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Thursday, 14 September, 2000, 17:53 GMT 18:53 UK
Attacking world poverty
World income inequality
By BBC News Online's Steve Schifferes

The World Bank has called for radical new measures to tackle world poverty after admitting that its approach has failed to reduce the numbers of the world's poor over the past decade.

Under the new approach, endorsed in this year's World Development Report, the Bank has backed "empowerment of the poor" as one of its key goals for the first time.

It is given equal status with the need to promote economic growth and opportunity, the World Bank's traditional focus, and the need to provide security for poor people through government and voluntary programmes.

But some observers doubt whether the Bank will be able to effect change in political regimes in a world where the flows of private capital are much more important than the flow of foreign aid.

Increasing inequality

World inequality has increased sharply over the past decades, despite all the UN's pleas to reduce poverty around the world.

Indeed, one UN agency, the UN Development Programme, says that global inequality is worse now than ever before.

In 1950 the gap between the average income in the richest and poorest country was about 35 to one, while by 1992 it had widened to 72 to one.

And per capita incomes actually fell in 50 countries in the last decade, most of them the poorest countries of sub-Saharan Africa.

In 1995, at a UN conference on social change, countries pledged to halve world poverty by 2015.

But famine, disease, civil war and a failure of aid programmes has left the number in absolute poverty at 1.2 billion people in 1998, the same as in 1990.

In sub-Saharan Africa, half the population is living in absolute poverty.

Its not all bad news. The number of underweight children fell from 37% to 27%, and more people had access to clean water.

But progress has been patchy and slow.

And the plethora of agencies and affiliated organisations that deal with poverty - from the World Bank to the IMF to the World Trade Organisation - have had very different aims and objectives.

Indeed greater co-ordination is now required, if the Bank's plan for a comprehensive poverty reduction and growth strategy is to be adopted in individual countries.

The focus is increasingly on country's own efforts to alleviate poverty, with the World Bank - the lead anti-poverty organisation - providing guidance and advice, and at times loans for specific programmes.

But that may require the International Monetary Fund - which operates programmes of short-term loans to aid countries in immediate financial difficulties - to change some of the conditions of its lending, which have in the past endorsed financial orthodoxy.

Progress in China

There is no doubt that the countries which have moved to embrace the world trading system that have had most success in reducing poverty.

China, which opened its economy to the West in 1978, has shown the biggest drop in absolute poverty of any region.

Inward investment has boosted growth
Inward investment has boosted growth
After two decades in which the Chinese economy has grown at rates approaching 10% each year, the number of people earning below one dollar a day fell from 260 million to 100 million. Using the Chinese government's figures, the number in poverty was down to 42 million - and the government has pledged to eliminate that figure entirely in the next few years.

Although China has benefited from aid and advice from the World Bank, it was rural economic reform and the growth of the export sector that have been the main factors in poverty reduction.

However, there has been increased inequality in Chinese cities, and the prospect of further problems as many workers in state factories face layoffs due to competition from abroad.

Trade barriers

China's long struggle to join the World Trade Organisation, ensuring its right to export freely to the rest of the world, shows the resistance to change when real economic interests are involved.

Yet trade is far more vital than aid in transforming the growth prospects of developing countries.

Countries dependent on agriculture have suffered
Countries dependent on agriculture have suffered
It has taken 30 years, for example, for rich countries to agree to open their markets to textile and clothing exports from the Third World - and that agreement will not be fully implemented until 2004.

Although the WTO is part of the UN system, it has not focused on a strategy that would benefit developing countries most - a problem that contributed to the breakdown of the world trade talks in Seattle.

Internal inequalities

Those countries which have managed to increase their integration with the world economy - especially from East Asia - have shown dramatic increases in their per capita wealth and poverty reduction.

In contrast, countries that relied on preferential trade deals with Europe or America for their primary products - such as Caribbean banana producers - have generally fallen back in the poverty league.

The growing inequality within countries has meant that strong economic growth has not always been translated into poverty reduction.

In Brazil, for example, much of the government's social spending does not benefit the poor, who lack access to health, education and sanitation.

Governance: the new focus

The World Bank has been focusing on increasing the capacity of the state in developing countries to work effectively, limiting corruption and building stable institutions

Many Third World leaders, like Nigeria's president Olesegun Obasanjo, believe that "evil governance" must be eliminated before real development can begin.

But the UN has only limited leverage to effect change in political regimes in a world where the flows of private capital are much more important than the flow of foreign aid.

The real power to affect those private capital flows resides in the International Monetary Fund, another member of the UN system but one where voting is weighted according to a country's economic power.

IMF: problem or solution?

The IMF's "seal of approval" during financial crises is vital in ensuring that private capital flows - which do not reach the poorest countries - do not dry up entirely.

But as more and more countries have got into financial difficulties, the IMF has increased its role across the developing world.

Critics say the IMF's role - especially in the financial crisis of 1997-98 - increased poverty in countries like Indonesia, which was required to make further budget cuts before receiving IMF assistance.

But mobilising private investment in the poorer regions is an uphill task. In sub Saharan Africa, for example, private capital flows as a percentage of GDP fell sharply from 4.3% in the 1970s to 1.5% in the 1990s.

The World Bank and IMF are moving away from their endorsement of free markets as the sole precondition for development.

Ironically, at the same time they have become the target of worldwide protests against globalisation.

In reality, in a world where it is the private sector that dominates the process of development, the biggest risk for Fund and the Bank could be marginalisation.

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See also:

14 Mar 00 | Business
World Bank: Listen to poor
23 Mar 00 | Business
Growing row over IMF role
07 Apr 00 | Business
WTO breakdown warning
16 Mar 00 | Business
Plutocrat for the poor
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