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WASHINGTON, October 2, 1998 The global explosion of knowledge now underway may lift hundreds of millions of the world's poor out of poverty-or it may create a widening knowledge gap, in which poor countries lag further and further behind, according to a World Bank report released today.
The new report-Knowledge for Development-the 1998/99 World Development Report, the 21st in the World Bank's annual series, analyzes the risks and opportunities that the global information revolution is creating for developing countries, and concludes that access to financial, technical, and medical knowledge is crucial to improving the health and living standards of the poor.
New communications technology and plummeting computing costs are "shrinking distance and eroding borders and time," so that even remote villages can tap into a rapidly expanding global store of knowledge. But the rapid growth of knowledge is also "raising the danger that the poorest countries and communities will fall behind more rapidly than ever before," World Bank President James D. Wolfensohn writes in the foreword to the report.
"In our enthusiasm for the Information Super Highway we must not forget the villages and slums without telephones, electricity or safe water, the primary schools without pencils, paper or books," Mr. Wolfensohn writes. "For the poor, the promise of the new information age-knowledge for all-can seem as remote as a distant star."
Knowledge Makes a Difference
The report says that low national incomes are not the only reason why poor countries are less prosperous than richer ones. Many developing countries lack the capability to acquire and adapt the economic, technical, and social knowledge that has spurred many of the world's development success stories. Since creating this know-how is often costly, industrial countries have greater opportunities to use knowledge to obtain better health and rising prosperity for their populations.
Fortunately, countries can narrow the knowledge gap by putting in place policies to acquire and adapt knowledge from abroad, and by making the most of indigenous knowledge. Countries that do this can greatly improve the living standards of their citizens. For example, forty years ago, Ghana had the same per capita income as South Korea. By the early 1990s, Korea's per capita income was six times higher than Ghana's. Some development experts claim that at least half that disparity can be explained by South Korea's greater success in acquiring and using knowledge.
Poor countries also differ from rich in their pursuit of knowledge by having fewer public institutions to safeguard the quality and truth of the information people need to lead healthy, more affluent lives. Often there is no capacity to certify the quality of goods or services, enforce standards and performance, and gather and disseminate key information needed for business transactions.
These types of problems especially hurt the poor. Since few countries have credit agencies or other institutions to assess which poor people can repay loans, village money lenders often charge interest rates as high as 80 percent because of the difficulty of discovering the creditworthiness of poor borrowers. Similarly, when some milk producers in India started watering down their milk, customers had no way of identifying the diluted milk before they bought it. Over time, this lead to a deterioration in the overall quality of milk, put producers, who did not dilute their milk at a competitive disadvantage, and made consumers, including the young and the elderly, suffer. An Indian Government program to certify milk quality restored the market, benefiting consumers and producers.
"Knowledge can make the difference between sickness and health, between poverty and wealth," says Carl Dahlman, Director of this year's World Development Report team. "Governments that adopt policies to make the most of knowledge will have major advantage in improving the lives of their citizens."
The Ingredients of Knowledge
The report focuses on two types of knowledge-and two types of problems-that are critical for developing countries:
- How-to knowledge, such as nutrition, birth control, engineering, or accounting. Typically, developing countries have less know-how than industrial countries, and poor people have less know-how than wealthier people. The report argues that closing these knowledge gaps-for example, through education, better phone systems, and openness to exchanges with foreign countries, including trade-can do much to help the world's poorest people to improve their lives.
- Second, knowledge about attributes or characteristics, such as the quality of a product, diligence of a worker, or creditworthiness of a firm. The report describes this lack of knowledge as "information problems" and argues that this in turn leads to market failures, such as lenders' refusal to offer loans to poor people, because of the difficulty in assessing their ability to repay.
Priorities to Bridge the Gap
The report recommends the following three types of actions to enable developing countries make the most of knowledge:
First, developing countries should adopt policies to narrow the knowledge gaps that separate them from rich countries. For example, by investing in education, including technical training, maintaining an open trading regime which brings foreign investment and licensing agreements, and removing barriers to competition in the telecommunications sector, as well as building on and applying indigenous knowledge.
Second, the report recommends that governments, multilateral institutions, non-governmental organizations, and the private sector must work together to strengthen the mechanisms needed to resolve information problems. Examples of such mechanisms include product standards, accounting systems, disclosure requirements, credit reports as well as more innovative approaches to generate information through self-revelation and peer monitoring.
Third, governments must recognize that knowledge gaps and information problems cannot be eliminated, but by recognizing that knowledge is at the core of development efforts, policymakers can sometimes discover unexpected solutions to seemingly intractable problems.
The report also highlights the World Bank's drive to become a 'Knowledge Bank', a commitment first announced in 1996 to become the world's premier clearinghouse for development knowledge. The Bank's knowledge management system will not only be an on-line corporate memory bank of best practices, but also a gatherer and disseminator of successful development knowledge from outside organizations as well. By 2000, according to plan, relevant parts of the system will be made externally accessible so that clients, partners, and stakeholders around the world can tap into the Bank's know-how.
The report offers many examples of how the effective use of knowledge has improved economic growth-and people's lives. Often simply narrowing the knowledge gap-improving education and bringing knowledge to bear on the problems of daily life-can improve the quality of people's lives. For example:
- In Vietnam, people living in households headed by someone with no education have a poverty rate of 68 percent. Primary education for the household head brings the rate down to 54 percent, secondary education to 41 percent, and university education to 12 percent.
- In Costa Rica, life expectancy and infant mortality are on par with many industrial countries, even though incomes are only about one tenth those in the US, thanks in part to a decades-long government effort to provide people with information about sanitation and health, with a focus on prevention.
- It is now widely recognized that the level of a woman's education is an important factor in the health of her children. In countries as different as Mali, Bolivia, the Philippines, and Morocco, infant mortality rates are two to three times higher for the children of women who have no education than they are for the children of women who have a secondary education or higher.
- In Rwanda, women played a leading role in a government-backed initiative to improve the * efficiency of charcoal burning stoves. The women helped to design a stove that used one third less charcoal and produced less smoke, trained stove makers in producing the new design, and helped to market it. Three years later, one out of four city households were using the new stove-which was being produced and marketed without government subsidies.
|EDUCATION AND THE MASS MEDIA:|
A POWERFUL COMBINATION
Recent evidence points to the power of the joint impact of education and the media. Many studies have shown that mothers' education has a strong, positive effect on child health, but very little is known about how this effect is achieved. Recent work indicates that a mother's education improves child health by increasing the mother's ability to obtain and process information.
Using 1986 data from northeastern Brazil, one study found that parents who regularly made use of mass media, for example who read a newspaper, had healthier children (as measured by height for age). In fact, when these variables are added to the analysis, a mother's years of schooling no longer have a significant independent effect on child height. One interpretation of this finding is that both maternal education and information are essential for improved child health: education is necessary for mothers to process information, but access to relevant information through the mass media is necessary for education to have an effect.
Sometimes, new institutional arrangements that resolve information problems provide the key to improving people's lives. Examples of information-based solutions include:
- In Madagascar, government-run training programs for state workers who lost their jobs often failed to help the workers find new jobs. A revised program instead offers a "menu" of training options, including services from private companies and non-governmental organizations. Workers chose which services to buy with their severance payment-or they can opt to receive the entire payment in cash. This information-based approach provides workers the training they want and reduces the risk funds will be wasted in useless training.
- Stock markets worldwide may provide a valuable new tool for reducing pollution. A recent World Bank study in Argentina, Chile, Mexico, and the Philippines found that a company's share price increased by an average of 20 percent when environmental regulators publicly recognized its good environmental performance, while share prices fell 4 to 15 percent in response to publicized complaints about pollution. A pioneering program in Indonesia has had good results using public information disclosure to reduce water pollution.
Although much can be achieved by tackling information problems, these problems can never be entirely eliminated. The persistence of information problems can be seen most dramatically in the recent financial crisis East Asian economies which had long been regarded as models of success. According to the report, in a time of uncertainty, lack of knowledge about which firms were creditworthy led investors to withdraw their funds and lenders to withhold credit.
"Company accounts in many of these economies were not transparent, and taken together with other weaknesses in the region, investors felt they didn't know if their money was safe and so left in a panic," said Joseph E. Stiglitz, World Bank Senior Vice President and Chief Economist. Mr. Stiglitz, who supervised the team that prepared the report, said that if investors had been better-informed about the real state of the region's economies then "East Asia's sharp decline might not have been so severe."
The report adds that capital outflows and currency collapse experienced by some countries in the region "reflected the pervasive lack of information throughout the world about finance in the region." It further says that improved supervision and regulation of the financial sector is particularly important because of the broad impact of the financial sector on the rest of the economy.
Other chapters discuss the role of knowledge for development in acquiring knowledge (primarily devoted to accessing knowledge from abroad, including the issue of intellectual property rights), absorbing knowledge (a discussion of education), communicating knowledge (primarily telecommunications), the environment, poverty, and the role of international institutions. The report concludes with advice for policy makers in developing countries.
Additional information about the report, including an illustrated talk and the full text, are available on the World Wide Web at http://www.worldbank.org/wdr.