WORLD DEVELOPMENT REPORT /2O1 ATTACKING POVERTY Overview 20888 September 2000 ,>f~~~~~~~~~~~~~g aE,o WORLD DEVELOPMENT REPORT 2°°/2001 ATTACKING POVERTY Overview WORLD BANK Washington, D.C. C 2001 The International Bank for Reconstruction and Development / The World Bank 1818 H Street, N.W., Washington, D.C. 20433, U.S.A. Cover design by Tomoko Hirata. Cover painting Voyage to the New World by Manuel Cunjama. Lavout and editing provided by Communications Development Incorporated, Washington, DC. Manufactured in the United States of America First printing September 2000 This document summarizes World Development Report 2000/2001, published by Oxford University Press for the World Bank. It is a product of the staff of the World Bank, and the judgments made herein do not necessarily reflect the views of its Board of Executive Directors or the countries they represent. The World Bank does not guaranilee the accuracy of the data included in this publication and accepts no responsibility whatsoever for any consequence of their use. ISBN 0-8213-4824-8 Text printed on recycled paper that conforms to the American Standard for Permanence of Paper for Printed Library Material Z39.48-1984. Contents of World Development Report 2OOO/2ooi Overview Attacking Poverty: Opportunity, Empowerment, and Security Basrabai's story Poverty in an unequal world A strategy for poverty reduction From strategy to action Working together to fight poverty Part I Framework Chapter 1 The Nature and Evolution of Poverty Poverty's many dimensions Measuring poverty in its multiple dimensions The evolution of poverty Chapter 2 Causes of Poverty and a Framework for Action The causes of poverty A framework for action Part 11 Opportunity Chapter 3 Growth, Inequality, and Poverty Economic growth and poverty reduction What drives economic growth? Why are similar rates of growth associated with different rates of poverty reduction? Economic growth and nonincome poverty Chapter 4 Making Markets Work Better for Poor People Have market reforms delivered growth? Have market reforms delivered benefits to poor people? Making markets do more for poor people Chapter 5 Expanding Poor People's Assets and Tackling Inequalities Assets and their synergies Public action to facilitate the accumulation of assets Redistributing public spending Institutional reforms for effective delivery: governance, markets, and competition Participation: choice, monitoring, and accountability Complementarities in public action .1.1 IV OVERVIEW Part III Empowerment Chapter 6 Making State Institutions More FResponsive to Poor People Public administration and poverty reduction Poor people and the rule of law How can decentralization be made pro-poor? The politics of poverty reduction: pro-poor coalitions Political regimes and poverty Chapter 7 Removing Social Barriers and Building Social Institutions Gender discrimination and poverty Social stratification and poverty Social fragmentation and conflict Building social institutions and social capital Part IV Security Chapter 8 Helping Poor People Manage Risk A typology of risks The nature and magnitude of vulnerabiliry Responses to risk by households and communities Policy responses for improving risk management Chapter 9 Managing Economic Crises and Natural Disasters Preventing and coping with economic crises Reducing vulnerability to natural disasters Part V International Actions Chapter 10 Harnessing Global Forces for Poor People Expanding market access in high-income countries Reducing the risk of economic crises Producing pro-poor international public goods Ensuring a voice for poor people in global forums Chapter 11 Reforming Development Cooperation to Attack Poverty Making aid effective in reducing poverty Relieving the debt burden of poor countries Bibliographic Note Selected World Development Indicators 4 Overview ill?oor people live without fundamental freedoms Basrabai's story serves as a backdrop to the exploration of action and choice that the better-off take for of the nature and causes of poverty and of what can be granted. i They often lack adequate food and shelter, done. Poverty is the result of economic, political, and education and health, deprivations that keep them social processes that interact with each other and fre- from leading the kind of life that everyone values. They quently reinforce each other in ways that exacerbate the also face extreme vulnerability to ill health, economic deprivation in which poor people live. Meager assets, in- dislocation, and natural disasters. And they are often accessible markets, and scarce job opportunities lock peo- exposed to ill treatment by institutions of the state and ple in material poverty. That is why promoting society and are powerless to influence key decisions opportunity-by stimulating economic growth, mak- affecting their lives. These are all dimensions of ing markets work better for poor people, and building poverty. up their assets-is key to reducing poverty. The experience of multiple deprivations is intense But this is only part of the story. In a world where and painful. Poor people's description of what living political power is unequally distributed and often in poverty means bears eloquent testimony to their pain mimics the distribution of economic power, the way (box 1). For those who live in poverty, escaping it can state institutions operate may be particularly unfa- seem impossible. But it is not impossible. The story vorable to poor people. For example, poor people fre- of Basrabai-the chair of a local council in an Indian quently do not receive the benefits of public investment village-illustrates both the many facets of poverty and in education and health. And they are often the vic- the potential for action (see page 2). tims of corruption and arbitrariness on the part of the I 2 OVERVIEW Basrabai's story Basrabai lives in Mohadi, a village 500 kilometers from Ahmed- fishers seemed to be paying the price. The big trawlers could con- abad, in the Indian state of Gujarat, on the shores of the Ara- tinue to fish as long as they paid the right officials. bian Sea.2 She is the first woman to be sarpanch of the Inthemiddleofthemeetingacommotionoccurredattheside. panchayat-chair of the local council-as a result of constilutional Basrabai's brother had been gored in the face while trying to sep- amendments that reserve a third of local council seats and a third arate two fighting cows. Without immediate treatment the wound of headships for women. was bound to become nfected. But it was late at night, and the Arriving in her village after a long drive, we crossed a small nearest doctor was in the next big settlement, 10 ki ometers sea inlet on a road impassable at high tide. The first bjilding away. Normally, this wou d have made immediate treatment im- we saw was a recently built concrete structure-the primary possible. As it happened, however, our Jeep was there and could school. In last year's cyclone, the worst in living memory, as take Basrabai's brother to the doctor. the villagers' straw huts were blown away, they took she ter Duing our stay we also saw the craft work that the village in the only stable structure in the village-the school. When women have been doing for generations. Demand for their tra- the cyclone relief operation arrived, the villagers askad for ditional embroidered and tie-dyed products is high, thanks to the more concrete buildings, and the village now has about a international love affair with things Indian and the rediscovery dozen of them. by the growing Indian middle class of its roots. But the traders We arrved at Basrabai's one-room concrete house, rext to get away with offering very low prices because of the women's a straw hut. After the usual greetings, talk turned to the school. isolation. Since it was a weekday, we wondered if we could sit in on a The national and state governments have countless schemes class. Basrabai informed us that the master (the teache ) was to support traditional crafts, none very effective. So SEWA is step- not there and had not been there for a while. In fact, he came ping in to organize the home-based craft workers and to provide only once a month, if that. Protected by the district edutation direct access to international markets. One piece of embroidery officer, he did pretty much what he pleased. we looked at would fetch 150 rupees in the international market, The master came the next day. Word had gotten to hirn that 60 rupees in government outlets, and 20 rupees from traders. the village had visitors. He came into Basrabai's house, and we On the last day of our stay we went to Basrabai's field, an hour's began talking about the school and the chi dren. Believir g the walk from her house. The risks of agriculture were plainly visible. educated guests to be kindred spirits, he launched into a litany The lack of rain had left the ground hard and dry. If it didn't rain of his troubles and the difficulties of teaching the children. He in the next few days, her millet crop would be lost, and with it referred to them as junglee-"from the jungle." her outlay to a hired tractor driver to till her field, an investment This was too much for Meeraiben, a member of the Self- made possible by the sale of her crafts. When we met her in Employed Women's Association (SEWA), who had arranged our Ahmedabad days later, it still had not rained. visit. She pointed out that his salary was 6,000 rupees a month The interactions with Basrabai and the many thousands of (more than six times the Indian poverty line) in a secure joD and poor people consulted in preparing this report bring to the fore that his responsibility was at least to show up for work. The par- recurrent-and familiar-themes. Poor people mention the lack ents wanted their children to learn to read and write, ever if at- of income-earning opportunities, the poor links with markets, and tending school meant that the boys could not help their fathers the failure of state institutions to respond to their needs. They with fishing and the girls could not help their mothers fetch water mention insecurity, such as health risks, the risk of being out and wood and work in the fields. of work, and the agricultural risks that make any gains always Later in the evening Basrabai conducted the village meeting. fragile. Everywhere-from the villages in India to the favelas of There were two main topics. The first was compensation for the Rio de Janeiro, the shantytowns outside Johannesburg, and the cyclone: despite the great fanfare with which relief schemes had farms in Uzbekistan-the stories bring forward similar issues. been announced in the state capital, local delivery left much to be But talking to Basrabai and other poor people also reveals what desired and local officials were unresponsive. SEWA orgarizers is possible. Although local officials and state structures are still took down the names of those who had not yet received the tom- not accountable to Basrabai and her village, an explicit affirma- pensation to which they were entitled, and it was agreed that they tive action policy allowed Basrabai's election as sarpanch, show- and Basrabai would meet with local officials the following week. ing what can be done through state action. And SEWA shows The second issue was a fishing ban that the governmen: had how poor people can make a difference if they organize them- imposed on coastal waters to protect fish stocks. It was the big selves to defend their rights, take advantage of market oppor- trawlers that were responsible for the overfishing, but the s;mall tunities, and protect themselves from risks. OVERVIEW 3 Box 1 The voices of the poor The Voices of the Poor study, based on realities of more than are scarce, there is no money and we feel poor. If there were 60,000 poor women and men in 60 countries, was conducted as money. .. background for World Development Report 2000/2001. It consists -From a discussion group of poor men and women, Ecuador of two parts: a review of recent participatory poverty studies in 50 countries involving about 40,000 poor people, and a new compar- We face a calamity when my husband falls ill. Our life comes ative study in 1999 in 23 countries engaging about 20,000 poor peo- to a halt until he recovers and goes back to work. ple. The study shows that poor people are active agents in their -Poor woman, Zawyet Sultan, Egypt lives, but are ofter powerless to influence the social and eco- nomic factors that determine their well-being. Poverty is humiliation, the sense of being dependent on them, The following quotations are an illustration of what living in and of being forced to accept rudeness, insults, and indiffer- poverty means. ence when we seek help. Don't ask me what poverty is because you have met it outside -Poor woman, Latvia my house. Look at the house and count the number of holes. At first I was afraid of everyone and everything: my husband, Look at the utensils andthe clothes lam wearing. Look at every- the village sarpanch, the police. Today I fear no one. I have thing and write what you see. What you see is poverty. myown bank account, lam the leader ofmy village's savings -Poor man, Kenya group ... I tell mysisters about our movement. And wehave Certainly our farming is little; al the products, things bought a40,000-strong union in tie districtu from stores, are expensive; it is hard to live, we work and -ofromn a dscussmon group earn little money, buy few things or products; products of poor men andwomen, India Source: Narayan, Chambers, Shah, and Petesch 2000; Narayan, Patel, Schafft, Rademacher, and Koch-Schulte 2000. state. Poverty outcomes are also greatly affected by social birthday, while in the poorest countries as many as a fifth norms, values, and customary practices that, within the of children do not. And while in rich countries fewer than family, the community, or the market, lead to exclusion 5 percent of all children under five are malnourished, in of women, ethnic and racial groups, or the socially dis- poor countries as many as 50 percent are. advantaged. That is why facilitating the empowerment This destitution persists even though human condi- of poor people-by making state and social institutions tions have improved more in the past century than in the more responsive to them-is also key to reducing poverty,. rest of history-global wealth, global connections, and Vulnerability to external and largely uncontrollable technological capabilities have never been greater. But the events-illness, violence, economic shocks, bad weather, distribution of these global gains is extraordinarily un- natural disasters-reinforces poor people's sense of ill- equal. The average income in the richest 20 countries is being, exacerbates their material poverty, and weakens their 37 times the average in the poorest 20-a gap that has bargaining position. That is why enhancing security- doubled in the past 40 years. And the experience in dif- by reducing the risk of such events as wars, disease, eco- ferent parts of the world has been very diverse (figure 2; nomic crises, and natural disasters-is key to reducing see also table A. 1 at the end of the overview). In East Asia poverty. And so is reducing poor people's vulnerability to the number of people living on less than $1 a day fell from risks and putting in place mechanisms to help them cope around 420 million to around 280 million between 1987 with adverse shocks. and 1998-even after the setbacks of the financial cri- sis.3 Yet in Latin America, South Asia, and Sub-Saharan Poverty in an unequal world Africa the numbers of poor people have been rising. And in the countries of Europe and Ccntral Asia in transition The world has deep poverty amid plenty. Of the world's to market economies, the number of people living on less 6 billion people, 2.8 billion-almost half-live on less than than $1 a day rose more than twentyfold.4 $2 a day, and 1.2 billion-a fifth-live on less than $1 a There have also been major advances and serious set- day, with 44 percent living in South Asia (figure 1). In rich backs in crucial nonincome measures of poverty. India has countries fewer than 1 child in 100 does not reach its fifth seen marked progress in girls attending school, and in the 4 OVERVIEW Figure 1 Figure 2 Where the developing world's poor live Where poverty has fallen, and where it has not Distribution of population living on less than $1 a day, Change in number of people living on less than $1 a day, 1998 1.2 billion) 1987-98 Europe and Central Asia Middle East and North Africa 100Milions 2.0% 0.5% Latin America and 75 the Caribbean 507 .5% 50 East Asia |250 * _ . 1 and Pacific South A3ia ° 23.2% 143.5% -25 / ~~~~~-50 - / ~~~~~~-75 -100 Sub-Saharan -125 Africa 24.3% -150 East Asia Europe Latin Middle South Sub- Source: World Bank 2000b. and and America East and Asia Saharan Pacific Central and the North Africa Asia Caribbean Africa most advanced state, Kerala, life expectancy is greater than Source: World Bank 2000b. in other places with many times the level of income (such as Washington, D.C.). Yet in countries at the cen- ter of the HIV/AIDS epidemic in Africa, such as Botswana and Zimbabwe, one in four adults is infected, AIDS or- Figure 3 phans are becoming an overwhelming burden on both Infant mortality rates vary widely across the traditional and formal support mechanisms, and all the world gains in life expectancy since the middle of the 20th century will soon be wiped out. The varying infant mor- Infant mortality rate, 1998 tality rates across the world-Sub-Saharan Africa's is 15 100 Per 1,000 live births times that of high-income countries-give an idea of 90 this widely differing experience (figure 3). 80 Experiences are also vastly different at subnational 70 levels and for ethnic minorities and women. Differe nt re- gions in countries benefit to very different extents from 60 growth. In Mexico, for example, total poverty fell- 50 though modestly-in the early 1990s, but rose in the 40 poorer Southeast. Inequalities also exist across diff rent 30 ethnic groups in many countries. In some African coun- 20 tries infant mortality rates are lower among politically pow- 10 erful ethnic groups, and in Latin American countries indigenous groups often have less than three-quarters East Europe Latin Middle South Sub- High- the schooling on average of nonindigenous groups. And Asia and America Eastand Asia Saharan income and Central and the North Africa countries women continue to be more disadvantaged than men. In Pacific Asia Caribbean Africa South Asia women have only about half as many ,ears of education as men, and female enrollment rates at the Source: World Bank 2000b. secondary level are only two-thirds the male rates. OVERVIEW 5 Box 2 A better world for all: international development goals Reduce the proportion of People living on less than The goals for international development people living in extreme S1 a day %) 30 address that most compelling of human 0 poverty by half between 3 1990 pe d 2015 ress 1990-98 desires-a world free of poverty and free 1890 and 2 20 of the misery that poverty breeds. 20 ,Each of the seven goals addresses an Average path to goal' - aspect of poverty. They should be viewed 19~90 ~ ~ 2015 together because they are mutually re- inforcing. Higher school enrollments, es- Enroll all children in primary Net primary enrollment rate lt' pecially for girls, reduce poverty and school by 2015 100 mortality. Better basic health care in- _ Average path to goal_,. .-'''- creases enrollment and reduces poverty. _ ress 1990-98 75 Many poor people earn their living from the environment. So progress is needed 50 on each of the seven goals. 1990 2015 In the past decade on average the world has not been on track to achieve Make progress toward Ratio of girls to boys in primary the goals. But progress in some countries gender equality and and secondary school % 00 and regions shows what can be done. W empowering women __ by eliminating gender Average pats t - - - --China reduced its number in poverty from disparities in primary and Progress 1990-98 75 360 million in 1990 to about 210 million secondary education by 2005 in 1998. Mauritius cut its military budget 50 and invested heavily in health and edu- 1990 2005 cation. Today all Mauritians have access to sanitation, 98 percent to safe water, - Reduce infant and child Under-5 mortality rate and 97 percent of births are attended by mortality rates by two-thirds (per 1,000 live births) 100 skilled health staff. And many Latin Amer- - between 1990 and 2015 -ft,.!_~Plgress 1990-98 ican countries moved much closer to -., - - - - 850 gender equality in education. Aaeao - The message: if some countries can 0 make great progress toward reducing 1990 2015 poverty in its many forms, others can as well. But conflict is reversing gains in so- O- Reduce maternal mortality Births attended by skilled health cial development in many countries in ratios by three-quarters personnel 1%) 100 Sub-Saharan Africa The spread of between 1990 and 201 5 ____ub-Sharn_Afica.Thespred_o Average path to gal. HIV/AIDS is impoverishing individuals, -- -'''- - 50 families, and communities on all conti- Progress 1988-98 nents. And sustained economic growth- 0 that vital component for long-run 1988 2015 reductions in poverty-still eludes half the world's countries. For more than 30 need reproductive health Contraceptive prevalence rate M%l of them, real per capita incomes have .services by 2015 80 fallen over the past 35 years. And where Progress 1993-98 there is growth, it needs to be spread more equally. 6~ 80 The goals can be met-with a combi- 50 nation of effective domestic and interna- 1993 1998 tional actions. O Implement national Countries with environmental strategies for sustainable strategies (YeI _ development by 2005 so as 50 to reverse the loss of Proges189 environmental resources by 25 2015 1984 1997 Note: Data are for low- and middle-income countries except for those on environmental strategies, which refer to all countries. Source: IMF, OECD, United Nations, and World Bank 2000 (vvww.paris21 .org/betterworId/. 6 OVERVIEW Faced with this picture of global poverty and in- liver more health services, and ensuring that technolog- equality, the international community has set itself sev- ical progress in the medical field spills over to benefit the eral goals for the opening years of the century, based on developing world.5 And meeting the gender equality discussions at various United Nations conferences in the goals in education will require specific policy measures 1990s (box 2). These international development goals, to address the cultural, social, and economic barriers most for 2015, include reducing income poverty and that prevent girls from attending school.6 Furthermore, human deprivation in many dimensions (the bench- actions to ensure greater environmental sustainability marks are figures for 1990): will be crucial in augmenting the assets available to poor * Reduce by half the proportion of people living in ex- people and in reducing the long-term incidence of treme income poverty (living on less than $1 a day). poverty.7 These actions will all interact to push toward * Ensure universal primary education. the achievement of the goals. Hence the need for a * Eliminate gender disparity in primary and secondary broader, more comprehensive strategy to fight poverty. education (by 2005). * Reduce infant and child mortality by two-thirds. A strategy for poverty reduction * Reduce maternal mortality by three-quarters. * Ensure universal access to reproductive health services. The approach to reducing poverty has evolved over the * Implement national strategies for sustainable devel- past 50 years in response to deepening understanding of opment in every country by 2005, so as to reverse the the complexity of development. In the 1950s and 1960s loss of environmental resources by 2015. many viewed large investments in physical capital and in- These will have to be achieved in a world whose popu- frastructure as the primary means of development. lation will grow by some 2 billion in the next 25 years, with In the 1970s awareness grew that physical capital was 97 percent of that increase in developing countries. Stud- not enough, and that at least as important were health and ies of what must be done to achieve these goals reveal the education. WorldDevelopment Report 1980articulated this magnitude of the challenge. For example, cutting income understanding and argued that improvements in health and poverty by half between 1990 and 2015 would reqjire a education were important not only in their own right but compound rate of decline of 2.7 percent a year over those also to promote growth in the incomes of poor people. 25 years. The World Bank's latest estimates indicate a re- The 1980s saw another shift of emphasis following the duction of approximately 1.7 percent a year between 1990 debt crisis and global recession and the contrasting ex- and 1998. Much of the slow progress observed in some re- periences of East Asia and Latin America, South Asia, and gions is due to low or negative growth. In some cases ris- Sub-Saharan Africa. Emphasis was placed on improving ing inequality compounded this effect; this was particularly economic management and allowing greater play for so in some countries in the former Soviet Union. The cur- market forces. World Development Report 1990: Poverty rent pace of educational enrollment is unlikely to bring uni- proposed a two-part strategy: promoting labor-intensive versal primary education, especially in Sub-Saharan Africa. growth through economic openness and investment in Reducing infant mortality rates by two-thirds betveen infrastructure and providing basic services to poor peo- 1990 and 2015 would have required a 30 percent dccline ple in health and education. between 1990 and 1998, far greater than the 10 percent de- In the 1990s governance and institutions moved to- veloping countries experienced. In some parts of Sub-Sa- ward center stage-as did issues of vulnerability at the local haran Africa infant mortality is actually on the rise, partly and national levels. This report builds on the earlier as a result of the AIDS epidemic. And maternal mor:ality strategies in the light of the cumulative evidence and ex- ratios are declining too slowly to meet the goals. perience of the past decade-and in the light of the Attaining the international development goals will changed global context. It proposes a strategy for at- require actions to spur economic growth and reduce in- tacking poverty in three ways: promoting opportunity, come inequality, but even equitable growth will not be facilitating empowerment, and enhancing security. enough to achieve the goals for health and education. Re- * Promoting opportunity. Poor people consistently em- ducing infant and child mortality rates by two-tlirds phasize the centrality of material opportunities. This depends on halting the spread of HIV/AIDS, increasing means jobs, credit, roads, electricity, markets for their the capacity of developing countries' health systems to de- produce, and the schools, water, sanitation, and health OVERVIEW 7 services that underpin the health and skills essential for There is no hierarchy of importance. The elements are work. Overall economic growth is crucial for generat- deeply complementary. Each part of the strategy affects un- ing opportunity. So is the pattern or quality of growth. derlying causes of poverty addressed by the other two. For Market reforms can be central in expanding opportu- example, promoting opportunity through assets and mar- nities for poor people, but reforms need to reflect local ket access increases the independence of poor people and institutional and structural conditions. And mechanisms thus empowers them by strengthening their bargaining need to be in place to create new opportunities and com- position relative to state and society. It also enhances secu- pensate the potential losers in transitions. In societies rity, since an adequate stock of assets is a buffer against ad- with high inequality, greater equity is particularly im- verse shocks. Similarly, strengthening democratic institutions portant for rapid progress in reducing poverty. This re- and empowering women and disadvantaged ethnic and racial quires action by the state to support the buildup of groups-say, by eliminating legal discrimination against human, land, and infrastructure assets that poor peo- them-expand the economic opportunities for the poor and ple own or to which they have access. socially excluded. Strengthening organizations of poor peo- Facilitating empowerment. The choice and imple- ple can help to ensure service delivery and policy choices mentation of public actions that are responsive to the responsive to the needs of poor people and can reduce cor- needs of poor people depend on the interaction of po- ruption and arbitrariness in state actions as well. And if poor litical, social, and other institutional processes. Access people do more in monitoring and controlling the local de- to market opportunities and to public sector services livery of social services, public spending is more likely to is often strongly influenced by state and social insti- help them during crises. Finally, helping poor people cope tutions, which must be responsive and accountable to with shocks and manage risks puts them in a better posi- poor people. Achieving access, responsibility, and ac- tion to take advantage of emerging market opportunities. countability is intrinsically political and requires ac- That is why this report advocates a comprehensive ap- tive collaboration among poor people, the middle proach to attacking poverty. class, and other groups in society. Active collaboration can be greatly facilitated by changes in governance that From strategy to action make public administration, legal institutions, and pub- lic service delivery more efficient and accountable to There is no simple, universal blueprint for implementing all citizens-and by strengthening the participation of this strategy. Developing countries need to prepare their poor people in political processes and local decision- own mix of policies to reduce poverty, reflecting national making. Also important is removing the social and in- priorities and local realities. Choices will depend on the stitutional barriers that result from distinctions of economic, sociopolitical, structural, and cultural context gender, ethnicity, and social status. Sound and re- of individual countries-indeed, individual communities. sponsive institutions are not only important to ben- While this report proposes a more comprehensive ap- efit the poor but are also fundamental to the overall proach, priorities will have to be set in individual cases based growth process. on resources and what is institutionally feasible. Progress * Enhancing security Reducing vulnerability-to economic in reducing some aspects of deprivation is possible even shocks, natural disasters, ill health, disability, and per- if other aspects remain unchanged. For example, inex- sonal violence-is an intrinsic part of enhancing well- pensive oral rehydration campaigns can significantly re- being and encourages investment in human capital duce infant mortality, even if incomes of poor people do and in higher-risk, higher-return activities. This re- not change.8 But actions will generally be necessary in all quires effective national action to manage the risk of three clusters-opportunity, empowerment, and security- economywide shocks and effective mechanisms to re- because of the complementarities among the three. duce the risks faced by poor people, including health- The actions of developed countries and multilateral or- and weather-related risks. It also requires building the ganizations will be crucial. Many forces affecting poor peo- assets of poor people, diversifying household activities, ple's lives are beyond their influence or control. Developing and providing a range of insurance mechanisms to countries cannot on their own produce such things as in- cope with adverse shocks-from public work to stay- ternational financial stability, major advances in health and in-school programs and health insurance. agricultural research, and international trading opportu- 8 OVERVIEW nities. Actions by the international community and de- have made use of international trade. But opening to trade velopment cooperation will continue to be essential. can create losers as well as winners, and it will yield sub- Here are the suggested areas for action, first national stantial benefits only when countries have the infra- and then international. structure and institutions to underpin a strong supply response. Thus the opening needs to be well designed, with Opportunity special attention to country specifics and to institutional The core policies and institutions for creating more :ppor- and other bottlenecks. The sequencing of policies should tunities involve complementary actions to stimulatz over- encourage job creation and manage job destruction. A all growth, make markets work for poor people, and build more pro-poor liberalization is not necessarily a slower their assets-including addressing deep-seated inequalities one; moving fast can create more opportunities for the in the distribution of such endowments as educatio i. poor. And explicit policies should offset transitory costs Encouraging efectiveprivate investment. Investment and for poor people, as the grants for small Mexican maize technological innovation are the main drivers of growth producers did in the wake of the North American Free in jobs and labor incomes. Fostering private investment re- Trade Agreement (NAFTA). quires reducing risk for private investors-through stable The opening of the capital account has to be managed fiscal and monetary policy, stable investment reg;imes, prudently-in step with domestic financial sector sound financial systems, and a clear and transparen t busi- development-to reduce the risk of high volatility in ness environment. But it also involves ensuring the rule of capital flows. Long-term direct investment can bring law and taking measures to fight corruption-ta:kling positive externalities, such as knowledge transfer, but business environments based on kickbacks, subsidies for short-term flows can bring negative externalities, partic- large investors, special deals, and favored monopolies. ularly volatility Policies need to address them separately. Special measures are frequently essential to cnsure Building the assets of poor people. Creating human, that microenterprises and small businesses, which are physical, natural, and financial assets that poor people own often particularly vulnerable to bureaucratic harassment or can use requires actions on three fronts. First, increase and the buying of privilege by the well-connected, can the focus of public spending on poor people in particu- participate effectively in markets. Such measures include lar, expanding the supply of basic social and economic ensuring access to credit by promoting financial deepening services and relaxing constraints on the demand side and reducing the sources of market failure; lowering the (through, for example, scholarships for poor children). transactions costs of reaching export markets by expalding Second, ensure good quality service delivery through in- access to Internet technology, organizing export fairs, stitutional action involving sound governance and the use and providing training in modern business practices; of markets and multiple agents. This can imply both re- and building feeder roads to reduce physical barriers. forming public delivery, as in education, or privatizing Creating a sound business environment for poor house- in a fashion that ensures expansion of services to poor peo- holds and small firms may also involve deregulation and ple, as often makes sense in urban water and sanitation. complementary institutional reform, for example, reducing Third, ensure the participation of poor communities restrictions on the informal sector, especially those affecting and households in choosing and implementing services women, and tackling land tenure or registry inadequacies and monitoring them to keep providers accountable. that discourage small investments. This has been tried in projects in El Salvador, Tunisia, and Private investment will have to be complemented by Uganda. Programs to build the assets of poor people public investment to enhance competitiveness anc. cre- include broad-based expansion of schooling with parental ate new market opportunities. Particularly important is and community involvement, stay-in-school programs complementary public investment in expanding infra- (such as those in Bangladesh, Brazil, Mexico, and Poland), structure and communications and upgrading the skills nutrition programs, mother and child health programs, of the labor force. vaccinations and other health interventions, and Expanding into international markets. International community-based schemes to protect water resources markets offer a huge opportunity for job and income and other elements of the natural environment. growth-in agriculture, industry, and services. All coun- There are powerful compleinentarities between actions tries that have had major reductions in income poverty in different areas. Because of close linkages between OVERVIEW 9 human and physical assets, for example, improving poor etal benefits of pro-poor public action and build politi- people's access to energy or transport can increase their cal support for such action. access and returns to education. And improving the en- Laying the political and legal basis for inclusive devel- vironment can have significant effects on poverty. This opment. State institutions need to be open and account- is well documented in terms of the substantial gains in able to all. This means having transparent institutions, health from reduced air and water pollution-which with democratic and participatory mechanisms for mak- have a major influence on some of the most important ing decisions and monitoring their implementation, diseases of poor people, including diarrheal problems of backed up by legal systems that foster economic growth children and respiratory infections. and promote legal equity. Since poor people lack the re- Addressing asset inequalities across gender, ethnic, racial, sources and the information to access the legal system, and social divides. Special action is required in many so- measures such as legal aid and dissemination of infor- cieties to tackle socially based asset inequalities. Although mation on legal procedures-for example, by the Ain-O- political and social difficulties often obstruct change, Salish Kendra (ASK) organization in Bangladesh-are there are many examples of mechanisms that work, using especially powerful instruments for creating more inclu- a mix of public spending, institutional change, and par- sive and accountable legal systems. ticipation. One is negotiated land reform, backed by Creatingpublic administrations thatfostergrowth and public action to support small farmers, as in Northeast equity. Public administrations that implement policies ef- Brazil and the Philippines. Another is getting girls into ficiently and without corruption or harassment improve school, such as by offering cash or food for schooling, as service delivery by the public sector and facilitate growth in Bangladesh, Brazil, and Mexico, and hiring more fe- of the private sector. Appropriate performance incentives male teachers, as in Pakistan. A third is support for mi- are needed to make public administrations accountable crocredit schemes for poor women. and responsive to users. Access to information such as bud- Getting infrastructure and knowledge to poor areas-rural gets, participatory budget mechanisrns, and performance and urban. Special action is also needed in poor areas, where rating of public services all enhance citizens' capacity to a combination of asset deprivations-including at the shape and monitor public sector performance while re- community or regional level-can diminish the material ducing opportunities and scope for corruption. Reform- prospects for poor people. Tackling this again requires pub- ing public administrations and other agencies such as the lic support and a range of institutional and participatory police to increase their accountability and responsiveness approaches. It requires providing social and economic to poor people can have a major impact on their daily lives. infrastructure in poor, remote areas, including transport, Promoting inclusive decentralization and community de- telecommunications, schools, health services, and electricity, velopment. Decentralization can bring service agencies closer as in China's poor areas programs. It also requires broad- to poor communities and poor people, potentially en- based provision of basic urban services in slums, within hancing people's control of the services to which they are an overall urban strategy. Also important is expanding ac- entitled. This will require the strengthening of local capacity cess to information for poor villages, to allow them to par- and devolution of financial resources. It is also necessary to ticipate in markets and to monitor local government. have measures to avoid capture by local elites. Decentral- ization needs to be combined with effective mechanisms for Empowerment popular participation and citizen monitoring of government The potential for economic growth and poverty reduc- agencies. Examples include decentralization that fosters tion is heavily influenced by state and social institutions. community-driven choices for resource use and project Action to improve the functioning of state and social in- implementation. There is also a range of options for involving stitutions improves both growth and equity by reducing communities and households in sectoral activities-such bureaucratic and social constraints to economic action and as parental involvement in schooling and users associa- upward mobility. However, devising and implementing tions in water supply and irrigation. these changes require strong political will, especially Promotinggender equity. Unequal gender relations are when the changes fundamentally challenge social values part of the broader issue of social inequities based on so- or entrenched interests. Governments can do much to in- cietal norms and values. But gender equality is of such per- fluence public debate to increase awareness of the soci- vasive significance that it deserves extra emphasis. While TO OVERVIEW patterns of gender inequity vary greatly across societies, Supportingpoorpeoples social capital. Social norms and in almost all countries a majority of women and girls are networks are a key form of capital that people can use to disadvantaged in terms of their relative power and con- move out of poverty. Thus it is important to work with trol over material resources (in most countries land titles and support networks of poor people and to enhance are vested in men), and they often face more sevete inse- their potential by linking them to intermediary organi- curities (for example, after the death of their husband). zations, broader markets, and public institutions. Doing Poor women are thus doubly disadvantaged. Moreover, this also requires improving the legal, regulatory, and in- the lack of autonomy of women has significant negative stitutional environments for groups representing poor consequences for the education and health of children. people. Since poor people usually organize at the local level, Greater gender equity is desirable in its own right and actions will also be needed to strengthen their capacity to for its instrumental social and economic benefits for poverty influence policy at the state and national levels, such as reduction. There has been progress-for example, in ed- by linking local organizations to wider organizations. ucation and health-but much more needs to be done. Ex- perience indicates that a mix of political, legal, and direct Security public action is required. Thirry-two countries, from Ar- Achieving greater security requires a heightened focus on gentina to India, have measures to promote womeri's rep- how insecurity affects the lives and prospects of poor peo- resentation in local and national assemblies, and this is ple. It also takes a mix of measures to deal with econo- already transforming women's ability to participate in pub- mywide or regionwide risks and to help poor people lic life and decisionmaking. Some countries are correcting cope with individual adverse shocks. gender biases in the law, as in the 1994 ColombianAgrar- Formulating a modular approach to helping poor peo- ian Law. Use of public resources to subsidize girls' c duca- ple manage risk. Different interventions-at the com- tion has been shown to pay off in Bangladesh and Pakistan. munity, market, and state levels-are needed to address A range of measures in productive activities, notab.y mi- different risks and different segments of the population. crofinance and farming inputs, have produced dlocu- A mix of interventions may be needed to support the man- mented benefits in terms of increased yields (in Kenya, for agement of risks for communities and households, de- example) and increased autonomy for women and better pending on the type of risk and the institutional capacity nutritional status of children (in Bangladesh and in virtu- of the country. Microinsurance programs can complement ally every setting where this issue has been examined). microcredit programs for poor women, built around Tackling social barriers. Social structures and institu- their organizations, as in the schemes SEWA runs in tions form the framework for economic and political re- India for women in the informal sector. Public work larions and shape many of the dynamics that create and schemes can expand in response to local or national sustain poverty-or alleviate it. Social structures that are shocks. Food transfer programs and social funds to help exclusionary and inequitable, such as class stratification finance projects identified by communities can also be or gender divisions, are major obstacles to the upward mo- effective in coping with disaster. bility of poor people. Governments can help by foster- Developing nationalprograms toprevent, preparefor, and ing debate over exclusionary practices or areas of stigma respond to macro shocks-financial and natural. Economy- and by supporting the engagement and participation of wide shocks are often the hardest for poor communities groups representing the socially excluded. Groups ficing and households to cope with, especially when the shocks active discrimination can be helped by selective affirma- are repeated, deep, or persistent. To manage the risk of fi- tive action policies. Social fragmentation can be mitigated nancial and terms of trade shocks, sound macroeconomic by bringing groups together in formal and informal fo- policy and robust financial systems are fundamental. But rums and channeling their energies into political processes they have to be complemented by prudent management instead of open conflict. Other actions could incluce re- of the opening of the capital account, to reduce the risk moving ethnic, racial, and gender bias in legislation and of volatile short-run flows. Special measures are also needed the operation of legal systems and encouraging the rep- to ensure that spending on programs important to poor resentation and voice of women and disadvantaged eth- people-social programs and targeted transfers-does not nic and racial groups in community and national fall during a recession, especially relative to the rising need. organizations. Equally important, countercyclical safety nets should be OVERVIEW II permanent and ready to be deployed when countries are Tackling the HIV/AIDS epidemic. HIV/AIDS is already hit by a shock. These and other actions can also help in one of the most important sources of insecurity in severely coping with natural shocks. "Calamity funds" can finance afflicted countries in Africa. While the immediate, dev- relief efforts following natural disasters and support new astating effects are at the individual and household level, technology and training for better risk assessment. Mak- the consequences are much broader, from intolerable ing investments and insurance arrangements in normal strains on traditional child fostering mechanisms to times can reduce personal costs when a disaster occurs. extreme pressures on health systems and loss of produc- Designing nationalsystems ofsocial risk management that tive labor affecting whole communities and nations. are also pro-growth. There is demand across the world for More than 34 million people are infected with HIV (90 national systems of social risk management. The challenge percent in the developing world), with 5 million more is to design them so that they do not undercut compet- infected each year. More than 18 million people have al- itiveness and so that poor people benefit. Some examples: ready died of AIDS-related illness. Action at the inter- systems that both provide insurance for the nonpoor national level to develop an AIDS vaccine is crucial for and include social pensions for the poor, as in Chile; health the future, but differing experiences show that what will insurance that protects against catastrophic illness that really make a difference now is effective leadership and could wipe out a family's assets, as in Costa Rica; and un- societal change to prevent the spread of HIV and care for employment insurance and assistance that do not com- those already infected. This can involve confronting promise the incentive to work. To gain the full benefits taboos about sexuality, targeting information and support of such schemes, however, economies need the institu- to high-risk groups such as prostitutes, and providing com- tional capacity to manage them effectively. passionate care for AIDS sufferers. Brazil, Senegal, Addressing civil conflict. Civil conflict is devastating for Thailand, and Uganda all illustrate what can be done when poor people: the bulk of conflicts are in poor countries there is a will to act decisively. and most are civil wars-more than 85 percent of all con- flicts were fought within country borders between 1987 International actions and 1997. In addition to the direct loss of life, they Action at national and local levels will often not be enough wreak social and economic havoc and create a terrible for rapid poverty reduction. There are many areas that re- legacy of psychological and social trauma. Child soldiers quire international action-especially by industrial are often recruited to fight-as in Sierra Leone-and countries-to ensure gains to poor countries and to poor many more children suffer the loss of family, disruption people within the developing world. An increased focus of schooling, and psychological scars that permanently on debt relief and the associated move to make develop- diminish their prospects. ment cooperation through aid more effective are part of While it is immensely important to sustain the focus on the story. Of equal importance are actions in other areas- rebuilding societies after conflict, such as in Cambodia trade, vaccines, closing of the digital and knowledge and Rwanda, it is equally urgent to take measures to pre- divides-that can enhance the opportunity, empowerment, vent conflict. There is some evidence that strengthening plu- and security of poor people. ralist institutions-supporting minority rights and providing Opportunity. Within a rule-based trading system, in- the institutional basis for peaceful conflict resolution- dustrial countries could expand opportunities by open- has a significant influence. Also important for averting ing their markets more completely to imports from poor conflict are efforts to get different groups to interact through countries, especially in agriculture, labor-intensive man- more inclusive and participatory political institutions and ufactures, and services. It has been estimated that OECD through civil institutions. As noted below, international ac- tariffs and subsidies cause annual losses in welfare of tion to reduce access to the resources to finance conflict and almost $20 billion in developing countries, equivalent to to reduce international trade in armaments is also neces- about 40 percent of aid in 1998. Many developing coun- sary. If countries can get onto a path of inclusive economic tries feel that while they are liberalizing their trade regimes, development, they have the potential to shift from a vicious key dimensions of the trade regimes of rich countries are to a virtuous cycle. Violent conflict constitutes one of the putting them at a disadvantage. Furthermore, donor most urgent and intractable areas for action affecting some countries could strengthen developing countries' ability of the poorest people in the world. to pursue poverty reduction, by increasing aid flows to 12 OVERVIEW countries with a sound policy environment supportive of Working together to fight poverty poverty reduction and by financing the Enhanced I-leavily Indebted Poor Countries Debt Relief Initiative with The strategy in this report recognizes that poverty is funds additional to aid budgets. more than inadequate income or human development- Empowerment. Global action can empower poor people it is also vulnerability and a lack of voice, power, and rep- and poor countries in national and global forunis. Aid resentation. With this multidimensional view of poverty should be delivered in ways that ensure greater owner- comes greater complexity in poverty reduction strategies, ship by recipient countries, and it should go increas- because more factors-such as social and cultural forces- ingly to country-driven, results-oriented poverty reduction need to be taken into account. programs, developed with the effective engagement of civil The way to deal with this complexity is through society and private sector agents. Poor people and poor empowerment and participation-local, national, and in- countries should have greater voice in international temational. National governments should be fully accountable forums, to ensure that international priorities, agree- to their citizenry for the development path they pursue. Par- ments, and standards-such as in trade and intel] cctual ticiparory mechanisms can provide voice to women and men, property rights-reflect their needs and interests. especially those from poor and excluded segments of soci- The international financial institutions and other in- ety. The design of decentralized agencies and services needs ternational organizations should continue their efforts to to reflect local conditions, social structures, and cultural ensure full transparency in their strategies and actions- norms and heritage. And international institutions should and open, regular dialogue with civil society organizations, listen to-and promote-the interests of poor people. The particularly those representing poor people. International poor are the main actors in the fight against poverty. And organizations should also support the ongoing global they must be brought center stage in designing, imple- coalitions of poor people so that they may inform global menting, and monitoring antipoverty strategies. debates. Actions by multinational corporations, such as There is an important role in this for rich countries adhering to ethical investment practices and adopting and international organizations. If a developing country labor codes, can also empower poor groups. has a coherent and effective homegrown program of Security. Actions are also needed to reduce risks from poverty reduction, it should receive strong support-to adverse international forces. Jointly with governments and bring health and education to its people, to remove want the private sector, the international financial infstitu- and vulnerabilitv. At the same time global forces need to tions must strengthen the international financial archi- be harnessed for poor people and poor countries, so that tecture and improve its management to lessen ecor[omic they are not left behind by scientific and medical advances. volatility, which can be devastating for poor people. In- Promoting global financial and environmental stability- dustrial country governments, often in cooperatior with and lowering market barriers to the products and services the private sector, should also provide more support for of poor countries-should be a core part of the strategy. international public goods-for developing and dis- A divergent world? Or an inclusive one? A world tributing vaccines for HIV/AIDS, tuberculosis, and with poverty? Or a world free of poverty? Simultaneous malaria and for producing and disseminating agricultural actions to expand opportunity, empowerment, and advances for tropical and semiarid conditions. security can create a new dynamic for change that will International action to protect the environment can re- make it possible to tackle human deprivation and create duce the harmful effects of environmental degradation, just societies that are also competitive and productive. which can be severe in some poor countries. And the If the developing world and the international commu- international community should seek to stem ai-med nity work together to combine this insight with real conflict-which affects poor people the most-by taking resources, both financial and those embodied in people measures to reduce the international arms trade, pro mote and institutions-their experience, knowledge, and peace, and support physical and social reconstruction after imagination-the 21 st century will see rapid progress in conflicts end. the fight to end poverty. OVERVIEW 13 Table A.1 Income poverty by region, selected years, 1987-98 Population covered by at least People living on less than S1 a day one survey (millions) Region (percent) 1987 1990 1993 1996 1998a East Asia and Pacific 90.8 417.5 452.4 431.9 265.1 278.3 Excluding China 71.1 114.1 92.0 83.5 55.1 65.1 Europe and Central Asia 81.7 1.1 7.1 18.3 23.8 24.0 Latin America and the Caribbean 88.0 63.7 73.8 70.8 76.0 78.2 Middle East and North Africa 52.5 9.3 5.7 5.0 5.0 5.5 South Asia 97.9 474.4 495.1 505.1 531.7 522.0 Suo-Saharan Africa 72.9 217.2 242.3 273.3 289.0 290.9 Total 88.1 1,183.2 1,276.4 1,304.3 1,190.6 1,198.9 Excluding China 84.2 879.8 915.9 955.9 980.5 985.7 Share of population living on less than $1 a day (percent) Region 1987 1990 1993 1996 1998a East Asia and Pacific 26.6 27.6 25.2 14.9 15.3 Excluding China 23.9 18.5 15.9 10.0 11.3 Europe and Central Asia 0.2 1.6 4.0 5.1 5.1 Latin America and the Caribbean 15.3 16.8 15.3 15.6 15.6 Middle East and North Africa 4.3 2.4 1.9 1.8 1.9 South Asia 44.9 44.0 42.4 42.3 40.0 Sub-Saharan Africa 46.6 47.7 49.7 48.5 46.3 Total 28.3 29.0 28.1 24.5 24.0 Excluding China 28.5 28.1 27.7 27.0 26.2 Note: The poverty line is $1.08 a day at 1993 PPP. Poverty estimates are based on income or consumption data from the countries in each region for which at least one survey was available during 1985-98. Where survey years do not coincide with the years in the table, the estimates were adjusted using the closest available survey and applying the consumption growth rate from national accounts. Using the assumption that the sample of countries covered by surveys is representative of the region as a whole, the number of poor people was then estimated by region. This assumption is obviously less robust in the regions with the lowest survey coverage. For further details on data and methodology see Chen and Ravallion (2000). a. Preliminary. Source: World Bank 2000b. Notes 8. For further information see the UNICEF statistical data- base at www.unicef.org/statis. 1. Sen 1999. 2. This account is of a visit by Ravi Kanbur, director of the References report until May 2000. 3. Note that 1998 is the most recent year for which data are Chen, Shaohua, and Martin Ravallion. 2000. "How Did the available. However, figures for 1998 are preliminary. World's Poorest Fare in the 1990s?" Policy Research Work- 4. While thesc numbers provide a sense of broad trends, they ing Paper. World Bank, Washington, D.C. should be treated with caution in light of the data shortcomings Hanmer, Lucia, and Felix Naschold. 1999. "Are the Interna- mentioned in chapter I and the fact that figures for 1998 are ten- tional Development Targets Attainable?" Overseas Develop- tative because of the limited number of sLirveys available. ment Institute, Portland House, London. 5. Hamner and Naschold 1999. IMF (International Monetary Fund), OECD (Organisation for 6. Hamner and Naschold 1999; McGee 1999. Economic Co-operation and Development), UN (United Na- 7. For a discussion of the relationship between environment tions), and World Bank. 2000. 2000: A Better WorldforAll- and growth, see chapter 4 of World Bank (2000a). Progress towards the International Development Goals. 14 OVERVIEW Washington, D.C. [www.paris2l.org/betterworld/f. Narayan, Deepa, with Raj Patel, Kai Schafft, Anne Rademacher, McGee, Rosemary. 1999. "Meeting the Internatiornal De- and Sarah Koch-Schulte. 2000. Can Anyone Hear Us? Voices velopment Targets: What Are the Prospects and Key ofthe Poor. New York: Oxford Universitv Press. Challenges? Uganda Country Study." Christian Aid, Sen,AAmartya. 1999. Developmentas Freedom. NewYork: Knopf. London. World Bank. 2000a. The Quality of Growth. New York: Oxford Narayan, Deepa, Robert Chambers, Meera K. Shah, and Patti Pe- University Press. tesch. 2000. Crying Outfor Change: Voices of the Poor. New . 2000b. World Development Indicators 2000. Washing- York: Oxford University Press. ton, D.C. 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