Official PDF , 203 pages

203 Pages·2003·8.77 MB·English

by  World Bank Group

d
e
z
ri
o
h
ut
A
e
r
u
s
o
cl
s
Di
c
bli
u
P
d
e
z
ri
o
h
ut
A
e
r
u
s
o
cl
s
Di
c
bli
u
P CD0 AO
d
e
z
ri
o
uth 679 ~~~ ' - . 'I -
A
e k~~~ Iv.
ur -r>
s
o
cl
s
Di
blic CD Sp .
u [ ' - ,se tI-- ,
P
4 N
\4 a J-
L
d PM
e
z
ri
o
h
ut
A
e
r
u
s
o
cl
s
Di
c
bli
u
P

N1C-HOAS-L ERN____T_E_R_N
A STRATEGY
FOR
DEVELOPMENT
THE WORLD BANK
Washington, D.C.
© 2002 The International Bank for Rcconstruction
and Development / The World Bank
1818 H Street, NW
Washington, DC 20433
All rights reserved. Published 2002
Manufactured in the United States of Ameiica
1 2 3 4 05 04 03 02
The findings, interpretations, and conclusions expressed here are those of t'he
author(s) and do not necessarily reflect the views of the Board of Executive
Directors of the World Bank or the governments they represent.
The World Bank cannot guarantee the acet.racy of the data included in this
work. The boundaries, colors, denominations, and other information shown on
any map in this work do not imply on the part of the WVorld Bank any judgment
of the legal status of any territory or the endorsement or acceptance of such
boundaries.
Rights and Permissions
The material in this work is copyrighted. No part of this work may be repro-
duced or transmitted in any form or by any means, elcctronic or mechanical,
including photocopying, recording, or inclusion in any information storage and
retrieval system, without the prior written permission of the World Bank. The
World Bank encourages dissemination of its work and will normally grant per-
mission promptly.
For permission to photocopy or reprint, please send a request with complete
tnformation to the Copyright Clearance Center, !nc., 222 itosewood Drive,
Danvers, MA 01923, USA, telephone [phone]-C0, fax [phone],
www.copyright.com.
All other queries on rights and licenses, including subsidiary rights, should be
addressed to the Offlce of the Publisher, World Bank, 1818 1HS treet, NW, Wash-
ington, DC 20433, USA, fax [phone], e-mail pubrights0worldbank.org.
ISBN 0-8213-4980-5
Library of Congress Cataloging-in-PLbiication .Datz hzs eCn awalied fo..
Contents
Preface v
I Introduction I
2 Fifty Years of Development 15
3 Building a Climate for Investment, Growth,
and Poverty Reduction in India 51
4 Globalization, Reform, and Poverty Reduction:
The Challenge and Implications for Indonesia 69
5 Investing in Education and Institutions: The Path
to Growth and Poverty Reduction in Pakistan 85
6 Reform, Poverty Reduction, and the New
Agenda in China 109
7 A Strategy for Development 143
8 Investment and Poverty: The Role of the
International Financial Institutions 173
Preface
This
is a time when many are asking questions about the functioning
of the world economy and the involvement of poor people in eco-
nomic growth and development. The meaning of development is itself
under scrutiny Underlying the qucstioning are profound changes in the
world economy over the last 20 years. These include: strong advances in
economic policy and growth in many developing countries, most strik-
ingly in the two population giants, China and India; declining living
standards in many other developing countries; devastating civil con-
flicts, particularly in Africa; the collapse of the former Soviet bloc, with
a transition to a market economy that has been traumatic for many;
huge increases in private capital flows; the rise of information technol-
ogy and the Internet; and the rapid spread of AIDS. Less noticed, but
equally profound, the last two decades of the twentieth century coin-
cided with a deepening understanding of the meaning of development
and the first strong and sustained reduction in the proportion of people
living in poverty for around 200 years.
These changes, the questioning, and the advance of our understanding
together provide an opportunity and a challenge to the international
development community. We have an opportunity to "raise our game"
in the fight against poverty and, working together, with greater resources
and better policies to make real progress in reducing poverty. To meet
this challenge, it is important to have a coherent intellectual approach
to development to guide our actions and to ensure that our work really
does include poor people.
During his first year as Chief Economist and Senior Vice President of
the World Bank, Nick Stern articulated the outlines of an emerging
strateg; for development in a series of speeches during visits to our
clients, including several of the world's most populous developing
countries His remarks draw upon the growing body of knowledge in
development economics, the research and operational experience of
the Bank, and his own varied experience as an economist, including
the eight months he spent as a young researcher in an impoverished
village in India.
The speeches represent Nick's own views, in the sense that they have
not been cleared or endorsed by the World Bank executive directors
v
A Strategy for Development
I am certain that this small collection xvill become an important part
of the development lIterature. We are at an exciting and challenging
moment as we approach the future growth our planet, and I commencl
0o
this work to you for your review and consideration.
James D. Wolfensohn
vi
Introduction
A
s this volume was going to press, hijacked jetliners destroyed New
York's World Trade Center and a portion of the Pentagon in Wash-
ington, D.C. It is a time of grief. It is a time for reflection. For me, as for
many others of my generation, the magnitude of the tragedy and the
anxiety about events that will follow recall the challenges that con-
fronted our parents, the generation that came of age during the Second
World War.
The survivors of that terrible conflagration rededicated themselves to
international dialogue and cooperation, so that future generations might
be spared the immense suffering of global war. They created new organi-
zations: the United Nations, to foster political dialogue and cooperation,
and the World Bank and the International Monetary Fund, to provide
the economic basis for a lasting peace. Europeans established the Euro-
pean Coal and Steel Community, the drab institutional foundation of
what has become the European Union. The goal was to build a world of
cohesion and inclusion in place of conflict and inequality. It was an
affirmation of our common humanity.
The institutions they created are far from perfect, and the protection
against war that they have afforded has been very far from complete.
Wars and even genocides have continued to occur, despite the heartfelt
pledges of "never again." Notwithstanding unprecedented success in
reducing poverty and extending the benefits of health care and educa-
tion, almost three billion of the world's sIx bllion people live on less
than two dollars a day.
Yet the efforts to create a more equitable and peaceful world have not
been in vain. Less than a generation ago, the risk of nuclear war among
the large industrialized nations imperiled the very continuation of life
on earth. Today that threat has receded. The international community
has also intervened-albeit inconsistently-to end local conflicts, to
halt genocide, and to administer justice to criminals who flout interna-
tional codes for civilized behavior whether it be in the name of nation-
alism or ideology or any other reason. In the past decade, improved
policies and institutions in poor countries, more effective development
assistance, and a more open international environment for trade and
investment have made possible the most rapid reduction in poverty seen
A Strategy for Development
in human history. Since 1980 the overall number of poor people has
stopped increasing, and has indeed fallen by an estimated 200 million
(figure 1).
Working together to fight poverty can help reduce conflict in two ways.
The act of working together for a higher goal should be a constant re-
minder of our common humanity and a shared world. And, still more
important, a more inclusive world, a more equitable world, one of mu-
tual respect and collaboration between different nations, cultures and
faiths will surely be a world where the hatred that fuels terrorism and
conflict is much less likely to fester.
The lessons of World War 11, and t'he successes and failures of multilat-
eral cooperation and international development efforts since then,
surely provide a valuable guide for how to proceed. First, intemational
problems require an international response. Second, ideas and knowl-
edge are crucial to finding better responses. As the international com-
munity has leamed more about development-what worlcs, what does
not and why-developing country governments and donors have been
able to craft better policies and institutions and thus to make better use
of available resources in the fight against poverty.
I believe we are already seeing a renewed commitment to three ideas
that recur throughout this volume: the importance of having effective
international institutions to address intemational problems, the value of
knowledge, and above all the importance of the fight against poverty
and inequity to build a better world.
About This Volume
The speeches In this collection-all delivered since I became chief
economist of the World Bank in July 2000---reflect insights gained over
more than three decades of study and work in development economics.
Together they attempt to provide an analysis of development experience
and an agenda for action in the coming years. This introductory essay is
intended to set the evolution of my own ideas within the context of the
changes in development thinking and strategy that I have seen takc
place.
We are all strongly influenced by our intellectual predecessors and col-
leagues, and I have drawn on many strands of research in economic
theory and development economics. Readers will recognize, in particu-
2
Introduction
lar, the influence of the work of Joseph Schumpeter, Albert Hirschman,
and Amartya Sen. Since arriving In the Bank, I have been strongly
influenced by working closely with James Wolfensohn, the President of
the World Bank.
My colleagues in the Development Economics Vice Presidency (DEC)
have played a central role in the development of the ideas in these
speeches and the speeches themselves. Paul Collier and David Dollar are
co-authors of Chapter 2. Shahrokh Fardoust was central to Chapter 3 on
India and Chapter 5 on Pakistan. David Dollar and David Ellerman
worked closely with me on the chapter on China, and David Ellerman
played a key role in Chapters 7 and 8. Coralie Gevers, Ian Goldin, and
Jo Ritzen have contributed to several chapters. Many other colleagues,
both in DEC and in other parts of the Bank, have contributed in impor-
tant ways, and I hope they will accept my collective thanks. Halsey
Rogers helped with the creation and crafting of the speeches throughout
the year and guided the editing of this collection to reduce repetition. I
owe him a great debt. I am very grateful to Lawrence MacDonald for
encouraging me to explain these ideas in the context of my own experi-
ence. I am also grateful to Nancy Levine for editing the manuscript, and
to Heather Worley and the Office of the Publisher at the World Bank
for turning the manuscript into a book.
Notwithstanding the great support from my colleagues at the World
Bank, I must emphasize strongly that the views expressed here are my
own and not those of the World Bank.
Development Thinking: From Planning to Market Fundamentalism
The 1960s, the period during which I came of age as an economist, was
still an era of confident, ambitious government. Around the world, both
the general public and public officials believed that government could
understand the economy well and lead it strongly in certain directions.
This belief had a variety of political expressions, from the activist domes-
tic policies of the Kennedy and Johnson administrations in the United
States to the social democratic and interventionist policies in Western
Europe that were endorsed even by conservatives like de Gaulle. And
throughout the developing world, the 1960s was an era when central
planning, or at least the idea of central planning, was in the ascendancy.
The belief that government action could overcome most market failures
was widely accepted not only in the eastern bloc economies and China
but also in India and the newly independent states of Africa. In short,
3