Nicholas Stern speech at Bangalore

World Bank Urges Rich Countries to Cut Trade Barriers, Boost Aid;
Developing Country Reforms Also Crucial to Poverty Reduction:

Report from the World Bank’s Annual Bank Conference on Development Economics (ABCDE),
held in Bangalore, India, 21–23 May 2003.
Conference web page.
By Ms. Patsy D'Cruz, SAREX, The World Bank, New Delhi.

Rich countries should back their pledges to help reduce global poverty by removing barriers to developing country exports and increasing aid, according to World Bank chief economist Nicholas Stern (photo to the right). For their part, developing countries need to continue to strengthen governance, invest in and empower poor people, and improve the investment climate, especially the conditions facing small farmers and entrepreneurs, he said.

Stern was speaking at the Annual Bank Conference on Development Economics or ABCDE, one of the world's leading conferences on development. The three-day meeting in Bangalore marks the first time that the conference has taken place in a developing country since the first ABCDE was held in Washington 15 years ago. The theme of the conference is ”Accelerating Development,” a reference to the more rapid development that will be needed to achieve international poverty reduction targets.

”It is within our collective power to achieve the Millennium Development Goals if the international community has the will,” said Stern. Rich countries should ”ease trade restrictions, increase aid flows to countries engaged in fundamental reforms, and support enhanced capital flows to developing countries,” he said. The wealthier countries, which wrote the rules of the current trading system and continue to dominate global trade flows, have a special role to play, he said.

”Important role for India to play”

Strong leadership from India – in demonstrating the effective use of aid and as an advocate for developing countries in international talks – could help to strengthen the commitment to achieving the MDGs, Stern said. ”As a leading democracy with a strong track record in development India has an important role to play,” he said. The conference is being held in India in part because its development experience offers valuable lessons to the international development community.

The MDGs include reducing the share of people in absolute poverty to half of the 1990 level by 2015 and large improvements in education, child and maternal health, gender equality and protection of the environment. The international community committed to the goals at the UN Millennium Summit in New York in September 2000 and has since reaffirmed pledges several times: at the start of a new round of global trade talks in Doha in November 2001; at a summit on financing development in Monterrey, Mexico in March 2002; and at a summit on sustainable development in Johannesburg in September 2002.

The World Bank estimates that global trade liberalization, including a reduction to barriers to trade in both rich countries and developing countries, could make a significant contribution to achieving the MDGs, lifting at least 300 million people out of poverty by 2015. ”It is difficult to imagine something that would give a greater boost to a fragile world economy,” Stern said. Rich country action on issues such as agriculture and trade-related intellectual property rights, or TRIPS, is urgent for progress in the World Trade Organization (WTO) talks, he added. ”The actions that rich countries take in the weeks ahead will help to determine how developing countries respond,” he said.

”Development assistance has to be boosted”

Stern also called upon high-income countries to boost development assistance. Aid has never been more effective than today, due to better aid allocation by donors and stronger policies and institutions in developing countries, yet aid flows declined in the 1990s. The World Bank and the UN estimate that aid would need to double to about $100 billion a year to reach the MDGs. Even then, aid as a share of rich countries' GDP would still be well below the level of the early 1960s. Recently several high-income countries have announced plans to increase aid.

Stern said that many developing countries had made strong progress in improving their policies, institutions and governance. Many are also working to invest in and empower poor people through improved access to health and education and by giving poor people greater influence over the decisions that shape their lives.
”It is the policies and actions of developing countries themselves that will be most important in determining the outcome of the fight against poverty,” he said. ”It is in everybody's interest for the high-income countries to support these efforts.”

Much of the conference has focused on India, which is home to about a third of the world's poor people, and, starting in the 1990s, demonstrated the positive impact that reforms can have on economic growth and poverty reduction. India's rich experience, both its significant successes and the problems that it is currently confronting, offer valuable lessons for other developing countries, Stern said. ”India's tremendous strengths lead me to be cautiously optimistic about its future. But reform must move ahead strongly if growth is to accelerate,” he said.

In India, as in many other developing countries, improving the investment climate?the conditions that determine how easy or difficult it is to run a business?is especially important for the small farms and firms. These are the main source of jobs for poor people but smaller enterprises have more difficulty than larger enterprises in coping with inadequate infrastructure and bureaucratic impediments to their business. India has made significant strides in improving its investment climate in recent years but some neighboring countries have moved faster. According to recent surveys, starting a new business in India requires 10 permits and an average of 90 days, compared to just six permits and 30 days in China.

”India benefited significantly from cuts to tariffs in the 1990s”

On trade, Stern said that India benefited significantly from cuts to tariffs in the 1990s, and would receive additional benefits from further tariff reductions. The size of India's economy suggests that annual trade should be much higher than it is today. Such an increase in trade would result in higher incomes and employment, as well as positive spillovers on economic activity in neighboring countries. At the same time, past and future liberalization is in danger of being eroded by other forms of protection, such as anti-dumping action, he warned. India has become the second largest user of anti-dumping actions in the world after the U.S.

Stern also cited the need to ensure that public expenditures are efficiently used to promote growth and poverty reduction. ”I would argue that a radical reform of the subsidy culture is needed to cut non-merit subsidies that largely fail to reach targeted beneficiaries, incur huge opportunity costs, and distort factor prices, while hurting the economy and the environment.” For example, large state subsidies to fertilizer are poorly targeted and the gains accrue largely to better off families. Stern said that these funds would be better used for agricultural extension services and infrastructure, particularly in rural areas and among disadvantaged groups.
The conference will conclude on Friday with an in-depth discussion of recent innovations in service delivery in Karnataka State, where Bangalore is located. Stern said that scholars at the conference were looking forward to learning more about these and other innovations in India.

A similar Bank-sponsored conference, the ABCDE Europe, now in its fifth year, concluded in Paris last week. Starting this year the ABCDE Europe and the original ABCDE, which has previously been held in Washington, will be held in a developing or transition country every other year. The change reflects the increasing importance of practical innovations and of development research undertaken in developing and transition countries.