Poverty and Development: the World Development Report 2000/2001

Keynote Address at the
Conference on World Poverty and Development: A Challenge for the Private Sector

by
James D. Wolfensohn
President
The World Bank Group

Amsterdam, October 3, 2000

Professor van der Gaag, Minister Herfkens, ladies and gentlemen, I am delighted that there is an opportunity to exchange views with you on a subject which is of enormous importance to me personally and to my colleagues in the Bank.

I thought it might be a good idea, in view of all the noise that is going on, to give you first a little orientation on the issue of poverty and how it is that we see the issues that are facing us being addressed, and the role of the private sector, the subject of todays meeting.

Let me first give you the orientation and why it is that I am interested and that I believe my colleagues are interested.

We start with a world of six billion people. And in that world of six billion, as my friend Professor van der Gaag has just told you, we have three billion people that live under $2 a day and a billion two hundred million that live under $1 a day. So roughly half the world is living under $2 a day.

The other dimension is that you have a global GDP of around $30 trillion. And of that, 20 percent of the world -- those living in developed countries, the OECD, Holland, United States, Europe, Japan -- have about 80 percent of the income, around 24 thousand billion dollars. So 20 percent of the world has 80 percent of the gross product. And 80 percent of the world has 20 percent of the product; that is the 4.8 billion people in the developing world has $6 trillion, approximately 20 percent, of the global product.

Now, if that were not enough in terms of inequity, 80/20, 20/80, the problem is compounded by the fact that within many countries the top 20 percent of the population has 50 percent or so of the take, and the bottom 20 percent has maybe 5 percent of the take. Although it varies among countries, it is clear that inequity is considerable within countries. And it is also quite clear that the 20 largest or 20 most prosperous countries have roughly 37 times the take of the 20 poorest countries.

I will stop the statistics after this, but it is important that you have a sense of the parameters of the globe you live in and the fact, first of all, that it is a very split globe between developed and developing, and that within countries you have very considerable inequities.

If that were not enough, you then look to the next 25 years, and in the next 25 years, we will add two billion people to the planet. So we will move from six billion to eight billion. And all but 3 percent of that will go to the developing world. So in another 25 years, the 4.8 billion, give or take, will become 6.8 billion, and the globe will move from six to eight billion, and you will still have a billion two, maybe 50 million more, in the developed world.

Europe will be roughly the same size in 25 years. But you will have this enormous move to developing countries, with all the attendant stresses if we are not able to deal with the question of poverty.

Now you need to ask yourself the question: Why is this of any concern to me? Why, if you live in Holland or the United States or Europe, is this a relevant consideration? And the answer is that we are in a world that is very different to the world that we knew 20 or 30 years ago. It is different because the pace of change and the pace of globalization is accelerating more rapidly than ever in history. And instead of there being two worlds of this developed and that developing world, everything is pushing us together.

Interconnectedness in trade, finance, health, migration, drugs, crime, war -- interconnectedness of all types -- is making this world, instead of two worlds, one world.

And what I believe, without going through all the arguments, is that the issue of poverty is no longer an issue that you can consider either within the developing world where there is poverty or the developed world looking out to the developing world. You have to consider it as an integral issue. And it is an issue not just of equity and social justice and morality. It really is an issue of peace, because it is unlikely that you will have stability, in a world of inequity. People who have nothing, or have little, or no place to go or no opportunity, react like you or I would react. You want to protect your kids. You want to create a life. So you react.

And all the academic analysis indicates that within countries the cause of crime and distress is frequently associated with poverty, and the extension of that to the international condition is that if you have instability and inequity, then you lack peace.

So at its simplest, the issue which is of concern to me and of concern to my colleagues is the issue of equity, of social justice or, if you look at it beyond that, the issue of peace.

Now, that becomes an issue which affects everybody. It is not just an issue which affects academics or people that are in the development community. It is something that affects non-governmental organizations, civil society, governments, and, of course, the private sector. And for the private sector, it becomes particularly crucial because as the private sector looks to expand its markets and it forecasts the next 25 years, it finds that the most rapidly developing markets are, in fact, in the developed world, not surprisingly given an additional two billion people. And the sheer weight of numbers is going to take that 20 percent to the order of 30 percent within the next 25 years. And as one looks at the growth of trade and investment, one can trace a very significant change in the role of the private sector in recent years.

Ten years ago, the private sector invested around $40 billion a year in the developing world. That was half the amount of official development assistance, which was $60 billion a year. So it was comfortably half the size of development assistance. People talked to business people saying to them I wish you would go invest in developing countries. And they did so significantly, but concentrated this investment largely in ten countries as opposed to 140 countries. Holland provides a prime example, complimented by a distinguished history both in terms of investment and, of course, of trade.

But then in 1998, the $43 billion at its peak rose to around $304 billion in the space of eight years, and development assistance, instead of staying at $56 billion, dropped to around $50 billion. So from being half the size, in the space of eight or nine years private sector investing in developing countries became five or six times the size of official development assistance. This is a trend which has occurred throughout the period of the Asian crisis; while portfolio investment dropped and Bank lending dropped, direct investment has continued to rise, from $24 billion in 1990 to $170 billion in 1997 to $240 billion in 1999.

And therefore, in response to the question commonly posed today -- what is the role of the private sector?the reply is first and foremost that it is a significant role. It has taken economic decisions to invest largely in 10 or 12 developing countries, the growth centers of the developing world. Be it China, Brazil, India, Mexico or a few countries in Eastern Europe, the private sector is finding the eyes in the developing world to seek out economic opportunity and a basis upon which growth can be established in those countries, while of course profiting the companies themselves.

Now, if you stand back from the issue as a business person or if you stand back, as Eveline, others in the room and I do in the development business, you have to think in terms of what is it that is likely to allow development to occur in a peaceful and promising way. And there if you read the World Development Report, which I highly recommend,  I am advertising it today -- this report actually gives you all the answers, so I am not going to tell you exactly what the answers are. You have to read it yourself.

But, in fact, what it does is that it addresses issues of opportunity, empowerment, and security. And what basically it says is the following:

First of all, that if you want to look out to a stable and a peaceful world, you had better start thinking about the question of poverty, not because reacting is a luxury or because one is a social do-gooder, but for two reasons. The first is that if you want your kids to live in a peaceful world in the next 25 years, then you better be interested in the question of poverty.

And the question then is how do you manifest that interest, and how is it that you can get an approach which is likely to be productive in terms of combating poverty and reaching some of the goals of the United Nations, one of which is to halve the level or the proportion of poverty by the year 2015. There are seven other goals which relate to education and maternal mortality and many other areas which you will also find in this book. So if you want to be an expert, read the book.

But it will tell you about these objectives, and what this document says is something that is really very important. The first thing is that you have got to change your orientation. You should not think about poverty and poor people as a burden, as a liability. You need to think about poor people as an asset. And we have done a study based on talking to 60,000 poor people in 60 countries called "Voices of the Poor," and they are just like you and me, not surprisingly.

The issue is not just money. The issue is self-esteem. The issue is wanting a better life for your kids, a household free of domestic violence, protection against crime, security and opportunity.

I have now been in 100 or more countries. I have been to literally hundreds of slums and villages. The best people you meet are in those slums and villages. They are the people that understand poverty better than any of us. They have the greatest capacity to deal with it. And all they want is a chance. All they want is an opportunity.

And so what we are arguing in this book -- and I have seen it for myself -- is not that you think of poverty as an issue of charity, but you think of it as an issue of empowerment and of opportunity. And the whole focus of this report, and indeed of our approach, is to try to create an environment in which you can, in fact, give opportunity and empowerment and recognition to people in poverty.

And we have dozens of examples about how community development works. Whether you are getting people together through schemes founded on microcredit, communal trusts or agricultural finance, we must approach community development without feeling that the investment merely fulfills the desire to give away money. Rather, we should apply a constructive attitude of treating poverty in a global context, poor people as we would expect to be treated, and the local community as windows of insight into how they deal with issues of water or education or environmental issues.

Now, within that context, what we have also learned is that organizations such as the Bank or bilateral institutions or those that you have in Holland that deal with the issues of aid and development, cannot do it alone; and so the only way that you can address the issue of poverty is by partnership and by outreach. And there, what we have learned is that you need to include, first and foremost, the governments of the countries in which you are operating, which are in many cases an elected government and, in an increasing number of cases, local government. That brings me to another demographic: two billion more people in the next 25 years are going to move into cities and towns. In another 25 years, you will have 500 cities and towns of a million people or more.

So in a globe like that, you have got to think not just of federal governments, but of local governments and new forms of management. You need to think of civil society in all its forms. And there the partnership has to be real, constructive, and based on mutual respect. And by civil society, I include trade unions, religions, community organizations, non-governmental organizations, and foundations.

You need people like us and people like Eveline Herfkens to come together, not to compete with each other but, in fact, to establish common practices so that we do not complicate matters with all our individual requirements and our flags over every particular project.

And, finally, business is integral. Before you get anything done, you have got to have growth, and with that growth you have to have social responsibility.

And so it is what we are doing in the Bank -- and many others are doing it, too  that is, trying to seek partnerships with the private sector, not as some money-making machine but as an integral part of economic development where the private sector also needs to think in terms of its social responsibility. And businesses are increasingly thinking in terms of social responsibility. And that is why I am thrilled that you are, in fact, dealing with those issues here today and will be discussing them during the course of the day.

So for us, the issue is clear. It is a partnership between international organizations, governments, the private sector, and civil society. It is not just about money; it is based on creating an environment in which you can have security, which means legal systems, justice systems, financial systems, the fight against corruption, and trying to ensure that rights are protected. It is, of course, giving assets in terms of education, health, land, protection of title, and the protection of human rights. And all this has to be done not in an overnight quick fix, but in a medium- and long-term program that is battling it out day after day, week after week, year after year.

This development business is not an easy business. It is a business which deals with changing cultures, changing equities, and changing rights, and, as this document says, changing opportunities and the creation of security and empowerment and opportunity.

So I am very proud that my institution and my colleagues are working in this context. It is not headline material. It is a constant challenge to render efforts fruitful. But the one thing that we do have is a sense that it is not an anonymous activity. It is a human activity, and can be gauged by the images of people you meet in poverty around the world who are just like all of us.

What we have as our biggest asset is the human being, the human condition. And what we need is business, government, the private sector, and civil society to come together in a mutually respectful way to try and get the job done.

That is our hope at our institution. That is what I hope this new joint initiative between the Free University and the University of Amsterdam will be addressing. And that is why I am very glad to have had the chance to come along and introduce to you this World Development Report and pay tribute both to the Dutch Government and many individual Dutch people who have made such a remarkable contribution to trying to make the world a better place.