Global Policy Forum

Oxfam welcomes the World Bank's annual 'World Development Report' (WDR), Attacking Poverty, which is published today. The WDR provides a powerful statement in favour of more equitable economic growth. However, Oxfam believes that the Bank undermines the strength of its own argument by including a chapter endorsing old-style Washington-consensus economic models.

In a broad endorsement of the WDR, Oxfam Director David Bryer said: "This is a flagship document that the World Bank can be proud of. Behind the mass of empirical evidence it carries the simple message that mass poverty in the midst of global prosperity is morally unacceptable, politically unsustainable and economically wasteful."

"The World Bank has placed extreme inequality at the heart of the poverty problem, and it has set out a practical agenda for achieving greater equity." He added that the challenge is to now convert its pro-poor message into a concrete strategy for change at the national and global levels.

But Oxfam condemns what it describes as a neo-liberal hangover in the Chapter which deals with economic growth. After setting out a compelling case for redistribution in Chapter 3 of the report, parts of Chapter 4 provide a bland recitation of free market platitudes associated with the ‘Washington Consensus'. The Chapter reflects the analysis set out earlier this year in Growth is good for the poor - a report produced by economists in the World Bank's research department. "I regret that some economists are still refusing to abandon the discredited ideas of the past," said Mr Bryer.

Despite these problems, Attacking Poverty carries the clear message that current patterns of economic growth are failing the poor and underlines the fact that poverty is about more than just income deprivation. Drawing on interviews with over 60,000 poor families the report highlights the experience of powerlessness, vulnerability and unequal access to health and education associated with poverty. It also stresses the special disadvantage facing poor women and girls, who suffer the double burden of poverty and gender discrimination.

Chapter 3 carries a radical message in favour of pro-poor redistribution. While growth is imperative for sustained poverty reduction, the report makes it clear that some countries are far more efficient in converting growth into reduced poverty. As Attacking Poverty states: "For a given rate of economic growth, poverty will fall faster in countries where the distribution of income becomes more equal than in countries where it becomes less equal."

This has important implications for policies aimed at achieving the 2015 poverty reduction goals. High initial inequality reduces the poverty reduction impact of growth, as does any increase in inequality during the growth process. Whilst Latin America has achieved real capita economic growth rates of 2% per year, an extra 4.4 million have joined the ranks of the poor. In a major departure for the World Bank, Attacking Poverty comprehensively dismisses the claim that redistribution is bad for growth, citing evidence that, apart from considerations of social justice, lower inequality can increase efficiency. As the report puts it: "Policies to improve the distribution of income and assets can have a double benefit - by increasing growth and by increasing the share of growth that accrues to poor people."

The conclusion that emerges from the detailed empirical evidence marshalled by the World Bank is that the war against poverty is, in a fundamental sense, a war against inequality. At the end of a decade which has seen the debate on poverty dominated by macro-economists stressing the primacy of economic growth, the World Bank sends a clear message to governments stating that distributional equity is as important to poverty reduction as the macro-economic fundamentals.

Underlying the analysis presented in Attacking Poverty is a recognition that, without action to reduce inequalities within countries and between countries, the international development target of halving world poverty by 2015 will not be achieved. One in five of the world's population lives on less than $1 a day, and one-in-two on less than $2 a day - approximately the same as in 1990.

The poverty reduction strategy set out in the WDR is based on three inter-related elements which are:

Promoting opportunity. At a national level the report calls for action to increase the asset base of the poor through increased investment on basic social and economic services. In a marked departure from previous World Bank policies, the WDR unequivocally rejects the case for cost-recovery, where poor families have to pay for their child's schooling, in education. It also calls for action to make service providers more accountable. At an international level, the report calls for improved access to industrialised country markets, allied to measures designed to enable the poor to participate in local and global markets on more equitable terms. It estimates that the losses suffered by developing countries as a consequence of protectionism is $20bn per annum - or 40 per cent of aid flows.

Empowerment. Drawing on evidence from interviews with the poor, the WDR recognises that the poor are often excluded from state institutions and public bodies that influence their life chances. Alongside economic redistribution, it calls for the redistribution of political power, and for governments to increase awareness of the social benefits of pro-poor public action.

Security. While income poverty captures an important dimension of poverty, the WDR recognises the vulnerability of the poor as an equally important dimension. It sets out an imaginative strategy for reducing the vulnerability of the poor through micro-insurance programmes, public works and disaster preparedness. The report also acknowledges that systemic risks in the global economy can have devastating implications for the poor, citing the East Asian financial crisis as an example. In what amounts to an open rejection of the campaign by the IMF and the US Treasury to promote capital account liberalisation, the WDR acknowledges the case for capital controls in developing countries.

Despite its many positive elements, the WDR bears the scars of a protracted political struggle over its content. Its principal author, Ravi Kanbur, resigned when the report was in draft, partly because of an attempt to dilute its message on redistributive growth.

Chapter 4 detracts from, and in some cases flatly contradicts, the message in the body of the text. It crudely asserts that the 'Washington Consensus' model based on trade liberalisation, capital market liberalisation, low taxes, and deregulation amounts to a poverty reduction strategy. The Chapter also claims, despite the empirical evidence presented in the previous chapter, that "all income groups on average benefit equally from reforms." The sub-text reads that policies for redistribution should be placed on the back-burner, and that governments should focus their efforts on free market reforms.

The tension between the radical agenda for reform set out in the bulk of the WDR and the unreconstructed neo-liberalism of parts of Chapter 4 points to an ongoing tension at the heart of policy formulation in the World Bank. Failure to resolve this tension will leave the Bank in the painful position of attempting to ride two different horses moving in different directions.

Oxfam also questions other perspectives set out in the report. While recognising the widening 'knowledge gap' between rich and poor countries, the WDR fails to challenge the intellectual property regime of the World Trade Organisation. This is serving to marginalise developing countries by raising the costs of technology transfer. The WDR also ignores the fact that many of the world's poorest countries are emerging from the Heavily Indebted Poor Countries (HIPC) Initiative with an unsustainable debt that will prevent them from undertaking investment in basic services on the scale required.

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