Spring Meetings 2005 Dialogues

Friday, April 15, 2005
10:30 am – 12:30 pm, room MC8-W150

MEETING NOTES [1]

 

Stephen Commins of the Civil Society Team of the World Bank chaired this meeting. The featured speakers were Francisco Ferreira and Giovanna Prennushi, co-authors of the World Development Report 2006, which is still in preparation.

 

Mr.Commins welcomed the group and introduced Mr. Ferreira, who set out the report’s key messages.

 

Equity and Development is the theme of the report and in the introduction the authors talk about two basic concepts. The first of them is equity. Equity, unlike equality, is a normative process so it can mean different things to different people. It usually is thought to relate to fairness in distribution of something. For the purposes of the report there are two principles related to equity: equality of opportunity, which is interpreted as meaning that everyone regardless of their gender, their race, their caste, their social group, their family background should have equal opportunity to live a full and fulfilling life, to be productive members of their community, to be politically active, to participate in the social and cultural lives of their community. This again, regardless of these predetermined circumstances of birth.

 

The other principle which complements this is the principle of avoidance of outcome deprivation, and the meaning here is that the road from opportunities to outcomes can be exceedingly difficult and what society does about this is important. So, there is this second component.

 

Those two principles mean that equity will seldom be the same as equality. What matters in equity are the differences due to predetermined circumstances.

 

If equity is intrinsically desirable and in addition, the authors argue, good for development in the long term the one question is why do we see so much inequity, and the broad analytical concept there is inequality traps, which is basically a way of saying that the existence of economic inequalities usually coexist with inequalities that are social and cultural and political, and this leads to institutions that may be inequitable, that may be unfair.

 

These are some of the things that are then illustrated in the descriptive part of the book.

 

The first chapter is about inequity within countries; the authors document the existence of correlating and mutually reinforcing inequalities, and they gave some examples. One is the difference in infant mortality rates for two groups of people in society: those who have mothers with no education and those who have mothers with secondary or higher education. For instance in El Salvador, the children who were born to parents with high education have an infant mortality rate of about 25 per 1,000 whereas in the same country, often in the same city, infants who have parents with no education have an infant mortality rate that is four times as large. In fact mortality is an outcome so it obviously also shapes opportunities. So the point is that something that is determined before a child is born, in this case the education of their parent is affecting their opportunities, and this is one side of the traps affecting life chances. Plus those who do survive have opportunities curtailed very early on.

 

There are a lot of inequalities and the inequalities reinforce one another and create inequity. And the report discusses this not only within countries but between countries, looking for example at life expectancy, where in some countries in 2000 the life expectancy was 40 and in some it was twice that. This is a second part of the descriptive section of the book.

 

Does all of this matter, the authors ask? It matters in two ways they say. It matters intrinsically, and the WDR reviews some of those arguments. It also matters instrumentally. It matters for the aggregate development of countries and here there are three categories of evidence for that: The first one is from economic theory: we know that if markets were completely perfect the distribution of wealth would not matter for investment. A person who is really poor but has a great idea and a great plan could go to a Bank and borrow money. But markets are imperfect and as a result you get big inequalities in wealth and power, and then you can have many inefficiencies arising, and the report includes a number of examples of that. And also knowing that you are going to be discriminated against in the market is internalized. Here Mr. Ferreira used the example of a set of experiments done with children in a particular set of villages in India where the children were simply to complete mazes. In each group of children there were members of high castes and low castes and the key variable that was manipulated was what was said at the beginning of the experiment. In some instances nothing was said about caste and in some instances there was a discussion of caste. In the first instance the high and low castes performed the same. In the second instance, there was a statistical difference with the low caste children performing worse, so there was self discrimination, and internalization of stereotypes. He also cited another study of miniature golf done in the US with blacks and whites where the outcomes were similar. In one case the players were told it was a test of athletic skill, in another, they were told it was a test of sports intelligence. In the first case the Blacks did better, in the second case they did worse.

 

These experiments and others he said, point to wasted human resources. Which is one implication of inequity?

 

So a second category of evidence is that there is a statistical relationship between higher inequality and the rate at which economic growth lowers poverty. We all know he said that growth lowers poverty but the research shows that the same amount of growth will reduce poverty by more in a low inequality country than in a high inequality country on average, and in some cases the level of poverty can actually increase in high inequality countries.

 

The third category of reasons why inequity matters for development is that societies that have very unequal control over resources tend to develop bad political institutions; the arguments being that, for example, if you have got all the power concentrated in a few families, it is not in their interest to place a lot of constraints on the executive power of the State, because they are very likely to control the State. If you have bad political institutions you are very likely to have the enforcement of personal and property rights constrained to a smaller group in society, which is a measure of worse economic institutions, and countries with worse economic institutions tend to have less development. What they we argue in the WDR, Mr. Ferreira said is that better institutions are more likely to arise in fair societies, in societies where inequality is not virulent.

 

Those are three sets of reasons why equity is good for development in the terms, the report talks about it-- equality of opportunities, trying to seek a situation in which people have similar opportunities regardless of the conditions of their birth.

 

Does that imply anything for policies, Mr. Ferreira then asked. The WDR reinforces many things that have already been said about poverty reduction but it also adds an equity lens that fundamentally tells you the following: It is true that often when you think about a particular policy there will be a short run tradeoff between equity and efficiency. There may be a cost, but when evaluating these tradeoffs, the report’s emphasis is: consider all of the benefits of equity in the long term including the institutional ones, and if in doubt, err on the side of leveling the playing field and leveling it very early, to invest in the children of the parents from the most disadvantaged backgrounds to make sure that their opportunities don’t get curtailed. Similar arguments can be made for health, education, social protection systems throughout life not only in early childhood. There are a whole number of complementary inputs that people need access to and many of them can be provided by the public sector. The report also talks about where privatization might be a good idea and where it might not be a good idea. Not only is human capital and complementary inputs needed but you need markets to be fair and what the report means by fair is something quite specific: it means that markets don’t discriminate on some characteristic of the people involved in the transaction that has nothing to do with the product (for instance, race, caste, gender.) So broad access, full competition, non-discrimination. These are key characteristics of fair markets.

 

The last chapter of the report goes back to leveling the international playing field, and here Mr. Ferreira  said the authors are careful to say the things that would enhance the opportunities of people, mainly poor people in poor countries, are fundamentally the growth of those countries and a lot of what will determine growth in those countries is actually domestic policies, the things that have been talked about before, but there is also a role for making the international playing field level and it is not level. Everyone knows, he said that there are large trade barriers or subsidies in the large northern market in the US. Europe and Japan that discriminate against imports from developing countries; we also know and discuss in the report the fact that developing countries are affected differently by the removal of tariffs, but on the whole, movement should be in the direction of leveling the playing field on trade. Similarly there are initiatives in migration, such as temporary migration and facilitating remittances back to the country of origin. These are things that can be discussed to improve the lot of migrant workers and their families. Intellectual property rights is also an area where there needs to be the promotion of fairness. Another area is environmental commons, the way that our planet’s global resources are used by countries is very different and not level and so there are things to be done on that.

 

Globalism of international institutions are a clear case of promoting fairness that can refer either to informal processes like in the World Trade Organization where the broad structure of one member one vote is quite fair, but where the technical expertise available to these members if very different or to the formal process of institutions from the Security Council to the IMF and the World Bank.

 

Finally on the issues of aid, the report, Mr. Ferreira said, has little to say that is terribly new; it is just saying that countries should honor their Monterrey commitments, in terms of raising the volume of aid, and on the recipient side taking the responsibility to make aid flows more transparent, and more effective. So these are the kind of basic messages.

 

Summing up he reviewed the main messages again and said, there are of course efficiency-equity tradeoffs and the point here is to take into full account all of the benefits of equity which too often policy makers ignore. On the other side obviously because of efficiency-equity tradeoffs, individual incentives matter. There is a sentence in the report, Mr. Ferreira said that says the history of the 20^th century is littered with attempts made in the name of equity that have had disastrous consequences for human development and development in general, so he said, no one is talking about equity at any cost, the authors are talking about equity pursued in ways that respective people’s incentives and with respect to what has been learned from economics in that last 50 years.

 

Mr. Commins then thanked Mr. Ferreira and opened the floor for discussion.

 

The first question was what will happen to this? How will this impact the Bank and IMF policy?

 

Mr. Ferreira said that the WDR is a publication of World Bank staff. It is discussed with the board but it is not a management document.

 

Ms. Prennushi came into the discussion at this point saying the WDR is basically a think piece and so its impact is in large part related to how much it influences thinking and the way development is carried out by the people who work in development in the Bank and outside the Bank. There is work that is done to operationalize the document but in this case it will focus much more on within country activities. On the governance of international institutions, what we can hope for is that this is yet another voice that says the system as it is now is not defensible. Also as well as changes in the institution, such as in board shares, the Bank has a role to play in putting out research that demonstrates the negative impact of theses inequities and those of us who are citizens of rich countries have a role to play in mobilizing our countries.

 

The same first speaker asked how has it worked in the past?

 

Ms. Prennushi, taking trade as an example from the past, said what is likely to come out is a very intense research project, probably for example on something like migration. In the area of domestic policies there will certainly be implications related to the type of work one does before recommending policies; this is in terns of political and social analysis. One of the recommendations in terms of Bank activities will probably be at least to strengthen the poverty impact assessments.

 

Mr. Commins, adding from his experience with the WDR 2004, said the big challenge is to take the staff report and find ownership of it within the institution. There was a time, he said that you couldn’t talk about corruption or politics, and that has changed. It is true, he said, that big institutions change slowly, but they do change, and if the NGOs pick up some of the messages and then come back to the Bank staff with them, that echo back helps to reinforce the impact of the WDRs.

 

Ms. Prennushi: Empowerment is a good example. It took a while to even define the term, but now empowerment is really a part of Bank discourse, training and projects.

 

The second speaker among the participants, a representative of the Bretton Woods Project in the UK said that we often run into is the research-policy gap, and he wanted to know if specific policy initiatives or projects would be looked at in terms of the tradeoffs between inequality and growth. He said right now the institution was returning to high risk high reward infrastructure projects, and he also mentioned a number of types of projects the IFC is involved with. He said his questions was are we going to get into something on operationalization of how we compare inequality concerns with growth and how policy making decisions are made?

 

Ms. Prennushi: Two quick reactions, one is that inequality and equity are slightly different concepts, and inequality mainly is used regarding income distribution and the WDR team went with equity because it really wanted to bring in the non-income dimensions, particularly the political dimensions. There is a lot of research that has been done on income inequality and the stories vary widely but if one generalization can be made it is that the rural sector has been left behind. She said, in a lot of cases this can actually have a lot to do with infrastructure because the rural poor are not connected. So some infrastructure projects can have an inequality reducing impact or they can have the opposite effect. She then reiterated that there is a need to strengthen up front reflection, and thinking and analysis of what the impacts would be.

 

Now in terms of the operational implications, it is an important question because even though the WDR team is in the research and writing phase, having a good report is not enough.

 

Mr. Ferreira added two points; one is that there is an emphasis on case-by-case, and country-by-country analysis now. This is something that NGOs were calling for for a long time and the Bank has finally adopted it. The other was, reinforcing, Ms. Prennushi’s point was that he would hate to say that the Bank can’t do anything in terms of large infrastructure projects. In some cases that may be exactly what is needed and in other is may be exactly what is not needed because it is going to lead to corruption and lots of money going to owners of large construction companies. There are examples at both ends. The plea of the authors of the report would be he said that when you are looking at the impacts of these different projects and how likely they are to work or not, also think about how much inclusion they bring. Think about the long term consequences for example of integrating the country and integrating people into the opportunity network. He said of course this didn’t mean at all costs, but to look at the full benefits when considering costs and benefits. He also added that it was not only the Bank that needed persuading it was the client governments because often the client drives the agenda more than the Bank.

 

The third speaker, asked: is the WDR based on prior research or on specific research done for the report for example about childhood development?

 

Mr. Ferreira: This is not really a research report in the sense of having much original research in it. There is some original research in it but largely what the staff does with the WDRs is to try to draw on the best existing work. One direction the WDRs are changing is that they include a lot more micro studies. There are more case studies and evaluation studies.

 

Ms Prennushi If you are interested in the details, this version of the report is on the web it is: www.worldbank.org/wdr2006, and it has all the references.

 

A fourth speaker, a representative of Gender Action, asked two technical questions: one about the decision to drop the World Development Indicators from the report and their current availability, the other about whether or not there was anything new in the World Development Indicators report.

 

An external affairs officer present explained that the World Development indicators can be bought is in book form but it is free on line. The book he said, however, has huge databases behind it and those databases are not free. Answering the second question, he said, there are also new categories.

 

A representative of Save the Children said that it would be useful to know more about where civil society could be most important in the debate.

 

Mr. Ferreira: This may be something to think about carefully and to follow-up on later. He said his first reaction was that the issues in the international chapter were ones that were particularly relevant and that if NGOs could bring up to their electorate what the benefits are that would be a big step forward.

 

The speaker said, yes he agreed that there should be an ongoing dialogue between the report team and NGOs about the analysis for example on migration..

 

Ms. Prennushi underscored a statement she had made briefly earlier that citizens of rich countries have a huge amount of work to do at home to help poor countries and poor people and that having an ongoing dialogue was a good idea. Within countries, she said, the other role civil society organizations have usefully played in the past has been to use their knowledge from the bottom up through their activities and their projects to help raise awareness and knowledge about the ways in which the inequities play out. This is often very useful to World Bank staff and others.

 

Mr. Ferreira again endorsed the idea of a bilateral dialogue and suggested it be organized by the Civil Society Team. He also said that there was probably going to be a major migration study, and they would be glad to pass that material along.

 

The Bretton Woods Project representatives asked: what is the attempt to share information with organizations that come from different (non-economic) perspectives to the same issues.

 

Mr. Ferreira: We have had interaction with a lot of these people, and he gave examples of individuals and organizations including for instance the World Health Organization. They have made a huge effort he said, because they are aware that there is an enormous amount of work going on elsewhere and the report does try, as mentioned earlier to draw on work already done.

 

Ms. Prennushi:   Some people will still find the report with too much of an economic focus. On the other hand, the primary audience for this report is less one of people who are looking at the politics of policies and so on, and more of the audience that doesn’t and that is mostly economists. We have written it with the non-converted in mind, she said.

 

Stephen Commins then thanked Mr. Ferreira and Ms. Prennushi for the presentation and comments, thanked the audience for their participation and closed the meeting.