More than one billion people in the developing world live in poverty---struggling to survive on less than $370 a year
The world's poor are the subject of this year's World Development Report, which reexamines how policy can help to reduce poverty and explores the prospects for the poor during the 1990s.
The Report suggests that the developing countries that have achieved rapid and politically sustainable progress on poverty have done so by pursuing a strategy with two equally important elements.
The first element is to promote the productive use of the poor's most abundant asset---labor. It calls for policies that harness technology, infrastructure, market incentives, and social and political institutions to that end.
The second is to provide basic social services to the poor. Those for nutrition, primary education, family planning, and primary health care are especially important.
The two elements are mutually reinforcing; one without the other is not enough.
In some countries, such as Brazil and Pakistan, growth has raised the incomes of the poor, but social services have received too little attention. As a result, mortality among children remains unusually high and primary school enrollment unusually low, and the poor are not as well equipped as they might be to take advantage of economic opportunities.
Some other countries, by contrast, have long stressed the provision of social services, but growth has been too slow. In Sri Lanka, for example, primary school enrollment rates and under-five mortality rates are exceptionally good, but the potential for raising the incomes of the poor has gone to waste because of the lack of economic opportunities.
Progress has been greatest in countries that have implemented both parts of the strategy. By promoting the productive use of labor, these countries have furnished opportunities for the poor, and by investing in health and education they have enabled the poor to take full advantage of the new possibilities. In Indonesia and Malaysia this approach has brought about a substantial reduction in poverty along with rapid improvements in nutrition, under-five mortality, and primary school enrollment.
Even if this basic two-part strategy is adopted, many of the world's poor---the sick, the old, those who live in resource-poor regions, and others---will continue to experience severe deprivation. Many others will suffer temporary setbacks owing to seasonal variations in income, loss of the family breadwinner, famine, or adverse macroeconomic shocks.
A comprehensive approach to poverty reduction therefore calls for a program of well-targeted transfers and safety nets as an essential complement to the basic strategy (see the box on page 3).
In the longer term the economic restructuring associated with adjustment is perfectly consistent with the two-part strategy. In the short term, however, many of the poor are at risk. During the transition period the poor can be protected through a judicious mix of macroeconomic policies (for example, pricing policy reforms that benefit poor farmers) and measures to moderate declines in private consumption.
Experience also shows that it is possible to shift public spending in favor of the poor, even within an overall framework of fiscal discipline, and to target transfers more accurately. In addition, increased capital inflows can be used to help cushion the impact of adjustment on the poor.
Although domestic policies are the essential ingredients of a strategy for reducing poverty, international factors play an important part. Three are of particular importance:
World trade. Over the longer term, trade liberalization will benefit low-income countries, but this will depend on whether they adopt policies to encourage diversification away from excessive reliance on a few commodities.
Debt. Additional debt relief would help to increase investment and the consumption of the poor, but it should be conditional on appropriate policy reform.
Aid. Aid can be made a more effective instrument for reducing poverty by linking it more directly to the antipoverty impact of countries' overall policies.
If these things are done---and they clearly can be---the developing countries could lift 400 million people from the ranks of the world's poor in the 1990s.