the qualitative information. I believe that if

the qualitiative information has no quantitative information alongside it then it will be deemed to be

questionable and biased towards a slant or particular view.

I will combine both approaches (qualitative and quantitative) using the qualitative primary,

qualitative first approach. The reason why I am choosing this approach is that it exactly mirrors the

approach of utlitizing quanititative data to support the qualitative information, findings, and

conclusions. The research type I will utilize is the causal-comparitive. I believe this is the best research

method for this project. I believe this approach will help to answer the question of why Cape Verde and

Israel do does well economically and human development wise when they both lack natural resources

and the other hand nations that are rich in natural resources do poorly in these two areas. Also, I am

trying to answer the question of how does a nation achieve good governance. The research source that

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I will use for this capstone project is going to be documents. Now, these documents might include tests

and measurements, interviews, observations, and surveys. I will include other types of sources should

they be relevant and important to my capstone project. I believe this to be the best project approach

and methodology for my capstone project.

IMPLICATONS OF RESEARCH

The types of research that I will gather such as interviews, observations, and surveys will be in

the form of documents. They will not be actually conducted by me. I will not have to insure the

protection and privacy of participants for ethical purpsoses because there will be none. There is no

conflict of interest on my part in terms of this capstone project because I do not benefit at all from the

research in a financial, monetary, and employment sense. There is nothing for me to gain from it besides

the knowledge and experience that I will gain from doing this capstone project. There might be people

who might benefit from my capstone project such as governments, acadimians, students, etc. who have

an interest in this subject matter.

PROJECT LIMITATIONS

These are the limitations that I forsee for my capstone project. The boundaries of the capstone

project will be to study the two nations of Cape Verde and Israel in order to answer the thesis/problem

statement. It will not be expanded to include more nations other than Cape Verde and Israel to show

resource poor nations that do well economically and human development wise. Also, I might include a

few other nations as a counterpoint in terms of showing nations that are rich in natural resources that

do not do well economically and human development wise. But I will see if this will add or detract from

the capstone project. I will make this determination as I progress with this capstone project. I believe my

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conclusions can be generally replicated but will not be an exact carbon copy of what Cape Verde and

Israel have done because I believe most situations of goverance are similar but do have there

differences in that it makes it hard to have a one-size- fits- all solution. I believe the conclusions can be

modified and tweaked to meet unique situations for other nations. I don’t believe there are important

questions that are beyond the scope of my project and that need to be put off for future study. I don’t

believe that there are any aspects of my mehtodology that would limit the validity of my results or

conclusions that can be drawn from them.

CONCLUSIONS AND RECOMMENDATIONS

All nations must deal with the issue of governance. Mankind has had to grapple with this issue

since man has been on Earth. Cape Verde and Israel are two nations that lack natural resources yet they

have advanced and progressed tremendously in the areas of economic and human development. The

central question is why do these two nations who are poor in natural resources do so well economically

and human development wise and other nations that are rich in natural resources yet they do poorly

economically and human development wise. The answer is good governance. But the follow up

questions is: what are the key ingredients that make up good governance and are they replicable in

other nations. Is there a one-size-fits-all solution or a modifiable solution that can be tailored to each

nation but in keeping with the basic principles of good governance? These are the questions that I want

to answer in my capstone project. This project is important because it will answer these vital questions

which are part and parcel of an important issue that all nations must deal with in order to achieve

economic success and progress in human development.

It seems that the literature may not answer the question directly but will answer it in an indirect

manner given that my focus is on Cape Verde and Israel. It probably will not answer the question directly

in terms of Cape Verde and Israel but will answer it indirectly in terms of how these nations are faring

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given these two areas and will probably answer it directly in terms of what makes for good governance

and what are the results of having good governance and bad governance or no governance at all.

Chapter 4 of my capstone project will deal with the final conclusions, recommendations, and

implications for the captone project.

CHAPTER 2-LITERATURE REVIEW

BACKGROUND

All nations have to grapple with the issue of governance. But more an important question is how

to govern well. Another question is how to govern well given limited resources. The nations of Cape

Verde and Israel are very unique in this regard. Both nations have little to no natural resources. Cape

Verde was a former Portuguese colony that gained independence on July 5, 1975 after the Portuguese

Revolution of 1974. It was a very poor colony. However, it put in place a development and governance

program to help it move from Least Developed Country status to middle tier economic status. In the

book, A History of Postcolonial Lusophone Africa, and in partuclar in chapter 7 titled Cape Verde which

was written by Elisa Silva Andrade, it spells out the things that Cape Verde had to do after it gained

independence. It also talks about the programs and the challenges Cape Verde faced and also the

successes it achieved. And finally it presents excellent questions about Cape Verde’s future development

and governance.

Israel also finds itself in a very unique situation in that it has no natural resources and is

surrounded by enemy nations. However, it has transformed itself to a thriving economic nation through

its entrprenuerial spirit and drive as well as thriving science and computer industries. Israel had to be

innovative and entrepreunurial because of its political and military situation of having enemy nations

surround it that do not trade with it. Israel had to resort to trading with the world and being innovative

and entrepreunirial to compete with the world. It has done this to economically survive. Israel has done

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this through its military having to be constantly ready and innovate in order to win its wars against past,

current, and future adversaries. Israelis go into the military because it is a requirement and learn skills

that are carried over into the business and political sector that allows Israel to be an economic miracle.

David Senor and Saul Singer explore this issue in their book, Start-Up Nation: The Story of Israel’s

Economic Miracle.

THE BASICS OF SUSTAINABLE DEVELOPMENT AND A COUNTER VIEW TO IT

There are basic principles to sustainable development. They were applied and known to the US,

Europe, and Japan. However, prior to WWII they were not known to the rest of the world because of

colonialism. But this changed after WWII. Harris, in his journal article, (Harris, Jonathan M, Basic

Principles of Sustainable Development. Medford, MA: Tufts University, G-DAE Working Paper No. 00-04,

June, 2000.) Points to a new development paradigm where three areas of development have been

introduced: economic, social, and enivoronmental. Harris presents a synthesis view that incorporates all

three parts. Harris presents new goals and policies for sustainable development in the 21st century.

There is a counter view to sustainable development. Jerry Taylor states that resources

are quite abundant and “the world is in fact on a quite sustainable path at present.”(Terry, 2002, p.1) He

takes issue with the idea that if economic progress is unchecked and not controlled by the state it will

cause great harm to the environment and does not last long. He presents three counter arguments to

this idea. And finally concludes that “The current Western system of free markets, property rights, and

the rule of law is in fact the best hope for environmentally sustainable development.”(p.1)

PROBLEMS OF DEVELOPMENT AND GOVERNANCE

There are no cure-alls and there are no solutions that are problem free when it comes to development

and governance. If development and governance are not utilized or done poorly then this leads to bigger

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problems for a nation. Kevin Casas-Zamora speaks about the problems that development and

governance encountered in Central America through the civil wars and dictatorships from the 1970s to

the 2000s. He says that the region faces development challenges in three areas: weakness of political

power, globalization, and crime and violence. Kevin Casas-Zamora gives his final thoughts and policy

prescriptions in terms of development and democratic governance.

There is another element or facet to this problem. What kind of problems in terms of

development and governance do nations that have natural resources face? Thorvaldur Gylfason studies

the concept of the Dutch Disease but using the examples of Iceland, Norway, and Finland to see what

are the effects of Dutch Disease given these nations are rich in natural resources. Gylfason gives a quick

overview of Nordic economies from the 1970s and enumerates on some aspects of their dependence on

natural resources and their economic growth. He explains the Dutch Disease and sees if the disease is

applicable to the Nordic countries since they have natural resources.

HOW HAS CAPE VERDE FARED WITH ITS DEVELOPMENT AND GOVERNANCE?

Cape Verde should fare well with its development and governance. The African Development

Bank has produced its 2009 Main Report On The Comparative Outputs, Incomes and Price Levels in

African Countries: Final Results of the 2005 Round of the International Comparison Program for Africa,

Tunis, Tunsia: African Development Bank, 2008. This report will give a good indication and picture of

that progress through statistics and figures. The African Development Bank and the Organization for

Economic Cooperation and Development have produced a report, Cape Verde, which discusses the

progress Cape Verde has made with its development. The report also speaks about the projects and

programs that Cape Verde has undertaken to develop. The report also speaks about the problems and

difficulities that Cape Verde still faces. It applaudes the efforts of Cape Verde and explains the aid and

development efforts of the international community. The BBC sent a journalist to Cape Verde and this

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report confirms the progress that the nation has made. The journalist spoke to the common citizen,

government officials, and others as well to find out more about Cape Verde’s economic miracle.

In his journal article, Cape Verde: the most democratic nation in Africa? Bruce Baker “examines

the substance behind the claim that Cape Verde, a small archipelago state off the west coast of Africa, is

the best country in Africa for political rights and civil liberties.”(Baker, 2006, 493) He does this, “Based

on interviews conducted with 22 key informants in government, the judiciary, the legislature and civil

society, it explores the electoral process, the political parties, the functioning of the National Assembly,

civil and political rights, the judicial system, civil society and economic equality.”(Baker, 2006, 493) The

UN has produced a report, United Nations Cape Verde, Cape Verde: An Emgerging Nation. Cape Verde:

United Nations Cape Verde, 2010. The report states that Cape Verde is an emergining nation that has

moved from LDC (Least Developed Country) status to MDC (Middle Developd Country) status. It has

made progress in terms of its GDP and per capita income, especially in terms of its human development

indicators. Also, it is a stable democracy. Cape Verde joined the World Trade Organization in 2008. The

report assesses Cape Verde’s progress in terms of meeting its UN Millenium Development Goals. The

report will speak to the vulnerabilities and challenges that Cape Verde faces. The United Nations has

produced another report, Cape Verde: An Emerging Nation: On the road to the MDGs, with respect to

Cape Verde’s Millenium Deveopment Goals. The report spells out 8 UN MDG goals and states Cape

Verde’s quantitative and qualitative progress in terms of achieving these goals. Finally, Velde, Warner,

and Page, produced a report on the economic performance of Sub-Sahara Africa. The report states

several economic statistics of Cape Verde as of 2004. However, the report states that being a small

nation in Africa is an advantage rather than a disadvantage. It says that small African nations perform

economically well, have high institutional quality, and are the most politically stable of the African

nations with “good rule of law and effectively control of corruption.”(p.33) Also, “small and stable island

states tend to rely on services attractng lots of tourists.”(p.33)

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ANOTHER VIEW ON SMALL STATES IN TERMS OF THEIR ADVANTAGES/DISADVANTAGES AND

WHETHER THEY ARE OVER-AIDED OR UNDER-AIDED

Aiyar presents his view in his journal article, Aiyar, Swaminathan S. Anklesaria, Small

States: Not Handicapped and Under-Aided, But Advantaged and Over-Aided, Washington

D.C.: Cato Institute, Vol.28, No.3, Fall 2008. The conventional view is that small nations have

disadvantages that require them to have aid. However, the he points to information that

proves otherwise. He states that small nations do have disadvantages but they also have

unique advantages that do not make them disadvantaged in the sense they are handicapped

and needing aid.

HOW HAS ISRAEL FARED WITH ITS GOVERNANCE AND DEVELOPMENT?

Senor and Singer in their book, Start-up Nation: The Story of Israel’s Economic Miracle,

say Israel has fared very well in its development and governance inspite of its political and

military problems vis-vis the Arab-Israeli conflict. However, they point to the idea that Israel

must maintain the aspects that make it so entrepreunuerial and innovataive that make it an

economic powerhouse around the world in terms of its information technology, science,

and technology industries. But Israel’s governance and development progress according to

Senor and Singer will be elaborated on in other parts of this paper and not in the how has

Israel fared with its governance and development? section of the paper. Daniel Bal-Tar gives

his assessement of Israel’s progress on the occasion of its 60th birthday. He states that Israel

has been successful given it has been creative, innovative, and created many products and

services. He also notes its high tech industry. Also, he says Israel has social services for its

people. This is the half-full glass analogy he is alluding to in the title of his journal article,

Evaluating the 60 Years: The Half-Full and Half-Empy Glass. Then he proceeds to his half-

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empty glass analogy which he says Israel has fallen short in numerous areas and topics

ranging from neo-liberal policies, dysfunction of liberal democracy, moral deterioration,

institutionalized discrimination against Arab minority, the ruthless outcomes of the

occupation, militirization of Israeli socieity, influence of religion, objectionism to peace. He

says that these areas will have great influence on Israel whether they are fixed or not. The

US-Israel Science and Technology Commission and Foundation published “the report by an

offical blue-ribbon commisson.”(Senor and Singer, 2009, 222) In the Exeuctive Summary of

the report it states:

Today, we face a completely different situation, but one that is no less disturbing. Israel’s economy is no longer in immediate danger, but a number of warning signs caution of a real risk for the future of the society and the state. These risks stem from deep, worrisome social and economic processes in Israel, which cannot be remedied by quick, relatively simple solutions, but rather require a wide-ranging, visionary national strategy, as well as perseverance and forbearance.(USISTCF, 2008, 13)

CONCLUSION AND IMPLICATIONS

The literature on this topic is wide, diverse, and varied. However, there is no specific

literature that will directly answer my thesis. In a sense, I am going to have to hunt and peck

for this disparite information and piece it together like a jigsaw puzzle. I have found more

information on Cape Verde in terms of its development and governance than Israel. I will

have to research Israel more to get more information on its governance and development. I

believe that my continued literature research might alter my literature review and the body

of my paper.

CHAPTER 3-RESEARCH DESIGN

PRIMARY RESEARCH DESIGN

My thesis problem/solution statement can be tested among stakeholders that want to

implement a plan and approach to governance that is similar to what Cape Verde and Israel has

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implemented to their governance approaches in order to realize progress in their human and economic

development. This research can, will, and should be done ethically. I do recognize that there are

necessary conditions and limitations on whether or not my idea can be widely duplicated or used as a

model to bring about progress in human and economic development for nations such as Cape Verde and

Israel.

The stakeholders in terms of this thesis problem/solution statement are people, communities,

cities, and nations that all have to grapple with the issue of good governance. All of these entities will be

affected whether there is no, little, or good governance in terms of their human and economic

development. All of these entities have vested interest in this topic.

If there is no governance then there is anarchy and chaos. Somalia is an excellent example of

this. This will lead to the situation of failed states. If there is little or poor governance then you have

situations for example, Nigeria, rife with corruption and violence such as with the Boko Haram. Then you

have good governance that leads to progress in human and economic development such as in the case

of Cape Verde and Israel. The outcome or the results of the “experiment in the laboratory” which is the

world stage is how these nations perform in terms of their economic and human development. This is

how this thesis problem statement will be tested. This is how I will test the effects on these stakeholders

in terms of this question.

DATA COLLECTION DESIGN: APPROACH AND METHODOLOGY

My approach will be mostly qualitative given the nature of the question but it will be supported

with quantitative data to butress the qualitative information. The research type I will use is the casual-

comparative. The research method that I will use to collect data will be documents. Now, these

documents might include tests and measurements, interviews, observations, and surveys. I will use this

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approach and methodology to support my thesis problem/soltuion statement. I believe it is the best

approach to do so in that it gives my capstone project credibility.

CHOOSING THE RIGHT TOOL

There will be knowledge gains as a result of my reseearh should nations adopt the

models/approaches of Cape Verde and Israel when it comes to good governance so nations can advance

their human and economic development. I believe there will be attitudinal changes should nations

adopt the models/approaches of Cape Verde and Israel when it comes to good governance in that they

will be more suscepetible to make changes in governance to affect change. Also, I do believe that as a

result of my research that there will be behavioral changes in that people will realize there are benefits

to good governance such as progress in human and economic development.

PRE-TEST/POST-TEST TOOLS

The pre-test tool or method will be to see how Cape Verde and Israel fared when they did not

institute good governance and the post-test tool would be to see how Cape Verde and Israel fared after

they instituted good governance. I believe there will be more of a descernable difference with Cape

Verde since it has only been independent since 1975 when it gained its independence from Portugal and

it has only insituted its good governance program since 1990. Israel has been in existence since 1948

and it appears to have instituted good governance since its inception given its security and political

situation vis-vis the Arab-Israeli conflict. It may be instructive or more helpful to sample a few other

nations as result of what is gleaned from Cape Verde and Israel given the pre-test and post-test tools.

ETHICAL ISSUES AND PROJECT LIMITATIONS

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The ethical issues that I will encounter will be to conduct research that is unbiased and will

consider all research whether it will support or not support my thesis problem statement. I will always

endeavor to hold myself to the highest standards of ethical research. There will be no effect on

stakeholders since none will be actually participating in my capstone project and I will not have to

provide guidelines for participant protections. A limitation of the project is too many nations to report

on that it would make the project hard to complete. Two nations is a good number to research on the

given nature and scope of the problem/thesis statement. Another limitation of the project will be

gathering too much information that I cannot condense it enough into a capstone report. It would be

prudent to gather just enough research to give a succinct, clear, and concise report. These are the

ethical issues and project limitations that I foresee given my capstone project.

CHAPTER 4: STRATEGIC PLAN

CONCLUSIONS AND RECOMMENDATIONS

All nations and peoples deal with the issue of governance. And nations have to be

effective and efficient when it comes to governing in order to realize progress. More importantly

progress in economic and human development. The main thesis/problem is that the two nations of

Cape Verde and Israel have little to no natural resources however they have managed to realize great

human and economc development progress. And yet there are nations who have great natural

resources and yet lag behind in economic and human development. The question is why Cape Verde and

Israel does well in terms of their economic and human development when they don’t have natural

resources and nations that are rich in natural resources do not so well in terms of their human and

economic development. The answer to this question is good governance. A study of how Cape Verde

and Israel achieve this good governance in terms of their individual approaches, steps, techniques, and

methodology to good governance is in order.

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Why is the study of good governance in terms of Cape Verde and Israel important? It is

important because all nations and peoples have to deal with the issue of governance whether they want

to or not. And the key to governance is in how a nation and people progress when it comes to economic

and human development. The relation of this particular topic to the literature is not a tight or close one

since this a very unique and specific question of mine. However, the literature does with the issues of

governance, econonmic development, human development, and other relevant issues to governance,

economics, and human development.

There no specific implications for this project in that it is a study of subject/phenomena as

opposed to a proposal/solution for a particular problem/situaiton. The implications on a wider scale is

that nations that do not practice good governance will have their economic and human development

suffer and those that do a better job when it comes to their governance will realize great progress when

it comes to their economic and human development. These are the implications in terms of my project.

My conclusion is that nations and peoples need to practice good governance in order to

progress in terms of their human and economic development. There is a strong link between

governance and economic and human development. Yes, this conclusion supports my original thesis.

With my thesis proven it will mean that nations will have to make the appropriate and necessary

operational, legislative, and programmatic changes given their respective situations. There is a strong

connection between the research findings and proposals (thesis statement). There appears to be no

holes that need to be filled by other research. There is nothing new that has been unovered in my

research. The conventional wisdom has been affirmed. The specific expertise that is required to

implement an effective and efficient governance plan requires public administration, technocratic, and

political skills. If my research is disproven then my thesis statement would change and good governance

would not matter. However, good governance does matter as we have seen nation that do it well and

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those nations that don’t do it well. The action plan would not be necessary. But that is not how

governments operate because governments need to govern and need to govern well and effeciently.

Good governance is important when it comes to the economic and human development of a nation. If it

is done well then nations like Cape Verde and Israel do well given the fact they don’t have any natural

resources and some other nations that are rich in natural resources have shown to have not done well

when it comes to economic and human development because they don’t practice good governance.

CHAPTER 5: THE RESEARCH PAPER

I. BACKGROUND

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CAPE VERDE

Cape Verde is an archipelago consisting of 10 islands and 5 islets lying roughly 300 miles from

the West coast of Africa. Of the 10 islands only 9 are inhabited. “Cape Verde is divided into two

groups: the Windward Islands-San Antão (779 square km.), São Vicente (227 square km.), Santa

Luzia (35 square km.), São Nicolau (343 square km.) Sal (216 square km.) and Boavista (620 square

km.); and the Leeward Islands-Maio (269 square km.), Santiago (991 square km.), Fogo (476 square

km. and Brava (64 square km.)” (Chabal and Birmingham, 2002, 264) The islands suffer from

draughts and from a lack of water.

Cape Verde was a former Portuguese colony for over 200 years. It gained its independence on

July 5, 1975 in the aftermath of Portuguese Revolution that occurred on April 25, 1974. Cape Verde

was a very poor nation after it gained its freedom. It has embarked on various programs to help it

move from LDC (least developed country) status to middle tier economic status. When Cape Verde

become free of Portugal, the PAIGC (Partido Africano da Independência da Guiné e Cabo Verde,

took over. In 1980, PAIGC split up reflecting the break from Guinea-Bissau, and become the PAICV

(Partido Africano da Independência de Cabo Verde) “Until 1990, Cape Verde remained a one-party

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state.”(Chabal and Birmingham, 2002, 269)There have been mainly two parties since 1990,

PAICV(Partido Africano da Independência de Cabo Verde) and the MPD( Movimento para a

Democracia) that have taken great efforts to institute programs, departments, and good governance

to help Cape Verde to develop in terms of economics and human development wise.

The new government of the PAIGC in the aftermath of independence wanted to tackle the three

main problems of Cape Verde: unemployment, education, and health. (Chabal and Birmingham,

2002, 268). The PAIGC’s main focus was “sustainable human development.”(Chabal and

Birmingham, 2002, 268). “The instruments they used were successive government programmes and

national plans for development.”(Chabal and Birmingham, 2002, 268). The goal of sustainable

human development was to improve the society on a grand scale as opposed to just the economy.

This approach neccesitated that progress be made in the majority people’s living and working

conditions and not just only the minority of the people. And poverty reduction and eliminating

misery underpinned this method. This policy of development had a two prong focus of “a strong

concern for the environment (so precarious in Cape Verde), for economic growth and for the human

and social problems affecting the population as whole.”(Chabal and Birmingham 2002, 268) When

the nation became free of Portugal, the new government of Cape Verde, “set up a general political

framework, the Lei de Organizaҫão do Estado (Law for State Organisation), which essentially laid

down the state’s prerogratives and its legal oblibations.”(Chabal and Birmingham 2002, 268)

In November 1988, The Third Party Congress met, and thus “marks the beginning of a systematic

reform of the economic system. “(Chabal and Birmingham, 2002, 269) The reform called for “a new

strategy of externally-oriented development. “(Chabal and Birmingham, 2002, 269)The aim of the

plan “was an integration of the Cape Verdean economy into the world system, making full use of the

country’s (admittedly limited) comparative advantages. In other words, the government now

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formally recongnised what it had long accepted in practice-that is, that any notion of self-sustaining

or self-contained socialism was unworkable.”(Chabal and Birmingham, 2002, 269).

The moment Cape Verde become free of Portugal, the PAIGC had to deal with its less than

desired economic and political situation. First, it focused improving the “physical and social

infrasturcture and, above all, to seek to meet the basic needs of the population.”(Chabal and

Birmingham, 2002, 269) Cape Verde was able to accomplish because of international aid “and an

effcient system of administration.”(Chabal and Birmingham, 2002, 272) “From the beginning the

government marketed the food and other material assistance received in order to support

development projects and avoid the ‘dependency syndrome’ which had become common in the

final years of Portuguese colonial rule.”(Chabal and Birmingham, 2002, 272) The policies of the

government were focused “(1) the development of food, health, education; and (2) the

improvement of the natural enivornment so damaged by land degradation and erosion.”(Chabal and

Birmingham, 2002, 272) The Cape Verdean government further aimed its efforts where “Funding

was devoted to land and water conservation and short-term employment schemes to provide vital

income to the poorest and least-qualified sectors of the population, particularly in the rural areas.

These emergency measures were successful and the country’s slide into poverty was

arrested.”(Chabal and Birmingham, 2002, 272)

From 1982-1985, the First Development Plan, followed the intial emergency plans that were

instituted after the nation became free of Portugal. The First Development Plan continued the focus

on the tasks of “improvement of the basic living conditions of the population and the development

of the essential infrastructure.”(Chabal and Birmingham, 2002, 272) Resources were allocated “to

rural development, transport, communication, and small-scale industry.”(Chabal and Birmingham,

2002, 272) The two main goals of this plan were first to focust on “agrarian reform, literacy,

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agricultural support, co-operative movements, health education, the improvement of the living

environment and the development of small business” (Chabal and Birmingham, 2002, 272) and

second “was to seek the largest possible popular involvement in the priorties thus outlined.”(Chabal

and Birmingham 2002, 272) Then in the Second Development Plan which spanned from 1986 to

1990 seeked “to consolidate the objectives outlined in the First and stressed in particular the

acheivement of broad economic equilbria; a greater link to the world market, particularly in the

areas of fishing, tourism and services; and the reduction in social and regional inequalities, among

others, through an appropriate land reform.”(Chabal and Birminghham, 2002, 272)

The MPD took over the reigns of the government in April 1991. MPD “introduced reforms in the

public sector guided by two key priniciples: less but better central government, and better as well as

more accountable local government.”(Chabal and Birmingham, 2002, 273) These objectives were

realized through “the transfer of competence to the local level; the transfer of human, material and

financial resources to the muncipalities so as to enable them to take over these developmental

tasks; and the training of local authorities for these enlarged responsibilites.”(Chabal and

Birmingham, 2002, 273)

In the Third Development Plan which ran from 1992 to 1995, the government took aim at the

economic problems of Cape Verde. This plan commenced in 1993 “(after the meeting of the donor

round table conference in November 1992).”(Chabal and Birmingham, 2002, 273) The main focuses

of the MPD economic program was “the liberalisation of the economy and the reduction of

poverty.”(Chabal and Birmingham, 2002, 273) The MPD utlized the same tools and approaches in

trying to realize these two goals. It sped the economic libralization program that began in 1989 and

announced it was crtical to “reducing underemployment and unemployment.”(Chabal ang

Birmingham, 2002, 273) The MPD government also took steps “to further the decentralisation of

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economic development.”(Chabal and Birmingham, 2002, 273) The first step it took was “to privatise

public enterprises.”(Chabal and Birmingham, 2002, 273) The second step it took was “reduce the

budget defecit in relation to GDP. (Chabal and Birmingham, 2002, 273) It did this because it wanted

to decrease the budget deficit, get control of inflation, “and preserve the external trade balance

without jeopardising existing productive investment.”(Chabal and Birmingham, 2002, 273)

The Third Development Plan also had the focus of “the human apsect of development,

emphasing the need to initiate moves to improve health, education, nutrition, and the environment-

aiming thereby to reduce poverty and strengthen social justice.”(Chabal and Birmingham, 2002,

273) The most noteworthy policies were “the restructuring and liberalisation of the business sector,

the modernisation of the administration, and the greater prominence given to the protection of the

environment.”(Chabal and Birmingham, 2002, 273) In the Fourth Development Plan that spanned

from 1997-2000, aimed at meaningful reforms of the financial system, the judicial and legislative

branches, and these measures further strenghtened steps taken to decentralize the government,

privatization, and poverty reduction.

Given the situation of Cape Verde having “fundamental sturctural problems and the absence of

natural resources”(Chabal and Birmingham, 2002, 274) the economy greatly grew in real terms from

1975 to 1990, from 1976 to 1980 it grew 11%, from 1982 to 1985 it grew 6%, but it went down to

2.5% in the period from 1986 to 1990. (Chabal and Birmingham, 2002, 274) Public policy did have a

postive effect on the economy when from 1980 to 1988 when it “grew in real terms by an average

of 6 per cent a year.”(Chabal and Birmingham, 2002, 274) The reasons why this happened were “the

rapid expansion of the service sector, the high level of public investment in infrastructure and in

social welfare (education, health and housing) as well as in productive activities (fishing and

transport). (Chabal and Birmingham, 2002, 274) The IMF (International Monetary Fund) reports that

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“GDP growth rose from 3 per cent in 1992 to 5.6 per cent in 1998.”(Chabal and Birmingham, 2002,

275) This happened because of the “high level of public expenditure, especially in the area of

transport, communications, infrastructure, energy and construction. (Chabal and Birmingham, 2002,

275) In terms of borrowing from other countries “Cape Verde pursued a very cautious

policy.”(Chabal and Birmingham, 2002, 274)

Cape Verde had challenges with land reform and cooperatives. The issue was tenant farmers

worked on farms where they had no ownerhsip of and thus their employment was very mercurial

and not stable as well some of them refused paying rent. A few statistics state this very problematic

situation: “In 1982, 39 per cent (with, at the extremes, 51 per cent on Santiago and 19 per cent in

São Nicolau) did not own land and were either tenant farmers or sharecroppers. The rest were small

landholders, of whom 50 per cent wre also simultaneously tenants and/or sharecroppers. “(Chabal

and Birmingham, 2002, 278) The government (PAIGC) concluded that these circumstances unfair

and did not help better the living and employment situation in Cape Verde. Given this situation the

government came up with a land reform plan “with the objective of granting more secure tenure to

those who worked land they did not own.” (Chabal and Birmingham, 2002, 278) The government

decided it should grapple with the problem of land tenure. The policy “emphasised the need to

better the livilihood of those who lived from farming and to increase agricultural production.”

(Chabal and Birmingham, 2002, 279) The two main goals of the program were “(1) to alter the

structure of landholding so as to allow all those who live from farming access to land; (2) to establish

the technical, financial and economic means that would make possible the growth of agriculutral

production and ensure that producers were the main beneficiaries of rural improvements.” (Chabal

and Birmingham, 2002, 278) Also, the government implemented programs to grow and sutain rural

development through “credit, training, and the improvement of infrastructure and distribution of

commercial products.” (Chabal and Birmingham, 2002, 275) This program was not a success. It

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created animosity on all sides of the issue. An example of this was sharecropping being converted

into tenancy made owners and producers unhappy and also did not increase production nor did it

decrease landownership. Machado and Teofilo make the follwing conclusion about land reform

from 1980-1990:

Machado and Teofilo concluded that the aims of land reform had failed to materialise both because the actual transfer of land was insuffucient and because, where it had taken place, the people concerned had simply not had access to the means required to cultivate the land properly. In those conditions reform did not free the producers from the overwhelming constraints that made agriculture so precarious. (Chabal and Birmingham, 2002, 280)

In spite of the limited success of land reform this policy did make an impact on agriculture. It achieved

two things. “First, it did link land tenure and production much more explicitly Second, and according to

Macado and Teofilo, rural producers benefited from the large-scale public investment in infrastructure,

land reclamation, reafforestation and water-retetnion shemes financed by the state and the

international aid.”(Chabal and Birmingham, 2002, 280)

Given the new government taking power in 1991 and the subsequent poltical changes that

enused “the improvement of the employment situation continued to be a priority for the

government.”(Chabal and Birmingham, 2002, 281) This problem goes back to the 19th Century and thus

the government turned its focus at “underemployment or unemployment” (Chabal and Birmingham,

2002, 282) in order to solve this problem since came into office in 1975. As this problem persisted, the

MPD decided on two courses of action which were “the modernisation of the economy and the

reduction in regional disparities.” (Chabal and Birmingham, 2002, 283) They decided on these two

courses of action because

The first was based on a greater integration into the world economy with its consequent opening up of the borders and further liberalisation of the economy, aiming to combine greater competitiveness with balanced development. To this end the government sought to encourage the kind of productive investment that would maximise employment, blending labour-intesive schemes with economic growth. The second was grounded in the efforts to decentralise both

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economic activity and decision-making, particularly in regard to the use of FAIMO at the local level. (Chabal and Birmingham, 2002, 283)

However, “Despite the efforts made by successive governments since independence, unemployment

remains both structurally high and socially disruptive. There has been insuffucient scope for the type of

sustained economic development that would provide employment to match population growth.”(Chabal

and Birmingham, 2002, 283. This occurred because the number of Cape Verdeans who emigrated to the

United States and Europe dropped because the demand for their unskilled labor decreased. This made a

worse situation much worse. In 1998, unemployment accounted for 25% of the population where

“(women make up 56 per cent of the unemployed and only 36 per cent of the employed). Young people

(men and women) in the age group of 14-24 represent 58 per cent of the unemployed total. Regional

variations are also still important, with the three main islands (Santiago, São Vicente and Santo Antão)

forming 85 per cent of the unemployed, respetively 54 per cent, 21 per cent and 10 per cent.”(Chabal

and Birmingham, 2002, 283) Given these circumstances, “the government again placed the reduction of

unemployment at the heart of its latest plan for national development (1997-2000), within the ambit of

its programme for the reduction of poverty. Again, it favoured a ‘liberal’ solution, stressing the

development of the private sector, the increase in direct foreign productive investments and the growth

of goods and services.”(Chabal and Birmingham, 2002, 283)

When Cape Verde became independent, the PAICV (Partido Africano da Independência de Cabo

Verde), made education a top priority and

placed the greatest importance on the development of training. To this end, it initiated a number of key policies soon after independence, among which the most significant were: the reform of all curricula and the preparation of new school textbooks; the widening of the network of schools; support to students from less-favoured social classes; and improvement in the training of teachers. The First Development Plan continued to allocate priority resources to education and sought to improve the provision of basic primary teaching with the aim of enabling all children to start their education at age seven, reduce illiteracy, strengthen teaher training, and improve schools and classrooms. (Chabal and Birmingham, 2002, 284)

The first government had notabe ahievements:

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Nevertheless, the achievements of the first government were considerable if one considers that fully 89 per cent of the population receive primary education up to years 5 and 6. 58 per cent received the first part of secondary education and 12 per cent the final part of secondary schooling. During its period of office, the PAICV presided over a reducation in illiteracy from 101,259 in 1975 to 52,672 in 1991. (Chabal and Birmingham, 2002, 284-285)

When the MPD government assumed power it advocated as the previous government “the importance

of human development and placed as policy priorties the betterment of social justice, the reduction in

poverty, the improvement of health, education and nutrition.”(Chabal and Birmingham, 2002, 285) The

MPD also advocated lessening the role of the state in the economy and promoted private enterprise.

Based on this reason, it focused on education that would allow for young people to be econonomically

free. The face of this education was more of a vocational and professional type which would allow the

students “to become adaptable to the demands of the modern labour market. It also required a context

in which the different levels of education were more firmly interlinked. (Chabal and Birmingham, 2002,

285) The MPD government had a belief “that the lack of middle-and higher-ranking professionals and of

properly qualified workers was a serious hindrance to development. As a result it committed itself in its

development plan (1992-4) to improve existing provisions, widen access to professional training, and to

link much more concretely the education provided with existing or envisaged professional employment

in Cape Verde.”(Chabal and Birmingham, 2002, 285) The MPD had the following achievements in

education, “the transformation of the basic structure of the education system, the development of new

curricula, the producation of m(ore didactic material, the improvement of the school network, the

stress on adult education, and the increasing support to more socially relevant forms of

education.”(Chabal and Birmingham, 2002, 285)

When Cape Verde became independent, the first government (PAIGC), which spanned from

1975-1980, created a program “that gave high priority to social welfare, stressing particularly the

protection of the poor and those who were vulnerable (children, women, chronically ill). Investment in

health was made and free medical treatment was introduced, funded by the state and by foreign aid for

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health and nutrition.”(Chabal and Birmingham, 2002, 286) In the area of social welfare, the state was

hampered “by a lack of fund, to the distribution of food, the granting of subsidies, basic health care and

provision for the disabled. In reality, here the government was almost entirely dependent on foreign aid

and technical assistance.”(Chabal and Birmingham, 2002, 286) Cape Verde did make progress in that it

provided health and social services to the people since it became independent. However,

by 1991 mortality rates and the incidence of illness remained high-reflecting here the precarious living conditions of the Cape Verdeans. For this reason, the Third Development Plan (1992-5) set out clear policies to improve the situation further. Among the measures envisaged were the improvement in nutrition, the consolidation of primary health care to the whole population, the strengthening of the management of health delivery, the development of training and the regional adaptation of health care. The efforts made to train health professional [s] was sucessful since it enabled Cape Verde virtually to dispense with technical assistance in this area. (Chabal and Birmingham, 2002, 287)

The development plan of 1997-2000, recongnized “the limatations of the health service, particularly for

those who are most vulnerable: the poor and ill. It also admits that infectious diseases have been

resilient, with recent outbreaks of cholera and even poliomyelitis. AIDS has now appeared and, although

still limited, there are fears that it could spreadly rapidly. Finally, there is recognition that health and

development are correlated.”(Chabal and Birmingham, 2002, 287) In terms of social welfare, “the

government, in line with its ‘liberal’ views, envisages that responsiblities be shared between the public

and private sectors.”(Chabal and Birmingham, 2002, 287) The government’s view is “If the state is

responsible for the management of a human development policy, it behoves other bodies-such as NGOs,

church organisations, private institutions-to bring whatever help they can to improve the delivery of

welfare provisions.”(Chabal and Birmingham, 2002, 287) In terms of the human development policy, the

government has stated “to be committed to the alleviation of unemployment, the protection of the

environment, and the better integration of the various sectors of society into a self-sustained process of

development.”(Chabal and Birminghan, 2002, 287-288) In the development of 1997-2000, it put forth

“the following social policies: better protection of the most disfavoured; an improvement in the delivery

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of hospital-based social sevices; a better integration of national and international(private and public)

resources; and a strenghening of the means available at the local level.(Chabal and Birmingham, 2002,

288) Inspite of the government’s good intentions the government at that time had to come to a hard

and cold fact: “Whatever the good intentions, however, it is clear that in the present economic situation,

the government will find it most difficult to provide sufficient social welfare services. Only an

improvement in the employment situation would generate sufficient revenues for such

purposes.”(Chabal and Birmingham, 2002, 288)

Cape Verde has the problem of “extreme scarcity of rainfall on the archipelago is a major

constraint on the provision of water and the improvement of sanitary conditions.”(Chabal and

Birmingham, 2002, 288) The government did put forth a plan to increase drinking access to water.

The Third Development Plan (1992-5) laid down ambitious objectives for access to drinkable water which, so far, have only been attained in São Vicente, where 65 per cent of the population is now supplied. The provision of sanitation, on the other hand, remained far too limited-with only Praia and Mindelo benefiting from any sewerage system. Accordingly, the latest plan (1997-2000) aims to extend proper sanitation to the whole country, particularly in Praia where rapid and unregulated urbanisation is causing serious problems. Other urban centres will also receive priority treatment. Finally, there are plans to establish a water-quality control laboratory in every municipality. (Chabal and Birmingham, 2002, 289)

Elisa Silva Andrade finally concludes with the following:

The analysis of economic and social development in Cape Verde since independence raises some fundamental questions about the future political directions of the archipelago. Is the current rapid liberalisation of the economy, in a context where there is no substantial class of national entrepreneurs and very little prospect that it will develop rapidly, a viable means of ensuring economic growth and sustainable human development? Indeed, the privatisation programme was seriously criticised by the PAIVC because, in a environement lacking in transparency, there is very strong suspicion that it has engendered corruption and other illegal practices. If such policies increase the number of deprived poor people, with no hope of employment, is there not a risk of social, or even violence? Finally, even if, as appears to be case, economic growth is picking up, will the structural adjustment programme allow an improvement in the human development of Cape Verdeeans and a reduction of poverty and inequality? Clearly, the ruling MPD did not manage in the last elections to convince the population that it is the best party to meet those challenges. The question now is whether the delay in fulfilling some of its most important commitments, especially in respect of unemployment, will conspire to undermine the efforts of the new government. (Chabal and Birmingham, 2002, 290)

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ISRAEL

Israel is a very unique nation given its geography, history, and its people. The uniqueness of

Israel is exhibited with this “question: How is it that Israel- a country of 7.1 million people, only sixty

years old, surrounded by enemies, in a constant state of war since founding, with no natural resources-

produces more start-up companies than large, peaceful, and stable nations like Japan, China, India,

Korea, Canada, and the United Kingdom?”(Senor and Singer, 2009, inside jacketcover) The answer to

this question is “Israel’s adversity-driven culture that fosters a unique combination of innovative and

entrepreneurial intensity.”(Senor and Singer, 2009, Inside Jacketcover) The authors Dan Senor and Saul

Singer, of Start-Up Nation: The Storyof Israel’s Economic Miracle, argue “Israel is not a just a country bua

a comprehensive state of the mind.”(Senor and Singer, 2009, Inside Jacketcover) Americans stress and

focus on “decorum and exhaustive preparation, Israelis put chutxpah first.”(Senor and Singer, 2009,

Inside Jacketcover) An analyst in their book states ‘When an Israeli entreprenuer has a business idea, he

will start it that week.’(Senor and Singer, 2009, Inside Jacketcover) Internationally, Israel is an economic

miracle story. The ingredients to its economic rise have been its “policies on immigration, R&D, and

military service.”(Senor and Singer, 2009, Inside Jacketcover) The economic miracle of Israel has made it

“have more companies on the NASDAQ than those from all of Europe, Korea, Japan, Singapore, China,

and India combined.”(Senor and Singer, 2009, Inside Jacketcover)

Israel has led in technology and start-ups for the last decado or so. Senor and Singer state

“Technology companies and global investors are beating a path to Israel and finding unique

combinations of audacity, creativity, and drive everywhere they look. Which may explain why, in

addition to boasting the highest density of start-ups in the world (a total of 3,850 start-ups, one for

every 1,844 Israelis), more Israeli companies are listed on the NASDAQ exhchange than all companies

from the entire European continent.”(Senor and Singer, 2009, 11) Israel has not only attracted money

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from the notable stock exchanges such as the New York Stock Exchange “but also the most critical

fungible measure of technological promise: venture capital.”(Senor and Singer, 2009, 11) “In 2008, per

capita venture capital investments in Israel were 2.5 times greater than in the United States, more than

30 times greater than in Europe, 80 times greater than in China, and 350 times greater than

India.”(Senor and Singer, 2009, 11-12) To put this in terms of real numbers, “Comparing aboslute

numbers, Israel-a country of just 7.1 millio people-attracted close to $2billion in venture capital, as much

as flowed to the United Kingdom’s 61 million citizens or to the 145 million people living in Germany and

France combined. And Israel is the only country to experience a meaningful increase in venture capital

from 2007 to 2008.”(Senor and Singer, 2009, 12-13) Second to the United States, “Israel has more

companies listed on the NASDAQ than any other country in the world, including India, China, Korea,

Singapore, and Ireland.”(Senor and Singer, 2009, 13) Also, “Israel is the world leader in the percentage

of the economy that is spent on research and development.”(Senor and Singer, 2009, 13) The economy

of Israel “has also grown faster than the average for the developed economies of the world in most

years since 1995.”(Senor and Singer, 2009, 13) One would think that the wars that Israel has been

engaged in would put a damper on the economy. Not so. From 2001 to 2006, “Israel was hit not just by

the bursting of the global tech bubble but by the most intense period of terrorist attacks in its history

and by the second Lebanon War. Yet Israel’s share of the global venture capital market did not drop-it

doubled, from 15 percent to 31 percent. And the Tel Aviv stock exchange was higher on the last day of

the Lebanon war than on the first, as it was after the three-week military operation in the Gaza Strip in

2009. (Senor and Singer, 2009, 14) So, given these metrics and statistics of this economic miracle, why is

Israel unique since many other nations have talent and start-ups? The answer lies with failure. Senor

and Singer state the following:

This is not to suggest that Israelis are immune from the universally high failure rate of start-ups. But Israeli culture and regulations reflect a unique attitude to failure, one that has managed to repeatedly bring failed entreprenuers back into the system to constructively use their

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experience to try again, rather than leave them permanently stigmatized and marginalized. (Senor and Singer, 2009, 20)

Senor and Singer note a study about entreneurship that will butress this point:

As a recent report by the Monitor Group, a global management consulting firm, described it, ‘When [entreprenuers] succeed, they revolutionize markets. When they fail, they still [keep] incumbents under constant competitive presure and thus stimulate progress.’ And the Montior study shows that entrepreneurship is the main engine for economies to ‘evolve and regenerate.’(Senor and Singer, 2009, 20)

Senor and Singer sum up their main point and conclusion by stating:

In a world seeking the key to innovation, Israel is a natural place to look. The West needs innovation; Israel’s got it. Understanding where this entrepreurial energy comes from, where it’s going, how to sustain it, and how other countries can learn from the quintessential start-up nation is a critical task for our times. (Senor and Singer, 2009, 20)

The Israeli attitude and practice of failing and continuing to try until you succeed with a

start-ups are also evident in its laws when it comes to bankruptcy and forming new companies.

In The Geography of Bliss, author Eric Weiner describes another country with a high tolerance for failure as a ‘nation of born-agains, though not in a reigious sense.’ This is certainly true for Israeli laws regarding bankruptcy and new company formation, which make it the easiest place in the Middle East-and one of the easiest in the world-to birth a new company, even if your last one went bankrupt. But this also contributes to a sense that Israelis are always hustling, pushing, and looking for the next opportunity. (Senor and Singer, 2009, 32)

A unique aspect of the Israeli economic miracle is the contribution that mandatory military service

makes to innovation and entrepreuenership. The Talpiot program is part of the Israeli Defense Force and

its job is “to maintain the IDF’s technological edge.” (Senor and Singer, 2009, 72) This program “is under

Mafat, the IDF’s internal research and development arm, which is parallel to America’s DARPA (the

Defense Advanced Research Projects Agency).”(Senor and Singer, 2009, 72) Mililary personnel who

graduate from this program are called Talpions. The Talpiot program shows how military service in Israel

creates innovative and entrepreunerial individuals. Senor and Singer make this point:

Talpions may represent the elite of the elite in the Israeli military, but the underlying strategy behind the programs development-to provide broad and deep training in order to produce innovative, adaptive problem solving-is evident throughout much of the military and seems to be part of the Israeli ethos: to teach people how to be very good at a lot of things, rather than excellent at one thing. (Senor and Singer, 2009, 73)

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Senor and Singer further support this point by saying:

The advantage that Israel’s economy-and its society-gains from this equally dispersed national service experience was driven home to us by neither an Israeli nor an American. Gary Shainberg looks more like a sailor (of the compact, stocky variety) than a tech geek, perhaps because he is an eighteen-year veteran of the British navy. Now vice president for technology and innovation at British Telecom, he met us late one evening in a Tel Aviv bar. He was on one of his many business trips to Israel, en route to the gulf-to Dubai, actually. (Senor and Singer, 2009, 73)

Shainber says the following. ‘There is something about the DNA of Israeli innovation that is

unexplainable,’ “Shainberg said. But he did have the begginings of a theory.” ‘I think it comes down to

maturity. That’s because nowhere else in the world where people work in a center of technology

innovation do they aslo have to do national service.’(Senor and Singer, 2009, 73) Shainberg also adds

‘There’s a massive percentage of Israelis who go to university out of the army compared to anywhere

else in the world.’(Senor and Singer, 2009, 73) Two statistics to support this observation is

according to the Organisation for Economic Co-Operation and Development (OECD), 45 percent of Israelis are university educated, which is among the highest percentages in the world. And according to a recent IMD World Competitiveness Yearbook, Israel was ranked second among sixty developed nations on the criterion of whether ‘university education meets the needs of a competitive economy.’(Senor and Singer, 2009, 73-74)

Senor and Singer continue to elaborate on this idea of military service and maturity. “By the time

students finish college, they’re in their mid-twenties; some already have graduate degrees, and a large

number are married. ‘All this changes the mental ability of the individuals,’ “Shainberg reasoned.”

‘They’re much more mature; they’ve got more life experience. Innovation is about finding ideas.’(Senor

and Singer, 2009, 74) Senor and Singer speak to a process in terms innovation and entrepreuneuriship:

Innovation often depends on having a different perspective. Perspective comes from experience. Real experience also typically comes with age or maturity. But in Israel, you get experience, perspective, and maturity at a younger age, because the society jams so many transformative experiences into Israelis when they’re barely out of high school. By the time they get to college, their heads are in a different place than those of their American counterparts. (Senor and Singer, 2009, 74)

Shainberg sums it up:

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You got a whole different perspective on life. I think it’s that later education, the younger marriage, the military experience-and I spent eighteen year in the [British] navy, so I can sort of empathize with that sort of thing,’ “Shainberg went on.” ‘In the military, you’re in an environment where you have to think on your feet. You have to make life-and-death decisions. You learn about discipline. You learn about training your mind to do things, espeically if you’re frontline or you’re doing something operational. And that can only be good and useful in the business world.’(Senor and Singer, 2009, 74)

Senor and Singer make a further point that this maturity coupled with what they term “an almost

childish impatience” (Senor and Singer, 2009, 74) is very powerful. They sum it up well:

Since their country’s founding, Israelis have been keenly aware that the future-both near and distant-is always in question. Every moment has strategic importance. As Mark Gerson, an American entrepreneur who has invested in several Israeli start-ups, described it, ‘When an Israeli man wants to date a woman, he asks her out that night. When an Israeli entrepreneur has a business idea, he will start it that week. The notion that one should accumulate credentials before launching a venture simply does not exist. This is actually good in business. Too much time can teac you what can go wrong, not what could be transformative.’(Senor and Singer, 2009, 74-75)

The value of military experience for the Israeli society and economy is aptly summed up with this:

Yet the capacity of U.S. corporate recruiters and executives to make sens of combat epxerience and its value in the business worl is limited. As Medved explained, most American business people simply do not know how to read a military résumé. Al Chase told us that a number of vets he’s worked with have waled a business interviewer through all their leadership experiences from the battlefield, including case studies in high-stakes decision making and management of large numbers of people and equipment in a war zone, and at the end of it the interviewer has said something along lines of ‘That’s very interesting, but have you ever had a real job?’ In Israel it is the opposite. Whiel Israeli businesses still look for private-sector experience, military service provides the crtical standardized metric for employers-all of whom know what it means to be an officer or to have served in an elite unit. (Senor and Singer, 2009, 83)

In the Israeli Defense Force hierchy and orthodoxy are shunned for opennes and doing things constantly

in a new way. That often times mean subordinates challenging superiors in the IDF. Senor and Singer

speak of this by giving this example.

In the Israeli army, soldiers are divided into those who think with a rosh gadol-literally, a ‘big head’-and those who operate with a rosh katan, or ‘little head.’ Rosh katan behavior, which is shunned, means interpreting orders as narrowly as possible to avoid taking on responsibility or extra work. Rosh gadol thinking means following orders but doing so in the best possible way, using judgement, and investing whatever effort is necessary. It emphasizes improvisation over discipline, and challenging the chief over respect for hierarchy.”(Senor and Singer, 2009, 92-93)

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Senor and Singer speak to the idea of fluidity when it comes to enrepreurialism:

Fluidity, according to a new school of economists studying key ingredients for entrepreneurialism, is produced when people can cross boundaries, turn societal norms upside down, and agitate in a free-market economy, all to catalyze radical ideas. Or as Harvard pyschologist Howard Gardner puts it, different types of ‘asynchrony… [such as] a lack of fit, an unusual pattern, or an irregularity’ have the power to stimulate economic activity. (Senor and Singer, 2009, 99)

Senor and Singer go on to speak about the chief obstacle to fluidity:

Thus, the most formidable obstacle to fluidity is order. A bit of mayhem is not only healthy but critical. The leading thinkers in this area-economists William Baumol, Robert Litan, and Carl Schramm-argue that the ideal environment is best described by a concept in ‘complexity science’ called the ‘edge of chaos.’ They define that edge as ‘the estuary region where rigid order and random chaos meet and generate high levels of adaptation, complexity, and creativity.’(Senor and Singer, 2009, 99-100)

Senor and Singer explain why Israeli entrepreneurs thrive in this kind of environment:

This is precisely the environment in which Israeli entrepreuners thrive. They benefit from the stable institutions and rule of law that exist in an advanced democracy. Yet they also benefit from Israel’s nonhierarchical culture, where everyone in businsess belongs to overlapping networks produced by small communities, common army service, geographic proximity, and infomality. (Senor and Singer, 2009, 100)

Senor and Singer sum up why military service helps the Israeli economy:

It is no coincidence that the military-particularly the elite units in the air force, infantry, intelligence, and information technology arenas-have served as incubators for thousands of Israeli high-tech start-ups. Other countries may generatie them in small numbers, but the Israeli economy benefits from the phenomena of rosh gadol thinking and critical assessment, undergirded by a doctrine of experimentation, rather than standardization, wide enough to have a national and even a global impact.(Senor and Singer, 2009, 100)

Israel has enjoyed a “fiftyfold economic growth within sixty years.”(Senor and Singer, 2009, 1003). And

yes “Israeli character idiosyncrasies, battle-tested entrepreurship, or geopolitical happenstance” (Senor

and Singer, 2009, 100) have been among the ingredients of Israel’s success. However, there is another

ingredient that has also helped grow its economy. That ingredient was government policies. Senor and

Singer make the following point, “The story must include the effects of government policies, which had

to be as adaptive as Israel’s military and its citizens, and suffered as many turns of fortune.”(Senor and

Singer, 2009, 103) And Senor and Singer state “The history of Israel’s economy is one of two great leaps,

separated by a period of stagnation and hyperinflation. The government’s macroeconomic policies have

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played an important role in speeding the country’s growth, then reversing it, and then unleashing it in

ways that even the government never expected.”(Senor and Singer, 2009, 103)The period from 1948 to

1970 was the “The first great leap” (Senor and Singer, 2009, 103). In this period per capita GDP nearly

grow four times and the population increased by three times and this happened even with the three

wars it fought. The second great leap occurred from 1990 till 2009(the year this book was published).

Senor and Singer state that this occurred “during which time the country was tranformed from a sleepy

backwater into a leading center of global innovation.”(Senor and Singer, 2009, 103-104) The tools that

were used to implement both policies in both giant leap forwards could not have been anymore

different. In the first great leap forward it was accomplished with “an entrepreneurial government that

dominated a small, primitive private sector.”(Senor and Singer, 2009, 104) In the second great leap

forward it was accomplished with “a thriving entrepreneurial private sector that was initially catalyzed

by government action.”(Senor and Singer, 2009, 104)

Th e Kibbutz was the heat of the first great leap forward. (“kibbutz means ‘gathering’ or

‘collective’, kibbutzim is the plural, and members are called kibbutzniks”(Senor and Singer, 2009, 108)

Senor and Singer state “At the center of the first great leap was a radical and emblematic societal

innovation whose local and global influence has been wildly disproportionate to its size: the kibbutz.

Today, at less than 2 percent of Israel’s population, kibbutzniks produce 12 percent of the nation’s

exports.”(Senor and Singer, 2009, 108)

Senor and Singer point to another component that has made Israel an economic miracle which

the kibbutz helped to bring about:

Professor Ricardo Hausmann heads the Center for International Development at Harvard University and is a former minister of development in the Venezuelan government. He is also a world-renowned expert on national economic development models. All countries have problems and constraints, he told us, but what’s striking about Israel is the penchant for taking problems-like the lack of water-and turning them into assets-in this case, by becoming leaders in the fields of desert agriculture, drip irrigation, and desalination. The kibbutz was at the forefront

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of this process early on. The environmental hardships the kibbutzim contended with were uttimately incredibly productive, much in the same way Israel’s security threats were. The large amounts of R&D spending deployed to solve military problems through high technology-including in voice recognition, communications, optics, hardware, software, and so on-has helped the country jump-start, train, and maintain a civlian high-tech sector.(Senor and Singer, 2009, 110)

Israel made what economist call a leapfrog in terms of economic gain. Senor and Singer

elaborate further on this:

The kibbutz story is just a part of the overal trajectory of the Israeli economic revolution. Whether it was socialist, developmentalist, or a hybrid, the economic track record of Israel’s first twenty year was impressive. From 1950 through 1955, Israel’s economy grew by about 13 percent each year; it hoovered just below 10 percent growth annually into the 1960s. Not only did Israel’s economy expand, it experienced what Hausmann calls a ‘leapfrog,’ which is when a developing country shrinks its per capita wealth gap with rich first-world countries. (Seno and Singer, 2009, 113)

Economic growth is a normal occurrence in most nations. However, leapfrogs do not occur on a regular

basis. A telling statistic of this is that only 1 out 3 nations have had periods of economic growth but less

than 10% experienced a leapfrog. “The Israeli economy, however, increased its per capita income

relative to the United States’ from 25 percent in 1950 to 60 percent in 1970.”(Senor and Singer, 113)

This means that Israel in a period of twenty years inceased it’s standard of living in comparison to the

United States by more than 200%. Senor and Singer explain the government’s intervention in the

economy:

During this period, the government made no effort to encourage private entrepreneurship and, if anything, was rhetorically hostile to the notion of private profit. Though some of the government’s political opponents did begin to oppose its heavy economic hand and anti-free market attitudes, these critics were a small minority. If the government had valued and sought to ease the path for private initiative, the economy would have grown even faster. In retrospect, however, it is clear that Israel’s economic performance occurred in part because of the government’s meddling, and not just in spite of it. (Senor and Singer, 2009, 113)

When a nation’s economy is in its infancy and is developing it goes through a peculiar process. Senor

and Singer explains this, how Israel carried out this process, and an important caveat. Senor and Singer

say

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During the early states of development in any primitive economy, there are easily identifiable opportunities for large-scale investment: roads, water systems, factories, ports, electrical grids, and housing construction. Israel’s massive investment in these projects-such as the National Water Carrier, which piped water from the Sea of Galilee in the north to the parched Negev in the south-stimulated high-velocity growth. Rapid housing development on kibbutzm, for example, generated growth in the construction and utilities industries. But it is important not to generalize: many developing countries engaged in large infrastructure projects waste vast amounts of government funds due to corruption and government ineffeciencies. Israel was not a perfect exception. (Senor and Singer, 2009, 114)

A further point about this topic is made by Senor and Singer. “Though infrastructure projects were

perhaps the most visible element, even more striking was the deliberate creation of industeries, as

entrepreneurial projects, from within the government. (Senor and Singer, 2009, 114) A future prime

minister, Shimon Peres, and “Al Schwimmer, an American who helped smuggle airplanes and weaspons

to Israel durin the War of Independence,”(Senor and Singer, 2009, 114) wanted to start an aeronautics

industry for Israel. However, many quarters in the Israeli government gave them a cold shoulder. This

happened in the 1950s. The times were precarious. “At the time, staples like milk and eggs were still

scarce and thousands of just-arrived refugees were living in tents, so it is not surprising that most of the

ministers thought that Israel could neither afford nor be capable of succeeding in such an

endeavor.”(Senor and Singer, 2009, 114) Peres convinced David Ben-Gurion to start this industry. “They

launched an enterprise that at one point was Israel’s largest employer. Bedek eventually became Israel

Aircraft Industeries, a global leader in its field.”(Senor and Singer, 2009, 114) Senor and Singer make

several points about entrepreneurs and Israel’s development at that time.

During this stage of Israel’s development, private entrepreneurs may not have been essential because the largest and most pressing needs economy were obivious. But the system broke down as the economy became more complex. According to Israeli economist Yakir Plessner, once the government saturated the economy with big infrastructure spending, only entrepreeurs could be counted on to drive growth; only they could find ‘the niches of relative advantage.’(Senor and Singer, 2009, 114-115)

A move away from a central development economy to an economy of private entrepreurship did not

happen in the middle of the 1960s. “The twenty-year period from 1946 through 1966, when most of the

large-scale infrastructure investments had been made, was coming to an end. In 1966, with no more

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frothy investment targets, Israel experienced for the first time nearly zero economic growth.”(Senor and

Singer, 2009, 115) Inspite of this the Israeli government was of the opinon of still keeping the economy

closed to “private enterprise.”(Senor and Singer, 2009, 115) Economic reforms were put off because of

the Six Day War of 1967. Israel gained the West Bank, Gaza Strip, Sinai Peninsula, and the Golan Heights.

Israel after the Six Day War was three times larger than it was before the war. Senor and Signer make

the following conclusion about this:

Suddenly the Israeli government was once again busy with new large-scale infrastructure projects. And since the IDF needed to establish positons in the new territories, massive spending was necessary for defense installations, border security, and other costly infrastructure. It was another giant economic ‘stimulus’ program. As a result, from 1967 to 1968, investment in construction equipment alone increased by 725 percent. The timing of the war reinforced the worst instincts of Israel’s cenral planners. (Senor and Singer, 2009, 115)

The economic boom from the 1967 Six Day War did not last long. Israel had another war, Yom Kippur

War of 1973 and it did not produce an economic boom. The war was not very good for Israel. “Israel

suffered heavy casulities (three thousand fatalities and many more wounded) and enormous damage to

its infrastructure.”(Senor and Singer, 2009 115) Given the severity of the war Israe had to drastic

actions. “Forced to mobilize large numbers of reserves, the IDF pulled most the of the labor force out of

the economy for up to six months. The effect of such a massive and protracted call-up was jarring,

paralyzing companies and even industries. Business activity came to a halt.”(Senor and Singer, 2009,

115-116) Senor and Singer speak about what would happen under normal conditions given these

events. “In any normal economic environment, private incomes among domestic workers would have

experienced a corresponding decline.”(Senor and Singer, 2009, 116) The government intervened and did

not allow this to happen. The public debt increased. The government countered the increasing debt with

increasing “every tax rate-including on capital investment.”(Senor and Singer, 2009, 116) This led to

“Short-term and high-priced debt was to finance the defecit, which in turn increased interest

payments.”(Senor and Singer, 2009, 116) This happened at the same time when immigration decreased.

“New immigrants have always been a key source of Israel’s economic vitality. There had been a net gain

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of nearly one hundred thousand new Israelis between 1972 and 1973. But the number was down to

fourteen thousand in 1974 and almost zero in 1975.”(Senor and Singer, 2009, 116) A factor that made a

recovery

unlikely-if not impossible-was the government’s monoply of the capital market. As the Bank of Israel itself described it at the time, ‘The government’s involvement trancends anything that is known in politically free countries.’ The government set the terms and interest rate for every loand and debt instrument for consumer and business credit. Commercial banks and pensions were forced to use most of their deposits to purchase nonnegotiable government bonds or to finance private-sector loans for projects that had been earmarked by the government. (Senor and Singer, 2009, 116)

Senor and Singer say “This was the condition of Israel’s economy during what is often described by

economists as Israel’s ‘lost decade,’ from the mid-1970s through the mid-1980s.”(Senor and Singer,

2009, 116)Senor and Singer go on to give a bleak economic picture of those times. They make this very

important point: “Today, Intel’s decision to search for scarce engineers in Israel seems like an obvious

move. But the Israel that Intel found in 1974 was nothing like what it is today. While it may no longer

have resembled an espanse of sand, swamps, and malaria, visitors during the 1970s might have been

excused for thinking they had landed in a third-world country.”(Senor and Singer, 2009, 116) The

universities and the students graduating from them were excellent. But most of Israel’s infrastructure

was old. The airport was not very big and nothing to boast about. A major highway system did not exist.

TV reception was very poor however this mattered very little since there was only one single channel

broadcasted in Hebrew and few Arab channels that can only be received “with a powerful enough

antenna, one could pick up from Jordan or Lebanon.”(Senor and Singer, 2009, 117) Senor and Singer

further elaborate about on the general development of the country at that time.

Not everyone had a telephone at home, and not because they all had cell phones, which didn’t exist yet. The reason was that phone lineswere being slowly rationed out by a government ministry, and it took a long time to get one. Supermarkets, unlike the small food marts common in neighborhoods, were a novelty, and they did not carry many international products. Major international retail chains were nonexistent. If you needed something from abroad, you had to go yourself, or ask a visitor to bring it back for you. High custom duties-many of them protectionist attempts to coddle local producers –made most imports prohibitively expensive.

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The cars on the road were a bland bunch-some produced in Israel (these became the butt of jokes, much like locally produced Russian cars did in Russia) and a motley assortment of the cheapest models of mostly Subaru and Citroën, the two companies brave or desperate enough to defy the Arab boycott. The banking system and the government’s financial regulations were as antiquated as the auto industry. It was illegal to change dollars anywhere except at banks, which charged government-set exchange rates. Even holding an overseas bank account was illegal. (Senor and Singer, 2009, 117)

Then in the early 1980s, hyperinflation set in. Senor and Singer expound on this:

As late as the early 1980s, Israel also suffered from hyperinflation: going to the supermarket meant spending thousands of almost worthless shekels. Inflation rose from 13 percent in 1971 to 111 percent in 1979. Some of this was due to rising oil prices at this time. But Israeli inflation continued to skyrocket beyond other countries’, rising to 133 percent in 1980 and to 445 perccent in 1984, and appeared to be on its way to a four-digit figure within a year or two. (Senor and Singer, 2009, 118)

Senor and Singer speak to the actions people took as a result of hyperinflation:

People would hoard phone tokens, since their value didn’t change at their price rose sharply, and would rush to buy basic items in advance of expected price hikes. According to a joke of that time, it was better to take a taxi from Tel Aviv to Jerusalem than a bus, since you pay the taxi at the end of the ride, when the shekel would be worth less. (Senor and Singer, 2009, 118)

Senor and Singer specify the chief reason of what caused the hyperinflation:

A main reason for the hyperinflation was, ironically, one of the measures the government had taken for years to cope with inflation: indexing. Most of the economy-wages, prices, rents-were linked to the Consumer Price Index, a measure of inflation. Indexing seemed to protect the public from feeling the effects of inflation, since their incomes rose with their expenses. But indexing ultimately fed an inflationary spiral. (Senor and Singer, 2009, 118)

Senor and Singer speak to what Israel has achieved economic and development wise as of 2009(when this book was

published):

In this context, it is especially striking that Intel set up shop in Israel in the 1970s. An even greater mystery, however, is how Israel transformed itself from this somewhat provincial and isolated state to a thriving and technologically sophisticated country three decades later. Today, vistors to Israel arrive in an airport that is often far more slickly modern than the one they departed from. Unlimited numbers of new phone lines can be set up with only a few hours’ notice, Blackberrys never lose recetion, and wireless Internet is as close as the nearest coffee shop. Wireless access is os abundant that during the 2006 Lebanon war, Israelis were busy comparing what kind of Internet service worked the best in their bomb shelters. Israelis have more cell phones per capita than anywhere else in the world. Most kids above the age of ten have a cell phone, as well as a computer in their bedroom. The streets are full of late-model cars, ranging from Hummers to European Smart cars that take up less than half of a scarce parking spot. ‘Looking for a few good programmers?’ CNNMoney.com recently asked in a feature listing Tel Aviv among the ‘best places to do business in the wired world.’ ‘So IBM, Intel,

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Texas Instruments, and other tech giants, which have flocked to Israel for its tech savvy… (Senor and Singer, 2009, 119)

Senor and Singer give the reasons in how Israel reversed the economic plight of the 1970s and 1980s:

The second-phase turnaround began after 1990. Up to that point, the economy had a limited capacity to capitalize on the entrepreneurial talent that the culture and the military had inculcated. And further stifling the private sector was the extended period of hyperinflation, which was not addressed until 1985, when then finance minister Shimon Peres led a stabilization plan developed by U.S. Secretary of State George Shultz and IMF economist Stanley Fischer. The plan dramatically cut public debt, limited spending, began privatizations, and reformed the government’s role in the capital markets. But this didn’t yet generate for Israel a private and dynamic entrepreneurial economy. For the economy to truly take off, it required three additional factors: a new wave of immigration, a new war, and a new venture capital indudstry. (Senor and Singer, 2009, 120)

Immigration has been one of the linchpins of Israel’s economic good fortunes.

Israel’s economic miracle is due as much to immigration as to anything. At Israel’s founding in 1948, its population was 806,000. Today numbering 7.1 million people, the country has grown almost ninefold in sixty years. The population doubled in the first three years alone, completely overwhelming the new government. As one of parliament member said at the time, if they had been working with a plan, they never would have absorbed so many people. Foreign-born citizens of Israel currently account for over one-third of the nation’s population, almost three times the ratio of foreigners to natives in the United States. Nine out of ten Jewish Israelis are either immigrants or first- or second-generation descendants of immigrants. (Senor and Singer, 2009, 126)

The biggest immigration happened from 1990 to 2000 from Russia when the Soviet Union collapsed.

Roughly 800,000 emigrated from the former Soviet Union. Senor and Singer tell the result of this

Immigration in the 1990s. “The result was that though Jews made up only about 2 percent of the Soviet

Population, they counted for ‘some thirty percent of the doctors, twenty percent of the engineers, and

so on,’ Sharansky told us.”(Senor and Singer, 2009, 127) Natan Sharansky was a famous Russian Jew

desident who was imprisoned in 14 years about his out spoken views of the Soviet regime and

Jewish immigration policies. However, this influx of immigratints did poise a problem for the

government.

It was a challenge to figure out what to do with an immigrant influx that, although talented, faced significant language and cultural barriers. Plus, the educated elite of a country the size of the Soviet Union would not easily fit into a country as small as Israel. Before this mass immigration, Israel already had among the highest number of doctors per capita in the world. Even if there had not been a glut, the Soviet doctors would have had a difficult adjustment to a

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new medical system, a new language, and an enirely new culture. The same was true in many other professions. (Senor and Singer, 2009, 127)

Even though this was a challenge for the government, “the Russians could not have arrived at a more

opportune tim. The international tech boom was picking up speed in the mid-1990s, and Israel’s private

technology sector became hungry for engineers.” (Senor and Singer, 2009, 127) Senor and Singer

elaborate further on the mentality and philosophy of the Israeli immigrants who have propelled the

economy to great heights and feats:

Walk into an Israeli technology start-up or a big R&D center in Israel center in Israel today and you’ll likely overhear workers speaking Russian. The drive for excellence that pervades Shevach-Mofet, and that is so prevelant among this wave of immigrants, ripples throughout Israel’s technology sector. (Senor and Singer, 2009, 128)

Shevach-Mofet is a high school that focuses on hard sciences and excellence. It was a school that had a

troubled past until unemployed Russian immigrant engineers and PhDs were employed by Yakov

Mozganov another emigrant from the former Soviet Union who was a university professor of

mathematics. Senor and Singer expound further on this phenemona:

What the Soviet migrés brought with them is symptomatic of what Israeli venture capitalist Erel Margalit believes can be found in a number of dynamic economies. ‘Ask yourself, why is it happening here?’ he said of the Israeli tech boom. We were sitting in a trendy Jerusalem restaurant he owns, next to a complex he built that houses his venture fund and a stable of start-ups. ‘Why is it happening on the East Coast or the West Coast of the United States? A lot of it has to do with the immigrant societies. In France, if you are from a very established family, and you work in an established pharmaceutical company, for example, and you have a big office and perks and a secretary and all that, would you get up and leave and risk everything to create something new? You wouldn’t. You’re too comfortable. But if you’re an immigrant in a new place, and you’re poor,’ Margalit continued, ‘or you were once rich and your family was stripped of its wealth-then you have drive. You don’t see what you’ve got to lose; you see what you could win. That’s the attitude we have here-across the entire population. Gidi Grinstein was an adviser to former prime minister Ehud Barak and was part of the Israeli negotiating team at the 2000 Camp David summit with Bill Clinton and Yasir Arafat. He went on to found his own think tank, the Reut Institute, which is focused on how Israel can become one of the top fifteen wealthiest nations by 2020. He makes the same point: ‘One or two generations back, someone in our family was packing very quickly and leaving. Immigrants are not averse to starting over. They are, by definition, risk takers. A nation of immigrants is a nation of entrepreneurs.’(Senor and Singer, 2009, 128-129)

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Also government policies were conducive and helpful to the immigration into Israel: “In addition to the

sheer numbers of immigrants in Israel, one other element makes the role of Israel’s immigration waves

unique: the policies the Israeli government has implemented to assimilate newcomers.”(Senor and

Singer, 2009, 129) Senor and Singer giver evidence for this:

Crucially, Israel may be the only country that seeks to increase immigration, and not just of people of narrowly defined origins or economic status, as the Ethiopian immigration missions evidence. The job of welcoming and encouraging immigration is a cabinet position with a dedicated ministry behind it. Unlike the U.S. Citzenship and Immigration Service, which maintains as one of its primary responsiblities keeping immigrants out, the Israeli Immigration and Absorption Ministry is solely focused on bringing them in.(Senor and Singer, 2009, 132)

The State of Israel makes a commitment and carries out policies for the next logical step in this

immigration process: assimilation,

Against this backdrop, the Israeli government has made the chief mission of the Ministry of Immigrant Absorption the integration of immigrants into society. Language training is one of the most urgent and comprehensive priorties for the government. To this day, the ministry organizes free full-immersion Hebrew courses for new immigrants: five hours each day, for at least six months. The government even offers a stipend to help cover living expenses during language training, so newcomers can focus on learning their new language rather than being distracted with trying to make ends meet. To accredit foreign education, the Ministry of Education maintains a Department for the Evaluation of Overseas Degrees. And the government conducts courses to help immigrants prepare for professional licensing exams. The Center for Absorption in Science helps match arriving scientists with Israeli employers, and the absoprtion ministry runs entrepreneurship centers, which provide assistance with obtaining start-up capital. There are also absoprtion programs supported by the government but launched by independent Israeli citizens. (Senor and Singer, 2009, 133)

Senor and Singer make the following concluding remarks about Israel’s immigration, policies, and how

immigration and why immigration is important to the economic miracle of Israel:

Ben-Gurion, both before and after the state’s founding, had made immigration one of the nation’s top priorities. Immigrants with no safe haven needed to be aided in their journey to the fledgling Jewish state, he believed; perhaps more importantly, immigrant Jews were needed to settle the land, to fight in Israel’s wars, and to breathe life into the nascent state’s economy. This is still seen as true today. (Senor and Singer, 2009, 134)

Israel did not have a venture capital industry until the 1990s. “Venture capital is investment funding that

is usually put to workin high-growth technology companies.”(Senor and Singer, 2009, 161) However, the

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“In the West, the role of the venture capitalist is not simply to provide cash. It’s mentoring, plus

introductions to a network of other investors, prospective acquirers, and new customers and partners,

that makes the venture industry so valuable to a budding start-up. A good VC will help entrepreneurs

build their companies. (Senor and Singer, 2009, 161) But in Israel venture capital industry did not exist.

But for most foreign investors, putting money into Israel seemed absurd. To them, Israel was synonmymous with ancient religions, archaeological digs, and deadly conflict. Even those investors who had marveled at Israel’s R&D capabilities were spooked by the surge in violence that came with the Palenstinian uprising-or intifada-in the late 1980s. This was before Dov Frohman’s decision to keep Intel open during the 1991 Gulf War. (Senor and Singer, 2009, 161)

Senor and Singer quote an Israeli government scientist who spoke to the problem that Israel faced with

this issue:

‘It was very clear that something was missing in Israel at the time,’ said Yigal Erlich, another chief scientist, who was serving in the government in the late 1980s. ‘While Israel was very good at developing technologies, Israelis didn’t know how to mange companies or markets.’(Senor and Singer, 2009, 161)

Prior to Israel having a venture capital industry there were two sole sources of financing for start-ups.

“First, Israeli start-ups could apply to the Office of the Chief Scientist (OCS) for matching grants.”(Senor

and Singer, 2009, 162) However, this financing did not come close to the amount of funding that was

needed for start-ups and thus many of them did not succeed. “A government report published in the

late 1980s claimed that 60 percent of the technology companies deemed worthy of OCS grants were

unable to raise follow-on capital to market their products. They may have created great products, but

they couldn’t sell them.”(Senor and Singer, 2009, 162) The second kind of fundng that Israeli companies

could seek was called BIRD grants. “Created from $110 million put up by the U.S. and Israeli

governments, the Binational Industerial Research and Development (BIRD) Foundation created an

endowment to support U.S.-Israeli joint business ventures. BIRD gave modest grants of $500,000 to $1

million, infused over two to three years, and would recoup funds through small royalities earned from

successful projects.”(Senor and Singer, 2009, 162) BIRD’s success can be shown quantitifiably and

qualitatively.

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To date, BIRD has invested over $250 million in 780 projects, which has resulted in $8 billion in direct and indirect sales. The impact of the BIRD program far surpassed mere revenues: it helped teach burgeoning Israeli tech companies how to do business in the United States. The companies worked closely with their American partners. May rented office space in the United States and sent employees overseas, where they could learn about the market and their customers. In the abence of equity financing, BIRD provided a shortcut to American markets. Even when the venture failed, there was tremendous learning about how to create products designed for markets, as opposed to simply developing technologies. (Senor and Singer, 2009, 163-164)

Even though BIRD was succesful there was still a lot of work to be done in terms of getting financing and

know how for Israeli tech start-ups.

By 1992, nearly 60 percent of the Israeli companies that went public on the New York Stock Exchange and 75 percent of those listed on the NASDAQ had been supported by BIRD. American venture capitalists and investors were beginning to take notice. And yet 74 percent of the high-tech exports out of Israel were generated by just 4 percet of high-tech companies. The benefits were not being widely dispersed. If new tech companies couldn’t get BIRD or government grants, they had to master the art of ‘bootstrapping’: using personal resources, connections, or any other means to cobble together funds. (Senor and Singer, 2009, 164)

Also, Israel faced the problem of a 1 million immgrants from the former Soviet Union and not having

enough jobs for these people. “With one out of every three Soviet immigrants a scientist, engineer, or

technician, Israel’s high-tech sector seemed to the best solution. But existing R&D centers alone would

never be able to handle that many new employees.”(Senor and Singer, 2009, 165) In 1991 the

government came up with a solution:

In 1991, the government created technology incubators-twent-four of them. These incubators gave most Russian scientists the resources and financing they needed in the early stage of R&D for their innovations. The goal was not only to develop the technology but to determine whether or not that product could be commercialized and sold. The government funded hundreds of companies through payments of up to $300,000. This got many of the Russian immigrants working at their craft, but those doling out the money had little, if any, experience with start-up ventures. The government financiers were unable to give these entrepreneurs the support and management they needed to turn these R&D successes into commercially viable products. (Senor and Singer, 2009, 165)

The government came up with a new program. “That’s when a band of young bueaucrats at the Ministry

of Finance came up with the idea for a program they called Yozma, which in Hebrew means

‘initiative.’”(Senor and Singer, 2009, 166) This is how Yozma worked:

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The idea was for the government to invest $100 million to create ten new venture capital funds. Each fund had to be represented by three parties: Israeli venture capitalists in training, a foreign venture capital firm, and an Israeli investment company or bank. There was also one Yozma fund of $20 million that would invest directly in technology companies. The Yozma program initially offered an almost one-and-a-half-to-one match. If the Israeli partners could raise $12 million to invest in new Israeli technologies, the government would give the fund $8 million. There was a line around the corner. So the government raised the bar. It required VC firms to raise $16 million in order to the government’s $8 million. The real allure for foreign VCs, however, was the potential upside built into the program. The government would retain a 40 percent equity stake in the new fund but would offer the partners the option to cheaply buy out that equity stake-plus annual interest-after five year, if the fund was successful. This meant that while the government shared the risk, it offered the investors all of the reward. From an investor’s perspective, it was an unusually good deal. ‘This was a rare government program that had a built-in get in and get out,’ said Jon Medved. ‘This was key to its success.’ And it was also rare for a government program to actually disappear once it had served its initial purpose, rather than continue indefinetely. (Senor and Singer, 2009, 166-167)

The question is how has Yozma funds fared since they were created. Senor and Singer give the answer

by stating:

The ten Yozma funds created between 1992 and 1997 raised just over $200 million with the help of government funding. Those funds were bought out or privatized within five years, and today they manage nearly $3 billion of capital and support hunderds of new Israeli companies. The results were clear. As Erel Margalit put it, ‘Venture capital was the match that sparkled the fire.’(Senor and Singer, 2009, 168-169)

This was the match that lit the fire for the venture capital industry to take off and grow in Israel:

Along the way, others jumped into venture capital world-even without the government’s Yozma backing. Jon Medved just missed the Y ozma financing. Years after he sold the company he and his father had built, he heard that there was a $5 million Yozma allotment availabe to invest in very-early-stage companies. Known as seed funds, these investments tend to be considered the riskiest, so Yozma offered a one-to match: investors had to bring $2.5 million to the table to get the government’s $2.5 million. Medved went to Yigal Erlich with investors ready to write checks and asked for the grant. Unfortunately, it was too late. But it didn’t matter. The Yozma program was generating the buzz in the U.S. venture community to overcome investors’ reticence about doing business in Israel. ‘Israel had excited investors enough that we were able to bring in the $2.5 million and start Israel Seed Partners in 1994,’ even without the government’s matching grant, Medved said. The fund would quickly grow to $6 million, and Israel See would go on to raise $40 million in 1999 and $200 million in 2000. According to the Israel Venture Association, there are now forty-five Israeli venture capital funds. Ed Mlavsky said that over the period from 1992 to early 2009, there have been as many as 240 VCs in Israel, defined as companies both foreign and domestic investing in Israeli start-ups. (Senor and Singer, 2009, 169)

The success of the Yozma program was noticed by many nations:

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Soon other governments around the world were taking notice of Yozma’s success. Chief scientist Erlich got calls from foreign governments, including Japan, South Korea, Canada, Ireland, Australia, New Zealand, Singapore, and Russia, all wanting to come to Israel and meet the founders of Yozma.(Senor and Singer, 2009, 170)

The venture capital market in Israel did very well in the 1990s when the rest of the economy did not

farewell because of government policies such taxes and regulations that were not favorable. Senor and

Singer make this point with the following remarks:

Yet Israel’s start-ups quickly adapted and rebounded. During this period, Israel doubled its share of the global venture capital pie with respect to Europe, growing from 15 to 31 percent. This growth occurred, however, within a tax and regulatory environment that, while favoring technology start-ups and foreign investors, did not offer the same support to the rest of the economy. For example, while a technology start-up could attract financing from numerous sources, anyone trying to launch a more conventional business would have a lot of trouble getting a simple small business loan. Israel’s capital markets were highly concentrated and constrained. And a particular industry that would seem to be a natural for Israel-financial services- was prevented from every getting off the ground. (Senor and Singer, 2009, 170-171)

In another example that explains this situation, Tal Keinan, tells what the environment was like and why:

In 2001, Tal Keinan graduated from Harvard Business School. ‘Many of my friends who were going off to work on Wall Street were Jewish, and it struck me that the Jewish state doesn’t have such an industry. When it came to managing investments, Israel was not even on the map,’ Keinan said. The reason was government regulations. In venture capital, Keinan discovered, ‘the way the regulatory and tax regime was set up here, you could essentially operate as though you weren’t in Israel, which was great, and it created a wonderful industry. The government basically kept its hands off of venture capital.’ But, he adds, ‘you couldn’t do anything outside of venture capital in any meaningful way. You weren’t allowed to take the performance fees on any money you managed, so you could forget that entire industry. It was a nonstarter. (Senor and Singer, 2009, 171)

The situation of it being illegal to charge peformance fees by Israeli money management companies

changed in January 2005. So, prior to this time, “there was no industry to speak of.”(Senor and Singer,

2009, 171) This changed under former finance minister Benjamin “Bibi” Netanyahu. Netyanyahu did this

in the following manner:

With Prime Minister Ariel Sharon’s backing in 2003, Netanyahu cut tax rates, transfer payments, public employee wages, and four thousand government jobs. He also privatized major symbols of the remaining government influence on the economy-such as the national airline, El Al, and the national telecommunications company, Bezeq-and instituted financial –sector reforms. (Senor and Singer, 2009, 171-173)

The result of his reforms went well. “Netanyahu’s reforms gained increasing public support as the

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economy began to pull out of its rut.”(Senor and Singer, 2009, 172) Netanyahu had also made banking

reforms:

At the same time, a package of banking-sector reforms pushed through by Netanyahu began to take effect. These reforms launched the phaseout of the government’s bonds that had guranteed about 6 percent annual return. Up until that point, asset managers for Israeli pensions and life insurance funds simply invested in the Israeli guranteed bonds. The pension and life insurance funds ‘could meet their commitments to beneficiaries just by buying the earmarked bonds. So that’s exactly what they did-they didn’t invest in anything else,’ Keinan todl us. ‘Because of these bonds, there was no incentive for Israeli institutional investors to invest in any private investment fund.’But as the government bonds began to mature and could not be renewed, they released some $300 million a month that needed to be invested elsewhere. ‘So all of a sudden, boom, you’ve got a local pool of capital to spark an investment industry,’ noted Keinan, as we sat, looking out at the Mediterranean, in his thirtieth-floor office in Tel Aviv, which is where his new investment fund is headquartered. ‘As a result, there are few large international money managers that don’t have some exposure in Israel now, either in equities or the new corporate bond market, which didn’t exist three years ago, or in the shekel.’(Senor and Singer, 2009, 172-173)

Senor and Singer stated “Because of Netanyahu’s financial-sector reforms, it also became legal for

investment managers to charge performance fees.”(Senor and Singer, 2009, 173)

Keinan sums up very well:

Keinan argues that a ton of local talent was untapped. ‘If you thinkg about what young Israelis learn in some of the army intelligence units, for example…often highly sophisticated quantitative analytical skills-algorithms, modeling out macroeconomic trends. If they wanted to go into high tech, there are plenty of start-ups that would gobble them up after their army service. But if they wanted to go into finance, they’d have to leave the country. That’s now changed. Just think about this,’ he continued. ‘There are Israelis working on Fleet Street in London because there was no place for them here. Now, since 2003, there is a place for them in Israel.’(Senor, and Singer, 2009, 173)

The Israeli defense industry started in a very intersting manner. “But there was nothing normal about

the birth of Israel’s defense industry. It was unheard-of for a country so small to have its own

indigenous military-industerial complex. Its origins are rooted in a dramatic, overnight betrayel by a

close ally.”(Senor and Singer, 2009, 177) Prior to the millitary supply relationshiop between Israel and

France, Israel depended on a patchwork of factories and traveling around the world and making arms

purchases and shipping them back to Israel. Senor and Singer speak to this.

Like many small states, Israel preferred to buy large weapon systems from othe countries, rather than devote the tremendous resources needed to produce them. But in May 1950, the

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United States, Britain, and France jointly issued the Tripartite Declaration to limit arms sales to the Middle East. With no ready supply from abroad, Israel had already begun its arms industry with underground bullet and gun factories. One factory was literally hidden underground, beneth a kibbutz laundry; the machines were kept running to mask the banging noise from below. This factory, built with war-surplus tools smuggled from the United States, was producing hundreds of machine guns daily by 1948. Makeshift factories were supplemented by scattershot gun-running across the globe. David Ben-Gurion had sent emissaries aboad to collect weapons as far back as the 1930s. In 1936, for example, Yehuda Arazi managed to stuff rifles into a steam boiler headed from Poland to the port of Haifa. In 1948, he posed as an ambassador from Nicaragua to negotiate the purchase of five old French mounted guns. (Senor and Singer, 2009, 178-179)

Senor and Singer state “The Israelis got by on these banana republic schemes until 1955, when the

Soviet Union, via Czechoslovakia, ingored the leaky Tripartite Declaration and made a massive $250

million arms sale to Egypt. In response, de Gaulle took the other side. In April 1956, he began to transfer

large quantities of modern arms to Israel. The tiny state finally had a reliable and first-rate national

arms supplier.”(Senor and Singer, 2009, 179) However, de Gaulle did an about face on Israel in terms of

supplying it military arms. “But on June 2, 1967, three days before Israel was to launch a preemptive

attack against Egypt and Syria, de Gaulle cut Israel off cold. ‘France will not give its approval to-and still

less, support-the first nation to use weapons,’he told his cabinet.”(Senor and Singer, 2009, 180)

However, this situation was bit more nuanced than it appeared on the surface:

But there was more to de Gaulle’s decision than trying to defuse a Middle East war. New circumstances called for new French alliances. By 1967, France had withdrawn from Algeria. With his long and bitter North African war behind him, de Gaulle’s priority was now rapprochement with the Arab world. It was no longer in France’s interest to side with Israel. ‘Gaullist France does not have friends, only interests,’ the French weekly Le Nouvel Observateur remarked at the time. (Senor and Singer, 2009, 180)

Sinor and Singer make the following concluding remarks on the birth of the Israeli defense industry and

what it has meant and done for Israel:

This former flight engineer went on to found seventeen startups and develop over three hundred patents. So, in a sense, Yossi Gross should thank France. Charles de Gaulle hardly intended to help jump-start the Israeli technology scene. Yet by convincing Israelis that they could not rely on foreign weapons systems, de Gaulle’s decision made a pivotal contribution to Israel’s economy. The major increase in military R&D that followed France’s boycott of Israel gave a generation of Israeli engineers remarkable experience. But it would not have catalyzed Israel’s start-up hothouse if it had not been combined with something else: a profound interdisciplinary approach and a willingness to try anything, no matter how destabilizing to societal norms. (Senor and Singer, 2009, 183)

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Senor and Singer make the salient conclusion in Chapter 14: Threats to the Economic Miracle about

what is the greatest threat to Israel’s economic miracle?

But the point that Israel can, should, and must grow its economy faster is crucial. Of all the threats and challenges facing Israel, an inability to keep the economy growing is perhaps the greatest, since it involves overcoming political obstacles and giving attention to neglected problems. Israel has a rare, maybe unique, cultural and institutional foundation that generates both innovation and entrepreneurship; what it lacks are policy fixes to further amplify and spread these assets within Israeli society. Fortunately for Israel, it is probably easier to change policies than it is to change a culture, as countries like Singapore demonstrate. As the New York Times’ Thomas Friedman put it, ‘I would much rather have Israel’s problems, which are mostly financial, mostly about governance, and mostly about infrastructure, rather than Singapore’s problem because Singapore’s problem is culture-bound.’(Senor and Singer, 2009, 223-224)

II.THE BASICS OF SUSTAINABLE DEVELOPMENT AND COUNTER VIEWS TO IT

Sustainable development prior to the second half of 20th century was fields not too well know

outside the U.S., Europe, and Japan due to colonial rule but that has changed. It has been introduced to

the developing world. “As the historian of economic thought Roger Backhouse puts it:

Development economics in its modern form did not exist before the 1940’s. The concern of development economics, as the term is now understood, is with countries or regions which were seen to be under or less developed relative to others, and which, it is commonly believed, should, if the are not to become ever poorer relative to the developed countries, be developed in some way.

This view espouses the idea that if developing nations that are successful would pass thorough four

phases: “traditonal society through economic ‘take-off’ to maturity and high mass-consumption.”(Harris,

2000, 2) The main goal of economic development policy was to increase the standard of living in the

world and provide ever increasing goods and services to a growing population. After WWII, the

international institutes that were set up: International Monetary Fund, the World Bank, and the United

Nations were created for this specific goal. “As development policy has evolved, different approaches

have been emphasized at different times.”(Harris, 2000, 3) “In the 1980’s the focus shifted to ‘structural

adjustment’, including liberalization of trade, eliminating government deficits and overvalued exchange

rates, and dismantiling ineffecient parastatal organizatiions.”(Harris, 2000, 3) There remains a dispute

between “the basic needs and market-oriented perspectives on development.”(Harris, 2000, 3) On a

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global measure, most nations have made great progress in GDP and measures within the Human

Development Index. But globally the scorecard of development is subject to two criticisms. The first

criticism of development is “The benefits of development have been distributed unevenly, with income

inequalities remaining persistent and sometimes increasing over time.”(Harris, 2000, 4) The second

criticism is “There have been major negative impacts of development on the environment and on

existing social structures.”(Harris, 2000, 4) There have been others who have been more critical of

development for example, Richard Norgaard, who see them showing fundamental error:

Modernism, and its more recent manifestation as development, have betrayed progress…while a few have attained material abundance, resource depletion and environmental degradation now endanger many and threaten the hopes of all to come…Modernism betrayed progress by leading us into, preventing us from seeing, and keeping us from addressing interwoven environmental, organizational, and cultural problems.(Harris, 2000, 4)

The definition of sustainable development is “development which meets the needs of the present

without compromising the ability of future generations to meet theit own needs. (Harris, 2000, 5)

In the field of sustainable development there are three areas that are dealt with. The topics that are

dealt with are economic, environmental, and social. Harris explains each topic as it relates to sustainable

development:

Economic: An economically sustainable system must be able to produce goods and services on a continuing basis, to maintain manageable levels of government and external debt, and to avoid exterme sectoral imbalances which damage agricultural or idusterial producation.

Enviornmental: An environmentally sustainable system must maintain a stable resource base, avoiding over-exploitation of renewable resource systems or environmental sink functions, and depleting non-renewable resources only to the extent that investment is made in adequate subsitutes. This includes maintance of biodiversity, atmospheric stability, and other ecosystem functions not ordinarily classed as economic resources.

Social: A socially sustainable system must achieve distributional equity, adequate provison of social services including health and education, gender equity, and political accountability and participation. (Harris, 2000, 5-6)

Richard Norgaard makes the point that one cannot define sustainable development. “Norgaard

concludes that ‘it is imposssible to define sustainable development in an operational manner in the

detail and with the level of control presumed in the logic of modernity.’ The strongly normative nature

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of the sustainable development concept makes it difficutl to pin down analytically.(Harris, 2000, 6)

Given this problem of sustainable development not being able to be defined then each component

needs to be looked at seperately as recommended “by the Balaton Group’s report on sustainability

indicators:

The total system of which human society is a part, and on which it depends for support, is made up of a large number of component systems. The whole cannot function properly and is not visible and sustainable if individual component systems cannot function properly…sustainable development is possible only if component systems as well as the total system are viable. Despite the uncertainty of the direction of sustainable development, it is necessary to identify the essential component systems and to define indicators that can provide essential and reliable information about the viability of each and of the total system. (Harris, 2000, 7)

The economic perspetive states “From the point of view of neoclassical economic theory, sustainability

can be defined in terms of the maximmization of welfare over time.”(Harris, 2000, 7) A further

elaboration of economic theory as it pertains to sustainability is in order:

A formal economic analysis then raises the question of whether sustainability has any validity as an economic concept. According to standard economic theory, efficient resource allocation should have the effect maximizing utility from consumption. If we accept the use of time discounting as a method of comparing the economic values of consumption in different time periods, then sustainability appears to mean nothing more than efficient resource allocation-a concept already well established in economics.(Harris, 2000, 8)

There is the economic concept of natural capital. Harris states “A related issue concerns the concept of

natural capital. Soils and atmospheric functions are aspects of natural capital. Soils and atmospheric

functions are aspects of natural capital, which consists of all the natural resources and environmental

services of the planet.”(Harris, 2000, 8) “Herman Daly has suggested that sustainable development can

be operationalized in terms of the conservation of natural capital. This policy goal leads to two decision

rules, one for renewable and the other for non-renewable resources.”(Harris, 2000, 8-9) There is this

concept ‘safe minimun standard’ (Harris, 2000, 10) that Michal Toman expounds on.

Michael Toman has suggested that the issue may be resolved by recognizing that some issues can be appropriately dealt with through neo-classical market effeciency, while others require the application of a ‘safe minimum standard’ approach to protect essential resources and environmental functions. He suggests that the criteria of possible severity and irreversibility of

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ecologic al damages should be used to decide which theoretical framework is more appropriate: (Harris, 2000, 10)

The concept of a safe minimum standard can be applied to concerns about intergeneraional fairness, resource constraints, and human impact. The safe minimum standard posits a socially determined albeit ‘fuzzy,’ dividing line between moral imperatives to preserve and enhance natural resource systems and the free play of resource trade-offs…Following a safe minimum standard, society would rule our actions that could result in natural impacts beyond a certain threshold of cost and irreversibility. Central to the safe minimum standars approach are the role of public decision making and the formation of societal values. The same minimum standard will be defined differently by ecologists and economists, depending on moral judgement about moral imperatives and the value of discounting. (Harris, 2000, 10)

The ecological perspetive on sustainable development takes a different view than economics and

economists do on this subject matter. “Unlike economists, whose models provide no upper bound on

economic growth, physical scients and ecologists are accustomed to the idea of limits. As ecologist C.S.

Holling puts it: (Harris, 2000, 11)

Two of the fundamental axioms of ecological and evolutionary biology are that organisms are exuberantly over-productive, and that limits set by time, space, and energy are inveitably ecountered. The foundations for all modern ecology and evolutionary biology rest in part upon the consequences of these two axioms. (Harris, 2000, 11-12)

The main idea of the ecologocial perspective as it relates to sustainable development and sustainability

is “In an ecological perspective, then, sustainability must involve limits on population and consumption

levels.”(Harris, 2000, 12)

The advocates of the social perspective of sustainable developmet and sustainability make a very

important recogniton of this perspective. “Advocates of sustainable development, as we have noted,

recognize the social component of development as an essential part of the new paradigm. In doing so,

they are validating the importance of a much older perspective. A ‘human development’ approach

emphasizing issues of basice needs and equity is well grounded in the history of economic theory.

“(Harris, 2000, 14-15) The United Nations has taken and adopted this approach through the United

Nations Development Program with it’s annual publication of the Human Development Reports:

As we have noted, the focus on basic needs and equity in development has been represented by the United Nations Development Programme’s series of Human Development Reports. In addition to calculating the Human Development Index which offers a different measure of

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development success from per capita GNP or GDP, the Human Development Reports focus each year on a different aspect of social and economic development, such as democratic governance (1993), gender inequity (1995), and poverty (1997). The HDI combines life expectancy, adult literacy, and school enrollment ratios with per capita GDP in a weighted average to get an index between 0 and 1. The results clearly show that development is a multidimensional process, and that higher GDP does not necessarily mean higher overall welfare.(Harris, 2000, 15)

The Human Development Index does not measure for any environmental effects on human

development however “the 1994 report discussed the relationship between sustainability and equity: (Harris, 2000, 16)

The concept of sustainable development raises theissue of whether present life-styles are acceptable and whether there is any reason to pass them on to the next generation. Because intergenerational equity must go hand in had with intragenerational equity, a major restructuring of the world’s income and consumption patterns may be a necessary precondition for any viable strategy of sustainable development…Development patterns that perpetuate today’s inequities are neither sustainable nor worth sustaining.(Harris, 2000, 16)

Harris makes the following conclusions about sustainable development and sustainability:

• The original idea of development was based on a straight-line progression from traditonal to modern mass-consumption society. Within this framework, a tension developed between the promotion of economic growth and the equitable provison of basic needs. Development as it has proceeded over the last half-centure has remained inequitable, and has had growing negative environmental impacts.

• A concept of sustainable development must remedy social inequities and environmental damage, while maintaining a sound economic base.

• The conservation of natural capital is essential for sustainable economic production and intergenerational equity. Market mechanisms do not operate effectively to conserve natural capital, but tend to deplete and degrade it.

• From an ecological perspective, both population and total resource demand must be limited in scale, and the integrity of ecosystems and diversity of species must be maintained.

• Social equity, the fulfilment of basic health and educational needs, and participatory democracy are crucial elements of development, and are interrelated with environmental sustainability.(Harris, 2000,18-19)

Harris makes conclusions and assessments on how sustainable development affects specific sectors of

an economy and nation. He makes the following statement. “To bring the argument down to earth, and

to get a sense of what the principles summarized at the beginning of this section mean for development,

we can examine some sectoral specifics. In each major area, it becomes clear that true sustainability

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means a major shift from existing techniques and organization of production.”(Harris, 2000, 21)

• Agriculture: The need to feed an expanding population at higher per-capita levels of consumption is straining global soil and water systems. The response to this must be twofold. On the production side, current high-input techniques which are leading to serious soil degratation and water pollution and overdraft must be replaced by organic soil rebuiliding integrated pest management, and efficient irrigation. This in turn implies much greater reliance on local knowledge and particpatory input into the development of agricultural techniques. On the consumption side, both limites on population growth and greater equity and efficiency in food distribution are of central importance given probable resource limitations on production.

• Energy: Both supply limits and environment impacts, in particular the accumulation of greenhouse gases, mean that it will be necessary to accomplish a transition away from fossil fuels well before 2050. A non-fossil energy system would be significantly more decentralized, adapted to local conditions and taking advantage of opportunities for wind, biomass, and off-grid solar power systems. This unlikely to occur without a major mobilization of capital resources for renewable energy development in countries now rapidly expanding their energy systems.

• Industry: As the scale of global industerial production increases several-fold over current levels, which themselves represent a quadrupling over 1950 levels, it is apparent that ‘end-of-pipe’ pollution control not be adequate. The new concept of ‘industerial ecology’ implies the restructuring of whole industerial sectors based on a goal of reducing emissions and reusing materials at all stages of the production cycle. Corporate reform and ‘greening’ as well as a broad cooperative effort between corporations and government will be needed to achieve goal.

• Renewable Resource Systems: World fisheries, forests and water systems are severly over-stressed. With even greater demands on all systems expected in the next century, all levels of institutional management must be urgently reformed. Multilateral agreements and global funding are needed to conserve transboundary resources; national resource management systems must be shifted from goals of exploitation to conservation and sustainable harvesting; and local communities must be strogly involved in resource conservation.

Each of these areas poses challenges which are social and institutional as well as economic. It is clear that the social component of sustainability is not just an idealized goal, but a necessity for achieving the economic and ecological components. Existing institutions of all kinds, including corporations, local and national government, and transnational organizatons, will have to adapt to the requirement of sustainable development if all the problemswhich motivated the development of concept are not to grow worse. Democratic governance, partcipation, and the satisfaction of basic needs are thus an essential part of a new development synthesis.(Harris, 2000, 21-22)

W.W. Rostow, who came up with “the stages-of-growth theory”(Harris, 2000, 22) that greatly affected

development for almost 50 years made a statement about development but in terms of the 21st century.

It is evident that Rostow comes to the realization that “the enormous impact of population and

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economic growth and the ways in which the far greater scale of economic activity changes the

requirements of development”: (Harris, 2000, 23)

The period from the present to the mid-21st century is likely to be the time of the maximum strain on resources and the environment and the interval of maximum readjustment in the locus of population, economic potential, and political influence in the international community…If the earth can carry a doubling of population in the next half century without a general catastrophe, we shall have two countries, with populations of about 1.5 billion each, that are essentially industrialized : India and China. This is, for each country, about five times the estimated peak population level of the United States. They should each command by the middle of the next century all the then-available industerial and agricultural techniques. Much the same can be said of the other major countries of Asia and Latin America…Thus, the period from now until 2050 will be a period not only of maximum strain on resources but also one in which new industerial powers will enter the world arena.(Harris , 2000, 23)

Harris makes the final concluding statement about sustianabe development and how it needs to change

in the 21st century:

Rostow thus recongnizes the way in which the very success of the kind of development which he envisaged in 1960 has altered the global picture in such a way as to bring very different problems to the fore. The turn of the century is an appropriate time to seek a new model which will address both the original problems of development-limited productive capacity, inadequate nutrition, and pervasive poverty-and the new problems of resource limitations, environmental stress, and unresolved or growing inequity.(Harris, 2000,23)

Jerry Taylor in his journal article, Sustainable Development: Adubious Solution in Search of a

Problem, presesents a counter view to sustainable development and sustainability. Taylor states the

following conclusion:

A careful review of the data, however, finds that resources are becoming more-not less-abdundant with time and that the world is in fact on a quite sustainable path at present. Moreover, the fundmental premise of the idea-that economic growth, if left unconstrained and unmanaged by the state, threatens unnecessary harm to the environment and may prove ephemeral-is dubious. First, if economic growth were to be slowed or stopped-and sustainable development is essentially concerned with putting boundaries around economic growth-it would be impossible to improve environmental conditions around the world. Second, the bias toward central planning on the part of those endorsing the concept of sustainable development will serve only to make environmental protection more expensive; hence, society would be able to ‘purchase’ less of it. Finally, strict pursuit of sustainable development, as many environmentalists mean it, would do violence to the welfare of future generations. The current Western system of free markets, property rights, and the rule of law is in fact the best hope for environmentally sustainable development.(Taylor, 2002, 1)

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The proponents of sustainable development define it as “regimes in which the natural resource base is

not allowed to deteriorate.”(Taylor, 2002, 2). This type of the sustainable development is called the “

‘strong’ definition of sustainability.”(Taylor, 2002, 2) Other proponents of sustainable development

define it as “regimes in which the natural resource base would be allowed to deteriorate as long as

biological resources are maintained at a minimum critical level and the wealth generated by the

exploitation of natural resources is preserved for future generations who would otherwise be ‘robbed’

of their rightful inheritance.”(Taylor, 2002, 2) This kind of sustainable development is called “the ‘weak’

definition of sustainability.”(Taylor, 2002, 2) “Weak sustainbility, then, can be thought of as ‘the amount

of consumption that can be sustained indefinitely without degrading capital stocks,’ defined as the sum

of both ‘natural’ capital and ‘man-made’ capital.”(Taylor, 2002, 2) Taylor concludes that both definitions

of sustainable development are flawed:

Unfortunately, both strong and weak defintions of sustainable development pose problems. As Robert Hahn of the American Enterprise Institute points out, the narrower the definition, the easier it is to pin down, but the less satifactory the concept.(Taylor, 2002, 2)

Prolems with analytics make the theory sustainable development not very useful. The advocates of

sustainable development argue that most of the time natural capital is more sought after than man-

made capital “created from its exploitation.”(Taylor, 2002, 3) It is further argued that natural capital

“offers future generations multiple possiblities for its use, whereas mand-made capital settles the

question for future generations.”(Taylor, 2002, 3) Proponents of strong sustainability state future

generations “may have different preferences for the ultimate use ofnatural capital than the present

deciding generation.”(Taylor,2002, 3) Taylor states that the wealth created from natural resources is

more useful and valuable than just leaving the natural resource untouched to preserve for future

generations. Advocates of stong sustainability make the point that the world is poorer because past

generations utilized natural resources to create the modern world as we know it. “Geography professor

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M.J. Harte of the University of Waikato, New Zealand, underscores the analytic problem (Taylor, 2002,

3):

We should accept that it is often impractical and perhaps undesirable to hold natural capital intact in its entirety, but it is also counter to the idea of sutainability to bequeath a stock of natural capital to future generations that is incapable of yielding sufficient resource flows (i.e. ‘income’) to fulfill their potential needs and aspirations.(Taylor, 2002, 3)

According to Taylor, strong sustainablity conflicts “with a modern economy. Whether a project is

sustainable forever or just a very long time has nothing to do with whether it is desireable. If

unsustainabiltiy were really regard as a reason for rejecting a project, there would be no mining, no

more that subsistence agriculture, and no industry.”(Taylor, 2002, 3) Strong sustainability has a second

problem of

the fact that sustainable reource use can, paradoxically, cause more environmental damage than unusustainable resource use. For instance, economist Richard Rice, ecologist Raymond Gullison, and policy analyst John Reid-a team of scholars who together spent years studying the Amazonian rain forests of Bolivia-concluded recently(Taylor, 2002, 3):

Current logging practice causes considerably less damage than some forms of sustainable management (which require more intensive harvests of a wider variety of species). Indeed, a more sustainable approach could well double the harm inflicted by loggoing….Sustainabiltiy is, in fact, a poor guide to the environmental harm caused by timber operations. Logging that is unsustainable-that is, incapable of maintaining production of the desired species indefinitely-need not be highly damaging(although in some forests it is, especially where a wide range of species have commericial value.) Likewise, sustainable logging does not necessarily guarantee a low environmental toll. (Taylor, 2002, 3)

The third and last problem with strong sustainability

is the implicit suggestion that today’s natural resource base (and the health thereof) will necessarily be of significant interest to future generations. On the contrary, conserving today’s natural resource base does not ensure that tomorrow’s natural base is secure. Likewise, drawing down today’s natural resource base does not necessarily mean that tomorrow’s natural resource base will be put in jeopardy. Resources are simply those assets that can be used profitably for human benefit.(Taylor, 2002, 3)

“As economist David Pearce, a strong proponent of weak sustainability, concedes(Taylor, 2002, 4):

[Sustainable development] implies something about maintaining the level of human well-being so that it might improve but at least never declines (or, not more than temporarily, anyway).

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Interpreted this way, sustainable development becomes equivalent to some requirement that well-being not decline through time.

Well-renowned scholars from the Tasman Institute based in Ausralia butress Taylor’s assertion:

Stripped down to its essentials, efficiency means making the best of use of resources, including natural resources, capital, labor, knowledge and inherited insitutions and cultural values, to ensure that community well-being is maximized. Essential to this are energetic steps to reduce waste and to ensure that vaued goods and services are provided with minimum cost. Environmental concerns are a vital part of the notion of economic efficiency and allocations of resources which do not take environmental concerns into account are unlikely to be efficient.(Taylor, 2002, 4)

Taylor makes this following conclusion about sustainable development:

If, on the other hand, we mean that each and every natural resource, regardless of its utility to mankind, should be preserved beyond some minimal critical level-for example, if we construe sustainable development to mean the maintaince of a set of resource ‘opportunities’-then, without reference to costs and benefits, the concept is simply anti-human and inimical to the interests of future generations.(Taylor, 2002, 4-5)

Taylor makes his main point about sustainable development in this statement. “Accordingly, ‘sustainable

development’-even if we put aside its theoretical difficulities-is a solution in search of a

problem.”(Taylor, 2002, 7) Taylor does concede this point about fishery sustainablity, “Still, there is

legitimate concern over the depletion of some species and species subpopulations. Those problems

stem from what ecologist Garrett Hardin famously termed ‘the tragedy of the commons.’(Taylor,2002,

9) Taylor further elaborates on this problem:

In short, since everyone is free to harvest fish but no one owns the schools, individual fisherman maximize their revenue by increasing their harvest regardless of what other fishermen might do. Nobody has any incentive to effeciently manage fish populations. Governments are called int to do the job, but the proliferation ofmassive subsidies to the fishing industry in virtually all countries and excessively generous allotments for fish harvests demonstrate that well-organized special interests will almost always sacrifice the health of fisheries for the economic interests of the fishing industry.(Taylor, 2002, 9)

Taylor proposes a solution for this problem:

Here, we confront for the first time in our discussion (but not for the last time) a major cause of ‘unsustainable’ resource use-public ownership and extraction subsidies. The remedy can be found in simple economics-privatization of fishing rights. The most popular method of privatization involves state issuance of individual fishing quotas that could be traded in secondary markets. This approach, which has the support of both conservationists and

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economists, has proven successful in Iceland and elsewhere at stabilizing fish populations while protecting the economic health of the fishing industry.(Taylor, 2002, 9)

Taylor makes his assertion by what causes poverty in the following statement. “Poverty in the

developing world, however, is a legacy of the lack of property rights, the absence of the rule of law, and

counterproductive state interventions in the economy.(Taylor, 2002, 12) Taylor makes another point to

support his claim that economic development does not damage the enivornment and winds up helping

it:

The economic costs imposed by air pollution in the United States from 1977 to 1999 dropped almost two-thirds from $3,600 per person pery to $1,300 per person per year. Empirical examination of the data demonstrates a clear relationship between per capita income growth in the United States and absolute reduction of air emissions. Data from Europe are far more fragmentary but consistent with trends in the United States. Clearly, when economic growth reaches a certain level, air pollution begins to fall rapidly. Data from the developing world suggest that this same dynamic is already at work. Numerous economists have studied the relationship between economic growth, population, and industrialization, on the one hand, and environmental quality, on the other (known in the economics community as Environmental Kuznets Curves, or EKCs) and found that, beyond a certain point, economic development does indeed reduce air pollution burdens.(Taylor, 2002, 15)

A further point about EKCs is made by Taylor. “EKCs, however, demonstrate that air quality is

sustainable in the face of future economic growth.”(Taylor, 2002, 16) Taylor states the following in

terms of the availability of resources and environmental quality.”A review of data concerning resource

availability and environmental quality clearly illustrates that the developed world is on an eminently

sustainable path: resources are becoming more abundant, environmental quality is improving, and per

capita incomes are rising.”(Taylor, 2002, 26) Economist Mikhail Bernstam lens more credence to Taylor’s

assertion that free-market economies are better at this issue of sustainable development than the

theories proposed by advocates of sustainable development. “Economist Mikhail Bernstam found

overwhelming evidence that free-market economies use energy and other natural resources far more

efficiently than planned economies.”(Taylor, 2002, 27) Taylor states the findings from a World Bank

study dated from 1995, Economywide Policies and the Environment: Lessons from Experience, by Mohan

Munasinghe and Wilfredo Cruz:

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And finally, the study found once again that economic liberalization leads to economic growth, which in turn ‘generate[s] new economic opportunities and sources of livelihood, thereby alleviating poverty and reducing pressures on the environment due to over-exploitation of fragile resources by the unemployed. The link between economic growth and environmental as well as human health improvement has already been well established above. (Taylor, 2002, 28)

Taylor echoes the previous point through extoling the benefits of trade:

Trade essentially globalizes sustainability, providing consumers with faster, cheaper, and easier access to food. Second, trade is an important source of new and more efficient technologies, which not only reduce the amount of resources necessary to produce a unit of goods or services but also reduce emmissions. Likewise, the increased economic competition that comes from trade leads to constant improvements in production efficiency. Third, the competitive pressure exerted by foreign imports helps undermine domestic subsidies, which, as we have seen, are harmful to the cause of environmental protection.(Taylor, 2002, 29)

Taylor says that property rights are important for numerous reasons. Property rights are critical to have

because:

As noted repeatedly thorughout this study, secure property rights are a prerequistie for optimal investment in various human health and environmental infrastructures. They are also vital to the health of ecological resources. Notes Mohamed El-Ashry(Taylor, 2002, 30):

Where access to natural resources is entirely open, no individual user bears the full cost of environmental degradation and resources are consequently overused. But if open access is replaced with some ordered system of use or ownership rights, then it is likely that individuals-or groups-holding such rights will both suffer the consequences of failing to account for environmental factors in their decisionmaking and reap the benefits of successfuly investing in environmental protection.(Taylor, 2002, 30)

Taylor makes another point about the importance of property rights:

Indeed, private property rights are an important means by which the public desire for resource conservation and preservation can be realized. Moreover, they can provide an important corrective to seemingly intractable problems related to environmental commons such as ocean fisheries, as discussed earlier. Laws establishing rights are not enough; vigorous enforcement of property righst in the Third World is vital.(Taylor, 2002, 30)

A final conclusive statement about property rights in terms of the economy, natural resources is made

by Taylor. “Resource use per se should not be worrisome. The economy must have access to natural

resource inputs in order to produce basic goods services. Property rights can help ensure that resources

are not wasted, but they cannot gurantee that they will not be used at all.”(Taylor, 2002, 31) Taylor

makes conclusions and recommendations in the following statements:

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The overhelmingly positive trends in environmental quality and resource availability in the developed and developing worlds suggest that the best way to sustain development-or to maximize human welfare-is to

•ensure that productivity continues to improve in both the agriculture and resource extraction industeries.

•facilitate continuing improvements in the efficiency of resource use, and

•promote wealth creation and gains in per capita income.(Taylor, 2002, 31)

Indeed, it is the lack of economic growth- not the pollution spawned by growth-that is the root cause of most health-related problems in the less developed world today. Again, as the World Resources Institute notes:

Of all the factors that combine to degrade health, poverty stands out for its overwhelming role. Indeed, WHO[the World Health Organization] has called poverty the world’s biggest killer [The World Health Report 1995: Bridging the Gaps (Geneva: World Health Organization, 1995), p.1] Statistically, poverty affects health in its own right: just being poor increases one’s risk of ill health. Poverty also contributes to disease and death through its second-order effects: poor people, for instance, are more likely to live in an unhealthy environment.(Taylor, 2002, 31-32)

Taylor links environmental problems with poverty and “lack of development”(Taylor, 2002, 32). “Indeed,

the most serious environmental problems today are manifestly the consequence of poverty and lack of

development.(Taylor, 2002, 32) Taylor says that you cannot just divorce economic freedom from

political and civil fredoms. He says “Improvements in productivity, efficiency, and per capita income,

however, are not preordained. Economists largely agree that they are manifestations of political systems

that protect economic liberty and proscribe the boundaries of state authority to protecting life, liberty,

and property.”(Taylor, 2002, 32) Taylor makes his final overaching conclusion about sustainable

development:

As all-ecompassing governing philosophy, sustainable development is a dubious pipe dream. Even promoters of the concept are increasingly in agreement that sustainable development must ensure tha economic and social considerations are balanced with environmental concerns and are not trumped by them. As policy admonition, sustainable development is, at best, but one well-understood and unexpectional consideration in the quest to maximize public welfare. At worst, it is inconsistent and dangerous.(Taylor, 202, 32-33)

III. PROBLEMS OF DEVELOPMENT AND GOVERNANCE

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Kevin Casas-Zamora, the former vice president of Costa Rica, and a senior fellow in foreign

policy and who participates in the Latin America Initiative, respectively, at the Brookings Institute, has

written an excellent paper, The Travails of Development and Democratic Governance in Central America,

which is very instructful on the issues of development and democratic governance which it is very

pertintent on the subject at hand of good governance for Cape Verde and Israel, as well for all nations

who want to prosper and grow economically and human development wise.

Casas-Zamora puts forth three issues that affect Central America and how it governs itself.

Casas-Zamora states the main topics of his paper:

These pages will examine three sets of issues that remain crucial to Central America’s development and will continue to make the region prone to political crises and democratic reversals. The first issue is the weakness of the state and, more generally, of political power; the second is the region’s uncertain path towards integration with the world economy; and the third, and arguably most pressing, is crime and violence. All of them need to be dealt with in a consistent manner and with the help, in some cases, of external actors.(Casas-Zamora, 2011, 2)

The first challenge to the Central American region is the weakness of political power. Casas-Zamora

expounds further on this challenge.”The signs of this weakness are abundant, but there are three that

deserve to be highlighted: the feeble tax structure; the very limited, and diminishing, bureaucratic

capabilities; and the reduced legitimacy enjoyed by crucial democratic actors, notably political

parties.”(Casas-Zamora, 2011, 3) Casas-Zamora points to the Central American states’ weakness in

bureaucratic capabilities. He says that this weakness makes these states’ precarious fiscal situation even

worse. When these states are scored in the areas of bureaucracy such as “government effectiveness,

regulatory quality, control of corruption or, particularly, the rule of law,”(Casas-Zamora, 2011, 4)they

receive pitiful scores. The scores of Guatemala, Honduras, and Nicaragua are so abysmal that they are

almost below the average score for Latin America. Casas-Zamora makes a keen distinction when it

comes to the weak bureaucracy of Cenral America. “In a way, the problem in Central America is less the

excess of bureaucracy-as commonly claimed by those of a conservative bent-than the utter lack of a

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modern, merit-based bureaucracy.”(Casas-Zamora, 2011, 5) Casas-Zamora points to other weaknesses

and the compounding effects resulting from these weaknesses:

Relatively low levels of democratic legitimacy and an acute representation deficit make the feebleness of the state appartus much worse. Outside Costa Rica and Panama, support for democracy and satisfaction with it in Central America are comparatively low, even by Latin American Standards. Even more limited are the prevailing levels of trust in basic representative institutions such as the legislatures and political parties (see Table 4).(Casas-Zamora, 2011, 5)

In his paper, Casas-Zamora, issues two warnings that if not heeded will mean dire consequences:

The result of the above-described political pathologies-fiscally starved states, ineffective public institutions, and representative actors endowed with low levels of legitimacy-is a situation in which political authorities are simply weak, i.e., unable to provide the public goods that are sorely needed to nurture human development. Weakness begets weakness.(Casas-Zamora, 2011, 7)

The second challenge is globalization. Casas-Zamora says “The second challenge concerns Central

America’s uncertain and uneven integration to the world economy.”(Casas-Zamora, 2011, 9) Casas-

Zamora spells out the solution to this challenge:

Yet, in order to reap the benefits of globalization the task that lies ahead for the region is vastly more complicated than signing free trade agreements alone. If these small economies want to be viable in the global economy, they now have to undertake the truly difficult endeavor of raising the sophistication and productivity of their economic structures and work forces. The obstacles are signficant and, as usual, not evenly distributed.(Casas-Zamora, 2011, 10)

Casas-Zamora points out the problem of productivity and the solutions to solve it. He states:

How to increase productivity in Central America calls for a set of difficult undertakings, including increasing education expenditures that are dismally low in all the countries except Costa Rica. On current trends, despite some improvements, by 2015 more than 70% of the Central American workforce will still lack a complete secondary education, including almost one third that will not have finished even a primary education. It also requires improving road and port infrastructure that, outside Panama, is among the worst in Latin America, and bringing research and development investments beyond the pitifully low levels that they exhibit now. The latter is a point worth emphasizing. At 0.32% of GDP, the resources that Costa Rica invests in research and development are far and away the most abundant in Central America. Yet, that percentage stands at less than one third the figure for Brazil(Latin America’s highest), and at one-fifteenth the figure for Israel (the world’s highest). (Casas-Zamora, 2011,12)

The third challenge that Central America faces is crime and violence. Casas-Zamora gives some stunning

statistics that give a bleak picture of this topic:

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Even by the poor Latin American standards regarding violence, what is happening in Central America is a tragedy (see Graph 5). More than 125,000 Central Americans died in the previous decade along as a result of crime. Almost certainly, this number of deaths is as highh as it was at the peak of the region’s civil wars. Even in the safer southern half of the region, crime figures have taken a turn for the worse, with homicide rates increasing sharply in Costa Rica (63%) and Panama (140%) in the past five years(Casas-Zamora, 2011, 15)

Casas-Zamora points to another factor that is contributig to the spiraling crime and violence. “To begin

with, Central America’s worsening crime rates can hardly be understood but in reference to the

narcotics maelstrom engulfing the region.”(Casas-Zamora, 2011, 16) Casas-Zamora makes a conclusion

about crime: “Criminal violence is simply the place in which all the shortcomings of Central America’s

development model are rendered evident. Crime is not merely a security issue. Ulitmately, it is a

development issue.”(Casas-Zamora, 2011, 20)

Casas-Zamora makes “final thoughts and policy recommendations”(Casas-Zamora, 2011, 21) in

his paper:

What’s the moral of this tale? If one were to pick only one lesson it would have to be that democracy becomes a perilous journey in the absence of a state that works. Central America’s current political troubles suggest that democracy is doomed to live on the edge of collapse if the presumed instruments of self-government, i.e., a set of public institutions that ulimately respond to the people, are starved to death, deprived of muscle and brains, largely incapable of solving real problems for real people. Democracy lives dangerously when those institutions are chronically weak, as they are in most of Central America, in redressing social imbalances that render impossible the existence of a democratic polis; largely unable to provide the public goods upon which sustained economic growth and human development ultimately depend; increasingly incapable in protecting the basic fundamental rights-including life, physical integrity, enjoyment of private property, and freedom from fear-that keep any contract together. We thus go back to an old insight of the late Samuel Huntington: paying attention to the degree of government that some Central American countries enjoy today is at least as important as paying attention to the form of government that they have. Democracy is always relevant precisely because the effectiveness of the state that really matters lies in its ability to contribute to human development, a project that only has meaning with democracy at its core. In the absence of a state that works, democracy is not worthless; it is simply less effective and more prone to breakdowns. If democratic institutions are to be preserved in Central America, tax reform, civil service reform, police reform, judicial reform, party reform, amongst many, must be tackled with the same zeal as the creation of credible electoral authorities or the registration of voters.(Casas-Zamora, 2011, 21)

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The case of Cape Verde is governance with the absence and/or lack of natural resources and

having to create economomic growth. It is important to also discuss the situation of having natural

resources and still grappling with the issue of governance and economic growth. Thorvaldur Gylfason in

his paper, Natural Resources and Economic Growth: A Nordic Perspective on the Dutch Disease,

discusses this very issue. In his abstract, Gylfason, states the main purpose of his paper and topics of it:

The paper begins by offering a quick glance of the Nordic economies and of some aspects of their economic growth performance and natural resource dependence since 1970. Thereafter, it reviews some of the main symptoms of the Dutch disease, and then considers whether these symptoms are observable in some of the Nordic countries in view of their abundant natural resources. The experience of Iceland and its fish seems an obvious point of departure. The paper then discusses the less obvious case of Norway and its oil (and fish!) and, at last, also reviews some possible linkages between forest resources and economic growth in Finland.(Gylfason, 1999, vi)

Glyfason begins his discussion not on the Nordic countries but on Ireland to provide an example of a

nation that does not have the Dutch Disease. He states the following about Ireland:

Figure 1 illustrates the point: it shows the ratio of exports of good and services to gross domestic product (GDP) in Iceland, Ireland, and Norway from 1960 to 1997. The figure shows that the Irish economy was actually less open to trade than either of the other two in the early 1960s: in 1960, Irish exports were equivalent to 31 per cent of GDP, compared with 37 per cent in Norway and 40 per cent in Iceland. This began to change in the mid-1970s, however, after Ireland joined the European Union in 1973: since then, the Irish export ratio has more than doubled, from 36 per cent in 1973 to 76 per cent in 1997, giving Ireland the second highest such ratio in Europe (after Estonia with 77 per cent). Meanwhile, by contrast, the export ration of Norway and Iceland were stagnant, or worse. This matters because vigorous external trade in goods and sevices is almost surely an important source of economic growth over time. Glyfason, 1999, 1)

Table 1. Nordic living standards: A quick look

(1) GNP per capita 1997 (PPP-adjusted, US$)

(2) GDP hour worked 1997

(PPP-adjusted, US$)

Denmark 23,450 28

Finland 19,660 26

Iceland 22,500 23

Norway 24,260 35

Sweden 19,010 28

Sources: The World Bank on per capita GNP and GDP, and OECD on hours worked.

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Gylfason gives a thorough explanation of Table 1 and what it means:

The figures shown in Table 1 are remarkable for at least two main reasons. First, except for Norway, which has become the second largest oil exporter in the world (after Saudi Arabia), the Nordic countries no longer occupy the top rungs of the international icome ladder. Since about 1970, the Nordic economies generally have grown less rapidly than those of many other industrial countries. Sweden fell from third or fourth place on the list of the world’s richest countries in 1970 to twenty-fifth place in 1997, and Finland to twenty-third place, according to the World Bank’s estimates of purchasing-power-parity-adjusted per capita GDP. Meanwile, Denmark moved from sixth place to twelfth place, whereas Norway ascended from fifteenth place to tenth place, as indicated above. Since 1970, only Singapore, Hong Kong, Bermuda, and the Cayman Islands (and possibly also Kuwait) have overtaken Norway in terms of purchasing-power-parity adjusted per capita GDP. Secondly, and this may surprise some, the Nordic countries have grown apart from one another in the 1990s. Their living standards were approximately the same around 1990, but that is no loger the case. In 1997, for example, Norway’s purchasing-power-parity-adjusted per capita GNP, the highest in the group, was 28 per cent higher than that of Sweden, the lowest, compared with a difference of less than one per cent, in Sweden’s favour, in 1990. Without purchasing-power-parity adjustment, the per capita income differential between Norway and Sweden in 1997 was larger, or 38 per cent.(Gylfason, 1999, 4)

However, Glyfason gives a caveat of reading too much into income, GNP, GDP, and the number of hours

worked to assess whether a nation is rich or not and whether it has an excellent or worse standard of

living:

It is not enough, however, to look at current income flows and the hours of work necessary to sustain them in order to assess the wealth of nations and the living standards supported by that wealth. It is also necessary to view the underlying trends, including the status and movement of key macroeconomic stock variables like natural-resource endowments, including the environment, and other national assets and liabiities, in order to come to grips with some of the main determinants of economic growth over time. However, many of these assets and liabilities-natural-resource endowments and social capital among them-are notoriously hard to measure.(Gylfason, 1999, 5)

Gylfason speaks about how dependent small countries are dependent more so than large countries on

external trade. Gylfason states “This makes a difference because small countries are more dependent

than larger ones on external trade to extend their home markets beyond their national

borders.”(Gylfason, 1999, 10) Gyflason gives small nations a warning that they need to heed. Gylfason

makes the point of “Small countries that neglect to make up for the small size of their home markets

through judicious specilization and vigorous trade in world markets may expect to have to pay for this

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neglect through slower economic growth than would otherwise be available to them in the long

run.(Gylfason, 1999, 10) Gylfason gives an excellent examlpe of this when he notes the cases of Norway

and Iceland. “In Norway and Iceland, in particular, foreign trade has been stagnant, or worse, for

decades, as we saw already in Figure 1. This means that the rapid expanision of oil exports from Norway

since the mid-1970s has crowed out non-oil exports krone for krone.”(Gylfason, 1999, 11) Gylfason

makes the point that there is a lack of knowledge about trade as evidenced by the research at that time

so it is important to study exports. He says the following about the topic:

Why all this concern about exports? Of the three pillars of economic growth stressed above, i.e., investment, education and trade, the last is perhaps the least obvious. Exports and related variables have not figured prominently-in fact, hardly at all-among the many signficant determinants of economic growth suggested by recent econometric research (Barro and Sala-i-Martin 1995, Ch.12). (Gylfason, 1999, 13)

Gylfason does posit a solution to help trade grow and expand. “Similarly, one of the reasons why

education is good for growth may well be that a well-educated work force is generally better placed to

find foreign markets for domestic output, hence amplifying, through the static and dynamic gains from

trade, the direct effects of education on growth.”(Gylfason, 1999, 13) And Gylfason points to the

rewards and benefits of trade:

Foreign trade, like virtually all other sources of increased efficiency, is a likely source of economic growth, directly and indirectly. Even if trade does not often show up as a significant determinant of growth in empirical cross-country or panel studies, a few recent studies have reported that some indicators of openness to trade have proved significanlty correlated with growth (see, e.g., Sachs and Warner 1995a and Edwards 1998).(Gylfason, 1999, 13)

What is Dutch Disease? What are the symptoms of it? And what are the effects of it? Gylfason ansers

these questions with the following:

What, then are the main symptoms of the Dutch disease? Most authors have emphasized the two closely related symptoms that were mentioned in the preceding section, among the several others: (a) an overvalued currency that impedes non-primary (i.e., manufacturing and service) exports and perhaps total exports as well, thereby weakening the current account of the

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balance of payments, other things being equal, and (b) heavy depedence on natural resources and, accordingly, on primary producation and exports, which, in times of resource booms, is viewed as the root cause of the real overvaluation of the currency. There is some evidence, however, that natural resource abundance and the preponderance of primary producation that goes along with it tends to be associated not only with sluggish non-primary exports and pershaps also total exports as well-and, therefore, also ulitmately imports-across countries, but also with slow investments and defecient education, among other things, and thereby also with slow economic growth. (Gylfason, 1999, 14-15)

Gyflason givies this caveat in terms of measurements when evaluating small countries opennes to trade:

As well alluded to in the precding section, export shares may not be a good indicator of openness to trade, because small economies are more dependent on foreign trade than large ones. Therefore, a small country exporting and importing the equivalent of, say, a third of its output can be said to be less open to trade than a large country with the same export and import ratio. Before proceeding to use export propensities as a measure of openness to trade in goods and services in the Nordic countries, we must check whether this general observation applies to them.(Gylfason, 1999, 15)

Gyflason to butress this point states, “We see a clear and highly significant negative relationship

between the export propensity and population.”(Gylfason, 1999, 15) Inspite of this problem, Gylfason

does give an assessment of the Nordic nation’s openness to trade:

The four ‘large’ Nordic countries lie remarkably close to the regression line. This may be taken to mean that their export shares are reasonable indicators of their openness. Furthermore, this means that, contrary to common belief, the Nordic countries are, in fact, not particularly open to trade: they are just about average by Figure 5, in the sense that they export about as much of their output as their size commands.(Gylfason, 1999, 15-16)

Now what do the studies say about natural resources effects on economic growth? Gylfason says the

following about this, “Similarly, in econometric studies of the effects of natural wealth on economic

growth across countries and time, several different measures of natural resource abundance have given

essentially similar results. “(Gyflason, 1999, 16) Gylfason gives an explanation in how Dutch Disease

shows up in exports:

There are two main ways in which the Dutch disease can manifest itself through exports: (a) by making the composition of exports less favourable to economic growth and (b) by reducing total exports and growth. Even if total exports are unaffected by a natural resource boom, and even if they inscrease it its wake, the real appreciation of the currency that ensues may hurt just the kind of high-tech capital-intensive or high-skill labour-intensive manufacturing and service

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exports that are particularly conducive to rapid growth. The more intruguing case, however, is the one where a boom in primary exports reduces non-primary exports krone for krone, as Norway (recall Figures 3-4), or worse.(Gylfason, 1999, 16-17)

Gylfason gives statistical evidence to support his findings about the Nordic countries:

A priori, one might expect the correlation to be positive on the grounds that resource-rich countries experience primary export booms at regular intervals through new discoveries and so on, and thus have higher export ratios than resource-deficient countries as long as non-primary exports are less than fully crowded out, ceteris paribus. The absence of a correlation might be viewed as a sign of full crowding out. Figure 6, however, displays a negative correlation between primary exports and total exports across countries, but the relationship is marginally insignificant (t=1.6); the correlation is only -0.12. For what it is worth, the slope of the regression line means that a ten-point increase in the primary export share from one country to another is accompanied by a decrease in the export ratio by one percentatge point. The elasticity of the export ratio with respect to the primary export share, evaluated at the sample means of the two variables, is -0.21. But even if all the Nordic countries are quite close to the regression line, Figure 6 does not provide any general indication that their export propensities are directly affected by their primary exports. This however, does not exclude the possibility that primary exports may influence other variables which, in their turn, are discernibly related to export performance. And notice, moreover, that the country whose exports are most heavily dependent on its natural resources (Iceland) is clearly the least open to trade (recall Figure 5).(Gylfason, 1999, 17)

Gylfason states that the relationship between natural resources and other parts of the economy can

proceed in several ways:

Weak though it is, the relationship shown in Figure 6 may stem from the tendency of natural-resource-related booms to lift currency rates and real wages, thus reducing exports, other things being equal, but exports depend on other factors as well. At any rate, there is no evidence of a positive relationship between primary exports and total exports. A simple correlation does not entail causation, however. It is conceivable that increased openness reduces the need for primary exports rather than or as well as the other way around. It is also possible that primary exports and total exports respond to third factors in ways that generate the pattern observed in Figure 6.(Gylfason, 1999, 17-18)

Gylfason says that further studies of economic growth between wealthy and not wealthy nations are

required. “There is a need to find ways to study economic growth across rich and poor countries

separately, even if the sources of economic growth seem to have much in common across countries

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regardless of their stage of development.”(Gylfason, 1999, 18) Gylfason also comments about what

might happen to the current account from the effects of natural resources:

In so far as natural resource dependence tends to reduce exports through overvalued currencies in real terms, one might expect natural wealth to weaken the current account of the balance of payments, others things being equal. And even when the relationship between natural wealth and exports is weak or non-existent, one might still expect to observe an inverse relationship between primary exports and the current account across countries, for even if exports may resist an overvalued currency, imports may respond.(Gylfason, 1999, 19)

Gylfason speaks about education and the effects of natural resource on it:

A third possible source of an inverse relationship between natural resource abundance and economic growth has to do with education. The main idea is this: a strong emphasis on primary exports, not least agriculture in developing countries, by not calling for much highly trained manpower, tends to generate not only less investment in physical capital than otherwise, from domestic and foreign sources (Figures 10-11), but also less investment in human capital (see Gylfason, Herbertsson, and Zoega 1999). (Gylfason, 1999, 22)

Gylfason further expounds on this link between education and natural resources:

The upshot of the above argument is this. If natural resource abundance deters education, whether by reducing the demand by employers for highly trained manpower or by reducing the supply of well-educated workers because education is perceived not to pay, then this linkage may produce an inverse relationship also between primary exports and economic growth-through education. It is quite possible, however, that the causation may run the other way: that is, that the interest in the exploitation of natural resources through primary production is decreasing in the level of education. Most probably, though, as always, primary production inhibits education and conversely. Ultimately, this means that education at all levels is good for growth, and vice-versa. Of the three school-enrolment ratios, the secondary-school enrolment rate is most sensitive to variations in the primary-export share. This is noteworthy because econometric studies of economic growth across countries have shown that growth is generally more sensitive to variations in the secondary-school enrolment rate than it is to variations in either primary or tertiary education (Barro and Sala-i-Martin 1995, Ch.12) To increase economic growth, it seems most effective to send more youngers to secondary school, especially girls. A typical result is that an increase in the secondary school-enrolment ratio by 30 percentage points (e.g., from 50 to 80 per cent of each cohort) will increase the rate of per capita growth from one country or time to another by one percentage point, other things being equal.(Gylfason, 1999, 23-24)

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Gylfason runs one experiment by removing the poor nations from the sample and another one

“when natural resource abundance is measured by the share of primary production in the

labour force.”(Gylfason, 1999, 25):

What happens, you may wonder, if the poor countries, many of which depend heavily on primary exports and grow slowly, are removed from the sample? Figure 16 displays the pattern of primary exports and economic growth in the 57 high- and upper-middle-income countries that remain in the sample whenthe low- and lower-middle-income countries, 90 in number, have been removed. The pattern remains roughly the same as in Figure 15. Clearly, the inverse relationship between primary exports and economic growth is not confined to poor countries. Moreover, if the 26 high-income countries and the 121 low- and middle-income countries in the sample are plotted separately (not shown), a roughly similar pattern is observed in both groups, even if it is statistically significant only in the far more numerous developing countries, but even so the correlation is the same in both cases, or 0.20. There are not enough high-income countries for us to be able to ascertain the statistical significance of the cross-sectional pattern within that group per se. A representative result from cross-sectional and panel studies is that an increase in the primary export share by 25-30 percentage points (e.g., from 50 per cent of merchandise exports to 75 or 80 per cent) reduces the rate of per capita growth from one country or period to another by one percentage point, other things being equal. Similar results obtain when natural resource abundance is measured by the share ofprimary production in the labour force.(Gylfason, 1999, 25)

Gylfason gives his findings about the three nations of Iceland, Norway, and Finland. “To present the

conclusion up front, it is that (a) Iceland carries a clear case of the Dutch disease, (b) Norway shows

certain symptoms, and (c) Finland, like Sweden and Denmark, seems mostly clean, yet not without

reservation.”(Gylfason, 1999, 26) Gylfason presents his final conclusion from his studies of the Nordic

countries:

According to this view, the empirical evidence of an inverse relationship between different measures of natural resource abundance and economic growth over long periods that has emerged in the last few years can be interpreted as a sign of the Dutch disease. Because the disease is the symptoms associated with it, by definition, the issue of misdiagnosis-of mistaking symptoms for the disease-does not arise. It has been argued in this paper that natural resource abundance may retard economic growth (a) by reducing total exports and thereby, ulitmately, also imports of goods, services, and capital relative to national income; (b) by reducing investment in physical capital from domestic as well as foreign sources; and (c) by reducing investment in human capital-education, that is. The first channel, through trade, does not merely involve exports and imports, in so far as it may stem from a political conflict between heavy natural resource dependence and the propensity to partcipate in, and benefit from, international economic integration. This may help explain why governments of Norway and, especially, Iceland still show no signs of wanting to join Denmark, Finland, and Sweden in the

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European Union, even as the Central and Eastern European countries are queuing up outside the gates. To those Norwegians and Icelanders who want their countries to be full participants in European integration, this factor alone is, perhaps, ample reason to fear that heavy natural resource dependence may be, at best, a mixed blessing in the long run.(Gylfason, 1999, 38-39)

IV. HOW HAS CAPE VERDE FARED IN ITS DEVELOPMENT AND GOVERNANCE?

The African Development Bank produced a report , 2009 Main Report on The Comparitive

Outputs, Incomes and Price Levels in African Countries: Final Results of the 2005 Round of the

International Comparison Program for Africa. In this report economic information is noted about Cape

Verde. Cape Verde was found to be the second most expensive nation. The African Development Bank’s

report states, “In terms of general price level, the cheapest country is Ethiopia, followe by Egypt, The

Gambia, Burundi, Madagascar and Malawi. The most expensive country is Zimbabwe, followed by Cape

Verde, Namibia, South Africa, Comoros and Angola. “ (African Development Bank, 2008, xii) This is a

negative mark on Cape Verde’s governance but the economy is going to do what it is going to do should

it be a free market which is what Cape Verde has. But in terms of living standards, the report, states

that it is better to live in Cape Verde. The report notes, “A comparison of average living standards in the

48 countries indicates that people are reletively better in Mauritius, Botswana, South Africa, Egypt,

Gabon, Namibia, Tunisia, Equatorial Gunea, Swazland, Morocco and Cape Verde. People in Liberia,

Democratic Republic of Congo, Burundi and Zimbabwe have the worst standard of living.”(African

Development Bank, 2008,xii) The report states “Zimbabwe, Cape Verde, Angola, Gabon, Equatorial

Guinea, Namibia and Comoros are the most expensive in terms of individual household final

consumption expenditures.”(African Development Bank, 2008, 18) This would seem to indicate that yes

it is expensive to live in Cape Verde but the people have the rising incomes to meet these expenditures.

A further expounding on the things that cost most for Cape Verde is made by the African Development

Bank, “With regard to the remaining categories housing and utilities cost the most in Cape Verde,

Namibia and Swaziland and the least in Sierra Leone, Chad and The Gambia.”(African Development

Bank, 2008, 18)

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There is a term that needs to be defined. “Individual government consumption expenditure

(IGCE) is the expenditure incurred by governments on individual services, especially public education

and public health.”(African Development Bank, 2008, 22) The African Development Bank speaks about

IGCE in terms of some African countries. “South Africa, Botswana, Cape Verde and Namibia (two times

the average) spend the most for IGCE services. Chad (one-tenth of the average), Egypt (one-fourth of the

average) and Burundi (one-half of the average) spend the least.” (African Development, 2008,22)The

report does state a statistic in terms of how many times does Cape Verde spend on public health. “Cape

Verde, Morocco and Zimbabwe (three times the Africa regional average) spend the most on public

health.”(African Development Bank, 2008, 22) The report speaks about price levels and IGCE.

“Botswana, Namibia, Swaziland and South Africa have the highest price levels and the highest per capita

real IGCE. Morocco, Cape Verde, Côte d’Ivoire and Angola present the same picture but with a lower

real expenditure. “(African Development Bank, 2008,22)

The report gives another statistic about Cape Verde’s spending. It states “As shown in column 6,

Botswana, Mauritius and Gabon, Tunisia, and Angola and Cape Verde spend 6 to 4 times the African

regional average on construction per capita respectively.”(African Development, 2008, 25) These

indicators except for one indicator that Cape Verde is on the right track and that the government is

practicing good governance.

In 2008, the African Development Bank and the Organization for Economic Cooperation and

Development, produced a report, Cape Verde, that speaks about the economic and development

progress Cape Verde has made, projects and programs it has undertaken, and also the challenges and

problems it faces.

The report states what Cape Verde was expected to do in 2007 and what other plans and

programs it has undertaken to further its development. It states the following:

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CAPE VERDE’S ECONOMY IS ESTIMATED to have grown by 6.6 per cent in 2007, down from 10.8 per cent in 2006. This strong growth refelects a relatively high rate of execution of the public investment programme(PIP) and a dynamic private sector, supported by a substantial increase in domestic credit and private investment, including large inflows of foreign direct investment (FDI). (ADB and OECD, 2008, 197)

The report mentions the economy’s successes and the difficulties it has faced:

Cape Verde’s small, open ‘archipelago’ economy contiues to outperform the average sub-Saharan real GDP growth rate. Since 2004, when the economy experienced difficulities in the agricultural sector, the growth rate has been ratcheted upward by a sound policy environment. This sold pace of GDP growth and earlier improvments in human resources development have gradually raised the country’s Human Deveopment Index and reduced absolute poverty. As a consequence of its sustained progress, Cape Verde graduated from least developed country (LDC) status in December 2007.(ADB and OECD), 2008, 197)

It notes further notes the challenges and difficulities that Cape Verde faces:

Despite this impressive progress, the country still faces enormous structural challenges: the high, largely structural unemployment rate (18.3 percent in 2006); the persistence of a relatively high poverty rate; the need to improve delivery of services, both public and private; skill shortages; and inadequate infrastructure. Moreover, the scattering of Cape Verde’s territory over tend islands and eight islets and its arid Sahelian climate pose a constant development challenge.(ADB and OECD, 2008, 198)

The Government of Cape Verde has taken steps to impelement programs to secure economic growth:

Support for sustained growth will be provided by the macroeconomic and structural policy measures identified in the 2006-2010 Government Programme, the International Monetary Fund’s Policy Support Instrument covering the 2006-09 period and the Medium-Term Expenditure Framework(MTEF) for 2008-2010. The MTEF allocates public financial resources according to priorities set forth in the two Growth and Poverty Reduction Strategy Papers (GPRSPs) covering the 2005-07 and 2008-10 periods.(ADB and OECD, 2008, 198)

However, Cape Verde does face natural constraints on agriculture. The sector of agriculture is not more

than 10% of the economy. The main reason being is that only less than 10% of Cape Verde’s lands can

be used to grow crops. It also faces constraints with its fishing industry. The fishing industry makes up a

large part of Cape Verde’s exports but only makes up for 1% of GDP because the methods used to fsih

are the old ways of fishing. The report speaks about the number one and largest industry in the country

which is the services:

The Cape Verdean economy is service-oriented, with commerce, transport, tourism and public services accounting for more than 74 percent of GDP in 2006. The services sector, particularly tourism, is by far the leading growth sector and has considerable potential for further

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diversification. Cape Verde is improving its position as a tourist destination. Its tourist industry is expanding rapidly-by 12.7 per cent between 2000 and 2003 and by 15.6 per cent between 2004 and 2007, according to the Millennium Institute-and this growth looks set to continue. Cape Verde officials expect to reach the benchmark of 1 million tourists annually by 2015. This would mean that the sector could account for as much as 30 per cent of GDP, compared to 18.3 per cent in 2006, and employ 53,000 people.(ADB and OECD, 2008, 199)

But despite the growth the industry has accoplished and is poised to garner in the future, the industry

faces many difficulities:

The sector faces considerable challenges as well. The largest one is the scarcity of drinking water on this volcanic archipelago, which means that relatively expensive desalinated water will have to play an increasingly important role. The second challenge is the relatively weak linkages with local communities due to the concentration of tourism activity in large resorts. This limits spillover to local markets, since the goods consumed by tourists are largely provided by imports.(ADB and OECD, 2008, 199)

The Government of Cape Verde is taken steps to lend support to the tourism however there is a risk that

the PIP will not execute at a adequate rate in 2009. The report states, “Public investment, however, is

expected to increase substantially from 2007 to 2008 in orde to support the rapidly developing tourism

sector, although there is some risk that the PIP execution rate will again be insuffucient in 2009.”(ADB

and OECD, 2008, 200)

The ADB and OECD report discusses the fiscal policy of Cape Verde:

The medium-term fiscal strategy is geared towards preserving macroeconomic stability, strengthening the tax effort and prioritising public sector investment. The MTEF for 2008-10 has been approved. An integrated budgetary and financial management system( Sistema Integrado de Gestão Orҫamental e Financeira-SIGOF)was introduced in 2004. To date, this new system has brought only a partial improvement in budget execution. From 2008, the government will be using the analytical framework of the IMF Government Finance Statistics Manual 2001 (GFSM 2001) to present public finance statistics. The change reflects the progress made by Cape Verde in compiling both annual and sub-annual government finance statistics using the GFSM 2001 methodology.(ADB and OECD, 2008, 200)

The report futher reports on the budget and MTEF:

Following the adoption of a GPRSP for 2004-2007, a new budget model was adopted in 2005. The model includes an overall MTEF and a number of sectoral MTEFs, for the period 2005-07 within key line ministeries (education and higher education, agriculture and environment,

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labour, family and solidarity, and health), in order to allocate public expenditures in accordance with GPRSP priorities. A recent public expenditure review, conducted under the Country Financial Accountability Assessment and the Country Procurement Assessment Review projects, will lead to the adoption of additional measures to improve public expenditure management.(ADB and OECD, 2008, 200)

Cape Verde has made efforts to reform and improve its tax collection:

Cape Verde has improved its tax effort through tax reform and improved tax collection. Tax revenue increased from about 17 per cent of GDP in 1999 to about 23 per cent in 2006 and 2007. Total revenues were also boosted by the one-time revenues from the privatisation of nearly 30 state-owned enterprises. Cape Verde has a relatively high income tax rate (the top rate for the highest bracket is 45 per cent) and a moderate corporate tax rate (a top rate of 30 per cent). Other important sources of revenue are import duties and value added tax (VAT). In 2007, tax legislation was reformed to rationalise and streamline the use of tax incentives, exemptions, and import and consumption taxes, thereby broadening the tax base. (ADB and OECD, 2008, 200)

Also Cape Verde has improved in its management of public expenditure:

Improved public expenditure management has increased donor confidence, leading to an increase in general budget support from 4 per cent of the total budget in 2006 to 7 per cent in 2007. A new financing mechanism has also been put in place to smooth expenditures financed from donor reources over the 2008-15 period, since there has been considerable front-loading of commitments.(ADB and OECD, 2008, 200)

The report speaks about Cape Verde’s budget:

Estimated total expenditure and net lending amounted to 34 per cent of GDP in 2007, down slightly form the 35.5 per cent registered in 2006. This exercise of expenditure retraint reduced the overall fiscal defecit (including grants) to an estimated 2.3 per cent of GDP in 2007, compared to 4.6 per cent in 2006. The 2008 budget reinforces the government’s commitment to fiscal discipline. It calls for a 13 per cent increase in domestic financing in comparison to 2007. Revenue is expected to increase further to 31.6 per cent of GDP, thanks to improved efficiency in tax collection, notably the tripling of the amount of local tax collected in the period 2004-07.While recurrent expenditure is expected to decline in real terms, falling back to 20.3 per cent of GDP, public investment is projected to rise slightly to 13.7 per cent of GDP due to the low PIP execution rate. (ADB and OECD, 2008, 200-201)

The Cape Verdean Government has taken measures to maintain and control the public debt and payment arrears:

The government has undertaken to reach then maintain a central government public dedt ratio of no more than 70 per cent of GDP (72.4 per cent in 2006), while the domestic debt/GDP ratio should be stabilised at around 20 per cent of GDP by end-2008 (from over 33 per cent at end-2005). As part of the government’s effort to clear the payment arrears of central and local government entities, it has also arranged to pay part of its old arrears to the oil companies (Shell Oil) for past subsidies on fuel supplied to Electra, the country’s monopoly electricity and water provider. The arrears will be paid in three tranches by 2009.(ADB and OECD, 2008,201)

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The report notes the monetary policy of Cape Verde:

In 2006 and 2007, the aim to of the independent Banco Cetral de Cabo Verde (BCV) was to enhance the credibility of the exchange rate regime, in which the escudo is pegged to the euro as an anchor for low inflation. A law enacted in May 2002 prohibited budget defecit financing by the central bank. Moreover, for the last three years the government of Cape Verde has not had to monetise the general state budget through the BCV, mainly thanks to general budget support from donors and financing through the sale of treasury bonds with maturities extending up to 2014.(ADB and OECD, 2008, 201)

Cape Verde has made agreements in terms of tariffs and access to markets. The ADB and OECD note this

in their report:

For industerial products, Cape Verde has agreed to bind tariffs at rates ranging from zero to 55 per cent. Some bindings invlove reductions phased in over the period to 2018. For agricultural products, Cape Verde has agreed to bind tariffs at an average of about 19 per cent. Cape Verde has also made specific commitments to ease market access in ten services sectors and a wide range of sub-sectors. (ADB and OECD, 2008, 202)

In line with the spirit of free trade, cooperation, and partnerships, Cape Verde has received special

status with the European Union:

Cape Verde is a member of the Economic Community of Western African States (ECOWAS), which is financed by a levy of 0.5 per cent on all goods and vehicles originating from non-ECOWAS countries. Cape Verde is the ECOWAS country most affected by this levy due to its high proportion of non-ECOWAS imports, and hence is not a party to the Economic Partnership Agreement between the European Union (EU) and ECOWAS. Instead, Cape Verde opted for a ‘solo’ solution with the aim of transforming the country into ‘a model of the circulation economy.’ In October 2007, the EU granted Cape Verde ‘Special Partnership Status’, which will lead to growing co-operation on trade, investment, illegal immigration, the fight against organised crime and upgrading of insitutions and norms.(ADB and OECD, 2008, 202)

Structural issues are expounded on in the ADB and OECD report:

The privatisation programme slowed in 2006, when the government was forced to re-purchase the majority of the shares of Electra, which was facing serious financial difficulties. It is expected that Electra will be privatised again through the intermediation of a new management team. Moreover, the government has initiated the bidding process for the pharmaceuticals distributor Emprofac and the fish freezing company Interbase. In April 2007 the government completed the privatisation of the national oil distributor Enacol. Bidding for shares in the authority (Enaport) took place in 2007. The privatisation of TACV Cabo Verde Airlines was still in progress at the end of 2007, and negotiations are under way for the privatisation of the shipbuilding firm Cabenave.(ADB and OECD, 2008, 204)

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According to Doing Business 2008, starting a business in Cape Verde requires 12 procedures, costs 40 per cent of gross national income per capita and takes an aveage of 52 days. Despite efforts to streamline the cumbersome bureaucracy and increase transparency in recent years, obtaining a business licence took an additional average of 120 days in 2007, and closing a business is also difficult. Cape Verde was 132nd overall out of 178 countries covered. However, the government has taken steps to estabilish an online portal (porton di nos ilhas) and one-stop shop (casa do cidadão) in order to reduce the time required for company registration.(ADB and OECD, 2008, 204)

One of the main priorities in the transport sector area is to transform Cape Verde into a shipping support platform and a regional air transportation hub. MCA-funded improvments in the Port of Praia on Santiago, combined with the concurrent privatisation of port services, are expected to raise the efficiency of shipping services considerably. There are seven operational airports, three of which are international and four national. One of the latter is being converted to accept long-haul aircraft at São Pedro on São Vicente, with completion scheduled for 2008.(ADB abd OECD, 2008, 204-205)

The government recognises that cost recovery is important for the financial viability of energy and water utilities. A comprehensive overhaul of energy and water pricing is under way, includng the implementation of an automatic mechanism to adjust electricity and water tariffs in response to changes in the cost of imported petroleum products. This is exptected to depoliticise price setting and reduce pressure on the budget.(ADB and OECD, 2008, 205)

The government’s energy policy is directed in part at promoting conservation and alternative energy sources to reduce the country’s dependence on oil imports. In August 2007, the government signed an agreement with the British multinational InfraCo and Electra to construct four wind farms in 2008 on the islands of Santiago, São Vicente, Sal and Boa Vista. The project, whose estimated cost is USD 25-30 million, is expected to provide one-quarter of the archipelago’s energy needs by 2011. The Cape Verdean Ministry of Energy is also considering a proposal from Russia’s state-owned nuclear power monopoly. Rosenergoatom, to construct an offshore nuclear power plant which would be operated by Russian technicians and would sell electricity to Cape Verde.(ADB and OECD, 2008, 205)

The government of Cape Verde created new policies dealing with the Internet and

telecommuncations.”The 2005 National Initiative for Internet, Accessibility and Broadband set a new

course for the country’s information and communication technology (ICT) policy. The telecom sector

was completely liberalised by the end of 2007, and a strong regulator for telecommunications,

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broadcasting and internet has been created.”(ADB and OECD, 2008, 205) The government also instituted

banking reforms:

The banking system is generally sound and well regulated, but it is highly concentrated, with the two largest banks controlling 89 per cent of banking assets. Banking reform initiated in the 1990s led to privatisation of the two largest commercial banks: Banco Comercial do Atlãntico, majority-owned by a Portuguese bank, and Caixa Económica de Cabo Verde, owned by another Portuguese bank (both privatised in 1999-2000). The government remains active in the banking sector through a savings institutions, Fundo de Solidariedade Nacional, which channels public investment, while the Instituto Caboverdiano de Solidariedade is responsible for international aid.(ADB and OECD, 2008, 205)

The government instituted other banking and financial reforms:

Reforms to the regulatory and legislative framework are under way with a view to protecting lenders and strengthening banks’ capacity to provide project-based lending. Other reforms in the financial sector aim to improve credit risk management, increase competition in the financial market and expand access to credit for small and medium-sized enterprises (SMEs). Since commercial banks do not provide finance to SMEs, owing among other things to the high collateral demanded and high transaction costs, the government is currently exploring a new concept that would allow SMEs to be listed on the stock exchange to raise funds.(ADB and OECD, 2008, 205)

The Bank of Cape Verde and the banking system was strengthened by the Government of Cape Verde

via various measures and policies:

Supervision and regulation are manged by the BCV. In 2006 and 2007, through adherence to the Basel II framework, the institutional capacity of the BCV to supervise individual banks and their compliance with prudential regulations was strengthened; formal information-sharing agreements were signed with home country supervisors of subsidiaries and branches established in Cape Verde; the legislative and regulatory frameworks pertaining to international financial institutions were reviewed and modified; and legislation to combat money laundering and financing of terrorism was strengthened.(ADB and OECD, 2008, 206)

The report by ADB and OECD does elaborate on the area of technical and vocational skills development

which is very critical to the economy of Cape Verde:

Technical and vocational education and training (TVET) is not well developed in Cape Verde. In 2003, a funding framework for TVET was put in place, but implementing legislation was enacted

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only in 2007. As part of Cape Verde’s TVET strategy, an observatory for employment and training will be introduced as a planning tool, and five employment service centres have been created to collect job offers. The new centres will also train master trainers and provide self-employment and entrepreneurship classes. In December 2005 an institutional framework for TVET was promulgated, which covers the following: certification, teacher qualification, TVET centre status, financing of TVET and accreditation of TVET.(ADB and OECD, 2008, 206)

The government is also putting forth the tools and policies to promote and grow the private sector:

The government is working on creating a new agency in 2008, based on existing agencies, that will focus exculsively on private sector development and entrepreneurial development. In addition, the Ministry of Economy, Growth and Competitiveness is considering plans to initiate a National Council for Private Sector Development as a focal point for public-private dialogue. (ADB and OECD, 2008, 206-207)

The workers and the education they receive does not adequately prepare for the job market:

Nevertheless, there is still a major mismatch between the skills needs of the labour market and the qualifications of those completing their education. In the 2006 report on GPRSP implementation at the secondary level, emphasis was given to, among other things, strengthening teacher qualifications, infrastructure development, curriculum review, equipping of schools, revitalisation of vocational schooling and its integration into the vocational training system, educational and vocational guidance in co-operation with employment centres, support for the private sector in developing secondary-level programmes, and a more participatory approach to the management of secondary schools.(ADB and OECD, 2008, 207)

Financing for TVET is greatly lacking. The report enumerates in great detail this challenge:

The lack of adequate finance is a serious impediment to further improvements in TVET. Efforts are under way to regulate the vocational training system, in particular with regard to financing (public, private, and trainees), and to address regional asymmetries by building new infrastructure and taking advantage of local synergies. These efforts are hampered by financial constraints. In order to expand TVET programmes, the 2008 budget provides for CVE 500 million in the forms ofgrants and loans for vocational training. In addition, some 160 ongoing educational activities in Cape Verde are receiving funding from external sources, according to the Aid Development Gateway. The principal donors in the education sector are Portugal, Luxembourg, Spain, Germany and UNICEF.(ADB and OECD, 2008, 207)

In line with increasing the capacity and strength of vocational programs in order to equip people to

enter the labor market ready to work with the requisite skills Cape Verde with help of the UN opened up

a vocational training center in 1995:

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In 1995, Ecole Secondaire Polyvalente ‘Cesaltina Ramos’, a UNESCO-UNEVOC (International Project on Technical and Vocational Education) centre, was founded with financial support from the European Commission. This secondary technical school offers programmes with a heavy emphasis on technology in the service and commerce branches, construction, electrotechnics and electronics. Its two-year programmes enable graduates to enrol in higher education or to enter the labour market directly after completing the progamme.(ADB and OECD, 2008, 207)

In a further effort to train the workforce with adequate skill set for the market in 2007 a vocational

center for the construction trade was opened:

In February 2007, Cape Verde opened its first specialised vocational training centre for the construction sector, a project supported by Brazilian aid. The project inolves a total investment of USD 1 million, 90 per cent financed by the Brazilian Co-operation Agency and the remainder by the Cape Verdean government. The training centre aims to train instructors who will then pass on their knowledge to others all over the archipelago.Initially, the centre will offer training in mechanics, metalworking, soldering, plumbing, and electricity.(ADB and OECD, 2008, 207)

The ADB and OECD report speaks about the issue of corruption and how the Government of Cape Verde

addressed this issue:

Cape Verde has made substantial progress in preventing the re-emergence of corruption. For example, the 2007 Corruption Perception Index of Transparency International ranks Cape Verde as the third least corrupt African country, after Botswana and South Africa. Nevertheless, corruption and lack of transparency are still perceived as serious challenges. One response has been to strengthen SIGOF and the Court of Auditors through the new Law on the Organisation and Operation of the Court of Auditors.(ADB and OECD, 2008, 208)

The report speaks about the social context and human resources development. “According to the first

2006 MDG progress report, the country is on track to achieve the MDGs.”(ADB and OECD, 2008, 208)

Cape Verde has made a lot of progress in terms of literacy and the number of students who attend

school:

The extremely high literacy rate of 79 per cent in 2007 is the direct result of 32 years of sustained investment in education, amounting to 20.4 per cent of the budget between 2004 and 2006. Although the situation varies considerably from one muncipality to another, the outcome of this human capital investment strategy is a net enrolment rate of about 96 per cent at the national level. Primary education is free, universal (98 per cent net enrolment) and compulsory

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until age 11 (MDG 2); 83 per cent of primary school pupils finish without repeating and only 2.7 per cent drop out.(ADB and OECD, 2008, 208)

However, the educational quality has decreased for several reasons:

Since 1980, however, the quality of education has gradually decreased mainly as a result of an insufficient number of qualifed teachers. The decline is also partly due to a lack of educational planning and professional management and to a failure to evaluate student performance at the end of basic education. The enrolment rate in secondary school for all children aged 12-17 years is a commendable 70 per cent (77 per cent for girls and 75 per cent for boys). An ICT education policy is focusing on the use of radio to provide support for teachers and to enrich content for students.(ADB and OECD, 2008, 208)

The report mentions that efforst are being made to achieve gender equality:

UNICEF reports that many girls drop out of secondary school due to sexual abuse and teenage pregnancy. Nevertheless, substantial progress is being made in reducing gender inequality, with women becoming increasingly empowered and their rights formally established. The country is exptected to achieve MDG 3 (promote gender equality and empower women) before 2015.(ADB and OECD, 2008, 208

And finally the report speaks about the state of healh in Cape Verde:

In the health sector, efforts are being made to step up the campaign against non-contagious diseases; to control tuberculosis, HIV/AIDS and malaria; and to improve reproductive and child health. Cape Verde is expected to achieve the health-related MDGs in all muncipalities before 2015, and these goals have already been achieved at the national level. As regards access to health services, Cape Verde has reached a national rate of 74 per cent, while in urban areas the rate is 85 per cent. There has been an evident improvement in public-health, reflected in lower rates of maternal and under-five mortality (MDG 4) and a marked increase in life expectancy at birth. In contrast, performance on other health-related indicators has detetriorated in recent years. For example, the incidence of some highly contagious diseases such as HIV/AIDS and tuberculosis (MDG) 5 has increased. According to UNAIDS’ 2006 Report on the Global AIDS Epidemic, the HIV prevalence rate in Cape Verde is around 0.8 per cent.(ADB and OECD, 2008, 209)

BBC news reporter, Evan Davis, was sent on assignment to Cape Verde in order to investigate

the economic miracle of this little island nation. Davis, states “The remarkable economic and political

progress of Cape Verde is seen as a blueprint for the rest of Africa.”(Davis, 2011, 1) He further speaks

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about Cape Verde’s democracy. Davis says “Contrary to the impression you might have had of African

nations, here is one where democracy flourishes.”(Davis, 2011, 1) Davis in his reporting states facts

about Cape Verde’s economy and democracy. He says “But is it forgivable that I didn’t know it is one of

only a handful of countries ever to have been promoted out of the UN ‘least developed nation’ category

(up to ‘middle income country’ status)? And that it is a well-functioning democracy with the government

alternating between different political parties?”(Davis, 2011, 1) He gives an example of how strong and

good Cape Verde’s democracy is. He states “where a president stepped down after two terms in office

because that is what the constitution required (take note Mr Putin) and where the opposition freely

crticises the government.”(Davis, 2011, 1) He notes that Cape Verde “is a country where economic

growth has been strong, where literacy is almost universal and two-thirds of the population have a

phone. It is also a country that beats many EU countries in the Transparency International Corruptions

Percceptions Index.”(Davis, 2011, 1) Davis gave anecdotal evidence of the assertions he has heard about

Cape Verde’s econmic and democratic success:

Now on a three-day trip, you cannot verify all these assertions but you can get a clear impression. I went to a square in the capital, Praia, where I saw a dozen young people poring over their laptops, taking advantage of the free wi-fi available in that and other squares. I saw a tourism traning college that had been paid for by Luxuembourg’s aid programme. It functioned well, there were real students there and no money had gone missing into a Swiss bank acount. I spoke to the founder of a small e-business called Prime Consulting, who spoke highly of the ease with which new business could be established in the country (it takes ten minutes he said).(Davis, 2011, 1-2)

Davis does report the bad aspects and situation of Cape Verde:

Many people live in slums. The country is covered in them. The national income per head is about a tenth of that of the UK and I didn’t even get out of the towns to see the rural poor. In addition, some of the recent economic growth appears to have occurred on the back of a ridiculous holiday-property bubble. Irish, British and other investors got overexcited and the result is that many unfinished developments litter the main tourist island of Sal.(Davis, 2011, 2)

He points the progress that Cape Verde has made. “But still Cape Verde has come a long way over a

short period of time. It is a country that had famines killing tens of thousands of people in the first half

of the 20th Century that now worries about property bubbles.”(Davis, 2011, 2) Davis spoke to a college

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student named Samira who told him “that while her mother had not been to high school (there weren’t

enough of them at the time) but she, Samira, now goes to university.”(Davis, 2011, 2) He concludes his

news report with this saying “So whenever you feel the wearisome drag of compassion fatigue, you can

at least remind yourself that Cape Verde does suggest progress in that part of the world is not

impossible.”(Davis, 2011, 2)

In his journal article, Cape Verde: the most demoractic nation in Africa? by Bruce Baker, he

“examines the substance behind the claim that Cape Verde, a small archipelago state off the west coast

of Africa, is the best country in Africa for political rights, and civil liberities.”(Baker, 2006, 493) Baker’s

study of Cape Verde “finds that Cape Verde’s unique geography and history have played a key role in

facilitating good governance, and an open and non-violent society that values the real political gains of

1991. However, democracy has not yet eradicated either gender discrimination, dependence on the

diaspora or poverty.”(Baker, 2006,493) Baker makes an excellent point:

That this small archipelago of ten islands, isolated from the West African mainland by 300 miles of Atlantic and with a population of only 476,000, should be widely regarded as the best in sub-Saharan Africa in terms of political governance, and one of the best in terms of economic management, comes as a surprise to many. Yet over the last decade average growth rate has been double that of African countries as a whole. (Baker, 2006, 493)

Even though the two parties of Cape Verde claim to be vastly different from each other there has been

“continuity in government programmes has been much more prominent.”(Baker, 2006, 500) Both

parties have enacted the same policies of “economic liberalisation policies of privatisation, incentives to

foreign investors, restrictions on union rights, closer trade links with Europe and Africa, and high

investment in education.”(Baker, 2006, 500) Corruption is something that all governments have to deal

with. The best way to deal with it is transparancy. Baker notes what Cape Verde does in terms of this

issue. “One method of curbing the corrupt use of office is for elected officials to declare their relevant

interests and income. In Cape Verde this is done in part. Deputies must register their assets and income,

though not their vest interests, in the office of the Supreme Court when they enter the

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Assembly.”(Baker, 2006, 500) Cape Verde has also taken steps to reform its judiciary. Baker states

“Reforms to strengthen an overburdened judiciary were implemented in 1998. Between 2000 and 2005,

there was a 15% increase in the number of judges and magistrates.”(Baker, 2006, 503) Baker explains

the freedom of speech and press on Cape Verde and the government control of most of the media.

“The government generally respects freedom of speech and of the press. No authorisatoion is needed to

publish newspapers and hence the independent media is growing, though the state is still dominant in

newspaper and radio broadcasting, and holds a virtual monoply in television broadcasting.”(Baker, 2006,

505) The Cape Verde government has a view on how it sees Cape Verde in terms of its relation with

Africa, Europe and America. Baker states “Not surprisingly in this historic context, the Cape Verdean

government sees the country’s position as somwhere between Africa, Europe and America, and is

determined to keep good trade relations and cultural ties with all three.”(Baker, 2006, 506)

Even though Cape Verde has very little in terms of natural resources and is prone to droughts, it

has made tremendous progress in its develoment since it became free from Portugal:

Despite its lack of natural resources and proneness to droughts, Cape Verde had made remarkable development progress since independence. GDP growh for 1975-80 is recorded as 10%; for 1980-90 at 8.4%; for 1991-95 at 6.2%; and for 1997-99 at 7.0%(UNDP 2003); and is estimated for 2005 and 2006 as more than 6%. Life expectancy is one of the highest in Africa, estimated in 2004 as 70.14 (male: 66.83; female 73.54). There has been 30 years of significant investment in education (primary school attendance is 98%), health, sanitation and clean water, together with the buidling of economic infrastructure and a doubling of the number employed over the last 20 years (IMF 2005). The 2004 budget prioritised spending on the social sector as well as maintaining the fiscal balance.(Baker, 2006, 506-507)

The number one challenge that Cape Verde faces is reducing poverity:

As one senior development organisation official admitted : ‘how to reduce poverty is Cape Verde’s greatest challenge.’ The incidence ofpoverty is related to urbanisation, gender and employment. It predominates in rural areas, among female-headed households, and amongst the unemployed. Nor is poverty distributed evenly among the islands, but is highest in those most focused on agriculture such as San Antão, Fogo and Brava. It is thus of concern that development is unequally distributed geographically and demographically. With more than a third of the population still trapped in poverty and the inequality of income distribution increasing (as shown by the Gini coefficient, which was 0.43 in 1988-89, rising to 0.57 by 2001-02), it is hard to say that equality is not as issue in Cape Verde. Nor is this a sustainable basis for

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political stability. If emigration opportunities lessen due to restricted entry into Europe and the USA, if liberalisation policies continue to fail to promote employment, and if the government remains reluctant to engage in serious wealth redistribution through taxes and benefits, then the numbers in poverty will be hard to reduce. (Baker, 2006, 507)

Baker makes a warning given inequality, unemployment, and poverty on Cape Verde being so rampent:

There is a danger that a permanent underclass may be forming, and that the benefits of a nation homogenous in race may be lost to a nation divided by class. Andrade (2002: 289), noting the cut-backs in health spending, the means-tested provision of schools meals and the failure of privatisation to provide jobs; commented: ‘If such policies increase the numbeer of deprived poor people, with no hope of employment, is there not a risk of social deprivation or even violence?(Baker, 2006, 507)

It is safe to say that “Poverty reduction is likely to dominate the political agenda for a long time to

come.(Baker, 2006, 508) The Cape Verdean government gives an assessment of its handling of public

finances:

The government believes that in part it has been a victim, ironically, of its own prudent economic management. Attention has been paid to maintaining external debt service (49.1% of GDP in 2004) at the cost of development programmes. As the foreign minister has observed, it would be an injustice if those most assisted with debt relief by international donors were those who had been most careless in accruing debt:

The impact of the [government’s development] strategy, particularly on living conditions of the poorer population, would be far greater if the country did not have to spend a considerable amount of resources on external debt service. Alternatively, these reources could be put to much better use in priority sectors such as Education, Health and Basic Infrastructure…the Government calls on the international community to relieve Cape Verde of the heavy debt burden by means of its cancellation…More than a reward for good behaviour, what is called for her is that a country not be penalised for its good performance in the area of development. (Official statement 2005, supplied by Foreign Ministry)(Baker, 2006,508)

There is the phenomenon of the diaspora of Cape Verdeans who emigrate abroad for work and remit

funds back to Cape Verde. Governments have tapped into this community for economic and financial

reaons. The government of Cape Verde has insituted policies to increase the diaspora’s remmitances

and investments for the long term. Baker states “With resources so limited on the islands, governments

have been keen to tap into the resources of what they call the ‘international community’ of Cape

Verdeans. Indeed, the Bank of Cape Verde has, with the National Assembly, devised policies to stimulate

remittances and long-term investments.(Baker, 2006, 509) Baker makes a very strong assertion about

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Cape Verde’s democracy. “This, then, is more than an electoral democracy. For all the weaknesses noted

above, it is a serious democracy and for that reason alone a rarity in Africa.”(Baker, 2006, 509) Baker

speaks about Cape Verde’s progress in education and how it has managed its resources. “What others

might regard as insuperable economic problems that neccessitate perpetual dependence on external

help, has promoted in Cape Verde a strong determination to succeed by the quality of its own

educational attainments and careful resource managemnt.”(Baker, 2006, 509) Baker makes the final

concluding remarks about Cape Verde’s democracy and governance:

This may be a society that has been artificially constructed by the perverted values of ruthless slave traders and exploitative Portuguese colonialists; and it may be one that faces the extraordinary vulnerabilty of a small island economy lacking natural resources and with high transport costs to markets. Yet from this inauspicious foundation has arisen perhaps one of the most successful democracies in Africa and the developing world. Basil Davidson (1989: 195), an enthusiastic supporter of PAICV’s socialist policies, after revisting the country concluded:

Here was an African people which has found a way to save itself, which has shown how the poorest and most despairing of the legacies of foreign rule can be challenged and thrown off, and which so far has prevailed against every forecast of failure.

The socialism may have faded, but the sense of success against the odds perseveres in Africa’s most democratic nation.(Baker, 2006, 510)

The United Nations has taken a role in Cape Verde’s development. It has a program called

United Nations Cape Verde and this organizaion has created programs to help Cape Verde on its march

to meeting the UN’s Millenium Development Goals. United Nations Cape Verde produced in 2010 this

report titled Cape Verde: An Emerging Nation.

The UN Resident Coordinator for Cape Verde, Petra Lante-de Bernardis, made the following

remarks about Cape Verde’s development:

Cape Verde is a showcase of how good governance and investments in human capital can make a real development difference and put the country on track to achieve the Millennium Development Goals. The UN is a proud partner to Cape Verde in its efforts to improve the living conditions of its citizens, especially the most vulnerable.(United Nations Cape Verde, 2010, 2)

The report notes Cape Verde’s accomplishments since it’s independence from Portugal:

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Cape Verde is an emerging nation with a truly transformational development agenda. Since achieving independence in 1975, it has evolved into a stable democracy, making considerable progress in terms of growth of gross domestic product( GDP) and income per capita, as well as on human development indicators. At the end of 2007, the country graduated from the UN’s Least-Developed Country (LDC) Group, and in 2008 it acceded to the World Trade Organization (WTO). (United Nations Cape Verde, 2010, 4)

Cape Verde has also made progress in terms of its development:

•The portion of the population living in poverty fell from 49% in 1990 to 39% in 2000 and 26.6% in 2007.

•Between 1990 and 2007, the Human Development Index (HDI) rose by 1.08% annually, from 0.589 to 0.708, equivalent to a world ranking of 121 out of 182.

•The infant mortality rate decreased from 57.9 per thousand in 1995 to 21.7 per thousand in 2007.

•A significant reduction has been observed in maternal and general mortality rates and an increase in life expectancy at birth, which in 2008 stood at 76 years for women and 69 years for men.

•Fertility rates dropped from 7.0 in 1980 to 2.9 in 2006.

•Universal primary education has nearly been achieved.(United Nations Cape Verde, 2010, 5)

Inspite of these accomplishments and development success, Cape Verde, is still vulnerable. The report

notes the following vulnerabilities. It lacks natural resources and onl 10% of the land is arable. The 10

islands span 4,000 square kilometres. And the population of 500,000 is widely dispersed on all 10 islands

with the excpetion one. On a general basis, islands are very vulnerable in terms of the environment and

“opportunities to develop.(United Nations Cape Verde, 2010, 8) Also, the population has 25% of itself

that lives in poverty. Cape Verde does suffers from being overly denpendant on foreign aid to help it

develop as it makes its way from low economic status to middle economic status.

Continued high dependence on official development assistance is a challenge facing the country as it makes its transition. Cape Verde has alligned its national planning with the Millennium Development Goals (MDGs), which are identified in its Growth and Poverty Reduction Strategy Paper II (GPRSP-II) (2008-2011). It has reiteratd its priorities since graduating from the LDC Group and acceding to the WTO, and is working in collaborative partnership with all its development partners to attain the goals outlined in its vision.(United Nations CapeVerde, 2010, 9)

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The United Nations Cape Verde organization has come up wih the One Programe(2008-2011).

The program has four themes: governance, growth, environment, and human capital and social

protection. The goals and the respective themes and organizations are:

Theme I, Governance, 1. Graduation and Integration into the World Economy (UNCTAD), 2. Reinforcement of Security (UNODC), 3. Consolidation of Democracy(UNDP)

Theme II, 4. Growth and Economic Opportunities Promotion(UNIDO)

Theme III, 5. Environment Energy, Disaster Prevention and Response (UNDP)

Theme IV, 6. Education System Quality (UNESCO), 7. Youth Participation (UNFPA), 8. Health System Reform (WHO), 9. Child Protection and Social Protection (UNICEF), 10. Food Security and Nutrition in Schools (FAO)

There are crosscuting themes: Gender, HIV/AIDS, Human Rights, Communication for Development, Capacity Development.(United Nations Cape Verde, 2010, 14)

The report states that the Government of Cape Verde has been steadfast and shown excellent

leadership with this UN program:

The Government of Cape Verde has demonstrated strong leadership in the UN reform. The One UN Programme is aligned with national priorties as defined in the GPRSP-II, and Government has committed firmly to ongoing mutual review of the reform process to ensure that it remains relevant and effective.

In line with the philosophy of ‘Delivering as One,’ the Government is making a priority to ‘Request as One’, articulating and activating existing coordination mechanisms within Government to effectively facilitate and streamline cooperation between Government and the UN system.(United Nations Cape Verde, 2010, 17)

Cape Verde has practiced good governance. José Maria Pereira Neves, Prime Minister of Cape Verde,

made the following statement:

Today, we have a democratic state in Cape Verde. A state that respects the rights and freedoms of citizens. A state where institutions work and are respected. A state where there is transparency and accountability, where citizens and society effectively control political power. There have been transfers of political power-at municipal, legislative and presidential levels-under free and transparent elections. Peace and stability are a reality. Better yet: they are a factor of development. (United Nations Cape Verde, 2010, 18)

Sapachai Panitchpoldi, UNCTAD Secretary-General, states ‘If you are looking for a country that

can ‘best practices’ in managing and receiving trade-related assistance, Cape Verde is a very

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good example.(United Nations, Cape Verde, 2010, 19) The report expounds further about Cape

Verde’s good governance:

The Good Governance theme aims to contribute to ensuring Cape Verde’s successful graduation from LDC status, by strenghening security and the rule of law, through citizen participation. Cape Verde’s Government has identified the need for reform in several of its sectors, as well as the need to reinforce national effeciency in supporting the country’s exit from LDC status and its accession to the WTO. The One UN Programme works in parntership with Government to enhance the ability of its institutions to react efficientl y and effectively to the needs and voices of its citizens, in the context of the country’s recent graduation from the LDC Group and WTO accession. Practices under the Good Governance theme reinforce equality and contribute towards ensuring equity for the country’s population. Within this, the aim is to help support and strenghthen the capacity of national and decentralized institutions to:

• Facilitate a smooth transition from the LDC Group

• Promote human rights, fight transnational crime such as drug trafficking and assure the security of the country’s citizens

• Apply equality with regard to the law in all political, socioeconomic and cultural situations

•Better fulfill the expectations of citizens (United Nations Cape Verde, 2010, 19)

In line with the government’s governance and UN’s One Programme, the government has instituted

measures and programs such as its e-Governance program. The report explains this further:

With support from the One UN Programme, among others, the Government has designed and implemented a set of modern, synchronized e-government systems. These have led to positive impacts such as increased revenue collection and increased availability of electronic products and servicess for citizens. Capacity has been built of national institutions responsible for the implementation of the national e-government system. For example, national authorities are better able to organize and implement elections since the introduction of a sytem of biometric identification. A digital information system will not be used to manage voting and census processes.(United Nations Cape Verde, 2010, 23)

The Government of Cape Verde and the UN One Programme share the same theme in the

program: Promotion of Growth and Economic Opportunities:

The Promotion of Growth and Economic Opportunities theme aims to reduce inequalities in terms of both economic opportunities and dependency on official development assistance and the Diaspora, by promoting robust economic growth and the competitiveness of micro, small and medium enterprises, generating decent and productive employment and promoting a sustainable fight against poverty, including urban poverty.(United Nations Cape Verde, 2010, 24)

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Helen Clark, UNDP Administrator, says ‘Cape Verde is one of only two African countries on target to

reach its anti-poverty goals to raise the living standards by 2015.’(United Nations Cape Verde, 2010, 25)

The report states the following concerning the poverty in Cape Verde and its economy. The number one

challenge for Cape Verde is reducing poverty. Cape Verde has the aspect of “double insularity-islands

are scattered far from each other and from the continent-poses important constraints in this regard,

such as in transportation, communications and purchase of basic economic inputs.”(United Nations

Cape Verde, 2010, 25) Also, “Poverty is higher in rural than in urban areas and affects women in

particular, with unemployment the main cause.” (United Nations Cape Verde, 2010, 25) And in light of

the Global Economic Crisis of 2008-2009, the Cape Verdean economy was affected:

Although Cape Verde’s economy was able to maintain positive growth during the global economic crisis, the global downturn did have a signficant impact on economic performance, with real GDP growth estimated to have fallen 1.8% in 2009. Real GDP might even have contracted had the Government not adopted an ambitious fiscal stimulus plan to improve the country’s economic prospects. (United Nations Cape Verde, 2010, 25)

The report also states “The Government is focusing on reducing extreme poverty and hunger and

promoting growth, competitiveness and socioeconomic rights. (United Nations Cape Verde, 2010, 26)

The Government of Cape Verde has taken several important steps to achieving this goal:

With support from the UN and other development partners, the General Directorate of Statistics, the National Statistics Institute and the Institute of Employment and Vocational Training now offer vocational training that is more responsive to market needs, allowing for the promotion of business-friendly services and the creation and development of job-creating enterprises. Microfinance institutions have also been strengthened to deliver more efficient decentralized services. (United Nations Cape Verde, 2010, 26)

The report states the following about the importance and vulneribilities of the environment for Cape

Verde:

Preservation of the environment is fundamental to Cape Verde’s sustainable development. The country is home to a number of rare species, but its fragile ecosystems mean that these are put under intense pressure. As a small island state, Cape Verde is especially vulnerable to the effects of climate change, while being greatly and increasingly dependent on imported oil products for energy production. It has always been strongly affected by drought and desertification. (United Nations Cape Verde, 2010, 31)

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The report goes on to make a very important point not just for Cape Verde but for all nations. The very

point it makes is “Human capital is a country’s most important resource.” (United Nations Cape Verde,

2010, 35)

The report mentions the Youth Participation sub-programe and what it entails and how it is

implemented:

The Youth Participation sub-programme supports young people to exercise their right to active participation in the country’s development, through promotion of volunteer services and reinforcement of civil society. Youth centres aim to promote the integral and integrated development of teenagers and youth, especially in the areas of reproductive health and economic and social integration. Youth centres are now being supported to offer sexual and reproductive health information, as well as actual services in some locations, with close coordination between the two sectors (health and youth) to ensure better integration and eliminate duplication. Access to information and communciation technology (ICT) has been improved, including for isolated communities (through mobile centres).(United Nations Cape Verde, 2010, 37)

The report also mentions the UN’s work with the Government of Cape Verde in terms of improving the

welfare of children and social protection. It has created the Child and Social Protection sub-programme.

The aims of this sub-programme are “to support national and community insitutions to ensure a

protective environment for childeren and an effective and long-lasting social protection sysem.”(United

Nations Cape Verde, 2010, 39) It states “The UN has worked with the Directorate-General for Social

Solidarity to improve social protection by preparing an action plan to implement Cape Verde’s

Development Strategy of Social Protection. The National Centre of Social Pensions has been

strengthened to ensure successful management of the new social security and health system.”(United

Nations Cape Verde, 2010, 39) The report also mentions Cape Verde’s efforts towards achieving food

security. It states “The Food Security and Nutrition in Schools sub-programme is a new sub-programme

added in 2010. This is aligned with the food security sector, which is a Government priority as

established by the GPRSP-II.”(United Nations Cape Verde, 2010, 39) The GPRSP-II, stands for the Growth

and Poverty Reduction Strategy Paper II.

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United Nations produced another report, Cape Verde: An Emerging Nation: On the road to the

MDGS. The report spells out 8 United Nations Millenium Development Goals and states quantataively

and qualitatively Cape Verde’s progress in terms of achieving these goals. Cape Verde has made

progress but it still has many challenges ahead of it.

Cape Verde has numerous vulnerabilities. Cape Verde is not rich in natural resources and only

10% of its land can be used for agriculture. Out of the 10 islands, 9 are inhabited. The population of this

nation is 500,000 but they are disperesed all over the archipelago. 25% of the population is in poverty.

There is inequality between the genders and between rural and urban areas. The youth and children are

also vulnerable. The areas of challenge for Cape Verde are “education, access to health care, security,

the environment and climate change.”(United Nations Cape Verde, 2010, 1) Even though Cape Verde

faces these great challenges it still “remains on track to meet most of the MDGs particularly those

related to poverty eradication, health, education and gender.”(United Nations Cape Verde, 2010, 1)

The first goal of the UN Millenium Development Goals is “eradicate extreme poverty and

hunger.”(United Nations Cape Verde, 2010, 2) The key statistics at the time were the poverty rate that

was 26.6% and the “prevalence of underweight children under-five years of age: 10%”(United Nations

Cape Verde, 2010, 2) The nation of Cape Verde “expects to meet all targets related to poverty

eradication and hunger, and has all already nearly halved the proportion of people living in extreme

poverty.”(United Nations Cape Verde, 2010, 2) Cape Verde has overcomed many of the challenges buty

there a great many that remain. Cape Verde suffers from the problem of ‘double insularity’(United

Nations Cape Verde, 2010, 2) in that one it is separated from the African mainland and the islands that

comprise this nation are dispersed. “Cape Verde has managed to successfully overcome many of the

structural challenges of this insularity. It has done so through good governance, proper management of

internal and external resources, and strong global partnerships with North and South alike.”(United

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Nations Cape Verde, 2010, 2) The second goal of the United Nations Millenium Development Goals is

“achieve universal primary education.”(United Nations Cape Verde, 2010, 3) Cape Verde’s “Net

enrolment ratio in primary education: 92%.”(United Nations Cape Verde, 2010, 3) And the “Literacy rate

of 15-24 year –olds, women and men: 96%.”(United Nations Cape Verde, 2010, 3) In the MDG reports

for Cape Verde in 2008 and 2010 show that the nation is very close to accomplishing this goal and many

of the islands and municipalities have succeeded in meeting this goal. “Moreover, the government is

committed to expanding compulsory basic education through the eighth grade.”(United Nations Cape

Verde, 2010, 3) Cape Verde has made the effort “to identify thos regions and vulnerable groups where

targets have not been met.”(United Nations Cape Verde, 2010, 3) The government has and is committed

“to strengthen education at all levels in Cape Verde…The expansion of university education will permit

many more Cape Verdeans high school graduates to continue their education in-country.”(United

Nations Cape Verde, 2010, 3) The third goal of the United Nations Millenium Development Goals is

“promote gender equality and empower women.”(United Nations Cape Verde, 2010, 4) There are two

telling statistics for this goal: “Ratios of girls to boys in primary, secondary and tertiary education: 0.93”

and “Proportion of seats held by women in national parliament: 18.1%.”(United Nations Cape Verde,

2010, 4) Cape Verde is slated to meet this goal. In the Cape Verde MDG report of 2010 it stated that

Cape Verde:

has achieved gender parity in primary and secondary education, and in some cases (middle and secondary schools), attendance rates of girls is higher than that of boys a statistic of some concern to education authorties due to higher drop-out rates among boys. Statistics related to increased women’s participation in parliament and other political institutions at both national and local levels are also encouraging. However, gender-relaed statistics regarding economic activity and unemployment, while trending in the right direction, still indicate that economic activity among men remains higher than that for women, and that unemployment among women remains higher than that of men.(United Nations Cape Verde, 2010, 4)

In efforts to further meet this goal the report states:

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Gender is a cross-cutting theme of both the national Growth and Poverty Reduction Strategy and of the One UN Programme in Cape Verde. This allows for interventions in partnership with a range of stakeholders in Cape Verde to meet five major gender-related challenges: education, vocational training, employment and economic activity, political participation of women and decision making, and gender-based violence. On the latter issue, in response to initiatives from local NGOs and with support from the UN and other partners, the National Assembly just passed in July 2010, landmark legislation designed to combat gender-based violence.(United Nations Cape Verde, 2010, 4)

The fourth goal of the United Nations Millenium Development Goals is “reducing child mortality.”(

United Nations Cape Verde, 2010, 5) Cape Verde’s statistics for this goal are the following: “Under-five

mortality rate: 25.7/1000 live birth (2007)” and “Infant mortality rate: 21.7/1000 live birth (2007)” and

“Proportion of 1 year-old children immunized against measles: 94.4%.”(United Nations Cape Verde,

2010, 5) The report states of Cape Verde’s efforts in this endeavor:

From a high rate of 57 deaths per 1000 in 1995 until the present rate of 21/1000, Cape Verde has nearly met the MDG target of reducing infant mortality, and Cape Verde is on track to meet the targets for reducing child mortality. Cape Verde’s strategy to achieve this goal has been multifaceted. An increased national push to identify and vaccinate children in more isolated regions of Cape Verde (with the support from the UN) resulted in vaccination rates increasing in one year from 73% in 2008 to 94.4% in 2009. Greater use of awarness raising campaigns sensitized families to issues related to child health, and the government moved aggresively to bring primary health services closer to the affected populations, so that now 76% of the Cape Verdean families live within 30 minutes of a health center.(United Nations Cape Verde, 2010, 5)

The report speaks about the partnership between the UN and Cape Verde to meet this goal:

There is a strong partnership between the Cape Verdean government and the UN in the efforts to reduce child mortality. The government seeks to expand health services to rural populations, who continue to be under-serviced in comparison with urban communities (92% of urban neighborhoods lie within 30 minutes of health clinics versus 77 percent of rural communities). As achieving MDG 4 is explicitly linked to meeting MDG 5 of improving maternal health, the UN will continue to support government-led efforts to strengthen the overall quality of reproductive health services in Cape Verde.(United Nations Cape Verde, 2010, 5)

The fifth goal of the United Nations Millenium Development Goals is “strengthening maternal

health.”(United Nations Cape Verde, 2010, 6) The statistics for Cape Verde regarding this goal are the

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following: “Maternal mortality ratio: 15.8/100,000 live birth” and “Proportion of births attended by

skilled health personnel: 77.8%”. (United Nations Cape Verde, 2010, 6) The UN Cape Verde report states

the following in regards to this goal:

Having already doubled the percentage of births attended by a skilled health professionals, Cape Verde has seen its maternal mortality rate plummet, and it is solidly on course to meet the maternal health MDG. However, Cape Verde remains especially vigilant in tracking even small fluctuations in maternal mortalities, as occurred in 2009. Health authorites are focusing on improving overall health and nutrition for pregnant women, and on paying more ttention to secondary illnesses such as hepatitis, malaria, or dengue fever, which can complicate pregnancies. Future focus will continue to be paid to expanding quality reproductive health services and information in particular to groups facing a greater probability of high-risk pregnancies, such as adolescents.(United Nations Cape Verde, 2010, 6)

The sixth goal of the United Nations Millenium Development Goals is “combat HIV/AIDS, Malaria, and

other diseases.”(United Nations Cape Verde, 2010, 7) The statistics for Cape Verde for this goal are:

“HIV prevalence among population aged 15-24 years: 0.4%” and “Condom use at last high-risk sex:

46%(Women), 72% (Men)” and “Proprortion of population with advanced HIV infection with access to

antiretroviral drugs: 24%.(United Nations Cape Verde, 2010, 7) The report states the following about

Cape Verde’s efforts in combating this disease and othe diseases as well:

Cape Verde’s priority in the fight against HIV/AIDS has been to maintain pre-existing low rates of HIV prevalance, through expanding access to quality reproductive health service, with special attention on adolescents and youth and through awareness raising among care givers, health professionals, women and young people. Access to prevention of mother-to-child transmission of HIV has been extended to 90% national coverage, and special focus has been given to drug addiction issues, of growing concern in Cape Verde. Cape Verde has welcomed the opportunity for global partnership to fight the spread of HIV/AIDS through the support of the Global Fund to Fight AIDS, Tuberculosis and Malaria, and it is hoping to expand this cooperation in the fight against malaria. Like HIV/AIDS, malaria transmission rates are also low, and Cape Verde has set the ambitions national goal of eradicating the disease.(United Nations Cape Verde, 2010, 7)

The seventh goal of the United Nations Millenieum Development Goals is “ensure environmental

stability.”(United Nations Cape Verde, 2010, 8) Cape Verde’s statistics in terms of this goal are:

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“Proportion of terrestrial areas protected: 15%” and “Proportion of population using an improved

drinking water source: 90% (99% in urban areas and 76% in rural areas)” and “Per capita green house

gas emissions: 873 kgs.” (United Nations Cape Verde, 2010, 8) The UN report states the following in

regards to the progress that Cape Verde has made with this goal:

Preservation of the environment is fundamental to Cape Verde’s sustainable development. The country is home to a number of rare species, and its fragile econosystems are increasingly subject to pressure due to climate change and endemic problems such as drought and desertification. Access to water is a critical issue in Cape Verde, and meeting the MDG target of increasing access to potable water remains a priority. Although it has low per capita emissions of greenhouse gases, and is dependent on imported fossil fuels for energy production. Cape Verde is determined to both grow economically while limiting its growth in per capita greenhouse gas emissions. To that end, Cape Verde is building partnerships with the UN and with key donors such as Portugal, Spain and others to expand its use of renewable forms of energy, especially wind and solar technologies. With UN support, Cape Verde has maximized its use of Global Enivornment Facility grants, and it hopes to strengthen participation in global partnerships available to Small Island Developing States.(United Nations Cape Verde, 2010, 8)

The eigth goal of the UN Millenium Development Goals is “develop a global partnership for

development.” (United Nations Cape Verde, 2010, 9) The statistics for Cape Verde in terms of this goal

are: “Unemployment rate for youth between 15 and 24 years old: 25%” and “Cellular subscribers per

100 population: 54.7” and “Internet users per 100 population: 14.”(United Nations Cape Verde, 2010, 9)

The report notes the following about Cape Verde in terms of this goal:

Cape Verdeans have embraced new information and communications technology, as the widespread of use cellular telephone demonstrates. With its ‘Novo Mundo’ initiative, Cape Verde has set for itself the ambitious goal of providing internet connectivity in all its primary and secondary schools and laptop computers to all its students by 2015…Despite genuine progress in creating jobs in Cape Verde, fightng unemployment, especially youth employment, remains a top priority for the Government and its development partners . The government will expand greatly vocational training programmes and continue to strengthen the overall business and investment climate. Despite its important economic vulnerablities, in 2008 Cape Verde became the second country in the world to have graduated from the UN Least Developed Country category. Having acceded to the WTO in 2008 as well, the country has forged strong partnerships with bilateral, multilateral and global partners, and it has established a Special Partnership with the European Union. Recongnized as a committed development counterpart, Cape Verde has managed to maintain steady levels of incoming ODA, while access to concessional loans has been greatly expanded. Cape Verde, an active partner in ECOWAS and

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the Community of Portuguese-Speaking Countries, has strengthened its South-South cooperation links with such partners as Brazil, China and Cuba; moreover, it also offering coopeation partnerships with São Tome and Equatorial Guinea. (United Nations Cape Verde, 2010, 9)

Cape Verde has a vision as echoed by its Prime Minister, José Maria Neves:

• A country that is open to the world, with a strong and dynamic productive system, based on the development of human resources, technological capacity and national culture

• A society of solidarity that enjoys peace and social justice, that is democratic, open and tolerant

• A country endowed with sustainable human development, with balanced regional development and commitment to environmental preservation and econlogical awareness(United Nations Cape Verde, 2010, 10)

In this report, Growth and Investment in Sub-Sahran Africa: Case studies, by Velde, Warner, and

Sheila Page, it states several economic statistics of Cape Verde as of 2004. However, the report states

that being a small nation in Africa is an advantage rather than a disadvantage. It says that small African

nations perform economically well, have high insitutional quality, most politically stable of the African

nations with “good rule of law and effectively control of corruption.”(Velde and Warner, 2004, 33) Also,

“small and stable island states tend to rely on services attracting lots of tourists.”(Velve and Warner,

2004, 33)

The report speaks about two economic achievements of Cape Verde. It states:

Table 2 shows growth performance over the period 1960-2000; Botswana, Mauritius, Cape Verde, Congo, Seychelles, Gabon, Swaziland and Lesotho have manged an annual increase of over 2% in real GDP per capita.Equatorial Guinea, Mauritius, Uganda, Mozamique, Eritrea, Cape Verde, Botswana, and Lesotho managed to achieve such an increase over the 1990s. (Velve and Warner, 2004, 9)

Velde and Warner say the following about this elite group,” Top performers over the past five

years (1997-2002) include Equatorial Guinea, Liberia, Mozambique, Rwanda, Mauritius,

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Botswana, Sudan and Cape Verde. This is in part matched with good performances over that

period in terms of investment.”(Velde and Warner, 2004, 10) Cape Verde had a per capita

income of $4,027 for the year 2000. Also, from 1960-2000, it had a GDP per capita growth rate

of 3.5%. And also for the 1990s, it had a GDP per capita growth rate of 2.9%. The report

mentions that Cape Verde garnered more than 4% of GDP when measuring Foreign Direct

Investment (FDI) as percentage of GDP (average 1998-2002). (Velde and Warner, 2004, 12)

Velde and Warner state the following, “ The same countries are taking the top position in all

institutional variables as measured by Kaufman et al. (2003): Mauritius, Botswana, South Africa,

Seychelles, Namibia, and others to some degree including Senegal, Cape Verde and São Tomé

and Principe.”(Velve and Warner, 2004, 18) It furthe states, “Good quality institutions may have

an impact on many facets explaining growth. For example, it could be related to an ability to

conduct good macroeconomic policies.”(Velde and Warner, 2004, 18)The report does mention

that “intitutions ‘rule’ for sustaining income growth in the long run.”(Velde and Warner, 2004,

18) In the report, in Table 7, Insitutional quality: top 10 performers in 2002, under Voice and

accountability: Cape Verde was ranked #5, under Political stability: Cape Verde ranked #3, under

Government effectiveness: Cape Verde ranked #9, under Regulatory Quality: Cape Verde ranked

#10, under Rule of law: Cape Verde ranked #6, and under Control of corruption: Cape Verde

ranked #5.(Velde and Warner, 2004, 18)

Velde and Warner move on to the topic of size of a state:

However, a quick look at the relative performances of small states in Africa reveals that they have performed relatively well: Botswana, Cape Verde, Mauritius, Swaziland, and Lesotho are all in the top performers (Table 2). This implies that smallness alone is not a good indicator of bad performance. One reason might be that smaller countries were associated with high institutional quality (see Table 7), while insitutional quality has been the overriding factor in growth regressions. Hence, it might be interesting to examine cases such as Botswana, Cape Verde, Mauritius, Swaziland and Lesotho to

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asses how they have overcome the disadvantages of smallness.(Velde and Warner, 2004, 23)

The report states “Cape Verde, an often overlooked, small Lusophone African country with good growth

performancee, good quality insitutions and tourism investment.”(Velde and Warner, 2004, 28) To

butress this point the report shows excellent economic data:

While the case of the Seychelles and Mauritius are well know[n], Cape Verde’s march is less well rehearsed. Cape Verde is one of six Lusophone countries in Africa and the archipilago is services oriented: commerce, transport and public services account for 70% of its GDP. It receives US $ 400 million of FDI over 1994-2000, most of it in tourism. Its increase in real GDP per capita was an impressive 3.5% annually over 1960-2000.(Velde and Warner, 2004, 33)

V. ANOTHER VIEW ON SMALL STATES IN TERMS OF THEIR ADVANTAGES/DISADVANTAGES AND

WHETHER THEY ARE UNDER-AIDED/OVER-AIDED

A view on small states on whether they have advantages or disadvantages or both and

whetheer they are under-aided or over-aided in terms of human development and governance is in

order. Swaminathan Aiyar presents an excellent analysis and explanation of this topic. All four areas are

interconnected to each other. An understanding of them is vital to grapple with these issues.

Aiyar states the followng about states and how they are viewed and treated by the United

Nations and international organizations:

Small states have long been viewed by international organizations as a special category with special handicaps requiring special assistance. The United Nations has created an Office of the High Represenative for the Least Developed Countries, Landlocked Developing Countries and Small Island Developing States. The very wording makes it clear that the UN redards small developing states that are landlocked or islands as being on par with the least developed countries.(Aiyar, 2008, 449)

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Aiyar notes the disadvantages of small states yet he also highlights the advantages and states that to

treat them as special and needing assistance is fool hardy given they do have advantages:

Economic theory suggests that small states may have intrinsic disadvantages (Easterly and Kraay 2000, Alesina and Spolaore 2003, World Bank 2008) The provision of public services may have indivisibilities that yield increasing returns to scale, so small states suffer from scale diseconomies. Returns to private investment may also have increasing returns to scale, which may be difficult to realize in small states. Small size may limit an economy’s scope for diversification. Many small states are islands or landlocked, and face problems of remoteness. Small states produce only a few items and import the rest, and so are relatively open economies, and hence more exposed to trade shocks. They are disproportionately exposed to natural hazards like huricanes.

However, empirical studies do not, in general find concrete evidence that smallness is a disadvantage. Among developing countries, small states actually have a higher GDP per capita than all states (IEG 2006, World Bank 2008). So, while small states may have some special disadvantages, they clearly have some special advantages too. This undercuts the rationale for viewing them as a special category requiring special assistance. To propose additional foreign aid in view of the disadvantages, while ignoring the advantages, does not make sense.(Aiyar, 2008, 450)

Aiyar points to evidence that states size does not determine the whether a state has advantages or

disadvantages. He points to a numerous studies (Easterly and Kraay 2000,World Bank 2008) that

demonstrate that small states that are in the process of developing carry gross national income (GNI)

that is higher on the basis of per capita than nations that are larger. Thus, proving that differences

between small states are more acute than “average differences between small and large states. This

suggests that size is not a key determinant of outcomes.”(Aiyar, 2008, 452) Aiyar points to the same

study to further butress his point:

A study of small states (Easterly and Kraay 2000) also showed that, after controling for location, small states were richer in per capita GDP than large ones. Being open economies with high trade dependence, their GDP was relatively volatile. But the same openness that increased volatility was also an advantage that tended to provide high GDP per capita. This study concluded that small states should be treated exactly as all others, with no special benefits.(Aiyar, 2008, 453)

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Aiyar cites anotherevidence that small states and large states are pretty much the same. However, they

do well in some areas and in some areas they are weak but both havepolicies and institutions that are

comparable:

The World Bank-Commonwealth review looks at World Bank ratings for 16 different aspects of policy and governance, which are combined into an index called the Country Policy and Institution Assessment (CPIA). The CPIA ratings for 34 small countries and 101 large countries among World Bank borrowers are much the same. The small states are better in financial stability, banking regulation, business regulatory environment, transparency and corruption, and property rights and rule-based governance. They are weaker in macroeconomics, debt and fiscal management, trade barriers, human resource development, and revenue mobilization. On balance, there is no evidence that small states are particularly disadvantaged in policies and governance. A similar conclusion—that small and large states have roughly comparable policies and institutions—is reached by a study comparing policies in small and large states, focusing on policy parameters such as import tariffs, export subsidies, and direct taxes (Winters and Martins 2004).

Aiyar utilizes per capita GNI data among several countries to make his point that policies are more

important than size. He states, “In Africa 2005, per capita GNI ranged from $180 in Guinea-Bissau to

$8,290 in Seychelles. In the Caribbean, per capita GNI varied from $1,010 in Guyana to $15,800 in the

Bahamas (see Table 1). These huge differences among small states suggest that policies and institutions

matter more than size.”(Aiyar, 2008, 455) Aiyar points to what the literature states about the topic of

small states and whether they are advantaged or disadvantaged:

The literature suggests that there are three key determinants of small states performance: geographical location, natural resources, and policies and institutions. Of these, the first two cannot be changed. But the third can. We have many examples of countires where good policies and insititutions have overcome disadvantages in location and factor endowments, and also othe cases where poor policies and institutions have produded poor outcomes. (Aiyar, 2008, 456)

Aiyar points to what donor policies have focused on which is commodity exports, aid and trade deals

concentrated on “developing and protecting commodity exports.”(Aiyar, 2008, 457) However, current

experience shows that the most critical natural resource small states posses is the potential for tourism.

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And numerous studies, even the Spence Commission report, do not even discuss the potential for

tourism. However, Aiyar does points to another disadvange of small states:

Third, consider the role of policies and institutions. The very large number of small-state successes suggests that good policies and insitutions can overcome disadvantages arising from geographical location or factor endowments. Very small states have exceptionally high disadvantages in transport, infrastructure, and governance costs.(Winters and Martins 2004)(Aiyar, 2008, 457)

Aiyar points to several more statistics to butress his main points:

Domeland and Sander (2007) show that the probability of state failures in 1965-2005 (through coups, civil wars, genocides) was only 3 percent in small states against 26 percent in the average Sub-Saharan African state. The political rights index (Freedom House 2005) for small states was 3.5 against 4.3. for large African states (decreasing numbers show greater rights in this index.) In this period, only one small state—Guinea-Bissau—suffered from serious civil war, a phenmenon that was more common in large African states. The same study analyzed the relationship between GDP growth and institutional quality. Indicators for institutional quality were taken from Kauffman, Kraay, and Mastruzzi (2006). The rate of GDP growth was positvely correlate with increased institutional quality.(Aiyar, 2008, 457-458)

Aiyar gives more facts and figures to make the point that small nations in Africa have less economic

crises and recover from them quicker:

Domeland and Sander (2007) show that in 1965-2005, small African countries on average suffered 2.4 economic crises (defined as a contraction of more than 4 percent in per capita GDP in constant dollars), while large ones averaged 4.8 crises. This is a significant difference. But averages should not be allowed to conceal the fact that the quality of governance makes an enormous difference, and matters more than mere size. Of the 14 small African states, four well-governed ones suffered no crisis at all, whereas Gabon suffered six, Guinea-Bissau five, and Lesotho four. The time for recovering from a crisis—defined as return to the pre-crisis leve of per capita GDP in constant dollars—was 9.7 years for small states against 13.3 yeas for large states. But among small states, Comoros and Djibouti took almost 15 years, in stark contrast with Botswana and other well-governed states that never had a crisis (Table 2).(Aiyar, 2008, 458)

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Aiyar makes the point about policies in terms of large states and small states. The title of the section

that speaks about his point reads, “Most Policies That Work in Large States Work in Small Ones

Too.”(Aiyar, 2008, 460) Aiyar states the following:

These include good macroeconomic policies, a good business climate, human capital development, economic openness, and good governance. Small states that score well in these parameters have also fared well in GDP (World Bank 2005). However, small states also have specific advantages and disadvantages. So, apart from good macro policies and business climates, they require specific policies and insitutions targeted at minimizing their inherent disadvantages and maximizing their inherent advantages. (Aiyar, 2008, 460)

Aiyar spells out the inherent disadvantages of small states. They are “high infrastructural costs, high

public service and institutional costs, high costs of tertiary education and limited opportunities for high-

skilled employment, high exposure to natural hazards, and high volatility of GDP.(Aiyar, 2008, 460) Then

Aiyar puts forth the inherent advantages of small states:

In this section we consider 12 inherent advantages of small states over large ones: (1) they have relatively homogenous populations; (2) small island states are relatively insulated from spillovers of violence from neighbors; (3) small states get disproportonately large benefits from foreign investments; (4) a single mineral windfall in small states can offset many failings; (5) they have exploited tax arbitrage opportunities; (6) they have benefited from niches like military bases and lightly regulated financial centers; (7) they get disproportionately large benefits from migration and remittances; (8) they get disproportionately large benefits from tourism; (9) they can export items that are usually nontradable; (10) they get disproportionately large benefit from the Law of the Sea; (11) infrastructural investments in small states quickly reach most of the population; and (12) they get disporportionately large trade preferences.(Aiyar, 2008, 463)

Aiyar does a point about the aforementioned 4th advantage (mineral wealth) that small states inherently

have over large ones. He says, “However, mineral windfalls are a two-edge sword. They yield hefty

royalities, but these may encourage elite capture of the benefits, and hence worsen governance. Poor

people in such states may gain very little even if GDP booms.”(Aiyar, 2008, 464) And then Aiyar makes

his main conclusion of his paper, “In fact the smal states are not disadvantaged and under-aided. They

are advantaged and over-aided.”(Aiyar, 2008,470)

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VI. HOW HAS ISRAEL FARED IN ITS DEVELOPMENT AND GOVERNANCE?

Israel since its birth has had many successes and failures with its development and governance.

Senor and Singer have noted for the most part of the successes with Israel’s development and

governance. It will not be necessary to recap the successes of Israel’s development and governance in

this section as recounted by Senor and Singer in their book, Start-Up Nation: The Story of Israel’s

Economic Miracle, since it has been incorporated in other parts of this paper. The book for the most part

presents Israel in a more positive light as opposed to the other literature that I have uncovered. What

would be wise is to recount the failures of Israel’s governance and development to give a balanced

perspective to how has Israel fared in terms of its governance and development. This will be done

through the information garnered from the Israel 2028: Vision and Strategy for Economy and Society in a

Global World by US-Israel Science & Technology Foundation. This report does give some positive light on

Israel’s governance and development but for the most part it notes the problems of Israel along

governmental and economic lines and the solutions to solve them. Also, the views of Daniel Bar-Tal will

be presented in this section. He feels that Israel has made great progress on its 60th birthday(2008).

However, he feels that it has failed in numerous areas. The failures are the dominance of Neo-Liberal

policies, dysfunction of liberal democracy,moral deterioration, institutionalized discrimination of against

the Arab minority, the ruthless outcomes of occupation, militirization of Israeli society, influence of

religion, and objectionism of peace.

Israel has a dual economy. The first one is a modern and high tech one and the other one is a

traditional economy. The Foundation’s report states “Two parallel economic systems have developed in

Israel: a progressive economy alongside a tradational one. The progressive economy is knowledge-

intensive, employs advanced technologies and sometimes even leads technological innovation. “

(USISTCF, 2008, 13) The report states that this economy is very adept at changing, produces a lot

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products and services, is growing, sends products all over the world, and it puts to work 6% of the labor

force and produces 9% of the products and services of the business segment of the economy. Now,

there is a second economy. This economy is a traditional one. It is mostly made up of manufacturing and

services. This economic is hurt by anemic producitivity and growth that is not high in comparison to the

high tech economy. The employees in this economy do not get paid a lot of money because this

economy is in competition with “an international market abundant in low-cost labor.”(USISTCF, 2008,

13) Israel suffers from “one of the largest income gaps among developed countries.”(USISTCF, 2008, 13)

The effects of this gap is deleterious which are “social polarization produces social disintegration and

prevents fulfilling the potential of economic growth.”(USISTCF, 2008, 13) Another problem that Israel

suffers from growth that is slow, resources being in short supply, and the demand of many needs. The

report states “The shortage in resources is intensified by slow growth, while competition tightens

among social and defense objectives over the reduced resources produced by the economy.”(USISTCF,

2008, 13) However, the GDP has increased year over year since 1973 when the growth of the economy

slowed down. The USISTCF states “The GDP per capita has since increased by a yearly average of 1.5%

(even the improved growth figures since 2004 are far from the growth rate requirements outlined in the

plan).”(USISTCF, 2008, 13) Given the dual economy, one economy has no problem adjusting to

globalization. However, the traditonal economy has a hard time coping with the changes and challenges

poised by globalization. The report says “The advanced sector is able to successfully deal with the

challenges of globalization. However, the larger part of the economy cannot handle quickly-changing

international conditions-in terms of imports, exports, international capital and labor markets.(USISTCF,

2008, 13) Also, the economy suffers from a very “Low Participation Rate in the Labor Force.”(USISTCF ,

2008, 14) The report states, “Israel’s labor force particaption rate, 55% is among the lowest of

developed countries.”(USISTCF, 2008, 14) The dire consequences of this clear to see. “We cannot

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achieve the needed growth rate or reduce income gaps desired, without a signficant increase in the

rates of labor force participation and employment among the adult population.”(USISTCF, 2008, 14)

The public education in Israel has sufferred losses in achievment and elsewhere. The report

notes the following:

We are witness to public education’s low achievements and multiple challenges, in both elementary and high school. Israeli student’s achievements on comparative international exams are disconcerting, as are the high degree of variability in academic achievement; the low numbers of students eligible for matriculation certificates among those completing high school; the low level of general knowledge; and the manifesations of Israeli youth culture.(USISTCF, 2008, 14)

If the public education system suffers then the Israeli economy suffers as well. Israel needs to get a

handle on this problem. Also, higher education and research has declined in Israel. The report says

“Israel’s higher education insitutions are declining, the scope of scientific research is diminishing, and a

brain drain out of Israel is occurring.”(USISTCF, 2008, 14) The standards f physical infrastructures and

environmental protection are lacking and weak. The report states “The level of investment in roads,

ports and public transportation is not appropriate for the needs of an advanced economy that wishes to

be integrated into globalization processes and to achieve a high GDP per capita. Environmental issues

do not receive adequate treatement or suffucient investment.”(USISTCF, 2008, 14)

There is a disconnect in the Israeli economy. The disconnect is the education that is needed to

grow all parts of the economy is not obtained by one part of the economy and is obtained by the other.

The part that obtains the requisite post-secondary education is the high-tech one and the one that does

not receive the requisite post-secondary education is the traditonal one. The report warns, “Unless post-

secondary education is broadly applied within the labor force, innovation will not be dispersed within

traditional sectors, nor will Israel be able to compete internationally in a broad and effective manner;

subsequently, it will be impossible to produce rapid growth and a significant, sustainable increase in the

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incomes of society’s lower-earning segments.”(USISTCF, 2008, 16) The report spells out what this effort

to diminish the dual economy it entails and what it will reap. It states the following:

The primary goals of reducing the duality of the economic structure and lessening income disparities require pursuing a strategy that will significantly improve the quality and uniformity of public schooling, and strengthen and expand higher education and scientific research. Significanlty expanding the sphere of education will not occur without cooperation of those population groups that traditionally avoid general/secular education, such as ultra-Orthodox men and Moslem women.(USISTCF, 2008, 17)

The report does state what would happen should the plan it proposes not be embarked on and current

trends maintain their trajectory. It states Israel’s “well-being and its future will face real

dangers.”(USISTCF, 2008,18) Given the economy has a dualistic characteristic nature will only excarbate

the gaps in income, destroy any solidarity of social nature, make the alienation worse, and wound

Israel’s economic might and the social and economic foundation of the country. Should primary,

secondary, higher education, and scientific research keep drifting in the wrong direction then Israel will

relinquesh its comparative advantage that makes it the top nation in this field in a world that is very

economically competitive? This situation would exclude Israel from saving the tradition economy “from

their technological lag and lifting undeducated, low-income populations from their difficult

situation.”(USISTCF, 2008, 18) Should the situation of gaps in education persist and people avoiding

participation in the economy by not working does several things. It makes poverty worse and spreads to

among more people. It segregates the society of Israel into two groups, the first group is financially and

economically challenged thus requiring government assitance and the second group is comprised of

employees who are highly-skilled whose jobs earn money which is used to provide assistance to those

who choose not to work or for those who are paid low wages. The report speaks to another problem.

The market seeks highly skilled workers in the technological economy more so than the lowly skilled

workers in the tradtional economy which thus increases the wage gap. This is what the labor market is

dictating. What once was thought not able to be sellable in the world market is now so. A burgeoning

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part of the service sector is growing and now its output is sellable on the world market. The reason why

this is happening is because of “Rapid technological changes and globalization processes.”(USISTCF,

2008, 18) The USISCTF points to another problem along government and bueurcratic lines. The report

states that “A continued downward trend in public service’s capability and fucntioning and in

governability prevents the achievement ofprime national objectives, impairs the business sector’s

performance and diminshes its achievements.”(USISTCF, 2008, 18) Also, Israel is lagging in terms of its

physical infrastructures and thus this will hurt “its integration into global processes, impede foreign

investment and hamper economic growth.”(USISTCF, 2008, 18) However, does note a success of the

Israeli government which is, “The considerable fiscal policy efforts made by Israel’s governements since

the mid-1980s served as the basis for the economy’s recovery.”(USISTCF, 2008, 19) This something that

is ver applaudable and the government of Israel is to be commended for it in that it should pragmatism,

discipline, and the determination to do the right thing in terms getting Israel’s fiscal and economic house

in order.

The USISTCF recommends that Israel appoint “A Science and Technology Advisor to the Prime

Minister will be appointed and will chair a new Advisory Council, which will formulate and implement

policy in these areas. One of the new council’s goals will be maintaining Israel’s comparative advantage

in academic and applied research over time, in an ever-changing global world.”(USISTCF, 2008,21) The

Foundation in its report notes the importance of government ministeries and spells out what they need

to do to be effectove units for the government in its mission to help the people of Israel. The USISTCF

says it would be wise in “Strengthening government ministries’ planning units that are responsible for

shaping the various ministries’ policies.”(USISTCF, 2008, 21) The report says, “Government ministries

are the foundation of policy-making in the various areas of governance. They must be capable of

formulating and implementing comprehensive as well as sectoral government policy, and need to be

strengthened in order to perform their full range of duties in shaping and managing public policy in their

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respective areas.”(USISTCF, 2008, 22) Another suggestion is made by the report in terms of Israel’s

economic competitivness. It says:

A National Council for Comptitiveness and Globalization will be established adjacent to the Ministry of Industry, Trade and Labor, to be responsible for the economy’s competitiveness. It is important that the leaders of Israel’s political parties agree to structural changes proposed here, pertaining to the establishment of new councils, strenthening of existing ones, and strengtheing of government ministries’ policy-making and implementation capabilities. The proposed structure’s effectiveness will depend upon its stability over the years.”(USISTCF, 2008, 22)

The report moves to the topic of public employees and states why they are important and puts

forth what qualities and skills a public employee needs to posses in order to affect government

policy. It states:

Public service employees are responsible for providing a variety of government services, in terms of planning, deliberation, monitoring, regulation, and implementation of all services that the government itself provides (without sourcing). Ensuring the quality of public service employees and nurturing a public service ethos are necessary conditions for sound government performance, as well as being necessary for a more efficient economy and just society.(USISTCF, 2008,22)

The report makes the point that:

Improving governability is a necessary condition for maintaining stable, sustainable growth. Good governance means maintaining the rule of law; a low level of violence; proper public monitoring of the work of the government, the Knesset and the legal system; transparency of elected officials and public employees; prevention of nepotism in public appointments; and reduction in the number of political appointments. Improving governability requires enhancing the quality of social statistics so that social policy and its achievements may be evaluated.(USISTCF, 2008, 22)

The report harps on a major impediment to the economy fully realizing its benefits and gains. The

impediment to the economy is the labor particiaption rate which is very low. There numerous reasons

for this phemenona. The report states the reasons why the participation rate is very low are “Social,

cultural, and political developments in Israel have created a reality in which the participation rate in the

labor force by citizens of working age is relatively lower than that of all developed countries among

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whom we wish to be counted.”(USISTCF, 2008, 22) The report makes a case to get this rate higher than

it is. It says the following, “We must gradually but significantly increase the labor force participation

rate in Israel. The current participation rate is slightly over 55%. The proposed targets are 58% by 2018

and 60% by 2028.”(USISTCF, 2008, 23) The report makes further recommendation to the government in

terms of this issue of labor participation rate:

The government has recenlty set an employment rate target of 71.7% for ages 25-64, for 2010. We propose that a target be set for an additional increase in employment by 2018, for ages 25-64, to reach 74%, which is the currently accepted rate among developed countries in the Western world. Increased labor force participation by groups with low work skills may come at the cost of decreased productivity. In order to halt this trend, intensive efforts are needed in the realms of schooling, adult education and continuing education over the employee’s life cycle.(USISTCF, 2008, 23)

There are two groups that will help the labor force participation rate to increase should these two

groups increase their participation rate. These two groups are ultra-Orthodox Jews and Arab women.

The report states, “The increase in the participation rate involves a significant increase in the

participation rate of the ultra-Orthodox sector, from the current rate of 40% to 55% by 2028” and it also

says the following about Arab women, “An additional group whose participation rate must be

significantly augmented is that of Arab women, requiring an increase from 19% to 50% over the next

twenty years.”(USISTCF, 2008, 23) The USISTCF’s report speaks about needing to change labor policy to

help the Minstry of Labor do its job effecively ad efficiently. The report states, “Updated, modern labor

policy must be created; for this purpose, the Ministry of Labor, should be re-instituted as an

independent government ministry. In view of the challenges and complexities posed by modern labor

policy, creation of Labor Ministry is crucial for building a varied tool box to tackle relevant labor market

issues.(USISTCF, 2008, 22)

The report makes a strong recommendation to maintain a “broad base of higher

education.”(USISTCF, 2008, 24) The USITCF states that is imperative to “maintain a broad base of higher

education as a source for academic and technological manpower.”(USISTCF, 2008, 24) This is important

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because it is going to serve as bedrock for “continued growth in knowledge-and technology-intensive

sectors, and for assimilating technology into other economic sectors.”(USISTCF, 2008, 24) The report

continues on with this subject by making further points on it:

Given the complexity involved in creating comparative advantages, Israel’s industerial and technological policies must be adapted to the fact that many countries worldwide are espousing a new industerial policy. Government support policies aimed at encouraging research and development via the Chief Scientist must be based on neutrality among sectors as has been the practice to date, and a certain gradual preference for investment in sectors whose development can produce significant positive external benefits for the economy.(USISTCF, 2008, 24)

The report recommends a National Council on Economy and Society to determine the whether it is

beneficial to invest in sectors of technology:

Determining the external benefits of investment in technology sectors must be done through a methodical process, under the responsibility of the National Council on Economic and Society in the Prime Minister’s office (see paragraph 9 above) The Council will establish complete suprasystemic policy in the areas of science, technology, R&D and higher education(USISTCF, 2008, 24)

It is imperative that “Government R&D support of knowledge and technology industeries must continue,

in view of the market failures existing in these fields (wherever market failures exist, government

intervention is required).(USISTCF, 2008, 24-25) The reason behind this is that the intervening of the

government could lead to futher investments but in the end this may be of benefit to the society.

Government needs to concentrate “on supporting basic technological R&D conducted in the business

sector.”(USISTCF, 2008, 25) The report further adds to the previously mentioned point by saying, “In

these areas, the bulk of government contribution should be focused on evaluating and pricing risks,

and participating in insuring against them.”(USISTCF, 2008, 25)

The report moves to the very subject of higher education and scientific research. Also, it notes

the very important relationship between those topics. It says:

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The higher education system creates the foundation for educated, skilled manpower, enabling continued rapid growth of the technology sector as well as the enhancement of tradational industeries and services. More than any other factor, it is the higher education system that contributes to creating Israel’s comparative advantages and its ability to meet its growth objectives.(USISTCF, 2008, 25)

The USISTCF speaks about funding for basic university research. It states that

“Additional resources will be allocated for expanding funding for basic university research based on

excellence and competitiveness. In addition, new rearch funds will be established to advance necessary

fields where there are knowledge and standard gaps, in cooperation with universities and government

research organizations.”(USISTCF, 2008, 25) The report states that, “Structural/organizational changes

must be instituted in the higher education system.”(USISTCF, 2008, 25)

The report makes mention of welfare policy. It states:

Alongside Israel’s economic successes and its participation in the global process, serious problems of poverty and inequitable income distribution have been created. This phenomenon is not unique to Israel, and concerns various countries and international organizations. International experience demonstrates that it is appropriate for government to set long-term economic and social objectives to direct its actions on this issue.(USISTCF, 2008, 26)

USISTCF’s report speaks about:

Disparities in income distribution must be significantly reduced.This may be done through integrated policy for growth and support of the traditional economic sector, expansion of schooling and higher education, sectoral labor market activity to increase employment, and provision of benefits that enable a decent sustenance for those unable to work. The Gini coefficient, which measures income disparities, will be reduced from its current high level of 0.379, to the much lower level of 0.32 over the next ten to fifteen years.(USISTCF, 2008, 26)

The report mentions of importance of having good physical infrastructure for a thriving and growing

economy. It says “High-standard physical infrastructures are necessary for maintaining a functional,

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effeciently-functioning economy and for participating in the global economy.”(USISTCF, 2008, 27) The

report makes a suggestion for the government:

In order to avoid irreversible damage in building physical infrastructures, due to lack of coordination and planning among infrastructures authorities, a government body should be established that will concentrate the powers and multi-annual budget for planning and implementation, following government decision and completion of statutory processes at the national level. This boy will assign appropriate importance to environmental considerations in the planning process (see also number 47 below). (USISTCF, 2008, 27)

Finally, the report speaks to protecting the environment in order to maintain the economy. It states,

“Israel’s economic development must be based on consistent, clear environmental polcy. This policy will

require inter-ministerial coordination in all realms of infrastructure and environment, the necessary

level of coordination requires a common system for government ministries, i.e., a ‘cabinet for

infrastructure and development’.”(USISTCF, 2008, 28)

Daniel Bar-Tal gives a view how Israel has fared in its governance and development more along

political and socio-economic lines. He also mentions the Israeli-Palestinian peace process and

occupation of the West Bank and Gaza as failures of governance. His article, Evaluating the 60 Years: The

Half-Full and Half-Empty Glass, encapsulates his views on Israel’s governance and development.

Bar-Tal first gives the half glass full analysis of his article. He notes the successes of Israel:

There is not doubt that the state of Israel, with its over 7.2 million citizens, has attained great achievements. It is rare to find a state that has succeeded in making a renewe nationn out of people who through the centuries had been dispersed in different parts of the world. It successfully absorbed waves of immigrants whoe came to start a new life, and many arrived after experenciencing trauma.

The emerging society succeeded in developing a democracy system in a region where authoritarian regimes are the rule. It developed a tradation of freedom of information and media openness, with daily newspapers and other publications, TV channels and radio stations all carrying debates about Israel and the world.(Bar-Tel, 2008, 14)

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Quite a few founding fathers fell uder the influence of socialism. They created Israel to be a

state that was to be sociaistic and create programs that would take care of the poor, hungry, and the

sick. In 1995, Israel had enacted national healthcare for everyone. The medical system in Israel is very

advanced and the medical professionals are highly trained in their fields. Given the excellent care that

citizens receive is reflected in the infant mortality rate of 4 per 1,000 and an excellent life expectancy of

82.2 years for women and 78.5 for men. The medical research is very advanced.

Israel has made grea strides in education. Bar-Tal says, “School attendance is mandatory from

ages five to 16 and free through age 18, though less than half succeed in obtaining matriculation, the

passport to higher education. Higher education with over 270,000 students, is well regarded and plays a

pivotal role in the development of the country.”(Bar-Tal, 2008, 15) Bar-Tal then speaks about the

excellent reseach in science and technology. Bar-Tal says, “The percentage of Israelis engaged in

scientific and technological inquiry and the amount spent on R&D in relation to it s gross domestic

product(GDP) are among the highest in the world.”(Bar-Tal, 2008, 15) He mentions the good job that

Israel’s economy has done. “Israel’s GDP has been rising at about 5% a year: earnings per capita reached

abot $21,000 (in 1980 it was about $5,500 per capita); unemployment has been steadily decreasing to

6.6% in 2007; inflation is under control; and foreign debt has been eliminated, with Israel becoming a

creditor in recent years and very attractive to international investors.(Bar-Tal, 2008, 15)

Bar-Tal notes the first failure of Israel’s governance and development. It is the mass exodus of

its citizens from the State of Israel. Roughly 800,000 have left Israel for the US, Canada, Germany,

Australia, and also Russia. Bar-Tal says the reason this happened was “the state did not succeed in

creating satisfactory conditions for its citizens. “(Bar-Tal, 2008, 16) Bar-Tal notes the second failure as

“the continuation of the occupation of the territories conquered in the Six-Day War in 1967.”(Bar-Tal,

2008, 16) Bar-Tal mentions the lessening role of government in people’s lives as a failure. Bar-Tal says:

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The state is reducing its role in the life of the citizens, and abandoning its social responsibility towards them, while favoring the business sector. The government is decreasing its expenditure on education, health care and welfare, and these systems are constantly deteriorating, raising the need for increased private spending, which does not provide an antidote to the destructive policies. And economic growth is not equally beneficial to all classes. Over the past 20 years, inequality in income has been rising, and social disparities have grown to the extent that Israel is now ranked second in the Western world (after the United States) in terms of the gap between rich and poor—at present 1% of the population account for 60% of the wealth in Israel.(Bar-Tal, 2008, 17)

Bar-Tal raises the issue of protectionism, politicization of government services, and corruption. He also

gives the reasons why this has happened:

According to the reports of Israel’s state comptroller, the governmental institutions are plagued by protectionism, by politicization of the public services and by the use of public resources to advance personal-political interests. Close connections have been observed between the government, capital and mass media, as well as the penetration of criminal groups into party centers, and an extensive economic and political power of several dozen very wealthy families. A recent study has deterimined that Israel ranks sixth among developed countries around the globe in the scope of its black market. This failure is related to the deterioration of the Israeli leadership in the last decade. The leaders have been accused of corruption, lack of accountability and lack of vision, manipulation of the public and, as a result, they have been losing the trust of the Israelis.(Bar-Tal, 2008,18-19)

Bar-Tal mentions the “institutionalized discrimination against the Arab minority.”(Bar-Tal, 2008, 19) Bar-

Tal says there is a breakdon in Israel’s governance by the way it treats the Arab minority. He

says,”Problems of democratic dysfunction are also reflected in the way Israel treats its Arab citizens,

who are an indigenous minority. Israel is probably the only state among the developed countries that is

currently practicing institutionalized and cultural discrimination against its minority, including legal

discrimination.”(Bar-Tal, 2008, 19) Bar-Tal goes into further detail about this discrimination:

Formal discrimination against Arabs by Israeli law and practices exists not only in symbolic areas, and is inseparably linked to continous discrimination in every aspect of life. As a result, there are continuously growing gaps between Arabs and Jews in socioeconomic and living conditions in all major areas of life: housing, health, education, land, welfare, employment and more.

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The governmental Orr Commission Report, published in 2003, presented for the first time an official recognition of the depth of discrimination and institutional exclusion experienced by Israel’s citizens. The report stated that:

[T]he state and all of its governments have failed to cope […] with the difficult challenges posed by the exisitence of a large Arab minority within the Jewish state. The governmental handling of the Arab sector is mostly characterized by neglect and deprivation. The establishment has not demonstrated enough sensitivity to the needs of the Arab sector and has not done enough to assure equal allocation of state resources also to this sector. The state has not done enough, and has not tried enough, to grant equality to its Arab citizens and remove manifestations of discrimination and deprivation. (Bar-Tal, 2008, 19-20)

Bar-Tal really espouses the view tha the occupation of the Palestinians that is so egregious that it is such

blight on the democracy and morality of Israel. He states:

The most salient sign of the demoractic and moral deterioration of Israeli Jewish society is the ongoing occupation. A deep-rooted system of dual sets of legal norms has developed in the West Bank: One for the Jewish settlers and one for the Palestinian population. These double standards have enabled the establishment of a system of segregation, discrimination and control on ethnic grounds in the occupied territories, with all the negative implications.(Bar-Tal, 2008, 20)

Bar-Tal mentions the problem that the society of Israel is dominated by the military. Bar-Tal says:

Another major problem of Israeli society is the dominance of the military. Compared with other democratic states, the security forces in the Israel, and especially the military, have determinative influence on policies, decision-making and the execution of actions, starting with the policies of peace and war and policies dealing with the allocation of resources and infrastructure. Because of this influence, military thinking has been adopted by the political echelon, as the military serves not only as a source of intelligence but also as national evaluator and chief source of strategic plans. The domination of public discourse by the Israeli Defense Forces’ aggressive worldview and its status as epistemic authority has brought about a degradation of moral values within Israeli society. The universal values of human rights and the sacredness of human life came to be associated only with the Jewish population.

This has a determining effect on the ability to carry out basic demoratic processes, such as criticism of the military branch by the political branch, or inquiry into military operations or ‘mishaps’ by those who are not in uniform. Comparative studies of the political and democratic echelons have shown that Israel ranks 36th and last on the measure of military involvement in political and social affairs.(Bar-Tal, 2008, 21)

Bar-Tal speaks about how religion influences the state. He states the following:

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Israel has not separated state and religion. This has had an immense effect on the personal lives of the citizens and violates basic human and civil rights. For example, matters of marriage and divorce as well as matters of conversion to Judaism are the monopolized responsibility of Orthodox Jewry. This monopoly creates tremendous problems for many of the citizens of Israel, especially those who came in the last wave of immigration from the former U.S.S.R. The ultra-religious sector is growing. A majority of this sector —constituting over 11% of the potential conscripts—does not serve in the army, and by a substantial portion of this sector—over half of the men —does not work, relying on external financial assistance.(Bar-Tal, 2008, 22)

Bar-Tal speaks about Israel’s objections to peace with the Arabs and how this a failure:

In contrast to the widely accepted and shared belief among Jews that Israel never missed an opportunity for peace, evidence indicates that Israel has missed opportunities to solve the Israeli-Arab conflict and has frequently carried out intransigent policies. Examples range from Golda Meir’s refusal to engage in negotiations with Egypt or to accet the Rogers Plan, the ignoring of proposals to settle the Israeli-Palestinian conflict put forth by various security institutions in 1967, the rejection by Itzhak Shamir of the London agreement with Jordan in 1987, the decision to declare and treat Arafat as a non-partner after the failure of Camp David in 2000, the ignoring of the Arab Peace Initiative (the Saudi Plan) initiated in 2002, to the rejections of Syrian attempts to resume negotiations. As the stronger side in the conflict, Israel has much more power to move the conflict towards its peaceful resolution, but this advantage is rarely translated into actions.(Bar-Tal, 2008, 22)

Bar-Tal concludes with the following remarks about Israel’s successes and failures in terms of its

governance and development:

I believe that supporting Israel means seeing Israel with all its achievements and defeciencies—and then engaging in the ongoing debates and striving to create a better society, which is the best indication of love and care. This is the true nature of patriotism. The clash over the future of Israel is a crucial struggle.(Bar-Tal, 2008, 22)

VII. WHY I WROTE THIS PAPER

The question you may have, is why I wrote this paper. The genesis of this paper occurred

roughly three years ago when I was living in Kuwait. I was a civilian contractor for the military. As I was

driving to work I was listening to the BBC on the radio. And they featured an interview with a

government official from the nation of Cape Verde. The headline of the interview was Cape Verde a

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nation that lacks natural resources graduated from LDC(Least Developed Country) status to middle tier

economic status. And the interviewer asked to the government official, “how you did this.” The

government official answered the question with reply of “good governance.” I found this answer to be

very astonishing given the situation that Cape Verde finds itself in with it being an island nation and far

from anywhere and with its lack of natural resources or large economy.

Also, during my time in Kuwait, I come across another nation that was very small, had very little

natural resources, yet had a very large and important high tech and innovative economy. That nation

was Israel. I found it astonishing that this nation, surrounded by many enemies and having to fight so

many wars to survive as a nation, was thriving, creating start-up companies, and had a growing economy

that has created so many innovations in the world.

Again, you ask why I wrote this paper. As I saw these two nations with none to little in natural

resources thriving and growing their economies and human development with all the adversities they

both faced, it made me think. I come from Kuwait and a region that is abundant in natural reources: oil

and gas, yet this region is rife with governance challenges. I did not have particular name or term for the

governance challenges for the Middle East and in particular the oil-rich Persian Gulf nations until I read

Start-Up Nation: The Story of Israel’s Economic Miracle by Dan Senor and Saul Singer. And the term that

struck me was a chapter in their book titled, The Sheik’s Dilemma. Thus, my journey to find out more

about the nations of Cape Verde and Israel, and how they have grappled with challenges of governance

took me from roughly three years through the Arab Spring to today. I am going to go into further detail

aboud this chaper, The Sheik’s Dilemma.

Erel Margalit, is an Israeli venture capitalist and entrepreneur, who has gone beyond

what he has been doing of providing or raising funds for Israeli start-ups and as an entrepreuner.

However, he has done more than just being a venture capitalist and entrepreneur. He has put up his

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own money to bring back life to Jerusalem. He started “the Maabada, the Jerusalem Performing Arts

Lab, which is leading in the exploration of thelink between technology and art.”(Senor and Singer, 2009,

195) The endeavor places artists and technologists next to each other. He has also started new

animation company, called Animation Lab, which is going to be pited against Pixar in creating animation

movies. Jerusalm is really not known for the arts and filmmaking. Margalit is determined to change that.

“But Margalit’s vision for creating companies, jobs, industeries, and creative outlets was specifically a

vision for Jerusalem. (Senor and Singer, 2009, 196) Senor and Singer introduce the important concept of

economic clusters which will tie in very well into the phenomena of the Sheikh’s Dilemma:

A cluster, as described by the author of the concept, Harvard Business School professor Michael Porter, is a unique model for economic development because it’s based on ‘geographic concentrations’ of interconnected insitutions—businesses, government agencies, universities—in a specific field. Clusters produce exponential growth for their communities because people living and working within the cluster are in some way connected to each other.(Senor and Singer, 2009, 196)

There are examples of clusters. Notably, there is the wine cluster in Northern California. It is a region

filled with wineries, growers, suppliers, manufacturers, wine media, firms that advertise wines, wine

trade magazines, the University of Davis that have programs to study wine making, the Wine Institute in

San Francisco, and the California legislature in Sacremento that creates laws that deal with the wine

industry. Other examples of clusters are “Italy’s fashion cluster, Boston’s biotech cluster, Hollywood’s

movie cluster, New York City’s Wall Street cluster, and northern California’s technology cluster.”(Senor

and Singer, 2009, 196) Senor and Singer state Porter’s point about clusters:

Porter argues that an intense concentration of people working in and talking about the same industry provides companies with better access to employees, suppliers, and specialized information. A cluster does not exist only in the workplace; it its part of the fabric of daily life, involving interaction among peers at the local coffee shop, when picking up kids from school,

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and at church. Community connections become industry connections, and vice versa.(Senor and Singer, 2009,196-197)

Porter futher elaborates about clusters:

As Porter, says ‘the social glue’ that binds a cluster together also facilitates access to critical information. A cluster, he notes, must be built around ‘personal relationships, face-to-face contact, a sense of common interest, and ‘insider’ status. This sounds just like what Yossi Vardi described: in Israel ‘everybody knows everybody, and there is a very high degree of transparency.’(Senor and Singer, 2009, 197)

Margalit believes that Israel is the perfect example of a cluster since it has the main ingredients that

make up one. “After all, attempts to create clusters don’t always succeed. Take, for example, Dubai.

(Senor and Singer, 2009, 197)

Senor and Singer give a mosiac of the economic and political environment of Dubai:

Dubai’s economic system is based largely on patronage, which has kept the local citizens pliant (only 15 percent of Dubai’s 1.4 million residents are acutally Emirati citizens). Like Singapore, it is an extremely orderly society, and there are no outlets for protest—even peaceful ones—against the government. Many founders of Dubai’s first human rights organization are also employed by the government and are dependent on Sheikh’s Mohammed’s largesse.

Freedom of speech is contitutionally ‘guranteed’, but it does not cover criticism of the government or anything deemed offensive to Islam. When it comes to government transparency, especially as it relates to the economy, the trend is moving in the wrong direction. A new media law makes tarnishing the UAE’s reputation or economy a crime punishable by fines of up to 1 million dirhams (approximately $270,000). The government maintains a list of banned Web sites; the ban is enforced by state censorship of the Internet (users do not dial directly into the Web but go through a proxy server monitored by the state telecom monopoly. In compliance with the Arab League boycott, neither vistors nor residents can call Israel from landlines or cell phones—the 972 country code is blocked.(Senor and Singer, 2009, 198)

The Sheikh Mohammed, Senor and Singer are referring to is His Highness “Sheikh Mohammed bin

Rashid Al Maktoum, the ruler of Dubai (and also the prime minister and defense minister of the United

Arab Emirates).”(Senor and Singer, 2009, 197)Senor and Singer explain why Dubai’s attempt at being an

economic cluster did not succeed.

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Sheikh Rashid created a word-class port and a free-trade zone(the first one in the Middle East).

In this free-trade zone, foreigners could recoup 100% of their capital and profits. As well, foreingers

could out right own properities and businesses. This got around the law that made it a necessary for a

company to be mostly owned by a national of that respective country such as UAE and most of the Arab

nations. The next generation of the royal family was headed by Sheikh Mohammed. He and this next

generation took the free-zone to the next level where business parks were created that each one was

specifically focused on a segment of the economy. The first park was Dubai Internet City. Arthur

Andersen and McKinsey & Company assisted with the design of the park. Any technology company

found DIC to beperfect for conducting business in the Middle East. The Middle East being in between

the Indian subcontinent, Africa, and the former Sovet Republics that accounted for a population of 1.8

billion people and a market that had a GDP of $1.6 trillion. This was too lucrative to be passed up by the

big technology firms.DIC signed up 180 companies for example, Microsoft, Oracle, HP, IBM, Compaq,

Dell Siemens, Canon, Logica, and Sony Ericsson. DIC was a overnight success. In the year 2006, 25% of

the top 500 companies had a footprint in Dubai. Dubai tried to regenerate the same success by creating

Dubai Healthcare City, Dubai Biotechnology and Research Park, Dubai Industerial City, Dubai Knowledge

Village, Dubai Studio City, and Dubai Media City that houses media outlets such as Reuters, CNN, Sony,

Bertelsmann, CNBC, MBC, Arabian Radio Network, and others media companies as well. The director of

DIC, Wadi Amed, made the following remarks about it:

DIC’s director of marketing, Wadi Ahmed, a British citizen of Arab origin, explains, ‘We have made Porter’s [cluster] theory a relity. If you bring all the companies from the same segment together…opportunities materialize. It’s real-life networking. It is bringing the integrator together with the software developers. Our cluster includes six hundred companies working within two kilometers of each other…Silicon Valley has some similarties but it is an area, not a single managed entity.

Yes, Dubai had excellent growth rates and became a hub with commericial value very quickly. “But there

was never any comparability between the number of start-ups in Israel and in Dubai, or the amount of

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venture capital Dubai has been able to attract compared to Israel, not to mention the number of new

inventions and patents. So what makes Israel and Dubai different in this way?(Senor and Singer, 2009,

200) Senor and Singer give the answer to the previous question of what is the difference between Israel

and Dubai. The answer is very clear to see why Dubai does not rival Israel in this regard. In DIC, there is

no “R&D or new innovation-based companies.”(Singer and Senor, 2009,201) Yes, Dubai invited

innovative companies and many did accept the inviation. However, the key here is, that they have

brought innovation to this market that was created elsewhere. Given these circumstances, Dubai has

not given birth to any innovative clusters. They have only built big service hubs. “So when Mohammed

Al Gergawi was handpicked by Sheikh Mohammed to help catalyze Dubai’s economic miracle, the job

was to grow and manaage this exciting, but not necessarily innovation-generating, venture.”(Senor and

Singer, 2009,201) With Israel the situation is different. Margalit is one of many entrepreneurs. No one

selected him. He chose himself. “All of his success came from creating innovative companies and

hooking into a global venture and tech ecosystem that is constantly searching for new products and

markets. And while the physical infrastructure that facilitated this process in Israel may have been

inferior to Dubai’s, the cultural infrastructure has proved to be vastly richer soil on which to cultivate

innovation.”(Senor and Singer, 2009, 201) Senor and Singer point to what really makes a cluter unique

and hard to duplicate:

Attracting new members to a cluster by offering a less expensive way to do business might be suffucient to create a cluster, but not to sustain it. If price is a cluster’s only competitive edge, some other country will always come along to do it more cheaply. The other qualitative elements—such as tight-knit communities whose members are committed to living and working and raising families in the cluster—are what contribute to sustainable growth. Crucially, a cluster’s sense of shared commitment and destiny, which transcends day-to-day business rivalries, is not easy to manufacture.

The challenges for Dubai are great. You have foreigners such as Europeans, Persian Gulf business

people, South Asian, and other Arab temporary laborers whose main objective is to make money and

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nothing else. When they have attained this objective then they go back to their home nation or go

elsewhere. There relationship with Dubai is on a transactional basis just like using an ATM. The aspect

to note from this situation is “

they are not part of a tight-knit community, and they are not colletively laying roots or building anything new. They evaluate their standing and accomplishments vis-à-vis the communities in their home countries, not those in Dubai. Their emotional commitment and sense of rootedness lie elsewhere. This, we believe, is a fundamental obstacle to a fully functioning cluster, and it may also be an impediment to cultivating a high-growth entrepreneurial economy.(Senor and Singer, 2009,202)

Yossi Vardi, another Israeli venture capitalist, enrepreneur, and investor examplifies the attributes of

economic clusers. He invests in Internet start-ups because he has faith in them. He stuck with the

Internet when everyone else was moving away from it and moving to hot areas such as cleantech and

biotech or normal sectors such as communictions and security not just becase for profits. Vardi

recognizes that his cluster is Israel and he is aware that his role in the community is of an “insider” and

that his main goal is make it a success. Given his commitment to the community he knows that at time

he must keep the sector financially afloat during the bad times. “Investing with a personal as well as a

national purpose has been called ‘profitable patriotism,’ and has been getting renewed attention as of

late.(Senor and Singer, 2009,203)

Senor and Singer note J.P. Morgan’s financial contributions to save the American economy in

the Panic of 1907 and as well Warren Buffett’s financial contribution to save the American economy

during the Financial Crisis of 2008. They also note Vardi’s efforts to save Israeli’s Internet industry. The

interventions of Vardi are not comparable in terms of size of scale. However, “he has had an impact on

the mix of Israeli start-ups by playing a leadership role in keeping the Internet segment of the pie afloat.

His mere presence and steadfastness in a sector that everyone was writing off helped turn it

around.”(Senor and Singer, 2009, 204) In 2008, TechCrunch, is a conference that has great influence on

the industry. This conferenc highlights 51 start-ups in the world that show the greatest promise. Seven

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of the 51 are Israeli start-ups. And most of them received their start up capital from Yossi Vardi. The

founder of TechCrunch, Michael Arrington who is one of Vardi’s staunch supporters said, ‘You [Israel]

should build a statute of Yossi Vardi in Tel Aviv,’.(Senor and Singer, 2009, Senor and Singer point to

other elements or ingredients that make Israel the economic miracle it is:

In the best-selling book Built to Last, business gure James Collins identifies several enduring business successes that all have one thing in common: a core purpose articulated in one or two sentences. ‘Core purposes,’ Collins writes, ‘is the organization’s fundamental reason for being. [It] reflects the importance people attach to the company’s work…beyond just making money.’ He lists fifteen examples of core purpose statements. All of them are by companies—including Wal-Mart, McKinsey, Disney, and Sony—with one exception: Israel. Collins describes Israel’s core purpose as ‘to provide a secure place on Earth for the Jewish people.’ Building Israel’s economy and participating in its cluster—which are interchangeable—and pitching it to the most far-flung places in the world are what in part motivates Israel’s ‘profitable patriots.’ As historian Barbara Tuchman observed before Israel’s tech boom, ‘With all its problems, Israel has one commanding advantage: a sense of purpose. Israelis may not have affluence…or the quiet life. But they have what affluence tends to smother: a motive.’ (Senor and Singer, 2009, 204-205)

Senor and Singer discuss the governance and economic challenges that confront the Arab world, in

particular, the Gulf Cooperation Council (GCC) countries. The lack of motive is very deliterious for quite a

few of the nations of the Gulf Cooperation Council. The GCC is made up of the UAE, Saudi Arabia,

Bahrain, Kuwait, Qater, and Oman. For example, in Dubai, one of the seven emirates that make up UAE,

many of the entrprenuers who are from elsewhere have one thing on their mind and that is to make

profits. This is critical however, these very same entrepreneurs are not “motivated by building the fabric

of community in Dubai.”(Senor and Singer, 2009, 205) Reverting back to Michael Porter’s cluster theory,

a penchant for profits by itself will not take propel a nation’s economy too far. These people are fickle.

For example, during the financial crisis of 2008, and Dubai got hit by this financial storm at the tail end of

2008, or when physical security is very precarious, “those not committed to building a home, a

community, and a state are often the first to flee.”(Senor and Singer, 2009, 205)

Senor and Singer speak about the other GCC nation’s economies:

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In the other GCC economies, the problem is somewhat different. In our travels throughout the Arabian Peninsula, we have seen firsth and how Saudi nationals—young and old—are proud of the economic and infrastructural modernization of their economy. Many Saudis have lineage that traces back centuries, and building an advanced economy that is recognized globally is a matterof tribal and national pride.But all of these economies also face challenges that can stifle any potential for progress.(Senor and Singer, 2009, 205)

Senor and Singer speak to those who are trying to create enrepreneurial economies and note the

staggering number of jobs that need to be created. Numerous leaders in business and government in

the Arab world have turned their gaze “to stimulating a high-growth entrepreurial economy, and some

have been quietly studying Israel.”(Senor and Singer, 2009, 205)Riad al-Allawi poses the important

question to Senor and Singer, ‘How else are we going to create eighty million jobs in the next decade?’

“Al-Allawi is a succesful Jordianian entrepeneur who has done business all over the region.”(Senor and

Singer, 2009, 205-206) The staggering number heard by Senor and Singer of jobs needed to be created

from experts as they traveled throughout the region was 80 milllion.

Senor and Singer speak of the economic situation of the MENA (Middle East and Northern

Africa):

The Arab economies of North Africa (Egypt, Algeria, Morocco, and Tunisia), the Middle East (Lebanon, Syria, Palesine, Iraq, and Jordan), and the Persian Gulf (Saudi Arabia, the UAE, Qatar, Bahrain, Kuwait, and Oman) comprise approximately 225 million people, just over 3 percent of the world’s population. And the total GDP of the Arab economies in 2007 was $1.3 trillion—almost two-fifths the size of China’s economy. But wealth distribution varies widely: there are oil-rich economies with tiny populations (such as Qatar, with 1 million people and a per capiita GDP of $73,100) and oil-poor economies with large, dense populations (such as Egypt, with 77 million people but a per capita GDP of just $1,700). Generalizations about development strategies for the region are risky since sizes, structures, and natural resources of the Arab economies vary widely.(Senor and Singer, 2009, 206)

Senor and Singer take note of the demographic time bomb for the Arab world. Even though all the Arab

nations’ economies differ they all share this one same economic calamity which is the demographic time

bomb. The demographic time bomb for the Arab world is “approximately 70 percent of the population is

under twent-five years old. (Senor and Singer, 2009, 206) Given this statistic, the Arab economies will

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have to create to the tune of eighty million new jobs by the time the year 2020 is reached. To put this

into perspective, it “means generating employment at twice te U.S job growth rate during the boom

decade of the 1990s.”(Senor and Singer, 2009, 206) ‘The public sector isn’t going to create these jobs;

big companies aren’t going to create these jobs,’ “says Fadi Ghandour, a successful Jordanian

entrepreneur. “ ‘The stability and future of the region is going to depend on our teaching our young

people how to go out and create companies.’(Senor and Singer, 2009, 206)

Senor and Singer note that entrepreneuriship really has not been a force in the Arab world:

But entrepreneurship has played only a neglible part in Arab world economies. Even before its economy imploded less than 4 percent of the UAE’s adult population was working in early-stage or small enterprises. So what are the barriers to an Arab ‘start-up nation’? The answer includes oil, limits on political liberties, the status of women, and the quality of education.(Senor and Singer, 2009, 206-207)

Senor and Singer state emphatically that what accounts for most of the region’s economy are

hydrocarbons:

The vast majority of the region’s economic activity is driven by the production and refinement of hydrocarbons. The non-oil GDP exported by the entire Arab world—with a population of approximately 250 million people—is less than that of Finland, with a population of 5 million. Outside of oil, there are some successful multinationals, such as UAE-based Emirates Airlines, Egypt-based Orascom Telecom, and Jordan-based Aramex, a logistics support provider. (Orascom and Aramex were founded and built by savvy entrepreneurs.) Family-owned service businesses are also prominent and—in the case of countries like Egypt—textiles and agriculture, too. But the oil industry is by far the biggest contributor to the region’s GDP. The region produces almost one-third of the world’s oil and 15 percent of the world’s gas.(Senor and Singer, 2009, 207)

Senor and Singer note that the oil creates problems and barriers for “high-growth

entrepreurship.”(Senor and Singer, 2009, 207) Oil in the Arab world has really slowed down high-growth

entreneuriship. The Persian Gulf governments give the revenues from oil to the citizens and thus

insulate themselves

from pressure to reform politically and economically.Oil wealth has cemented the power of autocratic governments, which do not have to collect taxes from their citizens and therefore do not need to be terribly responsive to their complaints. As historians of the Muslim world have

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put it, in Arab countries ‘the converse of a familiar dictum is true: No respesentation without taxation.’(Senor and Singer, 2009, 207)

Senor and Singer state why reforms are critical to the economies of the Arab world and explain the

Sheikh’s Dilemma. Senor and Singer say that political and economic reforms such as “the right to free

expression, tolerance of experimintation and failure, and access to basic government economic

data”(Senor and Singer, 2009, 2007-208) are “necessary for a culture in which entrepeneurs and

investors can thrive.” (Senor and Singer, 2009, 208) Senor and Singer further state:

For precisely all the reasons that entrepeneurship helps economies grow and societies progress—it rewards merit, initiative, and results rather than status—the Persian Gulf governments have stifled it. This is what political scientist Samuel Huntington once called the ‘king’s dilemma’: all modernizing monarchs utlimately try to balance economic modernization with limits on liberalization, since liberalization challenges the monarch’s power. In the Arab world, British journalist Chris Davidson, author of Dubai: the Vulnerablity of Success, calls this the ‘sheikh’s dilemma.’(Senor and Singer, 2009, 208)

Senor and Singer expound on the issue of lack of free elections among the Arab League nations. The only

Arab nations to have genuine free elections are Lebanon and Iraq. Out of the remaining twenty-two

Arab League nations, none have had truly free elections. Senor and Singer give an example of this issue,

“After one attempt at an election in the UAE in 2006 attracted low voter turnout, a prominent member

of the government remarked, ‘This is particularly dissappointing given that all of the candidates and

participants were from very good families, and were all personally approved by the UAE rulers.’(Senor

and Singer, 2009, 208) Senor and Singer speak about the what the Persian Gulf Arab governements have

done in terms of the ‘sheikh’s dilemma’(Senor and Singer, 2009, 208). Some of the governments of the

Persian Gulf Arab nations have made efforts to get around the problem of the ‘sheikh’s dilemma’

through using the revenues garnered from oil sales “to modernize the hard infrastructure of their

economies, while leaving the political structures virtually untouched.”(Senor and Singer, 2009, 208)

However, the revenues from the 1970s oil boom was not put back into the economies of the region and

were “spent on imports from the West, investment overseas, and military arms.”(Senor and Singer,

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2009, 208) The domestic economies reaped very little from the oil windfall of the 1970s. This has

changed. From 2002 till 2009(the time this book was published), in excess of $650 billion from that oil

boom has been put back into the economies of the Persian Gulf Arab nations. Senor and Singer note

that the most of the money derived from the oil has gone into real estate in the Gulf Arab nations:

Alongside the cluster strategy adopted by Dubai and a number of other gulf Arab countries, much of the region’s oil revenues have gone into real estate development. The GCC real estate sector has been the fastest growing in the world. Between 2000 and 2010, an estimated 19.55 million square yards of new leasable space—new office builings, shopping malls, hotels, industerial faciilities, and housing developments—will have been added in the region, mostly Saudi Arabia and the UAE, growing at 20 percent annually during this period.(China’s annual growth in leasable space was 15 percent.)(Senor and Singer, 2009, 208-209)

Just as most of the world suffered a burst of the bubble in real estate as a consequence of the 2008

Financial Crisis, the same happened to the Persian Gulf countires real estate bubble. Senor and Singer

say, “As of early 2009, residential and commercial values in Dubai, for example, have declined by 30

percent and are expected to plummet further.”(Senor and Singer, 2009, 209) Homeowners who could

not pay their mortgages just left their homes and fled UAE to prevent themselves from being arrested

and thrown in jail. Construction projects on a large scale were halted. Senor and Singer, say “Neither oil

nor real estate nor clusters have built a high-growth enrepreneurial or innovation economy.”(Senor and

Singer, 2009, 209)

Senor and Singer state that Arab gulf nations have built clusters for academic research. However, they

note that Arab intitutions lack the capabilities and capacity to be effective and thriving clusters:

With the demographic time bomb ticking, the gulf’s oil-rich governments have also tried to build academic research clusters.But the Arab world’s cultural and social institutions, as was reported by the U.N.-sanctioned committee of Arab intellectuals, are chronically underdeveloped. The United Nations’ Arab Human Development Report, which presented the organizations’ research from 2002 through 2005, found that the number of books translated into Arabic in all Arab countries combined was one-fifth the number translated into Greek in Greece. The number of

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patents registered between 1980 and 2000 from Saudi Arabia was 171; from Egypt, 77; from Kuwait, 52; from the United Arab Emirates, 32; from Syria, 20; and from Jordan, 15—compared with 7,652 from Israel. The Arab world has the highest iliteracy rates globally and one of the lowest numbers of active research scientists with frequently cited articles. In 2003, China published a list of the five hundred best universities in the world; it did not include a single mention of the more than two hundred universities in the Arab world.(Senor and Singer, 2009, 209-210)

Senor and Singer speak about the efforts of several gulf countries to start western educational and

research and development institutions. Saudi Arabia is aware of universities being critical for R&D and

thus needed in order to get patents and create innovation is going to found the King Abdullah University

of Science and Technology. The idea behind this university is “to create a research home for twenty

thousand faculty and staff members and students.”(Senor and Singer, 2009, 210) It is going to be the

first non-segregated university in Saudi Arabia (meaning men and women will not be taught in separate

classrooms). Qatar and UAE have created partnerships with world famous Western institutions of higher

learning. In Qater there is the Education City that has “satellite campuses for Weill Cornell Medical

College, Carnegie Mellon University’s computer science and business administration programs, a

Georgetown University international relations program, and a Northwestern University journalism

program.”(Senor and Singer, 2009, 210) Abu Dhabi, which makes up one of the seven emirates of UAE,

has a “satellite campus for New York University.”(Senor and Singer, 2009, 210)The whole premise

behind these satellite campuses of Western insitutions of higher learning being implanted in these

countries is, “if Arab countries can attract the mot innovative researchers from around the world, it will

help stimulate an innovation culture locally.”(Senor and Singer, 2009, 210) Sadly, Senor and Singer point

out that not much success has happened with these insitutions. Senor and Singer state, “They cannot

recruit a reliable stable of foreign academic talent to lay roots and make a long-term commitment to the

Arab world. ‘It has been more about bringing education brands to the gulf than immigrating and

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assimilating brains,’ “Chris Davidson told us.” ‘These universities are focused on national reputation

building, not real innovation.’”(Senor and Singer, 2009, 210)

Senor and Singer show how different Israel from the Arab world is in this regard:

Israel’s case was different. Top-notch universities were founded well before there even was a state. Professor Chaim Weizmann, a world-renowned chemist who helped launch thefield of biotechnology with invention of a novel method of producing acetone, commented on this oddity at the inauguration of the Hebrew University of Jerusalem on July 24, 1918: ‘It seems at first sight parodoxical that in a land with so sparse a population, in a land where everything still remains to be done, in a land crying out for such simple things as ploughs, roads, and harbours, we should begin by creating a centre of spirtual and intellectual development.’(Senor and Singer, 2009, 210-211)

Senor and Singer speak about the founding of other universities in Israel. In 1925, the Technion was

started. Then in 1934, the Weizmann Institute of Science was created. Then in 1956, Tel Aviv University,

which is the biggest university in Israel as of today, was created. It is incredible to note that by the time

the 1950s were almost over, Israel’s population comprised of two million people and thus the nation

“had the seeds of four world-class universities. “(Senor and Singer, 2009, 211) Then in 1955, Bar-Ilan

University was created, then in 1963, University of Haifa was created, and then in 1969, Ben-Gurion

University of the Negev was created.

Senor and Singer give a snapshot of the status of Israeli universities today:

Today, Israel has eight universities and twenty-seven colleges. Four of them are in the top 150 worldwide universities and seven are in the top 100 Asia Pacific universities. None of them are satellite campuses from abroad. Israeli research institutions were also the first in the world to commercialize academic disoveries.(Senor and Singer, 2009, 211)

Senor and Singer speak about Yeda and what it has done. The Weizmann Institute came up with Yeda in

1959. This is a Hebriew word for knowledge. The reason why the Weizmann Institute created Yeda is “

to market its research.”(Senor and Singer, 2009, 211)Yeda has created “thousands of successful medical

technology products and companies.”(Senor and Singer, 2009, 211) From the years of 2001 and 2004, it

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earned one shekels which is equivelent to more than $200 million “in royalty revenues.”(Senor and

Singer, 2009, 211) In 2006, Yeda garnered the number one rank in terms of “income royalities among

world academic intitutes.”(Senor and Singer, 2009, 211) Senor and Singer speak about Yissum and what

it has done. Not too many years after Yeda was created, Hebrew University created “its own technology

transfer company, called Yissum (a world for ‘implementation’ in Hebrew).”(Senor and Singer, 2009,

211) The accomplishments of Yissum are it “earns $1 billion annually in sales of Hebrew University-

based research and has registered 5,500 patents and 1,600 inventions.”(Senor and Singer, 2009, 211)

The numbers breakdown of the areas that its inventions fall under is the following, “Two-thirds of its

2007 inventions were biotechnology, a tenth were in agriculture technology, and another tenth were in

computer science and engineering products.”(Senor and Singer, 2009, 211-212) A sample of the

companies that have bought its technology are Johnson &Johnson, IBM, Intel, Nestlé, Lucent

Technologies, and many other companies too numerous to mention. “Overall, Yissum was recently

ranked twelfth—after ten American universities and one British university—in global biotech patent

rankings (Tel Aviv University is ranked twenty-first).”(Senor and Singer, 2009, 211-212)

Senor and Singer note other differences between Israel and the Persian Gulf countires. Israel, a nation

that was founded by immigrants, has always been reliant “on successive waves of immigration to grow

its economy.”(Senor and Singer, 2009, 212) As a result of this phenomenon, “It is in large part thanks to

these immigrants that Israel currenlty has more engineers and scientists per capita than any other

country and produces more scientific papers per capita than any other nation—109 per 10,000

people.”(Senor and Singer, 2009,212) When new Jews come to Israel along with their non-Jewish family

members they “are readily granted residency, citizenship, and benefits.”(Senor and Singer, 2009, 212)

Senor and Singer present their last point about this topic in terms of Israel, “Israel is universally regarded

as highly entrepreneurial —like the IDF—disissive of the strictures of hierarchy.”(Senor and Singer, 2009,

212) The Persian Gulf Arab nations present the opposite of what Israel does in terms of immigration.

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The governments of the Persian Gulf Arab nations grant residency visas “for only up to three years

nothing longer—even for fellow Muslims and Arabs.”(Senor and Singer, 2009, 212) A path to citizenship

does not exist. Given these set of circumstances, researchers who are highly in demand do not want to

move their families in large numbers and spend their time, money, and enegy in careers in a institution

of higher learning where the host nation curtails or censors free speech, academic freedom, and

transparency of the government, and places a set time restriction on a person’s residency. There has

been talk in some of the gulf Arab nations of having five or ten year residency visas but no gulf nation

has made the decision and started to issue them.

Senor and Singer allude to political pressures that dictate residency requirements:

These residency restrictions are also symptomatic of a larger obstacle to attracting academics: the few research professionals who have shown up quickly became aware of the government’s desire to keep them on the outskirts. The laws emanate from the pressure on governments to be responsive to Arab nationalism broadly, and sovereign nationalism specifically. For example, an Emirate woman who marries an expat must give up her citizenship, and their children will not be issued a UAE passport or any of the government’s welfare benefits.(Senor and Siner, 2009, 212-213)

Senor and Singer speak about the outdated teaching models in the Arab world. The Arab teaching model

in primary and secondary schools as well the universities is based on rote memorization. This is a major

challege to “a high-growth entrepreneurial culture.”(Senor and Singer, 2009, 213)Senor and Singer refer

to Hassan Bealaway’s testimony about the subject, who is an advisor to the Egyptian Ministry of

Education; he says “learning is more about systems, standards, and deference rather than

experimentation.”(Senor and Singer, 2009, 213)

Senor and Singer point out another deficiency in Arab education. The focus on standaridization

in the Arab world has created “an education policy that defines success by measuring inputs rather than

outcomes.”(Senor and Singer, 2009, 213) Senor and Singer say:

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For example, according to a study produced by the Persian Gulf offices of McKinsey & Company, Arab governments have been consumed with the number of teachers and investments in infrastructure—buildings and now computers—in hopes of improving their student’s performance. But the results of the recent Trends in International Mathematics and Science Study ranked Saudi students forty-third out of forty-five (Saudi Arabia was even behind Botswana, which was forty-second).(Senor and Singer, 2009, 213)

Senor and Singer elaborate more about the aforementioned deficiency in Arab education. In the GCC,

the average student to teacher ratio is 12:1. This is one of the world’s lowerst student to teacher ratio.

The average student to teacher ratio in OECD nations is 17:1. This looks good on paper when put up

against the OECD’s average student to teacher ratio. However, “it had not real positive effect.”(Senor

and Singer, 2009, 213) Senor and Singer go on to say, “Unfortunately, international evidence suggests

that low student-teacher ratios correlate poorly with strong student performance and are far less

important than the quality of the teachers.”(Senor and Singer, 2009, 213) However, measuring teacher

performance is not done by many ministeries of education in Arab nations. Inputs are easily quantifiable

and thus measurable through the lens of standardization.

Senor and Singer make the point that in the Arab world concentrating on teachers only has deleterious

effects. Most government schools are segregated along gender. Meaning only men can teach boys and

only girls can be taught by women. Teaching positions have not been highly sought after by men and

thus “there is a shortage of teachers for boys. “(Senor and Singer, 2009, 214) What happens is the pool

of talent shrinks and schools for boys usually “employ lower-quality teachers.”(Senor and Singer, 2009,

214) Senor and Singer, say, “In fact, the GCC gender gap in student performance is among the most

exreme in the world.”(Senor and Singer, 2009, 214)

Senor and Singer make a point about women and how their limited economic role diminishes

entrepneurial economies:

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Finally, a perhaps even larger factor in the limit on high-growth enrepreneurial economies is the role of women. Harvard University’s David Landes, author of the seminal book The Wealth and Poverty of Nations, argues that the best barometer of an economy’s growth potential lies in the legal rights and status of its women. ‘To deny women is to deprive a country of labor and talent… [and] to undermine the drive to achievement of boys and men,’ he writes. Landes believes that nothing is more dilutive to drive and ambition than a sense of entitlement. Every society has elites, and a number of them were born into their upper-echelon status. But there is no more widely dispersed sense of entitlement than ingraining in the minds of half the population that they are superior, which, he argues, reduces their ‘need to learn and do.’ This kind of distortion makes an economy inherently uncompetitive, and it is the result of the subordinated economic status of women in theArab world.(Senor and Singer, 2009, 214)

Senor and Singer give their summary of the “sheikh’s dilemma”:

The economy of Israel and many of those in the Arab world are living laboratories for the economic theory of clusters and, more broadly, what it takes for nations to generate—or stifle—innovation. The contrast between the two models demonsrates that a simplistic view of clusters—one that maintains that a collection of institutions can be mechanically assembled and out will pop a Silicon Valley—is flawed. Moreover, it seems that a stake in the country, Tuchman’s ‘motive,’ provides an essential glue that helps encourage entrepeneurs to build and take risks.(Senor and Singer, 2009, 114)

These views and analyses presented in the chaper titled, The Sheikh’s Dilemma, echo my thoughts and

sentiments about what plagues the Arab world and in particular the Persian Gulf Arab countries. It

would be wise for the Arab world, the Persian Gulf Arab countries, and especially my country of Kuwait,

too heed the lessons and warnings from Senor and Singer as well to study the economic miracle of

Israel.

VIII. CONCLUSION

All nations and socieities must deal with governing. There is no way really around It unless you

live in a state of anarchy which to my knowdledge does not really exist and if it does exist it does not last

for long. Governing is not easy as we have seen in the last two years since Egypt overthrow Hosni

Muburak and just this week the military removed President Morsi because the people of Egypt felt he

did not govern well. Governing well is not easy. It takes a lot of work from planning, tenchincal abilities,

finances, programs, and adjusting to constant changing situations. However, many nations do a good job

at it and some are mediocre at it and some just fail it. The consequences of mediocre and failure in

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terms of governance are quite stark in human and economic development. If a nation does not take

governing serious nor does a bad job at it or both then it is doing a great dis-service to its people.

Cape Verde and Israel have chosen to take governing serious and to do a good job at it. They

both have done a good job at governing. The people of both nations are the better for it. However, both

nations face challenges along socio-econominc, political, and economic lines. But both are determined

to meet these challenges as they come in order to make a better future for their people. The world

would be better served to study these both examplars of good governance and thus help to improve the

lives of their people.

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ANNOTATED BIBLIOGRAPY

1. African Development Bank, 2009 Main ReportOn The Comparative Outputs, Incomes and Price Levels

in African Countries: Final Results of the 2005 Round of the International Comparison Program

for Africa. Tunis, Tunsia: African Development Bank, 2008. I choose this report becaue it will

speak about statistics that will touch upon Cape Verde’s development and goverance. This

report will discuss the economic outputs, incomes, and price levels in African countries which

Cape Verde a part is of.

2. African Development Bank and the Organization for Economic Cooperationa and Development, Cape

Verde, Tunis, Tunisia and Paris, France: African Development Bank and Organization for

Economic Cooperation and Development, 2008. I choose this report because it speaks about

Cape Verde and its development and goverance. This report will discuss Cape Verde’s goverance

and development.

3. Aiyar, Swaminathan S. Ankesaria, Small States: Not Handicapped and Under-Aided, But Advantaged

and Over-Aided, Washington D.C. : Cato Institute, Vol. 28, No.3, Fall 2008. The conventional view

is that small nations have disadvantages that require them to have aid. However, the writer

points to information that proves otherwise. He states that small nations do have disadvantages

but they also have unique advantages that do not make them a disadvantage in the sense they

are handicapped and needing aid.

4.Baker, Bruce. 2006.“Cape Verde: the most democratic nation in Africa?” Journal of Modern African

Studies, 44, (4):493-511. doi: 10.1017/S002278X06002060. Bruce Baker tries to answer the

question of whether Cape Verde is the most democratic nation in Africa. He interviews 22

people from the government, courts, legislature, and civil society to ascertain the conditions of

political freedoms, parties, civil society, the courts, etc. to see whether if Cape Verde is the most

democratic African country.

5. Bar-Tal, Daniel. “Evaluating the 60 Years: The Half-Full and Half-Empy Glass.” Palestine-Israel Journal

of Politics, Economics and Culture, 15(2): 14-22. Bar-Tal does give a positive assessment and

notes Israel’s successes in the glass half-full portion of his article. However, in the glass half-

empty section of his paper he notes Israel’s failures In the areas of the dominance of neo-liberal

policies, dysfunction of liberal democracy, moral deterioration, institutionalized discrimination

against the Arab minority, the ruthless outcomes of occupation, militarization of Israeli

society,influence of religion, objectionism to peace,.

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6. “Cape Verde: African good news story”, Evan Davis, BBC, page last updated December 27, 2011.

http://news.bbc.co.uk/today/hi/today/newsid_9668000/9668347.stm I choose this source

because it discusses Cape Verde’s development and how it has gone about it. This source

discusses Cape Verde’s development and how it has gone about it.

7. Casas-Zamora, Kevin, The Travails of Development and Democratic Governance in Central America.

Washington DC: Brookings Institute, Policy Paper 28, November, 2011. I choose this paper

because it will speak to the issue of goverance and development as it applies to Central America.

The same issues that Central America faces when it comes to goverance and development

should be applicable to Cape Verde. This paper discusses the challenges of development and

democratic goverance in Central America.

8. Chabal, Patrick, and David Birmingham and Joshua Forrest and Mayln Newitt and Gerhard Seibert and

Elisa Silva Andrade, A History of Postcolonial Lusophone Africa. Indiana: Indiana University Press,

2002. I choose this source because one of the countries that are featured in the book is Cape

Verde. The chaper in the book discusses the history of Cape Verde since its independence and

thus should talk about its political and economic development.

9. Gylfason, Thorvaldur, Natural Resources and Economic Growth: A Nordic Perspective on the Dutch

Disease. Helsinki, Finland: UNU World Institute for Development Economic Research, Working

Papers No.167, October, 1999. I choose this source because it will touch on the basic question of

mine of why do nations who don’t have natural resources do well and those that do have them

do not so well in essence it will illuminate the comparison and contrast between both cases.

This paper will discuss the connection between natural resources and economic growth within a

Nordic perspective on the Dutch Disease.

10. Harris, Jonathan M, Basic Principles of Sustainable Development. Medford, MA: Tufts University, G-

DAE Working Paper No. 00-04, June, 2000. I choose this source because it will touch upon what

makes up the basic principles of sutainable development which is an issue that Cape Verde

grapples with as part of its goverance and development efforts. This paper discusses the basic

priniciples of sustainable development.

11. Senor, David, and Saul Singer, Start-up Nation: The Story of Israel’s Economic Miracle. New York:

Twelve, 2009. I choose this book because it will discuss Israel’s governance approach and also its

http://news.bbc.co.uk/today/hi/today/newsid_9668000/9668347.stm

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entrepruenarial approach. The book discusses Israel’s Economi Miracle and what it has done to

achieve this.

12. Taylor, Jerry. Sustainable Development: A Dubious Solution in Search of a Problem. Washington, D.C.:

Cato Institute, Policy Analysis No.449, August 26, 2002. Presents a counter argument to

sustainable development. It states that resources are abundant and “the world is in fact on a

quite sustainable path at present.”(p.1) It takes issue with the idea that if economic progress is

unchecked and not controlled by the state it will cause great harm to the enivornment and

economic progress does not last long. It presents three counter arguments with this idea. And

finally concludes that “The current Western system of freemarkets, propery rights, and the rule

of law is ifact the best hope for environmentally sustainable development.”(p.1)

13. United Nations Cape Verde, Cape Verde: An Emgerging Nation. Cape Verde: United Nations Cape

Verde, 2010. I choose this report because it speaks about Cape Verde’s development and the

projects it has undertaken to advance its development and thus should speak to its goverance

approach. This report will discuss Cape Verde’s development and its projects and its progress in

terms of its development and projects.

14. United Nations Cape Verde, Cape Verde: An Emerging Nation: On the road to the MDGs. Cape Verde: United Nations Cape Verde, 2010. The report spells out 8 UN MDG goals and states quantitativly and qualitatively Cape Verde’s progress in terms of achieving these goals.

15.US-Israel Science and Technology Commission and Foundation, Israel 2028: Vision and Strategy For

Economy and Society in a Global World. Washington D.C.: US-Israel Sciency and Technology

Commission and Foundation, 2008. Israel faces many challenges: economic, political,

governmental, technology, and scientific, to name a few. The report was created to point out

the challenges and to present solutions for the government and society to adopt in order to

overcome these challenges.

16. Velde, Dirk Willem te, and Michael Warner and Sheila Page, Growth and Investment in Sub-

SaharanAfrica: Case Studies. London: Overseas Development Institute, September 2, 2004. I

choose this report because it will speak to the growth and investment in Cape Verde which will

illuminate on my paper topic. The paper will discuss growth and investment in Sub-Saharan

Africa.

Cape Verde and Israel: Exemplars of Good Governance

Documents

Transcript of Cape Verde and Israel: Exemplars of Good Governance