FWD: Report that made Summers sweat and Kanbur walk (fwd)

This is another interesting report on the World Bank which might stimulate
some discussion.  To avoid the sort of misunderstanding that occured when
Peter Grimes posted the report on the debate about (and defeat off) the
resettlement project in Tibet, I would point out that this is forwarded
message: I agree with much of it but I am not the author (so please don't
send a hostile rebuttal to me!).

dave smith
sociology, uc-irvine

>
>---------- Forwarded message ----------
>Date: Fri, 07 Jul 2000 23:06:41 +0000
>From: mckeever <mckeever@ccnet.com>
>To: ipe@csf.colorado.edu
>Subject: FWD: Report that made Summers sweat and Kanbur walk
>
>The following may be of interest to those who follow the World Bank.
>
>McKeever
>
>The following article is the most complete account we've seen on what was 
>in
>the draft of the 2000 World Bank World Development Report that made the 
>U.S.
>Treasury Department so upset -- so upset that they put pressure on the WB 
>to
>change it, and it's principal author, Ravi Kanbur, resigned in disgust.
>
>Soren Ambrose
>50 Years is Enough
>
>
>World Bank is divided over poverty policy
>
>The Nation, Bangkok, 07/05/2000
> 
>A few days ago, the economist writing this year's World Development Report
>resigned from the project. The report is the World Bank's annual flagship
>publication.
>
>The bank says that fighting poverty is now its main job. The report is on
>just this topic, so it's not just another annual issue, but a manifesto.
>The economist, Ravi Kanbur, allegedly walked away from the project because
>the US Treasury Secretary, Larry Summers, wanted to change the report's
>emphasis. A discussion draft of the report has been available since
>January. So what does it say that made Larry intervene and Ravi walk?
>
>The last time the report focused on poverty was in 1990, and that issue
>has been a touchstone for World Bank policy over the past decade. The 1990
>Report argued economic growth was the best way to overcome poverty; that
>market liberalisation was the best way to achieve growth; that
>export-oriented growth was best because it developed labour-intensive
>industries; and that governments could help by investing in education and
>health care. Just about all developing country governments had to do was
>to pass an education and health budget, and sign WTO agreements to
>liberalise. They could forget about any schemes to redistribute income.
>The report offered a neo-liberal heaven in which poverty reduction went
>together with market liberalisation and small government.
>
>This thinking has been very influential. It has shaped the Bank's policy
>advice and loan conditions. But the results have been mixed. Poverty has
>shrunk in some regions, but by much less than the bank hoped. It has
>increased in other regions, often spectacularly. Outside China, the number
>of poor increased from 916 million to 986 million over 1990-8. Kanbur's
>report tries to learn from this decade's experience.
>
>Growth does reduce poverty, the report agrees. But some growth is much
>better than others - roughly five times better. So what kind of growth is
>good at reducing poverty? Agricultural growth is best. Growth in services
>is not bad. An economy which is growing only in manufacturing may find
>that poverty declines by little or nothing. Moreover, agricultural growth
>is no good if land is all held by big landowners. Best of all is
>agricultural growth coupled with land reform.
>
>Growth will reduce poverty more if the gap between rich and poor is
>smaller in the first place, or getting to be so. In the past, mainstream
>economists have tended to accept growing inequality as one of the costs of
>growth. New research disputes this. Societies which are more equal or
>getting more equal tend to grow faster and be better at reducing poverty.
>
>So how about market liberalisation? Certainly the evidence shows that
>countries which liberalise tend to grow faster than those that don't. But
>you need to look in more detail below the country level. While the country
>as a whole may be growing after liberalisation, up to 40 per cent of the
>population may experience exactly the opposite. That's because the
>efficiencies which result from liberalisation do not affect everyone in
>the same way. The poor may not have the resources or the access to
>participate in markets and reap the benefits. Liberalisation may favour
>big companies, which then grab the natural resources on which the poor
>depend. Typically after market liberalisation, the agricultural sector
>gets neglected, and typically most of the poor depend on agriculture.
>
>Liberalisation has another hidden cost - volatility, instability, crisis.
>This has been the tragic lesson of the past decade. In the 1990 report on
>poverty, Indonesia was singled out as one of the most successful case
>stories of reducing poverty. But the financial crisis wiped out at least
>ten years' gains in poverty reduction. The string of
>liberalisation-related financial crises in Latin America, Eastern Europe
>and Asia have been one major reason why poverty has not improved on a
>world scale.
>
>Besides, the problem with these crises is not only the short-term effect
>of driving people down below the poverty line. Poverty increases rapidly
>when an economy contracts in a crisis, but then decreases much more slowly
>when the economy recovers. When the economy gets back to its pre-crisis
>level, the numbers of poor don't fall back to the pre-crisis level.
>Moreover, economies tend to grow more slowly after crises - because of the
>damage done, because of the loss of confidence - so again poverty
>reduction is more difficult.
>
>How about the role of government? Investments in education and health are
>still fine. But they are far from enough. The poor face lots of risks.
>They get hurt when disasters happen, wars break out, financial crises
>erupt, environments decline. They can get hurt, particularly in the
>short-term, by the processes of growth and liberalisation which are
>supposed to cure poverty. They don't have the savings or resources to
>protect themselves. While there are some who are permanently poor, there
>are a lot more who dip in and out of poverty on the swings of risk and
>fate.
>
>Governments should have a role in minimising these risks, and minimising
>their impact. That means actions to build up the social capital of the
>poor, their ability to insure and defend themselves. It also means
>providing social safety nets: pensions, workfare, health protection,
>social funds, micro-finance.
>
>The report reels off social capital building schemes and social protection
>techniques. But there is a hollow feeling that while all such things are
>good and necessary, they are sticking-plasters - neither prevention nor
>cure, but containment. The report makes a stab at reaching beyond this. In
>the opening pages, the report contains a brief bow to Amartya Sen, the
>Nobel laureate economist and philosopher. Sen's core idea is that poverty
>is political. Poverty is a lack of rights, a lack of power. Famines don't
>happen in democracies because democracy enables the poor to prevent them.
>Kanbur's report does not wave Sen's ideas around like a flag. For good
>reason. It's one thing to give Sen a Nobel prize. It's quite another to
>think about giving power to the poor. But the report makes a stab. It
>talks about the voicelessness and powerlessness of the poor. It laments
>their lack of "assets", including their lack of political access. And it
>brandishes one key word: empowerment.
>
>After revealing this word, the report loses confidence, meanders, and gets
>lost. Democracy is good, it says, but not enough. Democratic governments
>tend to get captured by middle-class interests which ignore the poor. The
>middle class should recognise that helping the poor would help themselves
>in the long run. This discussion goes nowhere. But the thought of
>empowerment lies in the middle of the report like an unexploded bomb.
>
>At the end, the report discusses what international organisations should
>be doing. First, it notes that things like research on devastating
>diseases, breakthroughs in agricultural technology, and agreements to
>limit environmental decline have the biggest impact on the poor. But
>developing countries don't have the money or resources to create such
>"international public goods". And rich countries often don't have the
>motivation to create those which are important for the poor. Maybe, the
>report wonders, international organisations should devote more resources
>to such matters, and less to micro projects.
>
>Second, new thinking is needed on aid and project management. Donors have
>become more concerned about corruption and inefficiency in aid projects.
>They load their project loans with lots of conditions and monitoring
>arrangements. This takes up a lot of time, and creates a lot of
>bureaucracy. And it doesn't work. A better strategy would be to ensure
>that the recipient countries feel ownership for projects and make sure
>they work. Get the government and civil society to agree to a plan. Give
>them the money. Stay out of the way.
>
>So what has got Larry Summers worried? We have to guess. The Washington
>Consensus has emerged from the Asia Crisis with its faith in free markets
>only slightly shaken. Poverty eradication is now the menu, but the main
>dish is still growth and market liberalisation, with social safety nets
>added as a side dish, and social capital scattered over it as a relish.
>Big government is not available as an option. But this report raises
>serious doubts about this diet, in four main ways. First, it suggests
>developing countries need to be much more careful and conditional about
>the way they approach market liberalisation. They need to go slower and
>sequence things better rather than just throwing open the door. They need
>to do a lot of work on institutional change to make markets work for
>everybody, not just the big guys. They need to give people time to adjust.
>They need to install social protection to contain the inevitable costs.
>They need to pay attention to inequality. Market liberalisation It's no
>longer easy and magically effective. It's difficult, dangerous and costly.
>
>Second, government is back. Nowhere does the report directly argue this
>point. But the cumulative effect of its recommendations is very eloquent.
>Governments have got to become more capable at managing liberalisation,
>providing social protection, understanding and controlling risks,
>increasing social capital. In all of these activities, civil society will
>have a major role, but the state will be key. And the state will need
>resources of cash, money and expertise.
>
>Third, the World Bank needs to rethink its role. In its current
>self-presentation, the bank is rushing round the world eradicating poverty
>by signing up countries for programmes which have poverty in the headline
>but all the usual World Bank conditions about market liberalisation in the
>small print. The report suggests the bank might be a lot more effective in
>countering poverty by working on international public goods, and giving
>countries hands-off funding to run their own poverty programmes. But if
>that were the case, how could the World Bank serve as an instrument of
>America's strategic vision?
>
>Finally, there's the unexploded bomb. Does Larry want the World Bank
>talking about empowering the poor, even in rather muffled terms?
>
>We will all have to wait a few months to find what Larry takes out. But
>the overall implication is fairly clear. The US does not want the World
>Bank to stray too far away from the agenda of economic growth and market
>liberalisation. Ravi Kanbur's draft has raised a few too many doubts about
>this agenda, and has strayed too much towards politics.
>
>
>
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