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What the 2004 WDR Got Wrong

Shanta Devarajan's picture

The three points made in my previous post—that services particularly fail poor people, money is not the solution, and “the solution” is not the solution—can be explained by failures of accountability in the service delivery chain.  This was the cornerstone of the 2004 World Development Report, Making Services Work for Poor People.  In a private market—when I buy a sandwich, for example—there is a direct or “short route” of accountability between the client (me) and the sandwich provider.  I pay him directly; I know whether I got a sandwich or not; and If I don’t like the sandwich, I can go elsewhere—and the provider knows that. 
 

Managing Natural Resources: Should we Really Listen to People?

Jacques Morisset's picture

SW-TZ0537a World Bank Few would argue against the need for policymakers to listen to people’s views when it comes to the good management of natural resources. Indeed, if there is one thing that has been stressed from the countless global experiences of mismanagement, it is the need to involve citizens in decision-making processes.
 
Consequently, the publishing of data is a key agenda for multilateral agencies as well as NGOs. Access to information, including contracts and sharing agreements, is considered best practice. The direct distribution of some of the cash revenues from natural resources to citizens is also often recommended as a means to fight poverty more effectively and increase accountability of decision-makers and politicians. These are good principles based on participatory processes that form the backbone of democracy.

It is close to 18 months since massive reserves of natural gas were found in the south of Tanzania. Two industry giants (British Gas and Statoil) have already arrived in the country. The authorities, with the support of development partners, are busy trying to get all the right measures in place so Tanzania doesn’t suffer the well-known ‘natural resource curse’.
 
But does anyone know what Tanzanians really want and expect in terms of management of natural resources?

Three Changes to the Conversation on Service Delivery

Shanta Devarajan's picture

IN054S13 World Bank Back in 2003, when we were writing the 2004 World Development Report, Making Services Work for Poor People, we had no idea that it would spawn so much research, innovation, debate and changes in the delivery of basic services.  Last week, we had a fascinating conference, in collaboration with the Overseas Development Institute, to review this work, and chart the agenda for the coming decade.   Being a blogger, I wanted to speak about what WDR2004 got wrong, but some of my teammates suggested I should start by describing what we got right.  So here are three ways WDR2004 changed the conversation about service delivery (what we got wrong will be the next post).
 

Tax Reforms for Ageing Societies

Sebastian Eckardt's picture

Taxing Labor versus Taxing Consumption?

 Europe’s welfare systems face substantial demographic headwinds. Increasing life expectancy and the approaching retirement of “Baby Boomers” will increase public expenditures for years to come. Rightfully, much attention is focused on containing additional spending needs for pensions, health and long term care.  But how is all this being paid for?
 
Currently, the majority of social spending, including most importantly pension benefits, in most countries in Europe and Central Asia is financed through social security contributions, which are essentially taxes on labor.  This has two important implications. First, in terms of fiscal sustainability, the growth in spending is only a concern if expenditures grow faster than the corresponding revenues. Since labor taxes are the predominant source of financing for most welfare systems in both EU and transition countries, aging will not only increase spending, but simultaneously exert pressure on revenues. With the exception of countries in Central Asia and Turkey, the labor force, and hence the number of taxpayers that pay labor taxes will decline by about 20 percent on average across the region. Second, already today, labor taxes, including both personal income taxes and social security contributions account on average for about 40 percent of total gross labor costs in Europe and Central Asia (including EU member states), compared to an average of 34 percent in the OECD. This means that for every US$ 1 received in net earnings, employers on average incur a labor cost of US$ 1.67. And out of the 67 cents that are paid in labor taxes, 43 cents (or 65 percent) are directly used to finance social security benefits. By increasing the cost of labor, the high tax burden potentially harms competitiveness, job creation, and growth in countries in the region.

Pushing the Envelope

Laura Ralston's picture

Giving Cash Unconditionally in Fragile States

2012 Spring Mtgs - Close the Gap There have been many recent press articles, a couple of potentially seminal journal papers, and some great blogs from leading economists at the World Bank on the topic of Unconditional Cash Transfers (UCTs). It remains a widely debated subject, and one with perhaps a couple of myths associated with it. For example, what is cash from UCTs used for? Do the transfers lead to permanent increases in income? Does it matter how the transfers are labelled or promoted? I am particularly interested in whether UCTs could be a useful instrument in countries with low institutional capacity, such as fragile and conflict-affected states (FCS).

Why UCTs in FCS? UCTs present a new approach to reducing poverty, stimulating growth and improving social welfare, that may be the most efficient and feasible mechanism in FCS. A recent evaluation of the World Bank’s work on FCS recognized, “where government responsiveness to citizens has been relatively weak, finding the right modality for reaching people with services is vital to avoiding further fragility and conflict”. Plus there is always the risk of desperately needed finances being “spirited away” when channeled through central governments. UCTs may present a mechanism for stimulating the provision of quality services, which are often lacking, while directly reducing poverty at the same time. As Shanta Devarajan’s blog puts it, “But when they (the poor) are given cash with which to “buy” these services, poor people can demand quality—and the provider must meet it or he won’t get paid.” We should explore more about this approach to tackling poverty: where and when it has worked, what made it work, and whether we can predict whether it will work in different contexts.
 

Achieving Shared Prosperity in the Middle East and North Africa

Elena Ianchovichina's picture

In terms of the World Bank’s twin goals of eliminating extreme poverty and boosting shared prosperity, the Middle East and North Africa Region was making steady progress. The percentage of people living on less than $1.25 a day was 2.4% and declining.  And the incomes of the bottom 40% have been growing at higher rates than average incomes in almost all MENA countries for which we have information.

Yet, there were revolutions in several countries and widespread discontent. Why?

 

Time to Boost IBRD as well as IDA

Homi Kharas's picture

2013 World Bank / IMF Annual Meetings When the negotiations for IDA17 were wrapped up in December, there was great relief that IDA deputies were supportive of an IDA expansion despite their own significant budget difficulties. As part of that package, the World Bank Group itself pledged to give IDA $3 billion from profits.

This was a generous gesture by the World Bank (albeit a drop in the bucket of total aid), but how good was it for the global development effort? Consider the following—net disbursements of official grants and concessional loans (the category where IDA flows appear) have expanded from $39 billion per year in the 1980s (in constant 2005 dollars) to $85 billion in 2010 and 2011. In contrast, official non-concessional lending (the category where IBRD and IFC flows appear) has stayed steady. The latter was $15 billion in the 1980s and $22 billion in 2010/11. This picture is even more striking when considering the amounts in terms of recipient GDP. Grants and concessional flows to low income countries have gone from 3% of their GDP in the 1980s to 13% today, while non-concessional flows to lower middle-income countries (excluding India and China) have gone from 0.7% to 0.3% of their GDP. In fact, from 2000 to 2009, non-concessional flows to lower middle- income countries (and to developing countries as a whole) were negative, implying that developing countries repaid more to official development agencies than they received in gross disbursements.

Is Economic Growth Good for the Bottom 40 Percent?

Mamta Murthi's picture
Also available in: Română

Lessons from the recent history of Central Europe and the Baltics


Economic growth has returned to Central Europe and the Baltics. With the exception of Slovenia, all countries are expected to see positive growth in 2014 - ranging from a tepid 0.8% in Croatia, to more respectable growth rates of 2.2% in Romania and 2.8% in Poland, to highs of 3-4.5% percent in the Baltic Republics. Europe, more broadly, is also turning the corner and is expected to grow at around 1.5%.

Amidst this much welcome growth, however, one question remains: will economic growth be good for the bottom 40 percent and can they expect to see their incomes grow?

Informality – a Blessing or a Curse?

Megha Mukim's picture

IN134S06 World Bank Governments (and donors alike) don’t like dealing with informality. It’s messy, dirty, essentially unmeasurable, and its character varies dramatically. From one industry to the next. From one city to the next. It’s also beset with fiendishly difficult problems – informal firms are often household enterprises (employing mainly family labour, and not hired labour). Thus, they have to make impossible trade-offs between production and consumption.
 
And yet – the size and the importance of the informal sector in most countries shows no signs of abating. On average the informal share of employment ranges from 24 per cent in transition economies, to 50 per cent in Latin America and over 70 per cent in sub-Saharan Africa. In India, employment within the informal sector is growing, while that in the formal sector remains stagnant. Yet - very little is known about the relationship, whether symbiotic or competitive, between the two sectors.
 
In a new paper, I notice that in India formal firms tend to cluster with informal firms – especially in industries like apparel, furniture and meal-making. The firms coagglomerate not only so that they can buy from and sell to one another – but importantly, also because formal firms tend to share equipment with and transfer technical knowledge to their informal counterparts. Such technical and production spillovers are found in clusters of domestic-foreign, exporter-non-exporter and high-tech-low-tech firms. It is no surprise then that formal and informal activity could be complementary. Informal can also be an outlet for entrepreneurial activity, especially in places with high levels of corruption, or where formal firms are often mired in complex regulations.

What are the Sources of Corruption?

Augusto Lopez-Claros's picture
Also available in: Français | Español

In a previous blog we discussed the factors that have pushed issues of corruption to the centre of policy debates about sound economic management. A related question deals with the sources of corruption: where does it come from, what are the factors that have nourished it and turned it into such a powerful impediment to sustainable economic development? Economists seem to agree that an important source of corruption stems from the distributional attributes of the state. For better or for worse, the role of the state in the economy has expanded in a major way over the past century. In 1913 the 13 largest economies in the world, accounting for the bulk of global economic output, had an average expenditure ratio in relation to GDP of around 12%. This ratio had risen to 43% by 1990, with many countries’ ratios well in excess of 50%.  This rise was associated with the proliferation of benefits under state control and also in the various ways in which the state imposes costs on society. While a larger state need not necessarily be associated with higher levels of corruption—the Nordic countries illustrate this—it is the case that the larger the number of interactions between officials and private citizens, the larger the number of opportunities in which the latter may wish to illegally pay for benefits to which they are not entitled, or avoid responsibilities or costs for which they bear an obligation.

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