IFI governance

Analysis

The State in a Changing World

14 June 2000 | Briefing

The World Bank’s Report on the State

WDR Facts

The World Development Report is the Bank’s flagship research report, published each June.

The report is written by a World Bank staff team over one year.

150,000 copies are printed in nine languages.

The research and production budget is $3 million, not including promotion.

The Bank circulates free copies to politicians, officials, universities etc across the world.

The World Bank’s World Development Report(WDR) is circulated widely across the world and influences policy debates for many years. This year the Bank produced The State in a Changing World using a new process of early consultations with NGOs, academics, government officials, and business representatives, including some from the UK. NGOs and academics are, however, concerned that, whilst it makes many useful arguments, the Bank’s Report is too narrow and too optimistic about important issues and trends.

This short briefing provides background on why and how the Bank produced this report, and gives some alternative perspectives on the state and on the role of the World Bank.

1. Process/Production Issues

A. The Bank did its WDR on this topic partly because of concern from Japan, the Bank’s second largest contributor, that its view of the state’s role in development was too narrow and did not take into account the activist state experience of some Asian countries.

B. The Bank was to call the Report The Role of The State , but changed the title to avoid accusations of overgeneralisation. Despite occasional disclaimers throughout the Report, however, the conclusions are still too universal and reductionist, assuming that all countries need to carry out the same sorts of reforms, and have the same types of key political groupings.

C. In previous years the Bank asked outsiders for comments only when a near complete draft of the Report is ready. Responding to complaints that this is too late to influence the text, Bank staff this time encouraged NGOs and others to suggest what the Report should cover from early on. The Bank also involved Ela Bhatt (founder of the Self Employed Women’s Association, India) as an adviser, and encouraged comments via an internet “chatline”.

Much material in the Report is non-controversial, and some NGO thinking is clearly shared. On the role of citizen participation in policy-making, for example, the Report makes recommendations (ie pp10-11) that many NGOs would endorse, though in other parts the Report reads as “new managerialist”, arguing that people must be persuaded of the benefits of pre-determined reforms and compensated where necessary. NGOs are, however, concerned that some of their more challenging questions, for example on power relations, wealth disparities, the safeguarding of minority rights, or the fixation with economic growth as the measure of progress have not been adequately examined. Two prominent Southern NGO representatives presented a paper to the Bank team last October, extracts from which appear as Appendix 1. Their key points have not been properly addressed, and the Bank team did not subsequently keep them involved in the WDR production process after their intervention.

D. By contrast with its haphazard and unsatisfactory efforts at consulting civil society groups the Bank undertook a survey of over 3,700 firms in 69 countries, which is mentioned prominently in the final WDR. The Bank is understood to have considered carrying out a similar citizens’ survey, but decided against it on grounds of cost and/or time.

E. Only about $0.5 million of the Report’s $3m research and production budget may be recovered from sales, as many copies are distributed free of charge. This contradicts the Bank’s own mantras on market-testing, and can be seen as an attempt to corner the policy research market. The WDR is one of the very few international reference works which many cash-strapped universities in Africa and elsewhere receive. Rather than produce all such reports in house, the Bank could consider subcontracting research to outside academics and experts.

2. Some Welcome Rethinking of World Bank Views

The WDR expresses some changes in the Bank’s thinking about the state. It is welcome that the Bank acknowledges that recent reforms have emphasised economic fundamentals to the exclusion of the social and institutional basis needed to ensure sustained development and avoid social disruption. The position that the state must be rolled back to make way for the market has been replaced by a more nuanced view that development without an effective state is impossible. This may presage some new flexibility in Bank programmes, but the Report’s main analytical device, dividing countries into those that are “institutionally-strong” and those that are “institutionally-weak” leaves much room for conflicting interpretation, and the basic recipe of reforms that should be adopted (privatisation and liberalisation) remains unquestioned.

3. Important Questions Ducked or Downplayed

A. Globalisation and Transnational Companies

Early outlines of the Report indicated that it would tackle how states’ actions are being constrained by the globalisation of capital and the increase in the power of transnational companies, and how global markets can be governed. Yet the Report team apparently could not reach consensus on this issue and dropped the planned chapter on it. Especially as the Bank bills the WDR as a “thinkpiece” and a vehicle for stimulating debate, it should have at least mentioned, if not drawn conclusions on, contentious issues of shifting power balances and the inadequacy of current governance structures in an age of globalisation. Many people see this as the key question to analyse in considering the state in a changing world.

The Report portrays companies merely as engines of growth and prosperity, not political actors. Its failure to analyse the balance of forces between states and transnational companies, which are increasing in wealth and lobbying power, render extremely limited and naive its discussions of the slow progress in taking action on global climate change, realising a post cold-war peace dividend and reallocating health research budgets to diseases which most harm poorer people (chapter 8). The discussion of the benefits and pitfalls of economic liberalisation is also restricted to mentioning problems and then asserting that business as usual will deal with them (see pp. 131ff). This is an area where commentators as varied as the Mexican Zapatista Subcommandante Marcos and the financier George Soros have expressed extreme concern, and where much hard thinking needs to be done.

B. International Taxation

The Report does not address the concern that states’ ability to raise taxation is declining as a result of globalisation of capital, and that the taxation that can most easily still be collected is that which falls most heavily on labour/poorer people. The implications for tax revenues and progressive taxation are not set out, nor are possible means for tackling this such as greater global coordination of taxes on mobile revenues, Tobin taxes, or measures to minimise offshore trading or the use of exotic financial instruments such as derivatives.

C. The difficulties of regulation/structuring good private sector deals

The WDR points out that regulation has run into problems in some instances, but its analysis of privatisation focusses too strongly on efficiency and underestimates the difficulty of designing and negotiating deals and regulations that uphold the interests of poorer people and the environment. It exaggerates the demise of natural monopolies (p. 65) and underestimates the difficulty of establishing a genuinely competitive regime in small and poor countries (ie Haiti, Laos). It does not properly outline the difficulties of persuading companies to provide such services to very poor people and regions, and the role that governments will have to play in guaranteeing or incentivising such investments. The privatisation of services such as water and sanitation, transport and power is a very important issue for development and the environment, and the long-term implications of contracting these to foreign private companies should have been examined. How will, for example, municipalities like Gdansk (Poland) and Buenos Aires (Argentina) be able to negotiate effectively and on an even basis with the lawyers and financial analysts deployed by the small number of specialised transnational companies which have the water and sanitation contracts for these and many other cities? What are the economic assumptions being used to calculate how foreign equity and debt holders will be repaid when the services are generating only local currency? The use of private finance for infrastructure is a complex and important issue being faced by governments all over the world, and which the Bank could usefully have been examined in some depth.

D. Universalist/reductionist political analysis

The Report addresses the politics of privatisation and globalisation in a simplistic manner. It expresses the view that these trends should not be debated but that people should be persuaded of reforms’ benefits through “consensus building” and perhaps compensation. Although the Report admits that application will be “highly country-specific”, it proposes a “political cost-benefit approach” to assess the redistribution and efficiency implications of reforms, and set out how different groups are likely to react to reforms (table 9.1). For example it states that “employees and managers of public enterprises” will oppose public sector reform, while taxpayers will support it. Such formulaic political analysis cannot substitute for consultation and does not recognise that one individual can be, for example, a trade unionist, a voter and a consumer.

The Bank’s view of democracy/expression of peoples’ collective interests appears limited. For example: “in Uruguay, for example, a 1989 plebiscite rejected privatization legislation. And yet, a recent study shows that inefficiencies in public utilities add 30 percent to the average Uruguayan’s electricity, water, and telephone bills. And as we saw in Box 4.2 many of the commonly held arguments against privatisation are not valid.” The Report also lauds British privatisation and regulation without noting that many people here are still very sceptical about what has happenned over the last fifteen years to the UK utilities.

E. States Seen only as Deliverers of Growth and Services

The Report admits that “the choice of political regime has justifications that go far beyond economic conditions”, yet it argues that democracy should be managed to ensure that development goes forward: “researchers have yet to reach a consensus on the precise relationship between growth and democracy … states need skill to manage the political transition [to democracy] in such a way that it supports rather than impedes the development agenda” (p. 150). The state’s roles beyond delivering services and limited coordination/regulation of the economy, for example in areas of rights to affordable housing, food, labour organisation, and information access are ignored or only touched on.

F. The Bank and the State

Whilst the Bank argues that the WDR is a Report on a key development issue, not on the performance of the Bank itself, discussion of the state would naturally be expected to deal with the Bank’s influential roles including through structural adjustment lending, aid donor coordination, privatisation advice, and project funding. Yet, perhaps because the Report is reviewed by Bank staff keen to avoid any criticism of operations/regions in which they have been involved, the Bank and its sister agencies hardly figure in it, except in a very general section on aid (p.140-1) and when agencies like the Global Environment Facility are lauded for their “crucial role” (p.138). Very relevant self-critical Bank studies on work in this area which could have provided important lessons for aid agency staff in future operations are thus not mentioned.

Also, the Bank admits, for example in the Wapenhans Report (1992) and the Strategic Compact (1997) that its own incentive system is in need of a major overhaul if its projects are to become more successful. Until and unless this happens the Bank is not well-placed to advise others how to organise staff and build effective public sector institutions.

4. Implications for the World Bank?

As well as producing the Report, the Bank has to decide how to operationalise the strategy it outlines. Whilst the Report’s failure to analyse the Bank’s current role will make this hard, the Board is likely to receive recommendations on changing the Bank’s operations in the following areas:

  • The Bank’s use of Country Assistance Strategies, the key planning documents setting out the framework for the Bank’s programmes;
  • How the Bank selects which countries to lend to (“Clearly, a high priority for aid agencies is to channel resources more systematically towards poor countries with good policies”, WDR page 140);
  • A possible new role for the Bank as an “international commitment mechanism” to give companies confidence in regulation where states are deemed to be institutionally weak;
  • Deeper involvement in institutional and legal reform. [Note: the Bank will have to consider at what point should it amend its Article of Agreement prohibiting involvement in politics].
  • The Bank’s work on socially-vital infrastructure;
  • Working more with governments at state/regional levels (as in Andra Pradesh structural adjustment programme currently under negotiation in India, and direct negotiations with Chinese provinces).

The Bank is currently appointing a new Head, Public Sector, who will oversee the Bank’s work in some of these areas.