2003/10/02

Review of the 2004 World Development Report

Citizens' Network on Essential Services (CNES)

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?

[R]ich 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.

CNES "Services for All (SFA)" Newsletter

September 30, 2003

Review of the 2004 World Development Report (WDR)

“Making Services Work for Poor People”

by Tim Kessler (TKessler@coditel.net)

Citizens’ Network on Essential Services (CNES)

Link to complete paper:

http://www.servicesforall.org/html/tools/2004WDR_review.shtml