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 1
Many Accomplishments 2 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 2
Social Stress-Mistrust Increasing 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 past development gains, breeds mistrust, impedes future growth Low growth, conflict, and inequality undermine collective action in support of a sustainable pattern of development 3
Environmental Stress - Degradation Urban air pollution is several times WHO recommendations; CO 2 emissions are up two-thirds since 1970 1/3 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. 4
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 5
Demographic Transition: 1950-2050 Population growth is slowing, will stabilize at approximately 10 billion by the end of the century 12 10 8 Medium-High Variant Medium Variant Medium-Low Variant Population (Billions) 6 2 4 0 1950 1970 2000 2050 2030 Year 6
Increasing Savings Potential with Changing Age Structure and Declining Dependency Ratios 10 0 90 East Asia & the Pacific 80 70 Eastern Europe & Central As ia So uth Asia 60 50 High-Income OECD Co untries 40 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 Year 10 0 90 80 70 Latin America & the Caribbean Middle East & North Africa Sub -Saharan Africa 60 50 High-Income OECD Co untries 40 1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 Year 7
Urban Transition For the first time in history, most people will live in cities Population (billions) 8 Megacities Cities Towns 29 Global population stabilizes before end of century 54 Many megacities 6 4 15 Rapid urban growth 1 2 0 0 1 2 4 5 5 DTC OECD DTC DTCOECD DTC OECD DTC OECD DTC OECD 1950 1970 2000 2030 2050 8
Increasing Investment Potential with 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 environment Most 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 sustainable Developing countries provide a potentially large market over the next 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 sustainable Developing countries are not locked into existing technology and capital 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 9
Still Many in Rural Fragile Lands 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? Population (billions) 8 6 Megacities Cities Towns Other rural Fragile lands 15 29 Global population stabilizes before end of century 54 Many megacities Rapid urban growth 4 2 0 1 0 1 2 4 5 5 DTC OECD DTC OECD DTC OECD DTC OECD DTC OECD 1950 1970 2000 2030 2050 Still many in fragile areas 10
Getting Ahead of the Frontiers (Expanding Cities, Inappropriate Conversion of Land, Forests, Freshwater, Last Untapped Ocean Fisheries) What Must be Done? In order to address emerging stresses and seize opportunities, we must: A. Think long-term, when acting now B. Manage a broader portfolio of assets C. 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 11
A. Think Long Term, but Act Now Shorten it CO 2 emissions, MT C Time to develop new technologies Time for capital stock turnover 30 20 FOSSIL FUEL INTENSIVE SCENARIO + 3º to 5.8º C Temperature increase by year 2100 10 0 1990 CLIMATE FRIENDLY SCENARIO 2000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 + 1º to 3º C 12
B. Need to Manage a Broader Portfolio of Assets Well-being Social assets Environmental assets Output and income Human capital Physical capital 13
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 solutions Economic and Environmental problems are at root social/coordination problems and Institutions help solve coordination problems 14
People, Assets, Threats, and the Need for Protective Institutions For 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 15
Failure of Protective Institutions to Restrain More complex examples: Case of dispersed interests New Foundland cod catch, tons,1850-2000 Case of vested interests Enron, market value, 1985-2002 16
Presence or Absence of Inclusiveness and Distribution of Assets Matters: Policies The distribution of assets shapes institutions and policies Institutions Policies shape institutions and the distribution of assets Distribution of assets Distribution of assets Effects are long lasting (Path Dependency) leading to Vicious or Virtuous Cycles 17
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 lands Balance 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 fisheries Observed social, environmental and economic problems can be traced to failure in one or more of these functions 18
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 19
Catalysts for Change Scientific 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 20
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 21
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) 22
Next Steps What role can the private sector play in engaging and reinforcing the catalysts identified 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? 23
WDR 2003 Interactive website: http://www.dynamicsustainabledevelopment.org Website: http://econ.worldbank.org/wdr/wdr2003/ 24
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