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A Short History of the Idea of Ending Poverty

There are times and places when announcing a goal for ending poverty is clearly little more than a symbol of good intentions. It tells poor citizens, and those who care about them, that the government (or international agency) purports to be on their side, even if nothing much is done to ease poverty. This can be called a “symbolic goal.”

At times there have also been more substantive aims. Advocates against poverty have variously seen it as: the most morally objectionable aspect of inequality, stemming mainly from economic and political forces rather than bad choices by poor people; a key material constraint on human freedom and social inclusion; a risk of deprivation, whether currently poor or not; and a cost to other valued goals, including economic efficiency, human development and environmental sustainability. The actions that might be motivated in response range from specific policies to efforts to help poor people organize collectively for things that matter to them. Thus, goal setting is seen as an incentive mechanism for attaining better outcomes. We can call this the “motivating goal.”

My new paper, “On the Origins of the Idea of Ending Poverty,” provides a short history of the idea of ending poverty as a motivational goal, and tries to draw some lessons from that history. (This blog post is little more than a summary to hopefully stimulate reading the paper.)

Ending poverty is a modern idea, little evident in pre-modern times. The balance of factors influencing the motivating goal changes with economic development, and varies from one place to another. Politically, the perceived benefits depend on the weight given to poor people, which depends in turn on their voting power and their capacity to organize. The cost of ending poverty through redistribution depends (in part) on how much poverty there is, relative to the resources thought to be available. It can be no surprise that calls for ending poverty have been heard more often when a society’s total resources make it more feasible to do so.

History confirms the intuition that “ending poverty” has little political traction as a near-term goal when mass chronic poverty is seen to be the norm and poor citizens have little political influence. When those conditions no longer hold, a political goal of “ending poverty” can motivate public action to end poverty. The late 18th century saw the intellectual germ of the idea, but it did not get far in economics or policy making until much more recently. Over the 19th century, poverty rates fell substantially in Western Europe and North America, and we started to see mainstream advocates of ending chronic poverty, and policies for doing so.

While the history of the idea of ending poverty confirms that political constraints matter, it also suggest that they are not deterministic. Social and economic thought, and data, have often played a role. One could not talk seriously about ending poverty until it was agreed that less poverty was a good thing, and here Adam Smith was influential in overturning the prior mercantilist thinking that saw poverty as essential for wealth generation. Descriptions (both qualitative and quantitative) of the lives of poor people have also had much influence, often shaming the non-poor into supporting actions to help poor people. The effort to document poverty, especially those of the late 19th century, also fostered the development of modern empirical social science, including economics.

In the wake of high inequality and the critiques and rising influence of the socialist and labor movements, and the heightened public awareness of poverty, the period around the late 19th century saw the beginning of a concerted effort to reduce poverty and inequality in much of today’s rich world. This was echoed in economic thinking; the most famous economist of the time, Alfred Marshall was asking in 1890, “May we not outgrow the belief that poverty is necessary?” Welfare states started to emerge, alongside progressive income taxation and minimum wage laws in the early part of the 20th century.

The poverty focus gained political momentum in the wake of the Great Depression. Famously, in America, President Franklin D. Roosevelt’s new social programs—bundled under the label “New Deal”—included the Social Security Act, which introduced federal pensions for the elderly, transfers for families with dependent children, and unemployment benefits.  

There was new interest globally in the idea of ending poverty after the Second World War, and an explosion of interest and effort from around 1960, with policy responses in many countries, including America, notable under the Johnson administration’s War on Poverty. The debates about poverty in America in the 1960s and ‘70s both reflected past debates, but also anticipated issues that would be prominent going forward, especially about the relative importance of economic growth versus redistribution.

In the post-Colonial period, the newly independent states—what we came to call the “developing world”—were keen to see an end to poverty. Some of this was clearly little more than symbolic goal setting. Progress was slow for most countries. An acceleration in progress against poverty emerged around the year 2000.

The U.N.’s first Millennium Development Goal (MDG1) of halving the 1990 poverty rate by 2015 was achieved ahead of time. The fact that MDG1 was achieved has been taken by some observers to imply that it was hugely motivational, though some of the claims made for the power of MDG1 have clearly been exaggerated. One might equally well argue that MDG1 was not ambitious enough. More worryingly, however, is that halving the 1990 poverty rate was attained with only modest gains to the poorest.

The U.N.’s Sustainable Development Goals came to include ending extreme poverty by 2030. This is more ambitious than MDG1, and more politically challenging. SDG1 focuses attention on the poorest 10% globally, although it also highlights regional priorities; 40% of the population of Sub-Saharan Africa still live below that line. Importantly, SDG1 cannot be attained if the poorest are left behind, as we saw in the MDG1 period.

Attaining SDG1 will clearly not be the “end of poverty” (as the U.N.’s rousing labelling of the goal suggests). Many of those who are no longer poor by the global $1.90 standard will still be poor by the (defensible) standards of the country they live in. Nonetheless, getting everyone above a global line that 10% do not currently reach, and 40% did not attain 40 years ago, would be an achievement.

The path to attaining SDG1 calls for some combination of economic growth, especially when fueled by pro-poor technical progress, and pro-poor redistribution. The political context clearly matters to the relative importance of growth versus redistribution, but so does the level of economic development. When there is a lot of poverty—such that redistribution is politically and economically challenging, if not impossible—economic growth may be all that we can hope for as a politically feasible response. There have been cases of rising poverty with economic growth, but they are rare over the longer term. The Catch-22, however, is that poverty typically makes it harder to grow an economy.

History suggests that the dynamics of poverty reduction can sometimes work synergistically with the political economy to accelerate progress; the heavy lifting is done by growth, but then redistribution starts to take over. This virtuous cycle has been evident at times in the history, but it can come unstuck, especially when the poorest are harder to reach, and one can point to arguments and evidence as to why that might be so. It is undeniably good news that fewer people live near the floor to living standards, but it is sobering that the floor has not risen more.

SDG1 will probably not be attained with a return to “business as usual” after the COVID-19 pandemic. Restoring economic growth in poor countries will almost certainly be required. There is scope for more effective redistributive policies, and even efficiency-promoting redistributions, though there are continuing challenges in assuring that these policies reach the poorest. There is also a more widespread recognition that the economic growth that has helped so much to reduce aggregate poverty measures has also come with environmental costs, including global warming. Huge challenges lie ahead in how to manage the likely tradeoffs between the “social” and “environmental” SDGs.

Rusty Radiator Award 2015

 

The Rusty Radiator Awards for 2015 have been announced, in time for Christmas.  These awards have been going for a few years. Not heard about them? From their website: “The Rusty Radiator Award goes to the fundraising video with the worst use of stereotypes. This kind of portrayal is not only unfair to the persons portrayed in the campaign, but also hinders long-term development and the fight against poverty.”

The “winner” this year is Band Aid 30. Apparently this was based on votes. The jury’s report: “Band Aid 30 contributed to the spread of misinformation and stereotypes of Africa as a country filled with misery and diseases. The Ebola outbreak occurred in three countries in West Africa. We resent the idea of a bunch of celebrities joining forces together, giving the impression that they are saving Africa from Ebola. Furthermore, they just make it so much more about themselves! Highly offensive and awful in every way possible. Celebrities cannot stop Ebola.”

Really? In principle I agree that stereotypes about poverty should be avoided. While the aid business has been somewhat prone to them, they do not help the cause of better development knowledge, including more and better aid. But is this particular award justified? The scene at the beginning of the Band Aid 30 clip a poor emaciated Ebola victim in her blood-soaked bed being carried away by health workers in their protective suits is shocking, especially when followed by a slew of cameras taking shots of the celebrity singers arriving for the recording of the clip. Not exactly good taste. But this is not one of those videos of well-healed celebrity musicians handing out food to poor African children, which irk me too (as in the clip for another Rust Radiator award winner). Nor did I get the impression that the Band Aid celebrities were claiming that they were saving Africa from Ebola. They might fairly be accused of bad taste, but I don’t see how they are promoting stereotypes that hinder long-term development and the fight against poverty.

There is a counter-argument. The Ebola crisis awakened many in the rich world to the appalling state of the health systems in West Africa (as in much of the world) AND that this longstanding development problem had spillover effects globally. This needs to be better known, and the Band Aid clip will help. The world is poorly equipped for handling pandemics, and some shock treatments like this may well help mobilize collective action to address the root causes. Showing such a scene at the beginning of the celebrity’s song is a little off-putting, but I think the Rusty Radiator Award is exaggerated in this case, and there is a counter-argument on positive benefits. Excess sensitivity does not help either dear Radiator folk.

In marked contrast, the winner of the Golden Radiator Award is Zalissa’s Choice from Burkina Faso. (From the website: “The Golden Radiator Award goes to the fundraising video using creativity and creating engagement. This kind of charity campaign is stepping outside of the common way with using stereotypes.”) Zalissa’s Choice is an uplifting choice for this award! I recommend it.

Martin Ravallion

The World Bank: Why it is Still Needed and Why it Still Disappoints

The decade or two after WW2 saw many of the world’s poorest countries gain their independence from Colonial rule, and they were hoping to rapidly become less poor. Economics taught policy makers in those countries that a higher investment rate is crucial to assuring faster economic growth. Being a poor country makes it harder to finance the required investments from domestic savings. Yet rich countries should have ample savings available that might be profitably diverted to this task. In an ideal world, global capital markets could be expected to bridge the gap. But 70 years ago those markets were thin and/or not trusted as a source of finance.

In response, the United Nations Monetary and Financial Conference, held at Bretton Woods in 1944, created the International Bank for Reconstruction and Development (IBRD)—a core component of what came to be known as the World Bank. (The International Monetary Fund was created at the same time.) The essential idea was that the IBRD would borrow money on global markets to lend to developing countries. The Bank’s AAA credit rating (stemming from conservative lending policies relative to its capital) allowed it to lend on favorable terms. An aid-facility (with a large grant component), the International Development Association (IDA), was added in 1960.

Much has changed in the 70 years since the famous Bretton Woods conference. World Bank lending (IBRD+IDA) now represents only about 5% of the aggregate private capital flows to developing countries.  In the last 10 years or so there have been prominent calls for radically reforming, or even closing, the institution on the grounds that international capital markets have developed greatly over those 70 years.  It is also claimed by some that the Bank’s efforts are wasted due to poor governance in developing countries.

Does the Bank still have an important role? If so, does it fulfill that role, and if not, how might it do better? In a new paper I argue that the Bank’s development role today overlaps only partially with its original role, as conceived at the Bretton Woods Conference 70 years ago (Ravallion, 2015). Its role today is complementary to (rather than competing with) the private financial sector, other development banks, and academia. Knowledge-generation is central to that role. Development knowledge has properties of a public good, which the Bank can generate in the process of actually doing development on the ground.

Threats to the Bank’s effectiveness: There is still much appeal to the bundling of knowledge with lending that has been the distinctive feature of the Bank’s operations. But there are a number of threats to the efficacy of this model.

There have been some longstanding concerns that the Bank’s “lending culture” rewards operational staff for the volume of their lending, with only weak incentives for assuring that knowledge is both applied and generated in the lending operations. The pressure to lend influences the Bank’s ability to deliver objective policy advice to client countries, even when it is not welcome politically. Too often the Bank’s “country strategy” essentially mirrors that of the government, which may or may not serve broader long-term development goals.

Another threat is the perception that the Bank’s most powerful shareholders have excessive influence on its operations and policy advice. The U.S. has long been identified in this role, though some other countries have also been keen to have their say. Some critics are concerned (rightly or wrongly) about conflicts of interest when the Bank gives advice to developing countries.

These are threats to the Bank’s effectiveness as a knowledge leader in both the public and private sectors. All parties—both clients in developing countries and private investors—must have confidence that the institution is not pushing lending for its own sake or beholden to a few powerful owners. Only then can the Bank be accepted as the source of the objective policy advice and information that is needed.

Recent organizational changes have made some effort to put knowledge in the driver’s seat by organizing the Bank around a set of sectorally-defined “practices.” In the end the organogram has changed rather little. However, the threats to the Bank’s effectiveness are unlikely to be solved by changing the Bank’s organogram. The incentives of managers and staff also need to change, to assure a better alignment with development goals. (See Ravallion, 20105, for some examples of specific proposals for reform from past Bank staff.)

Knowledge Bank? There has been much rhetoric about the “Knowledge Bank” over the last 15 years, but I am not alone in believing that the reality has fallen short of the rhetoric. There is a chronic and growing underinvestment in the kind of rigorous research that is needed to identify and address pressing development issues—both the constraints on rapid poverty reduction at country level and the global public bads that threaten us collectively (ranging from climate change to pandemics). Research has been under-valued and under-funded.

Granted we still see some high-quality research at the Bank, though not always on high-priority topics. We see more ex-post evaluations today than 20 years ago. However, much does not get evaluated, and what gets evaluated is a non-random subset of all projects, casting doubt on what we learn about the whole. Too often, methodological preferences drive what gets evaluated rather than the knowledge gaps facing policy makers. Alongside this, we see fewer and less rigorous ex ante evaluations, which make explicit a project’s economic rationale—why the project is expected to have a social value justifying its cost.

Three changes are needed: Echoing the observations of others within and outside the Bank, three things need to change:

  • First, the Bank needs to be more ambitious in identifying and addressing the most pressing knowledge gaps we face today. Policy advocacy must give way to well-informed and objective country-specific analysis. This can be accommodated within the Bank’s traditional country-lending model.
  • Second, the Bank’s lending operations must be driven by knowledge of the binding constraints on poverty reduction in specific country contexts and its analytic capabilities must be brought more systematically into its operations from the outset. The Bank’s knowledge generation efforts must inform the nature of its lending and be informed by that lending—rather than simply serving lending when called upon. This requires quite fundamental changes in staff and managerial incentives and resource allocation within the current structure.
  • Third, the Bank’s present country-based model needs to be supplemented by a model with greater capacity for supporting the provision of global public goods. If one was to sit down today to design a mechanism to support the cross-country coordination needed to address shared threats it is unlikely that one would come up with the Bank’s current country-lending model. A new model, or possibly a new institution, is called for.

Further reading: Martin Ravallion, “The World Bank: Why it is Still Needed and Why it Still Disappoints,” Journal of Economic Perspectives, Winter 2016.

Martin Ravallion

(This was first posted on the World Bank’s Let’s Talk Development blog.)

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