Here, I continue from last week’s series on the World Bank’s Poverty and Shared Prosperity report.
This time, we get to the part of the World Bank report I’ve been looking forward to the most: policy discussion! Chapter 6 is entitled Reductions in Inequality: A Policy Perspective. Here, we will find out which policies–at least according to the World Bank–are the most effective in reducing extreme poverty and inequality. I am inclined to take them with a grain of salt given that the World Bank is out to promote neoliberalism and encourages countries to liberalize and privatize their economies, often without regard to the consequences.
There is plenty of valuable criticism of the World Bank out there, such as this piece. Does the World Bank really deserve any credit for the poverty and inequality reductions over the past 25 years? Given how much attention the World Bank has paid to Sub-Saharan Africa, and given that region’s almost total lack of progress, I could understand being reluctant to take the World Bank’s statements at face value.
So let’s dig into the text and see what it has to offer, and whether it seems credible (or, indeed, creditable to World Bank activites).
This chapter seeks to offer up policy prescriptions deemed generally valid, that show real results in reducing inequality and poverty, and which do not impede economic efficiency. It’s interesting that economic efficiency is taken for granted as a good thing, as if it might never be desirable to permit some level of inefficiency in service of some public good.
The policies called out are early childhood development (ECD) including breastfeeding, universal healthcare coverage, good-quality education, cash transfers, investments in rural infrastructure (particularly roads and electrification), and income/consumption taxes. It is noted that policies designed to achieve other goals are excluded here, regardless of their positive effects. Only policies which are both designed to reduce inequality/poverty and which actually do so are discussed here.
Early Childhood Development
The report notes that the first 1000 days of a child’s life are crucial to that child’s entire life. Early nutrition, medical care, and cognitive development are major determinants of a child’s life trajectory. Children who do not receive appropriate care in the first 1000 face a multitude of problems that exacerbate throughout the child’s lifetime. The goal here is to improve educational attainment and health, and thus incomes over a lifetime.
A sobering statistic is cited to illustrate just how big a problem the world is facing. Currently, one in four children under the age of 5 shows signs of stunted growth, which indicates malnutrition and inadequate development. This is clearly unacceptable.
The benefits of government spending to address these issues don’t come with any negative tradeoffs, either. Children who are well-fed do better in school, are healthier, and have higher incomes as adults. They end up paying back that investment and then some. Breastfeeding, while not always an option for every mother, shows strong benefits–including economic ones. It is estimated that if all children were breastfed exclusively until 12 months of age, this would net economic benefits of $302 billion per year, or 0.5% of the gross world income.
Another study found that the effects of stunting can be alleviated through psychosocial interventions including home visits designed to teach parents how to stimulate and play with their young children effectively. The results were stark and clear: children who received this kind of intervention saw their income inequality erased as adults, compared to children who were not stunted. Children who received only nutrition assistance still suffered from income inequality as adults. This helps to illustrate that cash transfers alone are likely insufficient to address the causes of inequality that persist at low incomes.
Good preschool programs are also correlated with higher cognitive development, better classroom behavior, and higher incomes. When it comes to teaching, the evidence shows that it is not teacher training, but experience and incentives that result in improved learning. Preschool is found to be even more beneficial to poor children, meaning that such programs are important to erasing income gaps.
The numbers on breastfeeding are stark, as well: compared to children who are breastfed for less than a month, those who are exclusively breastfed for at least a year show higher intelligence (as measured by IQ), almost a full year higher of educational attainment, and higher monthly incomes. While it might be easy to assume that the real variable is existing family income–that is, wealthier mothers are more likely to breastfeed and thus have more well-off children to begin with–the fact of the matter is that middle- and upper-income women are actually less likely to breastfeed. Good prenatal and postnatal care seem to be important factors in promoting breastfeeding, as well. Locations that lack access to such care show lower rates of breastfeeding and thus worse outcomes for those children.
Healthcare and Education
Providing adequate healthcare to all people remains a difficult problem. Those living in extreme poverty are unlikely ever to leave such a status if they cannot receive proper healthcare that begins during pregnancy and extends throughout the individual’s life. In most countries, healthcare access is primarily a matter of money: those with more money get better care. At the bottom, there still exist many countries in which there is virtually no care available to the poor, where malnutrition and infant/childhood deaths from disease and malnutrition are still common.
Spending money on healthcare is virtually a no-brainer: improved health raises incomes. Healthier workers are more productive, miss fewer days of work, and so are better for the economy overall. Children in school benefit from improved health, as well, seeing higher grades and better overall educational performance and attainment.
One measure described is mass deworming. In countries where intestinal parasites are rampant, simply giving all children deworming treatments has been found to improve health and educational performance.
While there is no one model of universal healthcare guaranteed to produce positive results in every country, the basic idea is sound: quality healthcare needs to be available to all people regardless of their ability to pay for it. Some countries use entirely state-run systems, while others use hybrid public-private setups, and still others rely on private insurance with special accommodations for those who may have difficulty paying.
Priorities in education, meanwhile, are shifting. Previously, the goal was to improve enrollment. Now that enrollment has been tremendously improved, flaws in the quality of education have become more apparent. Many children–at least 250 million–fail to advance to grade 4. These gaps are most pronounced among poor children, girls, and those living in rural areas. Given the clear effectiveness of early childhood development and targeted educational interventions, there’s no justifiable reason for these disparities to exist. More than that, they are economically inefficient–they limit the income opportunities of the individual and the ultimate growth prospects of the country.
A key factor appears to be teacher quality. High quality teachers can impart more information in less time than lower quality teachers. Teacher quality looks to be a combination of experience, incentives for attendance and better instruction, organization, and emotional support of students. Financial incentives for good performance are shown to net better student outcomes, as well.
Conditional Cash Transfers
There are a few kinds of cash transfers examined here, most of which are conditional, meaning one must meet certain conditions to quality. Countries that have experimented with unconditional cash transfers–meaning anyone can receive them–have shown positive benefits in terms of child nutrition. More conditional and thus targeted transfers typically serve to smooth out consumption among the poor so that poor parents and children do not suffer when economic times become difficult. Transfers can also be used to promote good behavior, such as rewarding patients for attending yearly medical checkups. Such transfers have been used to promote school enrollment, high attendance at schools, good grades, and so on.
Such policies are typically frowned upon in the US, I have noticed, because Americans in general have an aversion to anything that reeks of social engineering, especially when performed by the government. Even taking possible negative effects on the labor force into account, the World Bank’s analysis has determined that such effects are negligible and in no way discredit the usefulness of cash transfers. These programs are even found to help reduce violence and criminality.
Major obstacles to implementing CCTs are poor targeting and fragmentation. Only a fraction of those who are eligible for transfers end up receiving them. Some conditions are so draconian or complex that very few people will see them as worth the hassle–consider the opportunity cost inherent in a cash sum that requires a certain amount of legwork and bureaucratic maneuvering to obtain. If the amount is too small or the level of work too difficult or complex, only the most desperate and determined will follow through to obtain it.
One interesting aspect of the transfers is the extent to which conditionality affected (or didn’t) behavior. Some conditions are simply not powerful enough to overcome deeply-entrenched cultural traits, one example being incentivized school attendance for girls and its effect (or rather, lack of effect) on reducing child marriage. This shows that there are limits to how much CCTs can influence behavior–in other words, their social engineering potential is in no way absolute.
Technology is cited as a major boon to the success of any CCT. The more a cash transfer program can be automated and streamlined through the use of technological means, the more effective it is–corruption and abuse are reduced and administration is simplified.
Such programs must also be responsive to changing conditions and the needs of recipients, so CCTs need to maintain a certain level of flexibility in order to be successful. This makes sense–few policies are perfect in their first iteration, and will require adjustment in order to make the greatest positive impact.
It’s easy to take the quality of roads for granted, but smooth, well-maintained roads are essential for transporting goods to remote areas. Consider perishable food items, fragile medical equipment, and other items that would be sensitive to rough handling. Poor roads mean such goods cannot reach people who need them. These also affect fuel efficiency, as well, and investment in roads generally pays off in terms of fuel efficiency and reduced damage to the goods being transported.
Good roads also improve land values, give agricultural producers more access to markets, and also open up rural areas to economic development. The big story of rural roads is that they connect remote areas to the rest of the country and thus the larger economy, reducing inequality by giving people in more rural areas access to the same economic opportunities that those in urban areas get.
Access to electricity has similar effects. Home businesses are more viable when residents have access to electricity. The ability to run lights at night improves study opportunities, as well. It even affects school enrollment rates, perhaps as students with access to nighttime lighting feel better equipped to perform their studies. Lighting also improves security, healthcare effectiveness (think after hours health clinics and emergency rooms), and so forth.
When electricity is used for heating, health outcomes tend to improve because of lowered indoor pollution, as kerosene and firewood use are reduced.
Gender quality is another positive benefit of electrification. Women have fewer household chores to perform in an electrified home. Some speculation on the effects of television is offered, as well, in the form of higher divorce rates and lower birth rates in countries where telenovelas are popular–the suggestion is that the women in these shows are empowered and self-reliant, serving as inspirations to the women who watch. This is an especially interesting assertion to make and I’ll have to check out the underlying research. (The citation is LaFerrara, Chong, and Duryea (2012) if you want to check that out yourself.)
You can’t pay for any of these programs without taxes, obviously. Taxes are necessary to pay for development programs, invest in infrastructure, provide equalizing programs (such as universal education and healthcare), and to provide income redistribution. Specific policy suggestions revolve around using tax codes to promote economy-stimulating behavior (there are obvious hazards here), earned-income tax credits which promote working in the formal economy, harmonizing corporate income tax rates with personal tax rates to avoid accounting trickery, and flexibility in consumption taxes to favor desired economic activities. The consensus here is that direct and progressive taxes are the most effective.
There are a number of problems with tax regimes, though. Given that they are always about collecting money, the effects of weak or incompetent institutions can be tremendous. Taxes collected to help reduce inequality don’t do any good if they are stolen by corrupt officials or “lost” in the budget somewhere. The redistributive effects of tax systems are also found to be limited, though this comes with many caveats as few tax systems are designed primarily to redistribute.
A number of concluding remarks are offered, summarized in the following quotes:
Despite progress, intolerable disparities in well-being still exist that concrete policy interventions could confront directly. The equalizing effect of interventions must be judged by the impacts they achieve, not those originally (un)intended. Improved competition and economic efficiency are compatible with reducing inequalities. Trade-offs in implementation should not be overlooked because of excessive attention to efficiency and equity trade-offs. The fine points of policy design absolutely matter in ensuring that interventions are equalizing but do not compromise efficiency. Avoid unexamined reliance on universal prescriptions and unique models of success. Equalizing interventions are not a luxury reserved for middle- and high-income countries, nor an option only available during periods of prosperity. The poor must be able to participate in and benefit from interventions: good policy choices benefit the poorest.
I don’t find much to argue with there. There’s no one-size-fits-all solution for all countries. It’s clear that making sure children have the best start possible is essential to long-term well-being, especially as expressed in terms of educational and thus income attainment. It’s indisputable that quality-of-life hinges heavily on one’s individual (or household) economic resources. Money isn’t everything, but to have very little or no money is to be pervasively deprived of health, of economic opportunity, of personal growth. Extreme poverty makes for shorter lives and much worse quality-of-life. There is no reason we should tolerate it into the future. While I’m not convinced that the World Bank’s activities have ultimately done much to reduce extreme poverty, I think their compilation of this data and analysis of it will be vital to achieving their overall worthy goal of eliminating global extreme poverty by 2030.
Photo by Wendy Longo photography