World Bank shifts focus from growth to economic equity

Endy M. Bayuni, The Jakarta Post, Jakarta

Breaking with long-held tradition, the World Bank has shifted its focus, encouraging countries to make economic equity a primary objective of their economic development, along with growth. The bank's move to embrace notions of empowering the poor has also helped appease its critics among the anti-globalization movement.

Its World Development Report 2006, published last week, rules that inequality within countries as well as between countries across the globe has become a major impediment to economic development and to the well-being of societies.

The report dismissed the widely held belief among developmental economists that there existed a trade-off between growth and equity, or between economic efficiency and equality.

The World Bank is one of the major global institutions, along with the International Monetary Fund, which have been pushing for the globalization of the world economy. Both are based in Washington and are largely controlled by the United States as their major shareholder. Former U.S. ambassador to Indonesia Paul Wolfowitz, who moved to head the bank in April, is considered a member of President George Bush's inner circle.

Has the World Bank gone socialist all of a sudden?

"No. Socialism is concerned with outcomes, while our report is more concerned with processes," Michael Woolcock, one of the authors of the report, said at a briefing for the Indonesian media on Monday. The report was officially launched in Indonesia following its unveiling in Washington last week.

Woolcock said the shift in focus to equity reflected the change in the way the bank's economists are looking at global economic problems.

Why should equity matter for development?

"... The primary focus of this report is on the instrumental relationship between equity and development, with particular emphasis on two channels: the effects of unequal opportunities when markets are imperfect, and the consequences of inequity for the quality of institutions a society develops."

The anti-globalization movement has long criticized the failure of major financial institutions to address the negative aspects of globalization, particularly the growing gap between the poor and the rich, within and between countries.

The World Bank's latest annual report, however, does not call for a slowing down of economic globalization. If anything, it reaffirms earlier calls for countries to play by the principles of the free market, which underpin globalization, as they pursue the equity objective.

The report uses the example of two South African children born on the same day in 2000. One is a black girl born to a poor family, and the other a white boy born to a wealthy family. The report tries to project their respective paths, the challenges they face as they grow up into adults and it came to the conclusion that "the opportunities these two children face to reach their full human potential are vastly different from the outset, through no fault of their own."

The black South African girl, for example, faces a higher chance of dying in her first year, lower life expectancy, far shorter formal schooling, has less access to clean water, sanitation and good schools. When the children become adults, she will have less access to credit.

The World Bank says many people are born into what it calls "inequality traps" set up through the interaction of political, economic and sociocultural inequalities.

While recognizing that the problems are "institutional" in nature, the bank refrained from prescribing total reforms or overhauls of the economic, social and political systems of countries to make growth and equity objectives compatible.

Tamar Manuelyan Atinc, another member of the team that wrote the report, told the briefing that changes should come at the initiatives of the peoples in those countries, and that the report could be used as a basis for discussion as countries sought to find appropriate ways to promote economic growth and equity.

Are there models to emulate?

Woolcock and Atinc cited Chile in South America, Singapore and South Korea in Asia and Nordic countries, particularly Finland, as model countries that have been most successful in pursuing the double goals of development: growth and equity.

(The full report can be downloaded from the World Bank's website http://econ.worldbank.org/wdr/wdr2006/).