The global economic crisis has brought both an opportunity and a necessity for change in least developed countries (LDCs), says the U.N. Conference on Trade and Development (UNCTAD) in their 2009 LDC report. The report released last week says that developing countries have been hardest hit by the crisis and radical changes in their development approach are necessary. Especially important to these changes must be increased focus on agriculture, more effective industrial policy, as well as a bigger role for a more-involved, well-run state.

Currently, the U.N. classifies 49 countries as least developed. Of those, 33 are in Africa. In these countries, argues UNCTAD, current free-market approaches, exacerbated by policy failures have not resulted inclusive growth. Now it is time to create a new “development state,” after the model of the past few decades has failed to produce sustainable poverty-reduction.

The poverty-reduction strategies of the past few decades have de-emphasized the role of the state. The focus on institutional reform, as part of the “old development state,” must be significantly changed, argues the report, asserting, “this is not a matter of going back to old-style development planning, but rather a question of finding new forms of development governance that are appropriate for the twenty-first century.

Coping with this crisis will require dedicated action and resource flows, as well as heavy participation from the international community and developed world. However, in addition to this support, new policy actions will have to be implemented in order to ensure that development will continue in an inclusive and resilient manner even after the crisis is resolved. These policy actions should concentrate on public investment in infrastructure, such as roads, electricity systems, and bridges and on strengthening domestic financial institutions.

LDCs are now caught in a vicious circle of deficient food production, low overall productivity, declining public investment, and scarcity of water and land. To combat these declines, UNCTAD advocates an effective industrial policy, including public investment and strategic coordination of private actors. These industrial policies should aim to raise investment levels in primarily agriculture and infrastructure, build new economic links, upgrade technological capacity, and support agricultural development. Ultimately, these measures should diversify and strengthen LDC economies, says the report.

UNCTAD insists that the “pathway to prosperity,” is to boost agricultural productivity and strengthen a well-governed state. In addition, the report suggests using industrial policy to build up manufacturing by focusing on technology and knowledge to develop sectors with high returns. Charles Gore, a senior UNCTAD economist and one of the authors of the report told a news conference, “The crisis has exposed more than ever the shortcomings of the current development paradigm. LDCs should seize the crisis as an opportunity for a change.”

-Pooja Gupta