0~~~~~W 4- co I Nli III 111IIIIII IIIII I Hll li I An overview of WORLD DEVELOPMENT REPORT 1990 © 1990 The International Bank for Reconstruction and Development ] THE WORLD BANK Information about ordering follows the summary. CONTENTS OF THE REPORT Foreword by Barber B. Conable Acronyms and initials Definitions and data notes Overview 1 Diverging trends in the world economy 2 What do we know about the poor? 3 Progress on poverty: lessons for the future 4 Promoting economic opportunities for the poor 5 Delivering social services to the poor 6 Transfers and safety nets 7 The 1980s: shocks, responses, and the poor 8 Intemational factors in reducing poverty 9 Prospects for the poor Bibliographical note Statistical appendix World Development Indicators SUMMARY More than one billion people-about one-third of the total population in The extent developing countries-live in poverty; that is, their annual per capita and nature of consumption is less than $370. Being poor means being unable to attain a poverty... minimal standard of living and having insufficient money to purchase adequate food, clothing, and housing. It also means low life expectancies, high death rates among infants and children, and few opportunities to obtain even basic education. Poverty remains high despite good economic performance in much of the developing world over the past several decades. In many countries the gains stemming from economic growth have been offset by rapid population increase. And one entire region-Sub-Saharan Africa-has not participated in economic advance at all. Per capita consumption is no higher in Sub-Saharan Africa today 'l than it was twenty-five years ago. In South Asia gains have been made in consumption, but nearly half of the developing world's poor still live in that region. Poverty presents many different faces in different countries. But ... and its certain tendencies prevail: manyfaces * Poverty is at its worst in rural areas. In India, 77 percent of the poor are rural, as are 80 percent of the poor in Kenya. * Nevertheless, urban poverty is increasingly significant, especially in Latin America. In Venezuela, 85 percent of the poor live in urban areas, as do 69 percent in Mexico. Most of the urban poor-as many as 75 percent in Brazil-have jobs in the informal sector, generally the ones that pay the least. * Agriculture is still the main source of income for the world's poor. But the rural poor usually have little land or are completely landless. In Bangladesh the mean per capita monthly income among those owning more than 7.5 acres of land is four times greater than among those with less than 1 acre. * Poor households tend to be large-in Pakistan in 1984 the poorest 10 percent of households had, on average, almost eight members. * Women face all manner of cultural, social, legal, and economic obstacles that men, even poor men, do not. In South Asia the literacy rate for women is only about half that for men. In rural areas of Pakistan only about 20 percent of girls are enrolled in primary school. * The poor spend nearly all their incomes on consumption. At least half of their consumption-as much as 70 percent in C6te d'Ivoire and Peru-is in the form of food. * The poor suffer disproportionately from environmental degradation. They must frequently eke out an existence on marginal rural lands or live in shantytowns on the urban periphery. They are thus both victims and perpetrators of a deteriorating environment. ~~~~~~~~~~1 Progress The staggering numbers of the developing world's poor should not against poverty obscure the progress that has been made (see Figure 1). Between 1965 and 1985 consumption per capita in developing countries increased from $590 to $985 (in 1985 dollars), and in some countries poverty decreased dramatically. In Indonesia the proportion of the population living in poverty fell from 58 to 17 percent between 1970 and 1987; in Thailand it declined from 67 to 26 percent between 1962 and 1986. Brazil, Colombia, Costa Rica, India, Malaysia, Morocco, Pakistan, Singapore, and Sri Lanka are other countries in which poverty, as measured by consumption, declined noticeably. In addition, health, education, and other social indicators improved in most countries even when average incomes did not increase. Life expectancy in the developing world increased from 50 to 61 years between 1965 and 1985, and enrollment in primary school rose from 73 to 84 percent of the primary school age group. Poverty, nevertheless, increased in many countries during the 1980s, and economic performance differed markedly among regions. But the F:ue1Pors n tgato ntedvlpn ol Ne xm 'x,roh, fete Lik pItnya at is~hx e a 2 196 iA 197, S 199,--f t, j;' X Wt 0iX' fW 2 1980s was not a lost decade for all, or even most, of the world's poor. Many Asian countries, especially those in East Asia, continued to grow, and poverty declined rapidly. Growth in Latin America and Sub-Saharan Africa, however, was negative over the decade, and that in Eastern Europe was stagnant. Countries in all three regions experienced sharp increases in poverty during the 1980s. Countries that have been successful in reducing poverty have adopted Some lessons of a strategy that has two equally important elements. The first element is experience the promotion of the productive use of the poor's most abundant asset-labor-through policies that harness market incentives, social and political institutions, infrastructure, and technology. The second is the provision of basic social services to the poor. Primary health care, family planning, nutrition, and primary education are especially important. Economic growth is the key factor in reducing poverty-it is the basis for a rise in incomes. Investment in human capital is also essential because it enables the poor to take advantage of the income-earning opportunities that arise as a consequence of growth. Some countries-Sri Lanka is an example-have improved social indicators even under conditions of slow growth. Others-such as Brazil and Pakistan-have lagged in converting growth into social progress. Public policy must include a sustained commitment to improving the conditions of the poor, and political factors are crucially important in the effort to reduce poverty. The main tradeoff is not between growth and reducing poverty; it is between the interests of the poor and of the nonpoor. Poverty reduction has generally proved more politically feasible where it has been possible to build coalitions that unite the poor with nonpoor groups that have an interest in reform. Growth that improves income-earning opportunities for the poor Policies for requires two broad sets of policies-policies designed to stimulate rural reducing development and to foster job creation in urban areas. poverty Many policies that were meant to benefit the rural poor failed to have the desired results. For example: * Taxation of agriculture has often been excessive and has contributed Improving to poor agricultural performance (as in Ghana, Nigeria, Senegal, and income-earning Tanzania). opportunities * Land reform has generally led to only modest gains for the poor for the rural (except when they stemmed from postwar or revolutionary situations, poor ... as in the Republic of Korea and Japan). * Subsidized credit programs have often benefited the rich instead of the poor and have run into serious problems with repayment of loans. More promising avenues include strong public support for the development of appropriate rural infrastructure, increased access of small farmers to technical innovations through improved agricultural extension programs, efforts to strengthen linkages between farm and nonfarm economies, and the development of rural financial institutions (induding group lending). 3 ... and the On the urban side the message is similar. Government efforts to urban poor intervene on behalf of the urban poor-through minimum wage legislation, job security regulations, and the like-have, on balance, led to diminished employment in the formal sector. Regulations have tended to hinder investment and job creation in urban areas. Governments can be more successful in creating jobs by avoiding distortions in product and factor markets and by providing suitable urban infrastructure. Both in rural and in urban areas more needs to be done to improve the participation of the poor in growth by involving the intended beneficiaries in the design and implementation of programs, paying more attention to institutional development, and making room for a greater role for nongovernmental organizations and local groups of the poor. Providing Social progress for the poor has generally depended on government social policies and efforts. Countries that have achieved progress are services ... distinguished by political commitment, by budgetary provisioning (Costa Rica spends 23 percent of its governmental budget on health), and by attention to the institutional and organizational aspects of providing social services, including decentralization and the construction of physical infrastructure, especially in rural areas. Despite the progress that has been made in many countries, an immense task remains. About 15 million children under age 5 die every year from causes that are not usually fatal in developed countries. About 110 million children worldwide receive no primary education at all. Governments are responsible for the bulk of successes in providing social services to the poor, but they are also to blame for most of the failures. In most countries government spending on social services is skewed away from the people who need it most-the poor. In health, an estimated 70 to 85 percent of the developing world's total spending goes for treatment of illness, which in practice mainly benefits the nonpoor, rather than for preventive care, which could make an immense difference for poor people. In education, too, governments have generally favored higher-level training over services that would benefit the poor. Yet policies that would improve the health and education of the poor would be to the advantage of the entire economy because of the strong links between education and economic growth, education and agricultural productivity, and workers' health and productivity. Family planning services are vital for poverty reduction. In many countries, notably in Sub-Saharan Africa, the population is growing at 3 to 4 percent a year. Few countries can invest enough to absorb such increases. Low wages and growing poverty are the likely results. Where strong family planning programs have been implemented-as in Costa Rica, Indonesia, Korea, and Singapore-birthrates and the incidence of poverty have declined sharply. 4 Many poor people may fail to benefit, at least in the short term, from ... and income improved income-earning opportunities or from the provision of social transfers and services. People who may at some time need extra help include the old, safety nets the disabled, widows and orphans, and those vulnerable to natural catastrophes and macroeconomic shocks. They can be helped by a system of income transfers or by safety nets: that is, some form of income insurance to help people through short-term stress and calamities. Governments have an important part to play in providing these safeguards-the more so since the evidence is that in many developing countries family and ethnic ties are dissolving and community support systems are becoming weaker. Some mechanisms are more practicable or useful than others in given circumstances. * General food price subsidies-those in Egypt are a good example-tend to be expensive and are difficult to confine to the poor. "Targeting" the subsidies-for example, by limiting them to commodities that are consumed mainly by the poor-works better. * "Rationed" food subsidies, which provide a quota of subsidized food to poor households with unlimited sales permitted on the open market, are an improvement over unrestricted subsidies. An example is the general rice ration in Sri Lanka (1942-78), which greatly benefited the poor. Food stamp programs, such as Jamaica's, also generally yield a more progressive pattern of transfers. * Public employment schemes can be effective in providing the poor with jobs, building infrastructure with labor-intensive methods, and-in their food-for-work variant-feeding the poor during droughts and famines. In two large rural public works schemes in South Asia-the Employment Guarantee Scheme in Maharashtra State, India, and the Food for Work Programme in Bangladesh-the proportion of participants below the poverty line was at least 90 percent in the early 1980s. * By contrast, efforts to transplant formal social security schemes to developing countries have met with little success, although Chile and Costa Rica are prominent exceptions. The nonpoor tend to benefit more from such formal schemes, and many needy elderly and other poor individuals have not been reached. The shocks of the early 1980s confronted most developing countries Adjustment with the need to adjust their economies. Over the medium and long and the term, restructuring-including adjustment of fiscal policies, realignment poor ... of exchange rates, liberalization of trade regimes, deregulation of industries, and privatization of state enterprises-is broadly consistent with a shift toward a pattern of growth and human capital formation that effectively reduces poverty. In the short run, however, some of the poor may be losers. This is especially true of the urban poor if the demand for their labor is reduced. Short-run stabilization may also threaten social services, transfers, and safety nets that help the poor. 5 ... and policy The experience with adjustment in the 1980s underlines the crucial successes, importance of appropriate national policies. Some countries such as failures Indonesia and Malaysia acted decisively to stabilize their economies and establish a framework for economic restructuring that was fully consistent with the continued reduction of poverty. Poverty actually declined-slightly in Malaysia, significantly in Indonesia-during their adjustment episodes. The situation was quite different in Brazil, where the public sector deficit remained high and the currency became overvalued, contributing to high inflation and other distortions in the economy. Brazil's policies made the poor worse off, and poverty increased sharply between 1981 and 1987. Ghana undertook many of the policy requisites for adjustment, but many other Sub-Saharan African countries avoided difficult policy choices altogether, with adverse consequences for the poor. Experience also shows that it is possible to restructure public expenditures during adjustment-Chile, Indonesia, and other countries protected services to the poor while adjusting. Moreover, a number of countries put programs in place to protect the poor during the inevitable short-run difficulties. Public employment schemes, such as those undertaken in Chile and Peru, appeared most effective. Both countries' programs successfully targeted the poor and provided social security to the unemployed during recessions. In short, generalizations about the uniformly adverse effects of adjustment on the poor are difficult to sustain. Whether the poor suffered from adjustment depended in large measure on policy performance. International Although domestic policies are the essential ingredients of a strategy factors for reducing poverty, international factors play an important part. Three are of particular importance: world trade, international debt, and foreign aid. Trade and Many trade barriers put up by industrial countries harm the poor in poverty. developing countries. The immediate effects of trade liberalization by the industrial countries, however, would vary greatly among developing countries. Most middle-income countries would gain, but many poor countries-especially exporters of primary commod- ities-would not gain (and might even lose) in the short term because of supply rigidities, the loss of existing preferences, and possible net losses from increased prices of food imports. Over the longer term trade liberalization would benefit even low-income countries. But this would depend on whether they adopted policies to encourage diversification away from excessive reliance on a few commodities. Since this reorientation will take time, external assistance will continue to be important for many low-income countries over at least the next decade. . . . debt and Debt burdens currently place an enormous strain on the economies of poverty.., severely indebted low-income countries with large numbers of poor people. Although the international community has taken steps to deal 6 with the problems, these initiatives have not made a large dent in debt burdens. (For example, converting concessional loans to grants has canceled only about 3 percent of the outstanding debt of low-income African countries.) Additional debt relief would facilitate an increase in investment and in the consumption of the poor. But further relief should be conditional on appropriate policy reform in the countries concerned. Developing countries received $51 billion in aid in 1988, and some ... and aid impressive successes have been achieved. (The recent efforts of donor and poverty countries are shown in Figure 2.) Korea and Indonesia are among the countries that have put large volumes of aid to good use and have taken important steps on behalf of the poor. The extension of aid for agricultural research, the construction of rural infrastructure, the provision of primary education, basic health care, and nutrition programs, and relief from natural and man-made disasters has benefited many poor people. Aid has often been an effective instrument for reducing poverty. But its contributions have not always come up to full potential. There are various reasons for this. Figure 2 Aid as a percentage of GNP, 1988 2.7 L.2 0.8 0.6 0.4 0 O DAC member countries E3 Others DAC average 7 * Donors, especially bilateral donors, have many different motives for supplying aid-political, strategic, commercial, and humanitarian. Reducing poverty is only one, and it is usually far from the most important. * Some recipients-including Haiti, Sudan, Tanzania, and Zaire-have fallen into "aid dependency." * Many poverty-oriented projects funded by aid have failed to reach the poor. Aid can be made a more effective instrument for reducing poverty by linking it more directly to the antipoverty impact of countries' overall policies. Thus, countries that receive substantial volumes of aid should generally be those which are attempting to pursue policies that generate income-earning opportunities and efficiently provide social services for the poor. Where countries have large numbers of poor people but public policies are not conducive to poverty reduction, the appropriate response is to direct limited quantities of aid in a highly targeted fashion toward the poorest groups. Thus, aid could support health clinics serving poor women and children, immunization programs for children, or well-targeted feeding programs. Many countries represent intermediate cases in which informed judgments will have to be made about the initiatives that aid can usefully support to reduce poverty. A solid case for a greater volume of aid can be made, but only if more countries seriously pursue the reduction of poverty and aid donors learn better the lessons of experience. Aid would increase to only $64 billion in the year 2000 if it grows at 2 percent a year in real terms from now to then (the projection of the OECD's Development Assistance Committee), but it could increase to $73 billion if it grew in line with the projected increase of 3 percent a year in donors' GNP. It could increase to $108 billion or $144 billion if respective aid/GNP ratios of 0.5 and 0.7 percent were attained by those donors currently below these ratios while those above them maintained their current proportions. Prospects for Expanded provision of social services for the poor and a greater the poor emphasis on growth that makes productive use of labor could sharply reduce poverty in the developing world over the next decade. The incidence of poverty would fall from its 1985 level of 33 percent to 18 percent by 2000, and the number of poor people would decline from 1.1 billion to 825 million. Regional experience would vary markedly, however (see Figure 3). Only in Sub-Saharan Africa would the number of poor increase, from 180 million to 265 million. Such estimates, although considered reasonable approximations, are nevertheless contingent on a number of variables. The downside risks are high. A less buoyant external environment, including contractions in world trade or diminished flows of financial resources to developing countries, would leave many more people in poverty in 2000 than the 'stimates suggest. Likewise, a failure to undertake requisite policy 'forms or to safeguard social services and real incomes where progress s already been made would sharply reduce the potential gains. 8 Figure 3 Poverty in the developing world, 1985 and 2000 Number of poor (millions) 0 100 200 300 400 500 600 South Asia 01i Sub-Saharan ft Africa 5 million Ea'st Asia ll Europe, 1 Middle East and North Africa ga. Latin Am ime nt the Caribbean1 1 1985 El 2000 A Equals 50 miUlion The challenge is particularly great in Sub-Saharan Africa. Even with a supportive policy environment including greater provision of social services, a growth rate of 5.5 percent a year-nearly 2 percent higher than the projected rate-would be needed to raise per capita consumption by enough to prevent the number of poor from increasing. Challenges abound elsewhere as well. At the projected growth rates, strong measures will be needed to prevent poverty from increasing significantly in Bangladesh over the next decade. A squeeze on investment could slow growth and threaten projected gains in reducing poverty in India. Given its resources, Latin America should be able virtually to eliminate poverty, but its exceptionally high degree of 9 income inequality is an obstade. Raising all the poor in the continent to just above the poverty line would cost only 0.7 percent of regional GDP-the approximate equivalent of a 2 percent income tax on the wealthiest one-fifth of the population. The challenges vary in different regions, but they are not insurmountable. Preventing the number of poor from rising in Sub-Saharan Africa while reducing the number elsewhere in the developing world by nearly 400 million is an ambitious-but achievable-target for the end of the century. WORLD DEVELOPMENT REPORT 1990 General Ordering Infornation World Development Report 1990 is published in paperback editions in Arabic, Chinese, English, French, German, Japanese, Portuguese, and Spanish; a hardcover edition is also available in English. The Report may be purchased from World Bank distributors listed on the following pages or, when a particular country is not listed, from the World Bank using the order form at the back of this pamphlet. Publication dates and prices vary by country. To facilitate wider dissemination in developing countries, special prices have been arranged with many of the distributors, to whom inquiries should be directed. 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