Equity to reduce poverty

Equity to reduce poverty

The central message of the World Development Report (WDR) 2006
of the World Bank, titled Equity and Development, is extremely
relevant to Indonesia, where almost 50 percent of the population
of 220 million live on less than US$2 a day and 62 million people
are so deeply mired in absolute poverty that they are virtually
untouched by the development process.

The annual report virtually abandons the trickle-down theory
of development traditionally held by the World Bank, and instead
recommends the promotion of equal opportunities for the poor by
broadening access to justice, health care, education, jobs,
credit, secure land rights and economic infrastructure such as
roads, power, water, sanitation and telecommunications.

The new concept essentially boils down to the economics of
population quality.

The report, issued last week to coincide with the annual
meetings of the World Bank and the International Monetary Fund,
suggests that developing countries correct persistent
inequalities in opportunities by leveling the economic and
political playing fields, investing more in people, promoting
fairness in financial, labor and commodity markets, and expanding
access to justice.

The report, based on case studies in numerous developing
countries, cautions that equity is not the same as equality of
income, but is rather the quest for a situation in which
opportunities are equal, where personal effort and initiative --
not family background, caste, race or gender -- account for the
differences between people's economic achievements.

The WDR 2006 complements the conclusions of the WDR 2004 on
the poor's access to public services and the WDR 2005 on the
improvement of the investment climate. But its central message,
which is strikingly different from the Bank's traditional stance,
will still go a long way toward improving the reputation of the
World Bank as the "spokesman" for the poor.

Credit for this should go to the new president of the Bank,
Paul Wolfowitz.

When U.S. President George W. Bush nominated Wolfowitz, then
deputy secretary of defense, to succeed James Wolfensohn as the
president of the World Bank last April, Wolfowitz was strongly
criticized by non-American shareholders in the Bank. There was
concern that President Bush intended to make the multilateral
development agency an instrument of U.S. foreign policy.

However, as the central message of the WDR 2006 demonstrates,
Wolfowitz has succeeded in walking the fine line between
reconciling the real and powerful global economic and political
clout of the G-7 nations -- the Bank's controlling shareholders
-- with the equally powerful moral arguments of a development
institution dedicated to fighting poverty and improving living
standards in developing nations.

The report also serves to reject allegations by many NGOs that
the World Bank is merely the vanguard of the "Washington policy
consensus" on market-oriented reforms such as trade and
investment liberalization, deregulation, privatization, floating
exchange rates, fiscal discipline and property rights.

The WDR 2006 maintains, through well-documented development
success stories in several countries, that growth-led development
with its trickle-down effect is not sufficient to reduce poverty.
On the other hand, poverty cannot be reduced without growth
because economic growth is always one of the two forces behind
poverty reduction, with the other force being the one that
determines the distribution of income among the population.

The problem is how to strike a good balancing act between the
two pillars of development strategy: A good investment climate
(all those factors responsible for growth, entrepreneurship and
investment) and the empowerment or human development, which is
really about empowering the poorest people in society.

Higher growth will bring about more opportunities, but better
distribution of those opportunities to the poorest people will
generate faster growth. This means that equity must be sought
because it is a vital complement for economic development and
growth.

The report sees the poorest people in society not as the
recipients of charity (trickle down), but rather as people with
enormous potential to contribute to the development of their
countries.

As such, the World Bank sees retargeting and refocusing public
subsidies and policies toward the poorest people -- what the
Indonesian government is now doing with its huge fuel subsidy --
as a very sensible investment.