The World Bank and the world's poor. Is `trickle down' still the best policy?
TO many, the World Bank is synonymous with economic progress in the developing world. Observers point to success stories in South Korea and Taiwan, and to the generally healthy industrial sectors of India, Thailand, and Malaysia, as evidence of economic growth aided by World Bank investment. But some observers say there are ways of measuring third-world development other than looking at gross national product or the amount of hard currency a government earns from exports. These analysts maintain that yardsticks such as the level of infant mortality and literacy and the rate of population growth are more revealing indicators of advances or setbacks in human well-being.
Some of these critics are concerned about the impact of the World Bank's policies on the very poor. And they question whether bank projects that were designed to help the poor have actually improved their lot.
World Bank president Barber B. Conable, like his predecessors, has declared war on poverty. What especially concerns him is the poverty that is a casualty of progress. ``In the fastest-growing Asian countries,'' he said at a recent World Bank meeting in Washington, ``we've had significant numbers of the poorest people bypassed by the economic growth which has resulted in a doubling of per capita income in the last 20 years.''
``We will proceed with a targeted program focused on eradicating the worst forms of poverty in, for example, the large, low-income ... nations in Asia,'' he announced.
He also stressed the need to address two other issues that are at once causes, and effects, of widespread poverty in the third world: ``the pressures of population'' and ``the sapping of our planet's natural resources.'' A World Bank ``poverty task force'' is studying the specifics of third-world poverty, and will present its findings in three months' time.
Over the past 40 years, the World Bank's formula of technological development, large-scale infrastructure building (roads, dams, sewers, etc.), and the fostering of conservative government policies has been generally accepted as the recipe for third-world progress. This approach is sometimes called ``trickle down,'' and while it has been criticized, it still has plenty of supporters.
``[The bank is] better at getting at the poor than almost any other lender,'' says Jonathan Houghton of the Harvard Institute for International Development, ``with the definite exception of some of the small, private, voluntary organizations. For example, if you build a power station, you can hook up an extra 50,000 consumers. It can enable you to expand production for export.
``The trickle-down theory is by no means discredited. It's just slow. Things do trickle down, but the speed differs greatly from country to country.''
Yet there are also those - and their numbers appear to be growing - who question the basic premise of World Bank policies, especially as they affect the poor majority of third-world citizens.
Joseph Collins is a co-founder of the Institute for Food and Development Policy, a nonprofit research and education center based in San Francisco, which analyzes the causes of world hunger. In a radical departure from conventional thinking, he maintains that the poor seldom benefit from investments made at the upper echelons of their societies.
``We have done a great deal of detailed research on the bank,'' says Mr. Collins. ``And we've concluded that it's a fallacy to think that by passing resources through the rich and the powerful you will help the poor. It's not just that you don't help the poor and hungry by putting capital and resources and new technologies into the hands of those that run the society - it generally makes their lives worse.
``It might be that a project involves lending for an irrigation system in villages,'' Collins says. ``What will happen is that those who have already monopolized the land are the ones who are going to benefit. They will have even greater income, buy up more land, and mechanize so that there are fewer employment opportunities for the poor. What the lending provides ends up in the hands of those who were already well off.''
ALTHOUGH reflecting a different philosophy, his remarks echo bank president Conable's concern for the millions of poor who have been bypassed by development. ``India is one of the bank's biggest success stories,'' Collins notes. ``It's become a major industrial country, but it is also a country that has more hungry people than any other, about 300 to 400 million people who are chronically underfed. Yet industrially, it's a success story. I'm afraid that what you can expect from the bank is more Indias.''
As of now, World Bank funds ticketed for ``humanitarian'' improvements - education, population control, health care and nutrition, and the provision of clean water and sewerage - are only a tiny fraction of World Bank lending (see chart). Together, these funds amounted to only 8.3 percent of total lending last year. And money for these programs has declined since 1985.
In fact, an average of only 1.4 percent of bank lending went toward population, health, and nutrition programs from 1985 to 1987. This is the second-smallest share of bank funds (after those invested in technical assistance) earmarked in any one category.
The proportion of funds allotted for education has declined in the last three years from 7 percent to 3 percent of total lending.
Money for agriculture and rural development, much of which is aimed at the poor, has been the largest area of project investment over the last three years, averaging 24 percent of the total. In 1987, however, hydroelectric power installations replaced agriculture and rural development as the bank's largest area of funding.
The development of finance companies, transportation, and lending to help governments balance their budgets accounted for 36.7 percent of lending in 1987.
According to bank spokesman Frank Vogl, the relatively small amounts spent on humanitarian programs do not reflect lack of commitment in these areas, but rather the fact that such projects simply cost less than other types of investments.
``The actual ... cost is far less for humanitarian projects,'' says Mr. Vogl, citing a ``highly successful'' mother-and-child health program the bank has financed in south India as an example.
``Much of the work for the very poor - whether it's in education or health care - is not very expensive. But it's often very difficult to do because you need to secure local government commitment. The key is management. These projects take a tremendous amount of energy and time.''
``It's easier to lend money for ... highways than for social services,'' agrees Lester Brown, director of Worldwatch, a Washington-based research institute that monitors global trends. For example, ``the bank has talked a good game on population control, but its actual delivery has not been as strong,'' he says.
ACCORDING to J. Joseph Speidel, president of the Population Crisis Committee, an advocacy group based in Washington, the lack of an immediate financial return has deterred the bank from investing more in family-planning programs.
``It's difficult for developing countries to borrow money for social-service programs which don't generate any money to repay the loans,'' says Mr. Speidel. Yet, citing studies in Thailand, he points out that a decrease in birthrates will save a country far more than the cost of a population-control program.
``The flow of [World Bank] funds has not been on the scale that is needed,'' he says. ``The bank tends to focus on `hardware' capital investments, even in [the area of] family planning. They will build health clinics, or fund the purchase of vehicles. But training, the purchase of contraceptives, or funds to run programs have been shortchanged.''
Questioned on this point, spokesman Vogl said the bank plans to double its family-planning, health, and nutrition spending to about $500 million annually by 1990. (Over the last three years, total support for these programs has averaged $222 million per year.)
Outside observers criticize the bank for not spending enough on population programs. Ironically, Jeremy Warford, acting director of the bank's department of the environment, points to population projects as an indication of its concern for the environment. These projects are ``the best link to environmental concerns,'' Mr. Warford says. ``Most projects have an environmental component, and all projects have to be cleared according to their environmental desirability. Poverty is a major contributor to resource degradation.''
Warford says his department's staff has increased fourfold since last July 1. But that increase fails to impress Bruce Rich of the Environmental Defense Fund, an independent research group that assesses environmental damage worldwide.
``It's a 400 percent increase over what they had in the past - but it's still inadequate,'' says Mr. Rich. ``There are about 28 people in the new environmental department [out of a total bank staff of 5,500]. There are only two professional ecologists.''
The World Bank has been widely criticized in the past for environmental damage caused by some of its projects, particularly the destruction of rain forests in Latin America. Conable has pledged greater concern for environmental issues.
But environmentalist Rich says that, despite some encouraging signs, the bank's recent performance has been ``quite disappointing.'' He is especially critical of recent hydroelectric power projects which, he says, are causing the displacement - and consequent impoverishment - of hundreds of thousands of people in India, Pakistan, and Sri Lanka.
``The model of development the World Bank promotes has tremendous environmental and social costs,'' Rich says. ``Many projects are unnecessarily destructive, environmentally and socially.''
The need for third-world governments to tighten their belts was a major theme at last month's meeting. Indeed, about 25 percent of the World Bank's loans are extended on condition that the recipient government make recommended economic policy changes.
Mr. Brown of Worldwatch says that these ``structural adjustment'' loans allow the bank to influence government policies so that they result in fairer income distribution. For example, ``they've been quite good at pressing countries to move toward agricultural price policies that will encourage rather than discourage output in the rural areas,'' he notes.
On the other hand, ``structural adjustment'' that results in cuts in social-service programs, such as education and health care, is causing concern among a number of development experts.
``Governments that are adopting structural adjustments should be very careful,'' says Roy Culpepper, program director of international finance at the North-South Institute, an independent research agency based in Ottawa.
``In some countries where social expenditures have been cut - Sri Lanka, Jamaica, and Ghana are examples - schools were closed and teachers were laid off. Literacy rates went down. That is simply cutting their own throat for the future of their own development. Countries can't afford to do this.''
What is the World Bank?
The World Bank was founded in 1944 at a conference of financial and business leaders held in Bretton Woods, N.H. Its original purpose was to help rebuild the industrial economies of Western Europe ravaged by World War II. In the 1950s, the bank's focus shifted to fostering international trade and enabling industrialized nations to invest in the economic growth of developing countries.
Lending to governments for specific development projects, the bank seeks to promote private enterprise and build up the infrastructure (roads, schools, power plants, transportation and communications systems, etc.) of third-world nations. The bank is a free-market institution, whose profits bolster its credit standing and enable it to borrow at competitive rates.