Dräger Foundation in cooperation with The World Bank Public Disclosure Authorized

XIII Malente Symposium XIII Public Disclosure Authorized XIII XIIIXIII Strategies to Fight Poverty in Middle-Income

Public Disclosure Authorized Countries June 26-27, 2001 Lübeck Music and Congress Centre Public Disclosure Authorized XIII XIII Malente Symposium Strategies to Fight Poverty in Middle-Income Countries

On 26 and 27 June 2001 the Dräger The opening speech, given by Saskia though the primary responsibility for Foundation in cooperation with Sassen, Professor of Sociology at the poverty reduction will lie with the the World Bank organized the XIII University of Chicago, focused on middle-income countries themselves. Malente Symposium. These symposia causes, dimensions, and special fea - – still bearing the name of a small tures of poverty in middle-income Speeches and discussions showed that town in North Germany where they coun tries, among others she ad - there is no panacea for poverty reduc - were first staged – have taken place dressed the problems which globali - tion in these countries – too hetero ge- at 2-3 year intervals since 1981 and zation has raised for poor people neous are the countries and are the address topical economic and socio - in these countries. The following causes of poverty. What was agreed political issues which are discussed – sessions dealt with ways and means upon, however, was the necessity of a often controversially – by international for poverty reduction on national "dual strategy": On the macroeco no - participants from politics, business and international levels. Among the mic level, middle-income countries and science, from international speakers who presented the perspec - should set up the prerequisites for organizations and NGOs. tives of countries concerned were growth by good governance and broad Josefina Vázquez Mota, Mexican educational programs while on the This year's topic "Strategies to Fight Minister for Social Development, micro level they should fight poverty Poverty in Middle-Income Countries" Pavel Mertlik, former Czech Minister by the support of local resources. One is not only of particular interest to the of Finance, and Boris Nemtsov, of the most striking challenges of international community and to the member of the Russian Duma and poverty re duc tion remains the issue international organizations like the Chairman of the faction "Union of of suitable tools which will lead to a World Bank, but also to Germany and Right Forces". measurable success. As Dieter the European Union. The potential Feddersen said in his farewell for poverty in the middle-income In his concluding speech, Johannes remarks, poverty reduction will coun tries is considerable, some 40 Linn, Vice President of the World require the combination of political percent of all the world's poor – living Bank for Europe and Central Asia, will, of eco no mic knowledge, of on less than 2 US$ per day – live in took up specific issues raised during educational and techno logical skills, this group of countries. Moreover, it the two conference days. In parti - and of social sensitivity. is not only countries in Latin America, cular, he focused on a number of Asia, the Middle East or North Africa dichotomies, or dialectics in per ce p - While this report – with the exception which belong to this group, but also tion, which were revealed in the of Johannes Linn's closing speech – Europe's direct East European neigh - discussions about the best ways to will only summarize highlights and bours, in other words the EU acces - fight poverty in middle-income conclusions of speeches and ensuing sion candidates as well as Russia. countries. discussions, full versions of the papers It was the aim of the conference to presented at the Symposium can be analyze causes of poverty in this In spite of at times quite controversial looked up at the home page of the particular group of countries and to discussions, there was widespread Dräger Foundation at discuss possible solutions. Some 65 agree ment among the participants high-ranking participants from 18 that poverty is "the ultimate systemic www.draeger-stiftung.de or at the countries discussed these issues for threat" to the global community, as attached CD-Rom. two days, many of them came from Michel Camdessus put it. Thus, pov - the countries concerned. Almost 100 er ty has been more and more recog - interested observers followed the nized as a serious global problem and discourse. as a major international task, al -

3 Welcoming Address

Ladies and gentlemen, The number of poor people living in middle-income countries varies, It is my pleasure to welcome you, depending on which definition is on behalf of the Dräger Foundation taken. If an average income of less and my fellow board member Dr. than 2 US$ a day is taken as a basis, Christian Dräger, to the XIII Malente then about 40% of all poor people Symposium. I cordially welcome you world wide are living in middle- also in the name of the World Bank, income countries. They have less who supported us in the planning than the equivalent of 5 DM a day to and organization of this Symposium. live on - this is abject poverty which must be even harder to bear in those This year’s Symposium deals with a countries where large differences in very pressing problem. Our topic is income have long existed or are now the battle against poverty in middle- emerging, for instance in the former income countries. According to the socialist countries after their trans - definition of the World Bank, this formation. Another factor is that, group of countries includes a large espec ial ly in times of increasing number of highly heterogeneous econo mic problems with diminishing countries in all parts of the world – growth and higher unemployment in Latin America, Asia and Africa, worldwide, inequality and poverty but also in Europe or, more precisely, will be felt even more acutely by the in Eastern Europe. A distinction is poor of this world than in times of made between "lower middle-income high growth. countries" and "upper middle-income countries". The first group includes, At this Symposium we will, however, among others, China, Russia, Turkey, not focus so much on how income Morocco, Romania, Bulgaria, Lithu - inequalities can be removed, but ania and Latvia; the second group on strategies to combat poverty. It is includes for instance the East Euro - true that the link between poverty pean countries which have applied and in equality is rather more pro - for membership of the European nounced in middle-income countries Union in the first expansion talks, than in very poor countries where as well as Argentina, Mexico, South poverty is even more pre do mi nant; Africa and others. however, it applies also to middle-

4 income countries: The battle against We should keep this in mind in these In stitute for International Law of poverty has priority. Let me cite from times of declining economic growth Bonn University, who made valuable an article in the Eco nomist of 14 June and rising unemployment, when even suggestions in deter mining the focus 2001 which deals with the question the rich countries are increasingly of this Symposium. "Does inequality matter?" where it tempted to protect their product and says: "Helping the poor, the truly labor markets against undesired com - We also thank DaimlerChrysler AG, poor, is a much worthier goal than petition from abroad. the Gottfried Daimler- and Karl Benz merely narrowing inequalities. If the Foundation and OCÉ-Deutschland rich get poorer thanks to high taxa - We have gathered here in order to GmbH for their generous support of tion, some people may feel pleased, ex change our thoughts on this and the Malente Symposium. Finally, I am but few are better off. If the poor get other issues in the next two days. We very pleased to announce that three richer, how ever,the whole economy are de lighted that the participants artists from Hamburg, Beatrice Dett- will benefit." and observers of this Symposium have mann, Karin Ohlsen and Angela traveled from nearly all parts of the Preusz, are exhibiting their paintings Reduction of poverty is the ultimate world in order to propose and discuss at this conference. The three artists goal of the World Bank and also re - ideas and approaches to solutions. will be present during the next two quires joint efforts by governments, I welcome all of you cordially to the days. the private economy sector and other XIII Malente Symposium of the international organizations. There Dräger Foundation. Ladies and gentlemen, the Sympo - can be no doubt that the strategies to sium is hereby opened. I am confi - be developed and the solutions to be Before the next speaker takes the dent that the Symposium will be found for middle-income countries floor, please let me express my successful and look forward to two must be different from those for very heart felt thanks to the members of rewarding days. poor countries with high debts, which our Stee r ing Committee: Claudia as a rule do not have access to inter - von Mon bart of the Paris office of national capital markets. the World Bank, Professor Dr. Hans- Dieter Feddersen Joachim von Braun of the Center for Member of the Board "MICs", however, also need help Development Research in Bonn and Dräger Foundation from the international community in Professor Dr. Rudolf Dolzer of the their battle against poverty, which is certain ly also in the interests of the countries providing such help. Ulti - mately, not only will the national econ omies concerned benefit from a reduction of poverty in their coun - tries, but also the global economy. This was already known to econ om - ists and philosophers of the 18th century, such as Adam Smith and David Hume. The British philosopher and historian Hume wrote in 1742, when poverty was still more prevalent in Western Europe than today, at the end of his essay "Of the Jealousy of Trade": I shall therefore venture to acknowledge, that, not only as a man, but as a British subject, I pray for the flourishing commerce in Germany, Spain, Italy, and even in France. I am at least certain, that Great Britain, and all those nations, would flourish XIII more, did their sovereigns and min - isters adopt such enlarged and bene v - olent sentiments towards each other.

5 Why Poverty Matters - Dimensions of Poverty in Middle-Income Countries

In her analysis of poverty in middle-income countries, Saskia Sassen, Ralph Lewis Professor of Sociology at the University of Chicago, addressed three main issues: the issue of inequality and poverty, the issue of globalization and poverty, and the issue of democratic deficits and poverty.

For Sassen the sheer scale of poverty a decent living today, or is increasing - in middle-income countries – the ly associated with "some of the new, MICs – gives evidence to the fact that very dynamic sectors of the economy". the outcome of eco no mic growth includes greater inequality, employ - Sassen does not want to leave the ment-based poverty and social reduction of poverty and inequality to polarization. Today the debate is no the market alone. "If we leave it to the longer centered on whether or not market, the untamed, unre gu lated there is a growth of income ine qual - market, we will get more poverty and, ity, but on the question as to why probably, more inequality", she says there is inequality in earnings as an and propagates the strengthening of outcome of growth. Is it the result of extra-market institutions which technology or is it due to the decline should foster economic growth, the of institutional intermediaries that distribution of that growth as well as fulfil redistributive functions, asks the functioning of the market itself, Sassen. which would also mean the elimina - tion of privileges and the fight against Poverty and inequality are even more corruption. intractable in middle-income coun - tries, because there is a visual, social Turning to her second issue of "pov - and political experience of a growth erty and globalization", Sassen mainly in prosperity, though only for part of referred to potential negative impacts the population. Sassen sees two types of global capital inflows and outflows of poverty today: while older forms of on wealth and prosperity in middle- poverty were linked to the impossi bi l - income and poor countries. Trade ity of holding a job because of health deficits and the inability to pay for conditions or family obligations, or critical inputs (energy, intermediate were simply linked to the fact that capital goods) in their own currencies there were no jobs, new forms of pov - in global markets are the main rea - erty are more and more employment- sons for the "debt trap" which even centered. This kind of poverty is very middle-income countries can hardly often incorporated in jobs which were avoid. For Sassen, the fact that poor previously reasonably paid lower- countries have to pay in very expen s - middle-income jobs, but do not allow ive foreign courrencies and then

6 be subject to growing devaluation of into the global economic system, their own currencies is a "built-in hence their malfunctioning has per - formula for disaster". Debt remission ceptible repercussions on the larger alone cannot be the answer, she says. system. "What is necessary is not a lender of last resort to bail out rich investors Finally, on poverty and democratic but a lender of first resort to help deficits in international institutions middle-income countries pay for as well as in the countries concerned, much-needed, development-linked Sassen emphasized two issues: while imports in their own currencies – in institutions like NAFTA, WTO, and the expectation that this would facili- other more specialized ones, are tate investing for development rather "de facto guided by technocrats who than paying debt service and would mean the best", by powerful elites in turn begin to stabilize their cur - who be lieve to know what is best, rencies." However, since these cur- or – at worst – by self-interested par - rencies - even if viable - are mostly not ties, there is also not enough partici - accepted by private lenders, govern - pation from the broad range of con sti -

Moderator: Stefan Baron ments as well as the international tuencies in the countries concerned, monetary organizations should take i.e. not enough insights from a whole the lead. variety of organizations and indivi - duals, households, communities, Sassen also explains why the leader - small companies, farmers, etc. who ship in rich countries should do this. are all struggling. Nevertheless, al - For at least two utilitarian reasons, though she does not agree with the she argues: the issue is not just about way the international community and indebted firms, but about a large the international organizations try num ber of countries which are in to fight poverty, Sassen wants to keep danger of failing. These failures will a strong supranational institutional eventually entrap rich countries in - order in charge of international trade directly, via the explosion of illegal issues rather than leaving this to pri - traf ficking in people, in drugs, and in vate regulatory mechanisms. arms, via the re-emergence of diseases we had thought under control, and via the further devastation of our in - creasingly fragile eco-system. Sec ond - ly, the middle-income countries have become more and more integrated

7 Rolf Langhammer Willi Wapenhans Zdenek Drábek

In the ensuing discussion, Rolf of a lender of first resort. Besides the Langhammer raised the question problem that such a lender would of what is specific about poverty in face the same budgetary constraints middle-income countries in contrast as a lender of last resort, in addition to low-income countries and sug - he would be confronted with a lack gested that it has to do with volatility. of power to implement and enforce While middle-income countries have re forms in these countries. Of course experienced good times of acceler ated it is important to make local cur - growth, accompanied by an increase rencies attractive by hardening them, in inequality, but probably also by Langhammer says, but non-market a decrease in poverty because of a solutions are "not overly attractive trickl ing down of wealth, they have given the reluctance of international also experienced bad times of slug - institutions to provide funds for such gish growth, declining inequality and an approach". in creasing poverty. Thus less volatility and more stability in these countries Hans-Gert Braun argued against would be the answer, i.e. not only Sassen's recommendation to allow mon etary stability but also political emerging markets to repay con ver t - and institutional stability. Lang - ible currency loans in local cur - hammer questioned Sassen's proposal rencies. These countries should rather use these credits for purposes which would earn foreign exchange in order to be able to repay the debt. Many countries find themselves in debt traps because loans have been invested in projects which do not allow debt service, especially not in foreign currencies.

8 Since the first declaration of the World Bank on poverty reduction in 1973 in Nairobi, "those of us who work in the trenches have looked for solutions, have searched for solutions, and today we have to admit that we do not have the recipe", Willi Wapenhans said. He also stressed that there are not only distinct differences between This view was strongly supported by poverty in middle-income and poverty Zdenek Drabek from the WTO who in low-income countries, but also also sees rapid economic growth as with in the middle-income countries. a critical necessary condition for the In the East European transition coun - improvement of living standards, and t ries in particular, the dramatic in - who quoted the examples of China creases in poverty have had very dif fer - and Indonesia before the financial ent causes and profiles, very different crisis in Asia. In her answer, Sassen from the categories of poverty about accepted the fact that growth can in - which we normally think. In order to deed add to the income of the lower fight these different forms of poverty, segment of a country's people, but Wapenhans would welcome a profile the question remains still open about or anatomy of poverty, as well as re - how much this growth is adding to search into the consequences of struc - the top. Growing inequality "tears at tural changeswhich would help the social fabric" of society, she says. better and more fitting solutions to be found. Johannes Linn Sassen's issue of poverty, democratic Sassen's correlation of economic deficit and accountability was taken growth and inequality was the subject up by Johannes Linn . He agreed that of fairly controversial discussion. Sassen's point about lack of know - Don't start the debate with the wrong ledge, lack of sufficient information question, said Joachim von Braun as to what the poor really want, and and stressed that statistically GINI- neglect by technocratic elites, is coefficient, per capita income and an important one. Nevertheless, the expenditure growth rates are not World Bank, EBRD and others in - correlated. Inequality is rooted in creasingly consider themselves as crises, stagnation, or lost power client-driven organizations with a struggles rather than in economic strong participatory approach rather growth, which he considers a pre - than aid organizations with a top- condition for poverty reduction. down hierarchy. In this connection, Linn mentioned "an interesting ten - sion" between the elected govern - ment representatives on the board of the World Bank "who are responsible for supervising and keeping account - able us technicians on the one hand, and the NGOs, civil society, on the other hand" to whom the World Bank reaches out more now. There is a growing unease among members of the board of directors about the Bank being more and more accountable to many groups outside the institution.

9 Poverty Reduction: An International Task?

Talking about poverty reduction does not mean talking about an impossible For Michel Camdessus, former Man - task, says Michel Camdessus. What we need is a new aging Director of the International partnership, a "globalized Monetary Fund, the answer is obvious: solidarity". yes. Yes, because poverty to him is "the ultimate systemic threat" to the international community. Looking at the global dimension and the magni - tude of poverty, however, he considers that one of the most disappointing developments of the last 20 years is However, although the reduction of that the rich industrial countries have poverty must therefore be a major not been able to match the efforts of international task, the primary res - XIIIthe poor countries with an appro pri - ponsibility remains with the poor ate international contribution. The countries themselves. "Success lies in frequently widening gaps between national 'ownership' of the policies, rich and poor within countries, and through a participatory approach the gulf between the most affluent that engages civil society", Camdessus and the most impoverished nations stressed, making it clear that each are morally unacceptable, econo mi - country should set its policies accord- cally wasteful, and socially potentially ing to its culture, recent history and explosive, Camdessus says. own circumstances. When and where the countries concerned do every - thing they can on their own, inter na - tional support should be made signifi - cantly stronger and more efficient than has been the case so far. Michel Camdessus agreed with Willi Wapen - hans that there are no magic for - mulas available, but also emphasized strongly that public opinion has to be convinced "not only of the importance of this international task but also that solidarity is the best possible approach to addressing it".

10 Country-driven strategies with special all pov erty", said Michel Camdessus, regard to good governance, domestic quot ing Andrea Riccardi. He urges resource mobilization and attraction devel oped countries to give of foreign capital – particularly im - unambiguous support to multilateral portant for middle-income countries, institutions such as the World Bank as Michel Camdessus said - should and the IMF in particular, and to give make poverty alleviation the center - a major boost to technical assistance piece of economic policy. Major for ca pac ity building, starting by components of these strategies are: putting in place a competent and – democratic structures, corruption-free administration and – sound monetary and macro eco n- promoting omic policies that encourage a strong local private sector. At the domestic savings and investments same time, industrial countries need in both physical and human capital, to optimize those of their own policies – the promotion of the free market which influence global growth and and an outward orientation of have to work to develop a global fin- economic policies, ancial architecture that will prevent – the introduction of a web of laws, future financial crises. regulations, standards, and codes that give rise to transparency and In the discussion, Else Øyen criticizes accountability and support the that policies for poverty reduction as func tioning of buoyant markets, re commended by international orga n - – last but not least, the organization izations are aimed exlusively at poor of a well-targeted social policy with countries, rather than at poor people. special emphasis on education and Such policies are creating small health care. middle classes and small but power - ful upper class elites, but are leaving International support should be given out a lot of people. The new elites not only by improving access to the are not much interested in poverty markets of the industrial countries reduc tion or in sharing their newly and provid ing international private gained politi cal power, land or water and public fi nance, but also through re sources, or public goods, she adds. a more de ci sive involvement in peace Thus, "models of harmony" will not keeping, since "war is the mother of solve the problem.

Christian Dräger

Raimundo Florin

Else Øyen

11 The German Perspective

At the beginning of the Ian McKendry new millennium the fight against poverty has reached an importance should not be overestimated. These hitherto unknown in the Michael Hofmann, Director General strategies can only be successful, if inter national community. of the German Federal Ministry for the government politics of the coun - Our job now is to turn Economic Co-operation and Develop - tries concerned follow the same this new alertness into concrete action, says ment, presented the German perspec - direction. Michael Hofmann. tive and political approach to poverty reduction in middle-income coun - Hofmann introduced the Program for tries. The fact that so many people Action 2015, adopted by the German still live in poverty, in the bigger MICs government in April 2001, as the Ger - in particular, shows that they so far man contribution to a 50 % re du ction have been unable to make use of their in worldwide poverty, aiming at low- economic potential. Poor living con - income as well as at middle-income ditions in these countries are due to countries. In the case of the MICs, the insufficient orientation towards Michael Hofmann also stressed the sustainable development on the part importance of good governance, of of the political and economic elite an active participation of the poor in rather than to unfavorable geographic economic development, of improved conditions, climate or lacking natural access to markets, knowledge and resources, Hofmann says. He agrees technologies, of pursuing environ - with previous speakers that the effects men tally sustainable development, of international cooperation – as, and of cooperation with the private for example, laid down in the World sector. In particular free access to Bank's Country Assistance Strategies – European, North American and

12 Richard Kohl

Japanese markets is of paramount innovative ways and means of financ - importance to developing countries, ing which go beyond national budgets, since in total they lose as much money although there should be no illusion through the import taxes of industrial "that we can offset what we lose countries as they gain through public from the public side with what we development assistance, he criticizes. gain from the private side", warned Severe budgetary constraints in Hofmann. emerg ing markets inconcert with low public financial aid relative to their Taking up the issue of open markets GDP, make Public Private Partner - and free trade, Richard Kohl from ships an indispensable option to this the OECD objected that opening up group of countries. Because private western markets to developing coun - partners have an own interest in tries alone will not eliminate trade the projects, they invest their own re - discriminations as long as state sub - sources (capital, human capital, and sidies keep protecting those markets – know-how) and continue their com - as is the case in agriculture and other mitment even after the Ministry has sectors. "These internal conflicts ended its support, thereby generally be tween the desire to have good making this form of economic co op - de vel op ment policy and at the same er ation cost-efficient, effective and time to protect the legitimate inter - sustainable. These opportunities ests of the stakeholders in their own presented by the joint action of all so cieties" need to be solved by policy- parties involved should not be wasted, makers and economic stakeholders Hofmann stressed. Most participants from the north and from the south, agreed about the necessity of finding says Kohl.

13 Ways out of poverty

Rudolf Dolzer Moderator: Ruth Kagia

Good Governance According to Dolzer, good gover- A review of the success and failure of nance calls for a number of basic previous approaches to poverty eradi - require ments: cation had revealed that neither the – appropriate macroeconomic and financing of individual development fiscal policies, projects nor the design of broader – a transparent and efficient legal suit able development policies were in system, themselves able to guarantee good re- – the rule of law with an independent sults and progress, said Rudolf Dolzer, judiciary, Director of the Institute for Inter na - – the building of efficient, account - tional Law at the University of Bonn. able and transparent institutions Instead, "it had become apparent that able to assume public respon si bil- good governance must be seen as a ities, precondition in the absence of which – a decision-making process which development efforts will fail and aid allows participation of all segments from the outside may turn out to be of the population, i.e. a capable and counterproductive". Although insis- critical civil society. tence by donors on good governance as a precondition for aid programs It is true, of course, that good gover n- has in part led to complaints by re - ance is not an issue of exclusive re - cipient countries concerning un ac - levance for middle-income countries, cept able and arrogant interventions but rather a general one for all coun - into domestic affairs, there is no other tries. However, good governance can - way to achieve sound and sustainable not yet be taken for granted in many economic development. middle-income countries. Further - more, good governance is of parti cu - lar importance to emerging market economies to the extent that global financial markets 'punish' bad gov - ern ance, i.e. international capital avoids countries with non-transparent and unaccountable structures. It is important to realize that good govern ance in the public sector also depends crucially upon the building of a strong private sector and the

14 gradual estab lish ment of a middle the poor", as a World Bank analysis class, says Dolzer. Only free markets of the relationship between overall and a functioning business sector – GDP growth and income in the bot - including a viable banking sector tom quin tile of 80 developing coun - which is also accessible to the poor – tries has shown. Furthermore, a more will attract the necessary foreign micro level analysis suggests that cap ital. The dramatic differences in those developing countries that are foreign investment into major coun - 'globalizers', i.e. that have lowered tries such as China, India or Brazil tariffs and increased their ratio of and the fact that just a dozen devel- trade to GDP, have done incredibly op ing countries have absorbed about well. In comparison to the rich in - 80 % of foreign investment in the past dus trial countries which grew by decade underline the importance of 2.2 % p.a. during the 1990s and the good governance. 'non-globalizers' (0.5 % p.a.), this group of countries could achieve an Globalization, Technological and annual growth rate of some 5 %. Structural Change Heinz Bühler Are globalization and technological As regards technology, Watson stresses and structural changes the reasons that the role of technology is and will behind increasing inequality and remain a critical factor in poverty poverty in middle-income countries, alle viation and for sustainable devel - asks Robert T. Watson, Chief Scientist op ment. The most basic needs of Moreover, trade in technology is most and Director for Environmentally society include affordable nutrition, likely going to be one of the most and Socially Sustainable Development clean water and sanitation, energy important factors in economic (ESSD) at the World Bank. Is in par - for economic growth and poverty growth over the next few decades. ticular the mastery of advanced allevia tion, a healthy en vironment, Only those emerging markets that tech nol ogy a way towards economic and healthy ecologi cal systems. Un - embark on their own industrial re vol - growth, and if so, does it affect in - fort un ate ly, meeting these demands ution and use modern technologies come distribution within or between with existing policies and practices will be able to catch up with the more countries? As regards globalization, "is lead ing to environ mental degrad a - advanced countries, says Watson. Watson argues that neither trade nor tion on all spatial scales", which in How ever, many of the middle-income growth contributes to inequality. turn makes it more difficult to meet countries do not possess the scientific "Dollar for dollar, growth is good for these basic needs. Technologies are and technical infrastructure they will part of the solution, Watson says. need to adapt or develop the tech nol - ogies needed in the open market - place. Therefore a key challenge is to improve science and technology – in particular new technologies such as information technology, biotech nol- ogy or fuel cell technology - in those Poverty is not simply countries which so far have only a question of income, limited access to knowledge. This says Robert T. Watson, im provement must cover both the but embraces issues of human and the institutional capacity. opportunity, capability, security and empowerment, For Watson, one key to success will and manifests itself in therefore be to link science and tech - income, health, education nology back to primary, secondary and participation. and tertiary education and forward to the industrial sector.

15 XIII level who establish micro finance friendly policies. In order to achieve bottom-up policy change, you have to use local and global leadership to en - gage top policy makers as "champions for change".

It is essential, says Nancy Barry in her very concrete recommendations, for central banks and superintendents of banks to take into consideration the special situation of the micro bor rowers. Since clients lack conven - tional collateral, portfolio risks should be assessed on their excellent track record in terms of aggregate repay - ment, and not on the collateral of individual loans. More and more banks see micro finance as a profit - able business opportunity, but, with only 25 out of 500 million low-income One of the big lessons in micro finance is to keep entrepreneurs reached so far, there it simple and to keep it is still a long way to go. There is no local, says Nancy Barry. single solution to the question of how to run efficient micro finance oper - ations, says Barry, but micro finance The Role of Banking and Financing finance does well in good times, and has to be treated as an integral part In her speech about banking and does much better than corporate fin- of financial systems. We need to focus banking regulations for low-income ance in bad times, certainly adds to on standards, we have to broaden the people in middle-income countries, profitability. Barry thus urges that instruments, focussing less on equity Nancy Barry, President of Women's micro enterprise and micro finance and on hard currency loans and more World Banking, a global, not-for-profit should not be viewed as a "small-scale on capitalization and local currency financial institution, focussed on the poverty alleviation activity that a few loans. "Keep it stable, keep it honest, economic empowerment of women, little NGOs do", but that "it needs to talk about what does not work as meaning the provision of access to be treated as the base and backbone well as about what does work, keep credits for the poor through micro of economies and financial systems". learn ing and innovating, and get con - finance. Poor people have to build Today, some 25 million people have nected", Barry urges. productive income and assets, Barry access to financial services who did says. This will allow them to parti ci- not have access 15 or 25 years ago, pate in growth and gain the purchas - though this still represents only 5 % ing power to buy education, health of the market. How do we meet the and housing and create their own challenge, asks Barry. Women's World social safety nets. Banking is focussing on supporting local micro finance institutions, not Micro finance works, and micro projects, on building dynamic per for - fin ance is sustainable, Barry is con - mance standards by practitioners for vinced. It has proved that poor women practitioners, on savings and domes - in particular are better credit risks tic resource mobilization, on building than corporate clients. However, assets, not debt. In order to reach the loans to this client group involve high people that need micro finance ser - transaction costs, so banks engaged in vices, it needs commercial banks, fin - micro finance have been innovating ance companies, cooperatives, credit to cut transaction costs and build pro - unions, NGOs, and grassroots groups, fitable operations. The fact that micro and it needs policy makers at country

16 Micro lending in middle- income countries needs more support from the government, especially in the form of a good legal environment and through education and training, said Piotr Szczepanski, thereby building the bridge to the following subject 'Education and Poverty'.

Hans-Gert Braun, Director of the Ger - Education and Poverty Reduction be crucial to growth in emerging man Investment and Devel opment In his presentation on 'Changing Skill markets, as it lays the human capital Society (DEG), wondered whether Demand, Globalization and Inequal ity foundation which favors productive micro finance is not just an other in Education', Richard Kohl of the adaptation and the rapid spread of name for development banking which OECD Development Center states new technologies. Secondly, Kohl was supposed to finance the poor that it has long been known that there refers to the necessity of labor market in the 1970s and 1980s but failed is a set of policies that, if imple ment - reform "which weakens the power because the banks involved were not ed, would reduce poverty and ine qual - of insiders but preserves and even able to raise the interest rates or the ity. He refers first to the need to equa l - strength ens social protection and the margins needed to cover the costs ize the distribution of productive social safety net, contrary to much of micro finance. Today, the micro assets, particularly human capital – recent policy." Since globalization and credit banks co-financed by his orga - which requires above all appropriate the greater openness to world mar ket ni zation normally do micro business education and training policies. Kohl forces add considerable pressure to plus SME business in order to cover focuses not so much on the quality of poorer countries in particular, a the high average costs of micro fin- university education as on the promo - stron ger domestic social welfare state anc ing through the bigger loans for tion of a solid primary, secondary and is required in order to protect citizens SME business, argued Braun. tertiary education. He believes this to and help them adapt, argues Kohl.

The real challenge, according to Kohl, lies in creating a political framework which will allow the right policies to be implemented. He proposes an in - clusive, consultative approach to poli - tics to generate inclusive, and there - fore equalizing, policies: "If we focus on creating a participatory democ - racy, on including stakeholders and civil society in the process, the pol - icies will come of their own accord". As practical experience and as a

Middle-income coun- tries need education and training policies that match the supply of skills with demand, says Richard Kohl.

17 model for the successful implemen ta - There are many stories about globali - tion of such policies, Kohl points to zation, education, skill supply and the Northern European social democ - demand, and inequality concerning racies which present a viable alter na - middle-income countries in Central tive to "the confrontational politics of Europe, South-East Asia and in par ti - corporatist European countries like cular Latin America – success stories France and the technocratic, apoliti - as well as failures. To the ques tion, cal Anglo-American approach". It however, as to what the circum - should therefore be the task of these stances are under which globalization Northern European social democ - and the pressure it creates – specifi - racies to share their experience and cally as regards the demand for skilled give technical assistance with the labor – lead to more inequality, building of participatory, inclusive, Richard Kohl's answer is unequivocal: consultative democracies in middle- Inequality rose in those cases where income countries while respecting the supply of secondary and tertiary their societies and cultures. Since education did not match the in creas - globalization has created a shift in ed requirements of the labor markets. the way most middle-income coun - In all countries where there was a tries are integrated into the world substantial increase in the supply of economy – a shift from natural re - secondary and, subsequently, tertiary source exports to the export of manu - education, i.e. where education kept factured goods and to increasing up with globalization, inequality fell foreign investment – and since this in spite of opened-up markets and shift has changed the demand for increasing global competition. skills, i.e. skilled labor, the consensus approach should be extended beyond Participants agreed that new policies the nation state level to the global as well as more and better links level, Kohl urges. between jobs and education policies are needed, in particular if one re - gards the many unemployed people with masters degrees and indeed Ph.D. diplomas in countries like Poland, the Czech Republic or Russia, where people seem to progress from one training program to the next, yet remain constantly out of work.

In his moving dinner speech, Edward G. Cross, Secretary for Economic Affairs of the Movement for Demo - cratic Change in Harare, Zimbabwe, one of the world's very poor countries, also touched on the issue of educa - tion. He asks why countries like Zimbabwe, where 50 % of all adult women are HIV positive, or Botswana, where one third of the adult popula - tion is HIV positive, or South Africa are the main AIDS centers of the world, losing three to four percent of their popula tion to AIDS each year. The answer, he explains, lies in the fact that women enjoy neither status Weifang Min nor edu ca tion in these countries. The

18 Poor people do not need sympathy or charity, but opportunity, says Edward G. Cross. And this demands a decent education as a bridge to the new world.

educa tion of female children, there - sults in a digital divide which excludes selves, says Min, quoting from a World fore, is the key and the only way out the ICT have-nots from knowledge Bank report. of disease and poverty. innovation and utilization, but also that this divide has been widen ing Since the development of an ICT- However, warns Cross, you cannot over the last couple of years. For based knowledge economy would solve the problems of a country like example, the number of PCs per not only call for high skill levels, but, Zimbabwe, where good governance 100,000 inhabitants is some 50,000 more importantly, also for the capac - is an alien concept, by working on a in the United States, while in China ity to better integrate information bilateral basis with a government the figure is just 880. While in 1998 generation, processing, dissemination infected by perpetual corruption. North America was 80 times ahead of and application, universities as know - Instead, civil society and non-govern - Asia in terms of Internet hosts per ledge-based institutions would have mental institutions like trade unions 1,000 inhabitants, two years later the a more significant role to play in should be strengthened and part - gap had widened to 86 times. build ing this capacity.Universities, nered by western aid organizations. through teaching and research and by Dramatic digital disparities can also enhancing their links with industries, The Digital Divide be observed within the middle-income can accelerate technological innova - While Richard Kohl had focused on countries, particularly in a com par i - tion and application and can bridge the role of basic education for poverty son of rural and urban areas, where the digital divide – Chinese univer - alleviation, Weifang Min, Executive the digital divide translates into an sities, including Beijing University, Vice President of Beijing University, economic divide, says Min. Those have already been proving this, says discussed in his presentation the im - who have access to ICT usually enjoy Min. In tandem with appropriate and pact of the digital divide on poverty in a com parative advantage in employ - well-designed poverty reduction middle-income countries and stressed ment and income as compared to the programs, universities could become the importance of higher education, ICT have-nots. Although the digital powerful engines for growth and in particular the role universities play divide is more closely related to in - development, he concludes – in his in development and overcoming equality than to absolute poverty, view this approach appears to be a poverty. The rapid advancement of there is a correlation with poverty in promising way out of poverty. science and technology, especially the some middle-income countries. In revolution of information and com - order for these countries "to turn the mu nications technology (ICT), has threat of digital divide into digital led the world into a knowledge-based opportunity and leapfrog into the new system, he said: ICT has dramatically development process of the world changed the way we think, learn and economy", education development, work, it has changed what and how especially university development, is we produce, and has become the of strategic importance for economic driving force for higher productivity development and to overcome pov- and economic growth. In Min's view, erty, he argues. Many development the problem is not only that these new achievements in low and middle- technologies are not equally available income countries have shown that to all countries and individuals and ICTs present the disadvantaged with that variable accessibility to ICT re - particular opportunities to help them -

19 Views from Countries and Regions concerned

In Danuta Hübner's view, Boris Nemtsov painted a Pavel Mertlik, former Czech poverty not only has an candid and honest picture of Minister of Finance, warns average income dimension the Russian economy: One of that a vast social strata in – there is also the challenge the big problems in Russia is Central East Europe is in a of how to measure poverty. that the role played by small fragile situation on the verge It should not be forgotten and medium-sized enterprises of poverty. that growth cannot be in creating a thriving economy regarded as a gain if it is is not yet understood. accompanied by damage to the environment, if it excludes women or if it shifts families from very poor rural communities to crime-ridden slums. From her Eastern European pers - countries are extremely low, however, pective, Danuta Hübner, Executive poverty also poses an acute problem Secretary of the UN Commission for for many of those in work. Europe in Geneva, believes that it will take a long time and a sustained effort Poverty in Eastern Europe differs in to bring poverty in Eastern Europe many respects from poverty in other down to sustainable levels. However, regions of the world, says Hübner, she also stresses that Eastern Europe in that its present extreme form is a is by no means a homogeneous group recent and sudden phenomenon. of countries "also with regard to Although the former socialist policies poverty levels, dynamics and hopes". had not achieved affluence, destitu- Generally, one can say that those tion was largely avoided, with a mini - countries which are most advanced in mum subsistence level guaranteed institutional and structural reforms for the vast majority through wide - are least affected by poverty, yet in spread state benefits in tandem with countries in transition the widening massive distortions of the economy. inequality coincides with the demo - The col lapse of the established order cratic reform process. At a national in Eastern Europe, the huge decline level, the proportion of people living in production, mass unemployment, on less than $2 a day varies from 5 lack of regular income, and rapid percent in Belarus, Bulgaria, Estonia erosion of basic social services came and Hungary to almost 70 percent in abruptly and – for the population – some of the former Soviet republics without warning. further east. Unemployment is of course a major factor of poverty, Whereas people in countries where reach ing 40 percent in some transi - poverty is endemic and prolonged de - tion countries. Since wages in many velop mechanisms for survival, people

20 in the transition countries were given In her analysis, another distinct char - In order to find ways out of poverty in no time to adjust ma terial ly or psycho - ac teristic of poverty in economies in these countries, Hübner expresses logically. What made things worse for transition is that most of the new poor agreement with previous speakers in most people was the fact that, while are people with skills and education. stressing the importance of creating the majority of people became poorer, "Human capital, the only inherited an environment for job-generating a small but very wealthy class of the wealth in most countries in transi - growth and investment. Policy "new rich" evolved who were able to tion, is dissipating at an alarming measures should aim to improve the take advantage of the unprecedented rate", she warns. This fear is shared access of the population at large to re-distribution of public assets. Due to by Boris Nemtsov, Member of the financial and other resources, support the absence of competition in the Russian Duma, who states that the the creation and development of early transition years, this new elite new poor in Russia are people with small- and medium-sized enterprises, has unfortunately not become the an excellent education who in other encourage micro financing and pro - in itiator of abroader prosperity, coun tries form a broad and stable vide public services to start-ups. We Hübner reports. Instead, poverty is on middle class, e.g. state employees, need to keep these issues permanent - the rise and "runs the risk of becom - school and university teachers, doc - ly high on the agendas in Europe, we ing chronic rather than remaining tors and hospital personnel. need to share lessons and best prac - an acute transition issue", at least tices, and we need to get the right in those countries which are still With unemployment and income strategies, policies and institutions in suffer ing from delayed or slow output poverty persisting in some of the place, she urges. There are many growth as is the case in most CIS transition countries, the trend of examples in Eastern Europe – in par - coun tries. Formal institutions in regressive adjustment of human cap i - ti cular in Central Eastern Europe – of some of the transition countries, as tal will accelerate, and the de ter io - successful macroeconomic policies well as some of the government pol - ration of public services, especially that have encouraged integration into icies linked to reforms, appear to health care and education, will con - the global economy, of the successful rein force the impoverishment trend, tinue. At present, almost 64 million development of a strong private sector says Hübner: administrative pro - young people aged 15 - 24 in the and the creation of jobs, of improved cedures which give rise to corruption, countries in transition are neither government and of sound financial and tight budgets which do not allow in school nor employed, Hübner policies, of dramatically reduced any compensation for price increases. complains. pov erty – why not transfer these ex - periences to those countries in the region which are still lagging behind, Hübner asks.

Pavel Mertlik, former Czech Minister Willy Wapenhans: of Finance, agrees that in most of the How can we "re-tool" Central European countries, for in - the very large highly skilled and educated, yet stance in Hungary, Poland, the Czech dormant human capital Republic or Slovakia, the number of in transition countries? people who actually live on the subsis - tence level is relatively low. However, there is a large group which is dan ger - ously close to this level, e.g. in the Czech Republic some 40 percent of the population are permanently at risk of falling into the "really poor" cate gory.In Mertlik's opinion, the fact that this vast social strata is in such a fragile situation on the verge of pov - erty is Central Europe's most pressing social problem. Besides pro-invest - ment and pro-growth policies, he like previous speakers stresses the import - ance of good governance, but asks at the same time how good government

21 practices should be established and of politicians and decision-makers implemented in countries where cor - who are unsusceptible to corruption, ruption is a widespread social pheno - you have to remunerate them suf fi - menon. Where you have corruption cient ly, he says. among those who are expected to lead the necessary turn for the better, i.e. His second point in regard to poverty judges, politicians and decision- alleviation concerns the elimination makers, you have a problem, Mertlik of the country's grey and black econ - says. It is difficult to determine and omy, which amounts to some 40 per - lay down rules and routines for the cent of GDP and is responsible for the XIIIimplementation of good governance small national budget. Nemtsov is in societies where powerful interest convinced that the only way to reduce groups strive for high social status the level of the grey economy is and work against the principles of through tax reductions. He believes transparency and accountability. Russia to be on the right track in this Changes, therefore, can probably be respect, pointing to the very low flat- introduced only gradually, supported rate personal income tax of 13 per - by the strong pressure of inter na - cent which, since its introduction, Reports in the media say that tional financial markets and the has already raised Russian income the level of capital flight out of Russia is still as much as 2 international community. tax collection by 70 percent. From billion dollars each month, January 2002, Russia will introduce participants claimed, asking From the Russian perspective, too, one of the world's lowest corporate how this capital flight could combating corruption in government profit taxes at 20 - 24 percent, in the be stopped in order to improve Russia's budgetary situation. and management is one of the fore - hope that this measure will further Only by improving the environ - most tasks in the battle against pov - improve the budgetary situation and ment for investment, was erty. Boris Nemtsov points to the fact the government's ability to establish a Nemtsov's answer. The tax that very low salaries, when paid even social safety net for vulnerable groups revolution coupled with our to the country's high-ranking govern - among the population. Without this willingness to improve the rule of law in Russia could make ment officials, open the door to kind of substantial improvement it Russia a European Hong Kong bribery. If you want a new generation is unthinkable that Russia will be able in a few years time, he says.

If we want to avoid long-term Very different strategies are poverty, intergenerational pov - needed to address poverty in erty and major regional dis - different countries, states parities in Poland, we need to Joachim von Braun. While in focus on rural rather than on China this is primarily a task for urban areas, says Michal Boni. government due to weak markets Evalua tion studies carried out and the lack of civil society, in in Poland have shown that ac - Russia it may well be the private cess of the poorest children in sector that will take the lead, and re mote villages to primary in Mexico or Brazil it may be educa tion is worse than in the more a task for civil society. CIS countries.

22 The German reunification experience is a fundamental lesson in the struggle to break through the wall of poverty in Mexico. The similarities are greater and deeper than one might think, believes Josefina Vázquez Mota. to repay its outstanding debts out of its federal budget – the debt service due in 2003 will reach 19 billion dol - lars, equivalent to 50 percent of the current budget – and at the same time reduce poverty, Nemtsov says.

With the focus now on poverty allevia - tion in a country on the other side of the Atlantic, Josefina Vázquez Mota, Mexican Minister for Social Develop - ment, started by making it clear that Mexico is also a country in transition. Under its new government, Mexico is on the path from an authoritarian, centralized state towards a partici pa- tory democracy offering development opportunities for all Mexicans. How - ever, contrary to the more recent and sudden impoverishment in Eastern European countries, Mexican poverty is deeply rooted, Vázquez Mota says. Poverty in Mexico is an ethnic and a gender problem – four out of five indigent persons are Indian and, to the most part, female. While 10 per - gin alized municipalities of the coun - through Community Advisory Coun- cent of the poorest population earn try to catch up with and become inte - cils acting as interlocutors with just 1.1 percent of the national in - grated into overall economic develop - government agencies. come, the 10 richest percent receive ment. Community Learning Centers almost 40 percent; though poverty in equipped with the latest technologies In Vázquez Mota's view, the German Mexico expresses itself not only in and academic contents provided by reunification experience is an unequal income distribution but also several universities will be set up in example of how to respond to the high in unequal regional development and the poorest communities to improve expectations of a large sector of the disparities in socio-cultural levels the schooling level of children, young - population who for many years – may - across the country. sters and adults. be centuries – lead a life in misery with out much hope of change; how In the past, public policies focused on Vázquez Mota listed four action lines to persuade those who would obtain the effects rather than on the causes which are promoted by the Mexican more through their own personal of poverty, while today the Mexican government alongside this develop - effort to "share more than hope with government pursues long-term strate - ment strategy: those who have nothing"; "how to gies to eradicate poverty, stresses – Investment in human capital, i.e. equalize the pressing needs of those Vázquez Mota. She agrees completely education, health and food who have nothing with the patience with Michel Camdessus that it is the programs; of those who think they have earned poor themselves who have the most – Income generation for the general the right to tranquility"; and how to important part to play in solving their population, i.e. credit support for benefit from the advantages of glo bal - problems, yet the government must productive projects; micro financ- iza tion and at the same time protect create the framework necessary to ing with special regard to women; the vulnerable from its risks. The satisfy the most frequent demands of – Physical infrastructure develop - answers to such questions require im - the poor: job opportunities and edu - ment, i.e. the provision of energy, agin ation, concludes Vázquez Mota, cation. "Micro-regional develop ment" drinking water and communication and solutions have to be found with with preferential treatment of Indian technologies; the participation of the Mexican communities is one of the Mexican – Realization of genuine federalism, popu lation – Mexican civil society – government's foremost strategies. i.e. the involvement of communities and the international community. Its purpose is to help the most mar - in decision-making processes

23 Closing Statement : Attacking Poverty in Middle-Income Countries: Tensions and Strategies

One can readily agree that Middle- Income Countries (MICs) and Low Income Countries (LICs) are different: – MICs are more diversified and inte- grated with the world economy and hence have a better growth poten- tial. But also, as was repeatedly mentioned during this Symposium, because of their greater integration into the world economy, MICs are subject to greater volatility and hence the risk of rapid increases in poverty, and therefore require special attention to sound macro economic and financial sector policies.

– MICs have greater physical, finan - cial and human resources for social and anti-poverty programs. For example, Mexico’s cash program in Dear Moderator, Distinguished support of female heads of house- Guests, holds to help them keep their child - ren in school, participate in basic In listening to our discussion, I was health programs, take nutritional struck by a number of dichotomies, supplements and breast feed re - or dialectics in perception, which we quires 0.2% of Mexico’s GNP and were struggling with. Many of these reaches 10% of the Mexican popu- reflect real tensions and tradeoffs as lation. It has achieved a measurable we deal with the question of whether poverty reduction impact. Similar and how to combat poverty in MICs. programs are under preparation in What I will do now is to take each of other MICs (e.g., now in Turkey in these eleven dichotomies and give response to its economic crisis). you my personal view on where the Such programs would be more diffi - dis cus sion has taken me in dealing cult to implement in LICs, since the with real and perceived tensions and cost of these programs, albeit care - tradeoffs. fully limited, would make up a much larger share of the GNP in
Middle-Income versus Low-In - LICs and hence stretch their re- come Countries – why bother about source base unduly. the MICs, when they can help them - selves? – MICs have a greater institutional Among us there was not much de bate and administrative capacity for about this issue, since we all seemed growth and anti-poverty programs. to agree that it was important for the international community to assist the Despite these differences, poverty MICs in fighting poverty. However, is still a major issue in MICs. For since there is a lively debate in many example, in terms of income poverty, other fora about this topic (with Pro - 28 % of Thailand’s population live on fessor Meltzer as the chief protagonist less than $ 2 a day, 20-25 % for Russia, of the view that MICs can largely help 18 % for Turkey and Mexico, and 17 % themselves), let me state my position for Brazil. In terms of other dimen - on this important debate. ions of poverty (lack of opportunity,

24 empowerment, security), the situa- – In sum, the distinction between international institutions as the tion is also serious in many MICs: in MICs and LICs is useful, since they bench marks for targeting and Latin America only 60 % of the popu - are clearly different in the chal - measur ing progress in world-wide la tion is enrolled in secondary educa - lenges they face, but we would be poverty reduction are an excellent tion, and one in ten adults is illiterate; mistaken, if we were therefore to example of how widely the broader the infant mortality in MICs is five conclude that poverty in MICs was concept of poverty is now accepted. times the OECD average; there is not of concern to the international high unemployment, and wide-spread community. The notion that we
Poverty versus equity – do we need social exclusion and a sense of power - should leave the MICs to solve their to worry about both? lessness and vulnerability. Therefore, own problems and rely on financial Again we have a useful distinction despite their stronger capacity and markets to assure that adequate re- here, since poverty and inequity in access to markets, poverty and social sources are channeled into priority income distribution represent dif fer - challenges are still overwhelming areas, is patently unrealistic. We ent aspects of the problem of human issues in many MICs, and they deserve don’t let that happen within the EU deprivation. But too much can be external assistance to deal with these (where poverty and risks, and differ- made of the need to battle inequality. challenges. ences among countries are much less severe), why should we do so for In particular, the question whether In addition, the performance of MICs the rest of the world? growth is bad for poverty reduction be - has important implications for the cause it is seen to be associated with rest of the World.
Income poverty versus more in - increased income inequality, can be clusive poverty measures – which – For the LICs, the "contagion” or are more useful and relevant? "neighborhood effects” of economic It is widely recognized and accepted crises in large MICs are well known. that more inclusive measures of pov - For example, East Asia’s and erty which go beyond simple measures Russia’s financial crises of 1997-99 of income are more useful, even had major negative impacts on the though economic analysts, for reasons neighboring LICs in South East Asia, of convenience or laziness, still fre - and in the CIS. The economic per - quent ly run regressions on income formance of South Africa and poverty measures only. Nigeria is of major significance for the overall performance of Africa. – The World Bank’s World Develop - Similarly, how well or badly MICs ment Report 2000/2001 delved into deal with major environmental and many of the dimensions of the health problems can have substan - broader poverty concept, since they tial spill-over effects on their poorer are important not only for the ana - neighbors (e.g., the Aral and lysis of poverty, but even more so for Caspian Seas environmental issues the design of solutions and measure- or the Aids/tuberculosis/malaria ment of progress over time. The epidemics around the world). International Development Goals, which have been adopted by the UN – For the High Income Countries member countries as well as most (HICs), financial stability in MICs (e.g., East Asia crisis), migration You've got to focus on the pressures (e.g., Mexico for the US, economic empower ment Central and Eastern Europe, North of women if you want to Africa for the EU), environmental reduce poverty, says Nancy Barry. Women are protection (e.g., of the Baltic Sea not passive beneficiaries and of atomic plants and waste in of social services, but are Central and Eastern Europe for the the farmers, the trans por- EU), and communicable diseases, ters, the traders, the informal sector indus - crimes and drugs are issues that trialists, and they need trans cend the boundaries of MICs access to education and to with direct impacts in the HICs credits. concerned. 25 answered with a clear "no”. On the Measures designed to reduce in equal -
Policies for poor countries or contrary, growth is clearly necessary i ty purely for equity’s sake may have policies for the poor? for sustainable poverty reduction. negative consequences; for example, This dichotomy, which was raised by But some forms of growth are more high marginal tax rates and ex pro pri - Else Øyen, is a useful reminder that effec tive in contributing to poverty a tion of assets will reduce incentives policies that help poor countries do reduc tion, particularly in enhancing for entrepreneurship and investment. not necessarily help the poor, and the growth of assets and incomes of It’s better to design pro-poor policies that the poor in better-off countries the poor. Policy measures and insti - than to pursue those that are deliber - also need to be supported. But in tutional reforms that help make that ately anti-rich. But closing loopholes practice, we look at both: we look at happen should be supported (e.g., and special favors for the rich in policies that help poor countries broad-based rural development as taxation and regulation, com bating (including MICs) grow and at policies stressed by Klemens van de Sand; corruption and state capture by the that help the poor in these countries. legal reform which gives the poor well-off (as stressed by Peter Eigen) clear titles to their assets, incl. clear are of course appropriate pro-poor Professor Øyen's point is also a use ful land titles for women; access to credit, policies. reminder that we need to focus on including micro credit, as propagated the winners and losers of reforms, and by Nancy Berry; access to education In sum, it’s important to watch out at their unintended consequences, and health services). for increases in inequality which and that we need to deal with the under mine growth and poverty reduc - social impact of restructuring (e.g., tion, disempower the poor and are coal sector reforms in Russia, where based on biased policies or corrupt the World Bank supported a major practices. But this should not let one program of social safety nets for the lose sight or the principal goal – to coal miners and mining communities fight poverty. as the coal sector was downsized). Peter Eigen believes that corruption is one of the major reasons for poverty also in emerging markets. Therefore, systematic bribery of local elites by western exporters should not be a fairly normal process of export promotion.

Most of the poor live in rural areas - also in middle-income countries – which are more vulnerable to crises, says Klemens van de Sand. In parti - cular, missing infra structure very often keeps the rural poor from where the production is.

26 This is also a useful reminder that we need to deal with the social fall-out of financial and economic crises (as for example at this point in Turkey) and to protect social spending in periods of fiscal stringency.

In sum, we (need to) worry not only about policies that help poor coun - tries grow, but also about policies and programs that help poor people, poor communities, and poor regions.

The rural versus the urban poor – which matter more? We certainly mustn’t forget the rural poor, as Klemens van de Sand has stressed. But not in every MIC is the number of the rural poor greater than the number of the urban poor, and with advancing urbanization the Michael Hofmann suggests one share of the poor living in urban areas more dichotomy, that between will continue to grow. So rural poverty urgency and complacency or is not the only, or even the main prob - between the suffering of the poor and the spoiling of the lem, in the MICs. elites, and pours some water into the Mexican wine. Latin A good poverty reduction strategy of schools and homes; Thailand has a America is the only continent in looks at both urban and rural poor. program of providing internet access the world where, when you have More generally, a good poverty reduc - to rural communities, with support one percent growth, there is a less than one percent reduction tion strategy considers the multi- from the World Bank; many countries in poverty, he says, whereas in dimensionality of poverty, including are now experimenting with the de - Asia one percent growth its spatial dimension, gender, age vel op ment of distance learning – all produces a three percent (children, old-age), as well as ethnic of these are innovations that help reduction in poverty. In other (e.g., the Roma in Central and words, he continues, Latin people learn, gain access to informa - America is a continent with a Eastern Europe). The key is to start tion, express their opinions and be blatant form of inequality. with a good assessment of poverty heard. Helping the poor benefit from in all its key dimensions, and then to these innovations is an important, and design policies and programs that by no means impossible challenge. address the most important in a parti -
Does poverty reduction involve cular country and monitor progress Nonetheless, the better the environ - harmony or conflict? against established benchmarks. ment within which science, techno l - Else Øyen stressed that poverty ogy and IT is placed, the more effec - reduction involves conflict, while she
Should one focus on science and tive will it be. Hence, the continued often sees analysis and approaches technology or on traditional policy importance of capacity building, good mistakenly based on the assumption reform and capacity building? policies, incentives and institutions. of harmony. In my view, we need to It is certainly useful to think through think about poverty reduction as in - how advances in science, tech nology So far we have considered economic volving both harmony and conflict. and especially in informa tion tech - and social dimensions of poverty nology (IT) affect growth, as well reduc tion. Let us now turn to issues It would be naïve to think that deci- as opportunity, empowerment and of political economy and governance. sions about the distribution of re - security for the poor in the MICs. These are at times neglected by the sources would not involve potential IT can help empower people, includ - econ omists, but I am very happy they conflict (as any debate about budget ing the poor. For example, Estonia featured prominently during our dis - allocation naturally tends to do, has a program of digital connection cussions at this Symposium. whether in national budget discus -

27 sions, in family feuds about inherit - planation of the work of the Women’s
And finally, which model of social ances, etc.). The key question is World Bank. and political organization is whether the legal, judicial and politi- preferable: the “European social cal framework and culture are such MICs clearly need better govern ment market” model or the “Anglo- as to permit a process of predictable, and public administration as well as American liberal market” model? peaceful and fair resolution of the legal and judicial reform are key in Richard Kohl provided a very good conflict. this regard. At the same time, MICs political and economic analysis of the need stronger, more effective civil pros and cons of these two different At the same time, it is important to society institutions, including active, models, with a synthesis that seemed look for win-win solutions and to transparent and accountable NGOs to point to a preference for a third, appeal to the enlightened self-interest operating in a legal and regu latory intermediate type of model, the and altruism in people. By looking at environment which supports, rather “North-West European market” who are the winners and the losers of than hinders their work. model, following roughly the current policies, looking to make sure that Dutch approach. the winners are aware of their gains
Who is more effective in working and support the change, while also for poverty reduction: technocracies However, we need to be cautious on helping the losers adjust to their and elites, or people in the street? two points when comparing models: short-term losses and turn them into There’s a saying: “The poor will long-term gains – these are the good always be with us.” Whether this is –Yesterday’s great miracles have ways to develop good anti-poverty true or not, certainly technocratic tended to be today’s duds. Thirty strategies and to build coalitions elites will always be with us. In other years ago the German Miracle, and for poverty reductions that can be words, there is little point in trying to fifteen years ago the Japanese model sustained. keep out elites, also in the context of were hailed as the great success poverty reduction. stories. Ten years ago the East Asian
What’s better: top-down decision miracle was praised as exemplary. making or bottom-up? What is important is to ensure that A year ago the Dutch model looked Both are needed. Leadership, vision technocracies and elites, like leaders great, as did the US “new economy”, and good management are essential. and governments, are guided by four the older ones look deeply flawed But bottom-up initiative, empower - key principles in relating the people now, and the more recent ones have ment, delegation, consultation and they serve: started to fade. Clearly each model ownership of policies and change at – Listening – they need to listen to has its time and place, each needs the community level are also neces - the people to adapt and change over time if a sary for successful and sustained – Transparency – they need to share country is to remain successful. change. information – Delegation – they need to foster – Many MICs are today far removed Paternalistic approaches to poverty participation and empowerment by from both European or Anglo-Ameri- reduction clearly haven’t worked. delegating, along the principle of can market models, and indeed What works is to help people help subsidiarity, to the lowest possible from any sound market model, themselves. Giving people a voice is level since they miss many of the essen - clearly a winner (as for example a – Accountability – they need to ac - tial ingredients of an effective program in Ukraine which the World count for their actions and be held market economy. While it helps to Bank is supporting in working with accountable. know where one is ultimately head - a local NGO to give people a voice These principles apply to any elite ing in introducing reforms and on social and municipal service and leadership – whether an elite in build ing institutions, the search for provision). government or an elite of civil society. an ideal model shouldn’t get in The principle of accountability, as the way of building the essential
Who does a better job in poverty we discussed, is perhaps the most elements of any market economy, reduction: government or civil dif fi cult, since it raises the question i.e., good government and govern - society? to whom a public or civil agent is ance, a sound legal and judicial We need both, effective government ac count able. This raises the whole system, freedom of entry and exit and effective civil society, as was well gamut of questions surrounding what for firms, labor market flexibility, demonstrated by Peter Eigen who are appropriate principles of demo - macro economic stability and the cited of the work of Transparency In - cratic governance, which deserve a provision of effective social services ternational, and by Nancy Berry’s ex - whole conference of their own. and safety nets.

28 Matthias Bauer Dr. Ernst U. Weizsäcker

Conclusion that good incentives and institu- Where does this long, but certainly tional capacity are put in place. not exclusive list of dichotomies and tensions leave us in considering the 7. Create or strengthen political challenge of poverty reduction in mechanisms that foster win-win MICs? A few “slogans” can perhaps solutions and give the poor a voice. best serve to summarize my views on where we have come out: 8. Find the right balance (a) between top down and bottom up, (b) be - 1. MICs matter and poverty in MICs tween government and civil society, matter. MICs need the attention and (c) between technocratic elites and support of the international and the people in the street – good community. listening, transparency, delegation, and accountability will make it 2. The broad, inclusive concept of happen. poverty is the right one. 9. Look for the right market model for 3. Look at both poverty and equity, your country, but don’t let this get but don’t lose sight of the big goal: in the way of pragmatic solutions to poverty reduction. real problems.

4. Look both at policies for poor coun - We in the World Bank are happy to tries and at policies for the poor. work for poverty reduction world wide, including in the MICs, and in 5. Analyze poverty comprehensively close cooperation with our many part - and deal with it wherever it is – iners, including those represented by looking at poor women and child- many of you here at this Symposium. ren and their education is as good as any place to start.

6. Make sure that MICs and the poor Johannes Linn in MICs don’t loose the opportunity Vice President, Europe to benefit from science, technology and Central Asia and IT, but generally this requires The World Bank

29 Tuesday, June 26

Session 1 11:50 am 03:40 pm Moderator: Stefan Baron Rudolf Dolzer Coffee break Editor in Chief, "WirtschaftsWoche", Director, Institute for Inter national Düsseldorf/Germany Law, Uni ver sity of Bonn/Germany 04:00 pm Good Governance: Ways out of Weifang Min 09:15 am Poverty for Middle-Income Executive Vice President, Beijing Welcome Countries – Public and Private University, Beijing/China Dieter H. Feddersen Dimensions Education and Poverty in Middle- Member of the Board, Dräger Income Countries - The Digital Foundation, Lübeck/Germany 12:10 pm Divide Discussion 09:20 am 04:20 pm Opening Speech 01:00 pm Richard Kohl Saskia Sassen Lunch Principal Administrator, Ralph Lewis Professor of Sociology, International Policies Division, OECD The University of Chicago, IL/USA Development Centre, Paris/France Why Poverty Matters – Dimensions Session 2 Changing Skill Demand and of Poverty in Middle-Income Moderator: Ruth Kagia Inequality in Education: Countries and Impacts on Director, Education, Human Develop - Implications for Poverty and Sustainable Develop ment ment Network, The World Bank, Employment in Middle-Income Washington, D.C./USA Countries 09:50 am Michel Camdessus 02:20 pm 04:40 pm - 05:30 pm Former Managing Director, Inter na - Robert Watson Discussion tional Monetary Fund, Paris/France Chief Scientist and Director, ESSD, Global Poverty Reduction: An Inter - The World Bank, Washington, 07:30 pm na tional Task? D.C./USA Dinner at Restaurant Globalization, Techno logical and "Schiffergesellschaft" 10:10 am Structural Change – Reasons for Discussion Increasing Inequality and Poverty Dinner Speech in Middle-Income Countries? Edward G. Cross 11:00 am Secretary for Economic Affairs, The Coffee Break 02:40 pm Movement for Democratic Change, Nancy Barry Harare/Zimbabwe 11:30 am President, Women's World Banking, In the Shadow of Mount Michael Hofmann New York, N.Y./USA Kilimanjaro Director General, Global and Sectoral The Role of Banking and Banking Tasks, European and Multilateral Supervision in Middle-Income Development Co-operation, Federal Countries Ministry for Economic Cooperation and Development, Berlin/Germany 03:00 pm The German Perspective Discussion

30 Wednesday, June 27

Session 3 12:00 pm Moderator: Dieter Feddersen Closing Speech Member of the Board, Dräger Johannes F. Linn Foundation, Lübeck/Germany Vice President for Europe and Central Asia, Views from Regions Concerned: The World Bank, Washington, D.C./USA 09:00 am Attacking Poverty in Middle- Danuta Hübner Income Countries: Tensions Executive Secretary, and Strategies UN Economic Commission for Europe, Geneva/Switzerland 12:30 pm A View from the ECE Discussion

09:20 am 01:30 pm Boris Y. Nemtsov End of Conference and Lunch Chairman of the Parliamentary Group “Union of Right Forces”, State Duma of the Federal Assembly of the Russian Federation, Moscow/Russian Federation A View from Russia

09:40 am Pavel Mertlik Former Minister of Finance of the Czech Republic, Prague/Czech Republic A View from Central Eastern Europe

09:50 am Discussion

11:00 am Coffee Break

11:30 am Josefina Vázquez Mota Minister for Social Development, Mexico D.F./Mexico A View from Mexico XIII31 List of Participants

Prof. Dr. Uwe Andersen Dr. Henryka Bochniarz Michel Camdessus Managing Director President Former Managing Director Institute for Development Research NICOM Consulting Ltd. International Monetary Fund and Development Policy Warsaw, Poland Paris, France Ruhr-University Bochum Bochum, Germany Dr. Michal Boni Prof. Dr. Michael Chadwick Chief Advisor Former Director Dr. Vicente Arredondo to Deputy Prime Minister Stockholm Environment Institute Coordinator General Ministry of Labor and Social Policy Escrick/York, United Kingdom National Program for Education, Warsaw, Poland Health and Nutrition (Progresa) Viktoria I. Cherneva Ministry of Social Development Prof. Dr. Hans-Gert Braun Chief Expert Mexico D.F., Mexico Director, Chief Economist Marketing & Procurement DEG (German Investment National Electric Company (NEK) Stefan Baron and Development Society) Sofia, Bulgaria Editor in Chief Cologne, Germany WirtschaftsWoche Edward G. Cross Düsseldorf, Germany Prof. Dr. Joachim von Braun Secretary for Economic Affairs Director The Movement for Democratic Nancy Barry Center for Development Research Change President (ZEF-Bonn) Harare, Zimbabwe Women’s World Banking University of Bonn New York, N.Y., USA Bonn, Germany Dr. Horst Dietz Chairman of the Board of Matthias Bauer Dr. Heinz Bühler Management Director of Development Director General ABB AG Council of Europe German Foundation for Mannheim, Germany Development Bank International Development (DSE) Paris, France Bonn, Germany Prof. Dr. Dr. Rudolf Dolzer Director Institute for International Law University of Bonn Bonn, Germany

Dr. Zdenek Drábek Senior Advisor World Trade Organization Geneva, Switzerland

Dr. Christian Dräger Member of the Board Dräger Foundation Lübeck, Germany

Prof. Dr. Ludmila Dziewiecka-Bokun Faculty of Social Sciences University of Wroclaw Wroclaw, Poland

Dag Ehrenpreis Senior Advisor Poverty Reduction OECD/DAC Secretariat Paris, France

32 Dr. Peter Eigen Chairman Transparency International e.V. Berlin, Germany

Dr. Bernd Eisenblätter Managing Director German Agency for Technical Cooperation (GTZ) Eschborn, Germany

Patricia Espinosa Ambassador of the United States of Mexico Dr. Michael Hofmann Dr. Ernst Kreuzaler Berlin, Germany Director General Director Global and Sectoral Tasks International Labour Organization Prof. Dr. Dieter Feddersen European and Multilateral (ILO) Member of the Board Development Co-operation German Representation Dräger Foundation Federal Ministry for Economic Co- Bonn, Germany Lübeck, Germany operation and Development Bonn, Germany Dr. Manfred Kulessa Dr. Raimundo Florin Chairman Executive Director Dr. Danuta Hübner German Asia Foundation C.E.A.D.S. Executive Secretary Bonn, Germany Buenos Aires, Argentina UN Economic Commission for Europe Prof. Dr. Rolf J. Langhammer Dr. Alexander Gunther Friedrich Geneva, Switzerland Vice-President Former UN Executive Secretary Kiel Institute of World Economics Cologne, Germany Dr. Ruth Kagia Kiel, Germany Director Dr. Rainer Goerdeler Education, Human Development Dr. Volker G. Lehr Representative for Asia and Network Advisor to the Minister for Social Special Representative for Southeast The World Bank Development Europe Washington, D.C., USA Mexico D.F., Mexico Federal Ministry for Economic Co- operation and Development Ulrich Kalbitzer Bernd Leibbrandt Bonn, Germany Head of Department Senior Economist for Europe Federal Ministry for Finance Kreditanstalt für Wiederaufbau (KfW) Dr. Michael Hanssler Berlin, Germany Frankfurt/Main, Germany Executive Director Bellagio Forum Brenda Killen Prof. Dr. Robert I. Lerman Osnabrück, Germany Head of Department Director Americas and Transition Economies Labor and Social Policy Center Dr. Peter W. Heller Policy Department Urban Institute; Director Department for International Professor of Economics Canopus Foundation Development (DIFD) American University Entrepreneurs for a World London, United Kingdom Washington, D.C., USA Free of Poverty Freiburg, Germany Dr. Richard Kohl Pille Liimal Principle Administrator Adviser Dr. Helmut Hoffmann International Policies Division Ministry of Social Affairs President OECD Development Centre Tallinn, Estonia Lateinamerika-Zentrum e.V. Paris, France Bonn, Germany

33 Dr. Johannes F. Linn Dr. Boris Y. Nemtsov Prof. Dr. Saskia Sassen Vice President Chairman Ralph Lewis Professor of Sociology for Europe and Central Asia Parliamentary Group The University of Chicago The World Bank "Union of Right Forces" Chicago, IL, USA Washington, D.C., USA State Duma of the Federal Assembly of the Russian Federation Prof. Dr. Timothy M. Smeeding Sandra Makinson Moscow, Russian Federation Director and Professor Project Manager Luxembourg Income Study (U.S. Canopus Foundation Prof. Else Øyen office) Freiburg, Germany Scientific Director Syracuse University The Comparative Research Program Syracuse, N.Y., USA Dr. Nkaki Matlala on Poverty (CROP) Chairman Health and Social Policy Studies Piotr Szczepanski Phodiso Home & Hospital Services University of Bergen President Pretoria, South Africa Bergen, Norway Rural Development Foundation Warsaw, Poland Prof. Dr. Bernd Baron von Maydell Dr. Hans d’Orville Director Director Josefina Vázquez Mota Max-Planck-Institute Bureau of Strategic Planning Minister for Social Development for Foreign and International UNESCO Mexico D.F., Mexico Social Law Paris, France Munich, Germany Dr. Willi A. Wapenhans Dr. Jürgen Pfister Former Sr. Vice President Worldbank; Ian McKendry Senior Vice President Member of the International Advisory Governance Advisor Head of Economic Research Board Department for International Commerzbank AG ZEF, Bonn Development (DIFD) Frankfurt/Main, Germany Königswinter, Germany London, United Kingdom Alain Pilloux Dr. Robert T. Watson Prof. Dr. Pavel Mertlik Managing Director Chief Scientist and Director Former Minister of Finance European Bank of Reconstruction ESSD, The World Bank Prague, Czech Republic and Development Washington, D.C., USA London, United Kingdom Prof. Dr. MIN Weifang Dr. Ernst U. von Weizsäcker Executive Vice President; Petra Pissulla Chairman of the Parliamentary Director and Professor Director Commission on Enquiry Institute of Higher Education Dräger Foundation "Globalization of the Economy Beijing University Lübeck, Germany Challenges and Responses"; Beijing, China Member of the German Bundestag Vadim V. Razumovskiy Berlin, Germany Claudia von Monbart Head of Department for Economic Senior Counselor for External Affairs Cooperation Dr. Jan-Olaf Willums The World Bank Ministry of Foreign Affairs of the Vice Chairman Paris, France Russian Federation Foundation for Sustainable Moscow, Russian Federation Development Dr. Joachim Müller Høvik, Norway Program Manager Dr. Klemens van de Sand Development Policy Forum/DSE Assistant President Berlin, Germany Program Management Department International Fund for Agricultural Development (IFAD) Rome, Italy

34 Impressum

© 2001 Dräger-Stiftung München/Lübeck

Verantwortlich/responsible: Dipl.-Volksw. Petra Pissulla

Gestaltung/layout: Werbeagentur von Krottnaurer, Lübeck

Druck/print: DrägerDruck, Lübeck

Bildnachweise/photographies: Axel Kirchhof, Hamburg