metadata: authors: 0: author: Kanbur,Ravi
docna: 0: docna: Poverty and development : the Human
            Development Report and the World Development Report, 1990
docty: Policy Research Working Paper
subtopic: Economic Theory & Research,Industrial Economics,Demographics,Educational Sciences,International Trade and Trade Rules,Economic Growth,Inequality
teratopic: Poverty Reduction
abstracts: cdata!: After the "adjustment decade"
            of the 1980s, attention in the 1990s seems to be turning
            once again to longer-term issues of development -
            particularly of poverty alleviation. Just as the 1980s were
            heralded by a series of reports on adjustment, so the 1990s
            have seen two major reports on poverty: World Development
            Report 1990: Poverty, by the World Bank, and Human
            Development Report 1990 by the UNDP. The author presents an
            overview of conceptual issues and the best policies for
            alleviating poverty, based on a review of these two reports.
            He poses basic questions on the definition and measurement
            of poverty, looks at what has actually happened to poverty
            in developing countries in the last three decades, and
            reviews policies to help alleviate poverty. The consensus
            represented in these two reports, he concludes, offers hope
            that the polarization of policy analysts into
            "camps" is a thing of the past - and that policies
            for the 1990s can be built on fundamental agreement about
            the basics: (a) that poverty alleviation requires growth,
            but growth is not enough; (b) that growth must be
            broad-based and labor-intensive, and must go hand in hand
            with targeted basic social expenditures; and (c) that the
            international community must do its share, by supporting
            these efforts in the 1990s through greatly increased capital
            flows to development countries.
repnme: repnme: Poverty and development : the Human
            Development Report and the World Development Report, 1990
display_title: Poverty and development : the Human
            Development Report and the World Development Report, 1990
listing_relative_url: /research/1991/03/700036/poverty-development-human-development-report-world-development-report-1990
topicv3: Economic Growth m1326241 471,Poverty m1326687 695,Trade m1326924 698,Education m1327048 470,Population Projections m1504366 3662
publishtoextweb_dt: 2010-07-01T00:00:00Z
historic_topic: Poverty Reduction
origu: Policy, Research & Ect Affairs
no_of_pages: 29
author_keys: 0: author_key: 94124
model_extractions: **Policy, Research, and External Affalrs**

**Development Economics**

WPS 618 This paper-- a product oitlhe Rescarcih Administrator's Office, Off ice (f the Vice l1residcII, l)evclopImIt Economics-- was prepared for a spccial issue of _Pensa,niteto Iberoameric(Lno._ It grew out ol aI sessioni Kanburorganizcd and chaired at the Filfth Initernational Congress ol 'tie European Econiomic Associaztiol, held at Lisboa in August 1990. Copies olfthis paperare available f'ree fro)m thC World Bank, 18 18I f StIreel NW, Washington, DC 20433. Please contact Jane Sweeney, room S3-026, exiension 31021 (25 pagCs).( Alter the "adjustment decade" of the 1980s, attention in the 1990s seems to be turning once again to longer-term issues of developmcntparticularly of poverty alleviation, Just as the 1980s were heralded by a series cf reports on adjusiment, so the 1990s have seen two major reports on poverty: _World Development Report 1990: Poverty',_ by the World Bmnk, and _Human Development Report 1990_ by the UNDP (the first in a planned annual series focusing on human development), Kanbur presents an overview of conccptual issues and **thc** best policies for alleviating poverty, based on a review of the2e two reports. He poses basic questions on the definition and measurement of poverty, looks at what hias actually happened to poverty in developing countries in **thc** last three decades, and reviews policies to help alleviate poverty.

The consensus represented in these two reports, he conicludes, off'ers hope that ilie polarization of policy analysts inito "camps' is a - thing of the past and that policies lor the 1990s can be built on **fundamental** agreement about the basics:

> * Tlat poverty alleviaition recluires growth - but growth is not enough.

* That growtih must be broad-based and laborintensive, and must go hland in hand witlh purposive, targeted basic sociall expciditures.

* That the international community must do its share, by supporting these efifols in the 1990s through grcatly increased capital flows to developing countries.

> The PRE Working Paper Scrics disseminaecs the findings of work under **\ka\** in the Bank s Policy, Research. **ajid** Extemal Affairs Complcx. An objectivc ofthe scries is to get thcse findings out quickly, evcn i rprcscntations are lcss thaln full\ glihlled. The findings, interpretations, and conclusions in thesc palpers do not necessaril\ r.eprescnt official Biank polic\.

Produced hy' the P'RE **Dt)senninanton** Cenler
Poverty and Development: The llum;iin DevelIopmIent Report and The Vorld DevelopmenLt ReporLt, 1Q90 bv Ravi Kanbur* University of Warwick anid The World Bank Contents

1. Introduction

2. Measuring Poverty 3. Evolution of Poverty in the Developing World 4. Policies and Poverty

- 4.1 Who are the poor, and how can they be helped?

- 4.2 What does country experience tell us?

- 4.3 Public Expenditures, Targeting and Poverty Alleviation

- 4.4 Stabilization, Adjustment and Poverty

5. Conclusion

* Invited paper for a special issue of Pensamiento Iberoamericano. The paper grows out of a session I organized and chaired at the ifth International Congress of the European Economic Association, held at Lisboa in August 1990. I am grateful to Meghnad Desai, Graham Pyatt and Jacques van der Gaag for participating in the session. Their papers (Desai, 1990, Pyatt, 1990 and van der Gaag 1990), on which I draw heavily, will appear in a special issue of the European Economic Review.
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# 1. Int duct ion

Atter the "adjustment decade" of the 1980s, attention<sup>in the 1990s seems</sup> to be turning once again to longer term issues of<sup>development, particularly of</sup> poverty alleviation. If the publication of major reports<sup>by international</sup> agencies is anything to go by, the shift in attention<sup>is quite marked. Just</sup> as the 1980s were heralded by a series of reports<sup>on adjustment (for example,</sup> the World Bank's report on adjustment in Africa),<sup>1990 has seen the</sup> puJlication of two major reports on poverty: World Development<sup>Report 1990:</sup> Poverty (WDR), by the World Bank, and Human Development<sup>Report 1990 (HDR), by</sup> the UNDP. The World Bank's report, the thirteenth in<sup>a series of annual</sup> reports on different development issues, revisits the<sup>topic of the World</sup> Development Report 1980, while the UNDP's report is the<sup>first in a planned</sup> annual series focussing on human development.

It seems an opportune ti,me, therefore to take stack<sup>of what we know</sup> about poverty and development, where we stand on conceptual<sup>issues and what</sup> experience has taught us about the best policies<sup>for alleviating poverty. The</sup> object of this paper is to attempt such an overview, based<sup>on the t4o major</sup> reports published this year, and on the literature on which<sup>they draw. Ihe</sup> plan of the paper is as follows. Section 2 starts<sup>by posing some basic</sup> questions on the definition and measurement of poverty,<sup>emphasizing the need</sup> for operational methods that have sound methodological basis.<sup>Section 3 moves</sup> on from this to take a look at what has actually happened to poverty<sup>in</sup> developing countries ever the past three decades. Section<sup>4 turns to the most</sup> important question -- what policies help to alleviate poverty?<sup>Section 5</sup> concludes the paper.
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# .M~ duisitri **tg,** I'owti rty

'[here ale three distinct components. to the measurement of poverty. First, we have to specify what we mean by the standard of living. Secondly, wt hdVf to delineiate a critical level of the standard of living below which there is poverty, by definition. Thirdly, we ne3d to compress information on the standards of living below the critical level into an index of poverty. Each of these steps would merit a paper by itself. A large literature has developed in each of these areas, and ithough consensus seems to be emerging on some specific topics, a consensus which is well reflected in the two reports being discussed here, there are other topics that remain controversial.

Both the World Development Report and the Human Development Report accept that while income is an important component of the standard of living, there are other dimensions which have to be taken into account. These are variously referred to as the "human dimensions" or "basic needs", and include aspects of health, education, housing, etc. The reason for this is that "people often value achievements that do not show up at all, or not immediately, in higher measured income" (UNDP, 1990). As the WDR notes, "being able to get clean drinking water, for example, matters to one's st,1ndard of living, but it is not reflected in consumption or income as usually measured." Bevonid this recoRnition of the inadequacy of consumption or income easulres of the standard of living, the two reports differ in how they proceed(. The World Dovelopment Report "supplements a consumption-based
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poverty measure with others, such as nutrition, life expectancy, under 5 mortality, and school enrollment rates." The Human Development Report, on the other hand, goes a step forward and attempts to combine income and two other dimensions of the standard of living -- literacy and life expectancy -- into a unidimensional measure of the standard of living along which countries can be ranked (neglecting for the moment the distribution of this measure within each country). The result of this attempt is the "Human Development Index" (HDI), which has attracted considerable attention.

The HDI is defined on the basis of three indicators of well being at the national level -- logarithm of real _GDP_ per capita (X1), adult literacy rate (X2) and life expectancy at birth (X3). From the values of these indicators for countries, the maximum and minimum value for each indicator is identified (for example, for life expectancy the maximum is 78.4 years while the minimum is 41.8 years; for adult literacy the maximum is (almost) 100% while the minimum is 12.3%). On this basis, the deprivation for the ith country along the ith dimension is defined as The normalization used in the formula ensures that DJ lies between 0 and 1. The "deprivation index" for the jth country is defineci as a simple average of DI,, **D2j** and D3J. In other words,
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Th- Human De' lopment Inder is then defined as HDIJ - -D The above attempt at arrivirng at a unidimensional standard of living, while interesting, is problematic to say the least. As Ferroni and Kanbur (1990) point out, the normalization adopted is somewhat disconcertiFor example an improvement in the achievement of the worst country in the sample would decrease the HDI for country j! It is not clear that these are the sorts of externalities that one wants in an index. Moreover, it is not clear why each dimension is given an equal weight. In other words, it is not clear what value judgements underlie the HiDI. In view of these problems, we would have to conclude that the HDI should be treated with caution. Until more work has been done on deriving weights for different dimensions of the standard of living on the basis of cxplicit value judgments in the form of a social welfare function (see Ferroni-Kanbur, 1990), the approach in the World Development Report, of supplementing income data with information on the other achievement, is to be preferred.

All of the above is devoted to arriving at a measure of the standard of living. But we then have the oroblem of choosing a cut off to focus attention on the bottom end of the distribution. For some indicators like literacy, this is straightforward since they are in the form of "zero or one" variables. For other indicators, most particularly income/consumption indicators, we bdve to decide on a "poverty line". This is also a vexed question in the literature, and there is no easy solution (see Kanbur, 1987), not least becau5,e what constitutes poverty is country specific, The World Development Report looks at country-specific poverty lines for thirty-four developing and
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industrial coukitries, and shows that this threshold "rises slowly at low levels of average consv-,iption but more sharply at higher levels." Faced with this problem the report. adopts the strategy -f using country-specific poverty lines when discussing poverty within countri.s, and using two international lines for global poverty estimates. These two thresholds are $275 and $370 per person per year at 1985 purchasing power parity prices. While such a choice has a degree of arbitrariness, these lines are argued to "span the poverty lines estimated in recent studies for a number of countries with low average incomes -- Bangladesh, the Arab Republic of Egypt, India, Indonesia, Kenya, Morocco and Tanzania." Having decided on a poverty line in consumption space, the next questions concern the nature of the distribution to which this line is to be applied, and how the information on the distribution below the line is to be aggregated into an index of poverty that will prove useful in operational settings. The basic problem that arises with the first question is how to translate consumption information at the household level, which is the form in which it is usually available, ir,to consumptŽ 'f individuals after adjusting for household size and composition. Correcting for household composition takes us into the still controversial area of estimating adult equivalent scales. But even if this problem is solved, translation of household level consumption into individual level consumption by simply dividing total consumption by thie number of equivalent adults assumes that consumption within the household is distributed according to need. In other words, the problem of intra-household inequality is ignored. Of course, unless disaggregated information at the individual level is available we cannot really gauge the seriousness of the problems. What little evidence there is does suggest that
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the neglect of intra-household inequality can throw off estimates of poverty and inequality by a considerable margin (see Haddad and Kanbur, 1990).

However, given the state of information in most developing countries, from an operational point of view we are restricted basically to the distribution of individuals by per capita household consumption or income, and this is the distribution to which the poverty line i, applied.

Given this distribution and a poverty line, the most obvious and commonly used index of poverty is the headcount index, which measures the fraction of individuals below the poverty line. While this index will continue to be the workhorse of poverty analysis, a number of authors (e.g. Sen, 1976) have pointed out that this measure is insensitive to changes **ir, tse** depth of poverty. A good example of the difficulties is given by the World Development Report, based on the work of Ravallion and van de Walle (1988).

Suppose we want to know how an increase in the price of basic food staples affects poverty. A recent study examined this question for Java, Indonesia, using data for 1981. Households close to the poverty line were found to be, on average, net producers of rice, the main food staple. Thus, the headcount index of poverty will fall when the price of rice increases -- assuming that this price change is passed on to the producers. But the study found that the poorest of the poor -- many of them landless agricultural laborers or farmers with little land but with some other source of income -- are net consumers of rice. They are worse off, at least in the short run, when the price of rice increases. The study showed that measures that take the severity of poverty into account tend to show an increase in poverty when the price of rice goes up -- exactly the opposite message conveyed by the headcount index.

We would do well to bear this caution in mir.d, and look perhaps to classes of measures that allow a weight to the depth of poverty (for an
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example of one such family of measures,<sup>see Foster, Greer and Thorbecke,</sup> 1984).

To summarize, it seems to us that the best strategy<sup>in measuring poverty</sup> is to start with a distribution of<sup>individuals by per capita household</sup> consumption or income, information<sup>that is available for many developing</sup> countries, and which will become available<sup>for more and more countries as the</sup> decade progresses. We should then<sup>use a range of country-specific poverty</sup> lines, chosen so as to command consensus,<sup>and calculate not only the headcount</sup> index but other indices that emphasize<sup>the depth of poverty. Equally</sup> important, and strongly complementary<sup>to the consumption/inconme based measures</sup> of poverty, should be measures of<sup>achievement along dimensions such as health,</sup> nutrition and education. We are<sup>as yet some way from arriving at a single</sup> measure of the standard of living<sup>that combines these various dimensions with</sup> consumption. However, in some cases<sup>data may permit examination of the non-</sup> consumption achievements of those<sup>classified as poor on consumption grounds.</sup> In other cases we may be restricted to looking<sup>at achievements in health,</sup> education, etc., only at the national<sup>level.</sup>

# 3. Evolution of Povertv in the Developing<sup>World</sup>

Through the empirical -:.nalysis in the WDR and the HDR, a consensus emerges on the broad quantitative magnitudes<sup>of poverty in developing</sup> countries, and on the evolution of this<sup>poverty over the past 30 years. Both</sup> reports arrive at a figure of over<sup>one billion people below the poverty line.</sup> In the case of the WDR this line is specified<sup>as $370 per capita per year in</sup> 1985 purchasing power parity prices<sup>--</sup> in other words, a little over a dollar a day.
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Table i is reproduced from the WDR, and presents the World Bank's assessment of the state of poveirt y ir. the developinlg world in 198'. Apart from income povferty, the WDR concentrates on achievements in three key social indic.atois -- under 5 nortality, lite expectancy and net primary enrollment rate. The IHDR, as might be expected, considers a broader range of social indicators. Wlile there is some disagreemnent on specifics, the broad picture painted by the two repoits is remark.,hly consistenit. Thu: on life expectancy both reports arrive at a figure for<sup>all developing countries of 62 years in</sup> the mid 1980s, and this compares wiTh a<sup>figure for 74 years for the developed</sup> countries. However, the average figure<sup>of 62 years hides considerable</sup> variations, ranging from a low of 50<sup>years in Sub-Sahatan Africa to a high of</sup> 67 in East Asia and even 71 in the newly<sup>liberalizing countries of Eastern</sup> Europe. Just as there are variations<sup>between regions, there are variations</sup> between countries within regions. Table<sup>2 is reproduced from the HDR and</sup> shows that countries such as Chad have life<sup>expectancies of 46 years. Of</sup> course, even within countries there are<sup>variations, but the available data</sup> does not permit us to pursue this level of detail.

One social indicator discussed by the HDR<sup>that is not highlighted by the</sup> WDR is access to safe water. Table 3<sup>reproduces some of their numbers.</sup> Overall, in 1986 only 55% of people in the<sup>poor countries of the South had</sup> access to safe water, and this average<sup>also hides considerable variation.</sup> Countries like Mauritius and Sing-,,ore reach<sup>100%while others like Ethiopia</sup> and Mozambique register 16%. The lowest is<sup>Kampuchea with only 3%.</sup> Both reports present figures on a number of other<sup>indicators, but the</sup> general conclusion should be clear. It is that<sup>in the position of the poor in</sup>
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developing countries is 2xtraordinarily had on a range of quantitative measures, especially when compared with achievements in developed countries. But how does this compare with the situation thirty years ago? Has there been any progress? Again both reports are broadly agreed in the answers to the e questions. They conclude that, by and large, during the 1960s and 1970s th poor improved their position along che dimensions of consumption and of social indicators. In the 1980s, howevec, the picture is mixed, depending on the dimension considered and, more importantly, on where the poor lived. In particular, in the 1980s Sub-Saharan Africa experienced a decline in consumption per capita while all other regions of the developing world experienced an increase.

The UDR presents a detailed analysis of household survey data for 11 countries, mainly in Asia and Latin America, for periods ranging from l; to 24 years. The overall conclusion is that the percentage of people in consumption poverty in those continents has declined dramatically. However, because of rising population, the decline in the total numbers of the poor has been more modest. In a country like India, for example, between 1972 and 1983 it estimated that the headcount index fell from 54% to 43%, but the number of poor increased slightly, from 311.4 million to 315.0 million. Among the most dramatic poverty declines is that for Indonesia where the headcount index fell from 58% in 1970 to 17% in 1987, and the number of poor also fell, from 67.9 million to 30.0 million. Progress in poverty reduction was slowed down in the 1980s, and reversed for some countries in Latin America. Data availabilit, precludes both reports from providing extensive discussion ef income/consumption poverty in Sub-Saharan Africa. The HDR quotes an ILO
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estimate that poverty rose between 1980 and 1985. The WDR estimates that between 1980 and 1985, "the number of Africans in poverty would have increased by 55 millic.." Social Indicators have shown considerable improvement in all parts of the developing world, particularly in the 1960s and 1970s. As table 2 shows, life expectancy in the South has increased from 46 years in 1960 to 62 years in 1987. Tables 4 and 5, reproduced from HDR, show similar improvements in the in-'ant mortality rate as well as the adult literacy rate. There is, however, some evidence that the improvement slowed down in the 1980s, particularly in Sub-Saharan Africa. For example, the WDR shows that primary enrollment rates decreased in that region during the early part **of** the 1980s.

Despite the remarkable improvements over the past 30 years, the problem of poverty rezmains severe, and there may have been some reversals during the past 1980s. What can policy do to accelerate progress? This question is taken up in the next section.

# 4. Policies and Poverty

- 4.1 Who are the Poor, and how can they be helped?

Before designing policies to help the poor, it is important to understand the characteristics of the poor -- their location, sources of income, etc. The WDR starts with this analysis. The broad conclusion is that while the poor are heterogeneous, certain general conclusions can be drawn from the evidence -- and these are not very surprising. Poverty is primarily a rural phenomenon. In Africa and in Asia, the incidence of poverty is far
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higher in rural ares, **i IId tI it rural** _Ipoor_ :iccounit for t **hIe** va.st majori ty of **a II** tbos;e **iln** povertV. I **ni Lit** inl **Aiiltri- ca** t he situat ion i s l&Sf; extre me, **pr** inarily because of the higher degree of urbaniization. Howeve r, so far as **non1-** i **ncomie** achievements are concerned, even **in** latin America rural areas lag belhinid urban areas - -- as shown by table 6, reproduced from the WDR.

Since povertv is primarily a rural phenomenon, it is also primarily an agricultural phenomenoni. A related characteristic of the poor is that they lack assets. They either have very small amounts of unproductive land, or no land at all. They lack human capital and are therefore reduced to selling unskilled labor, largely in an agricultural setting. This means that the main sources of income for the poor are from agriculture and (in both rural and urban areas) sale of labor. Those who are income poor also turn out to be poor in otiher dimensions -- they do not have as great an access to public services such as health and education as do the non-poor. This in turn affect. their income earning capacity.

Based on these very general characterizations, which have of course been known for a while, the WDR proposes a two pronged strategy for alleviating -- poverty. Firstly, increasing the demand for the poor's most abundant asset their labor power -- through a policy of broad based, labor intensive growth. Secondly, a concerted program of social expenditures to increase access of the poor to basic health and education. This also seems to be the strategy advocated by liDR, on the grounds that economic growth is a necessary but not
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suffic ieit coridi tiotn for poverty al leviationi. Both the WDR anid the IIDR strengthen the case for this strategy by looking at country experience.

# 4.2 What does country experience tell us?

HDR suggests a threefold typology of country experiences.<sup>First there</sup> is "sustained human development, as in<sup>Botswana, Costa Rica, Cuba, the</sup> Republic of Korea, Malaysia and Sri Lanka."<sup>Second, there is "disrupted human</sup> development, as in Chile, China, Colombia, Jamaica,<sup>Kenya and Zimbabwe."</sup> Third, there is "missed opportunities for<sup>human development, as in Brazil,</sup> Nigeria and Pakistan." While there are some<sup>differences of detail, the WDR</sup> emerges with a similar message. It certainly<sup>highlights Brazil and Pakistan</sup> as examples of countries that had high income<sup>growth but where poverty was not</sup> alleviated significantly because of uneven<sup>distribution of gains from growth</sup> and of social expenditure. While recognizing<sup>the reversals in the 1980s in</sup> some countries, they hold up the example of<sup>China, Costa Rica, Cuba and Chile</sup> and Sri Lanka as examples of what a purposive<sup>social expanditure strategy can</sup> achieve. Finally, the WDR highlights Indonesia<sup>as a leading example of a</sup> country that has seen dramatic reductions in<sup>poverty, as a result of a</sup> strategy of broad based growth and infrastructure<sup>expenditure.</sup> The HDR summaries the conclusions of its country<sup>analysis in terms of</sup> six lessons: First, growth accompanied by an equitable<sup>distribution of income</sup> appears to be the most effective means of sustained<sup>human</sup> development... Second, countries can make<sup>significarit</sup> improvements in human development over long<sup>periods--even in the</sup> absence of good growth or good distribution --<sup>througlh</sup> wellstructured social expenditures by governments...<sup>Third, well-</sup> structured government social expenditures can also<sup>generate fairlv</sup>
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dramatic improvements in a relatively short period...<sup>Fourth, to</sup> maintain human development during recessions and natural disasters, targetted interventions nay be necessary...<sup>Fifth,</sup> growth is crucial for sustaining progress in human development<sup>in</sup> the long run, otherwise human progress may be disrupted. . .Sixth, despite rapid periods of GNP growth, humani development<sup>may not</sup> improve significantly if the distribution of income<sup>is bad and if</sup> social expenditures are low.

These (somewhat overlapping) conclusions find<sup>expression in the WDR also. The</sup> differences are more on emphasis than substance.<sup>Both reports agree that what</sup> is really crucial to outcome is policy. This<sup>consensus, on broad based growth.</sup> and effective social expenditures, itself takes<sup>us back to some of the studies</sup> by the World Bank and the ILO in the 1970s.

# 4.3 Public Expenditures. Targeting and Poverty Alleviation

The question of the targeting of public expenditures<sup>runs through both</sup> reports. This is important not only for ensuring<sup>that social expenditures on</sup> basic health and education reach the poor, but also<sup>for the safety nets that</sup> are advocated by both reports to ensure that those<sup>(such as the aged or the</sup> disabled) who cannot benefit from broad based growth<sup>and/or better education</sup> are supported.

Coming first to social sector expenditure, both<sup>reports are agreed that</sup> there must be concentration on basic health and<sup>education. Analysis shows</sup> that the composition of public expenditure<sup>in the health and education sectors</sup> is disproportionately skewed towards expensive<sup>curative facilities and higher</sup> education, which benefit the urban elite (see<sup>Ferroni and Kanbur, 1990). Thus</sup> there must be systematic restructuring of public<sup>expenditure towards primary</sup> health care and basic education.
HOowever, as Fer roni **ainld Kanhur** (19')0) poinit out, goi ug, be vul I( t his generatl conclusion **requ;** res more **inat** s is. The iitt **eract** i ori; **between** thedifferent di **me ns** ions of basic needs achievements cre st i II **ur Ide rirtsearchted, aiid** we lack convintcinrg quanti fication ot the impact of extra public expeniditure in one category rather than arnotheer. Ulti mately, ret;ouic(-! are0 scarce, **and** tradeoffs have to be faced. Is the marginial dol lir better Speclt on primary health care or b.asic edu(catiotn? Withlin primary health care, is t!e marginal dollar better spenlt on personnel or on drugs? Would it be better to have cost recovery (risking some loss<sup>of access) and use the money raised to</sup> ensure drug availability, rather<sup>than have no cost recovery but limited drug</sup> availability? Design issues within<sup>specific programs become important, as do</sup> the political questions raised<sup>by targeting--how will the previous</sup> beneficiaries of social expenditures<sup>react, and can their opposition be</sup> overcome?

This basic question, and others,<sup>arise also in the targeting of income</sup> transfer programs that can act<sup>as safety nets. While these programs are more</sup> prevalent in developed countries,<sup>they do make an appearance in developing</sup> countries also. The most obvious<sup>example are food subsidies, and here again</sup> the WDR and the HDR arrive at<sup>a consensu3. Thus the HDR notes,</sup> Food subsidies can do much to stabilize<sup>food prices, transfer</sup> income to the poor and maintain political<sup>and social stability...</sup> The design of food subsidies always<sup>demand care. The budgetary</sup> burden should be kept manageable.<sup>Incentives for food production</sup> should not be discouraged. Targetting<sup>should ensure that benefits</sup> reach the poor to make the programme<sup>cost-effective. To reduce</sup> costs the subsidies need to be targetted<sup>towards low-income</sup> households -- by subsidizing food<sup>mainly consumed by low-income</sup> households or sold in low-income areas
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while the WDR concludes, Most food-based policies, including general subsidies, ration schemes, and food stamp schemes, make severe administrative demands on the government. Their potential is greatest in urban areas or in more developed areas that have adequate infrastructure. In all cases, targeting is essential for cost effectiveness. Targeting can be achieved through the choice of commodity to be subsidized, by locating distribution outlets in poor neighborhoods, or by means of indicators.

Finally, both reports emphasize the role of rural public employment schemes as a vital safety net and insurance against the vagaries of agricultural production. The WDR writes approvingly of the Employment Guarantee Scheme in Maharashtra State, India, and suggests this as a possible model, to be adapted to country specific conditions.

# 4.4 Stabilization. Adjustment and Poverty

As noted in the previous section, against a general background of improvement in poverty indicators, the "adjustment decade" of the 1980s saw some reversals. Some have referred to this as a "lost decade" (echoed in the title of Pyatt, 1990). The WDR devotes an entire chapter to adjustment and poverty, while the HDR also highlights this issue in its categorization of "disrupted human development," and in a special section entitled "Policies for adjusting countries." The policies appropriate for adjusting countries do not differ in their fundamentals from those applicable more generally. The major difference is that many adjusting countries are suffering decline in government expenditures and in per capita incomes... Because of their very tight budgets, they need to focus on low-cost programmes -- to keep down the cost of across the board intervenitions -- and to rely more on targetted schemes.
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The WDR analyses the issue in much greater detail. It starts by noting that adjustment has as objectives, firstly, "reducing the demand for imports and domestic goods to stabilize economic conditions," and, secondly, 'restructuring the economy to reach a higher growth path." While in the long run restructuring, because it leads to higher growth through efficient use of labor, will have good effects on poverty, in the short run there may be problems.

The short-run effects of adjustment, however, can create difficulties, for two reasons. First, the process of economic restructuring is often sluggish and uneven. Firms and labor markets take time to adjust, and in the meantime economies can suffer higher unemployment and labor incomes may decline. Second, demand-reducing measures may be unavoidable, and these are likely to hurt the consumption of the pour and the nonpoor alike. Thie need for cuts in public spending can lead to d particularly sharp short-run conflict with two essential parts of the strategy advocated in this Report -- delivering social services and providing transfers and safety nets.

The WDR thus clearly recognizes the conflicts and tradeoffs involved. It argues that the impact on the poor can be mitigated by effective action on changing relative prices in favor of agriculture (when consistent with adjustment) and by mOdeLating declines in consumption either through an investment pause or through greater inflows of capital. An appeal is thus made to the international community to support the adjustment efforts of developing countries so that adverse effects on the poor are minimized.

# 5. Conclusinn

It would be impossible in the available space to do full justice to these two comprehensive reports on Poverty and Development. I have concentrated, rather, on the remarkable consensus that they represent, based
18 -

-

on three decades of development experience. They hold out the hope that polarization of policy analysts into "camps" is a thing of the past, and that policies for the 1990s can be built on a solid foundation of basic agreement on the fundamentals. These are that poverty alleviation requires growth, but growth is not enough. The growth must be broad based and labor intensive, and it must go hand in hand with purposive and targeted basic social expenditures. The international community must also do its share, by supporting these efforts in the 1990s through greatly increased capital flows to developing countries.
# References.

- Desai, M. (1990), "Human Development: Concepts arid Measurement," forthcoming in European Economic Review.

- Ferroni, M. and R. Kanbur (1990), "Poverty Conscious Restructuring of Public Expenditure," Social Dimensions of Adjustment Unit, Africa Region, The World Bank.

- Foster, J., J. Greer and E. Thorbecke (1984), "A Class of Decomposable Poverty Measures," Econometrica.

- Haddad, L. and R. Kanbur (1990), "How Serious Is the Neglect of IntraHousehold Inequality?," Economic Journal.

- Kanbur, R. (1987), "Measurement and Alleviation of Poverty," I.M.F. Staff PaRers.

- Pyatt, G. (1990), "Poverty: A Wasted Decade," forthcoming in European Economic Review.

- Ravallion, M. and D. van de Walle (1988), "Poverty Orderings of Food Pricing Reforms," Discussion Paper 86, Development Economics Research Centre, University of Warwick, Coventry, U.K.

- Sen, A.K. (1976), "Poverty: An Ordi 1 Approach to Measurement," Econometrica.

- van der Gaag, J. (1990), "Poverty in the Developing World: Assessment of the

- Past, Prospects for the Future," forthcoming in European Economic Review.

- U.N.D.P. (1990), Human Development Report 1990, Oxford University Press.

- World Bank (1979), Accelerated Development in Sub-Saharan Africa: An Agenda for Action, World Bank, Washington, D.C.

- Wor;d Bank (1990), World Development Report 1990: Poverty, Oxford University Press.
- 20 -

_Table 1 H.w_ much _poverty_ is _there in_ the developing countr,es' The situation in 1985

||||||||So|cial indicato|rs|
|---|---|---|---|---|---|---|---|---|---|
||E.:|remelypoor||Poor (Inclu|ding extremely|poor)|Under S||Net prlmary|
|Region|Number<br>(millions)|_Headcou.t_<br>index<br>(percent)|Poverty<br>S-P|Number<br>(millions)|Headcount<br>index<br>(percent)|Poverty<br>gap|mortality<br>(per<br>thousand)|Life<br>expectancy<br>(years)|enrollment<br>rate<br>(percent)|
|Sub-Saharan<br>Africa<br>|120|30||180|47|11|196|50|56|
|East Asia<br>|120|9|04|280|20|1|96|67|96|
|China|80|8|1|210|20|3|58|69|93|
|South Asia<br>|300|29|3|520|5S|iO|172|56|74|
|India|250|33|4|420|55|12|299|57|81|
|Eastern Europe<br>|3|4|_0.2_|6|8|0 S|23|71|90|
|Middle East and North<br>Africa<br>|40|21|1|60|31|2|148|61|75|
|Latin America and the||||||||||
|Caribbean<br>|50|12|1|70|19|1|75|66|92|
|All developing<br>countries|631|18|1|1.116|33|3|121|62|83|

Note The poverty line in 1985 PPP dollars is $275 capita per year for the extremely poor and S370 per capita per year for the poor The headcount index is defined as the percentage of the population below the poverty **line.** The 95 percent confidence intervals around the point estimates for the head.ount indlces are Sub-Saharan Africa. 19. 76; East Asia. 21. 22; South AsLa. 50. 53; Eastern Europe. 7, 10: Middle East and North Africa. 13. 52; Latin America and the Caribbean, 14. 30; and all developing countries. 28. 39.

The poverty gap is defined as the aggregate income shortfall of the poor as a percentage of aggregate consumption Under 5 mortality rates **are** for 1980-85. except for China and South Asia. where the period is 1975-80.

So,irce Reproduced from World Development Report 1990
- 21 -

Table 2 Life expectancy, 1960-87

|_Annual rate_|||
|---|---|---|
|_ofreduction_<br>_in slhortfall (%)_<br>_1960-87_|_Life_<br>__1987_|_expectancy_<br>_(years)_|
|_Fastest progress_<br>_Highest_|_life expeccancy_||
|liong Kong<br>4.99|Hong Kong|76|
|Costa Rica<br>4.55|Costa Rica|75|
|China<br>4.33|Cuba|74|
|United Arab Emirates<br>4.06|Jamaica|74|
|Jamaica<br>4.00|Singapore|73|
|Cuba<br>3.99|Kuwait|73|
|Kuwait<br>3.93|Panama|72|
|Chile<br>3.70|Chile|72|
|Malaysia<br>3.48|Uruguay|71|
|Korea, Rep.<br>3.43|United Arab Emirates|71|
|_Slowest progress, among countries_|||
|_with a life expectancy of less_|_Lowest life expectancy_||
|_than 60 years_|Sierra Leone|42|
|Ethiopia<br>0.52|Ethiopia|42|
|Paraguay<br>0.78|Afghanistan|42|
|Rwanda<br>0.79|Guinea|43|
|Kampuchea, Dem.<br>0.80|Mali|45|
|Afghanistan<br>0.81|Angola|45|
|Sierra Leone<br>0.84|Niger|45|
|Burundi<br>0.85|Somalia|46|
|Guinea<br>0.88|Central African Rep.|46|
|Central African Rep.<br>0.90|Chad|46|
|Mali<br>0.91|||
||1960|1987|
|South<br>2.33|South<br>46|62|
|North<br>2.22|North<br>69|74|
||South as%of North 67|84|

Source: Repro& iced from Human Development Report
- 22 -

Table 3 Access to water, 1975-86

|_Annual rate_<br>_of reduction_<br>_in shortfall(%)_<br>_1975-86_||_Percentage_<br>_with access_<br>_to waver_<br>_1986_|
|---|---|---|
|_Fastest progress_|_Most access_||
|Saudia Arabia<br>20.22|Mauritius|100<br>|
|Chile<br>13.61|Singapore|100<br>|
|Colombia<br>12.78|Trinidad and Tobago|<br>98<br>|
|Libyan Arab Jamahiriya 12.48|Saudi Arabia|97<br>|
|Malaysia<br>12.09|Libyan Arab Jamahiri<br>|ya<br>97<br>|
|Jamaica<br>10.76|Jamaica|96<br>|
|Trinidad and Tobago<br>12.76|Jordan<br>|96<br>|
|Costa Rica<br>9.80|Chile|94<br>|
|Iraq<br>8.37|Lebanon|93<br>|
|Burkina Faso<br>7.19|Colombia|92|
|_Slowest progress_|_Least access_||
|Rwanda<br>-4.14|Kampuchea, Dem.<br>|3<br>|
|Algeria<br>-3.05|Ethiopia<br>|16<br>|
|Argentina<br>-2.37|Mozambique|16<br>|
|Congo<br>-2.23|Mali|17<br>|
|Uganda<br>-1.91|Guinea|19<br>|
|Bangladesh<br>-1.88|Cote d'Ivoire|19<br>|
|Somalia<br>-0.57|Uganda|20<br>|
|El Salvador<br>-0.19|Afghanistan|21<br>|
|Guatemala<br>-0.15|Sudan|21<br>|
|Nicaragua<br>0.52|Congo|21|
|||1975<br>1986|
|South<br>3.29|South|35<br>55|
|North<br>..|North<br>South as % of North|..<br> <br>..|

Source: Reproduced from Human Development<sup>Report</sup>
- 23

Table 4 Infant mortality rate, 1960-88

|_Annual rate_<br>_of reduction_<br>_in shortfall (8_<br>_1960-88_|_)_<br>_(per_|_In_<br>_mortal_<br>_1,000_|_fant_<br>_ity rate_<br>_live births)_<br>_1988_|
|---|---|---|---|
|_Fastest progress_|_Lowest infant mortality_|_rate_||
|Chile<br>6.20|Hong Kong||8|
|United Arab Emirates<br>6.09|Singapore||9|
|Hong Kong<br>5.91|Cuba||15|
|Oman<br>5.81|Costa Rica||18|
|China<br>5.48|Jamaica||18|
|Kuwait<br>5.37|Kuwait||19|
|Costa Rica<br>5.35|Chile||19|
|Cuba<br>4.94|Trinidad and Tobago||20|
|Singapore<br>4.83|Mauritius||22|
|Korea, Rep.<br>4.42|Paname||23|
|_Slowest progress_|_Highest mortality rate_|||
|Mozambique<br>0.35|Mozambique||172|
|Ethiopia<br>0.48|Angola||172|
|Kampuchea, Dem.<br>0.50|Afghanistan||171|
|Rwanda<br>0.67|Mali||168|
|Angola<br>0.68|Sierra Leone||153|
|Mali<br>0.79|Ethiopia||153|
|Afghanistan<br>0.81|Malawi||149|
|Uganda<br>0.94|Guinea||146|
|Bangladesh<br>0.99|Burkina Faso||137|
|Somalia<br>1.03|Niger||134|
|||1960|1988|
|South<br>2.18|South|150|<br>81|
|North<br>3.08|Nort;.|36|<br>15|
||South as % of North<br>(Survival)|88|<br>93|

Source: Reproduced from Human Development ReDort
- 24 -

Table 5 Adult literacy ra_e, 1970-85

|_Annual rate_<br>_of reduction_<br>_in shortfall(M)_<br>_1970-85_||_Adu.'t_<br>_literacy rate_<br>_(%)_<br>_1985_|
|---|---|---|
|_Fastest progress_|_Highest literacy rate_||
|Iraq<br>11.26|Chile|98|
|Chile<br>10.74|Cuba|96|
|Lao, PDR<br>9.14|Trinidad and Tobago|96|
|Nicaragua<br>8.09|Argentina|96|
|Cuba<br>7.79|Uruguay|95|
|Mexico<br>6.29|Costa Rica|93|
|Thailand<br>5.48|Korea, Rep.|93|
|Jordan<br>4.86|Thailand|91|
|-otswana<br>4.70|Mexico|90|
|Trinidad and Tobago<br>4.52|Mongolia|90|
|_Slowest progress, among countries_|_Lowest literacy rate_||
|_literacy rate of less than 50_|Somalia|12|
|Burkina Faso<br>0.42|Burkina Faso|14|
|Sudan<br>0.54|Niger|14|
|Somalia<br>0.67|Mali|17|
|Mali<br>0.73|Mauritania|17|
|Niger<br>0.73|Sudan|23|
|Bangladesh<br>0.84|Afghanistan|24|
|Pakistan<br>0.84|Yemen|25|
|Benin<br>0.94|Bhutan|25|
|India<br>0.97|Nepal|26|
|Nepal<br>1.07||1970 1985|
|South<br>2.33|South|43<br>60|
|North<br>..|North|.<br>.|
||South as % of North|..|

Source: Reproduced from Human Development Report
25 <!-- Start of picture text -->
-<br><!-- End of picture text -->

T. t 6 Rural and urbani poverty in thie 1980s

||_Rural_<br>_population_<br>_as_<br>_percentage_|_Rural_<br>_poor_<br>_as_<br>_percentage_|_Infan_<br>_mortal_<br>_(per th_<br>_live bi_|_t_<br>_ity_<br>_ousand_<br>_rrhs)_|_Acces_<br>_safe_<br>_(percenca_<br>_popul_|_sto_<br>_water_<br>_ge_<br>_of_<br>_ation)_|
|---|---|---|---|---|---|---|
|_ionaidcotllriry_|_of_<br>_total_|_of_<br>_total_|_Rural_|_Urbao_|_Rural_|_Urban_|
|....:)-_S.3h113raiiAlrica_|||||||
|.U)ed'Ivoire|57|86|121|70|10|30|
||65|80|87|67|39|93|
||80|96|59|57|21|61|
|,Ais__.I_|||||||
|india|_77_|79|105|57|50|76|
|.ndoieesia|73|91|74|57|36|43|
|"..alavsia|62|80|||76|96|
|Philippines|60|67|55|42|54|49|
|<br>i!,ailand|70|80|43|28|66|56|
|_aJrn_<br>_A,!Pri_<br>_ca_|||||||
|ku.itemala|59|66|85|65|26|89|
||"xico 3|1<br>37|79|29|S1|79|
|Pa'.nama|50|59|28|22|63|100|
|i"ru|44|52|101|54|17|73|
|'e>nezuela|15|20|||80|80|

So:.arce: Reproduced from World Development 1990
PEB[ Working Paper Series

||TIL.<br>|~~~~~Author||Contact<br>tof paper|
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|WPS598|Africa Region Population Projections<br>1990-91 Edition|: Patience W. Stephens<br>Eduard Bos<br>My T. Vu<br>Rodolfo A. Bulatao|February 1991|0. Nadora<br>31091|
|WPS599|Asia Region Population Projections:<br>1990-91 Edition|Eduard Bos<br>Patience W. Stephens<br>My T. Vu<br>Rodolfo A. Bulatao|February 1991|0. Nadora<br>31091|
|WPS600|Latin America and the Caribbean<br>Region Population Projections:<br>1990-91Edition|My T. Vu<br>Eduard Bos<br>Patience W. Stephens<br>Rodolfo A. Bulatao|February 1991|0. Nadora<br>31091|
|WPS601|Europe, Middle East, and North<br>Africa Region Population Projections<br>1990-91 Edition|Eduard Bos<br>: Patience W. Stephens<br>My T. Vu<br>Rodolfo A. Bulatac,|February 1991|0. Nadora<br>31091|
|WPS602|Firm Output Adjustmen**t**o Trade<br>Liberalization: Theory with<br>Application to the Moroccan<br>Experience|Mark A. Dutz|February 1991|S. Fallon<br>38009|
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|WPSG0/|Abolishing Green Rates: The Effects<br>on Cereals, Sugar, and Oilseeds<br>In West Germany|Donald F Larsor<br>Simon Gl.ice<br>Brent Borrell<br>Merlinda ingco<br>Jonathan Coleman|Malch 1991|D Gustafson<br>337,14|
|WPS608|Cross Country Studies of Growth<br>and Policy Methodological,<br>Conceptual. and Statistical Problems|Ross Levine<br>David Renelt<br>|March 1991|CECMG<br>391 75|
|WPS609|A Sensitivity Analysis of Cross-<br>Country Growth Regressions|Ross Levine<br>David Renelt|March 1991|CLCMG<br>39175|
|WPS610|Can Preslhrpment<br>Inspection Offset<br>Noncompetitive Pricing of Developin<br>Countries' Imports? The Evidence<br>from Madagascar|Alexander J. Yeats<br>g|March 1991|J. Jacobson<br>33710|
|WPS611|Tariff-based Commodity Price<br>Stabilization Schemes in Venezuela|Jonathan R. Coleman<br>Donald F. Larson|March 1991|S. Lipscomb<br>33718|
|WPS612|Education and Productivity in<br>Developing Countries: An Aggregate<br>Production Function Approach|Lawrence J. Lau<br>Dean T. Jamison<br>Frederic F. Louat|March 1991|WDR Office<br>31393|
|WPS613|Price-Wage Dynamics and the<br>Transmission of Inflation in Socialist<br>Economies: Empirical Models for<br>Hungary and Poland|Simon Commander<br>Fabrizio Coricelli|March 1991|0. Del Cid<br>39050|
|WPS614|Accountability in Public Services:<br>Exit, Voice, and Capture|Samuel Paul|March 1991|E. Madrona<br>37496|
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|WPS616|Optimal Nonlinear Income Taxation<br>for the Alleviation of Poverty|Ravi Kanbur<br>Michael Keen<br>Matti Tuomala|March 1991|J. Sweeney<br>31021|
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|WPS618|Poverty and Development: The<br>_Human Development Report_and the<br>_World Development Report,_1990|Ravr Kanbur|March 1991|J. Sweeney<br>31021|