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images  HUMAN
DEVELOPMENT
REPORT
2003

                      Millennium Development Goals: A compact among nations to end human poverty

                      Images

                      Published
for the United Nations
Development Programme
(UNDP)

                      New York Oxford
Oxford University Press
2003

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TEAM FOR THE PREPARATION OF
Human Development Report 2003

Director and Editor-in-Chief
Sakiko Fukuda-Parr

Special Adviser
Nancy Birdsall

Guest Contributing Editor
Jeffrey Sachs
Core team

Silva Bonacito, Emmanuel Boudard, Carla De Gregorio, Haishan Fu (Chief of Statistics), Claes Johansson, Christopher Kuonqui, Santosh Mehrotra, Tanni Mukhopadhyay, Omar Noman (Deputy Director), Stefano Pettinato, David Stewart, Aisha Talib, Nena Terrell and Emily White

Principal consultants

Nancy Birdsall, Fernando Caldern, Isidoro P. David, Angus Deaton, Diane Elson, Richard Jolly, James Manor, Ann Pettifor, Sanjay Reddy and Frances Stewart

Statistical adviser: Tom Griffin

Editors: Charis Gresser and Bruce Ross-Larson Design: Gerald Quinn

 The team benefited from close collaboration with
The Millennium Project team

John McArthur (Manager), Chandrika Bahadur, Michael Faye, Margaret Kruk, Guido Schmidt-Traub and Thomas Snow

The Millennium Project Task Force coordinators and principal contributors

Jhoney Barcarolo, Nancy Birdsall, Kwesi Botchwey, Mushtaque Chowdhury, Prarthna Dayal, Lynn Freedman, Pietro Garau, Caren Grown, Amina Ibrahim, Calestous Juma, Yolanda Kakabadse Navarro, Alec Irwin, Zahia Khan, Jim Kim, Yee-Cheong Lee, Roberto Lenton, Ruth Levine, Don Melnick, Patrick Messerlin, Eva Ombaka, Joan Paluzzi, Mari Pangestu, Geeta Rao Gupta, Allan Rosenfield, Josh Ruxin, Pedro Sanchez, Sara Scherr, Elliott Sclar, Burton Singer, Smita Srinivas, M.S. Swaminathan, Paulo Teixeira, Awash Teklahaimanot, Ron Waldman, Paul Wilson, Meg Wirth, Albert Wright and Ernesto Zedillo

Foreword

This Report is about a simple idea whose time has come: the Millennium Development Goals.

Born of the historic Millennium Declaration adopted by 189 countries at the UN Millennium Summit in September 2000, these eight Goalsranging from halving extreme poverty to halting the spread of HIV/AIDS to enrolling all boys and girls everywhere in primary school by 2015are transforming development. Governments, aid agencies and civil society organizations everywhere are reorienting their work around the Goals.

But despite these welcome commitments in principle to reducing poverty and advancing other areas of human development, in practiceas this Report makes very clearthe world is already falling short. For some of the Goals much of the world is on track. But when progress is broken down by region and country and within countries, it is clear that a huge amount of work remains. More than 50 nations grew poorer over the past decade. Many are seeing life expectancy plummet due to HIV/AIDS. Some of the worst performersoften torn by conflictare seeing school enrolments shrink and access to basic health care fall. And nearly everywhere the environment is deteriorating.

The central part of this Report is devoted to assessing where the greatest problems are, analysing what needs to be done to reverse these setbacks and offering concrete proposals on how to accelerate progress everywhere towards achieving all the Goals. In doing so, it provides a persuasive argument for why, even in the poorest countries, there is still hope that the Goals can be met. But though the Goals provide a new framework for development that demands results and increases accountability, they are not a programmatic instrument. The political will and good policy ideas underpinning any attempt to meet the Goals can work only if they are translated into nationally owned, nationally driven development strategies guided by sound science, good economics and transparent, accountable governance.

That is why this Report also sets out a Millennium Development Compact. Building on the commitment that world leaders made at the 2002 Monterrey Conference on Financing for Development to forge a new partnership between developed and developing countriesa partnership aimed squarely at implementing the Millennium Declarationthe Compact provides a broad framework for how national development strategies and international support from donors, international agencies and others can be both better aligned and commensurate with the scale of the challenge of the Goals. And the Compact puts responsibilities squarely on both sides: requiring bold reforms from poor countries and obliging donor countries to step forward and support those efforts.

The aim is not to propose yet another new vision or one-size-fits-all solution to the problems of the developing world; the past 50 years have been littered with the skeletons of far too many of those. Rather, the Compact seeks to highlight the key areas of interventionfrom democratic governance to economic stability to commitments to health and educationthat should guide national efforts and international support for the Goals. In middle-income countries these interventions should be integrated with regular budget processes and long-term development strategies. In the poorest countries Poverty Reduction Strategy Papers will likely be the most appropriate instrument. The point is not to provide something new or place additional burdens on overstretched governments, but to offer concrete ideas on how to ensure that the fine words of the Millennium Declarationelevating poverty to the top of the global agendaare matched by real, country-owned action plans that make those words a reality.

There are good technocratic reasons for taking this approach. As this Report makes clear, the Goals not only support human development, they are also achievable with the right policies and sufficient resources. But the real power of the Goals is political. They are the first global development vision that combines a global political endorsement with a clear focus on, and means to engage directly with, the world's poor people.

Poor people care about what happens to their income levels. Poor people care about whether their children get into school. Poor people care about whether their daughters are discriminated against in terms of access to education. Poor people care enormously about pandemics and about infectious diseases such as HIV/AIDS, which are devastating communities in Africa. And poor people care a lot about their environment, and whether they have access to clean water and sanitation. Now, with democracy spreading across the developing world, poor people can finally do more than care.

In a very real sense the Goals are a development manifesto for ordinary citizens around the world: time-bound, measurable, pocketbook issues that they can immediately understandand more important, with adequate data, the Goals seek to hold their governments and the wider international community accountable for their achievement.

That is important. Because while the main focus of the Millennium Development Compact is the first seven Goals and how they apply to developing countries, it is no exaggeration to say that the overall success or failure of the new global partnership the world is trying to build will hinge on achieving the eighth Goal: the one that sets outs the commitments of rich countries to help poor ones who are undertaking good faith economic, political and social reforms.

A key conclusion of this Report is that while reallocating and mobilizing more domestic resources towards targets related to the Goals, strengthening governance and institutions and adopting sound social and economic policies are all necessary to achieve the Goals, they are far from sufficient. The Report is full of examples of countries that are model reformersbut that have not achieved strong growth because geographic isolation, hostile environments or other handicaps mean that sustained external support at well above existing levels is critical to advance their development.

Long-term initiatives to halve hunger and poverty will fail without fundamental restructuring of the global trade systemparticularly in agriculturethat includes rich countries dismantling subsidies, lowering tariffs and levelling the playing field. The fight against HIV/AIDS, malaria and other diseases will be lost without effective supplies of affordable, essential drugs to poor countries. Stable, long-term fiscal planning will be impossible for some of the poorest countries without more systematic, sustained debt relief. And last but by no means least, it is important to remember that estimates of an additional $50 billion a year in development assistance to meet the Goals are a minimumand assume large-scale reallocations of and better access to domestic resources and other sources of finance.

If the fundamental vision of the Goals as a means of better managing globalization on behalf of poor people is to be met, the Goals need to be seen as an indivisible package. It is a package that holds unprecedented promise for improving human development around the worldand a promise that every country has pledged to keep. The challenge is to hold countries to their promises and help them reach the Goals.

Every Human Development Report is a collaborative effort that relies on the help and expertise of not only a dedicated core team but also a wide range of friends and advisers. This year that pool has been broader than usual because UNDP has been able to draw on the preliminary work of The Millennium Projecta network of more than 300 policy-makers, practitioners and experts from around the world who are providing their time, knowledge and energy to a three-year effort to map out exciting new strategies to help countries meet the Goals.

As with previous Reports, this is an independent analysis seeking to advance the debate on human development, not a formal statement of UN or UNDP policy. Nevertheless, as an outline of the central development obstacles and opportunities over the next decade, we believe that it helps frame an ambitious agenda for UNDP and our development partners in the months and years to come.

images

Mark Malloch Brown
Administrator, UNDP

The analysis and policy recommendations of this Report do not necessarily reflect the views of the United Nations Development Programme, its Executive Board or its Member States. The Report is an independent publication commissioned by UNDP. It is the fruit of a collaborative effort by a team of eminent consultants and advisers and the Human Development Report team. Sakiko Fukuda-Parr, Director of the Human Development Report Office, led the effort.

Acknowledgements

This Report could not have been prepared without the generous contributions of many individuals and organizations.

The team is particularly grateful for close collaborations with the Millennium Campaign, directed by Eveline Herfkens; the Millennium Project, directed by Jeffrey Sachs; and the Millennium Development Goal Country Reporting Initiative, led by Jan Vandemoortele.

CONTRIBUTORS

Background research commissioned for the Report was contributed by Nancy Birdsall and Michael Clemens, Fernando Caldron and Christopher Pinc, Isadoro P. David, Angus Deaton, Richard Jolly, James Manor, Ann Pettifor and Romilly Greenhill, Sanjay Reddy and Camelia Miniou, and Frances Stewart.

Country studies on selected themes commissioned for the Report were contributed by Halis Akder, Gustavo Arriola, Prosper Backiny-Yetna, Nirupam Bajpay, Edgar Balsells, Shuming Bao, Siaka Coulibaly, Michael Faye, Juan Alberto Fuentes, Ricardo Fuentes, Carlos Alonso Malaver, John McArthur, Rosane Mendona, Solita T. Monsod, Toby T. Monsod, Andrs Montes, Marc Raffinot, Luca Mina Rosero, Jeffrey Sachs, Alfredo Sarmiento, Thomas Snow, Irena Topinska, Sandra lvarez Toro, Wing Woo and Natalia Zubarevich.

The Report also drew on research contributed by members of the Millennium Project's task forces, as listed at http://www.unmillenniumproject.org/html/task_force.shtm.

The UNDP Bureau for Development Policy's Environmentally Sustainable Development Group made special contributions to the chapter on the environment, especially Peter Hazelwood, Susan McDade, Charles McNeill, Alvaro Umana and Jake Werksman, with editor Karen Holmes.

Several organizations generously shared their data and other research materials: the Carbon Dioxide Information Analysis Center, Center for International Comparisons (University of Pennsylvania), Food and Agriculture Organization, International Institute for Strategic Studies, Inter-Parliamentary Union, International Labour Organization, International Telecommunication Union, Joint United Nations Programme on HIV/AIDS, Luxembourg Income Study, Organisation for Economic Cooperation and Development, Statistics Canada, Stockholm International Peace Research Institute, Treaty Section of the Office of Legal Affairs of the United Nations, United Nations Children's Fund, United Nations Conference on Trade and Development, United Nations Department of Economic and Social Affairs, United Nations Educational, Scientific and Cultural Organization Institute for Statistics, United Nations Environment Programme, United Nations High Commission for Human Rights, United Nations High Commissioner for Refugees, United Nations Human Settlements Programme, United Nations Interregional Crime and Justice Research Institute, United Nations Population Division, United Nations Population Fund, United Nations Statistics Division, World Bank, World Health Organization, World Intellectual Property Organization and World Trade Organization.

Chapter 2 benefited from the country maps created by the Center for International Earth Science Information Network (CIESIN), especially the work of Deborah Balk, Gregory Booma, Melanie Brickman and Marc Levy.

ADVISORY PANELS

The Report benefited greatly from intellectual advice and guidance provided by an external advisory panel of eminent experts including Sudhir Anand, Per Pinstrup-Anderson, Peggy Antrobus, Roberto Bissio, Shahid Javed Burki, Angus Deaton, Geoffrey Heal, Ellen t'Hoen, Danuta Hbner, Nicolas Imboden, Richard Jolly, K.S. Jomo, Stephen Lewis, Nora Lustig, James Manor, Solita Monsod, Emmanuel Tumisimi Mutebile, Ann Pettifor, Surin Pitsuwan, Jorge F. Quiroga, Steve Radelet, Gustav Ranis, Kate Raworth, Sanjay Reddy, Mary Robinson, Iyer Saradha, Arjun Sengupta, George Soros, Frances Stewart, Joseph Stiglitz, Paul Streeten, Miguel Szekely, Robert Wade and Ngaire Woods. An advisory panel on statistics included Sudhir Anand, Paul Cheung, Willem DeVries, Lamine Diop, Carmen Feijo, Andrew Flatt, Paolo Garonna, Robert Johnston, Irena Krizman, Nora Lustig, Ian Macredie, Marion McEwin, Wolf Scott, Tim Smeeding and Michael Ward.

CONSULTATIONS

During the preparation of the Report many individuals provided invaluable advice, information and material. The Report team thanks Carla Abouzahr, Masood Ahmed, Claude Akpabie, Diana Alkaron, Sahin Alpay, Philip Alston, Brian Ames, Shaida Badiee, Christian Barry, Grace Bediako, Misha Belkindas, Julia Benn, Anna Betran, Surjit Bhalla, Yonas Biru, Ties Boerma, Virginia Braunstein, Heinrich Brngger, Edelisa Carandang, Gabriella Carolini, Marion Cheatle, Nicholas Chipperfield, David Cieslikowski, Patrick Cornu, Andrew Creese, Gloria Cuaycong, Sufian Daghra, Alberto Pedro DAlotto, Shantayanan Devarajan, Volodymyr Demkine, Michael Doyle, Elizabeth Drake, Jean Drze, Graham Eele, Simon Ellis, Kareen Fabre, Neil Fantom, Shahrokh Fardoust, Kayode Fayemi, Karen Fogg, Phillip Fox, Marta Gacic-Dobo, Gourishankar Ghosh, Alexandre Goubarev, Stefanie Grant, Isabelle Guillet, Emmanuel Guindon, Messaoud Hammouya, Sufian Abu Harb, Ines Havet, Eveline Herfkens, Harvey Herr, Nadia Hijab, John Hilary, Masako Hiraga, Karen Holmes, John Hough, Bla Hovy, Jos Augusto Hueb, Roslyn Jackson, Daniel Janzen, Jens Johansen, Lawrence Jeff Johnson, Robert Johnston, Karen Judd, Kei Kawabata, Taro Komatsu, Eline L. Korenromp, Aki Kuwahara, Olivier Labe, Mark Lattimer, Henri Laurencin, Sophia Lawrence, Haeduck Lee, Richard Leete, Corinne Lennox, Denise Lievesley, Rolf Luyendijk, Nyein Nyein Lwin, Doug Lynd, Esperanza C. Magpantay, Mary Mahy, Kamal Malhotra, Stephen Marks, Gordon McCord, Jeff McNeely, Pratibha Mehta, Jos Antonio Mejia, Clare Menozzi, Jorge Mernies, Camelia Minouiu, Franco Modigliani, Roland Monasch, Sufian Mushasha, Maryann Neill, Aime Nichols, Ann Orr, Jude Padyachy, Franois Pelletier, Francesca Perucci, Rudolphe Petras, Marina Ponti, William Prince, Agnes Puymoyen, Tatiana Rosito, William Ryan, Sudhir Shetty, Antoine Simonpietri, Anuja Singh, Armin Sirco, Anatoly Smyshlyaev, Abigail Spring, Petter Stlenheim, Eric Swanson, Sirageldin Suliman, Minoru Takada, Gordon Teles-ford, Javier Teran, Benedicte Terryn, Nyi Nyi Thaung, Michel Thieren, Irene Tinker, Zineb Touimi-Benjelloun, Pierre Varly, Neff Walker, Tessa Wardlaw, Catherine Watt, Simon Wezemon, Caitlin Wiesen, Robertson Work, Nuri Yildirim, A. Sylvester Young, Zohra Yusuf, Elizabeth Zaniewski and Hania Zlotnik.

Consultations were held with diverse groups at workshops on the Millennium Development Goals in Dhaka (Bangladesh) and Bratislava (Slovakia), with civil society groups at the World Social Forum in Porto Alegre (Brazil) and during panel discussions at the Asia Social Forum in Hyderabad (India). The team is particularly grateful to Roberto Bissio, Marina Ponti and Caitlin Wiesin for facilitating these consultations.

An informal statistical consultation provided the team with helpful comments and suggestions. The statistical team thanks Simon Ellis, Brian Hammond, Robert Johnston, Gareth Jones, Denise Lievesley, Laila Manji, Robert Mayo, Abdelhay Mechbal, Sulekha Patel, Francesca Perucci, Jos Pessoa, Eric Swanson, Michel Thieren, Abiodun Williams and A. Sylvester Young.

The Report team also held several informal consultations with the executive board of UNDP and members of the programme.

UNDP READERS

A Readers Group, made up of colleagues in UNDP, provided extremely useful comments, suggestions and inputs during the writing of the Report. The Report team is especially grateful to Anne-Birgitte Albrectsen, Zphrin Diabre, Djibril Diallo, Moez Doraid, Enrique Ganuza, Ameerah Haq, Nicola Harrington, Rima Khalaf Hunaidi, Selim Jahan, Zahir Jamal, Abdoulie Janneh, Bruce Jenks, Deborah Landey, Khalid Malik, Elena Martinez, Kalman Miszei, Shoji Nishimoto, Hafiz Pasha, Monica Sharma, Mark Suzman, Julia Taft, Alvaro Umana, Jan Vandemoortele, Gita Welch and Jake Werksman.

STAFF SUPPORT

Administrative support for the Report's preparation was provided by Oscar Bernal, Renuka Corea-Lloyd, Mamaye Gebretsadik, Maria Leon, Myriame Montrose and Bhagirathi Savage. Other colleagues from the Human Development Report Office provided invaluable inputs: Sarah Burd-Sharps, Ana Cutter, Carolina Den Baas, Sharmila Kurukulasuriya, Juan Pablo Mejia, Mary Ann Mwangi, and Frdric Teboul. The Report also benefited from the dedicated work of interns: Nicola Baroncini, Bethany Donithorn, Abdoulie Abrar Janneh, Barcai M. Karim, Alia Malik, Julia Wanjiru Schwarz, Wilatluk Sinswat and Lara Weisstaub. Nebi Ayele, Gilberto de Jesus and Stephanie Meade made valuable contributions to the outreach and statistical teams.

Invaluable organizational and administrative support was provided by Jennifer Copeland of the Millennium Project, Debbie Creque, Dan Nienhauser and Martha Synnott of the Earth Institute at Columbia University, and Rana Barar, Lisa Dreier, Evelyn Luciano, Alissa Schmelz, Brian Torpy, Christie Walkuski and Haynie Wheeler of the Millennium Project's task forces.

Liliana Izquierdo, Juan Lus Larrabure, Natalia Palgova and Gerardo Nuez of the United Nations Office for Project Services provided critical administrative support and management services.

EDITING, PRODUCTION AND TRANSLATION

As in previous years, the Report benefited from the editors at Communications Development Incorporated: Meta de Coquereaumont, Paul Holtz, Elizabeth McCrocklin, Bruce Ross-Larson and Alison Strong. The Report was designed by Gerald Quinn and laid out by Elaine Wilson and Wendy Guyette.

The Report also benefited from the translation, design, promotion and distribution work of the Communications Office of the Administrator, especially Maureen Lynch, William Orme, Hilda Paqui, Pia Reunala and Erin Trowbridge. Translations were reviewed by Alia Al-Dalli, Jean Barut, Ghaith Faliz, Enrique Ganuza, Yolaine Michaud, Cielo Morales and Vladimir Scherbov.

* * *

The team expresses sincere appreciation to the Report's peer reviewersRichard Jolly, Solita Monsod and Jorge F. Quirogawho carefully reviewed drafts and shared their most recent research and insights. The team is also grateful to Ian Macredie, Lene Mikkelsen and Darryl Rhoades, the statistical peer reviewers who scrutinized the use of data in the Report and lent their statistical expertise.

Finally, the authors are especially grateful to Mark Malloch Brown, UNDP's Administrator, for his leadership and vision. And although thankful for all the support they have received, the authors assume full responsibility for the opinions expressed in the Report.

Images

Sakiko Fukuda-Parr
Director
Human Development Report 2003

Contents

OVERVIEW Millennium Development Goals: A compact among nations to end human poverty

The Millennium Development Compact

Giving priority to countries left behind

Critical thresholds for escaping poverty traps

Policy clusters for escaping poverty traps

Implementing the Millennium Development Compact

Conclusion

CHAPTER 1 The Millennium Development Goals

An agenda for accelerating human development

Origin, evolution and followup

Do global goals make a difference?

Addressing the critics

Global goals must be country owned

CHAPTER 2 Priority challenges in meeting the Goals

Stark contrasts between and within regions

Human development reversals in the 1990s

Struggles to achieve the Goals

Good performance by some of the poorest countries

Widening gaps within countries: who is being left behind?

CHAPTER 3 Overcoming structural barriers to growthto achieve the Goals

From human development to economic growthand back

Recent patternsand problemsof global economic growth

Structural challenges of unfavourable geography, small markets and high trading costs

Good policies, economic growth and human development

Weak policies, economic decline and human poverty

Escaping poverty traps

Growth policies that benefit poor people

CHAPTER 4 Public policies to improve people's health and education

Achieving the hunger Goal

Achieving the education Goals

Achieving the health Goals

Achieving the water and sanitation Goals

Cross-cutting priorities

CHAPTER 5 Private finance and provision of health, education and water

Why has private provision increased in poor countries?

Health

Education

Water and sanitation

Promising approaches

CHAPTER 6 Public policies to ensure environmental sustainability

Environmental resources

Policy responses

CHAPTER 7 Mobilizing grass-roots support for the Goals

Decentralizationits rise, its role, its requirements

Social movements and innovations in popular participation

CHAPTER 8 Policy, not charity: what rich countries can do to help achieve the Goals

Aidmore and more effective

Debt relieffaster and deeper

Tradeopening markets, reducing subsidies

Global technologysharing the fruits of global knowledge

Living up to the commitments of the Millennium Declaration: policy, not charity

Notes

Bibliographic note

Bibliography

SPECIAL CONTRIBUTION

Poverty, globalization and growth: perspectives on some of the statistical links Joseph E. Stiglitz

BOXES

1.1    The Millennium Development Goals, human development and human rights share a common motivation

1.2    Do global goals make a difference?

2.1    Building statistical capacityunprecedented demand, urgent opportunity

2.2    What is happening with global income inequality? Grotesque levels, ambiguous trends

2.3    Measuring income poverty: where to draw the line?

2.4    Struggling to meet the Goalsdefining top priority and high priority countries

2.5    Violent conflict and the Goals

2.6    Great leaps forward are possible in yearsnot decades

2.7    Disaggregated data within countries: national human development reports

2.8    Conflicts within countries

3.1    Growth needed to halve income poverty

3.2    Bangladeshlarge and inland, with access to the coast

3.3    Challenges in the Andean region

3.4    China and Indiaimpressive growth, important differences

3.5    The Millennium Development Goals and conflict countries

3.6    What's needed to make the Millennium Development Compact work in Uganda

4.1    Women's capabilities and agencykey to achieving the Millennium Development Goals

4.2    Policy lessons from high-achieving countries in health and education

4.3    Increasing soil fertility in Sub-Saharan Africa

4.4    Farm policies and food security

4.5    Military spending or education? The inconsistencies of government action

4.6    Thailand's success in preventing HIV/AIDS

4.7    Policy priorities and technical interventions

4.8    Integrating vertical programmes into working health systems

4.9    Ensuring essential medicines for allsuccess in Bhutan

4.10  Affordable sanitation in India

4.11  South Africa and the right to water

5.1    Social services and the General Agreement on Trade in Services

5.2    User fees in South Africa and Bolivia

5.3    Successful state-run water systems

5.4    Metropolitan Manila and Buenos Aires: mixed record of experience with water privatization

5.5    The Bamako Initiative: pooling community resources for health care

6.1    How global climate change threatens developing countries

6.2    Improving the lives of slum dwellers

6.3    Involving local residents in conservation in Guanacaste, Costa Rica

6.4    Promoting equity and the environmenta creative fiscal example from Brazil

6.5    Global fisheriesgetting sunk by subsidies

6.6    Felling forestswith subsidies

6.7    Policy responses to climate change

7.1    Madhya Pradesh and Rajasthaneducation policies that deliver results

7.2    Mutual pressures for accountabilitybetween local governments and civil societystrengthen governance in Cear, Brazil

7.3    Decentralization helps increase equity in Kerala, India

7.4    Does decentralization help reduce poverty?

8.1    Millennium Development Goal 8

8.2    Official development assistance: the 0.7% target

8.3    New financing for the Goals

8.4    Making government-led partnerships work in Tanzania

8.5    Refocusing technical cooperation on capacity development

8.6    What is the Heavily Indebted Poor Countries initiative?

8.7    A proposal for restructuring debt to reach the Goals

8.8    The long international reach of domestic subsidies

8.9    The Doha gamble for Africa's cotton exporters

8.10  The commitment to development index

TABLES

2.1    Countries that saw a drop in the human development index, 1980s and 1990s

2.2    Economic growth and income poverty: strong links

2.3    Changes in the share and number of people living on $1 a day have been uneven

2.4    Big countries face big threats from HIV/AIDS by 2025, even with a moderate epidemic

2.5    Child mortality rates: changes in levels and in wealth gaps, selected countries, 1980s and 1990s

5.1    Investments in water and sanitation projects involving private participation, various countries, 199094 and 19952000

6.1    Why reaching the environmental Goal is so important for the other Goals

8.1    Net receipts of official development assistance by region, 1990 and 2001

8.2    Trade: exploiting the opportunitiesor not

8.3    PostUruguay Round tariffs and reductions in selected countries and groups

8.4    Rich country responsibilities

FIGURES

2.1    Timeline: when will the MDGs be achieved if progress does not accelerate?

2.2    Comparing child mortality for OECD countries and developing regions

2.3    Human development setbacks

2.4    Fast growth is the exceptionwith populous countries doing well

2.5    Growth and income poverty links: not automatic

2.6    HIV/AIDS cases have skyrocketed

2.7    Loss of life expectancy due to HIV/AIDS

3.1    Per capita income and income poverty, 1990s

3.2    Human development and incomes

3.3    From human development to growthand back

4.1    Educated girls lead different lives

4.2    Food insecurity increases

4.3    High household costs lead to lower primary enrolment

4.4    A large share of aid for health goes to basic services

4.5    Many urban households lack water and sanitation

6.1    Higher petrol consumption is associated with lower prices in OECD countries, 2001

8.1    Aidwhat's needed, what's given?

8.2    Official development assistance (ODA) in decline

8.3    Official development assistance, net disbursements

8.4    For the poorest: caught between falling aid and level debt

8.5    Spending shifts from debt service to human development in 10 countries benefitting from HIPC debt relief

8.6    Cows and cotton receive more aid than people, 2000

8.7    OECD agricultural subsidies dwarf aid, 2001

8.8    Oral rehydration therapy (ORT) reduces child mortality despite income stagnation

FEATURES

2.1    Progress towards the Millennium Development Goals

2.2    Measuring human development: the human development indices

2.3    Widening gaps within countriesbetween areas and groups

          Map 1    Geographic distribution of income in China, 2000

          Table 1  Illiteracy rates in Brazil by region, ages 15 and older, 1990 and 2001

          Map 2    Adult literacy in Mexico, 2000

          Map 3    Human development index in the Philippines, 1994

          Table 2  Infant mortality rates in India by state and region, 1990s

          Map 4    Maternal mortality in Guatemala, 1997

          Map 5    Human development index in Russian regions, 2000

3.1    Development challengesthrough the lens of geography

          Map 1    Classification of countries by economic structure, 1995

          Map 2    Country classification by average annual growth in GDP per capita, 1990

          Table 1  Economic growth rates by country group, 198098

          Table 2  Economic growth rates by population size and location, 198098

Note on statistics in the Human Development Report

MILLENNIUM DEVELOPMENT GOAL INDICATORS

MDG 1     Goal 1    Eradicate extreme poverty and hunger

                Goal 2    Achieve universal primary education

MDG 2     Goal 3    Promote gender equality and empower women

MDG 3     Goal 4    Reduce child mortality

                Goal 5    Improve maternal health

MDG 4     Goal 6    Combat HIV/AIDS, malaria and other diseases

MDG 5     Goal 7    Ensure environmental sustainability: land and air

MDG 6     Goal 7    Ensure environmental sustainability: water and sanitation

MDG 7     Goal 8    Develop a global partnership for development: development assistance and market access

MDG 8     Goal 8    Develop a global partnership for development: landlocked countries and small island developing states

MDG 9     Goal 8    Develop a global partnership for development: debt sustainability

MDG 10   Goal 8    Develop a global partnership for development: work opportunities, access to drugs and access to new technologies

HUMAN DEVELOPMENT INDICATORS

MONITORING HUMAN DEVELOPMENT: ENLARGING PEOPLE'S CHOICES

1        Human development index

2        Human development index trends

3        Human and income poverty: developing countries

4        Human and income poverty: OECD countries, Central & Eastern Europe & CIS

TO LEAD A LONG AND HEALTHY LIFE

5        Demographic trends

6        Commitment to health: access, services and resources

7        Leading global health crises and challenges

8        Survival: progress and setbacks

TO ACQUIRE KNOWLEDGE

9       Commitment to education: public spending

10     Literacy and enrolment

11     Technology: diffusion and creation

TO HAVE ACCESS TO THE RESOURCES NEEDED FOR A DECENT STANDARD OF LIVING

12     Economic performance

13     Inequality in income or consumption

14     The structure of trade

15     Flows of aid from DAC member countries

16     Flows of aid, private capital and debt

17     Priorities in public spending

18     Unemployment in OECD countries

WHILE PRESERVING IT FOR FUTURE GENERATIONS

19     Energy and the environment

PROTECTING PERSONAL SECURITY

20     Refugees and armaments

21     Victims of crime

AND ACHIEVING EQUALITY FOR ALL WOMEN AND MEN

22     Gender-related development index

23     Gender empowerment measure

24     Gender inequality in education

25     Gender inequality in economic activity

26     Gender, work burden and time allocation

27     Women's political participation

HUMAN AND LABOUR RIGHTS INSTRUMENTS

28     Status of major international human rights instruments

29     Status of fundamental labour rights conventions

30     Basic indicators for other UN member countries

Technical notes

1        Calculating the human development indices

2        Identifying top priority and high priority countries in the Millennium Development Goals

Definitions of statistical terms

Statistical references

Classification of countries

Index to indicators

Online data

          Statistical country profiles

          Interactive map

          HDI visualization tool

          Build your own index

          Database

OVERVIEW

Images    Millennium Development Goals: A compact among nations to end human poverty

The new century opened with an unprecedented declaration of solidarity and determination to rid the world of poverty. In 2000 the UN Millennium Declaration, adopted at the largest-ever gathering of heads of state, committed countriesrich and poorto doing all they can to eradicate poverty, promote human dignity and equality and achieve peace, democracy and environmental sustainability. World leaders promised to work together to meet concrete targets for advancing development and reducing poverty by 2015 or earlier.

Emanating from the Millennium Declaration, the Millennium Development Goals bind countries to do more in the attack on inadequate incomes, widespread hunger, gender inequality, environmental deterioration and lack of education, health care and clean water (box 1). They also include actions to reduce debt and increase aid, trade and technology transfers to poor countries. The March 2002 Monterrey Consensusreaffirmed in the September 2002 Johannesburg Declaration on Sustainable Development and the Johannesburg Plan of Implementationprovides a framework for this partnership between rich and poor countries.

It is hard to think of a more propitious time to mobilize support for such a global partnership. In 2003 the world has seen even more violent conflict, accompanied by heightened international tension and fear of terrorism. Some might argue that the war on poverty must take a backseat until the war on terrorism has been won. But they would be wrong. The need to eradicate poverty does not compete with the need to make the world more secure. On the contrary, eradicating poverty should contribute to a safer worldthe vision of the Millennium Declaration.

Addressing poverty requires understanding its causes. This Report adds to that understanding by analysing the root causes of failed development. During the 1990s debates about development focused on three sets of issues. The first was the need for economic reforms to establish macroeconomic stability. The second was the need for strong institutions and governanceto enforce the rule of law and control corruption. The third was the need for social justice and involving people in decisions that affect them and their communities and countriesan issue that this Report continues to champion.

These issues are all crucial for sustainable human development, and they continue to deserve priority attention in policy-making. But they overlook a fourth factor, explored here: the structural constraints that impede economic growth and human development. The Millennium Development Compact presented in this Report proposes a policy approach to achieving the Millennium Development Goals that starts by addressing these constraints.

National ownershipby governments and communitiesis key to achieving the Millennium Development Goals. Indeed, the Goals can foster democratic debate, and leaders are more likely to take the actions required for the Goals when there is pressure from engaged populations

The Goals will succeed only if they mean something to the billions of individuals for whom they are intended. The Goals must become a national reality, embraced by their main stakeholderspeople and governments. They are a set of benchmarks for assessing progressand for enabling poor people to hold political leaders accountable. They help people fight for the kinds of policies and actions that will create decent jobs, improve access to schools and root out corruption. They are also commitments by national leaders, who must be held accountable for their fulfilment by their electorates.


BOX 1

Millennium Development Goals and targets

Goal 1:    Eradicate extreme poverty and hunger

Target 1: Halve, between 1990 and 2015, the proportion of people whose income is less than $1 a day
Target 2: Halve, between 1990 and 2015, the proportion of people who suffer from hunger

Goal 2:    Achieve universal primary education

Target 3: Ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling

Goal 3:    Promote gender equality and empower women

Target 4: Eliminate gender disparity in primary and secondary education, preferably by 2005 and in all levels of education no later than 2015

Goal 4:    Reduce child mortality

Target 5: Reduce by two-thirds, between 1990 and 2015, the under-five mortality rate

Goal 5:    Improve maternal health

Target 6: Reduce by three-quarters, between 1990 and 2015, the maternal mortality ratio

Goal 6:    Combat HIV/AIDS, malaria and other diseases

Target 7: Have halted by 2015 and begun to reverse the spread of HIV/AIDS
Target 8: Have halted by 2015 and begun to reverse the incidence of malaria and other major diseases

Goal 7:    Ensure environmental sustainability

Target 9: Integrate the principles of sustainable development into country policies and programmes and reverse the loss of environmental resources
Target 10: Halve by 2015 the proportion of people without sustainable access to safe drinking water
Target 11: Have achieved by 2020 a significant improvement in the lives of at least 100 million slum dwellers

Goal 8:    Develop a global partnership for development

Target 12: Develop further an open, rule-based, predictable, nondiscriminatory trading and financial system (includes a commitment to good governance, development, and poverty reductionboth nationally and internationally)
Target 13: Address the special needs of the least developed countries (includes tariff- and quota-free access for exports, enhanced program of debt relief for and cancellation of official bilateral debt, and more generous official development assistance for countries committed to poverty reduction)
Target 14: Address the special needs of landlocked countries and small island developing states (through the Program of Action for the Sustainable Development of Small Island Developing States and 22nd General Assembly provisions)
Target 15: Deal comprehensively with the debt problems of developing countries through national and international measures in order to make debt sustainable in the long term
Target 16: In cooperation with developing countries, develop and implement strategies for decent and productive work for youth
Target 17: In cooperation with pharmaceutical companies, provide access to affordable essential drugs in developing countries
Target 18: In cooperation with the private sector, make available the benefits of new technologies, especially information and communications technologies

When adopted by communities, the Goals can spur democratic debates about government performance, especially when impartial data are made availableposted on the door of every village hall. They can also become campaign platforms for politicians, as with Brazilian President Luis Inacio Lula da Silva's Fome Zero (Zero Hunger) campaign to eliminate hunger, part of the manifesto for his presidential bid.

Civil society groupsfrom community organizations to professional associations to women's groups to networks of non-governmental organizations (NGOs)have an important role in helping to implement and monitor progress towards the Goals. But the Goals also require capable, effective states able to deliver on their development commitments. And they require popular mobilization to sustain the political will for achieving them. This popular mobilization requires open, participatory political cultures.

Political reforms, such as decentralizing budgets and responsibilities for the delivery of basic services, put decision-making closer to the people and reinforce popular pressure for implementing the Goals. Where decentralization has workedas in parts of Brazil, Jordan, Mozambique and the Indian states of Kerala, Madya Pradesh and West Bengalit has brought significant improvements. It can lead to government services that respond faster to people's needs, expose corruption and reduce absenteeism.

But decentralization is difficult. To succeed, it requires a capable central authority, committed and financially empowered local authorities and engaged citizens in a well-organized civil society. In Mozambique committed local authorities with financing authority increased vaccination coverage and prenatal consultations by 80%, overcoming capacity constraints by contracting NGOs and private providers at the municipal level.

Recent experiences have also shown how social movements can lead to more participatory decision-making, as in the public monitoring of local budgets. In Porto Alegre, Brazil, public monitoring of local budgets has brought huge improvements in services. In 1989 just under half of city residents had access to safe water. Seven years later, nearly all did. Primary school enrolments also doubled during that time, and public transportation expanded to outlying areas.

Such collective action improves basic services and helps spur and sustain political will. Ordinary citizens have pressured their leaders to deliver on their political commitments. And the Goals provide citizens with a tool to hold their governments accountable.

Because the Millennium Development Goals will not be realized with a business as usual approach, the pace of progress must be dramatically accelerated

The past 30 years saw dramatic improvements in the developing world. Life expectancy increased by eight years. Illiteracy was cut nearly in half, to 25%. And in East Asia the number of people surviving on less than $1 a day was almost halved just in the 1990s.

Still, human development is proceeding too slowly. For many countries the 1990s were a decade of despair. Some 54 countries are poorer now than in 1990. In 21 a larger proportion of people is going hungry. In 14, more children are dying before age five. In 12, primary school enrolments are shrinking. In 34, life expectancy has fallen. Such reversals in survival were previously rare.

A further sign of a development crisis is the decline in 21 countries in the human development index (HDI, a summary measure of three dimensions of human developmentliving a long and healthy life, being educated and having a decent standard of living). This too was rare until the late 1980s, because the capabilities captured by the HDI are not easily lost.

If global progress continues at the same pace as in the 1990s, only the Millennium Development Goals of halving income poverty and halving the proportion of people without access to safe water stand a realistic chance of being met, thanks mainly to China and India. Regionally, at the current pace Sub-Saharan Africa would not reach the Goals for poverty until 2147 and for child mortality until 2165. And for HIV/AIDS and hunger, trends in the region are heading upnot down.

That so many countries around the world will fall far short of the Millennium Development Goals in the 12 years to 2015 points to an urgent need to change course. But past development successes show what is possible even in very poor countries. Sri Lanka managed to increase life expectancy by 12 years between 1945 and 1953. Botswana provides another inspiring example: gross enrolments in primary school jumped from 40% in 1960 to almost 91% in 1980.

Today's world has greater resources and know-how than ever before to tackle the challenges of infectious disease, low productivity, lack of clean energy and transport and lack of basic services such as clean water, sanitation, schools and health care. The issue is how best to apply these resources and know-how to benefit the poorest people.

Two groups of countries require urgent changes in course. First are countries that combine low human development and poor performance towards the Goalsthe top priority and high priority countries. Second are countries progressing well towards the Goals but with deep pockets of poor people being left behind

There are 59 top priority and high priority countries, where failed progress and terribly low starting levels undermine many of the Goals. It is on these countries that the world's attention and resources must be focused.

In the 1990s these countries faced many types of crises:

Income poverty: poverty rates, already high, increased in 37 of 67 countries with data.

Hunger: in 19 countries more than one person in four is going hungry, and the situation is failing to improve or getting worse. In 21 countries the hunger rate has increased.

Survival: in 14 countries under-five mortality rates increased in the 1990s, and in 7 countries almost one in four children will not see their fifth birthdays.

Water: in 9 countries more than one person in four does not have access to safe water, and the situation is failing to improve or getting worse.

Sanitation: in 15 countries more than one person in four does not have access to adequate sanitation, and the situation is failing to improve or getting worse.

Underlying all these crises is an economic crisis. Not only are these countries already extremely poor, but their growth rates are appallingly slow as well.

In the 1990s average per capita income growth was less than 3% in 125 developing and transition countries, and in 54 of them average per capita income fell. Of the 54 countries with declining incomes, 20 are from Sub-Saharan Africa, 17 from Eastern Europe and the Commonwealth of Independent States (CIS), 6 from Latin America and the Caribbean, 6 from East Asia and the Pacific and 5 from the Arab States. They include many priority countries but also some countries with medium human development.

Countries less often in the public eye are those progressing well but excluding or leaving behind certain groups and areas. All countries should address significant disparities between groupsbetween men and women, between ethnic groups, between races and between urban and rural areas. Doing so requires looking behind country averages.

Many countries with national averages indicating adequate progress towards the Goals by the target dates have deep pockets of entrenched poverty. China's spectacular achievement of lifting 150 million people out of income poverty in the 1990s was concentrated in coastal regions. Elsewhere, deep pockets of poverty persist. In some inland regions economic progress has been much slower than in the rest of the country.

In a number of countries the Goals could be met more easily simply by improving the circumstances of people already better off. Evidence suggests that this is happening in health. But while this approach may fit the letter of the Goals, it does not fit their spirit. Women, rural inhabitants, ethnic minorities and other poor people are typically progressing slower than national averagesor showing no progresseven where countries as a whole are moving towards the Goals.

Of 24 developing countries with subnational data on child mortality between the mid-1980s and the mid-1990s, only 3 have narrowed the gap in under-five mortality rates between the richest and poorest groups. Similar patterns can be found in immunization coverage and school enrolment and completion rates, where urban-rural gaps and ethnic gaps appear to be persisting or worsening. Women in poor areas also tend to be excluded from overall progress towards the Goals.

The Millennium Development Compact is a plan of action aimed primarily at the top priority and high priority countries most in need of support

Global policy attention needs to focus on countries facing the steepest development challenges

Global policy attention needs to focus on countries facing the steepest development challenges. Without an immediate change in course, they will certainly not meet the Goals. With that in mind, this Report offers a new plan of action aimed primarily at these countries: the Millennium Development Compact.

To achieve sustainable growth, countries must attain basic thresholds in several key areas: governance, health, education, infrastructure and access to markets. If a country falls below the threshold in any of these areas, it can fall into a poverty trap.

Most of the top and high priority countries are trying to attain these basic thresholds. Yet they face deep-seated structural obstacles that will be difficult to overcome on their own. The obstacles include barriers to international markets and high debt levelswell over what they can service given their limited export capacity. Another important obstacle is a country's size and location. Other structural constraints linked to a country's geography include low soil fertility, vulnerability to climatic shocks or natural disasters and rampant diseases such as malaria. But geography is not destiny. With proper policies, these challenges can be overcome. Better roads and communications and deeper integration with neighbouring countries can increase access to markets. Prevention and treatment policies can greatly mitigate the impact of pandemic diseases.

The same structural conditions that contribute to an entire country's poverty trap can also affect large population groups in countries that are otherwise relatively prosperous. China's remote inland regions, for instance, face much longer distances to ports, much poorer infrastructure and much tougher biophysical conditions than the country's coastal regions which in recent years have enjoyed the fastest economic growth in history. Reducing poverty in poorer regions requires national policies that reallocate resources to them. The top policy priority here is increasing equity, not just economic growth.

Policy responses to structural constraints require simultaneous interventions on several frontsalong with stepped-up external support. Six policy clusters can help countries break out of their poverty traps:

Invest early and ambitiously in basic education and health while fostering gender equity. These are preconditions to sustained economic growth. Growth, in turn, can generate employment and raise incomesfeeding back into further gains in education and health gains.

Increase the productivity of small farmers in unfavourable environmentsthat is, the majority of the world's hungry people. A reliable estimate is that 70% of the world's poorest people live in rural areas and depend on agriculture.

Improve basic infrastructuresuch as ports, roads, power and communicationsto reduce the costs of doing business and overcome geographic barriers.

Develop an industrial development policy that nurtures entrepreneurial activity and helps diversify the economy away from dependence on primary commodity exportswith an active role for small and medium-size enterprises.

Promote democratic governance and human rights to remove discrimination, secure social justice and promote the well-being of all people.

Ensure environmental sustainability and sound urban management so that development improvements are long term.

The thinking behind these policies is that for economies to function better, other things must fall into place first. It is impossible to reduce dependence on primary commodity exports, for instance, if the workforce cannot move into manufacturing because of low skills.

The job facing top and high priority countries is too big for them to do aloneespecially the poorest countries, which face uncommonly high hurdles with very limited resources. In this the Millennium Development Compact is unapologetic. The poorest countries require significant external resources to achieve essential levels of human development. But this is not a demand for open-ended financing from rich countriesbecause the Compact is also unapologetic on the need for poor countries to mobilize domestic resources, strengthen policies and institutions, combat corruption and improve governance, essential steps on the path to sustainable development.

Unless countries adopt far more ambitious plans for development, they will not meet the Goals. Here the Compact argues that a new principle should apply. Governments of poor and rich countries, as well as international institutions, should start by asking what resources are needed to meet the Goals, rather than allowing the pace of development to be set by the limited resources currently allocated.

Every countryespecially the top and high priority onesneeds to systematically diagnose what it will take to achieve the Goals. This diagnosis should include initiatives that governments of poor countries can take, such as mobilizing domestic fiscal resources, reallocating spending towards basic services, drawing on private financing and expertise and introducing reforms to economic governance. All this will still leave a large resource gap, which governments should identify. Filling this gap will require additional financial and technical cooperation from rich countries, including financing for recurrent costs, more extensive debt relief, better market access and increased technology transfers.

There is broad consensus on the need for a single framework to coordinate development efforts, based on country-owned development strategies and public investment programmes. For low-income countries this framework occurs through Poverty Reduction Strategy Papers, in place in some two dozen countries and under way in two dozen more. Poverty Reduction Strategy Papers, in taking on the challenges of the Millennium Development Goals in a more systematic way, need to start asking what it will take to achieve themand assess the resource gaps and policy reforms that need to be addressed.

Halving the proportion of people in extreme poverty (Goal 1) will require far stronger economic growth in the top priority and high priority countries where growth has been failing. But growth alone will not be enough. Policies also need to strengthen the links between stronger growth and higher incomes in the poorest households

More than 1.2 billion peopleone in every five on Earthsurvive on less than $1 a day. During the 1990s the share of people suffering from extreme income poverty fell from 30% to 23%. But with a growing world population, the number fell by just 123 milliona small fraction of the progress needed to eliminate poverty. And excluding China, the number of extremely poor people actually increased by 28 million.

Unless countries adopt far more ambitious plans for development, they will not meet the Goals

South and East Asia contain the largest numbers of people in income poverty, though both regions have recently made impressive gains. As noted, in the 1990s China lifted 150 million people12% of the populationout of poverty, halving its incidence. But in Latin America and the Caribbean, the Arab States, Central and Eastern Europe and Sub-Saharan Africa the number of people surviving on less than $1 a day increased.

A lack of sustained poverty-reducing growth has been a major obstacle to reducing poverty. In the 1990s only 30 of 155 developing and transition countries with dataabout one in fiveachieved per capita income growth of more than 3% a year. As noted, in 54 of these countries average incomes actually fell.

But economic growth alone is not enough. Growth can be ruthless or it can be poverty reducingdepending on its pattern, on structural aspects of the economy and on public policies. Poverty has increased even in some countries that have achieved overall economic growth, and over the past two decades income inequality worsened in 33 of 66 developing countries with data. All countriesespecially those doing well on average but with entrenched pockets of povertyshould implement policies that strengthen the links between economic growth and poverty reduction.

Growth is more likely to benefit poor people if it is broadly based rather than concentrated in a few sectors or regions, if it is labour intensive (as in agriculture or apparel) rather than capital intensive (as in oil) and if government revenues are invested in human development (as in basic health, education, nutrition and water and sanitation services). Growth is less likely to benefit poor people if it is narrowly based, if it neglects human development or if it discriminates in the provision of public services against rural areas, certain regions, ethnic groups or women.

Import tariffs protect markets in rich countries and reduce incentives for farmers in poor countries to invest in agriculture, which would contribute to more sustainable food security

Public policies that can strengthen the links between growth and poverty reduction include:

Increasing the level, efficiency and equity of investments in basic health, education and water and sanitation.

Expanding poor people's access to land, credit, skills and other economic assets.

Increasing small farmers productivity and diversification.

Promoting labour-intensive industrial growth involving small and medium-size enterprises.

Halving the proportion of hungry people (Goal 1) presents two challenges: ensuring access to food now plentiful and increasing the productivity of farmers now hungry especially in Africa

The number of hungry people fell by nearly 20 million in the 1990s. But excluding China, the number of hungry people increased. South Asia and Sub-Saharan Africa are home to the largest concentrations of hungry people. In South Asia the challenge is improving the distribution of plentifully available food. In Sub-Saharan Africa the challenge also involves increasing agricultural productivity.

Many public actions can be used to reduce hunger. Buffer stocks, especially at the local level, can release food into the market during food emergenciesreducing the volatility of prices. Many countries, such as China and India, have such systems. Food stocks can be particularly important for landlocked countries susceptible to droughts.

In addition, many hungry people are landless or lack secure tenure. Agrarian reform is needed to provide rural poor people with secure access to land. Women produce much of the food in Sub Saharan Africa and South Asia yet do not have secure access to land.

Low agricultural productivity also needs to be addressed, particularly in marginal ecological regions with poor soils and high climatic variability. The dramatic gains of the green revolution have bypassed these areas. A doubly green revolution is neededone that increases productivity and improves environmental sustainability. Increased investments are needed to research and develop better technologies and disseminate them through extension services. So are investments in infrastructure, such as roads and storage systems. Yet public investments and donor support for agriculture have fallen in recent decades.

Import tariffs protect markets in rich countries and reduce incentives for farmers in poor countries to invest in agriculture, which would contribute to more sustainable food security. Enormous subsidies in rich countries also reduce incentives to invest in long-term food security and depress world market pricesthough they can benefit net food importers.

Achieving universal primary education and eliminating gender disparities in primary and secondary education (Goals 23) require addressing efficiency, equity and resource levels as related problems

Across developing regions, more than 80% of children are enrolled in primary school. Yet some 115 million children do not attend primary school, and enrolments are woefully low in Sub-Saharan Africa (57%) and South Asia (84%). Once enrolled, there is a pitiful one in three chance that a child in Africa will complete primary school. In addition, one in six of the world's adults is illiterate. And gaping gender gaps remain: three-fifths of the 115 million children out of school are girls, and two-thirds of the 876 million illiterate adults are women.

Lack of education robs an individual of a full life. It also robs society of a foundation for sustainable development because education is critical to improving health, nutrition and productivity. The education Goal is thus central to meeting the other Goals.

In most poor countries the provision of basic education is highly inequitable, with the poorest 20% of people receiving much less than 20% of public spendingwhile the richest 20% capture much more. In addition, primary education receives much less financing per student than secondary and higher education. This pattern also discriminates against poor people because they benefit much more from basic education.

Household costs for education, such as user fees and uniforms, also discourage enrolment especially from the poorest families. Enrolments increased sharply when uniforms and fees were eliminated in Kenya, Malawi and Uganda. An equitable system also leads to better outcomes: countries that perform well in education tend to spend more on the poorest households and more on primary education.

Countries that have eliminated gender disparities in education show how parents can be encouraged to send their daughters to school: locating schools close to home, minimizing out-of-pocket costs, scheduling school hours to accommodate household chores and recruiting female teachers (giving parents a sense of security). High-achieving countries that have eliminated gender disparities have shares of female teachers much larger than regional averages.

Many school systems suffer from operational inefficiencies, with too many children repeating classes and dropping out of school. In countries where several languages are spoken, teaching in the mother tongue in the early years dramatically improves the learning experience. School feeding programmes also help bring children to school and keep them there; hungry children cannot learn. Early childhood programmes help prepare children entering school, especially children from the first generation of learners in their families.

A daunting challenge in countries with low enrolments is managing recurrent costs to strike a better balance between teacher wage bills which typically eat up 90% or more of recurrent spendingand other costs, such as textbooks. Low spending hurts poor people in particular because elites and powerful groups tend to capture disproportionate shares of small budgets. Small budgets also make it difficult to implement reforms. Increasing equity or efficiency is easier when education resources are growing.

Compounding the resource problem is the decline in donor support for education. In the 1990s such support fell 30% in real terms, to $4.7 billionwith just $1.5 billion for basic education. Donors also typically fund equipment and other capital costs rather than textbooks, teacher salaries and other operating costs. But that is where the real bottlenecks lie.

In both provision and finance, the private sector must do more in secondary and tertiary education. Governments need to encourage NGOs and the private sector to expand supply while maintaining control over standards and centralizing data on the number and quality of private schools. In resource-constrained environments, equity and efficiency require that public subsidies for private primary schooling not be at the expense of basic education for poor people.

Countries can usually spend more on education as their economies grow. But the poorest countries need to spend more on education to escape their poverty traps

Countries can usually spend more on education as their economies grow. But the poorest countries need to spend more on education to escape their poverty trapsand do not have enough resources to make such basic investments.

Promoting gender equality and empowering women (Goal 3), valuable in themselves, are also central to achieving all the other Goals

Promoting gender equality and women's empowerment in its broader scope is a key objective of the Millennium Declaration, though eliminating disparities in primary and secondary education is the only quantitative target set. Education contributes to better health, and better education and health increase the productivity that leads to economic growth. Growth then generates resources that finance improvements in people's health and education, further raising productivity. Gender equality is central in these synergies because women are agents of development.

Women are the primary caregivers in almost all societies. Thus their education contributes more to the health and education of the next generation than does that of meneven more so when women also have a strong say in family decisions. As they get older, educated girls have fewer and healthier children, hastening the transition to lower fertility rates. Better-educated, healthier women also contribute to higher productivityfor example, by adopting farming innovationsand thus to higher household incomes. In addition, such women often work outside the home and earn independent incomes, enhancing their autonomy. These beneficial processes have more force when women have a voice in household decisions. And when women can take collective action to demand more rightsto education, health care, equal employmentthese positive synergies are even more likely.

Governments in poor countries must rank health spending higher than other types of spending, such as defence

Reducing child mortality, improving maternal health and combating HIV/AIDS, malaria and other diseases (Goals 46) require a dramatic increase in access to health care

Every year more than 10 million children die of preventable illnesses30,000 a day. More than 500,000 women a year die in pregnancy and childbirth, with such deaths 100 times more likely in Sub-Saharan Africa than in high-income OECD countries. Around the world 42 million people are living with HIV/AIDS, 39 million of them in developing countries. Tuberculosis remains (along with AIDS) the leading infectious killer of adults, causing up to 2 million deaths a year. Malaria deaths, now 1 million a year, could double in the next 20 years.

Without much faster progress, the Millennium Development Goals in these areas (Goals 46) will not be met. Even for the child mortality Goal, where progress has been steady, at the current pace Sub-Saharan Africa will not reduce child mortality by two-thirds until 150 years later than the date set by the Goal.

Such statistics are shameful given that many of these deaths could be avoided with more widespread use of bednets, midwives, affordable antibiotics, basic hygiene and the treatment approach known as DOTS (Directly Observed Therapy Short Course) to combat tuberculosis none a high-tech solution, yet together they could save millions of lives. But for too many countries they remain out of reach. Why? For broad systemic reasons. As with education, there is a lack of resources for health systems (especially for basic health), a lack of equity in what systems provide and a lack of efficiency in how services are provided.

Health systems in poor countries are severely underfunded for meeting the Goals. No high-income OECD country spends less than 5% of GDP on public health services. But developing countries rarely exceed this sharemost spend 23%. In 1997 average public spending on health was a mere $6 per capita in the least developed countries and $13 in other low-income countriescompared with $125 in upper-middle-income countries and $1,356 in high-income countries. The World Health Organization (WHO) estimates that $3540 per capita is the bare minimum for basic health services. In poor countries it is basically impossible to pay international prices for life-saving medicinesand almost criminal to expect poor people to do so.

With small and inadequate budgets, poor people lose out. In most countries the poorest 20% of households benefit from much less than 20% of health spending. Yet more equitable spending leads to better outcomes: countries with higher allocations to poorer households have lower child mortality rates. Rural-urban disparities are another example of unfair spending. Rural areas usually get much less. In Cambodia 85% of people live in rural areas, but only 13% of government health workers are located there. In Angola 65% of people live in rural areas, but only 15% of health professionals work there.

The lack of resources has a corrosive effect on health systems because shortcomings in one area feed into others. When clinics have no drugs, patients are discouraged from going to them for treatment. That leads to high absenteeism among staff, further eroding effectiveness. Because the community is unlikely to find health services worthwhile, it does not monitor the system, and services becomes less (rather than more) responsive to their needs.

Public policy needs to respond to the issues of resource levels, equity and efficiency:

Mobilizing resources. Governments in poor countries must rank health spending higher than other types of spending, such as defence. And within health budgets, priority must be given to basic health. But in low-income countries this is unlikely to be enough.

Increasing external resources. This includes aid, but debt relief, drug donations and price discounts from pharmaceutical companies would also help.

Achieving greater equity. Governments must redress imbalances by focusing on rural areas, poor communities, women and children. But focusing on primary care alone will not help; public hospitals overwhelmed by AIDS or tuberculosis patients cannot cope with any other patients.

Making health systems work better. Cash-strapped governments face a dilemma when setting priorities. The first priority is to maintain an integrated system. Vertical programmes focused on specific diseases have become popular, but they cannot be effective or sustainable without basic health infrastructure. Such programmes should be integrated with the overall health structure. Maternal and reproductive health care also cry out for integration. Many countries focus on family planning to the exclusion of child and maternal health. Focusing on essential interventions is not enough; equal focus is needed to ensure that every primary health centre has essential drugs.

Because private health care providers are the first port of call for many poor people, governments must bring them into the public domain through better regulation. Many measures can help: consumer protection legislation, accreditation to signal to consumers which providers are registered, having practitioners agree to restrict their practices to essential medicines. But where higher-level services have been privatized through the use of managed care services, as in many Latin American countries, the experience has been less than positive for the poorest people.

Halving the proportion of people without access to safe drinking water and improved sanitation (Goal 7) requires an integrated approach. Without sanitation and hygiene, safe water is much less useful for health

More than 1.0 billion people in developing countriesone person in fivelack access to safe water. And 2.4 billion lack access to improved sanitation. Both can be life and death issues. Diarrhoea is a major killer of young children: in the 1990s it killed more children than all the people lost to armed conflict since the Second World War. Most affected are poor people in rural areas and slums.

And as with the other health Goals, low-cost technical solutions for community access are well known: protected dug wells, public standpipes, protected springs, pour-flush latrines, simple pit latrines, ventilated pit latrines and connections to septic tanks or covered public sewers. Yet several factors undermine the effectiveness of these solutions. In addition, they are not fully adequate:

Because private health care providers are the first port of call for many poor people, governments must bring them into the public domain through better regulation

Water without sanitation. Access to safe water is far less useful without improved sanitation and better hygiene. Better health care is wasted on treating water-borne diseases that could have been prevented by safe water, improved sanitation and better hygiene. But while the demand for safe water is evident, the demand for safe sanitation depends far more on hygiene education. Poor households generally must take the initiative to install sanitation systems in their homes, and often have to finance the costs themselves. If not convinced that such investment is necessary, they are unlikely to pursue it.

Lack of resources to finance high-cost infrastructure. In urban and peri-urban areas, water supply requires source development, bulk transmission to the community to be served and a local distribution network. Sanitation requires public sewage collection and treatment systems. These investments entail significant costs far beyond the means of most local authorities. Even in middle-income countries such elements must be provided by national governments. The most expensive component of water and sanitation infrastructure is wastewater treatment to prevent raw sewage from entering rivers and contaminating groundwater. This also requires improved technologies. But municipal authorities lack the resources to invest in basic sanitation.

High charges and poor maintenance. Governments must ensure that poor people's access to water and sanitation services is not undermined by unfair charges that subsidize non-poor people. The well-off must shoulder more of the financial costs of maintaining the infrastructure for these services. Spending on high-cost systems for the better-off parts of towns leave few resources for low-cost schemesand often leave slums and peri-urban areas with no services. Moreover, water systems tend to be poorly maintained in rural and peri-urban areas. Community involvement has proven key to improving services in such areas.

Policies that promote environmental sustainability should stress the importance of involving local people in the solutions and altering policies in rich countries

Experiences with multinational private participation in water and sanitation have been mixed. There have been some private sector successes with increased water services for poor communities in large cities (such as Buenos Aires, Argentina, and metropolitan Manila, the Philippines). But these successes have sometimes been offset by large-scale corruption and backtracking on agreements with governments. Local entrepreneurship has to be promoted in the sector, with national development banks providing the finance.

Ensuring environmental sustainability (Goal 7) will require managing ecosystems so that they can provide services that sustain human livelihoods. It will also be an important part of reaching the other Goals

Soil degradation affects nearly 2 billion hectares, damaging the livelihoods of up to 1 billion people living on drylands. Around 70% of commercial fisheries are either fully or over-exploited, and 1.7 billion peoplea third of the developing world's populationlive in countries facing water stress.

There is an uneven geography of consumption, environmental damage and human impact. Rich countries generate most of the world's environmental pollution and deplete many of its natural resources. Key examples include depletion of the world's fisheries and emissions of greenhouse gases that cause climate change, both of which are tied to unsustainable consumption patterns by rich people and countries. In rich countries per capita carbon dioxide emissions are 12.4 tonneswhile in middle-income countries they are 3.2 tonnes and in low-income countries, 1.0 tonne. Poor people are most vulnerable to environmental shocks and stresses such as the anticipated impacts of global climate change.

Reversing these negative trends is an end in itself. But it would also contribute to the other Goals because the health, incomes and opportunities of poor people are heavily influenced by the depletion of natural resources. Some 900 million poor people living in rural areas depend on natural products for much of their livelihoods. Up to a fifth of the disease burden in poor countries may be linked to environmental risk factors. Climate change could damage agricultural productivity in poor countries and increase the risks, exposing them to such shocks as floods. These are just a few examples of the interactions between the environmental Goal and the other Goals.

Policies that promote environmental sustainability should stress the importance of involving local people in the solutions. They should also stress the importance of policy changes in rich countries. Among the policy priorities:

Improving institutions and governance. Clearly define property and user rights, improve monitoring and compliance with environmental standards and involve communities in managing their environmental resources.

Addressing environmental protection and management in each country's sector policies and other development strategies.

Improving the functioning of markets. Remove subsidies, especially in rich countries, that damage the environment (such as subsidies for fossil fuels or large-scale commercial fishing fleets), and reflect environmental costs through pollution charges.

Strengthening international mechanisms. Improve international management of global issues such as protecting international watersheds and reversing climate change, together with mechanisms to share these burdens equitably.

Investing in science and technology. Invest more in renewable energy technologies and create an observatory to monitor the functioning and state of major ecosystems.

Conserving critical ecosystems. Create protected areas with the involvement of local people.

A new partnership is needed between rich and poor countries for these policies to take root and bear fruit. For a fair division of responsibilities, large countries need to contribute more to mitigating environmental degradation and apply more resources to reversing it. In this, as in the other Goals, there is an urgent need to rectify some glaring imbalances.

Policy changes in rich countries for aid, debt, trade and technology transfers (Goal 8) are essential to achieving the Goals

It is hard to imagine the poorest countries achieving Goals 17 without the policy changes required in rich countries to achieve Goal 8. Poor countries cannot on their own tackle the structural constraints that keep them in poverty traps, including rich country tariffs and subsidies that restrict market access for their exports, patents that restrict access to technology that can save lives and unsustainable debt owed to rich country governments and multilateral institutions.

The poorest countries do not have the resources to finance the investments required to reach critical thresholds in infrastructure, education and health. They do not have the resources to invest in agriculture and small-scale manufacturing to improve worker productivity. These investments lay the groundwork for getting out of poverty trapsand cannot wait for economic growth to generate resources. Children cannot wait for growth to generate resources when they are faced with death from preventable causes.

The partnership framework of the Millennium Declaration and the Monterrey Consensus makes clear that the primary responsibility for achieving Goals 17 lies with developing countries. It commits those countries to mobilizing domestic resources to finance ambitious programmes, to implementing policy reforms to strengthen economic governance, to giving poor people a say in decision-making and to promoting democracy, human rights and social justice. But the consensus is also a compact that commits rich countries to doing morethough on the basis of performance rather than entitlement. The Millennium Development Compact makes clear the critical role of rich countries, as reflected in Goal 8.

Rich countries have pledged action on a number of fronts, not only at the Millennium Summit but also at the Monterrey International Conference on Financing for Development in March 2002 and at the Johannesburg World Summit on Sustainable Development in September 2002. And in Doha, Qatar, in November 2001, trade ministers pledged to make the interests of poor countries central to their future work on the multilateral trade system. Now is the time for rich countries to deliver on these promises.

The top priority countries are in greatest need of actions by rich countries. Having the farthest to go to achieve the Goals, economic growth has stagnated for a decade or more, leading to an accumulation of unsustainable debt levels. These countries depend on exports of primary commodities whose prices have steadily fallen. Aid also fell in the 1990sby nearly a third on a per capita basis in Sub-Saharan Africaand falls far short of what is needed to achieve the Goals.

It is hard to imagine the poorest countries achieving Goals 17 without the policy changes required in rich countries to achieve Goal 8

More aidand more effective aid. The tide of declining aid was turned with the pledges made at the Monterrey conference, promising some $16 billion a year in additional aid by 2006. Yet this increase would bring total official development assistance to just 0.26% of the gross national incomes of the 22 members of the OECD's Development Assistance Committee, falling far short of the 0.7% towards which rich countries promised to work in Monterrey and Johannesburg. It also falls short of the estimated need, for which the conservative low order of magnitude is about $100 billion a yeara doubling of aid that would come to about 0.5% of the gross national incomes of the Development Assistance Committee countries.

But more aid is not enough: it also has to be more effective. The Monterrey Consensus includes a commitment from donors to help only if developing countries make concerted efforts to improve economic and democratic governance and implement policies for effective poverty reduction. The Consensus also requires donors to improve their practices, especially to respect development priorities in recipient countries, to untie aid, to harmonize their practices and reduce administrative burdens for recipient countries and to decentralize. These important commitments were reiterated in the Rome Declaration on Harmonization, adopted by heads of multilateral and bilateral development institutions that gathered in Rome in February 2003.

New approaches to debt relief. Twenty-six countries have benefited from debt relief under the Heavily Indebted Poor Countries (HIPC) initiative, with eight of them having reached the completion pointmeaning that they have had some debt cancelled. But much more needs to be done: not only for more countries to benefit, but also to ensure that countries debt burdens are really sustainable. Uganda, for example, recently suffered from collapsing coffee prices and shrinking export earnings, so its debt levels have once again become unsustainable.

Trade policies in rich countries remain highly discriminatory against developing country exports

Expanding market access to help countries diversify and expand trade. Trade policies in rich countries remain highly discriminatory against developing country exports. Average OECD tariffs on manufactured goods from developing countries are more than four times those on manufactured goods from other OECD countries. Moreover, agricultural subsidies in rich countries lead to unfair competition. Cotton farmers in Benin, Burkina Faso, Chad, Mali and Togo have improved productivity and achieved lower production costs than their rich country competitors. Still, they can barely compete. Rich country agricultural subsidies total more than $300 billion a yearnearly six times official development assistance.

Better access to global technological progress. In recent decades technological breakthroughs have dramatically increased technology's potential to improve people's lives. There is enormous scope for rich countries to channel technological innovations in ways that advance human development, reversing the neglect of poor people's needs. Today, for example, only 10% of global spending on medical research and development is directed at the diseases of the poorest 90% of the world's people.

Rich countries can also help ensure that the World Trade Organization (WTO) agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) protects the interests of developing countries. The agreement does not adequately protect the rights of indigenous communities to traditional knowledge sometimes patented by outsiders. And though the agreement contains provisions for technology transfers, the wording is vagueso no means of implementation are in place. The 2001 WTO ministerial conference in Doha, Qatar, reaffirmed that the TRIPS agreement should not prevent poor countries from making essential medicines accessible to their people. The conference resolved to reach an agreement by December 2002 on how countries without adequate manufacturing capacity could access medicines. But that deadline has come and gone, with no resolution in sight.

Following through on commitments and setting new targets. Rich countries have made many commitments, but most without time-bound, quantitative targets. If developing countries are to achieve Goals 17 by 2015, rich countries need to make progress in some critical areas before thenwith deadlines, so that progress can be monitored. This Report proposes that rich countries set targets to:

Increase official development assistance to fill financing gaps (estimated to be at least $50 billion).

Develop concrete measures for implementing the Rome Declaration on Harmonization.

Remove tariffs and quotas on agricultural products, textiles and clothing exported by developing countries.

Remove subsidies on agricultural exports from developing countries.

Agree and finance, for HIPCs, a compensatory financing facility for external shocksincluding collapses in commodity prices.

Agree and finance deeper debt reduction for HIPCs having reached their completion points, to ensure sustainability.

Introduce protection and remuneration of traditional knowledge in the TRIPS agreement.

Agree on what countries without sufficient manufacturing capacity can do to protect public health under the TRIPS agreement.

Just as people can monitor actions by their governments to live up to their commitments, rich countries should monitor their progress in delivering on their commitments. They should prepare progress reportscontributing to a global poverty reduction strategythat set out their priorities for action.

* * *

The Millennium Development Goals present the world with daunting challenges. Unless there is radical improvement, too many countries will miss the targetswith disastrous consequences for the poorest and most vulnerable of their citizens. Yet today the world has an unprecedented opportunity to deliver on the commitment to eradicating poverty. For the first time there is genuine consensus among rich and poor countries that poverty is the world's problem. And it is together that the world must fight it. As this Report explains, many of the solutions to hunger, disease, poverty and lack of education are well known. What is needed is for efforts to be properly resourced, and for services to be distributed more fairly and efficiently. None of this will happen unless every country, rich and poor, assumes its responsibilities to the billions of poor people around the world.

Images    The Millennium Development Compact

In September 2000 the world's leaders adopted the UN Millennium Declaration, committing their nations to stronger global efforts to reduce poverty, improve health and promote peace, human rights and environmental sustainability. The Millennium Development Goals that emerged from the Declaration are specific, measurable targets, including the one for reducing by 2015the extreme poverty that still grips more than 1 billion of the world's people. These Goals, and the commitments of rich and poor countries to achieve them, were affirmed in the Monterrey Consensus that emerged from the March 2002 UN Financing for Development conference, the September 2002 World Summit on Sustainable Development and the launch of the Doha Round on international trade.

World leaders from countries rich and poor described the Monterrey conference as marking a compact between them in support of shared development goals. That commitment forms the basis for the Millennium Development Compact proposed herea Compact through which the world community can work together to help poor countries achieve the Millennium Development Goals. This Compact calls on all stakeholders to orient their efforts towards ensuring the success of the Goals, in a system of shared responsibilities. Poor countries can insist on increased donor assistance and better market access from rich countries. Poor people can hold their politicians accountable for achieving the poverty reduction targets within the specified timetable. And donors can insist on better governance in poor countries and greater accountability in the use of donor assistance.

Yet despite the admirable commitments at the Millennium Assembly and more recent international gatherings, dozens of countries are considered priority cases (differentiated as top priority and high priority in this Report) because they are perilously off track to meet the Goals, making the Compact more crucial than ever. Global forces for developmentexpanding markets, advancing technology, spreading democracyare benefiting large parts of the world. But they are also bypassing hundreds of millions of the world's poorest people. The target date for the Goals is just a dozen years away. And good governance and effective institutions in the poorest countries, though vital for success, will not be enough. Rich countries need to provide far more financing and better rules for the international system, as they have promised, to make the Goals attainable in the poorest countries.

Meeting the Goals should start with the recognition that each country must pursue a development strategy that meets its specific needs. National strategies should be based on solid evidence, good science and proper monitoring and evaluation. Within those bounds, poor countries require freedom of manoeuvre with donors to design locally appropriate policies. Without true ownership, national programmes will be neither appropriate to local conditions nor politically sustainable. National programmes must also respect human rights, support the rule of law and commit to honest and effective implementation. When these conditions are met, poor countries should be able to count on much more assistance from rich countries, both in finance and in fairer rules of the game for trade, finance and science and technology.

GIVING PRIORITY TO COUNTRIES LEFT BEHIND

The Millennium Development Compact must first focus on priority countries that face the greatest hurdles in achieving the Goalscountries with the lowest human development and that have made the least progress over the past decade (see chapter 2). For them, domestic policy reforms and far more development assistance are vital.

The Millennium Development Compact is a collaborative product of the Human Development Report team and The Millennium Project Task Force coordinators, with contributions from other Millennium Project participants.

In the 1980s and much of the 1990s many development efforts by international financial institutions and major donor countries were guided by the belief that market forces would lift all poor countries onto a path of self-sustaining economic growth. Globalization was seen as the great new motor of worldwide economic progress. Poor countries were assumed to be able to achieve economic growth as long as they pursued good economic governance, based on the precepts of macroeconomic stability, liberalization of markets and privatization of economic activity. Economic growth, in turn, was expected to bring widespread improvements in health, education, nutrition, housing and access to basic infrastructure, such as water and sanitationenabling countries to break free of poverty.

But just as globalization has systematically benefited some of the world's regions, it has bypassed others as well as many groups within countries

Though this optimistic vision has proven hugely inadequate for hundreds of millions of poor people, it still has considerable merit for much of the world. Despite protests against globalization in recent years, world market forces have contributed to economic growthand poverty reductionin China, India and dozens of other developing countries. Billions of people are enjoying higher living standards and longer lives as a result of global market forces and national policies that help harness those forces.

But just as globalization has systematically benefited some of the world's regions, it has bypassed others as well as many groups within countries. In the 1990s most of East and South Asia saw living standards improve dramatically. But large parts of Sub-Saharan Africa, parts of Eastern Europe and the Commonwealth of Independent States (CIS) and many countries in Latin America and the Middle East did not. In addition, epidemic diseases, most dramatically HIV/AIDS, prey disproportionately on those left behind and push them back even furthertrapping poor people in a vicious cycle of poverty and disease.

Even large and growing economiesBrazil, China, India, Mexicocontain regions of intense poverty relieved little by overall national growth. Economic and social progress often also bypasses ethnic and racial minorities, even majoritiesespecially girls and women, who suffer gender bias in access to schooling, public services, employment opportunities and private property.

Thus, despite the higher living standards that globalization (backed by good economic governance) has delivered in large parts of the world, hundreds of millions of people have experienced economic reversals rather than advances. And more than 1 billion fight for daily survival from the scourges of hunger and poor health.

There are many reasons economic development continues to bypass many of the world's poorest people and places. One common reason is poor governance. When governments are corrupt, incompetent or unaccountable to their citizens, national economies falter. When income inequality is very high, rich people often control the political system and simply neglect poor people, forestalling broadly based development. Similarly, if governments fail to invest adequately in the health and education of their people, economic growth will eventually peter out because of an insufficient number of healthy, skilled workers. Without sound governancein terms of economic policies, human rights, well-functioning institutions and democratic political participation no country with low human development can expect long-term success in its development efforts or expanded support from donor countries.

Though many observers would simply lecture poor people to do better on their own, most poor countries face severe structural problems far beyond their control. These problems often involve the international trade system as when rich countries block agricultural exports from poor countries or heavily subsidize their own farmers, depressing world prices of these products. Poor countries also face trade barriers when exporting textiles and apparel, processed foods and beverages and other products in which they might be competitive. In addition, many governments are hamstrung by insurmountable external debts inherited from past administrationswhile efforts at debt relief have been too little, too late.

Geography provides another important explanation for failed economic development. Many poor countries are simply too small and geographically isolated to attract investors, domestic or foreign. Landlocked Mali, with 11 million people and an annual per capita income of $240 ($800 when measured in purchasing power parity terms), is of little interest to most potential foreign investors. With a GNP of $2.6 billion, its economy is about that of a small city in a rich country where, say, 85,000 people live on an average of $30,000 a year. Facing very high transport costs, and with almost no interest from international firms to invest in production for small domestic markets, such countries are bypassed by globalization.

Poor, remote countries like Mali generally connect to the world economy by producing a few traditional primary commodities. But slow world market growth, unchanging technologies and often volatile and declining world prices for these commodities offer much too narrow a base for economic advance. Continued heavy dependence on a handful of primary commodity exports provides no chance for long-term success. This unfortunate situation afflicts much of Sub-Saharan Africa, the Andean region and Central Asia.

Exacerbating these structural problems is rapid population growth, which tends to be fastest in countries with the lowest human development. These challenges can seriously hinder the availability of farmland and increase environmental degradation (deforestation, soil degradation, fisheries depletion, reduced freshwater).

Moreover, geographic barriers, commodity dependence and demographic pressures are often compounded by a heavy burden of diseases such as HIV/AIDS, tuberculosis and malariaor by biophysical constraints such as depleted soils and degraded ecosystems. Rich countries, and the economic institutions they control, may focus on good governance when determining aid allocations. But far too often they are oblivious to the other challenges facing many of the poorest countriesespecially since rich countries have not experienced the onslaught of endemic tropical diseases such as malaria. Too many policy-makers in rich countries believe that poor countries are simply not trying hard enough to develop, failing to understand the deeper structural forces at work.

CRITICAL THRESHOLDS FOR ESCAPING POVERTY TRAPS

These structural impediments leave countries stuck in poverty traps. But even in such dire conditions there is reason for hope. Widespread disease, geographic isolation, fragile ecologies, overdependence on primary commodity exports and rapid population growth are amenable to practical, proven solutions. Those include policy changes by rich countries and much larger investments in infrastructure, disease control and environmental sustainability by poor countries, backed by more financial assistance from donor governments. Thus the need for the Millennium Development Compact: without it, poor countries will remain trapped in poverty, with low or negative economic growth.

Thus the need for the Millennium Development Compact: without it, poor countries will remain trapped in poverty, with low or negative economic growth

Sustained economic growth helps break the shackles of poverty in two ways. First, it directly increases average household incomes. When households below the poverty line share in the average rise in national income, the extent of extreme income poverty (that is, the share of people surviving on $1 a day) is directly reduced. Economic growth has a powerful record of pulling poor people above the income poverty line.

But such gains are not automatic. They can be dissipated if income inequality widens and poor people do not share adequately in growtha phenomenon observed in many countries in recent years. So, the Compact emphasizes actions to ensure that poor people share in overall growth, with a focus on expanding their access to critical assetsincluding by providing secure land tenure, making it easier to start small businesses, supporting labour-intensive exports and broadening access to microfinance. Note that economic growth reduces income poverty most when initial income inequality is narrow.

Economic growth also works indirectly, reducing non-income poverty by raising government revenues and enabling increased public investments in education, basic infrastructure, disease control and health (particularly maternal and child health). In addition to reducing non-income poverty, these investments expedite economic growth by raising worker skills and productivity and thus poor people's market incomes.

Although economic growth is not an automatic remedy for non-income poverty, it makes a powerful contributionas long as public policies ensure that its dividends reach poor people. Some poor countries have achieved impressive gains in education and health by making them high priorities. But only growth can sustain such gains, because sooner or later government budget deficits get the upper hand in a stagnant economy. In sum: public investments in poor people spur economic growth, while economic growth sustains such investments.

Gender equality plays a central role in all these areas. The powerful links between productivity and girls and maternal healthincluding reproductive healthand girls education are too often stymied by women's lack of empowerment. Better-educated girls marry later. They have fewer, better-educated, healthier children. And they earn higher incomes in the workforce. If girls are kept out of school or educated women are not allowed to fully participate in the labour market, these potential gains are squandered. If public investments in basic infrastructure (such as safe water) ignore women's needs, women may be condemned to spend hours a day fetching water when they could be participating more productively in society. When women have no say in household decision-making, the synergies between productivity, health and education are hobbled. Gender equality is thus more than social justiceit promotes development.

Public investments in poor people spur economic growth, while economic growth sustains such investments

For countries stuck in poverty traps, growth will not come on its own, and domestic investments in human development will be inadequate. To break out of poverty traps, countries require greatly expanded donor financing to invest much more heavily in health, education, agriculture, water and sanitation and other key infrastructure even before economic growth occurs. Such investments are vital to create the conditions for sustained economic growth.

The message is simple: escaping poverty traps requires countries to reach certain critical thresholdsof health, education, infrastructure and governancethat will permit them to achieve takeoff to sustained economic growth. Dozens of poor countries fall below those thresholds, often through no fault of their own and for reasons utterly beyond their control. Here is where the Compact between rich and poor countries must come in. If a country pursues the right policies and commits to good governance in implementing those policies, the world communityinternational agencies, bilateral donors, private actors, civil society organizationsmust help the country reach the critical thresholds through increased assistance.

POLICY CLUSTERS FOR ESCAPING POVERTY TRAPS

Breaking out of poverty traps requires a multi-faceted approachone that goes beyond the usual sound commandments of good economic and political governance. For countries trapped in poverty, six policy clusters are crucial:

Investing in human developmentnutrition, health (including reproductive health), education, water and sanitationto foster a productive labour force that can participate effectively in the world economy.

Helping small farmers increase productivity and break out of subsistence farming and chronic hungerespecially in countries with predominantly rural populations.

Investing in infrastructurepower, roads, ports, communicationsto attract new investments in non-traditional areas.

Developing industrial development policies that bolster non-traditional private sector activities, with special attention to small and medium-size enterprises. Such policies might include export processing zones, tax incentives and other initiatives to promote investment and public spending on research and development.

Emphasizing human rights and social equity to promote the well-being of all people and to ensure that poor and marginalized peopleincluding girls and womenhave the freedom and voice to influence decisions that affect their lives.

Promoting environmental sustainability and improving urban management. All countries, but especially the very poorest, need to protect the biodiversity and ecosystems that support life (clean water and air, soil nutrients, forests, fisheries, other key ecosystems) and ensure that their cities are well managed to provide livelihoods and safe environments.

The first clusterinvesting in human developmentneeds to be bolstered by much larger donor contributions even before economic growth takes hold. Indeed, because better health and education are both goals of human development and precursors to sustained growth, investments in these areas are important for a later takeoff in private activities. Supported by additional donor resources, public investments can make major progress in health, population, nutrition, education and water and sanitation. The needed technologies are well known and well proven. Thus big gains in health and education canand shouldbe achieved well before per capita incomes rise substantially.

The second cluster for breaking out of poverty traps involves raising the productivity of small poor farmers. Agricultural productivity can be raised by introducing improved technologies, including better seeds, tillage and crop rotation systems and pest and soil management. It can also be raised by improving rural infrastructure such as irrigation systems, storage and transport facilities and roads connecting villages to larger market centres. To raise long-term productivity, security in land-holding can protect the rights of farmers and give them incentives to invest in land improvements. These steps require public-private partnerships to promote rural development, including through crucial investments in agricultural science and technology.

The third policy cluster involves achieving an adequate threshold of key infrastructure to support economic diversification. This will be easier in some locations, such as coastal port cities. But it will be much harder elsewhere, such as landlocked or mountainous countries facing high transport costs. Again, donor assistance will be pivotal in enabling poor countries to reach the takeoff threshold for infrastructure. Without outside help, countries will remain trappedtoo poor to invest in infrastructure and too lacking in infrastructure to become internationally competitive in new exports.

The fourth policy cluster involves the use of special industrial development policiesincluding promoting science and technology to create a sound investment environment for non-traditional business activities. Many development success stories, such as East Asia's tiger economies, have supported the development of non-traditional activities through tax holidays, export processing zones, special economic zones, science parks, investment tax credits, targeted funding for research and development and public grants of infrastructure and land. Without such special inducements it is difficult for small poor countries to gain a foothold in non-traditional areas of the world economy. As a result, few succeed. Here microfinance institutions can help, providing special incentives at a much smaller scale to promote employment and income generation in micro, small and medium-size enterprises. As with rural landholdings, secure housing tenure for poor urban residents can enhance their productive investments.

National strategies for the Millennium Development Goals must include a commitment to women's rights to education, reproductive health services, property ownership, secure tenure and labour force participation

The fifth policy cluster involves promoting human rights and empowering poor people through democratic governance. In dozens of countries poor people, ethnic minorities, women and other groups still lack access to public services and private opportunitiesand so will not benefit even when growth begins to take off. Political institutions must allow poor people to participate in decisions that affect their lives and protect them from arbitrary, unaccountable decisions by governments and other forces.

National strategies for the Millennium Development Goals must include a commitment to women's rights to education, reproductive health services, property ownership, secure tenure and labour force participation. They must also address other forms of discriminationby race, ethnicity or regionthat can marginalize poor people within countries. Deepening democracy through reforms of governance structures, such as decentralization, can enhance poor people's voice in decision-making.

The sixth policy cluster calls for better environmental and urban management, especially to protect poor people. Not coincidentally, many of the world's poorest places suffer from enormous climatic variability and vulnerabilityrequiring sound ecological management. These include tropical and subtropical regions vulnerable to El Niodriven fluctuations in rainfall and temperature. Such regions are also feeling the effects of long-term climate change. In addition, rapid population growth and indiscriminate business activities have stressed ecosystems in many countries with low incomes and low human development. These pressures are leading to loss of habitat through deforestation and encroachment by roads, cities and farmlandand to depletion of scarce resources such as freshwater aquifers and coastal fisheries. A related challenge involves managing rapid urbanization to safeguard public health and access to basic amenities such as land, housing, transportation, safe drinking water, sanitation and other infrastructure. Such efforts require careful urban planning and considerable public investments.

The Millennium Development Compact is based on shared responsibilities among major stakeholders

In sum, to achieve the Goals the poorest countries must escape their poverty traps. To do so, they must reach minimum thresholds in health, education, infrastructure and governance. They also need agricultural policies that enhance productivity, as well as industrial development policies that build a base for long-term economic growth led by the private sector. Finally, these policies should be implemented with respect for social equity, human rights and environmental sustainability. Increased donor financing is critical for the poorest countries to reach these thresholdsfinancing that must be matched by better governance and resource use. Over a generation or so, sustained economic growth will enable these countries to take over from donors the financing of basic public services and infrastructure.

IMPLEMENTING THE MILLENNIUM DEVELOPMENT COMPACT

The Millennium Development Compact is based on shared responsibilities among major stakeholders. It requires many combined and complementary efforts from rich and poor countries, international agencies, local authorities, private actors and civil society organizations. Some actions will occur at the level of governments and some at the level of the international systemsuch as international agreements to change the rules of the game for trade, for financing and for developing and managing science and technology.

COUNTRIES WITH LOW HUMAN DEVELOPMENTERADICATING POVERTY AND ADDRESSING BASIC NEEDS

Without question, countries with low human developmentparticularly those stuck in poverty trapshave the most pressing needs. These countries must construct coherent strategies for achieving the Millennium Development Goals, building on the six policy clusters described above.

As part of these overall development strategies, the Monterrey Consensus (see above) emphasizes the importance of nationally owned strategies for reducing poverty. To that end more than two dozen poor countries have prepared Poverty Reduction Strategy Papers (PRSPs), which provide frameworks for financing, implementing and monitoring such strategies. The papers describe macroeconomic, structural and social policies and programmes to promote growth, reduce poverty and make progress in areas such as education and health, indicating external financing requirements. PRSPs are prepared by governments but emerge from participatory processes involving civil society and external partners, including the World Bank and International Monetary Fund (IMF).

Though far from perfect, PRSPs move poverty reduction closer to the centre of development strategies. They also provide a framework for donor coordination based on national priorities. But they do not yet adequately support the Millennium Development Goals. Though PRSPs increasingly mention the Goals, they should provide a basis for assessing country policies more systematicallyand indicate the scale of needed donor assistance. When preparing PRSPs, governments are advised to be realistic. What that tends to mean is that they should accept existing levels of donor assistance and assume various constraints on economic growth (such as lack of access to foreign markets). As a result PRSPs fall short of identifying the resources required to meet the Goals.

For example, IMF and World Bank guidelines for preparing the papersthe PRSP Sourcebookrecommend a method for setting targets in the face of fiscal and technical constraints. The guidelines do not stress that such constraints can and should be eased (for example, through increased donor assistance) so that countries can achieve the Goals. Consider Malawi's PRSP, which does not aim high enough to achieve the Goals. In a joint staff assessment of the paper, the IMF and World Bank said that while most indicators are in line with the Millennium Development Goals (MDG), the PRSP's targets are less ambitious. Further work is required to develop longer-term targets that relate directly to the 2015 goals. However, extrapolating the targets set in the PRSP for 2005 suggests that Malawi will fall short of meeting the 2015 [Goals]. The staffs believe that these PRSP targets are more realistic and reflect Malawi's current socioeconomic conditions (pp. 34, 23 August 2002, http://www.imf.org).

The IMF and World Bank's assessment of Malawi's PRSP risks undermining the Goals and the commitments made at the Monterrey conference. Malawi requires far more donor assistanceas do many other countries in similar circumstances. Rather than being told to lower their sights, they should be aided in achieving the Goals, with the IMF and World Bank helping to mobilize the needed additional assistance. The Millennium Development Compact provides the framework for that kind of international help.

Every national development strategy, including every PRSP, should ask two questions. First, what national policiesincluding mobilizing and reallocating domestic resources and focusing spending on reforms that increase efficiency and equityare needed to achieve the Goals? Second, what international policiesincluding increased donor assistance, expanded market access, swifter debt relief and greater technology transfersare needed?

The Compact calls on every developing country to align its development strategy (including its PRSP, if it has one) with the Millennium Development Goals, in the context of its national priorities and needs. Every national strategy should clearly define efforts within the country's reachand those requiring more international support, such as increased debt relief, expanded donor assistance and better access to foreign markets. National strategies should also estimate medium-term budget needs for all critical sectorshealth, education, infrastructure, environmental management. And they should specify the parts of budgets that can be covered by domestic resources and the parts to be covered by increased development assistance.

This process will highlight the gap between current official development assistance and the levels needed to achieve the Goals. Poor countries and their development partners can then work together, in good faith, to ensure that national strategies are backed by sound policies and adequate financing.

COUNTRIES WITH MEDIUM HUMAN DEVELOPMENTATTACKING POCKETS OF DEEP POVERTY

Most countries at medium levels of human development should be able to finance most or all of their development needs through domestic resources or non-concessional foreign resources (including private flows and official loans from multilateral development banks and bilateral agencies). Many are on track to achieve most of the Goals. But several still contain pockets of deep poverty. Thus they still require key forms of support from rich countriesespecially better market access for exports and better international rules of the game for finance and technology transfers. They also need to mitigate domestic structural inequalitiestargeting policy interventions at groups most vulnerable or marginalized, whether due to gender, ethnicity, religion or geography.

International financial institutions should put the Millennium Development Goals at the centre of their analytical, advisory and financing efforts for every developing country

These countries can also help the top and high priority countries define objectives and determine the resources required to achieve the Goals. Countries with medium levels of human development are diverseranging from Brazil to Malaysia, from Mauritius to Mexicoand provide important lessons for countries still trapped in poverty because they have grappled with (and often still face) many of the same ecological, health and other challenges. Many middle-income countries have recently started to provide development advice and even financial assistance, a heartening trend that should be strongly encouraged.

INTERNATIONAL FINANCIAL INSTITUTIONSPUTTING THE GOALS AT THE CENTRE OF COUNTRY STRATEGIES

International financial institutions should put the Millennium Development Goals at the centre of their analytical, advisory and financing efforts for every developing country. For each PRSP, for example, joint assessments by the IMF and World Bank should indicate whether the proposed strategy is likely to achieve the Goals and if not, what changes are needed to do so. The PRSPs would then provide an occasion for these institutions to consider not only the domestic policy reforms needed to strengthen institutions, improve economic governance and increase government support, but also the steps needed from the international community: increased donor assistance (including more extensive debt relief), better access to foreign markets for the country's exports, greater technology transfers and related actions pursued in partnership with the country.

Because most donors have agreed to align their programmes with Poverty Reduction Strategy Papers, it is even more important that these documents highlight the support needed to achieve the Goals

The IMF and World Bank should work with countries to agree on macroeconomic frameworks consistent with meeting the Goals, including adequate external financing. They can then help countries mobilize the needed increases in official development assistanceas well as help them accommodate those flows in macroeconomic terms. In some countries large increases in official development assistance will cause the real exchange rate to appreciate. But the net result will be beneficialif the currency appreciation occurs in the context of an appropriate medium-term macroeconomic framework and if the donor assistance is invested in human capital, physical infrastructure and other development needs. Thus the IMF and World Bank should help countriesand their donorsuse increased official development assistance most effectively in support of the Goals.

Regional development banks also have a major role in putting the Goals at the centre of their country strategies and in streamlining their lending operations and technical cooperation efforts. They are in a unique position to finance regional public goods and encourage regional integration and cooperation. The Inter-American Development Bank has started to move in this direction, but it and other regional banks need to do much more.

BILATERAL DONORSREVISING APPROACHES AND SETTING NEW TARGETS

Bilateral development assistance must take a new approach. The guiding question should no longer be, What progress can be made towards the Goals within the bounds of current bilateral assistance? Instead it should be, What levels and types of donor assistance are needed to achieve the Goals, and will countries make effective use of that assistance?

Bilateral donors know that they need to improve how they deliver official development assistanceespecially as amounts of assistance increase. These improvements should be based on the following principles:

Countries should design and own their strategies for meeting the Goals.

Assistance should be results-oriented, based on expert reviews of country proposals and careful monitoring, evaluation and auditing of programmes.

Bilateral donors should coordinate their support for country strategiesfor example, through sector-wide approaches that emphasize budget rather than project financing.

Bilateral donors should finally eliminate the flawed distinction between assistance for capital costs and for recurrent costs. Both outlays need ample support.

Because most donors have agreed, in principle, to align their programmes with PRSPs, it is even more important that these documents highlight the support needed to achieve the Goalsthe additional donor resources and debt relief, the increased access to markets and technology, and so on.

All rich countries should set targets for their repeated commitments to improving aid, trade and debt relief for poor countries. They should also be encouraged to prepare their own world poverty reduction assessments and strategies, setting bold targets in line with these commitments.

UN AGENCIESPROVIDING EXPERT ASSISTANCE

UN agencies have a vital role in helping countries meet the Millennium Development Goals, especially through expert assistance in designing and implementing development programmes. The United Nations has extensive expertise in every focus area of the Goals, including education, health, development planning, technological development, the rule of law, agriculture and many others. Each of the main UN agencies should develop a strategy for helping low-income, low-human-development countriesespecially the priority onesimplement their national strategies.

The UN system also has a global role to play. It is mobilizing to:

Monitor progress globally.

Track progress nationally.

Identify key obstacles to the Goalsand solutions.

Engage broad segments of society around the world through the Millennium Campaign.

REGIONAL ORGANIZATIONS AND DEVELOPMENT INSTITUTIONSFOSTERING REGIONAL INTEGRATION AND COOPERATION

For poor countries with small marketswhether because of small populations or geographic impediments to accessing global marketsregional integration must be a policy priority. Regional cooperation, including shared investments in critical infrastructure, can expand trading opportunities across small economies and thus provide a central platform for sustained economic growth. Regional integration is particularly needed in Africa, where many countries have small or inland populations. As the leading initiatives for intergovernmental cooperation in Africa, the New Partnership for African Development and the African Union have important roles in fostering economic integration and political partnerships.

THE DOHA ROUND AND OTHER INTERNATIONAL TRADE NEGOTIATIONSOPENING MARKETS AND REDUCING SUBSIDIES

Even if national policies are appropriate and donor financing is increased, the Millennium Development Goals will not necessarily be achieved if poor countries non-traditional exports continue to be blocked, or lose value in world markets, due to rich country protectionism. Poor countries also require much more international support for technology transfers.

The Monterrey Consensus and the Johannesburg Plan of Implementation (from the 2002 World Summit on Sustainable Development) reiterate the trade facilitation commitments made by rich countries at the UN Millennium Summit. Rich countries have pledged to help poor countries reach the Goalsespecially the least developed countries, small island states and landlocked developing countriesby granting them full access to their markets. Still, though the Doha Roundthe next round of international trade negotiationshas been dubbed a development round, early attempts to put development at the fore have produced stalemate and frustration.

Still, though the Doha Round has been dubbed a development round, early attempts to put development at the fore have produced stalemate and frustration

CIVIL SOCIETYPLAYING A LARGER ROLE IN POLICIES AND POVERTY REDUCTION

One significant area of progress over the past decade has been the growing influence of local, national and global civil society organizations and networks in driving policy change, as with debt relief. Non-governmental organizations (NGOs), community organizations, professional associations and other civil society groups are regularly called on to help design and implement poverty reduction strategies. Their participation is also built into the efforts of the Global Fund to Fight AIDS, Tuberculosis and Malaria.

These new approaches reflect the three roles of civil society: as participants in the design of strategies, as service providers through community organizations and national NGOs and as watchdogs to ensure government fulfilment of commitments. But in many countries these roles are taking root only gradually, with governments continuing to dominate decisionmaking and implementation. By insisting on transparent processes to develop national strategies for the Millennium Development Goals, bilateral and multilateral institutions can help civil society gain a stronger foothold in policymaking and implementation.

PRIVATE ENTERPRISEPARTICIPATING IN GLOBAL ACTION PLANS

The private sector plays a critical role in marketled growth, particularly in creating jobs and raising incomes. Private businesses, in addition to supporting anticorruption measures, should support the Millennium Development Goals in a variety of other ways: through corporate philanthropy, technology transfers, greater foreign investment in countries at the margins of the international system and differential pricing of goods and services for countries with low incomes and low human development.

Companies can be most effective when operating under global action plansas with the growing willingness of pharmaceutical companies to discount the prices of essential AIDS medicines when called on to do so by the United Nations. There should be similar cooperation in other crucial areas, including agriculture, environmental management and information and communications technology. Moreover, corporations must demonstrate ethical behaviour: respecting human rights, refraining from corruption and abiding by basic proscriptions against forced and child labour and environmental destruction.

Many current technologies urgently need to be supplemented by technological breakthroughs, such as vaccines or new drugs for HIV/AIDS, tuberculosis and malaria

SCIENTIFIC COMMUNITYADDRESSING THE NEEDS OF POOR PEOPLE

Many current technologies urgently need to be supplemented by technological breakthroughs, such as vaccines or new drugs for HIV/AIDS, tuberculosis and malaria. Because most international scientific efforts bypass the needs of poor people, it is crucial that the world scientific communityled by national laboratories, national science funding agencies and private foundationswork with scientific groups in poor countries to identify priority targets for research and development and greatly expand funding.

For that reason the Millennium Development Compact recommends the creation of several international forums for technological innovation. Some such forums already exist, but they must be supported with greater resources and others must be created. These forums will help set priorities for research and development to meet the technological needs of poor countries. They will bring together international research institutions and scientific academies, multilateral and bilateral donors, country representatives and leading academic and private sector representatives in such key areas as health, agriculture, infrastructure, information and communications technology, energy systems, environment management and mitigation of and adaptation to climate fluctuations and long-term climate change.

Identifying scientific priorities and agreeing on ways to fund needed research and development, including through public-private partnerships, the forums will recommend plans for technological advance in each of these areas for the donor community's review.

GLOBAL SYSTEM FOR IMPROVING BENCHMARKING AND EVALUATING PROGRESS

By adopting specific, time-limited, quantified goals, the Millennium Development Goals provide a firm basis for benchmarking and for evaluating progress. But sound monitoring and evaluation will require the international community to dramatically increase investments in surveys and data collection. For too many Goals in too many countries, data are insufficient for proper quantitative assessments. Because joint commitments lie at the centre of every national programme, the actions of poor countries and their rich country partners need to be monitored much more closely than in the past.

New initiatives should be encouraged to monitor the performance of both rich and poor countries in their commitments under the Compact. For example, the size and quality of donor flows must be carefully monitored to ensure that they are consistent with achieving the Goals. The Doha Round negotiations should be closely monitored to ensure that they indeed constitute a development round. Special care must also be taken to reduce corruption, and this too can and should be better monitored. The counterpart of greatly increased donor flows must be greatly increased transparency and accountability in their use.

CONCLUSION

The world has made tremendous progress in its knowledge and practice of development policies. The Millennium Development Compact aims to bring this knowledge and practice together in a coherent framework that recognizes the need for a multi-pronged approach to meeting the Millennium Development Goals, based on the promises of partnership in recent international declarations. The Compact provides a framework in which the poorest countries develop and own national plans that draw on sustained external assistance to break out of poverty traps and improve the well-being of their poorest citizens. In essence, the Compact provides a Goaloriented development process in which all the main stakeholders have clear responsibilities as well as obligations to other actors.

Escaping poverty traps requires that countries reach certain critical thresholdsfor health, education, infrastructure and governancein order to achieve a takeoff to sustained economic growth and development. Dozens of poor countries fall below such thresholds, often through no fault of their own and for reasons beyond their control. This is the most important area where the Compact between rich and poor countries and actors must come in. If a country pursues the right policies and commits to good governance in implementing those policies, the world communityinternational agencies, bilateral donors, private actors, civil society organizationsmust help the country reach the critical thresholds through increased assistance.

In adopting this Millennium Development Compact, all countries are called on to reaffirm their commitments to the Millennium Development Goals and their readiness to accept the responsibilities that accompany those commitments. Bilateral donors, international financial institutions, UN specialized agencies, private actors and civil society organizations should step forward with bold, specific commitments and actions to ensure success in reaching the Goals.

CHAPTER 1

Images    The Millennium Development Goals

We recognize that, in addition to our separate responsibilities to our individual societies, we have a collective responsibility to uphold the principles of human dignity, equality and equity at the global level. As leaders we have a duty therefore to all the world's people, especially the most vulnerable and, in particular, the children of the world, to whom the future belongs.

UN Millennium Declaration1

In September 2000 the world's leaders gathered at the UN Millennium Summit to commit their nations to strengthening global efforts for peace, human rights, democracy, strong governance, environmental sustainability and poverty eradication, and to promoting principles of human dignity, equality and equity.2

The resulting Millennium Declaration, adopted by 189 countries, includes urgent, collective commitments to overcome the poverty that still grips most of the world's people. Global leaders did not settle for business as usualbecause they knew that business as usual was not enough. Instead they committed themselves to ambitious targets with clearly defined deadlines.

At the 2000 summit the UN General Assembly also asked the UN Secretary-General to prepare a road map for achieving the Declaration's commitmentsresulting in the Millennium Development Goals, made up of 8 Goals, 18 targets and 48 indicators.3 The Goals are unique in their ambition, concreteness and scope. They are also unique in their explicit recognition that the Goals for eradicating poverty can be achieved only through stronger partnerships among development actors and through increased action by rich countriesexpanding trade, relieving debt, transferring technology and providing aid.

The Goals and the promotion of human development share a common motivation and reflect a vital commitment to promoting human well-being that entails dignity, freedom and equality for all people


AN AGENDA FOR ACCELERATING HUMAN DEVELOPMENT

The Millennium Development Goals address many of the most enduring failures of human development. Unlike the objectives of the first, second and third UN Development Decades (1960s, 1970s, 1980s), which mostly focused on economic growth, the Goals place human well-being and poverty reduction at the centre of global development objectivesan approach advocated by the Human Development Report since its inception.

The Goals and the promotion of human development share a common motivation and reflect a vital commitment to promoting human well-being that entails dignity, freedom and equality for all people. The Goals are benchmarks of progress towards the vision of the Millennium Declarationguided by basic values of freedom, equality, solidarity, tolerance, respect for nature and shared responsibilities. These values have much in common with the conception of human well-being in the concept of human development. They also mirror the fundamental motivation for human rights. Thus the Goals, human development and human rights share the same motivation (box 1.1).

Every Human Development Report has argued that the purpose of development is to improve people's lives by expanding their choices, freedom and dignity. Poverty involves much more than the restrictions imposed by lack of income. It also entails lack of basic capabilities to lead full, creative livesas when people suffer from poor health, are excluded from participating in the decisions that affect their communities or have no right to guide the course of their lives. Such deprivations distinguish human poverty from income poverty.

The Millennium Development Goals are intended to ease the constraints on people's ability to make choices. Still, the Goals do not cover all the crucial dimensions of human development. In particular, they do not mention expanding people's participation in the decisions that affect their lives or increasing their civil and political freedoms. Participation, democracy and human rights are, however, important elements of the Millennium Declaration.


BOX 1.1

The Millennium Development Goals, human development and human rights share a common motivation

Values guiding the UN Millennium Declaration and Millennium Development Goals

As articulated in the Millennium Declaration, the Millennium Development Goals are benchmarks for progress towards a vision of development, peace and human rights, guided by certain fundamental valuesessential to international relations in the twenty-first century. These include:

Freedom. Men and women have the right to live their lives and raise their children in dignity, free from hunger and from the fear of violence, oppression or injustice. Democratic and participatory governance based on the will of the people best assures these rights.

Equality. No individual and no nation must be denied the opportunity to benefit from development. The equal rights and opportunities of women and men must be assured.

Solidarity. Global challenges must be managed in a way that distributes the costs and burdens fairly in accordance with basic principles of equity and social justice. Those who suffer or who benefit least deserve help from those who benefit most.

Tolerance. Human beings must respect one another, in all their diversity of belief, culture and language. Differences within and between societies should be neither feared nor repressed, but cherished as a precious asset of humanity. A culture of peace and dialogue among all civilizations should be actively promoted.

Respect for nature. Prudence must be shown in the management of all living species and natural resources, in accordance with the precepts of sustainable development. Only in this way can the immeasurable riches provided to us by nature be preserved and passed on to our descendants. The current unsustainable patterns of production and consumption must be changed in the interest of our future welfare and that of our descendants.

Shared responsibility. Responsibility for managing worldwide economic and social development, as well as threats to international peace and security, must be shared among the nations of the world and should be exercised multilaterally. As the most universal and most representative organization in the world, the United Nations must play the central role. (UN 2000, p. 2.)

The Goalsbuilding blocks for human development

Human development is about people, about expanding their choices to live full, creative lives with freedom and dignity. Economic growth, increased trade and investment, technological advanceall are very important. But they are means, not ends. Fundamental to expanding human choices is building human capabilities: the range of things that people can be. The most basic capabilities for human development are living a long and healthy life, being educated, having a decent standard of living and enjoying political and civil freedoms to participate in the life of one's community.

The first three of these are incorporated in this Report's human development index (HDI). Though the Millennium Development Goals contribute to these capabilities, they do not reflect all the key dimensions of human development, which is a broader concept.

and human rights

Achieving the Goals will advance human rights. Each Goal can be directly linked to economic, social and cultural rights enumerated in the Universal Declaration of Human Rights (articles 22, 24, 25, 26) and other human rights instruments.

Recognizing that the targets expressed in the Goals are not just development aspirations but also claimable rights has important implications.

Viewing the Goals in this way means that taking action to achieve them is an obligation, not a form of charity. This approach creates a framework for holding various actors accountable, including governments, citizens, corporations and international organizations.

Human rights carry counterpart obligations on the part of othersnot just to refrain from violating them, but also to protect and promote their realization. Human rights conventions recognize the need for an international order that ensures that these rights be secured (article 28 of the Universal Declaration of Human Rights, article 2 of the Covenant on Economic, Social and Cultural Rights) and that establishes the counterpart obligations of governments and other actors to contribute to their realization.

Viewing the Goals through a human rights framework increases understanding of the policies and institutional reforms required to achieve them. Full realization of the human right to education, for example, requires more than achieving universal literacy and primary education. It also requires that people participate meaningfully in public decisions about education. And it requires that measures for achieving education-related goals be equitablenot disadvantaging vulnerable groups or entrenching gender discrimination.

The full realization of economic, social and cultural rights requires far more than achieving the Millennium Development Goals. But achieving the Goals is an important step towards that end. Because rights to education, health care and an adequate standard of living depend on long-term economic growth and institutional reform, these rights can be realized progressively. But the acceptable pace of progressive realization and the obligations to achieve it are rarely spelled out, left instead to each country to define and debate. The Millennium Development Goals more explicitly define what all countries agree can be demandedbenchmarks against which such commitments must be measured.


How do human development goals relate to the Millennium Development Goals?

Key capabilities for human development Corresponding Millennium Development Goals

Living a long and healthy life

Goals 4, 5 and 6: reducing child mortality, improving maternal health and combating major diseases

Being educated

Goals 2 and 3: achieving universal primary education, promoting gender equality (especially in education) and empowering women

Having a decent standard of living

Goal 1: reducing poverty and hunger

Enjoying political and civil freedoms to participate in the life of one's community

Not a Goal but an important global objective included in the Millennium Declaration

Essential conditions for human development

Corresponding Millennium Development Goals

Environmental sustainability

Goal 7: ensuring environmental sustainability

Equityespecially gender equity

Goal 3: promoting gender equality and empowering women

Enabling global economic environment

Goal 8: strengthening partnership between rich and poor countries

Source: UN 2000a; Human Development Report Office; UN 1966; Marks 2003; UNDP 2000.


The Goals provide building blocks for human development, with each relating to key dimensions of this process. The Goals also reflect a human rights agendarights to food, education, health care and decent living standards, as enumerated in the Universal Declaration of Human Rights. The need to ensure all these rightseconomic, social and culturalconfers obligations on the governments of countries both rich and poor.

ORIGIN, EVOLUTION AND FOLLOWUP

The Millennium Development Goals reflect key aims of various UN development conferences in the 1990s. Thus they are the product of many national, regional and international consultations that involved millions of people and represented a wide range of interests, including those of governments, civil society organizations and private sector actors. These conferences emphasized the multidimensional nature of developmentwith human well-being as its end.

The Goals also build on the momentum created by the International Development Goals, devised in 1996 by the Development Assistance Committee (DAC) of the Organisation for Economic Co-operation and Development (OECD) to define how its 23 bilateral donors would work together to improve lives in developing countries in the 21st century. The OECD goals set an important precedent because they were time-bound and quantifiable, and so could be monitored and help mobilize support.

But because the International Development Goals originated in the donor community, they were never wholeheartedly adopted by developing countries or by civil society groups. A 2000 publication, A Better World For All: Progress towards the International Development Goals, was widely criticized by civil society groups for holding developing countries accountable for their progress without acknowledging the roles in the process of rich countries and multilateral institutions.4

So, although the Millennium Development Goals include all but one of the International Development Goals, they are seen not as the brainchild solely of rich countries. Instead they are truly global development goals that reaffirm the world's collective commitment to improving the lives of people in poor countries. The Goals also recognize the responsibility of developing countries for their developmentwhile placing more concrete demands on rich countries.

Defining the responsibilities of all countries was crucial for developing countries. Goal 8, for a global partnership, has no time-bound, quantified indicator to monitor progress and hold actors to account, as Goals 17 do. But its inclusion in the Goals is a significant step towards solidaritya basic principle of the Millennium Declaration.

The conference advanced new terms for a global partnership based on mutual responsibilities between developing and rich countries

The March 2002 International Conference on Financing for Development in Monterrey, Mexico, reaffirmed the world's commitment to the Millennium Declaration and its development targets. The conference advanced new terms for a global partnership based on mutual responsibilities between developing and rich countries. It also reaffirmed the primary responsibility of national governments for mobilizing domestic resources and improving governanceincluding sound economic policies and solid democratic institutions. And it reaffirmed commitments by rich countries to work towards a supportive international environment and increased financing for development.5 These commitments received additional backing at the September 2002 World Summit on Sustainable Development in Johannesburg, South Africa (see chapter 8).

DO GLOBAL GOALS MAKE A DIFFERENCE?

The global community, often led by the United Nations, has set many development goals since the first Development Decade of the 1960sand has a history of many failures. For example, in the Alma Ata Declaration of 1977 the world committed to health care for all people by the end of the century. Yet in 2000 millions of poor people died of pandemic and other diseases, many readily preventable and treatable. Similarly, at the 1990 Summit on Children the world committed to universal primary education by 2000. But that target was also missed. And the failures should serve as reminders of past neglect to follow through on solemn global pledges.

Failures should serve as reminders of past neglect to follow through on solemn global pledges

But UN goals have also achieved many successessome spectacular. An immunization goal dramatically increased coverage, from 10-20% in 1980 to more than 70% in 1990 in more than 70 countries. And even when quantitative targets have not been achieved by their target dates, they have accelerated progress. For example, by 2000 life expectancy had been raised to at least 60 years in 124 countries. In the 1990s child mortality was reduced by a third or more in only 63 countriesbut in more than 100 it was cut by a fifth. Thus global goals can raise ambitions and spur efforts (box 1.2).

ADDRESSING THE CRITICS

The Millennium Development Goals have been widely acclaimed, inspiring new energy for action against poverty. But they have also been criticized for:

Being too narrow, leaving out development priorities such as strong governance, increased employment, reproductive health care and institutional reform of global governance.

Relying on narrow indicatorssuch as school enrolment gaps to track progress in gender equality, or numbers of telephones to measure access to technology.

Being unrealistic and setting the stage for discouragementand for being used to name and shame countries that do not achieve them.

Distorting national priorities, possibly undermining local leadership by promoting a top-down, often donor-led agenda at the cost of participatory approaches in which communities and countries set their own priorities.6

These concerns point to what could go wrong if the Goalsparticularly their numerical indicatorsare taken out of context and seen as ends in themselves rather than as benchmarks of progress towards the broader goal of eradicating human poverty. Though the Goals reflect consensus on key global development objectives, they are not a new model for development. And while all are important, the priority placed on each should be determined by national development strategies.

The Goals are ambitiousreflecting the urgent need for much faster progress on development. They are intended to mobilize action, not name and shame. They place demands on all actors to identify new actions and resources so that they can be reached. The poorer the country is, the greater the challenge. Contrast what Mali will have to do to halve poverty by 2015, to 36%7 and reduce under-five mortality by two-thirds, to 85 per 1,000 live births,8 with Sri Lanka's task: cutting poverty to 3.3%9 and under-five mortality to 8 per 1,000 live births.10 That does not mean that Mali is destined to fail. Rather, it reveals the huge challenges facing the poorest countriesand the enormous efforts needed from the international community.

Moreover, success should not be judged simply by achieving the Goals on time. Halving poverty by 2015 is not the end of the road, because countries must continue to halve it again and again. And countries should not be condemned if they do not achieve the Goals on time.

GLOBAL GOALS MUST BE COUNTRY OWNED

Although the Millennium Development Goals originated in the United Nations, they are people's goalsand they can be achieved only if efforts are nationally owned and country driven.

STRONG NATIONAL OWNERSHIP

Developing countries have been pursuing the underlying objectives of the Millennium Development Goals for decades. But the Goals require new political momentum for faster progress on reducing human povertya process already under way in many countries. As governments begin to assess whether and how the Goals will be achieved by 2015, they also assess policy priorities and develop national strategies. Several countries have increased social spending and launched new programmes in support of the Goals. For example, Bolivia has aligned its social policies with the Goals. Proposals have been made to substantially increase spending on health and education, and two national programmes have been created towards that end. Cameroon has also boosted funding for education and health, and politicians are using data on progress towards the Goals in their campaign debates.


BOX 1.2

Do global goals make a difference?

Since the earliest days of the United Nations, its member governments have set global goals, with several recurring objectives. Ending colonialism was a major theme of the 1950s and 1960s. Accelerating economic growth and advancing other economic goalssuch as employment, industrialization and international assistancewere major themes of the first, second and third development decades (1960s, 1970s, 1980s). Goals for literacy, schooling, health, survival and water and sanitation were set from the early 1960s into the 1990s, culminating in the 2000 Millennium Declaration.

UN goals are often dismissed as overly ambitious and rarely achieved. Yet many goals have been achieved:

Eradicating smallpox (World Health Organization declaration, 1965) achieved in 1977.

Immunizing 80% of infants (before their first birthday) against major childhood diseases by 1990 (World Health Organization declaration, 1974, refined in 1984)achieved in about 70 countries, though the achievements have not been maintained in Sub-Saharan Africa and South Asia.

Reducing children's deaths from diarrhoea by half (World Summit for Children, 1990)achieved in the 1990s.

Cutting infant mortality to less than 120 per 1,000 live births by 2000 (World Summit for Children, 1990)achieved in all but 12 developing countries.

Eliminating polio by 2000 (World Summit for Children, 1990) achieved in 110 countries. More than 175 countries are now polio free.

Eliminating guinea-worm disease by 2000 (World Summit for Children, 1990)by 2000 the number of reported cases had declined by 97%, and the disease has been eliminated in all but 14 countries.

Significant progress has been made on many other goals even though they were not fully achieved:

Accelerating economic growth in developing countries to 5% a year by the end of the 1960s and to 6% in the 1970s (UN resolution, 1961) during the 1960s, 32 countries exceeded 5%, and during the 1970s, 25 countries exceeded 6%. (Though the record in the 1980s and 1990s was far more disappointing; see chapters 2 and 4.)

Increasing developing countries share in global industrial production (United Nations Industrial Development Organization declaration, 1975) the share rose from 7% in 1970 to 20% in 2000, though these gains were limited to a small number of countries.

Raising life expectancy to 60 years by 2000 (UN General Assembly resolution, 1980)achieved in 124 of the 173 countries that fell below this threshold (almost all of them among the least developed countries, with many in Sub-Saharan Africa).

Reducing child mortality by at least one-third more during the 1990s (World Summit for Children, 1990)63 countries achieved the goal, and in more than 100 countries child deaths were cut by 20%.

Eliminating or reducing hunger and malnutrition by 2000 (Third Development Decade, 1980s; World Summit for Children, 1990)in developing countries malnutrition dropped 17% between 1980 and 2000, but in Sub-Saharan Africa the number of undernourished people rose by 27 million in the 1990s.

Achieving universal access to safe water by 1990, then by 2000 (Third Development Decade, 1980s; World Summit for Children, 1990)access increased by 4.1 billion people, reaching 5 billion. Still, some goals have failed almost entirely:

Increasing official development assistance to 0.7% of rich countries GNP starting in 1970 (UN General Assembly resolution, 1970; International Development Strategy for the 1970s)assistance has actually fallen as a share of GNP, and in the 1990s only four countries achieved the 0.7% target (Denmark, the Netherlands, Norway and Sweden).

Allocating 0.15% of GNP for official development assistance to the least developed countries in the 1980s and 1990s (UN Conference on the Least Developed Countries, 1981)8 of 16 members of the OECD's Development Assistance Committee achieved the 0.15% target in the 1980s, but only 5 of 20 did so in the 1990s.

Halving adult illiteracy by 2000 (World Summit for Children, 1990) illiteracy fell from 25% in 1990 to just 21% in 2000.

Eradicating malaria (World Health Organization declaration, 1965) although there was success in Asia and Latin America, the global antimalaria programme of the 1960s largely bypassed Africa (due to the perceived intractability of the disease there) even though it suffers the largest malaria burden. Over the next several decades the international community devoted little attention and scant resources to malaria, leading to fragmented interventions.

Whether the numerical target of a global goal was achieved is an important but inadequate measure of success, because it does not indicate whether setting the goal made a difference. In many cases enormous progress has been made even though numerical targets have not been reachedas with the International Drinking Water Supply and Sanitation Decade of the 1980s (UN General Assembly, 1980), during which hardly any developing country achieved universal coverage. But the setting of global goals drew attention to these needs, and in the 1980s access to safe water increased 130% and access to sanitation increased 266%, both much more than in the 1970s or 1990s. Yet the decade has often been viewed as a failure simply because the numerical targets were not met.

Once set, goals agreed to at the United Nations have been followed up in very different ways. At one extreme have been goals like accelerating economic growth, where there has been little mobilization for implementation by the international community. At the other extreme have been goals like eradicating smallpox, expanding immunizations and reducing child mortality, where the international communityled by the World Health Organization and the United Nations Children's Fundhave supported country action.

Source: Jolly 2003.


National ownership is not just government ownership. Action must be driven not just by politicians and government agencies but also by communities, local authorities and civil society groups. The political momentum for policy change must come from a country's people, pressing for more schools, better health care, improved water supplies and other essential elements of development. The Goals provide an entry point for applying such pressure. They empower communities and people to hold authorities accountable. And they offer a scorecard for people to assess the performance of political leadersfrom local to national government officials, to parliamentarians, to opposition parties (see chapter 7).

The Goals are a major step towards building a true partnership for development, and in defining what is meant by partnership

Civil society groupsfrom community organizations to global networksare supportive allies, helping to build schools and mobilize research on neglected diseases. But they also have an essential role as watchdogs, monitoring those responsible for delivering results and shaping democratic debates on economic and social policies in poor communities. In newly democratizing states open debate on policy choices has often been absent or inadequate, leaving people vulnerable to populist rhetoric. Thus social mobilization around the Millennium Development Goals can help nurture and consolidate democratic processes, with the voices of ordinary people influencing policy-making. Though civil society groups have started to engage with the Goals, many are unaware or suspicious of them.11

COMMITMENT OF RICH COUNTRY PARTNERS AND THE INTERNATIONAL COMMUNITY

The Goals are a major step towards building a true partnership for development, and in defining what is meant by partnership. The agreements that emerged from the 2002 International Conference on Financing for Development and the World Summit on Sustainable Development advanced the consensus on the mutual responsibilities of developing and rich countries. Developing countries are to focus on improving governance, especially in mobilizing resources, allocating them equitably and ensuring their effective use. Rich countries are to increase concessional financing and debt relief and to foster trade and technology transfers (see chapter 8).

CLEAR DIAGNOSIS OF WHAT NEEDS TO BE DONE

The world needs a clear analysis of why global poverty endures, where and what the biggest obstacles are and what needs to be done to tackle them. Every poor country has to prepare a national strategy that addresses its circumstances.

The international community also needs to set priorities on how to achieve the Millennium Development Goals. These priorities need to be based on objective analysis of the biggest challenges and main obstacles, on evidence of what has worked (and what has not) and on ideas for new actions to accelerate progress.

For this analysis the UN Secretary-General has established the Millennium Project, a research initiative that brings together nearly 300 experts from academia, civil society, international organizations and the public and private sectors around the world. This project will issue its final report in 2005.

This Human Development Report also helps identify global priorities, provides data and analyses new ideas. This Report has been prepared in close collaboration with the Millennium Project, drawing on its work and on other in-house and commissioned research. It describes:

Overall global progress towards the Goals and identifies areas requiring the most attention (chapter 2).

The structural constraints to economic growth and human development and the ways to overcome them (chapters 3).

Policy options for achieving the Goals for education, hunger, health, gender equality and water and sanitation (chapter 4).

Appropriate roles for the private and public sectors in expanding basic social services (chapter 5).

Policy options for achieving the environment Goal (chapter 6).

The role of people in building political momentum for policy change (chapter 7).

New policies for trade, debt relief, technology transfers and aid needed to support the implementation of all the Goals (chapter 8).

The Millennium Development Compact, at the beginning of this Report, is its main policy plank. The Compact presents a new approach to help countries escape poverty traps and achieve the Goals, identifies the responsibilities of stakeholders and builds on the principles of the Monterrey Consensus (adopted at the International Conference on Financing for Development) which takes a performance rather than an entitlement approach to development cooperation.

CHAPTER 2

Images    Priority challenges in meeting the Goals

Two groups of developing countries face especially difficultand differentchallenges in achieving the Millennium Development Goals. In the first group are top priority and high priority countries where entrenched human poverty and failedor even reversingprogress have created crises, requiring the world's focused attention and resources. The second group is in the public eye less often, having made good progress overall. But that progress has been uneven, and gaps are widening because poor groups and regions are being left behind.

Since 1990 East Asia and the Pacific, led by China, has nearly halved extreme income povertyand is making significant progress on the other Goals as well. For the Arab States and Latin America and the Caribbean, achieving the Goals by 2015 will be challenging but possible (figure 2.1). But for other developing regions achieving the Goals remains a huge challenge. Unless things improve, it will take Sub-Saharan Africa until 2129 to achieve universal primary education, until 2147 to halve extreme poverty and until 2165 to cut child mortality by two-thirds.

FIGURE 2.1
Timeline: when will the Millennium Development Goals be achieved if progress does not accelerate?

Images

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a. Region is considered to have achieved the Goal because it has low human poverty (below 10%) in the most recent year for the relevant Goal (see technical note 2).

Source: Human Development Report Office calculations based on feature 2.1.

For hunger no date can be set because the region's situation continues to worsen. Though South Asia has made faster progress, substantial improvements will be required in most areas if the Goals are to be met.

During the 1990s many developing countries saw reversals and stagnation in many areas essential to the Goals. Some 54 countries are poorer now than in 1990. In 21 countries a larger proportion of people are going hungry. In 14 countries more children are dying before age five. In 12 countries primary school enrolment rates have fallen. And in many countries things have simply stagnatedneither worsened nor improved.1

During the 1990s many developing countries saw reversals and stagnation in many areas essential to the Goals

In the 1980s only 4 countries experienced reversals in the human development index (a summary measure based on the ability of a country's citizens to live a long and healthy life, be educated and enjoy a decent standard of living). In the 1990s that number jumped to 21. Behind these reversals were failed economic growth and the HIV/AIDS epidemic. The 1990s also saw declining development assistance from rich countries, increasing debt burdens in poor countries and continuing drops in the prices of primary commoditieswhich many poor countries depend on for the bulk of their export revenues (see chapter 8).

Many developing countries face huge challenges in one or two areas related to the Goals. But most worrisome are the 31 top priority countries facing failed progress and extremely low starting levels for many of the Goals. Though they come from all regions, most are in Sub-Saharan Africa. In another 28 high priority countries the situation is less desperatethough significant progress is still needed if the Goals are to be met.

Yet some of the world's poorest countries are making progress towards higher levels of development. Success stories are emerging in the fight against HIV/AIDS. Education is improving. And economies are beginning to grow. A key message of this Report is that much is known about how to achieve the Goals. But this knowledge must be applied quickly if struggling countries are to do so.

When measuring progress, it is vital to look beyond country averages. In many countries the letter of the Goals may be achieved if efforts focus on people already doing the best in society. But the spirit of the Goals is not met if countries that cross the finishing line leave behind many poor people. In Brazil, China, India and Mexico overall progress has been excellent. But some areas and groups are not benefiting enough, while wealthy segments of the population continue to surge ahead. And in countries doing badly, much of the burden is borne by marginalized groupsas in Burkina Faso, Mali and the Russian Federation.

This chapter assesses progress towards the Millennium Development Goals using a global perspective to identify areas most in need of policy attention (box 2.1 and feature 2.1 at the end of the chapter; see also the Millennium Development Goal indicator tables 1-10 in the statistical annex). The assessment shows:

Stark contrasts between and within regions.

Human development reversals in the 1990s.

Struggles to achieve the Goals, with reversals, stagnation and countries in crisis.

Good performance by some of the poorest countries.

Widening gaps within countries: who is being left behind?

STARK CONTRASTS BETWEEN AND WITHIN REGIONS

Around the world, progress is being made on the Goals. But stark differences are emerging between regions, with some pulling ahead and reaching new levels of developmentwhile others are left behind. The same pattern is occurring within regions: some countries are succeeding amid disappointing regional trends, while others are falling behind in regions making good overall progress:

South Asiaadvancing from low levels. South Asia remains one of the world's poorest regions. And because it is so heavily populated, it is home to the largest number of poor people. The task is enormouswith more than one-third of South Asians lacking access to improved sanitation, one-third in poverty, one-quarter hungry, one-fifth of children out of primary school and almost one-tenth of children dying before age five. But significant progress was made in all these areas in the 1990s, lifting the region from the basement of development. Moreover, country performance was more homogeneous than in any other region: except for Afghanistan, no country experienced reversals in the key indicators for the Millennium Development Goals. Still, there was some divergence: Bangladesh and Bhutan reduced their under-five mortality rates by more than 6 percentage points, and Nepal by more than 5 points. Now a smaller proportion of children die before age five in these countries than in Pakistan, where progress has been much slower. Moreover, India's performance varied enormously across states, with inequality increasing between several.


BOX 2.1

Building statistical capacityunprecedented demand, urgent opportunity

The Millennium Development Goals have made clear the need for relevant, reliable, timely statistics to set policies, hold decision-makers accountable, monitor progress and evaluate results. Yet despite considerable improvements in recent years, meeting the demand for basic data on human development remains a major global challenge.

Though the data situation varies across developing countries, the Millennium Indicators Database (see http://millenniumindicators.un.org) based on national statistics compiled or estimated by international data agenciesis revealing. Not only are there significant gaps for almost every indicator, there are also extensive problems in relevance, accuracy, consistency and reliability. For example:

Many of the indicators chosen for the Millennium Development Goals are based on available datanot necessarily the data most appropriate for the Goals. An example is the $1 a day indicator, the most debated measure of absolute poverty (see box 2.3). Another is the indicator of sustainable access to affordable essential drugs, where both access and afford-ability are difficult to assess accurately. Meanwhile, adequate indicators for the target on slum dwellers (part of Goal 7) have yet to be fully developed.

For indicators on income poverty, health, gender inequality, employment and the environment, many countries have no data for 1990-2001and few have data on trends over that time (see table).

Some datasuch as for maternal mortality and HIV/AIDSare based on incomplete vital registrations or non-representative surveys and so are subject to enormous uncertainty. And even when data are available for multiple periods, they often are not comparable due to changes in definitions, methods and coverage.

By creating long-term demand for data, the Goals are challenging national and international institutions to go beyond short-term responses and to build sound, sustainable national statistical capacity and systems. What needs to be doneor done differentlyto achieve those objectives?

Large data gaps even in basic human development indicators: countries lacking data, 1990-2001

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Note: Data refer to developing countries and countries in Central and Eastern Europe and the CIS. A country is defined as having trend data if at least two data points are availableone in 1990-95 and one in 1996-2001and the two points are at least three years apart.

Source: UN 2003c.

Building national demand

Lacking appreciation of the importance of statistics in supporting informed decision-making, too many countries are trapped in a circle of low demand and low resources for statistics, resulting in inadequate supply. Such countries do not routinely collect datamany have not conducted a population census in the past 10 yearsand lag far behind in the adoption of up-to-date statistical standards and methods. They also have limited capacity to analyse and disseminate statistics, discouraging the use of data in national policy analysis.

Demand for data must increase if national statistical systems are to break this circle of underperformance and underfunding. Efforts to increase the supply of data must also strengthen the capacity of governments and the general public to use data effectively. Though country ownership and commitment are crucial to such efforts, the international community can help by:

Advocating the importance of statistics and statistical systems in supporting effective governance and empowering people. Important opportunities include the processes for developing Poverty Reduction Strategy Papers, national human development reports and Millennium Development Goals country reports, which emphasize the need for monitoring and evaluation.

Making better use of existing data to meet short-term demands for specific programmes, and making long-term investments in statistical systems.

Training statistical analysts, managers of statistical systems and users of statistics; designing new tools for data collection; increasing access to data through support for data dissemination and analysis and encouraging the use of existing technology to lower costs and make national statistical programmes more effective.

Improving national strategies and systems

International agencies have conducted a variety of household surveys to narrow data gaps in developing countries, particularly for poverty, health and education. These surveysincluding Demographic and Health Surveys, Multiple Indicator Cluster Surveys, Living Standards Measurement Surveys and Core Welfare Indicator Questionnaireshave provided essential data on socio-economic characteristics and trends, especially among poor people.

But when similar surveys are conducted in resource-constrained countries, they are sometimes driven by short-term external needs, distort local priorities and offer no sustainable improvements to local statistical infrastructure. Though administrative systems can provide detailed time-series and disaggregated data for national planning, they require long-term investments and are often neglected.

To foster the development of sustainable statistical systems and minimize distortions of priorities and outputs, data collection and analysis should be conducted in the framework of national statistical strategies. These strategies should be closely aligned with national policies and agreed priorities for statistical systems.

In recent years several African countries have significantly improved their statistical capacity by using national demands to guide their statistical development efforts. Uganda restructured its statistical agency, enabling it to better manage and meet user demands. In Malawi donor and government investments in household surveys and data analysis have increased understanding of poverty resulting in poverty maps, an agreed poverty line and a comprehensive profile of poor people.

An international poverty survey

The Millennium Development Goals highlight areas where national statistical systems require dramatic improvements. Many countries, including the top and high priority countries identified in this Report, require extensive assistance to conduct regular surveys of income and consumptionespecially to assess extreme poverty and basic living conditions. Such countries also need to develop or strengthen statistical programmes for other social indicators, particularly for health data singled out by the Goals.

An international poverty survey could be one way to respond to the new demand for statistical support created by the Goals. Although existing surveys (such as Demographic and Health Surveys) provide important data in many areas, none provides consistent, reliable data on extreme poverty and basic living conditions. Using new or improved international standards and methodologies, the international poverty survey could be modular, with some modules unchangeable and consistent over time and spaceand others adapted to current or long-term country needs. Built within an integrated survey programme, such a survey could provide invaluable data for national and global analysis, and become a major tool for building national statistical capacity.

Securing moreand more effective use ofresources

Many poor countries lack all but the barest statistical infrastructure and training. Severely constrained by resources, they require significant financial support to start building statistical capacity. Other countries have well-developed programmes in certain areas but require support to strengthen overall statistical systems. They also need to adjust national priorities and invest in statistical activities to ensure sustainable capacity building.

Governments and donors should recognize that strengthening statistical systems is integral to achieving the Millennium Development Goals. Rather than focusing on short-term results and relying on expensive external experts, efforts should favour long-term planning and make more effective use of local resources and knowledge.

New financing instruments

Many donors are making efforts to finance statistical systems, both by increasing funding (such as including statistical components in projects) and by experimenting with new instruments. For example, the World Bank's new multidonor Trust Fund for Statistical Capacity Building provides grants to develop master plans and small-scale projects for statistical capacity building. In addition, new lending facilitiessuch as investment loans that gradually reduce support for recurrent costs (the bulk of expenses facing statistical offices) during implementation phaseswill help developing countries increase investments and ease dependence on donor financing.

Cooperation among developing countries

Decades of technical cooperation and assistance from donors have fostered significant knowledge in developing countries. But while experts from rich countries have a vital role to play, so do practitioners within countriesand from other developing countries with similar problems and conditions. In the late 1980s, for example, the Philippines's National Statistical Coordination Board helped Indonesia's Central Bureau of Statistics compile national accounts data.

Several factors are key to the success of such efforts: ownership and commitment by recipient countries; similar economic, cultural and data systems in recipient and assisting countries, facilitating technology transfer; affordable consultation costs to enable long-term support; a sense of being peers; and willingness to cooperate fully.

Improving collaboration and coordination

Statistical capacity building must be coordinated effectively both within countries and among donors. Statistical programmes in most developing countries, even those with long statistical traditions, are often decentralized among various ministries beyond national statistical offices. The statistical offices of international agencies, such as those at UN headquarters and regional commissions, mainly work with national statistical offices. Other statistical units in specialized donor agenciessuch as the International Labour Organization, Food and Agriculture Organization, United Nations Educational, Scientific and Cultural Organization and World Health Organizationgenerally work with their national counterparts in line ministries. Still other donors, mostly multilateral and bilateral, often manage technical cooperation through technical cooperation ministries or similar mechanisms.

This structure poses enormous challenges for coordination. Different donors inevitably duplicate similar projects, with overlapping and inconsistent objectives, competing for limited local resources and overloading national capacity. There is also severe incoherence within national systems and disconnection between national statistical offices and various ministries. The result? Enormous inefficiency, less valuable data from surveys that use different definitions and methods and discrepancies in national and international statistics.

The Millennium Development Goals offer a unique opportunity to establish clear, effective responsibilities both nationally and internationally. For example, national statistical offices could play a more central role in coordinating national statistics for national and international needs. Practical mechanisms should be created to coordinate and monitor international assistance.

To coordinate statistical capacity building, the Partnership in Statistics for Development in the 21st Century (PARIS21) was established in 1999. This partnership links national and international statisticians and users of statistics in an effort to develop strategies for building statistical capacity and promote effective cooperation between poor and rich countries. Though relatively new, PARIS21 has addressed many challengesadvocating the need for better data, mobilizing resources, designing tools for assessing statistical capacity and identifying priorities and encouraging countries to develop long-term plans for statistical development.

Strengthening international data systems

The growing demand for coherent, consistent international statistics poses a serious challenge. Although stronger international statistics depend on stronger national statistics, changes are also needed in international statistical agencies. They must increase their capacity to respond to new measurement challenges and provide timely statistics, reduce data gaps and inconsistencies, improve collaboration with national statistical systems and strengthen coordination among themselves to enhance international standards and methods and to ensure consistency among international data series.

The international community plays an important role in statistical development by implementing internationally agreed standards, methods and frameworks for statistical activities. Significant milestones include the development and adoption of the System of National Accounts, General Data Dissemination Standards and Data Quality Assessment Framework. The Millennium Development Goals have generated new momentum for the development of international guidelines on appropriate concepts and methods for each country to build onsuch as measures of extreme poverty and living conditions in urban slums. These needs are especially essential to meet the needs of top and high priority countries.

The Goals have mobilized the international community and inspired developing countries to assume responsibility for building statistical capacity. Closing enormous statistical gaps will require commitment and effort from donors and recipients alike. Capacity building is not something that can be done for countries: they must do it themselves. Still, external assistance is essential.

Source: Human Development Report Office based on David 2003; De Vries 2003; Johnston 2002, 2003; UNDP 2002a, 2003e; McEwin 2003; Simonpietri 2003; UN 2002g; World Bank 2002a, 2003d, 2003h.


Sub-Saharan Africaleft behind. Like South Asia, Sub-Saharan Africa faces enormous poverty. But unlike South Asia, it is being left behind. Almost across the board the story is one of stagnation. Economies have not grown, half of Africans live in extreme poverty and one-third in hunger, and about one-sixth of children die before age fivethe same as a decade ago. And because of population growth, the number of people suffering increased considerably in the 1990s. Some progress was made in education, but the primary enrolment rate is still only 57%. And with low completion rates, only one in three children in the region finish primary school. Yet amid this dismal picture of stagnation and reversals, some countries achieved impressive progress in the 1990s. In Cape Verde, Mauritius, Mozambique and Uganda per capita income grew by more than 3% a year, and Ghana and Mozambique achieved some of the world's sharpest reductions in hunger. In Benin the primary enrolment rate increased by more than 20 percentage points. And in the face of HIV/AIDS, 10 countries reduced child mortality by 3 percentage points or moreMalawi by more than 5 points.

Latin American and the Caribbean stalled progress. At the other end of the spectrum of developing regions, Latin America and the Caribbean has human development indicators approaching levels in rich countries. But though progress continued in some areas (education, under-five mortality), the 1990s saw slow economic growth and slight increases in poverty. As a result East Asia is fast closing its income gap with Latin America and now has a lower proportion of hungry people. Although most Latin American and Caribbean countries had slow growth in per capita incomes in the 1990s, in five countries per capita growth was more than 3% a yearwith Chile and Guyana seeing per capita growth of almost 5%. In hunger, too, there was great variation: the proportion of hungry people almost tripled in Cuba, from 5% to 13%, while Peru had the region's biggest reduction, from 40% to 11%. Under-five mortality rates fell in Bolivia (from 12% to 8%) and Ecuador (6% to 3%), while Barbados, Jamaica and Saint Vincent and the Grenadines experienced almost no improvement.

In Cape Verde, Mauritius, Mozambique and Uganda per capita income grew by more than 3% a year, and Ghana and Mozambique achieved some of the world's sharpest reductions in hunger


East Asia and the Pacificperforming well across the board. East Asia's economy grew by almost 6% a year in the 1990s, while poverty fell by about 15 percentage pointsand this despite the severe financial crisis that hit the region in 1997-98. The reduction in hunger was the fastest of any region, falling from 17% to 11%now lower than in the Arab States or Latin America and the Caribbean. Universal primary education attendance and completion are within reach, and under-five mortality has fallen significantly. China has been pivotal to the region's success. With 1.2 billion people, it accounts for about 70% of East Asia's population. (China's success and its uneven distribution are discussed later in this chapter.) Other success stories include higher enrolment rates in Lao People's Democratic Republic and lower under-five mortality rates in Indonesia. Still, many countries in the region did not enjoy similar progress in the 1990s. Income growth was slow in the Philippinesand negative in Brunei Darussalam, Mongolia, the Solomon Islands and Vanuatu. And in Cambodia under-five mortality rates rose 2 percentage points.

Central and Eastern Europe and the Commonwealth of Independent Statesincreasing poverty and declining life expectancy. People in Central and Eastern Europe and the Commonwealth of Independent States (CIS) ended the 1990s less healthy and with lower average incomes than people in Latin America and the Caribbean. These negative trends date to the 1980s, but data for the 1990s give an idea of the size of the decline: poverty more than tripled, to almost 100 million people25% of the region's population.2 The experience in the transition to market economies has been a tale of two regionsCentral and Eastern Europe on the one hand and the CIS on the other. Some countries in Central and Eastern Europe have made remarkable improvements since the late 1990s: the Czech Republic, Hungary, Poland, Slovakia and Slovenia are on the verge of joining the European Union. The challenge is to replicate these successes in CIS countries struggling to move forward. The CIS SevenArmenia, Azerbaijan, Georgia, Kyrgyzstan, Moldova, Tajikistan and Uzbekistanended the 1990s with incomes close to those of the least developed countries.

Questions about global income inequality inspire some of the most contentious debates on the international stage: the answers depend on how the questions are asked


Arab Statespersistent gaps. In the Arab States high incomes have improved many aspects of human development since 1970. Yet of all regions the Arab States has the widest gap between incomes and other aspects of human development. Despite narrowing gender gaps in enrolments, gender inequality remains an issue: in countries with parliaments, women hold only 5% of seats.3 Political and civil rights pose the greatest challengein 1999 only 4 of the region's 17 countries with data had multiparty electoral systems.4 Still, despite general economic stagnation, Lebanon, Sudan and Tunisia grew by more than 3% a year in the 1990s. Kuwait reduced its hungry population from 22% to 4%, and Egypt achieved the largest reduction in under-five mortality rates, from around 10% to 4%. But other countries are being left behind. In Iraq the under-five mortality rate almost tripled in the 1990s, to 13%. Countries facing less extreme circumstances have also struggled: in Yemen the proportion of underweight children jumped from 30% in 1992 to 46% in 1997.5

FIGURE 2.2
Comparing child mortality in OECD countries and other regions: Inequalities are growing, 1990 to 2001

Images

Source: World Bank 2003i.

GAPS BETWEEN RICH AND POOR COUNTRIES: MOVING BEYOND INCOME INEQUALITY ALONE

Questions about global income inequality inspire some of the most contentious debates on the international stage. The answers depend on how the questions are asked. And even when the questions seem the same, the answers can be very different (box 2.2). People look to data on income inequality as they might a stock market index to gauge how the world is doing. Are things on the right track? Is enough being done? Yet debates on global income inequality indicate little more than how economists and statisticians can find many answers to the seemingly same questions.

Nobel Prize winner Amartya Sen has suggested that careful consideration be given to what is meant by inequality.6 Looking at income inequalities alone can mask inequalities in human lives and capabilities and how they are changing. But capturing how gaps between rich and poor people and regions are changing in areas other than income is often hard to do, because most basic human development indicators have a limit at the top. When nearly all children are in school, all adults are literate and life expectancy approaches its biological limit, countries can make little further progress. So while rich countries can get little better according to these indicators, any improvement in poor countries represents a reduction in inequality.

But even when a country can progress no further in a basic human development indicator, things can continue to improve. The quality of education can get better. Health care can dramatically improve people's lives in ways not reflected in life expectancy data. Hidden behind income levels can be more enjoyable employment and increased leisure time. Women can be empowered in the home and workplace. Such indicators are at the frontier of measurement in human developmentand it is through them that many changes in non-income inequality will be identified.

Yet inequalities in basic human development indicators are not always falling. For example, while there is heated debate on whether income inequality is increasing between rich and poor countries, inequality in child mortality has gotten unambiguously worse. In the early 1990s children under five were 19 times more likely to die in Sub-Saharan Africa than in rich countriesand today, 26 times more likely (figure 2.2). Among all developing regions only Latin America and the Caribbean saw no worsening in the past decade relative to rich countries, with children still about 5 times more likely to die before their fifth birthdays.


BOX 2.2

What is happening with global income inequality? Grotesque levels, ambiguous trends

Human Development Report 2002 noted that while the definition of global income inequality is fuzzy and its trends ambiguous, there is widespread consensus on its grotesque levels. This has not changed. Incomes are distributed more unequally across the world's people (with a Gini coefficient of 0.66) than in the most unequal countries (Brazil, for example, has a Gini coefficient of 0.61). (The Gini coefficient is a measure of income inequality that ranges between 0, indicating perfect equality, and 1, indicating complete inequality.) The richest 5% of the world's people receive 114 times the income of the poorest 5%. The richest 1% receive as much as the poorest 57%. And the 25 million richest Americans have as much income as almost 2 billion of the world's poorest people (Milanovic 2002, pp. 51-92).

Monitoring and containing income inequality are essential not only to increase opportunities for as many people as possible, but also to reduce social friction in areas (usually urban) with high inequality. As globalization deepens and access to information becomes cheaper and more widely available, awareness of global inequality is increasing. People no longer compare themselves only to their fellow citizens: they are also aware of international gaps, making divergence across countries increasingly harmfuland dangerous. To reduce growing tensions, it is crucial that the tide of development lift all boats.

Findings on global inequality vary considerably depending on the approach used to analyse it. Inequality can be calculated across countries (using average national incomes), across the world's people (regardless of national boundaries) and across people within countries.

Inequality across countries

International inequality is generally measured by comparing national per capita incomes. Countries with the highest per capita incomes in the early 1800s are still today's richest countries, indicating persistence in the structure of international inequality.

In 1820 Western Europe's per capita income was 2.9 times Africa'sand in 1992, 13.2 times (Maddison 2001). In the 1990s per capita incomes increased slowly but steadily in high-income OECD countries, but many transition countries in Central and Eastern Europe, particularly the CIS, many parts of Sub-Saharan Africa and some countries in Latin America and the Caribbean experienced economic stagnation. At the same time, highly populated developing countries such as China and India achieved rapid growth.

As a result per capita incomes have been converging in rich countries, while in developing countries the pattern is mixed. But when income data are weighted by populationto capture the relative importance of each country's performanceaverage incomes across countries appear to be converging. Highly populated developing countries drive such trends: fast-growing China and India are catching up with parts of the industrialized world, such as North America and Western Europe.

Inequality across the world's people

Some studies have tried to capture trends in true global inequalitythat is, the distribution of income across citizens of the world, regardless of national borders. Income surveys suggest that when measured this way, global inequality increased between 1987 and 1998. The main forces behind this divergence were:

A widening income gap between the poorest and the richest people due to slow growth in rural incomes in populous Asian countries relative to rich OECD countries.

Faster progress in urban China relative to rural China and to India.

Shrinkage in the world's middle-income group (Milanovic 2002, pp. 51-92).

But these conclusions are not entirely robust due to the limited timeframe covered and the use of purchasing power parity (PPP) rates, which are often unsuitable and do not accurately reflect international price differences (see box 2.3).

Using alternative methodologies, other analysts have reached more optimistic conclusions suggesting convergence in global individual incomes: that after peaking in 1970, the gap in 1995 had returned to the level in 1950 (Dollar and Kraay 2002, pp. 120-33; Bhalla 2002; Sala-i-Martin 2002). A driving factor in this debate is the measure of inequality used to draw conclusions. When measured using single summary indicators such as the Gini coefficient, incomes appear to be converging. (Because of the Gini coefficient's construction, it gives more weight to middle-income groups and less to the extremes.) Still, in recent decades there has unquestionably been a widening gap between the incomes of the very richest and the very poorest.

Inequality across people within countries

National income inequality is the concept used for country-level analysis. This concept is suitable for analysing the correlation between a country's policiestypically economic openness or redistribution measuresand its distribution of income.

In many countries inequality in assets and especially income appears to be on the rise. Numerous studies have tried to capture trends in income distribution over time across large samples of countries. Cornia and Kiiski (2001) estimate that between the 1980s and the mid- to late 1990s inequality increased in 42 of 73 countries with complete and comparable data. Only 6 of the 33 developing countries (excluding transition countries) in the sample saw inequality decline, while 17 saw it increase. In other words, within national boundaries control over assets and resources is increasingly concentrated in the hands of a few people.

Though not the case for all these countries, in many inequality began increasing during the debt crisis of the early 1980s (Kanbur and Lustig 1999). Since then inequality has soared, particularly in the Commonwealth of Independent States (CIS) and south-eastern Europe. And in many Latin American countries inequality remains extremely high. If sharp increases in inequality persist, they may have dire effects on human development and social stability (including violence and crime rates; see Fajnzylber, Lederman and Loayza 1998 and Bourguignon 2001).

Source: Ravallion 2002; Schultz 1998, pp. 307-44; Korzeniewicz and Moran 1997, pp. 1000-39; Sprout and Weaver 1992, pp. 237-58; Maddison 2001; Milanovic 2002, pp. 51-92, 2003; Dollar and Kraay 2002, pp. 120-33; Kanbur and Lustig 1999; Bhalla 2002; Sala-i-Martin 2002; Cornia and Kiiski 2001; UNDP 2002e; Fajnzylber, Lederman and Loayza 1998; Bourguignon 2001.

FIGURE 2.3
Human development setbacks

Human development index

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Source: Indicator table 2.

FIGURE 2.4
Fast growth is the exception with populous countries doing well

GDP per capita average annual growth rate, 19902001

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Source: Indicator table 12.

HUMAN DEVELOPMENT REVERSALS IN THE 1990S

For human development the 1990s were the best of years and the worst of years. Some regions and countries saw unprecedented progress, while others stagnated or reversed. What is most striking is the extent of the stagnation and reversalsnot seen in previous decades.

This is apparent not just by looking at the targets for the Millennium Development Goals, but also from the human development index (HDI), the summary measure of key dimensions of human development (see feature 2.2). The index usually moves steadily upwards, though usually slowly because three of its key componentsliteracy, enrolment rates and life expectancytake time to change. So when the HDI falls, it indicates crisis, with nations depleting their basis for developmentpeople, their real wealth.

DECELERATING HUMAN DEVELOPMENT

Though average incomes have risen and fallen over time, human development has historically shown sustained improvement, especially when measured by the HDI. But as noted, the 1990s saw unprecedented stagnation and deterioration, with the HDI falling in 21 countries. Many of these countries have insufficient data to calculate the HDI before 1990, so there is no way of knowing if their HDIs also fell in the 1980s. Of the 114 countries with data since 1980, only 4 saw their HDIs decline in the 1980swhile 15 saw declines in the 1990s (table 2.1). Much of the decline in the 1990s can be traced to the spread of HIV/AIDS, which lowered life expectancies, and to a collapse in incomes, particularly in the CIS.

As a result, after a steady increase since the mid-1970s, there has been a deceleration in HDI progress. The slowdown, particularly in the late 1980s and first half of the 1990s, was led by countries in Central and Eastern Europe and the CIS. Many of these countries had already started on a downward spiral in the mid-1980s, and between 1990 and 1995 the region's average HDI declined. In Sub-Saharan Africa overall growth in the HDI merely slowed, though some countries suffered terrible declines (figure 2.3).

TABLE 2.1
Countries that saw a drop in the human development index, 1980s and 1990s

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Note: Based on a sample of 113 countries with complete data.

a. Country does not have HDI data for 1980-90, so fall in HDI may have begun before 1990.

Source: Indicator table 2.

FAILING ECONOMIC GROWTH

Failed economic growth lies behind the faltering HDI and the inability of many countries and regions to reduce income and human poverty (figure 2.4). Seldom if ever is income poverty reduced in a stagnant economy, and the regions growing fastest economically are also the ones that have reduced income poverty most (table 2.2). That provides a clear message: economic growth is essential for reducing income poverty. But the link is far from automatic. In Indonesia, Poland and Sri Lanka income poverty rose in the 1990s despite economic growth (figure 2.5). (Chapter 3 considers pro-poor growth and how it can be achieved.)

At constant inequality levels, a country needs to grow by 3% or more a year to double incomes in a generationsay, from $1 to $2 a day. Yet of 155 countries with data, only 30 had annual per capita income growth rates above 3% in the 1990s. Among the rest, 54 countries saw average incomes fall, and in 71 countries annual income growth was less than 3%.

The consequences of this dismal growth performance? At the turn of the millennium more than 1.2 billion people were struggling to survive on less than $1 a dayand more than twice as many, 2.8 billion, on less than $2 a day. Living on $1 a day does not mean being able to afford what $1 would buy when converted into a local currency, but the equivalent of what $1 would buy in the United States: a newspaper, a local bus ride, a bag of rice.

Debate rages over the validity of $1 a day poverty data, which come from the World Bank, because calculating them is fraught with conceptual and practical problems. Some experts believe them to be rough but reasonable. Others believe that they reveal little about income poverty and its trends (box 2.3).

Whatever the case, the data show that globally the proportion of people living on less than $1 a day dropped from nearly 30% in 1990 to 23% in 1999 (table 2.3).7 But the story is not one of good overall progress. Rather, it is one of some countries forging ahead while others see bad situations get even worse. Much of the impressive reduction in global poverty has been driven by China's incredible economic growth of more than 9% a year in the 1990s, lifting 150 million people out of poverty.8

Of 67 countries with data, 37 saw poverty rates increase in the 1990s.9 But others achieved impressive reductions in poverty: Brazil, Chile, India, Uganda, Thailand, Viet Nam. Many of the countries where poverty rates soared were in Eastern Europeparticularly Central Asiathough other cases included Algeria, Mongolia, Nigeria, Pakistan, Venezuela and Zimbabwe.10

When populations grow, reductions in the proportion of poor people can still mean an increase in the number. Only in East Asia did the number of people in extreme poverty decline significantly in the 1990s. In South Asia, home to almost 500 million poor people, the number hardly changed. In all other regions the number of poor people rosenotably in Sub-Saharan Africa, where an additional 74 million people, the population of the Philippines, ended the decade in extreme poverty. And as noted, in Eastern Europe and the CIS the number of poor people more than tripled, from 31 million to almost 100 million (see table 2.3).11

TABLE 2.2
Economic growth and income poverty: strong links

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a. Change measured using the $2 a day poverty line, which is considered a more appropriate extreme poverty line for Central & Eastern Europe & CIS.

Source: World Bank 2002f.

INCREASING SPREAD OF HIV/AIDS

In recent decades the greatest shock to development has been HIV/AIDS. The first cases were recognized in the early 1980s, and by 1990 some 10 million people were infected (figure 2.6). Since then that number has more than quadrupled, to about 42 million. Moreover, the disease has already killed 22 million people and left 13 million orphans in its wake.

The disease's impact on the HDI occurs through its devastating effect on life expectancy in the worst-affected countries (figure 2.7). But HIV/AIDS destroys more than lives. By killing and incapacitating adults in the prime of their lives, it can throw development off course.

HIV/AIDS is crippling parts of Africa about 1 in 3 (or more) adults is infected in Botswana, Lesotho, Swaziland and Zimbabwe, 1 in 5 in Namibia, South Africa and Zambia and more than 1 in 20 in 19 other countries. The disease kills both rich and poor people, including teachers, farmers, factory workers and civil servants. In 1998 Zambia lost 1,300 teachers to the diseasetwo-thirds of those trained each year.12 By 2020 the hardest-hit African countries could lose more than a quarter of their workforces.13

TABLE 2.3
Changes in the share and number of people living on $1 a day have been uneven

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a. Changes measured using the $2 a day poverty line, which is considered a more appropriate extreme poverty line for Central and Eastern Europe and the CIS.

b. Data are based on the $1 a day poverty line for all regions.

Source: World Bank 2002f.

FIGURE 2.5
Growth and income poverty: links not automatic

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Source: Human Development Report Office calculations based on World Bank 2003i and World Bank 2000a.

BOX 2.3

Measuring income poverty: where to draw the line?

The animated debate on whether the Millennium Development Goal of halving poverty will be achieved is largely driven by the lack of agreement on the best way to measure poverty. (Among the main participants in this debate are Surjit Bhalla, Angus Deaton, Thomas Pogge, Sanjay Reddy, Martin Ravallion and Xavier Sala-i-Martin.) Thus conclusions on whether the poverty Goal will be met must be qualified in terms of definitions and, more important, methodologies.

Absolute poverty is the main indicator used to assess progress towards the Goal. This indicator measures the proportion of a population surviving on less than a specific amount of income per day. This specific amount is the poverty linearguably the most contentious issue in the debate. Shifting the international poverty line by just a few cents can alter world poverty estimates immensely, moving millions of individuals in or out of poverty.

Poverty rates based on national poverty lines can capture the dynamics of poverty over time in a single country. National poverty lines are generally based on the amount needed for an individual in one country to live decently. Surviving in the Russian Federation requires different minimum survival goods than surviving in Haiti. Because the costs of the consumption bundles used to estimate poverty lines vary across countries, poverty lines vary as well. The concepts and criteria used to define poverty lines also differ across countries, making national poverty lines problematic when the analytical purpose is to make international poverty comparisonsas with the monitoring of regional and global progress towards the Millennium Development Goal for poverty.

An international poverty linemessy but necessary

To compare poverty rates across countries, poverty data based on an internationally defined poverty line would be more suitable, at least in theory. To that end the World Bank uses an extreme poverty line of about $1 a day (measured in purchasing power parity terms). Behind this approach is the assumptionbased on national poverty lines from a sample of developing countriesthat, after adjusting for cost of living differences, $1 a day is the average minimum consumption required for subsistence in the developing world. But this approach has been assailed as being conceptually and methodologically inaccurate in capturing minimum subsistence levels across developing countries.

Some analysts see poverty as a concept set by societyimplying that people are considered poor relative to their fellow citizens (Oster, Lake and Oksman 1978). This view inevitably raises the poverty line as income rises, weakening the argument for a common poverty line across countries. Reddy and Pogge (2002) provide a similar argument against the $1 a day poverty line and propose one based on locally defined minimum capabilities. Ravallion (2000, pp. 3245-52), on the other hand, defends the $1 a day poverty line based on its simplicity. One of the main benefits of this line is as a rhetorical and advocacy tool: it is intuitively appealing because it suggests the degree of deprivation of poor people in developing countries. But because of enormous methodological and conceptual inconsistencies, poverty data calculated using international poverty lines are extremely problematic and can lead to misleading poverty rates.

Problems comparing prices across countries

One of the main problems with $1 a day poverty data derives from underlying adjustments of international price differences. Assuming that $1 a day is the correct average price of the subsistence consumption bundle in developing countriesa major assumptionthe price of this bundle needs to be translated into national currencies. The World Bank does this using purchasing power parity (PPP) rates: price indices that compare the price of a bundle of goods in one country with the price in another.

But the process for obtaining these rates is not entirely transparent. Moreover, they produce inaccurate poverty lines because many of the prices they are based on are for goods that poor people do not consume (Reddy and Pogge 2002; Deaton 2003). Making matters worse, these conversions do not take into account the considerable price differences between countries urban and rural areas. Moreover, poor people have to pay higher unit prices for many goods and services because they cannot afford to buy in bulk (Ward 2003).

Using national accounts instead of income surveysbetter or biased?

The World Bank's $1 a day poverty line is based on income and budget surveys that provide information on the distribution and level of income (or consumption). Given a specific poverty line, these two indicators determine the income poverty rate. There is debate on whether the income levels from these surveys should be replaced with another consumption aggregate (Sala-i-Martin 2002; UNCTAD 2002a; Bhalla 2002). Advocates point out that, for various reasons, surveys grossly underestimate the incomes of very rich people in poor countries (Szkely and Hilgert 1999). One way to avoid this problem is to retain the income distribution information from surveys but to calculate poverty rates based on (usually higher) national accounts data on average consumption.

But while the national accounts approach may be more consistent across countries, income levels based on surveys are not necessarily less accurate than those based on national accounts. National accounts data on consumption may be more complete than surveys because they include goods such as financial services, imputed rents and income from employer contributions to pension funds. But poor people do not consume these goodsso while surveys may underestimate average incomes, that does not mean that they overestimate poverty. Furthermore, as countries become richer, the items missed by surveys may overstate the growth of consumption of poor people.

The end result? Using national accounts instead of income surveys to derive poor people's income levels risks overestimating the rate of poverty decline. Furthermore, using national accounts may underestimate the number of poor people in all but the poorest countrieswhere, conversely, poverty levels may be overstated because national accounts miss significant informal activity. Using income levels from surveys avoids these problems by directly targeting income and consumption goods relevant to poor households (food, shelter, health, education).

Still, surveys are not free of severe problems in measurement and interpretation. Most important, surveys are not very common in the countries where they are needed most because of the high costs and considerable expertise required for their design and implementation. Moreover, using survey-based poverty rates to draw conclusions on poverty levels across countrieslet alone changes in poverty across countriesmay be misleading because definitions, methodologies, coverage and accuracy vary across countries and over time.

Because of these concerns, more efforts should be made internationally and nationally to perfect the price collection efforts behind purchasing power parities (the World Bank is currently engaged in such an effort and expects to release new rates in 2005), to harmonize design and collection methods for income and consumption surveys and to agree on local bundles of minimum capabilities on which to base poverty figures, for which feedback and guidance from countries and communities are crucial.

Source: Sala-i-Martin 2002; Ravallion 2000; Reddy and Pogge 2002; Deaton 2003; UNCTAD 2002a; Szkely and Hilgert 1999; Bhalla 2002; Oster, Lake and Oksman 1978; Ward 2003.


The depth of this human tragedy is immeasurable. Uganda is the only Sub-Saharan country to have begun to reverse the epidemic once it reached crisis proportions. In Zambia HIV prevalence among young women fell 4 percentage points between 1996 and 1999, offering hope that it would become the second country in the region to begin to reverse the crisis. Senegal is another success story, having kept HIV/AIDS under control from the beginning through an immediate, concerted response.14

But elsewhere in Sub-Saharan Africa, signs are not good. In Cameroon and Nigeria infection rates were thought to be stable, yet are starting to increase. In a survey, half of the continent's teenage respondents did not realize that a healthy-looking person could have HIV/AIDS. And of people using contraception worldwide, just 7% use condomsan effective barrier against HIV.15

Though Sub-Saharan Africa accounts for nearly 70% of HIV/AIDS cases, the epidemic is causing considerable damage in other regions. Almost 0.5 million people are infected in the Caribbean, 1.2 million in East Asia, 1.2 million in Eastern Europe and the CIS, 1.5 million in Latin America and 6.0 million in South Asia.16

China, India and the Russian Federationall with large populations and at risk of seeing HIV infection rates soarare of particular concern. About 7 million people are infected in these countries, and in Sub-Saharan Africa 7 million cases exploded to 25 million in a decade.17 The course of the epidemic depends on social characteristics and responses to the threat. But even in a moderate scenario, by 2025 almost 200 million people could be infected in these three countries alone (table 2.4).

TABLE 2.4
Big countries face big threats from HIV/AIDS by 2025, even with a moderate epidemic

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Source: Eberstadt 2002.

STRUGGLES TO ACHIEVE THE GOALS

The drop in many countries HDIs signals a problem; looking at key indicators of progress towards the Millennium Development Goals reveals its depth. Without significant changes, countries experiencing reversals or stagnation have little chance of achieving the Goals.

FOR EACH GOALTOP PRIORITY AND HIGH PRIORITY COUNTRIES

For each Goal there are countries where the situation is particularly urgentwhere failed progress is combined with brutally low starting levels. These top priority countries are in greatest need of the world's attention, resources and commitments (box 2.4; technical note 2).18

In high priority countries the situation is less desperate but progress is still insufficient (see feature 2.1). These countries are either making progress from low levels of development or achieving slow (or negative) progress from higher levels.

As noted, per capita incomes fell in 54 countries during the 1990s (see figure 2.5). Of these, 32 are top priority countries facing economic crises. Many are extremely poor, and most are in Sub-Saharan Africa. But there are also crisis countries in Central and Eastern Europe and the CIS, Latin America and the Caribbean and East Asia and the Pacific. Low per capita incomes are also a serious problem in 20 high priority countries.

Hunger increased in 21 countries in the 1990s. In 19 top priority countries more than one-quarter of people are going hungry and things are failing to improve muchor are worsening. In 19 high priority countries the situation is better but hunger remains a serious challenge.

FIGURE 2.6
HIV/AIDS cases have skyrocketed

Number of HIV/AIDS cases

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Source: UNAIDS 2002b.

FIGURE 2.7
Loss of life expectancy due to HIV/AIDS

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Source: UNDP 2001c

BOX 2.4

Struggling to meet the Goalsdefining top priority and high priority countries

Priority countries for each Goal

This Report identifies top priority and high priority countries for each Millennium Development Goal (see feature 2.1). The aim is to identify countries where urgent action is needed to meet a Goal (top priority countries) and countries where the situation is less desperate but still demands significant improvements in progress (high priority countries; see technical note 2).

In top priority countries entrenched human poverty is combined with failing or even reversing progress (see matrix). These are the countries that are in crisis for each Goal, and these are the countries where the world's attention and resources must be focused.

In high priority countries the situation is less desperatebut great needs remain. These countries are either at medium starting levels but facing failed or reversing progress, or they are suffering from extreme human poverty yet making moderate progressbut still moving far too slowly to meet the Goal.

Priority countries across the Goals

There are 31 top priority countries across the Goals, meaning that they are top priority countries for at least three Goals or for at least half of the Goals for which they have data, with a minimum of three data points. If data are available for only two Goals, they are top priority in both. There are 28 high priority countries across the Goals. These countries do not fall into the top priority category but are top or high priority for at least three Goals, are top priority for two Goals, or are top or high priority for at least half of the Goals for which they have data, with a minimum of three data points. If data are available for only two Goals, they are top or high priority in both.

Another 78 countries have sufficient data to be assessed and do not fall into the top priority or high priority categories. And for 32 other countries there are not sufficient data to make reliable assessments.

Grouping countries into top priority, high priority and other categories is useful, but such efforts should be viewed with caution. The classifications point out that the countries most at risk of failing to meet the Goals are in Sub-Saharan Africa and Central Asia. But the underlying data for individual Goals are often measured imprecisely, and some country classifications will change as data improve. Moreover, many countries are missing too much data for individual Goals to be given proper overall classifications. Thus some of the 32 countries in the other category would probably be top or high priority countries if the underlying data were more complete. (Examples include Kyrgyzstan and Pakistan.)

In addition, the classification criteria used here are plausible but only one among many reasonable choices. Some countries are on the border between categories, and would shift if slightly different classification criteria were used. Finally, many countries that are not top or high priority are often falling behind on one or more Goals and need considerable international attention and help.

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Source: Human Development Report Office based on feature 2.1.

In 11 top priority countries at least one-quarter of children do not attend primary school, and little progress is being made towards the Goal of universal enrolment. Again, most are in Sub-Saharan Africa. But this is one development area where good data are sorely lacking. Low primary enrolments are also a concern in 13 high priority countries.

Child mortality rates increased in the 1990s in a way not seen in previous decades, rising in 14 countries. Overall, bad situations are failing to improve in 32 top priority countries. In some of these countries almost one-third of children will not reach age five. All but 6 of these countriesAfghanistan, Cambodia, Iraq, Somalia, Sudan, Tajikistanare in Sub-Saharan Africa. Child mortality rates are also extremely worrisome in 24 high priority countries.

ACROSS THE GOALS31 TOP PRIORITY COUNTRIES, 28 HIGH PRIORITY COUNTRIES

Data on top and high priority countries across the Goals are shown in box 2.4. There are 31 such countries: 25 from Sub-Saharan Africa, 3 from the Arab States and 1 each from South Asia, Latin America and the Caribbean and Central and Eastern Europe and the CIS. These countries are seeing development fail across the board and require the world's attention and resources if the Goals are to be achieved.

Another 28 high priority countries face serious challenges across the Goals. Again, many are from Sub-Saharan Africa: 13. But 4 each are from Central and Eastern Europe and the CIS and East Asia and the Pacific, and 3 each are from the Arab States and Latin America and the Caribbean. One is from South Asia.

No single factor can explain the predicaments of the top and high priority countries. Still, the ones from Sub-Saharan Africa tend to share common features. Many are landlocked or have a large portion of their populations living far from a coast. In addition, most are smallonly four contain more than 40 million people. Being far from world markets and having a small economy makes it much harder to diversify from primary commodities to less volatile exports with more value added. Indeed, primary commodities account for more than two-thirds of exports in 14 of the 17 top and high priority Sub-Saharan countries with data. Many of the region's priority countries also have other serious concerns: in 23 more than 5% of the population has HIV/AIDS, and in 9 violent conflicts occurred in the 1990s (box 2.5).19

In other regions top priority countries face very different challenges. Many countries in the CIS, for examplewhile also facing some of the structural issues affecting Sub-Saharan Africaare trying to make the transition to market economies, a process that has been much more successful in Central and Eastern Europe. In the Arab States constraints are unrelated to income, and derive instead from a failure to convert income into human development and progress towards the Goals.

So what needs to be done to achieve the Millennium Development Goals? No matter how that question is answered, the top priority and high priority countries must be front and centre. The issues they face and ways to resolve them are considered in detail in the chapters that follow.

But poor countries failing to achieve progress are not the only concern. Later in this chapter another group of countries is examined: those where progress has been unevenly distributed, leaving vast numbers of people in terrible conditions.

GOOD PERFORMANCE BY SOME OF THE POOREST COUNTRIES

Many of the world's poorest countries are making good progress on most or all of the Goals. Indeed, for all the Goals the poorest countries have made some of the fastest progress. True, with low starting levels they have the most room for improvement. But that should not detract from achievements that countries have made in circumstances that have caused many of their development peers to stagnate or fall backwards. The success of Southern African countries is particularly fragile, because widespread HIV/AIDS and recent droughts seriously threaten continued progress.


BOX 2.5

Violent conflict and the Goals

Violent conflict is a key obstacle to achieving the Millennium Development Goals. During 1990-2001 there were 57 major armed conflicts in 45 locations. Sub-Saharan Africa has been hit the hardest, but no developing region has been unaffected.

Deaths from conflicts are hard to gauge, and estimates vary. But since 1990 conflicts have killed as many as 3.6 million people and injured many millions more. Particularly tragic is that civilians, not soldiers, are increasingly the victimsaccounting for more than 90% of deaths and injuries. Shockingly, children account for at least half of civilian casualties.

Beyond these tragic direct effects, collapsing economies and infrastructure can take a further human toll. Among the top and high priority countries for achieving the Goals, 13 experienced serious conflict in the 1990s. Surprisingly, some countriessuch as Indonesia and Sri Lankahave experienced significant conflict yet continue to make good progress towards the Goals. Two reasons explain these seemingly unlikely successes.

First, good policies are vital: strong governments that continue to provide services for all people can make a huge difference in human outcomes. (Box 3.5 in chapter 3 examines government and donor policies that can mitigate the human costs of conflict.) Second, conflicts often do not involve entire countries, but are isolated to specific regions. Thus the impacts of war may not be reflected in national social indicatorsbut in areas where conflict rages, its effects can still be devastating. Box 2.8 examines countries where isolated areas are suffering from conflict.

Source: Stewart 2003; Marshall 2000; UNHCR 2000; UNICEF 1996; SIPRI 2002b.


Still, during the 1990s:

Cape Verde, Mauritius, Mozambique and Uganda averaged per capita income growth of more than 3% a year.

Countries in Sub-Saharan Africa achieved some of the world's sharpest reductions in hunger. Ghana reduced its hunger rate from 35% to 12%, and Mozambique from 69% to 55%.

Benin increased its primary enrolment rate from 49% to 70%. Mali and Senegal increased primary enrolment rates by 15 percentage points or more. Primary completion rates also rose in some of the poorest countriesin Mali by more than 20 percentage points.

Many of the poorest countries made good progress towards gender equality in primary and secondary education. Mauritania led the pack, increasing the ratio of girls to boys from 67% to 93% between 1990 and 1996. Mali and Nepal narrowed their gaps by 10 percentage points or more in the 1990s.

Despite HIV/AIDS, there were some remarkable improvements in child survival in Sub-Saharan Africa. Guinea reduced its child mortality rate by 7 percentage points, and Malawi and Niger by 5 percentage points or more. There were also dramatic reductions in some of the poorest countries in Asia. Bhutan and Lao People's Democratic Republic reduced under-five deaths from around 16% to 10%, and Bangladesh from 14% to 8%.

Though HIV/AIDS has generally taken a crushing toll on Sub-Saharan Africa, there have been some notable exceptions. Uganda reduced infection rates for eight consecutive years in the 1990s, and Zambia may become the second country in the region to reverse the spread of HIV/AIDS from crisis levels. Senegal has also prevented the spread of the disease.20

Cte d'Ivoire and Mali increased the proportion of people with access to safe water by 10 percentage points or more. In addition, Ghana and Senegal increased the proportion of people with access to improved sanitation by 10 percentage points or more.

These successes, along with rapid improvements in more developed countries, show that all countries can achieve the Millennium Development Goals (box 2.6). (Chapters 4 and 5 analyse what underpinned some of these successes.)


BOX 2.6

Great leaps forward are possible in yearsnot decades

The Millennium Development Goals aim to dramatically improve people's lives in the course of a generation. Such targets are ambitious but achievable: many countries have made great leaps forward in all aspects of human development in short periods.

In just seven years (1946-53) Sri Lanka increased average life expectancy by an incredible 12 years. Between 1970 and 1985 Botswana doubled the proportion of children in primary school, nearly achieving universal primary education. In the 1990s China almost halved the proportion of people living in poverty. And between 1994 and 2001 South Africa halved the number of people without access to safe water.

These successes resulted from appropriate policies in specific circumstances, and replicating them is not straightforward. But they show what can be done. Later chapters of this Report examine what works and what does notidentifying key policies for achieving the Goals.

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Source: Millennium Project Task Force 7 2003; WSP 2002b; Human Development Report Office calculations based on World Bank 2002f and 2003i; Caldwell 1986, pp. 171-220; World Bank 2003i.

WIDENING GAPS WITHIN COUNTRIES: WHO IS BEING LEFT BEHIND?

While national performance indicators help convey what is happening to a country's inhabitants, progress often differs widely across regions of the same country. Many countries with good average performance on the Goals contain population groupsand sometimes entire areasbeing left behind. What are the gaps in human development within countries, and how have they evolved over the past decade (see feature 2.3)?

National statistics are midpoints of internal differences or summaries of domestic idiosyncrasies that average out economic, social, cultural, gender and ethnic cleavages within borders. Thus indicators used to assess national progress towards the Goals may not adequately reflect the living conditions of many inhabitants (box 2.7).

Wideand wideninggaps are cause for concern because of their likely negative effects on the pace of development. They also indicate uneven opportunities, with powerful people securing more of the benefits of development. As gaps worsen and reach high levels, they may destabilize human development as a result of social unrest, political disputes, biased resource allocations and violence and conflict (box 2.8).

For these reasons subnational trends deserve attention even among countries that appear to be performing well on the Goals. These countries may be advancing through a top-down approach, with policy efforts and resources initially focused on groups that are easier to reach, such as non-poor people or urban residents. This approach can raise national averages enough to declare the achievement of a Goal or some other target.

This is a particular concern for health because the health-related Goals and targets (such as reducing child mortality by two-thirds and maternal mortality by three-quarters) seek to lower average rates and so apply to the entire populationwhile those for nutrition, education and poverty focus on hungry, uneducated and poor people. Thus the health targets can be achieved by targeting any group, including better-off people. Some governments may be tempted to meet the health Goals by concentrating efforts among the better off, only later targeting people who are harder to reach.21 Some analysts argue that such a top-down approach has its merits because it will allow Goals to be met at the country level and will eventually benefit everyone. But that may not be true.

For progress to be sustained and inclusive, it should take a bottom-up approach, emphasizing equity and focusing first on people most in need of support. In pursuing the health Goals, the worst-off and hardest to reach people should not receive attention only at the last minute. For policy-makers, putting poor people at the end of the queue for social services is easier and less costly in the short and medium run.22 But the false progress that results may prove unsustainable in the long run.

GAPS BETWEEN SOCIO-ECONOMIC GROUPS

Evidence from many countries suggests that some groups are receiving fewer benefits from national improvements in income, health and education. Income disparities appear to be increasing in several countries, indicating wider gaps between people at the top of the income distribution (generally middle and upper classes in urban areas) and people at the bottom (mostly rural, female-headed households of indigenous or ethnically marginal descent). Unless persistent income inequality is dealt with, it may limit the benefits of economic growth for poverty reduction (see box 2.2).


BOX 2.7

Disaggregated data within countries: national human development reports

Since 1992 some 135 countries have used country-owned processes to produce more than 450 national and regional human development reports. Many of these reports present data disaggregated along gender, ethnic, age, race, geographic or other lines, enabling deeper analysis of country-specific causes of inequality and povertyand sometimes revealing systemic discrimination and serious deprivations. The reports have become crucial sources of the most recent disaggregated country data, contributing to policy strategies for advancing and tools for measuring progress on human development. The following examples show what the reports can help achieve:

Since 1997 Brazil has calculated the human development index (HDI) annually for each of its more than 5,000 municipalities. In response the state of Minas Gerais introduced the Robin Hood Law, which allocates a proportion of tax revenues to municipalities that rank low on the HDI and other indicators.

Nepal's 2001 human development report used extensive disaggregated data that revealed significant inequities in the distribution of resources and opportunities, leading the report to conclude that weak governance is at the root of disappointing outcomes in poverty reduction. The report found that life expectancy averaged 51 years in the most disadvantaged castesand 63 years for the Newar ethnic group.

Egypt's annual human development reports disaggregate socio-economic, environmental, demographic and other indicators for each of the nation's 26 governorates. These data and the reports findings form the basis for yearly meetings of the country's governors to jointly examine disparities and identify policy responses.

Lithuania's 2000 report analysed urban-rural disparities in human development. Disaggregated data for key indicators such as mortality, suicide, employment and education showed that rural Lithuanians are losing their ability to sustain themselves with traditional occupationsand no alternative, productive, sustainable livelihoods have emerged. The report warned that this trend could undermine social cohesion. Namibia's human development reports have examined human poverty by disaggregating the HDI across language groups. This disaggregation reveals high human development levels among predominantly European groupspeople who speak Afrikaans, English or Germanand very low levels among the San (bushmen). These findings have led to targeted investments in health, education and job creation.

Disaggregated data from the reports are available online at http://sedac.ciesin.columbia.edu/hdr/. (To view national human development reports online, see http://hdr.undp.org.)

Source: Human Development Report Office, National Human Development Report Unit.


BOX 2.8

Conflicts within countries

Violent conflicts are often contained within certain areas of countries, driven by ethnic, linguistic and similar social fault lines. This tendency may explain the good overall performance on the Millennium Development Goals in countries such as Indonesia and Sri Lankathat experienced years of conflict in the 1990s. Human development is likely to be lower in areas that suffer from conflict than in areas not directly affected by it. (Sometimes neighbouring regions are also affected by nearby conflicts, experiencing refugee flows and humanitarian emergencies.)

The links between conflicts and poor development can go both ways. Economic and social hardships, especially when accompanied by sharp inequalities across groups and areas, can foment violence. At the same time, conflicts are often major causes of weak economic development, leading to (among other things) health crises and destruction of infrastructure. This relationship can be captured by comparing the spatial distribution of conflicts with subnational indicators of development. But due to data limitations, few countries allow for such analysis. This Report was able to obtain such data for four countries:

Indonesia. Sharp regional disparities in the human poverty index (HPI) appear across and within the islands of Indonesia. Violent, separatist conflicts have occurred in areas with high poverty, with sharp divisions along religious, ethnic and social lines.

Colombia. Violence runs high and medium throughout the parallel mountain chains that run from the north to south of Colombia, as well as in the areas linking these mountains to the Pacific coast. The mountains are largely rural, with little infrastructure, and often inhospitable. The human development index (HDI) is lowest in some of the areas where conflict has been most violent (see map).

Nepal. The Maoist uprising that began in Nepal in 1996 is based in the country's most isolated, neglected, resource-poor areasthose lacking even the most basic social infrastructure. Among these are remote villages containing ethnic minorities, including low HDI areas in the northwest and some areas in the north.

Sri Lanka. After nearly 20 years of civil conflict between the minority Tamil population and the majority Sinhalese, more than 65,000 Sri Lankans have been killed and nearly 1 million have been displaced. The map shows how the northern and north-eastern Tamil regions have been excluded from the country's infrastructure development.

INDONESIA

Human poverty index, 1998 (percent)

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Source: BCPR 2003.

COLOMBIA

Human development index, 2001

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Source: Sarmiento Gmez and others 2003; BCPR 2003.

NEPAL

Human development index, 2000

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Source: BCPR 2003.

SRI LANKA

All class roads (km), 1998

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Source: BCPR 2003.

Source: UNDP 2003a.

TABLE 2.5
Child mortality rates: changes in levels and in wealth gaps, selected countries, 1980s and 1990s

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Source: Minujin and Delamonica 2003.

Wealth, probably even more than income, appears to be crucial in securing basic social services. (The studies cited in this section estimated wealth using surveys of household assets and characteristics.)23 Between the mid-1980s and mid-1990s the gap in child mortality rates between the wealthiest and poorest quintiles narrowed in only 3 of 24 developing countries with data.24 And in 13 countries considered good performers in reducing average child mortality rates, there is evidence of constant or increasing gaps between the richest and poorest groups (table 2.5).

Among the same sample of 24 countries, despite a substantial narrowing of wealth-related gaps in immunization coverage, by the late 1990s less than half the children from the poorest families had been immunized with DPT3 (three doses of diphtheria, pertussis and tetanus immunizations). In Burkina Faso, Cameroon, Mali and Niger less than 30% of poor children were covered. In many countries immunization coverage for the poorest fifth of the population showed no change or fell slightly in the 1990s.25

Disparities in education provide further evidence of inequality between wealthy and poor households. In many countries children from poor households are much less likely to attend school and are more likely to drop out if they do. Enrolment rates are especially low for poor households, and dropout rates especially high, in Sub-Saharan Africa.26

Gender equality is at the core of whether the Goals will be achievedfrom improving health and fighting disease, to reducing poverty and mitigating hunger, to expanding education and lowering child mortality, to increasing access to safe water, to ensuring environmental sustainability

South Asia shows a similar pattern, though dropout rates are concentrated after grade 5. In Latin America poor households are more likely to send children to school, resulting in higher enrolment rates, but dropout rates are just as high as in the other regions.27 Even countries with low income inequality, such as Viet Nam, show wide variations in education across wealth quintiles. The data on wealth gaps in health and education support an undeniable conclusion: for the Goals to be met by as many countries and people as possible, policies should focus on closing the wealth divides within countries.

RURAL-URBAN GAPS

Widening gaps between urban and rural areas also indicate skewed development. In some African countries, despite satisfactory overall progress towards the Millennium Development Goals, urban-rural divides persistor are wideningfor most indicators.28 In 8 of 11 countries with data, overall poverty rates have fallenbut rural poverty has fallen more slowly, particularly in Niger, Senegal and Tanzania.

As with wealth gaps, rural-urban divides are reflected in uneven progress on education and health. In 26 African, Latin American and Asian countries, rural areas are struggling on many of the Goals.29 Usually this is relative to urban areas, but sometimes it is absolute (with conditions in rural areas deteriorating and those in urban areas improving). Between the late 1980s and the mid- to late 1990s the gap in child mortality rates for rural and urban households widened in 14 of the 26 countries.

Similarly, children in urban areas are much more likely to receive a decent education. Parents in poor rural areas are often reluctant to send their children to schooland when they do, there are often not enough teachers, textbooks and classrooms. In the developing world a man living in a rural area is twice as likely to be illiterate as one in an urban area.30 South Asia is home to the largest rural-urban education disparities.

That all countries can meaningfully achieve the Millennium Development Goals is beyond doubt

GENDER GAPS

The Millennium Declaration calls for empowering women politically, socially and economically. To that end, the third Millennium Development Goal aims to reduce the gap between males and females in primary, secondary and eventually higher education. But gender gaps in education are only a small part of gender inequality. As this Report argues, gender equality is at the core of whether the Goals will be achievedfrom improving health and fighting disease, to reducing poverty and mitigating hunger, to expanding education and lowering child mortality, to increasing access to safe water, to ensuring environmental sustainability.

One clear indicator of the gender crisis is the gap in mortality rates between men and women. Despite women's biological advantage, they have higher mortality rates in a number of countries, mainly in South and East Asia. The missing women phenomenon refers to females estimated to have died due to discrimination in access to health and nutrition. Census data indicate that missing women have increased in number but fallen as a share of women alive today. Improvements have occurred in Bangladesh, Pakistan and most Arab States, yet there have been only small improvements in Indiaand deterioration in China.31 Conversely, in some countries in the western CIS men are dying up to 15 years earlier than women.32

In most cases gender discrimination is accompanied by biases against other personal characteristics, including location (rural areas), ethnic background (indigenous minorities) and socio-economic status (poor households). Gender gaps in health and particularly education are important causes of gender discrimination. In many developing countries gender gaps in primary and secondary education are much higher among the poorest fifth of the population. Moreover, in most of these countries the situation did not change significantly in the 1990s supporting evidence of discrimination against girls at the household level, particularly in poor households.33

Globally, women account for just under half of the adults living with HIV/AIDS. But in Sub-Saharan Africa, where the virus is spread mostly through heterosexual activity, more than 55% of infected adults are women.34 Young women there are two to four times more likely than young men to become infected. In South and South-East Asia 60% of young people with HIV/AIDS are female.35

* * *

That all countries can meaningfully achieve the Millennium Development Goals is beyond doubt. Countries at all levels of development and from all regions have made dramatic progress. Countries have also progressed without incurring higher inequality. Chapters 3 through 7 consider what lessons lie behind these successes and how they can be applied to countries now failing. While many of the steps for success are known, ensuring that they are taken will require fundamental changes in development thinking. Traditional approaches of trying to do what is possible in the face of weak policies and severe resource constraints will not be enough. Chapter 8 considers cross-cutting actions needed to create the environment required to meet the Goals, with a focus on actions needed by rich countries.

Feature 2.1 Progress towards the Millennium Development Goals

Millennium Development Goals regional summary

Poverty

Percentage of the population living below $1 a day

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Hunger

Percentage of the population that is malnourished

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Primary education

Net primary enrolment ratio (percent)

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* refers to population living below $2 a day.

Gender equality

Ratio of girls to boys in primary and secondary education (percent)

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Child mortality

Under-five mortality rate per 1,000 live births

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Access to water

Percentage of the population with access to safe drinking water

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Access to sanitation

Percentage of the population with access to adequate sanitation

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Income Poverty
GDP percapita (PPP US$ thousand)

Countries with 1990 income of $10,000 or less

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* refers to the proportion of the population living below $2 a day.

Hunger
Undernourished people as a percentage of the total population

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Primary education
Net primary enrolment ratio (percent)

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Gender equality
Ratio of girls to boys in primary and secondary education (percent)

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Child mortality
Under-five mortality rate (per 1,000 live births)

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Access to water
People with access to improved water sources (percent of the population)

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Access to sanitation
People with access to adequate sanitation (percentage of the population)

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Source: Income: Human Development Report Office calculations based on data on GDP at market prices (constant 1995 US$), population and GDP per capita (PPP US$) from World Bank 2003i; World Bank 2002f. Hunger: MDG indicator table 1; FAO 2002b. Primary education: MDG indicator table 1; UNESCO 2002a. Gender equality: World Bank 2003i; aggregates calculated for the Human Development Report Office by the World Bank; UNESCO 2002a. Child mortality: World Bank 2003i; UNICEF 2003b. Access to water: UN 2003c; aggregates calculated for the Human Development Report Office by the World Bank; Human Development Report Office calculations based on UN 2003c, 2003h. Access to sanitation: UN 2003c; aggregates calculated for the Human Development Report Office by the World Bank; Human Development Report Office calculations based on UN 2003c, 2003h.

Feature 2.2 Measuring human development: the human development indices

Human development index

The human development index (HDI) is a simple summary measure of three dimensions of the human development concept: living a long and healthy life, being educated and having a decent standard of living (see technical note). Thus it combines measures of life expectancy, school enrolment, literacy and income to allow a broader view of a country's development than using income alonewhich is too often equated with well-being. Since the creation of the HDI in 1990 three supplementary indices have been developed to highlight particular aspects of human development: the human poverty index (HPI), gender-related development index (GDI) and gender empowerment measure (GEM).

Different paths in HDI

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Source: Indicator table 2.

The HDI can highlight the successes of some countries and the slower progress of others. Venezuela started with a higher HDI than Brazil in 1975, but Brazil has made much faster progress. Finland had a lower HDI than Switzerland in 1975 but today is slightly ahead. Rankings by HDI and by GDP per capita can also differ, showing that high levels of human development can be achieved without high incomesand that high incomes do not guarantee high levels of human development (see indicator table 1). Pakistan and Viet Nam have similar incomes, but Viet Nam has done much more to translate that income into human development. Similarly, Jamaica has achieved a much better HDI than Morocco with about the same income.

Swaziland achieves the same HDI as Botswana with less than two-thirds of the income, and the same is true of the Philippines and Thailand. So with the right policies, countries can advance human development even with low incomes.

Most regions have seen steady progress in HDI over the past 20 years, with East Asia and the Pacific performing particularly well in the 1990s. Arab States have also seen substantial growth, exceeding the average increase for developing countries. Sub-Saharan Africa, by contrast, has been almost stagnanton par with South Asia in 1985, it has fallen far behind. Two groups of countries have suffered such setbacks: CIS countries going through what has become for many a long, painful transition to market economies, and poor African countries whose development has been hindered or reversed for a variety of reasonsincluding HIV/AIDS and internal and external conflicts.

Although the HDI is a useful starting point, it omits vital aspects of human development, notably the ability to participate in the decisions that affect one's life. A person can be rich, healthy and well-educated, but without this ability human development is held back.

The omission of dimensions of freedoms from the HDI has been highlighted since the first Human Development Reportsand drove the creation of a human freedom index (HFI) in 1991 and a political freedom index (PFI) in 1992. Neither measure survived past its first year, testament to the difficulty of adequately capturing in a single index such complex aspects of human development. But that does not mean that indicators of political and civil freedoms can be ignored entirely in considering the state of a country's human development.

There are strong links between the Human Development Indices and the Millennium Development Goals. The three dimensions of human development captured in the HDI are very similar to goals 17 which also focus on issues of education, health and a decent standard of living (see also Box 1.2 in Chapter 1). Furthermore, the GDI and GEM which aim to capture, respectively, gender inequalities in human capabilities and in political and economic decision making focus very much on the aspirations of Goal 3 to promote gender equality and empower women.

HDI, HPI-1, HPI-2, GDIsame components, different measurements

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Human poverty index

While the HDI measures overall progress in a country in achieving human development, the human poverty index (HPI) reflects the distribution of progress and measures the backlog of deprivations that still exists. The HPI measures deprivation in the same dimensions of basic human development as the HDI.

HPI-1

The HPI-1 measures poverty in developing countries. It focuses on deprivations in three dimensions: longevity, as measured by the probability at birth of not surviving to age 40; knowledge, as measured by the adult illiteracy rate; and overall economic provisioning, public and private, as measured by the percentage of people not using improved water sources and the percentage without sustainable access to an improved water source and the percentage of children under weight for age.

HPI-2

Because human deprivation varies with the social and economic conditions of a community, a separate index, the HPI-2, has been devised to measure human poverty in selected OECD countries, drawing on the greater availability of data. The HPI-2 focuses on deprivation in the same three dimensions as the HPI-1 and one additional one, social exclusion. The indicators are the probability at birth of not surviving to age 60, the adult functional illiteracy rate, the percentage of people living below the income poverty line (with adjusted household disposable income less than 50% of the median) and the long-term unemployment rate (12 months or more).

Gender-related development index

The gender-related development index (GDI) measures achievements in the same dimensions and using the same indicators as the HDI, but captures inequalities in achievement between women and men. It is simply the HDI adjusted downward for gender inequality. The greater is the gender disparity in basic human development, the lower is a country's GDI compared with its HDI.

Gender empowerment measure

The gender empowerment measure (GEM) reveals whether women can take active part in economic and political life. It focuses on participation, measuring gender inequality in key areas of economic and political participation and decision-making. It tracks the percentages of women in parliament, among legislators, senior officials and managers and among professional and technical workersand the gender disparity in earned income, reflecting economic independence. Differing from the GDI, it exposes inequality in opportunities in selected areas.

Same income, different HDI

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Source: Indicator table 1.

Same HDI, different income

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Source: Indicator table 1.

Global disparities in HDI

Human development index

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Source: Human Development Report Office calculations based on indicator table 2.

Feature 2.3 Widening gaps within countriesbetween areas and groups

Subnational socio-economic data provide important evidence on inequalitieseven for countries that on average have made good progress towards the Millennium Development Goals. Evidence of unbalanced national development helps determine policy priorities. In particular, efforts should go towards eradicating the entrenched human poverty affecting certain areas and groups in countries where human development is otherwise much higher. Some countries provide detailed subnational data for in-depth socio-economic analysis and, where possible, spatial mapping of socio-economic variables. Some of these data are examined below because they provide good examples of growing or lingering gapswhere entire areas or groups (or both) have been left behind in one or more spheres of development.

China: fast progress, driven by the coastland

China is among the few countries performing well overall on the indicators for the Millennium Development Goals. Yet in recent decades China has shown large disparities in economic and social outcomes between coastal and inland regionsa trend that also reflects cleavages between urban and rural areas. Coastal areas have consistently experienced the fastest economic growth: between 1978 and 1998 per capita incomes increased by an astonishing 11% a year. Ignoring inflation, that means that $100 in 1978 would have jumped to $800 just 20 years later. Moreover, the performance of coastal areas sped up in the 1990s, with annual growth averaging 13%five times the level in China's slowest-growing north-western regions, which happen to be far from the commercially thriving coast. As a result the bulk of national income is concentrated in metropolitan and coastal regions. Map 1 shows the dispersion in GDP levels across administrative units in 2000. The wealth of coastal areas with their large ports and harbour citiesowes much to exports.

MAP 1 Geographic distribution of income in China, 2000

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Note: Counties with very low population densities (the lowest 20%) were combined to calculate an aggregate GDP per capita for them, because the sparse populations there do not permit high-resolution mapping of per-capita income.
Source: CIESIN 2003.

In 1999 China's three richest metropolisesShanghai, Beijing and Tianjinstood at the top of the human development index (HDI) ranking. Those at the bottom were all Western provinces. Moreover, the poorest provinces have the highest inequality. Tibet had the lowest values for education attainment and life expectancy. In income, education and health only some parts of China will achieve the Millennium Development Goals, leaving behind the vast inland areasand particularly the Western provinces.

Brazil: leaving the North behind?

Brazil has a long legacy of high inequalities. The richest 10% of households have 70 times the income of the poorest 10%. Over the past 10 years illiteracy rates have been widening between the richest and poorest states (table 1). And though poverty started to decline in the early 1990s, it did so unevenlyand is not falling fast enough for Brazil to achieve the first Millennium Development Goal. At current rates of progress, the South is the only region expected to halve poverty by 2015. But the Northeast, the poorest region, has also reduced poverty dramatically, as have the Central and South-eastern regions.

The North is the only region that has seen poverty increase, rising from 36% in 1990 to 44% in 2001. (Data for the North are limited to urban areas.) Why are so many people being left behind when overall growth is good? The culprit is not a shortfall in average resources but persistently high inequality (Mendona 2003). Not only is the North seeing poverty increase, it is also lagging on the HDIunlike the wealthy, urban South (So Paulo, Rio de Janeiro and Rio Grande do Sul) and unlike the Northeast, which has seen substantial improvements in its HDI. The policy implications of this are that more resources should be targeted to areas most in needthe North because of the adverse trends and the Northeast because of its still low levels of human development.

TABLE 1
Illiteracy rates in Brazil by region, ages 15 and older, 1990 and 2001

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Source: Mendona 2003.

Mexico: development excluding the South

Since the early 1990s Mexico's economic, social and political performance has been mixed at best, with its recovery from the debt crisis of the 1980s suffering a blow from the 1994-95 financial crisis. But as a whole, Mexico is on track to achieving most of the Goals. Poverty was lower in 2000 than in 1992, dropping from 15% to 13% (though in 1995 it jumped to 18%). The poorest areas are the South and Southeast. The wealth gap also got worse in the 1990s: by the end of the decade the top 10% of earners had 35 times the income of the bottom 10%, compared with 33 times in 1992. But other development indicatorsmainly for health, nutrition and educationimproved in the 1990s.

While inequalities divide Mexican society along ethnic and social lines, the most notable gap is that which splits the South from the North, with the South lagging behind in nearly all of the Millennium Development Goals. Southern states are also mainly indigenous and rural, and their economies are largely agricultural and lack infrastructure. Because of poor performance in the South and progress in the North, this historical cleavage has persisted since Mexico's opening to international trade in the 1990s. The North and Northwest have tended to benefit, while distance from the U.S. border has excluded the South from economic integration with Canada and the United States.

In the Southern state of Chiapas more than 30% of the population lives in extreme poverty, and episodes of violence are frequentas elsewhere in the South. Moreover, large numbers of people in the South are illiterate (map 2). This pattern also reflects gaps between male and female literacy rates, which are much deeper in the most illiterate states of the South.

The Philippines: integrating ethnic minorities

The Philippines is highly fragmented economically and socially. Difficult topography and unfavourable climate make the Southeast more vulnerable to natural disasters than the milder Central and Northwest (metropolitan Manila) states.

Some areas contain large concentrations of minority populations: Moro secessionists in the Autonomous Region of Muslim Mindanao (ARMM) in the Southwest and Central Mindanao in the South and the indigenously dominated Cordillera Administrative Region in the North. Large areas in these regions are lagging behind in many socio-economic indicators relative to the national average. The East Asian financial crisis in 1997, coupled with the El Nio weather phenomenon the following year, contributed to a resurgence in the poverty rate to 28% in 2000. This trend has not been uniform, with poverty increasing in the mountainous central areas of the Northern island of Luzon and the western areas of Mindanao in the South.

Regional disparities in income poverty remain wide, from a low of 12% in the Manila area to 74% in the ARMM. This is reflected in the uneven distribution of the HDI, reflecting closely the ethnic distribution of the population, with ethnic minority areas performing worse (map 3). Similarly heterogeneous performance appears when looking at other indicators, including child mortality rates, with the smallest improvements again recorded in the Mindanao area.

MAP 2
Adult literacy in Mexico, 2000

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MAP 3
Human development index in the Philippines, 1994

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India: general progress, slower for some

India, home to one in six of the world's people, has achieved great progress on most fronts. Poverty has been dramatically reduced and improvements made in education for both males and females. There has been tremendous improvement in gender literacy gaps, particularly in the poor Central states of Madhya Pradesh and, to some extent Rajasthan, Uttar Pradesh and Bihar.

Still, a number of areas appear to have been excluded from these trends, particularly along the Pakistani and Nepalese borders. Furthermore, gaps in literacy between low social classes and the rest of the population remain extremely high, particularly in the poorest statesRajasthan, Uttar Pradesh, Biharand in Karnataka. Shariff and Sudarshan (1996) found that female literacy rates among members of scheduled tribes were as low as 7% in Rajasthan and 9% in Madhya Pradesh.

There are also grave concerns in health. Largely due to widespread undernutrition and poor infrastructure, mortality rates remain high in the poorest, rural, scheduled caste states, particularly among mothers and children (Bajpay 2003). Between 1992/93 and 1997/98 infant mortality fell in all states except Madhya Pradesh and Rajasthan. Moreover, infant mortality rates are substantially higher in rural areas, particularly in Maharasthra and Andhra Pradesh (table 2). High immunization rates are still an almost exclusive characteristic of provinces in the South and Southwest. In numerous areas, particularly in the North and Northeast, less than one-third of children were immunized in 1999.

Guatemala: progress on gender and ethnic gaps

Since 1990 the pace towards the Millennium Development Goals in Guatemala has been slow and uneven. In recent years shocks have included serious drought and lower world prices for coffee, the country's main export staple. In the 1990s, while many groups and areas experienced improvements in human development, outcomes in the North and Northwest were disappointing. These regions, where most indigenous Guatemalans live, had the highest extreme poverty in 2000. There appears to be some overlap between the discrimination facing these ethnic minorities and women. Map 4, for instance, shows that maternal mortality is highest in the North and Northwest, suggesting weak health systems in rural areas with a prevalence of ethnic minorities and women.

Literacy rates illustrate another aspect of the problem. Women in the Northwest were the only group not to see the literacy rate improve. Discrimination by gender and by race occurs in the same areas and probably affects the same people: indigenous women. These trends are compounded by persistent inequalities, especially in land concentration, all of which may impede Guatemala's development. According to a recent study, land concentration increased between 1979 and 2000, hindering diversification and better distribution of property and risk (Fuentes, Balsells and Arriola 2003).

TABLE 2
Infant mortality rates in India by state and region, 1990s

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Source: International Institute of Population Sciences 2000.

But while in absolute terms the situation is worrisome, during the 1990s the greatest percentage reduction in extreme poverty occurred among indigenous households, from 32% to 26%. Income poverty also fell fast among female-headed households. While the income progress recorded in many of the indicators relevant to the Millennium Development Goals has been satisfactory, malnutrition (mainly due to droughts) has increased in the Northwest and particularly in the Northoverwhelmingly affecting rural indigenous populations and probably suggesting infrastructure deficiencies.

Mali: leaving women behind

Mali has made important progress on many of the indicators for the Millennium Development Goals. Despite some variability, 1992-99 saw overall development improve in each region. Still, in many important areas of development, too many women are suffering. In education, 40 of 100 men are literateand only 33 of 100 women. The Northern rural regions exemplify this national picture, particularly as a consequence of cultural attitudes towards women in rural areas.

MAP 4
Maternal mortality in Guatemala, 1997

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Source: CIESIN 2003.

Women are also disproportionately hit by HIV/AIDS. In 1992 the infection rate was about 3%. Female sex workers have the highest infection rates (Backiny-Yetna, Raffinot and Coulibaly 2003). The disease has contributed to the high maternal mortality ratio of about 580 deaths per 100,000 live birthsunchanged in the past five years.

Burkina Faso: facing drought and disease

One of the world's poorest countries according to the human poverty index (HPI) and GDP per capita, Burkina Faso presents sharp differences in development between its Eastern and Western regions. The East is dry, which complicates agricultural practices. The West is more humid, creating a climate suitable for cotton production. Furthermore, poverty incidence is five times higher in rural areas (50% in rural areas in 1994 and 1998). Between 1993 and 1999 malnutrition increased in all provinces. Stunting increased from 29% in 1993 to 37% in 1999, with rural areas driving the trend. In the capital city of Ouagadougou an estimated one-fifth of children suffers from malnutrition. In the rest of the country one-third of children do. The rural population has barely improved primary enrolment rates. In 1994 this figure for rural girls was 22%, compared with 69% for urban girls. Four years later the figures had changed to 24% and 99%, indicating extremely slow progress in rural areas.

Russian Federation: development shocks and gender bias

The Russian Federation has undergone a profound transformation since its transition to a market economy. Moreover, two shocks in the 1990s undermined its development indicators. The first was HIV/AIDS, with the number of HIV-positive people reaching 178,000 in 2001 (Zubarevich 2003). The disease has mainly affected people between the ages of 15 and 29 and those in urban areas (Moscow, Saint Petersburg, Sverdlovsk oblast).

The second shock was an increase in poverty and inequality between and within regions. In 2000 Moscow, Tatarstan and oil- and gas-producing Tyumen oblast were the only regions with HDI levels comparable to those of richer countries such as the Czech Republic, Hungary and Slovenia. At the other end of the spectrum were the republics of Siberia and the Far East, with HDI levels comparable to those of Gabon and Nicaragua (map 5).

Mirroring these differences between regions are gaps within regions. The three richest regions are also experiencing the sharpest polarizations of wealth and poverty. Poverty in Russia has increased in both urban and rural areas, particularly between 1997 and 1999, peaking at 57% in rural areas compared with 47% in urban areas. Poverty has affected different regions in different ways: economic instability in particular (such as the financial shocks in the late 1990s) appears to have exacerbated regional disparities in living standards, with less developed regions getting poorer faster (Zubarevich 2003).

The growth of poverty has hit elderly women and female-headed households particularly hard, illustrating a worrisome feminization of poverty in Russia. A driving force behind this trend is job instability and, even more, wage discrimination against women. In early 1999 the female-male wage ratio was 56%. At the end of that year it was down to 52%, and in mid-2000 it reached 50% (Zubarevich 2003). Another study saw this ratio fall from 70% in 1998 to 63% in 2000. Furthermore, women's political representation was very low in the transition period. Gender gaps in education have stayed low, howeverclose to their levels before the transition.

MAP 5
Human development index in Russian regions, 2000

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Source: Zubarevich 2003.

Source: Human Development Report Office based on national human development reports and Mendona 2003; Bajpay 2003; Baumeister 2002, cited in Fuentes, Balsells and Arriola 2003; Backiny-Yetna, Coulibaly and Raffinot 2003a, b; Zubarevich 2003.

CHAPTER 3

Images    Overcoming structural barriers to growthto achieve the Goals

The core message of the Millennium Development Compactand this chapteris that many of the world's poorest countries and regions face structural impediments that have made it very difficult to achieve sustained economic growth. Thus it is no accident that they are the poorest.

Sustained growth requires that countries first attain basic thresholds on a number of fronts: sound economic governance, basic health care and education, core infrastructure, access to foreign markets. If a country falls short on one or more of these thresholds because of structural conditionsrampant disease, or a location far from world markets, or especially fragile soils and low food production, or high susceptibility to natural disastersit tends to fall into a poverty trap, making sustained economic growth unlikely. Because these countries face high hurdles and have limited resources, they cannot achieve the thresholds for growth on their own: they require external assistance.

Even in countries otherwise doing well, structural impediments can contribute to pockets of entrenched poverty. China's remote inland regions, for instance, face much longer distances to ports, much poorer infrastructure and much tougher biophysical conditions than the country's coastal regions, which are enjoying the fastest sustained economic growth in human history. Reducing poverty in such highly populated countries as China, Brazil and India requires focusing on how to allocate resources to reduce poverty and inequalities. But this challenge is very different from the one facing the top and high priority countries, which are typically stuck in poverty traps and have insufficient resources to meet the needs of average citizenslet alone the poorest. Resources are insufficient largely due to a lack of economic growth (box 3.1).

Economic growth is necessary to meet the Millennium Development Goals for two reasons. First, economic growth directly reduces income poverty for many households, increasing their savings and freeing resources for investments in human development. Without economic growth countries cannot expect to halve the proportion of people living in income poverty, the first target of the Goals. Second, economic growth tends to increase government revenue. Because most investments in human developmenthealth, nutrition, education, infrastructurecome from the public sector, greater fiscal resources are critical to meeting the Goals.

But while economic growth is necessary for increased public spending on human development, it is hardly sufficient. Some governments neglect such investments or discriminate in their provision among population groups, weakening the potential benefits that overall economic growth can provide for meeting the Goals. Past Human Development Reports have used the term ruthless growth to describe growth that does not reach poor people, either because richer households receive most of the increase in income or because governments do not use the additional revenue to invest in the human development needs of poor people. And as Human Development Report 1996 showed, economic growth cannot be sustained without substantial improvements in education and health.


BOX 3.1

Growth needed to halve income poverty

Economic growth is important for achieving all the Millennium Development Goals, but it relates most directly to the first target, which calls for halving the proportion of people in poverty between 1990 and 2015. Many studies have calculated an elasticity of poverty to average incomethe percentage decline in the headcount poverty ratio for each 1% increase in per capita income. A typical estimate in the vast econometric literature, holding constant the distribution of income, is that the poverty rate declines by 2% for each 1% increase in average per capita income, for an elasticity of 2 (Bruno, Ravallion and Squire 1998; see also Adams 2002).

This elasticity estimate suggests that cutting headcount poverty in half requires a 41% increase in per capita income. If the 41% is spread over 25 years (1990 to 2015), annual growth of 1.4% is needed. If a country must accomplish the entire 41% increase between 2003 and 2015, a much higher annual rate (2.9%) is needed. Yet even the higher rate is well within the realm of possibility for a low-income countryif preconditions and policies for growth are in place.

Source: Bruno, Ravallion and Squire 1996; Adams 2002.

FIGURE 3.1
Per capita income and income poverty, 1990s

Poverty rate, latest year (percentage of the population below $1 a day, PPP, log scale)

Images

Source: World Bank 2002j and Maddison 2001.

In countries with higher per capita incomes, a smaller proportion of people fall below the poverty line, suggesting that higher incomes are required to reduce poverty. But while there is an inverse relationship between a country's income poverty and income level, the relationship is far from perfect. Poverty rates can vary considerably across countries with similar per capita incomes: Tanzania and Niger have similar incomes, yet Tanzania has a much lower poverty rate (figure 3.1).

Per capita income is also closely linked to non-income poverty. Still, some countries (such as Viet Nam) have good levels of human development for their income, while other countries (such as Zimbabwe) are performing worse than others with similar levels of economic development (figure 3.2).

Thus the strong links between economic growth and poverty reductions are mediated by policy choices and structural factors. Several countries with economic growth of more than 4% a year since 1990 have not advanced much in some non-income dimensions of poverty (the Dominican Republic, Mozambique).1 So while economic growth may provide resources to improve a variety of outcomes, policy-makers need to focus public policies and investments on non-economic outcomes even as they focus on growth. That is why the Millennium Development Compact advocates using public policies to reduce various dimensions of non-income poverty.

FROM HUMAN DEVELOPMENT TO ECONOMIC GROWTHAND BACK

Good education and health have intrinsic value for people's well-being. And the two are closely linked: education helps improve health, and good health contributes to better education. Moreover, education contributes to economic growth and raises poor people's incomes. Improvements in health also generate significant economic returns.2

Consider the average growth in per capita incomes in several dozen developing countries between 1965 and 1995, grouped by their incomes and infant mortality rates in 1965. (Infant mortality is a general proxy for overall disease levels.) In countries starting with per capita incomes below $750 (in constant 1990 dollars adjusted for purchasing power parity) and infant mortality rates above 150 per 1,000 live births, incomes grew by an average of 0.1% a yearwhile those with rates between 100 and 150 grew by an average of 1.0% a year and those with rates below 100 grew by an average of 3.7% a year.

FIGURE 3.2
Human development and incomes

HDI*

Images

Note: This figure uses the human development index*, constructed using the education and longevity components of the HDI and omitting GDP per capita. Source: Human Development Report Office calculations based on World Bank 2003i.

When poor people have political power protected by civil and political rights, they can be more effective in pressing for policies that create social opportunities


In countries with initial incomes of $750-1,500, those with infant mortality rates above 150 experienced negative growth averaging 0.7% a year, while those with rates between 100 and 150 averaged 1.1% annual growth and those with rates below 100 averaged 3.4% annual growth.3 Thus, even after accounting for initial incomes, countries with better health conditions were systematically more successful in achieving higher growth. Moreover, economic growth provides more resources to invest in education and healthand as noted, those investments contribute to higher growth.

This two-way link between human development and economic growth implies virtuous circleswith good human development promoting economic growth, which in turn advances human development (figure 3.3). But it also implies vicious circlesin which poor human development contributes to economic decline, leading to further deterioration in human development. For many countriesparticular the top priority onesachieving the Millennium Development Goals will require breaking out of vicious circles (or poverty traps, to use a closely related concept) and entering virtuous circles.

The synergies among various aspects of human development are also important: improving health and education requires related interventions in schooling, family planning, health care, nutrition and water and sanitation. For instance, controlling diarrhoea and measles not only improves health, it also reduces malnutrition. Malnutrition severely undermines a person's capacity to learn and grow, and so has important implications for education and the development of a productive workforce. But control of diarrhoea is affected by improved water and sanitationas well as by hygienic behaviour fostered by education.

Underlying many of these synergies are agency and equity. When poor people have political power protected by civil and political rights, they can be more effective in pressing for policies that create social and economic opportunities.4 Such power is especially important for women, as well as for ethnic and racial groups that face discrimination. Promoting gender equity and women's capabilities is crucial to advancing economic development and to achieving the Goals (see chapter 4).5

FIGURE 3.3
From human development to growthand back

Images

Source: UNDP 1996.

To get the most from the complementarities among basic social services, universal primary education should be an early and essential focus, particularly for girlsalong with heavy investments in health, family planning and water and sanitation.6 Most of these investments are not automatic side effects of economic growth: they require major efforts by the public sector.

RECENT PATTERNSAND PROBLEMSOF GLOBAL ECONOMIC GROWTH

Of the world's 128 countries with at least 1 million people in 1990 and with sufficient data, 76 saw per capita incomes grow in 1980-98but 52 saw them shrink (see feature 3.1, table 1). Countries with large populations tended to grow, so when economic trends are measured by numbers of people, the outcomes appear much better. More than 4 billion people live in countries that experienced real per capita income growth of more than 1.4% in 1980-98including China and India, the two most populous countries.7 This 1.4% figure provides a rough estimate of the per capita growth rate required to achieve the Millennium Development Goal of halving income poverty (see box 3.1).

But economic advance does not guarantee that developing countries will achieve the Millennium Development Goals. Growth could be skewed towards higher-income households, or its fiscal dividends might not be invested in the poorest people. Still, many developing countries are amassing resources to invest in achieving the Goals.

About 1.5 billion people live in developing countries that saw per capita incomes grow by less than 0.7% a year in 1980-98, including many of the poorest countries.8 If these countries continue to stagnate, they will not have the resources required to achieve the Goals. Finding ways to achieve the Goals, especially in top priority countries that combine widespread poverty with little or no economic growth (see chapter 2), requires understanding why such countries are experiencing little or no growth while so many others are growing rapidly.

Successor failurein economic growth is closely linked to how an economy is integrated with global markets. Some forms of globalization help produce economic growth, but some do not. Success or failure is related less to a country's initial income than to the structure of its exports. Excluding transition and fuel-exporting countries, middle-income countries achieved average annual growth of 1.3% in 1980-98, while low-income countries averaged 0.1%.9 But many low-income countries, including China and India, did extremely well.

Most of the low-income success stories concentrated on manufactured exports (see feature 3.1). Among developing countries with sufficient data on trade and economic growth for 1980-98, 24 exported primarily manufactured goods and 61 exported mainly primary commodities (other than oil) in 1995.10 Only one of the manufacturing exporters failed to achieve economic growth during this period, compared with 32 of the primary commodity exporters.


BOX 3.2

Bangladeshlarge and inland, with access to the coast

Since Bangladesh's birth in 1971, it has evolved into a democracy, achieving major reductions in income and non-income poverty. Income poverty dropped from 48% in 1989 to 34% in 2000. Basic social policieshealth, education, reproductive health services, family planninghelped lower population growth and shrink the labour force. Moreover, most of the population is becoming literate. The positive changes unleashed by an export drive reinforced the need for better-educated people.

Growth in manufacturing was a major source of this success. In addition, government agencies have supported the private sector through investments in infrastructure and skills, crucial for launching and sustaining the export drive. The government has also maintained the stability vital for pro-poor growth policies. As a result of these policy initiatives, Bangladesh's labour-intensive garments exports jumped from $867 million in 1991 to $4.6 billion in 2002 (Bangladesh Garment Manufacturers and Exporters Association 2003).

But though Bangladesh has achieved impressive success in growing out of deep poverty and advancing maternal and children's health over the past 30 years, its experiences may not be universally replicable. The reason: Bangladesh is a large economy, with a population of 133 million people.

Moreover, even with its successes Bangladesh is still far from reaching several of the Millennium Development Goalsincluding those for hunger and sanitation. So the central recommendation of the Millennium Development Compact still applies: a multipronged approach is required to achieve the Goals across sectors.

Source: World Bank 2003i; Bangladesh Garment Manufacturers and Exporters Association 2003.

By recognizing the links between economic growth and economic structure, it is possible to focus on the problems facing the poorest countries. For example, why did China become a manufacturing exporter but not Mali? Was it solely economic policies, or did structural conditions also play a role? And if structural conditions played a role, how can Mali's underlying structures be improved so that it can become a successful manufacturing exporter?

Becoming internationally competitive in products beyond traditional primary commodities is not easy. Returns on manufacturing investments in Mali are not very high, and not just because of economic policies. The country is landlocked and suffers from high levels of malaria, tuberculosis, HIV/AIDS and other diseases. Fragile soils and erratic rainfall over many decades have resulted in low food productivity. Because of few energy resources, fossil fuels must be imported. Finally, Mali's small population means that its domestic market is tiny. Investors consider the country's education and skill levels too low to justify the costs imposed by landlockedness, poor health, low nutrition, a tiny domestic market and related barriers. In short, Mali does not meet the thresholds required to attract many foreign or domestic investors outside traditional sectors.

For the reason Adam Smith explained more than two centuries ago, a country's ability to sustain the complex division of labour required for internationally competitive manufacturing depends on the extent of the market


Thus achieving the Millennium Development Goals in Maliand many other countries in similar circumstanceswill require special investments in a wide range of sectors. Better health, education, water, sanitation, roads, ports and power are needed to reach the thresholds required for private, market-based investments (box 3.2 illustrates the success in Bangladesh). Among other things, Mali could become a successful garment exporter, tourist destination and processor of tropical agricultural products. But such activities will take off only after health, education and other key thresholds are reached. Because the country is much too poor to make these investments on its own, partner countries must provide the financing for economic takeoff.

STRUCTURAL CHALLENGES OF UNFAVOURABLE GEOGRAPHY, SMALL MARKETS AND HIGH TRADING COSTS

To understand why some countries face higher hurdles in reaching thresholds for economic growth, first consider the structural implications of physical geography. For the reason Adam Smith explained more than two centuries ago, a country's ability to sustain the complex division of labour required for internationally competitive manufacturing depends on the extent of the market.

GEOGRAPHY'S EFFECTS ON MARKETS, TRADE AND GROWTH

There are two ways for a country to have a large extent of the market. The first is through a large population: countries with small populations tend to have small domestic markets. (Here countries with small populations are defined as those with fewer than 40 million people in 1990.) The second is through low-cost trade with world markets, recognizing that trading costs are strongly influenced by geography. Countries next to major markets (for Mexico, the United States, and for Poland, Germany) or coastal countries with easy access to low-cost ocean shipping have advantages over inland countries far from major markets or ocean ports. (Here inland countries are those where more than three-quarters of the population lives more than 100 kilometres from a coast.)

In 1980-98 developing countries with large populations, coastal locations or both achieved much higher economic growth than countries with small populations and inland locations. Large coastal countries grew in 3 of 4 cases, at an annual average of 3.2% per capita (see feature 3.1, table 2). Large inland countries grew in 10 of 10 cases, at an average of 2.5%. Small coastal countries grew in 15 of 17 cases, at an average of 1.9% (see feature 3.1). But only 24 of 53 small inland countries grew. Moreover, the group's average per capita growth rate was negative.

Though these data might seem skewed by Sub-Saharan Africahome to more than 30 small inland countriesthe same pattern holds elsewhere: Of the 50 non-African countries in the sample, 27 of 30 that are large, coastal or both experienced economic growthwhile only 11 of 20 that are small and inland did so.


BOX 3.3

Challenges in the Andean region

The Andean countries include Bolivia, Colombia, Ecuador, Peru and Venezuela. Of these, Colombia, Ecuador, Bolivia and Peru share similar structural constraints and policy challenges. These countries have medium human development indicators, yet the region faces persistently high poverty and inequalities. Although average incomes vary greatly across these four countries measured using purchasing power parity, 2001 per capita income was $2,424 in Bolivia, $3,202 in Ecuador, $4,799 in Peru and $6,248 in Colombiamore than a third of the population is still living on less than $2 a day. Venezuela, despite being the world's sixth largest oil producer, faces equally imposing challenges. Per capita GDP growth has averaged between 0.7% and -1.0% over the past two decades, and nearly a quarter of the population lives on less than 1$ a day.

Several structural features help explain the persistence of economic stagnation and poverty in the Andean countries.

A first, well-known factor is the persistence of inequalities. Each country has a Gini coefficient above 0.5. These inequalities are particularly pronounced due to ethnic divisions. Any successful development policies for these countries must focus on the public provision of key social services in education, health and water and sanitation to expand opportunities for excluded groups.

A more commonly overlooked structural factor contributing to these countries development challenges is that each has a significant amount of its population living at high inland altitudes. Thus their economies must surmount high transport costs to gain access to global markets. While Bolivia is the only landlocked country, half of Ecuador and Peru's citizens live more than 100 kilometres from the coast. About a quarter of Colombia's population lives inland as well.

This lack of market access contributes to the countries dependence on natural resources, and consequent exposure to major fluctuations in commodity prices. In Venezuela oil accounts for more than 80% of exports. More than half of Ecuador's exports are oil (30%) and bananas (21%), while less than a quarter are manufactures (23%). Bolivia is still largely dependent on gas and soy (45% of exports), with manufactures making up a small fraction (14%).

Another challenge is posed by El Nio, a cyclical climate fluctuation of temperature and rainfall that has major implications for agricultural output. To overcome susceptibility to external fluctuations, these countries require active infrastructure policies, particularly for ports and roads, to provide access to global markets. They also need active industrial policies to help develop a diversified manufacturing base for exports.

Finally, these countries face a structural constraint that reflects their persistent economic troubles: debt overhang. Bolivia, Ecuador and Peru have each had at least five Paris Club debt reschedulings (with public creditor countries) over the past 20 years. These debt constraints have made it difficult to make domestic investments that would increase human capabilities and stimulate economic growth.

In Venezuela a lack of export diversification and falling productivity have contributed to economic stagnation. In recent years political unrest, rising inequality and poor economic planning have added to these challenges.

Alongside these structural challenges, the region's social, economic and political instabilities have interacted with the production of coca leaf and cocaine, mainly for US and European markets. The drug industry has led to a proliferation of organized crime, corruption and other ills of public administration, leading to militarization of these societies and persistent threats to social peace and democracy.

Recent estimates based on historical trends indicate that of the five countries only Colombia appears to be on track to meet the poverty Goal, while the other four are expected to see increasing levels of poverty, largely as a consequence of increased inequality, economic slowdown, or both (UNDP, ECLAC and Instituto de Pesquisa Economica Aplicada 2002).

While this combination of challenges is significant, policies can overcome them. Roads and ports can be built. Governments can invest in excluded groups. Markets can be diversified. And debtor relationships can be renegotiated. What is crucial, as outlined in the Millennium Development Compact, is that all these challenges be addressed simultaneously, under a commitment to a compact between each country and its partners.

Source: World Bank 1998b, 2002h, 2002i; UNDP, ECLAC and Instituto de Pesquisa Economica Aplicada 2002.

This sample shows that about half the world's people live in large inland countries that have experienced sustained growth, including China and India. Meanwhile, nearly 420 million people live in large coastal countrieswith 341 million in robustly growing economies. (The other 77 million live in the Philippines.) Most of the 130 million people in small coastal countries live in growing economies. But almost 420 million people live in small inland economies that are not growing. Some of these countries are in the Andean region (box 3.3).

These numbers do not mean that everyone in growing economies is experiencing greater well-being. Structural constraints can apply within countries as well as between them, and other inequalities might be present. China and India still have large pockets of persistent poverty that require the attention of domestic policies (box 3.4).

Nor do these numbers reflect a high standard of growth, because a country is considered to be growing even if it averaged just 0.1% annual growth in 1980-98. But the numbers highlight the type of countriessmall inland economiesfacing the greatest challenges in achieving the Goals, requiring the most support from the international community and meriting the greatest attention under the Millennium Development Compact. This is not to say that some large countries with significant coastal regions, such as Pakistan, should be ignored. They too face major challenges in reducing poverty and advancing human development. Some additional points on geography:


BOX 3.4

China and Indiaimpressive growth, important differences

China and India, together containing a third of the world's population, have enjoyed tremendous economic growth over the past decade. Their successes in advancing average well-being imply major improvements for a large portion of humanity. But their experiences also point to the importance of looking beyond national averages to understanding differences within countries.

Though both countries have achieved rapid, sustained economic growth, their rates of progress have been quite different. China has enjoyed the fastest sustained economic advance in human history, averaging real per capita growth of 8% a year over the past decade. Its per capita income is now $3,976 in purchasing power parity (PPP) terms. Meanwhile, real per capita income in India grew at a robust though more modest average rate of 4.4%, reaching $2,358 in 2001. Reflecting their successful economic growth, both countries have seen significant reductions in poverty. According to World Bank estimates based on consumption surveys, the proportion of people living on less than $1 a day declined in China from 33% in 1990 to 16% in 2000, and in India from 42% in 1993/94 to 35% in 2001 (World Bank 2003i). While highly contested because of differences in methodology, survey design, and samples, these calculations nonetheless provide a rough indication of poverty trends in these countries.

Market reforms

China's exceptional growth is partly explained by its market-based reforms that started in 1978, well before India's similar reforms began in 1991. These reforms have enabled China to integrate with the global economy at a phenomenal pace. Today it is the largest recipient of foreign direct investment among developing countries, with annual investment rising from almost zero in 1978 to about $52 billion in 2002 (nearly 5% of GDP). Foreign direct investment in India has also increased significantly, though at much lower levels, growing from $129 million in 1991 to $4 billion in 2002 (less than 1% of GDP).

Robust export growth has contributed to the economic performance of both countries, with a growing dominance of manufactured exports though again, China has had much more success in this realm. Its exports reached $320 billion in 2001, compared with $35 billion for India. Manufactured exports accounted for 53% of China's total exports in 1981 and for 90% in 2001; in India that share rose from 60% to 77%. China has had particular success in moving from labour-intensive to technology-intensive exports: telecommunications equipment and computers now account for a quarter of its exports.

Social investments

Social investments are required for sustained economic growth. In China public spending on education is 2.3% of GDP while that on health is 2.1% of GDP. The outcomes for human development are clear. Literacy stands at 84%, infant mortality rates at 32 per 1,000 live births and under five mortality rates at 40 per 1,000 live births.

India, in contrast, has traditionally had lower spending levels. Health spending stands at 1.3% of GDP (central and state governments combined). Spending on education has increased significantly, from 0.8% of GDP in 1950 to 3.2% today, though it still falls short of the government target of 6% of GDP. Human development indicators for India remain much lower than for China. Literacy stands at 65%, infant mortality at 68 per 1,000 live births, and under-five mortality rates at 96 per 1,000 live births.

Regional variations and other challenges

It would be misleading to talk solely in terms of national averages for two countries so large in population and area. As noted in chapter 2, in China the highest economic growth has occurred in the coastal provinceswhile the geographically isolated north-western provinces have experienced much lower growth. India also harbours stark regional variations. In 1992-97 per capita economic growth ranged from 0.2% in Bihar to 7.8% in Gujarat. Similar variations appear in other human development indicators, such as those for education and health.

Both countries still face challenges, such as the spread of HIV/AIDS and other sexually transmitted diseases accompanying increased labour migration and international trade. And both face the challenge of fostering a knowledge-based economy to maintain consistently high economic growth as average skill levels increase. Both also need to focus on spreading the gains of growth to regions, communities and ethnic groups that have seen so little benefit from the new prosperity. Inclusive public policies should focus on investments in health, education and infrastructure for future development.

Source: Woo and Bao 2003; World Bank 2003e, 2003f, 2003i and calculations by Shaohua Chen of the World Bank and Angus Deaton of Princeton University; India 2003; China 2003; Bajpay 2003; UNCTAD 2002b.


The focus on geography here highlights the need for policies tailored to each country's challenges. With proper policies even the difficulties of small marketsor poor soils, or climatic fluctuations can be overcome


Geography can be a boon as well as a bane. It is no coincidence that all the East Asian success stories of the late 20th century have access to coasts and major shipping routesthus access to large markets can help counter the effects of small populations.

Natural resourcesanother manifestation of geographycan provide a major boost if their financial dividends are properly managed. The best example is Botswana's diamond discoveries, where revenues invested in education and health helped a fairly tiny, landlocked country quadruple its per capita income in 25 years (though these advances have recently been hindered by a heavy HIV/AIDS burden).

A country's market size and coastal orientation are not the only geophysical issues requiring urgent attention. Some regions are vulnerable to climatic shocks (such as El Nio) while others are not. Some regions are vulnerable to natural disasters (earthquakes, tropical storms, volcanic eruptions, floods) while others are not. Some regions are prone to environmentally based diseases (malaria) while others are not. Some regions are suffering from extreme water stress while others are not. All these geophysical constraints can weigh heavily on an economyand require policy attention.

BUT GEOGRAPHY IS NOT DESTINY

While geography can pose challenges, it does not define a country's destiny. The focus on geography here highlights the need for policies tailored to each country's challenges. With proper policies even the difficulties of small markets or poor soils, or climatic fluctuationscan be overcome. In geographically isolated countries better roads and communications can trounce many of the disadvantages of distance.

In countries with small populations, integration with neighbouring countries can provide the requisite scale for markets. Moreover, rich countries can open their markets to exports from small developing countries. That is how the small or landlocked countries of Western Europe have succeeded: through the close economic integration of the European Union.

If an economy is burdened by poor soils, soil nutrient supplements are needed (through fertilizers, leguminous trees, better crop rotation and other means). And tropical diseases can be controlled through interventions such as insecticide-impregnated bednets to fight malaria. The problem is not that geophysical obstacles are insurmountable. The problem is that they are too often overlookedand addressing them costs money.

GOOD POLICIES, ECONOMIC GROWTH AND HUMAN DEVELOPMENT

A first step in economic progress often involves increasing the productivity of poor small farmers. This can happen when market forces yield agricultural advances or governments invest in research and development. Poor farming households often produce food for their own subsistence, with little left over for the market. So, increasing agricultural productivitysay, through improved seed varieties and fertilizers, as during the green revolution of the 1970sraises household income and nutrition. It also enables poor households to invest more in their children's health and education. Many of these children end up migrating to urban areas, particularly since food needs can now be met by fewer (but more productive) farmers.

In manufacturing, increased productivity comes from a stable macroeconomic environment, sound public institutions and reliable physical infrastructure. Growing urban populations also support larger and more productive manufacturing. In addition, manufacturing productivity is often given a major push by higher-technology imports. In East Asia manufacturing productivity increased when domestic companies became suppliers to multinational corporations, using technologies and products specified by those corporations. Common early-stage manufacturing exports include toys, apparel, footwear, electronics components, automotive components and the like.

Rising incomes lead households to spend more on health and education. They invest in safer water, or send their children to school or buy drugs when illness hits. They also improve their nutrition. People can afford safer homesbuying screens for windows to keep out disease-bearing mosquitoes or stoves fuelled by propane rather than highly polluting wood. Household investments in health and education are often accompanied by public investments in social services.

As incomes rise, so do national saving rates (the proportion of national income remaining after household and government consumption). At very low incomes, households are too poor to save: they must spend all they have simply to survive. Most spending goes for food, shelter and clothingand when an emergency hits, health care. As incomes rise above the survival threshold, households can afford to save money for their future well-being and economic security. National savings give another boost to economic growth because it enables investments by private business and government. Such investments lead to rising physical capital and infrastructure stocks per person.

Another vital boost to economic growth comes when fertility rates fall in response to public policies and rising household incomes. Poor households with many children are rarely able to invest enough in each child's health and education. Perhaps only the eldest son has the chance to attend school for more than a few years. But when fertility drops, even poor families can provide a good education for, say, two children instead of sixand can invest more equally in sons and daughters. By this stage an economy is on a robust, self-sustaining growth path. No longer mired in subsistence agriculture, the dynamics for persistent economic growth are under way.

At a later stage another important trend emerges. As education levels rise and domestic companies produce more sophisticated goods and services (often supported by investments, know-how and technology transferred from foreign corporations), domestic scientists and engineers begin developing new products. Private spending on research and development increases, as do government outlays. In addition, local universities make critical contributions to economic growth by training scientists and engineers and by being home to a growing amount of research and development.

WEAK POLICIES, ECONOMIC DECLINE AND HUMAN POVERTY

So what happensor does notin countries that fail to achieve this kind of economic takeoff? As before, such economies start out poor and primarily rural, with limited urban manufacturing. But unlike in growing economies, agricultural productivityand so the rural economyis stagnant or falling because of depleted soils and climatic shocks. As populations have grown, so has deforestation and water scarcity. No new technologies, public or private, have been introduced to boost agriculture. Farmers cannot even get their products to markets because governments cannot afford to build or maintain roads.

As education levels rise and domestic companies produce more sophisticated goods and services, domestic scientists and engineers begin developing new products


In these countries children in farming households work from very young agesfor example, often walking several kilometres a day to fetch water and firewood. Even if schooling is available, children have no time or energy to attend. They also have no access to the primary health care required to prevent or treat malaria, worm parasites and other ailments because their families cannot afford doctors and governments cannot afford doctor salaries or needed medicines. Many childrenperhaps 15 of every 100die before age five. As a result parents have many children.

Making matters worse, productivity is low in urban areas. Moreover, manufacturing activities may be cut off from world markets because a country is landlocked and remote from ports or because its main export is subject to trade barriers around the world. Perhaps the road from the capital to the nearest port passes through another country hostile to the economic interests of its landlocked neighbour. Or maybe the coastal economy is poorly managed, so that even if a landlocked country builds a well-functioning trunk road to the border of the transit country, the coastal economy will not build, maintain and police the road all the way to the port.

As noted, small populations add to the burdens of many poor landlocked economies. As a result international investors have little interest in establishing local production operations to serve local markets. If they sell anything, they will do so through exports to the country rather than local production.

Though good economic governance and sound economic policies are needed to escape poverty traps, they are not enough


Under such circumstances, even with the most efficient government policies, local manufacturing is unlikely to trigger self-sustaining growth. Local manufacturers may provide local markets with some basic goodssoap, processed foods, wooden furniture, bricks and other building materials, a few chemicalsbut little else. Technology is basic, and firms are not competitive enough to sell to world markets, especially with the high costs of transporting goods to ports (and the prohibitive costs of air transport for basic items). With no engine of growth in manufacturing, such economies are unlikely to start growing.

Even if the public sector is making the most of its resources, such countries face numerous bottlenecks to growth:

Private saving rates are lowif not negative.

Governments use most or all of their revenues to pay public employees (army, police, teachers, public administration), leaving little or nothing to invest in health, education and infrastructure.

Agricultural productivity is low partly because there are few inputs from domestic manufacturing, such as fertilizers. And severe transport problems make importing fertilizers prohibitively expensive for most small farmers.

Fertility rates remain high, reflecting low education for girls and women, large rural populations, high child mortality rates and lack of family planning and reproductive health services.

Maternal health suffers because women have little access to education or health care, with negative implications for their children. Most people stay in rural areas because they are needed to grow food for swelling national populationsresulting in high food costs for urban residents.

With rising rural populations, farmland per agricultural worker falls, reducing output per farmer. That, combined with lack of health care, worsens public health, contributes to the spread of infectious disease (partly prompted by weakened immune system due to malnutrition) and reduces labour productivity.

In short, such countries are trapped in poverty. They have insufficient resources to overcome structural challenges and fall short of critical thresholdsin health, education and infrastructureto achieve self-sustaining economic growth. Many of the top priority countries identified in chapter 2 fall into this category. Though good economic governance and sound economic policies are needed to escape poverty traps, they are not enough. In most cases enormous structural constraints must also be overcome to reach the thresholds for sustained growth.

Note the distinction between structural constraints to the thresholds for sustained growth and economic governance constraints to those thresholds. Corrupt or incompetent governments wreak havoc on many countries, preventing the investments needed for economic development. This burden can be due to kleptocratic politicians, weak legal institutions, corrupt bureaucrats or political or armed conflicts (box 3.5).

ESCAPING POVERTY TRAPS

So what can be done for countries stuck in poverty traps? This Report's Millennium Development Compact, building on a baseline of sound macro-economic management, aims to bolster human development by combining six clusters of policies:

Investments in the social sectors. Major progress can be made in health, nutrition, education and water and sanitation in low-income settings when additional donor resources are available, because the needed interventions are well known and long proven, and the main investments can be made by the public sector backed by donor financing. Big gains in health and education are required before per capita incomes can be raised substantially.

Investments to raise agricultural productivity. Agricultural productivity can be raised by introducing better technology (improved seeds, tillage and crop rotation systems, soil nutrient management, pest management) and improving rural infrastructure (irrigation projects, storage and transport facilities, roads connecting villages to larger markets). In addition, security in land holding can protect farmer rights and encourage them to invest in land improvements that raise long-term productivity.


BOX 3.5

The Millennium Development Goals and conflict countries

Any serious attempt to launch a successful campaign to achieve the Millennium Development Goals must pay special attention to conflict-affected areas. Nearly 60 countries experienced violent conflict during the 1990s. Beyond its direct cost in human lives, conflict can undermine economies, destabilize governments, damage infrastructure, disrupt social service delivery and provoke mass movements of people. More than 14 million people face hunger due to present or recent conflicts. HIV/AIDS and other infectious disease often spread ferociously in conflict-affected areas. In some militaries of Sub-Saharan Africa more than half the soldiers are HIV-positive. Maternal and infant mortality often increases substantially in war zones, with health services destroyed and childbirths during flight.

Analysis of the 25 countries hit hardest by conflict between 1960 and 1995 reveals substantial variation in the human and economic costs of war. Ethiopia, Liberia and Uganda, for example, had significantly higher infant mortality rates during conflict than in peacetime. Yet, El Salvador, Guatemala and Mozambique experienced rates below their regional average even during war. The findings suggest that policies can be adoptedeven during conflictsto reduce the human and economic costs.

Reducing the human costs of conflict

Broad policy prescriptions are difficult given the heterogeneity and complexity of war-affected economies. War aims may include depriving certain regions of essential services (Sudan). Conflict may also severely weaken governments, leaving them unable to provide services to any group (Afghanistan, Sierra Leone, Somalia). Indeed, the collapse of government without the emergence of substitute structures has led to particularly adverse human and economic war outcomes (Uganda). Countries able to reduce the human and economic costs of war, and in some cases make progress towards development targets, did so only when all householdson both sides of the battle lineshad access to food, basic health care and primary education (Guatemala, Mozambique, Sri Lanka).

Adequate public funding of essential services can often be maintained even with the rising military spending that accompanies war. Mozambique, Nicaragua and Sudan markedly increased per capita social spending during their conflicts. But even if cuts in social spending are necessary, they should not automatically translate into slashing basic social service budgets. Even in peacetime these services account for only a fraction of social spending.

Social spending cutbacks are often compounded by depletions in human resources, as teachers and doctors flee conflict-affected regions. And the cuts are coupled with unpredictable breakdowns in delivery mechanisms. So, flexible approaches to service provision are essential using diverse actors, such as non-governmental organizations (NGOs) and quasi-governmental structures. Mozambique experimented with mobile clinics and classrooms when health and education buildings became war targets. In El Salvador both sides halted fighting on three different occasions to allow for child immunizations.

People in conflict-affected areas are particularly vulnerable to severe malnourishment, as food production declines and conflict disrupts normal relief efforts. Escalating food prices are often a key threat to food security. During their wartime periods many rich countries subsidized and rationed food to prevent price escalation. Nicaragua also used these mechanisms to improve the nutritional status of people in war-affected regions.

In urban areas such efforts are relatively easy to administer. Rural communities, however, may benefit more from agricultural support in the form of supplies, loans and paid work. Food delivery through schools and clinics can also improve access without encouraging movement into camps. Such delivery can help promote school attendance and reduce incentives for children to become soldiers or thieves.

Reducing the economic costs of conflict

The economic costs of conflict affect human well-being in numerous ways, from rising food costs to declining employment opportunities. On average, countries hardest hit by conflict between 1960 and 1995 experienced significant declines in economic growth, reductions in export production, falling consumption levels and dminished government revenue (as a percentage of GDP) compared with non-war countries. Most countries also faced rising budget deficits and spiraling debts, as significant increases in military expenditure were met with substantial declines in government revenue. But some countries were able to defy the average, even showing impressive economic performance during wartime. Sri Lanka, for example, sustained 2% economic growth during the same decade as it experienced conflict. Countries experiencing ongoing conflicts should focus on (at least) four key policy areas:

Maintaining fiscal revenue in wartime economies is difficult because sharply declining tax revenue often meets escalating military spending. Institutional structures used in revenue collection need to be maintained throughout the war. Tax rates prevailing before the conflict should also be maintained, in addition to levying other taxes such as on luxury items and war-related goods. Governments could also issue compulsory savings bonds as well as sell food aid to tap new revenue sources. Indeed, Nigeria, Sri Lanka and Sudan succeeded in sustaining revenue levels (as a percentage of GDP) during their conflicts.

Preventing runaway inflation is necessary because escalating inflation creates uncertainty and promotes private sector speculation. Such inflation also makes public budgetary and financial control extremely difficult. Price liberalization during conflicts, given low supply elasticities, is a main contributor to escalating inflation. In Mozambique, for example, such liberalization led to huge increases in the price of rationed goods, such as maize, cooking oil and sugar.

Securing foreign exchange resources is essential because declining foreign exchange resources contribute to reductions in output. Some Sub-Saharan countries have experienced devastating famines due to a mix of conflicts, output reductions and droughts. To sustain output, national and international policies should aim to finance productive imports by keeping open and assisting export markets and providing aid and loan support for such imports. National policies should also ensure that available foreign exchange resources are used to purchase essential goods, such as medicines and agricultural inputs. Import controls, such as quotas and tariffs, may be used to ensure this occurs.

Maintaining a competitive real exchange rate. Conflict-affected countries face enormous difficulties in managing their balance of payments under conditions of uncertain export income and aid commitments. Policies must maintain a competitive real exchange rate to avoid disincentives to exports. Countries should also secure control over nominal exchange rates given the inevitable macroeconomic disequilibria of war. In Angola, for example, inflation rose from 160% to 246% between 1991 and 1992, hitting poor Angolans hardest.

Source: Stewart 2003; Fitzgerald 2001.

Investments in infrastructure. Reaching an adequate threshold of roads, power, ports and communications to support economic diversification into non-traditional areas will be relatively easy in some areas, such as coastal port cities. But it will be much harder elsewhere, such as landlocked or mountainous countries suffering from high transport costs.

The key idea is that poor countries in stagnation or decline can be pushed above the thresholds and establish self-sustaining growth if they receive enough aid to health, education and basic infrastructure


Industrial development policies to bolster private activities. Successful development of non-traditional activities often requires special industrial policies, including selective, temporary and well designed tax holidays, export processing zones, special economic zones, science parks, investment tax credits, promotion of science and technology, targeted research and development funding and public grants of infrastructure and land.

A broad emphasis on equity throughout society. Political institutions must allow poor peopleespecially womento participate in decisions that affect their lives and protect them from arbitrary and unaccountable actions by governments and other forces. Thus strategies for achieving the Millennium Development Goals must ensure women's rights to education, reproductive health services, property ownership, labour force participation and secure land tenure. Strategies must also focus on eliminating all other forms of discrimination, including by race, ethnicity or regional origin.

An emphasis on environmental sustainability and urban management. Many of the world's poorest places are in regions of enormous climatic variability and vulnerability, requiring sound ecological management. These include tropical and subtropical regions vulnerable to El Niodriven fluctuations in rainfall and temperatureregions also experiencing the pressures of long-term climate change. Another ecological challenge is managing rapid urbanization through careful planning and large public investments.

These policies can trigger a takeoff out of poverty. Countries can start to supply labour-intensive goods (apparel, electronics components) for external markets. Tourism and information-based services (such as data transcription and back-office computer operations) may lead to a comparable boom in service exports. This growth in non-traditional exports can drive the cumulative processes of growth described earlier, including rising saving rates, rising government revenues, rising urbanization, falling fertility and rising agricultural productivity (partly because of more inputs from manufacturing).

To achieve long-term growth, all these policies need to be addressed simultaneously, regardless of a country's stage of economic development. But the poorest countries cannot afford these investments on their own. For them the Millennium Development Compact stresses that donors should help cover the costsassuming that low-income countries hold up their side of the deal by promoting good economic governance, protecting human rights and pursuing transparent and efficient policies (box 3.6).

The key idea here is that poor countries in stagnation or decline can be pushed above the basic thresholds and establish self-sustaining growth if they receive enough aid to invest in health, education and basic infrastructure. External financing is not needed to fund the entire growth processmerely to support the takeoff. In most cases that takeoff can be achieved within a generation.

GROWTH POLICIES THAT BENEFIT POOR PEOPLE

This chapter has emphasized the need for comprehensive, multisectoral strategies to achieve economic growth, including policies to promote manufacturing exports. Considering the different structural barriers facing countries, it is clear that each needs to pursue policies that make sense for its conditions (see the special contribution by Nobel Laureate Joseph Stiglitz). This section addresses two related issues aimed at ensuring that growth benefits poor people. First, what policies can promote the growth of labour-intensive (rather than capital-intensive) manufacturing exports? Such products can directly expand employment opportunities and increase real wages for poor people. Second, what policies can also ensure higher incomes for poor people not directly employed by manufacturing? Such policies are needed in low-income countries as well as in middle-income countries with persistent pockets of poverty.


BOX 3.6

What's needed to make the Millennium Development Compact work in Uganda

Uganda has made excellent economic progress over the past decade. But despite average real growth of 3.7% in 1992-97, Uganda still has a per capita income of just $330.

Uganda is small and landlocked, with agriculture employing 80% of the workforce. In 1997 the poverty headcount was 44% of the population, infant mortality was 83 per 1,000 live births (in 2000), maternal mortality was 505 per 100,000 and under-five mortality was 161 per 1,000.

In 1997 Uganda pioneered a povertyoriented development strategy by designing a Poverty Eradication Action Plan, which in 2000 was revised as the country's Poverty Reduction Strategy Paper in agreement with the World Bank and International Monetary Fund. In the paper Uganda set four goals:

Reducing absolute poverty to 10% of the population by 2017.

Raising the educational achievements of Ugandans.

Improving people's health.

Giving voice to poor people.

To achieve these goals, the government formulated policies based on four pillars that overlap in many ways with the policy dimensions in the Millennium Development Compact. These pillars include creating a framework for economic growth and transformation through macroeconomic stability; focusing on strategic exports; and promoting the private sector. For this Uganda will have to attract much more foreign direct investment and diversify its economyboth difficult given the country's landlocked status and high transport costs.

The fourth pillar includes promoting good economic governance and security, actions that directly increase poor people's ability to raise their incomes (through a plan to modernize agriculture) and that directly improve their quality of life (through better health, education and safe water and sanitation). But the key question is whether Uganda will be able to make the investments to implement these strategies and achieve these goals.

Budget planning is being aligned with the Poverty Reduction Strategy Paper, and social spending will draw on funds freed up by debt relief. According to a 2002 estimate by the Economic Policy Research Center, implementing the paper's plans would generate a resource gap of $417 million in 2003, or 6.4% of GDPand this is based on a fairly low estimate of health care costs. Indeed, if the costs of achieving all the Millennium Development Goals were included such as providing safe water and sanitation, alleviating hunger and providing infrastructurethis gap would be even wider.

These projections are of great value to the international community because they provide an indication of the increased spending required at the national level. Spending on HIV/AIDS needs to increase by 83%, on education by 109% and on health by 212%. So despite the best commitment and planning at the country level, the Millennium Development Goals will remain unattainable unless supported by much larger financial flows from the international communitywhich constitute a major part of the role of rich countries in the Millennium Development Compact.

Source: Uganda 2002; IMF 2002a; World Bank 2000b.

POLICIES TO PROMOTE LABOUR-INTENSIVE MANUFACTURING

Over the past 20 years too much development thinking and practice have confused market-based economic growth with laissez faire. Even when economic growth is based on private ownership and market forces, government policies must promote efficient and competitive national industries. Supporting the creation of manufacturing exports, for example, can be half the battle of achieving sustained growth especially if a country's economic history has involved exporting primary commodities.

Similarly, policies can be central to promoting labour-intensive rather than capital-intensive activities, increasing employment and, in the long run, raising productivity and lifting real wages. Policies have long played a key role in spurring industrial development, as in East Asia's tiger economies since the 1960s. But this depended on a number of conditionsparticularly disciplined institutional capacity within governments.

Pro-poor industrial development policies should follow a few general guidelines. First, as this chapter has shown, manufacturing exports are crucial to long-term growth. To that end, macroeconomic and trade policies are key to diversifying economic structures. Overvalued exchange rates that hurt exporters can severely limit possibilities for employment growth. The transition to export orientation is complex (and debated at length elsewhere). But especially for small economies, macro-economic policies require an export orientation. In China and the Republic of Korea government protection to domestic markets coexisted with export incentives. Korea provided exporters with tax incentives and duty-free imports of inputs, which raised returns to capital invested in desired sectors.

Second, financing incentives are needed to get industries started in capital-scarce economies. A variety of policy instruments have been used: directed and subsidized credit, support to chosen subsectors, export subsidies, technology acquisition institutions and a host of other sector-specific interventions. Several South-East Asian countries have used export credits and fiscal incentives to raise returns to investments in exports. But as relative latecomers, foreign direct investment has typically played a larger role in their export drivesand in China'sthan was the case for the East Asian tigers.

SPECIAL CONTRIBUTION

Poverty, globalization and growth: perspectives on some of the statistical links

Several recent econometric studies have tried to show a systematic relationship between globalization and growthand between growth and poverty reduction. The message of these studies is clear: open your economy, liberalize and you will grow, and as you grow, poverty will be reduced. This research is supposed to lay to rest the attacks on globalization and, though it shuns the words, breathe new life into long-discredited trickle-down economics, which held that a rising tide lifts all boats.

Trickle-down economics became discredited for an obvious reason: it was not true. Sometimes growth helps poor people, but sometimes it does not. By some measures poverty increased in Latin America in the 1990s, even in many countries where there was growth. It was not just that well-off people gained disproportionately from growth: some of their gains may even have been at the expense of poor people.

Though there are a number of technical problems with these recent studies, the most telling problem is that they asked the wrong question: globalization and growth are endogenous, the result of particular policies. The debate is not about whether growth is good or bad, but whether certain policiesincluding policies that may lead to closer global integration lead to growth; and whether those policies lead to the kind of growth that improves the welfare of poor people. A look at the most successful countries, in growth and poverty reduction, shows how misleading these studies are.

China and other East Asian countries have not followed the Washington consensus. They were slow to remove tariff barriers, and China still has not fully liberalized its capital account. Though the countries of East Asia globalized, they used industrial and trade policies to promote exports and global technology transfers, against the advice of the international economic institutions. Perhaps most important, unlike the Washington consensus, policies promoting equity were an explicit part of their development strategies. So too for perhaps the most successful country in Latin America, Chile, which during its high-growth days of the early 1990s effectively imposed a tax on short-term capital inflows.

The policy issue is not to globalize or not to globalize or to grow or not to grow. In some cases it is not even to liberalize or not to liberalize. Instead the issues are: To liberalize short-term capital accountsand if so, how? At what pace to liberalize trade, and what policies should accompany it? Are there pro-poor growth strategies that do more to reduce poverty as they promote growth? And are there growth strategies that increase poverty as they promote growthstrategies that should be shunned?

For instance, neither theory nor evidence supports the view that opening markets to short-term, speculative capital flows increases economic growth. But there is considerable evidence and theory that it increases economic instability, and that economic instability contributes to insecurity and poverty. So, such forms of capital market liberalization might in some ways increase globalization. But they do not enhance growthand even if growth increased slightly, this form of it might increase poverty, especially in countries without adequate social safety nets.

Similarly, trade liberalization is supposed to allow resources to move from low-productivity protected sectors to high-productivity export sectors. But what if export markets in areas of comparative advantage (such as agriculture) are effectively closed, or credit is not available (or available only at exorbitant interest rates) to create the new export-related jobs? Then workers simply move from low-productivity protected sector jobs to unemployment. Growth is not enhanced, and poverty is increased.

Even often-praised measures, such as tarriffication, have proven to be double-edged swords, because they have exposed developing countries to additional risks that they are ill prepared to cope with. Again, whether tarriffication leads to faster growth is not clear; that the increased variability increases poverty is far more evident.

There are policies that in the long run may enhance growth and reduce poverty, such as enhancing education opportunities for disadvantaged groups, which allows countries to tap into vast reservoirs of underused talent. But the returns to investments in preschool education today will not manifest themselves for two decades or morenot the kind of results that show up in typical econometric studies.

Hidden beneath the surface in these econometric studies of globalization is another subtext: because globalization has proven so good for growth and poverty reduction, critics of globalization must be wrong. But these cross-sectional studies cannot address the most fundamental criticisms of globalization as it has been practiced: that it is unfair and that its benefits have disproportionately gone to rich people. After the last round of trade negotiations, the Uruguay Round, a World Bank study showed that Sub-Saharan Africa was actually worse off. Asymmetric liberalization had global terms of trade effects. The globalization studies suggest that Africa has suffered because it has not globalized. That may be partly true. But it is also true that Africa has suffered from the way that globalization has been managed.

Thus these econometric studies on globalization, growth and poverty have been a misleading distraction, shifting the debate away from where it should beon the appropriateness of particular policies for particular countries, on how globalization can be shaped (including the rules of the game) and on international economic institutions, to better promote growth and reduce poverty in the developing world. The antiglobalization movement has often been charged with being unthinking in simply asking whether globalization is good or bad. But the econometric studies, for all the seeming sophistication of their statistics, are equally guilty.

Images

Joseph E. Stiglitz

Nobel Laureate in Economics, 2002

Third, a competent, professional, reasonably independent public bureaucracy is needed to support such policies. Undue political interference has been damaging to state institutions, in some cases leading to state failure. The response should not be to abandon the state. No matter how difficult, reviving state institutions may be vital in removing economic governance constraints to growth (see feature 3.1).

Public sector employment policy is important here. The state cannot be an employer of last resort. In East Asia fairly high public sector salaries, particularly for managers, attract and retain skilled civil servants. These technocratic groups are reasonably insulated from political pressures, which helps ensure clarity in decisionmaking and builds market confidence. Getting this right has been as important as any policy intervention, because the right policies can have perverse effects when there is institutional incoherence.

Fourth, the public sector must support and build the private sector rather than compete with it. Public bodies can support private capacities in several ways. Japan, the Republic of Korea, Malaysia and Thailand established formal deliberation councils to reduce the information and transaction costs of private agents. A new form of deliberation council is being used for technology policy. In Costa Rica and Ireland technology foresight programmes and processes bring together government departments, the private sector, international organizations and non-governmental organizations to lower information and transaction costsand to reach consensus on how to upgrade national technological capacities. These bodies can be particularly important for the development of export-oriented small and medium-size enterprises. Furthermore, efforts should be made to increase corporate social responsibility and transparency. In addition, international private businesses have an important role in encouraging local capital formation and local private sector development, fostering additional jobs in local labour markets. Finally, pro-poor growth can be achieved through more ambitious public-private partnerships, especially in the construction of basic infrastructure and the provision of services (such as electricity) in developing regions.

POLICIES OUTSIDE MANUFACTURING

The preceding industrial development policies can help develop an economy's engine of growth. But many (if not most) poor people work outside manufacturingparticularly at the early stages of development. Thus policies must address their needs as industrial development policies are pursued.

First, government needs an effective fiscal system to mobilize enough revenue to invest in poor people's basic needs. In the poorest countries this will require not only more domestic revenue, invested wisely, but also more donor assistance. An effective fiscal system does not imply high taxes. A more sensible course is to have rather low direct income tax ratesbut to emphasize compliance and end abuse as well as politically motivated exemptions. A major revenue problem in many countries is that rich people simply do not pay direct taxes.

A major revenue problem in many countries is that rich people simply do not pay direct taxes


Second, countries with many farmers should invest in increasing agricultural productivity and diversifying cash crops for export markets. (Chapter 4 analyses agricultural productivity in greater detail.) Such efforts could include developing site-specific seeds and soil nutrient strategies to generate high yields under local conditions. Governments can also provide exporters with financial incentives and marketing assistance to diversify crops. They could also guarantee minimum prices for farmers in areas with fragile markets. Thailand did so when it moved from traditional crops to sophisticated crops for exports such as asparagus, which is not eaten domestically.

Third, policies must ensure poor people's access to economic assets. Without assets, poor people cannot participate in markets. They need land, finance and skillsand public action to acquire them. Investing in human development to expand social opportunities for all is one of the six policy clusters discussed in chapter 4. Here the focus is on land and finance.

Access to land. More than 500 million people, or roughly 100 million households in developing countries, lack ownership rights or owner-like rights to the land they farm. Most are tenant farmers, agricultural labourers or former collective farm workers. Also included are agricultural households with insecure tenancy rights, such as squatters or customary or traditional rights holders who do not hold formal rights to the land they occupy.

Lack of formal legal rights to land hinders these people's ability to generate income and earn livelihoods, undermining economic growth. Because land is their primary source of income and provides security and social status, formalizing their ownership rights through agrarian reform would serve several purposes: Creating transferable land rights with determinable market value makes land an intergenerational asset.

Smaller holdings are often more productive than larger ones, hectare for hectareespecially if they are owned and operated by families.11

Landowners have an incentive and ability to make long-term capital investments that directly increase agricultural productivity.

Access to land improves household nutritionand increases non-farm incomes for some farming households.

Strong legal ownership rights for women, often the food producers in a household, lead to more equitable income and welfare outcomes.

This chapter highlights the structural problems holding back economic growth in the top priority and high priority countries for achieving the Millennium Development Goals


Secure rights strengthen environmental management and increase community participation.

Even though land reforms have been politically contentious and difficult to implement-as many experiences of the 1970s and 1980s showtheir strong link with equity has returned them to the political agenda in many countries such as Brazil and China.

For the benefits of ownership to reach the most people, such rights must be provided on a large scaleespecially to the female members of farming households. In addition, reasonable compensation should be provided to private landowners whose land is being redistributed. Similarly, reforms should be set in the context of customary land tenure systems so that traditional landowners do not lose their rights. Potential beneficiaries should be included in the design of such reforms. Finally, accompanying regulations should ensure secure tenure and impose the right incentives so that land transfer is real, and not just in name.

Access to credit. Microfinanceboth microcredit and microsavingsprovides poor people with a way to procure and build up assets. It encourages borrowers to invest in productive activities, and savers to amass assets and earn interest. Borrowers can also use the funds to smooth income flows and plan economic decisions over longer periods. The number of poor people with access to microcredit schemes rose from 7.6 million in 1997 to 26.8 million in 200121 million of them women, enabling them to control assets, make economic decisions and assume control of their lives.12 According to some estimates, 5% of microfinance programme participants could lift their families out of poverty each year.13

From a macroeconomic perspective, micro-finance is useful for channelling and generating credit for poor people. It remains an important policy instrument for large-scale poverty reduction. But its success depends on the scheme, the participating community and the support from donors, the local government and the administering agency. Scaling up depends on macroeconomic stability, on the health, coverage and efficacy of the financial sector and (in the long run) on the government's ability to reach poor people through the financial sector on a national scale.

* * *

This chapter highlights the structural problems holding back economic growth in the top priority and high priority countries for achieving the Millennium Development Goals. It also offers practical remedies to overcome those problems. These countries must look well beyond market reforms to surmount basic challenges posed by widespread disease, geographic isolation, poor infrastructure, low human capital and limited markets. Major public investments are needed to reach the basic thresholds for health, education and other outcomes. Because these countries are too poor to fund these investments, rich countries must follow through on their commitment to the Millennium Development Goals by helping to finance core public investments that will yield long-term success in economic and human development.

Feature 3.1 Development challengesthrough the lens of geography

Map 1 divides the world into five categories. First are countries with high economic innovation, as measured by the number of patents per million people, shown in dark blue. These tend to be the high-income countries. Second are developing country exporters of manufactured goods, shown in lighter blue. In 1995 at least half of these countries exports were in the manufacturing sector. Third are the fuel-exporting economies, shown in blue-grey. Fourth are transition countries, in grey. Fifth are the commodity (non-fuel) exporting developing countries, in black.

MAP 1
Classification of countries by economic structure, 1995

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Map 2 highlights patterns of economic growth during 1980-98 using constant per capita GDP in purchasing power parity terms. Note the remarkable relationship with the first map. The countries that are either innovators or manufacturing exporters tended to have economic growth, shown in dark blue, while other groups of countries (oil exporters, transition, commodity exporters) tended to experience economic decline. The growing economies include the regions of North America, Western Europe, Oceania, East Asia and South Asia. The declining countries are concentrated in Sub-Saharan Africa, the former Soviet Union, the Middle East, and parts of Latin America, mainly the Andes and Central America. Sub-Saharan Africa is the worst-performing region, with two thirds of its countries and three quarters of its population experiencing economic decline in 199098.

MAP 2
Country classification by average annual growth in GDP per capita, 1990

PPP dollars, 1980-98

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Source: Maddison 2001; Gallup, Sachs and Mellinger 1999; World Bank 2003i.

Table 1 breaks down patterns of economic growth by economic structure. Grouping countries in the same five categories as map 1, the table shows that the main problems in economic growth have come in three types of economies: transition countries, oil-exporting economies (which faced a huge loss of purchasing power from their single or dominant export commodity) and commodity (non-fuel) exporting developing countries. Most of the commodity exporting countries are in Sub-Saharan Africa, Latin America and Central Asia. Innovating economies and manufacturing exporters among developing countries by and large experienced economic growth.

TABLE 1
Economic growth rates by country group, 198098

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Note: GDP per capita is measured in purchasing power parity.

Source: Maddison 2001; World Bank 2002j.

TABLE 2
Economic growth rates by population size and location, 198098

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Note: GDP per capita is measured in purchasing power parity.

Source: Maddison 2001; Gallup, Sachs and Mellinger 1999; World Bank 2003i.

Table 2 highlights patterns of economic growth by looking through a different lens, that of geography. This figure assesses growth rates for all developing, transition and commodity (non-fuel) exporting countries for which data are available. It categorizes countries by their population size and the concentration of population near maritime trade routes. Small countries are those with fewer than 40 million people in 1990. Coastal countries are those with more than three-quarters of their populations living more than 100 kilometres from the coast. The data highlight how groups of countries that are large or coastal experienced systematic average per capita economic growth from 1980-98. Small and inland countries enjoyed much less economic success over the same period. The findings are particularly relevant for Africa, since 33 of the 53 countries counted as small and inland are on that continent.

Source: McArthur and Sachs 2002; World Bank 2002j, 2003i; IMF 2002b; Maddison 2001.

CHAPTER 4

Images    Public policies to improve people's health and education

As the Millennium Development Compact argues, the first cluster of policies required for top and high priority countries to break out of their poverty traps involve investing in health and education. These investments contribute to economic growth, which feeds back into human development (see chapter 3). Education, health, nutrition and water and sanitation complement each other, with investments in any one contributing to better outcomes in the others. A major message of this chapter is that policy-makers need to recognize the synergies among the many aspects of human development as they invest in achieving the Millennium Development Goals.

Education affects all types of human development outcomes. More than just a source of knowledge, education promotes better hygiene and increases the use of health services. Safe water and adequate sanitation also determine health outcomes. By reducing infectious diseases, they improve children's nutritional status and increase their learning abilities. Together such interventions contribute to a health transitionfrom having communicable diseases account for most of a country's disease burden to having chronic diseases as the main source.

The health transition hastens the demographic transition from high to low birth and death rates. In addition, higher education levels are associated with better family planning. As more children survive, families reduce the number of children they have. Desired family sizes decline, a process helped by the ready availability of contraceptives. So, over time, lower infant and child mortality plays a major role in falling fertility rates.1 This notion of synergies among social investments is central to reducing hunger, malnutrition, disease and illiteracyand to advancing human capabilities.

To get the most from the synergies among basic social services, it is crucial to focus on universal primary education early on, particularly for girls. But doing so requires available, fully functional family planning, water and sanitation services. Thus these services are integral to achieving all the Millennium Development Goals.

This chapter also argues that gender equality is not just a Goal in its own rightit is central to achieving all the other Goals. The lifecycles of educated girls illustrate the synergies among social sector interventions (figure 4.1). Educated girls are likely to marry later especially if their schooling extends to the junior secondary level and they engage in economic activity outside the home. Educated girls and women also have fewer children, seek medical attention sooner for themselves and their children and provide better care and nutrition for their children.2 Such behaviour reduces the probability of disease and increases the odds of children surviving past age five.

Over time reduced child mortality leads to smaller families and increased contraceptive use-lowering overall fertility. With smaller households child care improves, and with lower fertility the school-age population shrinks. Thus the benefits of girls education accrue from generation to generation. But while strengthening women's health and education capabilities in this way is important, action is also needed to reinforce their role in society as agents of change (box 4.1).

FIGURE 4.1
Educated girls lead different lives

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Source: Mehrotra and Jolly 2000.

Past progress shows what is possible. Over the past 50 years most developing countries achieved advances in health and education that took nearly 200 years in rich countries. But a dozen or so developing countries made especially fast progress, achieving social indicators comparable to those in rich countries. These high performers offer policy lessons for other countries in reaching the Millennium Development Goals (box 4.2).

If there is any doubt that the Goals can be achieved in less than a generation, consider the following gains. Sri Lanka added 12 years to life expectancy at birth in just seven years (1945-52).3 In nine years (1953-62) China added 13 years.4 Between 1960 and 1980 Botswana more than doubled its gross primary enrolment ratio, from 40% to 91%.5 And in Zimbabwe the gross primary enrolment ratio rose from 75% in 1960 to 124% in 1985, five years after independence.6

Some high performers combined rapid economic and social progressand now have high-performing economies (Republic of Korea, Malaysia, Mauritius). They achieved social progress early in their development processes, when national incomes were still lowsuggesting a certain sequence for investments. In other high-achieving countries economic growth was slower and less consistent. Still, all of these high performers show that with the right government priorities and policies, high social development is possible even without a thriving economy.


BOX 4.1

Women's capabilities and agencykey to achieving the Millennium Development Goals

Unless women's capabilities are improved and gender equality increased, the other Millennium Development Goals will not be achieved. Strengthening women's agency and voice is essential to enhancing their capabilitiesand strengthening their capabilities is essential to enhancing their agency and voice. Though education is the only official target (Eliminate gender disparity in primary and secondary education, preferably by 2005, and in all levels of education by 2015) used to assess progress towards the gender equality Goal, several other indicators have been established to monitor performance:

The ratio of girls to boys in primary, secondary and tertiary education

The ratio of literate female to male 15- to 24-year-olds.

The share of women engaged in wage employment outside agriculture.

The share of women in national parliaments.

Gender equality in education helps women secure employment outside the home and acquire political power, contributing to their agency in the public sphere. But gender equality must also extend to the private domain.

Today gender inequality undermines women's capabilities in education and health. Still, some progress is being made. For example, between 1990 and 2001 the ratio of literate female to male 15- to 24-year-olds in countries with low human development increased from 70 to 81 women per 100 men, though in countries with medium human development it increased only from 91 to 93. The gender ratio in primary education also made limited progress, rising from 86 to 92 girls per 100 boys in developing countries between 1990 and 1999-2000. At current rates gender equality in education will not be achieved until 202520 years after the target set by the Millennium Development Goals.

Among young women (15- to 24-year-olds) in developing countries literacy is 60%, compared with 80% for young men. In addition, more women suffer from HIV/AIDS. Maternal mortality is another dimension of women's additional burdens. And despite biological reasons for women to live longer than men, many developing regions and countries have millions of missing women killed by infanticide, gender-based abortions or systematic discrimination over the life cycle (resulting in a lower female population, with 35-37 million fewer million women in South Asia and 38-40 million in China).

Without action to increase women's capabilities in health and education, they will have limited prospects for working outside the home and earning independent incomes. In the 1990s women working outside agriculture accounted for an unchanging 40% of men's employment in developing countries.

Many challenges undermine gender equality in employment and community and political participation. In developing countries most poor female workers outside of agriculture are engaged in informal employment and receive low, irregular pay. And around the world, women account for more than 30% of parliamentarians in just seven countries. More equal political representation often has to be jumpstarted by quotas.

Gender relations are largely determined by social and cultural contexts. Patriarchal values instilled from childhood influence the attitudes and outlooks of both women and men throughout their lives. These values are often enshrined in laws prejudicial to women's rights and claims especially those related to marriage, divorce, rape, violence and inheritance. Movements for women's rights often focus on reforming such laws.

Although employment and education are considered basic strategies for strengthening women's agency and voice, stronger agency also requires not just:

Recognizing the importance of education, but also improving its content, provision and returns.

Creating more jobs for women, but also improving their nature and termsincluding sustainable livelihoods.

Increasing the number of women in parliaments, but also raising women's visibility in positions of authority and decision-makingfrom the local to the national levels.

Thus empowering women requires policies that address both practical needs (supporting the basic capabilities required to function, such as by improving living conditions and increasing employment, health care and safe water supplies) and strategic needs (strengthening women's voice and agency to renegotiate their roles at home and in society, such as through legal rights to assets and laws ensuring equal wages, reproductive rights and freedom from violence). Moreover, these policies must be backed by laws guaranteeing equal rightsfor both women and men in the private and public sectors.

Source: Christiansen, Conway, and Poston 2003; Drze and Sen 2002; Landuyt 1998.


BOX 4.2

Policy lessons from high-achieving countries in health and education

There is no global prescription for achieving the Millennium Development Goals, and no set track for being on track. Diverse national situations require that countries develop different strategies for achieving international targets for health and education. But success stories abound.

In the 1980s Botswana made strides in education and health much greater than expected based on its income level.

The state of Kerala, India, has health indicators similar to those of the United Statesdespite a per capita income 99% lower and annual spending on health of just $28 a person.

Cuba's per capita income is a small fraction of that in the United States, yet it has the same infant mortality rate and has kept HIV/AIDS under control.

High-performing countries in health and education show the remarkable progress that can be made within a generation, and similarities between success stories provide useful insights into what works:

Public financing was adequate and equitable. In high-achieving countries political commitment is reflected not just in allocations of public spending to health and education, but also in their equity. Spending has focused on basic rather than tertiary health services, and on primary rather than higher education.

Education achievements preceded higher health status. From the outset of their development processes, all the high-achieving countries pursued high enrolments for all children, particularly girls. Thus gender inequality in education was lower from the start, and gender differences were narrowed much faster than in lower-achieving countries. As investments in public health infrastructure emerged, high education levels ensured high demand for and effective use of health services.

Educated women were able to act as agents of change. Children's health and education outcomes are not only the result of adequate food consumption and health services, but also proper child care. In this respect the capabilities and positions of women in the household and in society take on major significance. When women are educated, have ownership rights and are free to work outside the home and earn an independent income, the well-being of the entire household is enhanced (Drze and Sen 1995). In high-achieving countries women not only had near parity in education, they also had high rates of participation in non-agricultural employment.

Source: Chen and Desai 2000; Mehrotra 2000; Drze and Sen 1995.

This chapter is about setting the right policy prioritiesthose of the high-performing countriesto achieve the Millennium Development Goals. The Goals for hunger, education, health and water and sanitation are examined in turn, from the scale of the challenges to the actions required to resolve them. The chapter then proposes an action plan to boost the level, equity and efficiency of public spendingas well as the quantity and quality of official development assistancefor basic services.

ACHIEVING THE HUNGER GOAL

Given past achievements, the Goal of halving the percentage of hungry people by 2015 should be readily achievable. In 1996 the World Food Summit set a similar target: halving to 400 million the number of hungry people in developing countries.7

Since the early 1970s food production in developing countries has tripled, more than keeping up with population growth.8 In addition, the real prices of the main cereal crops have dropped 76%.9 Between 1980 and 1995 per capita food production increased 27% in Asia and 12% in Latin America. But in Sub-Saharan Africa it fell 8%.10 Although hunger is most prevalent in South Asia, it is decliningwhile in Africa about one-third of the population is undernourished, and the number is increasing.11 If all the food produced worldwide were distributed equally, every person would be able to consume 2,760 calories a day (hunger is defined as consuming fewer than 1,960 calories a day).12 Addressing hunger means ensuring that people have command over the resources (especially income) needed to acquire food.

Hunger is more than just a lack of available food. It is a problem of deficiencies in food entitlement and deprivations in related essential services (health care, education, safe drinking water, adequate sanitation). Food entitlement differs from food availability in that it indicates what a person can command with income and thus consume, rather than what is available in the market.

SCALE OF THE PROBLEM

Every day 799 million people in developing countriesabout 18% of the world's populationgo hungry.13 In South Asia one person in four goes hungry, and in Sub-Saharan Africa the share is as high as one in three.14 India is home to the largest number of hungry people, 233 million, while Sub-Saharan Africa has 183 million, China 119 million, the rest of East Asia and the Pacific 74 million, Latin America 55 million and the Arab States 32 million.15

Millennium Development Goals and targets

Goal 1:    Eradicate extreme poverty and hunger

Target 1: Halve, between 1990 and 2015, the proportion of people whose income is less than $1 a day

Target 2: Halve, between 1990 and 2015, the proportion of people who suffer from hunger

FIGURE 4.2
Food insecurity increases

Number of food-insecure people in all developing countries except China

Images

Note: WFS is World Food Summit. Source: FAO 2001c.

Between 1990-92 and 1998-2000 the proportion of hungry people in developing countries fell from 21% to 18%.16 The largest reductions by far were in China, though substantial declines also occurred in South-East Asia.17 But with population growth, the number of hungry people is not falling as quickly. Worldwide, the number of hungry people fell by 20 million between 1991 and 1999.18 Yet that progress came only because 80 million Chinese escaped hunger: in 25 developing countries the number of hungry people increased (figure 4.2).19

The hunger Goal also seeks to reduce child malnutrition. In this area, among 33 countries with data, 10 saw reversals or failed to improve in the 1990s.20 And because data on child malnutrition are more reliable than those on hunger, such trends are worrisome.21

More than three-quarters of hungry people are in rural areas of developing countries.22 About half live in farm households on marginal lands, where environmental degradation threatens agricultural production.23 Nearly a third live in rural landless and non-farm households, such as those dependent on herding, fishing or forestry.24 Yet poor fishers are seeing their catches reduced by commercial fishing, and foresters are losing their rights as logging companies move in under government concessions. Moreover, landlessness is rising in most rural regions because of higher farming densities and unequal land distribution. Average land per capita among rural farmers in developing countries declined from 3.6 hectares in 1972 to 0.26 hectares in 1992and stands to fall further by 2020.25

Another worrisome trend is the shift of malnutrition to cities.26 Urban poor people now account for more than one-fifth of hungry people in developing countries. But this could be rising because urban populations are growing faster than rural.27

In any given year 5-10% of hungry people are affected by droughts, plagues, floods, hurricanes, extreme storms or violent conflicts.28 Among the 21 countries with extreme food emergencies in 2002, in 15 they were sparked by war, civil strife or the lingering effects of past conflicts.29

Meeting the Millennium Development Goal for hunger will require improving food distribution and increasing production. Among the top priorities for increasing production:

Focusing on technologies that raise agricultural productivity. Doing so will also raise incomes for people with few assets other than land.

Directing more resources to agriculture. Poor countries have neglected agriculturea trend that must be reversed.

Preventing environmental degradation. New policies and technologies to raise productivity must also protect critical ecosystems. Poor people suffer the most from environmental degradation, but poverty also leads to environmental degradation. In developing countries low productivity is more often the cause of such degradationwhile in Europe and North America high productivity is the cause.

Sharing resources more equitably. Women, who produce most of the food consumed in Sub-Saharan Africa and Asia, must have more secure access to land. The same goes for landless people.

Addressing global warming and reducing agricultural tariffs and subsidies in rich countries. Protection rigs international markets against farmers in developing countries. Meanwhile, global warming can adversely affect weather patterns for farmers dependent on rain.

FOOD BUFFER STOCKS TO IMPROVE DISTRIBUTION AND SMOOTH PRICES

Governments can maintain reserves of essential foods, especially grains, and release them into markets if food prices rise inordinatelyenabling poor people to afford them. Such systems may or may not involve public distribution of essential commodities at below-market prices. China and India have long traditions of maintaining buffer stocks (reserves) of food, usually at public expense.

India has maintained food stocks since the 1970s, enabling it to stave off widespread famine. These efforts have been aided by the increased wheat and rice productivity that resulted from the green revolution, with grains and essential commodities (sugar, cooking oil) provided through a public distribution system. In addition, during droughts food for work programmes ensure subsistence consumption levels.

It is critical that food be kept affordable for poor households, whether through public distribution systems or releases of grains into markets (something the Indian government has failed to do in recent years). One reason for the food security of poor households in Kerala, a high-performing Indian state, is that ration shops distribute grains even in rural areas.30 Elsewhere in India most public food distribution occurs in urban areas. In China buffer stocks of food are maintained at the community level.

Sri Lankaanother high achiever in social indicatorshas maintained food subsidies since independence in 1947. In 1979 universal subsidies for essential commodities (rice, wheat flour, lentils, dried fish, powdered milk) were replaced with a food stamp scheme covering 40% of the population.

In Africa food stocks have not been used as much as might be expected given the continent's low agricultural productivity, fragile soils and frequent famines. One reason for the 2002 famine in Southern Africa was that limited food stocks were run down, partly because fiscal constraints prevented governments from maintaining them.

It is especially important for landlocked countries to hold buffer stocks, because the costs of building and managing warehouses to store them are worth the lives saved, suffering averted and productivity gained. In countries with ports the costs of maintaining stocks must be weighed against the benefits. But even in coastal countries buffer stocks can mitigate the adverse effects of fluctuating food prices.

Policy advice for Africa has tended to push in the opposite direction, arguing that free markets should determine how the continent feeds itself.

Governments facing budget deficits should not provide fertilizer subsidies, crop price supports or cheap loans. A recent report suggests that rural African countries grow cash crops for exportto generate income for poor farmers and provide foreign exchange for food imports. Though the report acknowledges that bigger food crops would help some farmers, it also suggests that many are so isolated that they should grow only what they need for themselves as cheaply as possible.31

INEQUITYAND WHAT TO DO ABOUT IT

Access to food could be greatly increased by government action to secure the assets and raise the incomes of the most vulnerable groups.

More equitable land distribution increases agricultural efficiency and output

MARGINAL GROUPS

Small farms are more productive than large farms per unit of land. Hence more equitable land distribution increases agricultural efficiency and output. In Piaui, Brazil, farm yields increased 10-40% on non-irrigated and 30-70% on irrigated fields after land was distributed to small farmers.32 Equitably distributed land also reduces poverty and promotes improves the distribution of income. In El Salvador a 10% increase in land ownership among cultivators raised per capita income by 4%. Similarly, Indian states that implemented land reform saw poverty fall faster between 1958 and 1992.33

To make the investments in natural resources needed to raise productivity, poor people need to have secure access to those resources. In Thailand there is a robust relationship between secure title to land and confidence to practice sustainable agriculture.34

Poor and hungry people also benefit from common property resources. In recent years Brazil, Cameroon, the Gambia, India, Nepal and Tanzania have set aside public lands for use or comanagement by indigenous communities. Similarly, community forest tenure has been strengthened in Bolivia, Colombia, Indonesia, Mozambique, the Philippines, Uganda and Zambia. And in China and Viet Nam public forest land has been allocated to households. The recognition of indigenous rights and community ownershipand the broader rationalization of public forest tenureprovide opportunities to dramatically improve the livelihoods of millions of forest inhabitants. Poor communities rights to water must also be recognizednot just for household needs but also for irrigation, agroprocessing and livestock watering.35

WOMEN

Women produce most of the food consumed in Sub-Saharan Africa and (to a lesser extent) Asia. But they rarely have secure tenure to the land they work. Fewer than 1 in 10 female farmers in India, Nepal and Thailand own land. Without secure ownership, women lack collateral, access to credit and the means to invest in productivity improvementshurting the health and nutrition of their families.36 In some regions women have limited claims to food within households, a particular problem for pregnant and nursing women, who need more calories.

Fewer than 1 in 10 female farmers in India, Nepal and Thailand own land

URBAN POOR PEOPLE

Most cities have land available for agriculturethe informal safety net for many poor urban dwellers who grow food in parks, rooftops, wetlands, churchyards, containers, vacant lots, rights of way and plots near railways. They also graze livestock on hillsides, open spaces and rights of way. These residents should not be denied the right to use these lands to feed themselves.

PEOPLE IN FOOD EMERGENCIES

Refugees from wars and natural disasters need emergency help to survive. Response times in food emergencies need to be far shorter so that supplies can get to starving people much faster. Early warning systems for political crises, like those for environmental disasters, would help because political crises have become the main cause of famine.

In addition, a permanent fund should be established so that international agencies can respond to crises immediately, without having to raise funds as they try to respond. A fully capitalized fund would enable the World Food Programme to undertake far more strategic planning for emergency food supplies and post-famine crop and livestock recovery. The UN Food and Agriculture Organization estimates that it would cost $5.2 billion a year to feed the world's 214 million hungriest people.37

To extend the benefits of food security even more, food for such programmes could be purchased from developing countries. International financing for community nutrition and community food bank initiatives could be organized under the World Food Programme as an international bank providing nutrition for all.38

RAISING PRODUCTIVITY

Many technologies have been developed to raise agricultural productivity and reduce hunger. Several pro-poor technologies focus on sustainable productivity and suitability for women. Promising management approaches include agroforestry, permaculture, conservation agriculture, biological nitrogen fixation, water use efficiency, gender selection in livestock, integrated pest management, integrated plant nutrient management, integrated intensive farming systems and integrated soil and water management.39

For many African farmers the most pressing need is improving soil quality. On many farms fertilizers can double or even quadruple yields of basic food crops.40 Even farmers who cannot obtain or afford such inputs have many options for raising soil fertility, especially in Africa (box 4.3).

National policies must emphasize rebuilding natural assets. Since 1996 China has rehabilitated 5 million hectares of low- and medium-yield farm land. In some Indian communities better fallows and cover crops have been widely adopted145 systems have been identifiedby farmers on marginal lands forced to reduce fallow periods.41 Agricultural systems can also be improved by paying farmers, fishers, herders and foresters for their roles in ecosystem management. Such schemes are already in place in many areas: a recent review found 75 that make payments for carbon emission offsets, 72 for biodiversity and 61 for watershed services.42

Initiatives can also promote sustainable agriculture in farming communities. A study in 17 African countries found that 730,000 poor households in 45 projects were practicing sustainable agriculturedefined to include intensified land use, diversified crops and livestock, increased use of renewable resources and other criteria.43 In eight Asian countries some 2.9 million poor households using sustainable agriculture have increased food production on 4.9 million hectares.44 These programmes must be scaled up to involve tens of millions of households.


BOX 4.3

Increasing soil fertility in Sub-Saharan Africa

Soil nutrient depletion is traditionally treated through the use of mineral fertilizers. But fertilizers cost two to six times more at the farm gate in Africa than in Europe, North America and Asia. But crops do not care whether the nitrate and phosphorous they absorb come from a bag of fertilizer or a decomposing leaf. Thus the main issue is to replenish plant nutrients in sufficient quantities, and whether this is done with mineral fertilizers or organic inputs is primarily a question of farm economics.

The most advisable approach is to combine the use of both nutrient sources in agronomically sound ways. The Sasakawa Global 2000 network and other organizations have shown on thousands of African farms that mineral fertilizers can double to quadruple yields of basic food crops . But even farmers who cannot obtain or afford purchased inputs can achieve long-term increases in yields through alternative approaches to soil building and replenishment:

Nitrogen-fixing tree fallows. Leguminous trees are interplanted with young maize crops and allowed to grow as fallows during dry seasons, generating 100200 kilograms of nitrogen per hectare in 624 months in subhumid tropical regions of East and Southern Africa. These fallows are economically and ecologically sound and fit well with farmer customs and work calendars no surprise, because farmers helped develop the technology.

Indigenous rock phosphate. Using indigenous rock phosphate deposits provides an alternative to imported superphosphates. The mild acidity of most of these soils (pH 56) helps dissolve highquality rock phosphates at a rate that can supply phosphorus to crops for several years. Over a five-year period their use doubles or triples maize yields 90% as efficiently as superphosphatesat a much lower cost.

Biomass transfers of leaves of nutrient-accumulating shrubs. Transfers of leaf biomass of the nutrient-accumulating shrub Tithonia diversifolia from roadsides and hedges into cropped fields adds nutrients and routinely doubles maize yields without fertilizer additions.

Tens of thousands of farm families in Kenya, Malawi, Mozambique, Tanzania, Uganda, Zambia and Zimbabwe are using these approaches with good results. Improved fallows are the most widespread practice. Knowledge is being transferred between farmers, villages and community organizations and through national research and extension institutes, universities, non-governmental organizations and development projects.

The challenge now is to accelerate the adoption of such technologies to tens of millions of farm families. The main obstacles are insufficient supplies of high-quality tree germplasm (seeds and seedlings) and rock phosphate and inadequate awareness and knowledge of the technology components. But increased adoption is essential, as these approaches offer major opportunities to drastically and sustainably increase food productionreducing hunger in a way that enhances the natural resource base.

Source: Millennium Project Task Force 2 2003a.

Farmers in developing countries often lack the roads, warehouses, electricity and communication links required to bring them closer to marketsmaking them more vulnerable to intermediaries charging high prices for inputs and to monopoly buyers squeezing their incomes. Yet around the world, agriculture is a low priority for governments and donors alike. Most governments have invested much less in marginal lands than in more favoured agricultural areas.45 In Africa most countries invest less than 5% of their budgets in agricultural developmenteven though 75% of their citizens depend (directly or indirectly) on farming.46

In addition, agricultural research is severely underfunded, with many low-income countries spending only 0.5% of agricultural GDP on itand nearly all of that focused on higher-quality lands and commercial crops.47 To benefit poor farmers on marginal lands, agricultural research must support promising initiatives such as multicrop systems, eco-agriculture, early maturing seed varieties and low-cost methods of soil building.

Agricultural services, if available, mainly come from private firms selling inputs and offering advice that is often incorrect and almost always incomplete. Government agricultural extension services have focused on distributing seeds and fertilizers, often promoting varieties and formulations unsuited to local conditions.

When allocating input subsidies or buying grain, most developing countries subsidize or provide privileged access to large producers and processors. Rules for these mechanisms often distort markets, unduly burden small producers, establish official monopoly buyers and set excessive taxes and service charges.48 Government policies that discriminate against small producers should be immediately reformed, and public financing for subsidies should be redirected to support small farmers (box 4.4).


BOX 4.4

Farm policies and food security

As the Indian government's interventions in grain markets show, public policies can create different winnersand losersamong different population groups.

Designed to stabilize prices and support grain farmers, the minimum support prices set by the government's Food Corporation of India have instead risen much faster than inflation. This outcome is partly explained by strong farm lobbies (especially for rice and wheat) and government policies that cover farmers economic costs of production. Economic costs of production are based on input costs, imputed values of land and labour as well as a bonus.

Theoretically, prices in the public food distribution system are based on economic costs (and so minimum support prices). But market prices are lower than the system's prices, increasing food stocks in government warehouses, although India has the largest number of world's hungry, and nearly half of its children are malnourished. Countering the farm lobbies, however, is pressure on political leaders to satisfy voters and so control prices in the public food distribution system.

Source: Kannan, Mahendra Dev and Sharma 2000; India 2002a.

INTERNATIONAL RESPONSIBILITIES

Bilateral official development assistance for agriculture, forestry and fisheries increased between 1971 and 1990, but declined thereafter along with overall official development assistance. Multilateral official development assistance increased from $1.2 billion a year in 1973-74 to $3.6 billion a year 1981-83, but then fell over the next two decades to $1.4 billion a year in 1999-2000 (in 2000 dollars). As a share of total lending of multilateral institutions, assistance to agriculture, forestry and fisheries fell from 15% of total lending in 1997 to 10% in 1999.49

Millennium Development Goals and targets

Goal 2:    Achieve universal primary education

Target 3: Ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling

Goal 3:    Promote gender equality and empower women

Target 4: Eliminate gender disparity in primary and secondary education preferably by 2005 and in all levels of education no later than 2015


But reducing hunger in developing countries requires international action not only on aid, but also on two other issues crucial for increasing food production and farm productivity. First, agricultural subsidies in rich countriestotalling $311 billion in 2002inhibit agricultural growth in developing countries (see chapter 8).

Second, global warming, caused by emissions of greenhouse gases, is leading to more frequent extreme weather conditionsfloods, droughts, mudslides, typhoons, cyclonesincreasing the number of people facing food emergencies. Over the next few decades climate change will probably increase precipitation from latitudes 30 degrees North to 30 degrees Southareas that include many of the world's richest countries. But rainfall will likely decrease and become more erratic in many tropical and subtropical regions, causing crop yields to fall in countries already suffering from food insecurity.

Africa's rainfall has been decreasing since 1968. In addition, rainfall fluctuations have widened across the continent, resulting in disastrous floods like the one that devastated Mozambique in March 2000. Sub-Saharan Africa is especially sensitive to climate change because its agriculture is mostly rain-fedand accounts for 70% of the region's employment and 35% of its GNP. Because of global warming, Africa will become even more dependent on food imports.

ACHIEVING THE EDUCATION GOALS

During the 1990s primary education enrolments increased in every region, and in many a large proportion of children are enrolled. In East Asia and the Pacific, Central and Eastern Europe and the Commonwealth of Independent States (CIS) and Latin America and the Caribbean more than 90% of children are enrolled in primary school. In South Asia 79% are enrolled, and in the Arab States 77%. In Sub-Saharan Africa net primary enrolments increased by 3 percentage points in the 1990s,50 yet less than 60% of children are enrolled.51

SCALE OF THE PROBLEM

Of the 680 million children of primary school age in developing countries, 115 million do not attend schoolthree-fifths of them girls.52 In India 40 million children are not in primary school, more than a third of the world's total.53

Moreover, enrolment does not mean completion. Just over half the children who start primary school finish itand in Sub-Saharan Africa, just one in three.54 Reflecting these shortcomings, one-quarter of adults in the developing world cannot read or write.55 And of the world's 879 million illiterate adults, two-thirds are women.56

Developing countries face three main challenges in expanding primary education:

Limited resources. Relative to rich countries, developing countries spend much less per student and as a proportion of GNP at all levels of education.

Inequity. When spending is low, rich people often capture a much larger share of itso poor people do not benefit as much.

Inefficiency. Inefficient spending means that a high share of recurrent spending goes for teacher salaries, leaving little for learning materials. In addition, low-quality teaching means that students do not learn as much as they could.

LIMITED RESOURCESAND WHAT TO DO ABOUT THEM

Governments play a much more important role in the economies of countries where human development is high than in countries where it is medium or low. In 1999 median public spending was 35% of GDP in countries with high human developmentwhile in countries with medium human development it was 25%, and in countries with low human development, 21%.

SMALL EDUCATION BUDGETS

Rich countries rarely spend less than 4.0% of GDP on public education. In countries with high human development median spending on public education is 4.8% of GDP, compared with 4.2% in medium human development countries and 2.8% in low human development countries. Moreover, lower incomes mean that per capita spending is much less in poor countries than in rich ones.

When public spending places high priorities on areas other than education and health, social spending suffers. Debt service is an important non-discretionary component of public spending in many low human development countries (see chapter 8). But military spendinga discretionary expenditurecan also squeeze out education spending (box 4.5).

During 1975-97 developing regions exhibited different patterns of public enrolments and recurrent spending on primary education.57 In South Asia, West Asia and Sub-Saharan Africa the number of students enrolled almost doubled, while recurrent spending (in 1995 US dollars) increased modestly.58 But in East Asia and Latin America and the Caribbean enrolments remained stable, while recurrent spending increased rapidly. Thus some regions invested in quantity (enrolments) and some in quality (higher spending per pupil). If quality is to improve in the first group of regions, more resources are needed.


BOX 4.5

Military spending or education?
The inconsistencies of government action

What can developing countries do to increase spending on education, especially basic education? Cutting spending on other priorities (such as the military) is one way. World military spending fell in the 1990s except in Latin America and South Asia. In 1991-2000 military spending increased 59% in South Asia.

Military spending in Sub-Saharan Africa fell during the decade, from $9.3 billion in the early 1990s to $7.1 billion in 1996. But it rose sharply in 1999 and 2000, to an average of $9.8 billion. This surge does not capture overall military spending in the region; these data reflect only official figures. In 2001 Angola, one of the leading recipients of transfers of major conventional arms, spent 3.1% of GDP on the militarycompared with 2.7% on education. Sierra Leone spends 3.6% of GDP on the military and 1.0% on education.

All the major arms-exporting governments have pledged their commitment to the Millennium Development Goals. Hence rich country governments can help shift these expenditures by reviewing their arms exports. The G-8 are among the world's top 10 supplies of major conventional weapons: the United States ($49.2 billion), the Russian Federation ($15.6 billion), France ($10.8 billion), the United Kingdom ($7.0 billion), Germany ($5.6 billion), Italy ($1.7 billion) and Canada ($0.7 billion) account for 85% of world weapon exports. Without reforms by exporters and recipients, commitments to the Goals seem questionable on both sides.

Source: SIPRI 2002b.

Some studies argue that public spending levels are not important for education outcomes.59 They are misguided. True, efficient spending is critical to achieving desired outcomes. But the amount of spending is also important.60 One basic use of any additional resources would be to hire more teachers. With 26 million primary school teachers in developing countries in 2000, the estimated number of additional teachers required by 2015 ranges from 15-35 millionincluding more than 3 million in Sub-Saharan Africa, with more than 1 million in Nigeria alone.

THE FUNDING GAP

According to the United Nations Children's Fund, achieving universal primary enrolment (not completion, the aim of the second Millennium Development Goal) in developing and transition countries by 2015 would cost another $9 billion a year.61 That estimate includes additional capital cost requirements as well as needs to improve schooling quality and is more than four times what donors now spend, as well as far more than current government spending. Education spending is especially low in heavily indebted poor countries. Another estimate, taking into account a variety of scenarios, is even higher.62

In Africa economic growth would have to exceed 8% a year to provide the required resources an unlikely outcome

WHO WILL FOOT THE BILL?

Economic growth is unlikely to provide enough resources for developing countries to achieve universal primary completion by 2015. In Africa economic growth would have to exceed 8% a year to provide the required resourcesan unlikely outcome.63 Thus much greater donor support is needed.64

But donor aid for education is insufficient: in 2000 it totalled $4.1 billion, with just $1.5 billion for primary education. In the 1990s bilateral aid for education fell from $5.0 billion to $3.5 billion, dropping to just 7% of official development assistancean all-time low.65 Only France, Germany, Japan, the United Kingdom and the United States devote significant shares of their assistance to education. The gap between donor rhetoric and reality must be reconciled.

In 1996-98 multilateral institutions provided an average of $954 million a year in education-related official development assistance.66 The amount fell to $799 million in 1999-2001. Commitments for basic education were $402 million a year in 1996-98 and fell sharply to $222 million a year in 1999-2001. The Education for All Fast-Track Initiative, a good example of interagency work, could increase the funding for some countries.

INEQUITYAND WHAT TO DO ABOUT IT

Who benefits from public spending on primary, secondary and higher education: poor people or non-poor people? In most countries the poorest 20% of the population receives less than 20% of the benefits of public spending on educationand in some, much less.67 Meanwhile, the richest 20% generally captures considerably more than 20%. But there are exceptionsincluding Colombia, Costa Rica and especially Chile where a larger share of public spending on education goes to the poorest 20%. Not coincidentally, all three countries have made impressive strides towards universal primary enrolments.

Countries performing well on education devote more resources to primary education (averaging 1.7% of GDP) than do countries with average performance (1.4%). High-performing countries also spend more on primary education relative to their per capita incomes. And they allocate less of their education budgets to higher education.

Despite improvements in the 1990s, the countries with the lowest primary enrolments spend more per pupil for higher education than primary education.68 Indeed, the lower are primary enrolments, the greater is the difference in spending.69 These countries need to focus on primary education, not spend more on higher education. Still, additional resources are needed for higher education as well if countries are to build capacity to compete in the global economybut not at the cost of primary education. Entire education budgets need to increase.

IMPROVING POOR PEOPLE'S ACCESS TO PRIMARY SCHOOL

The costs associated with education discriminate against the poorest people by eating up a larger share of limited household budgets.70 A considerable body of literature argues that school dropouts and child labour can be reduced by lowering the direct and indirect costs of schooling.71 In Bhutan, Burkina Faso and Uganda high household costs per pupilranging from 10-20% of per capita incomediscourage primary school attendance, while in Myanmar and Viet Nam lower costs contribute to higher enrolments (figure 4.3).72

Uniforms are often the biggest cost for parents. In eight states in Indiatogether containing two-thirds of Indian children out of schooluniforms are one of the largest out-of-pocket education expenses.73 One policy option is to make uniforms optional, letting school administrations and parent-teacher associations decide whether to require them.

User fees for education have long been hotly debated, and in the 1980s and early 1990s international financial institutions sent mixed signals about them. But in the early and mid-1990s, after sharp criticism of the consequences for primary schooling, the World Bank came out (albeit late) against fees for primary education.74 Again, high-achieving countries point the way. To ensure universal primary enrolment and completion early in their development, they largely avoided direct tuition feesand kept indirect costs low as well.

Thus there is a strong case for reducing the out-of-pocket costs of sending children to school. Sri Lanka eliminated tuition fees in 1945 and began providing free textbooks and free school lunches in the 1950s, and free school uniforms in 1991. Botswana gave enrolments a major boost by halving fees in 1973 and eliminating them in 1980.75 Malawi also saw enrolments increase sharply after eliminating school fees and uniforms in 1994.

ENDING DISCRIMINATION AGAINST GIRLS

Gender differences in enrolments and dropouts are most severe in South Asia and Sub-Saharan Africa. How, then, can gender disparities in schooling be eliminated by 2005just two years from nowas called for by the Millennium Development Goals? Countries that have eliminated such differences offer several lessons:76

Getting and keeping girls in school requires that schools be close to their homes. School mapping can identify least-served locations, aiding the establishment of multigrade schools in remote areas.

Lowering out-of-pocket costs prevents parents from discriminating between boys and girls when deciding whether to send children to schooland in times of declining household income, to keep children from dropping out.

Scheduling lessons flexibly enables girls to help with household chores and care for siblings.77

Having female teachers provides girls with role modelsand gives parents a sense of security about their daughters.78

INEFFICIENCYAND WHAT TO DO ABOUT IT

Efficiency means getting better outcomes from the same amount of resourcesand pursuing policies that help rather than hinder learning.

OPERATING INEFFICIENCIES

Malawi also saw enrolments increase sharply after eliminating school fees and uniforms in 1994


A major problem in nearly all developing countries is making children repeat class years, a factor in high dropout rates and a significant waste of resources. Countries that have done well in primary education have addressed this inefficiency. Costa Rica cut repetitions in half by introducing automatic promotions to the next class year in the 1960s. Malaysia and Zimbabwe have also adopted automatic promotions.79 To maintain standards, automatic promotions should be accompanied by a minimum package of inputs, especially classroom materials and teacher training.

Teaching children in the appropriate language also improves education outcomes, as high-performing countries show. In all those countries the mother tongue was used for instruction at the primary level. Students learn to read more quickly when taught in the language most familiar to them and can learn to read a second language more quickly.

This is an important conclusion for, say, francophone Africa, where in most countries French is the language of instruction at all levels.80 This alienating school experience was hardly conducive to learning.

School feeding programmes are also effective in getting children into school and keeping them there. One of the factors behind increasing enrolments in India in the second half of the 1990s was a mid-day meal programme covering all states.

FIGURE 4.3
High household costs lead to lower primary enrolment

Images

Source: Mehrotra and Delamonica 1998.

FINANCIAL INEFFICIENCIES

About 55 developing countries have low primary enrolments and require new buildings and facilities to achieve universal primary education.81 But such capital investments are often inefficient, and the use of state construction companies and large private contractors often leads to inflated costs.82

In OECD countries the maximum teacher salary is on average 1.4 times the minimum wage, while in developing countries the range is 1.0 to 2.5 times the minimum

How can school construction costs be kept low? One way is to use local rather than imported construction materialsan approach that Cameroon and Niger are encouraging to increase efficiency.83 And since 1994 India has been using not only local materials but also local contractors and construction techniques to contain costs in its District Primary Education Programme.

Managing recurrent coststo strike a better balance between salary and non-salary spendingis by far the most daunting financial challenge for countries with low enrolments. Wage bills for teachers and administrative staff often account for 90% or more of recurrent spending at the primary level, crowding out non-salary spending and leaving little money for other inputs, such as teaching materials.84 High performing countriesBotswana, Cuba, Sri Lankahave recognized this problem and spend reasonable amounts on teaching materials.85

Limited budgets also make it difficult for countries to increase the number of teachers, fundamental for universal primary schooling. Increasing salaries can help, but so can changing the salary structureperhaps even reducing costs. One option is to manage the gap between minimum and maximum teacher salaries. In OECD countries the maximum teacher salary is on average 1.4 times the minimum wage, while in developing countries the range is 1.0 to 2.5 times the minimum.86 The United Nations Educational, Scientific and Cultural Organization and the International Labour Organization have recommended that it take 10-15 years to reach maximum pay.87 Another option is to unlink teacher salaries from advanced qualifications, an approach being tested in South Africa.88

Better use of teachers time and better teacher deployment could also do much to help manage teacher costs. Botswana has experimented with paying teachers more to teach double sessionsdoubling the number of pupils taught with a small increase in salary cost. Investing in information technology to crack down on ghost teachers and incorrect salary payments also generates fairly rapid returns, as shown by the National Education Statistical Information Systems in several Sub-Saharan countries.

Salaries eroded by inflation can also erode teacher morale, forcing them to take second jobs. Teacher absenteeism, a major problem in South Asia and Africa, can be partly addressed by hiring teachers from the neighbourhoods where they are required to teach. In Indonesia and Thailand, which achieved universal primary education early on, teachers have traditionally been hired locally. But teacher salaries are often a reason for absenteeism.

In many middle-income countries teachers have fared wellespecially in China, Mauritius, Thailand and Uruguay, where governments have actually managed to increase teacher salaries. But in many low-income countries teacher wages have progressively eroded, including in Cambodia, the Central African Republic, Kyrgyzstan, Madagascar, Moldova, Myanmar, Sierra Leone and Zambia. Such countries will find it difficult to maintain teacher morale without higher salaries. Some of these countries also have to sharply increase the number of teachers to achieve the Millennium Development Goal of universal primary education. For such countries, donor assistance to meet recurrent costs is crucial, at least for a limited period.

A final point on increasing financial efficiency involves official development assistance for education. Such aid tends to emphasize equipment, overseas training and technical assistance. Some 60-80% of education assistance is spent in recipient countries, the rest in donor countrieson education and training for developing country nationals and on consultants and instructors from rich countries.89 This is not the most efficient use of funds. Technical assistance can undermine local institutions, particularly if education authorities end up being overwhelmed by an influx of advisors pushing overly elaborate systems. Between 1994 and 1997 Ethiopia conducted 66 studies on its education system, half sponsored by bilateral aid agenciesto little avail.90

ACHIEVING THE HEALTH GOALS

A severe shortage of trend data for many developing countries makes it difficult to appraise the likelihood of achieving the Millennium Development Goal of cutting maternal mortality by three-quarters by 2015. Yet many experts believe that already high maternal mortalitya shameful failure of developmentis increasing in many countries. The situation is most urgent in Sub-Saharan Africa, which accounts for half of the developing world's maternal deaths with 1 of every 100 live births resulting in the mother's death.

Lack of data also precludes assessing progress towards the Goal of reversing the spread of HIV/AIDS by 2015. But progress is possibleas in Brazil, Senegal, Thailand (box 4.6), Uganda and Zambia.

Of the measurable health Goals, the world is farther from achieving the one for child mortalitya two-thirds reduction by 2015 than any other. Here the highest-priority countries are in Sub-Saharan Africa and South Asia. South Asia is making progress, with child mortality falling from 12.6% to around 10.0% during the 1990's. But Sub-Saharan Africa trails far behind: there, 17% of children do not reach age five. At current rates the region will not achieve the Goal for child mortality for almost 150 years.91

SCALE OF THE PROBLEM

Every day more than 30,000 of the world's children die from preventable causesdehydration, hunger, disease.92 In Sierra Leone, an urgent priority country, 18% of children will not see their first birthday.

Every year more than 500,000 women die in pregnancy and childbirthone every minute of the day. A pregnant woman is 100 times more likely to die in pregnancy and childbirth in Sub Saharan Africa than in a high-income OECD country.93

Around the world 42 million people are living with HIV/AIDS. Moreover, the disease has killed the mother or both parents of 13 million children.94 Tuberculosis is the other leading infectious cause of adult mortality, killing up to 2 million people a year.95 Malaria kills 1 million people a year, and without effective intervention the number of cases could double in the next 20 years.96

Many diseases hurt rural poor people more than city dwellers. For acute respiratory infections, a major child killer, less than half of rural children receive care in most developing regions.97

Many of these deaths are readily preventable (box 4.7). Bednets, affordable antibiotics, trained birth attendants and basic hygiene and health education are hardly high-tech solutions. Yet as with education, for broad systemic reasons such solutions remain tragically out of reach for millions of poor people:

Limited resources. Governments do not spend enough on overall health, and they spend even less on basic health.

Inequity. Rural health systems do not have enough staff or enough resources dedicated to women and children.

Inefficiency. Vertical programmes for specific diseases are not integrated with general health systems.

It is here that the links among health, education and income play out most clearly, because it is poor people who lack access to water and sanitation, who cannot afford drugs and who do not receive education about HIV prevention and family planning.

Women are at greater risk than men. Globally, women account for about half of adult HIV/AIDS cases. But among young women the share is far higher and will likely worsen. In many Caribbean countries women account for the majority of new HIV infections. And in many African countries HIV prevalence among 15- to 24-year-olds is up to six times higher for women than for men.98

Millennium Development Goals and targets

Goal 4:    Reduce child mortality

Target 5: Reduce by two-thirds, between 1990 and 2015, the under-five mortality rate

Goal 5:    Improve maternal health

Target 6: Reduce by three-quarters, between 1990 and 2015, the maternal mortality ratio

Goal 6:    Combat HIV/AIDS, malaria and other diseases

Target 7: Have halted by 2015 and begun to reverse the spread of HIV/AIDS

Target 8: Have halted by 2015 and begun to reverse the incidence of malaria and other major diseases


BOX 4.6

Thailand's success in preventing HIV/AIDS

Thailand's response to HIV/AIDS is one of the developing world's few successful prevention programmes. Since peaking in the early 1990s, new HIV infections have dropped by more than 80%. How?

Political will

AIDS was first identified in Thailand in 1984, and in 1987 the government established the National AIDS Prevention and Control Program (NAPCP), chaired by the prime minister. Political will has been complemented by financial commitments: between 1987 and 1991 spending by the government and donors jumped from $684,000 to $10 million. By 1997 government spending on AIDS control programmes was $82 million a year.

Multiplayer collaboration

From patients to private practitioners to Buddhist monks, many participants have worked with the national government to plan and implement AIDS programmes. For example, 150 groups of people with HIV/AIDS provide support and advocacy for other patients. The Thai NGO Coalition on AIDS coordinates the AIDS activities of non-governmental organizations. In an innovative initiative, the government created a programme called Reduce Girls Vulnerability that provides scholarships to young women for continuing educationaiming to discourage them from becoming prostitutes.

Targeting high-risk groups

In 1989 it was found that 44% of sex workers in Chiang Mai were HIV positive. Instead of denying that prostitution existed, the Thai government focused on reducing male visits to brothels and promoting the use of condoms by sex workers. In 1991 the 100% Condom Use Program was launched, distributing 31 million condoms a year to high-risk groups. Clinics gave away another 600 million condoms a year.

These efforts had dramatic results: between 1988 and 1992 condom use in brothels rose from 14% to 90%. In addition, the average number of men visiting each such establishment dropped from 4.0 to 1.5 a day. As a result HIV prevalence among sex workers fell from 50% in 1991 to less than 10% in 2001.

Education campaigns

A national public information campaign accompanied the 100% Condom Use Program. AIDS information was made available everywherefrom billboards to cereal boxes to televisions, with one-minute AIDS education spots appeared every hour on television and radio. Thus messages helped dispel the stigma associated with having HIV.

Monitoring and evaluation

Three surveillance systems collect information on HIV and sexually transmitted infections. This information is used to track changes in the distribution of new HIV infections and has been used by policy-makers to guide control efforts.

International support

Thailand has received abundant international financial and technical support for its AIDS programmes. The Joint United Nations Programme on AIDS (UNAIDS), for example, has been active in raising funds, evaluating programmes and helping HIV/AIDS patients. Bilateral cooperation includes partnerships with the US Agency for International Development (USAID), European Union and Australian Agency for International Development (AusAID).

Source: Avert.org 2003; Kongsin and others 1998; Forster-Rothbart and others 2002.

Poor women are especially vulnerable to HIV because of their low nutritional status, limited education and employment opportunities and low social status and consequent inability to negotiate safe sex. And once infected, women are more likely to avoid or postpone seeking care because of gender constraints, such as domestic responsibilities and the costs of travel and treatment. Autonomy is also a problem: in South Asia men often decide whether women should seek medical treatment.99

LIMITED RESOURCESAND WHAT TO DO ABOUT THEM

Every high-income OECD country spends at least 5% of its GDP on public health care. But few developing countries achieve that shareand in most it is less than half that. (Costa Ricaa country with no military that is a high performer in health and educationis a rare exception.) In countries with high human development the median public spending on health was 5.2% of GDP in 2000while in medium human development countries it was 2.7% and in low human development countries, 2.1%. In per capita terms public health spending is very low in most developing countries: in 2000 the median was $1,061 in high human development countries, $194 in medium human development countriesand just $38 in low human development countries (in purchasing power parity terms).100

The World Health Organization's Commission on Macroeconomics and Health recommends that donor assistance for health systems in low-income countries be substantially increased, along with domestic financial resources in those countries. The commission estimated that an increase in donor assistance for health to $35 billion a year by 2015 (from $5 billion a year in 2001), if properly invested in high-priority areas (infectious diseases, nutritional deficiencies, maternal complications) and if accompanied by greater health spending by the countries themselves, would avert 8 million deaths a year, with economic benefits on the order of $360 billion a year.


BOX 4.7

Policy priorities and technical interventions

Goal 4: cutting under-five mortality by two-thirds

Achieving Millennium Development Goal 4 reducing under-five mortality by two-thirds between 1990 and 2015will require addressing the main causes of child mortality. Technical interventions must focus on malnutrition, infectious and parasitic diseases and immunizations, delivered through a strengthened basic health care system.

Malnutrition. Low birth-weight often leads to child malnutrition and is directly related to the mother's health before and during pregnancy. Expanding access to reproductive health care and ensuring adequate nutrition greatly enhance the health of mothers and their children.

Exclusively breastfeeding infants for the first four to six months of their lives greatly benefits their health. But when a mother is HIV-positive, substitutes for breast milk should be explored. As a first step, countries should immediately adopt into law the International Code of Marketing of Breastmilk Substitutes (promulgated by the World Health Organization and United Nations Children's Fund).

Children's health can suffer enormously from micronutrient (vitamin A, iron, zinc and iodine) deficiency, and can be addressed through supplementation (such as iodization of salt). Vitamin A deficiency can be reduced simply by providing two high-dose vitamin A capsules a year. In countries without functioning health systems, vitamin supplements should be delivered through campaigns akin to mass vaccination campaigns. In 1999 such methods enabled the least developed countries to achieve 80% supplementation coverage.

Infectious and parasitic diseases. In the worst-affected areas under-five mortality from HIV/AIDS is expected to more than double by 2010. In many countries combating HIV/AIDS and explicitly addressing issues specific to women and childrenis a top development priority (see box 4.1). Meanwhile, every year malaria kills more than 400,000 childrenmaking it another priority in many countries.

Although under-five deaths from diarrhoea fell in the 1990s, the disease continues to take a high toll on children. Continued reductions will depend on families ability to treat diarrhoea at home (increased fluids and continued feeding) and to use health services when needed. Increased access to clean water and sanitation, as discussed in this chapter, will also reduce the incidence of the disease.

Finally, acute respiratory infections account for nearly 20% of child deaths in developing countries, yet most are easily preventable. Data from 42 countries show that only half of children with such infections are taken to health care providers. In West Africa that share falls to one-fifth. As discussed in this chapter, a functioning health system that expands the number of health care providers in underserved areas is crucial to attacking this killer.

Immunizations. After increasing for many years, immunizations in South Asia have stagnated at their 1990 leveland in Sub-Saharan Africa they have dropped. But achieving higher levels is possible, as shown by periodic polio campaigns by national governments. Between 1998 and 2000 the campaign cut new polio cases by 99% through mass public education campaigns and better routine immunizations and surveillance.

Goal 5: reducing maternal mortality by three-quarters

Every year about 500,000 women worldwide die from complications arising from pregnancy and childbirth. Thirty times more suffer injuries, infections and other complications related to pregnancy. To achieve Millennium Development Goal 5reducing maternal mortality ratios by three-quarters between 1990 and 2015developing countries must expand access to skilled birth attendants, emergency obstetric services and reproductive health care, bringing these services together within a functioning health and referral system. Countries must also address the broader social issues that inhibit women from seeking health care.

Skilled birth attendants. Skilled birth attendants are present for less than half the births in developing countries. Reducing maternal mortality will require substantially increasing the number of skilled attendants, especially in areas underserved by the health system. Skilled attendants help reduce maternal mortality in two ways. First, by using safe and hygienic techniques during routine deliveries, and referring complicated deliveries to clinics and hospitals. Second, by actively managing third-stage labourpotentially reducing post-partum haemorrhages. This requires specific training beyond the distribution of safe birthing kits. Skilled attendants must be able to recognize the onset of complications, perform essential interventions, start treatment, and supervise the referral of mother and baby for emergency care when necessary.

Emergency obstetric services. Even in the best of circumstances, more than 10% of pregnant women experience potentially fatal complications. To reduce maternal mortality, skilled attendants must be able to refer complicated deliveries to emergency obstetric care. Developing countries are grossly lacking in emergency obstetric care, with more than 80% of deliveries occurring in areas without such facilities. Thus countries must commit themselves to the first UN indicator in this area: having such a facility for every 500,000 people.

Reproductive health care. Increasing access to contraception can significantly reduce maternal deaths simply by reducing the number of times that a woman becomes pregnantand so the risks from related complications. If the unmet need for contraception were filled and women had only the number of pregnancies at the intervals they wanted, maternal mortality would drop 20-35%. In addition, unsafe abortions those performed by untrained providers, under unhygienic conditions or bothkill an estimated 78,000 women a year, or about 13% of all maternal deaths. Thus achieving Goal 5 will require rapidly expanding access to reproductive health care.

Goal 6: reversing the spread of HIV/AIDS

In 2002, 3.1 million people died of AIDS. Another 42 million people are infected with HIV/AIDS. One of the most crippling plagues in modern history, AIDS has struck every country, devastating many in Sub-Saharan Africa. Though daunting, the first target of Millennium Development Goal 6reversing the disease's spread by 2015can draw on more than 20 years of successful prevention and treatment efforts. Moreover, in 2001 the UN General Assembly adopted an unambiguous declaration on the gravity of the epidemic, highlighting the need for decisive action to guide policy.

In tackling HIV/AIDS, strong leadership is essential to thwart institutional inertia and to address social issues that fuel the epidemic, including stigma, discrimination and unequal power relations between men and women. The proportion of women living with HIV/AIDS has risen steadily, from 41% in 1997 to 50% by the end of 2002. In Southern Africa young women are 4 to 6 times more likely to be HIV-positive than men of the same age group. Prevention and treatment programmes must explicitly address the conditions that make some groups more vulnerable to infection and less likely to seek health care. Strong community leadership, such as through discussions of behaviours and values that increase the spread of HIV/AIDS, can help generate locally acceptable responses.

Strong leadership is also needed to address disorganized, overwhelmed and grievously underfunded health systems, to promote multisectoral responses to the epidemic, to invest in effective prevention technologies (such as condoms and disposable needles) and to increase capacity through better training of health and community workers. Such efforts are being aided by HIV/AIDS control collaboration among developing countries. Thailand is sharing its expertise with Cambodia, as is Brazil with its neighbours.

In addition, prevention efforts must be intensified to curb the spread of the disease. Though control programmes will differ based on local needs, many effective interventions are available (see box 4.6). Effective prevention has enabled many countries to make remarkable progress in reducing infection rates.

Expanded treatment is also widely supportedmost notably by the World Health Organization, which has placed antiretroviral drugs on its essential medicines list and issued guidelines for treatment where resources are limited. But significant constraints to scaling up these programs exist, and the timeline for expanding treatment should be ambitious, yet realistic. Involving diverse groups in planning and implementation has contributed to successful treatment programmes in Brazil, Thailand and Uganda.

Weak health systems severely constrain expanding treatment. Ensuring patient compliance with treatment regimens and monitoring drug resistance will require a larger number of well-trained health professionals, new drug distribution and storage systems and more clinics and laboratories in areas with high infection rates.

Goal 6: reversing the incidence of malaria and other major diseases

Malaria and tuberculosis are among the leading infectious causes of adult mortality, particularly in developing countries. To achieve the second target of Millennium Development Goal 6reversing the spread of malaria and other major diseases by 2015every developing country will need to identify and tackle the diseases that cause the most damage to its population.

Malaria. Every year malaria infects 500 million peoplenearly 10% of the world's populationand kills more than 1 million. Many researchers fear that the situation could get even worse due to environmental change, civil unrest, population growth, widespread travel and increasing drug and insecticide resistance. But new approaches to malaria control have emerged, and growing international awareness has boosted resources for research and control activities. Still, reversing malaria's spread will require sustained political and financial commitments to scale up successful programmes and to invest in research that could dramatically enhance these efforts.

Because the distribution of malaria cases differs markedly across regions, control programmes must be tailored to local needs. A variety of interventions can be incorporated into local strategies:

Distributing insecticide-treated nets to people in high-risk areas and ensuring that the nets are retreated each year.

Training community health workers to diagnose and treat malaria by providing simple diagnostic tools and prepackaged treatment regimens.

Ensuring that infants and pregnant women receive preventive treatment as part of routine immunizations and antenatal care (though the latter assumes a functional health system).

Providing antimalarial drugs in combination to decrease the likelihood of resistant parasites.

Using new techniques to facilitate service delivery by mapping the distribution of populations, health facilities and transport networks. Tools are also available to forecast malaria epidemicsmaking control efforts in epidemicprone areas more timely and effective.

There is also an urgent need to increase research for new drugs and vaccines, because resistance to current treatments undermines their efficacy. Public-private partnerships, such as the Medicines for Malaria Venture, have combined scientists, financial resources and managerial capabilities to accelerate the development of new drugs. Finally, health system capacity must be significantly increased to ensure that existing and emerging treatments are delivered effectively.

Tuberculosis. Fifty years after the introduction of effective chemotherapy, tuberculosis still kills nearly 2 million people a yearmaking it, along with AIDS, the leading infectious killer of adults worldwide. And its toll is rising. Between 1997 and 1999 the number of new tuberculosis cases rose from 8.0 to 8.4 million. If this trend continues, tuberculosis will still be among the leading causes of adult mortality beyond 2015.

But reversing these trends is possible. The Stop TB partnership, formed in 2000, has made remarkable strides in formulating a plan, complete with financial requirements, to achieve international targets for halting the spread of tuberculosis. This framework calls for expanding, adapting and improving directly observed therapy short-course (DOTS)a remarkably effective programme in which health workers, while supervising treatment regimens, form close bonds with their patients.

Expanding such therapy requires strengthening tuberculosis control programmes, as well as the overall health system, in four ways:

Increasing political support to expand DOTS.

Increasing financial support to expand DOTS.

Improving health system capacity to expand DOTS.

Procuring sustainable supplies of quality drugs to expand DOTS.

Adapting DOTS to meet the challenges of drug resistance will involve moving towards DOTS plusthe cornerstone of managing multidrug-resistant tuberculosis, which requires strict supervision of therapy regimens. In Russia the incidence of tuberculosis rose by more than 300% between 1990 and 1996, with a substantial proportion of the cases drug resistant. There is an urgent need for clinical, epidemiological and operational research to define the most effective approaches for implementing DOTS plus.

The growing number of tuberculosis cases, combined with HIV/AIDS, places an immense burden on tuberculosis control activitiesa burden exacerbated by shortages of trained health personnel, laboratory resources and drug supplies. Establishing joint tuberculosis-HIV/AIDS programmes would address overlaps between the epidemics. But it would also require substantial reconfiguration of and increased outreach between country and community agencies.

Finally, DOTS could be improved by increasing research on:

New diagnostic tools to detect active tuberculosis cases more quickly, easily and accurately.

Better drugs to simplify treatment regimens and improve responses to multidrug-resistant tuberculosis and latent infections.

A better vaccine.

One step towards improving DOTS has been the formation of the Global Alliance for Tuberculosis Drug Development, which will advance such research.

Source: Millennium Project Task Force 5 2003a, p. 2; Millennium Project Task Force 4 2003; Weiss 2002; WHO 2003.998; Forster-Rothbart and others 2002.

Most developing countries implementing economic stabilization or adjustment programmes have no way of expanding health spending without increasing revenues from other sources. Heavily indebted poor countries in particular do not have the fiscal space to increase social spending. Yet basic services account for less than half of public spending on education and health in such countries.101 (The private sector's role in health care is described in chapter 5.)

What can governments do in the face of severe fiscal constraints? One source of extra funds is official development assistance, and for health such assistance has been risingwith commitments averaging $3.6 billion a year in 1999-2001, up from $3.3 billion a year in 1996-98. Still, official development assistance for health is equal to just $0.01 of every $100 of donor countries GNPtoo little to meet even the basic health needs of developing countries.

In 1996-98 multilateral institutions provided an average of $872 million a year in health-related official development assistance, though in 1999-2001 that fell to $673 million a year.102 But commitments for basic health were $264 million a year in 1996-98 and stayed at much the same level ($249 million a year) in 19992001.

At the end of the 1990s, 37% of health aid from members of the OECD's Development Assistance Committee went to basic health, 23% to general health and the rest to reproductive health (figure 4.4). Thus, unlike for education, official development assistance for health is focused on basic servicesgood for the Goals. In the 1990s official development assistance for reproductive health rose from $572 million to $897 million a year.103

INEQUITYAND WHAT TO DO ABOUT IT

How should small health budgets be shared among services and users? This is a key issue for equity, because today poor people lose out. A recent survey of developing countries found that in every case the poorest 20% of the population receives less than 20% of the benefits from public health spending. They also receive less than the richest 20% (which in many countries includes a large portion of the middle class).104

But spending on basic health care is shared more equitably than total health spending. In some countries poor people make disproportionate use of primary health facilities. In Kenya the poorest 20% receive 22% of government spending on primary health care, compared with 14% of total health spending. In Chile a high performer in healththe poorest 20% receive 30% of spending on primary health care. And in Costa Rica, another high performer, the poorest 20% receive 43%.105 Thus, if poor people are to benefit, more resources must go to primary health care.

More egalitarian spending is strongly reflected in health outcomes. In countries where fewer than 70 of 1,000 children die before age five, the poorest 20% receive more than 25% of public spending on primary health carewhile in countries with child mortality rates above 140, the poorest 20% get less than 15%. Moreover, in countries with high child mortality rates, the poorest 20% account for less than 10% of hospital usethe richest 20%, around 40%.106

When resources are limited, less developed rural areas bear the brunt of shortages in medical personnel. Moreover, efforts to deploy medical personnel in underserved areas are usually unsuccessful. In Cambodia 85% of people live in rural areas but only 13% of government health staff are located there, while in Angola 65% of the population is rural but just 15% of government health professionals work in those areas.107 In Nepal only 20% of rural physician posts are filled, compared with 96% in urban areas.108

Several measures can be taken to redress imbalances in health care coverage:

Increase the number of nurses, paramedics and community health workers. Nurses, trained birth attendants and community health workers are the limbs of the health system, enabling the outreach that is critical to successful reproductive health services. For example, high-achieving countriesthose where life expectancy is high and under-five mortality is low relative to the average for developing countriestend to have more nurses per doctor. Compare Zimbabwe (9.5 nurses per doctor in 1990) and Thailand (4 in 1990) with India (1.5 in the late 1980s) and Bangladesh (1 in 1990). More recent data confirm this observation.109

FIGURE 4.4
A large share of aid for health goes to basic services

Aid for health from Development Assistance Committee members

Images

Source: OECD, Development Assistance Committee 2003a.

Use service contracts to require medical personnel to spend a certain number of years in public service. Such contracts, common in Latin America, have also been implemented in the Philippines and Tanzania. In the 1970s Malaysia, another high performer, required all holders of medical degrees to work three years for the government health serviceenabling the government to post doctors to rural areas they had previously avoided. In addition, policies ensured that the poorest groups received a larger share of public health spending than the middle and upper classes.110

Have donors fund some recurrent costs. The World Health Organization has recommended a package of essential health services for developing countries, including public health and clinical interventions. But this package cannot be provided without more staff, so donors should cover some recurrent staff costs.

INEFFICIENCYAND WHAT TO DO ABOUT IT

Unless the performance of health systems improves, any extra funds could be wasted.

FOCUSING ON ESSENTIAL INTERVENTIONS

Cash-strapped governments have traditionally tried to ration health care by limiting overall budgetsnot directing resources to specific illnesses or diseases. A different approach would be to ration funds based on essential interventions. Mexico has taken this approach, and Bangladesh, Colombia and Zambia are beginning to.111

TAKING AN INTEGRATED APPROACH

The smallpox and malaria eradication campaigns of the 1960s started a trend towards donor-driven, disease-specific vertical programmes imposed on developing country health systems. Since the 1980swith the launch of myriad structural adjustment programmes and especially since the World Health OrganizationUnited Nations Children's Fund campaign promoting universal immunization of children (1985-90)donors have tilted the balance even more towards such efforts. And with the increasing prevalence of tuberculosis, malaria and HIV/AIDS, this trend has been further reinforced.

Such programmes have risks. Resources are concentrated in these areas at the expense of the overall health system. Public health care efforts outside of such vertical structures may be gutted. And even vertical programmes, expensive to maintain, may be threatened if donor funds disappear. Vertical programmes may be affordable and prudent only for diseases that offer a reasonable possibility of eradication in a foreseeable period.

Disease-specific programmes should be integrated with overall health structures, as India's successful tuberculosis programme shows (box 4.8). But maternal and child health services are also crying out for integration: in many countries primary health care has focused on family planning to the exclusion of maternal and child health services. To avert more maternal deaths, care during pregnancy and especially during childbirth must be linked to reliable systems that ensure the availability of advanced treatment in cases of obstetrical emergencies.


BOX 4.8

Integrating vertical programmes into working health systems

Where disease specific programmes are integrated into a working health structure, their likelihood of success is high, as India's tuberculosis programme demonstrates. More than 200,000 health workers have been trained. Some 436 million people (more than 40% of the population) have access to services. And 200,000 deaths have been prevented, with indirect savings of more than $400 millionmore than eight times the cost of programme implementation.

Using the strategy of directly observed therapy short-course (DOTS), India's programme uses the existing health structure but supplements its activities with additional resources, staff and drugs, with diagnosis and treatment free of charge to patients. Once a decision is made to start a programme in a district, the health administration forms a society, which hires staff for a tuberculosis unitcovering 500,000 people. The state government trains the doctors and hires the lab technicians. Policy direction, drugs and microscopes are provided by the central government, with financial assistance from the World Bank and bilateral donors.

There are several levels of support, monitoring and supervision. Staff from the government and World Health Organization (WHO) make site visits. WHO-hired consultants, with mobile phones and Internet access, provide support to tuberculosis units. The government provides detailed feedback each quarter on the performance of each state and district.

Source: Khatri and Frieden 2002, pp. 142025.


BOX 4.9

Ensuring essential medicines for allsuccess in Bhutan

Bhutan, a small landlocked Asian kingdom, shows how a coherent national drug policybacked by concerted international assistancecan achieve impressive results in providing essential medicines. Until 1986 public drug supplies in Bhutan were in disarray, with poor availability, erratic quality, irrational prescriptions and high costs. Then the country embarked on an essential drugs programme with extensive technical and financial assistance from the World Health Organization and donor countries. In 1987 a comprehensive national drug policy and enabling legislation were adopted. Key components of the programme include:

National procurement and distribution facilities.

Quality assurance through careful supplier selection and product testing.

More rational prescriptions through the creation of standard treatment guides and better training and supervision of pharmacy technicians.

Reduced waste and increased efficiency through workshops for storekeepers on proper drug storage and management.

Free public provision of essential drugs and vaccines.

Since 1993 the programme has been operated by Bhutanese staff, with minimal assistance from international experts. Results include:

Access to high-quality essential drugs for more than 90% of the population, with 90% of core essential drugs available.

Reduced errors in medication bookkeeping, from 76% in 1989 to 14% in 1997.

Reduced waste, with only 0.75% of the drug budget spent on drugs that expire before their use.

Much lower prices paid by the essential drugs programme (which procures 85-90% of drugs), falling to about half of average international prices.

Source: Stapleton 2000, p. 2.

PROVIDING ESSENTIAL DRUGS IN CLINICS TO ATTRACT PATIENTS

Grossly inadequate drug supplies are one reason public health systems become dysfunctional. When patients do not receive therapeutic drugs, they have little incentive to seek public health care. This kills the demand for medical services, causing medical professionals and paramedics to skip work.

In India public health facilities in four southern statesAndhra Pradesh, Karnataka, Kerala, Tamil Nadufunction better because drugs are distributed through the primary health care network, giving patients a reason to visit the facilities. In other countries providing essential drugs through decentralized facilities could help revive primary health systems. Providing curative services would also expand the coverage of preventive services.

In countries with high human development almost the entire population has access to essential drugs. In countries with medium human development there is a huge range: in China 80-94% of the population has access (depending on the region), in India 0-49%. Most countries with low human development have low access (defined by the World Health Organization as 50-79%). Bhutan is a low human development country but has succeeded in providing essential medicines for 80-94% of its population (box 4.9).

Many low-income countries will require concessional donor financing to provide essential drugs. High-performing countries have provided essential drugs at public health centresstimulating local demand for other services from these centres. Increasing beneficiary interest in the public health system also improves supervision of public health workers through community monitoring.

ACHIEVING THE WATER AND SANITATION GOALS

Access to safe water and adequate sanitation is crucial for survival. Water is essential for the environment, food security and sustainable development. And adequate sanitation can also make the difference between life and death.

SCALE OF THE PROBLEM

In 2000 at least 1.1 billion of the world's peopleabout one in fivedid not have access to safe water.112 Twice as many (2.4 billion people) lacked access to improved sanitation.113 Asia contains 65% of the population without safe water, and Africa 28%. For sanitation Asia contains 80% of the unserved population, and Africa 13%.114

Millennium Development Goals and targets

Goal 7:    Ensure environmental sustainability

Target 9: Integrate the principles of sustainable development into country policies and programs and reverse the loss of environmental resources

Target 10: Halve by 2015 the proportion of people without sustainable access to safe drinking water

Target 11: Have achieved by 2020 a significant improvement in the lives of at least 100 million slum dwellers

FIGURE 4.5
Many urban households lack water and sanitation

Percentage of urban households

Images

Source: WHO, UNICEF and WSSCC 2000.

There were some positive developments during the 1990s: about 438 million people in developing countries gained access to safe water, and about 542 million in urban areas gained access to proper sanitation.115 But due to rapid population growth, the number of urban dwellers lacking access to safe water increased by nearly 62 million.116

In the major cities of Europe and North America more than 90% of households are connected to piped water and sewers. But in the rest of the world the situation is very different. If adequate sanitation is taken to mean a toilet connected to a sewer, there is a significant lack of adequate sanitation throughout the developing worldeven in large cities. And sanitation coverage is much worse than water coverage in every region (figure 4.5).

In the 1990s the number of children killed by diarrhoeathe result of unsafe water and sanitationexceeded the number of people killed in armed conflicts since the Second World War.117 Moreover, half the world's hospital beds are occupied by patients with water-borne diseases, meaning that expensive curative services are being used to treat diseases that could easily have been prevented.

In South Asia only 37% of the population has access to adequate sanitation. Some 1.4 million of the region's people still either defecate in open areas or use unsanitary bucket latrines.118 In Sub-Saharan Africa the more pressing problem is safe water, available to just 57% of the population119an average masking huge gaps between urban and rural areas.120

Rural poor people suffer more from a lack of safe water because they generally rely on land and water resources to sustain their livelihoods. Urban poor people suffer more from inadequate sanitation, made worse by overcrowding in cities.

As with the other Millennium Development Goals, increasing access to safe water and sanitation also requires addressing gender inequities. African women and girls spend three hours a day fetching water, expending more than a third of their caloric intake. Such household chores keep many girls out of schooland if they attend school, the energy they use performing household chores seriously undermines their school performance. Moreover, when other family members become sick, often due to wateror sanitation-related diseases, girls are more likely to be kept home to care for them. And when water is needed in schools, girls are sent to fetch it, reducing their time for study and play.

The policy priorities for achieving the water and sanitation Goals involve:

Increasing resources. Low-cost technologies are available to increase household and community access to safe water and sanitation. But for cash-strapped governments, wastewater treatment infrastructure is extremely expensive to install and maintain.

Increasing equity. Poor people often cannot afford water and sanitation costs because wealthier users are not paying enough. And in poor households girls and women suffer more from difficult access to water and sanitation.

Increasing appropriate maintenance. Too often, water and sanitation delivery systems are poorly maintained by governments and do not respond to local needs.

Limiting environmental damage. Sustainable water supplies require rational water useespecially in agriculture.

APPROPRIATE TECHNOLOGIES FOR EFFICIENT USE

In water supply low-tech, low-cost technologies include household connections, public stand-pipes, boreholes, rainwater collection and protected springs and wells. These technologies are far better than alternatives such as bottled water, tanker truck provision of water and unprotected springs and wells. Some of these alternatives are unsafe, while others are inappropriate because they cannot be secured in sufficient quantities.

In sanitation there is a pressing need to provide technologies that people want to use, because decisions about sanitation are made at the household level. Households do not need to be convinced about the merits of a well or a standpipe. But they may need to be sold on the merits of onsite sanitation, as well as given adequate hygiene education. The best way to do so is through products that match consumer demand in both price and quality (box 4.10). Appropriate technologies include pour-flush latrines, simple pit latrines, ventilated pit latrines and connections to septic tanks or covered public sewers. In rural areas waste disposal through composting is sometimes appropriate.

Such technologies are affordable to and can be easily maintained by poor communities. In the past governments often took a top-down approach, installing hand pumps, tube wells and even ventilated pit latrines regardless of whether there was demand for them. As a result communities generally neglected maintenance or relied on the government to perform it. But when communitiesespecially womenare involved in providing and financing facilities and trained to maintain them, ownership and sustainability increase.

Many city governments are reluctant to invest in basic sanitation without addressing the broader challenges of drainage and solid waste disposal. In developing countries very little urban wastewater is treated before being returned to the environment. But treating wastewater is much more expensive than simply providing access to safe water and household sanitation. Thus research is needed on feasible, affordable approaches to the full range of sanitation services.

It may also be necessary to accept an increase in environmental pollution as a first step towards improving sanitation. In Europe and North America, for example, improved household sanitation initially came at the cost of polluting rivers and waterways.

LIMITED RESOURCESAND WHAT TO DO ABOUT THEM

In developing countries the domestic public sector finances 65-70% of water infrastructure, donors 10-15%, international private companies 10-15% and the domestic private sector 5%.121 In 90% of developing countries water and sanitation services are provided by the public sector. Funding comes from users who pay bills to local authoritiesthe usual suppliers of servicesbut cost recovery usually covers only part of the capital and recurrent costs of water infrastructure and services. The financing gap is covered by tax revenue and donor funding. With political commitment and money, access to safe water can be increasedas South Africa showed in the 1990s (box 4.11).


BOX 4.10

Affordable sanitation in India

Much defecation in India still occurs in open spaces. But pioneering work by Sulabh International, a non-governmental organization (NGO), has shown that human waste can be disposed of affordably and in a socially acceptable way. Sulabh's approach is based on partnerships with local governments, backed by community participation, and has substantially improved environmental quality in rural and urban slums inhabited by poor people.

Sulabh's solution is a low-cost, pour-flush water-seal toilet with leach pits for onsite disposal of human waste. The technology is affordable for poor people because designs suit different income levels. Flushing requires only 2 litres of water, compared with the 10 used by other toilets. Moreover, the system is never out of commission because there are two pitsso one can always be used while the other is being cleaned. The latrine can be built with locally available materials and is easy to maintain. It also has high potential for upgrading because it can easily be connected to a sewer system when one is introduced in the area.

Since 1970 more than 1 million of the units have been constructed in houses. In addition, 5,500 have been installed in pay-and-use public toilets, staffed by an attendant around the clock who supplies soap for washing hands. The public toilets include facilities for bathing and doing laundry and offer free services to children and disabled and poor people. As a result more than 10 million people have received improved, low-cost sanitation, and 50,000 jobs have been created.

Sulabh's door-to-door campaigns also provide free health education to millions of people. The organization trains local people to construct more latrines themselves, and has helped set up and maintain fee-based community toilets in slums and other areas.

Source: WSSCC 2002, 2003.

Many developing countries struggle to pay for water and sanitation infrastructure, with funding from the cash flows of water services especially precarious.122 Inappropriate charges are a big problem. Yet in the absence of core infrastructure, household plumbing and sanitation cannot advance. And without trunk sewerage and treatment plants, wastewater typically flows into open streams and drainage channelsposing health risks and damaging the environment.

International private investment in water services has declined after peaking in 1996-99, apparently because returns are too low.123 Moreover, water projects require larger initial investments than electricity, telecommunications and natural gas. Currency devaluations as in the recent economic crisis in Argentinaare another disincentive.

In the 1990s an average of $3 billion a year in official development assistance was allocated to water and sanitation projects. In 1996-98 such funding was $3.5 billion a year, but in 1999-2001 it fell to $3.1 billion a year. The share of water and sanitation in total official development assistance remained relatively stable in the 1990s, at 6% of bilateral and 4-5% of multilateral aid. Non-concessional lending, mainly by the World Bank, added $1.0-1.5 billion a year. Japan made by far the most significant commitments.124


BOX 4.11

South Africa and the right to water

In 1994, as a new democratic government came to power, more than 15 million South Africans lacked access to 25 litres of clean water a day within 200 meters of their homes. By 2001 that number dropped to 7 million. How?

Top-level political support has been essential. South Africa's constitution guaranteesas a human rightaccess to a basic water supply and an environment not harmful to health. As a result a policy ensuring free basic water was recently adopted, providing each household with the first 6,000 litres of water each month free of charge.

Clear laws and regulations have clarified the roles of water authorities and service providers. In addition, national standards and similar legislation have helped regulate water quality and tariff structures.

An extensive capital works programme was quickly pursued by the new government to address areas in greatest need. This programme benefited from substantial government funding and from the support of various actors, including non-governmental organizations, private companies and community groups.

Devolution of responsibilities to local governments gives local authorities more control over projects, allowing them to be better tailored to local needs. Despite these achievements, South Africa still faces obstacles to sustaining and expanding access to basic water supplies. Continued political and financial commitments will be necessary to ensure continued success. The viability of the free basic water policy, for example, largely depends on government revenueas well as the number of wealthy households available to cross-subsidize poorer households. In addition, mixed experiences with private sector participation have left uncertain the extent of its role in future service provision.

Source: Millennium Project Task Force 2003; WSP 2002b.

Water supply and sanitation accounted for three-quarters of aid to the water sector in 1997-2001. Most aid to water supply and sanitation goes for large systems.125 The number of projects drawing on low-cost technologies offering the best prospects of increased coverage for poor peoplehand pumps, gravityfed systems, rainwater collection, latrinesis very small.126 Thus the composition of aid for water and sanitation has to change. Ten countries accounted for half of the official development assistance for water, and just one donorJapanprovides one-third of such aid.127 Worse, only 12% of official development assistance for water went to countries where less than 60% of the population has access to safe water.128

INEQUITYAND WHAT TO DO ABOUT IT

To fill part of the financing gap to meet the Goals for water and sanitation, costs must be reduced and revenues from users increased. To reduce costs, local authorities have to improve managementfor which there should be more donor support and exchanges among developing countries.

In terms of revenues, local authorities commonly do not include capital costs in their cost recovery policiesand only partly recover recurrent costs. It has been suggested that for the water and sanitation sector, full cost recovery from users is the ideal long-term aim.129 Under such a strategy urban users would pay full costs for investments, while peri-urban and rural users would not contribute to capital costs. For operation and maintenance costs urban users would pay full costs, peri-urban users would do so where possible and rural users would pay partial recurrent costs.

But such an approach would be unfair. Since the social benefits of safe water and adequate sanitation far exceed the costs, there is a strong case for a pricing policy that reflects the wider benefits to all from, say, reducing the incidence of diarrhoea. This implies that those with direct household connections should be paying full cost. Today they are the ones paying below costand receiving the greatest subsidies. Charging them full cost would generate resources for the sector and make it possible to cross-subsidize those lacking improved water or sanitation or having a lower ability to pay. Such cross-subsidies would also be possible if higher rates were charged to industrial and agricultural users.

Depending on poverty levels in peri-urban and rural areas, there should be only partial cost recovery of recurrent costs. In many areas poor people currently pay exorbitant prices to water vendors. Some form of cost recovery is often desirable, less to generate resources than to ensure efficient use. Communities should be encouraged to provide labour to ensure rapid installation of hand pumps and public toilets.

How difficult is it for poor people to cover the costs of water and sanitation infrastructure? Consider an example from Bolivia and some cost estimates for water and sanitation from a project in El Alto:

Average monthly income: $122 ($0.80 a day per capita).

Connection costs: $229 for traditional water, $276 for sanitation (excluding trunk infrastructure).

Connection costs for condominial technology with community participation: $139 for water, $172 for sanitation.130

An important additional cost for poor households is the construction of a bathroom or similar in-house facility, including a toilet. In El Alto these costs averaged $400, plus 16 days of labour. These costs are typically not factored into costing exercises for water and sanitation. Even with microfinance available the costs were too high for most poor people. But with hygiene education, the demand for toilets more than doubled.

Where poor people struggle to cover charges, they should be helped through credit schemes. Bangladesh's Grameen Bank has been extending credit for water and sanitation, on a group basis, for years.

Women face more problems of workload, privacy, safety and hygiene than boys and men and so are more interested in sanitation improvements. But they often have fewer resources, so it is important to persuade men that sanitation improvements are worth it. The improvements should also be financially affordable for female-headed households, which often have less money and fewer labour resources than households with a man and a woman. Since women are more likely to know what designs and locations are suitable for use by women and children, men and women should share information and decisions.

Within the social services, particularly health and education, resource allocations have tended to be biased against basic health services and basic education

Women also prove more reliable in maintaining equipment, such as hand pumpspartly because they are commonly responsible for fetching water for the family. Thus they should be encouraged to train as masons and plumbers, because they would feel more comfortable showing another woman where to locate a latrine in a home than showing a man. And with a job in maintenance, they are less likely to move from the community in search of work elsewhere.

CROSS-CUTTING PRIORITIES

The discussion so far has focused on sectoral policy priorities. Here the focus shifts to policy priorities that cut across the Goals for all groups of countries.

INCREASING THE LEVEL, EFFICIENCY AND EQUITY OF PUBLIC SPENDING ON BASIC SERVICES

In most rich countries the government accounts for more than 40% of GDPin most developing countries, less than 20%. With development the size of government is expected to rise. The enormous challenges of reducing hunger, preventing deaths and spreading literacy require a big increase in public spending.

But it is difficult to drive through multisectoral action in low-income countries, where tax revenues typically account for less than 15% of GDP. And achieving the Millennium Development Goals will require significant additional resources not likely to be generated by the economic growth of poor countries alone (see chapter 3). Their fiscal resources are squeezed by debt repayments (see chapters 3 and 8). And the allocation of what is left over is skewed too much towards defence (see box 4.5). Not enough goes for agricultureless than 5% of budgets in Africaor for health and education.

Within the social services, particularly health and education, resource allocations have tended to be biased against basic health services and basic education. But the capacity of governments to reallocate spending to basic services to meet the Millennium Development Goals depends partly on shifting spending away from defence and debt servicing, partly on generating more domestic revenues. Things become a lot easier if government revenues are increasing, because discretionary spending on each individual can rise.

The problem facing many developing country governments is that large budget deficits have forced them to undertake macroeconomic stabilization and adjustment. But since the early 1980s adjustment policies have focused on reducing public spendingrather than mobilizing tax and non-tax revenuesto reduce the deficits. In a recent external review of International Monetary Fund (IMF) Extended Structural Adjustment Facility programmes, a group of independent experts concluded that public spending limits have often been set too tight, with detrimental effects on human capital and growth. This was again the case in the policy conditions laid down in the IMF's response to the East Asian economic crisis that started in 1997conditions relaxed somewhat only after widespread criticism of the IMF on this and other counts.131

If public spending is stagnant or falling, it is next to impossible politically for governments to shift funds to social services particularly to basic social serviceswithout incurring the wrath of those better off

Another recent study shows that, for all of more than a dozen countries, real per capita public spending on basic social services (basic health, basic education and water and sanitation) declined only when public spending fell as a proportion of GDP.132 In other words, if public spending is stagnant or falling, it is next to impossible politically for governments to shift funds to social servicesparticularly to basic social serviceswithout incurring the wrath of those better off.

Much more could be done to strengthen tax collection to prevent tax evasion and tax avoidance. And much more could be done to enhance the tax base, by enlarging the tax net to catch those now escaping it. International financial institutions need to take much more seriously the technical support requirements of most developing countries in tax administration and collection, especially those in Sub-Saharan Africa and Latin America.

The prospects for enhancing the efficiency of spending (by increasing the availability of textbooks in schools, of drugs in public health clinics and so on) and improving the equity of spending on social services would be much brighter if spending was to increase. As noted, health spendingeven in countries with stagnating incomesstrongly affects health outcomes. The same goes for education spending: it improves outcomes.133

IMPROVING THE QUANTITY AND QUALITY OF AID FOR BASIC SERVICES

Reaching the Goals requires true adherence to the Millennium Development Compact. For the poorest low-income countries a significant proportion of the additional resources needed for social investments will have to come from external sources. For heavily indebted poor countries, from debt cancellationand much more than so far. And for all low-income countries, from enhanced official development assistance.

How has official development assistance responded? The total share devoted to basic social services (basic health, basic education and water and sanitation) has rarely surpassed 10%, despite an increase in bilateral flows in the new decade. The multilateral contribution has accounted for a third of official development assistance, including UN agencies, the World Bank and regional banks. Official development assistance for small water and sanitation projects in rural areas and for basic education are insufficient.

Official development assistance for basic services must increase. Donors worried about the fungibility of recipient government resources should bear in mind that even if governments shift resources partially to other sectors, they still increase public spending.134

IMPROVING SECTORWIDE PROGRAMMES

Moving from project-oriented to sectorwide approaches is an important step forward. A sectorwide approach avoids the weaknesses of the project approach: weak links to other sectors, geographic isolation, lack of ownership and aid conditionality. It is also supposed to build an integrated programme that sets out policy objectives, a comprehensive policy framework, an investment plan, a spending plan and funding commitments for governments and donors.

The idea is that sectorwide programmes should become part of the overall policy environmentrather than bypassing national structures, as project funding does. They could also ensure clear financing commitments from donors, an improvement over unpredictable aid flows to particular projects. Though a complex exercise, because they presuppose homegrown and effective sector policies, at least they involve recipients.

The sectoral approach has had problems, however, and in many cases resource pooling has not yet occurred. First, the approach takes years to develop and finalize. It has been estimated that a sectoral approach planning cycle takes an average of five to seven years.

Second, technical cooperation (with expatriate technical personnel), which tends to dominate the project approach, remains a lingering problem with sectoral programmes. It would be useful to evaluate the opportunity costs of time and funds used for donor-financed training.

Third, donors differing legislative constraints on spending, rigid and different procedures for resource allocation and reporting needs and weak capacity in recipient countries prevent actions from being fully harmonized. The government cannot be in the driver's seat if donor project implementation units continue to exist over which the line ministry has little control.

In Zambia donors have agreed to release the second tranche of their aid only if the government has spent at least 20% of its budget on education.135 In addition, all the external agencies involved have linked their financial flows to specific programmes. Indeed, earmarking funds for specific elements of sectorwide approaches is widespread, often depending on donor perceptions of local political leadership and commitment in specific areas.

Donors recognize some of these problems. The February 2003 Rome Declaration on Harmonization calls for donors to commit to providing budget, sector, or balance of payments support where it is consistent with the mandate of the donor, and when appropriate policy and fiduciary arrangements are in place.136

COVERING SOME RECURRENT SPENDING

Most donors have been willing to finance investment costs (building hospitals) but unwilling to finance recurrent costs (doctor salaries). This attitude is changingbut if the Goals are to be met, donors will have to more flexible than in the past in this area. Governments are often unable to absorb multilateral resources for capital costs if, as is often required, they have to show they can match these capital expenditures with funds to meet the running costs of the resulting infrastructure.

For some sectors the lack of research funding is a serious problem

In the interim donors will need to cover some recurrent costs, especially for non-salary purposes in areas related to the Goals for heavily indebted poor countriesas long as these countries have raised some revenue from domestic sources. In cases where fiscal constraints are very severe, donors may need to show a willingness to accommodate even the salary costs of school teachers, paramedics or trained birth attendants for a transitional period until the fiscal space can be created for the government to bear those recurrent costs domestically on a sustainable basis.

DEVOTING RESEARCH AND DEVELOPMENT TO TECHNOLOGIES FOR POOR PEOPLE

For some sectors the lack of research funding is a serious problem. For instance, 90% of global research for pharmaceutical drugs goes to diseases that account for 10% of the disease burden in developing countries. Thus international efforts need to be mobilized to address the need for drugs for tropical diseases. One clear case is the rapid development and testing of a vaccine for HIV/AIDS. The International AIDS Vaccine Initiative is making long strides in this area, trying to develop vaccines specific to the strains of the AIDS virus prevalent in different parts of the developing world. Vaccine trials are expected to begin soon in Uganda on the strain in that part of Africa and in 2004 in India. But many other areas of research remain neglected.

In many other areas relevant to achieving the Goals, the solution is to diffuse existing technologies. Agricultural output in Sub-Saharan Africa, for instance, has been bedevilled by low productivity, even though high-yielding varieties are available for maize, rice and wheat. Nor have high-yielding varieties been developed for the grains consumed most by poor people, such as sorghum and millet. Part of the problem is the low commercial availability and high prices of inorganic fertilizer. Another is the limited use of organic fertilizer, despite the ease of making it from local resources. Using organic fertilizer would raise productivity and promote environmentally sustainable farming in a region where environmental degradation has been reducing already low agricultural yields.

Another example is the lack of diffusion of impregnated (or even ordinary) bednets to control malaria. Similarly, slow deaths from indoor pollution caused by smoke from cooking fires can easily be prevented by going to scale with the commercial production of smokeless ovens. Clearly, what such commercial production requires is appropriate subsidies, reinforced by a communication strategy to reach poor people in remote areas. The Sulabh latrine can promote environmental sanitation in most densely populated urban areas. But to do so, it must be adopted by international agencies as a model for widespread promotion in developing countries.

CHAPTER 5

Images    Private finance and provision of health, education and water

For a number of reasons governments often finance and provide basic social servicesbasic health care, primary education, water and sanitation. One reason is that because such services are public goods, their market prices alone would not capture their intrinsic value and social benefits. Basic education benefits not only the individual who gains knowledge, it also benefits all members of society by improving health and hygiene behaviour and raising worker productivity.

A second reason for public financing is to ensure that basic social services are available equitably. Poor people usually lack these services, and if they have to pay for them they may not use themmaking it difficult to escape poverty.

In addition, the state often plays a dominant role in the provision of these services. Provision by many suppliers (public or private) can result in duplication and higher costs. Moreover, access to basic social services is a fundamental human rightenshrined in the UN Covenant on Economic, Social and Cultural Rightsand governments have an obligation to ensure that these services are provided to their people. Government commitments to the UN Millennium Declaration and Millennium Development Goals reflect this obligation.

But public provision of social services is not always the best solution when institutions are weak and accountability for the use of public resources is lowoften the case in developing countries. (Chapter 7 describes how to make governments more accountable in the use of public resources for social services.)

In rich countries private providers dominated health, education and water services in the first half of the 19th century. But these services were limited. In the second half of the century public financing and provision became dominant. Indeed, only when governments intervened did these services become universal in Canada, Western Europe and the United Statesin the last quarter of the 19th and first half of the 20th centuries.

Only when governments intervened did health, education and water services become universal in Canada, Western Europe and the United States

In poor countries private health providers and schools coexisted with a growing public sector in the first few decades after the Second World War. But in the 1980s and especially the 1990s, private provision began to increase rapidly. As loss-making state-owned enterprises were privatized in productive sectorsin both industry and servicesthe same trend was encouraged in social services.

The experiences of rich countries suggest that the sequence for social services should be comprehensive provision by the state early on, followed by more targeted interventions and then public-private partnerships to serve different marketsdepending on the nature of services in different sectors.

WHY HAS PRIVATE PROVISION INCREASED IN POOR COUNTRIES?

In developing countries the private sector's growing role in health and education, and the push to privatize water and hospital services, have been driven by three factors: lack of government resources, low-quality public provision and pressure to liberalize the economy.

LACK OF GOVERNMENT RESOURCES

Strapped for cashwhether domestic resources or foreign aidmany governments of poor countries cannot provide social services effectively or fund large investments in infrastructure. Privatization is often pursued with a view towards obtaining revenue, but the biggest returns to government come from eliminating subsidies to loss-making public enterprises.

In some cases, such as domestic water and sanitation (and irrigation water and energy), insufficient government funds have been compounded by distorted tariff structures. Under state ownership tariffs are often too low to recoup costs, and user failures to pay tariffs are often overlooked. This approach essentially subsidizes rich peoplewhile poor people suffer from lack of access. Moreover, as urban populations increase, fiscally strapped local authorities cannot expand services to cover them. As a result water services decline in quantity and quality in middle-class neighbourhoodsand fail to reach new poor neighbourhoods.

LOW-QUALITY PUBLIC PROVISION

Linked to lack of resources is the weak record of public provision in many countries. Stories abound of governments failing to provide their citizens, especially poor citizens, with basic social services or with services of good quality.

In India and Pakistan poor households cited teacher absenteeism in public schools as their main reason for choosing private ones.1 Poorly paid public sector doctors often supplement their incomes by selling drugs intended for free distribution.2 As a result poor (and non-poor) people are forced to use private providersbecause such providers are more accessible and often dispense drugs as part of their consultations (unlike government facilities, where drugs may not be available).

To access more and better water, poor people often must pay exorbitant prices for it from private tankers run by small vendors. Most residents of South Asian cities receive water for only a couple hours at a time, and not every day.3 They get electricity for a few more hours a day, but interruptions increase in the hottest parts of the summerwhen temperatures can rise to 48 degrees Celsius.

PRESSURE TO LIBERALIZE THE ECONOMY

The third push for private provision has come from donor policies advocating economic liberalization and free markets to advance growth and development. Social services are frontier issues in this move to expand the private sector's role. In the 1990s many donors supported extending private provision and financing to social services, especially urban water supply. The World Trade Organization's General Agreement on Trade in Services also encourages private entry in social services (box 5.1).

HEALTH

Many developing countriesin Latin America, South Asia and South-East Asiahave substantial, thriving private sectors. In addition, a large portion of health spending is private in all regions,4 with more than half of basic health services provided by private providers in low-income countries.5 In Asia and Latin America a significant share of hospitals and health facilities are privately owned, though preventive measures are largely the responsibility of the public sector.6


BOX 5.1

Social services and the General Agreement on Trade in Services

The General Agreement on Trade in Services (GATS) establishes a legal framework for international trade in services through both general trade rules and specific national commitments for accessing domestic markets. Many critics have asked if the GATS goes far enough in protecting countries ability to decide how best to deliver social servicesincluding determining the extent to which foreign suppliers should engage in their delivery.

On the one hand, the agreement gives governments considerable discretion in deciding how, when and whether to open services to international trade. No country is required to open any specific sector to foreign competition, and countries can set conditions on the nature and pace of such liberalization. Governments can also, with adequate compensation, suspend or modify existing commitments to liberalization. In addition, the agreement includes a governmental authority exclusion, which defines services covered by the GATS as any service in any sector except services supplied in the exercise of governmental authority. Finally, countries can invoke general exceptions to protect public interests, including national security and public health.

On the other hand, the GATS commits members to successive rounds of negotiationswith a view to achieving progressively higher levels of liberalization, and countries will come under increased pressure to liberalize new areas of service delivery. More worrisome, undefined terms in the agreement could negate the above safeguards.

The governmental authority exclusion applies only to services provided on neither a commercial nor a competitive basis. Governments, however, rarely deliver social services exclusively, but through an evolving mix of public-private actors that compete for clients. And the precise scope of services fitting the exclusion criteria remains ambiguous. If not covered by the exclusion, legislation used by governments to ensure equitable and efficient delivery of these services could conceivably conflict with the GATS. State aid offered exclusively to non-governmental organizations operating schools and clinics in underserved areas could be challenged if a government liberalized its health and education sectors and these market conditions were not officially registered.

The GATS could be strengthened by eliminating the governmental authority exclusion or by rewording the text to ensure that services provided in the exercise of governmental authority is understood relative to function, not means of delivery.

Source: Mehrotra and Delamonica forthcoming; Save the Children 2001; Canadian Centre for Policy Alternatives 2003; UNHCHR 2003; WTO 2003.

More than any other developing region, Latin America has experienced a huge shift towards private care since opening the management of its health sector to international companies in the 1990s. Several multinational corporations (Aetna, CIGNA, Prudential, American Insurance Groupall US-based) are providing health insurance and services in the region. And they intend to assume administrative responsibilities for public health institutions and to secure access to social security funds for medical care. These companies invest by:

Purchasing established companies that sell indemnity insurance or prepaid health plans.

Associating with other companies in joint ventures.

Agreeing to manage social security and public health institutions.7

About 270 million Latin Americans60% of the populationreceive cash benefits and health care services paid for by (and often delivered by employees of) social security funds. Penetration by multinational corporations in social security funds is most advanced in Argentina and Chile but is growing in Brazil and starting in Ecuador.8

IMPACT OF MANAGED CARE

All citizens should have access to basic health services. And private provision can help meet different needs. But is equity ignored in the process?

Latin America has long relied on public social security funds to provide health services. But in the 1990s the management of many funds was offered to foreign health insurance firms. As a result more funding is used to cover higher administrative costs and returns to investors, reducing access for vulnerable groups and spending on clinical services. In Chile in the late 1990s about a quarter of patients under private managed care opted for care from public clinics, citing as their main reason the high copayments required under managed care.9

In Argentina public hospitals that have not converted to managed care face an influx of patients covered by privatized social security funds. These patients have had to resort to public hospitals because they cannot afford their copayments or because private practitioners have refused to see them (due to non-payment by the social security funds).

Argentina and Brazil's public hospitals now require reimbursements from social security funds and from private insurance, as well as copayments. To receive free care at public institutions, poor patients must undergo lengthy means testingwith rejection rates averaging 3040% in some hospitals.10 And because managed care organizations attract healthier patients, sicker patients are being shifted to the public sector. This two-tier system undercuts the pooling of health risks and undermines cross-subsidies between healthier and more vulnerable groups.

The supposed benefits of privatizing social services are elusive, with inconclusive evidence on efficiency and quality standards in the private relative to the public sector


APPROPRIATENESS OF HEALTH CARE AND REGULATION

The supposed benefits of privatizing social services are elusive, with inconclusive evidence on efficiency and quality standards in the private relative to the public sector.11 Meanwhile, examples of market failures in private provisioning abound.

Clinical services and drugs are essentially private goods, and there is much evidence of failures in markets for them. Limited regulatory capacity compounds the problem. For example, in many developing countries overtreatment is a major problem in private health care. In Brazil caesarean sections are more common among private patients because doctors are paid more for operations than for normal births.12 In Mumbai, India, private providers engage in unnecessary referrals and testswith referring providers getting a cut of referred providers fees.13 By contrast, even though most Canadian and US and many European physicians are private, strong professional regulation ensures that there is no crisis of overtreatment.

In developing countries unregulated private pharmacists also overtreat illnesses or overprescribe expensive drugs. Such inappropriate use of medicines leads to dangerous treatment practices, higher health care costs and growing drug resistance. Drugs account for 3050% of health care spending in poor countries, compared with 15% in rich.14 People who cannot afford professional services must go to pharmacies, which often do not follow prescribing regulationsespecially in China, South Asia and parts of Africa. In India more than half of out-of-pocket health spending and nearly three-quarters of inpatient spending go to medicines and consultation fees.15

Requiring poor households to pay for schooling is not conducive to achieving universal primary education and so is unlikely to help achieve the Millennium Development Goals


COSTS

In many developing countries costs are rising and technology is accumulating in the private health care sector. Thailand's private health sector has as much or more of some high-technology equipment as the private sectors in most European countries, even though Thailand's per capita income is much lower and its disease burden is much different.16

In China a shift in focus from preventive to curative services has significantly increased drug sales since economic reforms began. Foreigners have invested in about 1,500 drug manufacturing ventures across the country.17 With limited access to professional services and aggressive drug production in an unregulated market, the result is irrational drug useparticularly among poor people. In 1993 drugs accounted for 52% of China's health spending, compared with 1540% in most developing countries.18 In some rural areas Chinese farmers spend two to five times the average daily per capita income on a typical prescription. Apart from contributing to unnecessarily high medical costs, excessive and inappropriate prescribing of drugs in poor rural areas exposes patients to the risk of ineffective treatment and adverse side effects.19

As noted, in Latin America managed care organizations have taken over the administration of public health institutionsdiverting funds from clinical services to cover higher administrative costs. To attract patients with private insurance and social security plans, public hospitals in Buenos Aires, Argentina, have hired management firms that receive a fixed percentage of billings, increasing administrative costs to 20% of health spending.20 In Chile administrative and promotional costs account for 19% of managed care spending.21

BRAIN DRAIN

In developing countries growth in private health care often draws badly needed human resources away from fragile public systemsas in Thailand in the 1980s and 1990s.22 Public clinics are left to care for the most vulnerable groupsthe poor, the elderly, the disabledwith fewer well-trained physicians.

EDUCATION

In most OECD countries about 10% of students attend private primary schools (both independent and government-dependent). That share tends to be higher in developing countries. In Latin America private schools account for more than 14% of primary enrolments, though in high-performing Costa Rica the share is just 7%.23 Among 22 Sub-Saharan African countries with data the private share in 10 is 1040%in the other 12, less than 10%.24 In India the share of private schools is highest in states with the lowest primary enrolments (Bihar, Uttar Pradesh), indicating that the private sector is the escape route for a poorly performing public sector.25

In many (though not most) developing countries private enrolments rise with the level of education.26 Yet for a large number of countries in all regions, recent data are lacking on private enrolments at all levelsmaking this an area deserving attention from governments and donors.

Three issues are crucial in the private financing and provision of education. The first affects demand: high household costs compromise universal access to basic education. The other two are related to supply, affecting equity and efficiency. One relates to the comparative performance of public and private schools, the other to public subsidies for private schools.

HIGH FEES, LOWER ENROLMENTS

Requiring poor households to pay for schooling (private or public) is not conducive to achieving universal primary education and so is unlikely to help achieve the Millennium Development Goals. In Ghana two-thirds of rural families cannot afford to send their children to school consistently, and for three-quarters of street children in Accra (the capital) the inability to pay school fees was their main reason for dropping out.27 Where school fees have been removed in Africa, children have flooded into schools.

QUALITY ISSUES

Many proponents of private education claim that private schools outperform public ones, are inherently more accountable and help students develop stronger cognitive skills and feel a greater sense of ownership for their education.28 But little evidence substantiates these claims.29 Private schools do not systematically outperform public schools with comparable resources. In Peru students in private primary schools outperform their public counterpartsbut pay up to 10 times more for their education.30

In Brazil achievement scores in maths and language favour private school students to the same degree as in several OECD countries (Greece, Ireland, Spain).31 But this advantage is linked to the students in each type of school. In every country studied, students in private secondary schools come from wealthier households than do students in public schools.

PUBLIC FINANCING FOR PRIVATE SCHOOLS POTENTIAL DRAWBACKS AND BENEFITS

The main rationale for government support is that private education meets excess demand for education. But in most cases fee-based private education responds to different demand, not excess demandparticularly in low-income countries, where poor households have limited capacity to pay even public school fees. Thus government support for private education can be inequitable if it is not targeted to poor households. In OECD countries direct support for private primary and secondary schools averages about 10% of government spending on education. By contrast, in India nearly a third of direct education spending supports private institutionsyet the country is home to more than a third of the world's children of primary school age not in school.32 In Indonesia most rural private schools are as dependent as public ones on state subsidies.33

Many developing country governments also pay the salaries of private school teachers, making them less accountable to parents and principals.34 Such subsidies place even greater stress on already weak public systems, which must provide services for the most vulnerable groups with fewer human and financial resources.

A study of 16 developing countries found that those with the highest private upper secondary enrolments also have the lowest overall upper secondary enrolments (India, Indonesia, Zimbabwe).35 But in China, Jamaica, Malaysia and Thailandwhich have relatively high enrolmentsmore than 90% of direct public spending on education reaches public schools.

A study of 16 developing countries found that those with the highest private upper secondary enrolments also have the lowest overall upper secondary enrolments (India, Indonesia, Zimbabwe)


MAKING PRIVATE PROVISION WORK FOR POOR PEOPLE

Despite its potential drawbacks, public funding of private schools can help in certain circumstancesparticularly if governments have trouble paying the full costs (building schools, paying teacher salaries) required to achieve universal primary schooling. In some countries a shortage of public schools has led to expansion in private schools. To ensure that children from poor families unable to pay school fees are able to attend private schools, governments could finance their education through vouchers.

Colombia, for example, introduced a voucher system in response to a shortage of public secondary schools. This approach to public funding of private education can help expand schooling at lower cost for the government, because the only cost the government bears is the voucher. This is slightly different from a voucher system that enables families to enrol their children in the school of their choice, public or private. To avoid giving windfall gains to the middle class that customarily purchase private education, vouchers should be restricted to poor familiesas in Bangladesh, Chile, Colombia, Puerto Rico and the United Kingdom.36

WATER AND SANITATION

Only about 5% of the world's people (about 300 million) receive their water from private companies. Most privatization of water and sanitation services has occurred through public-private partnerships in urban areas, with almost all occurring in the 1990s in highly urbanized countries (table 5.1).

Public-private partnerships in water and sanitationwhich have grown from almost none in the early 1990s to more than 2,350 todayhave a mixed record of performance

Private companies are unlikely to be interested in providing water services in rural areas in low-income countriesbecause rural areas are generally considered unprofitable. In sanitation, public-private partnerships sometimes also view poor people as being unprofitable. Reflecting such biases, some private water companies have found ways of excluding poor people from service even in urban areas. In Cartagena, Colombia, a large shantytown did not receive water services because the company considered it outside the city area.37 Moreover, in some countries the extension of connections has been limited. In Dakar, Senegal, about 80% of the population had access to safe drinking water in 1994. Four years after the service was privatized, only 82% had access.38

International private sector involvement in water and sanitation remains limited in the urban areas of low-income countries. Even in middle-income countries, where most people live in urban areas, international private firms may be discouraged by the scale of investments required. Sustained service provision is best achieved through the efforts of local communities and firms (private and public), and building this capacity is an important role for government.

MIXED PERFORMANCE, UNCERTAIN FINANCING

Public-private partnerships in water and sanitationwhich have grown from almost none in the early 1990s to more than 2,350 todayhave a mixed record of performance. One of the main arguments for privatization is that it provides new capital, enabling public-private partnerships to mobilize additional resources for basic services. But since peaking in 1996, international private financing for water and sanitation has declined. And that decline is expected to continue.39

TABLE 5.1
Investments in water and sanitation projects involving private participation, various countries, 199094 and 19952000

(millions of US dollars)

Images

Source: World Bank 2002j.

SERVICE CHARGES

The private sector's reluctance to fund less profitable investments in poor rural areas hurts users. But public-private partnerships often do the same, even more directlythrough charges that hit poor people disproportionately more. This fact has to be balanced against the even higher prices that poor people previously paid for water from small vendors.

Public-private partnerships are based on the assumption that customers pay for services. Privatization in water and sanitation has led to much higher fees, sometimes overnightand sometimes with disastrous consequences (box 5.2). But if success requires higher tariffs, state water companies have shown that it is possible to use the additional revenue to improve services and expand coverage.

POSITIVE PRIVATE PROVISION

Not all privatizations of water and sanitation have been failures. In Sub-Saharan Africa, for instance, public-private partnerships have improved water quality.40 More generally, success in privatizing water services largely depends on government regulation, investor interest and the initial state of the enterprise.41 Countries with decent services before privatization often continue to do well after.

Where poor people have reaped the benefits of privatized water services, it has been due to political will. In Bolivia water and sanitation concessions in La Paz and El Alto were awarded to the bidder that promised to make the most new connections in poor neighbourhoods. The winning bidder was then obliged to connect 72,000 families to piped water and 38,000 to sanitation over a five-year period.


BOX 5.2

User fees in South Africa and Bolivia

Privatization of water services has often led to increased tariffs largely unaffordable to poor households. Under some public systems, households enjoyed low water billswell below the rate needed to recoup costsand non-payment of bills was largely overlooked. This approach is undesirable because cash-strapped public companies essentially subsidize both rich and poor people. But an overnight jump from exceptionally low to excessively high water bills also has disastrous consequences for poor households.

South Africa

South Africa has made incredible progress in providing water supplies to its people, though managing fee structures has been a challenge. In August 2000, however, a cholera epidemic broke out in the province of KwaZuluNatalinfecting nearly 14,000 people and claiming more than 250 lives. The epidemic started after local authorities cut water supplies to people living in an informal settlement who were unable to afford new user fees. The minister of water affairs and forestry admitted that the policy of cost recovery exacerbated the cholera epidemic, forcing households to seek alternative water sources.

In the build-up to privatizing water services, South Africa reversed its policy of keeping tariffs low and overlooking non-payment. But this reversal occurred overnightand without concurrent measures to ease the financial burden on poor people.

Bolivia

In early 2000 protests broke out in Cochabamba, Bolivia, largely in response to the tripling and quadrupling of household water costs. This price hike came only weeks after Aguas del Tunari, a London-based private company, took over the city's water system. The protests effectively shut down the city for four days. And as protests spread throughout Bolivia, 50 people were detained, dozens injured and 6 died from the violence.

Many analysts agree that the significant increase in water tariffs was driven by the cost of an expensive construction project that households were obliged to pay for up-front. The Misicuni Project, one of the most complex engineering projects in South America, involves building a $130 million dam, a hydroelectric power station and a $70 million, 20-kilometre tunnel used to transport water from the Misicuni River to Cochabamba.

User fees have great potential for impoverishing users and deterring people from using badly needed services. When user fees for basic social services have to be increased, governments must ensure that they are tailored to users. First, governments should be open with citizens about why increases are needed. There should be clear communication between service providers and users in this regard. Second, governments should strategically fix tariffs so that wealthier households can subsidize poorer. Other means of subsidizing poor people should also be sought. For instance, many campaigners in South Africa asked that the government provide 50 litres of water a day free of charge to poor householdsthe World Health Organization minimum for maintaining health and hygiene. Third, increases in water bills should be instituted progressively, not overnight.

Sources: ICIJ 2003c; Lobina 2000; Sidley 2001, p. 71.

In addition to contractually obliging private providers to expand services, governments have used revenue from privatization towards that end. Financial incentives, such as capital grants, have been offered to providers that service poor neighbourhoods. In addition, the high tariffs that tend to accompany privatization can be offset with subsidies targeting poor people. In Chile government subsidies ensured that no household spent more than 5% of its income on water.42

PROMISING APPROACHES

Government programmes have registered many successes in delivering basic social services to all citizens. Thus privatization need not be seen as the only option for reforming poorly run public services.

RELYING ON EFFECTIVE GOVERNMENT SYSTEMS

Many activities in the social sectors produce public goods or have many externalities, requiring state involvement to provide basic services to all. The recent push to privatize basic social services has ignored the past experiences of rich countriesas well as of many developing countries todaywhich relied on state systems to provide basic social services to most (if not all) of their people when they were developing. Private actors played only a limited role.

Many of today's high-performing developing countries managed to improve health indicators early in their developmentproviding universal health care paid out of government revenues. In many (Botswana, Costa Rica, Zimbabwe) better-off citizens opted out by taking private health insurance.43 Or, if private insurance was not available (Sri Lanka and Kerala, India), they paid private providers directly.44 But for most of these countries populations, better health was the result of universal and affordable carefinanced by government revenues and made effective by allocating resources to the lower levels of the health system.45

High-performing developing countries also began pursuing universal primary education early in their development, when their incomes were lower. Countries with literacy rates above those of their neighbours in 1980 also had smaller shares of students in private schools in the 15 years leading to 1980. In South Asia, for example, Sri Lanka's literacy rate in 1980 was 85% while the regional average was an extraordinarily low 38%.46 And Sri Lanka's proportion of students in private primary and secondary education was low in the 15 years to 1980.

In water and sanitation there is ample evidence of inefficient, oversized, corrupt state-owned companies. But there are also successful public systems largely ignored by proponents of privatization. Chile, for example, made safe water available to 97% of its urban population by 1990, and sanitation to 80%. And in Bogota, Colombia, municipal water services were threatened with privatizationbut, completely reformed, they have expanded coverage (box 5.3).

In Debrecen, Hungary, the state-run water company required considerable investment in the mid-1990s. Attempts were made to contract the service to one transnational water company, then anotherbut both attempts failed. In 1995 the city council decided that local water managers had the expertise to carry out the work. A new local public company made the needed investments at much lower costs than the bids by the private companies, partly by sourcing supplies locally instead of importing them. As a result prices are 75% lower than predicted by the private companies.

STRENGTHENING THE STATE

Regulatory capacity in developing countries has to be built up so that public and private provision works for all services and users. A key policy recommendation is to retrain government staff. This does not necessarily mean rich countries providing more technical assistance or technical cooperationit means them paying for transfers of skills and exchanges of experience among poor countries.

In health the need for regulation applies to both privatized companies and existing private services, both to protect consumers and contain costs. Most health ministries in developing countries have extremely weak information systems, undermining their ability (or perhaps indicating their unwillingness) to regulate private providers. In South Asia, despite widespread private provision and high private spending, regulation has failed abysmally to ensure quality care for most users of private providers.47


BOX 5.3

Successful state-run water systems

Efforts by the Chilean government in water and sanitation show that state-run systems can achieve positive results. By 1990, 97% of Chile's urban population had access to safe water, and 80% had access to sanitation. The cornerstones of the country's success:

Separating central regulation and regional operation.

Increasing financial investments in the sector.

Developing a system for fixing tariffs objectively.

Introducing incentives for efficiency.

Between 1988 and 1990 Chilean authorities established a new system for fixing tariffs objectively essential to revitalize the industry. The regulator established a maximum tariff based on a model efficient provider, and any differences of opinion between the company holding the concession and the regulator were to be resolved by a tripartite commission of experts. The reform permitted the gradual adjustment of tariffs to new, higher levels. Objective tariff

fixing was a main contributor to the success achieved in the management of water and sanitation services since 1990.

The private sector played a role in Chile's water and sanitation sector, but this role was limited and strictly regulated by the central government. There was a big increase in the contracting out of many activities by all companies, including operation, management and capital investment of entire systems, as well as maintenance of all aspects of the networks, meter reading and billing. Contracting out reduced the number of workers per connection. And in 1995 the average level of unaccounted-for water was 31%, far less than the Latin American norm of 4060%.

In Colombia's capital, Bogot, privatization was rejected in the late 1990s. The city refused World Bank money and transformed its public utility into the most successful in Colombia.

Source: ICIJ 2003a; Mehrotra and Delamonica forthcoming.

Regulation of clinical health services, for instance, requires tackling the proliferation of private providersoften untrained, unlicensed and unregulated. Governments must bring these actors into the public domain, which will require licensing and regular training to improve knowledge and skills. Training has increased provision of antimalaria drugs in Kenya and improved management of acute respiratory infections and diarrhoea in Mexico.48 In addition, the Rural Medical Association of West Bengal has adopted the World Health Organization's list of 40 essential medicines for recommended use by its members. Getting practitioners to restrict their use of these drugs will improve quality and control. Other measures for regulating providers include developing consumer protection legislation, promoting professional ethics and providing non-financial incentives, such as enhanced prestige.

Accreditation can be used to inform consumers about which private medical providers are registered. A professional body that offers accreditation and training to unregistered providers would benefit both providers and the public. It would build on the desire of providers for social recognition and prestige. And it would help promote the use of essential medicines through public campaigns.

Improving consumer behaviour is also important for health care regulation. This can involve improving consumer knowledge or providing subsidies to make quality services more affordable. Governments can also create institutions that enable consumers to challenge private providers who offer poor care.

Regulation of education and water services is often equally weak. In water privatizations public water authorities often assume the role of regulator. But international private providers rarely adhere to their agreements with host governments (box 5.4).49 Much more international support is needed to build regulatory capacity in these and other infrastructure areas if the private sector is to do more in achieving the Millennium Development Goals.


BOX 5.4

Metropolitan Manila and Buenos Aires: mixed record of experience with water privatization

Manila

In 1995 the Philippines declared a water crisis. The public water utility had left 3.6 million people unconnected to a water supply. And for those with connections, service was often erratic. In 1997 two private water companies won concessions to take over Manila's water system, dividing the metropolitan area into eastern and western zones. Within five years the companies had connected roughly 2 million more people to the network and service had improved significantly. During this time new service connections tripled from 17,040 a year (before privatization) to 53,921 (after).

Yet six years after privatization the water companies have performed below their targetsand are even asking to withdraw from the concessions. By 2001 one company had supplied water to 85% of its population, slightly below its projection of 87%, while the other company surpassed its target. But much debate surrounds the calculation of these figures, possibly leading to the dampening of reported success rates. Although one private water company saw no decline in the number of leaking pipes and water thefts, the other saw these figures increase. And by January 2003 water tariffs had risen by two to five times 1997 rates in both zones. Indeed, a 2000 survey of residents in 100 districts revealed a mixed perception of privatization, with 33% of respondents noticing better service, 55% noticing no change and 12% noticing deterioration.

Buenos Aires

In 1993 Argentina's government privatized the Buenos Aires water utility, and service quality and expansion subsequently increased. Company figures indicate that it connected roughly 1 million new users to the water system. And in the first year the company reduced water rates by 27%. But this drop simply rolled back significant rate hikes instituted by the public utility prior to privatization. In subsequent years the company repeatedly raised water rates, and in 1996 protests against high water bills occurred in Buenos Aires.

Furthermore, a government review found that by 1997 the company had built only about one-third of the pumping stations and underground mains it had promised to complete by then. And investments in sewerage networks totalled just $9.4 millionone-fifth the level promised. According to recent estimates, the picture is quite different when the country is considered as a whole. In the second half of the 1990s municipalities with privately managed water services have worked better than those publicly managed, particularly in poor areas, contributing to faster reductions in child mortality.

Source: ICIJ 2003b; Galiani, Gertler, and Schargrodsky 2002; ICIJ 2003d.

INVOLVING NON-GOVERNMENTAL ORGANIZATIONS

Social service provision by non-governmental organizations (NGOs) has been viewed as the middle way between market and state provision. For some analysts it provides a rationale for increasing the role of civil society organizations in providing these services. NGOs are often quite successful at filling gaps left by the public system (as with the primary schools set up by the Bangladesh Rural Advancement Committee). They are also useful in articulating community concerns, especially for poor people, to make institutions perform better. In water and sanitation, rural areas have been best served through user committees supported by NGOs. But NGOs should be a complement to, not substitute for, state activities.

NGOs have also joined partnerships among governments, businesses and civil society organizations. When private firms win long-term concessions for urban water and sanitation services, the contracts usually require significantly increasing coverage. Doing so may require skills and resources beyond the scope of private firms, especially foreign ones. NGO partners can improve a firm's understanding of its poor customers (expanding the customer base, improving project design), reducing capital and operation and maintenance costs, as with the water concessions in La Paz and El Alto, Bolivia. NGOs can also lend credibility and outreach to education and awareness campaigns. Vivendi, the French water company, initiated a partnership with an NGO in its Kwazulu-Natal project to better understand the needs of poor communities in South Africa.50


BOX 5.5

The Bamako Initiative: pooling community resources for health care

The Bamako Initiative is an initiative that pools community resources to finance local health care. The initiative has been implemented to a varying degree in more than 40 low-income countries, with half in Sub-Saharan Africa. It has not only protected households from catastrophic health costs, but has also organized communities to help strengthen and sustain local public health services. These communities contribute financial resources to local health clinics and have a voice in the management of these services.

The initiative's strategy is to revitalize public health systems by decentralizing decision-making from the national to the district level, instituting community financing and co-management of a minimum package of essential services at the level of basic health units. The aim is to improve services by generating sufficient income to cover some local operating costs, such as supplies of essential drugs, salaries of some support staff and incentives for health workers. Funds generated by community financing do not revert to the central treasury but remain in the community and are controlled by it through a locally elected health committee. From mere recipients of health care, consumers become active partners whose voices count.

After 10 years of implementation of the initiative, community action in most rural health centres in Benin and Guinea has enabled nearly half the population to be regular users of the services. It has also raised and sustained immunization levels close to health for all targets for 2000. Charging modest fees to users is seen in some cases as the most affordable option for the poorest people, who otherwise have to use more expensive alternativesthough it is less clear whether mechanisms exist to protect indigent members of the community.

Much of the success has been in ensuring that affordable essential drugs are readily available in health centres, under the scrutiny of committees. Another factor has been the improved attitude of health workerstraditionally one reason for people, especially women, not to use health services.

This experience suggests that in the absence of adequate government financing of health care, pooling of community resources, with some prepayment by the poor, is a fair and efficient mechanism for providing health services to poor people. Health systems that require individuals to pay out of pocket for many of the costs of health services restrict access to those who can afford to pay, and most likely exclude the poorest people. Fairness of financial risk protection thus requires the highest possible separation between contributions and use. There is consensus on the central role of public financing in public health. But for personal health care it is not the public-private dichotomy that is most important in determining health system performancebut the difference between prepayment and out-of-pocket spending.

Source: Mehrotra and Delamonica forthcoming.

Through the politics of pressure and engagement, NGOs are creating new agendas for businesses. A continuum of protests and partnerships between businesses and NGOs is creating a new form of regulation for global businesscivil regulation.51

IDENTIFYING BETTER WAYS OF FINANCING SERVICES

Aside from increasing government tax revenues, there are ways of improving service tariffs and charges to make them more rational and equitable. In health sudden, steep out-of-pocket costs can drive patients into (or further into) poverty. Surveys from 60 countries show that among poor groups, a larger proportion of households has high levels of health spending.52 In the absence of public financing, prepayment schemeswhich contain high health costs by spreading risks among pools of individualscan help deal with this problem. Such schemes have not only helped protect poor households from catastrophic health costs, they have also helped organize communities to sustain local public health systems (box 5.5).

In public education there is scope for much greater cost recovery at higher levels in most developing countries. In the 1990s Africa and India increased cost recovery in public universities.53 Still, it is nowhere near its potential: higher education provides enormous private benefits, and most people who can access it are not poor. Thus there is scope for much greater cost recovery (combined with exemptions for poor people).

In water and sanitation strategic tariff fixing (whether the provider is public or private) that raises user fees in line with higher usecoupled with targeted subsidiesis a good way to provide water services to more people. Targeting that is geographic (to places that poor people reside), rather than based on income, is more likely to succeed.

ADDRESSING THE RISKS OF PRIVATIZATION

International institutions promoting privatization of social services need to provide much more advance support to build regulatory capacity. The World Bank has some initiatives in this area, such as the International Forum for Utility Regulation, created in 1996 as an umbrella structure for learning and networking initiatives for utility regulators. But international agencies should do more than offer advice. They should also enable field visits of developing country regulators to other countries more experienced in private sector regulation. There is also a need to prepare model clauses for public-private partnerships in water. Such clauses would draw on the lessons discussed in this chapter, so that future contracts can avoid the pitfalls of past ones.

In water all revenues come in local currency, so servicing foreign loans involves an exchange risk for both borrowers and investors. This became a problem in Argentina, Indonesia and the Philippines after devaluations, putting pressure on water subsidiaries to raise tariffs to water users to service the loans. Thus central governments should encourage local authorities, which are usually responsible for water services, to borrow domesticallyfrom national development banks.

Too often it is assumed that private sector involvement in water implies the involvement of foreign multinational companies. In many developing country cities small providers cover significant sections of the population: in Delhi, India, 6%; in Dhaka, Bangladesh, 10%; in Ho Chi Minh City, Viet Nam, 19%; and in Jakarta, Indonesia, 44%.54

In all sectors regulatory capacity should be built up before privatization. Otherwise, the private sector may merely respond to different demand, not to excess demand, whether in education, clinical health care or water and sanitation. With better information on the private sector and stronger regulatory capacity, the state can ensure that the private sector plays a complementary role in providing and financing these basic social services.

CHAPTER 6

Images    Public policies to ensure environmental sustainability

Ensuring environmental sustainabilitythe seventh Millennium Development Goalrequires achieving sustainable development patterns and preserving the productive capacity of natural ecosystems for future generations. Both efforts in turn require a variety of policies that reverse environmental damage and improve ecosystem management. The challenge has two dimensions: addressing natural resource scarcity for the world's poor people and reversing environmental damage resulting from high consumption by rich people.

Many environmental problems arise from the production and consumption patterns of non-poor people, particularly in rich countries. Rich countries consume a lot of fossil fuels and deplete many of the world's fisheries, damaging the global environment. They also use a lot of tropical hardwoods and products from endangered species.

To ensure the sustainability of Earth and its resources, including the development prospects of poor countries, these harmful production and consumption patterns must change. Energy systems will have to generate much lower greenhouse gas emissions. Fisheries will have to be managed based on ecological limits rather than heavily subsidized free-for-alls. And international rules of the game will have to mitigate the overconsumption that endangers ecosystems and certain plants and animals. But with smart policies and new technologies, the costs of these changes can be quite low.

At the same time, many environmental problems stem from povertyoften contributing to a downward spiral in which poverty exacerbates environmental degradation and environmental degradation exacerbates poverty. In poor rural areas, for example, there are close links among high infant mortality, high fertility, high population growth and extensive deforestation, as peasants fell tropical forests for firewood and new farmland.

Given this chain of causation, policies that reduce child mortality can help the environment by lowering population growth and reducing demographic pressures on fragile ecosystems. Other examples of poverty contributing to environmental degradation abound.

Thus reducing poverty can play a pivotal role in environmental protection. Worsening environmental conditionsincluding depletion of natural resources and degradation of ecosystems and their serviceshit poor people the hardest. And when poor people degrade the environment, it is often because they have been denied their rights to natural resources by wealthy elites. In many cases, for example, poor people are forced onto marginal lands more prone to degradation.1

Around the world, 900 million people live in absolute poverty in rural areas, depending on the consumption and sale of natural products for much of their livelihoods. In Tanzania poor people derive as much as half of their cash incomes from the sale of forest products such as charcoal, honey, firewood and wild fruits.2 The least developed countries are the most dependent on agriculture and natural resources. Yet relying on primary productsagricultural and forest products, minerals, fishfor export earnings makes developing countries highly vulnerable to resource depletion and worsening terms of trade.

The relationship between poverty and environmental resources also has a strong gender component. Poor women and girls are hurt disproportionately by environmental degradation, often because they are responsible for collecting fuel, fodder and water. In many countries deforestation forces rural women and girls to walk farther and spend more time and energy collecting fuel wood. In Africa they spend up to three hours a day just fetching water, expending more than a third of their daily food intake.3

Goal 7: Ensure environmental sustainability

Target 9: Integrate the principles of sustainable development into country policies and programmes and reverse the loss of environmental resources

Target 10: Halve, by 2015, the proportion of people without sustainable access to safe drinking water

Target 11: By 2020, to have achieved a significant improvement in the lives of at least 100 million slum dwellers


BOX 6.1

How global climate change threatens developing countries

Global climate change is expected to increase the economic disparities between rich and poor countries, especially as temperatures increase. The estimated damage for poor countries partly reflects their weaker adaptive capacity. Hence climate change is a major development issue.

Climate change could lead to large-scale, possibly irreversible changes in Earth systems, with effects at the global and continental levels. Though the likelihood and scope of these effects are not well known, they will be significant and so must be reflected in policy-making. Potential effects include:

Reduced crop yields in most tropical and subtropical regions and increased variability in agricultural productivity due to extreme weather conditions (droughts and floods).

Increased variability of precipitation during Asian summer monsoons, which could reduce food production and increase hunger.

Reduced water availability in many water-scarce regions, particularly subtropical regions. Increased water availability in some water-scarce regions such as parts of South-East Asia.

Increased destruction of coral reefs and coastal ecosystems and changes in ocean-supported weather patterns.

Rising sea levels. With a 1 metre rise in sea level, partly due to global warming, Egypt could see 12% of its territoryhome to 7 million peopledisappear. Rising seas threaten to make several small island nationssuch as the Maldives and Tuvalu uninhabitable, and to swamp vast areas of other countries.

Increased exposure to vector-borne diseases (malaria, dengue fever) and water-borne diseases (cholera).

Source: IPCC 2001a, b; UNDP 1998.

Poor people tend to suffer the most from air and water pollution. They spend more of their household incomes on energy, yet the services they receive are often of low qualitysuch as biomass fuels burned in inefficient, polluting stoves, or kerosene lamps that cost more per unit of illumination than lamps powered by an electricity grid.

Poor people are also the most vulnerable to environmental shocks and stresses, including floods, prolonged droughts and the emerging effects of global climate change (box 6.1). Moreover, they are the least capable of coping with such shocks and stresses. In dryland India biodiversity-related products (such as wild fruits or honey) usually account for about 20% of the incomes of poor rural people. But during droughts they account for more than 40% because cultivated crops fail.4

Ignoring environmental sustainability, even if doing so leads to short-run economic gains, can hurt poor people and undermine long-run poverty reduction.5 The strong links between poverty and the environment call for a focus on the needs of people whose livelihoods depend on natural resources and environmental services. In policy and practice, environmental management should create income-generating opportunities, strengthening people's property and user rights and fostering their participation in political decision-making.

The links between poverty and the environment also run in the other direction. Poor people are often deprived of the means and rights to invest in the sustainable use of environmental resources through improved water treatment and sanitation, cleaner energy technologies and so on. Poor people also lack the money to invest in substitutes for environmental services.

Ever-expanding consumption hurts the environment through polluting emissions and wastes. Growing depletion and degradation of renewable resources also undermine livelihoods. Over the past 50 years carbon dioxide emissions quadrupled, with much of the increase occurring in rich countries. In 1999 per capita carbon dioxide emissions in high-income OECD countries exceeded 12 metric tonnescompared with 0.2 tonnes in the least developed countries.

Because of their larger contributions to global environmental degradation and their greater financial and technological resources, rich countries bear much of the responsibility for addressing environmental concerns. Rich countries also need to help poor ones pursue environmentally sustainable development. Achieving the Millennium Development Goals requires policies that stress the complementarity between sustainable development and environmental management and that minimize the trade-offs. Indeed, ensuring environmental sustainability is essential for achieving the other Goals (table 6.1).

ENVIRONMENTAL RESOURCES

Ecosystems and natural resources, fundamental to so many productive activities, contribute much to the global economy. In the late 1990s agriculture accounted for nearly a quarter of the GDP of low-income countries.6 Industrial wood products contributed $400 billion to the global economy in the early 1990s, and fisheries accounted for $55 billion in exports in 2000.7

Scarce natural resources and ecosystem stresses often force unwanted trade-offs on poor communities. A community can get more food by converting a forest to farmland, but in doing so it may lose environmental services such as timber, biodiversity, clean water, flood regulation and drought control.

FOOD

Human well-being depends on natural resources and environmental services that help produce food. People rely on soils to grow crops, grasslands to raise livestock and freshwater and oceans to support fisheries. Underlying much of this productivity: genetic resources. Over centuries farmers have generated crucial stocks of knowledge and productivity by breeding livestock and selecting, storing and propagating plant varieties. Diverse genetic resources enable farmers to adapt to environmental change by creating new livestock and plant varieties better suited to new conditions. In periods of scarcity, wild biodiversity is also a source of alternative food products.

WATER

Natural resource mismanagement and degradation threaten vital water servicesundermining economic growth, human well-being and environmental resilience. About 1.7 billion people, a third of the developing world's population, live in countries facing water stress (defined as countries that consume more than 20% of their renewable water supply each year). If current trends persist, this number could increase to 5.0 billion people by 2025.8 Limited access to water is weakening the development prospects of many countries, and conflicts over water use and distribution are a common cause of international disputes.

TABLE 6.1
Why reaching the environmental Goal is so important for the other Goals

Images

Source:Based on UNDP; DFID; World Bank.

ENERGY

More than 2 billion people lack access to electricity and the services it provides, including lighting, refrigeration, telecommunications and mechanical power.9 These services are essential to delivering education and health care and to creating productive employment opportunities.

In the poorest countries more than 80% of energy comes from traditional sources such as dung, crop residue and fuel wood.10 Inefficient stoves and heating technologies often force local people to gather traditional fuels at a rate that exceeds the natural regeneration of these resources, degrading land. Cooking with such fuels can produce extremely high levels of health-damaging air pollutants, both indoors and out. Solutions to such problems involve linking changes in energy consumption patterns in rich countries to the use of low-cost, low-emission technologies in developing countries.

Transportation, the most energy-intensive sector, is a key challenge for achieving sustainable energy use. Governments should provide incentives for consumers and producers to switch to more efficient vehicles and more sustainable resource use. The price of petrol, much of which is determined by taxes, can make a big difference. Among OECD countries Canada and the United States have some of the lowest petrol pricesand, not surprisingly, the highest per capita consumption. Austria and Japan have among the highest petrol pricesand per capita consumption one-quarter the US level and one-third the Canadian level (figure 6.1). In India petrol costs four times as much (at market exchange rates) as in the United States.

FIGURE 6.1
Higher petrol consumption is associated with lower prices in OECD countries, 2001

Images

Source: IEA and OECD 2003.

LIVELIHOODS

Natural resources and environmental services are a direct source of livelihood for many peopleespecially poor people in rural areas, who are the most severely affected when the environment is degraded or access to environmental assets is limited or denied. By maintaining the environment's health and productivity, natural resources and environmental services maintain livelihood options and potential for diversification. Variety is essential because poor people need to be able to diversify their use of natural resources and environmental services as conditions change.11

POLICY RESPONSES

Policy interventions to address natural resource scarcity for the world's poor peopleand to reverse environmental damage from overconsumption in rich countriesmust take into account the diversity of the natural environment, the many and varying causes of environmental degradation and the complex links between poverty and the environment. Interventions should also draw on past efforts to improve environmental management:

Environmental management cannot be treated separately from other development concerns. To achieve significant, lasting results, it must be integrated with efforts to reduce poverty and achieve sustainable development. Improving environmental management in ways that benefit poor people requires policy and institutional changes that cut across sectors and lie mostly outside the control of environmental institutionsincluding changes in governance, domestic economic and social policies and international and rich country policies.12

Successful environmental policies must see poor people not as part of the problem but as part of the solution (boxes 6.2 and 6.3).

Environmental problems must be actively managed as part of the growth process. Environmental improvements cannot be deferred until rising incomes make more resources available for environmental protection.

Six policy principles should guide environmental policies:

Strengthening institutions and governance.

Making environmental sustainability part of all sector policies.

Improving markets and removing environmentally damaging subsidies.

Bolstering international mechanisms for environmental management.

Investing in science and technology for the environment.

Increasing efforts to conserve critical ecosystems.

STRENGTHENING INSTITUTIONS AND GOVERNANCE

Many environmental problems are grounded in institutional failures and poor governance. Three institutional failures are especially important for environmental management: inadequate property and user rights, insufficient information and opportunities for local stakeholders to participate in decision-making and weak monitoring and enforcement of environmental standards (box 6.4).

At the international level institutional and governance problems are evident in struggles to develop fair, effective systems to manage global resources such as oceans and the climate. At the national level weak property and user rights are a common cause of environmental problems such as deforestation, overgrazing and overfishing. Managing open access to a common resource is difficult because the decisions of individuals and companies are based on private costs and benefitsand so can reduce environmental and community well-being.

To respond, local people must have the power to manage the environmental systems on which their livelihoods depend. How? Partly by clarifying overall property and user rights to common resources, which may require reforming policies and institutions that control access to land and natural resources. And partly by strengthening women's property rights, because women tend to be more dependent on environmental resources for their livelihoods.


BOX 6.2

Improving the lives of slum dwellers

An estimated one-third of the developing world's urban population lives in slums. They contend with overcrowding, substandard housing and poor access to safe water and sanitationresulting in high rates of disease and infant mortality.

Rapid urban growth suggests that the problems of slum dwellers will worsen in cities already vulnerable. The United Nations projects that between 2000 and 2010, 85% of the growth in the world's population will occur in urban areasalmost entirely in Africa, Asia and Latin America. In 2001 more than 70% of the urban populations in the least developed countries and Sub-Saharan Africa lived in slums. Without substantial interventions, this figure will increase.

Millennium Development Goal 7 calls for significant improvements in the lives of at least 100 million slum dwellers by 2020. Traditionally, donors have been less focused on the needs of urban residents. But with growing pressure to manage rapid urban growth, that is beginning to change.

Though cities are often associated with environmental destruction, their high population densities offer opportunities to build crucial infrastructuresuch as sanitation, transport and health care servicesat lower costs per capita than in rural areas. Urban environments can also offer better prospects for making governments more responsive and accountable to people's needs. The success of slum dweller associations around the worldsuch as in Mumbai, India, and Nairobi, Kenyasuggests that higher population densities and closer proximity to decision-makers enable poor urban residents to make their voices heard.

Total, urban and slum populations worldwide, mid-2001

Images

Estimates from African Population and Health Research Center, in collaboration with UN HABITAT.

Source: UN-HABITAT 2002; UN 2002i.

Decentralization can improve environmental governance (see chapter 7). But it should be accompanied by efforts that build community capacity to manage environmental resources and influence planning and policy-making. Respecting the rights of marginal and indigenous groups, who often rely on natural resources for much of their incomes, is particularly important.


BOX 6.3

Involving local residents in conservation in Guanacaste, Costa Rica

Since its inception in 1985, Costa Rica's Area de Conservacin Guanacaste (ACG) has exemplified a new model of conservation one featuring decentralized decision-making, a commitment to making wild land a productive asset and a focus on making conservation economically sustainable. Designated as a World Heritage site by the United Nations Educational, Scientific and Cultural Organization, the ACG encompasses 2% of Costa Rica's national territory and is home to more than 235,000 species65% of the country's biodiversity.

Through a local council, civil society is involved in decision-making on the area, which is one of the region's largest employers and hires only native Costa Ricans. More than $45 million has been invested in the area's development, and its annual budget of $1.5 million is spent directly in the area and neighbouring towns. Local businesses benefit from the influx of visitors. In addition, the ACG serves as a springboard for applied research being conducted by the National Institute for Biodiversity: forest restoration will increase the habitat available to search for profitable natural chemicals. Other environmental services provided by the ACG include eco-tourism, water generation and carbon storage.

The main lesson of Guanacaste is that protected areas must be managed entirely at the local level, with resources suitable for their sustainability. The ACG manages and develops 2% of the country at almost no cost to Costa Rican taxpayers.

Source: Janzen 2000, pp. 12232; UNDP 2001a.


BOX 6.4

Promoting equity and the environmenta creative fiscal example from Brazil

In 1992 most Brazilian states adopted an ecological value added tax (Imposto sobre Circulacao de Mercadorias e Servicos, or ICMS-E). A levy on goods, services, energy and communications, the tax is the largest source of revenue in Brazil. One-quarter of the revenue goes to municipalities, with allocations to individual municipalities based on various indicators of environmental performance. The states of Paran and Minas Gerais, for example, distribute revenue based on the proportion of protected areas in each municipality, weighted by a conservation factor related to protection of each area.

The ICMS-E was intended to compensate municipalities with large conservation areas for the resulting loss of revenue. Revenue from the tax is often used to maintain parks and reserves, including tool purchases and employee salaries.

In some states the tax appears to have significantly increased the number and size of protected areas. In Paran conservation areas grew by more than 1 million hectares between 1991 and 2000a 165% increase. During 19952000 Minas Gerais also added more than 1 million hectares a 62% increase.

Source: May and others 2002.

In many developing countries natural resources are plundered by corruption, benefiting powerful elites at the expense of poor people who depend on such resources. Countering corruption requires strengthening governance, with better enforcement, stiffer penalties and increased community involvement. In several countries citizens are assessing how well governments provide access to environmental decision-making and regularly monitoring environmental governance. Both efforts will likely spur further progress.13

MAKING ENVIRONMENTAL SUSTAINABILITY PART OF ALL SECTOR POLICIES

Most sector policies affect the environment, but too often environmental considerations do not inform policy-making. More scientific advice can ensure that understanding of the natural world feeds into the political process at all levels. Economic analysis, incorporating valuations of environmental assets, should also inform policy-making in all sectors.

Sector policies with significant effects on the environment should be subject to rigorous environmental impact assessments. In addition, Poverty Reduction Strategy Papersas well as national development and sector strategiesshould explicitly address environmental protection and management. National governments, multilateral organizations and bilateral aid agencies need to systematically incorporate environmental impact assessments into their policies and programmes.

Social policies related to the Millennium Development Goals also affect environmental quality (see chapter 4). Investments in human development, particularly in education for women and girls, offer numerous environmental benefits, including reduced population pressure. So, environmental policies need to address the gender dimensions of the links between poverty and the environment, integrating them into the formulation, implementation and monitoring of Poverty Reduction Strategies and related policy reforms.

National frameworks, such as strategies for sustainable development, should guide policies for natural resource management in light of a country's specific resources and concerns. Many national environmental action plans fail to address their effects on other sectors and on the needs of poor people. To improve environmental policy-making, such plans should explicitly address these concernsas well as their contributions towards reaching the Goals.

IMPROVING MARKETS AND REMOVING ENVIRONMENTALLY DAMAGING SUBSIDIES

The normal operations of markets drive apart private gains and social costs because productive activities often generate private benefits for economic agents but impose costs on society. Thus regulation or corrective taxation may be required to align private and public incentives with the need for environmental protection.


BOX 6.5

Global fisheriesgetting sunk by subsidies

Around the world, fish stocks are being depleted because of unrestricted, highly advanced fish harvesting. Overfishing occurs in Asia, parts of Africa and Latin America and many small island countrieswith overfishing by local residents often aggravated by fishing fleets from rich countries. According to the United Nations Food and Agriculture Organization, more than a quarter of the world's fisheries are overexploited or depleted.

Global subsidies for fishing are conservatively estimated at $1015 billion a yearabout a quarter of the annual $56 billion trade in fish. These loans, tax incentives and direct payments often support distant fleets that are too large given available fish stocks. The United States provides about $400,000 a boat to help its fishers catch tuna in the South Pacific. In 1996 the European Union spent $252 milliona third of its budget for fisherieson access agreements for its fleets to fish in distant waters. The European Union also continues to spend more on harmful subsidiessuch as to build new boats or modernize old ones (1.2 billion euros in 200006 from EU and national budgets)than on efforts to reduce fishing (1.1 billion euros). According to the World Bank, only 5% of fishing subsidies have a positive environmental aim. Most reduce fish stocks and hurt marine ecosystems.

Source: Institute for European Environmental Policy 2002; WWF 1998; IFPRI 2001; Milazzo 1998.


BOX 6.6

Felling forestswith subsidies

In 1998 the Group of Eight (Canada, France, Germany, Italy, Japan, the Russian Federation, the United Kingdom, the United States) committed to protecting the world's forests. But some G-8 members continue to subsidize forest industries undermining forest protection and accelerating forest loss.

Among the most pervasive subsidies are low charges for logging companies cutting old-growth wood on public lands, tax write-offs for logging companies, government construction of logging roads at no cost to the companies that will use them and direct grants to logging companies for, say, planning costs. Canada, Japan and the United States are the leading G8 subsidizes. Among European members, France stands out as the only government with direct investments in logging companies.

Canada's subsidies total $2.02.7 billion a year. Japan subsidizes sawmills that process logs imported from old-growth forests in Canada, Siberia and elsewhere, and its export promotion agencies support programmes that destroy old-growth forests and hurt traditional communities in Australia, Indonesia and elsewhere. In the United States timber sale programmes in national forests cost taxpayers more than $2 billion in 1992-97. France is building roads and making related logging investments in environmentally sensitive areas of Central Africa. Numerous studies have shown that such road building does serious harm to the region's primary tropical forests. The Russian Federation's forests are beset by massive illegal logging. Not collecting taxes and fees from such operations is a type of subsidy, offset somewhat by the high risks of doing business in the country.

Source: Sizer 2000; Myers and Kent 1998.

Especially harmful are government policies, such as direct or hidden subsidies, that send the wrong signals by pricing environmental resources inappropriately. Reducing environmentally damaging subsidies is often far more cost-effective than directly regulating economic activity. Reflecting environmental costs in market pricesthrough pollution charges and other market-based policiesalso promotes environmentally sound practices and sustainable use of natural resources.

Prices for irrigation water are an important example. Even though water is becoming more scarce in many countries, it tends to be provided to users almost free of charge. That approach promotes waste, increases soil waterlogging and salinization and discourages farmers from investing in water conservation. Other environmentally damaging policies include subsidies that promote large-scale commercial fishing and forestry and excessive use of agricultural chemicals such as fertilizers and pesticides (boxes 6.5 and 6.6).

Topping the list of damaging subsidies, however, are those for fossil fuel consumption. Worldwide, their value exceeds all foreign aid from all sources.14 There is growing consensus that energy subsidies should focus on expanding access to technology, developing and disseminating cleaner fuels and increasing end use efficiencynot promoting consumption. As some European countries show, pricing fossil fuels appropriately can provide a powerful incentive for increasing the use of renewable energy. The lower unit costs of renewable energy technologies benefit both rich countries and developing countries considering their adoption.

Policy interventions should also account for the impact of economic activities on environmental assets. National income accounts (such as GDP) should differentiate between income from sustainable use of natural resources (sustainable agriculture and forestry) and from activities that reduce stocks of natural capital (extracting minerals or oil). These accounts should also include the effects of economic activities on environmental quality and productivity, such as soil and water degradation.

Such green accounts place environmental problems in a framework that economic ministries understand. They also encourage decision-makers in finance, planning and sector ministries to pay more attention to environmental degradation. When the costs of environmental degradation and natural resource depletion are accounted for, Sub-Saharan Africa's net savings rate goes from positive to negative in most years between 1976 and 2000.

BOLSTERING INTERNATIONAL MECHANISMS FOR ENVIRONMENTAL MANAGEMENT

Environmental degradation rarely stops at national borders, yet many environmental policies and institutions do. International watersheds, fisheries, pollution and climate change pose environmental policy challenges that must be addressed by countries working togetherbecause the actions of one country affect the welfare of others. Compounding the problem are the unequally distributed benefits of environmental services and the costs of managing them within and between countries.


BOX 6.7

Policy responses to climate change

Scientific evidence strongly supports immediate action to curb the greenhouse gas emissions that cause global warming. The 1997 Kyoto Protocol places most of this burden on rich countriesbecause while they contain only 16% of the world's population, they generate 51% of such emissions.

The protocol calls on rich countries to reduce carbon dioxide emissions by at least 5% of 1990 levels by 200812. Supporters of the protocol see this as an important step towards mitigating climate change. Opponents castigate it for unnecessarily high implementation costsdue to restrictions on emissions tradingand for a lack of emission limits for poor countries. Another criticism is that, even if fully implemented, the protocol would reduce the average global temperature by less than 0.15 degrees Celsius by 2100.

The United States, which produces 25% of global greenhouse gas emissions, has refused to ratify the protocol. Without US participation, no international agreement on climate change is likely to significantly reduce the threat of global warming. But international cooperation is required to provide incentives for the private sector, consumers and governments to reduce greenhouse gas emissions.

To increase acceptance of the protocol, more attention should be paid to minimizing the costs of combating climate change. It will also be important to build on the Clean Development Mechanism, which permits reductions in carbon emissions through innovative international trading systems.

In addition, there is scope for long-term reductions in greenhouse gas emissions in rich and poor countries beyond the terms of the Kyoto Protocol:

Developing clean energy technologies solar or wind energy, fuel cells, hydropower, geothermal energythat release little or no carbon dioxide. Making these technologies cost-competitive with fossil fuels will require increasing public investment in research and development and removing fossil fuel subsidies.

Developing safe, economical carbon sequestration technologies that prevent the release of carbon dioxide into the atmosphere. Promising examples include natural carbon sinks such as forests, sequestration in deep seas and mines and chemical fixation of carbon dioxide as thermodynamically stable metal carbonates.

Increasing energy efficiency through more efficient vehicles, appliances, lighting and industrial motors, and through reduced electricity transmission losses.

Source: UN 1997; Nordhaus and Boyer 1999, pp. 93130; World Bank 2003i; Baumert and others 2002.

Several international environmental agreements have drawn attention to the need to manage the global environment. But implementation of these agreements could be improved. Greater emphasis should be placed on the needs of poor people, particularly in reaching the Goals. And more needs to be done to build developing countries capacity to implement these agreements and integrate them with national policy-making.

New institutional arrangements may be needed to coordinate national policies in response to regional and global environmental challenges. Stronger cooperation is needed for regional environmental management. The countries along the Rhine river show how costs and benefits can be shared in managing an international watershed.

Intergovernmental processes tend to be difficult to organize and slow to execute, but they are the only realistic way to address cross-border pollution and ecosystem degradation. International agreements should share burdens equitably and ensure that the benefits of better environmental management accrue to the local people who bear the direct costs and lost opportunities of environmental resource protection. The Montreal Protocolthe international agreement to protect the ozone layerhas been a resounding success of global environmental policy. But its implementation was facilitated by cost-effective alternatives to ozone-depleting substances, limiting the need for extensive benefit- and cost-sharing between rich and poor countries.

Although rich countries produce most of the emissions that lead to global warming, the effects are felt all over the world. Meanwhile, progress on curbing these emissions has been mixed (box 6.7).

INVESTING IN SCIENCE AND TECHNOLOGY FOR THE ENVIRONMENT

Available technologies can go a long way towards addressing complex environmental challenges cost-effectively. Needed are ways to provide these technologies to people who need them most. In poor countries this will often require significantly strengthening institutional capacities for technological cooperation.

Improving technologies for environmental problems will require dramatically reorienting research and development policies. In rich countries public investment in energy research and developmentincluding for renewable energyhas dropped precipitously over the past two decades.15 Given the need to address climate change, increased investment is essential to expand markets for renewable energy technologies and lower unit costs, benefiting rich countries and enabling poor countries to adopt the same solutions.

Scientific understanding of the natural world is substantial, but a remarkable amount remains unknown. No mechanism exists to track major ecosystems and their continued ability to produce needed goods and services. A Life Observatory should be established to systematically monitor major ecosystems such as coastal habitats, major watersheds and wetlands. Such an observatory would complement current efforts, including the Global Terrestrial Observing System, the Global Climate Observing System and the Global Ocean Observing System.

The Life Observatory should build on the Millennium Ecosystem Assessment, a four-year effort involving 1,500 scientists compiling the best available knowledge on the world's ecosystems and the services they provide. The Life Observatory would ensure that these analyses are continuously updated to map the long-term effects of human activities on specific ecosystems.

To devise responses, policy-makers require reliable scientific forecasts of human-induced environmental change. Environmental indicators that accurately track the environment should be developed and integrated with national policymaking. Long-term planning should factor in projected changes in climate and changes to specific ecosystems to assess how these trends will affect development progress and needs.

INCREASING EFFORTS TO CONSERVE CRITICAL ECOSYSTEMS

Creating protected areas is often the best way to conserve species diversity and critical ecosystems. More than 60% of terrestrial species are found in 25 ecoregions on just over 1% of Earth's land surface. These biodiversity hotspots face extreme threats that have already caused a 70% loss of their original vegetation.16

Available technologies can go a long way towards addressing complex environmental challenges cost-effectively

The best hope for conserving biodiversity and critical ecosystems is for the world's governments, scientists and other key stakeholders to set priorities and cooperate on common goals. Conservation efforts are most effective when constructed by experts from a wide array of disciplines, in consultation with local residents.

Well-managed protected areas can generate significant revenues through tourism and innovative financial mechanisms, such as payments for ecosystem services. Local people, particularly poor people, should be seen as part of the solutionnot part of the problem. People whose livelihoods depend on protected areas must benefit from them and have a stake in their continued success. Otherwise such efforts will not be sustainable.

CHAPTER 7

Images    Mobilizing grass-roots support for the Goals

Men and women have the right to live their lives and raise their children in dignity, free from hunger and from the fear of violence, oppression or injustice. Democratic and participatory governance based on the will of the people best assures these rights.

UN Millennium Declaration, p. 2

Implementing the policies and interventions required to meet the Millennium Development Goals requires the commitment of political leaders. But it also requires sustained political pressure, broad popular support and mechanisms for delivering services effectively. An open democratic state that guarantees civil and political freedoms is essential for such popular mobilization and participatory civic engagement, so that poor people can pressure their leaders to deliver on their commitments to the Goals.

Upon his inauguration as president, Brazil's Luiz Inacio Lula da Silva vowed to eradicate hunger by 2005 through his Fome Zero (Zero Hunger) programme.1 This kind of political momentum, support and mobilization is critical for the Goals, and the Brazilian initiative will go a long way beyond halving the country's proportion of hungry people (Goal 1). Such mobilization around the Goals should be encouraged and sustained. Political leaders must be able to use the Goals to structure their political platforms and campaign manifestos, and electorates must be able to judge leaders performance based on progress towards the Goals.

Such efforts are already under way in many countries:

In Cambodia and Niger political leaders have articulated political platforms and policy agendas integrating several Goal-related concerns.

Chile is promoting public debate on the Goals and making them a major part of parliamentary discussions.

Paraguay has a tradition of community involvement in setting development priorities, including training community leaders.

Albania has a strategy to follow up its report on the Goals, including a regional advocacy tour and a plan to establish a forum for civil society organizations.

Poland has a project to integrate poverty reduction and environmental protection efforts with its national strategy for achieving the Goals.

Kenya is promoting partnerships with civil society organizations on the Goals. The Goals will also be part of a national meeting of stakeholders in Kenya's Poverty Reduction Strategy Paper (PRSP) process.

Zambia's 2002 national human development report focuses on poverty and hunger, bringing these concerns into public and policy debates.2

The risk is that the Millennium Development Goals will be undermined by entrenched groups that resist policies reallocating resources to the poorest, most marginal members of society

The risk is that the Millennium Development Goals will be undermined by entrenched groups that resist policies reallocating resources to the poorest, most marginal members of society. It is more the rule than the exception that more schools and health clinics are built in urban areas than in poor rural villages, and that poor communities often pay more for water than rich ones (see chapter 4).

It is also often the case that pro-poor prioritiessuch as basic health and educationreceive little political attention. The more unequal a society, the less likely it is to generate sustained political support for the Goals, because political power is usually concentrated and overlaps with economic wealth and social dominance. In unequal societies, elite-dominated progress towards the Goals is also less likely to benefit the poorest people. Moreover, overall national progress may still mean that large sections of the population are being left behind, as in Brazil, China, India and elsewhere (see chapter 2).

Reversing such inequities requires political pressure, with people making demands on decision-makers. But even if resources are reallocated and political pressure succeeds, a further risk is that mechanisms for effective implementation will not be created. Basic public services closest to the needs of the poorest peoplehealth clinics, schools, hand pumps, standpipes or wellsare usually managed by bureaucrats and government employees who report to their superiors within the vertical hierarchy of line ministries. Such bureaucrats and government employees rarely feel a strong sense of accountability or belonging to the communities or neighbourhoods they administer. If they were instead held accountable to locally elected municipal bodies, services would likely be delivered more effectively. Effective, accountable responses are encouraged by local incentivesand censure.

Whether the Goals succeed partly depends on the local political environmenton whether there are avenues for citizens to participate in decision-making through formal democratic structures or through direct collective mobilization and action

The Millennium Development Goals are national political commitments with the potential to provide ordinary people with a powerful tool for holding their leaders accountable for results. The Goals are exciting because they articulate the dreams of ordinary people: to have a school nearby with teachers who show up for work and with books and pens for students. To have at least a hand pump that provides safe water and that women and children can walk to easily. To have a local health clinic supplied with drugs and staffed by a doctor and nurse.

But realizing the potential of the Goals requires that poor people organize and take collective action. This is not simple. Poor people tend to be less organized, less capable of articulating their concern politically, less able to gain access to public services and legal protection, less connected to influential people and most vulnerable to economic shocks.

Whether the Goals succeed partly depends on the local political environmenton whether there are avenues for citizens to participate in decision-making through formal democratic structures or through direct collective mobilization and action (box 7.1). The political processes that matter most to poor people are at the local level, because that is where they have the best chance of holding governments accountable.

The major political reforms of recent decades have made such outcomes more feasible. The 1980s and 1990s saw a huge increase in the global spread of democracy. Some 81 countries29 in Sub-Saharan Africa, 23 in Europe, 14 in Latin America, 10 in Asia and 5 in the Arab Statestook steps towards democratization.3 As part of these political changes there have been moves towards decentralization and an emergence of new social movements, giving citizens new ways to take collective action. This chapter examines these two political developments to draw lessons for political reforms and social actions that can provide the political momentum needed to achieve the Millennium Development Goals.

DECENTRALIZATIONITS RISE, ITS ROLE, ITS REQUIREMENTS

In recent years a wide variety of countriestransition and developing, solvent and insolvent, authoritarian and democratic, with governments of the left, right and centrehave pursued decentralization. Since the early 1980s such reforms have been introduced in regimes ranging from monarchies to military juntas to single-party systems to multiparty democracies.

Decentralization involves a central government transferring to local entities some of its political authority and, crucially, some of its resources and administrative responsibilities. These local entities then provide some basic public services and functions. Multipurpose local councils have been created for this purpose in more than 60 countries.4 And in Latin America, except in a few small countries, nearly all legislative and executive authorities are now elected in 13,000 units of local government.5

It is widely believed that decentralization increases popular participation in decision-making because it brings government closer to peoplemaking it more accessible and more knowledgeable about local conditions and so more responsive to people's demands. But does evidence support this idea? More important, does decentralizing authority and resources help advance the pro-poor agenda?

THE CASE FOR DECENTRALIZATION

Where decentralization has worked (and this is no mean feat)as in parts of Botswana, Brazil, Colombia, Jordan, South Africa and many states in India (Karnataka, Kerala, Madhya Pradesh, Rajasthan, West Bengal)impressive achievements have been made, including:


BOX 7.1

Madhya Pradesh and Rajasthaneducation policies that deliver results

Madhya Pradesh and Rajasthantwo of India's poorest states, with the country's worst social indicatorshave transformed schooling for poor people. How?

In 1994 Madhya Pradesh became the first state in India to implement the newly resurrected local governance systempanchayati raj institutions. The panchayat leadership, along with the state government, made universal primary education a priority. Between 1991 and 2001 Madhya Pradesh increased its literacy rate by 20 percentage points, from 44% to 64%. Similarly, literacy rates in Rajasthan rose by 22 percentage points, from 39% to 61%. Clearly, both governments were doing some things right.

Rajasthan's success in increasing literacy was driven by the 1987 Shiksha Karmi project and 1992 Lok Jumbish project. These projects initiated state-wide processes that created village education councils representing every part of each village, including women and most castes. The councils made decisions about setting up local schools, monitoring teacher and student performance and raising funds for them.

In Madhya Pradesh participatory surveys under the Lok Sampark Abhiyan (Public Interaction Campaign) at the village and panchayat levels found that dropout rates were not especially high, contrary to what teachers had reported. Instead, initial enrolments were low. Low enrolments were caused by several factorsnot least the problem of access to schools.

The policy response was to introduce an Education Guarantee Scheme for primary schooling in all hamletsnot just all villages. Under this scheme, if the parents of 40 children in a locality (25 in a tribal area) seek a school for their children, the state government must provide, within 90 days, a lower-paid teacher's salary for that purpose. The village panchayat can appoint the teacher from within the community. It must also make arrangements for spaces where teachers can hold classes.

In the 50 years since independence, 80,000 schools had opened in Madhya Pradesh as part of the regular government primary school systemwhile within three years of the scheme's announcement in January 1997, 30,000 new schools were created. Of particular importance is that the scheme dramatically increased enrolments of tribal childrenwho had among the lowest enrolment rates among vulnerable groups. The scheme also led to a larger than proportionate increase in girls enrolment.

The Education Guarantee Scheme offers lessons for similar situations around the world. Community demand for schools triggered government action. And while state governments pay and train the teachers, communities recommend them from among local people and provide the teaching spaces. The scheme's success shows that even with severe resource constraints, policy changes and innovative participatory and accountable processes can deliver pro-poor outcomes.

The scheme was so successful that it inspired a national campaign for universal primary education. But the national plan overlooked one crucial factor: the 90-day deadline for providing teacher salaries. This change in project design removed the imperative for the government to deliver within a specified period and predictably, the national plan has stalled. Replicating project design therefore requires the successful integration of all elements of its success.

Source: Mehrotra and Delamonica forthcoming, Institute of Development Studies 2003.

Faster responses to local needs. Local authorities tend to act more in line with local preferences and conditions, and no longer have to wait for permission from higher levels before acting. Decentralization also provides opportunities for women to participate at the local level, enabling a more gender-sensitive approach to policy formulation and implementation. Moreover, government health programmes become more widely used because local councillors are better able than bureaucrats to explain the rationale for them in terms that local people can understand contributing significantly to the success of the health-related Millennium Development Goals.

More accountability and transparency, and less corruption. Because decentralization tends to enhance transparency, the amount of money corruptly diverted from development programmes often declines in countries that pursue it. A recent study of 55 countries found that decentralization of government spending is closely associated with lower corruption among bureaucrats and reduced rent seeking by private partiesleaving more money to spend on basic services for poor people.6

Improved delivery of basic services. Decentralization often reduces absenteeism among government employees in local schools and health clinics because elected local officials receive complaints from their constituents and can impose discipline. Thus reduced absenteeism enhances basic services at no extra cost and is crucial to achieving the Goals for health and education.7 Increased accountability also encourages local people to monitor programme implementation and to protest when government employees perform badly.

Decentralization provides bureaucrats with early warnings of potential disastersdisease outbreaks, floods, droughtsand allows empowered local authorities to take swift remedial action

Better information flows. Decentralization provides bureaucrats with early warnings of potential disastersdisease outbreaks, floods, droughtsand allows empowered local authorities to take swift remedial action.

More sustainable projects. Decentralization makes development projects more sustainable because local people are more likely to be involved in their design, execution and monitoring (see chapter 4).8 In addition, participatory budgeting and accounting enhance efficiency and transparency and make projects more gender-responsive.

Stronger means for resolving conflict. Empowering regions and localities helps promote national unity and resolve conflicts, as in Ethiopia and Rwanda. In Namibia and South Africa decentralization was undertaken to redress inequalities among regions.9 Reallocating resources ensured a more equitable distribution of national funds to regions previously neglected by dominant groups at the centre. It also enabled debate and renegotiation on the allocation of national resourcesa source of long-standing conflicts between regions and ethnic groups.

Increased energy and motivation among local stakeholders. Decentralization encourages local people to find solutions to their everyday problemsyielding innovative ideas and reducing the workload in centralized, hierarchical systems.10

Expanded opportunities for political representation. Decentralization provides people with a much stronger voice in public policy decisions that affect their lives. In particular, it has increased representation among women (as in India, where one-third of council seats are reserved for women at the panchayat, or local, level11) and among previously marginalized ethnic groups (such as the Quechua and Aymara communities in Bolivia, the Kalingas and Gaddangs communities in the Philippines and rural ethnic groups like the Songhai and Dogon in Mali).12

Decentralization can make a particularly big difference in the provision of social services. It facilitates community participation in decisionmaking and can help resolve issues related to sharing the costs of service delivery. For example, in many cases where governments have been unable to provide schools, communities have pooled resources and labour to build them, with teacher salaries usually paid by the state (see chapter 5). Similarly, the Bamako Initiative has ensured the supply of essential drugs to remote rural communities in Mali and helped identify poor community members who cannot cover certain costs.

Decentralized entities are more efficient at delivering services than top-down sectoral ministries because local planning and participation ensure stronger links between interventions in health, education, water and sanitation and other services (see chapter 4). Local crises receive faster responsesespecially because of the improved communications that decentralized systems facilitate. For example, in the Dhar district of Madhya Pradesh, India, a rural community intranet project, Gyandoot, started in January 2000, enabling prompt responses to an early e-mail warning and so preventing an outbreak of a cattle epidemic.13

Decentralization also improves implementation and monitoring of service deliveryand expedites responses to bad performance. Around the world, increased transparency and improved scrutiny have reduced both the level of corruption and the scale of embezzlement. Political power is no longer concentrated solely in the hands of national elites. As a result state employeeswhether local elected representatives, civil servants or service personnel such as nurses, teachers and water engineersare held accountable not just to the most powerful segments of society but also to the poorest citizens (box 7.2). Such a setup is critical when planning policy interventions for the Goals.

Many experiments with decentralization are under way. And while their full impact is still being assessed, early indications are promising.14 The creation of locally elected authorities with jurisdiction over social services ensures that these authorities are held accountable to local leaders and citizens (box 7.3).


BOX 7.2

Mutual pressures for accountabilitybetween local governments and civil societystrengthen governance in Cear, Brazil

In 1987 the newly elected state government of Cear, Brazil, facing falling federal transfers and payroll commitments absorbing 87% of state receipts, undertook several innovative measures. It tried to overcome problems in service delivery by forming alliances with local workers and communities. The initiatives put pressure on local municipalities from above and belowto improve their performance in areas such as public health, agricultural extension, drought relief and infrastructure construction (such as schools).

Having reduced payroll commitments to 45% in 1991, the government initiated programmes for preventive health and for public procurement from informal producers, as well as a large emergency employment generation scheme for workers laid off from government employment. The state recruited grass-roots workers to provide these services, and motivated them by publicizing their work and offering official recognition for their servicesreinforcing respect for the workers.

At the same time, the government encouraged the public to have high expectations of the programmes and to hold workers accountable for their performance. It also informed people of what services they should receive, so they could put pressure on local governments to provide them if the services were not forthcoming. This publicity campaign helped mobilize collective action in communities, with technical support where necessary.

Between 1997 and 2001 the state saw impressive improvements in health indicators. Infant mortality fell by more than one-third, from 40 to 26 per 1,000 live births. Immunization coverage increased by more than one-third, with the number of fully immunized children rising from 67% to 91%. The rate of exclusive breastfeeding for the first four months of life increased from 46% to 61%, and the incidence of child malnutrition was halved to 7%.

Source: Fuentes and Niimi 2002, pp. 12333; Mehrotra and Delamonica forthcoming.

When decentralization initiatives are pursued with appropriate institutions and resources, they mobilize pressures from civil society and engaged citizens. Such reforms can yield significant benefits not just for poor and excluded groups but also for governments. By addressing many of the problems of poverty, such reforms tend to boost the legitimacy and popularity of governments that introduce them.

Decentralization is particularly significant for the Goals because many are contingent on the effective delivery of basic services. For Goals 27, for example, outcomes depend on better services and active engagement of the main stakeholders.

PRECONDITIONS FOR EFFECTIVE DECENTRALIZATION

Decentralization tends to be successful when the central government is stable, solvent and committed to transferring both responsibilities and resources, when local authorities are able to assume those responsibilities and when there is effective participation by poor people and by a well-organized civil society. These conditions generally result in responsive policies and services, increasing growth, equity and human development.

Still, the mere existence of a functioning state, capable local authorities and active civil society does not ensure successful decentralization. The relationships between these three levels are crucial: local authorities must feel pressure from both above (for accountability to national governments) and below (for service delivery to local citizens) to ensure effective and appropriate policies. Thus successful decentralization requires more than just certain political reformsit also requires establishing a three-way dynamic among local governments, civil society and an active central government.15

Decentralization efforts are strongly influenced by a country's size, population, history, political climate and geographic and ethnic diversity. These differences call for different arrangements between central and subnational levels, including devolution, delegation and deconcentration.16 Experiences with decentralization point to the importance of a few core principles, particularly those related to:

The functions to be decentralizedwhich must be carefully selected.

The resources that enable local authorities to deliver serviceswhich must be provided for in decentralization plans.


BOX 7.3

Decentralization helps increase equity in Kerala, India

The Kerala People's Campaign started in 1996, sparked by the state government's decision to devolve 3540% of state plan funds to village and municipal bodies. In its first two years the campaign led to the construction of 98,494 houses, 240,307 sanitary latrines, 17,489 public taps and 50,162 wellsall far more than in previous years.

The campaign mobilized local volunteers, notably from the Kerala Sastra Sahitya Parishad (People's Science Movement), and retired experts to assist with technical and financial appraisals of the projects, including engineers, doctors, professors and other professionals. The volunteers assessed residents needs and resources in each locality, compiling information for panchayats (local elected councils), urban development reports and earmarked development projects. They also provided training in project planning, implementation and monitoring.

The participatory, consultative local deliberations increased resources by 10% for the projects because of material and labour donationsand delivered a larger percentage of project funds to scheduled caste and scheduled tribe communities (both historically oppressed social groups). More than 30% of project funds were dedicated to providing housing for these groups.

Under its Women Component Plan, 10% of every project budget was committed to projects benefiting womensuch as vegetable gardening, sewing cooperatives, mobilization of anganwadi (preschool) personnel and the establishment of community centres for women. With new programmes in the public sector for health care and education, there have also been significant increases in literacy and health.

Source: Franke and Chasin 2000; Mehrotra and Delamonica forthcoming.

Without fiscal decentralization, efforts to decentralize are inevitably stymied

First, many functions with national scope require standardized, uniform provision by a central authority. Examples include defence, foreign policy, currency regulation and maintenance of national standards for primary education and immunizations and other public health interventions. The central government is best entrusted with tasks involving economies of scale and requiring higher financing and stronger regulation (such as training, oversight, technical assistance and capital-intensive facilities). For instance, Lao People's Democratic Republic experimented with decentralizing currency exchange across regionsleading to varied exchange rates and creating tremendous administrative and financial difficulties.17

Second, devolving decision-making to local authorities risks being an empty gesture unless backed by sufficient financial resources, administrative capacity and mechanisms for holding those authorities accountable. Village and town councils can sometimes raise some fiscal resources locallyprovided they are given powers to do so, which is seldom the case. But much of the needed funding needs to be devolved from above. This does not necessarily require new spending, but rather transferring control over existing spending. Devolving spending does not risk fiscal irresponsibility, as some argue. Nor does it make councils hopelessly dependent on higher authorities, as others claimas long as councils have some power to decide how to use the funds.

Yet most central governments have failed to devolve adequate funds for local service delivery. Sometimes this is because they derive substantial tax revenues from certain sectors, such as forestry or mining, and want to retain control over them rather than turn them over to local councils or communities.18 But without fiscal decentralization, efforts to decentralize are inevitably stymied.

Patronage systemswhether dominated by political parties or local elites, or reflecting an undemocratic environmentcan also hijack decentralization. Inadequate, unreliable financial commitments from national governments, accompanied by political manipulation and favouritism of specific regions and constituencies, have disastrous consequences. Such shortcomings have created serious challenges for decentralization in Bangladesh, Cte d'Ivoire, Ghana, Kenya and Nigeria.

Some myths about preconditions for successful initiatives need to be dispelled. First, some insist that decentralization is doomed without land reform.19 But experiences in Karnataka, India, and elsewhere show that is not true. Second, some maintain that a market orientation and an entrepreneurial middle class are essential to decentralization.20 This too is inaccurate: there have been encouraging initiatives in countries such as Mozambique, where the middle class is underdeveloped.21

Successful decentralization involves three indispensable elements:

Effective state capacity.

Empowered, committed, competent local authorities.

Engaged, informed, organized citizens and civil societies.

Effective state capacity. For a central government to devolve authority to local authorities effectively, it must have power to start with. Decentralization requires coordination between levels of government and requires more regulationnot lessto guarantee basic transparency, accountability and representation. The state has to oversee, regulate and where necessary sanction local authorities so that poor people really benefit from political reform. The state also has to raise adequate fiscal resources to support decentralization. When a weak state tries to decentralize, problems arise. In Ukraine, for example, it has been a challenge for a weak, unstable central government to keep local governments functioning with vastly shrunken resources and little or no civil society engagement at the local level.22 Similar problems of weak national and local capacity have plagued other former Soviet countries that have attempted decentralization.

Decentralization is about state potential, not state failure. When a weak state devolves power, more often than not it is simply making accommodations with local elitescreating what has been called decentralized despotism23rather than expanding democratic spaces. Take Sub-Saharan Africa, where centralized regimes have tried to control rural areas by appointing their own people at the local levelthe opposite of sharing political power and enhancing local accountability.24 Such moves have failed to deliver desired development outcomes.

Nor have decentralization efforts in Papua New Guinea given local people a stronger voice. They have been more about staving off a breakup of the country, under pressure from secessionist movements. The absence of a strong national government able to ensure territorial integrity has undermined the country's decentralization efforts. In such circumstances reforms cannot deliver expected benefits.

Empowered, committed, competent local authorities. Responsibilities for delivering social services need to be devolved to local authorities through legislative or constitutional means that transfer control over both functions and functionaries. But functionaries cannot perform their functions without adequate finance. And whether decentralization serves the interests of poor people depends on whether local authorities promote social justice and are committed to pro-poor mobilization and policies.25

For a central government to devolve authority to local authorities effectively, it must have power to start with

In Cear, Brazil, and Kerala, India, state authorities were strongly committed to reducing poverty and prepared to challenge local elites if they resisted such efforts. For example, in Cear the Northeast Rural Development Programme was administered by local governments but able to bypass local patronage systems.

Engaged, informed, organized citizens and civil societies. For local authorities to be responsive to people's needs, the two groups must be in constant communication. A well-developed, well-informed civil society, able to collect and articulate the views of the community, is thus indispensable.

In Mozambique committed local authorities working in a decentralized system doubled health staff and focused on outreachimproving vaccination coverage and prenatal consultations by 80%.26 The government is trying to overcome capacity constraints by engaging partners and commissioning services from a range of providerspublic, private, non-governmental organizations (NGOs)at all levels.

In the state of West Bengal, India, where local authorities (panchayats) were empowered long before the national government required all state governments to create and empower them, poverty declined sharply in the 1980s.27 Under Operation Barga the panchayats helped improve agricultural technology and reform land tenancy. They also helped register 1.4 million sharecroppers.

Since the late 1980s Mazdoor Kisan Shakti Sangathan (MKSS, or Workers and Peasants Strength Organization) in Rajasthan, India, has been campaigning for the right to information. MKSS organizes public hearings to examine official informationdetailed accounts derived from official spending recordsand assess its validity. It uses these social audits to promote democratic functioning at the most tangible and immediate level: the village.

Where civil society has demanded accountability and responses from local authorities, decentralization has been more effective

The Philippines is pursuing decentralization under the 1991 Local Government Code, which allocates new functions to locally elected bodies and provides for wide participation. Civil society has been active in promoting public accountability at the local level.28 The challenge has been to keep local elites from hijacking the process.

The failures of some decentralization initiatives point to a lack of public awareness and an absence of a culture of participation. Where civil society has demanded accountability and responses from local authorities, decentralization has been more effective.

Ensuring that these three actorsstate authorities, local authorities and civil societyinteract to improve the lives of poor people is a complex challenge. Indeed, there is nothing automatically pro-poor about decentralization (box 7.4). Dominant groups and narrow interests can hijack it. In Bangladesh, Cte d'Ivoire, Ghana, Kenya, Mexico, Nigeria, Papua New Guinea and Uganda such decentralization led to neither greater participation nor better social and economic outcomes for poor people. Uganda's ambitious but poorly financed and centrally directed decentralization programme has run aground because of its overly centralized technocratic approach and system of local patronage.

SOCIAL MOVEMENTS AND INNOVATIONS IN POPULAR PARTICIPATION

Direct collective action is another way for ordinary people, especially poor people, to influence decision-making and hold authorities accountable. Social movements have brought exclusion and deprivation to the political fore. They are most active where democratic freedoms have been won recentlyor remain to be won. More than mere protests in the streets, they demand changes in decision-making processes. Decentralization has created new possibilities for popular engagement at the local level, leading to the proliferation of municipal activism.

MOBILIZING FOR BETTER LIVING CONDITIONS IN BOGOTA, COLOMBIA

For decades, residents of Bogot, Colombiaparticularly those in poor neighbourhoodshave been organizing and mobilizing support to improve the quality of life in the city and reduce violence. These efforts have had some impressive results. Residents were able to elect their mayor for the first time in 1988. In 1994 they elected the first independent mayor, Antanus Mockus, ending the dominance of liberal and conservative parties in the city. The rise of Mockus was largely the result of organization efforts in poor neighbourhoods. His administration put forth a development plan based on constructing a new city. The following administration, of Enrique Pealosaanother independentemphasized the development of public spaces such as parks, plazas, sidewalks and bicycle paths.

Such efforts have tangibly improved living conditions in Bogot. Deaths from traffic accidents are down, from a peak of 1,387 in 1995 to 745 in 2001. Homicide rates have fallen even more sharply, from a peak of 4,452 in 1993 to 2,000 in 2001. Perhaps most surprising was a voluntary tax campaign that increased city revenues by $500,000 during the same period.29 A recent study of political, fiscal and administrative indicators by the Colombian National Planning Office gave Bogot the highest score of all Colombian municipalities.30

PROMOTING A DEMOCRATIC CULTURE IN BOLIVIA

Bolivia's Popular Participation system is an example of the recent trend towards administrative and fiscal decentralization in developing countries.31 The Popular Participation Law, passed in 1992, ensures that decentralization includes participation by local civil society and grass-roots organizations in municipal planning and oversight of development projects.

This approach was driven by the challenges facing local civil society organizations and reflected Bolivia's long tradition of community participation in both indigenous cultures and labour and mining unions. The Popular Participation Law divided the country into 314 municipalities that receive central funding for projects based on their populations.

BOX 7.4

Does decentralization help reduce poverty?

Images

Source: Adapted from Crook and Sturla Sverrisson 2001, forthcoming.

While these reallocations have had mixed results in reducing poverty, they have reduced spatial inequality by providing resources to regionssuch as remote rural areaspreviously neglected. Decentralization has also increased participation by indigenous populations, especially the Quechua and Aymara communities. Among the new system's most important effects has been promoting an inclusive democratic culture.

In Bolivia decentralization has also increased participation by indigenous populations, especially the Quechua and Aymara communities

RAISING AWARENESS OF HIV/AIDS IN THAILAND

Since the early 1990s Thailand's Population and Community Development Association, a nongovernmental organization (NGO) previously focused on family planning, has made enormous strides in raising awareness about HIV/AIDS. It helped promote compulsory informational broadcasts on radio and television for 30 seconds every hour. It also helped establish a national AIDS education programme. And it has conducted condom nights and Miss Anti-AIDS beauty pageants in the most frequented sex districts of Bangkok, providing an opportunity to educate high-risk groupsprostitutes and their clients and to distribute condoms.

Such efforts have helped reduce new HIV cases, highlighting the importance of local mobilization. Building awareness, promoting contraceptive use and fostering local participation and support are thus critical for achieving the Millennium Development Goal of reversing the spread of HIV/AIDS, malaria and other infectious diseases.

MAINSTREAMING GENDER INTO BUDGET POLICIES IN SOUTH AFRICA

In 1995 the South African Women's Budget Initiative was established by the Gender and Economic Policy Group of the Parliamentary Committee on Finance and by two policy-oriented NGOs focused on research and advocacy. By linking researchers and parliamentarians, the research was assured of being advanced into advocacywhile the parliamentarians were given a solid basis for their advocacy. Not restricted to economics, the exercise promoted a multidisciplinary approach, integrating issues that conventional economic analysis does not address. Such oversights had often resulted in gender-blind policies. The initiative documented this gender blindness as well as the emerging problem of HIV/AIDS.

This work was extended when the Gender Advocacy Programme, a women's NGO, performed research in Western Cape Province on budget allocations in 2000 related to the Domestic Violence Act of 1998. Supported by the provincial government, the research examined the budget provisions made in the departments (justice, safety and security, welfare) responsible for implementing the act. Though such initiatives are still too recent to have affected policy outcomes, they are a step towards increasing participation and inputs for policy-making.32

Such policy formulation and budget measures have great significance for the Goals, especially those for hunger, education, women's empowerment, child mortality, maternal health and HIV/AIDS and other diseases. Providing basic services for targeted people and groups improves their outcomes, as do specialized services for vulnerable groups.

PARTICIPATORY BUDGETING IN PORTO ALEGRE, BRAZIL

In Porto Alegre, in Rio Grande do Sul, Brazil, the Workers Party initiated participatory budgeting in 1988, thereafter strengthened with its electoral wins in 1992 and 1996.33 Clientelistic budgeting was transformed into a fully accountable, bottom-up deliberative system, driven by the needs of city residents.

The scheme has had several good results.34 Citizen participation in preparing and ranking public policies has increased impressively. The share of the city population with access to water rose from 49% in 1989 to 98% in 1996.35 The number of children enrolled in elementary or secondary schools doubled in the same period.

All this was made possible by a 48% increase in local revenue collection that accompanied the interventions. Municipal funding has been redistributed to fund works in poor areas of the city. Transportation has expanded to outlying zones. The quality and reach of public works and servicessuch as road paving, housing and urban development projectshave increased. Many slums have been urbanized. Half the street pavement deficit has been eliminated. And corruption has been reduced.

The high level of civil society engagement and the change in attitude of the political authorities has been an enormous advantage for deliberation and consensus building. Representatives of the city's 16 administrative regions meet twice a year at plenary assemblies to settle budget issues. The events are coordinated jointly by the municipal government and community delegates, and attendees include city executives, administrators, representatives of neighbourhood associations and youth and health clubs and any other interested residents.

An annual assembly of the 16 regions in March assesses the previous year's budget and elects representatives to participate in weekly meetings for the next three months to work out the region's spending priorities for the coming year. The three months spent preparing for the second regional assembly involve local and neighbourhood consultations on issues such as transportation, sewerage, land regulation, day care centres and health care, and these findings are reported at the second assembly. Also at the second assembly, two delegates and their substitutes are elected to represent the region in the citywide Participatory Budgeting Council, to work for five months on formulating the city budget, incorporating the regional agendas.

The council is made up of the regional delegates, elected thematic representatives and delegates representing the municipal workers union, the neighbourhood associations union and central municipal agencies. This body meets weekly from July until September to formulate a municipal budget to be presented to the mayor. On 30 September every year, the annual municipal budget is presented, which the mayor can accept or remand to the council by his veto. The council can then respond by amending the budget or by overriding the mayoral veto with a two-thirds vote.

This participatory budgeting exercise has become popular, with more than 100,000 people (8% of the adult population) participating in the 1996 round of regional assemblies and the various intermediate meetings.36 The work of several civil society organizations sustains the popular momentum by providing support to various meetings and raising awareness, advocating and researching for common community objectives.

The Porto Alegre experiment has been so successful that it has spread to many other Brazilian cities, including So Paulo, Santos, Belo Horizonte, Campinas and Vitoria, as well as other Latin American countries. These experiences offer important lessons for formulating strategies to address the Millennium Development Goals, especially those aimed at improving the lives of slum dwellers and ensuring sustainable access to safe drinking water and improved sanitation.

The Porto Alegre experiment has been so successful that it has spread to many other Brazilian cities, including So Paulo, Santos, Belo Horizonte, Campinas and Vitoria, as well as other Latin American countries

* * *

The examples of decentralization and local mobilization provided here focus on the redistribution of public spending, especially for social services. But they do not address other key issues of access to economic opportunities and productive assets. They are less likely to be effective in exerting political pressure for public policies that contribute to growth and that raise the incomes of poor households, such as tax reform, asset redistribution and promotion of investments in employment-generating industries. That does not mean that the scope and ambition of such efforts are modest. There are other constitutional and legal commitments for which governments are accountable where social mobilization can also play a role: the elimination of poverty, the provision of employment, the reduction of inequality and the progressive realization and guarantee of human rights. The Millennium Development Goals put a spotlight on these objectives, which are properly the focus of human development. The path for reaching those Goals also matters and, as stated in the Millennium Declaration, democratic and participatory forms are best equipped for this.

CHAPTER 8

Images    Policy, not charity: what rich countries can do to help achieve the Goals

This chapter analyses the role of rich countries in the international compact to achieve the Millennium Development Goals, a compact that leverages the global commitments to reducing poverty by building on mutual responsibilities between poor and rich countries. Poor countries must improve governance to mobilize and manage resources more effectively and equitably. Rich countries must increase aid, debt relief, market access and technology transfers.

The UN Millennium Declaration and the Monterrey Consensus (the result of the March 2002 International Conference on Financing for Development in Monterrey, Mexico) make it clear that poor countries are primarily responsible for achieving Goals 17. But these frameworks also reflect a new approach, with rich countries basing their support for poor countries more on performanceand seeing it less as an entitlement. Thus rich countries will increase assistance for poor countries that demonstrate good-faith efforts to mobilize domestic resources, undertake policy reforms, strengthen institutions and tackle corruption and other aspects of weak governance.

The commitments made by rich countries in the Millennium Declaration are spelled out in Goal 8 (box 8.1). These commitments have since been reaffirmed in various forums:

The Monterrey Consensus recognized the need for a substantial increase in aid, urging donor countries to make concrete efforts to reach the aid target of 0.7% of gross national income set in 1970and to vigorously pursue debt relief for countries that take steps to strengthen governance.

The Doha ministerial declaration, issued at the 2001 meeting of the World Trade Organization (WTO) in Doha, Qatar, affirmed poverty reduction goals and committed to making the interests of poor countries central to the future work of the trade ministers. The declaration also committed to the objective of duty-free, quota-free market access for products from the least developed countries. The September 2002 World Summit on Sustainable Development in Johannesburg, South Africa, reaffirmed the need to increase aid, urging donors to work towards the 0.7% target and to reduce unsustainable debt for countries that demonstrate efforts to strengthen governance. It also called on WTO members to fulfil their commitments on market access.

If Goal 8 is ignored, it is hard to imagine the poorest countries achieving Goals 17. This Report shows what is needed to accelerate progress towards the Goals: Allocating sufficient funds to social spending. Restoring crumbling health infrastructure. Hiring more female teachers to encourage more girls to go to school. Removing inequities in public spending on water supply. Securing women's rights to land. Investing in agricultural research. Seeking new export markets. Taking a multitude of other practical steps to change policies, improve institutions and increase investments.

Governments of poor countries must lead the way in taking these steps, but they cannot take them on their own. Indeed, as the Millennium Development Compact argues, countries that have the steepest slopes to climbthe top priority and high priority countrieswill need large injections of donor financing to invest much more heavily in health, education, agriculture, water, sanitation and key infrastructure. They cannot wait until economic growth generates enough domestic savings and raises household incomes. Indeed, these core investments lay the foundation for economic growth.

In addition, poor countries face constraints that can only be eased through policy changes in rich countries. They often face barriers to international trade. They are also hobbled by insurmountable external debts inherited from past administrations. And their lack of technological prowess demands global resources and know-how to solve problems of health, communication and energy.


BOX 8.1

Millennium Development Goal 8

By 2015 all 189 United Nations member states have pledged to:

Develop further an open trading and financial system that is rule-based, predictable and nondiscriminatory. Includes a commitment to good governance, development and poverty reductionnationally and internationally.

Address the least developed countries special needs. This includes tariff- and quota-free access for their exports; enhanced debt relief for heavily indebted poor countries; cancellation of official bilateral debt; and more generous official development assistance for countries committed to poverty reduction.

Address the special needs of landlocked and small island developing states.

Deal comprehensively with developing countries debt problems through national and international measures to make debt sustainable in the long term.

In cooperation with the developing countries, develop decent and productive work for youth.

In cooperation with pharmaceutical companies, provide access to affordable essential drugs in developing countries.

In cooperation with the private sector, make available the benefits of new technologies especially information and communications technologies.

Source: UN 2003b.

FIGURE 8.1
Aidwhat's needed, what's given?

Images

Source: Total needed: World Bank and IMF 2001; total given: OECD, Development Assistance Committee 2003c; Economist 2001.

FIGURE 8.2
Official development assistance (ODA) in decline

Index, 1990=100 19902001

Images

Source: OECD, Development Assistance Committee 2003a.

AIDMORE AND MORE EFFECTIVE

Estimating the additional external funding needed to reach the Goals is difficult because it requires information on costs that vary enormously by country. Moreover, prospects for domestic resource mobilization depend on future growth and reforms. Various studies have estimated that external aid will need to increase by $40100 billion a year. One frequently cited, conservative estimate by the UN Zedillo Commission calls for an additional $50 billion a year1consistent with the World Bank's estimate.2 This would require nearly doubling official development assistance from the 23 members of the OECD's Development Assistance Committee, bringing the total to about 0.43% of these countries gross national incomestill less than the 0.7% benchmark used since 1970 (box 8.2; figure 8.1).

These figures may seem huge, but they are not far from the situation before the 1990s. Between 1990 and 2001 official development assistance fell from 0.33% to 0.22% of donor countries gross national income. But that drop mainly occurred in the early and mid-1990s, and by the end of the decade aid had increased considerably. The latest data show this trend continuing, with official development assistance increasing by 5% between 2001 and 2002. Still, such resources fall far short of what is needed particularly to achieve the Goals.

Declining aid has hit hardest the regions and countries in greatest need. For example, Sub-Saharan Africa and South Asia saw dramatic drops in per capita aid in the 1990s (table 8.1; figures 8.2 and 8.3). These downward trends have continued to reverse since the UN Millennium Declaration was adopted in 2000, with announced increases in aid of about $16 billion a yearto 0.26% of donors gross national income by 2006.3 Though a good start, this is not enough to meet the needs. To increase financing, innovative ways of raising funds from capital markets have been proposed (box 8.3).

Though the Millennium Development Goals target aid to the least developed countries, these countries have not been fully protected from aid cuts. Of the 49 least developed countries, 31 receive less aid today (8.5% of their average GDP) than in 1990 (12.9%).4

Since the early 1990s human development advocates have campaigned to increase social spending to at least 20% of national and aid budgets. But aid for basic social servicescritical for achieving the health, education, hunger and water and sanitation Goalsremains less than 15% of bilateral donor allocations. It is rising, however, and Austria, Ireland, Luxembourg, the Netherlands, the United Kingdom and the United States have hit the 20% target.


BOX 8.2

Official development assistance: the 0.7% target

The idea that rich countries should give 0.7% of their GNP for global development was first proposed in 1969 in the Report on International Development, led by former Canadian Prime Minister Lester Pearson. This figure has been widely accepted as a reference target for official development assistance. Endorsed by the UN General Assembly in 1970, it was part of the international development strategy for that decade. More recently:

The Millennium Declaration calls on rich countries to give more generous development assistance.

The Monterrey Consensus calls on developed countries that have not done so to make concrete efforts towards the target of 0.7% of GNP as ODA [official development assistance] to developing countries and 0.15% to 0.20%to the least developed countries.

The World Summit on Sustainable Development also urged developed countries that have not done so, to make concrete efforts towards the target of 0.7% of GNP as ODA to developing countries, and to effectively implement their commitments on such assistance to the least developed countries.

If members of the OECD's Development Assistance Committee (the world's 23 largest donors) actually delivered official development assistance equal to 0.7% of their GNP, aid would be $165 billion a yearthree times the current level and well above current estimates of what is needed to achieve the Millennium Development Goals.

Source: UN 2002e.

TABLE 8.1
Net receipts of official development assistance by region, 1990 and 2001
(2000 US dollars)

Images

Source: OECD, Development Assistance Committee 2003a.

FIGURE 8.3
Official development assistance, net disbursements

2000 US$ billions

Images

Source: OECD, Development Assistance Committee 2003a.

MAKING AID MORE EFFECTIVE

Increasing aid will not be enough. As a recent World Bank study finds, at different times and in different places aid has been highly effective, totally ineffective, and everything in between.5 Aid contributed to many of the spectacular development successes of recent decadesIndonesia and the Republic of Korea in the 1970s, Bolivia and Ghana in the 1980s, Uganda and Viet Nam in the 1990s. International programmes drove the green revolution, efforts to control river blindness and expanded immunizations against childhood diseases. But too much aid has gone to countries with rampant corruption and misguided policiesconditions where aid can only be squandered.

What should be done to ensure that aid is more effective, especially in accelerating progress towards the Goals? Three issues that have dominated recent analysesstronger governance, increased ownership and better aid practicesare central to the principles of stronger partnership that emerged from the Monterrey and Johannesburg conferences.


BOX 8.3

New financing for the Goals

Pledges since Monterrey

At the 2002 International Conference on Financing for Development in Monterrey, Mexico, the international community agreed to a coherent, principled approach to developmentand to the first increase in aid in 20 years, with an additional $16 billion a year by 2006 (including pledges made since the conference).

The United States will nearly double official development assistanceto $15 billion a year by 2006. The European Union will increase aid to 0.39% of GNP by 2006about $11 billion more a year. Among individual members:

Austria pledged to reach 0.33% of gross national income (GNI) by 2006.

Belgium pledged to reach 0.7% of GNI by 2010.

Finland pledged to reach 0.4% of GNI by 2007.

France pledged to reach 0.5% of GNI by 2007.

Germany pledged to reach 0.33% of GNI by 2006.

Greece pledged to reach 0.33% of GNI by 2006.

Ireland pledged to reach 0.7% of GNI by 2007.

Italy pledged to reach 0.33% of GNI by 2006.

Luxembourg pledged to reach 1.0% of GNI by 2005.

The Netherlands pledged to reach 1.0% of GNI by 2005.

Portugal pledged to reach 0.33% of GNI by 2006.

Spain pledged to reach 0.33% of GNI by 2006.

Sweden promised to aim for 1.0% of GNI by 2006.

The United Kingdom agreed to reach 0.4% of GNI by 200506.

Other donors have also made important pledges. Canada agreed to increase aid by 8% a year, or by about $1.7 billionby 2010 that would reach 0.28% of its GNI. Norway agreed to raise aid from 0.92% of GNI to 1.0% by 2005, equivalent to an annual increase of $250 million. Switzerland agreed to increase aid to 0.37% of GNI by 2010. And Australia agreed to a 3% real increase in 200203.

A proposal for a new financing mechanism

The United Kingdom has proposed creating a new mechanisman international finance facilityto provide predictable, stable aid for the investments required to achieve the Goals by 2015. This temporary facility would raise funds until 2015. Donors would make long-term pledges for annual payments to the facility, which would then raise funds by issuing bonds in international capital marketsmaking resources available now, when they are needed.

Source: UN 2002a; United Kingdom, Her Majesty's Treasury 2003; OECD, Development Assistance Committee 2003d.

Governancethe policies and institutions that regulate interactions among individuals and groups in societyis seen as part of the foundation for sustained growth and human development. Thus many donors have predicated their support on efforts to strengthen governanceand provided support to strengthen it, primarily through technical cooperation. Fighting corruption, adopting sound macroeconomic policies and implementing efficient, accountable systems for the use of public resources are key to ensuring that external resources are not wasted. The rule of law, sound contract enforcement and strong public regulatory institutions are important for making a market economy function. These are important elements of good economic governance.

Lack of donor coordination can undermine recipient priorities. It has put a costly burden on recipient countries where public services are already overstretched

But other dimensions of governance are also important. As Human Development Report 2002 argues, human development demands democratic governance that responds to the needs of poor people. Democratic governance requires more than policies and institutions that ensure efficient public services. It requires fair institutions and rules, as well as decision-making processes that give people a say and allow them to hold authorities accountable. So, political institutions that enhance the voice of people and the accountability of government are important for accelerating progress towards the Goals though a pro-poor agenda might run counter to the vested interests of elites (see chapter 7).

Many countries have implemented programmes to strengthen democratic governance. Africa has launched a major regional initiative, the New Partnership for Africa's Development, that places a major emphasis on governance. And many donors have made support for governance a priority.

The second issue, ownership, is about countries being in charge. A lesson of the 1990s is that policy reforms are not implemented if they are not deeply embedded in a national commitment involving all of a country's stakeholders. This reinforces the findings of governance studies that participation matters. How decisions are made the processmatters. But ownership is difficult to achieve when capacity and power are uneven. Most poor countries lack not only financial resources but also the institutional and human capacity to manage and drive development. Aid agencies often complain of institutional weaknesses in recipient countries that force them to take charge of designing aid interventions. But this asymmetry has undesirable consequences for ownership. Finding aid delivery mechanisms that minimize the burden on recipient countries is an important challenge in making aid more effective.

The final issue has long been part of the debate about making aid more effective: tied aid and donor coordination. Tied aid is costly for recipient countries because it limits choices in making the most economical use of resources. A recent World Bank study estimates that tied aid is 25% less effective than untied aid.6 Members of the OECD's Development Assistance Committee have agreed to reduce (and report on) tied aid, and it has declined to about one-fifth of their overall assistance. But it remains high for a few countriesaccounting for more than half of nontechnical cooperation aid for Canada, Greece and Italy, while four countries (Austria, New Zealand, Luxembourg, the United States) do not report on it.

Lack of donor coordination can undermine recipient priorities. It has put a costly burden on recipient countries where public services are already overstretched. Ministers receive dozens of donor missions, and their staff spend enormous amounts of time preparing documents at various stages of the aid project processfrom preparation to negotiation to implementation. Civil servants who should be designing policies and implementing programmes are instead spending their time receiving donor missions and preparing donor reports. In February 2003 the heads of bilateral donor agencies and multilateral institutions met at a high-level forum to review these issues. The Rome Declaration on Harmonization adopted at the meeting reflects strong commitment to action.7

WHAT SHOULD BE DONE?

Achieving the Goals will require much more ambitious aid programmes that tackle resource, policy and institutional constraints. As emphasized in the Millennium Development Compact, aid must focus on the poorest countries. But massive injections of resourcesfinancial and technicalcan create distortions, overwhelm weak national programmes and create resource dependency.

To avoid such outcomes, external resources must be embedded in nationally owned programmes and processes. That requires integrating the Goals and their targets with national budgeting, programming and planning processesat the local, sectoral and national levelsthat identify external financing resources. To be assessed is the gap between current external resources and domestic policies and the external resources and policy reforms required to achieve the Goals.

Most top priority and high priority countries are already using Poverty Reduction Strategy Papers as frameworks for agreements with external partners. As proposed in the Compact, these papers should assess what is needed to reach the Goals. As things stand, the papers set targets based on what can realistically be achieved given available resources and prevailing institutions and policies. Instead, gaps between the funds required to reach the Goals and the funds now available must be identified, as well as the capacity and governance weaknesses that need to be overcome through policy and institutional reforms. Determining how to fill these gaps, and integrating the results with the framework of the Poverty Reduction Strategy Papers, will need to be negotiated country by country.

Local coordination and dialogue can also strengthen consensus on priorities between donors and developing country governments. Tanzania shows how local aid can be coordinated based on a Poverty Reduction Strategy Paper (box 8.4).

Gaps between the funds required to reach the Goals and the funds now available must be identified, as well as the capacity and governance weaknesses that need to be overcome through policy and institutional reforms

Resources for the Goals could also be channelled through underfunded multilateral programmes such as the Global Fund to Fight HIV/AIDS, Tuberculosis and Malaria, the Consultative Group on International Agricultural Research and the Integrated Framework for Capacity Development in Trade.

Address aid selectivity: country performance relative to need. To make aid more effective, donors are moving towards greater policy selectivity. The donors that made pledges at the 2002 conference in Monterrey sent a clear message: they will channel more resources to countries that demonstrate a commitment to reducing poverty by adopting pro-poor policies, taking steps to improve governance and achieving some results in the right direction rather than just stating intentions and expectations. Without sound economic governance, large financial injections are likely to be wasted. And without democratic governance that gives voice to people, development efforts will not empower poor people.


BOX 8.4

Making government-led partnerships work in Tanzania

The Tanzanian government and its development partners are pursuing two complementary approaches to improve aid coordination. The country's Poverty Reduction Strategy sets out a coherent, strategic national development programme. It is supported by the Tanzania Assistance Strategy, which maps out the role of partners.

The result is a widely endorsed, government-led process for coordinating external assistance. Achieving this was not easy, however. When Tanzania, a major aid recipient, stalled on its economic and structural reforms in 1995, partners had serious concerns about governance and accountability. As a result partners assessed their relationship with Tanzania and, perhaps for the first time, considered their own practices and began to engage more constructively with governmenteschewing conditionality in favour of promoting national ownership and undertaking concerted attempts to develop capacity. A 2002 independent assessment of the development partnership found relations much improved, providing for a more solid foundation for sustainable poverty reduction.

The Tanzania Assistance Strategy sets out government priorities for building capacity using national, rather than parallel, aid management systems. It also encourages development partners to provide more predictable funding. Doing so would strengthen planning, increase the impact of aid (through better coordination), promote sustainability, and increase oversight and accountability.

Government leadership in the processcomplemented by reforms in financial management, local governments and the civil servicemeans that the Poverty Reduction Strategy has emerged as the country's overarching policy framework. Sector and thematic programmes are nested in the strategy, and government-partner dialogue is structured around its implementation. Strong government commitment to poverty reduction has ensured that the strategy informs the national budget and all sector programmes. In addition, an innovative, comprehensive Poverty Monitoring System ensures constant feedback between resource allocations (domestic and external) and poverty-related outcomes while Tanzania's Development Assistance Committee is an important element for building consensus among all partners. When combined with a strong policy framework, demonstrated national ownership and concerted efforts to develop domestic capacity, the country's positive experiences highlight much that could be replicated elsewhere.

Source: Hendra and Courtnadge 2003.

Aid allocations based on policy selectivity will help countries with good policies and strong institutions. But they will leave behind countries with poor policies and weak institutions

Aid given in the absence of such preconditions, motivated by interests other than eradicating poverty and promoting sustainable development, has little impact. But if selectivity means no help, the Millennium Development Goals cannot be achieved. Aid allocations based on policy selectivity will help countries with good policies and strong institutions. But they will leave behind countries with poor policies and weak institutions. These countries need not only financial resources but also supporttechnical cooperationto strengthen policy and institutional capacity. That does not require large amounts of financing, but is an important element of external assistance that also needs to be done right, as discussed below.

Strengthen policy and institutional capacity. For many countries, strengthening policies and institutionsreforming governanceis where they need the most outside help. Building such capacity should be a focus of development aid, though not a dominant portion of the financial resources allocated. It requires not finance, but technical cooperation for capacity development.

But technical cooperation has a mixed record. It has been much more effective at getting the job done than at developing national capacity. Many evaluations have found that once external support ends, project activities end as welland whatever capacity was developed dissipates. For more than a decade, donors and recipients have debated the underlying constraints to capacity development and sought more effective approaches. For example, the conventional approach of sending foreign advisers to train national staff members can undermine the self-confidence of national staff. And sending national staff abroad for degree-oriented training can simply increase the brain drain.

In the early 1990s the OECD's Development Assistance Committee adopted new principles for technical cooperation.8 Though those principles remain valid, they have not been fully applied. Recent work by UNDP calls for a new paradigm and new principles for capacity development that recognize that capacity matters as much for development as do economic policies, that capacity is not just individual but institutional and societal, and that knowledge cannot be transferred but must be learned. The new approach also calls for new practices to make capacity development work (box 8.5).

Provide aid to countries in or recovering from conflict. Violent political conflict is a major obstacle to the Millennium Development Goals. Some 60 countries are in or recently recovering from such conflictmany of them among the top and high priority countries. It is critical for donors to support these countries through their crises, going beyond humanitarian relief to development aid. Some donors refuse to support such countries because resources could be diverted to fund war efforts. But evidence shows that denying aid to such countries results in greater human suffering and does not hasten the end of conflict.9 Of course, donors should be aware of the potential misuses of aid, as when relief supplies are stolen or aid is used for political gain or further terror.

Supporting the state's authority is also criticalbecause when the state collapses, the economy also collapses, undermining human well-being. Many countries have shown remarkable success in sustaining the provision of essential services during conflictor even improving them, achieving significant human development gains, as in Guatemala, Nicaragua and Sri Lanka (see chapter 3). Often this has been thanks to the work of non-governmental organizations (NGOs), local communities and foreign humanitarian organizations still able to reach people in need.

Improve aid practices. Key principles that should govern the aid practices of donors and recipientsto ensure aid reaches poor peoplewere recently summarized by former Bolivian President Jorge Quiroga under the acronyms of Mr. DUCCA and Mr. LIPPO.


BOX 8.5

Refocusing technical cooperation on capacity development

The importance of country ownership and national capacity has long been recognized, but technical cooperation often focuses on getting the job done rather than on developing capacity. Ten principles offer starting propositions for national stakeholders and external partners in search of promising approaches to building capacity:

Think and act in terms of sustainable capacity outcomes. Capacity development is at the core of development. Every action should be analysed to see whether it serves this end.

Don't rush. Capacity development is a long-term process, not amenable to delivery pressures, quick fixes and short-term results. Engagement for capacity development needs to have a reliable, long-term time horizon.

Scan globally, reinvent locally. There are no blueprints: capacity development means learning. Learning is a voluntary process that requires genuine commitment and interest. Knowledge cannot be transferred; it must be acquired.

Use existing capacities rather than create new ones. This implies using primarily national expertise, strengthening national institutions and protecting social and cultural capital.

Integrate external inputs with national priorities, processes and systems. External inputs need to correspond to national demand and respond to national needs and possibilities. Where national systems are not strong enough, they need to be reformed and strengthened, not bypassed.

Establish incentives for capacity development. Distortions in public employment are major obstacles to capacity development. Ulterior motives and perverse incentives need to be aligned with the objective of capacity development.

Challenge mindsets and power differentials. Capacity development is not power neutral, and challenging vested interests is difficult. Establishing frank dialogue and moving to a collective culture of transparency is essential to overcoming these challenges.

Stay engaged in difficult circumstances. The weaker is the capacity, the greater is the need. Weak capacity is not an argument for withdrawal or for pushing external agendas. People should not be hostage to irresponsible governance.

Be accountable to ultimate beneficiaries. Even if governments are not responsive to the needs of their people, external partners need to be accountable to their ultimate beneficiaries and help make national authorities responsible. Approaches need to be discussed and negotiated with national stakeholders.

Respect values and foster self-esteem. The imposition of alien values can undermine confidence. Self-esteem is at the root of ownership and empowerment.

Source: Lopes and Thieson 2003.

For donor countries, Mr. DUCCA:

Decentralized decision-making. A lot of donor decision-making is still centralized in donor capitals, where decisions are based on second guessing about local constraints and prioritiesabout matters such as water, schools and sanitation that are at the centre of achieving the Goals. Decentralizing donor decisionmaking to national levels enhances the role of recipients and increases their ownership.

Untied aid. With tied aid so financially costly to recipients, untying it would give them more options and be more concessional and less prone to corruption.

Concessional aid. Aid for most of the top and high priority countriesespecially those that are heavily indebted or least developed should be grants, because further loans would only add to already unsustainable debt burdens.

Coordination of donor projects and programmes. Better coordination among donors would relieve administrative burdens on poor country governments and help governments align donor inputs with national priorities. Recent experiences have shown the value of sector-wide programmes for health systems (see chapter 4). Donors must also finance recurrent costs often a critical bottleneck.

Accountability to the public based on programme results. All aid delivery mechanisms should be underpinned by accountability. But accountability in aid relationships is often onesided, emphasizing the legal accountability of recipients to donors and donors to taxpayers. Another aspect of accountability is even more importantto the beneficiaries, framed not in money spent but in results.

For recipient countries, Mr. LIPPO:

Local government and decentralization. Local governments, closer and more responsive to the people, can be the main drivers for expanding health, education and other key servicesif the right conditions are in place (see chapter 7).

Institutional reform to combat corruption and promote democratic governance. Fighting corruption requires strong institutions. Democratic institutions give people a say and hold decision-makers accountable to the public.

Popular participation in development activities. More widespread participation generally produces better development outcomes, particularly for poor people.

Progressive, more equitable assignment of resources. More often than not, resources are allocated inequitablyand so require adjustment.

FIGURE 8.4
For the poorest: caught between falling aid and level debt

Percentage of GDP in least developed countries, 19902001

Images

Source: Human Development Report Office calculations based on data from OECD, Development Assistance Committee 2003c and debt service data from World Bank 2003i.

Oversight by civil society, individuals and NGOs. An alert citizenry is essential for ensuring the accountability of public institutions and decision-makers.

DEBT RELIEFFASTER AND DEEPER

Many of the top and high priority countries are extremely indebted, with two-thirds (31 of 59) eligible for debt relief under the Heavily Indebted Poor Countries (HIPC) initiative. (Only 11 of the 42 HIPCs are not among the top or high priority countries.) Important in reaching the Goals, debt relief will help put these countries on a course of sustainable development and release resources that could finance additional social spending and other priority investments identified in the Millennium Development Compact.

FOLLOWING THROUGH ON COMMITMENTS TO RELIEVING DEBT

Since the mid-1990s donor countries have committed themselves to addressing the debt crisis in poor countries and ensuring that none faces a debt burden it cannot manage (figure 8.4). In 1996 donors introduced the HIPC initiative to reduce debt and release funds to support poverty reduction (box 8.6). Spurring this unprecedented initiative was pressure from Jubilee 2000, a global campaign for action on debt relief. Campaigners convincingly argued that debts owed by developing countries to well-funded institutions such as the International Monetary Fund (IMF) and the World Bank and to rich country governments were an unjust burden on poor people, who were paying for debts often incurred by since-displaced corrupt leaders. They argued that these debts were taking scarce resources from government budgets, leaving little for health care, schools and clean water.

Donor countries had another reason to cancel some of the debt. They were locked into defensive lendingendless rounds of debt rescheduling and new grants and loans to help poor countries pay back old loans, hardly a good use of new aid money.10

By early 2003 the HIPC initiative had benefited 26 countries.11 Eight countries have reached their completion points, meaning that some of their debt has been forgiven. Another 18 countries have reached their decision points, meaning that they will begin to benefit from debt service relief. For these countries debt service declined from $3.7 billion in 1998 to $2.2 billion in 2001, or from 17.5% of exports to 9.8%. Annual debt service payments will be one-third (about $1.2 billion) lower in 200105 than in 199899.

Governments in these 26 countries are using their debt savings to increase spending on education and health, with about 40% directed to education and 25% to health. Uganda has achieved almost universal primary enrolment. Mali, Mozambique and Senegal plan to use their freed debt to increase spending on HIV/AIDS prevention.12 Another review of 10 African countries that have reached their decision points shows clear increases in social spending (figure 8.5).13


BOX 8.6

What is the Heavily Indebted Poor Countries initiative?

The Heavily Indebted Poor Countries (HIPC) initiative, launched in 1996 by the International Monetary Fund (IMF) and the World Bank and endorsed by 180 governments, has two main objectives. The first is to relieve certain low-income countries of their unsustainable debt to donors. The second is to promote reform and sound policies for growth, human development and poverty reduction.

The enhanced HIPC framework, approved in 1999, introduces broader eligibility criteria and increases debt relief. To be eligible, countries must be eligible for highly concessional assistance such as from the World Bank's International Development Association and the IMF's Poverty Reduction and Growth Facility. In addition, countries must face unsustainable debt even after the full application of traditional debt relief mechanisms. They must also have a proven track record in implementing strategies focused on reducing poverty and building the foundations for sustainable economic growth.

Debt relief occurs in two steps:

At the decision point the country gets debt service relief after having demonstrated adherence to an IMF programme and progress in developing a national poverty strategy.

At the completion point the country gets debt stock relief upon approval by the World Bank and the IMF of its Poverty Reduction Strategy Paper. The country is entitled to at least 90% debt relief from bilateral and multilateral creditors to make debt levels sustainable.

Of the 42 countries participating in the initiative, 34 are in Sub-Saharan Africa. None had a per capita income above $1,500 (in purchasing power parity terms) in 2001, and all rank low on the human development index. Between 1990 and 2001 HIPCs grew by an average of just 0.5% a year.

HIPCs have been overindebted for at least 20 years: by poor country standards their ratios of debt to exports were already high in the 1980s. At the same time, HIPCs have received considerable official development assistance. Net transfers of such aid averaged about 10% of their GNP in the 1990s, compared with about 2% for all poor countries. To date 16 HIPCs have reached the decision point and 8 have reached the completion point (Benin, Bolivia, Burkina Faso, Mali, Mauritania, Mozambique, Tanzania, Uganda).

Source: World Bank 2003c; IMF and IDA 2003; Birdsall, Williamson and Deese 2002.

Yet the pace of relief is neither fast nor deep enoughand not enough countries have benefited. According to the original schedule of the HIPC initiative, 19 countries should have reached their completion points by now, not 8. Achieving the Goals will require additional resourcesat least $50 billion a year in addition to domestically mobilized resources. More debt relief can help fill this gap.

There is also concern that the HIPC initiative will not be adequate for countries to escape their debt traps. Of the eight countries that have reached their completion points, two have returned to a ratio of net present value of debt to exports above 150%the threshold considered sustainable under the initiative. Initial IMF and World Bank projections of debt sustainability were calculated during a global economic boom. This analysis relied on three assumptions that have since proven overly optimistic:

Exports would increase. In the coming decade exports would have to grow at almost twice the rate of the 1990s if HIPC countries are to be able to service their debts. This would require the terms of trade for these countries to improve by 0.5% a yeareven though they deteriorated by 0.7% a year in the 1990s.

Borrowing would decline. New annual borrowing is projected to decline from 9.5% to 5.5% of GNP, and grants are projected to double. But already a few HIPC countries are borrowing at higher than expected interest rates.

Shocks would not matter much. But most HIPCs are vulnerable to droughts, floods, civil conflicts and plunging commodity prices.14

WHAT SHOULD BE DONE?

The HIPC initiative did not provide enough debt sustainability for enough countries and needs further enhancement, especially given the larger financing needs of the Millennium Development Goals. Debt relief is more efficient

than aid as a way for donors to help poor countries reach the Goals because debt relief provides more flexible funding. It targets countries in need. And being untied, it provides budget support that can be applied to national priorities defined under poverty reduction strategies.

Strengthen links with the Goals. As recommended in the Millennium Development Compact, the financing requirements of the Goals should be assessed explicitly in Poverty Reduction Strategy Papers. Assessments of debt sustainability by the World Bank and IMF should be extended beyond the mere capacity to service debt to freeing up enough resources to reach the Goals.

More relief. Debt servicing capacity should be assessed relative to the country's needs for achieving the Goals. For many countries this will require full debt cancellation. The HIPC debtexport measure of debt sustainability has little to do with the needs of poor people. If debtor countries and donors want to prevent the diversion of resources from basic social investments to debt payments, one proposed measure of debt sustainability should be the ratio of debt service to GNP. Rich countries could extend debt relief until debt service falls under 2% of GDP. (Most HIPCs collect about 20% of GNP in tax revenue, and 10% of tax revenue would be a reasonable amount to pay for debt service.)15

Provide better insurance against shocks. HIPCs are particularly prone to natural disasters and price collapses for their commodity exports. An innovative proposal calls for a contingency facility. Under this proposal, when a shock results in debt service of more than 2% of GNP, external finance would finance debt service beyond this threshold.16

Other ideas outside current HIPC arrangements also merit consideration. Jubilee Research, the successor to Jubilee 2000, has proposed a debt restructuring programme for the Millennium Development Goals that would be a case-by-case process, overseen by an independent panel or court that would rule on the sovereign debtor's petition for protection from creditors. This approach has the appeal of placing the onus on the creditor as much on the debtor (box 8.7). But there may be unintended consequencesdiverting resources away from the creditor's aid programmes. Unlike the HIPC initiative, the programme also lacks a mechanism to ensure that resources released are used for poverty reduction.

FIGURE 8.5
Spending shifts from debt service to human development in 10 countries benefitting from HIPC debt relief

US$ billions

Images

Source: OECD, Development Assistance Committee 2003a.

BOX 8.7

A proposal for restructuring debt to reach the Goals

Since 1995 the Jubilee 2000 movement has campaigned to resolve international debt crises. Jubilee Research, the movement's successor, has proposed a radical new approach that would follow three principles.

Apply justice and reason to the resolution of debt crises

No one party to a debt crisis would be able to act as plaintiff, judge and jury in the court of sovereign debt.

Recognize the responsibilities of both debtors and creditors for the crisis

Under current procedures liabilities fall more heavily on debtors. Any assessment of how losses should be distributed would take into account the interests of creditors, but also the need to protect the human rights and dignity of the people of the debtor nation.

Ensure an open, accountable, transparent process

These are public, not private, assets and liabilities. Recognizing that there are three parties to any debt crisisthe debtor, the creditors and the taxpayersall three should participate in the resolution of the crisis. As with Chapter 9 of the US legal code, affected citizens would have a legal right to have their voices heard in the resolution of a crisis. Such transparency and accountability help prevent future crises.

The debtor government would initiate the process by applying to the United Nations for an independent, transparent, accountable framework for arbitration. The grounds for the framework would be that debt service payments were crowding out spending on basic human rights, preventing the country from meeting the Goals.

During the next stage an independent arbitration panel would be appointed, with members appointed in equal numbers by the debtor and its creditors. These members would select a neutral judge or chairperson. In considering how much debt should be cancelled, the panel would require a full assessment of the resources required by the country to meet the Goals.

The United Nations would be responsible for ensuring that the process is conducted transparently, independently and fairlyfor both the debtor and the creditorsand for ensuring that funds released by the process are used to achieve the Goals.

Source: Pettifor and Greenhill 2003.

TABLE 8.2
Trade: exploiting the opportunitiesor not

Images

Source: Human Development Report Office calculations based on data on exports and GDP deflator from World Bank 2003i.

TRADEOPENING MARKETS, REDUCING SUBSIDIES

One reason for the debt problem is that like other poor countries, most HIPCs rely heavily on exports of primary commoditieswhich have suffered from declining prices. Countries dependent on such exports are being left behind by global economic growth (see chapter 3).17 Although aid and debt relief will be essential to getting many developing countries on the right track, they are not sustainable solutions.

CHANGING TRADE PATTERNS

To compete and prosper in the world economy, developing countries need to drive their own development. They need to become competitive in the products they export and diversify into others. Yet countries with low human development have been slow to increase or diversify their exports (table 8.2).

Today's highly competitive global markets make export diversification difficult for countries with low human development. With open markets, capital, technological and human resource requirements have increased. International buyers of commodities demand high reliability and quality from suppliers in developing countries. These trends place a greater premium on knowledge, skills and flexibility. They also put more pressure on the poorest countrieswhich have the least skills, savings and capacity to adapt to changing environments.18

Faster progress in reaching the Millennium Development Goalsparticularly in education and healthwill help countries strengthen their exports. Healthy, well-educated people make a workforce more adaptable and an economy more productive. That changes patterns of tradefrom exporting primary commodities to more processed goods, from low-skill manufactured goods to more skill-intensive goods.19

WHAT SHOULD BE DONE?

There is enormous scope for rich countries to expand market access and promote imports from poor countries by reducing tariffs and subsidies. Despite some significant recent initiatives, trade policies in rich countries remain highly discriminatory against the products produced in the poorest countriesespecially in agriculture and textiles. The most important expectation of poor countries in the Uruguay Round of international trade negotiations (1986-94) was that rich countries would open their markets in these two sectors. But the results have been largely disappointing. Protection in most rich countries remains extremely high, through a variety of instruments:20

TABLE 8.3
PostUruguay Round tariffs and reductions in selected countries and groups

(percent)

Images

a. Data exclude fish and include the tariff equivalents of non-tariff barriers.
Source: Finger and Harrison 1996.

FIGURE 8.6
Cows and cotton receive more aid than people, 2000

Images

Images

Images

Source: Birdsall and Clemens 2003b.

Tariffs. Most rich countries apply higher tariffs to agricultural goods and simple manufacturesthe very goods that developing countries produce and can export. In agriculture, the tariffs of OECD countries are heavily biased against low-priced farm products produced by developing countries (table 8.3). Tariffs against developing country manufactures also remain high. In the 1990s the average OECD tariff on manufactured goods from the developing world was 3.4%, more than four times the average of 0.8% on OECD manufactures. Bangladesh exports about $2.4 billion to the United States each year and pays 14% in tariffswhile France exports more than $30 billion and pays 1% in tariffs.21 Moreover, the Uruguay Round did not change peak tariffs (those above 15%) on many developing country exports60% of the imports from developing countries by Canada, the European Union, Japan and the United States were subject to peak tariffs.22

The poorest countries often also face tariff escalationhigher tariffs if they try to process their exports rather than simply export primary products. In New Zealand this development tax imposes a 5% tariff on coffee beans and a 15% tariff on ground coffee23and in Japan a 0.1% tariff on unprocessed textiles and an 8.6% tariff on fully processed textiles.24

Quotas. Import quotas are a more extreme version of the same policy. Rather than just making developing country products less competitive, quotas do not allow those products past a certain volume to compete at all. OECD countries subject imports to a wide variety of quotas, particularly for clothing and footwearlabour-intensive products in which developing countries would have a comparative advantage. Quotas on clothing and textiles are to be phased out by 2005. But in 2002 quotas still governed most of the same clothing products covering quotas in the late 1980s. This lack of progress raises doubts about the seriousness of OECD countries to meet their 2005 commitments.

Export subsidies. Another way rich countries tilt the playing field for trade seems, on its face, to have little to do with trade. Rich countries, to varying degrees, pay large subsidies to their domestic food producers. These subsidies are so largetotalling $311 billion a yearthat they affect world market prices of agricultural goods, causing direct harm to poor countries (box 8.8). EU-subsidized exports have contributed to the decline of the dairy industries in Brazil and Jamaica and the sugar industry in South Africa.25 West African cotton producers have increased the efficiency of their cotton sector, achieving competitive production costs. But they cannot compete against subsidized farmers in rich countries (box 8.9). Indeed, OECD per capita subsidies for cows and cotton bolls are considerably higher than OECD per capita aid for Sub-Saharan Africa (figure 8.6). Annual agricultural subsidies in rich countries considerably exceed the national income of all of Sub-Saharan Africa (figure 8.7).

At the 2001 World Trade Organization (WTO) conference in Doha, Qatar, countries agreed to the eventual elimination of agricultural export subsidiesthough no timeframe was set. A timeframe is obviously essential if the Doha declaration is to have any meaning.26

In the long term the real solution for commodity-dependent countries is to diversify into other export sectors, especially labour-intensive manufactures. But in the short term, the international community could address the extreme volatility of commodity prices. Approaches at stabilization through international commodity agreementstried in the 1970s and 1980s, then abandonedare unlikely to attract much support given their poor record. A contingency facility could build insurance into the HIPC debt relief agreement, with additional relief provided after exogenous shocks, such as a sudden decline in the world price of a country's exports.27 In addition, the WTO Agreement on Agriculture should be amended to ensure that no constraints are placed on developing country funding of projects to diversify commodity exports or insure prices for poor farmers.


BOX 8.8

The long international reach of domestic subsidies

Rich countries subsidies to their farmers make their farms more profitable, encouraging greater production and lowering the prices of their output. The result: cheap, abundant agricultural products.

Who are the winners and losers? Domestic producers clearly gain, with higher profits. But domestic consumers unambiguously lose. They pay less for food, but they pay more in taxes to cover the subsidiesand the negative effect outweighs the positive. In addition, subsidies are heavily biased towards large producers. The European Commission estimates that, excluding Greece, half of all subsidies go to just 5% of farms.

But the effects go beyond national frontiers. Producers in poor countries must compete with subsidized producers in rich countries. They often cannot export their products to rich countries because their unsubsidized prices cannot compete with the below-market prices offered by farmers in rich countries. (Such is the case with sugar in the United States.) And they may not even be able to sell their products at home, because the subsidy-inspired surge in rich countries agricultural production can create surpluses that are exported to poor countries at prices no domestic producer can match. (Such is the case with European milk.)

What about consumers in poor countries? Other things being equal, rich country subsidies should drive down the prices they pay for traded food, so they should benefit. But in many poor countries a large share of consumers are also agricultural producers. Such people are affected in two ways by rich country subsidies: the food they buy is cheaper, but their incomes are lower because of lower prices for the food they produce.

So, whether the subsidies increase or decrease poverty in poor countries depends on how many poor people in those countries earn their livings by selling food. A recent study found that removing subsidies hurts poor people in the short term when less than half of them live in rural areas. But in the average developing country about three-quarters of poor people are ruraland in the poorest African and Asian countries, more than 90%. Net food-importing countries benefit from cheaper world prices. But in the long run low prices dampen incentives to invest, which leads to stagnation of an important sector of the economy on which many poor people depend. That leaves rich country farmers as the sole true beneficiaries of subsidies, with a multitude of losers across the globe.

Source: Cline 2002.

FIGURE 8.7
OECD agricultural subsidies dwarf aid, 2001

Images

Source: OECD, Development Assistance Committee 2003a; indicator tables 12 and 15.

Though estimates vary of the benefits to poor countries from trade liberalization in rich countries, most show huge gains. Just the static effects those taking the present economic structure of poor countrieswould be about the same as current levels of foreign aid. That does not mean that trade liberalization could or should be substituted for aid. For the top and high priority countries, aid is critical for immediately tackling the structural constraints to achieving the Millennium Development Goals. For them the gains from trade will take more time to realize as they develop the capacity to respond to new opportunities.

The middle human development countries that export corn, wheat, rice, sugar and other agricultural commodities also have the capacity to export clothing, footwear and other manufactured goods. Thus many of the gains from trade liberalization in rich countries would accrue to them. But low human development countries would also benefit, especially exporters of commodities such as coffee and cotton.

Rich countries could make trade work for human development in many other areas. They could implement provisions friendly to public health under the WTO agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS; see below). They could exempt basic social services from the progressive liberalization principle under the General Agreement on Services (GATS; see chapter 5). They could address many other developing country concerns about trade, the environment, investment and the movement of persons. And they could increase the effective participation of developing countries in decision-making in WTO negotiations.


BOX 8.9

The Doha gamble for Africa's cotton exporters

Cotton is crucial to the economic development of several West African countries (Benin, Burkina Faso, Chad, Mali, Togo). Since the 1980s cotton production has quadrupledand now ranges from 510% of GDP and accounts for 30% of exports. Much of the cotton is produced by small farmers, many below the poverty line. For most, cotton is the only product that they can export competitively. Cotton revenues also finance a large part of economic and social infrastructure in rural areas. Thus cotton prices and revenues are central to any poverty reduction strategy in these countriesand to achieving the Goals.

In recent years these countries undertook a number of reforms that significantly improved their productivity and cut their production costs to among the world's lowest levels (considerably below those in the European Union and the United States). Largely as a result, the region accounts for 15% of global cotton exports, second only to the United States.

But a number of exportersincluding China, the European Union and the United Statesheavily subsidize their cotton producers. In 2002 direct financial assistance was estimated to equal 73% of world production, considerably higher than the 50% recorded five years before. In 2001 these programmes cost $4.9 billion, with about half provided by the United States and most of the rest by the European Union and China. Some of these countries also provide assistance for cotton exports.

These distortions have artificially inflated the supply of cotton in global markets, lowering its price. The greatest price drops occurred in 2001-02. Poor exporting countries like those in West and Central Africa have suffered the most. Their non-subsidized producers must sell cotton at close to production costs, causing steadily declining real returns. The International Cotton Consultative Committee and International Monetary Fund believe that cutting domestic and export subsidies for cotton would return international prices to competitive levelsraising the incomes of poor cotton exporters and setting these countries on a course of sustainable growth. The question is, will the World Trade Organization's Doha Round of trade negotiations respond to and honour the competitive advantage of West African cotton producers?

Source: ICCC 2002.

The November 2001 Doha Declaration committed all countries to make the needs of development, especially for the least developed countries, a central objective of future trade negotiations.28 Unlike the other Millennium Development Goals, Goal 8 does not have a time-bound target. But this Report proposes that rich countries also respect a time limit for eliminating tariffs and quotas on exports of manufactures and for removing domestic subsidies on agriculturea time limit before 2015, when poor countries are to achieve Goals 17.

GLOBAL TECHNOLOGYSHARING THE FRUITS OF GLOBAL KNOWLEDGE

Recent decades have seen unprecedented technological progress, with dramatic advances in medicine, agriculture, energy, genomics and information and communications technologyoffering huge opportunities to put the power of technology to work for development. Already known technological innovations can do much to raise productivity and tackle problems of disease, water supply, sanitation, hygiene and hunger (see chapters 3 and 4). But many more frontiers remain to be crossed: low-cost energy for poor communities, cures for sleeping sickness, vaccines for HIV/AIDS and responses to ever-emerging new challenges. Technological innovations could accelerate progress towards Goals 17.

LINKING TECHNOLOGY AND HUMAN DEVELOPMENTAND HARNESSING GLOBAL KNOWLEDGE

Technological innovations advance human development in two waysby increasing productivity that raises household incomes (Goal 1) and by providing solutions to problems of disease, transport, energy, water supply, sanitation and information and communications technology for education, all important for achieving Goals 27.

Investments in technological innovations deserve high priority because they can overcome the constraints of low incomes and weak institutions. Though the 1980s saw limited poverty reduction and stagnant economic growth in most of the developing world, child deaths were cut due to technological interventions: immunizations and oral rehydration therapy (figure 8.8). In agriculture, too, investments in research and development have shown exceptionally high returns. Sharing the fruits of scientific and technological progress is one of the most important ways that rich countries can help poor countries fight poverty.

FIGURE 8.8
Oral rehydration therapy (ORT) reduces child mortality despite income stagnation

Images

Source: Gutierrez and others 1996.

UNDERINVESTMENT IN TECHNOLOGY FOR POVERTY REDUCTION

Despite enormous potential and recent advances in biotechnology, relatively little investment goes into technology to solve the problems of poverty. In medicine, for example, the World Health Organization's Commission on Macroeconomics and Health has found gross underinvestment in the diseases that most afflict poor people .29 These include tropical diseases such as kala-azar, Chagas disease and sleeping sickness as well as the main infectious killers (HIV/AIDS, tuberculosis, malaria). Together tropical diseases and tuberculosis accounted for 11% of the global disease burden in 1999. Yet of 1,393 new drugs approved between 1975 and 1999, only 16just over 1%were specifically developed for these ailments.30

In 1990 the World Health Organization's Commission on Health Research and Development found that only 10% of spending on health research and development is directed at the health problems of 90% of the world's people. This has not changed. The imbalance between scientific effort and social need can be measured by assessing the share of total spending on a disease relative to the global disease burdenabout 1:20 for malaria, a disease that kills more than 1 million people a year and debilitates the productivity of millions more. Malaria is almost entirely concentrated in poor countries (99% of cases), and remains the primary cause of death in many.

Such outcomes are not surprising when one considers the incentives. Pharmaceutical companies and rich countries account for 93% of global spending on health research and development.31 Poor countries and poor people's diseases mean little in market terms because developing countries account for less than 2% of the market for major pharmaceutical products.32 As a result poor countries benefit from global investments in research only when they suffer from diseases also prevailing in rich countriesas with HIV/AIDS. Even then, poor countries are unable to share in the fruits of such research due to high pricesmaintained with the help of patents, as with those for retroviral drugs for HIV/AIDS.

Public funding for technology developmentfrom both national and global sources-continues to be low. That is why public policy needs to step in, to increase investment and to improve access. In health the Tropical Disease Research Programme, jointly managed by the World Health Organization, UNDP and the World Bank, has about $30 million a year for a programme that covers eight tropical diseases. In agriculture research and development continues to be underfunded despite consistently high economic returns. Such investments have increased in Brazil and Mexico but declined in Africa. The premier global research programme for food crops, the Consultative Group on International Agricultural Research, had difficulty raising $377 million. (Meanwhile, the private corporation Monsanto spent $600 million on research and development.)

TECHNOLOGY ACCESS AND INTELLECTUAL PROPERTY RIGHTS

Rich countries, despite their commitment in the TRIPS agreement, have taken no real steps to share their technology in the interests of reducing poverty. The TRIPS agreement includes provisions for technology transfers, but with few details and no discussion on implementation The TRIPS agreement does not provide intellectual property protection for indigenous knowledge such as those used in traditional medicine. Intense public pressure has led to special price deals and donations from corporations in one visible areamedicines for HIV/AIDSbut little else.

The TRIPS agreement introduces a global minimum standard for promoting invention. Intellectual property regimes are intended to balance the two social goals of promoting inventions and promoting the use of inventions. Thus the TRIPS agreement incorporates provisions in the interests of users, such as compulsory licensing or parallel imports that give governments flexibility to allow local manufacturing or imports of goods under patents. But the wording of these provisions is so vague that they are difficult to applyso clarifying them would be a first step.

The 2001 Doha declaration on TRIPS and public health was a milestone that recognized that intellectual property rights were subservient to public health concerns. It clearly stated that the TRIPS agreement does not and should not prevent members from taking measures to protect public health. It specifically recognizes the flexibility that countries have to use compulsory licensing for local production. The declaration also set a timetable of December 2002 to find a solution for countries that did not have adequate manufacturing capacity. But negotiations ran agroundreopening them is urgent.

The high prices restricting access to life-saving drugs has become a huge ethical issue that pharmaceutical companies no longer ignore. Differential pricingvoluntary price cuts by pharmaceutical companieshas become an important mechanism for expanding access, especially to HIV/AIDS retroviral drugs. But experience shows that price cuts are no panacea, as the November 2002 report of UK Working Group on Increasing Access to Essential Medicines in the Developing World concluded. Experience also shows that in the absence of generic competition and lobbying, the cuts have limited response. After three years of operation, the most prominent voluntary tiered-pricing scheme, the UN-sponsored Accelerating Access Initiative, has delivered drugs to only around 30,000 patientsand at prices four or more times those of commercially available generic equivalents.

Standing in stark contrast is Brazil's HIV/AIDS treatment scheme, which used generic drugs to deliver cost-effective treatment to more than 115,000 patients in 2001 alone. Brazil's programme has cut the number of AIDS deaths by half and reduced common opportunistic infections among HIV/AIDS patients by 60-80%. Lower hospitalization and medical care costs generated savings of $422 million in 1997-99almost entirely offsetting the cost of providing the antiretrovirals, and not including the economic benefits of rehabilitating patients to be economically and socially active. Countries with less capacity than Brazil, not able to follow in its footsteps, could benefit from importing products from Brazilif agreement is reached on the TRIPS agreement.

Developing countries need to develop their own capacity to manufacture pharmaceuticals and other technology products for public health and development. But not all developing countries should do soamong them the poorest, smallest and lowest in human development.

WHAT SHOULD BE DONE?

Investments in global technology for reducing poverty and reaching the Goals need to be expanded to match the needs. Research and development to tackle the enduring problems of poverty need to be far more ambitious, such as in:

Rich countries, by opening access to technologies, can make a vital contribution to reaching the Goals

High-yielding, drought- and pest-resistant varieties of food crops such as sorghum, cassava and lentils.

Clean energy for rural people who now use wood and dung.

Low-cost, battery-operated, wireless computers that open communications for rural areas with no electricity and telecommunications infrastructure.

Vaccines and treatment for neglected diseases such as sleeping sickness.

These investments are critical to achieving Goals 17 but do not constitute market demand; people surviving on less than $1 a day have little to spend on medicines. Because these investments will not attract private investment, the public sector must take the lead. But partnerships with the private sector, while not only desirable, may be essential in some areasbecause it has the know-how and technology.

Technology is a motor for human development. Rich countries, by opening access to technologies, can make a vital contribution to reaching the Goals. Yet the opening has, if anything, slowedespecially in the industrial sector. In the long term this harms everyone. Many economists now argue that the free flow of knowledge can facilitate growth for all, rather than generating high returns at the expense of access. That is why it is vital to reopen negotiations on the TRIPS agreement, operationalizing its provisions for technology transfer.

TABLE 8.4
Rich country responsibilities

Images

Note: This table presents data for members of the OECD Development Assistance Committee.

a. Refers to tied and partially tied aid as a percentage of total aid, excluding technical cooperation. b. This is an aggregate measure of trade barriers towards developing countries. It measures not only monetary barriers (tariffs) but also non-monetary ones, such as import quotas and the effect of domestic subsidies. c. Data refer to 2000.

Source: Columns 1 and 2: OECD, Development Assistance Committee 2003c. Column 3: Human Development Report Office calculations based on data on tied and partially tied aid from OECD, Development Assistance Committee 2003c. Column 4: Geithner and Nankani 2002. Column 5: Human Development Report Office calculations based on data on debt cancellation from OECD, Development Assistance Committee 2003c. Column 6: Birdsall and Roodman 2003. Columns 7-10: UN 2003a.

Rich countries can do much more to expand access to technology by tackling the key obstacles:

Lack of financing for investments in research and development.

Ambiguous intellectual property laws.

Limits of differential pricing.

National technology capacity, including local production capacity.

LIVING UP TO THE COMMITMENTS OF THE MILLENNIUM DECLARATION: POLICY, NOT CHARITY

More action on aid has been seen in the two years since the Millennium Declaration than in the past decadewith pledges for $16 billion more aid by 2006, debt relief to 26 countries and an agreement that intellectual property rights should not stand in the way of access to technology for protecting public health. Though significant, these achievements fall far short of promises made. Even $16 billion in additional official development assistance would only reach 0.26% of the gross national income of Development Assistance Committee members by 2006not the target of 0.7%. There has been little concrete action in opening markets, transferring technology and relieving debt, leaving too many countries without benefits. With commitments falling short of the need, poor countries will continue to face stagnant growth, accumulating (and unsustainable) debt and falling export prices.

Rich countries should be encouraged to prepare reportscontributing to a world poverty reduction strategythat set out their priorities for action.33 They could pinpoint where they need to do more to live up to their commitments. For example, countries generous with aid are not always as open to developing country imports. Consider Norway, which does much to meet the aid commitments but could do more on market access (table 8.4).34 The current OECD Development Assistance Committee process of peer reviews on aid could also be expanded to include trade and debt relief so that these policies could be reviewed in a coherent framework. Japan imports more from developing countries than any other rich country (59% of total imports), but has low official development assistance as a percentage of gross national income.


BOX 8.10

The commitment to development index

The commitment to development index (CDI) is a pioneering attempt to monitor how well rich countries live up to their commitments to global partnership. Created by the Center for Global Development and Foreign Policy magazine, the index goes beyond looking at the traditional measures of aiddollar amounts. Instead, it examines a broader set of dimensions and policies, looking at both the quality and quantity of aid, trade barriers, the environment, investment, migration and peacekeeping.

Constructing an index that takes into account the full range of policies affecting poor countries is as difficult as it is important. While the CDI is a significant first step towards holding rich countries accountable to their commitments, a number of questions remain:

Valuation of good policy. The CDI is designed to measure a specific set of policies, that, it is assumed, enhance development outcomes. These assumptions inevitably entail value judgements. For example, higher scores are given for aid to countries with good governance than to those where the need may be greater. Another example is foreign direct investment (FDI), a component of the index, where lack of data has led the CDI to assume that it is good in all circumstances.

Weighting. Perhaps the biggest problem in any composite index is what importance to assign each indicator. The CDI uses a variety of methods in each policy area. But the overall index gives equal weight to each of the six components. While this is the simplest approach, it downplays aid and tradearguably far more important than, say, peacekeeping contributions.

Measurement weaknesses. While all the six components of rich country policies presented here are important for global development, some are difficult to measure. Migration policies that contribute to development are difficult to measure because there is no clear consensus on what constitutes good migration policy, and data are sparse. The environment is also a complex area that suffers from lack of adequate data.

Complexity. The CDI was designed to target policies very specifically, resulting in a multitude of indicators and a wide range of statistical methods. The cost of this complexity is that to all but dedicated researcher with knowledge of the field, the index will be a black box: the results are clear, but understanding what lies behind them requires specialized knowledge. So for the voter, the non-governmental organization, the journalist or the policy-makerall key audiences the take-home message of what needs to change may not be clear.

Bias against large economies. Because key aspects of the index (aid, peacekeeping and FDI contributions) are measured as a proportion of gross national income, large economieswhich often give the most in absolute termsend up with lower scores. Indeed, the top five countries all have populations of less than 20 million.

Some of the results of the index are surprising, sometimes due to the problems discussed above. The Netherlands leads the rankings, leaving in second place Denmarkby far the most generous donor of official development assistance as a share of gross national income of the countries in the index. This result is mainly driven by the Netherlands extremely high scores in FDI, where Denmark scores very low. This highlights the problems of using FDI as a scorecard for policy: FDI is an outcome, arguably more affected by the structure of the private sector than by government policy. Portugal, another surprise at third place, is also helped by a perfect score in FDI. It is followed by New Zealand and Switzerland in fourth and fifth placecountries that, like Portugal, are not big donors of official development assistance. Switzerland's high ranking illustrates well the problems of giving equal weight to all the components of the index: it scores low in the important categories of trade and aid, but high in investment and migrationareas that are difficult to measure, and whose impact is more controversial.

Finland, Canada, Australia, the United States and Japan have the lowest scores. The two largest donors of foreign aid in dollar amountsthe United States and Japanrank at the very bottom. Both countries scores suffer because their aid and FDI, while huge in absolute terms, are small relative to the size of their economies. Japan receives particularly low scores in peacekeeping, because constitutional barriers and commitments prevent it from contributing troops to peacekeeping. This again illustrates the problem of weighting: in important sectors such as trade and the environment, Japan performs relatively better. The US score is also helped by strong performance in tradehelped by its more open agricultural market, which is not as heavily subsidized as those in Europe.

The most important result of the index, however, lies not in the relative rankings, but in the fact that even the top country is barely halfway to a perfect score. All countries have a long way to go to achieve policies that help poor countries develop.

Intended to be published annually, the first edition of the CDI should sharpen the debate on rich country development policies and stimulate discussions on measuring those policies and improving data.

Source: Birdsall and Roodman 2003.

A recent research project developed a composite index, the commitment to development index, that encapsulates rich country performance in implementing policies that contribute to development (box 8.10). Like other composite indices, this one helps policy-makersin this case, rich country policy-makersassess their situation and pinpoint areas for improvement. It shows how they perform relative to other countries not only in aid, but also in whether they protect their markets from developing country goods, in investments, in opening doors to migrants, in contributing to peacekeeping and in contributing to global environmental stewardship. A product of innovative research, the index intends not to name and shame but to diagnose shortcomings and spur action to do more.

As noted, Goal 8 does not have time-bound and quantitative targets. But rich countries can set their own deadlines for targets requiring their action. Proposed here are some indicators of progress, with specificity and deadlines in critical areas:

Increase official development assistance to fill financing gapsby a low estimate of $50 billion.

Increase official development assistance to the least developed countries.

Develop concrete measures for implementing the Rome Declaration on Harmonization.

Remove tariffs and quotas on agricultural products, textiles and clothing exported by developing countries.

Remove agricultural export subsidies.

Agree and finance, for the HIPCs, a compensatory financing facility against external shocksincluding commodity price collapses.

Finance deeper debt reduction for HIPCs having reached their completion points, to ensure sustainability.

Introduce protection and remuneration of traditional knowledge in the TRIPS agreement.

Agree on what countries without sufficient manufacturing capacity can do to protect public health under the TRIPS agreement.

The commitments already made by rich countries show that the world has changed. Global market integration and technological advances have increasedas have exposure to disease, costs of environmental losses and risks of global financial contagion. Actions within national borders are not enough to tackle these problems. Partnership is needed for mutual self-interest. But rich countries also need to actbecause eliminating human suffering is an ethical imperative. For rich countries to deliver on their commitments is a matter not just of charity but of policypolicy that is part of the international community's coherent approach to eradicating global poverty.

At the turn of the century the prospect of eradicating poverty seemed possible. The cold war was over and the prospect of all societies converging towards common goals seemed within reach. Yet as this Report goes to press, global challengesfrom Iraq to the spread of new deadly diseasesloom large. The global economic slowdown also threatens to undermine rich country action for development as their own economies come under pressure to reduce budget deficits and press home their own trading advantages. That is why it is all the more urgent for all nations to keep their promises. Monitoring progress towards Goal 8, enumerating rich countries side of the partnership for development, is as important as monitoring Goals 17.

Notes

Chapter 1

1. UN 2000a.

2. UN 2000a.

3. UN 2001b.

4. See for example Khor 2000.

5. UN 2002d.

6. Jolly 2003; Foster 2002; Bissio 2003; White and Black 2002.

7. World Bank 2003i.

8. UNICEF 2003b.

9. World Bank 2003i.

10. UNICEF 2003b.

11. WFUNA and North-South Institute 2002.

Chapter 2

1. Except for income, reversals do not include countries with low levels of human poverty in the relevant indicator. For definitions of the human poverty levels, see technical note 2.

2. Measured using the $2 a day poverty line, considered a more appropriate extreme poverty line for Central and Eastern Europe and the CIS (UNDP 2003c).

3. Human Development Report Office calculations based on indicator table 27.

4. Human Development Report Office calculations based on Alvarez and others 2002.

5. World Bank 2003i.

6. Birdsall and Clemens 2003b.

7. World Bank 2002f.

8. World Bank 2002f.

9. Covers different periods between 1990 and the mid- to late 1990s for countries with data on national poverty trends.

10. Data are from World Bank 2000a and 2003i, ECLAC 2002, UNCTAD 2002a and Milanovic 1998.

11. Measured using the $2 a day poverty line, considered a more appropriate extreme poverty line for Central and Eastern Europe and the CIS (UNDP 2003c).

12. UNAIDS 2000.

13. FAO 2001b.

14. UNAIDS 2000.

15. UN 2002g.

16. UNAIDS 2002b.

17. Eberstadt 2002.

18. See technical note 2 for more details on the categorization of top priority and high priority countries.

19. Refers to a score of 4 or greater from Marshall 2000.

20. UNAIDS 2002b.

21. Gwatkin 2002.

22. Vandemoortele 2001.

23. Filmer and Pritchett 1999; Watkins 2000.

24. Data are from demographic and social surveys. Data on wealth are based on household characteristics and possessions. The wealthy class is the top fifth of the distribution, determined after ranking households by wealth (Minujin and Delamonica 2003).

25. Minujin and Delamonica 2003.

26. Watkins 2000.

27. Watkins 2000.

28. Sahn and Stifel 2003.

29. Minujin and Delamonica 2003.

30. Watkins 2000.

31. Klasen and Wink 2002.

32. UNDP 2003c.

33. Minujin and Delamonica 2003.

34. UNAIDS 2002b.

35. Chapter 5 provides a more conceptual and systematic discussion of gender discrimination.

Chapter 3

1. The Dominican Republic is a top-priority country in hunger and sanitation. Mozambique is a top-priority country in primary education and gender equality. See feature 2.1 for further information.

2. Commission on Macroeconomics and Health 2001.

3. Commission on Macroeconomics and Health 2001.

4. Sen 1999.

5. Mehrotra and Jolly 2000.

6. UNICEF 2000.

7. Based on Human Development Report Office calculations using Maddison 2001 and World Bank 2003i.

8. Based on Human Development Report Office calculations using Maddison 2001 and World Bank 2003i.

9. Excludes transition countries and fuel exporters and includes only countries with a population of at least 1 million and for which data on the export structure are available.

10. Prosterman and Hansted 2000.

11. The distribution of social and cultural power adds an important caveat to this ability. Many microfinance schemes have failed to prevent the funds from eventually reaching and being controlled by male heads of household.

12. Daley-Harris 2003.

13. World Bank 1998b.

Chapter 4

1 Caldwell 1979.

2. Carnoy 1992.

3. Caldwell 1986.

4. Caldwell 1986.

5. Mehrotra 2000c; UNESCO 1999.

6. UNICEF 2001b.

7. UN 2002b.

8. Millennium Project Task Force 2 2003b.

9. Millennium Project Task Force 2 2003b.

10. Pinstrup-Andersen, Pandya-Lorch and Rosegrant 1999; Millennium Project Task Force 2 2003b.

11. Millennium Project Task Force 2 2003b.

12. UN 2002b.

13. Panos Institute 2001.

14. MDG indicator table 1.

15. FAO 2002b.

16. MDG indicator table 1.

17. MDG indicator table 1.

18. Millennium Project Task Force 2 2003b.

19. FAO 2002b; MDG indicator table 1.

20. World Bank 2003i.

21. Seventeen countries, including some of the most populous, have achieved reductions of 25% or more over the decade.

22. Millennium Project Task Force 2 2003b.

23. Millennium Project Task Force 2 2003b.

24. Human Development Report Office calculations based on Millennium Project Task Force 2 2003a.

25. Millennium Project Task Force 2 2003b.

26. Millennium Project Task Force 2 2003b.

27. Millennium Project Task Force 2 2003b.

28. Millennium Project Task Force 2 2003b.

29. Millennium Project Task Force 2 2003b.

30. Drze and Sen 1995.

31. World Bank 2002d.

32. Panos Institute 2001.

33. Panos Institute 2001.

34. Panos Institute 2001.

35. IFAD 2001.

36. Agarwal 1994.

37. FAO 2002a.

38. Swaminathan 2001.

39. Millennium Project Task Force 2 2003b.

40. Millennium Project Task Force 2 2003b.

41. Millennium Project Task Force 2 2003a.

42. Millennium Project Task Force 2 2003a.

43. Millennium Project Task Force 2 2003a.

44. Pretty and Hine 2000; Millennium Project Task Force 2 2003a.

45. Millennium Project Task Force 2 2003a.

46. Millennium Project Task Force 2 2003a.

47. Millennium Project Task Force 2 2003a.

48. Scherr, White and Kaimowitz 2002.

49. OECD, Development Assistance Committee 2003c.

50. MDG indicator table 1.

51. MDG indicator table 1.

52. MDG indicator table 1.

53. India, Planning Commission 2002.

54. Human Development Report Office calculations.

55. Indicator table 10.

56. UNESCO 2002a.

57. UNESCO 2002a.

58. Includes Afghanistan, Bangladesh, Bhutan, India, the Islamic Republic of Iran, Maldives, Nepal, Pakistan and Sri Lanka.

59. Flug, Spilimbergo and Wachtenheim 1998; World Bank forthcoming.

60. See for example Gupta, Verhoeven and Tiongson 2002 and Mehrotra and Delamonica forthcoming.

61. Delamonica, Mehrotra and VandeMoortele 2001.

62. Millennium Project Task Force 3 2003.

63. Hanmer and Naschold 2001.

64. Millennium Project Task Force 3 2003.

65. UNESCO 2002a.

66. Multilateral here refers to the African Development Bank, Asian Development Bank, Inter-American Development Bank (Special Fund), European Development Fund of the European Community, International Development Association (of the World Bank Group), United Nations Development Programme and United Nations Children's Fund (OECD, Development Assistance Committee 2003c).

67. Mehrotra and Delamonica forthcoming.

68. Mehrotra 1999.

69. Mehrotra and Jolly 2000.

70. Mehrotra 1998.

71. Mehrotra and Biggeri 2002.

72. Mehrotra and Delamonica 1998.

73. Mehrotra and others forthcoming.

74. Tilak 1997.

75. Mehrotra 1998.

76. Mehrotra 1998.

77. UNICEF 1999.

78. In many African countries at the junior secondary level and beyond, the phenomenon of teachers becoming sugar daddies is seen as a disincentive for sending postpuberty girls to school.

79. Heng and Hoey 2000; Loewenson and Chisvo 2000.

80. Alidou and Jung 2002.

81. Delamonica, Mehrotra and VandeMoortele 2001.

82. World Bank 1996.

83. Mehrotra 1998.

84. At the secondary level in developing countries the share of teacher costs is about 80%, while at the higher level it is about 60% (Mehrotra and Buckland 1998).

85. Mehrotra 1998.

86. UNESCO Institute for Statistics and OECD 2002.

87. UNESCO and ILO 1966.

88. UNESCO and ILO 1966.

89. Buckland, Hofmeyr and Meyer 1993.

90. Watkins 2000.

91. Human Development Report Office calculations based on feature 2.1 in chapter 2.

92. UNICEF 2001b.

93. Millennium Project Task Force 4 2003.

94. UN 2003g; UNDP 2002e.

95. Millennium Project Task Force 5 2003b.

96. Millennium Project Task Force 5 2003d.

97. UNICEF 2001b.

98. Carlsson and Valdivieso 2003.

99. International Institute of Population Sciences 2000.

100. According to estimates by the World Health Organization's Commission on Macroeconomics and Health, the minimum financing needed to cover essential interventions, including those for fighting the AIDS pandemic, is about $30-40 a person per year. Actual health spending in the least developed countries is around $13 a person per year, of which $7 is from budgetary outlays. Other low-income countries spend around $24 a person per year, of which $13 is from budgetary outlays (Commission on Macroeconomics and Health 2001). Clearly, health spending needs to be substantially increased.

101. Mehrotra and Delamonica forthcoming.

102. Multilateral here refers to the African Development Bank, Asian Development Bank, Inter-American Development Bank (Special Fund), European Development Fund of the European Community, International Development Association (of the World Bank Group), United Nations Development Programme and United Nations Children's Fund.

103. OECD, Development Assistance Committee 2003c.

104. Mehrotra and Delamonica forthcoming.

105. Mehrotra and Delamonica forthcoming.

106. Mehrotra and Delamonica forthcoming.

107. Mehrotra and Delamonica forthcoming.

108. WHO 2000.

109. Mehrotra and Delamonica forthcoming.

110. World Bank 1993.

111. WHO 2000.

112. Millennium Project Task Force 7 2003.

113. Millennium Project Task Force 7 2003; UN 2002c.

114. WHO, UNICEF and WSSCC 2000.

115. WHO, UNICEF and WSSCC 2000.

116. UN 2000b.

117. WSSCC 2002.

118. World Bank 2003i; UN 2002c.

119. Indicator table 6.

120. UN 2002c.

121. World Panel on Financing Water Infrastructure 2003.

122. According to the World Bank Operations Evaluation Department.

123. World Panel on Financing Water Infrastructure 2003.

124. OECD 2003b.

125. This includes aid for water resources development, water resources protection, water supply and use, water legislation and management, sanitation (including solid waste management), education and training in water supply and sanitation and water resources policy, planning and programmes. It excludes aid for dams and reservoirs primarily for irrigation and hydropower and activities related to water transport.

126. OECD 2003b.

127. OECD 2003b.

128. OECD 2003b.

129. World Panel on Financing Water Infrastructure 2003.

130. WSP 2002a.

131. Stiglitz 2002a.

132. Mehrotra and Delamonica forthcoming.

133. Reddy 2003; Mehrotra and Delamonica forthcoming.

134. Mehrotra and Delamonica 1998.

135. Mehrotra and Delamonica forthcoming.

136. World Bank 2003g.

Chapter 5

1. For Pakistan, Watkins 2000 and Mehrotra and Delamonica forthcoming; for India, De and Drze 1999.

2. Van Lerberghe and others 2002.

3. Leipziger and Foster 2003.

4. For evidence, see World Bank 1993.

5. World Bank 2002b.

6. Berman and Rose 1996.

7. Iriart, Merhy and Waitzkin 2001.

8. Iriart, Merhy and Waitzkin 2001.

9. Stocker, Waitzkin and Iriart 1999.

10. Iriart, Merhy and Waitzkin 2001.

11. Mills 1997.

12. Barros, Vaughan and Victora 1986.

13. Yesudian 1994.

14. Velasquez, Madrid and Quick 1998.

15. Iyer and Sen 2000.

16. Yang 1993; Nittayaramphong and Tangcharaoensathien 1994.

17. Saywell 1999.

18. Tomlinson 1997.

19. Shaokang, Shenglan and Youde 1997.

20. Iriart, Waitzkin and Trotta 2002.

21. Iriart, Merhy and Waitzkin 2001.

22. Van Lerberghe and others 2002; Sitthi-Amorn, Janjaroen and Somrongthong 2001.

23. Watkins 2000.

24. UNESCO and OECD 2000.

25. De and Drze 1999; Mehrotra and others forthcoming.

26. UNESCO Institute of Statistics and OECD 2002.

27. Results USA 2003.

28. Cox and Jimenez 1991; Mehrotra and Delamonica forthcoming; Watkins 2000.

29. Mehrotra and Delamonica forthcoming; Watkins 2000.

30. Watkins 2000.

31. UNESCO Institute for Statistics and OECD 2002.

32. UNESCO Institute for Statistics and OECD 2002.

33. Watkins 2000.

34. Mehrotra and Delamonica forthcoming.

35. UNESCO and OECD 2000.

36. West 1997; Kremer 2003.

37. Hall 2002.

38. Bayliss 2002b.

39. World Panel on Financing Water Infrastructure 2003.

40. Bayliss 2002b.

41. Bayliss 2002b.

42. Leipziger and Foster 2003.

43. Garnier and others 2000; Duncan, Jefferis and Molutsi 2000; Loewenson and Chisvo 2000.

44. Alailama and Sanderante 2000; Krishnan 2000.

45. Mehrotra and Jarrett 2002.

46. UNESCO 1996.

47. Rohde and Vishwanathan 1995.

48. Mills 1997.

49. See detailed accounts at http://www.icij.org such as ICIJ 2003b, 2003d and 2003e.

50. Business Partners for Development 2002.

51. Murphy and Bendell 1999.

52. Mehrotra and Delamonica forthcoming.

53. Kawabata, Xu and Carrin 2002.

54. World Panel on Financing Water Infrastructure 2003.

Chapter 6

1. UNDP, DFID and World Bank 2002.

2. IMF 2000.

3. WEHAB Working Group 2002b.

4. UNDP 2002d; UNDP, DFID and World Bank 2002.

5. UNDP, DFID and World Bank 2002.

6. Khemani 2001.

7. Khemani 2001.

8. IPCC 2001a.

9. UNDP, WEC and UNDESA 2000.

10. UNDP, WEC and UNDESA 2000.

11. Koziell and McNeill 2002.

12. UNDP, DFID and World Bank 2002.

13. Petkova and others 2003.

14. UNDP, WEC and UNDESA 2000.

15. IEA 1999.

16. Myers and others 2000.

Chapter 7

1. Osava 2003. Lula's first high-profile decision was to delay for a year the tender for a $760 million purchase of 12 fighter planes that were to replace the air force's fleet of combat jets, now nearly 30 years old and due to be phased out by 2005. The funds will instead go towards the Zero Hunger programme. All ministries will have to cut costs as part of a united effort to allow greater social spending, especially on the Zero Hunger programme.

2. UNDP 2002f.

3. UNDP 2002e.

4. Manor 2003.

5. Mehrotra and Delamonica forthcoming.

6. Fisman and Gatti 2002. The authors discuss decentralization of government expenditure and conclude, based on a study of 55 country cases, that it has a strong and significant association with lower corruption and bureaucratic rents.

7. Manor 2003.

8. Manor 2003.

9. Watson 2002.

10. Turner and Hulme 1997.

11. In India the local administrations at the village, block and district levels are called panchayati raj institutions. In 1992 national legislation under the 73rd and 74th constitutional amendments required that a third of all seats in panchayats be reserved for women.

12. Blair 2000.

13. UNDP 2003d.

14. Much of the evidence on these decentralization initiatives is derived from extensive case studies. The reason is that quantifying many important effects of political reform poses both an empirical and a conceptual challenge. Some are exceedingly difficultand in some cases impossibleto measure. For further discussion of this issue, see Manor 2003.

15. Tendler 1997.

16. Decentralization initiatives involve different types of arrangements between central and local authorities. These may take the form of deconcentration, where local offices implement policies decided at the national level; delegation, where local governments have limited decision-making power over funding and policy and act as agents ultimately responsible to the central government; and devolution, where the central government transfers resources, responsibility and decision-making to the local level. Decentralization commonly involves a mix of all three.

17. UNDP 2001b.

18. Manor 2003.

19. For a discussion, see Manor 1999, Evers 1996 and Hessling and Ba 1994.

20. For a discussion, see Manor 1999 and Fuhr 2003.

21. Manor 1999.

22. Blair 2000.

23. Mamdani 1996.

24. Turner and Hulme 1997.

25. Interventions hailed for furthering effective decentralization have been spearheaded by political parties such as the African National Congress in South Africa, the Workers Party in Porto Alegre, Brazil, and the Communist Party of India in Kerala. All these parties have tried to address the dominance of economically and socially entrenched groups through policies and such political measures as decentralization and agrarian reform. For further discussion, see Heller 2001.

26. Foster and Mackintosh-Walker 2001.

27. Crook and Sturla Sverrisson 2001.

28. Blair 2000.

29. Caldern and Pinc 2003.

30. Caldern and Pinc 2003.

31. Rojas 2002.

32. Budlender and others 2002.

33. Caldern and Pinc 2003.

34. Caldern and Pinc 2003.

35. Fung and Wright 2002.

36. Fung and Wright 2002, p. 14.

Chapter 8

1. UN 2001a.

2. Devarajan, Miller and Swanson 2002.

3. OECD, Development Assistance Committee 2003d.

4. Human Development Report Office calculations based on MDG indicator table 7.

5. World Bank 1998a.

6. Birdsall and Clemens 2003b.

7. World Bank 2003g.

8. OECD, Development Assistance Committee 1991.

9. Stewart 2003.

10. Birdsall, Williamson and Deese 2002.

11. IMF and International Development Association 2003.

12. Birdsall and Deese 2002.

13. Pettifor and Greenhill 2003.

14. Birdsall, Williamson and Deese 2002.

15. Birdsall and Deese 2003.

16. Birdsall and Deese 2003.

17. UNCTAD 2002a.

18. UNCTAD 2002a.

19. Wood 1995.

20. Millennium Project Task Force 9 2003.

21. Birdsall and Clemens 2003b.

22. Millennium Project Task Force 9 2003.

23. New Zealand 2003.

24. WTO 2000.

25. CAFOD 2002.

26. UNDP and others 2003.

27. Birdsall, Williamson and Deese 2002.

28. WTO 2001.

s

29. Commission on Macroeconomics and Health 2001.

30 Trouiller and others 2002.

31 Michaud and Murray 1996.

32. van den Haak, Vounatsos and McAuslane 2001.

33. Birdsall and Clemens 2003a.

34. Birdsall and Roodman 2003.

Bibliographic note

Chapter 1 draws on Barro 1996; Bissio 2003; Booth and Lucas 2002; Chivian 2002; Chwialkowska 2002; Colclough 2002; Foster 2002; IMF and others 2000; Jolly 2001, 2003; Khor 2000; Kraul 2002; Marks 2003; Millennium Project Task Force 1 2003; OECD 1996, 2003b; UN 1966, 1979, 1980, 1989, 2000a, 2000c, 2001b, 2002d; UNDP 1996, 2002g, 2003b; UNESCO Institute for Statistics 2002; UNHCHR 2002a, 2002b; UNICEF 2003a; WFUNA and North-South Institute 2002; White and Black 2002; World Bank 2002j.

Chapter 2 draws on Alvarez and others 2002; Backiny-Yetna, Coulibaly and Raffinot 2003a, 2003b; Bajpay 2003; Bhalla 2002; Birdsall and Clemens 2003b; Birdsall and Londono 1997; Bourguignon 2001; Caldwell 1986; Carson, Laliberie and Khawaja 2001; CNN 1998; Cornia and Kiiski 2001; David 2003; De Vries 2003; Deaton 2003; Deininger and Olinto 2000; Deininger and Squire 1998; Dollar and Kraay 2002; Eberstadt 2002; ECLAC 2002; Fajnzylber, Lederman and Loayza 1998; FAO 2001b, 2002b; Filmer and Pritchett 1999; Fuentes, Balsells and Arriola 2003; Fuentes and Montes 2003; Gwatkin 2002; Henninger and Snel 2002; IFPRI 2002; IFRC 2001; Johnston 2002, 2003; Kanbur and Lustig 1999; Klasen and Wink 2002; Korzeniewicz and Moran 1997; Lee 1997; Macro International 2003; Marshall 2000; McEwin 2003; Mendona 2003; Milanovic 1998, 2002, 2003; Millennium Project Task Force 5 2003a; Minujin and Delamonica 2003; Monsod and Monsod 2003; OECD, Development Assistance Committee 2003c; Oster, Lake and Oksman 1978; Pettifor and Greenhill 2003; Ravallion 2000, 2002; Reddy and Pogge 2002; Sala-i-Martin 2002; Sarmiento Gmez and others 2003; Schultz 1998; Simonpietri 2003; SIPRI 2002b; Snow and others 2003; Sprout and Weaver 1992; Stewart 2003; Szkely and Hilgert 1999; UN 2002g, 2003c, 2003h; UNAIDS 1996, 2000, 2002b; UNCTAD 2002a; UNDP 1996, 2002a, 2002c, 2002e, 2003a, 2003c, 2003e; UNDP, ECLAC and Instituto de Pesquisa Economica Aplicada 2002; UNESCO 2002a; UNHCR 2000; UNICEF 1996, 2003b; UNIFEM 2000; VandeMoortele 2001, 2002; Ward 2003; Watkins 2000; Woo and Bao 2003; World Bank 2000a, 2002a, 2002f, 2002j, 2003d, 2003h; World Bank and IMF 2001; WSP 2002b; Zubarevich 2003.

Chapter 3 draws on Adams 2002; Bajpay 2003; Bruno, Ravallion and Squire 1996; China 2003; Commission on Macroeconomics and Health 2001; Daley-Harris 2003; Fitzgerald 2001; Gallup, Sachs and Mellinger 2003; IMF 2002a, 2002b; India 2003; Khandker 1998; Maddison 2001; McArthur and Sachs 2002; Mehrotra and Jolly 2000; Prosterman and Hansted 2000; Sen 1999; Stewart 2003; Uganda 2002; UNCTAD 2002b; UNDP 1996; UNICEF 2000; Woo and Bao 2003; World Bank 1998b, 2000b, 2002h, 2002i, 2003a, 2003e, 2003f, 2003i.

Chapter 4 draws on Agarwal 1994; Ainsworth, Nyamete and Beegle 1996; Alailama and Sanderante 2000; Alidou and Jung 2002; Avert.org 2003; Barro and Lee 1993; Barros, Vaughan and Victora 1986; Behrman and others 1999; Bennel and Furlong 1997; Bicego and Boerma 1991; Buckland, Hofmeyr and Meyer 1993; Caldwell 1979, 1986; Carlsson and Valdivieso 2003; Carnoy 1992; Chen and Desai 2000; Christiansen, Conway and Poston 2003; Commission on Macroeconomics and Health 2001; Delamonica, Mehrotra and VandeMoortele 2001; de los Angeles 2002; de Moor and Calamai 2003; DFID 2002c; Drze and Sen 1995; Duncan, Jefferis and Molutsi 2000; Economic and Political Weekly 2000; Fan and Hazell 2001; Fan, Hazell and Thorat 1998; FAO 2001c, 2002a, 2002b; Filmer and Pritchett 1997, 1999; Filmer, Hammer and Pritchett 1998; Flug, Spilimbergo and Wachtenheim 1998; Forster-Rothbart and others 2002; Gupta, Verhoeven and Tiongson 2002; Haddad 1999; Haggblade and Tembo 2002; Hall 2003a; Hanmer and Naschold 2001; Heng and Hoey 2000; IFAD 2001; ILO 1991a, 1991b; India, Ministry of Finance 2002; India, Planning Commission 2002; International Institute of Population Sciences 2000; Jha 2002; Jimenez 1987; Kadzamira and Rose 2001; Kannan, Dev and Sharam 2000; Khatri and Frieden 2002; Kongsin and others 1998; Landell-Mills, Bishop and Porras 2002; Landuyt 1998; Lewin and Caillods 2001; Loewenson and Chisvo 2000; Lucas 1988; Maddison 2001; Mehrotra 1998, 1999, 2000a, 2000b, 2000c; Mehrotra and Biggeri 2002; Mehrotra and Buckland 1998; Mehrotra and Delamonica 1998, forthcoming; Mehrotra and Jolly 2000; Mehrotra and others forthcoming; Millennium Project Task Force 2 2003a, 2003b; Millennium Project Task Force 3 2003; Millennium Project Task Force 4 2003; Millennium Project Task Force 5 2003a, 2003b, 2003c, 2003d; Millennium Project Task Force 7 2003; Murthy 1999; OECD 2001, 2003b; OECD, Development Assistance Committee 2003b, 2003c; Paarlberg 2002; Panos Institute 2001; Pinstrup-Andersen, Pandya-Lorch and Rosegrant 1999; Pretty and Hine 2000; Reddy 2003; Saith 1995; Scherr, White and Kaimowitz 2002; Schultz 2001; Siniscalco 2002; SIPRI 2002a, 2002b, 2003; Stapleton 2000; Stiglitz 2002a; Swaminathan 2001; Thomas and Strauss 1998; Tilak 1997; UN 1985, 2000b, 2002b, 2002c, 2003g; UNAIDS 2002a; UNDP 2001d, 2002e; UNESCO 1999, 2002a, 2002b, 2003; UNESCO and ILO 1966; UNESCO and OECD 2000; UNESCO Institute for Statistics and OECD 2002; UNICEF 1991, 1999, 2000, 2001a, 2001b, 2002; Watkins 2000; WEHAB Working Group 2002b; Weiss 2002; White and Martin 2002; WHO 2000, 2003a, 2003b, 2003c; WHO, UNICEF and WSSCC 2000; World Bank 1993, 1996, 2002d, 2002g, 2003b, 2003i, forthcoming; World Bank and UN-Habitat 2003; World Panel on Financing Water Infrastructure 2003; WSP 2002a, 2002b; WSSCC 2002, 2003; WWC 2000.

Chapter 5 draws on Alailama and Sanderante 2000; Barros, Vaughan and Victora 1986; Bayliss 2002b; Bennett 1997; Berman and Rose 1996; Boubakri and Cosset 1998; Business Partners for Development 2002; Canadian Centre for Policy Alternatives 2003; Commission on Macroeconomics and Health 2001; Cornia and Stewart 1995; Cox and Jimenez 1991; De and Drze 1999; Duncan, Jefferis and Molutsi 2000; Franceys 2001; Garnier and others 2000; GAVI 2003; Hall 2002, 2003b; Hall and Lobina 2001; Hao, Suhua and Lucas 1997; ICIJ 2003a, 2003b, 2003c, 2003d, 2003e; IFC 2002a, 2002b; International Council for Science 2002; Iriart, Merhy and Waitzkin 2001; Iyer and Sen 2000; Kawabata, Xu and Carrin 2002; Kremer 2003; Krishnan 2000; Leipziger and Foster 2003; Lobina 2000, 2001; Lobina and Hall 1999; Loewenson and Chisvo 2000; Mason and others 1980; Mehrotra and Delamonica forthcoming; Mehrotra and Jarrett 2002; Mehrotra and Jolly 2000; Mehrotra and others forthcoming; Mills 1997; Mills and others 2002; Murphy and Bendell 1999; Myers and Kent 1998; Nittayaramphong and Tangcharaoensathien 1994; Polanyi 1994; PSIRU 2000; Results USA 2003; Rohde and Vishwanathan 1995; Save the Children 2001; Saywell 1999; Schulpen and Gibbon 2001; Shaokang, Shenglan and Youde 1997; Sidley 2001; Sinclair and Grieshaber-Otto 2002; Sitthi-Amorn, Janjaroen and Somrongthong 2001; Social Watch 2003; Stiglitz 2002a; Stocker, Waitzkin and Iriart 1999; Tomlinson 1997; Tornquist and others 2000; UNDP 2001a; UNESCO 1996, 2002a; UNESCO Institute for Statistics and OECD 2002; UNHCHR 2003; Van Lerberghe and others 2002; Velasquez, Madrid and Quick 1998; Watkins 2000; Webster and Sansom 1999; West 1997; Whitehead, Evans and Dahlgren 2001; WHO 2002; World Bank 1990, 1993, 1999, 2000c, 2002b, 2002j; World Panel on Financing Water Infrastructure 2003; WTO 2003; Yang 1993; Yesudian 1994.

Chapter 6 draws on AfDB and others 2003; Annan 2002; Baumert and others 2002; Bryant and others 1998; Campbell 1997; Cavendish 1999; Chivian 2002; Common Dreams Press Wire 1998; DFID 2002b; UNDP, DFID and World Bank 2002; Ezzati and Kammen 2001; FAO 1998, 2001a; Finlayson and others 1999; Fuggle 2001; Gardiner 2002; Goldman and Tran 2002; Graumann 1977; Hardoy, Mitlin and Satterthwaite 2001; Harrison and Stassny 1999; IEA 1999, 2003; IEA and OECD 2003; IFPRI 2002; IMF 2000; Institute for European Environmental Policy 2002; IPCC 2001a, 2001b; IUCN 2002; Janzen 2000; Khemani 2001; Koziell and McNeill 2002; Lvovsky 2001; May and others 2002; Milazzo 1998; Millennium Project Task Force 8 2003; Myers and Kent 1998; Myers and others 2000; Naeem 1998; Nigel and others 1998; Nordhaus and Boyer 1999; OECD 1999; Oldeman, Hakkeling and Sombroek 1990; Petkova and others 2003; Pinstrup-Andersen and Pandya-Lorch 2001; Rainforest Foundation 1998; Repetto and Gillis 1998; Satterthwaite 2002; Sizer 2000; Smith 2000; Toledo 1997; UN 1997, 2002h, 2002i, 2003e, 2003f; UNCHS 1996; UNDP 1998, 2001a, 2002d; UNDP, WEC and UNDESA 2000; UNDP and others 1998, 2000; UNEP 2003; UN-HABITAT 2002; UN World Summit on Sustainable Development 2002; WEHAB Working Group 2002a, 2002b; WHO 1997; World Bank 2002k, 2003i; WRI 2000a, 2000b; WWF 2002.

Chapter 7 draws on Ablo and Reinikka 1998; Adamolekun 1999; Agrodev Canada 2000; Alm and Bahl 2001; Alston and Crawford 2000; Angell, Lowdon and Thorp 2001; Appleton 2001; Asian Development Bank 2002; Augustin-Jean 2002; Baiocchi 2001, 2002; Banerjee 2002; Banner 2002; Bardhan and Mookherjee 2000; Barraclough 1999; Bayliss 2002a; Besley and Burgess 2000, 2002; Blair 2000; Bourguignon and Ferreira 2000; Brinkerhoff and Goldsmith 2003; Brown and others 2000; Bruno, Ravallion and Squire 1996; Budlender and others 2002; Caldern 2002; Caldern and Pinc 2003; Caldern and Szmukler 2002; Cameron 2002; Carrin 2003; Chandler 2001; Choguill 2001; Council of Europe 1998; Crook 2001; Crook and Manor 1998; Crook and Sturla Sverrisson 2001, forthcoming; Cross and Kutengule 2001; Cullar-Marchelli 2001; Deshpande 2002; Devarajan, Miller and Swanson 2002; DFID 2000, 2002a; Dillinger and Fay 1999; Drake and others 2003; Drze and Sen 2002; Evans 2002; Evers 1996; Fabre 2001; Faguet 2001; Ferro, Rosenblatt and Stern 2002; Finan, Sadoulet and de Janvry 2002; Fisman and Gatti 2002; Foster and Mackintosh-Walker 2001; Francis and James 2003; Franke and Chasin 2000; Fuentes and Niimi 2002; Fuhr2003; Fung and Wright 2002; Furtado 2001; Gargarella 2002; Gaventa and Valderrama 1999; Gloppen, Rakner and Tostensen 2002; Goetz and Jenkins 2001; Goldfrank 2002; Mutebi, Stone and Thin 2003; Gopalakrishnan and Sharma 1999; Grant and others 2001; Greenhill and Black-more 2002; Harrison 2001; Harriss 2000; Heller 2000, 2001; Herring 2000, forthcoming; Hessling and Ba 1994; Hirschman 1970; Hope 2000; Hossain and Moore 2001; Houtzager 1999; Huizer 1999; ILO 2001; Institute of Development Studies 2003; Iriart, Waitzkin and Trotta 2002; Jenkins and Goetz 1999; Jhabvala and Kanbur 2002; Johnson 2001, 2003; Johnson and Start 2001; Kabeer 2000; Kanbur and Squire 1999; Kawabata, Xu and Carrin 2002; Khemani 2001; Kohl 2002; Kosack 2003; Krishnan 2000; Kudva 2003; Leftwich 1994; Lipton and Ravallion 1994; Lopes 2002; Lopez 2003; MacDonald 2002; Mamdani 1976, 1995, 1996; Manor 1999, 2000, 2003; McIntyre 2002; Mehrotra 2002; Mehrotra and Delamonica forthcoming; Michaud and Murray 1996; Migdal, Kohli and Shue 1994; Millennium Project Task Force 6 2003; Milliken and Krause 2002; Moore and Putzel 1999a, 1999b; Mozambique 2002; Naidu 2002; Narasimahan 2002; Narayan and Patesch 2000; Noman 1997; Ogus 2002; Osava 2003; yen 2002; Pande 2003; Paul 2002; Phillips 1995; Rahman and Westley 2001; Reno 2002; Ribot 2001; Roberts 2003; Rojas 2002; Ruggeri 2001; Sahn and Stifel 2003; Schusterman and others 2002; Shah 1998; Shankar and Shah 2001; Shatkin 2000; Social Watch 2003; Steinich 2000; Stiglitz 1996, 2002b, 2003; Tendler 1997; Tinker 2002; Turner and Hulme 1997; UN 2003d; UNDP 2001b, 2002b, 2002e, 2002f, 2003d; Valderrama 1998; Veltmeyer 1997; Walker 2002; Watson 2002; Work 2002; Working Group on Contemporary Forms of Slavery 1997, 1999; Yoder 2003.

Chapter 8 draws on Abrego and Ross 2001; Birdsall and Clemens 2003a, 2003b; Birdsall and Deese 2002, 2003; Birdsall and Roodman 2002, 2003; Birdsall, Williamson and Deese 2002; Business Week 2000; CAFOD 2002; CGIAR 2003; Cline 2002, forthcoming; Commission on Macroeconomics and Health 2001; Damon, Dant and Naudet 1999; Devarajan, Miller and Swanson 2002; Economist 2001; European Commission 2002a, 2002b; Finger and Harrison 1996; Fortucci 2002; Fukuda-Parr, Lopes and Malik 2002; Geithner and Nankani 2002; Gore 2002; Goreaux 2003; Gutierrez and others 1996; Hanlon 1998; Hendra and Courtnadge 2003; Herfkens 2002; Hertel and Martin 1999; IMF and International Development Association 2003; International Cotton Consultative Committee 2002; Khor 2002a, 2002b; Lopes and Thieson 2003; Michaud and Murray 1996; Millennium Project Task Force 9 2003; Millennium Project Task Force 10 2003; Narayan and Patesch 2000; New Zealand 2003; OECD 2003a; OECD, Development Assistance Committee 1991, 2001, 2003a, 2003d; Oxfam 2002; Pettifor and Greenhill 2003; PIPA 2002; Quiroga 2002; Rahman 2003; Randel and German 1998; Ranis and Stewart 2000; Stewart 2003; Trouiller and others 2002; UN 2001a, 2002a, 2002d, 2002e, 2002f, 2003a, 2003b; UNCTAD 2000, 2002a; UNDP 1993, 2000, 2001c; UNDP and others 2003; UNICEF 2003b; United Kingdom 2003; van den Haak, Vounatsos and McAuslane 2001; Van de Walle and Johnston 1996;; Wood 1995; World Bank 1998a, 2001, 2002c, 2002e, 2002f, 2003c, 2003g, 2003i; WTO 2000, 2001.

Bibliography

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Caldern, Fernando, and Christopher Pinc. 2003. Political Reforms and Policies Enabling People's Empowerment and Advancing Human Development: The Challenges for Latin American Countries.

David, Isidoro P. 2003. The International Statistical System and Statistical Capacity Building: Then and Now.

Deaton, Angus. 2003. Data for Monitoring the Poverty MDG.

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Manor, James. 2003. Democratisation with Inclusion: Political Reforms and People's Empowerment at the Grassroots.

Pettifor, Ann, and Romilly Greenhill. 2003. Debt Relief and the Millennium Development Goals.

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CIESIN (Center for International Earth Science Information Network). 2003. Mapping Human Development.

De Vries, Willem. 2003. Measuring Statistical Capacity.

Johnston, Robert. 2003. Notes on Statistical Capacity Building Issues.

UNDP (United Nations Development Programme). 2003a. Conflict Mapping. Bureau for Crisis Prevention and Recovery.

Ward, Michael. 2003. An Integrated Overview of Poverty and Inequality.

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Akder, Halis. 2003. Human Development Progress towards the Millennium Development Goals: Turkey.

Backiny-Yetna, Prosper, Siaka Coulibaly and Marc Raffinot. 2003a. Country Case Study on Human Development Progress towards the MDGs at the Sub-National Level: Burkina Faso.

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Bajpay, Nirupam. 2003. India: Towards the Millennium Development Goals.

Fuentes, Juan Alberto, Edgar Balsells and Gustavo Arriola. 2003. Guatemala: Human Development Progress towards the MDGs at the Sub-National Level.

Fuentes, Ricardo, and Andres Montes. 2003. Millennium Development Goals for Mexico.

Mendona, Rosane. 2003. Country Case Study on Human Development Progress towards the MDGs at the Sub-National Level: Brazil.

Monsod, Solita, and Toby T. Monsod. 2003. Philippines Case Study on Human Development Progress towards the MDGs at the Sub-National Level.

Sarmiento Gmez, Alfredo, Luca Mina Rosero, Carlos Alonso Malaver and Sandra lvarez Toro. 2003. Human Development Progress towards the Millennium Development Goals in Colombia.

Snow, Thomas, Michael Faye, John McArthur and Jeffrey Sachs. 2003. Country Case Studies on the Challenges Facing Landlocked Developing Countries.

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Millennium Project Task Force 1. 2003. A Millennium Development Strategy for Achieving Poverty Alleviation and Economic Growth.

Millennium Project Task Force 2. 2003a. Halving Global Hunger.

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Millennium Project Task Force 3. 2003. Achieving Universal Primary Education by 2015.

Millennium Project Task Force 4. 2003. Child Health and Maternal Health.

Millennium Project Task Force 5. 2003a. Combating HIV/AIDS in the Developing World.

. 2003b. Combating Tuberculosis.

. 2003c. Expanding Access to Essential Medicines in the Developing World.

. 2003d. Reducing the Burden of Malaria in the Developing World.

Millennium Project Task Force 6. 2003. Environmental Sustainability.

Millennium Project Task Force 7. 2003. Achieving the Millennium Development Goals in Water and Sanitation.

Millennium Project Task Force 8. 2003. Improving the Lives of Slum Dwellers.

Millennium Project Task Force 9. 2003. Trade and Finance and the Millennium Development Goals.

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