Strong institutions can nourish inclusive, sustainable green growth

Published on Wednesday, 20 February 2019
With staunch foundations and ability to adapt to the environment, redwood trees stand for centuries.

The resilience that nature exhibits through trees is a source of inspiration and learning for me. I am fascinated by these gifts of nature wherever I travel, in much the same way as the renowned forester Peter Wohlleben expressed in his book The Hidden Life of Trees: What They Feel, How They Communicate – Discoveries from a Secret World.

Trees stand tall, adapt to the local climate and environment, provide shade and food, filter the air by absorbing carbon dioxide, and provide aesthetic relief from concrete and glass jungles, or miles of traffic congestion. Trees show resilience because they continue to build and serve the ecosystem despite the stress and shocks to it.

But trees are only as strong as their foundations. With the right soil and nutrients that build strong roots, a tree can stand for centuries providing essential services. Without them, however, a tree can topple over at any moment.

Just as strong roots are the foundation of strong trees, strong institutions are the foundation of strong and sustainable economies. Strong institutions—such as a transparent judiciary, a robust constitution, and explicit rules and regulations—are at the heart of all of the world’s most vibrant economies.

Though Asia’s growth over the last few decades has been relatively robust, overall its track record is mixed. Countries are struggling with inequality and access to basic services. Twenty-three of the world’s 30 most polluted cities in the world are in Asia. Oceans, forests and ecosystems continue to be under intense stress.

TWEET: Capable institutional environment is imperative to meet SDGs

The global agenda 2030 for Sustainable Development set out 17 goals in 2015. Enhancing and building capabilities within institutions are at the center of the Sustainable Development Goals (SDGs), which advocate a paradigm shift through SDG 16, which guides countries to raise the quality of growth.

To do this, a capable institutional environment is an imperative.

To protect the vulnerable, build and sustain inclusive growth, countries need to plan and implement strategies, programs, and policies that ensure the economy, society, and environment are interdependent and interconnected. Conventional, unilateral, sector-based approaches are no longer suitable to capture the demands for interconnectedness—transcending sectors and national borders—set out by the SDGs.

Strong institutions can provide a launching pad for achieving such a goal. But how do we measure progress?

ADB’s recently-released Inclusive Green Growth Index (IGGI) assesses the three pillars of economic growth, social equity and environmental sustainability. The IGGI builds on and encompasses a wider set of indicators than other measures. It comprises 28 indicators across three pillars, supporting economic growth, ensuring social equity, and conserving the environment.

TWEET: New ADB index measures 3 pillars of green growth

Maintaining a balance across the pillars results in better policy choices for addressing shortfalls and improving the quality of growth. The interconnected nature of these indicators fosters integrated approaches by recognizing that a change to one part of a complex economic, technological, and socio-ecological system can lead to changes in other parts.

A lack of effective and fair institutions exposes countries to institutional risks, such as corruption, inefficiency, and weak enforcement of laws, which can adversely affect the IGGI indicators, scores, and rankings. The World Bank’s Worldwide Governance Indicators show that better governance correlates with higher economic growth and is associated with improvements in broader development outcomes, including a lower incidence of extreme poverty, narrowed gender inequality, better access to sanitation, higher education attainment, and better infrastructure.

Broadly speaking, better governed countries are likely to make more development progress, as reflected in higher IGGI scores, than poorly governed ones. This has particular resonance across Asia and the Pacific, since ADB stakeholder surveys often rank governance among the top development challenges in the region.

My visit to the majestic forest of redwood trees outside of San Francisco was an eye opener. These tall trees have stood for centuries because of their staunch foundations and ability to adapt to the changing environment.

In the same way, the ability of countries to develop strong institutions and adapt their economic models in new and innovative ways is vital to generate and sustain economic growth that is inclusive and long-lasting.

This blog was first published on the Asian Development Blog