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WDR 2003

World Development Report 2003

Sustainable Development in a Dynamic World:

Transforming Institutions, Growth, and the Quality of Life

Zmarak Shalizi, Director WDR 2003

UNEP Finance Initiatives Roundtable,

Tokyo, Japan

October 20-21, 2003

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WDR 2003

Many Accomplishments2 billion people added to world’s population between 1970 and 2000—mostly in low- and medium-income countries⇒Average per capita income in LDCs grew from ~ $1,000 in

1980 to ~ $1,400 in 2000⇒ Infant mortality rates per 1,000 live births fell from 100 in

1970 to 60 in 2000 ⇒Adult illiteracy rates have fallen from about 50% in 1970 to

25% in 2000

However the development path generating these gains has been costly

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WDR 2003

Social Stress-MistrustIncreasing inequality within and between countries ⇒ (Some inequality unavoidable due to differential risks and

opportunities, but not all: Per capita income ratio between the 20 richest and 20 poorest countries is 35—double what it was in 1970—mostly due to low growth in poor countries)

1.2 billion people still live on <$1/ day (scale similar to population that is underweight and malnourished)⇒ (The number of the poorest people declined by 200 million

in last two decades despite global population increase) 46 countries suffered from armed conflict--including half of the 33 poorest countries. Destroys pastdevelopment gains, breeds mistrust, impedes future growthLow growth, conflict, and inequality undermine collective action in support of a sustainable pattern of development

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WDR 2003

Environmental Stress - DegradationUrban air pollution is several times WHO recommendations; CO2 emissions are up two-thirds since 19701/3 of people live in countries with moderate to high water shortage; 1/5 of farm land is degraded; 10% of tropical forests cleared each decade;70% of fisheries are fully or over exploited;2/3 of coral reefs have been destroyed or threatened; 1/3 of terrestrial biodiversity, accounting for 1.4 percent of the Earth's surface, is in vulnerable "hot spots" and threatened with complete loss in the event of natural disasters or further human encroachment;This pattern of depleting environmental stocks cannot be repeated.

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WDR 2003

Big issues for next 50 years?2-3 billion more people⇒ Core Economic Development Challenge:

How to provide productive work and a good quality of life for this additional population plus the existing 2.8 billion people living under $2/day (Requires substantial growth in output and productivity in developing countries)

At 3% p.a.could have $140 trillion global economy by 2050⇒ Core Environmental and Social Challenge:

How to ensure that a global economy 4X larger than today’s creates less social and environmental stress (Requires substantial change in the way we do business)

One time window of opportunity to move to sustainable patterns of development at lower cost

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WDR 2003

Demographic Transition: 1950- 2050

0

2

4

6

8

10

12

1950

Popu

latio

n (B

illio

ns)

Population growth is slowing, will stabilize at approximately

10 billion by the end of the century

Medium-Low VariantMedium VariantMedium-High Variant

1970 2000 20502030

Year

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WDR 2003

Increasing Savings Potentialwith Changing Age Structure and Declining Dependency Ratios

4 0

50

6 0

70

8 0

9 0

10 0

19 6 0 19 70 19 8 0 19 9 0 2 0 0 0 2 0 10 2 0 2 0 2 0 3 0 2 0 4 0 2 0 50Year

Eas t As ia & the Pacific

Eas tern Euro p e &Central As ia

So uth As ia

Hig h-Inco me OECDCo unt ries

4 0

50

6 0

70

8 0

9 0

10 0

19 6 0 19 70 19 8 0 19 9 0 2 0 0 0 2 0 10 2 0 2 0 2 0 3 0 2 0 4 0 2 0 50Year

Lat in America & theCarib b ean

M id d le Eas t & No rthAfrica

Sub -Saharan Africa

Hig h-Inco me OECDCo unt ries

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DTC DTC DTC DTC DTC

Urban Transition

0

2

4

6

8

Population (billions)

1950 1970 2000 2030 2050

For the first time in history, most people will live in cities

CitiesTowns

Rapid urban growth

Megacities

15

1

54

29

0

Many megacities

Global population stabilizes before end of century

DTC OECD DTC OECD DTC OECD DTC OECD DTC OECD

1 2 4 5 5

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WDR 2003

Increasing Investment Potentialwith Ability to service more people at lower cost per person

Trillions of Dollars of investment in next 50 years –Whether we do it right or wrong has profound implications for poverty, the economy, and the local and global environmentMost infrastructural capital stock required to operate the future economy of growing cities (new homes, factories, transport and power) and to reduce poverty has yet to be built – can be designed to be more economically and fiscally sustainableDeveloping countries provide a potentially large market over thenext 10-20 years that can support the emergence (R&D and amortization of initial costs) of new, more efficient, and sustainable technologies. With more appropriate investment criteria – can be designed to be more environmentally sustainableDeveloping countries are not locked into existing technology andcapital stock, and have the opportunity to improve on existing decision-making practices. With more inclusive decision making –can be designed to be more socially sustainable

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WDR 2003

0

2

4

6

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Population (billions)

1950 1970 2000 2030 2050

Global population stabilizes before end of century

Other ruralFragile lands

Still many in fragile

areas

CitiesTowns

Rapid urban growth

OECD

1

OECD

2

OECD

4

OECD

5

OECD

5

DTC DTC DTC DTC DTC

Megacities

15

1

54

29

0

Many megacities

These people are stuck and invisible. This is where poverty is.If there is a rising global tide, will they be able to catch it?

…Still Many in Rural Fragile Lands

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WDR 2003

Getting Ahead of the Frontiers

In order to address emerging stresses and seize opportunities, we must: A. Think long-term, when acting nowB. Manage a broader portfolio of assetsC. Take institution-building more seriously

• Institutions include rules and organizations, both formal and informal—and their interaction

• Pay special attention to the distribution of assets as they shape the evolution of institutional competence and policies

• Nurture institutional catalysts for change in different spatial locations

(Expanding Cities, Inappropriate Conversion of Land, Forests, Freshwater, Last Untapped Ocean Fisheries)

What Must be Done?

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A. Think Long Term, but Act NowTime to develop new technologies

Time for capital stock turnover

Shorten it

CO2 emissions, MT C

+ 1º to 3º CCLIMATE FRIENDLY SCENARIO

+ 3º to 5.8º CTemperature increase by year 2100

FOSSIL FUEL INTENSIVE SCENARIO

30

20

10

0

1990

2000

2010

2020

2030

2040

2050

2060

2070

2080

2090

2100

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Well-being

Social assets Environmental assets

Output and income

Human capital Physical capital

B. Need to Manage a Broader Portfolio of Assets

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WDR 2003

C. Take Institution Building More Seriously—Policies & Processes

WDR 1992 focused on policies to correct market failures (public goods and externalities—spillovers) but these have not yet been widely adopted or implemented—why?Spillovers give rise to coordination (collective action) problems, and distributional considerations are central to resolving conflicting interests and coordinating solutionsEconomic and Environmental problems are at root social/coordination problems and Institutions help solve coordination problems

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WDR 2003

People, Assets, Threats, and the Need for Protective InstitutionsFor people to be forward looking—they need a stake in society

For assets to thrive—they need protection (Secure commitment to law and property)⇒ Assets are not all vulnerable to the same threats, but all

assets—natural as well as human-made, in the village and in the city—depend on protective institutions

When more people are heard, fewer assets are wasted

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WDR 2003

More complex examples:

Failure of Protective Institutions to Restrain

New Foundland cod catch, tons,1850-2000 Case of dispersed interests

Enron, market value, 1985-2002 Case of vested interests

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WDR 2003

Presence or Absence of Inclusiveness and Distribution of Assets Matters:

PoliciesPolicies

InstitutionsInstitutions

Distribution of assetsDistribution of assets

The distribution of assets shapes institutions and

policies

Policies shape institutions and the distribution of assets

Vicious or Virtuous CyclesEffects are long lasting (Path Dependency) leading to

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WDR 2003

Competent Institutions Build Trust—Key Functions

Pick up signals to diagnose problems early and from the fringes (requires information, voice, feedback): social or geographic; Thailand—AIDS; Tunisia—fragile landsBalance interests to identify durable solutions(requires transparency, forums): Europe—acid rain; South Africa—democracy; Malaysia—new economic policy; Ait Iktel, Morocco—“cultural translators”Execute agreed decisions, particularly for the long term, to ensure credibility ex-post (requires credible commitments ex-ante and accountability): Cameroon—public forest auction; Marine Stewardship Council—sustainable fisheriesObserved social, environmental and economic problems can be traced to failure in one or more of these functions

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WDR 2003

Emergence of Competent Institutions

How do you get good policies if institutions are inadequate? How can good institutions emerge in an unfavorable setting? ⇒Institutions don’t appear overnight or fully grown

⇒Need catalysts to build momentum and scale up

⇒Need to adapt to changing conditions through innovation, experimentation, and systematic learning

⇒Need to not just solve current problems, but also have the ability to respond to new problems not yet defined by better understanding how technologies, preferences, and behavior change

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WDR 2003

Catalysts for ChangeScientific research/Credible information, and education: signals and helps diagnose problems, builds awareness and support for change, so that institutions can react (global level: ozone and global warming; local level: pollution disclosure program in China and Indonesia)Conflict Resolution: Organizing to diagnose problems, balance interests (Europe—acid rain; South Africa—democracy; Malaysia—new economic policy; “cultural translators”—Ait Iktel, Morocco)Transparency and monitoring: To tighten accountability (Cameroon—Forest Auction; Marine Stewardship Council—sustainable fisheries)Think and do tanks: Organizations that learn from the grass roots and have access to policy makers—are able to adapt and promote exchange of ideas, innovate and solve problems unique to their country—(Singapore, Malaysia, Korea, UK, Costa Rica, Bolivia, Brazil) e.g. by pairing national and foreign expertise

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WDR 2003

Catalysts for Change— specially for Poor People

Partnerships: Civil society, govt., private sector, “cultural translators” (Cameroon; Marine Stewardship Council)

Leadership: East Asia’s more equal access to assets (Malaysia’s NEP, Singapore)

Assets for the poor: schooling, healthcare, social capital, voice, tenure (Brazil’s favelas)

R&D: productivity & assets for the poor– crops, drought-resistant maize, medicines, vaccines

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WDR 2003

Implications for Development Strategies and Assistance

Shift to breaking vicious cycles that keep growth low and distribution of assets unequal—requires better sharing of new forms of assets and additional assets as growth progresses; Get ahead of the frontier in anticipation of known trends and destructive/unfettered races for property rights, e.g. agricultural land conversion, urban expansion, growth-generated pressures on eco-systems and natural resources;Invest in conflict avoidance and durable institutions that evolve through long-term commitment to inclusiveness, local catalysts, innovations and learning ability, not stand alone projects;Shape the trillions of dollars of investment in long-lived assets in the next 50 years to be more socially and environmentally sustainable;Lower income countries need consistent and sustained support from higher income countries to create better institutions (that can then implement new policies)

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WDR 2003

Next StepsWhat role can the private sector play in engaging and reinforcing the catalystsidentified in WDR 2003 to shape institutions and make them more inclusive and effective with the ability to ⇒ pick up signals early and from the fringes,

⇒ balance interests for durable solutions, and

⇒ commit to implement -- especially for changes that require time to implement ?

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WDR 2003

Interactive website: http://www.dynamicsustainabledevelopment.org

Website: http://econ.worldbank.org/wdr/wdr2003/

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WDR 2003

Obtaining the WDRElectronically available at: http://econ.worldbank.org/wdr/wdr2003/text-17926/To order by phone or fax (from 9 AM to 5 PM EDT weekdays):Phone 1-800-645-7247 or 703-661-1580;Fax 703-661-1501To order by mail:Write to--The World BankP.O. Box 960Herndon, VA 20172-0960, U.S.A. To order by e-mail (from 9 AM to 5 PM EDT weekdays): books@worldbank.orgPrice: $26 for those from OECD countries, discounted price of $ 12 for those from non-OECD countries.