New World Bank strategy accused of being “unambitious” and “cosmetic”

8 April 2013

World Bank president Jim Yong Kim’s new overarching strategy on ending absolute poverty and creating shared prosperity elicits criticism for ineffectively tackling inequality and sustainability.

A March leaked draft of a Bank strategy document set out targets for the institution’s overarching goals of ending extreme poverty and ensuring “shared prosperity”, which Kim first introduced in the autumn (see Update 83). It proposed a “target of reducing the percentage of people living on less than $1.25 a day to 3 per cent by 2030” and “to promote the income growth of the bottom 40 per cent of the population in every country.” It argued that the latter “is critical for reaching the poor everywhere since all countries aspire to achieving rapid and sustained increase in living standards.”

The paper was discussed by the Bank board in mid March before being formally sent to the Bank’s governors, finance and development ministers of the Bank’s members. In response to the leak, the Bank said the documents were only drafts, however, Kim publicly unveiled the same targets in an early April speech in Washington. The final document, A common vision for the World Bank Group, will be discussed by a committee of finance and development ministers at the World Bank spring meetings in mid April.

sustainability is touched upon by the World Bank's strategy paper in an entirely cosmetic fashion

Missing inequality

The strategy argued: “Growth that is inclusive of the poorer segment of society and sustainability are essential to achieving these two goals.” It also argued: “Sustained progress in achieving shared prosperity is incompatible with a steady increase in inequality. Progress in shared prosperity implies the need in every country for a social contract whereby those at the bottom are considered a priority in the formulation of policies that support growth. Growth of the bottom 40 per cent that is consistently lower than the average income growth of a country should be a cause for concern, as rising inequality may eventually abate the growth process itself by causing political instability, distorting incentives, and reducing the dynamism and mobility in society.” Kim’s April speech used the word inequality six times.

However, Nuria Molina of NGO Save the Children UK, said the targets were “very unambitious”. She told the news site “The devil is always in the details. You need to have a meaningful measure, and just looking at the bottom is not sufficient. It’s very important to look at the gaps.” Setting explicit targets on inequality is one of the main asks from organisations consulting with the UN on the post-2015 development targets. In mid March 90 academics, economists and development experts wrote an open letter asking for the post-2015 agenda “to include a top-level goal to reduce inequalities, including income and gender inequalities in particular.”

In the same week that the Bank document was leaked, Alex Cobham of US-based think tank Center for Global Development and Andy Sumner of Kings College London released a paper arguing for policy makers to track a new measure of inequality, “the Palma ratio – meaning the ratio of the top 10 per cent of population’s share of gross national income (GNI), divided by the poorest 40 per cent of the population’s share of GNI”, arguing that this “could provide a more policy-relevant indicator of the extent of inequality in each country, and may be particularly relevant to poverty reduction policy.” Cobham subsequently told news agency Inter Press Service: “It would be great to see the World Bank give this new approach serious consideration.”

Been there, talked about that

The Bank’s 2006 World Development Report on equity argued for levelling playing fields because “high levels of economic and political inequality tend to lead to economic institutions and social arrangements that systematically favour the interests of those with more influence. Such inequitable institutions can generate economic costs” (see Update 48). However the report did little to change Bank policy or practice.

David Woodward, an economist specialising in growth and inequality issues and a former adviser at the IMF and World Bank, said the new strategy represented a “business-as-usual scenario, with little or no change in the basic thrust of its development approach”. He said: “What we’ve still got is a global version of trickle-down economics. We should not be designing policies promoting growth on the assumption that this will deliver everything else.”

Even the World Bank’s own economists might be sceptical of the new target. Indermit Gill, the Bank’s chief economist for Europe and Central Asia told Chinese news agency Xinhua in early March that simply stimulating economic growth often resulted in greater inequality for middle-income countries. He said that if China wanted to avoid being caught in a “middle-income trap” it needed to increase the size of its middle-class, have more inclusive urbanisation and ensure the rule of law.

IMF discussions on inequality

IMF staff have increased their research, analysis and recommendations on inequality since the financial crisis. While these inequality recommendations have not made it into conditionality related to lending programmes (see Update 85), at a rhetorical level the IMF has advocated more attention to these issues. A notable April 2011 staff discussion note on inequality by Andrew Berg and Jonathan Ostry argued that reducing inequality can actually lengthen the duration of “growth spells”.

A September 2012 staff discussion note by Francesca Bastagli, David Coady, and Sanjeev Gupta on the impact of government spending on inequality argued that “a significant proportion of the higher income inequality in developing economies, as compared to advanced economies, can be explained by the lower levels of taxation and public spending in developing economies, as well as their greater reliance on less progressive tax and spending instruments.”

Lack of sustainability?

The draft strategy document also included a section on sustainability, stating that the goals “must be achieved in an environmentally, socially and fiscally sustainable manner, to ensure that progress is sustained over time and across generations.” In the strategy the Bank defined sustainability as “living with the awareness that each individual’s actions have an impact on others today and in the future. A sustainable path of development and poverty reduction would be one that focuses on growth that does not compromise future growth, on managing the resources of our planet for future generations, on creating institutions and systems that promote social inclusion, and adopting fiscally responsible policies that limit the burden on future generations.” It went on to commit the institution to “supporting countries to attain an environmentally sustainable path to ending poverty and to prosperity” and to “improv[ing] the quality and coverage of quantitative indicators related to environmental sustainability.”

However, the document failed to spell out any top level goals on this front, prompting Bhumika Muchhala of Malaysia-based NGO Third World Network to say: “Sustainability is touched upon by the World Bank’s strategy paper in an entirely cosmetic fashion.” She went on to argue that “before the World Bank can legitimately talk about environmental sustainability, it must confront the demonstrably destructive impacts of its own fossil fuels, extractive and infrastructure project financing, including the International Finance Corporation’s [the Bank’s private sector arm] public-private partnerships and investment partnerships with the private sector.”

The sustainability section of the strategy was reminiscent of the Bank’s ‘green growth’ report produced ahead of the June 2012 Rio+20 summit (see Update 81, 80), including its repetition of the Bank’s promise to “promot[e] wealth and natural capital accounting and mak[e] progress in the development of measures of genuine savings that include natural capital depletion and pollution damages”. This led Diana Aguiar of Brazilian civil society network REBRIP to say: “This type of greenwash, of market-based solutions to the environmental and climate crisis, is exactly why movements have mobilised against the ‘green economy’ paradigm promoted in the Rio+20 summit last year. Their purpose is to create environmental services industries markets without doing the needed fundamental changes to production and consumption patterns and the development model. And obviously the World Bank is at the forefront of this ‘green’ business.”