Making Sustainable Development Work: Governance, Finance and Public-Private Cooperation

As an institution dealing with developing countries, our primary concern is how to get growth and development moving and accelerated in these countries. The development challenge ahead stems from the fact that today there are roughly between two and a half and three billion people living on less than $2 a day. In addition, over the next 30 to 50 years, there will be two to three billion additional people joining the world's population.

The real problem is how to ensure that productive opportunities and better quality of life are available for all of these people over the next 50 years. So, that's really the core development challenge. What that means is that there has to be substantial growth in income and productivity in these countries, while sustaining critical ecosystem services and strengthening the social fabric that underpins development.

Looking back over the last 30 years, we find that things are not all bad. There have been some achievements which are very significant. We added two billion people to the world's population in the last 30 years, but even as we did that, we were able to improve on average the incomes of these people, thereby reducing infant mortality and illiteracy. All of these gains were achieved despite a high rate of population growth.

When I say, "reducing," we are talking about cutting these problems in half or more during that period. But, as you all know, many environmental problems accompanied this development process -- even though many were not the result of actions in developing countries. For example, there has been a substantial degradation of fisheries, with 70% of the world's fish stocks either fully exploited or over exploited. We also breached the global temperature, altering the CO₂ barrier in terms of carbon emissions.

So the question is, what do we do looking forward? How do we get to a better development trajectory or a better path that doesn't repeat these problems? We see four important drivers of change: scientific and technological innovation, income growth, demographic, and urban transitions. What people may not have recognized (and we dwell on that in this report a little bit more) are the opportunities that exist that demographic and urban transition provide. Let me focus on these two drivers.

These are one-time transitions for the world. Basically, by the end of the century, we'll have completed the demographic transition and the world's population will stabilize at approximately nine and a half billion. But, 85% of that figure will be reached by the year 2050. We have targeted our report to a 50-year horizon, not the next two or five years which a lot of people focus on, but what is needed to look ahead for the 50 years.

The second transition that we consider very important is the urban transition, where the bulk of the world's population will have shifted for the first time in history from living in rural areas to living in urban areas and this has very critical implications for changes in attitudes, changes in innovation capabilities, and changes in productivity.

Those are the two transitions that we feel we have to successfully navigate over the next 50 years as we also move in the direction of a more sustainable world. In analyzing how we look at output and growth in the past, we find that the focus has been narrowly and almost exclusively on developing physical capital and human capital. What we do in this report is we show how environmental assets and social assets also have implications for growth.

The social implications cannot be more clearly evident than in the fact that right now the gap in incomes across the world is double what it was 30 years ago. The wealthiest 20 countries now have about 37 times the per capita income of the poorest 20 countries -- the poorest countries have basically not grown at all during this period. In addition, at least half of the poorest countries are experiencing some kind of civil conflict. The problem with such conflict is not just that it undoes much of the gains of development to date, but that it leaves a corrosive legacy of mistrust that takes time to heal and makes it difficult to work and rebuild afterwards.

From this point of view, we feel that much more attention has to be paid to the social issues and not just the growth or environmental issues. Within that more integrated framework, we asked ourselves, what has to be done? In 1992, the Bank put out another World Development Report: Development and the Environment, that actually was a very good summary of all the policies that can be introduced to improve environmental management. Some of those were regulatory policies, some of those were policies based on market-based instruments, some involved increasing property rights so that in certain areas markets could function better, even on environmental issues. However, 10 years later when we look at the situation around the world, we find that many of these policies have been neither adopted nor implemented. So, the question is why?

And that focused our attention on the underlying institutions and their capabilities. In the 2003 WDR report, we go one step further and we ask what brings about or what makes it possible to bring about institutions that have the capabilities that are needed. We identified three key functions that competent institutions perform well: the ability to pick up signals early and from the fringes; the ability to balance competing interests; and, the third, an ability to implement.

These on the surface seem fairly self-evident. What we find is that almost every failure in environmental or social problems that we observed can be traced to a failure of one of these three key functions. And, we ask ourselves, why do they fail? One of the reasons they fail is that there are a lot of competing interests, and when institutions don't have the ability to reflect and balance this wide array of interests -- particularly the dispersed interests, they cannot successfully meet social needs. And so, the benefits of a few tend to dominate the benefits of the many.

The second is that implementing and enforcing decisions requires forging credible commitments which can sometimes be very challenging. And the third is the lack of inclusiveness. We will discuss that a bit more in detail.

In the slides is a chart that contrasts two events that we found very interesting. One was the collapse of Enron and the other one was the collapse of the cod fisheries in the North Atlantic. If you look at the trajectory of these two events over time, they are almost identical. And what we attribute that to is the breakdown of protected institutions, in other words, the ability to enforce restraint. In one case, it is keeping people from rushing to appropriate the cod, and in the other case it is keeping people from rushing to appropriate the value of the company's assets. We call these "races for property rights." It is the lack of the necessary protective institutions that show up, both in the economic sphere and in the environmental sphere. Worldwide, societies are engaged in building institutions to protect economic activities and functions, but have not done enough to develop similar institutions to protect social and environmental activities and functions.

A second problem concerns forging credible commitments. Here I'm referring to the number of problems that are long-term in nature but require that we act now. If we look at a couple of the scenarios for carbon emissions that have been put out by the Inter-governmental Panel on Climate Change, you see that even modestly optimistic scenarios presuppose the development of new technologies and the adoption of those technologies. When you look at the time involved -- we're talking about 10 to 20 years for the development of new technologies, and another 15 to 20 years for their adoption. So, it is almost 40 to 45 years before you have enough new capital in place to have a significant impact on the trajectory of carbon emissions. Yet, that will not occur if we don't start now and stay the course, which means major public commitment to developing the technologies and creating the associated criteria for investment and regulations now.

The third problem is the lack of inclusiveness. What we find is that when we look back over the last 400-500 years, natural assets or available land has been concentrated in the hands of a few. Whether it is mines or forests, a set of institutions has emerged which locks in the benefits of those owners and makes it difficult for the next round of development to distribute assets more widely. As a result, there is limited access to education and other opportunities. This vicious cycle is what perpetuates institutions that cannot perform the functions I have mentioned earlier.

As a result, what we see is that distribution of assets, or "access to assets", actually has long-term efficiency consequences. While in the short-term we can afford to ignore them, in the long-term they influence the types of institutions that emerge and their ability to resolve conflicts. This is important because the more polarized the society, the more difficult it is to solve common action problems.

Now we must ask, where do we go? If we look 50 years from now, even at a simple three percent per annum growth rate of the world, we're talking about quadrupling the world economy. How do we ensure that an economy that large will create fewer social and environmental stresses than the much smaller economy of today?

From that, we come to a couple of recommendations that require shifts in development strategies and assistance. Our challenge is to identify what the barriers are to moving towards more inclusive institutions and focusing on projects and programs to unlock those barriers. This is a very different approach to development. What it boils down to is that you are talking about commitments that will have to last 20 to 30 years.

If you want to improve the quality of agricultural research institutions in developing countries, you will have to put in place the human capital, the rules and regulations, and support the operation of those institutions, so that in 10-20 years they establish credibility and quality required to attract and retain good people. This is also necessary to find appropriate and innovative solutions to a continuously changing context. This is a different type of institutional development from what we have been doing so far in technical assistance, which has been to parachute in a few consultants or a few contractors, perform the task and leave. In this scenario, the people who are left no longer have the domestic capacity to maintain or improve the institution.

Therefore, the shift we think is important includes expanding democracy, expanding participation, and improving governance. All of these are elements not only of improving inclusiveness, but also of improving access to education, land, agriculture, and natural resources. For example, in the case of slum dwellers, providing them with secure land tenure makes a dramatic difference in their ability to improve their surroundings, to get public services, and to invest.

There are a lot of these underpinnings that need to be improved and it will take a long time. The 2003 WDR calls for a 50 year versus a 5 or 10 year global commitment. But that we'll discuss at another time because we have run out of time. Thank you.