On September
21, 2003, the World Bank unveiled its annual flagship publication, the
2004 World Development Report, entitled "Making Services Work for
Poor People." The WDR's main premise is that basic services - primary
education, basic health care, water and electricity services -fail to
reach the poor because too many governments lack sound and representative
institutions of governance. Ironically, the report expresses strong confidence
in the ability of these same unaccountable governments to regulate private
service provision.
In addition to deficient institutions, the WDR attributes failing public
services to regressive budgets (that benefit mostly the middle class),
petty corruption, and bureaucratic inertia. Among the many solutions it
proposes for these problems are more progressive resource allocation,
greater transparency, more competition, and citizen-based monitoring.
It also encourages policy-makers to consider decentralizing service provision
and -particularly in the areas of water and electricity – implementing
private provision and higher user fees.
While the WDR is enthusiastic about the potential of markets to improve
some essential services – often too enthusiastic, as discussed in
this critique -it also makes clear that there are limits to private provision.
Since the Bank's critics accuse the institution of promoting indiscriminate
privatization, the World Bank has been using the WDR in public and press
relations as evidence to counter such attacks.
The WDR's qualified support for public provision is an important statement
to have on record in the public debate over reform of basic social services,
like primary education and health care. The importance of the state's
role in service provision is even more emphatic in the 2003 Human Development
Report (HDR), entitled "Millennium Development Goals: A compact among
nations to end human poverty." The UN Development Programme report
urges a larger role for government in the direct provision of social services,
and concludes that: "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. Meanwhile, examples
of market failures in private provisioning abound." (p. 113)
Notwithstanding its support for public provision of education and basic
health care, the WDR endorses private provision of infrastructure services,
such as water, sanitation, and energy. The report seeks to justify the
World Bank's past and present efforts to privatize utilities by neglecting
the mounting evidence of unacceptable risks of private provision in these
sectors – especially in countries with weak regulatory capacity.
While the WDR carefully avoids a "silver bullet" for improving
basic services, many of the reforms that it proposes are informed by an
important underlying principle; that government should not both regulate
and provide service provision. Indeed, the WDR suggests that public services
tend to fail poor people because the fusion of these functions represents
a conflict of interest. "When the policymaker takes a separate role
from the provider, it is easier to say "I don't care what your problem
is, just tell me the vaccination rates. Or the test scores. Or crime rates."
When roles are mixed, bureaucracies become insular and tend to hide mistakes."
(p. 98) The WDR does concede that most basic services in developed countries
are delivered by government providers which are overseen by government
regulators – and that this arrangement works just fine. But it rejects
the same path for today's developing countries. Why?
Rich countries benefit from a long evolution of the relationships between
the state and frontline providers. Almost all services provided directly
to individuals in the now -rich countries were originally provided privately.
They were eventually absorbed or consolidated by a state institution that
had been separate from the existing provider organizations. The state
began as an independent outside monitor and regulator of private activities.
It largely retained that independence as a monitor after the same activities
became public. For the developing world the desire for rapid expansion
of public financing and provision short-circuits this historical development.
Both the monitoring and the provision are taking place simultaneously.
This is not necessarily a bad thing-the poor might otherwise have to wait
much longer for services to reach them. But it does show that the current
institutional features of rich countries may not transfer directly to
poor countries without the establishment of a complementary regulatory
structure, a structure that may need to be established beforehand. (p.99)
This explanation represents much more than a novel theory of development
for academics to debate about. The imperative to separate policymakers
(i.e., regulators) from service providers justifies the replacement of
government service provision.
The present critique rejects the WDR's argument for two reasons: First,
the report does not account for variation in outcome. As the WDR shows
in numerous places, the developing world is filled with examples of effective
and accountable government services which are regulated by the same government.
Why wasn't good governance "short-circuited" by late and rapid
development in these cases? Second, and most fundamentally, because basic
public services are susceptible to market failures, there is widespread
agreement that government must be able to regulate private providers.
Yet if poor countries don't have "institutional features of rich
countries" needed make government services work, they can hardly
be expected to establish complex regulatory structures needed for private
service provision.
This paper is organized into three sections: The first focuses on the
WDR's analytical framework, the second on its policy implications, and
the last on the relationship between the report's main messages and actual
World Bank operations. The author thanks Nancy Alexander for her review
and many substantive contributions to this critique.
A. Analytical framework
Anecdotes, not analysis
If one looks to the WDR to provide analytical guidance about how to choose
among options for reform – especially between government and private
provision -the report is not particularly useful. That is, it fails to
provide policy-makers with the kinds of tools needed to evaluate the costs,
risks and trade-offs inherent of different policy options in the context
of particular institutional and economic constraints.
Especially with respect to the social sectors, the message of the WDR
seems to be "let a thousand flowers bloom." The WDR is filled
with seemingly random claims that private, public or decentralized provision
has worked well somewhere in the past. There is an example somewhere in
the document to support the viability of just about any kind of known
reform. For example, under a properly pro-poor government: "an easy
to monitor services such as immunization could be delivered by the public
sector, or financed by the public sector and contracted out to the private
or non-profit sector."
One could excuse a policy-maker for asking: aside from government, firms
and NGOs, who else could deliver this service? And more importantly, how
does a government decide which one to go with? At the end of the section
on how to scale up service reform, the WDR Overview concludes: "In
addition to creating and disseminating information, other reforms to improve
service delivery will require careful consideration of the particular
setting . . . Everything from publicly financed central government provision
to user-financed community provision can work (or fail to work) in different
circumstances." Unfortunately, the WDR's main analytical framework
does not focus on country-specific circumstances, but rather generic qualities
of services themselves. (An exception would be whether the political environment
is "pro-poor" or not – a slippery and undefined concept
that can be endlessly manipulated according to one's preferred policy
outcome.)
Shaky analytical framework
The WDR attempts to provide an analytical framework -a highly technocratic
approach to selecting service reforms. The recommendations are based on
three sets of criteria:
1. Are client preferences homogeneous or heterogeneous?
2. Are politics "pro-poor" or "pro-rich?"
3. Are outputs easy or hard to monitor?
Some rather odd policy recommendations emerge from the WDR's framework.[1]
For example, there is only one set of circumstances in which central government
provision is recommended: pro-poor politics, homogeneous clients and difficulty
in monitoring outcomes. It stretches credulity that, out the eight possible
combinations of criteria, the public service option that has been used
most often and most effectively in the wealthy northern countries appears
to have extremely limited applicability in developing countries.
The three dualistic, "black and white" criteria are unhelpful
since the real world is colored in countless shades of gray. For example,
few political scientists would have the temerity to assign a categorical
pro-rich or pro-poor classification across service sectors to countries
they have studied closely. Moreover, because of political, ethnic or religious
considerations – and of course pervasive gender bias – politics
may prove to be quite "pro-poor" for certain groups or areas
but not for others. An event so fleeting as a change in government can
significantly can significantly improve or worsen the political status
of poor people. Given that the WDR's policy-recommendations differ significantly
depending on whether a country is deemed to have pro-poor politics, the
many difficult ies in measuring the criterion present serious challenges
for policy-makers.
In the case of heterogeneity, even if there is little deba te over the
clarity of the criterion, its role in the analytical framework is overly
simplistic. When consumer preference is found to be "heterogeneous"—that
is, when different users have different tastes or needs – the WDR
supports some variant of local government or even community control. However,
decentralization is a national policy, affecting all local governments
– even those that are manifestly corrupt and deaf to the needs of
the poor. Giving more responsibility to weak or unaccountable government
is unlikely to provide more choices for heterogeneous clients. Contrary
to WDR claims that decentralization improves the welfare of the poor outcomes,
empirical research suggests that "the notion that there is a predictable
or general link between decentralization of government and the development
of more pro-poor policies or poverty alleviation outcomes clearly lacks
any convincing evidence." [2]
Sustainability of Community-Driven Development
The WDR is enthusiastic about decentralized, community-driven development
(CDD) projects and acknowledge the importance of strengthening local government
to administer them. However, the Bank's CDD resources typically bypass
local government and, by the Bank's own estimation, have very low sustainability
rates. For instance, a significant sample of CDD (Social Fund) water operations
revealed a likely sustainability of 24 percent of operations. In addition,
the poverty reduction impact of World Bank financing of community-driven
development initiatives is weak. The Bank's own evaluation department
concluded that Social Funds, one of the main financing mechanisms for
community development projects, did not improve most welfare indicators
relative to a control group. In fact, it found that non-poor communities
were more likely to benefit from Social Fund expenditures than the poor.
For a critical review of the rise of social funds in development aid,
Judith Tendler," why Are Social Funds So Popular?" in Local
Dynamics in the Era of Globalization (Shahid Yusuf, ed.) Oxford University
Press, 2000.
And what about communities? The WDR itself concedes that "communities
are not homogeneous – problems of exclusion and elite capture can
be the same as in government systems." One would hope that such a
caveat would come with guidance on how to assess the readiness of communities
to make investment decisions and allocate resources accountably. Yet notwithstanding
extensive evidence of corruption, patronage and social exclusion within
local governments and communities, the WDR touts highly risky policies
as bringing services closer to the people.
Moreover, even where decentralized government is accountable, all too
often it is also broke. The trend toward decentralization has created
"unfunded mandates" in country after country, especially as
fiscal transfers from the central government are reduced – often
under direction from the same multilateral lenders who thought decentralization
was the solution for better services. The WDR framework asks only if the
service is appropriate for local government, and fails to examine whether
the local government has sustainable financing and capacity to deliver
services.
The criterion monitoring is also much more slippery than the authors admit.
For example, the WDR casually claims that water and electricity are "easily
monitored services." (p. 14) It is true that checking the existence
of a household connection to a utility network is easier to verify than
knowing whether a child is being properly taught. However, this does not
mean that monitoring water and electricity services is "easy,"
particularly for governments that lack regulatory capacity.
Avoiding market failure in private infrastructure provision requires accurate
monitoring of both performance and costs. World Bank economist Vivien
Foster has argued that a "regulated company will have a strong incentive
to abuse this strategic advantage [its control over information] by under-supplying
information or distorting the information supplied." [3]
Private sector providers have incentives to maximize profits and provide
minimal compliance for contractual commitments that serve social rather
than revenue-generating goals. In order to monitor their behavior, regulators
must gather extensive data at considerable cost.
Generic advice
Policy-makers would do well to focus on specific, observed constraints
to implementing private provision. Changing the analytical framework to
focus on actual context instead of generic attributes could help focus
national and local deliberations about policy options. Instead of using
mechanical and largely abstract notions of service types, policy-makers
should focus instead on the known problem . The WDR itself identifies
four distinct ways that services fail poor people:
1. Too much spending on the non-poor;
2. Failure of expenditures to reach front-line providers;
3. Corruption and disincentives among service workers themselves; and
4. Lack of demand among the poor, due to economic, informational or cultural
factors.
As discussed below, this critique proposes adding a fifth problem: inadequate
budget.
The main questions driving the WDR's analytical framework are: "What
kind of service do I have, and what kind of reform is best for that kind
of service?" But a quick glance around the world shows the folly
of this approach. Countries successfully employ every imaginable variation
of service provision: decentralization; and community control; monitoring
systems (ranging from citizen participation to high tech computerization);
and private provision (through corporations, small businesses and NGOs).
(And of course, there have been failures with each of these approaches
as well.) Successes are obviously not inextricably tied to the nature
of the service. Rather, they were achieved because of the actual country
context – that is, the constraints and opportunities specific to
the country or locality.
An alternative question that would drive the analysis in reforming a failing
service is: "What is the root of the existing problem?" Unlike
general attributes, the answer to this question is not "given."
The service must be investigated, the perspectives of managers, workers
and users understood. Stakeholders would also provide information about
assets and capabilities that are worth building on. By identifying the
institutions that provide technical competence, accountability, and pro-poor
advocacy, services could be reformed based on an understanding of context-specific
opportunities. By using this kind of analytical framework, there is little
doubt that many of the reforms proposed in the WDR
– including those involving private participation
– would emerge as appropriate solutions. But these solutions would
result from on-the-ground consultation.
B. Policy implications for private provision
and resource allocation
Bad advice on privatization of infrastructure
The WDR is enthusiastic about direct private provision of infrastructure
services. Because the WDR's analytical framework does not include an assessment
of the well-known risks associated with asymmetric information,[4]
it offers extremely questionable advice on infrastructure services. The
report maintains that government's role in these sectors should generally
be limited to regulation and subsidies. The reason is that: "There
are few advantages to the government's providing the [infrastructure]
service itself, which explains why the past decade has seen many privatizations,
concessions and the like in water and energy."[5]
Are water and Electricity Public Goods?
The WDR's distinct policy advice for social and infrastructure services
reveals that its authors do not regard water and electricity as "Public
goods." For example, Box 2 (Overview), entitled, "Service-a
public responsibility "refers only to health and education. Why?
First these services are replete with market failures-with externalities,
as when an infected child spreads a disease to playmates, or a farmer
benefits from a neighbor's ability to read. So the private sector, left
to its devices, will not achieve the level of health and education that
society desires. Second basic health and education are considered fundamental
human rights," Later, the report justifies charging user fees "for
water, electricity and other services whose benefits are enjoyed mainly
by the user…" (p. 10) (Strangely, in the same paragraph the
WDR recognizes water quality as a public good, because of public health
externalities. Why water quality would be considered as a public good
but water access would not remains unclear, given that access has an obvious
impact on public health. Indeed, it is lack of access to safe drinking
water that leads poor people to contaminated water resources.)
These points are certainly valid, but they apply with equal force to water
and electricity. Water and sanitation services obviously provide tremendous
positive externalities, preventing the spread of waterborne diseases (such
as cholera, which killed hundreds of South Africans following the imposition
of user fees.) Electricity also provides important benefits that extend
well beyond the consumer, including higher economic productivity and growth,
and promoting public education bye enabling children to study at night.
As for what can happen to electricity service when the private sector
is "left to its devices," one need recall the traumatic price
hikes and blackouts that plagued California and the US northeast. Finally,
the UN has explicitly identified access to safe drinking water as fundamental
human rights, once again making the distinction between water and health
care seem arbitrary.
Given the disastrous record of privatized water and energy, one would
expect some elaboration on the sweeping dismissal of public provision.
The WDR does not mention what the "few advantages" of public
service might be, or how those advantages can be compared to those of
private provision. As this critical assessment is left to the reader's
imagination, a few advantages of direct public provision are offered here:
No need to regulate firms with incentives and capacity to withhold information
needed for pricing and investment decisions. While government provision
does require regulation, achieving accountable supervision of a public
utility is qualitatively different – and much less costly –
than for a private one. No monopolistic rent-seeking or market manipulation.
Under government provision of a natural monopolies or erratic markets
like energy generation, there is no incentive to charge monopolistic prices
or distort supply. Similarly, government provision requires no profit
margin, which increases prices for consumers.
No corrupt bidding process or sweetheart deals on private concessions.
When service is poor, service users can exercise demands more effectively
as organized citizens, rather than atomized customers.
World Bank research has recognized the importance of regulation when it
comes to private provision of monopoly services, especially network-based
sectors that are not subject to competition. The WDR itself includes a
section on the importance of competent and autonomous regulation in ensuring
that providers – public or private – be held accountable.
Yet even though most of the Bank's borrowing governments have relatively
weak regulatory capacity – especially in terms of monitoring and
sanctioning powerful private sector firms, the WDR embraces privatization
of water and energy.[6]
Privatization Paradox
WDR's facile advice in favor of infrastructure privatization underscores
a fundamental dilemma of development that the World Bank fails to confront:
The same accountability limitations that make public services fail will
almost certainly undermine the effectiveness of private provision and
decentralized services. The simple reason is that, no matter who provides
a service, the state is ultimately responsible for regulating the provider
and protecting consumers. The report observers that: "Providers end
up being more accountable to policymakers than to clients, which breaks
the long route of accountability" which depends on the collective
political power of the citizenry. Importantly, this is not a problem,
by definition, when serving the public interest is the policy-maker's
priority.
The WDR argues that there can be a conflict of interest when government
policy-makers regulate government providers. It strongly underscores how
private provision is a solution because it separates these functions.
However, the report does not ask why so many countries succeed in putting
regulators and providers "under one roof." More seriously, it
implausibly suggests putting regulators and providers "under one
roof." More seriously, it implausibly suggests that consumers (including
the poor) will be better off when the same, ostensibly unaccountable policy-makers
regulate private providers instead of government providers.
Avoiding Tough Question About Equity
The WDR encourages governments to attract private investment by liberalizing
and deregulating the services they provide. It's true that opening up
essential services may attract investor. However, the private sector often
engages in "cherry picking," or "cream-skimming."
Firms have little incentive to invest in "unprofitable people."
In the case of utilities, private providers like to expand household access
(e.g. hook up water pipes, make connection to electrical grid) or upgrade
services in urban area, especially where middle class consumers demand
more and better services.
They are less likely to go into peri-uban, slum or rural areas, where
topography is more difficult, per capita consumption is less, and most
importantly, incomes are lower. Cherry picking also constrains investment
in the health care sector. Private hospitals prefer to serve drop those
who develop conditions requiring medical attention. As a result, liberalizing
services is increasingly associated with the establishment of a two-tired
services supply with a corporate segment focused on the healthy and wealthy
and an under-financed public sector focusing on the poor and sick.
As noted above, the WDR's main premise is that services fail to reach
the poor because too many governments lack sound and representative institutions
of governance. So it is a mystery why the report expresses such confidence
in the ability of these same unaccountable governments to regulate private
water and energy concessions. The report explains that as a result of
weak citizen voice, "pub lic services often become the currency of
political patronage and clientelism."
(p. 7) But how will this same neglected citizenry force its own corrupt
government to avoid enriching itself through shady deals with private
firms with strong rent-seeking incentives and resources? The report even
warns: "If there is no good legal system and the civil service is
subject to bribes . . . private sector contracts might be a major source
of corruption." Yet how many of the Bank's borrowing members - especially
those among the least developed countries
- do not have these characteristics?
The WDR's general description of proper regulatory features for the water
sector is sensible enough. However, what would be more useful than making
the uncontroversial argument that good regulation is necessary, is an
ex-ante appraisal of regulatory capacity. Surely even the World Bank would
have to admit that there are some places in the world in which meaningful
regulation – and therefore private provision of a monopoly network
-is simply not an option. If it were possible to benchmark standards and
measure regulatory capacity needed for different kinds of private provision,
policy-makers would have more confidence in their decisions to privatize
or reform existing public services.
Do budgets matter?
The WDR's answer to the question seems to be: only marginally. One of
the report's central arguments is that more money won't be enough to improve
services when budgets are regressive (e.g., benefit primarily the non-poor)
or when service providers lack incentives to reach the poor. That's fair
enough. But while the report makes an important case for reforming the
way services are delivered, it fails to acknowledge the damage that budget
cutting -often under imposed structural adjustment loans -has caused public
services over the last 20 years. Today the IMF still ties much of its
financing to conditions that national and local governments cut back resources
available for delivering public services.
At World Bank seminar in May 2003, economist Jeff Sachs chastised the
international organizations, including the World Bank, for unfairly lowering
the expectations of what is possible in the water and sanitation sector.
Indeed, he blamed the institutions for putting developing countries on
a starvation diet for twenty years and insisted that huge amounts of public
funding are required to achieve functioning water supply systems. Sachs
said that "if public-private partnerships are a means to get the
private sector to do work that only the public sector can pay for, it
will be a sad experiment."
Not even the most ardent defenders of government services argue that more
money is the whole solution. Service providers can be made more responsive
and efficient through better manageme nt techniques, greater autonomy
to frontline workers, and more transparent information about resources
and performance. But surely the budget is often a major part of the solution
as well.
Ironically, the World Bank's own press release, "Key Services Often
Fail Poor People," highlights this fact through examples: "Indonesia
used its oil windfalls to build new schools and hire more teachers, doubling
primary enrollment to 90 percent by 1986.
A program in Mexico that gives cash to poor households if they visited
a clinic regularly and their children attended school reduced illness
among children by 20 percent, and increased secondary enrollment by 5
percentage points for boys and 8 for girls."
The Indonesian case might suggest that all developing countries should
use their vast petroleum wealth to improve social services, good advice
that regrettably may go unheeded in countries with more limited natural
resource endowments. And while the Mexican program may be innovative,
its key element appears to be "cash." In other words, budgets
do matter. The point is so obvious that it should hardly need emphasizing,
but the WDR's skepticism over increasing budgets makes it necessary to
re-state the obvious. The WDR is right to caution against throwing good
money after bad and insisting on the most efficient and accountable public
services possible. But it should make this point in the context of guidance
for how to assess resources gaps and suggestions for overcoming those
gaps.
The WDR's position on budgets is also problematic because it arbitrarily
separates the issue of resources from the level of performance. Any analysis
of failing services should address the potential relation of the overall
sector budget to other shortcomings of government providers. Reformers
should start by asking the simple question of cause and effect: Are corruption,
indifference and inefficiency the independent causes of failing services,
or are they the outcomes of a fiscal straightjacket? When service providers
perform poorly, the WDR takes a general position that the problems are
entrenched within the organizational culture or wider political system.
In analytical terms, it treats budgets, productivity and accountability
as conceptually separate issues. The possibility that greater resources
can, by themselves, improve productivity and accountability, is not seriously
considered.
The WDR largely ignores the possibility that starving public services
of funds can lead directly to inefficiency, corruption and professional
apathy. As the Overview argues, "As resources become more productive,
the argument for additional resources becomes more persuasive." Of
course in many cases existing resources are badly mismanaged. But in making
this claim, the WDR takes a categorical position that the productivity
of services is not related to the level of resources available. Yet in
the case of infrastructure, low budgets postpone investment and maintenance,
leading to physical deterioration that inevitably undermines productivity.
In the social services, budget cuts have led to reduced salaries, shabby
working conditions and inadequate supplies. These conditions increase
incentives for petty bribery and also demoralize professionals who see
little chance of making a difference.
Finally, one of the WDR's most important progressive policy recommendations
is lifeline rates or free minimum services to poor people (see discussion
below). Especially where poverty is pervasive, making such subsidies possible
will obviously require tremendous increases in service budgets.
User fee issues
The WDR makes a useful analytical contribution on the controversial subject
of user fees. In the context of widespread criticism of Bank-financed
policy reforms that impose commercial pricing on the poor, the WDR emphatically
states that there should be "no blanket policy on user fees."
(See Box 4.4) It also provides an interesting analytical framework for
helping policy-makers determine when user fees are appropriate, and with
what kinds of complementary measures to protect the poor. The WDR also
supports the imposition of user fees for services not used primarily by
the poor, to ensure that the middle class is not the primary beneficiary
of public resources.
Three particular recommendations, however, merit special scrutiny –
not because they are wrong, but because they are highly susceptible to
political discretion.
Lifeline rates. When it is difficult to distinguish the poor from the
non-poor, the WDR promotes user fees with "lifeline" rates that
provide a base level of service for free or at a highly subsidized price.
This is clearly a progressive option, and is likely to avoid administrative
difficulties associated with targeted subsidies, especially for meter-based
services like water and electricity. South Africa adopted a national law
allowing 6 kl of water and 20-50 kwh of electricity per month free per
family.
While free and lifeline rates are good ideas in principle, they are tough
to do right in practice. Simply determining "how much" of a
service satisfies basic needs of the poor is fraught with political and
economic controversy. Indeed, many argue that South Africa's pioneering
laws do not come close to providing sufficient water and electricity for
poor families. For governments facing budget pressures and MDB requirements
to reduce deficits (or increase primary surpluses), the path of least
resistance is to ignore such pro-poor measures or make them so limited
as to leave the poor highly vulnerable. This brings us back to the central
issue of resources. Despite the WDR's insistence than "more money
isn't enough," poor countries will obviously need a lot more money
to make lifeline rates a reality.
Targeting. When it is possible to distinguish
the poor from the non-poor, the WDR promotes user fees while targeting
poor people with direct money transfers or exemptions from payment. This
may be progressive in principle, but in practice can be extremely difficult
to do with precision and equity. Studies of "targeted" subsid
y and voucher schemes show high levels of "leakage" (benefits
going to the non-poor) and exclusion (of the poor). Particularly in countries
or areas where the vast majority of people are poor, targeted subsidies
are likely to be administratively overwhelming and economically unfeasible.
User fees. Fundamentally, the WDR accepts
user fees as a "necessary evil" when the service will not be
"adequately delivered without user fees." [7]
The argument is tautological: User fees must be used when services cannot
be delivered without user fees. The underlying question, of course, is
how to determine when this situation exists. According to the WDR, the
situation "calls for an honest appraisal of the ability [of government]
to deliver services along the long route [where citizens hold policy-makers
accountable for making sure that service providers do their job]. If teachers
or medical providers cannot be supervised and medical stores not maintained
by government, then clients, by default, must bring purchasing power to
bear." (Box 4.4)
Similarly, the WDR argues that when politicians increase their power by
providing subsidized electricity services mainly to wealthier constituencies:
"Reducing those rents by raising tariffs or having the private sector
provide electric ity, even if it violates the principles of equity –
they are already violated in the existing system – may be the only
way of improving electricity services to the poor." (p. 13)
To paraphrase the WDR's argument, user fees are acceptable when policy-makers
or public service providers are not accountable. The problem with this
position is that it involves a tremendous judgment call that can easily
be influenced by fiscal considerations or World Bank pressure. When is
the public sector "beyond hope?" By cla iming that user fees
are justified when policy-makers pursue political goals or don't hold
providers accountable (and are therefore unresponsive to their own citizens)
the WDR provides a potential loophole for full cost recovery for virtually
any poorly performing service. (In the case of patronage-based subsidies,
it would seem that corrupt and self-interested policy-makers who are pressured
into privatizing a public service would have every incentive and opportunity
to enrich themselves further at the pub lic's expense, and little interest
in ensuring that the firm serves poor people.)
Before turning to regressive user fees, shouldn't policy-makers attempt
to make providers more responsive? The WDR identifies plenty of ideas
for how to make this happen, including more transparent disclosure of
information and getting citizens involved in monitoring the service. If
reaching the poor is truly the goal of the World Bank, then it stands
to reason that it would encourage borrowing governments to first attempt
to improve accountability – or ensure proper allocation of lifeline
resources to the poor -before imposing regressive user fees. By using
accountability as a pretext for commercial pricing (incidentally, a common
step prior to privatization) the Bank essentially "throws up its
hands" and admits defeat in the attempt to improve the lives of the
poor.
Preconceptions about workers distorts judgment
[8]
Much of the report treats workers as a problem—often the problem.
It is filled with many critical references to bad worker behavior, such
as absenteeism or even hitting patients. It sees greater discipline, and
even the insecurity of the labor market, as methods for ‘dealing'
with these problems. But for the most vital public services, like education
and healthcare, the workers are the service – the teachers, nurses,
and others. Their income, capacity, and motivation are key factors in
the performance of public utilities. The report fails to explore these
issues properly – and distorts the understanding of some of its
own case studies of good practice.
For example, it references Uganda's successful increase in primary school
enrolment which resulted from cutting school fees, but fails to add that
education quality has suffered because no extra teachers have been employed,
leading to classes with over 100 students. It also refers to improvements
in primary healthcare performance in Cambodia, which it presents as an
example of what can be achieved by contracting-out to NGOs. But its own
information clearly shows that the two key measures were abolishing user
charges, and paying higher wages to workers, reducing their incentive
to seek payments from patients.
The report duly notes the great advances made in health care reforms during
the 1980s and 1990s in state of Ceara, Brazil. But it fails to mention
the importance of the treatment of the workforce. The major work on these
reforms, written by MIT professor Judith Tendler and cited in the WDR's
bibliography,[9] explains that "the
workers in these programmes showed high dedication to their jobs [and
that] government itself fed the high dedication of these workers with
repeated public demonstrations of admiration and respect for what they
were doing . . . All this contributed to a new respect for these workers
by the public – remarkable in a time of widespread contempt for
government." Tendler pointedly contrasted these findings with "development
advice in which the public servant is presumed guilty of self-interest
unless proven otherwise" – a description that fits the WDR
all too well.
As with every topic related to public services, the WDR avoids being completely
categorical. The Overview offers the following: "Many, often the
majority [or frontline service providers are driven by intrinsic motivation
to serve." If the WDR authors truly believed this to be true, it's
a wonder that they dedicate so little of their report to supporting and
rewarding that intrinsic motivation, and so much to controlling and disciplining
worker behavior. Moreover, the report skirts the issue of abrogation of
workers' rights when privatization processes violate labor agreements.
C. World Bank operations
In terms of its operational impact on World Bank activities, the WDR's
most important words may be those that follow the copyright information
three pages before the first word on Page One. Although the WDR is routinely
identified as a World Bank publication and suggestive of its current thinking
on development policy, one may be surprised to discover that its "findings,
interpretations, and conclusions . . . do not necessarily reflect the
views of the Board of Executive Directors of the World Bank or the governments
they represent. The World Bank does not guarantee the accuracy of the
data included in this publication and accepts no responsibility whatsoever
for any consequences of their use."
As the WDR authors so rightly point out, accountability in public institutions
is hard to achieve.
When it comes to public relations and press coverage, the World Bank Group
is actively taking credit for the progressive and sensible recommendations
of the WDR: the need for more pro-poor budgeting, lifeline rates and free
services for the poor, greater transparency, the need for strong regulation
of private service provision, the principled rejection of user fees for
primary education, and doing away with the "project implementation
unit," which was found to fragment government capacity. However,
as the publication disclaimer suggests, when it comes to actual lending
practices, evidence shows that the same organization often flouts the
WDR's good advice whenever and wherever it chooses.
But perhaps no area is as controversial as World Bank conditionality,
criticized by citizen groups, academics and (usua lly former) government
officials for undermining democratic processes and imposing policies that
just don't work. In the chapter "Donors and service reform,"
the WDR states that "donors attempt to [promote citizen voice by]
imposing conditions and setting performance criteria on aid flows where
voice is weak . . ." (p. 209, emphasis added.) The claim is remarkable
in two ways: first, it turns out that conditionality has always been about
empowering the poor, even though the poor have been the most vociferous
opponents of World Bank conditions. Second, although conditions are attached
to virtually all adjustment loans in all borrowing countries, they have
been imposed only "where voice is weak."
To its credit, the WDR concedes that "donor conditions are fundamentally
different than citizen voice." Although they were imposed with the
best of intentions and only with the true interests of the poor in mind,
"traditional conditionality does not work well." But if one
expects such an insight to result in a new approach to lending, disappointment
awaits. The WDR's explanation for why traditional conditions fail is lack
of political commitment – not the appropriateness of the reforms
themselves.
"There is ample evidence today that conditions based on promises
do no t work well, because they undermine ownership of the reform program.
When policy-makers are not encouraged to develop their own positions on,
say, privatization of water supply and other services, but rely on donor
conditions in taking action, they can more easily deny responsibility
for a later failure." (p. 209)
The tortured logic of the statement merits closer attention. The World
Bank "encourages" policy-makers to develop positions identical
to its own – from water privatization to trade liberalization -
through a variety of instruments, such as technical assistance, capacity-building,
and public statements confirming the wisdom of the government's liberalization
efforts.[10] The quote also suggests that
when privatization fails – and it has failed a lot – the reason
is not flawed policy, but rather insufficient commitment on the part of
a government pressured into doing it.
Ownership: The gap between rhetoric and reality
The WDR observes that "Donors still underestimate how difficult it
is to influence reform without undercutting domestic constituencies."
(p. 203) That's an understatement. In June 2003, the World Bank released
a survey by Princeton Survey Research Associates based on interviews with
2,600 "Opinion formers" in 48 countries that found a "Consistent
and overwhelming" view (From all regions and countries) that the
World Bank forces its agenda on developing countries. Only 22 percent
of respondents reported that the Bank is doing a good job on reducing
poverty.
(1) Not surprisingly, the WDR's chapter on donors contains very little
on how the World Bank and other international institutions undermine country
ownership through everyday lending practices, which in addition to policy
conditionality, include: Starving the public sector. In a study of electricity
reform in six countries (Argentina, India, Indonesia, Bulgaria, Ghana
and South Africa), the World Resources Institute found that reforms were
always driven by the immediate need for capital, usually as a result of
the withdrawal of international donor support for the power sector.
(2) Issuance of Decrees. IMF and World Bank adjustment programs routinely
call for the Executive to issue decrees to privatize resources and services,
or recoup costs through tariffs and user fees. In reference to Latin America,
three veteran World Bank officials note the importance of rules and legislation
that strengthen the office of the presidency in relation to the legislature,
including "powers to rule by decree" and "an unassailable
presidential veto."
(3) Some of these reforms appear to reverse democratic progress in representative
institutions achieved with great struggle over the last decades. Public
Relations Campaigns. A recent communications "toolkit" Published
by the World Bank's external relations department identifies democratization
as a constraint to privatization.
(4) It never suggests that Bank or Government actually assess the merit
of arguments voiced by citizens opposed such policies. (They are simply
dismissed as propaganda from rent-seeking groups.) Moreover, in what may
be a direct violation of its own Articles of Agreement, which prohibits
interference in domestic political affairs of borrowers, the Bank's toolkit
instructs Bank task team leaders on how to work with national legislatures
to overturn parliamentary opposition to privatization, ad offers guidance
on how to build legislative coalitions in favor of the policy.
(1)The Global Poll: Multinational Survey of Opinion
Leaders 2002, Princeton Survey Research Associates (siteresources.worldbank.org/NEWS/Resources/globalpoll.pdf)
(2) Navroz Dubash, Power Politics: Equity and Environment in Electricity
Reform, WRI, 2002.
(3)Shahid Javed Burki, Guillermo Perry and William Dillinger. Beyond the
Center: Decentralizing the State. World Bank, Washington, DC, 1999.
(4)Public Communication Programs for Privatization Projects: A Toolkit
for World Bank Task Team Leaders and Clients, World Bank, 2003.
The resulting recommendation for how to change lending practices is extremely
significant – and disturbing. Rather than rethink the soundness
of privatization policies in general, or their feasibility even in particularly
weak regulatory environments, the WDR argues that the Bank needs a more
direct way to get borrowing governments to adopt (what the Bank has known
all along to be) the right policy.
"Empirical studies show that aid finance is ineffective in inducing
policy reform in a bad policy environment. What works better is choosing
recipients more carefully, based on performance (country selectivity)
and setting conditions that reward reforms completed rather than those
promised." (pp. 209-10)
Noting that conditionality doesn't work, the WDR proceeds to endorse more
coercive conditionality. A "bad policy environment" exists where
governments (often pressured by citizens who do exercise voice) resist
reforms supported by the World Bank itself. Sometimes those policies may
be justified, such as progressive budgeting. But more often they are liberalizing
policies that are known to be risky and difficult to implement effectively.
In any event, the WDR's approach is not to scale back conditionality,
but rather to make it far more invasive than it has been thus far. The
report thus reinforces the World Bank's message to borrowing governments:
in order to qualify for increased aid – or perhaps any aid –
you must comply with our policy conditions before receiving resources,
not after.