WDR 2003

World Development Report 2003

Sustainable Development in a Dynamic World:

Transforming Institutions, Growth, and the Quality of Life

Zmarak Shalizi, Director WDR 2003

Madagascar, June 2003

WDR 2003

Development at a Crossroads

Many development achievements in the past

But mounting environmental and social stresses are cause for concern

WDR 2003

Many Accomplishments

2 billion people added to world’s population between 1970 and 2000—mostly in LDCs

Average per capita income in LDCs grew from ~ $1,000 in 1980 to ~ $1,400 in 2000

Infant mortality rates per 1,000 live births fell from 100 in 1970 to 60 in 2000

Adult illiteracy rates have fallen from about 50% in 1970 to 25% in 2000

However the development path generating these gains has been costly

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Social Stress-Mistrust Increasing inequality within and between countries

(Per capita income ratio between the 20 richest and 20 poorest countries is 35—double what it was in 1970—mostly due to low growth in poor countries)

1.2 billion people still live on <$1/ day (scale similar to population that is underweight and malnourished)

(even though their number declined by 200 million people in last two decades despite global population increase)

46 countries suffered from armed conflict--including half of the 33 poorest countries. Destroys past development gains, breeds mistrust, impedes future growth

Low growth, conflict, and inequality undermine collective action in support of a sustainable pattern of development

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Environmental Stress - Degradation

Urban air pollution, CO2 emissions;

1/3 of people live in countries with moderate to high water shortage;

1/5 of farm land is degraded;

70% of fisheries are fully or over exploited;

2/3 of coral reefs have been destroyed or threatened; 1/3 of terrestrial bio-diversity is in threatened hot-spots; 10% of tropical forests cleared each decade;

This pattern of depleting environmental stocks cannot be repeated.

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What’s New in this Report? 50 year horizon,

3 billion more people, and At 3% p.a.will have $140 trillion global economy by 2050

Challenge: How to ensure that a global economy 4X larger than today’s creates less social and environmental stress

Approach: Policy reform not enough. Need better and transformed institutions—which in turn require more equitable distribution of assets

Focus on institutions as they effect people where they live (from local villages to global community)

Must understand the dynamic interaction and mutual interdependence between economic, social and environmental issues over time

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50 year horizonOne-time Window of Opportunity

Demographic transition—Population growth is slowing, will stabilize at approximately 10 billion by the end of the century

Urban transition—for the first time in history, most people will live in cities

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DTC DTC DTC DTC DTC

Demographic Transition

0

2

4

6

8

Population (billions)

1950 1970 2000 2030 2050

Developing & Transition Countries (DTC) and OECD

Global population stabilizes before end of century

DTC OECD DTC OECD DTC OECD DTC OECD DTC OECD

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Increasing Savings Potential

40

50

60

70

80

90

100

1960 1970 1980 1990 2000 2010 2020 2030 2040 2050Year

East Asia & the Pacific

Eastern Europe &Central Asia

South Asia

High-Income OECDCountries

40

50

60

70

80

90

100

1960 1970 1980 1990 2000 2010 2020 2030 2040 2050Year

Latin America & theCaribbean

Middle East & NorthAfrica

Sub-Saharan Africa

High-Income OECDCountries

with Declining Dependency Ratios

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DTC DTC DTC DTC DTC

Urban Transition

0

2

4

6

8

Population (billions)

1950 1970 2000 2030 2050

Developing & Transition Countries (DTC) and OECD

CitiesTowns

Rapid urban growth

Megacities

15

1

54

29

0

Many megacities

Global population stabilizes before end of century

DTC OECD DTC OECD DTC OECD DTC OECD DTC OECD

1 2 4 5 5

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Increasing Investment Potential

Trillions of Dollars of investment in next 50 years Capital stock (new homes, factories, transport and power) for new

population, growing cities, and poverty reduction has yet to be built

Opportunity: With more appropriate investment criteria and inclusive decision making, the capital stock can be designed to put less strain on environment and society Developing countries are not locked into existing technology and

capital stock, and have the opportunity to leapfrog existing practices Developing countries provide a potentially large market over the next

10-20 years that could support the emergence (R&D and amortization of initial costs) of new, more efficient, and sustainable technologies

with Declining Incremental Cost of Delivery

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. . . Still Many in Rural Areas on Fragile Lands

0

2

4

6

8

Population (billions)

1950 1970 2000 2030 2050

Developing & Transition Countries (DTC) and OECD

Global population stabilizes before end of century

Other ruralFragile lands

Still many in fragile

areas

CitiesTowns

Rapid urban growth

OECD

1

OECD

2

OECD

4

OECD

5

OECD

5

DTC DTC DTC DTC DTC

Megacities

15

1

54

29

0

Many megacities

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Core Development Challenge Provide productive work and a good quality

of life for existing 2.8 billion people living under $2/day and the 2-3 billion to be added to world population in next 30-50 years

Requires substantial growth in output and productivity in developing countries

Need to do this while improving ecosystems and the social fabric that underpins development

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What Must be Done? In order to address emerging stresses and seize

opportunities, we must: Think long-term, when acting now

Manage a broader portfolio of assets

Take institution-building more seriously

• Institutions include rules and organizations, both formal and informal—and their interaction

• Pay special attention to the distribution of assets as they shape the evolution of institutional competence and policies

• Nurture institutional catalysts for change in different spatial locations

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Time to develop new technologies

Time for capital stock turnover

0

10

20

30

1990

2000

2010

2020

2030

2040

2050

2060

2070

2080

2090

2100

CO2 emissions, MT C

+ 1º to 3º CCLIMATE FRIENDLY SCENARIO

Think Long Term, but Act Now

+ 3º to 5.8º CTemperature increase by year 2100

FOSSIL FUEL INTENSIVE SCENARIO

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Well-being

Social assets Environmental assets

Output and income

Human capital Physical capital

Need to Manage a Broader Portfolio of Assets

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Assets wasted without growth or reduction in poverty—Madagascar

Unsustainable agriculture:hillside gully erosion

Downstream sedimentation(satellite image)

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Assets wasted without growth or reduction in poverty—Madagascar

Attention to macroeconomic policies is necessary but not sufficient as can be illustrated by Madagascar’s experience in the past 40 years: Population tripled (from 5.4 million to 15.5 million)

Agricultural productivity stagnated while other countries with similar average productivity, for example rice, experienced a doubling or more in productivity

Half its forests have been liquidated without realizing offsetting gains in other assets (of the 115,000 square km of forest lost, the area under cultivation for staple crops has expanded by only 15,000)

GDP per capita has fallen from $383 (1995 dollars) to $264

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What Happens When There is Insufficient Attention to a Portfolio of

Assets

Cotton Yields in Uzbekistan(1961-2000)

0

10

20

30

1963 19

6719

7119

75 1979

1983 19

8719

91 1995

1999

Centners / hectare

and growth not sustained

Ship in Aral Sea

Well-being damaged irreversibly

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But Environmental and Social Assets are Underprovided

People change society and the environment in damaging ways because

Sometimes they have no alternatives–have been boxed into a corner (lack of foresight)

More often, however, they are either unaware of the consequences of their behavior (lack of information), or

Are aware but unconcerned because the burdens fall on others in the current or future generations (lack of voice)

That is, these assets have characteristics of public goods and externalities (spillovers)—They have benefits and costs that do not accrue to the same individuals or groups (e.g. private gains that lead to social losses)

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Take Institution Building more seriously—Policies & Processes

WDR 1992 focused on policies to correct market failures (public goods and externalities) but these have not yet been widely adopted or implemented—why?

Spillovers give rise to coordination (collective action) problems, and distributional considerations are central to resolving conflicting interests and coordinating solutions—Economic and Environmental problems are at root social problems

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Take Institution Building more Seriously—key functions

Competent institutions build trust

Pick up signals to diagnose problems early and from the fringes (requires information, voice, feedback): social or geographic; Thailand—AIDS; Tunisia—fragile lands

Balance interests to identify durable solutions (requires transparency, forums): Europe—acid rain; South Africa—democracy; Malaysia—new economic policy; Ait Iktel, Morocco—“cultural translators”

Execute agreed decisions to ensure credibility ex-post (requires credible commitments ex-ante and accountability): Cameroon—public forest auction; Marine Stewardship Council—sustainable fisheries

Root causes of social, environmental and economic problems are similar and can be traced to failure in one of these functions

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Competent institutions Enable Coordination

Problems that Need Coordination Could be Economic, Environmental, or Social

Fishing, collecting fuelwood, animal grazing, logging, maintenance of irrigation systems, inflation, investor protection, crime prevention, service delivery…

For many problems, a commitment device for coordination does not yet exist, is undeveloped, or is faulty or weak

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Barriers to Coordination That Need to be Overcome

The key barriers are: Dispersed interests (no one initiates constructive change for

fear others will not follow, even when everyone could be better off if a cooperative solution could be agreed upon and implemented)

• Difficulties in forging credible commitments

Vested interests (“captured institutions” don’t perform key functions of competent institutions)

• Difficulties in achieving greater inclusiveness

Barriers undermine trust & shared growth, degrade environmental and social assets, and are costly to rebuild

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PoliciesPolicies

InstitutionsInstitutions

Distribution of assetsDistribution of assets

Policies shape institutions and the distribution of assets

The distribution of assets shapes institutions and

policies

Presence or absence of inclusiveness matters: Path Dependency and the Distribution of Assets

Vicious or Virtuous Cycles

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Uganda: Effort to raise agricultural productivity by using animal traction for plowing, administration encourages investment in oxen—farmers remain skeptical and expect that any oxen would soon be stolen.

People, Assets, Threats, and the Need for Protective InstitutionsFor people to be forward looking—they need a stake in society

For assets to thrive—they need protection (Secure commitment to law and property)

Assets are not all vulnerable to the same threats, but all assets—natural as well as human-made, in the village and in the city—depend on protective institutions

When more people are heard, fewer assets are wasted

When the protection is weak:

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What happens when it is easier to take than to make?

New Foundland cod catch, tons,1850-2000

Failure of Protective Institutions to Restrain

Enron, market value, 1985-2002

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General Sustainability ProblemsPolarized societies (inadequate social assets):

stagnation, rigidity, environmental damageDestructive races for property rights

Conversion of forest lands, wet lands…Urban settlement expansions Mineral & oil extractionDiversion of water flows (surface and aquifers)Depositing waste (pollution dumping) in water and air

Draw-down of renewable resources hurts growth and welfare

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Emergence of Institutions

Institutions solve coordination problems

Need to adapt to changing conditions through innovation, experimentation, and systematic learning

Need to not just solve current problems, but also have the ability to respond to new problems not yet defined by better understanding of how technologies, preferences, and behavior change

How do you get good policies if institutions are inadequate? How can good institutions emerge in an unfavorable setting? Institutions don’t appear overnight or fully grown

Need catalysts to build momentum and scale up

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Catalysts for Change—for all Scientific research/Credible information, and education: signals

and helps diagnose problems, builds awareness and support for change, so that institutions can react (global level: ozone and global warming; local level: pollution disclosure program in China and Indonesia)

Conflict Resolution: Organizing to diagnose problems, balance interests (Europe—acid rain; South Africa—democracy; Malaysia—new economic policy; “cultural translators”—Ait Iktel, Morocco)

Transparency and monitoring: To tighten accountability (Cameroon—Forest Auction; Marine Stewardship Council—sustainable fisheries)

Think and do tanks: Organizations that learn from the grass roots and have access to policy makers—are able to adapt and promote exchange of ideas, innovate and solve problems unique to their country—(Singapore, Malaysia, Korea, UK, Costa Rica, Bolivia, Brazil) e.g. by pairing national and foreign expertise

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Catalysts for Change—for poor people

Partnerships: Civil society, govt., private sector, “cultural translators” (Cameroon; Marine Stewardship Council)

Leadership: East Asia’s more equal access to assets (Malaysia’s NEP, Singapore)

Assets for the poor: schooling, healthcare, social capital, voice, tenure (Brazil’s favelas)

R&D: productivity & assets for the poor– crops, drought-resistant maize, medicines, vaccines

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Implications for Development Strategies and Assistance

Intervene to break vicious cycles that keep growth low and distribution of assets unequal—better sharing of new forms of assets and additional assets as growth progresses

Promote projects that:

• Improve the distribution of assets, e.g. by dramatically expanding access to health, education, and public services

• Secure property rights for poor people through urban and rural tenure (Brazil, India)

• Increase density of long term infrastructure networks

Promote and develop ‘cultural translators’ to improve:

• Access to services for the poor (Ait Iktel, EDUCO, BRAC)

• Govt. health and agricultural outreach, sharing knowledge in remote areas or for disadvantaged groups (GTZ)

• Tripartite partnerships in the mining industry (Canada)

Promote ‘think and do’ tanks that link grass roots to policy-makers. Financing, personnel swaps, joint research, fellowships

Donor financing of and commitment to deeper long-term partnerships: twining/staff exchanges—gov’t agencies, NGOs, universities (public and private)

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Implications Continued (2) . . . Get ahead of the frontier in anticipation of known

trends and destructive/unfettered races for property rights:

On rural land-use conversions – from nature to agriculture, and within agriculture (Laws and regulations re: shift in use, redistribution, consolidation in Brazil, Eastern Europe)

Urban expansion: public goods – right of way and amenities, rule of law, secure tenure (favelas of Rio, slums dwellers in Bangalore, Indonesia)

Mineral extraction and non-renewable resources: partnerships with other governments to share know-how about rule enforcement, transparency, participation, management of revenues (Chile, Norway)

Growth induced pressures on eco-systems and renewable natural resources (GEF, Chiapas coffee growing plantation scheme)

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Implications continued (3) . . . Invest in conflict avoidance and sustainability

through long-term institution building based on inclusive systems that build on innovations and learning ability, not stand alone projects.

Shared growth and distribution of assets, Malaysia’s NEP, Korea’s savings schemes and inclusive education policies

Pre/Post Conflict resolution through better distribution of assets (access to water, land, resources) and balancing of interests (South Africa’s reconciliation, Nile Basin initiative)

Learn from different examples of governance, transparency and learning systems, Singapore, Peru, Chile, Indonesia

HOW we decide and WHO gets to decide often determines WHAT we decide (village—Ait Iktel; national—Malaysia; global—Montreal Protocol)

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Implications continued (4) . . .

Lower income countries need donor support to create better institutions (that can then implement new policies) Removing the budget constraint to facilitate balancing

interests to speed-up dismantling of subsidies or poor practices that generate inefficiencies, e.g. energy-using industries (China, Russia)

Taking risks by promoting innovative/untried institutions—pollution reporting (PROPER, Indonesia, Viet Nam)—and facilitating more info exchange between industrial and developing countries

Protecting natural resources (forests, wetlands, coral reefs) from destruction at an earlier stage of development than wealthier countries (Cameroon: laws, NGOs, satellite technology, local communities, donors; Brazil: forest conservation through national and state parks)

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Example of Collaboration: Dust BowlThe human and environmental impacts of the US “dust bowls” in the 1930’s, 50’s and 70’s were countered by governments and non-governmental/private groups at all levels working together while employing ingenuity and technology.

Each affected state alone (e.g., Texas and Oklahoma) could not have solved the problem on its own. The solution required massive labor migration to other states, and financial and knowledge transfers from other states in the U.S.:

Few poor developing countries have the arable land area or potential to absorb required levels of labor outmigration from affected areas

Few poor developing economies are large or wealthy enough to afford required levels of cross-subsidization

Few developing countries have the ability to sustain high levels of financial and technical assistance support over such a long time period

WDR 2003

Implications continued (5) . . . Engage countries and groups of countries in a

dialogue on: institutions and policies management of social, environmental and economic

resources and complementarities where they are headed in medium term based on past

practices

With the objective of shaping the trillions of dollars of investment in long-lived assets in the next 50 years to be more socially and environmentally sustainable

WDR 2003

Common Vision for a Long-Term Global Accord

A common vision to sustain and scale up the MDGs beyond 2015

Two to three generations is enough to eliminate poverty and put the world on a sustainable footing

Weaker nations are unable to cope with spillovers from expanded global activity

Need a self-enforcing accord to cement commitment to a global vision

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Components of a 50 year Global Accord

Leaders/communities in developing countries commit to inclusiveness, shared growth, and better governance

Leaders/voters in industrial countries commit to support more trade, aid, access to intellectual property and migration to industrial countries, that facilitate growth in developing countries

A mutual long-term commitment that increased and more appropriate aid will be forthcoming if reform deepens, and that reform will deepen if such aid is forthcoming

Collective Global commitment to fairer burden-sharing and rule-making for public goods that have global consequences

These requirements are interlinked

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Four Big Questions requiring more dialogue

When is consumption over-consumption?

What is the future of agriculture and GMOs?

How to balance interests and avoid the race for property rights at the intellectual frontier?

What are the prospects for global migration?

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WDR 2003

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