The Bank figures one out

Marcela Sanchez at the WaPo has been doing some nice stuff recently that has gone under the radar. She's worth reading because she gets it in a non-Beltway way. Here (excerpted below) she reports on the World Bank's revelations about poverty reduction in Latin America.

There have been two broad approaches to reducing poverty among development policy analysts and countries seeking economic well-being and social well-being. Amartya Sen calls these two approaches growth-mediated and support-led processes. Growth-mediated processes place the emphasis on fast economic growth, under the assumption that social investment and institutions follow from the rapid increase in wealth. Support-led processes put the emphasis on providing social services such as healthcare and education, with the assumption that over time basic social investment should yield stronger, more sustainable growth as a country builds up a healthy, more literate, and well-educated population. You know what the US tends to choose. Some other countries or regions - Costa Rica, Kerala - choose the latter approach.

Sen suggests that different countries' needs and contexts may lead to one choice being better than another. One advantage, for Sen, of a growth-mediated process is that it might apply rapid increases in wealth to serious poverty issues and do so fairly quickly. An advantage of a support-led approach is that evidence suggests that quality of life can be increased for a population without having necessarily to grow the economy at a faster clip.

In reality, growth-mediated approaches often tend towards reification, as if economic growth is in itself a good, an end. We learned early on from Aristotle, of course, that growth or wealth is a means rather than an end. We have to ask the question what economic growth is a means for (for Aristotle, it was ultimately one contributing means among others towards the end of happiness, found ideally in the contemplative life of the philosopher). If it is quality of life that is truly at issue, and the governing members of a society are concerned enough about the society as a whole, then the issue of distrbutional justice and equity is also raised. Rapid economic growth, after all, can serve to pack the pockets of the already-wealthy. The US has moved quickly in this direction - despite sluggish growth - over the past decade or two. If, however, distributional issues are a concern, the better route may be a support-led process through which basic advantages (or "capabilities," Sen's and Nussbaum's term) are used as a springboard not necessarily in the name of growth but in the name of quality of life. When I talk with the Chavez people, this is precisely the sense I get from them. (And, of course, the overly-optimistic faith in economic growth is environmentally devastating, but that's another issue to go into later).

The World Bank is catching on. They've been dominated by the economic growth-mediated mentality...

The authors of the World Bank report, "Poverty Reduction and Growth: Virtuous and Vicious Circle," recognize that a country can't necessarily grow its way out of poverty and that poverty can be a huge drag on economies and on growth. Poor regions lacking in infrastructure fail to attract investment. Poor families, faced with substandard schools and high costs, are less likely to invest in the education of their children. And, as has been particularly clear in recent years, countries unable to moderate income disparities face social tensions that jeopardize business. As the authors quantify it, when poverty levels increase by 10 percent, growth decreases by 1 percent and investment is reduced by up to 8 percent of a country's gross domestic product.

Two of their main conclusions are a breakthrough for the bank: that private-sector growth is not a panacea for the poor and that inequality must be targeted directly. A third conclusion is almost heretical for the bank: that the state needs to take on more responsibility rather than less. "Converting the state into an agent that promotes equality of opportunities and practices efficient redistribution is, perhaps, the most critical challenge Latin America faces in implementing better policies that simultaneously stimulate growth and reduce inequality and poverty," the report says.

By advocating state responsibility, particularly for redistribution of wealth, the World Bank seems to be bringing itself into greater alignment with other multilateral institutions and governments in the region. Jose Antonio Ocampo, U.N. undersecretary general for economic and social affairs, said in an interview after a U.N.-sponsored event on Latin America this month that "today the majority [of leaders in Latin America] recognize that the state has a function more important than ever in confronting the issue of inequality."

The great surge to the left in recent Latin American elections can be seen in this light. Even in Chile, the big economic success in the region, center-left President-elect Michelle Bachelet stressed the need to put an end to the "trade-off" between growth and equality.