How can productive work and a good quality of life be provided for the 2.5–3
billion people now living on less than $2 a day—and the 3 billion people likely
to be added to developing countries by 2050—in an environmentally and socially
sustainable way? This report asks where problems and opportunities are likely
to arise, why the problems arise, and how they can be solved (in fragile lands,
relatively favored agricultural lands, and urban areas) and at different levels
(local, national, and global). It argues that many appropriate policies are
known but not implemented because of distributional issues and institutional
weaknesses. Competent institutions pick up signals, balance interests, and
execute agreed-on decisions. Inclusion—giving the
poor and disenfranchised a stake in society through voice and access to
assets—will enable more effective institutions to emerge .
Provision of productive work and a better quality of life for current and
future generations in developing countries will require substantial growth in
income and productivity in these countries. This task will also require
management of the social, economic, and environmental problems and
opportunities accompanying the transition to a predominantly urban world (see
figure 1); attention to the needs of the hundreds of millions of people living
on fragile lands; reaping the “demographic dividend” of declining
dependency rates and slowing population growth; and avoidance of the social and
environmental stresses—local and global—that might accompany achievement of the
prospective, mid-century, approximately $140 trillion world gross domestic
product (GDP). Although these problems and opportunities will play out
differently in different places—in the ecosystems where people live and the
social systems where they interact, at scales that range from a small mountain
valley to a coastal metropolis to the planetary biosphere—many of the issues
and the mechanisms needed to tackle them are common to all places.
Social and environmental assets are critical—but underprovided. Policy
solutions are understood—but not implemented.
Societies need to manage a broader portfolio of
assets—not just human and physical capital, but also environmental assets (such
as fresh water and fish stocks) and social assets (such as trust). These assets
are not perfectly substitutable. The immediate gains of depleting or degrading
them can be outweighed by costs in productivity and lost options, as
illustrated by forest conversion in Madagascar.
Productivity growth in agriculture is critical to poverty reduction in
Madagascar, where nearly three-quarters of the population live in rural areas
and where three-quarters of that population is poor. But conversion of
Madagascar’s biodiversity-rich forests, the potential focus of a future
ecotourism industry, to mostly unsustainable, low-yield agriculture has been
costly. Much of the new cropland is degraded, and hillside erosion clogs
downslope waterways. The country has experienced a decrease in its per capita
GDP from $383 (in 1995 dollars) in 1960 to $246 today. Madagascar is not the
only country that has depleted or degraded forest assets without realizing
gains in other assets. On average, forest depletion in low-income countries
lowers net savings by 1.5 percent of GDP.
Why are environmental and social assets particularly threatened and
underprovided? Because of externalities: the actions of one person may impose
environmental costs (such as pollution) and social costs (diminished trust in
institutions) on other people—costs that the responsible party does not bear.
Free riders have no incentive to contribute to the maintenance of public goods
from which they cannot be excluded.
The solution to these problems is well known: policies that align individual
and social incentives, either through taxes, subsidies, and regulation, or
through the deliberate creation of new market mechanisms. Failure to adopt such
policies—even when they appear to be “win-win”—is most often the result of
distributional problems --vested interests, inability to
channel dispersed interests, and inability to make credible long-term
commitments .
Problems that require lasting solutions are often not susceptible to quick
fixes. Such problems require the coordination of many actors. Inclusion in the
form of voice and access to assets facilitates coordination: more inclusive
processes lead to more sustainable outcomes; voice and wider ownership of
assets lead to more inclusive processes.
Avoiding inflation and protecting investors, ensuring labor and service
delivery, maintaining environmental assets and systems for using them,
preventing crimes and maintaining peace are all coordination problems. Markets
work well for addressing some kinds of coordination problems—matching suppliers
and demanders of goods, services, and physical assets—if supporting
institutions such as property rights are in place. Mechanisms for other kinds
of coordination problems, especially those in the social and environmental
sphere, are often lacking, undeveloped, faulty, or weak.
Coordination mechanisms typically fail in three ways. First, they fail to take
the long view. Cities grow without adequate provision for transport
right of way. Short-term political fixes evolve into constituencies for
perverse subsidies. Second, they fail to represent dispersed interests. The
voices of the many who are affected by pollution may be less audible than the
voices of those who pollute. Third, they fail to commit to allow assets to
thrive. Wasteful destruction of forests, overexploitation of fisheries,
plundering of people’s savings through inflationary monetary policies—all
reflect a lack of social mechanisms for restraint.
The collapses of the Newfoundland cod fisheries and of the U.S. energy and
financial and risk management services company Enron illustrate these
coordination failures—common problems in disparate realms. Potentially
renewable assets—fish in one case, trust in the other—were depleted to the
short-run benefit of some but the long-run loss of society (see figure 2).
Effective coordination requires institutions (informal and formal rules and
organizations) that undertake the following functions: picking up signals
(information, feedback, anticipation of future problems), balancing interests
(transparency, voice, forums for negotiation), and executing agreed-on
decisions (commitment and enforcement mechanisms). Such institutions are often
lacking or are flawed, when some interests are dispersed,
or when some groups in society are poor or in other ways disenfranchised.
Groups that lack assets tend also to lack voice, security, and a stake in the
larger society, hampering institutions’ ability to perform needed coordination
functions. The result is a vicious cycle in which biased institutions implement
policies that lead to an increase in polarization and unequal asset
distributions (see figure 3).
That policies affect institutions and asset distribution is widely understood;
less well known is that asset distribution affects the quality of institutions
and policies.
This cycle can be broken. Certain mechanisms for promoting transparency,
feedback, accountability, commitment, and negotiation of interests have been
successfully applied in fragile lands, rural areas, and urban areas. These
mechanisms do not change institutions overnight but help to build momentum for
lasting change. Over the long run, fostering inclusiveness is essential. South
Africa and Malaysia, among other countries, demonstrate that societies can make
decisive moves toward inclusiveness when it becomes clear that failure to do so
will be unsustainable.
Living on fragile lands—in arid zones, on slopes and poor soils, or in forest
ecosystems—are an estimated 1.3 billion people, (see figures 4 and 5) a number
that has doubled over the past 50 years. The inhabitants of these fragile lands
account for a large share of people in extreme poverty. Living in remote areas
and working in the informal economy, these people are invisible to
decisionmakers.
Remotely located communities in some of the most fragile areas have a modest
portfolio of assets that can help bring them out of poverty, but these assets
are seldom nurtured by local or national institutions. Deftly combining
resources for research and cost-effective services could enable these
communities to catch up with more prosperous, less remotely located
communities. Indeed, managing land to improve livelihoods underscores the
strong link between traditional know-how and outside technical advice, which
results in recognition of the land’s potential and limitations.
By listening to grassroots organizations and testing ideas, governments, civil
society, and donors can promote creativity, adaptable institutions, relevant
policies, and workable solutions to address the social, environmental, and
economic problems affecting one-quarter of the people in developing countries.
Over the next 30 to 50 years, the key development challenges for rural
transformation are to eliminate rural poverty and strengthen rural-urban
linkages, intensify agricultural production and sustainably manage land and
water to feed a growing population, control wasteful land conversion, and
create off-farm economic opportunities. In rural areas with potential for
commercial agriculture, getting ahead of the “scarcity frontier” for both water
and land is crucial. Many areas will experience physical or economic water
scarcity by 2025 (see figure 6). Governments must establish institutions to
equitably allocate water rights and ensure adequate stream flows to maintain
aquatic ecosystems.
Similarly, governments must intervene to protect the environmental values of
land before economic scarcity emerges. Mobilizing support for land management
interventions, and implementing them, presents a host of institutional
challenges. A promising new deforestation control program in the state of Mato
Grosso, Brazil, provides hope that these challenges can be met. An
environmental licensing system uses satellite imagery and ground inspection to
regulate land use by large landowners on 5 million hectares in Mato Grosso.
Through this system, the product of political will and technological and
institutional innovation, Mato Grosso enhances enforcement of land use laws and
deters wasteful conversion of Amazonian forest.
In the case of both water management and land management, two principles should
apply. First, governments must anticipate and attempt to prevent resource
management problems before those problems lead to severe environmental
degradation. Second, where possible, allocation of rights to land and water
should favor poor people. These principles ensure that non-market environmental
values are protected as the economic frontier advances and that economic assets
are put in the hands of poor people, developments that are good for the
environment and for the evolution of local, regional, and national
institutions.
Urban areas are expected to grow significantly in the next 30 years. The number
of urban residents in developing countries and countries in economic transition
will almost double through a combination of rural-to-urban migration, natural
population increases in cities, and reclassification of adjacent rural areas as
urban areas. The growth of urban areas will require physical expansion of the
urban periphery as well as redevelopment and densification within cities.
The increase in share of national populations that will be living in urban
areas (cities and towns) is one of the main forces of social and economic
transformation. The massive new investment in the capital stock of cities
required for the doubling of urban population by 2030 will be critical to
environmental outcomes. Urban land use patterns, right of way arrangements, and
building standards will affect energy and water use.
Some key urban development challenges are anticipating urban growth and guiding
new settlements to prevent future slums, empowering the poor and excluded by
providing access to assets (security of tenure), stimulating urban investment
and job creation, and building informed constituencies to address environmental
and social issues, and anticipate risks.
Institutions for urban governance need to link informal networks of social
capital to formal structures so that together they can address the increasing
scale and complexity of environmental and social assets in cities, while
promoting a well-integrated labor market and improvements in the investment
climate.
Often the urban poor have been left to fend for themselves, leading to the
proliferation of large informal settlements without services (slums) where
residents face serious environmental hazards. This neglect creates high private
as well as social costs. These costs can be mitigated through corrective
measures such as upgrading of investments through programs that involve slum
residents in arranging their own resettlement when necessary to increase their
safety and protect environmentally fragile areas. A more promising approach to
upgrading of investments is to confirm the rights and responsibilities
associated with the occupation and use of land, regularizing tenure status and
thereby removing a major source of economic and political insecurity for
households and communities. Tenure reduces some of the risks that discourage
residents from investing in their houses and shops—and gives residents a
stronger stake in urban society and an incentive to work with local officials
to obtain services.
Because many externalities spill outside municipalities and regions, the nation
is often the level at which interests can be balanced—directly or through
facilitation of negotiation among localities. National actors help to create a
framework and solve problems that cannot be resolved at local levels and are
better placed than local actors to organize the provision of nonlocal public
goods and to take advantage of scale economies when beneficiaries are spread
among many subnational regions.
National concerns requiring coordination at different levels include the
following: promoting inclusiveness (by fostering access to assets and voice),
generating a sound investment climate (attending to macroeconomic fundamentals,
strengthening governance, providing basic infrastructure), managing the
environment (for instance, by regulating pollution and husbanding forests and
fisheries), using aid and natural resources effectively (by avoiding natural
resource depletion and degradation), and averting conflict.
Heavy reliance on natural resources (whether renewable, like forests, or
nonrenewable, like minerals) for public revenues can, in many cases, retard the
emergence of strong institutions (important for both economic performance and
sustainable development) because this reliance weakens government
accountability. Ensuring that development aid does not have a similar effect is
a major focus in current efforts to improve the effectiveness of such aid.
The tragedy of violent conflict is more likely to visit countries with lootable
natural resources and extreme poverty than countries without such resources and
poverty. Poverty reduction and other forms of conflict prevention are
essential, because the risk of conflict increases with poverty, economic
stagnation, and a history of political turmoil. Providing public goods,
reducing negative externalities, and avoiding conflict will require improved
coordination at the national level by promoting inclusiveness and participation
(through voice and improved access to assets) as well as creating the framework
to foster partnerships among stakeholders from government, civil society, and
the private sector.
Many local environmental and social problems spill over national borders.
How can air pollution, water pollution, armed conflict, infectious disease, and
other problems be addressed without a global authority? Some institutions are
finding ways to align interests within and across borders to address the
problems of stratospheric ozone depletion and transboundary acid rain. Other
institutions are emerging to facilitate international coordination, including
broader use of standards and certification and of “coupling institutions” that
link policymakers and scientists, nurturing the development of creative new
solutions to problems.
Two important global sustainability issues are deeply connected to local land,
water, and energy use and have proven difficult to resolve: conserving
biodiversity and maintaining ecosystems, and mitigating and adapting to climate
change. Strategies for biodiversity conservation must operate at the level of
entire ecosystems. The ecological and social issues related to sustainable
forest management, for instance, will be quite different for vast, unpopulated
forests than they will be for highly fragmented and densely populated forests
(see figure 7).
Climate change, if unchecked, could have severe consequences. Long lead times,
and concerted action at the required scale, are necessary to effect changes in
both economic systems and the global climate system.
Lack of assets and lack of an effective voice for large segments of the
population block the emergence of competent institutions that can pick up
signals early, balance interests, and commit to implementation of decisions. As
a result, policies to avoid wasting assets, particularly environmental and
social assets, are not adopted and implemented. The more people heard, the
fewer the assets that are wasted. These messages of World Development Report
2003 inform a variety of recommendations and suggest some issues
requiring further research and dialogue, including a global vision and accord
on sustainable development.
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