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Poverty

Growth Without Apology

Shanta Devarajan's picture

 Chhor Sokunthea / World BankFrom time to time, countries experience rapid economic growth without a significant decline in poverty. India’s GDP growth rate accelerated in the 1990s and 2000s, but poverty continued to fall at the same pace as before, about one percentage point a year. Despite 6-7 percent GDP growth, Tanzania and Zambia saw only a mild decline in the poverty rate. In the first decade of the 21st century, Egypt’s GDP grew at 5-7 percent a year, but the proportion of people living on $5 a day—and therefore vulnerable to falling into poverty—stagnated at 85 percent.

In light of this evidence, the World Bank has set as its goals the elimination of extreme poverty and promotion of shared prosperity. While the focus on poverty and distribution as targets is appropriate, the public actions required to achieve these goals are not very different from those required to achieve rapid economic growth. This is not trickle-down economics.  Nor does it negate the need for redistributive transfers. Rather, it is due to the fact that economic growth is typically constrained by policies and institutions that have been captured by the non-poor (sometimes called the rich), who have greater political power. Public actions that relax these constraints, therefore, will both accelerate growth and transfer rents from the rich to the poor.

Some examples illustrate the point.

Has EU Membership Benefitted New Entrants?

Mamta Murthi's picture

A view from Central Europe and the Baltics

Ten years ago this month the European Union expanded to include 10 new members - Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovak Republic and Slovenia. It was the largest expansion in the EU's history in terms of population and area, and of historic importance in that it brought into one Union countries that had formerly been on different sides of the Iron Curtain.

Given the Eurozone crisis from which the EU is slowly recovering, it is natural to ask if EU membership has benefitted the 2004 entrants.
 

The Tyranny of Aid Critics

Shanta Devarajan's picture

Charles Kindleberger (h/t Gerry Helleiner) asserted that all reviewers can be counted on to say three things about a book: “It isn’t new. It isn’t true. And I would have said it differently.”  Notwithstanding their internal contradictions, these statements summarize my thoughts on Bill Easterly’s latest book, The Tyranny of Experts.

It isn’t new. The main point of the book is that the rights of the poor have been systematically undermined, directly by governments, especially authoritarian ones; and indirectly by “experts”, who either prescribe technical solutions that ignore poor people’s ability to come up with their own solutions, or provide legitimacy to these autocratic regimes so that they continue to suppress the poor.  Bill illustrates this point with three historical examples—China between the world wars, Africa at independence, and Colombia in the 1950s—where a combination of western (in some cases, colonial) interests and local elites conspired to keep the large majority of poor people poor for a long time.  The analytical backdrop to these three case studies is the “debate”—a debate that never took place—between two Nobel-prize-winning economists: Gunnar Myrdal, who advocated government intervention to improve the lot of the poor; and Friedrich Hayek, who believed in protecting the individual rights of the poor as a means of their escaping poverty.

Rights and Welfare Economics

Shanta Devarajan's picture

ML028S19 World Bank Some 135 countries have constitutional provisions for free and nondiscriminatory education for all. Seventy-three countries guarantee the right to medical services. And 41 countries have either enshrined the right to water in their constitutions or have framed the right in national legislation.  All of these actions are aimed at protecting the rights of poor people. 

Yet, it is poor people who are losing out on access to these services.  In Mali, whereas almost everyone has access to a primary school, and 67 percent from the richest quintile complete primary school, only 23 percent from the poorest quintile do.  The percentage completing higher levels of education is in the single digits. In rural India, in the period since the Right to Education act was passed, student learning outcomes in public schools have been declining.  Equatorial Guinea, with a per-capita income of $20,000, has a child mortality rate of 118 per 1,000 births, comparable to that of Togo with a much lower per-capita income.  As a result of intermittent (or nonexistent) water supply through networks, poor people in South Asia and Africa have to buy water from vendors at 5-16 times the meter rate.

Rana Plaza One Year On

Ellen Goldstein's picture

Lessons on Governance from Bangladesh’s Garment Industry


One year ago today, in the outskirts of Bangladesh’s capital city, an eight-story garment factory collapsed of its own weight, killing 1,130 young workers and injuring thousands more.  The ghastly photos of bodies trapped in the Rana Plaza wreckage provoked outrage in the wealthy world, targeted largely at global retailers who purchased garments there.  North American and European consumers called for measures to ensure safe conditions and humane treatment for Bangladeshi garment workers, mostly young women from poor families in remote rural areas.  Many called for a boycott of the big-box retailers and of the Bangladeshi products they sell.

I had just moved from Bangladesh to Europe at the time, and my advice to friends who asked was: “Go ahead and buy those skinny jeans or that tank top if you want.  It’s the right thing to do for Bangladesh and its young workers.”

Nine Reasons why Corruption is a Destroyer of Human Prosperity

Augusto Lopez-Claros's picture

Anti-Corruption billboard In an earlier blog post, we commented on the sources of corruption, the factors that have turned it into a powerful obstacle to sustainable economic development. We noted that the presence of dysfunctional and onerous regulations and poorly formulated policies, often created incentives for individuals and businesses to short-circuit them through the paying of bribes. We now turn to the consequences of corruption, to better understand why it is a destroyer of human prosperity.

Is Inequality the Convenient Villain or a Misguided Obsession?

Jean-Pierre Chauffour's picture

Inequality is back in the news. In his 2014 State of the Union address, U. S. President Obama lamented that, “after four years of economic growth, corporate profits and stock prices have rarely been higher, and those at the top have never done better.  But average wages have barely budged.  Inequality has deepened.  Upward mobility has stalled.”   At the global scale, Oxfam is making the same point, noting in a recent report that the richest 85 people in the world own the same amount of wealth as the 3.5 billion bottom half of the Earth's population. Perhaps more surprising, the rich and powerful CEOs jetting to Davos earlier this year seemed to finally get it: capitalism cannot survive if income and wealth become concentrated in too few hands. Fighting inequality would therefore not only be the morally correct thing to do, it would also be smart economics.  And this is what a recent Staff Discussion Note from the IMF suggests: “inequality can undermine progress in health and education, cause investment-reducing political and economic instability, and undercut the social consensus required in the face of shocks, and thus tends to reduce the pace and durability of growth.”

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. 
 

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).
 

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.
 

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