89925 THE WORLD BANK GROUP GOALS END EXTREME POVERTY AND PROMOTE SHARED PROSPERITY CONTENT The World Bank Group Mission, Goals, and Indicators 5 Ending Extreme Poverty 10 Ending poverty within a generation—difficult, but achievable 12 Promoting Shared Prosperity 18 An indicator of growth with equity and inclusion 20 Shared prosperity and inequality 22 Pathways to shared prosperity and poverty reduction 25 Sustainability 29 …managing our planet for future generations 30 …fostering an inclusive society 33 …and ensuring fiscal sustainability 34 Figure / Box Figure 1: Regional changes in the population of extreme poor over the years 13 Figure 2: Poverty has fallen steadily since the 1980s except in Africa where the decline began later 14 Box 1: Destitution could continue after 2030 in some of the poorest countries 16 Figure B1: Poverty in selected low-income countries 16 Figure 3: Inequality tends to be lower in high-income countries 22 Figure 4: Shared Prosperity Indicator in selected countries (circa 2000-10) 24 Figure 5: Labor market factors contributed the most to poverty reduction, selected countries 26 THE WORLD BANK GROUP MISSION, GOALS, AND INDICATORS 5 Photo: Curt Carnemark Although poverty has declined rapidly The World Bank Group has established increase in the well-being of the poorer over the past three decades, humanity ambitious but achievable goals to an- segments of society. This second goal still faces urgent and complex challeng- chor its overarching mission and to reflects the fact that all countries aspire es. More than 1 billion people worldwide galvanize international and national to rapid and sustained increases in living still live in destitution, a state of affairs efforts in this endeavor. Accordingly, the standards for all of their citizens, not just that is morally unacceptable given the institution will strive to (i) end extreme the already privileged. These two goals resources and the technology available poverty at the global level within a gen- and their respective indicators can be today. Moreover, rising inequality and eration and (ii) promote what may be summarized as: social exclusion seem to accompany the called “shared prosperity”: a sustainable rising prosperity in many countries. Un- der these circumstances, the World Bank Group’s overarching mission of a world free of poverty is as relevant today as it has ever been. 6 Photo: Arne Hoel End extreme poverty: the percentage of people living with less than $1.25 a day to fall to no more than 3 percent globally by 2030; Promote shared prosperity: foster income growth of the bottom 40 percent of the population in every country. Ending extreme poverty within a generation and promoting shared prosperity must be achieved in ­ such a way as to be sustainable over time and across generations. This requires promoting ­ environmental, social, and fiscal sustainability. We need to secure the long-term future of our planet and its resources so future generations do not find themselves in a wasteland. We also must aim for sustained social ­ ­ inclusion and limit the size of economic debt inherited by f­ uture generations. 7 We are aware that these two monetary indicators do not adequately accommodate all the dimensions of poverty that represent our mission. But to insert every dimen- sion explicitly into a limited number of measures is to risk creating such complex indicators that they will be ill-understood. Each of the monetary indicators we have adopted has the advantage of capturing the key elements of welfare in a single, compelling measure. While these monetary measures will define our goals, we will continue to maintain a strong focus on multiple dimensions of welfare. Ending poverty and promoting shared prosperity are unequivocally also about progress in non-monetary dimensions of welfare including education, health, nutrition, and access to essential infrastructure, as well as about enhancing voice and participation of all segments of society in economic, social, and political ­ spheres. Photo: Simone D. McCourtie 8 The goals we have articulated are not solely for the World Bank Group to achieve but rather are goals that we hope are consistent with those of our 188 member countries. The goals will guide the World Bank Group’s strategy as we continue our transformation into a “Solutions Bank” by influencing what the organization does and how, and by helping it become more selective and focused in its activities. The goals are well-aligned with the overall objectives of the Millennium Development Goals (MDGs) process and reiterate our unwav- ering commitment to support it and to helping shape the Post-2015 Agenda. Photo: Visual News Associates 9 ENDING EXTREME POVERTY 10 Photo: Curt Carnemark Ending extreme poverty is a moral imperative and arguably one of the most compelling challenges facing the development community. We are setting a target date for reaching an extreme poverty rate of no more than 3 percent in 2030, using the internationally established measure of the proportion of people living on less than $1.25 a day. While representing a very frugal threshold, the $1.25 standard is well-accepted in the development community as one of the Millennium Development Goals, and it would allow the World Bank Group to focus its central mission in measurable, intui- tive, and transparent terms. Reaching the target, which would effectively end extreme poverty globally in less than a generation, is an ambitious endeavor. It will require sustaining high rates of economic growth across the developing world, as well as translating growth more effectively into poverty reduction in each developing country. Reaching the target also requires governance, institutional, and social policy changes not seen yet in many poor countries, and hence enormous efforts from national governments and the international community. 11 Ending poverty within a generation—difficult, but achievable Reducing the global extreme poverty the poor, and preventing inequality from trend in previous decades. Transforming rate to no more than 3 percent in 2030 increasing. Also, a one percentage point the trajectory to maintain the histori- is not a prediction. It is a target that we reduction in extreme poverty per year cal trend in effect requires bending the consider difficult but achievable, given becomes progressively harder to achieve “natural arc” of history. recent experience. It will require a fall in as the rate declines, because each suc- poverty by about one percentage point cessive one percentage point represents The ambition of the target can also be per year during this period, which is an increasingly larger share of the overall seen in other respects. China accounted about the same as the average annual poverty rate. One might thus expect the for more than half of the total reduc- reduction seen since 1980. It implies pace of global poverty reduction to slow tion in global poverty between 1980 maintaining a growth rate of per capita down in the coming years relative to the and 2000, but China’s overall contribu- household income in the developing tion would precipitously decline as it world at least as high as that achieved comes closer to ending extreme poverty. since 1999. Recent history shows this trend starkly Reducing the global extreme (Figure 1). Between 1981 and 2010, when At the same time, maintaining such a poverty rate to no more than the number of extreme poor in the world growth rate will be far from business as dropped, the proportion of the poor in 3 percent in 2030 is not a usual. That trajectory is a highly optimis- East Asia and Pacific (including China) tic scenario, as it assumes continuing prediction. It is a target that we ­ fell from around 57 percent to 20 per- the pattern of strong growth in the de- consider difficult but achievable, cent as the number of poor in the region veloping world, successfully managing given recent experience. declined dramatically. any global shock to limit its impact on 12 Figure 1: Regional changes in the population of extreme poor over the years To reach the global ­target for 2030, the pace of poverty reduction in Sub- 1981 Saharan Africa and South Asia will assume increas- 1990 ing importance. For Sub- Saharan Africa, where two 1999 decades of disappoint- ment have been followed 2010 by a decade of unprece- 0 200 400 600 800 1,000 1,200 1,400 1,600 1,800 2,000 dented poverty reduction millions during the 2000s (Figure East Asia and Pacific (including China) South Asia (including India) 2), a further acceleration Sub-Saharan Africa Other regions of this trend is needed. Note: Other regions are Europe and Central Asia, Middle East and North Africa, and Latin America and the Caribbean. Source: World Bank database, based on country household surveys. 13 The extent of the challenge in low- Reaching the global target of 3 percent sustained over longer pe­ riods than ever income countries, many of which are in 2030 will require rapid economic seen in the past. This will not be possi- in Sub-Saharan Africa, is illustrated by growth in low-income coun­ tries, which ble without long-term structural changes the high rates of current extreme pov- in turn must be translated into a rate in many low-income countries. erty. More than one-third of countries of poverty reduction that is higher and in Sub-Saharan Africa, several of them fragile and conflict-affected states, had an extreme poverty rate of more than Figure 2: Poverty has fallen steadily since the 1980s except in Africa where the decline began later 50 percent in 2010. In 12 countries in Sub-Saharan Africa, the extreme poverty 70 Population living on less than $1.25 a day, 2005 PPP (%) rate is above 60 percent; in four cases (Burundi, the Democratic Republic of 60 Congo, Liberia, and Madagascar), it is above 80 percent. 50 40 30 In 12 countries in Sub-Saharan 20 Africa, the extreme poverty Sub-Saharan Africa Developing world rate is above 60 percent; in four 10 World** ­ cases it is above 80 percent. 0 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2010* * Preliminary ** World Bank staff calculations assuming extreme poverty in high-income countries to be near-zero. Source: World Bank database, based on household surveys from countries. * Preliminary 14 Increasing the welfare of the poor in low-income countries will require complex institutional and governance reforms that enhance the accountability ­ of the state, raise the quality of service delivery, and ­ improve the overall economic and social environment. An additional challenge will be to contain rises in inequality within countries. If inequality were to continue rising, as it has recently in some large middle-income countries, achieving the global target would require even higher overall growth rates. The feasibility of eliminating extreme poverty will also depend on the oc- currence of and ability to manage large-scale economic shocks—like food, fuel, or financial crises—as well as natural and climate change-related disasters. All of these events pose significant risks to the pace and sustainability of poverty reduction. At the same time, however, some of these challenges may be balanced by the promise of technological breakthroughs, which could result in rapid rises in pro- ductivity and open up new opportunities for economic transformation and better- designed social policies. Such breakthroughs are already being embraced and are transforming the poverty-reduction path in some countries. Photo: John Hogg 15 Box 1: Destitution could continue after 2030 in some of the poorest countries We envisage the fight against extreme likely still to exist in some of the poorest poverty to by and large come to an countries or Fragile and Conflict-Affect- end as a global endeavor by 2030. But ed Situations (FCS). The fight against even as the global extreme poverty rate extreme poverty, at the level of each reaches 3 percent, much higher rates are individual country, would not necessar- ily come to an end everywhere. Many Figure B1: Poverty in selected low-income countries of these countries are characterized by severe institutional and policy challenges Population living on less than $1.25 a day, 2005 PPP (%) 100 that will likely endure in the medium to 90 longer term. The fight against poverty in 80 70 its current form thus may need to contin- 60 ue well beyond a generation, until large- 50 scale deprivation ends not only on aver- 40 age among the global population, but in Developing world 30 average in 2010* each individual country, large and small. 20 (21%) We will work with such countries to de- 10 fine ambitious country-specific paths of 0 poverty reduction consistent with each Burundi 2006 Zambia 2006 Timor-Leste 2007 Madagascar 2010 Tanzania 2007 2005 Congo, Dem. Rep. Haiti 2001 Nepal 2010 Liberia 2007 Sierra Leone 2003 country’s economic, social, and institu- tional challenges. * Preliminary *Preliminary Source: World Bank database, based on household surveys from countries. 16 The world already has the economic and technological resources to achieve the target of ending extreme poverty glob- ally in a generation. We hope the target will act as a catalyst for the aspirations of national governments and for accelerat- ed and coordinated efforts in the global development community. Photo: Curt Carnemark 17 PROMOTING SHARED PROSPERITY 18 Photo: Dana Smillie The World Bank Group’s mission of a The World Bank Group and the devel- world free of poverty involves a con- opment community as a whole have a tinuing commitment to increasing the responsibility toward them. While shared welfare of the poor and vulnerable in prosperity requires the pursuit of rapid every country. Ending extreme poverty and sustained expansion of the econo- wherever it exists is a priority. However, my, any type of growth will not suffice. our mission is not just about the poor- What is needed is sustainable growth est developing countries, but about that achieves the maximum possible poor people everywhere. Judged by the increase in living standards of the less standards of each society, significant lev- well-off. els of poverty remain in most develop- ing countries and must be addressed if societies are to achieve the stability and Our mission is not just about well-being to which they aspire. the poorest developing countries, but about poor ­ Raising the incomes of the poor in ­ every country means ensuring that ris- people everywhere. ing prosperity benefits the less well-off. 19 An indicator of growth with equity and inclusion We will monitor progress in shared prosperity using the income growth of the bot- tom 40 percent of a nation’s population. This implies a direct focus on the income of the less well-off, as opposed to the common practice of focusing only on growth of Our shared prosperity ­ indicator GDP per capita and implicitly relying on the “trickle down” impact of growth on the implies a direct focus on the bottom of the distribution. ­ income of the less well-off, The measure captures the two elements central to the notion of shared prosperity: ­ as opposed to the common a growing economy and a fundamental concern for equity. Sustained growth is nec- practice of focusing only on essary; without it, the less well-off are unlikely to increase their living standards in the growth of GDP per capita and in the medium to long run. But improvement in the indicator requires growth to be implicitly relying on the “trickle inclusive, which in turn calls for a social contract within each country demanding that down” impact of growth on the the poor be a priority in the policy environment that supports the growth process.1 Our indicator of shared prosperity is also consistent with the idea of prosperity bottom of the distribution. being “unbounded,” as opposed to being defined by an absolute standard that everyone should reach, which means that a global target is not relevant. 1 A cut-off at 40 percent to define this bottom segment is admittedly arbitrary, but all cut-offs have some arbitrariness. Development economists have used “the bottom quintile” to refer to the group who should receive more attention from policy makers. But in many low-income countries this is close to the percentage of people of in extreme poverty, and therefore covered by the extreme poverty indica- tor. We choose a percentage that currently roughly coincides with the proportion of the population that is considered moderately poor in middle-income countries. 20 Shared prosperity, understood in this way, is not an agenda of redistributing an economic pie of a fixed size. Rather, it means expanding the size of the pie continuously and sharing it in such a way that the welfare of those at the lower end of the income ­ distribution rises as quickly as possible. It also requires that progress is sustain- able over time and across generations, in terms of the environment, social inclusion, and fiscal prudence. ­ Photo: Jerome Ascano 21 Shared prosperity and inequality Income growth of the bottom 40 percent in a country could occur, at least tempo- rarily and especially in low-income coun- Figure 3: Inequality tends to be lower in high-income countries tries, at the expense of rising inequality, implying average income growing faster 65 than the income of the poor. Some rise 60 in inequality could well be necessary to generate growth, by creating incentives 55 that reward innovation and risk taking Inequality (Gini coefficient) and inducing firms and people to invest 50 in human and physical capital. For ex- ample, this occurred in some East Asian 45 countries a few decades ago, when 40 income growth of the bottom 40 per- cent was strong but lagging behind the 35 growth of average income. 30 But in many cases growth in the incomes of the poor will be accompanied by fall- 25 ing inequality, as has been witnessed in 20 many Latin American countries during 0 10,000 20,000 30,000 40,000 50,000 the past decade. Moreover, sustained GDP Per capita, US$ (2005 PPP) progress in shared prosperity is incom- patible with a long-term increase in Source: World Bank database, based on household surveys from countries. inequality. 22 Growth of the bottom Recent research at the International 40 percent that is Monetary Fund, for example, suggests No country has transited be- that high inequality is associated with yond middle-income status ­ consistently lower than shorter growth episodes;2 and other while maintaining high levels of the average income empirical research has identified high inequality. structural inequality to be an obstacle to growth should be a economic development.3 In general, no cause for concern. This is country has transited beyond middle- ­ because the ­ associated income status while maintaining high a number of factors, including the initial levels of inequality (Figure 3). Most likely, income distribution and level of develop- rise in inequality could then, where inequality is high, boosting ment, as well as the overall growth rate. eventually stifle the shared prosperity will require that the income of the bottom 40 percent grows The past decade provides mixed news growth process itself faster than the average income of the on income growth of the bottom seg- by affecting the quality population. ment in each country (Figure 4). In the causing of institutions, ­ past decade, in 20 out of 55 developing What is good performance in shared countries, real per capita incomes (or ­ political instability, and prosperity? The higher the growth of the consumption) of the bottom 40 percent reducing mobility in incomes of the poor, the better it is. But grew at a healthy average rate of more what a country can strive for depends on than 5 percent annually. ­ society. 2 “What makes growth sustained?” by A. Berg, J. Ostry and J. Zettelmeyer (2012), Journal of Development Economics, 98(2). 3 “Inequality does cause underdevelopment: Insights from a new instrument” by W. Easterly (2007), Journal of Development Economics, 84(2). 23 Figure 4 also illustrates two additional But in other countries, such as Egypt, growth of the bottom 40 percent by points. First, there is a strong and posi- income growth of the bottom 40 percent itself, rather than on this rate relative to tive association between income growth was close to zero. Even though inequal- the average rate of income growth, we of the bottom 40 percent and growth ity was also falling, it is hard to say that ensure that welfare improvement among in average income. Second, in the last there was shared prosperity in these the less well-off in every country is our decade, in 60 percent of developing countries. By focusing on the income primary concern. countries, including large countries like Brazil and Mexico, incomes of the bot- tom 40 percent actually grew faster than Figure 4: Shared Prosperity Indicator in selected countries (circa 2000-10) the average of the population, which 14 means that there was a fall in inequality. Consumption growth of the bottom 40% (%) 12 Consumption growth of the bottom 40% is positive and faster than the rate of the 10 entire domestic economy. Russian Federation 8 In the last decade, in 60 per- cent of developing countries, 6 Mexico China Brazil including large countries like 4 South Africa Consumption growth of the bottom 40% is positive and Brazil and Mexico, incomes of Rwanda Indonesia slower than the rate of the entire domestic economy. the ­bottom 40 percent actually 2 Bangladesh Egypt, Arab Rep. grew faster than the average 0 Côte d'Ivoire -4 -2 0 2 4 6 8 10 12 14 of the population, which means -2 that there was a fall in inequality. -4 Consumption growth of the total population (%) Source: World Bank database, based on household surveys from countries. 24 Pathways to shared prosperity and poverty reduction The goals of ending extreme poverty Prosperity can be broad-based if growth and promoting shared prosperity high- generates jobs and economic opportuni- Prosperity can be broad-based light the need for social, economic, and ties for all segments of the population. if growth generates jobs and institutional arrangements that foster This requires pursuing an agenda of economic opportunities for all welfare and income growth of the less physical and human capital accumula- well-off. Growth that includes the poor tion, competitiveness, and innovation. segments of the population. and accelerates progress toward a just The most effective path out of poverty society does not come automatically. is through access to more and better It requires mechanisms to ensure that jobs, through rapid and broad-based In the decade of the 2000s, most of the the less well-off not only enjoy the ben- growth centering on the strong contribu- reduction in poverty in successful coun- efits of that growth process but are also tion by the private sector. Jobs not only tries across the globe was related to integral to the process. How a specific increase the earnings of the poor but are better labor market engagement in the society chooses to provide these oppor- also transformative because efficiency form of more and better-paying jobs. tunities will be context- and time-depen- increases as workers get better at what Direct income transfers to the poor, re- dent, with no single optimal institutional they do and as more productive jobs mittances, and changes in demographic arrangement applicable to all societies. replace less productive ones. patterns contributed much less (see Figure 5 for a few country examples). ­ 25 Evidence also suggests Labor market factors contributed the most to poverty reduction, selected countries Figure 5:  (decade of the 2000s) that poverty reduction is higher when growth 4 is biased toward labor-­ Annual poverty reduction (percentage points) intensive sectors4, and 3 when growth is diversi­ fied and generates em- 2 ployment opportunities Non-labor income across multiple sectors. The government has a key role in 1 Labor income ­ creating the overall environment for economic growth and shared prosper- Demographic change ity, including by improving competitive- 0 Other ness, promoting a favorable investment climate, and encouraging innovation. Peru Nepal Ghana Brazil Bangladesh Thailand The state also has the critical respon- (2005-09) (1996-2003) (1998-2005) (2001-09) (2000-10) (2000-09) sibility for investing in people so that Source: J. Azevedo, G. Inchauste, S. Olivieri, J. Saavedra and H. Winkler (2013). “Is labor income they can be part of a modern and responsible for poverty reduction? A decomposition approach”, (April, forthcoming as World Bank ­ dynamic workforce. Policy Research Working Paper). 4 “The composition of growth matters for poverty alleviation,” by N. Loayza and C. Raddatz (2010), Journal of Development Economics, 93(1). 26 A healthy and stable social contract is needed to ensure that growth includes the poorer segments of ­ ­ society. This requires investments that improve opportunities for citizens, including women and all ­ youth, and that provide safety nets to protect the vulnerable against ­ extreme deprivation and shocks. The social contract would also in- clude adequate mechanisms to raise resources to support these policies, ­ including a tax system that creates incentives for economic growth and promotes fairness. Photo: Maria Fleischmann 27 The redistribution of resources implied will enhance mobility on the economic in a social contract is not just a matter of and social ladder within and across gen- The social contract for transferring income from one segment erations. For the World Bank Group, it ­ promoting equity and growth of the society to another at one point of implies a continued multisectoral agenda should aim to create an time, but is also an investment in people, with a particular lens—one that has, as a to promote growth and equity over time priority, the welfare of the less well-off. ­ “opportunity society,” where and across generations. the human and productive An important part of the social contract potential of every individual, ­ The social contract for promoting equity would be to create conditions that en- regardless of gender, region, ­ and growth should aim to create an “op- able women to contribute to their fullest ethnicity, or parental back- portunity society,” where the human and potential in the development process, productive potential of every individual, by dismantling barriers to their participa- ground, is maximized. regardless of gender, region, ethnicity, tion in the economic, social, and politi- or parental background, is maximized. cal spheres in many societies. Gender In childhood and youth, this would imply equality is not just a core development providing universal access to early child- objective; it also enhances productivity, hood development, health, nutrition, ed- improves development outcomes for the ucation, and basic infrastructure to build next generation, and makes institutions human capital and increase long term more representative. productivity. For a society as a whole, this 28 SUSTAINABILITY Photo: Arne 29 Hoel …managing our planet for future generations Sustainability is an overarching theme Economic growth, which is critical to the process of economic growth and that frames both goals of the World continuing the process of poverty re- poverty reduction itself. There are signs Bank Group. These goals must be duction, has to be compatible with the of this happening already. Unsustainable achieved in an environmentally, so­ cially, limits imposed by the resources of the management of ecosystems has dispro- and fiscally sustainable manner. ­ planet. The past two decades have seen portionate impact on the poor, since A sustainable path of development and a significant toll on the environment. For the poor are often more dependent on poverty reduction would be one that: (i) example, an estimated 5.2 million hect- ecosystems and the goods and services manages the resources of our planet for ares of forest were lost annually between they provide. Poor people are always future generations, (ii) ensures social in- 2000 and 2010. More than 550 billion the least able to protect their children clusion, and (iii) adopts fiscally responsi- tons of CO² have been emitted glob- from the harmful impacts of pollution ble policies that limit future debt burden. ally between 2000 and 2010—leading to on health and educational outcomes, increased global temperatures and more the accumulated impacts of which re- frequent and intense floods, droughts, duce earnings and quality of life across and storm surges. Air pollution is a major generations. Water and land constraints problem in almost all megacities of the are already affecting poverty. Some ­ 28 developing world, and 87 percent of the ­ per­cent­of the world’s population today world’s ocean fisheries are over-exploit- lives in areas of high water stress, and ed or depleted. a full quarter of the world’s agricultural land is degraded, thus compromising Continuing along such a path will the ability of those who farm these lands ­ threaten the long-term future of the to aspire to prosperity. planet and its resources, and, of course, 30 The adverse impacts of climate change are also likely to fall disproportionally on the A sustainable path of develop- poorest countries that have the least economic, institutional, and technical capacity ment and poverty reduction to cope and adapt, and on the poorest people within countries. For example, re- would be one that: cent projections suggest that the poor are especially sensitive to increased drought intensity in a warming world, especially in Sub-Saharan Africa and South Asia.5 manages the resources (i)  of our planet for future The World Bank Group recognizes that green growth generations, offers the only way of reconciling the rapid economic development required to reduce poverty and boost ensures social inclusion, (ii)  and shared prosperity with the imperative of a better- managed environment. The recent report Inclusive adopts fiscally responsible (iii)  Green Growth: The Pathway to Sustainable Devel- policies that limit future debt burden. opment articulates our commitment to supporting sustainable growth that is efficient and takes into ­ account the social costs of resource depletion. 5 “Turn down the heat: Why a 4°C warmer world should be avoided,” World Bank (November 2012). 31 Working closely with our development partners, we have committed to moving beyond a reliance on GDP to promoting wealth and natural capital accounting, and developing measures of “genuine savings” net of natural capital depletion Promoting green growth requires the and pollution damages. tools to monitor progress and quantify the extent of the challenge. Improving the quality and coverage of quantita- tive indicators related to environmental sustainability is thus a critical endeavor and a priority for the World Bank Group. We recognize that the current economic monitoring practices undervalue finite resources—a flaw that can only be ad- dressed by proper accounting of natural capital. Given the complexity of the issues, mul- tiple indicators are needed to capture progress adequately. We thus are work- ing in partnership with the rest of the international community on indicators combining local and global measures. 32 Photo: Curt Carnemark …fostering an inclusive society A sustainable path toward ending extreme poverty and promoting shared ­ change. The implicit social contract of prosperity would also involve creating an inclusive society, not only in terms of the state with its citizens provides the economic welfare but also in terms of the voice and empowerment of all groups. ­ state with important tools—legal, insti- tutional, and economic—to play such a An inclusive society must have the institutions, catalytic role, guided by the objective of reducing imbalances in voice and power structures, and processes that empower local ­ between different groups. A social con- ­ communities, so they can hold their governments tract that is based on the principle of accountable. It also requires the participation of all ­ better and equal opportunities for all citizens promotes social inclusion as well. ­ncluding traditionally ­ groups in society, i marginalized A society that promotes equal opportu- groups, such as ethnic minorities and indigenous nities, and is perceived by its citizens to populations, in decision-making processes. ­ be doing so, is more likely to be able to achieve the stability and cohesiveness While the state cannot be the sole driver, it can play an important catalytic role to needed to generate a sustainable devel- accelerate the process of institutional and social change toward a more inclusive opment path. society—processes that, left to their own, can at times be too slow and resistant to 33 …and ensuring fiscal sustainability Finally, economic policies to end ex- these subsidies in many instances have finances, while ensuring treme poverty and promote shared little benefits for the poor—for the future that public spending is ef- prosperity should be fiscally responsible cost of debt that will surely crowd out over time, to ensure that the gains are investments with higher social returns. ficient and effective in pro- not short-lived or achieved at the cost moting policy objectives of future prosperity. Poverty could be The most appropriate policies are those reduced unsustainably, through policies that are part of a social contract—specif- Such policies are unlikely to emerge in that produce short-lived gains but leave ic to the situation of each country—that a vacuum. They require institutional and countries mired in debt, threatening aims to end poverty permanently, along political environments that promote the prosperity of future generations. To an inter-temporally balanced growth path. transparency, accountability, and the name one example, universal fuel subsi- right incentives to ensure that policies dies, provided at great cost to govern- These include policies fully take into account social costs and ment finances, are common in many that promote macro- inter-temporal tradeoffs, and that policy developing countries. In countries where makers are held accountable by their such subsidies are unaffordable, they es- economic stability and citizens for the success (or failure) in do- sentially trade off today’s small gains—as prudent management of ing so. 34 The goals we have set will anchor our institution going forward and will sharpen our resolve to support coun- tries effectively to reach these goals. This needs a better understanding of what policies and interventions work best to promote objectives consistent with these goals, when (in terms of the enabling environment) they work best, and how to translate the knowledge gained from evidence and practice to meaningful engagement with country governments. We are committed to aligning our activities and resources to make a more significant contribution toward these goals. Photo: Dominic Chavez 35 Photo: Arne Hoel Photo: Deshan Tennekoon Photo: Liang Qiang www.worldbank.org @worldbank | #ittakes