Why the world is falling short of the Goals

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Long-term poverty reduction requires sustained economic growth, which in turn depends on technological advance and capital accumulation. The Mil- lennium Development Goals play two roles in the growth process. First, the Goals are ends in themselves, in that reduced hunger, gender equality, improved health and education, and broader access to safe water and sanitation are direct goals of society. Second, the Goals are also “capital inputs” to economic growth and further development. A healthier worker is a more productive worker, as is a better educated worker. Improved water and sanitation infrastructure raises output per capita through various channels, such as reduced illness. So, many of the Goals are a part of capital accumulation, deﬁned broadly, as well as desirable in their own right. In this chapter we out- line the basic processes underlying economic development and progress toward the Goals, some major reasons why progress often falls short, and priorities for public action to address these shortfalls.

The links between capital accumulation, economic growth, and the Mil- lennium Development Goals are captured in ﬁgure 3.1. The Goals for hunger and disease are part of the “human capital” box. The Goals for water and sanitation and slum dwellers are part of the “infrastructure” box. The Goal for technological innovation and diffusion are part of the “knowledge capital” box. And the Goal for income poverty is part of the “household income” box. Because meeting the Goals for hunger, education, gender equality, and health is vital for overall economic growth and development, it is a mistake to talk simply about the level of economic growth needed to achieve the Goals in a country. It is more helpful, particularly for the poorest countries caught in a poverty trap, to think about the kinds of investments that will achieve the many Goals and thus also support overall economic growth. Some important investments in human capital and infrastructure are not covered by the Goals

29 Chapter 3 Why the world is falling short of the Goals

but are crucial for achieving the Goals and for spurring economic growth (box 3.1).

Various forms of capital contribute to the accumulation of other forms of capital. Human capital in the form of good health, for instance, also contributes to human capital in the form of education and skills. Water and sanitation infrastructure contributes directly to good health. Natural capital has similar feedback effects. Fish stocks, soil nutrients, and clean air all contribute to good health.

All the forms of capital are required to support long-term economic growth. Capital grows as a product of investment, with investment coming from private household savings or from public investments drawn from government revenue, savings from abroad, and other sources of income (foreign assistance, borrowing). When the process of capital accumulation breaks down, economic growth and poverty reduction break down.

Four reasons for shortfalls in achieving the Goals

There is no one-size-ﬁts-all explanation for failure or success in achieving the Goals. Each region and each Goal requires a careful analysis. We can, how- ever, identify four overarching reasons why the Goals are not being achieved. Sometimes the problem is poor governance, marked by corruption, poor economic policy choices, and denial of human rights. Sometimes the problem is a poverty trap, with local and national economies too poor to make the needed investments. Sometimes progress is made in one part of the country but not in others, so that sizable pockets of poverty persist. Even when overall governance is adequate, there are often areas of speciﬁc policy neglect that can have a monumental effect on their citizens’ well-being. Sometimes these factors occur together, making individual problems all the more challenging to resolve. Figure 3.1 Capital accumulation, economic growth, and the MDGs �� _{��} ��

30 Part 1 Why the MDGs are important, where we stand, and why we’re falling short

Box 3.1

Essential inputs for reaching the Goals

Although the Millennium Development Goals were created to measure and provide targets for the most vital aspects of development, some areas important for development—and for achieving the Goals—are not included in the formal Goals framework. Energy services, sexual and reproductive health, and transport services are each vital to enabling and facilitating the achievement of the Goals.

Energy services

Improved energy services—including modern cooking fuels, access to electricity, and motive power—are necessary for meeting almost all the Goals. They can reduce child mortality rates and improve maternal health by lowering indoor air pollution. They can reduce the time and transport burden of women and young girls by reducing the need to collect biomass. And they can lessen the pressure on fragile ecosystems. Electricity is critical for providing basic social services, including health and education, and for power- ing machines that support income-generating opportunities, such as food processing, apparel production, and light manufacturing.

The UN Millennium Project proposes that countries adopt the following speciﬁc targets for energy services to help achieve the Goals by 2015:

• Reduce the number of people without effective access to modern cooking fuels by 50 percent and make improved cook-stoves widely available.

• Provide access to electricity for all schools, health facilities, and other key community facilities.

• Ensure access to motive power in each community.

• Provide access to electricity and modern energy services for all urban and peri- urban poor.

Sexual and reproductive health

Parts of comprehensive programs for sexual and reproductive health are included in the framework of the Goals (under Goals 4, 5, and 6). Yet sexual and reproductive health services are also essential for reducing extreme poverty and hunger, ensuring educational opportunities and gender equality, and attaining environmental sustainability (see box 5.5). These services affect the allocation of resources within the family, the prospects for household savings, the household choices about education and health investments, the exercise of the right to choose the number, timing, and spacing of one’s children, and the capacities for women’s social and economic participation and other practical life decisions.

At the macro-level these services affect population dynamics. A demographic transition to lower fertility and mortality (including that from HIV/AIDS) creates an opportunity to escape poverty traps and to accelerate economic and social development, a “demographic bonus” that can be realized through appropriate policies, governance, and investment. The UN Millennium Project calls for sexual and reproductive health issues to be included in national, regional, and international poverty reduction efforts.

Transport services

Transport services, such as road, rail, shipping, and air, are required to provide effective access to social services, such as emergency obstetric care, and to reduce the household transport burden and time poverty, especially of women and young girls. In addition to expanding transport infrastructure, countries need to invest in improving access to low-cost means of transport. Transport services also make many direct contributions to economic growth. They reduce the cost of agricultural inputs and raise producer prices for

31 Chapter 3 Why the world is falling short of the Goals

Governance failures

Economic development stalls when governments do not uphold the rule of law, pursue sound economic policy, make appropriate public investments, manage a public administration, protect basic human rights, and support civil society organizations—including those representing poor people—in national decisionmaking.

The rule of law involves security in private property and tenure rights, safety from violence and physical abuse, honesty and transparency in government functions, and predictability of government behavior according to law. Too many countries fail to achieve these basic standards, sometimes due to authoritarian rulers who use violence and corruption to hold on to power—but often because upholding the rule of law requires institutions for government accountability, and those institutions are missing.

Political and social rights should ensure equality before the law and fair- ness in society across groups. These rights must be substantive and not merely formal. The poor must have a meaningful say in the decisions that affect their lives. Women and girls must be assured freedom from violence and from legal, economic, and social discrimination. In many places, access to public goods and services is restricted for certain groups. Minority groups, for their language, religion, or race, suffer discrimination at the hands of more powerful groups.

Sound economic policies involve a rational balance of responsibilities between the private sector and the public sector to secure sustained and wide- spread economic progress. The private sector is the engine of growth in production. The public sector establishes the framework and enabling environ- ment for growth by setting sound macroeconomic policies and providing such public goods as infrastructure, healthcare and education, and support for science and technology.

Public investments are crucial for a “private-based” market economy. Every successful economy relies heavily on public spending in critical areas including health, education, infrastructure (electricity grid, roads, seaports), environmental management (national parks and protected reserves, water and sanitation), information and communications, scientiﬁc research, and land for affordable housing.

Accountable and efficient public administration requires transparency and administrators who are qualified, motivated, and adequately paid. It also requires efficient management systems, to disburse and track large investments, Box 3.1

Essential inputs for reaching the Goals

(continued)

market produce. They facilitate the creation of export-based manufacturing and service industries, including tourism. And they increase market reach for the local private sector by lowering transport costs. Improved transport infrastructure is essential for promoting private sector development and trade, as argued by the World Bank’s recent World Devel- opment Report 2005 (World Bank 2004d and UNCTAD 2004).

32 Part 1 Why the MDGs are important, where we stand, and why we’re falling short

and monitoring and evaluation systems. Many poor countries without adequate resources for decent salaries—or the checks on political abuse that provide the incentives for performance and the ability to weed out the inept and cor- rupt—are unable to afford an effective public sector, so they end up suffering from large-scale inefﬁciencies and wasted resources.

Strong civil society engagement and participation are crucial to effective governance because they bring important actors to the fore, ensure the rel- evance of public investments, lead to decisions that best address the people’s needs as they perceive them, and serve as watchdogs for the development and implementation of government policies.

Achieving the Goals requires that all these areas of governance be properly addressed. There is no excuse for any country, no matter how poor, to abuse its citizens, deny them the equal protection of the law, or leave them victims of corruption, mismanagement, and economic irrationality. Some improvements in governance do not cost much money, if any, and some actually save money (by cutting corruption or granting land tenure, for example). Some improvements in economic outcomes are thus available at low cost, and such opportunities must not be squandered. We describe the strategies for investing in governance in chapters 6 and 7.

Poverty traps

A second reason why many countries are not making progress on the Goals is that they are too poor to make progress and stuck in a poverty trap. To under- stand why countries get stuck in such a trap, it is useful to think of economic development as climbing a ladder of development. It is important that countries have strategies for moving up the ladder—that is, for achieving long-term growth. All countries face very speciﬁc challenges and thus need to tailor their national strategies to local conditions. But there are general principles of development for countries to follow as they move up the ladder.

The ladder of economic development. At the bottom of the ladder are the poorest countries, which for the most part have similar proﬁles.

• Most of the population lives in rural areas. Rural poverty is high, and the productivity of rural smallholder farmers is very low. The rural population is increasing rapidly, with some of the population moving to cities in search of jobs. Infrastructure is very poor, with shortages of roads, electricity, water, and sanitation. Women and girls bear much of the brunt of the poverty, with heavy labor in farming and in collecting fuelwood and water. Children are “economic assets” on the farm, and many of them, especially girls, do not attend school because they are home performing household work.

• Most of the urban population operates in the informal economy, without security of tenure and without formal employment. Cities are strongly

33 Chapter 3 Why the world is falling short of the Goals

divided into pockets of afﬂuence with good public services, solid infrastructure, and high-quality housing—and large squatter settlements with precarious property rights and a lack of public services. Roads, electricity, and ports tend to be congested and poorly maintained. Power failures are rampant. Foreign direct investment tends to be scarce and hard to attract. Employment is heavily informal, in services and small workshops, and in domestic food processing. Exports tend to be mostly primary commodities, subject to price volatility and long-term declines in prices.

• The population is afflicted by low human capital. Life expectancy is less than 50 years (as opposed to 80 years in high-income countries), and child mortality is 100 per 1,000 live births or higher. A significant pro- portion of children, especially girls, do not finish primary school. Fertil- ity rates are high, particularly among poor people, and there is a consid- erable unmet demand for family planning and modern contraception. Infectious diseases are rife. Depending on climate, malaria may be year round or seasonal. TB afflicts densely populated slums. HIV/AIDS is uncontrolled among vulnerable groups (migrant laborers, truck drivers, commercial sex workers, injecting drug users) and has perhaps spread to more of the population.

In these circumstances, it is possible to envision what a successful development strategy would entail. First, it would target a rise in rural productivity, a Green Revolution to raise food output. This would accomplish several important objectives and trigger a structural change in the economy. It would enable farmers to feed their families. It would provide low-cost food for the rest of the economy. It would accelerate the transition to commercial agriculture and to urbanization (as fewer households are engaged in food production). The urbanization and movement of human resources into nonagricultural productive sectors would diversify the economy and the export base.

Almost every successful development experience has been based on a Green Revolution at an early stage. This Green Revolution could be made environ- mentally sustainable through thoughtful investments at the farm and village level, in soil health, water harvesting, improved seed varieties, feeder roads from farms to trunk roads, electriﬁcation, improved water sources, sanitation, and modern cooking fuels to replace fuelwood.

Second, and simultaneously, the strategy would help cities foster interna- tionally competitive industries and services, while meeting the basic needs of all urban residents. Industrial parks, export processing zones, special economic zones, science parks, and the like would be developed as locations for interna- tionally competitive urban industries, both in manufacturing and in services. Port services, electricity, transport services, and roads would be upgraded to support private industry. Slum dwellers would be given security of tenure, and perhaps negotiated options for relocation on a voluntary basis. Increased

34 Part 1 Why the MDGs are important, where we stand, and why we’re falling short

investments in solid waste disposal, clean air, and wastewater treatment would improve urban environmental health.

The strategy must aim to diversify the country’s exports away from dependence on primary commodities toward manufactures and services. Countries with diversiﬁed exports have experienced superior growth, especially since dependence on primary commodity exports exposes the economy to volatility and long-term price decline of commodities. This transition toward diversiﬁed exports requires special attention for landlocked countries and inland economies, which face high transport costs, as well as for very small countries, which lack the scale to diversify into many sectors.

Third, these changes would be supported by massive investments in nutri- tion, healthcare, education, and family planning. Human capital would rise over time. The adult labor force would become literate and healthy. Infectious diseases would be brought under control through targeted disease control programs delivered through a strong health system.

Fourth, these investments in human capital and rural and urban productivity would be supported by three more overarching areas of investment. Pub- lic management systems would be upgraded, through training and retention of skilled managers and greatly expanded use of information technology. Exten- sive capacity building at the local level would permit effective decentralization of public investments, down to the city, town, and village. Scientiﬁc capacity would be expanded through investments in the major universities, national laboratories, and national science advisory units. And cross-border investments with neighboring countries would improve linkages in roads, electricity, environmental management, rails, and telecommunications.

History shows that investments in each of these areas can be scaled up very rapidly, in the course of a few years. Food production could double or even triple in Africa in a decade, if policymakers and donors invest in a Twenty-first Century African Green Revolution. Urban labor-intensive sectors such as garments can develop very rapidly, as Bangladesh has shown. Healthcare investments can lead to dramatic reductions in child mortality rates in just a few years. Fertility rates can fall sharply in a decade if there is a coordinated national effort to improve access to reproductive health services, including voluntary family planning. In short, a massive scaling up of both public and private investments is possible. Why poverty traps happen. Many reasonably well governed countries are too poor to make the investments to climb the first steps of the ladder. They lack the fiscal resources to invest in infrastructure, social services, and even the public administration necessary to improve governance. Without roads, transport, soil nutrients, electricity, safe cooking fuels, clinics, and schools, the populations are chronically hungry, disease-burdened, and unable to save. Without adequate public sector salaries and information technologies, public management is chronically weak.

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These countries cannot attract private investment ﬂows or retain their skilled workers. And dozens of heavily indebted poor and middle-income countries are forced by creditor governments to spend large parts of their limited

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