Knowledge the key to improving life of the poor

By Joseph E. Stiglitz

WASHINGTON D.C. (JP): About two million children die each year, and another 900 million are made sick, by the dehydrating effects of diarrhea. Although a simple treatment of water, sugar, and salt, has been known about for centuries, and can be made by even the poorest families, many parents in developing countries simply do not know about it. On the other hand, more than 30 million people in West Africa have been saved from river blindness, an eye infection spread by water-borne parasites, thanks to a public health campaign that involved seven African countries, donor nations, the Word Bank, and a U.S. pharmaceutical company.

What distinguishes public health success, or others in the field of finance or technology, from failure? In a word, knowledge. For billions of people, a lack of financial, technical, and social knowledge inflicts unnecessary poverty and suffering despite a worldwide explosion in knowledge management systems from the Internet to cellular telephones to global broadcasting networks.

The 1998/1999 World Development Report, Knowledge for Development, explores how closing knowledge gaps and solving the problem of unequal distribution of information can improve the lives of the poor, making them healthier and more prosperous. The impact that expanded knowledge and new technologies will have on development will depend in large part on how well international institutions and governments address the knowledge gaps and information problems that hinder development.

Certainly there are many examples of how knowledge has improved the lives and welfare of millions of people around the world. 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.

Across the Pacific Ocean 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 U.S., thanks in part to a decades-long government effort to provide people with information about sanitation and health, with a focus on prevention.

In today's world, it is particularly important to understand the interaction between knowledge, technology and development. Today's global economy is driven by the creation and exchange of knowledge. Information technologies are proliferating at an unprecedented rate. The information revolution spurs new knowledge by giving participants quick access to up-to-date information. And it provides opportunities to disseminate knowledge more widely than could have been imagined a few decades ago.

Successful development requires a transformation of society, one that relies on technology. It also entails narrowing the gap in technical knowledge between developed and developing countries. The Green Revolution, which dramatically increased staple crop yields in much of the developing world, illustrates how successful developing countries can be if they acquire the right seeds, cultivation techniques, financial advice, and technology.

But technology, by itself, is not enough. The knowledge has to be disseminated through effective extension services, and there has to be other complementary services, such as credit to buy the seeds. This in turn, means addressing a host of market failures which face less developed countries, many of which result from wrong or simply imperfect information.

This technological transformation is not without risks. The very technology that has the innovating power to transform developing countries can also threaten export earnings in developing countries. Cheap, artificial substitutes for exports like copper and cocoa mean that developing countries may face significant obstacles in their quest to catch up with their wealthy counterparts. For example, El Salvador suffered greatly when chemical dyes replaced indigo, its principle export crop. But, as some fast growing economies in East Asia have shown, developing countries also have tremendous opportunities to close technology gaps rapidly.

Technological know-how is only one aspect of knowledge. Even if developing countries had access to the same technology available in industrialized countries, they would still suffer from information problems. Information is necessary for every economy and social transaction, yet developing countries are more likely to develop serious information problems, and to have less capacity for resolving them. Because information is the lifeblood of every economy, traditional or modern, information failures can have profound effects.

Consider, for example, the economic crisis in East Asia. The crisis highlights how vulnerable financial markets are to wrong or defective information. The scale and breadth of capital outflows in East Asia reflected the pervasive lack of information that could have helped investors gauge risk.

The scarcity of information on which banks and companies were likely to survive the crisis panicked lenders into fleeing from all banks and all firms in the region, thereby deepening the crisis. With greater transparency and better information, investors may have been able to choose between high and low risk investments, and may have even encouraged corrective action before the crisis blossomed.

Failures of information can never be entirely eliminated, but mitigating these problems is crucial to rapid, equitable and sustainable development. International institutions can help developing countries create improved incentives to gather and provide timely and accurate information. By improving fraud laws, helping to establish accounting and other fiduciary standards, increasing access to funding for research, the development community can help to create institutional frameworks, legal rules and social conventions that reduce information problems.

Communication and knowledge sharing, however, must be a two- way street. Governments and international institutions can certainly help countries with the daunting task of sifting through international experience, extracting relevant knowledge and experimenting with it. But they will have the most success if they help developing countries adapt knowledge to local conditions. Sharing knowledge with the poor is most effective when we also solicit knowledge from them about their needs and circumstances.

Looking at development through the lens of knowledge has compelling implications for public policy. Governments are in a unique position to help narrow knowledge gaps and ameliorate information failures. What can governments do?

They can establish appropriate intellectual property regimes. They can encourage people to get the necessary scientific and technical training required to be players in the modern global economy. They can create institutions that promote more broadly the productions, adaptation, and dissemination of knowledge. Most importantly, governments can listen to the poor, and provide knowledge in a manner the poor can use. But no matter how successfully governments take on this task, knowledge gaps and information failures will always remain. The most effective policy decisions will be those that reflect these inevitable imperfections.

For developing countries, harnessing the global explosion of knowledge may seem like a Herculean challenge, rife with potential threats and pitfalls. But threats and opportunities are opposite sides of the same coin. Countries that take up the challenge will stand out as development successes of the 21st century.

Knowledge, with its promise of treatment for common illnesses, increased crop yields, and better quality food, is one of the keys to improving the lives of the poor. As the latest World Development Report 1998/1999 points out, knowledge can make the difference between poverty and prosperity, sickness and health. The choice is clear.

The writer is Senior Vice President and Chief Economist of the World Bank Group in Washington, D.C.