Cairo University Consultation

December 19, 2004
Cairo, Egypt

François Bourguignon presented the outline of the WDR 2006 to a group of economists and other social scientists at an event co-organized by the Faculty of Economics and Political Science at Cairo University and the Center for Economic and Financial Research and Studies.  Discussants and audience comments and François Bourguignon’s presentation are summarized below:

Mahmoud Abdel Fadil, Professor of Economics (discussant)

This is a welcome effort to rethink equity and development, to shift away from the trickle down theory which has failed to eradicate poverty just about everywhere in the developing world.  Suggested expanding Sen’s argument on capabilities with Bordieu (?)’s concept of initial endowment, and then combine this with assessments of the institutional arrangements for public services, especially education.

Reliance on Gini coefficient as a measure can be misleading; your slide on the dramatic change in inequality in China sheds light on the question of whether inequality and growth are complementary.

Skeptical about argument (in chapter on Investment) that providing the poor with better access to insurance markets will improve their investment capability.  This is a World Bank bias; access to insurance is only part of the story.

Asked for clarification (from the World Bank in general) on how privatization, market liberalization, open capital accounts contribute to pro-poor growth. How does macroeconomic stability, as you define it, differ from, or complement, social security?  How does the fiscal contract benefit the poor?  The search for improvements to the investment climate must be accompanied by improvements in the social climate.

Heba Handoussa, Professor of Economics (discussant)

While there is growing convergence on social indicators such as infant mortality, life expectancy and literacy, this is not likely to be achieved on distribution of assets; the Scandinavian model is likely high mark for distribution of assets to which developing countries can aspire. In Egypt, there is still much to do on distribution of access to education, of titles to property, housing, and to reduce disparities based on gender. When the WDR team speaks of tradeoffs between serving equity and serving efficiency, this overlooks the fact that there are also “win-win” outcomes: for example, in Egypt, 85 percent of business is micro and small enterprises; health and education distribution offers complementary benefits without requiring that anything be “traded off” in order to obtain them.  Also, in Egypt, among the most important gaps is the regional one – between the north and south, urban and rural.

Ahmed Barrer, Director of Egyptian Center for Economic Studies

This promises to be a very exciting WDR, offering potential to influence the policy instruments that will be used in poverty reduction strategies in the future.  However, Chapter 6 seems like old World Bank reincarnated, nothing in that chapter (outline) reflects the innovation one finds in the others.  For example, its (implicit) suggestion that investment is determined by liquidity and access to credit is misplaced; investment is part of an overall life cycle. Liquidity cannot be isolated as a lone determinant.  Chapter 7 looks more interesting than #6, but it seems to focus more on quantity than quality.  You need to integrate the lessons of the WDR 2004 here, on accountability for public services, as well as lessons from industrial organization literature.
The three final chapters raise political economy questions, but the outline does not offer a convincing argument as to why governments should listen to this report.

Mustapha Al-Sayid

You raise the example of increasing inequality accompanying growth in China.  This begs the question as to what happened to distribution in other reforming countries that have experienced rapid growth in recent years, such as Uganda, or India.  Also, I am skeptical about Gini as a measure; small changes in Gini are not always significant.

Hassan Montasser, Professor of Economics

Can you look at power as an asset, and an asset that is biased against the poor? The approach in the outline seems static, and does not reflect the patterns we see in distribution and development that are systematically biased against the poor.

Francois Bourguignon’s responses:

We don’t plan to use just Gini coefficient. In fact, the shift from focus on inequality to equity is an example of our effort to bring greater multidimensionality to the WDR. On Barrera’s point, I agree with the critique that simply opening the credit market to the poor will not solve the problem. It won’t, but we are trying to make the point that agents that are credit-rationed often show higher rates of return on their investments than others who are not credit-rationed. This suggests that there are inefficiencies that weaken, or may have an impact on growth, but just because we remove one binding constraint, it does not necessarily follow that the situation will dramatically improve.

Re: Heba Handoussa’s point on regional inequality. This raises the issue of countries in which the rural poor are totally cut off from the rest of the economy; if you work at helping them, you may not actually be creating any spillover benefits for the urban dwellers, while investing in the urban poor may deliver more benefits for the economy as a whole, including the rural poor.  If you go with the former strategy of focusing on the rural poor, one can imagine some countries in which this strategy would deliver no significant benefits to 70 percent of the economy. Also, when you consider regional inequalities, this raises the question of migration within as well as outside countries, and whether this option exists for the poor.

I agree that the fiscal contract must be balanced with/incorporate a social contract.  Because market failures do exist, there is space for changes in distribution to increase the efficiency of the working of the economy.  The question of whether reforms (privatization, liberalization etc.) have had an impact on equity is often difficult to determine, difficult to associate changes in distribution with a specific reform.  On the question of access to land (as an asset), we need to address whether there is an inherent pattern in development that increases or reduces equity of access to land.  I am not sure it is inherent.  On power as an asset, the distribution of voice is really about distribution of power.