Global Policy Forum

By Frederick T. Temple

The first sentence of the World Bank's mission statement asserts that our objective is "to fight poverty with passion and professionalism." A fundamental shift is taking place at the World Bank in the way we think about poverty - how we define it, how we understand its causes and thus, what needs to be done to reduce it. Today, I would like to talk about this sea change in our thinking and what it implies for our work in Bangladesh. It should be made clear at the outset that many of the "new" dimensions in the Bank's thinking about poverty will not be new to many of us and our partners in the development community. Many Bangladeshi scholars, NGOs and government decision makers as well as most of our colleagues in the donor community may well listen to what I have to say today and think, "Well, its about time!" It is my hope that as we come closer and closer to a shared diagnosis of the root causes of poverty, we will become more and more effective in working together to reduce it.

As an institution the World Bank has operated with a set of concepts about poverty and a theory about how to reduce it. These concepts were articulated in the 1990 World Development Report on Poverty, which I will refer to as the 1990 WDR. These concepts have been very powerful. They have provided a framework that has helped to guide many countries to substantially reduce the proportion of their citizens in poverty.You are probably already quite familiar with this theory, since it has been our constant refrain for nearly a decade now. But to recap, the main elements of the Bank's approach to poverty reduction have been: Open markets and stable macro economic policy to nurture labour intensive growth, Investment in the human capital of the poor, and social safety nets. We still believe these three elements are essential to any sustained reduction in poverty.

However, as we look around us as the millennium draws to a close, it is painfully clear that, as powerful as this recipe is, it is not enough to do the job. From all parts of the globe harsh empirical evidence is flowing in that suggests to the social and institutional dimensions of poverty are far more important than we had recognized. All we have to do is think of what we have seen on the BBC and CNN over the last decade. In Rwanda, in Kosovo, in East Timor and in too many other places in Latin America, Eastern Europe and Africa. We see: urban violence, "ethnic cleansing", corruption and "gangster capitalism" that has led to economic instability and the near collapse of economies that otherwise seemed so promising.

Closer to home in East Asia, over the past two years we have witnessed: economic melt down, throwing many back into poverty and pushing the poor deeper below the poverty line, as well as ethnic conflict, such as the violence against the East Timorese and against ethnic Chinese in Indonesia and Malaysia. And right on our own doorstep in South Asia we have seen the resurgence of religious fundamentalism both Hindu and Islamic, atomic games between India and Pakistan. Caste and gender based violence is on the increase in India , entrenched ethnic conflict continuing and deepening in Sri Lanka . In Pakistan, corruption, economic instability, ethnic tension and violence and now a military take over in Nepal, deepening poverty, growing corruption, ethnic tensions and Maoist insurgency. And, finally, here in Bangladesh corruption and weak institutions, endless disruption through hartals and a widely shared perception that law and order is on the decline.

The harsh reality is that across the world, we confront increasing numbers of the poor, rising social violence and ethnic conflict, governments with good macro economic policies, but poor governance and little accountability to their citizens. Some of these situations like the poor performance in Africa or South Asia could be explained without disturbing the Bank's underlying paradigm about development and poverty reduction. After all, in both regions economic opportunities are still constrained by state control of much of the economy, and there has been long standing under investment in the human capital of the poor.

So continued poverty in Africa and South Asia could be consistent with the Bank's long held theory - however, it must be said that the manifestations of ethnic and religious tensions, growing violence and social breakdown have not been captured very well with the Bank's traditional tools for poverty analysis. But it was the crisis in East Asia and the faltering of the Russian economy, both arenas where markets had been freed and significant investment in human capital has been widespread that has begun to make us question some aspects of the Bank's established approach to development and poverty reduction. We have had to ask ourselves, what happened to free markets and the "rising tide that lifts all boats"?

It seems that there is something missing in the approach to poverty laid out in the 1990 WDR. Indeed, there has been a gradual broadening of the Bank's development paradigm over the last decade. First, as far back as the early 1980s, primarily because of pressure from the Nordics and other like minded groups on the Board, the Bank accepted the need to pay special attention to incorporating women into the development process. Second, there has also been a growing awareness of the negative consequences of certain types of investments--particularly large dams and other projects where people were involuntarily displaced or projects that disturbed the environment or the livelihoods of indigenous peoples.

We can trace a gathering consensus that finally came together over the Narmada case in India that the Bank had to insure that borrowers took responsibility for mitigating these negative effects. Although we can look at the well known "safeguard" policies as the main result of this awareness, what was also happening was a forced reassessment of the traditional economic analysis of the costs and benefits of such investments. Basically, both the social and the environmental safeguard policies have forced the Bank to consider the long term costs to the environment and to vulnerable groups, costs which had not been factored into traditional calculations of economic feasibility.

Finally, the idea of participation was introduced beginning with the Participation Learning Group in 1990, which had evolved into an official policy by 1994 and now has almost become a religion. Slowly, the legitimate dimensions of development discourse in the Bank have expanded to include: NGOs and civil society, cultural heritage, the protection of indigenous people and those who are involuntarily resettled, building positive social capital, conflict resolution and even post conflict intervention, social inclusion and exclusion, and a much deeper, more intense focus on institutions.

Most of these "additions" have reflected efforts by social scientists and environmentalists in the Bank to overcome the limits of the 1990 WDR. However, during the past several years the social scientists and environmentalists have not been the only ones who have felt the inadequacy of the Bank's development paradigm. Led by President Wolfensohn and many others from within, but of course also pushed by NGOs and external critics, the Bank has recognized the need to transform itself and embrace a more holistic view of both the goals of development and the path to get there.One good way to see how the Bank's understanding of poverty has expanded is to compare the approach used to prepare the 1990 WDR with the work being done for WDR 2000.

For one thing, the World Development Report (WDR) 2000 is paying careful attention to the voices of the poor themselves from around the world, rather than just the voices of academics who measure poverty and write articles and books about it. Bangladesh hosted one of the consultations with the poor, and last April the WDR team came to Dhaka to discuss some of the findings of this consultation. Another difference emerging in the WDR 2000 is the emphasis on institutions and how they structure access. Finally there is the central concern in the WDR 2000 with social exclusion and inclusion and getting beyond "income poverty" to understand the other dimensions of poverty.

This expanded concept of poverty is evident in the four key poverty reduction outcomes that will be presented in the WDR. The first two are familiar and have long been part of the Bank's approach: Economic Opportunity, basically in terms of increased incomes and employment, and capabilities, as reflected in improved health, nutrition and education outcomes. But there are two new poverty outcomes that the Bank will seek to promote: security against shocks, such as natural disasters, and personal violence, and empowerment, primarily in terms of voice and participation in decision making .

These not only imply a different analytical approach, but also demand different kinds of intervention which go well beyond what was prescribed in the 1990 WDR. Much of the difference can be captured in the inclusion and exclusion framework as a new way of thinking about poverty. The WDR 2000 team has highlighted five aspects or dimensions of the concept of social exclusion. The first two dimensions are:Poor outcomes in areas such as health, education and incomes, and poor prospects of improving these poor outcomes and the vulnerability of improvements in these areas to reversal. The WDR team believes these aspects of exclusion are quite well understood by economists and were dealt with adequately in the 1990 WDR.

However, the next three dimensions of exclusion require some new ways of thinking, especially with input from social scientists. They are: Weak connectedness into cultural, social or economic systems, low influence over and participation in decision making, and effects of membership in certain socio demographic groups. Social scientists can especially help deepen our understanding of the causes of poverty. This is because they begin with the excluded, as people, who are members of certain socially defined groups. They tend to immerse themselves in the reality of the excluded and then try to work backwards to understand why these groups have: less influence, weak connections to mainstream formal institutions and systems Insecurity, and poor prospects of improving. And, finally, poor health, education income indicators, what do we find when we ask why certain groups are excluded?

We get back to the institution -- institutions in the sense of systems or "rules of the game" or social norms. Whatever you want to call them, these systems allow access and opportunity to some while denying others merely because of their social identity.These systems can operate at the macro, meso, or micro level -- or at all three. The institutions we are talking about can be formal, explicit systems that operate openly at the conscious level like the legal code or the tax system. But they can also be informal, implicit systems -- like the gender system in a society, or the norms of hospitality or honor. These are deep, encompassing systems that people are generally no more aware of than these fish are aware of the water they swim in!

In the past the World Bank concentrated primarily on institutions in the explicit, formal domain - and mostly at the macro and meso level. We have concerned ourselves primarily with national and sometimes sub-national economic, financial and fiscal policy and with strengthening the government's capacity to implement that policy through its various agencies.We were, and continue to be, concerned with good sectorial policies and with helping government line ministries and delivery systems to improve their services at the national state and district level.But over the last decade -- with a push from the NGOs and from women's groups around the world - we have moved further and further down to try to better understand the micro-level systems which operate at he village and community level -- and even the micro-micro systems which operate to structure the allocation of power and resources within the household.

Now, as we enter the next century with increasing numbers of poor people on this planet, we realise that we must also try to understand those deeper implicit, informal systems which manifest themselves at every level of society. Some of these, like traditional norms of sharing and cooperation, are good. They help reduce the transaction costs of doing business and the vulnerability of the poorer members of the community. They also give meaning and dignity to people's lives. We celebrate this as social capital, and in recent research we have found that social capital plays a strong role in reducing poverty.But we also know that some of these deep systems have dark sides that support continued inequity and can be used to foment violence and undermine the rule of law and the rights of citizens.

At the national level we need to be aware of the cultural and historical context in which the formal policies of our client countries have been developed and the institutional culture in which they will be carried out. We cannot ignore: Ethnic and religious cleavages between and within countries, traditional caste or gender-based exclusions or systemic corruption in the use of public funds. And at the local level, we need to be less naive about the dominance of the local elite and their frequent ability to capture government and even NGO efforts to help the poor.

So what do we do about these deeply embedded systems of social exclusion? We will keep up our efforts to support: open markets economic growth, and human resource investments and safety nets for the poor. But we will also work with: the government, the private sector; and civil society in our client countries to build better, more accountable and inclusive institutions at all levels. If you look at most of the new initiatives in the Bank over the past few years -- the work on decentralization, public sector reform, good governance, legal reforms, anti-corruption, building social capital, participation, conflict resolution and post conflict intervention, capacity building and organizational development, civil society and NGOs ... all are ultimately aimed at building more inclusive and accountable institutions.

If social exclusion is the problem that was not adequately dealt with in the WDR 90, then the solutions all seem to have a lot to do with fairness....with building institutions that are fair. When we talk about inclusive and accountable institutions, we are talking about letting all groups have a say in shaping the rules of the game and in making sure that those rules are applied in the same way for everyone. We are talking about a shift from defining poverty in terms of income levels and seeking to reduce it primarily through economic growth to thinking about poverty as a manifestation of social exclusion which also requires attention to social justice.Why governance matters so far I have emphasized the importance of socially inclusive institutions in reducing poverty.

We can reach essentially the same conclusions if we focus on the concept of governance. I would like to report briefly on research which the World Bank has been conducting on the relationship between good governance and poverty reduction outcomes.There is a growing body of empirical evidence which has established a clear relationship between measures of good governance and increases in per capita GDP, the traditional index of development. Recent World Bank research indicates that good governance is also associated with improvements in variables which reflect a broader concept of development, including human development and poverty reduction.

The Bank developed a database of several hundred governance indicators produced by thirteen different organizations, including commercial risk rating agencies, think tanks and other NGOs, and multilateral organisations including the World Bank, covering over 170 countries. These indicators were analyzed to produce six governance indices which measure such fundamental aspects of governance as voice and accountability, government effectiveness, the rule of law and corruption as well as a composite governance index. Statistical techniques were used to identify not just correlations but causal relations between governance and development outcomes. The research re confirmed the relationship between improved governance and higher per capita incomes but indicated that better governance is also strongly associated with reductions in infant mortality and increases in literacy.

These findings reinforce the emerging concerns about the relationships between governance and aid effectiveness and provide empirical evidence for our gut conviction that poor governance is a major impediment to reducing poverty.Our new perspective helps us to understand that governance is a pervasive issue which affects all aspects of poverty reduction. In Bangladesh concerns about governance have led to a focus on improvements in customs and tax administration, an attack on the default culture in the banking system, the recognition that system loss in the power system is largely a matter of theft, and a push for legal and judicial reform, including progress on human rights.

But we now recognize that achieving human development objectives will also depend on improvements in governance. If teachers and doctors don't show up to teach students and treat patients, and if drugs and medical supplies are diverted from the public health system, Bangladesh won't be able to achieve its human development objectives. Thus, without a broadly based, effective effort to improve governance in many areas, significant poverty reduction in Bangladesh will remain a dream rather than become a reality.

The new perspectives, I'd like to conclude by discussing how the World Bank is trying to apply these new concepts of poverty reduction in our operational programmes in Bangladesh and elsewhere. Let me start by confessing that it's a daunting process and a humbling challenge. We are emphasizing two points in this process first, a clearer, more explicit statement of target outcomes, and, second, a more rigorous analysis and prioritisation of the contributions of the activities we support to poverty reduction outcomes.Let's start with outcomes.

The World Bank has very explicitly adopted poverty reduction as our central objective, and as I noted previously, our emerging view is that poverty reduction involves economic opportunities, enhanced capabilities, empowerment and security. Thus the days of focusing exclusively on increases in GDP per capita are over. We are now devoting much more attention to identifying specific indices of various aspects of poverty reduction and identifying reasonable, feasible, time bound targets for their achievement. We're being very explicit and as quantitative as possible about this. Now, when we develop our work programmes, we relate each task to the specific outcomes it is intended to help achieve, and we set both interim benchmarks and ultimate objectives.

In the future, much more than in the past, we'll be in a position to assess whether our assistance has actually been effective and successful in supporting poverty reduction. This is a bit scary. In our dialogue with the government, we're also encouraging it to expand and become more explicit about its criteria for success. After all, it wouldn't be very productive for us to define outcome targets unilaterally.This leads to causal linkages. Once we've specified poverty outcomes more explicitly, we are re assessing proposed activities in our country assistance program more rigorously to establish their contributions to poverty reduction outcomes. In order to do this, we need to establish or at least postulate causal linkages between activities and their impacts on poverty. In some cases the linkages haven't been established empirically; thus sometimes we have to hypothesize the linkage, but at least we're forced to be explicit about the rationale for the activity.

This approach is forcing us to reexamine some of our old priorities in new perspectives. For example, we have long emphasised the power sector's deficiencies as a major impediment to economic growth in Bangladesh, particularly for manufactured exports, and as a fiscal problem. These concerns remain valid, because the employment generated by exports and other industries is essential for poverty reduction, and reducing subsidies to a power system which primarily serves better off urban consumers would make more public resources available for poverty oriented public programmes. But this perspective also reemphasizes that the rural poor lack access to electricity and encourages a broker focus on rural energy. Our hope is that when we plan our country programme and have to make choices among competing possible activities to support, this more rigorous focus on contributions to poverty outcomes will provide a tool for establishing priorities.

We are about to embark on the preparation of a new Country Assistance Strategy or CAS for Bangladesh. Our approach in Bangladesh has already been emphasising most of the themes I've highlighted today poverty reduction is already our over arching objective, and we've been devoting considerable attention to institutional issues, especially governance. My hope is that our new CAS preparation exercise will reinforce these emphasis and provide opportunities to refine our operational approach to poverty reduction and to sharpen our focus on governance. Indeed one likely outcome of the exercise will be a clearer specification of the governance outcomes we seek to support and a decision to link the amount of financial assistance we earmark for Bangladesh to improvements in these governance outcomes.One of the most exciting aspects of the CAS preparation process is public consultations to help us understand a country's development priorities and how to pursue them.

We will be engaging in such consultations in Bangladesh over the next few months, seeking inputs from a very wide range of Bangladeshi as well as from other development partners. We look forward to these consultations as an opportunity to engage in a broader public discussion about the poverty reduction issues.The issues discussed and the opinions of all concerned in this regard can be applied to improve the effectiveness of the World Bank's assistance in helping Bangladeshis to reduce poverty and create a more prosperous future.

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