Presentation on theme: "WDR 2000/1. What follows is a useful set of notes (with paraphrasing, quotes, and figures from World Bank, World Development Report, 2000/1, Attacking."— Presentation transcript:
What follows is a useful set of notes (with paraphrasing, quotes, and figures from World Bank, World Development Report, 2000/1, Attacking Poverty which articulates an influential global orientation toward policy making geared toward the reduction of poverty. OVERVIEW 1 (italics added) ► “Poor people live without fundamental freedoms of action and choice that the better-off take for granted.” capabilities, rights? ► Poverty is multidimensional: it includes inadequate food, shelter, health, education; vulnerability to disease, dislocation, disaster; and often mistreatment by state and society. ► “The experience of multiple deprivations is intense and painful.” The Voices of the Poor study, which informs this report, gives a first-hand glimpse of poverty. participatory approach ► “Of the world’s 6 billion people, 2.8 billion – almost half – live on less than $2 a day, and 1.2 billion – a fifth – live on less than $1 a day, with 44 percent living in South Asia.” monetary poverty ► “In rich countries,” less than 1 in 100 children die before age 5; while “in the poorest countries,” as many as 20% do. In rich countries, <5% children < 5 yrs old are malnourished; in poor countries, as many as 50% ten times the percentage. Inequality, comparison, as definition of poverty
► Global wealth increasing “But the distribution of these global gains is extraordinarily unequal.“But the distribution of these global gains is extraordinarily unequal. ”The average income in the richest 20 countries is 37 times the average in the poorest 20 – a gap that has doubled in the last 40 years.””The average income in the richest 20 countries is 37 times the average in the poorest 20 – a gap that has doubled in the last 40 years.” ► Regions of the world differ greatly. o“In East Asia the number of people living on less than $1 a day fell from 420 million to around 280 million between 1987 and 1998 – even after the setbacks of the financial crisis. o“Yet in Latin America, South Asia, and Sub-Saharan Africa, the numbers of poor people have been rising. o“And in the countries of Europe and Central Asia in transition to market economies [ie: former Soviet Block], the number of people living on less than $1 a day rose more than twentyfold.” WDReport 2000/1. OVERVIEW 2
WDReport 2000/1. OVERVIEW 3: International/Millennium Development Goals to reach by 2015 1)Income Reduce by 50% the proportion of people living in extreme income poverty, on < $1/day 2)Education Ensure universal primary educationEnsure universal primary education Eliminate gender disparity in primary and secondary educationEliminate gender disparity in primary and secondary education 3)Health Reduce infant and child mortality by two thirds (ie in 2015 it will be 33% level in 2000) Reduce maternal mortality by three-quarters (2015 level will be 25% 2000 level) Ensure universal access to reproductive health services 4)Environment Implement national strategies for sustainable development in every country by 2005, so as to reverse the loss of environmental resources by 2015.
WDReport 2000/1. OVERVIEW 4: But how to reduce poverty in all dimensions? Answers have changed over time. 1. 1950s and 1960s, “large investments in physical capital and infrastructure” 2.1970s, “health and education” 3.1980s, “improving economic management and allowing greater play for market forces.” 4. 1990 WDR promoted labor intensive growth through economic openness and infrastructure and providing basic services 5.1990s, “governance and institutions moved toward center state – as did issues of vulnerability at the local and national levels.”
WDReport 2000/1. OVERVIEW 5: ► This report builds on cumulative learning ► Proposes a strategy for attacking poverty in three ways, by 1)Promoting Opportunity 2)Facilitating Empowerment 3)Enhancing Security
WDReport 2000/1. OVERVIEW 6: Focus 1: Promoting Opportunity ► For poor people, material opportunities mean jobs, credit, roads, electricity, markets for produce, schools, water, sanitation, health services note: capability + participatory approach ► “Overall economic growth is crucial for generating opportunity. “So is the pattern or quality of growth. (growth = money = PCGDP) “Market reforms can be central in expanding opportunities for poor people, but reforms need to reflect local institutional and structural conditions. “And mechanisms need to be in place to create new opportunities and compensate the potential losers in transitions. (exclusion) ► “In societies with high inequality, greater equity is particularly important for rapid progress in reducing poverty. “This requires action by the state to support the buildup of human, land, and infrastructure assets that poor people own or to which they have access.” [NOTE: high and increasing inequality AMONG national economies in global economic growth system is NOT part of this discussion.]
WDReport 2000/1. OVERVIEW 7: Promoting Opportunity 2 ► Core policies and institutions for creating more opportunity involve complementary actions to stimulate economic growth, make markets work for poor people, and build their assets – including addressing deep-seated inequalities in the distribution of such endowments as education”
WDReport 2000/1. OVERVIEW 8: Promoting Opportunity 3 ► Growth requires encouraging effective private investment. Investment and technological innovation are the main drivers of growth in jobs and labor incomes ► Fostering investment requires reducing risk for private investors: with stable fiscal and monetary policies, in stable investment regimes, with sound financial systems, and a clear and transparent business environment. It also involves ensuring the rule of law and taking measures to fight corruption ► Special measures are frequently required to ensure that small and micro- enterprises participate effectively in markets. credit (financial deepening), lowering transactions costs of reaching consumers by expanding access to Internet technology, promoting trade at fairs, etc.; improving transportation in disadvantaged localities
WDR 2000/1, discussion ► The next set of slides presents figures from WDR 2000/1, chapter 3, on “opportunity,” The chapter stresses the productive role of overall economic growth in poverty reduction. It also indicates how various national economies have channeled additional wealth (acquired through economic growth) into poverty alleviation
WDR 2000/1, discussion ► The WDR does argue that aggregate (or general) economic growth (increasing total national wealth/capita) facilitates poverty reduction. ► But does economic growth CAUSE poverty reduction? ► Is increasing wealth a necessary or sufficient condition for poverty reduction? ► Keep in mind the multidimensional character of poverty: growth might reduce poverty in some dimensions (e.g. income) more than others
WDR 2000/1, discussion ► The WDR does not argue that increasing wealth is a necessary, let alone sufficient, condition for poverty reduction Interpreting WDR figures below indicates why ► We can explore the relationship between data and arguments by looking closely at these figures The are excellent examples of data revealing more on close examination than first meets the eye.
Note the statement atop this figure presents a correlation, a statistical pattern; it ALSO implies causality: more wealth means less poverty. Thus policies to increase wealth might tend “in general” to reduce policy. (note sample) Q1: National wealth data and income poverty are measured quite differently. What is the difference? Does it matter for interpreting these data? Q2: These two graphs can be interpreted to mean that on average, poorer people live in poorer countries. Do these data suggest anything else?
A1: National wealth data derive from national accounts. X axis values are percapita consumption = (GDP - inventory – savings – exports + imports)/ total population Poverty data and hence quintiles of consumption cost (y axis values) derive from sample survey data. Hence some incommensurability appears in each data point. More serious problems arise for cross country comparisons. PPP = purchasing power parity. A calculation designed to compensate for variations in value of money and cost of goods and services across countries. PPP figures reduce problems of cross country comparisons to acceptable level for such analysis.
Reading trick: interpret the three oval and three rectangular clusters ovals: richer and poorer societies have similar consumption levels for poorest 20% rectangles: societies with the same total wealth have lower and higher consumption levels for poorest 20%; and range of variation is smallest in poorest societies.
Thus, the “in general” statement is true (blue trend line) But data ALSO point in other directions: (1: ovals) more wealth does not always mean more consumption for poorest 20%; and (2: rectangles) the poorest 20% have higher and lower consumption levels in societies with the same percapita wealth. Red line indicates an axis of national wealth increase with decline in poorest 20% consumption.
Interpret in words (1) the clustering of these data points around 0:0 and (2) statistical differences among countries in (a) each quadrant separately, and (b) each quadrant comparatively.
What can you say comparatively about countries, based on this figure? (see next slide)
General statement: Health performance varies greatly among countries with similar PCGDP. Provide details. Q: Where on this chart is the poorest country with health performance comparable to rich countries?
Compare (1) South Asia and Sub- Saharan Africa (2) China and Thailand
Note the two timescales. What is their implication for current trends?
Interpret the distribution of countries in this figure. Drawing concentric circles might help.
If this general statement applies inside countries, might it also apply across countries?
Q1: What does the ratio in this figure indicate? Q2: What does a ratio >100 mean? Q3: Does this data indicate literacy levels? Q3: What are other useful interpretations of this data? Consider the range of ratios among countries with $1,000 PCGPD Consider the PCGDP range among countries with and full gender equality in literacy rates.
WDR 2000/1 summary, continued ► WB national strategy has three parts 1.Promoting Opportunity (Chapters 3-5) 2.Facilitating Empowerment (Chapters 6-7) 3.Enhancing Security (Chapters 8-9) ► National strategy supplemented by International Action (Chapters 10-11)
1. Promoting Opportunity ► Chapter 3 summary last week Focus: the primacy of economic growth Growth and inequality Income growth and nonincome poverty
WDR 2000/1 Chap 4: Making Markets Work Better for Poor People
THE IMPACT OF INFLATION An Extreme Cast: Collapse in Real Wage (entitlement to food) caused starvation in The Great Bengal Famine
Wage and price trends affect income groups differently
Current Trends in Bangladesh (from Daily Star 16 July 2005) Note Rice accounts for 60-70% of inflation rate Female Daily Agr Wage is 75% male wage
Wage trends favor skilled workers and industry in general over agriculture
Economic Growth and Overall Increase in National Wealth includes Upward shift in commodity value/prices (Daily Star 19 July 2005) ► Higher Value Labor 19% decrease in labor exports from Bangladesh in Jan-May 2005 compared to same period in 2004 19% increase in receipts remitted from export labor Reason: increasing demand abroad for skilled labor; declining demand for unskilled labor; hence lower numbers, higher wages ► High Value Agriculture. IFPRI research Per capita grain consumption declining or growing at less than 1% per year in eight Asian countries (Bangladesh, Pakistan, India, Indonesia, Philippines, Thailand, Vietnam, and China) Per capita consumption of HVA (fruits and vegetables) increasing at 2-10% per year In Thailand and Philippines, >50% of all food is sold in supermarkets In Dhaka city, about 15% of food sold passes through supermarkets Market-connections-finance direct links between retailers and producers through supply systems generate specialized production-consumption commodity chains (e.g. BRAC in Chandina, where 30% poor farmer income is in vegetables.)
Some critical considerations of WB approach to poverty reduction FOCUS: The Market-led-growth-first orientation to poverty reduction The Market-led-growth-first orientation to poverty reduction It is based on the DEBATABLE IDEA that aggregate national wealth increase helps to reduce and can be relied upon to eliminate poverty, when combined with supportive state and private policies to make growth “pro-poor” Its concept of poverty, measures of poverty, ideas about causation, and policies follow from and support this basic orientation
Does economic growth reduce poverty? ► Note: the WB argues only that growth facilitates poverty reduction. ► A 2004 DFID study of 14 countries in E.Europe, Africa, and Asia (including Bangladesh) argues more strongly that “growth reduces poverty.” “on average a 1 percent increase in income percapita reduced poverty by 1.7 percent” during 1993 – 2002, according to DFID study Causal connection made very forcefully, based on correlations: growth and poverty headcount.
Empirical Complications. Other explanations. ► DFID conclusions based on headcount poverty reductions ► DFID findings of poverty reduction during growth are compatible with the argument that (1) factors other than growth reduced poverty during economic growth and (2) that lower headcount poverty resulted from a trend increase in inequality around the poverty line, ► ► which raised barely-poor people above the line, ► ► left poverty gap and severity intact (or perhaps increased both) ► ► and also raised non-poor incomes disproportionately ► It is therefore possible to interpret the claim that growth reduces poverty as a moral and political justification for the increasing inequality that accompanies market-led economic growth
Counter-Market policies may be reducing poverty during economic growth and might thus be making growth appear to “pro-poor” ► Vietnam is strongest case for “pro poor growth” causal connection in the DFID study ► Vietnam also country with strong social programs organizing market operations particularly in rural areas ► The state provides broadly egalitarian education, health care, market access, production cost control, etc. all through non-market mechanisms ► The case could thus be made here that an effective socialist state makes the market work best for the poor
Challenging Trends Several empirical trends challenge the idea that market-led economic growth and the aggregate wealth increase which it facilitates are effective means for reducing poverty substantially in the foreseeable future.
Trends that challenge the market-growth-first policy model of poverty alleviation ► Broad increases in inequality separating rich and poor countries more and more dramatically during recent rapid growth (especially 1990s) ► Growth in poor countries concentrates in growth sectors tied to world markets Generating higher value commodities (wealth) [e.g. vegetables, skilled labor, and education] for wealthier segments of the population. ► Raising incomes and living standards most among the non-poor and least among the poorest, inside and across national economies ► Regional rich-poor differentiation: e.g. India and China; urban-rural divide generally.
Share of Global Income Going to Richest 20% and Poorest 20% of World Population Year Share of Richest 20% Share of Poorest 20% Ratio of Richest to Poorest 196070.2%2.3%30 to 1 197073.9%2.3%32 to 1 198076.3%1.7%45 to 1 198982.7%1.4% 59 to 1 Source: United Nations, Human Development Report, 1992. Inequality is dynamic force allocating growth benefits: Where does the new wealth go?
US Income Disparities Household Groups Percent Share of all Income Average After Tax Income ($000) 1977199919771999 bottom 20%5.74.2108.8 second lowest 20%11.59.722.120 middle 20%16.414.732.431.4 second highest 20%22.821.342.645.1 highest 20%44.250.474102.3 highest 1%7.312.9234.7515.6 note: percentages do not add to 100 due to rounding Source: New York Times Sunday Sept 5, 1999. National Section p.16, based on Congressional Budget Office data analyzed by Center on Budget and Policy Priorities
Winners and losers Apr 26th 2001 From The Economist print edition The global distribution of income is becoming ever more unequal. That should be a matter of greater concern than it is, argues Robert Wade
WADE continued CHARTS MISSING – WILL BE ADDED Chart 1 (above) shows the distribution of the worlds population by average income of each country (using compatible data from 1993, the most recent year available). Income is measured in terms of purchasing power over comparable bundles of goods and services, or purchasing-power parity (PPP), rather than in terms of actual exchange rates. China and India, with between them almost 40% of world population, are each divided into urban and rural sectors and treated as four separate countries. The distribution has two poles. One, at the bottom end, is at an average income of less than $1,500 a year. It contains the populations of most of Africa, India, Indonesia and rural China. At the other pole, with average PPP incomes of more than $11,500, are the United States, Japan, Germany, France, Britain and Italy. Some of the space between $1,500 and $11,500 is occupied by countries such as urban China, Russia and Mexico. But notice the strange missing middle: relatively few people live in countries with average PPP incomes that fall between $5,000 and $11,500. If incomes were measured using actual exchange rates, the range from poorest to richest would be much larger.
WADE continued Having ignored world income distribution for decades, international economics has lately seen a burst of interest. But the statistical difficulties are so formidable that the debate has so far revolved around questions of econometric technique. Standing back from the fray, we can see that much of the controversy concerns how to compare income in different countries. The answer to what is happening to world income distribution turns out to depend heavily on whether countries are weighted by population, and whether income in different countries is measured in PPP terms or by using actual exchange rates. These two criteria can be set out in a matrix of four cells, with countries treated equally or weighted by population on one axis, and income measured in current exchange rates or in PPP terms on the other. Table 2 summarises the findings of the existing literature, dividing the studies among the four cells.
“…. new studies differ from the others in being based solely on household income and expenditure surveys. The earlier ones either used average GDP, ignoring inequality within each country, or used indirect methods to estimate within-country inequality, including production surveys and revenue surveys, which typically miss important components of household incomes. Branko Milanovic at the World Bank assembled the database, using the Banks formidable statistical organisation to obtain household survey data from just about all the Banks members, covering 85% of the worlds population, for the years 1988 and 1993. The result is probably the most reliable data set on world income distribution.”
Then Mr Milanovic computed the Gini coefficient for world income distribution, combining within-country inequality and between-country inequality, and measuring it in PPP terms. (The Gini coefficient is a commonly used measure of inequality: 0 signifies perfect equality, 100 means that one person holds all the income.) The results are startling. World inequality increased from a Gini coefficient of 62.5 in 1988 to 66.0 in 1993. This is a faster rate of increase of inequality than that experienced within the United States and Britain during the 1980s. By 1993 an American on the average income of the poorest 10% of the population was better off than two-thirds of the worlds people.
WADE article. Concluded. The other new study, by Yuri Dikhanov and Michael Ward, uses the same data set with a different methodology. It confirms that world income distribution became markedly more unequal between 1988 and 1993. Like the Milanovic study, it finds that the Gini coefficient increased by about 6%. It finds, further, that the share of world income going to the poorest 10% of the worlds population fell by over a quarter, whereas the share of the richest 10% rose by 8%. The richest 10% pulled away from the median, while the poorest 10% fell away from the median, falling absolutely by a large amount. In short, we have to revise cell 4. World PPP income distribution with countries weighted by population (and China and India split into urban and rural) became much more unequal between 1988 and 1993 (see table 3).
Growth Raises overall cost of living. Current Trends in Bangladesh indicate that price and wage rate trends favor populations in “growth sectors” (from Daily Star 16 July 2005) Note Rice accounts for 60-70% of inflation rate Female Daily Agr Wage is 75% male wage
Wage trends favor skilled workers and industry in general over agriculture
Upward shift in commodity price values with economic growth (Daily Star 19 July 2005) ► ► Higher Value Labor 19% decrease in labor exports from Bangladesh in Jan-May 2005 compared to same period in 2004 19% increase in receipts remitted from export labor Reason: increasing demand abroad for skilled labor; declining demand for unskilled labor; hence lower numbers, higher wages ► ► High Value Agriculture. IFPRI research Per capita grain consumption declining or growing at less than 1% per year in eight Asian countries (Bangladesh, Pakistan, India, Indonesia, Philippines, Thailand, Vietnam, and China) Per capita consumption of HVA (fruits and vegetables) increasing at 2-10% per year In Thailand and Philippines, >50% of all food is sold in supermarkets In Dhaka city, about 15% of food sold passes through supermarkets Market-connections-finance direct links between retailers and producers through supply systems generate specialized production-consumption commodity chains (e.g. BRAC in Chandina, where 30% poor farmer income is in vegetables.)
Education ► Consider where the new seats in higher education are being created in Bangladesh today. ► They appear to be increasing disproportionately in private universities with high tuition, English medium, oriented to higher income professional employment ► This may also to be true for primary and secondary education in urban areas generally ► This represents another shift up the commodity value chain associated with economic growth: NEW opportunities/capacities seem to be created disproportionately in more expensive, more productive, more profitable, and higher wage-rate seeking educational institutions ALL this consistent with increase in rate of aggregate national wealth increase
Energy prices and “oil tax” ► Petroleum prices have just been raised in Bangaldesh because of increasing world prices, hence import costs, and declining Taka value in relation to the US dollar, which is still the dominant world currency ► Paying for oil with dollars demands more and more Takas, spent in Bangladesh to buy imported oil. ► Who pays this additional “oil tax” and where does it go? ► Resulting price increases will spread across the economy with additional energy costs. ► Income increases will not follow quickly for most people, and least of all for the poor.
Non-market means are required – even with high economic growth -- to expand participation, reduce barriers, and deliver services for the poor ► Policies targeting the poor appear to be “swimming upstream,” or against the logical force of new asset allocations in the global market economy as it operates inside Bangladesh ► Numerous figures in WDR 2001 can be read as indications that current conditions in poor countries mitigate against additional capital investment (see next slide) ► High growth rate regions that show substantial reductions in poverty may not typify trends in many countries (e.g. in East Asia), where internal inequalities are more entrenched and conditions for global investment are less attractive ► Ethnic and political forces may underlie economic growth. East Asia in particular has benefited from very high rates of FDI from expatriate nationals (especially Chinese, but also Koreans), and also from strong and favorable bilateral ties with US economy. ► State delivery of goods and services to the poor are hampered in poor countries not only by functional weaknesses but also by financial weaknesses in the international economy (e.g. debt, exchange rates, unfavorable trade balances, etc.)
The argument that “in general” increasing wealth correlates with poverty reduction is true (blue trend line) But ovals show more wealth does not always increase consumption for poorest 20%. Rectangles show the poorest 20% have higher and lower consumption levels in societies with the same percapita wealth. The red line show an axis of national wealth increase with lower conusmption in poorest 20%. The Vietnam case indicates that the “in general” correlation may not indicate actual causation.
To repeat: these are current trends that challenge the market-growth-first policy model of poverty alleviation ► Broad increases in inequality separating rich and poor countries more and more dramatically during recent rapid growth (especially 1990s) ► Growth in poor countries concentrates in growth sectors tied to world markets Generating higher value commodities (wealth) [e.g. vegetables, skilled labor, and education] for wealthier segments of the population. ► Raising incomes and living standards most among the non-poor and least among the poorest, inside and across national economies ► Regional rich-poor differentiation: e.g. India and China; urban-rural divide generally.
The relationship between economic growth, inequality, and poverty reduction: three images ► ► Economic growth, led by free market forces, is the engine that generates more wealth for whole societies, including the poor, whose disadvantages amidst inequality need special policy attention to insure that growth is directed specifically toward poverty reduction, to make growth optimally “pro-poor.” ► ► Reducing poverty is swimming upstream in the strong currents of free- market-led growth first development policies that now prevail under globalization of the strong state commitments to poverty reduction and strong national economies make it more feasible to succeed, but globally and nationally, market currents pull wealth to richer sectors, regions, and populations ► ► The rising tide of economic growth lifts all the boats but richer sectors rise faster and higher; “poverty reduction” occurs only at the margins of the market-growth mainstream, though it does occur.
Globalization and Poverty: two debatable propositions ► ► Globalization is the universal spread of market institutions and thus the progressive inclusion of everyone in the world in the creative wealth- producing vitality of the market economy. The result is the eventual elimination of poverty. ► ► Globalization is the spread of wealth and investment among productively profitable social segments and sectors of national economies around the world, leaving “high risk – low yield” places, people, and sectors out of the circuit. The result is the perpetual reproduction of poverty.