Power vacuum
What the World Bank says is perhaps less interesting than what it does not say, writes Galal Amin*
A distinguished visitor from the World Bank recently spent a few days in Egypt and gave a series of lectures under the title "A New Development Strategy: Aiming to Reduce Poverty".
The visitor was no less than Nicholas Stern, chief economist at the bank and senior vice- president. For one of the lectures -- which was given at the Faculty of Economics, Cairo University -- I was invited, along with Said El-Naggar, to offer a commentary after it was delivered. El-Naggar and I were provided in advance with the text of a version of the lecture entitled "Economic Reform, Innovation and Participation: A New Development Strategy" that Stern had given at the Ludwig Maximillian University in Munich two months before. Soon after, we were given the version prepared for Cairo, in essence the same as the Munich one, but with the addition of a few pages on the economic situation in Egypt.
Reading one version after another, then hearing the lecture delivered to a large audience, comprising in the main of Egyptian economists, I was struck by the extent to which it consisted of little more than the messages that World Bank and IMF literature continually reiterate. True to form, the messages were expressed in such careful language that even though one understands their real aims and disagrees with them, the formulation of the ideas makes it very difficult to disagree with them point by point.
For example, how can one disagree with Stern when he says the two pillars of a successful development strategy are the "investment climate" and "individual empowerment"? Or when he says "the role of the state in economic development is not that of a substitute for the market, but a critical complement to it?" Even when he says "the driving force for sustained economic growth is the private sector" or "trade is a crucial engine of growth", it is difficult to point out where one disagrees, however unsatisfied one may be with the performance of the private sector in a particular country or with a country's international economic relations.
It is not only that phrases like "driving force" and "crucial engine" are loose and imprecise, but it is unclear whether the two statements are meant to be taken as a description of what the world is really like, however unsatisfactory it may be, or as a prescription of what the world should be like, which may in turn require a smaller role for the private sector and less reliance on foreign trade.
I was also a little surprised to read the following sentence in his paper: "Reform programmes forced from outside, with weak social commitment, are likely to fail." I was taken aback not because I doubt the statement, but because I have always thought that the opposite may be even more true, namely, however strong societal commitment may be, reform programmes that are opposed abroad are even more likely to fail. It is harder for me to find an example that supports Stern's statement, where reform programmes failed because of the lack of social commitment within the country, than to find an example where they failed because they were opposed abroad. Egyptian history alone provides several instances of the latter instance.
I felt more uncomfortable when I found Stern including, as one of the six lessons to be learned from development experiences, that "the most powerful force for the reduction of income poverty is economic growth," on the grounds that "countries that have reduced income poverty the most effectively are those that have grown the fastest; and poverty has expanded most in countries that have stagnated or fallen back economically."
Not, of course, that I deny the importance of economic growth. I only worry that such statements, of which there is indeed a great abundance in World Bank and IMF literature, could easily be taken to imply that all that is needed to reduce poverty is a higher rate of growth. This is certainly misguided advice for several reasons.
For one thing, what is called "income poverty", which is obviously that aspect of poverty most dependent on income growth, is not the only form of poverty. Second, one can do a great deal to reduce all forms of poverty, including income poverty, without raising the rate of growth. To give one example, a country can use TV programmes quite effectively to reduce illiteracy rates -- instead of encouraging the consumption of useless products -- without having to increase the hours of TV transmission. It would actually be better for development to reduce those hours -- with or without literacy programmes. Third, growth rates can rise without reducing poverty, as they have when associated with a rise in unemployment. Fourth, both growth and a reduction of poverty may be the result of a third phenomenon that is not part of an economic policy aiming at either raising growth rates or the reduction of poverty. I am thinking in particular of Egyptian labour migration to the Gulf in great numbers -- mainly by poorer people -- during the 1970s and early 1980s. This massive migration contributed to both: raising the rate of growth and a great reduction of poverty, income poverty and otherwise, but this hardly justifies drawing the conclusion that "growth is the best way to reduce poverty". What is decisive here is not merely growth, but rather the way that growth came about. One would more willingly accept the statement that migration is always good for poverty reduction than the statement that growth is always good for such a reduction.
None of these considerations is inconsistent with the existence of a strong correlation between growth and the reduction of income poverty or with the fact mentioned by Stern that poverty has expanded most in countries where economic growth has declined. It is almost tautological to say that you need a measure of income growth to reduce income poverty, since it is an exceptionally difficult task to do something to raise the income of the poor under conditions of stagnation. But who, in any case, is advocating stagnation? One is only refusing to be obsessed with raising the rate of growth, being quite content with a modest growth rate if it is associated with a greater improvement in the standard of living of the poor.
There is much more to say, not about what Stern actually said, but about what he did not say. What I have in mind is the almost complete absence of any reference to the problem of distribution of power, both within the country and between countries, and the impact of this distribution of power on the continuation of poverty. It may not be at all far from the truth to suggest that the continuation of poverty is largely the result of the fact that those who have the power to reduce it are not really sufficiently interested in reducing it, while those who are interested in reducing poverty do not have the power to do so.
Stern does touch, though very lightly, on some aspects which are related to the problem of power, for instance when he mentions the importance of "participation", and that a country should "own its development agenda", as well as mentioning, though without dwelling on the matter, the great damage brought about by corruption. Indeed, in his Egypt lecture, Stern came quite close to recognising the problem of the distribution of power on the international level. In a section on foreign aid he says: "Too often, aid programmes have only mitigated the problem of poverty without helping to find long-term solutions."
In the version of his paper which he prepared for Munich -- but not in the Cairo version -- Stern adds to this: "In the Cold War era, we saw even worse, the sustaining of regimes, such as Mobutu's Zaire, which were deeply damaging to their country and people." Such a reference to foreign aid being given to sustain regimes like that of Mobutu's appears to be a new departure in World Bank literature, but one would have wished it to be more clearly spelt out and elaborated. One may also note that such uses of foreign aid have by no means stopped with the end of the Cold War. It is also interesting to speculate about why the reference to Mobutu's Zaire should be regarded as appropriate in Munich but inappropriate in Cairo.
In his specific references to Egypt, Stern rightly points out the relationship between bureaucratic complications in the process required for a business to enter the market and the level of corruption. One should not imagine, however, that the only or the most important type of corruption one should worry about in a less developed country, is that of a foreign or a local investor having to bribe an official to get his business started or his contract enforced, both leading to a rise in the cost of doing business. If this were the case, one might indeed be right in thinking that corruption necessarily grows with the increase in the number of required procedures.
I recall that in my childhood we used to define corruption differently. An act of corruption, we used to think, does not have to lead to an increase in costs, it may merely lead to a deviation from moral standards or to drive someone to act in a socially undesirable manner. Such a definition of corruption would certainly include giving or accepting bribes to break the law, which may increase parallel to a growth in bureaucracy, but it would also include many other things that may be more likely to occur in the private sector. Powerful multinational corporations, for instance, may indeed be much more capable of committing those other types of corruption than a humble government official. One need only recall the power of such corporations in launching advertising campaigns and their greater ability to manipulate the press, public opinion as well as their own and other governments.
The impact of these forms of corruption is not only a matter of morality, but has the potential to harm economic development. To give only one example, much of a developing country's resources may be wasted by being pushed into an unnecessary war from which only the private manufacturers of arms could benefit, while "corrupting" people's minds into thinking that the war is necessary. What kind of economic philosophy is it that drives one to ignore such waste and emphasise instead the waste involved in the large number of procedures required to regulate the entry of a new business? Such emphasis on bureaucratic obstacles to business may indeed be understandable if it comes from private investors, whether foreign or local, but it is rather pitiful to find such a narrow concept of corruption adopted by a bank dedicated to "reconstruction" and "development".
* The writer is professor of economics at the American University in Cairo.
