The idea of poverty and the poverty of ideas

12 June 2000

The World Bank (WB) presents itself with the slogan "Our dream is a world free of poverty". The Asian Development bank (ADB) declares that "Reduction of poverty is no longer one of ADB’s five objectives, it is ADB’s overarching goal". Michel Camdessus declared that the IMF is the "best friend of the poor" and that "poverty reduction is at the heart of our programmes". Even the World Trade Organization (WTO) has occasionally mumbled that its chief reason for being is overcoming poverty.

These major international organizations are deep in a crisis of credibility. The old development model they lived by is under attack. The 1990s saw a series of crises which tested their organisational ability and, even more, their thinking. The transition of Eastern Europe from socialism to market turned into a social and economic disaster. The market liberalisation of the Asian economies led quickly to a world-shaking crisis. These organizations no longer want to present themselves as the flag-carriers for some model of "development".

As a result the business of poverty reduction is becoming a very over-crowded zone. Enter "poverty" on the WB’s website, and it spews out 300 recent documents before asking you please to be a bit more specific. The WB won’t give less developed countries loans now until they write out a "poverty reduction strategy", for which the Bank offers a template, rather like a model answer to an exam question. The ADB has its own fat "Poverty Reduction Strategy" document. The IMF hosted a "Social Forum" last year, and is cranking out position papers with the word "poverty" in the title.

The IMF and ADB decided to hoist the poverty flag up their own flagpoles only in 1999, in a clear reaction to the Asian crisis. But the WB has been there for a decade. It first devoted its annual World Development Report to the poverty theme in 1990. Much of the international thinking on poverty has been done in the WB. So how are these bodies going to fight/overcome/eliminate poverty?

The challenge for the WB has been to come up with anti-poverty strategies which do not compromise its fundamental commitment to two ideas. Markets must be free and open. Governments should do less. Whole continents of trees have been massacred to print everything the WB has had to say on poverty in the last decade. But really the Bank has three ideas.

First, the best cure for poverty is growth. This is, of course, the old theory of trickle down. This idea justifies the WB and ADB’s emphasis on loans for economic infrastructure — roads, dams, ports, power plants. These investments initially benefit big companies, big investors. But some of the benefits spread. Asia’s fast-growing economies proved the point. Numbers below poverty lines fell. The ADB loyally restates the case: "growth can reduce poverty by generating employment and income".

The WB’s second anti-poverty idea is social capital. In WBspeak, the fashionable but elusive term has come to mean two things. First, how well a society looks after its members through institutions such as family, community and voluntary associations. Second, how well individuals are equipped to participate in the economy, particularly through their "capital" of education and skill. The WB finds the first part of this definition intriguing because it promises that poverty can be overcome without the intervention of governments. But so far this idea is difficult to operationalise. The second part justifies investments in education.

The WB’s third anti-poverty idea is "social safety nets" or "social protection". The WB insists a liberalised, growing economy and strong social institutions will lift most people out of poverty. But there are some who get bypassed by the market and excluded from society — either permanently, or temporarily in situations like a financial crisis. Some way has to be found to identify these people and give them some minimal assistance.

Of course there is a lot more than these three things in the fat policy documents. Indeed, the WB has upended its whole policy presentation so that its usual stuff — macroeconomic stability, structural reform — now arrives as appendices to poverty planning. But take out the motherhood and the boilerplate, and we are left with these three.

Nobody can question the priority given to poverty. That is why it is such a good flag to run up on your institution. So why is all this enthusiasm for poverty policies so worrying?

First, because it looks like a cloak for all the old stuff. Peep under the covers of these development strategies and you find growth policies, infrastructure investments, market liberalisation, structural reform — all the bits and pieces of the development model which these institutions no longer want to talk about in public.

Second, because the prime role given to growth in overcoming poverty is based on shaky methods of accounting. Every peasant lifted out of a village and stuck in a factory makes the national GDP grow. But partly this is because the GDP does a good job of counting the output of the factory (all of which is sold), but not such a good job of counting the output of the village (much of which is locally consumed and never comes near a statistic). Partly, too, this is because GDP takes no account of the environmental impact. The factory belches smoke, pours waste into the Gulf of Thailand, and draws electricity from a dam which killed a river. But none of this is accounted for.

Third, the WB’s expectation that growth always reduces poverty is based on the old economics. Wealth trickled down because labour markets tightened. But growth is becoming ever more capital intensive. Fewer and fewer people are directly involved. Consider India. It’s software industry is one of the great success stories of the new economy. But the few hundred thousand involved are a speck in the billion-plus population.

Fourth, the WB strategy on human resource development does not make sense. On the one hand the WB expects governments to tax less and do less. On the other, it shouts at the same governments to invest more money and expertise in developing education and training. In Thailand, this irony is specially acute. The financial crisis has heightened the social commitment to reform and expand education, but left the debt-strapped government with no funds to spend on it. Nor is privatisation the solution. It works fine in very rich countries. It works rather badly in moderately well-off countries. It does not work at all in poorer places.

Finally, social safety nets are an illusion. Identifying the hopelessly poor and delivering them minimal support sounds cheap and easy. In reality it’s not. It requires information, expertise, and political will. Weak states cannot do it. That has been a big learning from the East European debacle and the Asian crisis.

The international organisations have adopted poverty as their millennium crusade. But is this really something new? Is it really going to work for the poor? Or is it just a cloak to help these organisations weather a crisis of credibility. Are we looking at ideas on poverty? Or a poverty of ideas?