01_WDR06_Overview.qxd 8/16/05 3:38 PM Page 1 Overview 33591 Consider two South African children born on great business idea (such as an innovation the same day in 2000. Nthabiseng is black, to increase agricultural production), she born to a poor family in a rural area in the would find it much harder to persuade a Eastern Cape province, about 700 kilometers bank to lend her money at a reasonable from Cape Town. Her mother had no formal interest rate. Pieter, having a similarly schooling. Pieter is white, born to a wealthy bright idea (say, on how to design an family in Cape Town. His mother completed improved version of promising software), a college education at the nearby prestigious would likely find it easier to obtain credit, Stellenbosch University. with both a college diploma and quite pos- On the day of their birth, Nthabiseng and sibly some collateral. With the transition to Pieter could hardly be held responsible for democracy in South Africa, Nthabiseng is their family circumstances: their race, their able to vote and thus indirectly shape the parents' income and education, their urban policy of her government, something or rural location, or indeed their sex. Yet denied to blacks under apartheid. But the statistics suggest that those predetermined legacy of apartheid's unequal opportunities background variables will make a major dif- and political power will remain for some ference for the lives they lead. Nthabiseng time to come. It is a long road from such a has a 7.2 percent chance of dying in the first (fundamental) political change to changes year of her life, more than twice Pieter's 3 in economic and social conditions. percent. Pieter can look forward to 68 years As striking as the differences in life of life, Nthabiseng to 50. Pieter can expect to chances are between Pieter and Nthabiseng complete 12 years of formal schooling, in South Africa, they are dwarfed by the Nthabiseng less than 1 year.1 Nthabiseng is disparities between average South Africans likely to be considerably poorer than Pieter and citizens of more developed countries. throughout her life.2 Growing up, she is less Consider the cards dealt to Sven--born on likely to have access to clean water and sani- that same day to an average Swedish tation, or to good schools. So the opportuni- household. His chances of dying in the ties these two children face to reach their full first year of life are very small (0.3 percent) human potential are vastly different from and he can expect to live to the age of 80, 12 the outset, through no fault of their own. years longer than Pieter, and 30 years more Such disparities in opportunity translate than Nthabiseng. He is likely to complete into different abilities to contribute to 11.4 years of schooling--5 years more than South Africa's development. Nthabiseng's the average South African. These differences health at birth may have been poorer, owing in the quantity of schooling are com- to the poorer nutrition of her mother dur- pounded by differences in quality: in the ing her pregnancy. By virtue of their gender eighth grade, Sven can expect to obtain a socialization, their geographic location, and score of 500 on an internationally compara- their access to schools, Pieter is much more ble math test, while the average South likely to acquire an education that will African student will get a score of only enable him to put his innate talents to full 264--more than two standard deviations use. Even if at age 25, and despite the odds, below the Organisation for Economic Co- Nthabiseng manages to come up with a operation and Development (OECD) median. 1 01_WDR06_Overview.qxd 8/16/05 3:38 PM Page 2 2 WORLD DEVELOPMENT REPORT 2006 Nthabiseng most likely will never reach that The second set of reasons why equity and grade and so will not take the test.3 long-term prosperity can be complementary These differences in life chances across arises from the fact that high levels of nationality, race, gender, and social groups economic and political inequality tend to will strike many readers as fundamentally lead to economic institutions and social unfair. They are also likely to lead to wasted arrangements that systematically favor the human potential and thus to missed devel- interests of those with more influence. Such opment opportunities. That is why World inequitable institutions can generate eco- Development Report 2006 analyzes the rela- nomic costs. When personal and property tionship between equity and development. rights are enforced only selectively, when By equity we mean that individuals budgetary allocations benefit mainly the should have equal opportunities to pursue a politically influential, and when the distri- life of their choosing and be spared from bution of public services favors the wealthy, extreme deprivation in outcomes. The main both middle and poorer groups end up with message is that equity is complementary, in unexploited talent. Society, as a whole, is some fundamental respects, to the pursuit then likely to be more inefficient and to miss of long-term prosperity. Institutions and out on opportunities for innovation and policies that promote a level playing field-- investment. At the global level, when devel- where all members of society have similar oping countries have little or no voice in chances to become socially active, politically global governance, the rules can be inappro- influential, and economically productive-- priate and costly for poorer countries. contribute to sustainable growth and devel- These adverse effects of unequal opportu- opment. Greater equity is thus doubly good nities and political power on development are for poverty reduction: through potential all the more damaging because economic, beneficial effects on aggregate long-run political, and social inequalities tend to repro- development and through greater opportu- duce themselves over time and across genera- nities for poorer groups within any society. tions. We call such phenomena "inequality The complementarities between equity traps." Disadvantaged children from families and prosperity arise for two broad sets of at the bottom of the wealth distribution do reasons. First, there are many market fail- not have the same opportunities as children ures in developing countries, notably in the from wealthier families to receive quality markets for credit, insurance, land, and education. So these disadvantaged children human capital. As a result, resources may can expect to earn less as adults. Because the not flow where returns are highest. For poor have less voice in the political process, example, some highly capable children, like they--like their parents--will be less able to Nthabiseng, may fail to complete primary influence spending decisions to improve schooling, while others, who are less able, public schools for their children. And the may finish university. Farmers may work cycle of underachievement continues. harder on plots they own than on those The distribution of wealth is closely corre- they sharecrop. Some efficient developing- lated with social distinctions that stratify peo- country producers of agricultural com- ple, communities, and nations into groups modities and textiles are shut out of some that dominate and those that are dominated. OECD markets, and poor unskilled workers These patterns of domination persist because have highly restricted opportunities to economic and social differences are rein- migrate to work in richer countries. forced by the overt and covert use of power. When markets are missing or imperfect, Elites protect their interests in subtle ways, by the distributions of wealth and power affect exclusionary practices in marriage and kin- the allocation of investment opportunities. ship systems, for instance, and in ways that Correcting the market failures is the ideal are less subtle, such as aggressive political response; where this is not feasible, or far manipulation or the explicit use of violence. too costly, some forms of redistribution-- Such overlapping political, social, cultural, of access to services, assets, or political and economic inequalities stifle mobility. influence--can increase economic efficiency. They are hard to break because they are so 01_WDR06_Overview.qxd 8/16/05 3:39 PM Page 3 Overview 3 closely tied to the ordinary business of life. on property rights for all; and greater fair- They are perpetuated by the elite, and often ness in markets. But policies to level the eco- internalized by the marginalized or oppressed nomic playing field face big challenges. groups, making it difficult for the poor to There is unequal capacity to influence the find their way out of poverty. Inequality traps policy agenda: the interests of the disenfran- can thus be rather stable, tending to persist chised may never be voiced or represented. over generations. And when policies challenge privileges, The report documents the persistence of powerful groups may seek to block reforms. these inequality traps by highlighting the Thus, equitable policies are more likely to be interaction between different forms of in- successful when leveling the economic play- equality. It presents evidence that the inequal- ing field is accompanied by similar efforts to ity of opportunity that arises is wasteful and level the domestic political playing field and inimical to sustainable development and introduce greater fairness in global gover- poverty reduction. It also derives policy nance. implications that center on the broad concept Third, there may be various short-run, of leveling the playing field--both politically policy-level tradeoffs between equity and effi- and economically and in the domestic and ciency. These are well recognized and exten- the global arenas. If the opportunities faced sively documented. The point is that the by children like Nthabiseng are so much (often implicit) cost-benefit calculus that more limited than those faced by children like policymakers use to assess the merits of vari- Pieter or Sven, and if this hurts development ous policies too often ignores the long-term, progress in the aggregate, then public action hard-to-measure but real benefits of greater has a legitimate role in seeking to broaden the equity. Greater equity implies more efficient opportunities of those who face the most economic functioning, reduced conflict, limited choices. greater trust, and better institutions, with Three considerations are important at dynamic benefits for investment and growth. the outset. First, while more even playing To the extent that such benefits are ignored, fields are likely to lead to lower observed policymakers may end up choosing too little inequalities in educational attainment, equity. health status, and incomes, the policy aim is By the same token, however, those inter- not equality in outcomes. Indeed, even with ested in greater equity must not ignore the genuine equality of opportunities, one would short-term tradeoffs. If individual incen- always expect to observe some differences in tives are blunted by income redistribution outcomes owing to differences in preferences, schemes that tax investment and produc- talents, effort, and luck.4 This is consistent tion too steeply, the result will be less inno- with the important role of income differences vation, less investment, and less growth. in providing incentives to invest in education The history of the twentieth century is lit- and physical capital, to work, and to take tered with examples of ill-designed policies risks. Of course outcomes matter, but we are pursued in the name of equity that seriously concerned with them mainly for their influ- harmed--rather than spurred--growth ence on absolute deprivation and their role in processes by ignoring individual incentives. shaping opportunities. A balance must be sought, taking into Second, a concern with equality of oppor- account both the immediate costs to indi- tunity implies that public action should focus vidual incentives and the long-term benefits on the distributions of assets, economic of cohesive societies, with inclusive institu- opportunities, and political voice, rather than tions and broad opportunities. directly on inequality in incomes. Policies can While careful assessment of policy design contribute to the move from an "inequality in local contexts is always important, equity trap"to a virtuous circle of equity and growth considerations need to be brought squarely by leveling the playing field--through greater into the center of both diagnosis and policy. investment in the human resources of the This is not intended as a new framework. It poorest; greater and more equal access to means integrating and extending existing public services and information; guarantees frameworks: equity is central both to the 01_WDR06_Overview.qxd 8/16/05 3:39 PM Page 4 4 WORLD DEVELOPMENT REPORT 2006 investment environment and to the agenda Within-country inequities of empowerment, working through the have many dimensions impact on institutions and specific policy Direct quantification of inequality of designs. Some may value equity for its own opportunity is difficult, but one analysis of sake, others primarily for its instrumental Brazil provides an illustration (chapter 2). role in reducing absolute poverty, the World Earnings inequality in 1996 was divided Bank's mission. into one share attributable to four predeter- This report recognizes the intrinsic value mined circumstances that lie beyond the of equity but aims primarily to document control of individuals--race, region of how a focus on equity matters for long-run birth, parental education, and paternal development. It has three parts. occupation at birth--and a residual share. · Part I considers the evidence on inequal- These four circumstances account for ity of opportunity, within and across around one-quarter of overall differences in countries. Some attempts to quantify earnings between workers. Arguably, other inequality of opportunity are reviewed determinants of opportunity are equally but, more generally, we rely on evidence predetermined at birth but not included in of highly unequal outcomes across this set--for example, gender, family groups defined by predetermined cir- wealth, or the quality of primary schools. cumstances--such as gender, race, fam- Because such variables are not included in ily background, or country of birth--as the inequality "decomposition," the results markers for unequal opportunities. here can be seen as lower-bound estimates of inequality of opportunity in Brazil. · Part II asks why equity matters. It dis- Unfortunately, predetermined (and thus cusses the two channels of impact (the morally irrelevant) circumstances deter- effects of unequal opportunities when mine much more than just future earnings. markets are imperfect, and the conse- Education and health are of intrinsic value quences of inequity for the quality of and affect the capacity of individuals to institutions a society develops) as well as engage in economic, social, and political intrinsic motives. life. Yet children face substantially different · Part III asks how public action can level opportunities to learn and to lead healthy the political and economic playing fields. lives in almost all populations, depending In the domestic arena, it makes the case on asset ownership, geographic location, or for investing in people, expanding access parental education, among others. Consider to justice, land, and infrastructure, and how access to a basic package of immuniza- promoting fairness in markets. In the tion services differs for the rich and the international arena, it considers leveling poor across countries (figure 1). the playing field in the functioning of There is substantial inequality in access global markets and the rules that govern between, for example, Egypt, where almost them--and the complementary provi- everyone is covered (on the left), and Chad, sion of aid to help poor countries and where more than 40 percent of children are poor people build greater endowments. excluded (on the right). Yet the disparities The remainder of this overview provides a can be as large within some countries as they summary of the principal findings. are across all nations in the sample. In Eritrea, for instance, the richest fifth enjoys almost complete coverage, but almost half of Inequity within all children in the poorest fifth are excluded. and across nations Significant gender differences also per- From an equity perspective, the distribu- sist in many parts of the world. In parts of tion of opportunities matters more than East and South Asia, notably in certain areas the distribution of outcomes. But opportu- in rural China and northwest India, the nities, which are potentials rather than opportunity to life itself can depend on one actuals, are harder to observe and measure single predetermined characteristic: sex. than outcomes. These regions have significantly more boy 01_WDR06_Overview.qxd 8/16/05 3:39 PM Page 5 Overview 5 Figure 1 Wealth matters for the immunization of children Percentage not covered 70 60 50 40 Poorest 30 20 10 0 Wealthiest (*) (*) (*) (*) Egypt Peru Faso Haiti ublic Mali Africa KenyaMalawiBrazil India Togo NigerChad VietnamTurkey GhanaBenin Bolivia Yemen Guinea Eritrea Comoros Uganda EthiopiaRep JordanColombiaRwanda Morocco Zambia Paraguay Guatemala TanzaniaIndonesia Philippines Cameroon Mauritania CambodiaPakistan South Bangladesh Burkina Madagascar Mozambique Kazakhstan Turkmenistan African Central Source: Authors' own calculations from Demographic Health Survey (DHS) data Note: * indicates that the poorest quintile have higher access to childhood immunization services than the wealthiest quintile. The continuous orange line represents the overall percentage of children without access to a basic immunization package in each country, while the endpoints indicate the percentages for the top and the bottom quintile of the asset ownership distribution. infants than girls, in part because of sex- groups can become internalized into behav- selective abortion and differential care after iors, aspirations, and preferences that also birth. And in many (though not all) parts of perpetuate inequalities. the world, more boys than girls attend Inequalities of opportunity are also school. The hundreds of millions of dis- transmitted across generations. The chil- abled children across the developing world dren of poorer and lower-status parents also face very different opportunities than face inferior chances in education, health, their able-bodied peers. incomes, and status. This starts early. In These inequities are usually associated Ecuador, three-year-old children from all with differences in an individual's"agency"-- socioeconomic groups have similar test the socioeconomically, culturally, and polit- scores for vocabulary recognition and are ically determined ability to shape the world close to a standard international reference around oneself. Such differences create population. But by the time they are five, all biases in the institutions and rules in favor have faltered relative to the international of more powerful and privileged groups. reference group, except for those in the This is seen in realities as diverse as the low richest groups and with the highest levels of chances for mobility of scheduled castes in parental education (figure 2). Such pro- a village in rural India and the frequent nounced differences in vocabulary recogni- episodes of discrimination against the tion between children whose parents had 0 Quichua people in Ecuador. Persistent dif- to 5 years of schooling and those whose ferences in power and status between parents had 12 or more years are likely to 01_WDR06_Overview.qxd 8/16/05 3:39 PM Page 6 6 WORLD DEVELOPMENT REPORT 2006 Figure 2 Opportunities are determined early ity, undernutrition, and the earnings a child Cognitive development for children ages three to five in Ecuador differs markedly across family can generate by working instead of study- backgrounds ing, many children leave school early. The Wealthiest and poorest quartiles Maternal education average person born between 1975 and Median score Median score 1979 in Sub-Saharan Africa has only 5.4 110 110 years of schooling. In South Asia, the figure rises to 6.3 years; in OECD countries, it is 100 Wealthiest 25% 100 12 or more years 13.4 years. 90 90 With such differences in education and health, compounded by large disparities in 80 80 access to infrastructure and other public 0­5 years Poorest 25th% services, it is not surprising that opportuni- 70 70 ties for the consumption of private goods 60 60 differ vastly between rich and poor coun- 40 50 60 70 40 50 60 70 tries. Mean annual consumption expendi- Age in months Age in months tures range from Purchasing Power Parity Source: Paxson and Schady (2005). (PPP) $279 in Nigeria to PPP $17,232 in Note: Median values of the test of vocabulary recognition (TVIP) score (a measure of vocabulary recognition in Spanish, standardized against an international norm) are plotted against the child's age in months. The medians by exact month Luxembourg. This means that the average of age were smoothed by estimating fan regressions of the median score on age (in months), using a bandwidth of 3. citizen in Luxembourg enjoys monetary resources 62 times higher than the average Nigerian. While the average Nigerian may carry over to their performance once they find it difficult to afford adequately nutri- enter primary school, and will likely persist tious meals every day, the average citizen of thereafter. Intergenerational immobility is Luxembourg need not worry too much also observed in rich countries: new evi- about buying the latest generation cell dence from the United States (where the phone on the market. Because of the much myth of equal opportunity is strong) finds greater restrictions on the movement of high levels of persistence of socioeconomic people between countries than within status across generations: recent estimates countries, these inequalities in outcomes suggest that it would take five generations among countries are likely to be much more for a family that earned half the national closely associated with inequalities in average income to reach the average.5 opportunities than within countries. Immobility is particularly pronounced for Global inequality trends have varied. low-income African Americans. Between 1960 and 1980 there was a pro- nounced decline in the inequality in life Global inequities are massive expectancy across countries, driven by Figure 3 Life expectancy improved and If unequal opportunities are large within major increases in the poorest countries in became more equal--until the onset many countries, they are truly staggering on the world (figure 3). This welcome develop- of the AIDS crisis a global scale. Chapter 3 shows that cross- ment was due to the global spread of health Population-weighted international country differences begin with the opportu- technology and to major public health distribution of life expectancy, 1960­2000 nity for life itself: while 7 of every 1,000 efforts in some of the world's highest mor- 0.05 American babies die in the first year of their tality areas. Since 1990, however, HIV/AIDS lives, 126 of every 1,000 Malian babies do. (predominantly in many African countries) 1990 Babies who survive, not only in Mali but in and a rise in mortality rates in transition 1960 2000 much of Africa and in the poorer countries economies (largely in Eastern Europe and of Asia and Latin America, are at much Central Asia) have set back some of the ear- greater nutritional risk than their counter- lier gains. Because of the AIDS crisis, life parts in rich countries. And if they go to expectancy at birth has fallen dramatically school--more than 400 million adults in in some of the world's poorest countries, developing countries never did--their sharply increasing the differences between 0 27 39 51 63 75 87 schools are substantially worse than those them and richer societies. Years attended by children in Europe, Japan, or Inequality in access to schooling has also Source: Schady (2005). the United States. Given lower school qual- been falling around the world, within most 01_WDR06_Overview.qxd 8/16/05 3:39 PM Page 7 Overview 7 Figure 4 A long-run diverging trend in income Why does equity matter inequality begins to reverse because of growth in China and India for development? Why do these persistent inequalities-- Mean log deviation both within and across countries--matter? 1 The first reason is that the interconnec- 0.83 0.8 tions and resilience of these inequalities 0.69 Global inequality imply that some groups have consistently 0.6 Within-country inequality inferior opportunities--economic, social, 0.50 0.42 and political--than their fellow citizens. 0.4 0.36 Most people feel that such egregious dis- 0.37 0.33 0.33 parities violate a sense of fairness, particu- 0.2 larly when the individuals affected can do 0.05 Between-country inequality little about them (chapter 4). This is con- 0 sistent with the teachings of much politi- 1820 1850 1870 1890 1910 1929 1950 1960 1970 1980 1992 cal philosophy and with the international Source: Authors' manipulation of data from Bourguignon and Mor- risson (2002). system of human rights. The core moral and ethical teachings of the world's lead- ing religions include a concern for equity, countries as well as across them, as average although many have also been sources of schooling levels rise in the vast majority of inequities and historically have been linked countries. This too is a welcome develop- to unequal power structures. There is also ment, although concerns over the quality of experimental evidence suggesting that schooling provide reasons for guarding many--but not all--people behave in against complacency. ways consistent with a concern for fair- While our primary concern is with ness, in addition to caring about how they inequality of opportunities, the large dif- fare individually. ferences in income or consumption across Important as these intrinsic reasons are countries surely affect the life chances faced for caring about inequality of opportunities by children born today in those different and unfair processes, the primary focus of nations. Trends in life expectancy at birth this report is on the instrumental relation- and years of schooling were converging, at ship between equity and development, with least until 1990, but a different picture particular emphasis on two channels: the emerges for income and consumption. effects of unequal opportunities when mar- While the recent trends depend greatly on kets are imperfect, and the consequences of the specific concept chosen (discussed in inequity for the quality of institutions a great detail in chapter 3), global income society develops.6 inequality has steadily increased over the long run until the onset of rapid economic growth in China and India in the 1980s With imperfect markets, inequalities in (figure 4). power and wealth translate into unequal It is possible to decompose total opportunities, leading to wasted productive inequality across individuals in the world potential and to an inefficient allocation of into differences among countries and dif- resources. Markets often work imperfectly ferences within countries. Between-coun- in many countries, whether because of try differences were relatively small early in intrinsic failures--such as those associated the nineteenth century, but they came to with asymmetric information--or because account for a larger part of total inequality of policy-imposed distortions. Microeco- toward the end of the twentieth century. If nomic case studies suggest that an ineffi- China and India are excluded, global cient allocation of resources across produc- inequalities have continued to rise, owing tive alternatives is often associated with to the continuing divergence between differences in wealth or status (chapter 5). most other low-income countries and rich If capital markets worked perfectly, there countries. would be no relation between investment 01_WDR06_Overview.qxd 8/16/05 3:39 PM Page 8 8 WORLD DEVELOPMENT REPORT 2006 and the distribution of wealth: anyone with behalf of their children and because the a profitable investment opportunity would expected returns to investment are influenced be able to either borrow money to finance by location, contacts, and discrimination-- it, or to sell equity in a firm set up to under- on grounds of gender, caste, religion, or take it. But capital markets in just about race. Discrimination and stereotyping-- every country (developed and developing) mechanisms for the reproduction of inequal- are very far from perfect: credit is rationed ity between groups--have been found to across prospective clients, and interest rates lower the self-esteem, effort, and perform- differ considerably across borrowers, and ance of individuals in the groups discrimi- between lenders and borrowers, in ways nated against. This reduces their potential for that cannot be linked to default risk or individual growth and their ability to con- other economic factors affecting expected tribute to the economy. returns to lenders. For example, interest Striking evidence of the impact of rates decline with loan size in Kerala and stereotyping on performance comes from a Tamil Nadu in India, and across trading recent experiment in India. Children from groups in Kenya and Zimbabwe, in ways not different castes were asked to complete sim- explained by risk differences.7 In Mexico, ple exercises, such as solving a maze, with returns to capital are much higher for the real monetary incentives contingent on per- smallest informal sector firms than for formance. The key result of the experiment larger ones. is that low-caste children perform on par Land markets also have imperfections with high-caste children when their caste is associated with a lack of clear titling, histo- not publicly announced by the experi- ries of concentrated land ownership, and menter but significantly worse when it is imperfect rental markets. In Ghana, lower made public (figure 5). If a similar inhibi- security of tenure among women leads to tion of talent occurs in the real world, this an inefficiently low frequency of land fal- implies a loss of potential output owing to lowing and, hence, to progressive declines social stereotyping. in land productivity. The market for human capital is also Economic and political inequalities are imperfect, because parents make decisions on associated with impaired institutional development. The second channel through Figure 5 Children's performance differs when their caste is made salient which inequity affects long-run processes of development is the shaping of economic Average number of mazes solved, by caste, and political institutions (chapter 6). Insti- in five experimental treatments 8 tutions determine the incentives and con- Piece rate Tournament straints people face and provide the context in which markets function. Different sets of 6 institutions are the outcome of complex historical processes that reflect the interests 4 and structure of political influence of different individuals and groups in a soci- ety. From this perspective, market im- 2 High caste perfections may arise not by accident but Low caste because they distribute income or power in 0 particular ways. In this view, there will be Caste Caste Caste Caste Caste social conflict over the institutions of not announced not announced announced society and incentives for people who con- announced announced and segregated trol power to shape institutions in ways that benefit them. Source: Hoff and Pandey (2004). Note: The figure depicts the number of mazes correctly completed The central argument here is that by low-caste and high-caste children from a set of Indian villages in a number of different experiments. The difference between the unequal power leads to the formation of first two and the last three columns refers to payouts: whether institutions that perpetuate inequalities in children are paid per correct maze completed (piece rate) or only if they complete the most mazes (tournament). power, status, and wealth--and that typi- 01_WDR06_Overview.qxd 8/16/05 3:39 PM Page 9 Overview 9 cally are also bad for the investment, inno- inequality is objectionable on both intrinsic vation, and risk-taking that underpin and instrumental grounds. It contributes to long-term growth. Good economic insti- economic inefficiency, political conflict, and tutions are equitable in a fundamental institutional frailty. What are the implica- way: to prosper, a society must create tions for policy, and do they give rise to an incentives for the vast majority of the agenda that is different from the poverty population to invest and innovate. But reduction agenda already embraced by the such an equitable set of economic institu- World Bank, other multilateral institutions, tions can emerge only when the distribu- and many governments? tion of power is not highly unequal and in We argue that an equity lens enhances situations in which there are constraints the poverty reduction agenda. The poor on the exercise of power by officeholders. generally have less voice, less income, and Basic patterns in cross-country data and less access to services than most other peo- historical narratives support the view that ple. When societies become more equitable countries moving onto institutional paths in ways that lead to greater opportunities for that promoted sustained prosperity did so all, the poor stand to benefit from a "double because the balance of political influence dividend." First, expanded opportunities and power became more equitable. benefit the poor directly, through greater One example comes from a comparison participation in the development process. of the early institutions and of the long- Second, the development process itself may term development paths of European become more successful and resilient as colonies in North and South America. The greater equity leads to better institutions, abundance of unskilled labor prevalent in more effective conflict management, and a the South American colonies--where either better use of all potential resources in soci- native Americans or imported African ety, including those of the poor. Resulting slaves were available in large numbers-- increases in economic growth rates in poor combined with the technology of mining countries will, in turn, contribute to a and large plantation agriculture to provide reduction in global inequities. the economic base for hierarchical and One manifestation of the greater partic- extractive societies, in which land owner- ipation of the poor in economic growth is ship and political power were highly con- the fact that the growth elasticity of centrated. In North America, by contrast, poverty reduction falls with greater income similar attempts to introduce hierarchical inequality. In other words, the impact of structures were foiled by the scarcity of (the same amount of) growth on poverty labor--except where agro-climatic condi- reduction is significantly greater when ini- tions made slavery economically feasible, tial income inequality is lower. On average, such as in the southern region of the United for countries with low levels of income States. Competition for free labor in the inequality, a 1 percentage point growth in northern areas of North America led to the mean incomes leads to about a 4 percent- development of less unequal land owner- age-point reduction in the incidence of $1 ship patterns, a faster expansion of the fran- per day poverty. That power falls to close to chise, and rapid increases in literacy and zero in countries with high income basic education. The resulting economic inequality.8 Policies that lead to greater and political institutions persisted over equity thus lead to lower poverty--directly time, with positive consequences for long- through expanding the opportunities of run economic development. the poor and indirectly through higher lev- els of sustained development. An equity lens adds three new--or at Leveling the economic least often neglected--perspectives to devel- and political playing fields opment policymaking: So a portion of the economic and political inequalities we observe around the world is · First, the best policies for poverty attributable to unequal opportunities. This reduction could involve redistributions 01_WDR06_Overview.qxd 8/16/05 3:39 PM Page 10 10 WORLD DEVELOPMENT REPORT 2006 of influence, advantage, or subsidies The analysis of development experience away from dominant groups. Highly clearly shows the centrality of overall politi- unequally distributed wealth associated cal conditions--supporting the emphasis with unduly concentrated political on governance and empowerment in recent power can prevent institutions from years. However, it is neither the mandate enforcing broad-based personal and nor the comparative advantage of the property rights, and lead to skewed pro- World Bank to engage in advice on issues of visioning of services and functioning of political design. In turning to policy impli- markets. This is unlikely to change cations, we focus instead on the core areas unless voice and influence, and public of development policy, while recognizing resources, shift away from the domi- that policy design needs to take account of nant group toward those with fewer the broader social and political context, and opportunities.9 that accountability mechanisms influence development effectiveness. · Second, while such equity-enhancing Because economic policies are deter- redistributions (of power, or access to mined within a sociopolitical reality, how government spending and markets) can policies are designed, introduced, or often be efficiency-increasing, possible reformed matters as much as which specific tradeoffs need to be assessed in the policies are proposed. Policy reforms that design of policy. At some point, higher result in losses for a particular group will be tax rates to finance spending on more resisted by that group. If the group is pow- schools for the poorest will create so erful, it will usually subvert the reform. The much disincentive to effort or invest- sustainability of reforms, therefore, may ment (depending on how the taxes are depend on making information about its raised), that one should stop raising distributional consequences publicly avail- them. When making a policy choice able and, perhaps, forming coalitions of along such tradeoffs, the full value of the middle and poorer groups that stand to benefits from equity enhancement gain from them to "empower," directly or should be considered. If greater spend- indirectly, relatively disadvantaged mem- ing on schools for lower-caste children bers of society. means that, over the long term, stereo- How policies are implemented has a typing will decline in society, with atten- technical aspect as well. Just as we empha- dant increases in performance that are size that the full long-term benefits of redis- additional to the specific gains from tributions need to be taken into account greater schooling today, these gains when making policy choices, so must all should not be ignored. their costs. A focus on equity does not · Third, the dichotomy between policies change the facts that asset expropriations-- for growth and policies specifically even in instances of historical grievances-- aimed at equity is false. The distribution may have adverse consequences for subse- of opportunities and the growth process quent investment, that high marginal tax are jointly determined. Policies that affect rates create disincentives to work, or that one will affect the other. This does not inflationary financing of budget deficits mean that each policy needs to take tends to lead to regressive implicit taxation, equity into account individually: for economic disorganization, and reduced example, the best way to deal with investment and growth. In short, a focus on inequitable effects of a particular trade equity must not be an excuse for poor eco- reform is not always through fine-tuning nomic policy. trade policy itself (which might make it The report discusses the role of public more susceptible to capture) but through action in leveling the economic and politi- complementary policies for safety nets, cal playing field under four main headings. labor mobility, and education. The over- Three of the headings concern domestic all package and the fairness of the under- policies: investing in human capacities; lying process are what matter. expanding access to justice, land, and infra- 01_WDR06_Overview.qxd 8/16/05 3:39 PM Page 11 Overview 11 structure; and promoting fairness in mar- Figure 6 Catching up through early interventions kets. The fourth turns to policies for greater Development quotient global equity, in terms of access to markets, 110 resource flows, and governance. Children of normal Stimulation and nutritional supplement Throughout the discussion, the report height 105 weighs a desire to be specific and practical Stimulation against the fact that the best specific policy 100 Nutritional supplement mix is a function of country context. The educational challenges facing Sudan are 95 different from those facing Egypt. The Control group 90 optimal sequencing of reform in the public sectors of Latvia and Bolivia are unlikely to 85 be the same. The capacity for implement- Baseline 6 12 18 24 ing health finance reform in China and Months Lesotho are also different. So the detailed, Source: Grantham-McGregor and others (1991). Note: The development quotient is an index of progress on four behavioral and cognitive indicators of childhood specific policy advice always needs to be development. Number of months refers to the time after entry into the program--generally at an age of nine months. developed at the country--or even subna- tional--level. Everything that is said below therefore retains some level of generality with children who started life at a normal and should be interpreted accordingly, and height (figure 6). This illustrates how deci- cautiously. sive and well-designed public action can substantially reduce the opportunity gaps Human capacities between those least privileged and the soci- Early childhood development. In many etal norm. Investing in the neediest people developing countries, the actions of the early in their childhoods can help level the state in providing services magnify--rather playing field. than attenuate--inequalities at birth. A guiding principle is to shape public action Schooling. The process continues through- so that the acquisition of human capacities out the school system. Actions to equalize is not driven by circumstances of their opportunities in formal education need to birth, although it can reflect people's prefer- ensure that all children acquire at least a ences, tastes, and talents. basic level of skills necessary to participate Because differences in cognitive devel- in society and in today's global economy. opment start to widen from a very early Even in such middle-income countries as age (see figure 2), early childhood develop- Colombia, Morocco, and the Philippines, ment initiatives can be central to more most children completing basic education equal opportunities. Evidence supports the lack an adequate level of achievement, as view that investing in early childhood has measured by internationally comparable large impacts on children's health and test scores (chapters 2 and 7). readiness to learn and can bring important Access to schooling matters--especially economic returns later in life--often in very poor countries--but, in many coun- greater than investments in formal educa- tries, it is only a small part of the problem. tion and training. Greater access needs to be complemented by An experiment in Jamaica focused on supply-side policies (to raise quality) and undersized children (ages 9 to 24 months) demand-side policies (to correct for the pos- and found that they suffered from lower sibility that parents may underinvest in the levels of cognitive development than those education of their children for various rea- of normal height. Nutritional supplements sons). There are no magic bullets for this, but and a program of regular exposure to men- increasing teachers' incentives, enhancing tal stimulation, helped offset this disadvan- the basic quality of the school's physical tage. After 24 months, kids who received infrastructure, and researching and imple- both better nutrition and more stimulation menting teaching methods to increase the had virtually caught up developmentally learning performance of students who do 01_WDR06_Overview.qxd 8/16/05 3:39 PM Page 12 12 WORLD DEVELOPMENT REPORT 2006 not do well when left to their own devices are ple with a safety net. In addition to ill health, some of the suggestions on the supply side. macroeconomic crises, industrial restructur- On the demand side, there is now a con- ing, weather, and natural disasters can con- siderable body of evidence showing that strain investment and innovation. The poor, scholarships conditional on attendance have with the lowest capacity to manage shocks, significant impacts. Such transfers work in generally are the least well covered by risk- countries from Bangladesh to Brazil, with the management structures, although in most impacts often greater for girls. There are also countries many among the non-poor risk promising approaches to bring in excluded falling into poverty. Broader social protec- groups--as in the Vidin model of reaching tion systems can help prevent today's Roma in Bulgaria--and to bring up those left inequalities--sometimes generated by bad behind through remedial education--as in luck--from becoming entrenched and lead- the Balsakhi program using young women as ing to tomorrow's inequities. Just as safety para-teachers in 20 cities in India. As argued nets can spur households to engage in riskier in World Development Report 2004, devel- activities that can yield higher returns, they oping the accountability of schools and can also help complement reforms that pro- teachers to students, parents, and the broader duce losers. community can help ensure effective service Safety nets typically target three groups: provider behavior. the working poor, people viewed as unable to work or for whom work is undesirable, and Health. Two areas stand out in reducing special vulnerable groups. If safety nets are inequity and tackling economic distortions designed in a manner appropriate to the local in the provision of health services. First, realities on the ground in each country, indi- there are many cases when the benefits spill vidual targeted interventions in these three over beyond the direct beneficiary in a categories can be combined to provide an range of areas of service provision: for effectively universal public insurance system. immunization, for water and sanitation, In such a system, each household that suffers and for information on hygiene and child a negative shock, and falls below some prede- care. Public assurance of provisioning termined threshold of living standards, makes sense in these areas. Demand-side would qualify for some form of state support. subsidies to provide incentives for maternal and child health increase use, offsetting Taxes for equity. Successful interventions to possible information problems as in Mex- level the playing field require adequate ico's Oportunidades program. resources. The main aim of good tax policy is Second, insurance markets for cata- to mobilize sufficient funding, while distort- strophic health problems are beset with fail- ing incentives and compromising growth as ures. (Here "catastrophic" is in relation to the little as possible. Because taxes impose effi- capacity of the household to deal with the ciency costs by altering individual choices direct costs and the loss in earnings.) The tra- between labor and leisure and consumption ditional supply-side model of relying on pub- and savings, most developing countries are lic hospitals works badly, especially for poor likely to be best served by avoiding high mar- and excluded groups.What can work better is ginal taxes on income and relying on a broad public provisioning or regulation that pro- base, especially for taxes on consumption. vides some insurance for all. Examples Public spending should play the primary role include risk pooling in Colombia, health in actively furthering equity. Nevertheless, cards in Indonesia and Vietnam, and Thai- there is some scope for making the overall tax land's "30-baht" universal coverage scheme. system moderately progressive without large As with education, these interventions need efficiency costs. Societies that desire such an to be combined with incentives for providers outcome can consider simple exemptions for to be responsive to all groups. basic foodstuffs, and an expanded role for property taxation, for example. Risk management. Social protection sys- While the capacity of the tax administra- tems shape opportunities by providing peo- tion and the structure of the economy influ- 01_WDR06_Overview.qxd 8/16/05 3:39 PM Page 13 Overview 13 ence the ability to raise revenues, the quality Equity in laws and fairness in their imple- of institutions and the nature of the social mentation involve striking a balance between compact are also critical. When citizens can strengthening the independence of justice rely on services actually being provided, they systems and increasing accountability-- likely are more willing to be taxed. Con- especially to counter the risk that the pow- versely, a corrupt or kleptocratic state engen- erful and wealthy might corrupt, influence, ders little citizen trust in authority and little or ignore the law. Measures to make the incentive to cooperate. As a general rule, a legal system more accessible--mobile more legitimate and representative state may courts, legal aid, and working with custom- be a prerequisite to an adequate tax system, ary institutions--all help reduce the barri- even as the notion of adequacy varies from ers that excluded groups face. Customary country to country. institutions raise complex issues and may incorporate inequities (for example, with Justice, land, and infrastructure respect to gender), but they are too impor- The development of human capacities will tant to be ignored. South Africa is an exam- not broaden opportunities if some people ple of a country that is pursuing a policy face unfair returns on those capacities and that balances recognition of customary unequal protection of their rights, and have practices with the rights and responsibilities unequal access to complementary factors of in state law. production. Toward greater equity in access to land. Building equitable justice systems. Justice Broader access to land does not necessarily systems can do much to level the playing have to come through ownership (chapter 8). field in the political, economic, and socio- Instead, improving the functioning of land cultural domains, but they can also rein- markets and providing greater security of force existing inequalities. The report pays tenure for poorer groups may be a more attention to both codified law and the ways fruitful area for policy--as in rural Thailand in which the law is applied and enforced in and in urban Peru. Redistributive land practice. Legal institutions can uphold the reform can make sense in some circum- political rights of citizens and curb the cap- stances in which land inequalities are extreme ture of the state by the elite. They can equal- and the institutional context allows for ize economic opportunities by protecting designs that effectively redistribute land to property rights for all and ensuring nondis- smaller farms and support this with comple- crimination in the market. They underpin mentary services, without large transitional and reflect the rules of the game in society costs. But this can be difficult, and tradeoffs and thus are central to fair process--and to may be large when property rights have a the broad-based property rights and un- high degree of legitimacy. biased dispute resolution mechanisms so Expropriating land (with compensation) important for investment. is probably the most disruptive redistribution The law can also accelerate shifts in instrument. Divesting state lands and recu- norms, and justice systems can serve as a perating illegal settlements, possibly in progressive force for change in the social exchange for titling a portion of the settle- domain by challenging inequitable prac- ment, may be two cost-effective alternatives. tices. For example, the U.S. Civil Rights Act Market or community-based approaches that of 1964 and Medicare in 1965 enforced the allow community members to obtain subsi- desegregation of hospitals and led to large dized credit for land rentals or purchases reductions in infant mortality for African according to the willing-buyer-willing-seller Americans. Affirmative action programs principle, as in Brazil and South Africa, have also been shown to reduce group- appear promising. A land tax can be a useful based differences in earnings and educa- complement, generating revenues to pur- tion. But they can become politically chase land to redistribute or encouraging entrenched and limited to helping the bet- redistribution by disproportionately taxing ter-off among disadvantaged groups. large or underused plots. 01_WDR06_Overview.qxd 8/16/05 3:39 PM Page 14 14 WORLD DEVELOPMENT REPORT 2006 Providing infrastructure equitably. Access to Markets and the macroeconomy infrastructure--roads, electricity, water, Markets are central to shaping the potential sanitation, telecoms--is typically highly un- for people to convert their assets into out- equal across groups. For many people in comes. When market transactions are influ- developing countries, lack of access to enced by the wealth or status of participants, affordable infrastructure services means liv- they are both inequitable and inefficient-- ing in isolation from markets and services and can also influence the incentives for and having intermittent or no supply of different groups to expand their assets power or water for productive activities and (chapter 9). daily existence. This often results in a signifi- cant curtailment of economic opportunities. Financial markets. Captured banking sys- While the public sector will in many tems exchange favors: market power is pro- cases remain the main source of funds for tected for a few large banks, which then lend infrastructure investments aimed at broad- favorably to a few selected enterprises, which ening opportunities for those who have the may not be those with the highest expected fewest, the efficiency of the private sector risk-adjusted returns. This may lie behind a can also be harnessed. Although utility pri- cross-country association between greater vatizations have often been attacked for financial depth and lower income inequal- having unequal effects, the evidence indi- ity. Achieving more equal access to finance cates a more complex reality. Privatizations by broadening financial systems thus can in Latin America typically led to expansions help productive firms that were previously in access to services, particularly in electric- beyond the reach of formal finance. ity and telecommunications. In some cases, These relations are only suggestive, how- however, postprivatization increases in ever, so the report draws on case studies prices more than outweighed gains from from middle-income economies, such as quality and coverage, leading to widespread the Republic of Korea, Malaysia, Mexico, popular discontent. and the Russian Federation, and poorer Privatizations are therefore a classic case economies, including Indonesia and Pak- of a policy that may or may not make sense, istan, to provide more concrete evidence. depending on the local context. If the public These studies suggest an apparent paradox. system is highly corrupt or inefficient, and Societies with extensive inequalities in one expects postprivatization regulatory power and wealth, weak institutions, and capacity to be adequate, it can be a useful controlled financial systems typically suffer tool. In other cases, poorly designed privati- from narrow financial sectors that are ori- zations may be captured, transferring pub- ented to the influential and hide weak asset lic assets, at excessively low prices, into pri- quality. Opening the financial system would vate hands. seem to be an obvious solution. Liberaliza- Experience suggests that whether infra- tion, however, has also often been captured structure services are provided by private by the influential or wealthy, in countries operators or public utilities seems less ranging from Mexico (in the early 1990s) to important for equity than the structure of transition economies such as the Czech incentives facing providers and how Republic and Russia. accountable these providers are to the gen- Gradual deepening and broadening thus eral public. We argue that policymakers can needs to be combined with stronger horizon- improve the equitable provision of infra- tal accountability (in regulatory structures), structure services by focusing on expand- greater openness to societal accountability, ing affordable access for poor people and and, where feasible, external commitment poor areas--which often means working devices (such as the entry of Central Euro- with informal providers and targeting pean and Baltic states to the European subsidies--and strengthening the gover- Union). Programs targeted to the poor-- nance of the sector through the greater such as microcredit schemes--can help but accountability of providers and the are no substitute for the overall broadening of stronger voice of beneficiaries. access. 01_WDR06_Overview.qxd 8/16/05 3:39 PM Page 15 Overview 15 Labor markets. Leveling the playing field in Figure 7 Better to be close to economic opportunities labor markets consists of seeking the right Changes in household welfare in Mexico, following trade liberalization in the 1990s (country-specific) balance between flexibility and protection to provide more equal access Changes in to equal employment conditions to as many household welfare workers as possible. Many countries have > 5 percent fairly extensive regulations and provisions for 4­5 percent 2­4 percent formal sector workers, and far fewer for "out- 0­2 percent siders"in the unregulated (and often less safe) informal sector. There is usually a degree of voluntary movement between the sectors, and great diversity within the informal sector itself, ranging from microentrepreneurs and some of the self-employed with incomes above formal sector workers to many with much worse employment conditions. This mix leads to inadequate protection for poorer workers, while regulations for formal workers can reduce the flexibility of employment and often are a poor deal for the workers them- selves, such as when job-related social secu- Source: Nicita (2004). rity systems are inefficient. Two broad labor market approaches are relevant for equity. First, interventions in Product markets. There is substantial het- the labor market should ensure effective erogeneity in the effects of opening a coun- application of the core labor standards try's product markets to trade, at least in the across the whole market, implying no slave short to medium term. This can be due to or indentured work, no dangerous forms of geographic location, as illustrated by the child labor, and no discrimination. Workers varying impact of trade liberalization in should be free to assemble and form associ- Mexico (figure 7). This illustrates the ations, and their unions should be free to importance of interactions between domes- have an active role in bargaining. Second, in tic product markets and patterns of infra- all areas the policy mix needs to be assessed structure provision. There are also often in ways that balance protection (for all strong interactions with skills in the labor workers) with allowances for the restructur- market. In many countries, opening to ing so central to dynamic growth and trade (often coinciding with opening to for- employment creation. eign direct investment) has been associated Worker security is often provided by vari- with rising inequality in earnings in the past ous excessively stringent forms of employ- two decades. This is especially so for mid- ment protection legislation, which, in general dle-income countries, notably in Latin make it costly to hire and, in some cases, America. Opening to trade often boosts the make it even costlier to hire unskilled, young, premium on skills as firms modernize their and female workers--exactly those the laws production processes (skill-biased technical seek to protect. For many countries, less dis- change, in the jargon of economists). This is tortionary and more inclusive policy alterna- bad for equity if the institutional context tives are available, which may make the play- restricts the capacity of workers to shift into ing field more even in labor markets. These new work--or limits future cohorts' access alternatives include unemployment insur- to education. ance schemes (more likely in middle-income countries) and low-wage employment Macroeconomic stability. This report argues schemes (ideally with an employment guar- that there are two-way relationships between antee), which can be applied successfully even inequitable institutions and macroeconomic in poor countries or states. crises, with mostly bad effects for equity and 01_WDR06_Overview.qxd 8/16/05 3:39 PM Page 16 16 WORLD DEVELOPMENT REPORT 2006 long-run growth.Weak and captured institu- countries. Indeed, most policy advice given to tions are associated with a greater propensity poor countries over the last several decades-- for countries to experience macroeconomic including that by the World Bank--has crises. When crises occur, they can be costly emphasized the advantages of participating for the poor, who have weaker instruments in the global economy. But global markets are to manage shocks. In addition, crisis resolu- far from equitable, and the rules governing tion is often regressive, through a variety of their functioning have a disproportionately mechanisms (most of them not captured in negative effect on developing countries traditional household survey instruments): (chapter 10). These rules are the outcome of declines in the labor share, at least for formal complex negotiating processes in which workers; capital gains for those who get their developing countries have less voice. More- money out; and fiscal workouts that bail out over, even if markets worked equitably, the influential at substantial cost. Such unequal endowments would limit the ability bailouts must be paid for through some of poor countries to benefit from global combination of higher taxes and lower opportunities. Leveling the global economic spending. Because taxes are typically propor- and political playing fields thus requires more tional and spending is often progressive at equitable rules for the functioning of global the margin (notably in Latin America), the markets, more effective participation of poor cost of bailouts is borne disproportionately countries in global rule-setting processes, and by poorer groups. High inflation has also more actions to help build and maintain the been found to be both bad for growth and endowments of poor countries and poor regressive in its impact. people. A concern for equity would lead, in gen- The report documents some of the many eral, to a highly prudent stance on macroeco- inequities in the functioning of global mar- nomic management and financial regulation. kets for labor, goods, ideas, and capital. Populist macroeconomic policy, sooner or Unskilled workers from poor countries, who later, is bad for equity and bad for growth. could earn higher returns in rich countries, Policy design can increase equity through the face great hurdles in migrating. Developing- pursuit of countercyclical fiscal policy, build- country producers face obstacles in selling ing safety nets before a crisis, reducing risky agricultural products, manufactured goods, lending, and supporting only smaller deposi- and services in developed countries. Patent tors in bailouts. But, as in other policy areas, protection restricts access to innovations these responses need to be underpinned by (particularly drugs) for poor countries, while institutional designs that combine greater new research is strongly oriented to the institutional freedom from political influence diseases of richer societies. Rich-country (such as independent central banks and auto- investors often get better deals in debt crises. nomous financial regulatory agencies) with In most cases, more equitable rules would greater information and debate in society. bring benefits to developed- and developing- country citizens. Benefits vary across markets The global arena and countries, with those from greater legal One predetermined circumstance that most migration likely to be greatest (and to accrue powerfully determines a person's opportuni- directly to migrants) and those from trade ties for leading a healthy and productive life is likely to accrue mostly to middle-income his or her country of birth. Global inequities rather than the least developed countries. are massive. Reducing them will depend pri- The report discusses options to reduce marily on domestic policies in poor countries inequities in the functioning of global mar- through their impact on growth and develop- kets, including the following: allowing greater ment. But global action can change external temporary migration into OECD countries, conditions and affect the impact of domestic achieving ambitious trade liberalization policies. In this sense, global and domestic under the Doha Round, allowing poor coun- actions are complementary. tries to use generic drugs, and developing We live in an integrated world in which financial standards more appropriate to people, goods, ideas, and capital flow across developing countries. 01_WDR06_Overview.qxd 8/16/05 3:39 PM Page 17 Overview 17 The international laws that govern global devoting 0.7 percent of gross national income markets are the product of complex negotia- to aid. Larger volumes of aid will only help, tions. In some cases, as for human rights however, if aid is effective in alleviating con- covenants, the processes generating the laws straints and spurring development in the are perceived to be fair. In other cases, recipient countries. Greater effectiveness can processes and outcomes are perceived as be achieved by emphasizing results, moving unfair, even though the formal regulations away from ex ante conditionality, and pro- are equitable. Within the World Trade Orga- gressively shifting design and management nization (WTO), for example, each country from donors to recipients. Aid should not be has a vote and each can block proceedings. undermined by debt, for debt reduction that Even so, WTO processes are at times per- is not financed by additional resources can ceived as unfair because of the underlying actually undercut effective aid programs. power imbalance between strong commercial Innovative mechanisms to expand develop- interests and the public interest, in both ment assistance should be explored, includ- developed and developing countries. These ing global taxes and private contributions. imbalances manifest themselves, for instance, in the number of staff employed in Geneva Equity and development by different WTO members. More effective Bringing equity to the center of development representation of poor countries in global builds on and integrates the major emphases institutions would help improve processes in development thinking of the past 10 to 20 and may lead to more equitable rules. years--on markets, on human development, The impact of reducing imperfections in on governance, and on empowerment. It is global markets varies by country. The larger noteworthy that this year equity is the focus of and fast-growing developing countries stand both this World Development Report and the to benefit significantly from freer global Human Development Report of the United trade, migration, and capital flows, helping Nations Development Programme. The plea them sustain fast growth (while equitable for a more level playing field in both the pol- domestic policies both help underpin long- itics and the economies of developing coun- run growth and the broad internal sharing of tries serves to integrate the World Bank's this growth). Countries left behind in the twin pillars of building an institutional cli- global economy stand to benefit much less mate conducive to investment and empow- from global markets in the short run and will ering the poor. By ensuring that institutions continue to rely on aid. For them, global enforce personal, political, and property action that helps compensate for unequal rights for all, including those currently endowments is truly essential.Action to build excluded, countries will be able to draw on endowments is primarily domestic, through much larger pools of investors and innova- public investments in human development, tors, and be much more effective in provid- infrastructure and governance structures. But ing services to all their citizens. Greater global action can support domestic policies equity can, over the long term, underpin through resource transfers in the form of aid, faster growth. This can be helped by greater which is not offset by debt repayments, and fairness in the global arena, not least through investments in global public goods, particu- the international community's meeting its larly global commons. commitments made at Monterrey. Faster Aid levels need to be bolstered in line with growth and human development in poorer the commitments rich countries made at the countries are essential to reducing global 2002 Monterrey Conference and concrete inequity and to reaching the Millennium plans should be made to reach the target of Development Goals.