World Development Report 1997 - The State in a Changing World by the World Bank (1997)

This document has been made available in electronic format
by the International Co-operative Alliance (ICA)
Oct, 1997
(Source: Co-op Dialogue, Vol.7, No.2, May-Aug. 1997, pp.12-14)

World Development Report 1997 - The State in a Changing World
by the World Bank : A Review by Allie Irvine

The World Development Re-port 1997 focuses on the role of the state 
in development.  Predicably, the World Bank denounces the failure of
state-dominated development in favour of good government that, "plays
a catalytic, facilitating role, encouraging and complementing the activities
of private businesses and individuals."

It offers a two-part strategy for an effective role of state:

1.	Focus the state's activities to match its capabilities, and avoid trying
	to do too much with too few resources.

2.	Look for ways to improve the state's capabilities by reinvigorating
	public institutions, with emphasis on providing public officials with
	performance incentives while eliminating corruption.

The report argues that the collapse of state-controlled economies in
Eastern Europe, the fiscal crisis of the welfare state in industrialised
countries, the role of the state in the "miracle" economies of East Asia 
and the collapse of states and explosion of humanitarian emergencies in
the developing world have precipitated questions about the role
government in a global economy.

An effective state should provide goods and services, rules and
institutions that allow markets to flourish and people to lead
healthier, happier lives, says the report.

Pre and post-World War II model of state intervention in the economy
has been called into question in an era of economic globalization,
technological advancement and the spread of democracy.

Government's failure to deliver property rights, roads, basic health
and education has resulted in people and businesses avoiding taxation,
causing further deterioration of services. The state's first priority, says
the report, is to put in place the appropriate institutional foundations
for markets by:

-	establishing a foundation of law

-	maintaining a non-distortionary policy environment, including
	macro-economic stability

-	investing in basic social services and infrastructure

-	protecting the vulnerable

-	protecting the environment

"To make development stable and sustainable, the state has to keep an
eye on the social fundamentals," it reads.  In other words, prevent
lawlessness and promote stability.

Public policies and programs must aim at ensuring the benefits of market
growth are shared through basic investment in education and health care. 
The report also promotes the idea of businesses, labour and community
groups providing social services.

In the chapter "Bringing the state closer to the people," the report talks
at length about involving NGOs in the delivering of core services as a
means of empowering people.  A mention of co-operatives is
conspicuously absent.

Assuming that the private sector can always manage better than
government, the report refers to public share offerings as an option
for privitization that includes people.  One is left to reason why the
public should be asked to pay for something it already owns.

The report also sites the New Economic Program used by the Malaysian
government to increase Malay representation at universities and in the
economy as a stellar example of how governments can ensure equal
distribution of wealth.  This is a controversial policy based on racial
discrimination against minorities.

Market incentives can be used to discourage polluters, it says, like more
flexible and self-regulation.  Deregulation and privatization of industries
is dressed up as "effective regulation."

What the report calls "reinvigorating state institutions by providing
incentives for public officials to perform better," is really a call for
decentralisation of government services and contracting out.

It also states the need for an independent judicial system, an assault on
corruption, broad public participation, the need for a merit-based system
of recruitment and promotion in the civil service, and adequate

Global integration of economies is the World Bank's answer to:

-	managing regional crises
-	promoting global economic stability
-	protecting the environment
-	fostering basic research and the production of knowledge
-	making international development assistance more effective

The report advocates a first and second generation plan for state reform. 
The first is aimed at crisis management, reducing inflation and restoring
growth.  It proposes drastic budget cuts, tax reform, price liberalization,
trade and foreign investment liberalization, deregulation, reallocation of
social funds, cuts to the civil service, and privitization.  

The second generation of reforms are intended to improve social conditions
and competitiveness to maintain macro-economic stability.  They include
civil service reform, labour reform, restructuring of social ministries,
judicial reform, modernising the legislature, upgrading regulatory capacity,
improved tax collection, large-scale privitization, and the restructuring of
central-local government relationships.

The tenor of the World Development Report 1997 is almost religious in its
commitment to the free market.

It accepts theory as truth: that state-dominated development has failed
completely, that unfettered world capitalism can create economic
prosperity for all, and that the private sector will better manage public
assets and preserve the environment.

While calling on states to "do only what they are capable of doing and to
reinvigorate public institutions," the report is really advocating states give
the private sector free reign, pare down their involvement in the economy
and off-load the delivery of social programs.

This raises serious questions about accountability.  In a democratic
society and even unelected governments, to some extent, must answer
to the people.  In a society controlled by free enterprise, where do
people have a say?

Can the public really trust unencumbered profit-oriented multinational
corporations to pay fair wages, to safeguard human rights, and to preserve
the environment for a sustainable future?  One look at their track record in
the industrialized world raises serious doubts.

A recent report on globalization released by the United Nations has shown
that manufacturing jobs have moved to low-wage countries, but that
people in the developing world are remaining poor and without basic social
programs.  The impact on the environment is devastating. 

The global economy already lies in the hands of big business.  Of the
100 largest economies in the world, 51 are corporations. 

The combined sales of the world's top 200 corporations are higher than
the combined economies of all countries (182) minus the largest nine. 
These 200 have also been the net job destroyers in recent years.  Their
combined global employment is only 18.8 million, less than a third of one
hundredth of one percent of the world's population.

The World Bank's vision of a powerless state in the global economy is
being fully realised in the industrialized world in the new Multilateral
Agreement on Investment (being  negotiated at the Organisation for
Economic Co-operation and Development), which follows on the heals of
other trade agreements like the General Agreement on Tariffs and Trade
and the North American Free Trade Agreement.

The MAI will promote the unregulated flow of money and goods across
borders, stripping elected governments of their regulatory authority and
shifting power to unaccountable institutions like the World Trade

The MAI would also ban a wide range of regulatory laws now in force
around the world.  Corporations will use the threat of job losses to force
countries to treat foreign investors like domestic companies, and to
compete with each other to lower environmental and labour standards. 
Laws on local job creation and community investment would be thwarted.

The agreement goes even further, giving corporations the right to sue city,
state of national governments before an international tribunal whose
decisions are binding.  Yet, governments would enjoy no reciprocal right to
sue corporations on the public's behalf.

The World Bank's record in the developing world is telling of its attitude
towards the state, and its callous disregard for the poorest of the poor.

States in crisis have been held hostage by loans and interest rates, and
forced to implement the World Bank's structural adjustment policies,
causing even more suffering.

Experience has shown that the reduction of government expenditure
invariably hits the poor the hardest by reducing their access to jobs and
basic social services, and doubling the heavy workload on women in the
society who are already participating in the economy by off-loading
responsibility to care for the sick, the elderly and children.  This weakens
the physical and intellectual capacities of the work force on which
capitalism depends.

Focus on export-oriented production based on incentives for foreign
investors exploits low-wage workers.  Increased focus on large scale,
export-oriented crops bankrupts small farmers, threatens local food
security, and damages biodiversity.

Co-operatives, a vehicle for the poor to achieve social justice, are also
adversely affected by structural adjustment policies.  As government
concessions, loans and subsidies are reduced, co-operatives are put in
direct competition with the private sector.  Co-op members, most of
whom are poor and marginalised, take a disproportionate share of the
burden of social cuts, retrenchment and have difficulty securing credit
required for economic development.

The "miracle" economies of East Asia glowingly referred to in the report
have grown so fast that recently their currencies were devalued, which will
result in a drop in already low real wages and increase unemployment. 

Most people in these countries are still a long way from enjoying the basic
benefits of adequate health care, food and income security, and other social

Even industrialized nations who have followed this model of development,
like the United Kingdom, have seen the disparity between rich and poor
grow dramatically over the past ten years.  Continuation of this trend
would make even capitalism unsustainable.

The links between macroeconomic policies and the deterioration of the
social welfare of people is clear.  It is true that drastic state reforms are
needed in many developing countries. 

Yet, it is hard to imagine how dismantling the role of the state in the
economy to the extent promoted by the World Bank will hold meaningful
benefits to the poor. 

In the global economy, it will become more impossible for states to
protect their citizens, their resources and the environment from
exploitation by the powerful multinationals.

The World Development Report 1997 is published for the World Bank
by Oxford University Press.