Several of the comments around my seminar “Can South Asia End Poverty in a Generation?” were critical of the World Bank’s role in the subcontinent’s development. One commentator asked: “As the first step towards eradicating poverty in South Asia, how about closing the World Bank?” This theme was echoed by the Independent People’s Tribunal on the World Bank (this site was down at the time of posting) as summarized in a recent article in SAMAR.
Broadly, these critics are making two points. One is that the World Bank has “pressured” South Asian countries into adopting policies that it thought would foster economic development. The second is that these policies were misguided, that they didn’t lead to poverty reduction. These points are worth separating because we can discuss each of them individually.
Take the first point, that the Bank forced countries to adopt certain policies. Note that this assumes that the Bank has leverage with these countries. But the same article in SAMAR points out that India is one of the Bank’s four largest borrowers, and an extremely reliable one at that. “Without a few reliable clients such as India, the World Bank would be hard pressed to continue its operations.” This sounds as if it is India that has leverage over the Bank, not the other way around.
Even if the Bank doesn’t have leverage over a large country such as India, it may have leverage at the state level. India has never had a policy-based (what used to be called “structural adjustment”) loan at the national level, but there have been about half a dozen at the state level. But here too, it is hard to sustain the notion that the state governments were “pressured” to adopt certain policies. Take the case of Andhra Pradesh, which has had three such loans. Almost all the policies supported by these loans were based on the state’s own document, Andhra Pradesh’s Vision 2020. In addition, consider the following: AP, like many other state governments in India, had a policy of free power to farmers. Most of the evidence showed that this policy (together with the household power subsidy) cost the state about 0.5 percent of GDP, led to deteriorating services, lowered the water table (because farmers used the free power on pumpsets) and in any event a substantial part of it did not go to poor farmers. With all this evidence, the Bank would have wanted these states to reform these policies. Yet reforming the free power policy has never been a condition of the AP loans. Why? Because everyone knew that it was too political an issue. The government would not do it, even if it meant forgoing the World Bank loan. The simple fact is that the Bank cannot pressure a government to do something it doesn’t want to do. To politicians, getting re-elected is more important than getting a World Bank loan.
Leaving aside the question of whether these policies were imposed by the Bank or not, let us turn to the second point, that the policies associated with the Bank made poverty worse. This is of course difficult to prove. But we can examine some of the “evidence” that is brought to bear. For instance, people often point to trade liberalization as harming the poor because it causes many people to lose their jobs. Most policies have winners and losers, and it’s tempting to point to the losers (who are easily identifiable) and claim that the policies were unambiguously harmful. But as we have found in countries such as Bangladesh, the winners are often the poor who now have jobs in garment export factories, and there are 2 million of them against the 100,000 or so who lost their jobs in the protected industries.
In fact, when you look at the broad direction of policies that South Asian countries adopted in the past two decades--trade liberalization, industrial de-regulation, financial sector reforms, telecommunications de-regulation--and the rapid growth and poverty reduction that South Asia has been experiencing in the past decade and a half, you can’t help but think that there is a connection.
Furthermore, when you look closely at what is stopping people from escaping poverty--low productivity in agriculture, slow employment growth, poor health and education services--you typically find a “government failure,” one that these reform policies are trying to correct. Sri Lanka has a policy that requires certain farmers to grow only rice, whereas other crops would be more profitable. South Asia’s labor regulations--some of the most restrictive in the world--prevent firms from hiring new entrants into the labor market. And the poor quality of public health and education services in Pakistan and northern India can be improved if medical and teachers’ unions will allow reforms such as vouchers and contracting out to the private sector, as Bangladesh has done.
I look forward to the discussion.
Mariam Claeson
Sat, 05/17/2008 - 22:38 All said and done, sometimes I wonder if the world has enough resources to bring all of its 7 billion people out of poverty. India and China have just began their developmental journey and already pressures are being seen on various natural resources like crude oil, natural gas, coal, food etc. If everyone was taken out of poverty and given a decent life, the world's resources would be consumed within a century. What after that? Back to the dark ages?
Sun, 01/06/2008 - 21:37 If the structural break in India's growth happened in 1980 (India's Unfinished Journey Transforming Growth into Development DEEPAK NAYYAR Modern Asian Studies, Volume 40, Issue 03, July 2006, pp 797-832), can you draw more precise connections to how you see the causal link between liberalization reforms, deregulation, etc., on growth and poverty reductions? You can make a plausible argument that the reforms started in the late 1970s, but I'd like to hear the whole argument nonetheless :) Second, how do you foresee the bulk of people living decent lives in a largely agricultural country like India without significant land reform or enough wealth creation at low levels to generate a home consumer market beyond the extremely wealthy (who, as Pranab Bardhan has has, are for some reason described as "the middle class")?
Wed, 12/19/2007 - 07:55 I agree that the world bank has not been pushing governments to adopt certain policies, but i say what is wrong in doing so, in south asia we know that we dont have the best of governments and many policies are bound to faliure before they are even passed in the house of representatives. So i think the bank should become more of a negotiating power at different levels. In bangalore, south india as I read somewere(cant say if its true) that the world bank would fine governmet of karnataka if it fails to complete a project of WB funded roads. And guess what the results were, first time we had roads built in out "hi-tech" city over nights, which ususally takes years. To conclude i dont think its wrong that WB asks for efiiciency, correctness, most importantly implementation and results from issues where it puts money in the form of loans or Aid. More people thinking about same problems lead to better solutions
Tue, 12/18/2007 - 22:01 I always find it fascinating how people tend to blame others for their own mistakes. The organizers of the People's Tribunal in India blame the World Bank for working with big Indian corporations in destroying the environment, people's livelihoods, etc. I wonder, why then they don't organize trials against Indian corporations instead of the World Bank? At least you know that the World Bank comes with good intentions. Also, I find it amazing that they fail to recognize that even institutions like the World Bank are successful sometimes in helping people get out of poverty. Did they invite those who benefited from World Bank projects to testify at this "trial"? Or they only brought those on the losing end? As Shanta said, when there is change, there is bound to be winners and losers. I believe we find ample evidence that the World Bank's record in this regard, with all its mistakes, is still positive. For proof, let's ask the children who are going to new schools or the communities that are building roads, bridges, etc. thanks to projects designed by the World Bank and other donors. Not all is bad in this case. Claiming it is just makes the judgement of this "tribunal" easy to disregard.
Fri, 12/14/2007 - 04:32 Good points there Shanta! I can't believe on what basis people argue that poverty reduction should start with closing the international financial institutions that are power houses of knowledge and expertise. Of course, sometimes they fail but his does not mean that they are a binding, sticky constraint to reducing poverty in our region. The WB's contribution to reducing poverty through direct financial support for development activities and, most importantly, as a knowledge power house prescribing appropriate policy responses to economic problems have definitely been helpful at least in South Asia. Unfortunately, the same cannot be said about the IMF! The success in poverty reduction in Nepal in the past decade has a lot to do with the WB's policy recommendations to economic stimuli (of course, remittance also played a direct role).
Mon, 12/17/2007 - 16:34 I Agree shanta, all the more reason why the World Bank should close down - or at least not give these guys money and do more of the "Doing business report" type stuff and research/advocacy. My criticism of the WB is the polar opposite of these other 'critics' you cite. Why do you guys give loans when you know the policies perused by these governments are - by your own assertions - are simply wrong? why do you go about subsidising wrong policies, by help financing over-staffed, over-spending, governments? especially budget support? i remember, back in 2004 where we (in sri lanka) had a government which came into power on a platform of economic nationalism, they came in bashing you guys (and IMF,ADB and the rest) and proclaimed that their initial budget would have no input from any "foreign agents" especially mentioning the World Bank. In one TV debate, one of the opposition members asked, how the government plans to fund all of these increased expenditure, the answer was "well, the world bank, IMF of course' Foreign aid has meant that, the governments have been able to massively increased expenditure while keeping relatively low taxes, if the governments actually had to finance the subsidies, failed state enterprises, massive cabinets through the tax payer, perhaps there would have been a backlash, and the question of "where the money is going to come from" would have been raised and perhaps we would have seen some reform. But no, they have you to save the day. Present day policies in Sri Lanka (and possibly in South asia) deserves their consequences, let us have those consequences and let us have our crisis. We stand deserving of it, and if its a reform agenda you have, history shows that the best reforms have come through at times of crisis. So pls, stop giving lollipops to thieving kids. Thank you. Looking forward to your response. Deane.