Reprint from The Economist.

ECONOMICS FOCUS

Economics focus

Quantity and qualitySep 28th 2000
From The Economist print edition
 

Barely a fortnight after publishing its World Development Report, the World Bank has released another big study on growth and poverty. The new study, no less than its predecessor, is a harmful muddle

JUDGING by his speeches, James Wolfensohn, the head of the World Bank, has been stung by recent attacks. For some time the Bank has been “enhancing” its views on development, not just listening to the critics’ charges but going some way towards pleading guilty. The new World Development Report, with its opaque calls for poor people in developing countries to be “empowered”, marked a new stage in this process. Now comes “The Quality of Growth”, which marks another.

The shift is apparent enough—but why is the Bank doing it? The Bank won the argument over the primacy of economic liberalisation (especially trade liberalisation) in promoting growth during the late 1980s, and brought many developing-country governments inside the “Washington consensus” on “market-friendly” policies. Those governments, by and large, are still on board—and their economies are doing better as a result. Of course, the 1990s saw setbacks, notably in East Asia and in some of the ex-communist countries, especially Russia—but these hardly overturned the basic prescriptions of the market-friendly way, as the governments concerned (with rare exceptions) would themselves agree.

The main pressure on the Bank appears to be coming, first, from rich-country NGOs and street protesters (who put on another show in Prague this week, in an effort to disrupt the annual meetings of the Bank and the IMF) and, second, from rich-country governments that care more about seeming enlightened and caring than about doing what is right. It is a pity that the Bank is bowing to these forces. There is no prospect whatever of appeasing the marchers, who will be satisfied only by an outright repudiation of capitalist development. By bending in their direction, rather than defending liberalisation and globalisation on their merits, the Bank is only empowering (as you might say) its enemies and helping them to recruit allies from the middle ground. Meanwhile, the development message that the Bank had rightly been pressing gets increasingly blurred.

“The Quality of Growth” highlights this second danger. The report contains a lot that is useful and sensible. Much of it is concerned with the challenge of ensuring that rapid growth, once under way, is both steady and lasting. Four themes are emphasised. First, investing in education, particularly primary education, promotes lasting growth and, especially, advances the prospects of the poor. Second, safeguarding the environment, for instance by ensuring that scarce resources are priced appropriately, and by strengthening environmental property rights, also contributes to sustainable economic growth (properly measured). Third, stable growth is better, other things equal, than growth that moves in fits and starts—and again, better especially for the poor, who are the first to suffer in economic downturns. Fourth, corruption undermines growth and retards development more broadly defined. The rule of law is a crucial precursor for sustained economic growth.

As it stands, none of this is difficult for liberals to accept, or even new to them. It would have been entirely possible to locate these findings in the mainstream of the post-1990 consensus. Thus, sustained growth (properly measured) is good; it helps the poor; you want as much of it as possible; here is how you get it. But maybe the Bank felt that this would provoke, rather than mollify, its enemies. So instead these findings have been spun as follows: growth is all very well, but we were wrong to emphasise quantity over quality—“the quality of growth is as important as the quantity [emphasis added]”. The wrong kind of growth, pursued too single-mindedly, fails to help the poor and destroys the environment.

In fact, this way of speaking distorts the study’s own findings. As one of its tables shows, the developing countries that grew fastest in the 1980s and 1990s reduced poverty substantially; moderate-growth countries made much less progress; and low-growth countries actually saw poverty increase. Infant mortality was lowest in the high-growth countries, and improved in those countries by the biggest margin. Such countries also had the lowest illiteracy rates and the highest life expectancy.

The high-growth countries had less, and faster-declining, water pollution than the other two categories. On rates of deforestation, there was little to choose among the groups. Only on carbon emissions (thanks to rising energy consumption per head) did the high-growth countries do worse than the others. A fair-minded person would sum all this up by saying that the larger the quantity of growth the better—especially for the poor, and on some measures also for the environment.

The crucial question is one that the Bank does actually ask: can rapid growth persist over long periods without improving the lot of the poor? If so, then attending to the quantity of growth is not enough. If not, the quantity of growth is mainly what counts. The report then fails to answer its own question. It offers many examples of countries where sustained and rapid growth has helped the poor, but none where it has failed to—presumably because there aren’t any.

But a finding so simple, encouraging and operationally relevant appears to be regarded by the Bank these days as politically incorrect. The Bank would rather muddle the message to the point of incomprehensibility, saying: “Does faster growth help the poor? Sometimes, but not necessarily. You see, it’s all so complicated.” What these convolutions have to do with bettering the lot of the poor is hard to say.

Copyright © 2002 The Economist Newspaper and The Economist Group. All rights reserved.

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