Ravi Kanbur has understandably been often asked to explain, retrospective-ly, what actually were the root causes of disagreements between himself and Summers (and the rest of the ‘neoliberal orthodoxy’ in Washington D.C.). Upon a request by the Swedish Parliamentary Commission on Globalisation (‘Globkom’) Kanbur wrote a paper on “Economic Policy, Distribution and Poverty: The Nature of Disagreement”, plus a shortened version of the same for the WIDER.504 Kanbur’s message is not surprising for the critics of the World Bank and the IMF in various civil society organisations, but his words are clearly targeted at his fellow poverty economists who may have problems understanding why the Governors of the World Bank and the IMF – organisations whose self-stated mission is to do good, i.e. to reduce poverty – could only meet under police protection, under siege by protestors who believe that the policies the IMF and the Bank harm the poor and espouse benefit only the rich and powerful.505
The street demonstrations that accompanied global summits around the Millennium Turn can be easily but mistakenly dismissed as being unrepresentative.
But, as Kanbur reminds his economist colleagues (on the basis of his exposure to
502 Nobel-economist Joseph Stiglitz calls the cross-country regressions “a flawed methodology”. See Stiglitz (2001),p. 3.
503 Encouragingly, also Nicholas Stern, who followed Joseph Stiglitz as World Bank Chief Economist – in his key note speech at the World Bank’s Annual Bank Conference on Development Economics for Europe (ABCDE-Europe) in 2002 - made a plea for a methodological shift from statistical cross-country regressions to micro-level studies based on cross-country-specific evidence. Source: Castren Tuukka, personal communication.
504 Kanbur (2000, 2001).‘WIDER’ is ‘World Institute for Development Economics Research’, a UN-University research institute based in Helsinki, Finland.
505 Kanbur (2000, 2001), p. 3. For an example of the – sometimes rather innovative, I should say - language and action used by the ‘internet-guerillas’ in their fight against the World Bank , the IMF and the WTO, see Anti World Bank internet-guerillas in Websources.
the diversity of views expressed during the WDR-consultations), the street demon-strations are only the tip of a whole iceberg of disagreement that includes vigorous debate in the leading newspapers, passionate involvement of faith based organisa-tions, and the genteel cut and thrust of academic discourse.506 “The real question is why”, Kanbur asks “why are there such deep disagreements on key aspects of economic policy despite seeming consensus about priority of poverty reduction among objectives?”
Kanbur argues that the reasons lie deep in the perspective and frameworks of analysis adopted by different groups. To simplify matters (and, as he says, “in full recognition of the fine texture of differences and individual views”) he considers two groups: A and B, characterized as the ‘Finance Ministry’ and ‘Civil Society’
tendencies.
In Group A, labelled ‘Finance Ministry’ would obviously be some who worked in finance ministries in the North, and in the South. It would include primarily economists and other economic analysts, economic policy managers and opera-tional managers in the internaopera-tional financial institutions, IFIs. A key constituent would be the financial press, particularly in the North507 but also in the South.
Finally, one would include many, though not all, academic economists trained in the Anglo-Saxon tradition. Group A types tend to believe that the cause of poverty reduction is best served by rapid adjustment to fiscal imbalances, rapid adjustment to lower inflation and external deficits and the use of high interest rates to achieve these ends, internal and external financial sector liberalization, deregulation of capital controls, deep and rapid privatisation of state owned en-terprises and, perhaps the strongest unifying factor in this group – a rapid and major opening up of an economy to trade and foreign direct investment.508
On each of these issues, Group B types tend to lean the other way. The Group B could be labelled ‘Civil Society’. This group would obviously include analysts and advocates in the full range of advocacy and operational NGO’s. There would also be people who worked in some of the UN specialized agencies, in aid minis-tries in the North and social sector minisminis-tries in the South. Amongst academics, non-economists would tend to fall into this group. Among my readers, I would assume most of the social policy professionals and other professionals of care to intuitively position themselves closer to the Group B than Group A.509
Before exploring the disagreements between these groups, Kanbur records what he had during the WDR-consultations experienced as growing areas of agreement and consensus: e.g. such areas as international public goods, the importance of edu-cation and health, the key role of institutions, plus the recognition that both the markets as well as the state can fail. However, these growing areas of agreement throw into sharp relief the remaining deep disagreements on economic policy, distribution and poverty. Much of the reason lies, Kanbur analysed, in three key features characterizing assessments of economic policy, distribution and poverty:
(a) Aggregation; (b) Time Horizon, and (c) Market Power.
506 For high quality Bretton Woods –critical analyses, see World Bank critical NGOs in Websources.
507 E.g. The Economist, and the Financial Times.
508 Kanbur (2000, 2001), p.3-4.
509 SPP = Social Policy Professional, POC = Professional of Care.
5.11.1 Aggregation
First, Group A tends to view the consequences of economic policy in much more aggregative terms than does Group B. The ‘Treasury economists’, in their typical way of focusing on the ‘national economy’, often fail to see the ‘society’ and its various sub-categories. When talking poverty, they focus on national measures of poverty. It happens quite regularly, Kanbur points out however, that improve-ments in national level statistics hide a worsening for large sections of the popula-tion. This was the case, for example, in the Chiapas region in Mexico in the early 1990s. Just looking at the national income/expenditure statistics (which improved) could not have predicted the rebellion that was to come from Chiapas. And for a local official or an NGO working with the increasingly poor indigenous peoples in Chiapas, it is cold comfort to be told, “but national poverty has gone down.” A similar story can be told about gender based disaggregation, and other groupings based on ethnicity and race.
The income/expenditure statistics, for instance, fail to capture the value of pub-lic services. So, it is quite possible for pubpub-lic services to worsen considerably and yet for this effect to not show up in the income-expenditure based measures of poverty incidence. If the bus service that takes a woman from her village to her sister’s village is cancelled, it will not show up in these measures. If the health post in the slum runs out of drugs, it will not show up. If the primary school text books disappear, or if the teacher does not turn up to teach, it will not show up.
But those with ground level operations and personnel will pick these up. And to them, as well as to the poor, the claim that poverty has gone down will ring hollow. None of this is to say that it is not useful to calculate nationally repre-sentative, household survey based, income-expenditure poverty measures. It is simply to say that focusing on them solely misses out on disaggregated detail which others can help to fill in, and which influences the perceptions and as-sessments of these others.510
Still another frequently appreciated disconnect relates to aggregation: The work horse poverty concept of Group A analysts is the incidence of poverty - the percentage of the total population below some poverty line, say one dol-lar per person per day. This is the concept the poverty economists instinctively go for, Kanbur admits. For example, the first among the several Millennium Development Goals, broadly accepted by donor agencies, is to halve by 2015 the incidence of income poverty (incomes below $1/day). But analysts and especially advocates and operational types in Group B instinctively think of the absolute numbers of poor as the criterion. The potential for disconnect should be clear.
In Ghana, for example, while the incidence of poverty was falling at around one percentage point per year between 1987 to 1991, the total population was growing at almost twice that rate, with the result that the absolute number of poor, even us-ing the standard income-expenditure based measure, grew sizably. Think again of the local NGO with ground level operations. If the number of people turning up to soup kitchens, the number of homeless indigents who have to be provided
510 Kanbur (2000, 2001), p. 7.
shelters, the number of street children, increases, then those who work in these organizations can, quite rightly from their perspective, argue that poverty has gone up. That the incidence of poverty has fallen is of little relevance to them, and to be told repeatedly and insistently that poverty has fallen is bound to lead to difficulties in communication and dialogue.511
5.11.2 Time Horizons
Second, Group B’s major concerns are with the consequences over a time horizon which is both much shorter and much longer than the ‘medium term’ horizon (five to seven years) which the economists in the Group A typically adopt. For those who work with the daily realities of poor people’s lives, and for the poor themselves, short run survival trumps medium term benefits every time, if the family is actually at the edge of survival. Many in Group A now accept this and support safety nets in general terms. However, they would nevertheless want to press ahead with economic reforms even if safety nets were not immediately in place, anticipating the medium term benefits. Over the long term of fifty to a hun-dred years, many in Group B fear the environmental consequences of unchecked economic growth.512 The poverty economists of Group A, while agreeing that specific ‘corrections’ are called for, are essentially ‘techno-optimists’ (Kanbur’s term) pointing to history to argue that predicted environmental disasters have not actually come to pass.
Group B members fear that the mainstream economists and policy makers only recognize those momentous environmental catastrophes that make news in the CNN (such as: Chernobyl, Harrisburg, Bhopal, El Niño, Hurrican Mitch, etc). Group B members emphasize that most of the environmental catastrophes have been slow processes, that have already irreversibly destroyed the livelihood potential of present and future generations of people and other creatures, e.g.
the global climatic change; ozone depletion; accumulation of nuclear wastes that nobody knows how to de-activate but the next ten thousand generations will have to live with; the deforestation of the Amazonas and many other rainforests of the world; the contamination of Ogoni-land by oil companies; the creation of an absolutely unsustainable model of fossile-fuel-dependent human settlements and transportation systems in the USA and other societies, and the highly destructive impact that this ‘one-man-one-car’ role model has on the poorer societies who try to ‘develop’ to reach to that ‘American Dream’.
511 Kanbur (2000, 2001), p. 9.
512 In reality, serious environmental destruction has resulted from ‘successful’ economic growth policies, for instance in South East Asia, even over much shorter time periods. The past 15 years of fast economic growth, without decent environmental regulation, have resulted in dramatic air pollution in South East Asia. Economics still lacks the methods to measure the balance of individual ‘utility gains’ and
‘losses’ in a situation where the increasingly enriched people in the cities of South East Asia no longer can walk or ride their bikes – or motor-bikes – on the streets without wearing a breathing mask.
5.11.3 Market Structure and Power
As Kanbur says, undoubtedly the most potent difference in perspectives centres about structure and power. The implicit framework of Group A poverty econo-mists in thinking through the consequences of economic policy on distribution and poverty is the abstract economics textbook model of a competitive market structure of a large number of small agents interacting without market power over each other. The instinctive picture that Group B has of market structure is one riddled with market power wielded by agents in the large and in the small.
This is true whether they are talking about the power of big corporations in the market place or in negotiating with governments, or of the power of the local moneylender in determining usurious rates of interest in the village economy.
They see the formulation and implementation of economic policy as being in-fluenced by real agents with market power, and they see policy feeding through to real life consequences through a market structure, which is not genuinely competitive.513
The immediate response of the Group A poverty economists to the suggestion that openness in trade, for example, might hurt the poor in poor countries is to (im-plicitly or ex(im-plicitly) invoke the basic text book theorems of trade theory. Opening up an economy to trade will - in theory - benefit the more abundant factor because this factor will be relatively cheap and opening up will increase demand for this factor overall. Since unskilled labour is the factor abundant in poor countries, opening up is supposed to benefit unskilled labour and hence the poor. Leaving aside the fact that this is a theory of medium term equilibrium, and thus subject to the disagreements discussed in the previous section, it is also a theory based on competitive product and factor markets. In particular, if local product and factor markets are segmented, because of poor infrastructure or because of the local monopoly power of middlemen and moneylenders, the simple theory will not go through quite so simply, Kanbur notes.
Another example is capital mobility. Leaving to one side the question of port-folio capital, where Group A has itself moved to a more cautious stance since the financial crises of the late 1990s, there is the issue of mobility of invest-ment capital. A very strong belief in Group B that Kanbur had come across in the WDR-2000 consultations was that increased mobility of investment capital makes workers in both receiving and sending countries worse off. Such a view is derided by Group A analysts as being incoherent - “How can you say that when capital leaves the US it hurts US workers, and when it gets to Mexico it hurts Mexican workers as well?!”
Of course in a theoretical framework with perfectly competitive markets (a situation that exists nowhere in the real world), it is indeed incoherent to suggest that increased capital mobility makes workers worse off everywhere. At most it will make workers in only one country worse off. Moreover, since with mobil-ity capital will move to the highest return, this is more efficient so the gainers could – in theory - more than afford to compensate the loser, if such a
mecha-513 Kanbur (2000, 2001), p. 11.
nism existed. But such compensation mechanisms exist nowhere outside the imaginable theoretical world of neoclassical economics.514 Social safety nets and development assistance are the closest – but very imperfect – real-world proxies.
Besides, neither the goods, services, capital nor (especially) the labour markets are perfectly competitive. None of the poverty economists in Group A seem to advocate the full liberalisation of migration controls for poor country citizens willing to take our rich country jobs. Rather, increasingly mobile capital and im-mobile labour bargain in each country over wages and employment. The deregu-lation of capital mobility has increased the bargaining power of capital relative to immobile labour, making workers in both countries worse off relative to capital.
This is how the Group B sees it, but the Group A replies that ‘theoretically’ things should not be so, and the cycle of non-dialogue goes on. But thinking through the distributional consequences of economic policies when market structures are not competitive, in the small or in the large, will be needed before the framework of Group A can be made to speak to the concerns of Group B.515
5.12 gRoWth – AS AN iNCReASe iN emploYmeNt,