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World povertyNew policies to defeat an old enemy$

Peter Townsend and David Gordon

Print publication date: 2002

Print ISBN-13: 9781861343956

Published to Policy Press Scholarship Online: March 2012

DOI: 10.1332/policypress/9781861343956.001.0001

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Human rights, transnational corporations and the World Bank

Human rights, transnational corporations and the World Bank

Chapter:
(p.350) (p.351) FOURTEEN Human rights, transnational corporations and the World Bank
Source:
World poverty
Author(s):

Peter Townsend

Publisher:
Policy Press
DOI:10.1332/policypress/9781861343956.003.0015

Abstract and Keywords

This chapter examines the influential role of the World Bank over the last 50 years in shaping approaches to poverty, and concludes that a major problem has been its avoidance of the obligation to adopt a core scientific measure of the phenomenon to facilitate comparison and the identification of the population groups who experience poverty in the worst forms. Another, related, problem has been avoidance of the obligation, accepted at the 1995 Copenhagen World Summit on Social Development, to monitor existing and newly introduced policies and measure their exact effects on the extent and severity of poverty. This applies to the components of the Bank's anti-poverty policies during recent decades. Structural action by the key institutional players – the transnational corporations and the governments of the most powerful nations, such as the G8 – working collaboratively as well as within existing and newly introduced international law, is an unknown factor.

Keywords:   World Bank, poverty, social development, anti-poverty policies, G8

This book finds that the UN's aim to free the world of poverty sits uneasily with the current reality of unremitting social polarisation and persisting mass poverty. This is not just one of those familiar ironies about the difference in the relationship between government and governed, over tub-thumping promises and delivery of those promises. It is a paradox consistently revealed in countless shapes and sizes. Therefore, the abasement of many millions of people in the world's increasingly unequal hierarchical social structure stands in sharp contrast to the plans agreed by the overwhelming majority of countries to establish universal human rights. If the violation of those rights is to be understood, and acted upon, the scale and severity of the violation of different kinds of rights – especially economic and social rights – has to be explained in relation to policies being applied at different levels.

In Parts I to III of this book the principal thrust of current international anti-poverty policies has been described, and the anti-poverty policies as well as trends in poverty of rich and poor countries laid out for comparison and appraisal. The case for an alternative approach to policy has been made. How can some of the lessons that may be drawn be put into international and national practice? In this part of the book some of those specific as well as general lessons are explained.

Theoretical context

This chapter picks up three elements of an alternative strategy for particular scrutiny:

  1. 1. the theoretical basis of social and economic development, including human rights;

  2. 2. the future role and functions of the major transnational corporations in relation to social as well as economic objectives;

  3. 3. the necessary recasting of the role and social and economic actions of the international financial agencies, particularly the World Bank.

(p.352) Inevitably a theory has to be put forward to explain the extremes of human conditions and experiences, not as if these conditions and experiences were fixed but as a rapidly evolving, and deepening, reality. Providing such a multidimensional theory is not the purpose of this chapter. However, one reminder is relevant. The evolution of global capitalism must necessarily be a key theme of theory.

Samir Amin, a major theoretician of the ‘Third World’, or ‘the South’, insists on treating capitalism as a concrete historical reality that does not lead to ‘development’ in the meaning currently given to that word. He argues that the expansion of capital is not to be confused with human development. For example, capitalism, he writes,

does not imply full employment, or a pre-determined degree of equality in the distribution of income … [or by those who control such possibilities and are] endowed, for this purpose, with the monopoly represented by private property…. Actually existing capitalism does not work as a system of competition…. [To work] it requires the intervention of a collective authority representing capitalism as a whole. Therefore, the state cannot be separated from capitalism. [The expansion and contraction of employment] are not the expression of abstract ‘market laws’, but requirements of the profitability of capital under certain historical conditions.

(Amin, 1997, pp 14–15)

Expansion is guided by the search for profit by companies.

The powers behind the scene

Historically, therefore, the state was the principal agent in setting the scene, and any conditions, within which companies had to operate. That situation has rapidly changed. Since the late 20th century increasing numbers of writers have pounced on the ‘disjuncture’ between the formal authority of the state and “the spatial reach of contemporary systems of production, distribution and exchange which often function to limit the competence and effectiveness of national political authorities” (Held, 1995, p 127). Transnational corporations (TNCs) have helped to organise the globalisation of production and of financial transactions. Investment and production decisions do not invariably reflect local or national conditions. Information technology has transformed the mobility of economic units like currencies, stocks, shares and ‘futures’. Companies locate, produce and manage manufactured goods and services in different countries with an eye to deriving benefit from different production and marketing conditions across the world. The most powerful companies can determine and change those conditions directly.

TNCs have become major institutional players, along with states, in organising production, employment and trade in large constellations of countries, and therefore necessarily influencing the collective as well as individual living standards and social conditions of the great majority of people making up (p.353) national populations. This has of course seized the interest of social scientists and commentators; accounts of their growth and functions are to be found in an increasing number of books (for example, Scott et al, 1985; Lang and Hines, 1993; Kolodner, 1994; Korten, 1996; Stichele and Pennartz, 1996; Kozul-Wright and Rowthorn, 1998; Madeley, 1999; Monbiot, 2000; Sklair, 2001; George and Wilding, 2002). The growth of TNCs has been spectacular by any standards in the last three decades. According to one analyst “Corporations have become behemoths, huge global giants that wield immense political power” (Hertz, 2001, p 6). One hundred of the largest corporations now control about 20% of foreign assets. Fifty-one of the world's largest economies are now corporations and the rest nation states. The scale of financial power was described in Chapter One.

The pace of their growth is testified by the continuing phenomenon of ‘mega-mergers’. In 2000 Vodaphone, the communications corporation, merged with Mannesmann; SmithKline Beecham, the pharmaceutical conglomerate, merged with Glaxo Wellcome; the internet service provider AOL merged with the media corporation Time Warner. Mergers between huge companies are frequently reported on the business pages of the press.

In absorbing the full significance of the development a number of the features of corporate action have to be explained. One is the creation of mergers and subsidiaries in 20, 30 and many more countries. Such a system or network overpowers competitors. It has a snowball effect. It reduces costs and increases profits. Another feature is the location of production and services. Transfer of working capacity and labour to a new country can attract subsidies from the government of that country to boost jobs and economic viability, just as the threat to withdraw activity from another country can cause a government to reduce its taxes and offer other deals to reduce corporation costs and persuade the TNC to reconsider its plans for relocation.

A third feature is taxation. Operating in scores of different countries TNCs find it convenient to invest off-shore or arrange accounts of production and distribution to avoid or greatly reduce taxable profits, income and expenditure. One method of handling taxation is ‘transfer pricing’. TNCs have subsidiaries in different countries. The parent corporation sells materials to one of its subsidiaries in another country at an artificially high price. When these materials are turned into final products profits are thereby reduced and less tax has to be paid. The price has been transferred to the overseas country and the untaxed ‘excess’ profit pocketed in the headquarters country. Transfer pricing is a form of tax avoidance. In Columbia local subsidiaries reported a 6% profit when the real profit was estimated to be more than ten times higher (Madeley, 1999, p 12). The extent of transfer pricing is not known and evidence is hard to assemble.

Another feature is access to the law. Corporations have the resources to command the highest paid counsel. This provides a huge advantage in dealing with smaller competitors but also in dealing with governments. Most important of all is the ramifying issue of political power. Scale of operations can mean (p.354) that local councils and governments try to please incumbent plants and labour forces, and attract others. Sponsorships can deliver good names for companies. Rough justice can be passed off as unavoidable adjustment.

The reassessment of the power of transnational corporations

The corporations are closely linked with the international financial agencies and with states. Samir Amin has cast the Bretton Woods international financial agencies – the World Bank and the International Monetary Fund (IMF) – as “managerial mechanisms protecting the profitability of capital” (Amin, 1997, p 17). A big problem is that different UN agencies – IMF, World Bank, WTO, UNCTAD, and the UN itself – offer little or no information either about their own links with the biggest corporations or about the economic, labour and social policies followed by the corporations – whether these are internal policies for their own employees working in many different countries, or are policies affecting consumers and the general populations of particular countries in which they operate.

Secretary General Boutros Boutros-Ghali presided over the UN's demolition of three modest-sized monitoring units of TNCs at the beginning of the 1990s. A small stream of information at the time (represented in, for example, UN, 1988) virtually dried up. The corporations were scarcely even mentioned in the proceedings of successive World Summits. Examples are the Copenhagen World Summit on Social Development in 1995 and the 2002 summit at Monterrey. As a consequence, there is all too little standard public information from public sources about the activities and developments of huge corporations.

Some information can of course be extracted from the publicity that has been given to the flow of court cases and protest campaigns involving the TNCs. Damaging revelations surface frequently in relation to McDonalds, Nestle, Nike, Gap, Exxon, Shell, Unilever and Enron, for example. At the time of the collapse of Enron in 2001 caustic testimony was given by Arundhati Roy, among others, about the 1993 agreement of Maharashtra state to let Enron build India's biggest, and first private, power plant. After considerable opposition the state government was defeated in elections in 1995 and the contract was scrapped – only to be revived when intervening political pressure was exerted (for example by the US ambassador, who was subsequently appointed a director of Enron). A minority government in office for only 13 days in 1996 took the step on its last day to approve the contract that had provoked prolonged opposition. The contract for 695 megawatts in the first stage involved payments to Enron of $210 million annually. In the second stage (2015 megawatts) the state electricity board was legally bound to pay back a total of $30 billion. It was estimated that $210 million per year would be needed for the next 40 years, constituting “the largest contract ever signed in the history of India” (Roy, 2001, p 3). “Experts … have called it the biggest fraud in the country's history. The project's gross profits work out at between $12b and $14b” (Roy, (p.355) 2001, p 3). The Maharashtra State Electricity Board had to set aside 70% of its revenue to pay Enron. The fixed charges were destroying the board – which was trying to crack down on local companies providing electricity far cheaper. Their prices were being forced up to the Enron level and this was putting them out of business.

Extreme practices have been vilified but information about standard practices is difficult to find. The general merits of the loans made to poor countries by the international financial agencies are widely debated but the general merits of contracts awarded to TNCs are given small attention. By 2001 the World Bank was awarding some 40,000 contracts annually to private firms. The US Treasury department calculations also show that for every $1 contributed by the US to the international development banks, US corporations receive double that amount in bank-financed procurement contracts (www.corpwatch.org; and see also Karliner, 1997).

There is no global code of conduct for TNCs. There have indeed been attempts to introduce binding codes of conduct, without success (see van der Pijl, in Overbeek, 1993). There is the ILO code to regulate labour issues (ILO, 1998) and OECD Guidelines for Multinational Enterprises (OECD, 2001), but these are general statements and contain injunctions rather than powers or even universally agreed norms of conduct. While the courts certainly have powers over law breaking, they tend only to be used as measures of last resort, as they are extremely expensive. Activities short of law breaking can be shown to have serious consequences for society and are not in any serious sense ‘accountable’ (for example, see Korten, 1995; Madeley, 1999; Sklair, 2001). Many of the biggest TNCs have established codes and collaborative institutions under the concept of ‘global corporate governance’. In the US a movement for ‘caring capitalism’ was led by Business for Social Responsibility (BSR), operating from Washington in 1992. By the mid-1990s, BSR had a national membership and affiliations of 800 (Sklair, 2001, p 159). Sometimes such corporate initiatives are good attempts to face up to new problems; but they can also be cynical attempts to sidestep costly issues by constructing images on the cheap.

International financial agencies

The international financial agencies have played an increasing role in developing social policies favourable to TNCs – and other UN agencies have lamely followed suit. World Bank conditional loans have given the impetus to social security reforms that have privileged private company business – especially for pensions. “The privatisation of social security has benefited international corporations that become partners with local business elites” (Armada et al, 2001, p 729). Analysts have also shown that by endorsing the privatisation of health services, for example in Latin America, the WHO has converged with these policies (Armada et al, 2001, p 729). Other international agencies than the World Bank and the IMF are supporting their interpretations of current social policies. The alliance between transnational corporations, international financial agencies (p.356) and the richest states is posing the major problem for the satisfaction of human rights and objectives like the elimination of poverty.

Privatisation of the kind promoted by the agencies seems to be impelling an increase in inequality and making much more difficult the reduction of poverty. Certainly this seems to be the view of no less an authority than Ravi Kanbur, director of the World Bank's World Development Report on Poverty, until his resignation in May 2000. Later in 2000 he revealed that poverty was often greater than the figures given in the Bank's handbooks of statistics. Among the reasons “it is quite possible for public services to worsen considerably and yet for this effect to not show up in the income-expenditure based measures of poverty incidence” (Kanbur, 2000, p 10). Technically this means that if the measure of income were to include the value to families of goods and services received in kind, many more people in countries that were privatising public services would be found to be below the poverty line. Effectively, Kanbur's explanation is also an admission that structural adjustment policies, giving priority to privatisation and cuts in expenditure on public services, had counteracted some if not all of any benefits from economic growth that had accrued to many poor countries. Kanbur's post-resignation account of the ideological and technical context of the work of the World Bank shows the central importance he attaches to the definition and statistical measurement of the extent of poverty. Unwittingly, his retrospective analysis justifies renewed concern about the construction of a poverty line and the value of fresh investigation of its scientific basis.

In 1990 the problem of poverty was given top billing on the world's agenda for action. Since then, however, as in the previous three decades, its reduction and eradication has proved to be elusive. This was due partly to economic and social policies that were shown to move trends in poverty in the wrong direction. However, it was also due partly to explicit and implicit explanations of the causes of the problem adopted alike by governments and international agencies that have been shown to be misplaced. The overhaul and substitution of previous entrenched conceptions will be a long and bitterly resisted process.

The World Bank

The difference between what the governing structures of the IMF and the World Bank are, and what they might be, can be illustrated from their history. Keynes was a central figure in the creation of the Bretton Woods institutions in 1944 but the result was not what he wanted. He had advocated the creation of an international credit-creating institution and in the early years of war he called attention to the serious financial liquidity problems that would arise at its end, that needed concerted action if dangerous forms of instability were to be avoided. The industrialised countries of Western Europe had been devastated. They were obliged to restrict imports, devalue currencies, maintain tight price controls and cut public expenditure because they had insufficient resources combined with inevitably high levels of debt. In addition, their recovery (p.357) would be long-delayed and economic growth kept low. This would worsen economic prospects of growth, and indeed restrict the US economy itself. On top of the need of these countries for post-war reconstruction was the problem of ensuring enough liquidity to finance the growth of world trade. The governments should not be forced by fluctuating balance of payments problems into cycles of deflation and competitive devaluation. That would depress employment and living standards in economically strong and not only weak countries.

Keynes therefore argued for a kind of world central bank or ‘Clearing Union’ that created a deposit of new currency for every country in the world which it could count on at times of difficulty to pay creditor governments. The big countries would create a giant fund from which countries in demonstrable financial adversity could draw – up to a sizeable minimum level – without strings. Up to that minimum level they would not have to justify their policies. The total amount of currency deposited would rise steadily in rough proportion to world trade. In fact what materialised was a pale shadow of Keynes’ intentions. Total resources were less than a third of what he advised. Countries were not awarded an allocation. They had to contribute to the total fund to be eligible for membership and hence the opportunity to apply for loans – to which stringent conditions could be attached. Membership was conditional rather than universal; debtors had less independence, aid had strings, and the US remained predominantly in charge of those strings. And a system intended to promote the post-war recovery of the industrialised countries was soon converted into an instrument providing loans to the poorest countries.

Created at the Bretton Woods Conference in 1944 as an adjunct of the IMF – and broadly taking on the programme for long-term development while the IMF dealt with short-term financial stability – the World Bank Group is made up of five agencies making loans or guaranteeing credit to the 180 member countries. The five are:

  • the International Bank for Reconstruction and Development (accounting for more than half the Bank's lending and $10.5 billion in 2001);

  • the International Development Association (accounting for about a quarter, and $6.8 billion in 2001);

  • the International Finance Corporation ($3.9 billion in 2001);

  • the Multilateral Investment Guarantee Agency ($2 billion guarantees in 2001);

  • the International Settlement of Investment Disputes.

Total Bank lending in each year has to be set against loan repayments – but also the value of contracts arranged with corporations. In 1993 net disbursements by the World Bank, that is, gross disbursements minus repayments to the Bank, totalled just over $7 billion – a miniscule amount by comparison with World GDP and less even than the expenditure of most single departments of state in the OECD countries. However, the borrowing countries paid out nearly as much in that year – $6.8 billion – to corporations from the OECD countries, (p.358) leaving only a marginal positive cash flow into the treasuries of the recipient countries (Karliner, www.corpwatch.org, 1 December 1997).

The redefinition and re-measurement of poverty is a necessary part of the process of justifying, and constructing, international loans, and cannot be separated from the choice of theory required to explain the problem and specify the action required to resolve it.

The World Bank's measure of poverty

The World Bank has been under increasing pressure about the persistence of mass poverty. In the early 1990s the Bank conceded a “loss of momentum during the 1980s” in reducing poverty (World Bank, 1993a). Yet 10 years later the research development group conceded the same for the 1990s (Chen and Ravallion, 2001). A succession of World Bank reports trace the story (World Bank, 1990, 1993a, 1993b, 1995a, 1995b, 1996, 1997a, 1997b, 2000, 2001). On 28 April 1993, Lewis T. Preston, the president of the World Bank at the time, had stated “Poverty reduction is the benchmark against which our performance as a development institution must be judged”.

That ‘benchmark’ has to be explained. It was a ‘global’ standard – a “universal poverty line [which] is needed to permit cross-country comparison and aggregation” (World Bank, 1990, p 27). Poverty was defined as “the inability to attain a minimal standard of living” (World Bank, 1990, p 26). Despite acknowledgement of the difficulties of capturing the contribution to standards of living of public goods and common-property resources in any measure of poverty the World Bank settled for a standard which is ‘consumption-based’. This standard comprises “two elements: the expenditure necessary to buy a minimum standard of nutrition and other basic necessities and a further amount that varies from country to country, reflecting the cost of participating in the everyday life of society” (World Bank, 1990, p 26).

For operational purposes the second of the two elements said to be necessary in the definition of poverty was set aside. Twelve years later it has still to be systematically examined in relation both to the distribution of income and the results of applying only the first element in the definition to the incidence and depth of poverty worldwide. This serious omission is highlighted in the discussion below. It is argued that data from surveys of material and social deprivation could be used constructively to restore the original scope of the Bank's definition.

Technical limitations of the World Bank's ‘partial’ poverty line

How well was the first element of the Bank's definition in fact operationalised? This element of the definition was assessed as Purchasing Power Parity (PPP) $370 per year per person at 1985 prices for all the poorest developing countries (p.359) (World Bank, 1993a, p 4; and see also World Bank, 1990, especially pp 25–29). For 1990 this produced an estimate of 1,133 million of poor in the developing world. The fact that this was a rough and ready measure adopted – by implication temporarily – for the purposes of simplicity and convenience can be illustrated best by a further statement made at the time. “An extra $0.70 per day added to the poverty line implies a doubling of the number of people counted as being poor” (World Bank, 1993a, p 4). This alternative statistic suggests that research needed to be undertaken to find whether people with incomes higher than the threshold adopted were also exposed to unacceptably high levels of deprivation, poor health and lack of access to basic services. While a measure that is rough and ready can be accepted for a time pending further investigation, it cannot be accepted indefinitely. The circumstances of those just above the threshold have to be compared with those on, or just below, the threshold to justify and confirm its adoption.

In 1990 the World Bank had argued “the case for basing international comparisons” on this threshold (World Bank, 1990). However, its argument was inconsistent. First, later measures differ from earlier measures put forward by the Bank and, second, separate references are made confusingly to definitions of ‘absolute poverty’ and the ‘poverty line’ in the same report. Therefore in a 1993 report absolute poverty was defined as “the position of an individual or household in relation to a poverty line the real value of which is fixed over time”; and the poverty line was “the standard of living (usually measured in terms of income or consumption) below which people are deemed to be poor” (World Bank, 1993a, p vii).

The Bank began to be challenged on technical grounds. The ‘primary conclusion’ of the World Development Report for 2000 that the world was on the right track to reduce poverty was challenged, because the Bank's estimates “should not be accepted” (Reddy and Pogge, 2001, p 2). There was a “lack of a well-defined poverty line that permits of meaningful and reliable inter-temporal and inter-spatial comparisons, and relatedly, the use of a misleading and inaccurate measure of purchasing power ‘equivalence’, that may systematically distort estimates of the level and trend of global poverty” (Reddy and Pogge, 2001, p 1). For example the 1985 Summers and Heston PPP conversion factors were varied in the 2000 exercise, without precise specification of what had now been done and why (Reddy and Pogge, 2001, pp 3–7). These criticisms did not extend to challenging the Bank's overall conception of a poverty line, or why the ‘second element’ of the Bank's definition could not be included operationally, but they are nonetheless damaging.

The World Bank has continued to argue for a fixed poverty line. The standard below which people are deemed to be poor is supposed not to change. This seems to have been applied inter-temporally but not inter-spatially. For Latin America and the Caribbean the World Bank actually adopted a different poverty line of $2 per day (World Bank, 1993a, p 6). Subsequently a standard of $4 a day was adopted for Eastern Europe and the republics of the former Soviet Union. It would be hard to claim that these figures are not arbitrary and that (p.360) relativity can stand the test of time. Different countries and regions have experienced different trajectories of growth and distribution and such variation is likely to persist.

Nonetheless, the Bank had given an impression in its 1990 report that its conceptualisation of poverty could be extended to all countries including the industrial countries. As emphasised above poverty had been defined as “the inability to attain a minimal standard of living” (World Bank, 1990, p 25). This could have been a good starting point for consistent scientific and international definition. What exactly was this standard of living? “Household incomes and expenditures per capita are adequate yardsticks” (World Bank, 1990, p 25). The Bank admitted that there were drawbacks because income and expenditure measures did not capture dimensions of welfare like access to public goods and services, clean drinking water and other ‘common property’ resources. However, historically, wider definitions of income have included monetary equivalents to free or subsidised goods and services. The World Bank's definition, accordingly, could have included the same, and thereby could have solved the problem of comparing countries, and rural versus urban regions in those countries – with different mixes of cash and goods in kind.

So the World Bank's admission that ‘common property’ was not included in its measures of income does not seem to have prompted scientific enquiry to produce a more consistent or ‘objective’ poverty line. The procedure developed at the time was not clear. The drawbacks specified had only to be examined in relation to ‘some norm’ – namely a ‘consumption-based’ poverty line (World Bank, 1990, p 26). At the time, as noted above, the Bank made a case for measuring two elements, the expenditure necessary to buy a minimum standard of nutrition and other basic necessities, and an additional amount reflecting the cost of participating in the everyday life of society (World Bank, 1990, p 26).

The first was believed to be unproblematic. The cost of calorific intakes and other necessities could be calculated by “looking at the prices of the foods that make up the diets of the poor”. The second “is far more subjective; in some countries indoor plumbing is a luxury, but in others it is a ‘necessity’” (World Bank, 1990, pp 26–27). This is a very odd statement. In what sense is the need for indoor plumbing, as distinct from the need for food, ‘subjective’? And when is it a ‘luxury’ and when a ‘necessity’? Does not the cost of food, as much as the cost of plumbing, reflect participation in the everyday life of society? If plumbing is a ‘luxury’ in some societies does that mean that food never is in any society?

This chapter does not provide an exhaustive account of the World Bank's procedures. We have sought only to provide some of the steps that have to be questioned, in order to call attention to the unexplained, and un-researched elements in the specification. Otherwise the World Bank is left to fulfil a false prospectus on false premises. There are illustrations in different Bank reports for the period. For example, at one point the text explains that country-specific poverty lines are plotted against per capita consumption “for thirty-four (p.361) developing and industrial countries”, but the figure on the same page shows only the plotted figures for the poorest 12 countries among them. For the 22 richer countries country-specific poverty lines are not plotted. The need to move towards clearly formulated international standards of poverty, that provide the right basis for cross-national comparison, analysis and formulation of more effective policy, has now existed for much longer than a decade.

The Bank's definition of poverty assessed

In reaching this severe conclusion it is only fair to acknowledge the particular strengths in what the World Bank did initially. In the early years the Bank's standard was simple to comprehend and apply. It did not depend on the arduous and continuous collection and compilation of data about types as well as amounts of resources, changing patterns of necessities and changing construction of standards of living.

At the same time there were, and are, major weaknesses in the Bank's approach. It is fixed in time. It ducks any acceptance that ‘need’ is fundamentally a social construct as well as having specifically social elements. As a social construct it is international in scope and therefore has to be open to scientific investigation and accreditation – as well as challenge. It turns out to be not in fact a ‘global’ poverty line at all. It is not assumed to be applicable to countries other than the poorest. On the Bank's own admission an international poverty line that is more than ‘consumption-based’ should, ideally, be constructed. No cost is in fact estimated for the second ‘participatory’ element of the definition. So the logic of the Bank's own argument is not followed: the minimum value of the poverty line is therefore underestimated and the number of poor in the world also underestimated. These criticisms gain force if it is accepted that, as time goes on, social polarisation in many countries is making the construction of an international poverty line ever more necessary, because the poorest conditions in the world now apply conspicuously to some sections of the population in middle income and even high income countries.

As noted above, the second element of the World Bank's 1990 definition of the poverty line was set aside. Surprisingly, the first was not much investigated or defended. The type, number and amounts of necessities other than food, for example, are not tracked down and discussed. And questions of diet – and especially thresholds of under-nutrition, in relation to income – are not rigorously investigated. Variations in the sheer quantity of the diet required among populations with widely varying work and other activity obligations and customs, as well as in the types of diet socially preferred or indeed available in local markets, and at what cost, are left unexplored. These points apply in particular to children.

In the World Bank's huge programme of research, one recurring problem has been the lack of quantitative illustration of the poverty problems of different types of family or household. Information was collected about average consumption of calories or protein by males and females of different age, (p.362) including children, but the distribution by income or occupational status, or by reference to other features of standard of living, such as housing, conditions of work, environmental and sanitary facilities and access to health and education, has not comprised an essential part of the investigative strategy.

There have been certain exceptions. More varied information for particular countries is to be found in the Bank's Living Standards Measurement Study surveys. The survey is a multi-topic instrument in which information is collected from all members of households. It covers a wide range of subjects, including, for example, housing, family demography, education, health, migration, economic activity, expenditure and time use.

The surveys can be illustrated from recent reports. One is entitled Dominican Republic: Managing risks (2000c). The report states “As a consequence of both growth and reduction in the employment rate, the percentages of poor households have declined from about 22% in 1992 to about 15% in 1998”. However, “entrenched ‘hard core’ poverty is … widespread in marginal urban areas and especially in rural areas and appears to have been little affected by economic growth”. The poor of the Dominican Republic shared “many of the characteristics identified in many Latin American countries”. They had larger families, disproportionately large numbers lived in rural areas, were self-employed and had agricultural jobs. Sixty-five per cent use outdoor latrines, 44% were without access to in-house running water and 15% still had mud floors.

The report examined separately conditions affecting different age groups. Young children aged 0–4 had the highest risk of intellectual impairment, “low human capital formation”, chronic poverty and being in households with “permanent losses in productivity”. Other children had problems of access to primary and secondary schooling, and those in their teens of deficient skills. Those who were unemployed were of course exposed to the ‘risk’ of low income, and yet “the key risk prevention strategy for the working age poor is a sound macroeconomic framework that promotes labour-intensive growth, employment creation … [and] labour market flexibility”.

The distributional structure of poverty is implied, or illustrated, rather than precisely stated, with data showing that more of those aged 0–4 and 65 and over “belong to the poorest deciles” than other age groups. The data are elaborate and informative. They are still placed in the approved framework of definition, analysis and policy formulation advocated by the Bank. However, by virtue of giving some exposition of the experiences of different groups in the population, concessions are made to strategies other than the trio of economic growth, human capital formation and safety nets. Therefore in the case of the elderly “only about 4% belonging to the poorest 30% of the population are covered by any pension…. The best risk prevention strategy … is to implement a social security reform, which increases coverage to all population in the future”.

The high point in the attempts to justify the World Bank's technical approach to the definition and measurement of poverty perhaps arrived with a report on (p.363)

Table 14.1: Population living below $1.08 per day, at 1993 PPP

Population in households consuming less than the poverty line (%)

Number of poor (millions)

Region

1987

1998

1987

1998

East Asia (including China)

26.6

15.3

418

278

East Asia (excluding China)

23.9

11.3

114

65

Eastern Europe and Central Asia

0.2

5.1

1

24

Latin America and Caribbean

15.3

15.6

64

78

Middle East and North Africa

4.3

1.9

9

6

South Asia

44.9

40.0

474

522

Sub-Saharan Africa

46.6

46.3

217

291

Total (including China)

28.3

24.0

1,183

1,199

Total (excluding China)

28.5

26.2

880

986

Source: Chen and Ravallion (2001, Table 2)

trends in poverty during the 1990s (Chen and Ravallion, 2001). The report came from its Development Research Group. Table 14.1 shows that despite a percentage fall in poverty as measured by the Bank it was found that the numbers in poverty were slightly higher in 1998 than in 1987, even when the doubtful estimates for China were included.

At face value these results offered little demonstration of the success of World Bank policies. The research group said they drew on 265 national sample surveys in 83 countries to conclude that there was a “disappointing rate of poverty reduction” (Chen and Ravallion, 2001, p 1). The 1990s “did not see much progress against consumption poverty in the developing world” (Chen and Ravallion, 2001, p 18). Yet the overall rate of growth in real consumption per person for low-and middle-income countries during the first eight years of the 1990s was 2.6% per year. “Even assuming no growth from 1987 to 1990, an annual rate of growth in mean consumption of 2.6% over 1990–97 alone would have virtually halved the aggregate poverty gap, as long as overall inequality did not worsen” (Chen and Revallion, 2001, p 18). What went wrong? They admit that “There is now evidence of quite sharply rising inter-personal income inequality in the world during this period” (Chen and Revallion, 2001, p 18). They referred to work by Milanovic (1999) that showed that, on average, inequality in the world as measured by the Gini coefficient had increased by 5% between 1988 and 1993. “This could easily wipe out the gains to the world's poor from global economic growth” (Chen and Ravallion, 2001, p 18). There was no reference to the responsibility of World Bank growth and structural adjustment policies for increasing inequality. The furthest that the authors were prepared to go was to admit that “there is evidence that initial inequality is too high in some countries to assure poverty-reducing growth even when the fundamentals are conducive to growth” (Chen and Revallion, 2001, p 19, referring to Ravallion, 1997, and Ravallion and Datt, 1999).

(p.364) There is one chink of light in this account of recent developments. The representatives of the Development Research Group at the World Bank showed from their use of the survey data that an opportunity to rebuild a measure of poverty had emerged, but had not yet been acted on.

The work of compiling reliable general statements about conditions and trends in different groups of countries remains to be done. The potentiality for that certainly exists, and a new start can in principle be made. What remains at issue in reviewing the various country reports is the need to develop a consistent threshold measure of poverty across countries. This would allow better identification of severe conditions, determination of priorities and a better focus for future research and development – combining to make major inroads into an appalling world problem.

Approaches by other agencies

Although other international agencies adopt their own programmes they compound the problem. The poverty line is defined by UNDP as “that income level below which a minimum nutritionally adequate diet plus essential non-food requirements are not affordable” (UNDP, 1993, p 225). The steps by which a minimum nutritionally adequate diet, and ‘essential non-food requirements’ can be defined as appropriate for different countries, and the criteria according to which these can be said to be ‘affordable’, are not investigated.

The specialised work of the International Fund for Agricultural Development has resulted in reports that resemble the World Bank's approach but introduce some flexibility into a ‘fixed’ poverty line by taking note of measures which originate nationally, and which depend on more sophisticated investigation of changes in consumption as well as consumption prices. The poverty line is defined as “a commodity bundle tied to the minimum requirement (calories and protein for food, and some notional minimum for non-food items), and the determination of an appropriate set of prices to be applied to individual commodities to calculate the poverty expenditure and income” (Jazairy et al, 1992, p 461).

The ILO has contributed over the years to a more ‘structural’ interpretation of poverty and its causes (International Institute for Labour Studies, 1993; but also see, for example, Franklin, 1967). In particular, its work on the structure of the labour market and questions of access to that market help to balance the monetarist perspectives of the IMF and World Bank. The ILO began in the 1970s to show the part to be played in explaining poverty by lack of community utilities or infrastructure – water, sanitation, health centres, primary schools, and transport. The development of measures of collective or community need, as distinct from individual need, as a contribution to understanding poverty, and its alleviation, deserves renewed attention. Therefore, some commentators have pointed out that the World Bank's 1990 report on poverty:

(p.365)

… represents a step away from neoliberalism and back toward the Bank's attitude of the 1960s: that the continuing existence of the poor in poor nations is the development problem. Indeed, the insistence [in the Bank's annual development reports] on remedying water and air pollution resembles nothing more strongly than 20-year-old strategies aimed at satisfying developing countries’ basic needs.

(Taylor, 1992, p 57)

The ILO preoccupations of the 1970s are back in fashion (Townsend, 1993a, Chapter 2).

When many governments agreed the report on the World Summit for Social Development at Copenhagen the international agencies were slow to follow up the recommendation, among others, to measure ‘absolute’ and ‘overall’ poverty separately – as a means of making comparisons between countries, and especially between rich and poor countries, more feasible. Prior to the five-year review of the programme of action in July 2000 UNDP was the first to collect reports from countries. The reports covered work to establish definitions and estimates of poverty, set targets for poverty reduction or eradication and formulate national plans (UNDP, 1998, pp 28–30). Estimates were given for some countries of the extent of ‘extreme’ and ‘overall’ poverty. In the case of India, therefore, the two figures were 6% and 36% respectively; for the Republic of Moldova 21% and 43%; for the Central African Republic 36% and 63%; for Malaysia 2% and 9% and for Panama 22% and 37%. Results on both measures were available only for 11 countries although 75 of a total of 130 countries had officially endorsed operational definitions of extreme poverty and 69 of overall poverty (UNDP, 1998, pp 22, 30).

In 2000 UNDP reported that 64 countries now provided information about the extent of both forms of poverty. Other countries provided information on one or the other (UNDP, 2000, pp 24–29). But UNDP offered no prescriptions for standardisation internationally. Its position is admittedly difficult. In successive reports on poverty it has simply reproduced data at $1, $2, $4 or even $14.40 per person per day as measures of convenience for countries in different regions (see, for example, its Human Development Report devoted to the eradication of poverty, 1997, pp 32–33).

The World Bank's measures have also become more diffuse. The Bank accepts measures of a ‘national’ poverty line put forward by individual governments, and also gives two alternative measures of an ‘international’ poverty line – $1 and $2 per person per day (World Bank, 2000, 2001). During these years the problem of ambiguity in international debate has multiplied because little guidance about a ‘core’ international or scientific measure has been offered, and a puzzling general distinction between ‘income’ poverty and poverty has been introduced.

(p.366) Developing an alternative poverty line

The general shortcomings of the World Bank's approach to measurement would have been evident sooner if the question ‘Who is poor?’ had been systematically investigated in relation to the dollar-a-day information produced, and efforts made to make strict comparisons between countries and examine trends over a number of years.

Once the distributional structure of poverty is correctly identified in different countries then both causes and anti-poverty strategies become easier to discern. Therefore in countries as diverse as India, Kyrgyz, Tanzania, Kenya and the Yemen it can be shown that poverty is above average among women, the elderly and disabled – especially women, the unemployed, lone parents, households with children, particularly households with lone parents, and households with several rather than one or two children. Poverty is also above average in rural areas and among most ethnic minority groups and most groups with low occupational status, including, for example, day labourers (see, for example, Hashem, 1996). This structural ‘bias’ cannot be remedied by economic growth governed only by market considerations but by ‘redistribution with growth’. High priority in anti-poverty policies, according to such evidence, plainly has to be given to children, elderly and disabled people who cannot gain paid employment, and those in the labour market whose earnings are insufficient to ensure a household income adequate for health, wellbeing and social viability.

A strategy of ‘redistribution with growth’ to eradicate absolute poverty is not something new. It has been put forward for many years, for example in the Indian government's national five-year plans from 1961–66 onwards. Therefore an influential Planning Commission report of 1962 stated that “the time has now come when we should sharply focus our efforts on providing an assured minimum income to every citizen of the country within a reasonable time. Progressively this minimum would itself be raised as development goes apace” (Appasamy et al, 1996, p 10).

Two improvements to measurement can be made. First, existing data about incomes of households with and without children can be reviewed and an account given of the extent and severity of material and social deprivation among adults and children, with information about access to necessary services and the kind of policies that had improved conditions of people in other countries or in the previous history of particular countries. This would be an exercise in which existing information would be reassembled for the purpose of reviewing policies as prime causes of consequential conditions. The second would be to devise improvements to the national surveys introduced as a result of the 1995 World Summit and the country studies issued by the international agencies and collect information directly about poverty. This could pave the way for a renewed determination to restore the two-part treatment of the poverty measure originally put forward in 1990.

The World Bank constructed graphs which were supposed to show the rising (p.367) real per capita value of ‘country-specific’ poverty lines in relation to average per capita consumption the graph did not in fact fulfil this intention: it merely showed an upper and a lower poverty line fixed by the Bank in dollars at 1985 prices for a small number of poor countries in relation to the average per capita consumption in those countries.

Conclusion

World anti-poverty policies have been shown to be ineffective, and need to be recast. This chapter has sought to show that a plan of action is best constructed by linking the growing international consensus in favour of the fulfilment of human rights to the analysis of the activities of powerful TNCs and the related policies of the international financial agencies, especially the World Bank.

Human rights

First, there has been a gathering momentum in favour of the specification, and delivery, of human rights. However, policies designed to confer equal rights are neither policies to bring about greater inequality in the distribution of resources, including income, nor are they selective or discriminatory conditional policies for just some of the poor. Energies on the part of governments and campaigning groups during the decades of the 1980s and 1990s have been put into statements about rights, rather than into the close monitoring of trends in access to rights and the exact contribution of the principal policies to those trends. Good examples are Articles 22 and 25 of the Universal Declaration of Human Rights. They are set out in the boxes below:

(p.368) These fundamental rights have to be related to existing national and international policies. Following the argument presented, therefore, four human rights policies might be proposed to mark a change in direction of world strategy to eradicate poverty:

  1. 1. Construction of an index of human rights

    International and national agreement needs to be reached both on what are the specific indicators of the non-fulfilment of adult and, independently, child rights that will allow trends in different countries to be measured, and on what are the policies, negative and positive, that are contributing substantially, and to what degree, to those trends (an example is the EU set of commonly agreed and defined social indicators to be found in Atkinson et al, 2002). Direct policies to reduce poverty would be a minimum national wage, and state unemployment benefits, pensions and disablement pensions for the elderly and disabled who cannot work at a properly substantiated level of adequacy.

  2. 2. International and national specification of what is an adequate income and what are the new policies to achieve that income.

    The Universal Declaration of Human Rights includes, in Article 25 set out above, the right to ‘an adequate income’. The fulfilment of this fundamental right can be interpreted as requiring a defined income-poverty line to be brought into being, as measurement of level of income required from earnings and/or state benefit. This is not to deny the need for supporting policies to fine-tune taxes or conditions for the receipt of benefit.

  3. 3. The introduction of child benefit

    Article 27 of the Convention on the Rights of the Child – which has attracted more signatures from countries than any other treaty or convention on human rights – includes, like the Universal Declaration, the right to social security. Many countries have already introduced schemes for child cash allowances. Some countries have only introduced these in part. Others could start by introducing a mixture of cash allowances and benefits in kind – through rights to quantities of food or to free or subsidised school meals.

  4. 4. The introduction of a financial transactions tax

    Article 22 quoted above includes a clear reference to “international cooperation and in accordance with the organization and resources of each State” and a (p.369) universal tax to provide resources would properly reflect the spirit of the entire Universal Declaration of Human Rights. The principle of an international financial transactions tax to finance development and not only the post-war reconstruction of the industrial countries was implicit in Keynes’ approach to Bretton Woods. The economist James Tobin resurrected the idea in 1972, and it was revived again in the 1990s. Prior to the 2002 conference at Monterrey a preparatory report by the UN Zedillo panel repeated the possibility of such a tax, but gave it no serious discussion (for historical and contemporary discussion see Raffer, 1998; and Townsend, 2001). But support was voiced from a number of nations during the Monterrey conference. For example, a tiny automatic tax on all financial exchanges, say 0.1% could raise up to $400 billion annually for support for the poorest countries, including support for the establishment of social insurance and social security of different forms. In particular, the tax could be designed to provide the revenue for an international child benefit scheme of the kind described above.

Many other human rights policies deserve consideration. However, these are examples of policies most likely to contribute to the reduction of poverty. They are put forward because, unlike the indirect policies of overseas development aid or for economic growth, they are direct, and could have an immediate and not indeterminate effect on the scale of poverty.

Transnational corporations

The discussion above shows the need for socially sensitive policies on the part of the TNCs themselves to be developed, for better regulation by democratically elected governments and groups of governments, and for a better framework of international company law.

  1. 1. The social policies of TNCs need to be transparent

    Codes of conduct have sometimes been drawn up by transnational corporations, or by agencies such as the ILO and OECD. While often sincerely motivated they are seriously short on detailed prescription and have no teeth. The biggest TNCs and the international agencies must lead the way. A model international code should be developed by the UN and approved at one of the early World Summits – rather like the initiatives that have been taken by groups of countries over the years on behalf of the extension of universal human rights. Additionally governments must commit themselves to annual reports that are intended to monitor developments and social policies of TNCs registered in their domain, who will be expected to submit annual reports on their policies for employees in different countries and their wider activities.

  2. (p.370)

    2. Better government frameworks for TNCs

    Codes of behaviour for TNCs registered with, and/or operating within, nation states must be developed and, where necessary, must involve the review and amendment of national, particularly company, law.

  3. 3. Urgent development of international company law

    In present circumstances the case for international company law has become stronger. Voluntary codes of conduct are weakly expressed and hold little prospect of wide adoption. Although national models of the kind suggested by the ILO and OECD would represent an improvement there is small likelihood of major change until a framework of international law also exists for TNCs. There are valuable precedents on which to build new law in the histories of national company law and recent discussions and developments of European law. The awkward question is whether national laws can be satisfactorily harmonised in an era when TNCs naturally take advantage of loopholes and shortcomings across countries or whether regional and international law is the only realistic vehicle by which common standards of behaviour or performance can be tracked and controlled.

One route is by finding how a new framework of codes of conduct might complement international law. Therefore, in 1977 the Governing Board of the ILO put forward a declaration. This sought to exert influence on governments, concluding that gradual reinforcement could pave the way for “more specific potentially binding international standards”, turning codes of conduct into “the seed of customary rules of international law” (ILO, 1998).

The World Bank

The World Bank's operational definition of a poverty line needs urgent reappraisal. It is not suitable for international comparison. It is therefore an unreliable basis for analysis of the nature and causes of trends and the construction of effective anti-poverty policies.

  1. 1. The need for a genuinely international poverty line

    Instead, the resources, including income, required in countries across the world by individuals and families to surmount absolute and overall poverty have to be specified, on the basis of empirical information about the extent of material and social deprivation experienced by people at different quantified levels of resources, including income. This lies at the core of the development of anti-poverty strategies and of course the measurement of trends.

  2. (p.371)

    2. A scientific grounding for anti-poverty policies

    The World Bank's theory or account of the existence and growth of poverty is not grounded adequately in the history or empirical analysis of social development. Implicitly and explicitly the Bank's explanation concentrates on lack of modernisation and growth instead of control and management of the distribution of resources. A more scientific and less ideological form of explanation would lead more readily to the identification of the structural components of an anti-poverty policy. For example, modernisation tends to be defined as emulation of the values as well as practices of Western powers; and growth tends to be defined without reference to the value of unpaid work or the countervailing environmental and social costs of production. Instead, the developing hierarchy of political and social power has to be explained in relation to international agencies, regional associations, governments, regional and local markets, corporate, especially transnational, non-government and community organisations, and populations, and especially in relation to the availability and changing flow of resources to individuals and families. The need to trace outcomes of different policies for children and vulnerable groups such as disabled persons and lone-parent households is urgent.

  3. 3. Policies for the many, not the few

    The World Bank's liberalisation, structural adjustment and ‘safety-net’ policies have tended to deepen, or confirm, the already weak situation of the poorest 20% of the world's population, rather than lay a basis for changes in the unequal distribution of growing world resources. There is strong support for the proposition that for several decades growth has not had much ‘trickle-down’ effect, often the reverse (for example, Newman and Thomson, 1989). Again, there is strong evidence for the proposition that high investment in public social services has not had a deleterious effect on growth – in fact, quite often the reverse (Goodin et al, 1999). As one research team concludes, “greater distributional equality provides a favourable ‘initial condition’ for rapid and sustainable growth;… redistribution of current income and assets, or redistribution of an economy's growth increment, is the most effective form of poverty reduction for most countries; and … mechanisms to achieve the redistributions are feasible for most countries” (Dagdeviren et al, 2001, p 23).

    In short, human rights and democratic values have to be more universally, and securely, established, redistribution restored to priority status in action programmes on poverty, and preventive steps taken to strengthen collective principles of public service, planning and social insurance.

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