The World Bank and Extreme Poverty: A New Direction

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ROHNERT PARK, California — “Economists and other experts seem to have very little useful to say about why some countries grow and others don’t.” – Abhijit Bunerjee & Esther Dufflo from Poor Economics.

The World Bank is a major player in the direction poverty measures head, and their effectiveness. With a new President, they are moving in a new direction, a concise mission statement in no uncertain terms states “To end extreme poverty within a generation, and to boost shared prosperity.”

The History of the World Bank

One of the original 1944 Bretton Woods organizations, The World Bank has been a major international financial institution for decades. An original mission statement and financial backing of policy focused on reconstruction and creation of infrastructure through loans and financial assistance in the wake of the World Wars.

European and a few Asian Pacific nations were the major benefactors of this assistance. France was the first country to receive assistance– interestingly enough these are some of the more modern and successful economies in the world today.

Unfortunately, the World Bank’s policy has not always been this successful.

Current President of Oxfam America Raymond Offenheiser sums up decades of misplaced and counterproductive policy in a comment in his piece on Huffington Post. “The World Bank’s mission was always about ending poverty — except when it wasn’t. Whole decades were lost to ‘structural adjustment policies,’ which forced on cuts in social spending, hiring freezes on doctors and teachers, fees to basic health care, and worsened poverty in many developing countries.”

New President, New Direction

In April of 2012 Dr. Jim Yong Kim, a trained anthropologist and physician was elected the 12th president of the World Bank. Most notably his background marks a dramatic turn from all of the previous presidents, who were bankers economists and often executives of well known commercial banks.

His vision and dramatic rearranging of the organizations mission statement and goals reflects this difference.  “Jim Yong Kim has put together a vision for wiping out extreme poverty and fighting inequality by 2030, begun to shift the Bank’s health policy, and threw the Bank’s influence behind ambitious efforts to combat climate change.” Says Offenheiser.

Problems Addressing Global Poverty

He goes on to express his worry about the actual results that will come to be. “Our expectations are high. Kim has made some promising first steps. The question is whether his ongoing actions will ultimately match his plans and words – whether he gets results on poverty eradication.”

This skepticism is not particular to Offenheiser, or any other organization or faction of the community looking to eradicate global poverty. With its shady past in policy, it is understandable. But there is an ever deeper reason for the skepticism, and it lies in the basic fact  the opening quote of this piece from the book Poor Economics explains.

Corruption, dependency and ineffectiveness are some of the main problems current approaches face attempting to rid the world of extreme poverty. In clearer terms a fundamental dichotomy in the obstacles faced, is highlighted by the argument between Jeffery Sachs and William Easterly.

Their basic tenants are that Easterly believes aid can produce a dynamic of dependency and further enhances the so called ‘poverty trap.’ Sachs argues that a stimulus of some sort, through policy is essential to providing the poor the kick-start they need to usurp the cycle of poverty, though the stimulus is oft misplaced and the most effective strategies are hardly ever known or implemented.

However, not all is lost as even the main spokespeople for the divide that exists within this community striving to end global poverty do agree on one thing: involving the poor in markets, and creating self sustaining and homegrown economies that allow individuals to create their own potential, is the only long-term solution.

Even Easterly admitted, “ ‘essential aid’ will not make the poor dependent on handouts, it does give the poorest a chance to enter the economic system.”

Introduce Quantification and RCT’s

There is no one answer, at every level and scale of addressing global poverty. Duflo and Bunerjee’s work has exposed this disconnect. Along with several partners, they are proposing a whole new fundamental approach to creating policy, as well as some key areas to focus on.

JPAL (poverty action lab) at MIT is one of these partners, and created the concept of randomized controlled trials ( RCT) also known as the concept of counterfactual experiments, in the application of poverty programs and policy. It can best be understood as the scientific method of experimentation, with an emphasis on controlled variables, to social policy.

One cannot know what is working without measurement and controlled comparisons, is their modo and it seems that they are in essence applying the scientific method to the creation and improvement of policy.

Unintended consequences and benefits are inevitable and an often source of the most innovative and paradigm-shifting solutions. These can only become apparent and incorporated with measurement and controlled variants.

Synergy and progress

President Kim himself has admitted that a move in this approach is essential to creating the effective policy that will allow his ambitious goals to be met. The recent World Economic Forum in Davos being primarily focused on inequality, and the latest yearly budget put out by the World Bank all point to a misplaced skepticism by Offenheimer and many others.

Duflo and Bunerjee presented several areas to focus on, stating that the best macro concepts to address, given their research, that actually improve the lives of the poor are:

1. Education/access to information (not surprisingly)

2. Reducing the need to make survival based decisions

3. Creating markets and access to them.

With a glance at Kim’s latest vision statement for the future of the World Bank, and with the wider acceptance of research like that of Duflo and Bunerjee gives those in this field a sense of hope– and a formula to translate their moral outrage into effective direct action.

-Tyler Shafsky

Sources: TED, World Bank, Huffington Post
Photo: Business Week

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