A renewed emphasis on poverty reduction began in 1990. The understanding of poverty, under the influence of Sen and others, broadened from a narrow focus on income and consumption to a more complex vision of the linkages between growth and poverty reduction. Richer countries tend to have better social indicators. From this undeniable fact, the Bank drew the conclusion that human development promotes income growth and incomepoverty reduction. Not all economists share this view (For a dissenting view, see Anand and Ravallion 1993).

The emphasis on poverty in the 1990s was not new. What was new from the late 1980s onward was the articulation of a more complete strategy, combining growth with delivering social services (education, health and social protection) to the poor. In other words, it was the recognition that it was not growth alone that would do it—which was implicitly the view of the 1980s. At the World Bank, the change was spearheaded by the World Development Report on poverty in 1990, which included the first standardized global estimates of the prevalence of poverty, and by a strong shift in the institution’s emphasis after the arrival of James Wolfensohn as president in 1995. There was a vast expansion in analytic tools and capabilities, in both data and methods, linking micro data to aggregate outcomes, and with a view toward assessing policies and programs. This was built on the rapid expansion in household survey data production, which started in the mid 1980s.

# **Box 1.  Changing Views of the Development Process since World War II**

Assar Lindbeck, who carried out an evaluation of World Bank research in 1984, writes: “The dominant vision among economists [with regard to the basic mechanisms of the development process] has changed considerably during the course of the post-World War II period. The main visions during the 1940s, 1950s and early 1960s have usually been characterized as structuralist—ideas tied to names like Paul Rosenstein-Rodan, Ragnar Nurkse, Raul Prebisch, Hans Singer and Gunnar Myrdal. The term “structuralist” then refers to the notion that the developing countries are characterized by genuine inflexibility in the allocation of resources, due to inelasticities of supply and demand for goods, services and factors, as well as of productive effort in response to changes in economic incentives, such as relative price signals. Based on this vision of the development process was the idea of binding constraints on economic growth, like the “two-gap” theory of a savings and balance-ofpayments constraint, due to asserted weaknesses in the response of saving to changes in income and interest rates, and of exports, imports and long-term capital movements to changes in exchange rates, relative prices and rates of return on productive assets.

From these views followed both a strong distrust of the price mechanism, and as a mirror image, considerable enthusiasm for comprehensive central planning of inputs, outputs and investment activity. Recommendations were prevalent regarding public regulations and interventions to increase public saving and investment, the latter often in the form of large-scale projects in basic industries in order to deal with indivisibilities and externalities. Heavy protection, via direct controls (i.e., licensing) and high tariff barriers were other important components of the package of policy recommendations. Although some of these policies could certainly be well defended in the early post-World War II period, many governments were not flexible enough to shift to more decentralized and less interventionist policies when the usefulness of the previous approaches eroded.

However, three decades of postwar development efforts, as well as accumulated empirical research, have gradually changed the predominant vision of the development process. The general thrust of new ideas reflects an increased respect for the importance of markets and economic incentives, combined with an increased skepticism about the usefulness of detailed government intervention and central planning of production and investment decisions, including large-scale public projects. First, the possibilities of substitution between labor and capital have come to be regarded as more important than earlier—a development in economic theory that is symbolized by the replacement of the Harrod-Domar growth equation with more flexible aggregate growth models a la Solow. Second, it has been increasingly asserted during the last one or two decades that the fine micro-structure of the economy does respond considerably to economic rewards and relative prices. _Source_ : World Bank 1984 5