HUMANDEVELOPMENTREPORT 1992

Publishedfor the United NationsDevelopment Programme(UNDP)

New York OxfordOxford University Press1992

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1[[IForeword

The startling events of the past two yearshave led to the end of a world dividedbetween East and West and to a new age ofpolitical and economic freedom.

Never before has there been broaderconsensus on what is needed for develop­ment. Economic development can be sus­tained only by W1.leashing the creative ener­gie of all people through competitive andefficient markets. And political develop­ment require the democratic participationof all people in shaping their own destiny.

De pite the overwhelming consensuson people-centred strategies, we still live ina world of unequal opportunities. HumanDevelopment Report 1992 take a look atpoor nations and poor people in a globalperspective.

The two previous Reports showed hownational budget could be redirected frommilitary spending and pre tige project intopriority areas of human development, suchas ba ic health and universal primary educa­tion. This year's Report concentrates on theinternational dimensions of human devel­opment. It looks at how immigration poli­cies, trade barriers and international debtcontribute to the continuing disparity be­tween rich and poor nations.

One of the great Ie on of recent de­cade is that competitive markets are thebest guarantee for human development.They open up opportunities for creativeenterpri e, and they increa e the acce s ofpeople to awhole range ofeconomic choice .

Today, national market are beingliberalized all over the world-from Polandto Pakistan, and from Russia to Mexico.Stifling economic controls are being rapidlydi mantled. Public enterprises are being

privatized. Consumer demand is replacingcentralized planning.

It is ironic that while national marketsare opening, global markets remainrestricted. Where can developing nationssell their products unless global markets arealso freed of protectionist restraints?

Tariff and non-tariff trade barriers im­posed by industrial countries cost develop­ing countries about $40 billion a year in lostexport revenues. Imm.i.gration laws blockthe flow of the unemployed or underem­ployed to industrial countries where jobopportunities could significantly increasethe current $25 billion a year in workerremittances.

The message that comes out loud andclear from Human Development Report 1992is that the international community muststrengthen its support to global human de­velopment. It must do this not only throughincreasing aid, but through improving de­veloping countries' access to global mar­kets. This would dramatically increase thecapital flows from North to South-andmake the re ource available to developingcountries for urgently needed investment intheir people. For as the Report states, toeliminate chronic dependency on primarycommodities and aid, developing countriesmust invest heavily in the human capitalnece ary to move into the 21st century onan equal footing with the industrial countries.

I would like to express my appreciationfor the excellent work that the Report teamhas accompli hed under the guidance ofMahbub ul Haq, former Minister of Plan­ning and Finance of Pakistan, who nowselves as my Special Adviser. The view setfOlth in thi Report have emerged from the

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team's profe ional, frank and candid analy­si of the issues. They do not necessarilyreflect the views of UNDP, its GoverningCouncil or other member government ofUNDP. The usefulness of a report such astllls continues to depend on it profe sional

New YorkMarch 2, 1992

independence and intellectual integrity.I am confident that the 1992 Report will

once again make a major contribution to theinternational development debate and tofocusing world attention on people and theirdevelopment needs.

William H. Draper III

Team for the preparation ofHuman Development Report 1992

Special AdviserMahbub ul Hag

IV

UNDPTeamDirector: Inge KaulMembers: Leo Gold toneBernard Hausner, Saraswathi Menon,Moez Doraid, Kees Kingma, withBeth Ebel, Lui Gomez-Echeverri,Gillian Dell, Jeni Klugman, Laura Mourino,Karen Plafker and Peter Stalker (editor).

Panel of consultantsDragoslav AvramovicMeghnad Desai, Keith Griffin,Azizur Rahman Khan, Paul Streeten,and Herbert Wulf, with valuablecontributions from Akilagpa Sawyerr,Arjun Sengupta and John Williamson.

Acknowledgements

The preparation of the Report benefitedgreatly from the valuable contributions bynumerous organizations and individuals.

Several international agencies sharedtheir experience and researchwith the team.The Report draws on the statistical data­bases and material provided by the UNStatistical Office, UN Population Division,UN Centre on Transnational Corporations,UN Centre for Human Rights, UNOV,UNICEF, UNCTAD, UNFPA, UNU,WHO, ITC, ILO, FAO, UNESCO, TheWorld Bank, IMF, WMO, OECD, SIPRI,UNIDO, UNECE, WFP, UNCSDHA,EUROSTAT, IPU, ICUS, World ResourceInstitute and World Priorities Inc. Specialcontributions were received from UNCTADand the International Organization for Mi­gration.

Invaluable comments and data in areaswhere none were otherwise available werealso provided by several UNDP field of­fices, UNDP's Regional Bureaux, the Bu­reau for Programme Policy and Evaluation,the United Nations Development Fund forWomen and the Office for Project Services.

Many colleagues in UNDP contributedcomments and observations on earlier draftsof the Report. In particular, the authors wishto thankWallyAbbott, StephenAdei, BayaniAguirre, Aldo Ajello, Ali Attiga, J. RussellBoner, Stephen Browne, Sharon Capeling­Alakija, Soren Dyssegaard, Gustav Edgren,Daan Everts, Peter Gall, Luis Malia Gomez,Trevor Gordon-Somers, Michael GucovskyNadia Hijab, Arthur Holcombe, NarinderKakar, Basem Khader, Uner Kirdar, AntonKruidelink, Elizabeth Lwanga-Okwenge,Paul Matthews, Jehan Raheem, IngolfSchuetz-Mueller, Krishan G. Singh, Janne

Teller, Sarah Timpson, Emma Torres, DavidWhaley and Fernando Zumbado. Manyother useful suggestions were received fromUNDP colleagues-too numerous to ac­knowledge individually but in all cases mostgratefully received.

Secretarial and administrative suppottfor the Report's preparation was providedby Renuka Corea, Linda Pigon-Rebello, IdaSimons, Flora Aller, Gabriella Charles andKaren Svadlenak. The Report team wasassisted in background research by AnetteAndersson, Manfred Fischer, Isabelle Igert,Lisa Lundal, Maya Matthews and Carinevan Oosteren. Assistance for the Report'sproduction was provided by Frank Burdette,ToniBurnham,EileenHanlon,An~eKharchi,

Alison Strong and LaUl·alee Wilson.The authors of the Report would also

Wee to acknowledge with great appreciationthe intellectual advice and encouragementfrom Irma Adelman, Russel Barsh JagdishBhagwati, Havelock Brewster, RicardoFfrench-Dayjs, Khalil Hamdani, MichaelHopkins, Richard Jolly, Lawrence Klein,Robert Lucas, Jan Martenson, CarlosMassad, Jacky Mathonnat, Goran Ohlin,David Pearce, Graham Pyatt, Gustav Ranis,Karl Sauvant, Alexander Shakow, FrancesStewart, Wouter Tims, DaniJo Tiirk and themembers of the Expert Group on HumanFreedom and Development.

The authors of the Report owe a deepdebt to William H. Draper ill, UNDP Ad­ministrator. His commitment to and beliefin the primacy of people and their contribu­tion to creativity, productivity, innovationand development have been a source ofgreat encouragement and inspirationthroughout.

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Abbreviations

DACECECAECEECLACESAFESCAPEUROSTATFAOGATTGEFHDIIAFIBRDIDAIFADIFCTIDIMPLIBOROASODAOECDPFISAFUNCEDUNCTADUNDPUNEPUNESCOUNFPAUNICEFUNOVUSAIDWFPWHOWIDER

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Development Assi tance CommitteeEuropean CommunityEconomic Commission for AfricaEconomic Commission for EuropeEconomic Commission for Latin America and the CaribbeanEnhanced Structural Adjustment FacilityEconomic and Social Commission for Asia and the PacificStatistical Office of the European CommunitieFood and Agriculture Organization of the United NationGeneral Agreement on Tariffs and TradeGlobal Environment FaciliryHuman development indexIntermediate Assistance FacilityInternational Bank for Reconstruction and Development (World Bank)International Development AssociationInternational Fund for Agricultural DevelopmentInternational Finance CorporationInternational Labour OrganisationInternational Monetary FundLondon interbank offered rateOrganization of American StatesOfficial development assistanceOrganisation for Economic Co-operation and DevelopmentPolitical freedom indexStructural Adjustment FacilityUnited Nation Conference on Environment and DevelopmentUnited Nations Conference on Trade and DevelopmentUnited Nations Development ProgrammeUnited Nations Environment ProgrammeUnited Nations Educational, Scientific, and Cultural OrganizationUnited Nation Population FundUnited Nations Children's FundUnited Nations Office at ViennaUnited State Agency for International DevelopmentWorld Food ProgrammeWorld Health OrganizationWorld Institute for Development Economics Research

Contents

OVERVIEW 1

CHAPTER ONEThe concept and measurement of human development 12Sustainable human development 13The human development index 19Human development in action 24

CHAPTER TWOPolitical &eedom and human development 26Freedom and civil society 26Political freedom and economic growth 27The measurement of political freedom 27

CHAPTER THREEThe widening gap in global opportunities 34Income disparities 34Economic growth disparities 35Disparities in market opportunities 38Human capital disparities 39Official development assistance 41International debt 45

CHAPTER FOURGlobal markets, poor nations, poor people 48Financial markets 48Labour markets 54Markets in goods and services 58Losses from unequal access 66Regional economic groups 67National policies for global competitive advantage 68Country studies 71

CHAPTER FIVEA new vision for global human development 74The existing framework of global institutions 74Global institutions for the 21st century 78

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A transitional strategy 79Towards a new global compact 87

Technical notes 91Bibliographic note 105References 107

HUMAN DEVELOPMENT INDICATORS 119

BOXES1.1 Issues raised by the 1990 and 1991 Human Development Reports 131.2 Balance heet of human de elopment-developing countries 141.3 Balance sheet of human development-industrial countries 151.4 Institutional capacity for sustainable development 162.1 The tide of freedom 282.2 An illustrative checklist of indicators of political freedom 313.1 Investing in Africa's people 403.2 The Trinidad debt reduction proposals 473.3 Independent expert group proposals 474.1 Whoever hath hall be given more 534.2 The brain drain from poor countrie to rich 574.3 Why people migrate 584.4 Workers to work-or work to \vorkers 594.5 Environmental protection and international trade 634.6 Productivity benefits from education 695.1 A Development Security Council 825.2 Restructuring the Global Environment Facility 835.3 International taxation for su tainable development 845.4 Reforming the United ations 885.5 Honesty International 89

TABLES1.1 HDI ranking for industrial countries 191.2 HDI ranking for developing countries 201.3 Gender-sensitive HDI 211.4 Income-distribution-adjusted HDI 222.1 Political freedom index aggregates 323.1 Global income disparity, 1960-89 363.2 Global economy, 1989 363.3 Disparity between rich and poor countries and between rich and poor

people, 1988 363.4 Widening economic gaps between rich and poor 363.5 GNP per capita growth rate 363.6 North-South disparity in human development, 1960-90 373.7 Widening economic gaps between regions 373.8 GNP per capita annual growth rates 373.9 aDA by region 1989/90 423.10 Top 20 recipients, 1990 42

3.11 aDA to the poorest 423.12 aDA shares by income group 423.13 aDA to big military spenders, 1989/90 423.14 Human priorities in bilateral aid 433.15 Human priorities in multilateral aid 433.16 Applying the UN aDA target progre ively 444.1 Long-term real intere tratesin ixindustrialcountries, 1890-1989 494.2 Real interest rates on foreign debt paid by selected major debtors,

1980-85 494.3 Net financi al transfers on long-term lending to developing countries 504.4 IMP net transfers to developing countries 514.5 World Bank: higher lending, lower transfers, 1985-91 514.6 Inflows of foreign direct investment to developing region 524.7 Rate of return on non-residential capital stock in major industrial

economies, 1975-90 534.8 International economic migrants from the developing countries 544.9 Immigration of skilled workers 554.10 Workers' remittances, 1989 564.11 Top 10 developing countries' manufactured exports 695.1 Trends in global military spending 855.2 Peace dividend: actual and potential 875.3 Military-social spending imbalance in the Third World 875.4 Soldier-teacher ratios in the Third World 87

FIGURES1.1 Adjusting the HDI for male-female disparities, 1990 211.2 Adjusting the HDI for income distribution, 1990 221.3 Tracking the HDI over time 233.1 Income disparity between the richest and poorest 20% of the world's

population 343.2 Global economic disparities 353.3 Between countries, between people 363.4 People and growth 383.5 North-South gaps in human development 393.6 Distribution of aDA 413.7 aDA and human expenditure 433.8 Debt-related net transfers 454.1 Disparity in real interest rates between developing and industrial

countries 494.2 Net transfer to developing countries 504.3 Net transfers to developing countries from Bretton Wood

institutions 514.4 International migrants from developing countries 544.5 Shifting demographic balance 554.6 Migration of skilled workers from developing countries 564.7 Cost of global markets to developing countries 675.1 Global military spending, 1960-90 855.2 Peace dividend, 1990-2000 86

ix

ITIOverview

The world has a unique opportunity in thecurrent decade to use global markets for thebenefit of all nations and all people.

Human Development Report 1992 looksat the workings of these global markets-athow they meet, or fail to meet, the needs ofthe world's poorest people.

The global issues in this Report supple­ment the analysis of domestic policy issuesin the first two Reports, which stressed thatthe real causes ofpoverty and human depri­vation lie deep in the national policy actionsof the developing countries. Improvementsin external environment can help greatly,but they can never substitute for domesticreforms.

This Report attempts to place globalmarkets in proper perspective. Competitivemarkets are the best guarantee for efficientproduction. But these markets must be opento all the people, they require a skilfullycrafted regulatory framework, and they mustbe supplemented by judicious social policyaction. "It is not a question of state ormarket: each has a large and irreplaceablerole", as World Bank's World DevelopmentReport 1991 aptly summed up.

If global markets were truly open, theywould allow capital, labour and goods toflow freely round the world-and help equal­ize economic opportunities for all. But glo­bal markets are neither free nor efficient. Ata time when national markets are opening,global markets remain greatly restricted.The developing countrie , with some no­table exceptions, are finding it difficult toexploit fully the potential of these markets.This reflects the weakness in their policiesand the restrictions on global markets.

This Report analyses global markets froma human perspective. Markets may be im-

pressive economicallyor technologically. Butthey are of little value if they do not servehuman development. Markets are the means.Human development is the end.

The Report presents a disturbing newanalysis of the global distribution ofincomeand opportunities-demonstrating that in­come disparities have in recent years wid­ened dramatically.

In 1960, the richest 20% of the world'population had incomes 30 times greaterthan the poorest 20%. By 1990, the richest20% were getting 60 times more. And thiscomparison is based on the distributionbetween rich and poor countries. Adding themaldistribution within countries, the richest20% of the world's people get at least 150times more than the poorest 20%.

How can such disparities persist andeven widen? Why do world markets seemnot to have benefited the poorest? TheReport identifies two main reasons.

First, where world trade is completelyfree and open-as in financial markets-itgenerally works to the benefit of the stron­gest. Developing countries enter the marketas unequal partners-and leave with un­equal rewards.

Second, in precisely those areas wheredeveloping countries may have a competi­tive edge-as in labour-intensive manufac­tures and the export of unskilled labour­the market rules are often changed to pre­vent free and open competition.

The Report concludes tha t ifdevelopingcountries are to trade on a more equal basis,they will need massive investment inpeople-becau e knowledge and the mas­tery of new technology are a country's bestcompetitive advantage today. The Reportalso argu.es for major changes to enable

Markets are themeans. Humandevelopment isthe end.

The issue is notonly ho\ mucheconomic growth,but what kind ofgroUlth

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global markets to work more efficiently andequitably.

The concept of human development

Previous Human Development Reports havedefined human development as the proce sofenlarging the range of people's choices­increasing their opportunitie for educa­tion, health care, income and employment,and covering the full range ofhuman choicesfrom a sound physical environment to eco­nomic and political freedoms.

While many of the policy messages ofhuman development are widely understood,some misunderstandings still exist. There isa real danger that the concept of humandevelopment may become more a fashionthan a practice, more a slogan than a blue­print for action.

Some analysts have incorrectlydescribedhuman development as antigrowth, arguingthat it focuses on tl1e distribution ratherthan the generation of income, that it is asocial rather than a developmental concern.In reality, nothing could be further from thetruth. Human development i concernedboth with developing human capabilitiesandwithusing them productively. The formerrequire investments in people, the latterthat people contribute to GNP growth andemployment. Both ide of the equation areessential.

Another misconception is tha[ humandevelopment is primarily sectoral--------con­cernedwith investment in education, healthand other ocial services. This is incorrect.Developmentalpeople is certainly vital, butit i only one part of the picture. Humandevelopment also means development lorpeople, including the creation of economicopportunities for all. And it means develop­ment by people, requiring participatory ap­proaches. Human development encom­pa e all three aspects, not just one.

Yet another misunder tanding is thathuman development strategies are valid onlyfor the poorest societies, with tl1e primarygoal of sati fying ba ic needs. It is true thathuman needs and goal are at the centre ofuch strategies. But these goals can range

from the most basic ones of human survivalto the most advanced human agenda of

modern cience and technology. People'schoices take centre tage but the choicesdiffer at different stages of development.

Human development is thus a broadand comprehensive concept. It covers allhuman choices in all societies at all stages ofdevelopment. It broadens the developmentdialogue from a discu sion of mere means(GNP growth) to a di cussion of the ulti­mate ends. It is as concerned with the gen­eration ofeconomic growth as with its distri­bution, as concerned with basic needs awith the entire spectrum of human aspira­tions, as concerned with the human dilem­ma of the North as with the human depri­vation in the South. The concept of humandevelopment does not start with any prede­termined model. It draws its inspirationfrom the long-term goals of a ociety. Itweaves development around people, notpeople around de elopment.

This year's Report furthers the explora­tion of human development by consideringthe interaction between people and theirnatural environment. If the objective ofdevelopment is to improve people' choices,itmust do so not only for the currentgenera­tion but also for future generations. In otherwords, development must be su tainable.

Global poverty is one of the greatestthreats to the su tainability of the phy icalenvironment and to the sustainability ofhuman life. Most of the poor live in the mostecologically vulnerable areas-80% of thepoor in LatinAmerica 60% in Asia and 50%in Africa. They overuse their marginal landsfor fuel wood and for subsistence and cash­crop production, further endangering theirphysical environment, their health and tl1elives of their children. In developing coun­tries, it is not the quality of life that is atrisk-it is life itself.

For these ocieties, there imply is nochoice between economic growth and envi­ronmental protection. Growth is not anoption-it is an imperative. The issue is notonly how much economic growth, but whatkind ofgrowth. The growth models ofdevel­oping and industrial countries mu t becomemodels of sustainable human development.

For industrial ocieties, ilie options arelarger. They can afford to slow down theirenergy-intensive material growth and nev-

ertheless improve theirwell-being. They mu tadopt new technologie and comprehensivepolicies to reduce the pressures they put onthe carrying capacity of the earth.

Environmental concerns al 0 differ atdifferent stages of development. The in­dustrial countries are preoccupied withthe destruction of the ozone layer and glo­bal warming-resulting from overcon ump­tion of natural re ource . The concerns ofthe developing countries are more immedi­ate: water and land. Polluted water is athreat to life, and eroded land i a threat tolivelihood.

The Report discusses many concretepolicies to make development sustainable­ranging from national capacity buileLng topayments for ecological space to automaticource of finance to new institutions for

sustainable development. It also offers pro­posals on how to integrate environmentalconcerns in the measurement of humandevelopment.

The human development index

Human Development Report 1990 intro­duced a new human development index(HDI), which combines ufe expectancy,educational attainment and income ineLca­tors to give a composite mea ure of humandevelopment. This Report updates the in­dex with the latest available information.All the components of this year's index arebased on 1990 data.

The updating of HDI has altered therankings for many countries. In the rankingofindustrial countries, Canada has displacedJapan at the top though Romania still lingersat the bottom. For the developing countriesBarbados remains at the top, while Guineaha replaced Sierra Leone at the bottom.

The HDI is an average for each country.It does not reveal disparities among differ­ent social, economic or regional groups. Butfor a selected group of countrie for whichdata are available, separate HDIs have beenprepared to account for gender, income,and regional differences. In addition HDIshave been prepared for a eries of earlieryears, 0 that changes in hwnan develop­ment can be tracked over time.

Human Development Report 1991 pro-

po ed a new human freedom index (HPI).Subsequent debate revealed that much moreconceptual and methodological work is re­quired for a quantification of freedom. Sothis year a new methodology is being ug­gested for the construction of a pouticalfreedom index (PH) to as ess the status ofhuman rights according to generallyacceptedconcept and values.

IneLces such as the HDI and the PHcannot hope to reflect the breadth andcomplexity of the questions they cover. Butthey can help stimulate and clarify debate onsubjects whose difficult and frequentlycontroversial nature often permits them toescape full national and international atten­tion. The debate on the nature and mea­surement of human development willcontinue in future Reports.

Each Report focuses on one importanttheme. Earlier Reports looked at humandevelopment at the national level. This year,the Report reviews human development in aglobal context. It comes to five major con­clusions.

1. Economic growth does not automatic­ally improve people's lives, either withinnations or internationally.

Income eLsparitie within countries are con­siderable. The worst national disparity is inBrazil: 26 times between the richest 20% ofthe people and the poorest 20% accordingto their per capita income. But the interna­tional disparity is far greater: today, it is atleast 150 times-having doubled over thepast 30 years.

The link between economic growth andhuman development breaks down at theinternational level for many of the samereasons as it does at the national level.

The poor have limited acces to creeLt,capital, technology and other productioninputs in their countries. Not regarded ascreeLtworthy, they often turn to moneylenders and to the informal sector for theirneeds. The situation is similar, if not worse,at the international level. The poorest 20%of the world's population receives only0.2% of global commercial bank lending,1.3% of global investment, 1% of globaltrade and 1.4% of global income.

The richest20% of theworld's peopleare at least 150times richerthan thepoorest 20°/r>

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Disparities illtechnology andinformationsystems havewidened

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Many poor countrie are already beingmarginalized in the world trading system­particularly Sub-SaharanAfrica and theleastdeveloped countrie . The hare of Sub-Sa­haran Africa in global trade has been re­duced to a quarter of its 1960 level; theshare of the least developed countries hasbeen halved during the same period. Thepoor-unless helped through vigorou policyaction-tend to drop out of the market­place, whether within nations or at the inter­national level.

Global disparities in indicator of ba ichuman survival (primary education, life ex­pectancy, infant and child mortality) havenarrowed considerably during the past threedecades. But disparities in technology andinformation systems have tended to widen.The countries of the North have, on a percapita basis, nine times the number of cien­tists and technical personnel in the South,nearly five times the tertiary enrolment ratioand 24 times more investment in techno­logical research. They also have a far supe­rior communications infrastructure with 18times as many telephone connections percapita, six times as many radios and eighttimes a many newspaper. Access to tech­nology is particularly well-guarded. And inglobal competition, this edge in technologyand information proves decisive.

Much of the policy and institutionalframework that creates a better link be­tween economic growth and human devel­opment at the national level is simply miss­ing at the international level.• Within nations, people can move insearch of employment and income-earningopportunities. Across nations, immigrationlaws deny workers the opporrunity to equal­ize the rate of return on labour.• Within nations, in titution are set up toincrease the acces of the poor to produc­tion opportunities and financial credit-forexample, the Grameen BankinBangladesh.There are no international Grameen Banks.• Within nation , central banks are re­sponsible for creating and distributing li­quidity to variou sectors ofthe economy, tovarious income and population groups andto different geographical regions. At theglobal level, the IMF has never been al­lowed to function as a central bank.

• Within nation, progressive income taxsystems and expenditure policies are oftenadopted to transfer income and opportuni­ties to the poor. There are no internationalmechani ms for such tran fers.

2. Rich and poor countries compete inthe global market-place as unequal part­ners. Ifdeveloping countries are to com·pete on a more equal footing, they willrequire massive investments in humancapital and technological development.

Developing countries have very weak bar­gaining power in international markets. Mosthave only limited domestic markets and fewgoods and services to sell-depending onthe export of primary commodities, whichoften make up 90% of the exports of coun­tries in Africa and 65% of tho e in LatinAmerica. The price of these commoditiefell dramatically in the 1980s, reinforcingthe long-term trend of deteriorating com­modity markets. Thi was partly becauseworld demand was falling but also becausemany countries were suddenly called on torepay their debts. They had to step up pro­duction and exports to generate sufficientforeign exchange-and then found them­selves competing furiously with each otherin a shrinking market.

For developing countries, the relevantreal interest rate on their foreign debt is thenominal interest rate adjusted by the rate ofchange in their dollar export prices. As aresult primarily of the fall in their exportprices, developing countries effectively paidan average real intere t rate of 17% duringthe 1980s compared with 4% paid by theindustrial nations.

The attempted liquidation of their debtscould not keep up with the fall in the priceoftheir exports that itcaused. This phenom­enon-first identified during the depres-ion of the 1930s-has a paradoxical and

disturbing outcome: themoredebtors pay, themore they owe.

The World Bank and the InternationalMonetary Fund were intended to even outuch swings in international lending and to

strengthen the access of developing coun­tries to global financial markets. They didincrease their net credits to the developing

countries in the early 1980s. But becausethey had neither the necessary re ources,nor the official mandate, to intervene inglobal markets in a meaningful way, theycould not sustain such policie . So, far fromdampening the swings, they amplified them.Between 1983 and 1987, when developingcountries faced a sudden exodus ofcommercial bank lending, net IMF trans­fers turned from plus $7.6 billion to minus$7.9 billion. Net World Bank transfer al 0

turned negative-to minu $500 million in1991.

The market weakness of developingcountries is also evident in their inability toattract adequate amounts of direct foreigninvestment. Investors look for the highestreturn on their capital, and in recent yearsthis has con istently been found in indus­trial countrie . As a result 83% of directforeign investment goes to the industrialcountries. And the developing countries thatdo receive foreign investment tend to be thealready better off-68% of the annual £lowto developing countries went to just ninecountries in. Latin America and East andSouth-East Asia.

This may seem strange, since capitalmight be thought to yield a higher return incapital- carce countries that have abundantlabour. What seems to count just as much,however, is the quality and technologicalcapability of workers. Countrie that havemore educated and more highly skilledworkforces-as well as investment climatesthat are politically and economically morestable-tend to offer better returns. Evennationals ofdeveloping countries invest theirfunds in indu trial countries, adding to theseemingly perverse £low of funds from poorcountries to rich.

This weakness of developing countriesis neither inherent nor inevitable. They canimprove their prospects-through soundeconomic policies, management and majorinve tments in human capital. Some devel­oping countries bave made impressivegains-in life expectancy, in chool enrol­ment, in adult literacy, in nutritional levelsand in gender equality. But if they are toimprove their competitive edge significantlyanJ strengthen their position in global mar­kets, they will have to meet a dual chal-

lenge-broadening the ba ic level ofhumandevelopment and concentrating on moreadvanced areas.

The priority for meeting such essentialhuman needs as basic education and pri­mary health care must remain unchal­lenged, as the first two Human Develop­ment Reports argued. No inverted pyramidof human capital formation can ever bestable. But the developing countries mustgo beyond ba ic concerns of human sur­vival and invest heavily in all levels of hu­mancapital formation-particularly in tech­nical and managerial skills. Unless develop­ing countries acquire greater control overthe expanding "knowledge industry", theywill languish forever in the backwaters oflow-value-added production.

The world is unlikely ever to have anequa] distribution of physical capital. Butimproving the distribution of knowledgeand skills is a much more manageable propo­sition-and it can help equalize the distri­bution of development opportunities bothnationally and globally.

Several countries, industrial and devel­oping, have shown justwhat can be achievedby clear trategies of human capital forma­tion and market penetration. The indu trial"tigers" of East and South-East Asia-in­cluding the Republic of Korea, Thailandand Malaysia-are leapfrogging everal de­cades of development.

Determined national acti.on can thuspropel individual countries to much higherlevels ofhuman development and economicgrowth. But if the developing countries as awhole are to make progress, there will alsohave to be international reforms.

3. Global markets do not operate freely.This, together with the unequal partner­ship, costs the developing countries $500billion a year-l0 times what they receivein foreign assistance.

The re trictions are most evident for goodsand for labour. Tariff and non-tariff barrierskeep out many manufactures from develop­ing countries, and immigration restrictionsprevent workers from migrating in search ofhigher returns for their labour.

Trade barriers in industrial countries

Improlli1Zg thedistribution ofknow/edge andskills is a111anageableproposition

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Poverty needs Ito

passport to travelacrossin tentationalfontiers

6

protect national market from import froma whole range of countrie -rich and poor.Non-tariff mea ures, for example, are im­posed mostly on products in which develop­ing countries are more competitive-onlabour-intensive export such a textiles,clothing and footwear. And tariff levels, fora wide range of goods, increase with thelevel of processing. This is true for spice ,jute and vegetable oil as well as for tropicalfruits, vegetable and beverages. Such in­crease di courage developing counttiesfrom processing their primary commodi­tie -from making chocolate out of cocoaor carpet-backing out of jute.

According to a World Bank study, traderestrictions reduce developing countrie 'GNPs by 3%-an annual loss of $75 billion.Another e timate suggests that, for textilesand clothing alone, phasing out the Multi­Fibre Arrangement could increase the ex­ports of developing countrie by about $24billion a year.

These barriers have actuaJJy been in­creasing. Twenty of 24 indu trial countriesnow are more protectionist than they were10 years ago. Almost 28% of all OEeDimports from developing countries are af­fected by non-tariff barriers. It is true thatdeveloping countrie u e protectionist poli­cies to protect infant and other indu tries.But the real irony is that-when the level ofaverage protection in developing countriesis beginning to come down, partly as a re ultof structural adju tment programmes-theprotectionist trends in the industrial nationsare gaining ground.

The General Agreement on Tariffs andTrade (GATT) was created 0 that uchbarriers could steadily be removed-to thebenefit of world trade as a whole. But itsinfluence has been very limited. Many ar­eas-including agriculture, tropical prod­ucts, textiles, services, intellectual propertyrights and investment flows-do not con­form to its principle. In fact only 7% ofworld trade is in full conforrnitywith GATTprinciples.

Goods from developing countries can­not, therefore, move freely across nationalborders. Re trictions are even tighter on themigration of labour.

An extra 38 million people join the labour

force of developing countries each year­adding to the more than 700 million peopleunemployed or underemployed. If job op­portunities are not created for them manymore will be tempted to join the growingstream of international migrants, legally orillegally. About 75 million people from de­veloping countries are on the move eachyear-a economic migrants, lran ientworkers, refugees or displaced per ons.

In response, the industrial countries arebecoming much more selective about theimmigrants they accept. They have et higherand higher levels of qualification-givingpreferences to skilled workers, or to thosewho bring capital with them, or to politicalrefugees.

These policies are costly for developingcountries. They lose highly skilled people­scientists and professionals, in whose edu­cation they have inve ted many billion ofdollars. But in addition they lose remit­tance that unskilled migrant workers mighthave sent home. Remittances are an impor­tant source of income for many developingcountries. They come not just from indus­trial countries, but also from migrants whohave moved to other-often faster-growingor oil-producing-developing countries. In1989 alone, total remittances from indus­trial countries and the Gulf amounted to$25 billion.

It is clearly unreali tic to expect thatindustrial countries will greatly lower theirimmigration barriers. Instead, sufficienteco­nomic opportunities will have to be createdin the developing world to reduce the pres­sures for migration.

Global market restriction and unequalpartnership cost the developing countriesabout $500 billion-around 20% of theirGNP and more than six times what theyspend on human development priorities,such as basic education, primary healthcare, safe water and the elimination of mal­nutrition. IT this $500 billion were availableto developing countrie -and used well­it could have a major impact on the reduc­tion of poverty. It should never be forgot­ten that poverty needs no passport to travelacross international frontier -in the formof migration, environmental degradation,drugs, disease and political instability.

Radical reform are needed for marketto work in the interests of poor countriesand poor people. But markets alone cannotprotect people against absolute poverty. AI 0

required are strong-and efficient-socialsafety nets, both globally and nationally.

4. The world community needs policiesin place to provide a social safety net forpoor nations and poor people.

The free workings of markets often tend toincrease the disparities between rich andpoor. National governments try to offsetsuch tendencies by redistributing incomethrough systems of progressive income tax.They also supplement this with social afetynets to prevent people from falling intoabsolute destitution.

The United States, for example, "re­cycles" around 15% of its national incomethrough the public budget-to social er­vices, unemployment benefits and welfarepayments. In Sweden, the figure is around30%, and even many developing countrieshave social policies that recycle between 5%and 15% of GDP.

No such systems operate to redi tributeincome effectively at the global level. Somebeginnings are now being made at the re­gionallevel, within the European Commu­nity. But the closest the world comes to aglobal social safety net-providing enablingsupport to poorer population group -isthe current system of official developmentassistance (ODA), which is fatally flawed inmany respects:• Quantity-ODA cWTently amounts toonly 0.35% of the combined GNP of theOECD countrie ,compared with the inter­national target of 0.7%. This is clearly inad­equate. Donor countries consider it neces­sary to recycle abou t 25% oftheir incomes tomeet the needs of their people, including100 million of tho e who fall below poverty­line incomes of around $5,000. But to helpmeet the needs of more than one billion ofthe absolute poor in developing countries,they allocate just 0.35%.• Equity-ODA contribution do not in­

crease progressively with the per capita in­comes of the donors: some of the richestnations give a much smaller proportion of

their GNP than the less wealthy coun­tries give. In fact, orne 80% of thecurren t hortfall of $51 billion [rom theoverall 0.7% target is the re ponsibilityof just two wealthy nations-the UnitedStates and Japan.• Allocation-Aid is often unrelated tothe level of poverty. South A ia receives $5per person while aid-receiving countries inthe Middle East (with more than three timesSouth Asia's per capita income) receive $55per per on. India has 34% of the world'sabsolute poor, yet receives only 3.5% oftotal aDA. Indeed, the 10 countries thattogether have more than 70% of the world'spoorest people receive only a quarter ofglobal aid. The countries that get the mostaid are often those using their resourcesunwisely: high military penders get roughlytwice as much aid per capita as moderatepender , and over 25% more than low

military spenders. Nor is aid allocated towhat should be human priority concerns.Basic education, primary health care, safedrinking water and nutrition programmesget only 10% ofmultilateral aDA, and 6.5%of bilateral aDA. Since the prospects for amajor increase in the total volume of aDAare rather dim every opportunity must beseized to improve the quality of foreignassistance.

If aDA is genuinely to serve as a socialsafety net for the world' poor, it will have tobe based on a new framework-where com­m.itments to the aid effort are treated as firmobligations, where annual flows move pre­dictably, where the burden is di tributedprogressively, and where aid allocation aremade rationally and equitably in accord withagreed global goals. This aid should prefer­ably be channelled through multilateral or­ganizations, wruch can operate without thepolitical pressures that determine much bi­lateral aid. And tl1e disuibution of ODAhould be based on a new policy dialoguetressing that aid should be directed to hu­

man priority concerns and encouraging re­cipients to reduce their military pendingand respect human rights.

Such a fundamental restructuring ofODA can take place only if it is based oninternational agreements that permit bothrich and poor nations to protect their legiti-

It is esselltialto combineglobalefficiency withglobal equity

7

Failure of thepast should bea ouree ofinsl,'uetiol1Itut ofpolitical paraly IS

8

mate intere ts. What needed is a newglobal compact.

6. Industrial and developing countrieshave the opportunity to design a newglobal compact-and to ensure sustain­able human development for all in a peace­ful world.

The du tbin of history is full ofgrand globaldesigns that were never implemented-asobering reflection before making yet an­other attempt. But the failure of the pastshould be a source of instruction, not ofpolitical paralysis. Past proposals often cameto nothing for several reasons. Many wereunilateral-based on concessions by theNorth to the South, rather than on mutualinterest. Often theywere overly ambitious­demanding from industrial countries sub­stantial and politically unpopular increa ein foreign a i tance, rather than offeringwell-considered reforms in global marketsfrom which everyone could gain. Manywerenarrowly focused-on either an economicor political issue. And some proposals werejust made at inappropriate moments-whenthe time for change was not ripe.

With the cold war over, military spend­ing on the decline, economic and politicalfreedom expanding, and a growing publicawarenessofenvironmentalissue ,theworldnow has a unique opportunity to make asubstantial breakwith the past. The time hascome for a new global compact on humandevelopment-an agreement to put peoplefirst in national policies and in internationaldevelopment cooperation.

But a realistic global compact must bevery clearly defined-in the objectives itplans to fulfil, in the resources it needs, inthe strategy for its implementation and inthe in titutional framework required to sup­port it. And it would have to involve give andtake on all sides.

Such a compact would also have to beprepared through a process of worldwideconsultations. A world summit on humandevelopment should be convened to enlistthe support of the world's political leadersfor the objectives of the compact and theircommitment to the resource requirementsit will entail,

Objectives

While the overall objective ofthe new globalcompact would be to improve levels of hu­man development worldwide, developingand industrial countries may want to maketills objective more concrete.

DEVELOPING COUNTIliE might want tosee the compact help them acilleve at leastthe following:• Essentialhumangoals-to be attained bythe year 2000, The e goals should includeuniversal basic education for men andwomen, primary health care and safe waterfor all, the elimination of serious malnutri­tion, and at least 80% access to family plan­nl11g.• Employment-to create ufficient jobopportunities to absorb the new additionsto the labour force and reduce ab olutepoverty by 50%.• CD?growth rate-to be accelerated ig­nificantly to implement the foregoing objec­tives.

INDUSTRIAL COUNTIliES might want thecompact also to cover some of the sharedglobal objectives that are of immediate pri­ority concern to them:• Drug trafficking and pollution-to betackled by close cooperation among all coun­tries in the world.• Immigration pressures-to be relievedthrough creating more job opportunitiewithin poor nations.• Nuclear threats-to be eliminated as in­ternational tensions are defused and coun­tries willingly accept reductions of nuclearweapons, including non-proliferation poli­Cles.

Certainly developing and indu trialcountries wouldjointly agree that the fore­going goals carmot be successfully pursuedwithout firm policy commitment to the fol­lowing:• Clobal peace and dl:\'armament-besidesstrengthening global and regional peace ar­rangement ,military spending to be reducedprogressively in both industrial and devel­oping countries.• Development secun'ty-to prevent theaccumulation of unmanageable debt bur­dens whether environmental, financial orsocial.

Resource needs

The global human development compactwill have costs. And these will not only befinancial. First and foremost, the compactcalls for a firm policy commitment to the setobjectives. Only if policy-makers are com­mitted to the ends will they agree on themeans.

But to reach agreement on the financialre ource requirements of the compact, it isimportant that its objectives are, as far aspossible, fully co ted and that there is a clearidentification of the funding sources to betapped. The e could include:• The peace diVIdend-AIl countries, in­dustrial and developing should committhemselves to reducing military expendi­tures during the 1990s by at lea t 3% a year.This reduction would yield by the year 2000a total peace dividend of around $1.5 tril­lion-$l.2 trillion in the indu trial countriesand $279 billion in the developing coun­tries.• A reformed system ofofficial developmentassIstance-The world need a new aDAsystem that i progressive, predictable andequitable. Since it will take time to developsuch a comprehensive reform, the majorfocus should be on improving the quality ofcurrent aDA. At least two-third of aDAshould be channelled to the poorestnations (compared with the present one­quarter) and at least 20% should go tohuman priority expenditure (compared withthe pre ent 7%).• A global debt bargain-A new bargainmust be struck with the severely indebtednations to halt the current debt-related nettransfer of $50 billion a year from the devel­oping to the industrial countries. This willinvolve a major write-down of debts byofficial donors and commercial banks aswell as by multilateral institutions.• Open global markets-Global marketsshould be liberalized both in good andservices, to accelerate global growth and toensure much better distribution of thisgrowth. In particular, the existing restric­tions on the export of textile clothing andagricultural, tropical and resomce-basedproducts should be eliminated. This shouldenable developing countries to increa e their

exports by $40 billioD a year and thus gainnew employment and income earning op­portunities for their people.

Strategy

To ensure that the re ourCe mobilizationmeasure are linked to the attainment of theagreed-on objectives of the compact, it willbe necessary to base the design of the com­pact and its implementation on carefullycrafted strategies. The e are needed not justinternationally but withiD regions andcountries. Although the strategies will natu­rally differ from one country and one regionto another, there are likely to be commonelements.

DEVELOPLNG COUNTRIES should adoptimproved policies ofnational governance tomake them fully responsive to the needs oftheir people. This might include more opengovernment, based on respect for humanrights and on wide participation, both inpolitical life and in development planning.Public administrationshould run with greatertransparency and accountability. And pub­lic policy should provide a framework com­bining private initiative, energetic entrepre­neurship and the efficient functioning ofnational and international markets with well­defined policies and targets for human de­velopment.

INDUSTRIAL COUNTRIES will have to en-ure that their peace dividend is carefully

managed. The resomces released will beneeded for structural adjustment pro­grammes if industrial countries are toliberalize their markets in goods capital,technology and labom-a well as to fi­nance higher levels of human developmentat home and abroad.

ALL COUNTRIES will need to come to­gether in joint action programmes to com­bat some of the most serious global prob­lems-including poverty, hunger, illiteracy,drug trafficking and abuse, nuclear prolif­eration, international terrorism illegal mi­gration, the depletion of non-renewable re-ource and the spread of pollution. These

must be based on a recognition that theworld cannot be made safe without the fullcollaboration of all-rich and poor, Northand South. Only through cooperation can

A peace dividendof arolmd$1.5' trillioncan be reali~ed

by the year 2000

9

The global reforms in the years ahead shouldaim at improving the well-being of all theworld's more than five billion people. Hu­man Development Report 1992 analyses thefunctioning of global markets from this hu­man perspective. And although the reformsemphasized in this Report are global, theyare intended as a complement to-not a

ties include creating new bond through aninternational investment U'ust, and openinga new intermediate lending window to meettlle need ofcountries that no longer qualifyfor conces ional funds from IDA (the Bank'ssoft-loan window) but are not yet ready tomeet the stiffer terms of the IBRD (theBank's commercial window).

TilE lNTERNA'nONAL MOl ETARY FUND

hould be strengthened to enable it to irn­po e adju tment progranunes not just ondeveloping countries but also on industrialnations. The IMP should, above all, movemuch more towards assuming the role of aglobal central bank-providing and manag­ing global liquidity.

THE GLOBAL ENVIRONMENT FACLLITY,

which UNDP, UNEP and the World Banknow manage jointly, hould also be restruc­tured so that it can playa more ignilicantpart in global environmental protection andsupport for ecologically sustainable devel­opment. This would involve broadening theFacility's manag mem structure to give agreater voice to the developing nation ,fo­cusingmore on the domestic environmentalpolicies of developing countries and enlarg­ing tlle Facility' financial base. The UNConference on Environment and Develop­ment and its follow-up activities will offer aunique opportunity to achieve concreteprogress in these area .

THE GE ERAL AGREEMENT ON TARIFF

AND TRADE hould have it mandate en­larged to cover most international trade. Assugge ted by the ongoing Uruguay Roundof multilateral trade negotiations, this wouldmean applying GATT principle to agricul­ture tropical products, textiles and trade­related aspect ofservices intellectual prop­erty rights and inve tmem flow. The GATTSecretariatwould al 0 be more effective ifithad a small executive board--one that car­ried sufficient regulatory clout.

Glob It'efo1"111- m'ea complement to­not a substitutefor-determi1lednational action

to

the world achieve sustainable human devel­opment.

eeded today are a clear vision of hu­man goals over the next decade and a newinstitutional franlework for their implemen­tation. Human destiny is a choice, not achance.

Institutional/ramework

The world needs a new vision of globalcooperation for the next century. Globalinstitution of the 21 t entury might in­clude a global central bank, a y tern ofprogressive income tax, an internationaltrade organization and a strengthened UNsystem. In the meantin1e, reforms of theexisting institutions hould be examined asa transitional strategy.

TI IE U [fED NATIO should be greatlystrengthened-politically, manageriaJJy andfinanciaJJy. All nation large and small,should accept the collective umbrella anddiscipline of the UN and pay a contributionassessed by income level and size, and morein line with existing development needs. Apermanent, multilateral p acekeeping forceshould be created under the umbrella of theUN. These reforms would enable the UN torespond quickly and effectively, both topolitical conflict and to development andhumanitarian need .

The United Nations should also play anincreasingly important role in economic andsocial matters. Thi could be achievedthrough the creation ofa 22-memberDevel­opment Security Council, with 11 perma­nent and 11 rotating rnemb r .The Councilwould arrive at a political con en us ondevelopment policy-to be implementedby the appropriate agencies. It would con-ider all major global i ues-including pov­

erty eradication, human development, foodsecurity, trade negotiation commodityprices, debt, development assi tance, drugtrafficking, refugees and the managementof the global commons.

THE WORLD BANK hould re-establi hitrole a a sympathetic intermediary betweendeveloping countries and the global capitalmarkets. It might develop new lending in­struments to recycle fund better from in­dustrial to developing countrie . Possibili-

• • •

substitute for-determined national action.The basic message of this year's Report

is that the world has a unique opportunity touse global markets to the benefit of all.Removing many of the resu'ictions on worldtrade will help global markets to deliver

more fully the benefits they have alwayspromised. And by making a substantial in­vestment in human capacity building, eco­nomic management and technology, devel­oping countries can engage in world trade asequal partners and earn equal benefits.

11

CHAPTER 1

It IThe concept and measurementof human development

People contributeto growth, andgrowth contl'ibufesto humanwell-being

Human development has moved to the cen­tre of the global development debate. It isbeing incorporated in the development strat­egies of countries all over the world-fromBangladesh to Ghana to Pakistan to Colom­bia. It is an important element in discussionson international aid. And it is now the coreof the UN's International DevelopmentStrategy for the 1990s.

Universal acceptance, however, bringits own dangers. The concept can becomemore popular than understood, more a fash­ion than a practice, more a slogan than aguide for action. The Human DevelopmentReport will, therefore, each year re-exannnethe basic concept and its measurement. Itwill also explore new directions. This year,for instance, the Report examines the linksbetween human development and the envi­ronment-and between human develop­ment and global markets. In addition, itsuggests further innovations in the humandevelopment index and offers suggestionsfor translating human development ideasinto practical action.

The first Report, in 1990, defined hu­man development as "a process ofenlargingpeople's choices". Income is certainlyone ofthese choices, but it is by no mean the onlyone. The objective of development is thatpeople can enjoy long, healthy and creativelives-a simple truth, but one often forgot­ten in the rush to accumulate more posses­sions and greater wealth (box 1.1).

Some who welcome the Report's focuson people seem, nevertheless, to have mis­understood some of the underlying ideas.They have suggested, for example, that hu­man development is concerned with thedistribution of wealth, not with its creation.Nothing could be further from the truth.

Th.e mistake probably arises because the

concept of human development does em­phasize investment in people-in basichealth and nutrition, for example. But this isa form of investment, not just a means ofdistributing income. Healthy and educatedpeople can, through productive employ­ment, contribute more to economic growth.

Previous concepts ofdevelopment haveoften given exclu ive attention to economicgrowth-on the assumption that growthwill ultimately benefit everyone. Humandevelopment offers a much broader andmore inclusive perspective. It demonstratesthat economic growth is vital: no society hasin the long run been able to sustain thewelfare of its people without continuousinjections of economic grO\vth. But growthon its own is not sufficient-it has to betranslated into improvements in people'slives. Economic growth is not the end ofhuman development. It is one importantmeans.

Thus, human development and eco­nomic growth are closely connected. Peoplecontribute to growth, and growth contrib­utes to human well-being.

The emphasis that human developmentplaces on human capabilities has also ledsome people to believe that human develop­ment is limited to social sectors, such ashealth or education. These investments inpeople are vital, but they are only one part ofthe picture. Human development is notlimited to any specific sector. It does notfocus on social issues at the expense ofeconomic issues. It tresses the need to

develop human capabilities. But it is equallyconcerned with how those capabilities areused-by people who can participate freelyin social, political and economic decision­making and who can work productively andcreatively for development.

12 U lLI DlI\lRIII 1011

Sustainable human development

BOX 1.1

Issues raised by the 1990 and 1991 Human Development Reports

North as with the human deprivation in theSouth. Human development, as a concept,is broad and comprehensive. But it is guidedby a simple idea-people always come first.

Population and levels of economic activityhave increased more rapidly in the last fourdecades than at any time in human history.Since 1950, the world's populationhas grownfrom 2.5 billion to 5.3 billion. Much of thatgrowth has taken place in developing coun­tries, with 77% of the world's people.

Although fertility levels and populationgrowth rates are declining, the large base ofyoung people already born means that the

wasteful expenditure on the military andon 10 s-making public enterprises, forexample, and towards more relevant pri­orities such as basic education and pri­mary health care.

The analysis suggested the use offour ratios indicating the proportion ofnational income committed to priorityhuman expenditure. These ratio high­lighted some disturbing anomalies. Manydeveloping countries spend more than25% of their GNP through the budget,yet direct less than a tenth of tlli expen­diture at human priority development.The analysis showed that even the poor­est countries have enormous potentialfor improving the well-being of millionsof their people by targeting their budget­ary expenditures better.

As well a looking at national bud­gets in developing countries, the 1991Repott considered the potential for re­structuring international aid allocations.For bilateral aid donors as a whole, itdiscovered that Ie s than 7% of their totalaid was going to human priority areas indeveloping countries. It concluded thateven mode t resu'ucturing could achievea great deal: reallocating just a third oftoday's aid could produce a fourfold in­crease in the amount going to humanpriority conCerns.

The Report's conclusion was c1ea.rand unambiguous: "TIle lack of politicalcommitment, not of financial resources,is often the real cause ofhuman neglect."

The fir t Human Development Report, in1990, defined human development asthe process of enabling people to havewider choices. Income is one of thosechoices, but it is not the 'um total ofhuman life. Health, education, a goodphysical environment and freedom ofaction and expression are just as impor­tant.

Human development cannotbe pro­moted, therefore, byasingle-minded pur­suit ofeconomic growth alone. The quan­tiryofgrowth is important: without uffi­cient resources, little can be achieved.But the quantity of growth is only oneconulbution to human development. Thedistributionofgrowtbis also important­whether people participate fully in theprocess of growth.

TIle 1990 Repott also designed anew measure for socio-economicprogress: the human development index(HOI). TIle HOI integrated life expect:­ancy, adult literacy and income in aninnovative way to produce a yardstickmore comprehensive than GNP alonefor measuring country progress.

The 1991 Report developed the hu­man development concept further. Itconcentrated on the role of national gov­ernments-asking how they couLd gen­erate the resources to promote humandevelopment. The Report concluded thatan enormous amount could be saved(more thaJl $50 billion a year) by resU'uc­turing national budgets-away from

The people ofdeveloping countries haveignificantly improved their capabilities in

recent years (boxes 1.2 and 1.3). In lifeexpectancy and basic education, they havebeen closing the gap with industrial coun­t11es. But in other areas, the gaps are widen­ing-in higher education, technology,informatics and labour productivity. So, topromote economic growth in tlle future,they will also have to acquire the moreadvanced skills needed at the new techno­logical frontiers. East Asia's industrial "ti­gers" have demonstrated just how this canbe done. The Republic of Korea increasedlabour productivity by 11% a year between1963 and 1979. And Thailand has surpassedeven this performance by increasing pro­ductivity by 63% between 1980 and 1985.Human development contributed much tothese gains in productivity and economicdevelopment.

A further fallacy about the concept ofhuman development is that it applies only tobasic needs-and only to poor countries.Not so. The human development conceptapplies to countries at all levels of develop­ment. People everywhere have needs andaspirations-though these naturally varyfrom one country to another. The majorityof the people in the poorest countries arepreoccupied witb staying alive. People innewly industrializingcountries are concernedabout acquiring more advanced skills andkeeping abreast of technical change. Peoplein rich countries may be more worried aboutsocial issues, such ashomelessness and drugaddiction.

Each country will have its own humanagenda, but tlle basic principle should bethe same-to put people at the centre ofdevelopment and to focus on their needsand their potential. Human developmentspans the full range of human needs andambition.

Human development concerns all ac­tivities-from production processes, to in­stitutional changes, to policy dialogues. It isdevelopment focused on people and theirwell-being. It is as concerned with the gen­eration of economic growth as with its distri­bution' as concerned with basic needs aswith the spectrum of human aspirations, asconcerned witll the human dist.ress of the

13

BOX 1.2

Balance sheet of human development-developing countries

PROGRESS DEPRIVATION

LIFE EXPECfANCYI

-• Average life expectancy is now 63 years-17 years more • 14 million children die every year before they reach the age

than in 1960. In 26 developing countries, it is above 70 of five.year.

HEALTH

· Two-thirds of the people have ready access to health • Nearly 1.5 billion people lack access to health services.services. • 1.3 billion people still lack access to safe water.

• Access to safe water has increased in the past 20 years • 2.3 billion people lack access to sanitation.by more than two-third. 0 In Sub-Saharan Africa. one adult in 40 is HIV-infected.

• Public expenditure on health a a proportion of GNPincreased by nearly 50% in the past 30 years.

FOOD AND NUTRITION

• Daily calorie supply is nowaboUL 110% of the overall 0 Over 100 million people were affected by famine in 1990.requirement (compared with 90% some 25 years ago). 0 More than a quarter of the world's people do not get

enough food, and nearly one billion go hungry.

IEDUCATION

1

• The adult literacy rate has increased by more than one- 0 Over300 million children are outof primary and secondarythird since 1970. school

• Nearly three-quarters ofchildren are enrolled in school. • Nearly one billion adults are illiterate, nearly 600 million ofthem women.

INCOME !

• More than 2% of GDP is spent on social ecurity 0 1.2 billion people stili barely survive-in absolute poverty.benefits. 0 About halfthe people in Sub-Saharan Afnca are below the

• Employee earnings grew some 3% annually in the poverty line.1980s, twice the rate in the 1970s and greater than thatin industrial countries.

CHILDREN !

• The mortality rate of young children has been halved in 0 Nearly one million children in Sub-Saharan Africa arethe past 30 years. infected with HIV.

• The immunization rate for one-year-old children has 0 Infant mortality figures In the poorest nations are 115 perincreased hom one-quarter to more than three-quar- 1,000 live births.ters during the past 10 years. 0 180 million young children are still malnourished.

WOMEN

• The male-female gaps in primary education have cle- o Females receive on average only half the higher educationcreased by half in the pa t 20 to 30 years, and in literacy of males.by one-third in the pa t 20 years. 0 Female representation in parliament is only 14% that of

males.

14

BOX 1.3

Balance sheet of human development-industrial countries

PROGRESS DEPRIVATION

UFE EXPECTANCY AND HEALTH

EDUCATION

o One-third ofadults have not completed secondary educa­tion.

o For every 100 teachers, there are 97 soldIerS.

• One in three adults smokes.o Nearly five people in every 1,000 are seriously injured in

road accidents,• The cost of in-patient care has increased by two-thirds

since 1980.o Some 300,000 cases of AIDS have been reported to date.

o The proportion of the population going on to university11a increased from Ie s than one-quarter in 1965 tomore than one-third today.

o There are more than 80 scientists and technician forevery 1,000 people.

o Average life expectancy is 75 year.o There is one doctor for every 460 people.o Two-thirds of the people are eligible for public health

insurance and nearly three-quarters of the health billsare paid by public insurance.

WOMEN

INCOME AND EMPLOYMENT

• Women's wages are still on average only two-thirds thoseof men,and their unemployment rate is consistentlyhigher.

o Each year, one woman in 2,000 is reported raped.

• In the OEeD countries alone, an estimated 30 millionpeople are unemployed, and one-third of them have beenout of work for over two years. The rate of unemploymentamong youth Is 13% and rising.

• The wealthiest 20% ofthe people receive on average seventimes the income of the Poor€st 20%.

o Average income ha increased three and a half times inthe past 30 years.

o Social security benefits average nearly 11% of GDP,and 1.3%ofGDPis spentonlabour market programmes.

o More than one-quarter of the labour force i unionized.

o At the secondary level, female school enrolment ishigher than male. At the tertiary level, it is aboutequal-lhough about one-third less for science.

• Women' participation in the labour force was 44% ofmen' in 1960. Now it is 78%.

SOCIAL FABRIC

o Nearly one person in two ha a lV, one in three readsa newspaper and eight in 10 visit amuseum at least oncea year.

• On.e In every 500 people is in jail.o The average homicide rate is four per 100,000.• The annual divorce rate for people over 25 is nearly 5%.

ENVIRONMENT

o Since 1965, production has become six rimes Ie senergy-intensive.

o Some 60% of people are served by water-treatmentfacilities.

o Industrial and other countrieshave agreed ro phase outmajor CFCs (chlorofluorocarbons) by the year 2000.

• The greenhOUSe il1dex is fourtimes that of the developingworld.

• 42 kilograms ofair pollutants are emitted annually per 100people.

• Nearly 10 metric tons of hazardous and special waste aregenerated annually per square kilometre.

15

BOX 1.4

Institutional capacity for sustainable development

world's population will continue to grow forsome time, perhaps doubling hefore it stahi­Lzes. The sheer numbers of people meansthat continuing growth in economic activityis inevitable.

Throughout the world, people aspire toparticipate in the benefits that derive fromproduction and trade among themselvesand with other societies. It is inconceivable,however, that the world can support billionsof people in the wasteful style to which the

16

Few developing countries have the ca­pacity to formulate, plan, implement andmanage environmental programmes­and to incorporate these programmesinto their overall human developmentefforts. This inadequacy is often per­ceived as one of the main obstacles toimplementing sustainable human devel­opment policies and programmes.

Strengtheningnationalcapacitynatu­rally means training people--quali£ieddecision-makers, managers and line per­sonnel are essential at all levels. But ital 0 means creating se1f- upportingcapacities in formulating and managingenvironmental policy, in generating andassimilating appropriate technologies andin developing community awareness andsupport for the issues, problems and op­portuni ties.

Capacity building for developmentcalls for a major and sustained domesticcommitment in each country and forinternational support. uch internationalsupport-trom bilateral or multilateralsources, as well as cooperation amongdeveloping countries-willbe neededfora substantial period. Furthermore, exter­nal support will have to go far beyondtechnical a sistance to include major re­source transfers in the form of invest­ment and loan financing. Technical as is­tance can, of course, be a catalyst settingthe stage for resource transfers and help­ingro formulate and implement externalfinancial assistance.

It is difficult to e timate the cost ofmeeting the capacity-building needs.What i evident, however, is that a tran­sition to more su tainable models of de­velopmentrequi.res a massive effort by allcountries. To estimate the requirementsfor such an effort, more detailed needsassessments must be undertaken. Onthe

basis of such assessments, a more sys­tematic capacity-buildingprogramme canbe designed.

This capacity-building programmecould be funded as a separate window ofthe Global Environment Facility (GEF)or any other global fund to be agreed onat UNCED. Of the tOtal amount avail­able, 10-15% should be exclusively as­signed for building and strengtheningindigenous capacity. The programmecould comprise three subprogrammes:

Environmental managementplanning-to help developing countrie preparetheir own parts of "Agenda 21 " the glo­bal programme for sustainable develop­memo The main purpose of thisubprogramme would be to establish ca­pacity in developing countries to planand manage the environment within thecontext of their overall planning.

A capaci/!y-buildingwindow-topro­vide resources to developing countriesfor specific capacity-building programmesin su pport of Agenda 21. Theseprograrnmeswould be aimed particularlyat institution building, policy and legisla­tion-and would help developing coun­tries e tablish the proper administrativeand regulatory infrastructure to imple­ment sustainable human developmentpolicies and programmes.

Sustainable development network­to enhance cooperation among develop­ing countrie through the exchang ofinformation and policy experience onsustainable development.

In a tecent survey by UNDP, morethan 100 countries con£irmed that suc­cess of the UNCED depends on theability of developing countries to planand manage their own environment andsustainable human development agenda.

better-offminorityhas become accustomed.The 23% of the world's people living inindusu-ial countries of the North earn 85%of the world's income. The strains of thislevel of economic activity are felt in the lossof forests and species, the pollution of riv­ers, lakes and oceans, the accumulation ofgreenhouse gases and the depletion of life­preserving ozone.

Industrial countries are beginning torecognize these problems and the need toaddress them. In some quarters, the pro­posed solution is to institute measures toprevent the developing countries from par­ticipating in the economic activities that putsuch pressures on the environment. Such asystem would, of course, be totally incor­rect. There nevertheles is a welcome recog­nition of the fact that industrial countrieshave made major mistakes in developingenergy-intensive patterns ofproduction andconsumption. The human race cannot con­tinue to devour the world's resources anddump its wastes in the ways now practisedby the affluent minority.

Mfluent life styles and practices are notthe only source of environmental deteriora­tion. Equal and sometimes even greaterstrains are put on the world's ecologicalsystems by the poverty in which three-qu31'­tel'S of the world's people live. Poor peopleand poor countries depend on the soil forfood, the rivers for water and the forests forfuel. Even though they need these resourcesdesperately, the poor have little choice­without assets or income-but to overuseand destroy, simply to survive. In doing so,they threaten their well-being 311d that oftheir children.

The current course is not inevitable. Itcan be reversed, and the health and well­being of all the world's people C311 be as­sured, if problems are acknowledged, re­sponsibility for them is accepted, and mea­sures to address them-including some verydifficult ones-are undertaken (box 1.4).The United Nations Conference on Envi­ronment and Development (UNCED), tobe held in Brazil in June 1992, offers anopportunity to address many of these issuesand negotiate the kinds of changes andsacrifices needed to reverse the negativetrends that are now so painfully apparent.

Poverty) environment and humandevelopment

If development is to widen the range ofpeople's choices, it must do so not only forthe current generation but for future ones aswell. It must be sustainable. One of thegreatest threats to sustainable human andeconomic development comes from thedownward piral of poverty and environ­mental degradation that threatens currentand future generations.

Some 1.4 billion of the world's 5.3 bil­lion people live in poverty. Other estimatessuggest that including those living "alongthe subsistence margin" with only minimalnecessities increases the number of poor tonearly two billion.

The poor are disproportionately threat­ened by the environmental hazards andhealth risks posed by pollution, inadequatehousing, poor anitation, polluted water anda lack of other basic service . Many of the ealready deprived people also live in the mostecologically vulnerable areas. According toone estimate, 80% of the poor in LatinAmerica, 60% of the poor in Asia and 50%of the poor in Africa live on marginal landscharacterized by low productivity and highsusceptibility to environmental degrada­tion-including arid land , soils with lowfertility, steep slopes and urban slums andsquatter settlements. The environmentaldegradation that results when people usethe e marginal lands for fuel wood and forsubsistence and cashproduction makes theirpoverty worse. It also threatens their healthand well-being and that of their children.And as cash-crop production displaces sub­si tence activity, the poor are furthermarginalized and pushed onto environmen­tally fragile lands.

Sustainable development and economicgrowth

The call for sustainable development is notsimply a call for environmental protection.Instead, su tainable development implies anew concept ofeconomic growth-one thatprovides fairness and opportunity for all theworld's people, not just the privileged few,without further de troying the world's finj te

natural resources and without compromisingthe world's carrying capacity.

The World Commi sion on Environ­ment and Development defined sustainabledevelopment as development that fulfils theneeds of the present without limiting thepotential for meeting the needs of futuregenerations. Put forward in 1987, this defi­nition has gained widespread currency andsupport, though those who use it may notalways have similar perceptions about whatit means.

Sustainable development is a process inwhich economic, fiscal, trade, energy, agri­cultural and industrial policie are all de­signed to bring about development that iseconomically, socially and ecologically sus­tainable. That is, current consumption can,not be financed byincurringeconomic debtsthat others must repay in the future. Invest­ment must be made in the health and edu­cation of today's population so as not tocreate a social debt for future generations.And natural re ources must be used in waysthat do not create ecological debts byoverexploiting the carrying and productivecapacity of the earth.

In general, the minimum requirementsfor achieving sustainable development in­clude:• The elimination of poverty.• A reduction in population growth.• More equitable distribution ofresources.• Healthier, more educated and bettertrained people.• Decentralized, more participatory gov­ernment.• More equitable, liberal trading systemswithin and among countries, including in­creased production for local consumption.• Better understanding of the diversity ofecosystems locally adapted solution to en­vironmental problems and better monitor­ing of the environmental impact ofdevelop­ment activities.

Should economic growth be curbed toconserve the environment? Ye may seemthe obvious answer. But such a facile replyavoids the most serious issues in developingcountries with more than one billion peoplein absolute poverty and another billion onthe margin of poverty. The poor cannotaccept that their past and their present should

Currel1tC011SUmptioncall11.ot be financedby ;ncll1Ting debtsthat futuregenenltiolls mustJ'e/Jay

o I 17

Poverty is dS

great an enemy ofthe environmentas misspentaffluence

be projected into an indefinite future. Norcan they accept that the indusu-ial countriesare entitled forever to an 85% share of theworld's income and a perpetuation of theirenergy-intensive patterns of consumption.This generation, in addition to leaving alegacy of "environmental debt" to futuregenerations through pollution and exhaus­tion of resources, is in danger of leaving afinancial debt, as a result of past borrowing.This generation is also in danger of leavinga social debt, if today's young people lackthe standards of health, education and skillto cope with tomorrow's world.

Today's environmental awareness ishighlighting many new areas of potentialconflict-between industrial and develop­ing countries between environmental pro­tection and economic growth, between thisgeneration and the next. It would be naiveto suggest that they can all be resolved.These debates will continue long into thenext century and beyond. But the conceptof human development can offer a fewguiding principles.

The first is that "sustainable human de­velopment" should give priority to humanbeings. Environmental protection is vital.But (Wee economic growth) it is a means ofpromoting human development. The pri­mary objective of our efforts must be to

protect human life and human options. Thisimplies that the longer-term viability of theworld's natural resource systems-includ­ing their biodiversity-has to be ensured.All life depends on them.

The second guiding principle is that fordeveloping countries there can be no choicebetweeneconomic growth and environmen­tal protection. Growth is not an option. It isan imperative. The issue is not how mucheconomic growth but what kind of growth.No growth can be as detrimental to theenvironment as rapid growth.

!tis not the rate ofeconOrrllC growth thatallows us to gauge the effect on the environ­ment. It is the composition of GDP-theproduct mix as well as the types of produc­tion processes-that alone can tell uswhether the overall impact on the environ­ment is positive or negative. Income shouldideally be measured in net terms-afterdeducting the depreciation of physical

capital, human capital and the stock ofnatu­ral resources. Environmental problems arisewhen the depreciation of natural resourcesis ignored merely because it carries no pricetag.

Developing countries need to acceler­ate their rates ofeconomic growth. But theymust adopt strategies that, as far as possiblerespect the physical environment. Thismeansusing technologies different from those usedin the past by industrial countries-less en­ergy-intensive and more environmentallysound.

Industrial countries also want to can­tinuetodevelop. Butmuch of their develop­mentwillhave to be in improving the qualityof life if the natural carrying capacity of theplanet is not to be strained further.

The third gu.iding principle is that eachcountry has to set its own environmentalprioritie ,which often will be very differentin industrial and develo'ping countries.

Industrial countries see air pollution asa health hazard, but they are also moregenerally concerned about a degradation ofthe quality of life-an imbalance betweenhuman beings and the rest of the naturalworld. And their concerns are often pro­jected long into the future, with attention tosuch problems as global warming and thedestruction of the ozone layer. Many ofthese problems can be associated with theindustrial countries' overconsumption ofnatural resources.

Developing countries are often con­cerned less about the quality of life thanabout life itself. And their concerns aremuch more immediate: polluted water is athreat to life, eroded land a threat to liveli­hood.

Poor people often lack the financialstrength to conserve, replace and replenishtheir natural surroundings. Crop-rotationcycles have become sholter and shorter, andmore and more marginal land is beingfarmed. In 1984, an estimated 135 millionpeople lived in areas affected by desertifica­tion (compare that with 57 million people in1977).

Thus, at the lower end of the incomescale, poverty is as great an enemy of theenvironment as misspent affluence by richsocieties.

18 1(

The human development index

To ensure that development planning isdirected to people sneeds requires improvedsocial tatistic and new development mea­sures. Human Development Report 1990therefore introduced the human develop­ment index (lID!), which combines indica­tor of national income, life expectancy andeducational attainment to give a compositemeasure of human progre .

This year, the HDI has been updatedwith the latest available data. Earlier lIDIsincluded information five to 10 years old.The lIDI in this RepOlt is ba ed entirely on1990 data.

The revi ion has altered tl,e rankings formany countries (table 1.1 and 1.2). In theranking of industrial countrie , Canada hasdisplaced Japan at the top, though Romaniastill lingers at the bottom. For the develop­ing countries, Barbado remains at the top,while Guinea replaces Sierra Leone at thebottom.

It should be recalled that the lIDI doesnot mea ure absolute levels of human de­velopment. It ranks countries in relation toeach other, according to how far tl,ey havecome from the lowest levels of achievementand how far they will have to travel towardsthe pre ent highest level of achievement oneach of tl1e tlu'ee indicator .

Suggested changes in the index

The introduction of the HDI ha led to alively and useful debate on ocio-economicmeasures of development. Many of theseissue are di cussed in detail in technicalnote 1. But some of the salient i. ues arecovered here.• Ends and means-It i ometime sug­gested that the lIDI mixes means and ends­the as umption being that income is ameansofachieving human development while tan­dard of healili and educational achieve­ment are ends. But income, a used in thelIDI, can also be considered as a proxymeasure for some of ilie ends. Income itreated as a surrogate for tl1e sati factionsderived from a bundle of basic goods andservices. This is why the lIDI does not usenominal GNP but adjusts it to reflect real

purcha ing power. In addition, ilie weightapplied to income in ilie calculation of ilielIDI taper off harply beyond ilie tllresh­old income regarded a sufficient for humansurvival. The value of including income isthat it allows the HDI to combine boilisocial and economic indicators.Conventional ocial indices often ignoreeconomic progress-just as economic indi­ce ignore ocial progress.• Choice of social indicators-The socialindicators in tl1e lIDI are life expectancy,adult literacy and mean years ofschooling. Itis sometimes argued that one might also useinfant or child mortality, or levels of nutri­tion or employment. But these indicatorsoverlap with those al.ready used. Progress ininfant and child mortality and in nutritionwould already be reflected in life expect­ancy. And employment rates would be re­flected in real income.

Ideally, what is needed is a mathemati­cal relationship iliat expre ses how variousinput -such a nutrition or primary chool­ing-produce a certain level of human de­velopment. Lacking this kind of "produc­tion function", the best solution is to tick toa imple index where each com-ponentreflects a broad ocial reality.

The common denominator-Longevity,educational attainment and income are allexpressed in different units. Since theredoes not appear to be a common denomina­tor, some people are puzzled as to how it ispossible to combine them. 11,ere i how­ever, a cormnon denominator in the HDI.

For each of it components, tl1e HDIlooks at ilie data to find the current mini­mum value-for, ay, life expectancy (42.0years in Sierra Leone)-and ilie maximumdesirable value (78.6 years inJapan). It ilientakes ilie distance traveLLed by each countryfrom the minimum towards the maximum(expressed as a percentage) as the basis forthe combination wiili oilier indicators. Thebreaktlu'ough in ilie lIDI meiliodology wasto choose distance a the common denomi­nator. This choice al 0 give ilie index adynamic quality-a measure of movementtowards a desired objective.• A composite index-It has also beensuggested tl1at it would be better if theReport produced a series of different so-

VI Wf 1£ [

TABLE 1.1HOI ranking forindustrial countries

HDI HDIrank value

Canada 1 0.982Japan 2 0.981Norway 3 0.978Switzerland 4 0.977Sweden 5 0.976

USA 6 0.976Australia 7 0.971France 8 0.969Netherlands 9 0.968United Kingdom 10 0.962

Iceland 11 0.958Germany 12 0.955Denmark 13 0.953Finland 14 0.953Austria 15 0.950

Belgium 16 0.950New Zealand 17 0947Israel 18 0.939Luxembourg 19 0.929Italy 21 0.922

Ireland 22 0.921Spain 23 0.916Greece 26 0.901Czechoslovakia 27 0.897Hungary 28 0.893

Poland 32 0.874USSR 33 0.873Bulgaria 35 0.865Yugoslavia 37 0.857Malta 38 0.854

Portugal 39 0.850Albania 49 0.791Romania 60 0.733

19

cia] indicators, which might pinpoint spe- formation that Oman has an HDI ofcific problems more sharply than does a 0.589, while Costa Rica s HDI is 0.842-composite HDI. Such indicators can, and 43% higher.should, be produced for each social field. • New dimensions-It has been suggestedBut a compo ite index has it own virtue that, beyond economic and social indica-in that it provides a convenient summary tors the HDI should incorporate other in-of diver e data. For instance, Oman has a dicators of progress, uch as human free-per capita income two and a half times dom or cultural achievement. The freedomthat of Costa Rica, but it literacy fa te is i sue i covered at length in chapter 2. Cw-one-third of Costa Rica's its average life tural factor have al 0 been con idered, butexpectancy is nine year Ie s and its child these are diverse, country-specific and dif-mortality rate is two and a quarter times ficwt to quantify. It was thought better nothigher. All this can be reduced to the in- to load the HDI at the outset with burdens

TABLE 1.2HOI ranking for developing countries

HDI HDI HDI HDI HDI HDIrank value rank value rank value

Barbados 20 0.927 Sri Lanka 76 0.651 Cameroon 118 0.313Hong Kong 24 0.913 Ecuador 77 0.641 Ghana 119 0.310Cyprus 25 0.912 Paraguay 78 0.637 Pakistan 120 0.305Uruguay 29 0.880 China 79 0.612 India 121 0.297Trinidad and Tobago 30 0.876 Philippines 80 0.600 Namibia 122 0.295Bahamas 31 0.875 Peru 81 0.600 Cote d'ivoire 123 0.289

Korea, Rep. of 34 0.871 Oman 82 0.598 Haiti 124 0.276

Chile 36 0.863 Dominican Rep. 83 0.595 Comoros 125 0.269

Singapore 40 0.848 Samoa 84 0.591 Tanzania, U Rep. of 126 0.268

Brunei Darussalam 41 0.848 Iraq 85 0.589 Zaire 127 0262

Costa Rica 42 0.842 Jordan 86 0.586 Nigena 128 0.241

Argentina 43 0.833 Tunisia 87 0.582 Lao People's Dem. Rep. 129 0240

Venezuela 44 0.824 Mongolia 88 0.574 Yemen 130 0.232

Kuwait 45 0.815 Lebanon 89 0.561 Liberia 131 0.227

Mexico 46 0.804 Iran, Islamic Rep. of 90 0.547 Togo 132 0.218

Qatar 47 0802 Gabon 91 0.545 Uganda 133 0.192

Mauritius 48 0.793 Guyana 92 0.539 Rwanda 134 0.186

Bahrain 50 0.790 Vanuatu 93 0.536 Bangladesh 135 0.185

Malaysia 94 0.534cambodia 136 0.178

51 0.789 Botswana Senegal 137 0.178Dominica 52 0783 Algeria 95 0.533 Ethiopia 138 0.173Antigua and Barbuda 53 0.781 EI Salvador 96 0.498 Angola 139 0.169Grenada 54 0.758 Nicaragua 97 0.496 Nepal 140 0.168Colombia 55 0.758 Indonesia 98 0.491 Malawi 141 0.166Suriname 56 0.749 Maldives 99 0.490

Burundi 142 0.165United Arab Emirates 57 0.740 Guatemala 100 0485 Equatorial Guinea 143 0163Seychelles 58 0.740 Honduras 101 0.473 Central African Rep. 144 0.159Brazil 59 0.739 Viet Nam 102 0.464 Sudan 145 0.157Cuba 61 0.732 Swaziland 103 0.458 Mozambique 146 0.153Panama 62 0.731 Cape Verde 104 0.437 Bhutan 147 0.146Jamaica 63 0.722 Solomon Islands 105 0.434

Mauritania 148 0.141Fiji 64 0.713 Morocco 106 0.429 Benin 149 0.111Saint Lucia 65 0.712 lesotho 107 0.423 Chad 150 0.088Saint Vincent 66 0.693 Zimbabwe 108 0.397 Somalia 151 0.088Saudi Arabia 67 0.687 Bolivia 109 0.394 Guinea-Bissau 152 0.088Saint Kitts and Nevis 68 0.686 Egypt 110 0.385 Djibouti 153 0.084Thailand 69 0.685 Myanmar 111 0.385

Gambia 154 0.083South Africa 70 0.674 Sao Tome and Principe 112 0.374 Mali 155 0.081Turkey 71 0.671 Congo 113 0.372 Niger 156 0.078Syrian Arab Rep. 72 0.665 Kenya 114 0.366 Burkina Faso 157 0.0748elize 73 0.665 Madagascar 115 0.325 Afghanistan 158 0.065libyan Arab Jamahiriya 74 0.659 Papua New Guinea 116 0.321 Sierra Leone 159 0.062Korea, Dem. Rep. of 75 0.654 Zambia 117 0.315 Guinea 160 0.052

20

FIGURE 1.1Adjusting the HOIfor male-female disparities,1990

it might not be able to carry. But efforts inthis direction should be encouraged.• Data deficiencies-There have been criti­cisms that the statistical basis of the HDI isweak, since for many countrie the socialdata are deficient, outdated or completelymissing. The HDI calculation in la t year'sReport, for example, wa ba ed on 1980data for mean years of schooling, 1985 datafor adult li teracy, 1985-88 data for real GDPper capita and 1990 data for average lifeexpectancy.

No index can be better than the data ituses. But this is an argument for improvingthe data, not abandoning the index. Thisyear's index does, in fact, use 1990 data forall its components. UNDP, alongwith otherUN ystem agencies, i helping many devel­oping countries strengthen their data collec­tion systems. Indeed, the publication of theHuman Development Report is beginning toput pre ure on all countries to improve theirdata systems and analysis, e pecially theirsocial statistics. This will give them the nec­essary information basis for designing, plan­ning, implementing and evaluatingdevelop­mentprogrammes in way that are more sy ­tematic and more oriented towards people.

The preparation of an adequate humandevelopment index must be an evolutionaryprocess. And refinements will be made eachyear as u eful suggestions are received andbetter data become available.

One of the refinements is to developmethods of disaggregating the HDI accord­ing to population groups (for example, gen­der or i.ncome groups) and regions. Pre ent­ing average figures for each country dis­gui es manyimportantdisparities-betweenurban and rural area , between rich andpoor, between male and female, as well asbetween different ethnic groups and differ­ent regions. The HDI should try to reflecthow people really live.

The methodological and statistical workinvolved in such a disaggregation of theHDI will need many years of work. Butsome advances have already been made.

A gender-sensitive HDI

It is not possible to produce a gender-sen i­tive HDI for all countries, since the data are

not available. But there are for 33 coun­tries, separate male and female estimatesfor life expectancy, adult literacy, mean yearsof schooling, employment levels and wagerates. This has made possible the calculationof both separate male and female HDI andan overall gender-sensitive HDI (table 1.3,figure 1.1 and technical note table 1.1). Thisgender- ensitive HDI, introduced in the1991 Report, has been updated this year. Insubsequent Reports, as more data becomeavailable, this exerci e will be extended tocover many more countries.

These indices show that, for industrialcountries, gender disparities have been nar­rowed in such areas as education and health.But they remain wide in levels of employ­ment and pay-so women still earn a rela­tively low share of national income. In Ja-

TABLE 1.3Gender-sensitive HOI

Gender- Female HDIsensitive as % of

HDI male HDI

Sweden 0.938 96.16Norway 0.914 93.48Finland 0.900 94.47France 0.899 92.72Denmark 0.879 92.20

Australia 0.879 90.48New Zealand 0851 89.95Canada 0.842 85.73USA 0.842 86.26Netherlands 0.835 86.26

Belgium 0.822 86.57Austria 0.822 86.47United Kingdom 0.819 85.09Czechoslovakia 0.810 90.25Germany 0.796 83.32

Switzerland 0.790 80.92Italy 0.772 83.82Japan 0.761 77.56Portugal 0.708 83.36Luxembourg 0.695 74.88

Ireland 0689 74.89Greece 0.686 76.10Cyprus 0.659 72.32Hong Kong 0.649 71.10Singapore 0.601 70.87

Costa Rica 0.595 70.61Korea, Rep. of 0.571 65.53Paraguay 0.566 88.82Sri Lanka 0.518 79.59Philippines 0.472 78.67

Swaziland 0.315 68.74Myanmar 0.285 74.07Kenya 0.215 58.60

HDI100

.800

600

.400

200

a

Gender­sensitive

HDI

Sweden

USAUKGermanyJapan

Costa RicaRep. ofKorea

Philippines

Swaziland

Kenya

r ( 21

FIGURE 1.2Adjusting the HOIfor income distribution,1990

TABLE 1.4Income-distribution-adjusted HOI

Income­distribution­

adjustedHDI value

Income di parities are wide in many coun­tries, particularly in the developing world.Brazil has one of the most unequal distribu­tion of income-the top 20% of the popu­lation receives 26 times the income of thebottom 20%. When the income componentof its HDI is reduced by a factor to reflectt.ll.is maldistribution, it overall HDI falls by16%. The same correction also causes amajor drop in the HDI ofmany other coun­tries, including Cote d'Ivoire, Honduras,Jamaica, Nepal, Panama and Turkey. Table1.4 gives the income-distribution-adjustedHDI for the 53 countries forwhjch data areavailable. Among the industrial countriesthe large t adjustments downwards are (indescending order) for Portugal, ewZealand, Australia, Canada, France, Italyand the United tate (figure 1.2).

Both the gender- en itive and the in­come-distribution-adjusted HDls show thatmany people today do not share fully in theprogress of development. But how widethe ocio-econonUc disparities really are ona global scale becomes evident only in

An income-distn'bution-adjusted HDI

pan, females earn only a third of the averagemale per capita income. In Canada, theUnited Kingdom and the United States,they get half. And even in countries a egali­tarian as Norway, Finland and Denmark,women earn only two-thirds of the incomemen earn.

Many countrie fall in their rank in theHDI when gender-sensitivity is introduced.Canada, for example, no longer occupiesthe top spot, but slips to number eight. Itfemale HDI is only 86% of its male HDI,because women have significantly loweremployment and wage rates thanmen. Simi­larly,]apan slip from the number two posi­tion to number 18. Sweden, by contrast,moves from number five to number one asit has greater equality between men andwomen.

In developing countries, female-maledisparitie continue to be very wide. InMyanmar the female HDI is about three­quarters of the male HDI, in Co ta Rica alittle over two-thirds, and in Kenya onlyabout one-half.

-16.07-9.95

-2320

-4.82-1.57-2.90-2.75-5.59

-0.26-0.34-1.97-2.09-2.37

-3.68-0.67-3.44-2.03-3.53

-6.30-5.20-6.91-6.59-9.22

-1.88-2.49-3.511.44

-1.68

-2.81-7.370.75

-3.18-12.84

-3.01-7.28-2.56-7.75-6.66

-4.04-2.32-3.23-2.93-4.11

-14.37-4.50-7.83

-10.34-4.94

-7.93-5.07

-12.91-6.43

-16.38

PercentagedifferencebetweenHDI andincome-

dlstribution­adjustedHDI value

0.2490.1680.136

0.3730.3410.2970.2920.278

0.5660.5100.4950.4830.420

0.7310.7220.6480.6440.635

0.9040.8940.8900.8840.878

0.6310.6230.6170.6080.572

0.8710.8350.8330.8200.817

0.7990.7920.7710.7440.736

0.9330.9310.9230.9130.909

0.9470.9440.9430.9430.936

0.9790.9640.9570.9570.956

Cote d'ivoireBangladeshNepal

EgyptKenyaPakistanZambiaIndia

TunisiaIran, Islamic Rep. ofIndonesiaEI SalvadorHonduras

JamaicaSri LankaSyrian Arab Rep.TurkeyPhilippines

MalaysiaColombiaPanamaThailandBrazil

PortugalArgentinaVenezuelaMauritiusMexico

CanadaBelgiumUSAUnited KingdomFrance

Hong KongSingaporeYugoslaviaCosta RicaChile

JapanNetherlandsSwedenSwitzerlandNorway

IrelandSpainItalyKorea, Rep. ofHungary

AustraliaFinlandDenmarkIsraelNew ZealandSingapore

BrazilTurkey

Kenya

India

Iran

JapanUSAAustralia

Distribution­adjusted

HDI

800

o

.400

HDI1.00

.600

.200

22

chapter 3, which looks at income dispari­ties in a border-tran 'gressing way­comparing the situation of the poorest fifthof the world's population to that of therichest fifth.

Provincial and regional HDls

Several countrie have already calculatedHDls for some of their different provincesor admini u'ative subdivisions, revealingconsiderable contra ts. The HDIs for dif­ferent geographical region in the same coun­try may be at entirely different levels ofhuman development-enhancing under-tanding of grievances often expressed by

less-favoured areas.• Turkey-A calculation based on 1985data shows that the province with the high­est HDI is Izmir, on the Aegean Sea. Thelowest figure (44%ofIzmir'sHDI) is that ofHakkari in the southeast. Of the country's67 provinces, 18 fall in the category of highhuman development, 42 in medium, andseven in low. The main cause ofthese differ­ences is a disparity in literacy rates.• lndia-A calculation for 17 states indi­cates medium human development for twostates (Punjab and Kerala) and low humandevelopment for the rest. And while Lldia asa whole is nwnber 121 in the HDI ranking,Uttar Pradesh (the most populous statewith about 112 million people) would benumber 147.• Thailand-Only the region aroundBangkok has high levels of human develop­ment. The lowest levels are in the extremenortheast and northwest. Variations hereare principally due to income (three timehigher in the central region than in thenortheast). There is little variation in lifeexpectancy or educational attainment. Ameasurement over time has also been at­tempted in Thailand, showing a pronouncedimprovement for the lowest-ranked prov­inces, particularly for Mae Hong Son, rankedlast.• Morocco-The variations here are notas wide as in, say, India. But the HDI forTensift, the lowest-ranlci.ng region, was only68% of Oriental, the highest.• Jordal1-This is a small country, and thedifferences between regions tend to be nar-

rower. The HDI for the lowest-ranked re­gion, Ma'an, was 78% that of the highest,Amman. All regions have relatively highliteracy rate ,varying from 67.5% to 82.5%,and variations in life expectancy are alsonarrow, from 65 to 71 years. The greatestdisparities are in per capita income-whichin Amman is 2.5 times that of the southernregions.

These region-specific or province-spe­cific HDls can make a valuable contributionto the understanding of human develop­ment issues-palt1cularly for the larger coun­tries which almost seem to have several(velY different) smaller countries co-exist­ingwithin tl1em. Future Repolts will extendthis analysis as more information becomesavailable.

Rural-urban disparities

Two- thirds ofthe people in developing coun­tries live in rmal areas. But since the urbanareas have tl1e greatest concentration ofeconomic and political power, the rural ar­ea usually receive a lower quality of socialservices. In Cote d'Ivoire, access to healthservices in rural areas is only 18% tllat ofurban areas. InAfghanistan, it is 21% and inMozambique 30%-two countries riddenby political strife. For access to safe drinkingwater, tl1e figure for El Salvador is 13%, forEthiopia 16%, and for Bolivia 19%.

SeparateHDIs for rural and urban areaswould highlight tl1ese disparities, but veryfew ofthe necessary data are available. Wherethe calculation is possible, it shows dramaticdifferences. In Morocco, the rural HDI isonly 66% of the urban HDI-a greaterdisparity than that between different prov­inces. In]ordan, the HDI for urban dwellersplaces tl1em in the high-medium humandevelopment league. But the HDI for thosein the rural area \Va at the low-mediumlevel.

Changes in the HDI over time

The HDI ranks countries relative to eachother for a particular period. The maximumand minimum values tl1at define the dis­tance to be traveUed for each variable arespecific to one year. But one can al 0 track

FIGURE 1.3Tracking theHDI over time

1970HDI

1,00

800

.600

400

.200

o

1990HDI

Canada

Rep. ofKorea

Mexico

JamaicaSaudi ArabiaSyria

ZimbabweMyanmar

Zaire

Uganda

[f\tLOf IE I 23

Each countrymust designits OWll humandevelopmelttstrategy

changes in the HDI by choosing the maxi­mum and minimum values, not for a par­ticular year, but for a certain period.

This has been done for 110 countries for1970-90 (figure 1.3 and technical note table1.3). The largest increases in HDI were forSaudi Arabia, the Republic of Korea,Mauritius, Malaysia, Tunisia, Syria,Botswana, Turkey, Indonesia, Gabon andAlgeria. These increases were achieved, how­ever, in different ways. Saudi Arabia andIndonesia benefited from the increase in oilprices since the early 1970s, providing fi­nancial re ources for major investments .inhealth and education services. The Republicof Korea and Malaysia increased their in­vestments in people-to increase produc­tivity and accelerate economic growth. Thisgrowth then permitted greater expenditureon human development. Botswana andGabon benefited from the sale of mineralsand skilfuily invested this in human devel­opment.

The table also hows that whil.e it isrelatively easy to make rapid strides fromlow levels ofhuman development, the goinggets much tougher at higher levels.

An environmentally sensitive HDI

The world's resources depreciate steadilyeach year. Natural re ources are depleted,physical resources wear out, and the skills ofhuman beings need to be replaced from onegeneration to the next. 1£ the present gen­eration in any country does not cover thiswith sufficient savings and investments, thebase for future production is being eroded.And even ifinvestments are sufficient, bottle­necks may develop if critical natural re­sources or human skills are missing.

Traditional economic indicators such asGNP and GDP are inadequate measures ofsustainability. They measure production butprovide little information about people orthe state of their living envirorunent. If adeteriorating environment causes clisease,resulting in increased health expenclitmesand thus increased GNP, the increased GNPwould be interpreted as a higher level ofdevelopment---even though people and theirenvironment are worse off. Similarly, cur-

rent income measures do not factor in theinevitable future costs of current depletionofresources. What is needed is a system thatreflects resource depletion and other formsof environmental degradation.

Several attempts have been made torecalculate national income statistics takingthe depreciation of natural capital into ac­COWlt. One of tlle pioneering studies, inCo ta Rica, shows that between 1970 and1990 the accumulated depreciation of itsforest ,soils andlive tock amounted to morethan $4 billion (in 1984 dollars). This depre­ciation amounted to about 6% of CostaRica's total GDP in that period. Similarly inIndonesia, the accumulated depreciation offorests, soils, and 6 heries between 1971and 1984 amounted to $38 billion (in 1973dollar ), about 9% ofits GDP in that period.

These are, of cour e, only partial calcu­lations. They do not take into account thedepreciation ofall resources-human, natu­ral and financial. An HDI that truly re­flected the concept of sustainability wouldhave to accowlt for all such losses. Indeed,the "greening" of the GNP will bean impor­tant contribution towards developing anenvironmentally sensitive HDI. Further re­search is under way to see how this might bedone.

Human development in action

The concept of human development offersanalysis and ideas that could promote muchmore positive, realistic and sustainable de­velopment in the years ahead. But none ofthe Reports will be of value if the ideas arenot translated into practical action. Howcan this best be done? At least three stepsare essential.

1. Country human development strategies

The real challenge is at the national leveLEach country, developing or industrial, mustset its own goals and design its own strategy.

Developing countrie face the mostdauntingta ks. They need to formulate theirlong-term human development goals, costthem fully and integrate them into realisticgrowth and investment strategies. They also

24

need to make the radical changes, in bothin titutions and policy frameworks that willpermit them to achieve these goals-noth­ing les than a new framework of nationalplanning.

Thi is no mere technocratic exercise.Change on thi scale require the mobiliza­tion ofnational politicalwill, ince a genuinehuman development strategy i likely toprovoke fundamental change in society.

International organizations can offersome help. UNDP, along with UNICEFand other UN system agencies i alreadyworking with 20 countries that have re­quested assistance in formulating compre­hensive human development strategies.

Indu trial countries have different pri­oritie , but they too need to clarify theirobjectives and develop new strategie .Theyhave to tackle the increasing levels of unem­ployment, poverty and homele ne s, alongwith other seriou problem, uch a pollu­tion, drug addiction and urban violence.They face a real danger that their socialfabric will unravel even a income for manypeople continue to ri e. Indu trial countriesal 0 need to strike a new balance betweenmarket efficiency and ocial compassion.

2. New techniques for project appraisal

Development projects may be technicallyand economically sound yet cause consider­able social, politicaland environmentaldam­age-increasing disparities between urbanand rural areas, for example, or betweenethll ic groups, or between men and women.Many of today' forms of project appraisalwould not reflect such problems since theyconcentrate more on technical, financialand economic feasibility.

Human development demands thatprojects be appraised primarily for theirimpact on people. UNDP ha a major re­earch programme under way on more'people-centred" forms of policy appraisal

and asse sment. The first re ults will bepresented in next year's Human Develop­ment Report.

3. New strategies for aid

A human development trategy will have aprofound impact on the future of officialdevelopment assistance-its scale, its distri­bution and its content. Future policy dia­logues between donors and recipients arebound to reflect such concerns in everaldifferent areas.

Today, only a very small part of aDA(23%) is earmarked for the poorest nations,and an even maller part (6.5%) is for hu­man priority concern .Amajorrestructuringof aDA will be needed if it is to addressconcerns of both poverty and human devel­opment.

But there are al 0 areas where donorshave concerns about the policie of recipi­ent countries-concern they will rai e be­fore making aid allocation. Military expen­diture will be one of the most ignificant.Donors will want to ee recipients scalingdown their expenditure and redirecting re­sources to human needs.

But donor themselve will have to rea ­sess their policies if they are to retain cred­ibility. Aid often goes to political and mili­tary allies, and twice as much aid per capitais being given to high military spenders a tolow penders. Donors will also have to re­duce their own military spending and stopencouraging arms exports. Issues of aDAallocation and military spending are treatedin greater detail in chapter 3.

Many donors aTe now also includinghuman rights issues in their aid calcula­tions-a reflection of an increasing concernfor human right all around the world. Butthis i an area where informal dialogue maybe more effective than formal conditional­ity. Democracy is a native plant-it may wiltunder foreign pressure.

Democracy is a"ative plant-it may wilt underf01'eign pres lire

25

CHAPTER 2

IT IPolitical freedom and human development

The wodd todayis a muchfreer place

26

The purpose of human development is toincrease people's range of choices. If theyare not &ee to make those choices, theentire process becomes a mockery. So, free­dom is more than an idealistic goal-it is avital component of human development.

People who are politically free can takepart in planning and decision-making. Andthey can ensure that society is organizedthrough consensus and consultation ratherthan dictated by an autocratic elite.

Democratic rule can never be perfect. Itneeds constant injections of energy and ef­fort. And it demands patient renewal-acontinuous search for the best balance be­tween conflicting social interest groups andpriorities. But such processes can ensurethat-as far as possible-a country's devel­opment is truly "people-centred".

Freedom and civil society

Societies all over the world have struggledfor centuries to build con ensus throughsystems of deliberation and negotiation. InAfghanistan it might be calledjirga, in Lldiapanchayat, in Islamic societiesshoora, amongthe Luo in East Africa pinyowacho, andamong native Americans mawi tiplutmamk.Almost every country has forms of commu­nity decision-making based on dialogue andcon ensus at the local level.

At the national level, however, politicalsystems are based more on majority rule.The rise of the nation-state, and increasinglevels of economic and social integration,have resulted in forms ofgovernment basedmore on the sum-total of individual votes.Almost half the world's countries todayhaveelected forms of government, and another26 countries are moving in this direction by

allowing multiple voices to be heard, throughpolitical parties and other interest groups.This process still has some way to go. Butcompared with even a few years ago, theworld today is a much freer place.

Democracy and freedom rely, however,on much more than the ballot box. Theexpansion ofdemocracy ha been accompa­nied by a greater acknowledgement of hu­man rights. Colombia's new constitutioncentres on the dignity of the human being.Government offices or commissions for hu­man rights have been set up during the pasttwo years in many countries-Algeria, Co­lombia, Cyprus, Gabon, Gambia, Mali,Mauritania Mexico, Morocco, Paraguay,Romania, Rwanda and Tunisia. Malaysiahas revitalized its human rights centre. Andin several other countries, non-governmen­tal organizations (NGOs) act as humanrights advocates and monitors-Cambodia,Cape Verde, Indonesia, Thailand, Turkey,Uganda and Zambia, to mention but a few.

Governments in every country are sur­roooded by a host ofgroups and institutionsthat help build and sustain the democraticprocess. NGOsflourish at every level: farm­ers organizations, trade unions, chambersof commerce, community groups. Andmyriad advocacy groups argue the case forwomen, for children, for the disabled, forhuman rights, for the environment-for al­most any cause of common concern.

Such groups can sUIvive even the sever­est forms ofpoliticalrepression. Trade unionsin Eastern Europe, women's organizationsin LatinAmerica, studentsinAsia- all havehelped keep freedom alive and played theirpart in the struggle for democracy. Theyhave shown that &eedom is something notjust to be given or taken-it has to be lived.

)Ulll AL 1 RE DO 1 ~ I l lA ::>. LOPM 1

Political freedom and economic growth

Political freedom is an essential element ofhuman development. But does it contributeto economic growth? 'This is a long-runningdebate.

Some scholars have argued that free­dom is a necessary condition to liberate thecreative energies of the people and to pur­sue a path of rapid economic development.They have pointed to some historical evi­dence, including the experience of theUnited States.

Some other scholars have argued thateconomic development would be more rapidif freedoms were curtailed: a strong statecan maintain the stability and predictabilityneeded to smooth the path for moderniza­tion.

It i true that an autocratic governmentcan sometimes engineer fundamental re­forms and promote social concerns. Thegovernments of Eastern Europe and theformer Soviet Union figured well on tatis­tics of education and health, as did theRepublic of Korea under General Park andChile under General Pinochet.

But it is difficult to establish a durableconnection between authoritarian rule andeconomic or social development. For everyexample of an authoritarian state that hassucceeded in accelerating its economic de­velopment, there are many other exampleswhere authoritarian rule merely led to eco­nomic stagnation or complete economicchaos.

The linkbetween freedom and develop­ment is seldom in dispute. What is oftendisputed is the causality-the direction ofthe arrow, whether more freedom leads tomore development or more developmentleads to more freedom. 'This might reflectthe diversity ofhistorical experience and themany policy options available. But it is clearthat more analysis is needed in this area.

Evidently, economic and social progresscan be outof step with freedom for a shorteror a longer period. If growth is seen, how­ever, not as an end in itself but as a part ofhuman development, democracy cannot beset aside. Growth-oriented strategies cansometimes afford to be blind to democracy.

People-oriented development strategies can­not. They mu t be ba ed on popular partici­pation-in economic, social and politicallife.

What is clear, at least, is that the eco­nomically better-off countries today (asmea ured by GDP or the HD!) also have alarge measure of freedom. And even whereeconomic development and freedom havemarched out of step for some periods (a inEastern Europe and East Asia), they arenow coming closer together.

Yet, when drawing lessons from thepast, it must be borne in mind that manyhistorical precedents are no longer valid. Itused to be argued that the poor would votefor economic development first and greaterpolitical freedom second. If this were evertrue, it seems to be much less so today­there seems to be a genuine desire acro theworld for both economic progress and po­litical freedom. At the national level, peopleare becoming more educated and consciouof their rights: they are no longer acceptingto be passive observers under repres iveregimes. And at the global level, humanrights monitor and the rapidly expandingmedia networks provide a steady flow ofinformation on human rights violations.Human cruelty can no longer be hidden indark and distant corners of the planet.

This changing international culture andpublic awareness also affects internationaldevelopment cooperation. Many donorcountries are considering withholding aid ifrecipient countries do not respect the hu­man rights of their citizens.

People now see freedom as an essentialelement in human development, not as anoptional extra. And the past decade ha , ineffect, been a decade of democracy in manyparts of the world (box 2.1). Any report onhuman development must thus include aprafe sional analysis of human freedom.

The measurement of political freedom

Many people argue that even if freedomshould be debated, it should not be mea­sured. 111e concept they point out, is solarge and complex that any system of mea­surement will diminish it. Freedom is too

Political freedomis an essentialelement ofhUntall

develop11le1tt

I LImA! II TO) I nln L or VI I P U ;T 27

valuable to be reduced to a number. Itshould, they say, be discus ed qualitatively,not quantitatively.

Certainly, no measure of freedom cando it full ju tice. But freedom is scarcelyunique in thi re pect. The same i true ofmeasures of income-and of human devel­opment. Indeed, many scales are now readilyaccepted for phenomena previously though tto be unmea urable. Even heat was once

BOX 2.1

The ride of freedom

thought unmeasurable-until Cel ius dem­onstrated otherwise. Rankings are even ap­plied to literature and to scientific discov­ery, with rewards allocated according tothese judgements.

Human knowledge will progre littleunless attempt are made to analyse andmeasure qualitative phenomena in a scien­tific, empirical manner. And while many ofthe quantitative mea ures that are devel­oped may be no more than rough approxi­mations, they can be an important stimulusto thought and debate.

Transition from autocratic to democrati·cally elected political systems hove comein waves over the past decade.

TIle first wave swept through LatinAmerica. It began in Peru in 1980 withthecompletionofatran ition to an electedgovernment after 12 year of militaryrule. In the following years, OULhAmerica's military regime fell one byone: Argentina in 1983, Brazil and Uru·guayin 1985, Chile in 1988 and Paraguayin 1989. There have been more than 180coup in 157 year in Bolivia, but demo·cratic, civilian rule was restored in 1982.

Haiti is undergoing the region'smostpainful transition. Violence and coupshave plagued the country since theDuvalier regime was ousted in a 1986militarycoup. The latest setbackoccurredin December when Jean-BertrandAri tide, Haiti' first democraticallyelected president, was overthrown andforced into exile.

TIle faU of the Berlin WaU in ] 989heralded a wave of transitions in theEastern European countries and whatwas the Soviet Union. Radical politicalchange begun in Poland in 1988 wereconsolidated. Other countrie foUowed:Bulgaria, Czechoslovakia, GermanDemocratic Republic, Hungary and Ro­mania either began or completed cran i·Lions to democratic rule in ]990. In 1991,Albania held its first multiparty electionin 68 years. That same year, the republicsof the former oviet UIlion experiencedrapid political change towards democ­racy.

There was Iirtle political change inpost·independence Africa until the late1980s, but since then the traD forma­tions have been dramatic. Election wereheld in Namibia in ]989 and the newgovernment guided the country into in·dependence in ]990. In 199],multipllrty

electionswere held in Benin, CapeVerde,ao Tome and Principe, and Zambia.

The military government in Nigeria hascommitted itself to tran fer rule to civil­ians through elections in 1992.

Many other African countries alsomoved towards ending single·parry sys·Lems: Angola Burkina Fa'O Congo, COLed'Ivoire, Ghana, Kenya, Niger and Tan­zania. And opposition forces in such othercountrie as Cameroon, Madaga car andZaire are pressing for political change.

Political change ha transformedmany countrie in Asia over the pa tseveral years as well, In 1985, Filipinospoured into the streets to overthrow theMarco government and, shortly there­after, held ademocratic presidential e1ec·tion. In 1990, Mongolians ratified a newcon titution that established a multiparty'}'Stem.

During 1991, epal held its firstdemocratic elections in 30 years, HongKong took its first tep towards democ­racy with direct elections to it legisla­ture, and Samoa held its first electionswith universal adult suffrage. Pakistanand Banglade h witched from martiallaw regimes to elected parliamentary sys­tems. Warring factions in Cambodiaigned a peace accord, and an interna­

tional effort is under way to help smooththe tran ition to a multiparry ystem.

In the Middle East, election fevergripped Jordan at the end of the decade,and in 1991 a national charter legalized amultiparty system. Algeria's democratictransition is till incomplete. Multipartyelection are scheduled for ovember1992 in Yemen.

Clo e to a third of humankind stilllives in countries that place re trictionson political freedom and participation.But the world today is a much freer placethan it was three decades ago.

A system 0/classification 0/freedoms

'TI1ere clearly are many kinds of freedom­freedom to vote, for example, or freedomfrom hLwger. So, any form of measurementmu t start with a system of classification andselection.

INDIVIDUALAND COLLECTIVE RIGHTS. Onewidely used di tinction is that between indi­vidual and collective rights. This distinctionis often made to refer to two aspect . First,societies differ in many respects--depend­ing, for example, on their sociocultural tra­ditions, their norm and value ystems, andtheir political and economic hi tory. This isa point worth remembering when examin­ing the link between freedom and humandevelopment. Societies clearly differ in theirnotions of freedom and in how they per­ceive and establish the link between &'ee­dom and development.

One important difference concerns theemphasis societies may place on the free­dom of the individual and that of collec­tives-as the family, the tribe, the commu­nity, or the country. L1 today' world, markedby growing interdependence amongcountrie and international migration, thequestion has also arisen as to how govern­ments guarantee the rights of per ons whoare not residents of the country. The issue ofthe rights of migrant workers i of specialimportance in this context.

Second, orne rights are enjoyed by ev­ery person individually, others only collec­tively. Every per on needs to be free fromarbitrary arrest, while the absence of cen­sorship is a freedom everyone can enjoysinmltaneously. Others apply to specific

28 (I L n

groups of people, such as freedom fromgender, ethnic or racial discrimination.

All individual freedoms need to be in­terpreted so that freedom for ome does notcurtail the freedom of others or impair col­lective national interests.

And these freedoms mu t not merely belegally available as human rights, they mustal a be respected in practice. So, any systemof mea urement must asses both the legalframework in a country and the experienceof individuals and cOlnmW1.ities.

E ONOMIC AND SOCIAL RIGHTS. Manypeople argue, however-particularly in de­veloping countries-that a freedom indexshould not be confined to political freedoms.They emphasize the importance ofeconomicand social rights-to food or to education.They refer back to the Universal Declara­tion of Human Rights (adopted in 1948)which, in effect, emphasizes both politicalrights and economic and ocial rights. Thelatter have also been empha ized in suchinstruments as the International Covenanton Economic, Social and Cultural Rightsadopted in 1966 and the Declaration on theRight to Development adopted in 1986.

For many people, economic and socialrights are just as important as political free­dom, or more so. The right to vote, theycontend, is of less value to someone who istarving or illiterate. Indeed, political de­mocracy will always be fragile until basiceconomic rights are guaranteed. Economicand social rights should, they argue, beincluded in any freedom index.

It is certainly true that any comprehen­sive definition of human freedom must in­clude economic, social and political right.But hould they be measured jointly? Thehuman development index (HDI) is an at­tempt to measure economic and social rightsand the e>.1:ent to which they are realized. Anew political freedom index (PFl) couldlook specifically at political rights. The issuei whether they should remain eparate orbe integrated in one overall index.

There are two main reasons for keepingthem separate.

First, the HDI and the PPI operate onvery different timescales. The HDI is W<elyto be quite stable over time, since economicand social achievement -such as those

tracked by health and education indica­tors-move relatively slowly. Political free­doms, by contrast, can fluctuate very rap­idly, from one palace coup to the next orfrom an authoritarian to a multiparry sys­tem. Witness the swiftness of recent changein Haiti, Zambia and Algeria. Since HDIachievements will not in the short term begreatly affected by political change,insulat­ing the HDI from the political shocks of thePH would offer a truer picture.

The two indice differ in a second cru­cial respect. The HDI depends partly on acountry's economic opportunities, while thePFI does not. Countries do not have tocensor the press or torture prisoners justbecause they are poor. But a poor countrythat made substantial progress in freedomcould not hope to see this reflected in adramatic improvement in its ranking in acombined index like the HDI.

For these rea ons, it is better not tomerge the two indices. Instead, they shouldbe used as tlle basis for an interesting rangeof comparisons and analyse -to examinethe overall state of democratic human de­velopment in one country or in a range ofcountries.

POUTICAL FREEDOM. Many internationalagreement have been adopted on civil andpolitical right. These include the UnitedNations Univer al Declaration of HumanRights; the International Covenant on Civiland Political Rights; the InternationalCovenant on Economic, Social and CulturalRights; and the Regional Charters on Hu­man Rights adopted by Africa, Europe andthe American States and the draft proposalsfor the Arab States and the Asian States.

Analy ing all the e instruments showsthat, in some respects, there are regionaldifferences. But in most respects, the rightsenshrined in the e document how con id­erable congruence. They can be groupedinto five broad clusters, reflecting valuescommon to all cultures, all religions and allstages of development.

1. Personal security.2. Rule of law.3. Freedom of expression.4. Political participation.5. Equality of opportunity.

No measure offreedom cando itfull justice

29

Cun"enl sourcesof data requi1-ecareful handling

These five clu ter can al 0 be related to themain in titutions ofsociety that protect-orabu e-human rights. The legislaturerepresent political participation; the ex­ecutive branch has a critical role in equalityof opportunity; the judiciary is respon iblefor rule of law and the physical integrity ofthe individual; and the 'fourth estate', civiJsociety and the press, are important barom­eters of freedom of expression, includingfreedom of a ociation and movement.

Approaches to the construction a/apoliticalfreedom index

Identifying ome of the key components ofpolitical freedom is only the first step to­wards its measurement.

INDTCATORS OF POLmc.OJ.. FREEDOM. Tomake the key components, or main c1u ters,of political freedom acce ible to empiricalobservation, it is necessary to elect for eachone of them a et of indicators that wouldallow observers to determine whether therights in que tion are being respected orviolated in practice-and, if so, to whatextent. These indicators should meet thefollowing criteria:• Relevance for human development.• Universal applicability.• Freedom from any cultural bia .

The type ofindicators that could be usedfor this purpose are shown in box 2.2. Sucha checkJjst should ideally focus on a fewsignificant items and be easily quantifiableso that available data can be related to it.

SOURCES OF DATA. To obtain concreteinformation on each indicator of humanfreedom is not easy at present. There areseveral ources of information-from theUN Centre for Human Rights and the UNComrni ion on Human Rights to GOreports and bilateral government sources.But there are problems inherent in usingthe e sources. First, they are not complete:they need to be supplemented by otherregional and national sources, particularlyfrom the developing world. Second, theyare not unbiased. Considerable expert judge­ment i needed to determine which ourceare relevant for each country and what infor­mation is corroborated by all sources. Third,

the sources of information generally focuson the negative aspects-specific violationsof human rights. These need to be put intheir proper perspective by reviewing thepositive achievements of a countly and byplacing its human rights record in a dy­namic, historical and cultural context.Fourth, it is necessalY to look at the docu­mented record of human rights violationsand the response ofindividual governmentsto such allegations. Such information is avail­able from the reports ofthe U Commissionon Human Rights and it subsidiary bodies,but the country coverage is limited.

Considerable work i needed to en uremore comprehensive, objective and up-to­date sources of information. In the mean­time, however, work on the methodologicalbasis for an index must go on because itcannot wait for the emergence of perfectdata. This i the proces through which mostindices have pa sed, including national in­come accowlts. But the current state of rawdata requires that it be handled with greatcare.

QUANTIFTCATION OF INFORMATiON. Mostavailable information is in a de criptive ornarrative form. To translate it into a compa­rable numbering system requires manyjudgements. Such an exerci e is best under­taken by everal expert teams working inde­pendently and then comparing and harmo­nizing their result. For the numbering sys­tem, it is useful to adopt a broad range (say,oto 10) so that variations in performancecan be quantified with greater preci ion amore data become available and more expe­rience is gained.

WEIGHTING SY TEM. There are a numberofpo ibilitie forweightingindividual coresto arrive at an aggregate index. One can, forexample, assign the same weight to eachclu ter, or give different weights. Then themethod of averaging has to be decided­choosing the minimum, say, or the product,or a sin1ple average. TIle minimum i.s themost plmishing-it pinpoints the weakestspot in a country's human rights perfor­mance, judging it only as good as its worstmeasure. The product can also be quitehar h, since a low score on one factor couldreduce the total score by a factor of up to 10.

30

BOX 2.2

An illustrative checklist of indicators of political freedom

Personal security

Arbitraryl arrest anddetention-Are therearrests without a warrant or probable cau e;detentions without prompt hearing before acourr or other independent body; unrea on­ably long detentions before trial or comric­tion; arrests and detentions of people fortheir political beliefs? Is there any incommu­nicado detention?

TortureorcrueLtreatmentorpunishment­Are there acts of torture (mental or physi­cal)? Is there cruel, unu ual or degradingtreatment or punishment? Are there inhu­mane prison conclitions? Does police brutal­ity exist?

Arbitrary killing-Are there any execu­tions without due process of law by thepolice, security forces or state officials? Arethere anykillings bynon-governmental forceswith government acquiescence or compli­ance? Are there killings, either ofcivilians orof caprured or wounded combatants, in vio­lation of the laws of war?

Disappearances-Are per ons abductedand held in unacknowledged detention byorder of, or with the complicity of tate oroppo irion forces, without their family orfriends having any knowledge ofwhere theyare and how they are faring? Do family mem­bers have effective juclicial or administrativernechani ms fordeterrnining the whereaboutsand status of abducted persons?

Rule of law

Fair and public hearings-Are there fairand public hearings in the determination ofall criminal charge ? Is every person chargedwith an offence tried without undue delay,and with adequate time and facilitie for thepreparation of hi or her defence?

Competent, independent and impartial tri­bunal-I the judiciary free of outside pres­sure or influence? Is there corruption in thejudiciary? Is the procedure for selectingjudges an open one in which opinions out­side the executive can be beard? Do judgehave security of tenure?

Legal counsel-Does everyone have theright to capable and independent defencecounsel in the determination of any criminal

charge against him or her? Does everyonehave the right to have legal assistance as­signed to him or her in any ca e where theinterests of justice so require, and withoutpayment by the defendant if be or she lacksthe nece sary means? Is there a right to

consult with counsel immediately on arrest,before interrogation begins?

Review of conviction-Does everyoneconvicted of a crime have the right to havehis or her conviction and sentence reviewedby an independent judicial tribunal?• Fal7ure to prosecute-Do state prosecu­tors also prosecute government officials, ormembers of pro-governmertt forces, whoviolate the rights and freedoms of otherpersons?

Freedom of expression

Restrictions in Law andpractice-I free­dom of expression a constitutionally or le­gally protected right? Are there legal restric­tions on freedom of opinion and expressionother than what is necessary to protect therights of others? Is there prosecution ofjournalistsorothers for infringement ofsuchlaws? Are the punishment prescribed e­vere in proportion to the offence?

Media censorship-Is there direct cen­sorship ofany ofthe media? Is there indirectcensorship by such means as withdrawal ofgovernment advertising revenue, licensinglaws, or restrictions on the supply of materi­als? Are there threats to, or harassment of,publisher , eclitors or journalists? Is theredestruction ofmeclia outlets by tate or non­State force ?Has the government shut downany newspapers on the grounds of theirlegitimately expressed views?

Media ownership-Is the media (par­ticularlylVand radio) whollyor partlyownedby the government? Ifso, do the meclia tendto reflect or fa\Tour government policy? Isindependent ownership of the media per­mitted?

Freedom ofspeech-I there any censor­ship of mail, phone-tapping or governmenturveillance? Are there any restrictions on

freedom of speech? Are there governmentcontrols on book publishing or the arts,other than to safeguard public morality or in

the legitimate interests of national security orpublic order?

Political participation

Political partIcipation-Is there freedomof as ociation and as embly? Are multiplepartie allowed in law and in practice? I thereviolence against, or harassment of, politicalopponents?

Free andfair elections-Is there a univer­sal adult franchise? Are thert:: procc:duralirregularities by government, such as the ex­clusion or intimidation of voters, the riggingof votes, or violence against candidate oropponents of government? Do the votingprocedure permit political parties and inde­pendent observers to monitor balloting andvote counting?

Continuity of the democratic system-Arefree elections a recent introduction or a long­standing traclition? What are the prospects ofa democratic systemcontinuing? Do electionsoccur at reasonably regular intervals?

Community and local decision-making­Are political deci ion-making powers decen­tralized? How much public participation isallowed in local boclies and at the communirylevel?

Equality of opportunity

Legalguarantees-Are there constitutionalor statutory guarantees of equality, regardlessofgender, race, colour, de cent, tribe, religionor national or ethnic origin?

Violence against, or harassment of, particu­lar groups-Doe the State always prosecutethose re ponsible for violence or harassment(State ornon-State) against particular groups?

Politicalparticipation-Are any groups ex­cluded from, or hindered from, participationin voting or government? Does the Statesupport or condone this, or does it makeserious efforts to combat it?

Economic participation-Are there in­equalities in pay and employment as a re ult ofdi crimination? Are there discriminatory re­strictions on economic participation? Doesthe State support or condone discriminationor doe it make serious efforts to ensure equaltreatment?

31

Political freedomand humalldevelopment seemto move in tandem

A simple average i the mo t forgiving, sinceshortfalls in one cluster can be compensatedfor by high scores in another.

Some tentative conclusions

On the basi of the foregoing methodology,a tentative attempt was made by differentexperts to construct a political freedom in­dex. They took into account the many im­perfection in databa e and the provi ionalnature of the methodology. The overallconclusions that flow from thi analysishouJd be treated with great caution untilmore work is done in this area (table 2.1).• The distribution offreedom-Data werecollected for 104 cowltries repre enting 92%of the world's population. Of these, about athird had high freedom (a 75% score orabove) another third had rea onable free­dom (50-75%), and the remaining thirdmodest to low freedom (50% or Ie ). Butgiven the current political trends in theworld, it is clear that an increasing numberofcountrie will be moving to higher cores.• The link with human deveLopment-Po­litical freedom and human development doseem to move in tandem. Countries with ahigh HDI have an average PFI of 84%,while countries with a low HDI have anaverage PFI of 48%.

The Link with LeveLs of income-Therealso appears to be a link between a country'sper capita income and the extent of itsdemocratic freedoms. For high-incomecountries, the average PFIis 84%, for middle­income counu'ies 61%, and for low-incomecountrie -13%. But the table also showsthat, as income levels fall freedom does notdecline correspondingly. Even poor nationcan enjoy a high level of political freedom.• Progress to date-Political participation(through elected legislatures) and equalityof opportunity are the areas in which theworld has progressed the most. Physicalintegrity of the individual, on the otherhand, is an area where human rights abusesstill occur mo t frequently.

Further research

The construction of a composite politicalfreedom index (PFI) rai es many is ues ofmethodology and statistical sources. Anysuch index ha to be tested on the criteria ofrelevance, objectivity and transparency.Obviously, a good deal of research is re­quired before a political freedom index iconstructed that is universally acceptable.

The preparation of a professionallysound political freedom index must be acontinuing proce . The methodology of-

TABLE 2.1Political freedom index aggregates

Rule Freedom Political EqualityPersonal of of partld- of

Aggregate security law expression pation opportunity PFI

Human development levelsHigh HDI 8.5 8.4 8.4 8.9 7.8 84.1Medium HDI 4.8 4.8 4.7 5.0 5.5 49.6Low HDI 4.5 4.6 4.9 4.3 5.8 48.2

Per capita income levelsHigh Income 8.7 8.6 8.3 8.7 7.6 83.7Middle income 5.8 5.8 6.0 6.3 6.4 60.8Low Income 4.0 4.2 4.3 3.4 5.5 42.8

Political freedom levelsHigh political freedom 9.0 9.1 9.1 9.5 8.2 89.7Reasonable political freedom 5.6 6.1 6.6 6.5 6.3 62.0Modest political freedom 3.8 3.3 3.0 2.6 5.2 35.8Low political freedom 19 1.6 1.3 1.3 3.8 199

Global profileWorld 6.0 6.0 6.1 6.1 6.4 61 0Industrial countries 9.2 9.2 9.1 9.5 8.1 90.1Developing countries 4.9 4.9 5.1 4.9 5.8 51.3

.32

fered here is no more than a modest start.Fwtber research on the PFI ought now tobe undertaken-in a university or otherresearch centre-to improve its conceptual,methodological and statistical basis. Suchresearch would need to:1. Investigate fmther the interrelationshipof freedom and development. There is anextensive but inconclusive literature on thisubject. Different studies emphasize differ­

ent rights and often lead to different conelu­sions. It is necessary to understand morefully how development relates to humanrights, and vice versa.2. Investigate the interrelationship betweenindividual and collective rights as well asthat between political rights and economicand social rights. The literature is extensive,but there does not appear to be much quan­titative information in this area. Survey datamay be useful for examiningwhether peopleperceive a connection between individualand collective right .3. Determine the most reliable sources ofinformation for human rights performancesfor all countries. Besides data obtained frominternationally renowned organizations,additional information should be obtainedfrom regional and local sources as well. Theresponse of governments to various allega-

tions of human rights violations should befully ascertained and evaluated.4. Refine the methodology for construc­tion of a political freedom index. Furtherinvestigation is required to determinewhether other dimensions should be in­cluded within each cluster and to find outwhich indicators are appropriate within eachdimension, to test the weighting system forreliability, to examine more systematicallyalternative methods of aggregation and syn­thesis, and to explore whether the PFI willlend itself to measuring progress in politicalfreedom over time and whether it can serveas a link with other indices of development,such as the HDI.

Like the HDI, the PFI is a reflection ofpeople's lives. The sum-total is human free­dom. People know when they are tortured,when they are without a political voice,when they are unable to express views andpreference when they are discriminatedagain t and when they fear that, ifdetained,they may be without defence. They knowwhat and how much they have lost.

The main purpose of the PFI, thereforeshould be to find a measure that expressefreedom from the perspective of the peopleand to offer a professional basis for a con­structive policy dialogue.

The preparatioll ofa professionaUysound politicalfreedom i1ldexmust be acontinui1lg process

D DI ILl l' 1 33

CHAPTER 3

ITIThe widening gap in global opportunities

32:1.....

FIGURE 3.1Income disparitybetween the ric"hestand poorest 20%of the world'spopulationRatio of income sharesRichest : Poorest20% .20%

45:1

.34

30:1

- - -

59:1.....

-

Growth in national income doe not auto­matically increase the well-being of poorpeople. Income and assets are often veryunevenly di tributed. And the poor havelittle access to credit and to market opportu­nities.

Governments do have many means ofredistribution that they may apply: progres­sive income tax, economic planning mecha­nisms and social safety nets that can preventpeople from falling into destitution. More­over, people are generally free to move fromone part of the country to another if they seean opportunity to improve their well-being.

Globally, the disparities between richand poor nations can be even greater. Butsince the kinds of institutions and mecha­nisms that can redistribute income in coun­tries are generally absent, it is hardly surpris­ing that the gap in global opportunities haswidened in the past three decades.

Income disparities

The income gap between the richest and thepoorest in developing countries is oftenstartlinglywide. In Brazil, the top 20% ofthepopulation receives 26 times the income ofthe bottom 20%. This may be an extremecase of national inequality, but at a globallevel the contrast i even starker-and get­ting worse year by year.

This deterioration is clear from changesin the distribution of tl1eworld's GNP in thepast30 years (table 3.1). Between 1960 and1989, the countries with the richest 20% ofworld population increased ilieir share ofglobal GNP from 70.2% to 82.7%. Thecountries with the poorest 20% of worldpopulation saw their share fall from 2.3% to1.4%. The consequences for income in-

equalities have been dramatic. In 1960, thetop 20% received 30 times more than thebottom 20%, but by 1989 they were receiv­ing 60 times more (figure 3.1 and tables 3.1and 3.2). The Gini coefficient, a stati ticalmeasure of inequality, rose to an intolerable .level that far exceeds anything een in indi­vidual countries (from 0.69 to 0.87, on ascale where zero i perfect equality and 1.00is total inequality).

Even these figure conceal the true scaleof injustice since they are based on compari­sons of the average per capita incomes ofrich and poor countries. In reality, ofcourse,there are wide disparities within each coun­try between rich and poor people.

Global inequality would be expressedmuch more accurately if such national in­come di parities were taken into account.Relatively few countries publish informa­tion on income distribution, so it is notpossible to make a worldwide asse sment.But a rough estimate can be made for agroup of 41 countries for which data areavailable: a calculation for this group pro­duces a country-based inequality ratio of 65to I-though once internal income distri­bution is taken into account, the ratio be­tween the richest and the poorest peoplemore than doubles to 140 to 1 (figure 3.3,table 3.3 and technical note 2).

If data were available for all 160 coun­tries, the global disparity ratio would un­doubtedly be higher still-because in thegroup of 41 countries, the industrial coun­tries (where income disparities tend to besmaller) are overrepresented. The inequal­ity ratio for the whole world is probablymore than twice that indicated in table 3.3and may be well over 150 to 1.

The income disparity between rich and

Till ID I l, , PI (,!OB,ull)) ) n mE

FIGURE 3.2Global economic disparities

Distribution of economic activity, 1989-percentage of world total(Quintiles of populatIOn ranked by income)

I~ GNP-82.7 VR' h st World trade - 81.2

fi~he Commercial lending - 94.6Domestic savings - 80.6

Domestic investment - 80.S

- \(poor nations might be better mea ured us­ing real purchasing power rather than nomi­nal GNP. Even this would still suggest a realincome disparity greater than 50 to 1.

Moreover, it is absolute rather than rela­tive income differences that are even moresignificant as far as individual people andtheir attitudes are concerned. The ab olutedifference in per capita income between thetop 20% and the bottom 20% of worldpopulation, expressed in 1989 US dollars,increased between 1960 and 1989 trom$1,864 to $15,149.

These di parities are reflected in realconsumption levels. The North, with aboutone fourth of the world's population, con­sumes 70% of the world's energy, 75% of itsmetals, 85% ofits wood and 60% of its food.

However it is measured, the currentdisparity between the world's richest andpoorest people is extremely large.

Econonllc growth disparities

Poorestfifth

lEach horizontal bandrepresents an equal fifthof the world's people

,..

GNP-l,4World trade - 1.0Commercial lending - 0.2Domestic savings -1.0Domestic investment - 1.3

Ratio of shares in the global economy, 1960s and 1989Ratio of the poorest fifthto the richest fifth

GNP Trade Commercial Domestic Domesticlending savings investment

The income gap between rich and poorcountries is not only considerable-it is wid­ening. Between 1960 and 1989, the coun­tries with the richest 20% of world popula­tion grew 2.7 times faster than the bottom20% (tables 3.4 and 3.5).

There are also striking contrasts be­tween individual countrie and between dif­ferent regions (tables 3.7 and 3.8). For 1965­80, the world's overall growth rate was 2.4%a year, and the figure for the OECD coun­tries as a whole was dose to this at2.9%. Butamong the developing regions, the differ­ence were considerable. Those with highper capita growth rates for this period in­cluded China (4.1%), East and South-EastAsia (3.9%), Latin America and the Carib-

Poorestfifthshare in19605

~ rr-,Share of therichest fifth forall indicators

II 35

DISPARITY BETWEEN RICH AND POOR

TABLE 3.1 TABLE 3.2Global income disparity, 1960-89 Global economy, 1989Percentage of global income Percentage of total

Poorest Richest Domestic20% 20% Richest to Gini invest-Domestic(%) (%) poorest coefficient Income Trade ment savings

1960 2.3 70.2 30 to 1 0.69 Poorest 20% 1.40 0.95 1.25 0.98

1970 2.3 73.9 32 to 1 0.71Second 20% 1.85 1.35 262 2.53Third 20% 2.30 2.53 2.92 2.59

1980 1.7 76.3 45 to 1 0.79 Fourth 20% 11.75 13.94 12.65 13.391989 1.4 82.7 59 to 1 0.87 Richest 20% 82.70 81.23 80.56 80.51

-------it>

TABLE 3.3Disparity between rich and poor countries and between rich and poor people, 1988

Countries' Peopleb

Percentageof totalIncome

Per capitaIncome

(US$ billions)

Percentageof totalincome

Per capitaincome

(US$ billions)

GNP percapita

·····_··25.000

FIGURE 3.3Between countries.between people

Disparity betweenrichest 20% andpoorest 20%

Based onincomedistributionwithincountries

Richest

•.. ···20,000

Based on ~7lvnational ~averages ... '300

Poorest 20%Richest 20%

Richest to poorest

30119,542

65 to 1

1.067.6

Poorest 20%Riches120%

Richest to poorest

16322,808

140 to 1

0.579.0

TABLE 3.4Widening economic gaps between rich and poorPercentage of global economic activity

Poorest····•.. 200

----------11>.•... ·100

a. Based on average national per capita income b Based on Income dlstnbution wIthin countries

--··0

GlobalGNP"

Commercialbank Domestic

Tradeb lendingb investment'Domesticsavings<

Foreignprivate

Investmentd

1960170Richest 20% 70.2 808 72.3 704 70.4 73.3Poorest 20% 2.3 1.3 0.3 3.5 3.5 3.4

Ratio, richest to poorest 30 to 1 62 to 1 326 to 1 20 to 1 20 to 1 21 to 1

1989Richest 20% 82.7 81.2 94.6 80.6 80.5 58.4Poorest 20% 1.4 1.0 0.2 1.3 1.0 2.7

RatiO, richest to poorest 59 to 1 86 to 1 485 to 1 64 to 1 82 to 1 21 to 1Value (US$ billions) 20,000 6,000 5,000 4,500 4,500 200

a 1960. b. 1970; c 1965. d. Developing countries only.

TABLE 3 5GNP per capita growth rates(population share)

Percentage of developingcountries' populationsharing such growthAnnual growth

rate In percapita GNP 1965·80 1980-89

Over 5%Between 1% and 5%Below 1%

10.676.113.3

33.237.229.6

Total 100.0 100.0

36

DISPARITY BETWEEN REGIONS

TABLE 3.6North-South disparity in human development, 1960-90

AbsoluteNorth South disparity

1960 1990 1960 1990 1960 1990

Narrowing disparity in human survivalLife expectancy (years) 69.0 74.5 46.2 62.8 22.8 11.7Adult literacy (%)" 95 97 46 64 49 33Nutrition (daily calorie supply as % of requirement)b 124 134 90 109 34 25Infant mortality (per 1,000 live births) 37 13 150 74 123 61Child mortality (per 1.000 live births) 46 18 233 112 187 94Access to safe water (% of population)' 100 100 40 68 60 32

Widening disparity in human progressMean years of schooling (years)d 9.1 10.0 3.5 3.7 5.6 6.3Tertiary education enrolment ratio (%)b 18 37 3 8 15 29Scientists and technicians (per 1,000 people)' 51 81 6 9 45 72Expenditure on R&D (US$ billions)d 196 434 13 18 183 416Telephones (per 1.000 people) 130 466 9 26 121 440Radios (per 1.000 people)b 449 1.008 32 173 417 835

" 1970. not 1960; b. 1965; c. 1975; d. 1980. e 1980-85.

TABLE 3.7Widening economic gaps between regionsPercentage of global

Global ForeignGlobal commercial private

population Global GNP Global trade bank lending Investment ODA"

1960 1989 1960 1989 1970 1989 1970 1989 1970 1989 1960 1989

Sub-Saharan Africa 7.1 9.5 1.9 1.2 3.8 1.0 0.3 0.3 24.8 15.0 8.3 37.8South Asia 19.8 22.7 3.1 2.8 1.3 0.9 0.1 0.1 1.5 3.1 35.9 17.8East and South-East Asia (excl. China) 8.8 9.9 1.7 2.9 4.1 8.1 5.7 12.8 117 33.3 15.3 13.7China 21.8 21.6 3.0 2.0 0.8 1.9 0.4 0.2 11.8 7.0 0.0 6.5Arab States 3.9 5.0 1.5 2.5 3.3 4.1 1.5 2.4 9.8 13.2 32.8 12.6Latin America and the Caribbean 7.1 8.4 4.7 4.4 5.6 3.3 0.8 6.4 40.4 28.4 7.7 11.6

Developing countries 68.5 77.1 15.9 15.8 18.9 19.3 8.8 22.2 100.0 100.0 100.0 100.0Least developed 6.8 8.4 1.0 0.5 0.8 0.4 0.2 0.1 1.7 2.2 7.0 33.7Industrial countries 31.5 22.9 84.1 84.2 81.1 80.7 91.2 77.8

a Developln9 countnes only.

TABLE 3BGNP per capita annual growth rates

South AsiaEast and South-East Asia (excluding China)ChinaSub-Saharan AfricaArab StatesLatin Amenca and the Caribbean

Industrial countriesOECD

Developing countriesLeast developed countries

All countries

1965-80

1.43.94.11.53.03.8

2.52.9

2.90.6

2.4

1980-89

2.93.38.2

-1.70.5

-0.4

2.22.4

3.4-0.7

3.2

1965-89

1.83.75.70.32.11.9

2.42.6

3.10.1

2.9

37

761

37.2

29.6

33.2

Disparities in market opportunities

The gaps in income and employment oppor­tunities, between rich and poor nations andbetween rich and poor people, are thus verylarge-and widening at an alarming pace.But at the global level, there are also greatdisparities in the access to markets-thosefor goods and services and those for capital.• Trade-Many developing regions haveseen their share of global trade fall ince1970. The e include Sub-Saharan Africa0.8% to 1%), Latin America and the Car­ibbean (5.6% to 3.3%) and the least devel­oped countries (0.8% to 0.4%). For thebottom 20% of world population, the shareis now only 1%. Other regions did muchbetter during thi period: East and South­East Asia (including China) more thandoubled their hare from 4.9% to 10%.• Commercial bank lending-The bottom20% of the world s population receive only0.2% of global commercial bank lending.Like poor people within nations, poor na­tions in the international community aresimply not creditworthy.• Foreign direct investment-Despite thesupposedly abundant labour upply and in­vestment opportunitie ,no more than 0.2%of tran national investment i directed tothe bottom 20% of the world' population.

The disparitie are wide for people inmost of the developing world, but someregions and countries are further behindthan most.

SUB-SAHARAN AmlCA AND SOUTH AsIA

increased their hare of global populationbetween 1960 and 1989 from 27% to 32%.But their share of global GNP declined by20% and their hare of global trade wamore than halved-underlining a rapid pro­cess of marginalization for 1.7 billion people(box 3.1).

THE LEAST DEVELOPED COUNTRIE , as agroup lipped even further behind. Theyalready had miserable share ofglobal GNP(1% in 1960), global trade (0.8% in 1970)and global commercial bank lending (0.2%in 1970)-much lower than their 8% shareof world population. But even the e levelshave been halved over the last two to threedecades.

bean 0.8%) and the Arab States 0.0%).Compared with these, the growth rates forSouth A ia and Sub- aharan Africa werevery sluggi h.

During the 1980s, however, the situa­tion changed dramatically. East and South­East Asia and Cbna continued to makerapid strides, and the situation in SouthAsiaalso improved considerably. But el ewherethere was Ie progress. Between 1980 and1989, economic growth in Latin Americaand the Caribbean averaged minus 0.4% ayear. And Sub-Saharan Africa experiencedan average annual growth fa te ofminus 1.7%over the same period, falling even fartherbebnd.

The position for the least developedcountries, containing 8% of the developingworld's population, was bad as well. Theirshare of global GNP shrank between 1960and 1989 from a tiny 1% to an even moremiserable 0.5%.

The 1980 have often been de cribed athe "lost decade" for development. Thismight seem strange since average globalgrowth was higher during 1980-89 than in1965-800.2% compared with 2.4%). Thereal problem in the 1980s was that globalgrowth was poorly distributed.

In 1965-80, overall growth may havebeen lower but more people aw their posi­tion improve (figure 3.4). Taking annual percapita growth of between 1% and 5% to be"reasonable", the proportion of the world'spopulation uving in countries with less thanthat was 13% in 1965-80, but it increased tonearly 30% in 1980-89.

The 1980s also saw a greater polariza­tion between rich and poor. Compared with1965-80, three times as many people in the1980s uved in countries with high per capitagrowth (above 5%). Ths polarization wouldbecome even more evident if the deteriora­tion in national income distribution werealso taken into account-gaps between richand poor widened considerably in some ofthe fa t-growing economies.

Examining only average growth rates is,therefore, very un atisfactory, and the focuof future attention should be on the actualrate for specific populations and incomegroups.

Percentageof worldpopulation

10.6

1% to5%

Below 1331%

FIGURE 3.4People and growth

GNP percapitaannualgrowthrate

Over5%

38

Whatever the indicator, the evidence FIGURE 3 5points to large and widening di parities. At North-South gaps in human developmentboth the national and international levels, Change in absolute disparitythe basic que tion now i : How can thistrend be rever ed?

Human capital disparities Life 1960expectancy

! aYears 1990 11 7

Economic output normally increases as capi- SOUTH GAP NORTH

tal investment increase and as more work- 50 60 70 80 90 100

ers join the labour force. But increases in Adult 1970,-

productivity also play an important part. Inliteracy

! aPercent 1990 33

the industrial countrie productivity isthought to have accounted for about 50% of 90 100 110 120 130

Nutritionalthe growth in economic output. The situa- level 1965

Percentage of ! ation is very different, however, in the devel- daily requirement 1990 25

oping world, where productivity increases135 105 75 45 15

have been much smaller-responsible for Infantno more than about 9% of output growth. mortality 1960

Per 1.000 ! aProductivity increa es have been attrib- live births. 1990 61

uted to several factors: technical il111ova- 200 150 100 50

tion, for example, or a healthier and more Childmortality 1960

skilled and educated workforce, or a more Per 1.000 ! 94 avigorous entrepreneurial spirit. All these are live births 1990

usually the reward for investing in education 40 60 80 100

and health building up the country's "hu- Access tosafe water 1975 -.

man capital". Percentage of1990 ! 32

Developing countries have made somepopulation

progress in improving their stock of humancapital (table 3.6 and figure 3.5). They now 4 6 8 10

have much healthier and more educated Mean years 1980population : of schooling

• Averageli/eexpectancy increased between 1990

1960 and 1990 from 67% of the level in the 10 20 30

North to 84%. Tertiary1965

Daily per capita calorie supply increasededucation• Enrolment ratio 1990

between 1964-66 and 1984-86 from 72% ofthe level in the North to 80%. 20 40 60 80

Infantand childmortality rates were more Scientists and 80-85• techniciansthan halved between 1960 and 1990 (an Per 1.000 people 1990 1 .. Lachievement that took more than a centuryin the industrial countrie ). 100 200 300 400

Expenditure• Adult literacy increased from 46% to on R&D 1980

64% between 1960 and 1990, narrowing the $US billions 1990

literacy gap between North and South from100 200 300 400

52% to .34%.Telephones

• The enrolment ratio for primary and sec- 1960Per 1.000 people

ondOlY school children increased from 55% 1990 "~I

to 72%. 250 500 750 1000

As the 1990 Human Development Report Radios 1965hawed, the North- outh gaps in ba ic hu- Per 1.000 people

1990man survival have narrowed considerablyover the past three decades. People in the

39

BOX 31

Investing in Africa's people

South are living longer, and more than halfthe population has acquired at least a rudi­mentary education. But the real challengelies ahead. The engine ofeconomic progressis technological innovation and increase inhuman productivity-and this is preci elywhere the developing countries are being

Africa is being left behind by the re t ofthe world. Years of economic declinehave taken their toll as Africa 's participa­lion in global economic activity ha. teadily fallen.

Share ofglobalGNP-between 1960and 1989, thi dropped from 1.9% to1.2% (Africa has 9.5% of world popula­tion).

Share ofglobal trade-between 1970and 1989, this fell from 3.8% to 1%.

Share 01developing UJorld private ill­vestment-between 1970 and 1989, thiswent from 25% to 15%.

One of Africa' main economicweaknesses is it dependence on primarycommodities. Between 19 6 and 1990,the decline in commodity prices cost thecontinent more than $50 biJllon in exportearnings. And the long-term outlook isno better.

Africa's external debt (exc.ludingSouth Africa) ha tripled since 19 0 andis now a large a its total G P. Debtervice in 1990 wa equivalem to 19"/0 of

total exports of goods and ervices. Andit is proving difficult to get these debtseither written off or written down.

Africa's economic decline is nowleading to reversals in its modest and stillfragile progres in human development.The literacy rate is still only 62%, and lesthan half the population has access toafe water or health ervice. Per capita

GNP growth was negative (-1.7% a year)between 1980 and 1989, and wages ofmodern ector workers dropped 30% onaverage between 1980 and 1986. Educa­tion, primal")' health care and the provi­sion ofsafe water are being undermined.Primary school enrolment had jumpedbetween 1965 and 1980 from 41% to79%, but by 1988 it had fallen back to67%.

One thing Africa is not short of,however, i external advice. In fact, Af­rica has perhaps received more adviceper capita than any other continent. The

IMF, multilateral financing institution,sy ·tem agencie and bilateral donors

are deeply involved in the formulation ofeconomic policy, and some 20 Africancoumrie are currently pursuing adjust­ment policie under their tutelage. Exter­nal contributions of resources are ratherIII re limited: between 1985 and 1989the IMF's net comribution to ub-Sa­haran Africa was to drain an average of$700 million a year.

A key challenge for Africa i to accel­erate inve tment in people: in their nutri­tion and health (especialJythatofwomenand children) and in their education, par­ticularly in science and technology. Thicould help African countrie adapt to

new technologies and become more pro­ductive, creative and enterprising-andstart catching upwith the restoftheworld.Africa's development programmes need,therefore, to be based nOt on the contrac­tion of output but on its expan ion.

Africa need rna ive additional re-ources, which could be released through

improved governance, greater aCCOUDl­ability and reduced m.ilitary spending.And debt relief should con iderably de­crease Africa's debt service, which cur­rently stands at $10 billion (excludingSouth Africal. BUlAfrica will also need asubstantial increase in official develop­ment assistance-at least $30 billion in1992, increasing 4% annually for the restof the decade. And this assistance willhave to be directed to human develop­ment concerns.

The move to gr ater democracy inAfrica could offer a new impetus-andserve as a vital con'ective to the ineffi­ciency of many previou governments. Ifthe contagious spread of democracycould be matched by an increa e inintraregional trade and cooperation (e ­pecially when a new democratic SouthAfrica can be included), a ba e could bebuilt for much more po iLive develop­ment in the future.

left behind by the rapid strides of the indus­trial world. Some of the current gaps be­tween North and South in technical educa­tion, informatics and technological researchare particularly disturbing:• The tertiary enrolment ratio is only 8% inthe South, compared with.37% in the North.In the least developed countries it is 2%.• Scientific and technical personnel num­ber only nine per 1,000 people, comparedwith 81 in the North.• Communications-the informatic andcommunications revolution seems to havebypassed most developing countrie _ Percapita, they have only one-eighteenth asmany telephone connections, one-eighth asmany newspapers and one-sixth as manyradios.• ComputeriZtztion-onJy a twentieth ofthe world's computers are in the South.• Research and development (R&D)-de­spite having 80% of the ~orld's population,developing countries are respon ible foronly 4% of global R&D expenditure.

The technological gaps between Northand South have widened in the past threedecades. Such gaps are self-reinforcing. Theconcenu-ation of knowledge in the indus­trial countries mean that further advancestend al a to occur th.ere. This give them aproductivity advantage and can equentlymuch higher returns on capital and labour.The higher profit rates in industrial coun­tries enable them to attract yet more capital(even from developing countries), and thifacilitates more investment in technology.

These gaps are widening becau e basicscientific and technological information isincreasingly being privatized. The kind ofinformation that u ed to appear in the pub­lic domain is now likely to be patented orcopyrighted-and available only to thosewho can pay the price. Even to keep up todate with freely available information nowdemands higher levels of technology to ac­cess computer networks.

Thi cycle of concentration is reflectedin world trade. GEeD nations find that theycan now meet an increasing share of con­sumer demand with skill-intensive produc­tion within their own countries and that theyneed to import less from the developingworld. The developing countries' share of

40

c:== Latin America -and Caribbean

ArabStates

East and •South-East Asia

Sub-SaharanAfrica

South •Asia

40

27%of totalaDA

TotalaDA

20 30

aDA per capita

10

aDA per capita

2--4% 1-----<2%1-•••••-

>4% ••••••••_

Militaryshare

of GOP

TotalaDA

~"'"

Developingcountries'

population

Population of countrieswith military spendingof below 2% of GOP

Population of countrieswith military spendingof 2% to 4% of GOP

Population of countriesWith military spendingof over 4% of GOP

to countries with high military priorities ...

GNP per capita

1,500 1,000 500

Poor peopleTotal -1.2 billion

to developing regions ...

FIGURE 3.6Distribution of aDA

to the poorest people ...

Over 72% of the developingcountries' poor peoplelive in 10 countries that receive27% of all aDA.

(1990) 10 countries

A country can offset the tendency for in­creasing national income di parity with aprogre ive tax on income. But there is nosuch global system. The same is true ofsocial policy and safety nets. Many indus­trial. countries (and developing ones) try totop people falling into absolute destitu tion.

Around 25% of national incomes are chan­nelled through the public budget to socialservices, unemployment benefits and wel­fare payments. But again, there are no suchglobal safety nets and few mechani m fortran lating entiment of international soli­darity into effective international action.

It might be thought that official devel­opment assistance (ODA) could fulfil thisrole. But the experience 0 far has beendisappointing (figure 3.6). ODA has criticalweaknesses-in quantity, equity, predict­ability and distribution.

QUAN111Y. The industrial countries cur­rently give ODAequivalent to around 0.35%of theiIcombined GNP-$54 billion a year,with $52 billion coming [TOm OEeD coun-

Official development assistance

world trade fell from 24.8% in 1980 to19.3% in 1989.

The challenge for developing countriesin the next decade is a dual one. Where basichuman need are not yet met-for ba iceducation, primary health care or food­progress must be accelerated. The route tohigher levels of human development is tonot ignore the ba ics. An inverted pyramidof human development is harclJy a founda­tion for sustainable progress.

Other COUll tries will have to sustain theirprogress, but they mu t also invest in higherlevels of human development. Their chal­lenge i striking the right, most efficient andmost effective balance between closingwithin-country disparities and keeping upwith global progress and development.

Developing countrie must, therefore,go beyond basic concerns of human sUlvivaland invest heavily in all levels of humancapital formation-particularly in technicaland managerial skill . Dnle they acquiregreater control over the expandina "knowl­edge industry", they will languish in thebackwaters of low-value-added production.

I III tTIl 41

•. The number or poor in China IS estimated by the World Bank at about 100 million for rural poor only. A rough es1imate of 120 million is adoptedhere lor the entire country. on the basis that the rural poverty rate IS two and a half times the urban poverty.

TABLE 3.11aDA to the poorest

aDATen developing Number Poor aDA as % ofcountries with highest of poor as % of total per capita totalnumber of poor (millions) world poor (US$) aDA

India 410 34.2 1.8 3.5China' 120 9.9 1.8 4.7Bangladesh 99 8.3 18.0 4,7Indonesia 70 58 9.3 3.9Pakistan 37 3.1 8.8 25Philippines 36 3.0 20.3 2.9Brazil 33 2.8 1.1 0.4Ethiopia 30 2.5 17.7 2.0Myanmar 17 1.4 4.7 0,4Thailand 17 1.4 14.1 1,8

Total 869 72.4 4.2 26.8

HOW ODA IS DISTRIBUTED

TABLE 3.10Top 20 recipients, 1990

TotalaDA aDA

Developing (US$ as%ofcountry millions) GNP

Egypt 5.584 17.2Bangladesh 2.081 10.5China 2.064 05Indonesia 1,717 2.0India 1.550 0.5Philippines 1.266 3.0Turkey 1,259 1.7Tanzania 1.155 37.5Pakistan 1.108 2.8Kenya 989 11.3Morocco 965 4.4MozambIque 923 77.4Jordan 884 16,7Ethiopia 871 14.6Zaire 816 9.2Thailand 787 1.2Sudan 768 9.5Senegal 724 15.4Cote d'ivoil'e 674 7.2Sri Lanka 659 91

Subtotal 26,844 2.4(61% of total aDA)

TABLE 3.9aDA by region, 1989/90

aDA peraDA GNP capitaper per as % of

capita capita GNP perRegion (US$) (US$) capita

Arab States 43 1,887 2.3Sub-Saharan Africa 32 475 6.7Latin Americaand the Caribbean 10 1,962 0.5

East and South-East Asia 5 625 0.8South Asia 5 458 1.1

TABLE 3.12aDA shares by income group

Population by developingcountry per capita Income

Poorest 40%Richest 40%

RatiO of richest 40% to poorest 40%

Percentage aDA per capitaof total aDA (US$)

1970 1989 1970 1989

39 30 2.6 8.261 67 4.1 18.3

1.6to 1 2.2 to 1 1.6 to 1 2.2 to 1

TABLE 3.13aDA to big military spenders, 1989/90

Low military spenders (below 2% of GDP)Moderate military spenders (between 2% and 4% of GDP)High military spenders (above 4% of GDP)

Share oftotal aDA

(%)

30.643.925.5

Share ofpopulation

(%)

27.754.717,6

aDA shareas%of

populationshare

11180

145

42

HOW aDA IS SPENT

FIGURE 3.7aDA and human expenditure

aDA as a percentageof donors GNP

Aid social allocation ratio

Percentage of aDAto social sectors

Social priority ratio

Percentage of social sectoraDA to human priorities'

Aid humanexpenditure ratio

Percentage of donor GNPto human priorities·

TABLE 3.14Human priorities in bilateral aida

PercentageaDA aDA Aid social Social Aid human 01 total aDA(US$ as %01 allocation priority expenditure for human

millions) GNP ratio ratio ratio prioritiesCountry 1990 1990 1988/89 1988/89 1988/89 1988/89

Norway 1,207 1.17 27.2 72.3 0.230 19.7Finland 846 0.64 38.0 41.4 0.100 15.7Denmark 1,171 0.93 19.2 55.4 0.099 10.6Netherlands 2,580 0.93 21.1 44.5 0.087 9.4Sweden 2,007 0.90 17.0 41.5 0.064 7.1

Switzerland 750 0.31 35.8 50.6 0.056 18.1canada 2,470 0.44 23.8 45.9 0.048 10.9Italy 3,395 0.32 18.0 47.3 0.027 8.5United Kingdom 2,639 0.27 13.4 65.8 0,024 8,8France 6,277 0.52 11.0 35.9 0.021 4.0

Austria 389 0.25 13.4 60.6 0.020 8.1United States 10,166 0.19 16.4 50.4 0.016 8.3Germany 6.320 0.42 8.9 21.4 0.008 1.9Japan 9,054 0.31 10.7 25.5 0.008 2.7Australia 955 0.34 6.4 31.4 0.007 2.0

Total 15 DAC countries 50,226 0.35 14.8 43.7 0.023 6.5

TABLE 3.15Human priorities in multilateral aida

PercentageAid social Social 01 total aDAallocation priority lor human

ratio ratio prioritiesAgency 1988/89 1988/89 1988/89

UNICEF 91.7 85,9 78,8IFAD 16.8 100.0 16.8IDB (including special) 27.8 54.4 15.1ASDB (inclUding special) 17.5 64.5 11.3IBRD/IDA 17.5 47.7 8.3AFDB/African Dey. Fund 16.6 32.4 5.4

Total 19.1 49.1 9.9

a. Human PriOrities include basic education, primary health care, s.fe drinking water, adequate sanitation, family planning, and nutmionprogrammes.

43

oD has criticalweakJzesses-inquantity equity,predictabilityand distribution

tries. But it is far from clear what objectivethis sum is supposed to fulfil.

If the intention i to help developingcountries accelerate economic growth toreasonable levels, the resource shortfall ieven greater-some $200 billion a year .ifthe average growth rate ofdeveloping coun­tries i to be increased by two percentagepoints.

If aDA is intended to serve a a socialpolicy and safety net for the developingcounu'ies and their more than one billionpoor, 0.35%ofGNPcan scarcely be enough.Compare this with the roughly 25% ofGNPthat the industrial nations direct to their 1.2billion people of whom only 100 million(less than a tenth of the population) livebelow the poverty line.

Around 70% ofODAis bilateral-givendirectly from one country to anotller andtherefore sensitive to political relations be­tween donors and recipients. A donor thatdisapprove of, say, the human rights recordof the recipient can withdraw aid. Poor

TABLE 3.16Applying the UN ODA target progressively

people can therefore be penalized for thesins of their ruler, uffering a double pun­ishment-political oppression and a with­drawal of aid.

ArLO ATIO . aDA is allocated in waysthat seem strange and arbitrary-howeveryou look at it.• Regions-South Asia, with some of thepoorest people in the world, receives $5 perperson (table 3.9). The countries receivingaid in the Middle East, with three timeSouth Asia's per capita income, get $55 perperson.• Countries-Allocations as a proportionof the recipient country's GNP can varydramatically for no good rea on-O.5% forIndia, for example, 17% for Egypt, 38% forTanzania and 77% for Mozambique (table3.10).• Poverty-Only a quarter of aid goes tothe 10 countries that together have aboutthree-quarters of the world's poore t people(table 3.11). Indeed, the richest 40% of thedeveloping world population receives more

44

Differencebetween current

ODA,f ODAand ODAGNP per ODA Progressive progressive if progressivecapita TotalODA as% of rates rates rates(US$) (US$ millions) GNP of ODA" are applied are applied

Country 1989 1990 1990 (%) (US$ millions) (US$ millions)

Switzerland 29,880 750 0.31 1.08 2,380 1,630Japan 23,810 9,054 0.31 0.86 22,910 13,856Norway 22,290 1,207 1.17 0.81 800 -407Finland 22,120 846 0.64 0.80 960 114Sweden 21,570 2,007 0.90 0.78 1,580 -427

USA 20,910 10,166 0.19 0.76 37,090 26,924Denmark 20,450 1,171 0.93 0.74 850 -321Germany 20,440 6,320 0.42 0.74 10,160 3,840Canada 19,030 2,470 0.44 0.69 3,530 1,060France 17,820 6,277 0.52 0.65 7,160 883

Austria 17,300 389 0.25 0.63 890 501Belgium 16,220 891 0.45 0.59 1,060 169Netherlands 15,920 2,580 0.93 0.58 1,470 -1,110Italy 15,120 3,395 0.32 0.55 5,320 1,925United Kingdom 14,610 2,639 0.27 0.53 4,720 2,081

Australia 14,360 955 0.34 0.52 1,330 375New Zealand 12,070 93 0.22 0.44 180 87Ireland 8,710 57 0.16 0.32 110 53

Average 19,333 51,267 0.35 0.70 102,500 51,233

a. Each donor's ODA·GNP ratio under a progressive system has been calculated by multiplying 0.7% (the average target forODA-GNP ratio) by 1plus the percentage difference between thedonor"s 1989 GNP per capita and lheaverage GNP per capitaof all donors.

than twice as much aid per capita a thepoorest 40% (table 3.12).• Military expenditure-Countries thatspend a lot on the military (more than 4% ofGNP) are rewarded with roughly twice amuch aid per capita as countries that spendmore mode tly-between 2% and 4% ofGNP (table 3.13).• Human priorities-The ba ic humanconcern that should have the highest prior­ity get the smallest share of fund . Basiceducation, primary health care, safe drink­ing water, family planning and nutritionprogrammes together are allocated only6.5%of bilateral ODA . The same is true for aidgiven t1u-ough multilateral agencies: the av­erage allocation from those for which dataare available is only 10% (figure 3.7 andtables 3.14 and 3.15).

In truth, the quantity of ODA has neverbeen et to meet any clearly defined objec­tives.

PREOlo-ABILITY. ODA is determined Dotby the needs of developing countries, but bythe fluctuating goodwill of the people andtheir parliaments in the rich countries. As aresult, it is largely ad hoc and unpredictable.

EQUITY. A progressive system of ODAwould mean having richer countries con­tribute a greater proportion of their incomethan industrial countries that are less welloff. But the practice of ODA falls far shortof this ideal.

The United Nations target for ODA is0.7% of GNP- a flat-rate system of volun­tary taxation, not a progressive one. Thisimplies, for example, that people in NewZealand (GNP $12,070 per capita) houldgive the arne proportion of their income apeoplein]apan(GNP$23 810p rcapita)­hardly an equitable basis for contributions.

The reality is even worse: orne of therichest nations, uch as the United Statesand]apan, give asmaller proportion ofG Pthan Ie s wealthy countrie .

If the system of ODA were truly pro­gressive, the total current shortfall fromthe overall 0.7% target would be $51 bil­lion for the DAC countries (table 3.13). Infact, some 80% of thi hortfall would bethe responsibility of just two countries­the United States and Japan.

International debt

The exi ting distribution of global opportu­nities offers inadequate resources to poornations. But war e than this, it takes signifi­cant resources away from them throughdebt servicing. In 1983-89, rich creditorsreceived a taggering $242 billion in nettransfers on long-term lending from in­debted developing countrie (figure 3.8).

The total external debt of developingcountries has multipl.ied thirteenfold in thelast two decade: from $100 billion in 1970to around $650 billion in 1980 to around$1,350 billion in 1990. Despite several at­tempts to find a satisfactory solution, thedebt continues to grow.

Much of this debt is concentrated in justa few countrie . According to the WorldBank, 57% of debt i held by just 20 COUD­tries-headed by Brazil, Mexico, Argen­tina, India and Egypt.

The major impact is felt in Sub-SaharanAfrica and in Latin America-with socialand economic damage that will persist longinto the future paralysing economic initia­tives and blocking much-needed expendi­ture on human development.

SUB-SAHARAN AFRICA. The debt of Sub­Saharan Africa i currently around $150billion-lOO%ofit GNP (inLatinAmerica,the equivalent figure is 50%). The fact thatAfrican countries are so dependent on com­modity exports further compounds the prob­lem of repayment.

The traditional approach to debt reliefis to rescheduJe: interest payments are post­poned, or an-ears are added to the capitalsum. But this has proved of little benefit toAfrican countrie -it has simply made thedebt larger.

A more reali tic alternative is for officialdonors to forgive the debt. The Group ofSeven industrial countries proposed this attheir meeting in Toronto in 1988, but thufar not much ha happened. True, ninedonor countries in the OECD have an­nounced plans to help the low-income Afri­can countries either by writing off bilateralloans or convelting loans into grants. But bythe end of 1989, only $6 billion of the $64bill.ion of qualifying debt had been can-

FIGURE 3.8Debt- related net transfers

1980-82$49 billionrich to poor

20~­

i10!

io

1980

10

20

30

40

501983-89

$242 billionpoor to rich

1989

45

Official dOllarsshould cancelAfrica '5 debt

46

celled or converted-less than 10%.Africa's experience here contrasts sharply

with that of Poland which, despite a percapita income four times the African aver­age, has successfully had its bilateral debtreduced by 50%.

The multilateral in titutionshave no suchplans for debt reorganization in Africa. ll1eWorld Bank has neither forgiven Africa'sdebts nor rescheduled them. It has, how­ever, accelerated its disbur ements to someseverely indebted African countrie to en­sure that it does not receive net transfersfrom these countries. And in the latter halfof the 1980s, net transfers to Africa wereindeed maintained positive at arow1d $1billion a year. This does not mean, however,that each country enjoyed positive net trans­fers. Major debtors, uch as Cote d'Ivoireand Nigeria, uffered negative transfers in1987-89, as did other significant borrowers,such a Zimbabwe and Mauritius.

The IMP, by contrast, has [or severalyears been taking money out ofAfrica. De­spite new concessional mechani ms-suchas the Structural Adjustment Facility andthe Enhanced Structural Adju trnent Facil­ity-it was absorbing net resource tran fersfrom Africa to the tune of $0.7 billion a yearin 1986-90.

As far a private debt is concerned,whether from commercial banks or otherlenders, there has been no significantprogress. One proposal, by the African De­velopment Bank, was to retire these debtson favourable terms through a sinking fund,but this was never implemented.

Another initiative on private debt wastaken by the World Bank in 1989 when itestablished an IDA Debt Reduction Facil­ity. This provides grants to poorer countriescarrying out tructural adjustment pro­grammes 0 that they can buy back, orexchange, their commercial debt for a rela­tively small percentage of its face value.Sixteen African countrie (with debt of $16billion) have applied to u e this facility,which offers up to 10 million per country.As of June 1991, however, the only benefi­ciaries have been Niger and Mozambique,which were able re pectively to buy theirdebt at 18% and 10% of face value. In theseca es, other bilateral donors (France, the

Nethedands, weden and Switzerland) alsoprovided a sistance for debt purchasing.

The scheme has been slow to start be­cau e the commercial bank are reluctant toparticipate-nervous of setting a precedentfor countries where their exposure is muchhigher. And the cherne is limited in scope,since it i re tricted to smaller countrie .Major debtors such as Cote d'Ivoire and

igeria do not participate, partly becau ethey do notqualify for IDA-only fund (whichgo only to the poorest countries) but alsobecau e $10 million would not make muchof a dent in their commercial debt. Nigeriaat the end of 1989 owed $16.8 billion toprivate creditor, and Cote d'Ivoire owed atleast $4 billion.

So, despite the imaginative and gener­ous effort of certain international institu­tion , the overall debt strategy bas beenweak and uncoordinated-and evidentlyineffective ince total African debt contin­ued to grow by 10% a year throughout the1980s.

The be t olution would be to imple­ment the "Trinidad proposals" (box 3.2).These envisage a cancellation of two-thirdsof the eligible debt and a rescheduling of theremainder ov r 25 years, with an additionalfive-year grace period. These proposals donot, however, cover the multilateral institu­tions-whi.ch currently receive one-third ofthe debt service and which will also have totake fresh initiatives if the debt problem ofSub-Saharan Africa is to be resolved.

SEVERELY INDEBTED MIDDLE-INCOME

COUNTRIES. These coumrieshave significantlyimproved their debt position ince the peakcrisis years of the 1980s. Back in 1982, thedebt-service ratio (the ratio of debt serviceto exports) for Latin America (excludingPanama) hit a record high of 41%. By theend of 1991, thanks to a tabilization of thedebt, an increa ing volume ofexports and areduction in dollar interest rates, the ratiofell to less than 30%--though this is still wellabove the 20% that capital markets nor­mally consider the tl1reshold of financialCfiSlS.

ll1e Brady Plan to reduce commercialdebt-Iaw1ched in March 1989-empha­sized that debt needed to be reduced, notmerely rescheduled. And with the support

T 1DI I (,1\1' I (I ( I ( >( I 111

BOX 3.2

Independent expert group proposals

The Trinidad debt reduction proposals

lieforreduction tend, therefore, to b basedmore on guess s about political feasibilitythan on sound scientific analysis.

The group has made several practicalsuggestions to improve the position of theevereLy indebted nations. These include a

form of debt resettlement on the pattern ofthe Indonesian model of 1970 and an in­terim bridging arrangement that would al­Low debtors to pay in local currency as wellas convert orne of their debts into newloans. Both proposals would certainly help,but they still fall short of an overall' globalbargain on debt" (see chapter 5).

1. To be paid, as usual, in foreign ex­change.

2. To be paid in local currency.3. To be capitalized into new loan.

The ize of each fraction would dependon the economic position of the debtor.

These interim measures would nOlapply to concessional debt, or to debts tocreditors still making di 'bur ements thatexceed the cost of debt ervice.

take time to agree on and implement. So,the group al 0 proposed a series of in­terim bridging measures that. withoutprejudicing the outcome ofthe final settle­ment, could provide immediate relief todebtors. The e include tbe postpone­ment ofamortization and the payment ofintere t in three fraction .

80 3.3

with in one long-term operation.Debt write-oil-Instead ofone-third

of the debt being written off, this shouldnow be two-thirds. This would meanwriting off about $18 billion of the debtstock of the poorest countries in Africa.

Repayment period-This should belengthened to 25 years.

Capitalization-Interest paymentsdue in the first five years should be capi­talized. Principal and intere t could thenbe repaid in a phased manner-increas­ing along with the debtor' capacity torepay.

At a meeting ofCommonwealrh FinanceMinisters in Trinidad inSeptember 1990,modification were proposed to the pre·viouslyagreed ''Toronto term" forbilat·eral debt reduction. The Toronto termof 1988 had offered low-income debt·distre sed couotrie a erie of optionthat included writing off one-tbird oftheir debts with various combination ofreduced interest rate and long repay­ment periods. The Trinidad modifica­tionswere:

Totol debt-Instead of negotiatingnew term a debts marure each year, thetotaldebtofea hcountry houldbedea1t

A procedure for dealing with the debtcrisi was proposed in 1990 by a group ofindependent experts. It draws on twohistorical precedent : the ucce sful debtsettlements for Germany in 1953 and forIndone ia in 1970.

The group propo ed e tabli hing ateam of independent experts for eachdebtor country. The ream would beheaded by a promin.:nt per on in fi­nance, economics or political life. Itwould make proposals on debt reorgani­zation and the restoration of economicgrowth in the country concerned-aswell a on the domestic mea ures neededto achieve this. The team' proposalwould be put to debtors and creditorswho could then decide whether to ac­cept them.

uch settlements would, however,

of the World Bank the IMP and]apan, thePlan has been implemented for five coun­tries: Costa Rica, Mexico, the Philippines,Uruguay and Venezuela. For Mexico, atlea t, the World Bank' as essment in 1991is that the results have been very po itive.Growth has increased and financial condi­tions have improved as flight capital hasreturned. Foreign direct investment has in­crea ed. And the country ha improved itsaccess to external capital, albeit at highetinterest rates. For the other countries, theeffect of the Brady Plan is not yet clear.

Originally the PLan was intended to help39 countries over three years, but it is nowclear that far fewer will benefit. And mean­while, most Latin American countries con­tinue to accumulate interest arrear -whichby the end of 1991 were in the neigh­bourhood of $25 billion.

That arrears should continue to accu­mulate while the debt- ervice ratio is fall­ing illustrates the limitations of using debt-ervice ratios alone as an index of progre s.

In practice, the successful servicing ofdebtsdepend on interrelated factors, including:• Income growth-to generate a urplusthat is sufficient both to service debt and toallow for satisfactory increases in domesticcan umption and inve tment.• Fail' income distribution-to sustain so­cial stability.• An efficientfiscalsystem-to capture suf­ficient public savings.• A trade surplus-to generate sufficientforeign exchange.• Higb domestic returns on investment-tooffer attractive domestic alternatives to in­ternational interest rates.

Many proposals have been made towiden the scope of the Brady Plan and toincrease its impact. Of the e, the rna t im­pOltant have come from an internationalgroup of independent experts (box 3.3).The group point out that no concrete esti­mates have yet been made of the capitalinjection needed, not just to overcome thedebt crisis, but also to restore indebtedcountries to a satisfactory medium-term rateofgrowth. Neither the Bretton Woods in ti­tutions, nor the international community,have agreed on such estimates counuy-by­country. The figure discu sed for debt reo

J <. 'l l. 1( I At )PI 47

CHAPTER 4

II IGlobal markets, poor nations, poor people

The lack of" marketo/Jportullities costsdevelopingcou11tries at least$ -00 billion a year

The disparities in the distribution of globaleconomic opportunities between rich andpoor nations are, as chapter 3 has shown,widening. There are many rea 011S for this,both domestic and international. This chap­ter focuses on only two of the reason : therole of international markets in this process,and the impact of human development on acountry's performance in international mar­kets.

The chapter looks at the internationalflows of capital, labour, good and services,a e sing them from the per pective of poornation and poor people.• Financial mafkets-Real intere t ratehave been four time higher for poor nationsthan rich ones. Developing countrie effec­tively paid 17% a year on their foreign debtduring the 1980s, while rich nations paidonly 4%.• Foreign direct investment-Multination­al companies channel most of their i.nvest­ment towards rich countries-83%. Andthe developing countries that do receiveinvestment tend to be the already better off.• Goods and services-Trade barrier arehighest for manufactured good for whichpoor countries enjoy a competitive advan­tage-for labour-intensive exports such astextiles, clothing and footwear. The marketfor agricultural produce is al 0 distorted­by import barrier and by $300 billion a yearin agricultural sub idie and price supportin industrial countries, reducing the exportopportunities for developing countries.

ub-SaharanAfricancountrie have eentheir trade hare fall to a quarter of its 1960level. And the least developed countrie ,with 8% of world population, have beenamong the greatestlosers: their al.ready smallshare of global trade has been halved overthe past 20 years-from 0.8% to 0.4%.

• Labour-Immigration laws deny work­ers the right to equalize the global supplyand demand for labour: to move to wherethey could be t earn a living.

This lack of market oppoI1unities fordeveloping countries costs them at least$500 billion a year, 10 times what theyreceive in foreign assistance.

But the analy is also show that somedeveloping countries have fared quite wellin international competitiveness. They of­ten share one conunon characteristic-highlevels of investment in their people and instrengthening their national technologicalcapacity.

Financial markets

The financial markets have come a long wayfrom the mu ty, secretive offices of the Cityof London. They are global, fa t and highlyefficient-responding quickly to the supplyand demand for jnvestments and to thesmallest changes in exchange or interestrates. Computerized dealing systems des­patch $300 billion or more across nationalborder each day.

Developing countne use the e marketsto raise funds, but they have to deal with thecycles of market with short-term fluctua­tions jn interest rates and with longer termcycles in which periods of excessive lendingare followed bysudden withdrawal of funds.

Developing countries also have to dealwith the fact that some market players aremore equal than other . They generallyhave to pay higher real interest rates andcan thus find it very difficult to servicedebts. And even though they are alreadyshort of capital, the international moneymarkets have a strong tendency to movefunds out of developing countries to safer

48

Note. Real rates are nominal (money) rates adjusted by the country's export price index.

TABLE 4.1Long-term real interest rates in six industrial countries, 1890-1989(percent)

Rep. ofKorea

Nigeria

Ar~entina,

Chile

MexicoBrazil

rr.t:l:'r.R~

JapanUSAGermany

FranceUKItaly

5

15

10

20

FIGURE 4.1Disparity in real interest ratesbetween developingand industrial countries

Percent

TABLE 4.2Real interest rates on foreign debt paid by selected major debtors,1980-85(percent)

AverageCountry 1982 1983 1984 1985 1982-85

Argentina 26.3 23.8 11.3 11.6 18.3Brazil 22.2 19.6 12.6 12.0 16.6Chile 33.8 8.9 21.6 8.4 18.2Mexico 27.4 16.9 9.9 15.0 17.3Nigeria 25.9 25.4 11.5 18.2 20.3Korea, Rep. of 14.0 12.5 5.8 7.1 9.9

Average 24.9 17.8 12.1 12.3 168

Country 1890-99 1900-13 1955-59 1960-73 1974-79 1980-84 1985-89

France 3.6· 2.0· 0.3 1.4 -0.9 3.1 5.1Germany, Fed. Rep. 3.9 2.7 2.8 4.8 4.0Italy 4.0 1.5 -3.7 1.9 3.6Japan 0.5 -0.2 5.7 3.9United Kingdom 2.6b 2.0b 1.3 2.5 -2.1 2.7 4.1USA 4.5c 1.7C 0.8 1.5 0.3 5.4 5.4

a. Government stocksb. Consolidated annuities.c. New England muniCipal bonds.Note' Long-term real interest rates are calculated by dividing long-term government bond yields by theGDP deflator.

are arrived at by taking the nominal rate andsubtracting the dome tic rate of inflation.For developing nations, however, the realinterest rate on foreign debt is calculated byadjusting the nominal rate they are chargedaccording to the rate of change in the dollarprices of the good they export. Since theprices of their exports have genera.lly fallenin the postwar period, the developing coun­tries have effectively paid interest rates muchhigher than those stipulated in their debtcontracts.

While real intere t rates in indu trialcountries averaged around 4% in the firsthalf of the 1980s, in developing countriesthey were effectively around 17%. It is a sadcommentary on the workings of the interna­tional financial markets that poor countriesand their people have to pay interest ratesfour times those in rich countries.

And the rates may well stay high asdemands for the world's investment re­sources intensify. The continuing claims ofthe US budget deficit, the need to strengthenthe capital base of US and Japanese banks,the creation of a single internal market in

havens in the already capital-rich industrialcountries.

Interest rates rose sharply in the 1980s to alevel without precedent in the past 100year . In the 1980s real interest rates weremore than twice the level that prevailed inmost of the period for which data are avail­able (table 4.1). In the United States, realinterest rates were five times higher thantheir average for the preceding 25 years.And even though US interest rates fell sharplyduring 1991, most analysts believe that thiswill be only a temporary re pite.

When global rates are high, everyonepays more. But in the 1980s, the developingcountries effectively paid more than most,partly becau e they were considered higher­risk borrowers and were charged a com­mensurate premium (figure 4.1 and table4.2).

Mauritius, for example, has been rela­tively stable financially. Yet in early 1983,when the London interbank offered rate(LillOR) was 10%, the Mauritian sugarindustrywas paying adomestic rate of 18.5%.And when LillOR rose to 14.4%, the localrate rose to 23.3%. The domestic interestcost went up on account of the "country(borrower) risk" of 2.5% above LillOR,banking charges, and a premium for ex­pected currency depreciation of 6%.

The burden for local enterprises in de­veloping countries also increased as interna­tionallenders, such as the IMP, imposed aseries of devaluations-and the price ofrepayment in local currency rose accord­ingly. This had a devastating effect, espe­cially in. Latin America, where the amount oflocal currency to service external debt in­creased three or four times in one year.

Developingcountries also suffered fromthe collapse in commodity markets. As theinternational prices for coffee, sugar andother prima.ry commodities fell, developingcountrie had to export ever greater ton­nages to maintain intere t payments.

The real interest rates shown here arecalculated in different ways for industrial(creditor) and developing (debtor) coun­tries. For industrial countries, the real rates

Real interest rates

49

SUS billions

40

FIGURE 4.2

Net transfers to developing countries

This was written in 1927, and the events ofthe Great Depression proved ProfessorTaussig right. International banks increasedtheir loans rapidly in the 1920s, but in the1930s as many banks collapsed, the lendingstopped almo t completely. The same pat­tern was eerily echoed in the 1970s and1980s, though this time for the developingcountries.

During 1972-82, the international capi­tal markets lent developing countries a netamount of $21 billion a year on average­reaching a peak of $36 billion in 1981 (table4.3 and figure 4.2). Unfortunately, real in-

Loansfrom the creditorcountryJarfrom beinggranted at an equal annual rate, begin in mod­est amounts, then increase and reach a cre­scendo. Usually, they are granted in exception­ally large sums when a culminating phase ofactivity and speculative fever approaches, andduring tins phase they become ever largerfrommonth to month for as long as the upswingcontinues. With the emergence of the crisis,loans suddenlyfall offoreven cease altogether.Payment of interest on old loans IS no longercompensated by thegrantingofnew ones; inter­est becomes the net burden for the debtorcountry; it feels the consequences suddenly inthe form of immediate need to make remit­tances in favour of the creditor country, inpressure on its banks, in ahigh discount rate, infalling commodity pn·ces. And this sequencemay occurnot only once but two or three timesin a row. After thefirst criSIS and recovery, it ispossible that the debtor countfy will manage toget on itsfeet. Afterseveralyears the loans/romthe creditor country will start flowing again,another period ofactivity and speculative in­veswent takes place, the old round gets re­peated, until finally another criSIS comes andanothersudden reversal in the debtor country'sbalance ofpayments.

Cycles oflending

International lending can fl uctuate wildly­with rapid increases in flows followed byeven more rapid withdrawals offunds. Suchcyclical tendencies in the international fi­nancial system have been graphically de-cribed by the eminent economist Frank

Taussig:

19901985

Europe, the costs of German reunification,the costs of postwar reconstruction in Ku­wait and Iraq, the social and physical needsof Eastern Europe and the republics of theformer Soviet Union-all these pressmesare likely to keep interest rates high in the1990s. If 0, the developing countries willcontinue to shoulder a heavy debt burdenand will receive relatively little new invest­ment-restricting their opportunities foreconomic expansion, now and for years to

come.High interest rates have their greatest

impact on poor people-who cannot affordto borrow on such terms. But uch interestrates can al 0 result in serious damage to theenvironment. They act as a signal from themarket that future income will be worthmuch less so they encourage the presentgeneration to discount the future at a veryhigh rate.

There is a strong case, therefore, forinstitutions such as the World Bank and theregional development banks to serve as in­termediaries between developing countriesand the financial markets-and to takemeasures to ease the burden of real interestrates (see chapter 5).

1972-82 average­$21 billion annually

21.525.033.231.229.535.920.1

7.110.816.7

21.0

3.7-10.2-20.5-23.6-34.0-35.2-29.6-22.5

-21.5

1975 1980

Amount(US$ billions)

-40

20

o

-20

19831984198519861987198819891990

TABLE 4.3Net financial transferson long-term lendingto developing countries

1983-90 average

1972-82 average

Year

19721973197419751976197719781979198019811982

50

FIGURE 4.3Net transfers to developing countries from Bretton Woods institutions

$US billions

10

terest rates started to rise dramatically after1979 as the industrial countries' govern­ments introduced restrictive monetaristpolicies in response to the second oil shock.This precipitated the Latin American debtcrisis in 1982, after which lending suddenlydropped. By 1988, net financial transfer todeveloping countries were minus $35 bil­lion. The effect was felt not just by theheavily indebted countries but by all devel­oping countries as the commercial banksbecame overly cautious and cut credit linesall round.

Theoretically, this should not have hap­pened. The IMF and the World Bank werecreated in the 1940s speci£cally to avoidrepeating the experience of the 1930s. Theywere supposed to intervene in order tomoderate the extreme cycles of unregulatedfinancial markets. In fact, they did try toincrease their net credits to the developingcountries in the early 1980s. But lacking thenecessary resources, as well as the officialmandate to intervene in global markets in ameaningful way, they could not sustain suchpolicies. Far from dampening the cycles,they amplified them.

Between 1983 and 1987, netIMFtrans­fers to developing countries turned fromplus $7.6 billion to minus $7.9 billion (table4.4). World Bank transfers moved in muchthe same direction (despite the softeninginfluence of concessionallending through

the IDA). In 1991, net World Bank tran ­fers were minu $1.7 biJnon, ofwhich minus$500 million wer to current borrowers (table4.5 and figure 4.3), The Bretton Woodinstitutions thus failed many developingcountries at their time of greatest need (seechapter 5 for the implications of thi failureand the urgent need for reform).

The cyclical nature of the flows has al 0

contributed to the deteriorating term oftrade highlighted earlier. When developingcountries were suddenly required to repaydebts, they often stepped up production ofprimary commodities that were already inoversupply, and the prices fell even lower.

Their situation wa remarkably similarto that of Germany in the interwar periodfollowing the demands for reparation. AsKeynes argued, debtors face a double bur­den: debt servicing imposes a budget bur­den while the deteriorating terms of tradeimpose a transfer burden. And Prafe orIrving Fisher, a far back as 1933, madesome profound ob ervations that the expe­rience of the 1980s reconfirmed:

The liquidation ofdebts cannot keep up withthe fall in prices which it causes. In that case,

TABLE 4.4IMF net transfers todeveloping countries

US$IMF financial year billions

1983 7.61984 5.61985 0.2

1983-85 average 4.5

1986 -4.31987 -7.91988 -7.81989 -7.51990 -4.2

1986-90 average -6.3

'Current borrowers only

TABLE 4.5World Bank: higher lending, lowertransfers, 1985-91(IBRD and IDA)

GrossGross disburse- Net

commit- ments transfersments (1991 (current(US$ US$ US$

Fiscal year billions) billions) billions)

1984 17.7 16.9 5.21985 18.5 16.4 4.91986 19.7 15.3 3.11987 20.3 17.1 2.61988 21.2 16.4 071989 22.8 15.9 0.2

1990 21.5 18.3 2.41991 22.7 16.0 -1.7

Note: Disbursements from the IDA Special Fund areincluded. Data for 1984-89 are for current borrowers,those for 1990 and 1991. for all borrowers.

5

o

-5

-10

82 83 84 85 86 87 88 89 90 91

II 51

The more debtorspay the nt01'e

they owe

the liquidation defeats itself. \Vhile it dimin­ishes the numberofdollars owed, it may not doso asfast as it increases the value 0/each dollarowed Then we have the great paradoxwhich is the chiefsecret 0/most) t/not all,great dep,.essions: the more debtors pay, themore they owe.

The human cost of the e cycles is very high.In the downward pha e, economic stagna­tion causes real wages to fall hitting thelower-income group with particular force.In Latin America during 1981-87, for ex­ample, the lowest non-agricultural wagesfell 41%. In Brazil in 1987, wages were attheir lowe t level in 37 years, and over athree-month period from] anuary to Marchthat year unemployment almost doubled.In Mexico, real wages in manufacturingwere cut by 50% over a period of five years.

Africa in many ways fared even wor e.Real wages had already fallen in the 1970 ,o a further decline of30% in the fir t halfof

the 1980s bit very deeply.Yet the lending of the IMF and the

World Bank throughout the 1980simposedstringent conditions that were not fully en­sitive to the mounting hwnan costs. Futurelending from the international financial

TABLE 4.6Inflows of foreign direct investmentto developing regions

Percentage shareof global FDI

Host regionand economy 1980-84 1988-89

Developing countries 25.2 16.9

Africa 24 1.9Latin America andthe Caribbean 12.3 5.8

East. South andSouth -East Asia 9.4 8.8

Least developed countries 0.4 0.1

Ten largest host economies 18.1 11.1

Argentina 0.9 0.6BraZil 4.2 1.5China 1.1 1.9Colombia 0.8 0.2Egypt 1.1 0.8Hong Kong 1.4 1.2Malaysia 2.3 0.7Mexico 3.0 1.4Singapore 2.8 2.0Thailand 0.6 0.8

markets to developing countries will prob­ably fluctuate ju t a violently. So, the ta kfor the international community is to createa system of global governance that, amongother things, can find ways to moderate suchswing and allow developing countrie tofollow a steady and productive course ofhwnan development.

Foreign direct investment

The countrie of the South have enormouspotential for development, as well as mil­lions of underemployed workers-a combi­nation of opportunitie that can attract for­eign corporations wi lUng to build new fac­tories or establish local subsidiaries.

In practice, however, transnational cor­porations have brought relatively little newcapital to the outh. Foreign investmentdropped off between 1981 and 1986 recov­ering to its 1981 level in 1988. In 1989, itreached $30 billion. And of global flow offoreign direct investment, the developingcountries have been getting asteadily smallershare: from 31% in 1968 down to 17% in1988-89 (table 4.6). Even at its peak in1975, uch investment was equal to only0.9% of the GDP of developing countries,and by 1980-85 a mere 0.4%.

Transnational corporations employ rela­tively few people in developing countries­less than 1% of the economically activepopulation. And the e worker tend to be inthe more 'modern" sectors of tlle economy:skilled workers using capital-intensive tech­nology.

Most foreign inve tment is concentratedin relatively few developing counu'ies. Dur­ing 1980-89, the average annual flow to theSouth was $16 billion, ofwhich 74%went toju t 10 countries: Brazil (12%), Singapore(12%), Mexico (11%), China (lO%), HongKong (7%), Malay ia (6%), Egypt (6%)Argentina (4%), Thailand (3%) and Colom­bia (3%). And it is ri ing fastest in countrieslike Morocco, Chile, Mexico, Botswana andThailand, where the busine s climate i im­provmg.

TIll li t hows a trong regional biatoward East and South-East A ia and LatinAmerica. In East and outll-East Asia, thisattraction of foreign capital ha inten ified

52 \l PO)

Economy or groupof economies 1975-791980-871987-90

TABLE 4.7Rate of return on non-residentialcapital stock in major industrialeconomies, 1975-90(profit income as a percentage of capitalstock)

a. Unrted States. Japan. Germany. France. United King­dom. Italy and Canada.Note: The measure of return to capital IS taken as thedifference between value added at factor cost andcompensation of employees (the gross operating surplusof enterpnses), The capital stock IS adjusted for inflationand covers only assets included in non-residential grossfixed capital formation and hence excludes dwellings.inventOries, monetary working capital. land and naturalresources.

in recent years uch that well over one-thirdof all direct inve tment now goes to ixcountries: China, the Republic of Korea,Indonesia, Singapore, Malaysia and Thai­land. The share for Latin America and theCaribbean, however, is dropping: it ac­counted for more than half in the early1980s but only a third by the end of thedecade.

Direct investment tends, therefore, togo to the better-offand faster-growing econo­mie (box 4.1). The poorer countries receivemuch Ie -unless they happen to have oilor minerals or other important raw materi­als. Of all the foreign direct investmentchannelled to the developing world, Sub­Saharan Africa as a whole currently getsaround 6% and in 1988-89 the teast devel­oped countries received just over 2% a year($170 million).

Why have these countrie attracted solittle investment? The major rea on is thatinvestment is generally more profitable inrich countries than in poor ones. This mightseem strange since capital is theoreticallysupposed to enjoy a higher return where it isscarce, but in practice this does not seem tobe the ca e. In the major industrial econo­mies, the average rate of return on non­re idential capital tock in recent years hasbeen 17% (table 4.7). In the developingcountries, the return has been around 12%.

An analysis of the rates of return indeveloping cOLmtries by the InternationalFinance Corporation (IFC), an affiliate of

BOX 4.1

Capitalgravitates towardsricher cOllntries

their nutrition and health and on theireducation and skill. In this sense, aworkerin Japan i very different from one inEthiopia, Nepal or Bolivia.

Capital also earns more in industrialcountrie because of economie of scale.For some indu tries, such a agriculture,there may be diminishing returns to addi­tional capital. But for many others, sucbas microchip production, profit rates canincrea e as further capital i invested.

Today, a high proportion of growthcomes not just from increasing inve t·ment but from technological change­and from the introduction of new goodsand selvices. ince scientific knowledgeis concentrated in the industrial coun­tries, this further increases profit andthu attract yet more capital.

The implications for the developingcountries are clear: they must invest inhuman capital and in higher levels oftechnology. If they do not, capital maymove even fa ter from poor countries torich.

Capitalgravitate toward industrialcoun­tric , where profit rates are higher. ForUS foreign investment, the return oninvestment during 1985-89 was 14.1% ayear in developing countries but 16.9%inindustrial countrje .

This i why developing countries at­tract such a mall proportion of interna­tionalinve tment-whetherdirectinvest­ment by transnational companie orpOrt­folio investment by commercial bankand pension funds. It also explains whythe wealthy in developing countries sendtheir saving overseas: capital flight isbecoming almost an intrinsic feature ofthe world economy.

Why should capital cam more incountries that are already capital-lich? Itmight be thought that the arne invest­ment could achieve much more where itcould take advantage of an abundantsupply of worker. But what counts forproduction is not labourers but labourpower, and this depends on the "humancapital" embodied in theworkforce-on

Whoever hath shall be given more

the World Bank, show that in 200 projectfor which tl1e overall expected real rate ofreturn wa 21.4%, the actual rate turned outto be only 11.9%. And the rates varied fromone region to another: highest in Europe,the Middle East and North Africa (15.1%),followed byAsia (13 .5%) and LatinAmericaand the Caribbean (11.1%). They were low­est in Sub-Saharan Mrica (6.6%). The mostprofitable industrywa mining (17.8%), fol­lowed by general manufacturing (16.4%),while food and agribusiness were much lesssuccessful (5.6%).

Even on the best projects, therefore, therates of returns in developing countries donot compare very favourably with those inindusu'ial countries. Part of the reason is thelower levels of technology and labour pro­ductivity. But other factors have more to dowith national governance-including politi­cal and financial instability and foreign ex­change controls.

Still none of the e obstacles to invest­ment is insuperable-as the examples of theindustrializing "tigers" of East and South­East Asia have shown. By adopting sensiblemacroeconomic policie , by developing in-

19515.115.616.5

16.814.513.514.7

USA 17.0Japan 14.9Germany, Fed. Rep. 13.8G-7' 14.8

II 53

TABLE 4.8International economic migrants from the developing countries

As % of allMillions immigrants

Receivingcountry 1960-69 1970-79 1980-89 1960-69 1970-79 1980-89

USA 1.6 3.3 5.5 50 76 87Germany l.S 2.8 2.6 23 40 48United Kingdom 1.1 1.1 55 52Canada 0.2 0.7 0.8 18 48 66Australia 0.1 0.3 0.5 9 27 47Sweden (.) 0.1 0.2 6 17 40

FIGURE 4.4International migrantsfrom developing countries

Percentage of lotal migra Ion

Host countryUSA r---,----.------, 100

r- 75

I~ 50

25

1960-69 70-79 80-890

Canada100

...... 75-

= 50

251-

01960-69 70-79 80-89

Germany100

75

50

25

01960-69 70-79 80-89

Australia100

............ ........... ....-...... 75

.................................. 50

............. _ 25

o1960-69 70-79 80-89

digenous technology and above all by mak­ing a judicioLls investment in the educationand kills of their people, they have beenable to attract considerable foreign capital.

The international capital market may in­deed be warped in favour of the better-off

economies, but with good national gover­nance they can be penetrated. The annex to

this chapter includes case studies that illus­trate how investment in human develop­

ment can help countries improve their com­petitiveness, strength n domestic produc­

tion and break into global markets.

Labour markets

No market is perfect, but the international

market for labour is one of the most re­stricted of all. The supply is there: millionsof workers in developing countries are un­employed or underemployed. And so couldbe the demand if it were up to entrepre­

neur only. But immigration law block thefree flow of labour from poor countries torich.

International migration has become in­creasingly igniBcant-and contentious. Atleast 35 million people from developingcountries have taken up re idence in the

orth in the past three decade -around 6million illegally-and about 1.5 million morejoin them each year. There are also 20 mil­lion or so working oversea on contract for

fixed periods.Some countries have been much more

open to migration than others. The percent­age of foreign residents is 21% in Australia,for example, and 16% in Canada, comparedwith 8% in the United States and 4% forEurope as a whole. The United States how­ever, has seen the greate t growth in immi-

gration-108% since the 1960s, comparedwith a 4% increase for Europe.

In all these countrie there ha been a

marked shift in the source of their immi­grant. Until the early 1960s, 80% of immi­

grants to the United tates, Canada andAu tralia came from other industrial coun­

tries, with the re t from developing coun­trie . By the end of the 1980s, the position

wa almost precisely rever ed-82% nowcome from developing countries (figure 4.4

and table 4.8). In Europe, the trend wasle smarked but in the same direction-with the

proportion from developing countries risingover the arne period from 30% to 46%.

These changing patterns of migrationreflect changing demographic balances.Most industrial countries are facing red ucedfertility rates. Annual population growth inthe 1990s is expected to be 0.2% in theEuropean Community and the Nordiccoun­tries and 0.7% in North America. So, these

regions are less likely to be a source ofmigration. But the position in the South isvery differen t. Some 38 million extra peoplejoin the labour force each year. Added to the

more than 700 million people already un­employed or underemployed, this meanthat one billion new jobs must be created, orimproved, by the end ofthe decade-equiva­lent to the total population of the North.

Indeed, the world's overall demographic

balance is shifring fast. Today's rich nationare rapidly becoming a minority (figure4.5l.Back in 1950,20% of new babie were bornin the industrial world. Today, the figure is12%, and by 2000 it will have dropped to11%. The rich population and the fast­expanding poor ones give a further impul eto international migration. If global oppor­tunities do not move towards people then

54

Place oforigin 1966 1976 1986 1966 1976 1986

All developing countries 45.7 75.3 75,1 12.3 38.8 46.0

Asia 18.0 58.3 49,1 7.8 21.5 30.9Latin America 24.8 11.8 19.8 3.3 9.1 7.2Africa 1.6 3.5 4.2 1.1 6.7 4.8

55,I BM I\RKH PO)R ATI) P F PI WL[

1960 70 80 90 2000

9080

~North

...............-~----

Immigrants to Canada

1960 70

5.7 5.9

4.4

South2070

Birthsin theNorth

:1

2

4

Fertility rate

6

Global population trendMillions 4980

FIGURE 4.5Shifting demographic balanceRatio of births in the Northto births in the South

Births in the 73 7.9South .

TABLE 4.9Immigration of skilled workers(percentage of all Immigrants)

Immigrants to USA

been considerable di crimination against mi­grant workers-not just in employment butaloin housing and welfare rights. The In­ternational Convention on the ProtectionofRights ofAll Migrant Workers and Mem­bers of their Families is addressing some ofthe problem .Butin several European coun­tries, pressure for the repatriation of unem­ployed migrants i on the increase.

Partly in response to the e pressure butalso a a result ofdemographic trend and toprotect the living tandards of their people,the industrial countries, in what is effec­tivelya "buyers' market" for migrants, havebeen setting higher and higher levels ofqualification-giving preference to highlyskilled workers, or to those who bring capi­tal with them, or letting in only politicalrefugees.• Skilled workers-Immigrant workerhave traditionally been among the lowestpaid-doing the dirty difficult and danger­ou jobs that citizens of the richer countriesdecline. This is particularly true for illegalmigrants. In Japan, for example, illegal mi­grants from tlle Philippines and Bangladeshwill take jobs in construction and manufac­turing that Japanese workers refuse.

But the receiving countries are now plac­ing more emphasis on the import of skills.Canada's preference for entrepreneur im­migrants ha been reflected in a sevenfoldincrea e.in their numbers between 1983 and1989. The US has tended to be more liberalin allowing entry to unskilled and semi­skilled workers but it Immigration Act of1990 hows that it too i now looking forhigher skill levels from its immigrants (fig­ure 4.6).• Investon-l1le industrial countries arenow in a position to ask not just for labourbut also for money. Canada and the UnitedStates, for example, have been giving pref-

Immigration policies

people will inevitably start moving towardsglobal opportunities.

The people of developing countries arealso much more likely to have their livesunhinged by war, natural di aster and envi­ronmental degradation-and thus are morelikely to migrate. The problem i particularlyacute in Africa, which has nearly half theworld' refugees. Undocumented migrationand seasonal labour migration have takenplace routinely in ali regions of Africa, par­ticularly West Africa. But the refugee prob­lem is confined mainly to East Africa andespecially to the countries of the Horn,Mozambique and Sudan. The movementofdespair takes people from one poor coun­try to another.

Migratory movements in the outh arealso more prone to dislocations by war. Ofthe 2.8 million migrants in Kuwait and Iraqaffected by the GulfWar, about three-quar­ter originated from Arab countries, one­quarter fromAsian countrie and fewerthan2% from other countrie . The labour-send­ing countries of Asia are thu exploringalternative prospects in Japan, ingapore,Hong Kong, Malay ia and the Republic ofKorea.

There are around 12 to 15 million inter­nally displaced people in developing coun­tries and probably 14 to 16 million politicalrefugees. On past experience, only about5% of them are likely to find their way to theNorth.

As a response to demographic changes (fig­ure 4.5 and table4.9), many industrial coun­trie changed their immigration policies inthe 1960 and 1970s to allow for moremigrants from the South. The United Statein 1965 abolished the national origin quotathat favoured other indu trial countries, andin 1978 Canada amended its ImmigrationAct to empha ize that there would be nodiscrimination by counu)' of origin.

But given the scale of potential migra­tion from the South, and their own prob­lems of unemployment, ome of the receiv­ing countries, e pecially tho e in Europe,have become much more concerned aboutthe potential for social disruption. There has

TABLE 4.10Workers' remittances, 1989

Remittances As% As% As% As%Country (US$ billions) of GNP of exports of imports ofODA

Yugoslavia 6.3 8.8 47 43Egypt 4.3 13.1 166 57 270Portugal 3.4 7.5 26 18Turkey 3.0 4.1 26 19

India 2.7 0.9 17 14 141Pakistan 1.9 4.7 41 27 17Morocco 1.3 6.0 40 24 299Bangladesh 0.8 3.9 59 22 43

Jordan 0.6 10.6 61 27 200Tunisia 0.5 4.8 16 11 195Colombia 0.5 1.2 8 9 740Philippines 0.4 0.8 5 3 43

FIGURE 46Migration of skilled workersfrom developing countriesPercentage of allimmigrants to the USA

Unskilled

75%

46%

Skilled

1966 1986

erence to investor and are said to haveattracted millions of dollars in this way.• Political refugees-The e have been themajor category ofmigrants besides those forfamily reunification. Political refugees onaverage outnumber economic migrant by10%. In some countries, such as France theNetherlands, NOlway and Sweden the pro­portion of political refugees is much higher.The greatest numbers of asylum-seekers in1989 went La Germany (121,000) theUnited State (84,000) and France (61,000).Even these numbers, however, are relativelysmall compared with the number of poten­tial refugees from the South. So, many in­dustrial countries are now much more care­ful about whom they will accept as politicalrefugees.

For the industrial countries, the benefitsof migration are clear enough. It might beargued that in the long term instead ofimporting workers, they could increase theirlevels of technology to reduce the need forunskilled labour. Simultaneously, theycouldincrease training for their own people toavoid importing killed workers. But in theshort term, at least, the receiving countriesbenefit from a willing and increa ingly skil­ful new workforce.

For the sending countries, too, therecan be significant gains. The numbers ofpeople who migrate are relativelysmalJ (0.4%of the total labour force) so their absencemay have little impact on local levels ofunemployment. But they can make an im­portantcontribution through the remittancesthey send home.

Remittances

In 1989, the developing countries receivedabout $25 billion in official remittancesfrom indu trial countries and the Gulf. Ofthis, Egypt received around $4 billion, In­dia and Turkey around $3 billion and Paki­stan around $2 billion (table 4.10). Onaverage, thi amounts to more than $700per worker per year, or around $1,000 ifunofficial remittance are also taken intoaccount.

Remittances might account for onlyabout 5% of GNP, but they can ignifi­cantly improve a country's foreign exchangeposition. For Yugoslavia and Portugal dur­ing 1980-85, for example, remittances cov­ered about 30% of their merchandise im­port bill, and for Turkey and Morocco thefigure wa around 20%. For Jordan, Paki­stan and Sudan in 1989, remittances wereequivalent to more than 20% of the importbill. And in Egypt throughout the 1980 ,they were the most ignificant ource offoreign exchange.

These are only official remittances.Workers often have to send money clandes­tinely because they are workingillegally. Butthey may also just find it advantageous toavoid official channels-particularly ifthereis a black market exchange rate much higherthan the official one. For Asian countries,estimate of unofficial remittances vary be­tween 10% and 60% of official remittancesdepending on the country. In tl1e Philip­pines in 1985, an estimated one-third oftotal remittances went unrecorded at thecentral bank.

Individual households dearly benefitfrom money sent from abroad-though ilieydo have to take into account the loss ofearnings worker could have made if theyhad stayed at home. One study in Mexicoshowed iliat migrants to the US from ruralhouseholds were remitting $974 a year onaverage but forgoing earnings in Mexico of

411. And rural households may have toreplace ilie missing workers. In Africa, forexample, this usuallymeans passing yet moreresponsibility to the women in the family.Still, since developing countries tend tohave high unemployment and underem-

56 J1 I ( ) I

The brain drain hom poor countries to rich

Tllis loss of skilled workers repre­sents a severe haemorrhage of capital.The US CongressionalResearul Servicee timated that in 1971-72 the develop­ing countries a a whole lost an invest­ment of $20,000 in each skilled mi­grant-$646 million in total. Some ofthis returns as remittances but not on acale to compensate for the losses.

Some countries mayhave more edu­cated people than they can use, butothers are losing desperately neededskills. In Gbana, 60% of doctors trainedin the early 1980s are now abroad­leaving critical shortages in the healthservice. And Africa as a whole is esti­mated to have lost up to 60,000 m.i.ddleand high-level managers between 1985and 1990.

ll1e major responsibility for reduc­ing uch losses lies with the developingcountries. They need to tailor their edu­cation systems more cJoselyto their prac­tical need and improve the manage­ment of their economies. But for that,they also need better access to interna­tional markets.

ployment, it is clear that most householdswill benefit from migration.

Less clear is the impact on the country asa whole. Apart from improving the foreignexchange position, what effect do remit­tances have on development? There havebeen criticisms that most such funds do notgo into productive investment but are usedfor speculative activitie or to finance con­spicuous consumption or import luxmygoods. But most expenditure can add todemand and stimulate the local economy. Astudy in Egypt suggested a multiplier effectfor remittances of 2.2-that is, relTuttancesof 1 million Egyptian pounds increased theGNP by 2.2 million pounds. Similar studiesin Pakistan sugge t a multiplier of 2.4.

Loss 0/skilled workers

Offset against the potentialremittances mustbe the potential loss of skills that could havecontributed to national development. If thejobs of workers who emigrate can immedi­ately be filled by the unemployed, that lossmay not be too significant. India and Paki­stan, for example, have an oversupply ofskilled workers who can move overseas with­out sigrllficantly affecting national develop­ment.

Elsewhere, however, many countrieshave suffered serious losses of skilled per­sonnel (box 4.2). The Philippines, for ex­ample, lost 12% of its qualified profes ion­alstothe United States in the 1970s.Andofemigrants from Bangladesh in 1976-78, 17%were trained professionals.

Africa has been hit particularly hard. By1987, nearly one-third of its skilled peoplehad moved to Europe. Sudan lost a highproportion of professional workers: 17% ofdoctors and dentists, 20%ofurllversity teach­ing staff, 30% of engineers and 45% ofsurveyors in 1978 alone. More than remov­ing skilled people, tllis emigration also re­duces Africa's capacity to train a new gen­eration of professionals. Irorucally this taskfalls increasingly to imported and highlyexpen ive foreign expetts, and there arenow almost 30,000 of them in Africa­many more than before independence, fourdecades ago.

The cost 0/immigration controts

Immigration controls prevent workers indeveloping countries from moving acresinternational frontiers in search of higherwages. A study at the Indira Gandhi Insti­tute ofDevelopment Research in India esti­mates that immigration restrictions will haveresulted, by 2000 in a $1 000 billion loss inglobal economic growth.

How much does this cost the develop­ing countries in financial terms alone? Tillis difficult to estimate accurately since itwould require data on so many differentaspects of migration. How many peoplewould move if the labom market were com­pletely free? What would they earn? Howwould their absence affect economic growthin their home countries? ~at remittanceswould they send-and what multiplier ef­fect would these have on GNP growth?These are just some of the questions tl1atwould have to be answered.

A very conservative estimate can still be

Developing countries 10 e thousands ofkilled people each year-engineer ,doc­

tors, scientists, technicians. Frustratedby low pay and limited opponunities athome, they head for richer countrieswhere Lheir talents can be better ap­plied-and better rewarded.

The problem i partly overproduc­tion. Education systems in developingcountries are often modeUed on the re­quireme.nts of industrial counu'ie , andtrain too many h.igh-level graduate. So­malia produces around five times moregraduates than the country can employ.And in C6ted'Ivoire, up to 50% ofgradu­ares are unemployed.

Industrial countrie cenainly profitfrom immigrants' skills. Between 1960and 1990, the US and Canada acceptedmore than one million professional andtechnical imm.i.grants from developingcountries. The US education system isparticularly dependent 011 them. In engi­neering institutions in 1985, an e timatedhalf of the assistant professors under 35were foreign. Japan and Australia, too,have tried to attract skilled migrants.

Africa has losta third of itsskilled peopleto Europe

BOX 4.2

{I'J:. IJ»R ro OlLI 57

Poor people may move from village totown, from town to city or from onecountry to another. But aU respond to thesame basic forces-the push of povertyand the pull of opportunity.

Poverty in developing countries isgreatest in the rural areas-home toaround 750 million of the world's poor­est people. Of these, around 20 to 30million move each year to the towns andcitie . And an increasing proportion ofthe e migrants are "environmental refu­gees", whose land is 0 eroded or ex­hausted that it can no longer supportthem.

People in towns and cities havegreate.r opporrunities. They often earntwice as much a those in rural areas­-and may live 10 years longer. They haveon average twice as much access to healthservices and safe water-and four timesthe access to afe sanitation services.

Developing countries have made

Immigrationcontrolsdeity developingcountries at least$250 billion a year

BOX 4.3

made, however. Developing counu'ies al­ready have exten ive unemployment andunderemployment, combined with popula­tion growth of 2.2% a year. And workerswho migrate could expect much higher sala­ries overseas. So, to suggest that, say, 2% ofthe labour force in the developing worldwould choose to move each year if therewere no restrictions is a cautious estimateindeed. II such workers earned no morethan a poverty-line salary in industrial coun­tries (around $5,000 a year), they wouldearn $220 billion a year. Of this, between$40 and $50 billion would be sent home asremittances.

The benefit of remittances would becumulative at first as more people found aplace in richer societies, but would thenlevel off as immigrants started to sever closelinks with their home country. Over fiveyears, however they might reach $200 bil­lion a year. This i.ncome would have an evengreater impact on GNP (possibly double)through the multiplier effect mentionedearlier. Offset against all this income wouldhave to be the developing countries' re­duced growth opportunities becau e of theloss of skilled workers.

Even using very conservative assump-

Why people migrate

enormoos progress over the past threedecades, bur they still have Ie s than one­twentieth of the per capita income of theindustrial countries. And around 40% ofthe labour force is unemployed or under­ernployed-compared with an averageunemployment rate of between 6% and7% in the North.

People in developing countlies arealso much more likely to be disrupted bynatural disa ters, civil trife and war.During the past four decades, there weremore than 200 armed conflicts on thedeveloping countries' soil, claiming morehuman lives than World War II.

Migration from one country to an­other is usuallydifficuIt-and sometimedangerous. But for many of the world'spoorest people, it is the most rationalmove. About 75 million people from de­veloping countries are on the move eachyear as refugees, displaced persons, tran­sient workers or legal or illegal migrants.

tions, immigration controls deny develop­ing countries income (direct and indirect) ofat least $250 billion a year.

The market in international labour isclearly not free. It is steered and controlledby the industrial countries. People in poorcountries are w1able to grasp opportunitiesoverseas and thus equalize the returns forequivalent skill and effOlt. But the pressuresof migration will continue unless there isdevelopment in the South. Economic op­portunities-better acces to global mar­kets and foreign direct investment-have tomigrate towards people if people cannotmigrate towards economic opportunities ( eeboxes 4.3 and 4.4).

Markets in goods and services

The capital and labour markets open fewopportunities for developing countries. So,the burden for equalizing returns lies heavilyon the markets in goods and services. Evenif workers cannot travel to sell their labourabroad, they should be able to see theirgoods sold freely on the international mar­kets-which would enable them to claimhigher wages.

The market in goods and services dofunction better than those for labour. But inmany instances these markets are inefficientand inequitable, and developing countriesand their workers bear a disproportionateshare of the costs. Fi.rst, sales on the inter­national goods and services markets haveohenbeen restricted. Second, because mostdeveloping countries do not have sufficientfinance to time their sales properly, theyfrequently have been compelled to sell theirproducts on weak markets at distress prices.Third, because of insufficient diversifica­tion in developing country production, theyhave suffered from excessive supplies ofsome export goods, particularly primarycommodities, and shortage of others, lead­ing to a long-term deterioration in theirterms of u·ade. The international economicsystem and its institutions have not beenable to alleviate these basic inefficiencies.

Thi section briefly analyses the func­tioning of global markets in three areas:primary commodities, manufactured goodsand services.

58 POOR P lPLf

Estimated capital required to compensate for migration restrictions

Workers to work-or work to workers

Bangladesh 1,700 1.8 3.060 250 12,200 3 3.057Pakistan 6,900 2.8 19,320 1.200 16,100 176 19,144Philippmes 3.900 5.4 21,060 650 32,400 854 20.206Sri lanka 730 4.4 3,212 130 24,700 18 3,194Thailand 2,200 3.7 8.140 350 23.260 3.116 5.024

financinggap:

Compen- Foreign Compen-satory direct satory

Migrants capital Investment, capitalabroad per migrant 1989 minus FDI

(thousands) (dollars) ($ millions) ($ millions)

BOX 4.4

Commodity priceshave fallensteeply in thepast decade

ever, the gap story changes. TIle requiredcompen atory capital is 1,020 times theFDT in Bangladesh and 25 times that inthe Philippines-and less than three timesthat in Thailand.

Clearly, labour migration appears tobe the most viable and practical alterna­tive for countries that do not attract muchfOl'eign investment. If migration were toprove unworkable for the recipient coun­tries, the North would have to mobilizethe requisite policy commitment to re­form and restructure its own economiesto be better prepared for letting someeconomic opportunities travel to coun­tries \vith high unemployment and un­deremployment.

Remittances Estimatedtimes a Incremental compen-

multiplier capital- satoryof 23 output capital

($ millions) ratio ($ millions)

If labour migration were to remain re­stricted and if the labour-sending coun­tries were instead offered private foreigncapital investment to compensate for thelossofremittan es and income,howmuchcapital investment would be required?

A recent study answered this ques­tion for five Asian economies by a sess­ing the full income effect of remittanceon the workers' home-country economyand the inO'emental capital-output ratiosfor the countries of emigration,

The compen atory capital per mi­grant ranges from $12,200 in Bangladeshto $32 400 in the Philippines-and thefinancing gap from $3.1 billion to $20.2billion for the arne countries. In relationto foreign direct investment (FDT), how-

communications networks. Because indus­trial processes have become generally moreefficient, raw material costs tend now torepresent a smaller proportion of the finalselling price of manufactured goods. Theprices of most primary products have thusfallen relative to most manufactures.

But prices have also fallen because ofoverproduction. This may simply have beenbecause most producers have had littlechance to diversify. But new producers havecontinued to enter several markets, andothers have also increased productivity. Palmoil and cocoa output, for example has in­creased with the introduction of new clonesand hybrids. And new technology has al­lowed many mines to work more efficientlyand thus increased the potential flow ofminerals.

The short-term fluctuations are partly aresponse to business cycles in the industrialcountries. Manufacturers will raise or lowertheir requirements for raw materials such as

Developing countries rely heavily on theexport ofprimary commodities-coffee, forexample, or cocoa, or sugar, or bauxite orrubber. Many have tried to escape this de­pendency. Since about 1950, theyhave beenstriving to industrialize, and from 1970 on­wards more and more have become signifi­cant exporters of manufactured goods. Buta high proportion still rely substantially onthe export of primary products. For ex­ample, in Latin America, these productsoften constitute more than two-thirds oftotal exp01ts, and ill about half of the Mri­can countries they account for around 90%.

This reliance has left them very exposed.Commodity prices have fallen steeply in thelast decade. Between 1980 and 1991, theweighted index for a group of 33 primaryproducts (excluding energy) declined byalmost half-from 105 to 57. And much ofthis collapse has taken place in the last fewyears. Between 1989 and mid-1991, theexport commodity prices ofdeveloping coun­tri.es fell by about 20%. Tin prices in 1991were at a level that turned most smelting andmining operations into loss-makers, and theprices of tea and coffee were, in real terms,lower than at any time since 1950.

Superimposed on the overall downwardtrend is an erratic zig-zag of price fluctua­tions. Commodity prices are notoriouslyunstable-sensitive to the smallest changes,real or imaginary, in supply and demand.Sugar prices are the most unstable, withprices fluctuating twice as much as for tin orlead or coffee. But coconut oil, jute andcopra are also subject to rapid movements.

The long-term decline in real prices ofprimary products-whichsome analysts havetraced back to the beginning of the 20thcentury, and others to the middle of the19th-is partly caused by the low rate ofgrowth in demand, lower than growth in thecapacity to produce. Slow demand growthand frequent declines have been typical forperiods of industrial recession.

An.other factor is substitution. Technol­ogy has developed cheaper replacementsfor some raw materials-synthetic fibres forcotton or jute, for example, and more re­cently glass fibres for copper in the world's

Primary commodity markets

\l l\l r P( )R 59

Rich p1'oducersare paid morethan poor onesfor identical goods

metals. And consumers with more or lessmoney in their pockets will be more or lessable to satisfy their appetites for foodstuffssuch as groundnut oil or cocoa.

Prices of agricultural commodities canalso be very sensitive to the weather. Asudden drop in temperature in Brazil mayfreeze the coffee harvest, but it will heat updealers' screens all over the world. Industtybuyers will also be closely watching for othernatural hazards, such as diseases that affectfuture crop yields, and as traders extrapo­late incipient changes in prices, widedisequilibrating price movements will fol­low.

On top of this, and producing some ofthe most rapid fluctuations ofall, are actionsof market speculators. Speculation is some­times defended as a means of stabilizing themarkets-of rapidly matching supply anddemand. In practice, speculators can oftenaccentuate even the slightest trend sincethey can all follow the same signals andmake the same decision about buying orselling. But it is the periods of depressedprices that are particularly long, with devas­tating effects on rural economies and wel­fare.

As a result, prices for some productsmay never reach equilibrium at all. TI1i.s is aproblem for producers of tree crop (likecoffee) that produce their maximum yieldonly when they are 7 to 10 years old. Theymay have been planted at a time of shortagewhen prices were 11i.gh, but the new flow ofbeans leads to a glut, the price collapses,new plantings are inhibited and the cyclestarts again. In between, the prices mayhavelurched erratically.

In recent years, the chief reason for thecommodity price collap e is the recession inthe indu trial world. But the crisis in theformer Soviet Union has also had a strongimpact-in both supply and demand. Thedemand, real or anticipated, from the newrepublics for imported foodstuffs has sus­tained the prices of grains and meat. Buttheir need for foreign exchange has causedthem to step up the sales of the commoditiesthey produce-such as bauxite, nickel, cop­per and platinum.

The future for commodity prices is al­ways difficult to predict. But projections by

the World Banl\. suggest that prices for non­oil commodities will remain at roughly theirpre ent levels until 1995 and then rise per­haps 10% by 2000.

FINANCE-Industrial counuies also ex­port commodities, such as foodstuffs andminerals, a they should also be exposed tothe same pressures. In practice, however,they tend to be much less vulnerable. This ispartly because they do not depend on com­modities for such a high proportion of th.eirexports. But it is mainly because they havesufficient finance available to act as a bufferagainst market fluctuations.

One of the most significant factors ininternational trade is unequal access to fi­nance. Developing countries need foreignexchange urgently and cannot afford to fi­nance high levels of stocks. They are oftenforced into "distres sales" even though theycan see tl1at the market is falling and thatsuch sales will depress the market still fur­ther. Even the stronger developing coun­tries may then be drawn into this bout ofselling if they are nervous about losing mar­ket share.

Conversely, when the market is rising,the poorest countries cannot afford to holdback in anticipation of better future prices.

As a result, the developing countriestend to get lower-than-average prices fortheir exports. A study for a sample of pri­mary products between 1961 and 1965showed that they received 12% less than theaverage market price over that period. Be­tween 1971 and 1975, the gap had grown to15%. And although there is no correspond­ing analysis for more recent years, the like­lihood is that the gap is wider still, becausethe debt crisis increased the pressure ondeveloping countlies to sell at any price.

African countries suffered most. Theyreceived 11% less than the world marketprice between 1961 and 1965, and 19% lessby 1971-75.

Sellers in industrial countlies are gener­ally in a su'onger position to choose to sellonly when the prices are higher and thushave received the average market price-orhigher. The disturbing result is that richproducers are paid more than poor ones/oridentical goods.

Low PRICES, LOW lNCOME-The drop in

60

commodity prices has caused enormousdamage. Coffee is, after oil, the largest pri­mary product expOlt of developing coun­tries. During the past two years, coffee ex­port earnings have been cut in half-with a10 s estimated at between $4 and $7 billiona year. The e problems then get passed on tothe labour force as large farmers reducepruning and picking and layoff worker .Cocoa has suffered similar problems. Be­tween 1980 and 1987, the price wa around$2,000 a ton, but by the late 1980· it hadfallen to around $1,000 a ton. Prices haverecovered somewhat since then, but theeffects have been devastating in West Africaboth for wage labourers and for small pro­ducers.

Even the most efficient producers, sucha Malaysia, have been hit hard by fallingprices. Rubber growers' net monthly in­come dropped 33% from 1988 to 1990 andoil-palm workers were even wor e off, withincome falling by 50%.

Such price fluctuations can also causedamage to the indu try a a whole-andreduce future earnings. This ha been par­ticularly evident in mining. Low price forcopper, lead and zinc in 1982-85 made itdifficult for mines in developingcountries­such as Chile, Papua New Guinea, Peru,Zaire and Zambia-to maintain productioncapacity. So, when there was a metals boomin 1986-88, they were unable to take advan­tage ofit partly because lack ofmaintenanceled to frequent breakdowns.

Even when there have been increases inproductivity, as in agriculture, the benefitshave gone to consumers-in lower prices­ratller than to the workers producing thecommodities. There are orne exception ,uch as Malaysia and Mauritius, where

booms have led to labour shortages andwage increases, but elsewhere the workershave gained very little. In the agriculturalsector of Cote d'Ivoire, Kenya and Malawibetween 1970 and 1984, labour productiv­ity rose but real agricultural wages fell.

Plantation workers in developing coun­tries are among orne of the poorest in theworld-underpaid and badly housed. Andwhile they used to have some security ofemployment, studies by the ILO suggesttllat they are now much more likely to be

employed only as temporary or seasonalworker.

The effects of falling commodity pricesare felt far beyond the industries them­selves. Governments in many countries de­pend for a ubstantial proportion of theirrevenues on taxation, both ofexports and ofthe producing corporations. A drop in rev­enue can cau e a budgetary crisis and lead toreduction in expenditure on health, educa­tion and other social services.

TRADE RESTRICTION - Th,e revenues ofagricultural producers in developing coun­tries have been further depressed by marketdistortions that industrial countries haveimposed-including agricultural subsidieand quotas, internal taxes on tropical prod­ucts, and other form oftariff and non-tariffbarriers.

The United States propo ed a completeliberalization of all agricultural trade barri­ers at the Uruguay Round of GATT. Anestimate of the possible effect was made ina joint study by UNDP, UNCTAD and theWorld In titute for Development Econom­ics Research. The developing countries thatwould gain most would be those that aregenerally net exporters of agricultural prod­ucts to the indu trial countries. Thus LatinAmerica and the Caribbean would gain $984million a year (in 1985-87 prices) and Asiaand the Pacific would gain $428 million. ButAfrica, which imports large amounts offoodfrom industrial countries, would 10 e $700million ayear. These estimates do, ofcomse,capture only the initial impact. Higher foodprices would, over time, increase the incen­tives for food production in developing coun­trie and thus alter the patterns ofcompara­tive advantage.

PRICE TAJ3ILIZATIO -Stable prices forcommodities could be in the interests ofboth producer and con uroers. Several at­tempts have been made to introduce com­modity agreements to tabilize prices withinagreed bands. But of five agreements­coffee, cocoa, sugar, tin and rubber-onlythat for rubber is still in operation. Theproblems ranged from a lack of genuineconsensus between producing and consum­ing countries to a lack of the resourcesneeded to finance buffer stocks.

As an alternative or complement, to

I'UOI 1 II) IOOr-) L) 61

The long-termsolution forthe developingcountries isdiversification

62

commodityagreements, therehave also beenefforts to provide compensatory finance todeveloping cOtilltries suffering temporaryshortfalls in export earnings-such as thosethrough STABEX, part of the Lome Con­ven tion between the EC and 69 countries inAfrica, the Caribbean and the Pacific. Butthese schemes have also had relatively littleeffect: they do not cover longer term fluc­tuations, and they require large amounts offinance. In the end, they might only increasethe debts of the recipient country.

The long-term solution for developingcountries is diversIDca tion. This is easiersaid than done. It demands investment inphysical capital to develop new indu tries­and in human capital to educate and train aworkforce that must acquire skills in newareas. But the developing countries' meagrereceipts from exports and poor access tofinance deprive them of the means to diver­sify.

Even if they do d.iversify, they will noteradicate their commodity problem-indus­trial countries have diversified and still haveproblems with primary commodities. Butdiversification will at least help developingcountries solve their income and humandevelopment problem, by offering alterna­tive sources of faster economic growth andsocial progress.

For many countries now suffering lowprices, this may not prove to be a realisticoption. They may be too dependent on therevenues from primary commodities to beable to engineer such fundamental struc­tural changes. But countries that have beenable to do so (particularly in East and South­EastAsia) have achieved much greater pros­perity.

Markets in manufactured goods

The more dynamic economies in the devel­oping world have been able to witch exportoutput to manufactured goods. As a result,the developing countries have increased theirshare of world exports of manufactures­from 4% to 19% between 1955 and 1989.Indeed, their share in 1989 exceeded that ofthe then Federal Republic of Germany(15%), Japan (13%) and the United States(12%), and left many other countries far

behind-including France, Italy and theUnited Kingdom.

The bulle of exports from developingcountries comes from a small number ofcountries. In 1988,54%ofdevelopingcoun­try exports came from the top five: theRepublic of Korea, Taiwan, province ofChina, Singapore, Hong Kong and China.Nevertheless, the number of countries ex­porting more than $1 billion a year has beenincreasing rapidly. Even Sub-Saharan Af­rica increased its manufactured exports by5.7% a year between 1980 and 1987.

This has been a remarkable achieve­ment. Developing countries have overcomemany trade barriers and broken the mo­nopoly ofthe industrial countries. They havepenetrated many lucrative world marketsand opened the door for self-reliant growthin the South.

They have not however, received thefinancialreturns they should have from theseexports. Between 1980 and 1990 the pricesof developing country manufactures in­creased in nominal terms in US dollars by12%. But the prices of manufactures by tlleGroup of Seven industrial countries overthe same period increased 35%. In realterms, compared with industrial countries,the prices received by the developing coun­tries have been falling.

Why? Many countries were obliged tostep up exports during periods in the 1980swhen external demand wa falling. Theywere under considerable pressure to do sofrom creditors demanding repayment ofdebts, and from institutions requiring in­creases in exports as a condition of financialsupport. Another major problem develop­ing countries face in exporting manufac­tured goods is the rising level of protection­Ism.

Industrial countries have been raisingthe barriers to imPOltS from developingcountries. Of24 industrial countries, 20 aremore protectionist overall than they were 10years ago.And theydiscrin1inate more againstgoods from developing countries. The ef­fective rate of protection against exportsfrom developing countries is considerablyhigher than the rate against exports fromindusttial COWl tries. Such restrictions costdeveloping countries dearly: at least $40

()B \lARKI1 00 An) PO JRP£:.OPLI

Environmental protection and international trade

while importing countries would be ableto block goods whose production did notmeet such standards, theywould not beable to set arbitrarily high standards inorder to protect their own industries.

Although the minimum standardsshould be universal, there would still bedifferences between countries in the ac­tual standards they choose. Countrieswith low income stand to gain propor­tionally much more in human develop­ment by increasing production and areforced to do so at the expense of theenvironment. They need to be able tochoose their own balance between in­come and pollution.

And importing countrieswith higherenvironmental tandards should still bepermitted to keep out imports (such asinefficient cars) whose use would violatetheir own environmental codes.

The international communityhas al­ready made a start by including tradeprovisions in multilateral environmentalagreements. These include the MontrealProtocol (ozone-depleting substances),theWashmgronConvention (endangeredspecies) and the Basel Convention (toxicwaste).

Much of the debate will still have totake place. A Group on EnvironmentalMeasures has existed in GAIT since197I-though it has only been convenedrecendy. But the next GAIT round maywell be a "Green Round".

billion a year in forgone exports of goodsand service and, according to the WorldBank, they reduce developing countries'GNP by 3o/o-an annual loss of $75 billion.These re trictions include:• Tariffescalation-Import tariffs in manyindustrial countries increase with the levelofproce sing-for spice ,jute and vegetableoils, as well as tropical fruits, vegetables andbeverage . TIlls system is designed to dis­courage developing countries from process­ing their primary commodities. The averagetariff on processed cocoa, for example, ismore than twice that on raw cocoa-to keepout exports of chocolate. And while thetariff 011 raw sugar is less than 2%, forprocessed sugar products the rate is around20%.• Non-tariff barriers-These have prolif­erated in recent decades and now affectmany of the key product group in whichdeveloping countries have a competitiveadvantage. Non-tariff barriers include forexample, the setting of quota , the require­ment for import licen es, voluntary exportrestraints and special countervailing andantidumping measure taken when domes­tic producers complain that they are subjectto "unfair" foreign competition. Between1987 and 1990, these increased by 20%.

Non-tariff measures are now the mainobstacle to developing country exports andin 1987 are estimated to have affected al­most a third of GECD imports from devel­oping countries. The most significant is theMulti-Fibre Arrangement (MFA), whichdenie developing countries an estimated$24 billion a year in export earnings. In1987, about half the developing countryexports of textiles and clothing were subjectto controls, of which 70% were binding.

By the end of 1990, GAIT membershad in tituted, in all, 284 export-restraintarrangements, many of them covering prod­uct groups in which developing countriesare sub tantial exporters, actual or poten­tial: agricultural products (59 arrangements),textiles and clothing (51), teel and steelproducts (39), electronics (37) and foot­wear (21).

New types of non-tariff barriers con­tinue to be introduced. Developed coun­tries have also often used price restraints or

health and safety regulations as non-tariffmeasure. Now, environmental consider­ations are being linked to trade liberaliza­tion (box 4.5).

These trade re trictions are not justcostlyfor developing counu·ies. They are also veryexpensive for consumers in industrial coun­tries. In the United State in 1980, therestrictions on import of textiles and cloth­ing are estimated to have cost consumers$18.4 billion. Quotas, for example, doublethe price of sugar for consumers. Overall,American consumers pay as much as $75billion a year more for goods due to importfees and restrictions-a sum equal to abouta sixth of the US import bill.

The aim of such restrictions is primarilyto protect jobs. But this is a very inefficientway of achieving this objective. In Canada,

Sustainable development strategies high­light some new-and difficult-is uesfor international trade.

One general concern is whether theenvironmentalcostsoftransportarionout·weigh the economic benefits of trade.

But the most immediate issue is howliberalized international markets will af­fect the environment. Countries shouldnot try to gain competitive advantage byJoweringenvironmentalstandards. It mayappear that the country is benefiting, butthe human development consequenceswill generally be negative. People in de­veloping countries who absorb danger­ous pesticides or inhale industrial fumesin polluted cities effectivelysubsidize theircountry's exports at the expense of theirhealth.

Environmental issues may also be­come the source of new forms ofprotec­tionism. Industrial countries could useproduction methods in developingcoun­tries as the ba is for new types of non­tariff barriers. The US, for example, hasbanned impons oftuna from Mexico andseveral other countrie ,becau e dolphinswere being nared in the arne driftnets.

The answer to both problems mustbe agreed minimum international envi­ronmental standards. This would mean,for example, that countries all over theworld would have to enforce minimuminternational norm of emission controlon factories producing for export. And

Trade restrictionsare also veryexpensive forconsumers znindustrial countries

BOX4.5

[(>HAL ARKFT POOR R LOll [ 63

The impetus fortrade liberalization. .IS now commgfrom thedeveloping world

for example, every dollar earned by workerswho held their jobs because ofprotection ofthe textile and clothing industries cost soci­ety an estimated $70. In the United States,consumers paid $114,000 ayear foreachjobsaved in th.e steel industry.

Quite apart from the short-term costs to

consumers, the long-term benefits to work­ers are questionable. In the textile industryof many counu-ies, protection through quo­ta has, along with subsidies, allowed com­panies the breathing space to invest in newcapital-intensive technology for textile pro­duction-and displaced many more work­ers than imports ever did.

While the industrial countries have be­come more restrictive in international mar­kets, developing countries have becomemuch more liberal. Indeed, for the fint timein economic history the impetus for tradeliberalization is coming from the developingworld. In many cases, the removal ofrestric­tions has been a key condition for structuraladjustment loans from the World Bank andthe IMF. Bu t other counu-ies, uch as Brazil,have also acted unilaterally to reduce tariffsand remove many non-tariff measures.

Unfortunately, there are few rewardsfor virtue in international trade. The GAITsystem ofnegotiations is based on reciproc­ity. So, a country actually needs tariffs asbargaining chips to persuade other coun­tries to drop theirs. In international trade atpresent, the most profitable behaviom ismisbehaviour.

In these circumstances, it is remarkablethat the developing countries have made somuch headway. The volume of their manu­factured exports increased fivefold between1975 and 1989 (while that of the industrialcountries merely doubled). And some COW1­

tries (particularly in East and South-EastAsia) increased their exports at a muchfaster rate than the overall growth in worldtrade.

Trade between developing counu'ies isalso rising. In 1989, one-third of their ex­ports were sold to each other, comparedwith one-quarter 10 years before. Much ofthis trade is in raw materials, but trade inmanufactures is also increasing. There isclearly much more potential for South-Southtrade.

The creation of the ingle Emopeanmarket could also increase the demand forimpOlts from developing countries. Oneestimate suggests that exports to the ECcouJdincrease by about $10 billion-equiva­lent to 7% of total developing country ex­ports in 1988.

Developing countries are clearly poisedto penetrate global markets much morewidely. They have always had the advan­tages of ready raw materials and an abun­dant supply of cheap labour. Now they arestruggling to acquire the technology thatcould allow them to leapfrog decade ofindustrial development. If global marketsbecame less protective, developing counu)'exports could really take off-particularlyfor labom-intensive goods like textile, cloth­ing, footwear and processed agricuJturalproducts. Indeed, if the Uruguay Round ofmultilateral trade negotiations succeeds,developing counu)' exports ofmanufacturedgoods could increase by $35 billion a year.

Markets for services

The service sector has expanded dramati­cally in recent years. In 1989, it contributednearly half of global GDP. Even in the leastdeveloped countries, services now make upabout a third of GDP.

The most important services in interna­tional trade i.nclude transportation, travel,telecommunications, media, busines ser­vices, engineering and construction, andbanking and financial selvlces. Internationaltmde in services increased between 1970and 1990 by an average of 12% annually,reaching $800 billi.on by 1990. By 2000, itcould reach $2,500 billion.

Since the service trades are normallyassociated with labour-intensive activity, itmight be thought that developing countrieswith an abundance of labour would have acomparative advantage. In fact, this is anarea where theyhave had little success. Theyare net impOlters of services, with rapidlygrowing deficits.

In reality, the service sector offers indus­trial couou-ies the opportunity to exerci etheir traditional strengths-their access tofinance, their accumulated lmowledge andskills, their access to telecommunications

64 ,to U fvt P )1 lR III

and information technologies, as well as ahistory ofestablished relationships and con­tacts.

Of these, financial muscle is the mostsignificant. This might be expected in indus­tries such as banking, securities trading andinsurance where, even in indu trial coun­tries, corporations are having to merge intoever larger enterprises to compete. But thesame is now true throughout the servicesector. International airlines, for example,need ever larger investments in the mostmodern fleets and reservation systems ifthey are to compete internationally.

Not surprisingly, developing countriesfind it difficult to compete in sectors thatrequire large amounts of capital. Even inareas where they have more obvious poten­tial, they often lack the finance to makesignificant progress. In the tourist trade, forexample, they have considerable naturalendowments. Most governments have pro­moted tourism in recent years and removedmany of the obstacles to international andinternal travel. Most of the obstacles thatnow remain are financial-the lack offundsfor investment in roads and in adequatesupplies of water and electricity.

Construction is another area where de­veloping counu'ies have had high hopes ofincreasing international trade. The problemhere is that the overall market has shrunk inrecent years. From $134 billion in 1981, itfell to $94 billion in 1988. Much of thismarket is in developing countries since theyrepresent the largest ource ofinternationalconstruction conU"acts. They provided 80%of the contracts in 1981 but after years ofeconomic crises, their market share was only60% in 1988.

As construction suppliers, they haveplayed a much less significant role. Since theearly 1980s, their market share has fallenfrom 15% to less than 5%. Here again, theproblem is often finance, since the indus­trial countries can offer buyers much moreattractive financial packages.

Technology is also playing an increas­inglyimportant role in service industries anddemanding higher levels of skill. Here, toothe developing countries are in danger offalling further behind, not only because theylack the necessary human skills, but because

many technological improvements in ser­vices require substantial financial backup,often mi ing in banking consU"uction, en­gineering design, communication' and pro­fessional and business services.

The new technology has, in addition,created new industrie . Developing coun­tries have made some progress here-nota­bly India in the development of advancedcomputer software. Other countries, suchas Barbados, Jamaica and the Philippines,have also taken on data processing con­tracts-keying in data that are then trans­mitted bysatelli te to clients in NorthAmericaor Europe. These could rapidly becomeobsolete, however, a more data are cap­tured either at the point of sale or throughmore advanced forms of scanning.

If developing countries are to seize theinitiative in services, they will need accessto substantial amounts of finance. They willalso have to invest heavily in the relevantskills to bring their industries up to aninternationally competitive standard. Thimay mean giving temporary promotion andfiscal incentives to their infant service in­dustries. It would also be helpful if theycould atU"act foreign direct investment fromservice companies in the industrial coun­tries.

But even qualified people in developingcountries face restrictions when they uy tocompete internationally-particularly inbanking, media services and professionalconsultancy. With a much freer regime ofinternational trade and with greater institu­tional access to financial capital-as well aswise investment in human skills and techno­logical capacity-the developing countriescould be staffing much ofthe world's serviceindustries.

The developments in new service fieldsfor export in some developing countries areboth impressive and promising, despite therisks of rapid technological changes in thenewly e tablished activities. Except in velYsmall countries where the labour force issmall, these developments cannot changethe fundamentals of unemployment andlow real wages. In countries with large popu­lacion ,sustained and broadly based changesin agriculture, other primary activities andmanufacturing are needed in addition to the

Lack of financeis tbe mostcrippling constraintfacing developingC0lt11t1'ies

Il 65

A10st trade il1technologyis among tbeindustrial countries

welcome growth ofmodern export-orientedservice industries.

Markets for technology

The international markets for technologyare among the most restricted, and the largeinequalitie among the actors in many casesamplify differences in technological levels,widening the gaps.

Most trade in capital goods-and thetechnology embodied in them-is amongindustrial countries. In 1988, exports ofcapital goods from industrial countries todeveloping countries were only a third oftheexports of industrial countrie to other in­dustrial countries. The same is true of thegrowth of that trade. Between 1981 and1988, the trade in capital goods amongindustrial countries rose on average by 10.2%a year, while that from indu trial to develop­ing countries ro e only 1.5% a year. Andeven thi growth was due to an increasingflow of capital goods to a small group ofcountries.

So most developing countries are leftout of a flow that carries technological inno­vations and substantial scope for adaptationto local needs and condition .And the tech­nological exchange among indu trial coun­tries trengthen their technological dyna­mism and competitiveness-and make itincreasingly difficult for developing coun­tries to share the fruits of research.

It is also proving to be increasingly diffi­cult for developing countries to gain accessto opportunities provided by new or existingtechnologies. The application ofintellectualproperty rights protection (patents, copy­rights and trade marks) has widened inrecent years. As the Uruguay Round ofmultilateral trade negotiations has shown,countries investing heavily in R&D are press­ing to increase this protection-in starkcontrast to the prevailing economic philoso­phy of openness and liberalization.

Buying rights to technology is not theanswer either, for the prices are hooting up.Only a few developing countries have themoney or the needed economie of scale tofinance their own R&D at a level that wouldput them on a par with the industrial coun­tries'technologicalleader . Today's pattern

ofR&D spending reveals some of the widestgaps among countries.

Some developing countries have never­theless been able to strengthen their domes­tic technological capacity through an out­ward-oriented trade regime, an open cli­mate for foreign direct investment, a condu­cive macroeconomic policyand in titutionalframework and-most important-active,broadly based investment in their people.

Losses from unequal access

Developing countries suffer major lossesbecause they are denied market opportuni­ties (figure 4.7).

These losses arise in two ways. First,even where markets work freely, the poornations participate as unequalpartners. Sec­ond, where developing countries might havea competitive advantage, the markets areoften restricted.

Consider capital markets. The develop­ing countrie have paid extremely high realinterest rates in some periods-because oftheir economic weakness, because offallingcommodity prices, and because of percep­tions of the ri ks of lending to them.

During the 1980s, when industrial coun­tries were paying 4%, the developing coun­tries were effectively paying 17%. On a totaldebt of over $1 trillion, this cost them about$120 billion of real costs, in addition to areverse debt-related net financial tran ferthat reached $50 billion in 1989.

The weakness ofdeveloping countries isalso evident in commodity markets and inthe markets for services-where they wouldprobably gain some $20 billion if they didnot lack the necessary access and finance tocompete on an equal footing.

The second major cause oflosses-mar­ket restrictions-is most evident in the labourmarket. Immigration controls cost, at a con­servative estimate, $250 billion-thoughsome studies suggest that the figure couldbe much higher. Restrictions on the flow ofgoods because of tariff and non-tariffbarri­ers cost at least $40 billion a year.Of this,$35 billion are due to restrictions on manu­factures (the Multi-FibreArrangement aloneaccounts for $24 billion), and $5 billion aredue to restrictions on tropical, resource-

66 PO lR ()( PL(,Pl

aDA

Regional groupingscan complementglobal tradingarrangements

Total cost$500 billion

(1990)

Technology -----

Ir-Total 1990

Unequal $54 billionpartnership:Higher realinterest rates _______

. . I 120Negative capitatransfers~

Unequalcompetition in 50internationalservices 20

Restricted accessto markets for:

Labour 250

Manufactures

Agricultural,tropical and 35resource-based __ 5products

20

Regional economic groups

FIGURE 4.7Cost of global markets to developing countries$US billions

Countries throughout the world have beengroupingthem elves in larger regional trad­ing blocs. Even the largest countries areaware that, as trade i increasinglyglobalized,they cannot survive on their own.

In Europe, the European Communitywill have a single market by the end of 1992when all internal barriers among memberstates are removed. And by the end of thedecade, Europe may well have a single cur­rency with all the economic coordinationthat implies.

In North America, the United Statesand Canada are negotiating a new extendedagreement with Mexico. And the UnitedStates has al 0 expre sed its willingness,through the Enterprise for the AmericasInitiative, to enter free trade agreementswilli ollier countries, or groups ofcountrie ,

if the restrictions to their full participationwere lifted and if their current weaknes eswere overcome.

based and agricultural products. Technol­ogy markets are also closely guarded. Thelosse there for developing countries may bein the range of $20 billion, though it isdifficult to make an accurate estimate.

There are, of course, interlinkages be­tween the various markets. And the lossesare cumulative, since opportunitie deniedat pre ent become greater with the passageof time. Overall the cost of global marketsto developing countries can be broadly esti­mated at $500 billion a year.

These $500 billion in los es constituteabout 20% of the developing countries'present combined GNP-and roughly seventimes their current spending on human de­velopment priorities.

Millions of people have suffered frominternational trade protectionism, ri ing in­terest rates, declining terms of trade andinadequate financial resource transfers.Some example can help illustrate the hu­man cost:• Trade barriers have translated directlyinto lost income for sugar-cane growers­they may have lost as much as 7 billion eachyear.• Although Uganda's volume of coffeeexports went up by one-fourth between1986 and 1989, its total export revenuesdropped from $395 million to $273 milliondue to declining world market prices andthe shift from robusta to arabica coffee. Thecountry's coffee farmers took the brunt ofthat fall as did coffee farmers in other partsof the world.• The economic crisis of the 1980s andthe ensuing structural adjustment pro­grammes have, in many highly indebtedcountries, put social expenditures in a se­vere queeze and directly affected people'slives-infant mortality, chool enrolmentand nutrition. External debt payments have,in many developing countries, ab orbed aqualter to a third of the government's bud­get.

E timate of global market 10 ses cannot be made accurately. The foregoing at­tempt is intended to capture tlle dimensionsof tlle problem-not to gauge it exact ex­tent. Illis broad e timate does, however,indicate mat developing countries couldbenefit enormously from global markets-

10 U () 1 67

Ville ~ llatioll Igoverna11 eimproLle globalreform ~ cannotbenefit /J007' people

in Latin America. More than 16 countrieshave already expressed interest in pursuingthis proposal.

This initiative has given a fresh impulseto Latin America's own efforts at regionalintegration. Argentina, Brazil, Paraguay andUruguay signed a treaty in early 1991 pre­paring the basis for a outhem Cone Com­mon Market, to be in operation by 1995. Inaddition, the Andean Group (Bolivia, Co­lombia, Ecuador, Peru and Venezuela) de­cided in early 1991 to accelerate progresstowards the establishment of a commonmarket in their subregion by 1995. And theCaribbean countries aL'eady have a 12-mem­bel' common market in their subregion.

In A£rica, the Organization for AfricanUnity, at its summit meeting in Nigeria in1991, adopted a treaty for the establishmentof an African Economic Community. TIletreaty sets out a timetable for the necessarysteps-including a pha ed removal ofbarri­ers to intra-African trade. These are x­pected to culminate in the formation of anAfrica-wide economic community and mon­etary union by 2025.

In Asia and the Pacinc, the Associationof South-East Asian Nations has recentlydecided to create an ASEAN Free TradeArea over the next 15 years. In a looserfashion, there is cooperation within the SOUtllAsianAssociation for Regional Cooperationand the Pacific Rim countries.

The Arab States are also more looselylinked-through the Arab Maghreb Unionand the Arab Cooperation Council.

What effect will such trading blocs haveon human development within individualcountries? Since most of them tend to begrouped around one or two dominant na­tions, there is the danger that iliese nationscould increase their dominance. Butin manyof the regions, it i clear that there could betransfers of income from richer to poorercountries-as between the countries ofnorthern and southern Europe.

Some may argue that such regionalgroupings run counter to the steady processof globalization in trade. Rather than assist­ingmultilateral negotiations through GATT,iliey tend to fragment the world economy.

This appears unlikely. The pressures forglobalization seem unstoppable. East Asia's

trade witll the European Community, forexample, grew by 12.4% a year between1980 and 1989, and that with NorthAmerica by 12.8%. Much of this increasecomes from transnational enterprises as ilieyexchange goods and services between sub­sidiaries and affiliates in different coun­tries. For Japan in 1983, such intrafirmtransactions made up 31% of the country'sexports.

Regional groups can complement theglobal trading arrangements, helping to re­duce disparities among countries and pro­tecting them against the wor t shocks of theglobal markets.

National policies for global competitiveadvantage

The analysis shows that global markets arenot very friendly to poor nations and poorpeople. Developing countries enter themarkets as unequal partners and leave wiiliunequal rewards. Their path is resu'ictedprecisely in areas where iliey enjoy a com­parative advantage-such as labour-inten­sive manufacturing.

Fundamental reforms are needed ifglo­bal markets are to benefit all nations and allpeople. But the reforms in global marketsdo not reduce the responsibility of develop­ing countries to take all the steps they can toincrease their access.

National governments carry the pri maryresponsibility for accelerating economicgrowth and for boo ting level of humandevelopment. Unless national governanceimproves, global reforms stand little chanceof benefiting poor people.

CREATING AN ENABUNG POU Y FRAME­

WORK. The illst two Human DevelopmentReports showed just what national govern­ments could do to improve macroeconomicmanagement, to increase savings and In­ve tment, to enhance productivity and totranslate economic growth into improvedwell-being for tl1eir people.

The potential i enormous. The 1991Report illustrated what could be achievedby reorienting public spending priorities. Ifdeveloping countrles reduced military ex­penditure, for example, and privatized inef­ficient and loss-making public enterprises,

68 ,L 0 AL 1AJ Kl It lOR )R P t

TABLE 4.11Top 10 developing countries'manufactured exports

Korea, Rep. of 56.4 23.4 13.7Singapore 276 18.2 7.3Hong Kong 26.6 10.5 11.2China 22.0 8.3 12.5Brazil 17.3 18.8 6.0Mexico 10.4 6.3 19.1Yugoslavia 9.9 7.2 0.5Malaysia 9.2 15.1 14.8India 8.6 7.5 4.5Thailand 8.0 16.2 17.6

they could release an e timated $50 billiona year for human development concerns.

Inrecent years, economic reform in LatinAmerica and the chance of further debtrestructuring agreements have brought backto the economies of this region significantamounts of national "£light" capital andforeign investments. Foreign direct invest­ment in Mexico quadrupled in 1991 to $17billion. For 1991, Argentina expects its in­vestment growth to have been around 10%,Venezuela 18% and Bolivia 5°!c.,.

The earlier RepOlts also showed howgrowth in a country's economy could bedirected into improved well-being for itspeople. Reforms in land distribution, accessto assets and income-earningopportunities,new fiscal policies to benefit the lower in­come groups, credit expansion to make morefunds available to the poor, a reorganizationofsocial-spending priorities-all could helpsmooth the translation of economic growthinto human development.

INvESTING IN PEOPLE. Poor countries findthat restrictions on the functioning of mar­kets deny them full access to free interna­tional trade-and the benefits this couldbring to their people. Even so, some coun­tries have managed to overcome such biases(table 4.11). Although the overall gaps be­tween North and South may be widening,10 countries have increased their share ofboth global GNP and global trade. Deter­l11ined national action can sometimes over­come perversity in global markets.

How did they do this? How have they

Productivity benefits from educationBOX 4.6

Investments ineducation andtechnology helpcountries leapfru a

several decades

ticularly at lower levels of development.But as development proceeds, educationdoes seem to generall)1 have an income­levelling effect.

As well a promoting equality, edu­cation pl'Omotes economic growth. Astudy for 88 countrie compared theirconomic growth rates for the periods

1960-63 and 1970-73 and found that anincrease in literacy from 20% to 30% wasa sociated \vith an increa e in real GDPof between 8% and 16%. Another tudyof37 middle-income and 29 low-incomecountries indicated that a 1% differencebetween their primary enrolment ratioswas a sociated with a 0.035% differencein per capita income growth rales.

The poorercountries get much higherrates ofreturns than richer countries frominvesting in education. And for the poor­est countries, the highest returns are fromprimary education. For Mclean coun­u'ies, the e timated rate of return forprimary education is 26%----comparedwith 17% for secondary education and13% for higher education.

Education is one of the best investmentsany country can make. Educated peopleare more productive-and they contrib­ute more to a counuy' economic growth.

In agriculture, for example, studiescovering 31 countries concluded that ifafarmer had completed four years of el­ementary education, his or her produc­tivity was 011 average 8.7% higher thanthat of a farmerwbohad no education atall.

In industry, most evidence is at theenterprise level, but a series of studies­from engineeringfactories in Bangladeshto car plants in China-shows that edu­cated workers are more productive.

Education also inerea e equality.One study of 49 countries showed thatabout a fifth of income inequality couldbe explained by educational inequality.Another bas indicated that an increase inthe literacy rate from 10% to 60% hasbeen associated with a 2.8% increase inincome share for the poorest 40% of thepopulation. Expandingeducation could,of course, also increa e inequality, par-

managed to progress even with the oddsstacked against them? The secret seems tobedynamic competitiveness. They have strivento increase their competitiveness as the de­mands of the market change.

Each country has, of course, taken itsown individual line, but th.ere have beenseveral common elements. Good economicgovernance seems to have played an impor­tant role. And this has not been limited topursuing appropriate macroeconomic poli­cies. All these governments have, to a greateror lesser extent, been actively involved insupporting industrialization. And some haveintervened to offer some forms of marketprotection. The Republic of Korea, for ex­ample, built up its industry by serving aprotected local market before gaining itscurrent international competitive position.

But these government have also hadoutward-oriented trade regimes and anopen climate for foreign direct investment.This openness to foreign capital hasbrought them into close contact with inter­national markets and new technologicaldevelopments. The Republic of Korea built

Annual rate ofgrowth in volumeof manufactured

exports1988 export (%)

value(US$ billions) 1970-80 1980-88Country

IOO! 11 l' II I 01'1 69

Most impmtantis supportingbroad investmentsin people

much of its manufacturing output on thebasis of "borrowed" technology.

Most important, they have continuou lysupported broad investments in theirpeople-in education, in health and in na­tional capacity building in policy formula­tion, planning, development managementand science and technology (box -1.6). Tillshould come as no surprise. It was, after all,the experience ofWestern Europe. Accord­ingto a recent study, improvements innutri­tion and health between 1970 and 1980accounted for 20% to 30% of per capitaincome growth. And the most successful ofthe industrial countries today, Japan, is re­markable, among other things, for the edu­cation ofits workforce-about 90% ofman­agers have a university degree (comparedwith 45% in the US and 30% in the UK).

The faster-growingdeveloping countriesare following a similar path, showing howinve tment in education and technology

have helped them leapfrog several decadeof progre s and lay the skill bas for futuregrowth (see the annex to this chapter).

Individual countries can, therefore over­come many international barriers if theymake the necessary domestic policy choices.That is an in'portant le on from develop­ment experience: addres ·ing the dual chal­lenge of meeting basic education and healthneeds as well a leapfrogging through rapidtechnological change. But it is also time thatthe obstacles to liberalizing the internationalmarkets are removed. The global commu­nity must make it easier for developingcountrie to sell their goods. If it does not,millions of the world's people will be lefteven further behind-and tempted to catchup not through development but throughmigration.

Global economic expansion and politi­cal stability demand urgent changes in glo­bal governance (see chapter 5).

70 ( (lb li lARKI r P OR Ano P RPI Pil

CHAPTER 4 ANNEX

Country studies

SingaporeHuman development indexGDP annual growth (1965-89)Export annUJl1 growth (1965-89)

0.8488.5%6.0%

The Republic of KoreaHuman development indexGDP a.nnual growth (1965-89)Export annual growth (1965-89)

0.8719.8%

22.2%

Singapore has had oneofthe world's highest economicgrowth rales-an annual a\'erage o[ 8.3% between1965 and 1980, and 5.7% between 1980 and 1989.1bis growth is largely based on exports-which grew8.1% annually between 1980 and 1989.

ingapore has invested heavily in its people. Thecombined primary and se ondary enrolment ratio il;

now 87% and the proportion o[ students now graduat·ing [rom teniary education (one·third of them in sci·ence) is among the highest in the developing world.Currently, 11.5% of total public expenditure is oneducation, ofwhich nearly a third, 30%, goes to highereducation.

People have benefited considerably [romSingapore's acial expenditure. Its HDI increased be·tween 1970 and 1990, from 0.730 to 0.848.

The economy has also benefited. ingapore'educated workforce sttrs ts large amounts of foreigninvestment (about two-third of industrial investmentis foreign). The Government has also had relativelyopen trade policid nnd provided lax incentives toencourage foreign capital. Its investmenJ.S in efficientinfrastructure have also been important

1bi city state's original comparative advnntagewas in unskilled labour-intensiv production. But withhigh levels ofemployment it ha been moving to higherlevels of technology. Capital good now make up 38%of expons. The tight lahour po irion has al 0 attractedmore female workers---they now make up -10% of theworkforce. Many of the unskilled jobs arc taken byimmigrants, mostly from Malaysia.

The service sector, too, is tnking advantage of tho.>counrry'sskills. Servicesgrewconsiderably in the J980sand now employ 70% o[ the labou!' force. As well asocial services, such a education and health, the ser·

vice industry i also expanding in sophisticated busi-ness services such as engineering and consultancy,computer software development, regional warehou '­ing and banking and fmance.

The Republic of Korea is DOW tlle tenth largest tradingeconom} in the world. Between 1965 and 1989, ex·pons grew on average by 22% a year.

111i succe s ha been driven by man}' factors-arather equitable distribution of asset and income, amacroe onomic policy framework conducive to inve t­ment (e pecially foreign direct inve tment) antI rela·tive srability which, a .some ay. has bad political cost .Another significant factor is education: sustained in­vestment in people. By 1960. Korea had <1chievedvirtually universal literacy and was ncquiring higherlevels of technical education (mucb of it overseas).

Between 1963 and 1979•labour productivitygrew11% a year--only half due to incrca ed capital inve. t·memo Assembly work and labour·inten ive industries(such a textiles and footwearl generared the firstphase of export growtb. The COlmtry gained a com­parative advantage by adapting foreign (mo 'dy japa·n=) technology for use by a low·wage labour force. Atthe anle time, the Government exercised rigid politi.cal comrol. keeping industrial unrest to a minimum.

Today, Korea' comparativeadvamage has shiftedto ·kill·inten ive high-qunlity production. This habenefited from the development ofvocational trainingand science-based education (nearly a third of Korea'sgraduates chao e a science·related field for specializa­tion). The country now ha 'ome 50 scientists andtechnical personnel per 1,000 people, compared withan average of Ie than 10 in the developing world as awhole.

Workers have shared in the export growth andproductivity gains. Manufacturing wages grew 20%annually in the three years to 1990.

Korea wilI, however, till fa c con 'jdcrable chal­lenges in the 1990s. 111t currency is appreciating,export growth bas slo\l'ed and the country remainshighly dependent on japanese rechnology. Bur thepolitical challenge may be greater still as the highlyeducarcd workforce do.>mands a horcater political voi e.

71

Brazilian industry is an example of enclave develop­

ment-with clusters of competitive e"1'Ort industries

in a ea of general industrial and agricultural stagna­

tion There have been period of rapid growth: the

Brazilian "economic miracle" produced annual GDP

growth ofaround 6%in th 1960s and around 8% in the

1970s a local ind~try was nunured tn produce ubsti­

tutes for imponed goods. But the invcsunenl was

based on heavy borrowing, and the debt cri is put an

end to growth. Industrial employment fell 20% be­tween 1980 and 1984.

The debt overhang and international econorni

contraction continue to limit Brazil's options. But the

country's disappointing progress can also be blamed on

Japan" asloni hing economic ascendancy has been

based on a combination of good economic manage­

ment and decisive investment in human capital fonna­

tion.

Thjs chain of volcanic islands holds few obvious

advantages. It has 0.3% f the world's land area and

just 2.3% of world population. Yet it now contributes

16% of the world's output. G P per capita grew 4.3%

a year between 1965 and 19 9 (compared with the

OE D average of 2.5%).

Education is highly prized. Around 90"10 of man­

ager have a university degree (compared with 30% for

the UK, for example). And teachers in Japan have a

hjgher SLatus tban tJlose in many other countries.

While US firms have to spend $25 billion each

year to boo t workers' emraoce-Ievel education,Japa­

nese companies can concentrate ",hoUy on on·the-job

training. in e worker generally stay many years with

the same company and are encouraged to participate in

management, each company reaps the benefit of its

own inve tmCnt in training.

TheJapane e workforce has also been rewarded­

through increased job opportunities and rising wage.

Hourlyearnings grewal an average 11%a year between

1973 and 1982, and growth has remained positive even

through the recession of the 1980s.

Japan has maintained a compeciti\'e edge over its

trading partners thanks to a technological dynamism

rhathas pu hed forward the frontiers ofefficiency. It i ,

for example, a major exporter of steel even though it

has toirnport most of the inputs. And theJapanese are

dercnnined to maintain their ad anrage in skill·based

production through a new 10-year plan to con truct

and improve social investment in the 1990s.

severe internal problems-pemiciou inequality (be·

tween both regions and "xial group ) and a per~istent

neglect of human development.

The failure of the Brazilian education system

hoJd back efforts to increast! productivity. Only 20%

o aU children pass to the standard eighth year level of

primary school and only a fifth of those complete the

programme in ight years. Inmuction is poor, ofren

involving three hours or Je. s of schooling a day-and

much worse in the poorest regions.

Educational weakne 'cs are compounded by

health and nurntional deficiencies-and havecontrib­

uted to underperformance and producti\,ity losse .

Public policy has tended to favour capital.inten·

sive industry, such as chemicals and machinery, and

neglected rhe development of m re labour-intensive

production. Of rhe world' 10 biggest manufacturing

ec nomic, Brazil bas tbe lowest employment-to-out.

put ratio. An increasing proponjon of people have,

therefore, been driven into the informal sector-and

can make little direct contribution to international

competitiveness.

TIle economic performance of Mauritius in recent

decades has been impres ive. Its annual economic

growth, 5.2%during 1965-80, increased l05.9%in the

1980', From a plantation-based colony. it tran formed

jtself into a diver ified economy. Its human develop­

ment index has also increascd dramatically-from

0.525 in 1970 to 0.793 in 1992.

This succe ha been firmly based on investment

in human development. Education is free at aU level .

1be combined primary and econdary enrolment rare

rose from 62% in 1970 to 77% in 1989, and the literacy

rate is now estimated at 86%.

But as well as incrca ing human capabilities,

Mauritius ha been giving people the opportunity to

use those kill . An expon-proces ing zone was estab­

lished in the 1970s, and investment in industry and

tourism increa ed sharply-with aconsiderable contri·

bution from foreign capital. The manufacturing sector

grew by more than 10% a year in the 198Os. And gross

domestic investment is now 29% of G P.

Employment is based 50% on ervice (largely

tourism), 30% 00 industry and 20% on agriculture.

Industry has been able to rely so far on relatively chcap

labour, wilh women providing a third of the labour

force. The annual growth rate of exports was 3.1%

between 1965 and 1980, but it to e to 10.5% between

1980 and 1989. Clothing export were worth $460

million in 1989.

With full employment, there is now upward pres­

sure on wage. Mauritius will need to diversify its

economy till further. Agriculture is still heavilydepen·

0.793

5.5%

5.9%

Human development index

GDP annual growth (1965·89)

Export annual growth (1965-89)

Mauritius

0.981

5.6%

8.4%

0.739

6.8%

7.9%

JapanHuman development index

GDP annual growth (1965·89)

Export annual growth (1965·89)

BrazilHuman development index

GDP annual growth (1965·89)

Export annual growth (1965·89)

72

dem on sugar. And 90% of the output of the expon­

peace sing wne is textile product .

Mauritiu will have to increase it level~ of skill

and technology ifit is to compete in markets for higher

qualil)' products.

Tunisia's expon record in the 1980 has been impres­

sive: nOl so much in volume as in composition. The

balance has shifted from raw materials to manufac­

tured good~a change of direction that profited

greatly from earlier investments in human develop­ment.

In 1980. the bulkofexporl income came from oil

and pho phates. But with the collapse in world price

and declining reserve, exports dropped 30% by 1986.

A dynamic manufacturing sector, which emerged inthe 19705. expanded to fill the gap 0 that [Ota! expons

are now back to the 1980 level.

TunisiaHuman development index

GOP annual growth (1965-89)

Export annual growth (1965·89)

0.582

5.3%8.3%

The average rate of manufacLUring growth be·

tween 1965 and 1989 was 8.4% a year, and manufac­

turing value added has been one of the highe·t inMrica-16% of GDP This growth was accompani d

by rises in productivity of 2% a year in the 1980s-so

wages could ri e as well.This dynamism wa po 'ible only because Tunisia

had made human development a priority. A healthy

and educated population provided an efficient

"·oMorce. Tunisia has made more progress in chi·respect than many other (generaUy wealthier) Arab

states. Life expectancy is greater than average, and

under-five mortality per 1,000 live births fell between

1960 and 1990-from 254 to 62.

Tunisia has made similar advances in education.

Adult literacy is now 65%. Tunisia's women have made

significant prog1·esS. The women's literacy rate in the

average Arab state is only 63% of the male rate while in

Tunisia the figure is 76%-and rising.

Tuni ia still has growing problem of unemploy­

ment and underemployment, but its higher level of

human development leave it well positioned to benefil

from trade opportunities in Ule 19905.

73

CHAPTER 5

ITIA new vision for global human development

The world isclose tocreating asinale, unifiedalobal system

For the first time in human history, theworld is close to creating a single, unifiedglobal system. But an agreed and participa­tory system of global governance remains adistant dream. This has left an mgent anddisturbing question wandering unansweredround the corridors of power: In a period ofrapid economic globalization, who will pro­tect the intere ts of the world's poor?

National governments find it increas­ingly difficult to offer such protection. Thespeed and efficiency of the internationalmoney markets, the autonomy and reach ofmultinational corporations, the dominanceof a group of rich nation over the ever­expanding flows of international trade­the e and a host of other forms of globalintegration have greatly weakened the eco­nomic authority of the nation-state and itsability to promote human development andprotect it citizens.

A remarkable globalization of the worldeconomy has taken place in the past fewdecades. While world output tripled, worldtrade quadrupled. World commercial banklending has also grown rapidly-twice asfast as world trade.

Many of the global movements todayare information-based-through ever-ex­panding networks of cable and satellites.The world capital markets transmit morethan $300 billion a day through interna­tional data networks. And TV crew roamthe globe collecting and tran mitting infor­mation on world events as they happen.

Today, more than ever, a new globalculture is emerging. From music to moviesto book , international ideas and values arebeing mixed with, and superimposed on,national identities. Such common informa­tion flows are an achievement, but theycarry a risk-the loss ofcultural identity and

diversity. But they also allow the world toface up-as acommunity-to issues ofcom­mon concern and common survival.

The traffic in drugs, the spread ofpollu­tion, the streams of illegal migrants-theseand many other problems are becomingimpossible for individual countries to con­trol unilaterally. And ifglobal opportuniti.econtinue to be unevenly di tributed, theconsequences of the mo t persistent humanproblem of all-poverty-will increa inglyoverflow national frontiers.

The existing &amework of globalinstitutions

The existing framework of global gover­nance is weak, ad hoc and unpredictable,with international economic decision-mak­ing dispersed over numerous in titutionand forums, mostly dominated by the richcountries, leaving developing countries pow­erless and vulnerable.

The Group ofSeven

The Group of Seven industrial countries(G-7) represents the closest approximationto governance of the global economy. Itconsists ofCanada, France Germany, Italy,Japan, the United Kingdom and the UnitedStates-with additional participation fromthe Emopean Community as awhole. Thesecountries have only 12%ofthe world' popu­lation. The G-7 is an elite group, hardlyrepresentative ofa broad spectrum ofpoliti­cal and economic interests and unlikely todefend the global interest if this conflictswith it own.

Alternative forums and proposals arealready appearing to offer representation todeveloping countries. The "G-15" summits

74 D VELOP 1L 1

bring together leading Third World nations,and there are proposals for some represen­tation of the developing countries in the G­7. The developing countries have al 0 orga­nized themselves in other forums, uch asthe G-24 and the G-77, to exert pressure onthe industrial nations. But the e have hadonly marginal influence.

A more likely development is that theG-7 will expand itself through a carefulprocess of co-option to pre-empt any chal­lenge to its global economic clout. Russia isthe most likely new candidate for member­ship.

The International Monetary Fund

The International Monetary Fund (IMP)has drifted away from its original mandate.It was created to maintain monetary stabil­ity and allow payments imbalance to beresolved in an equitable and controlled fash­ion-with the burden of adjustment rea­sonably shared between surplus and deficitcountries.

Thishasnothappened--certainlynotinrecent years. Why? Largely because the Fundcannot exert any authority over the richindustrial nations, whether they generatesurplu es ordeEicits. Floating exchange ratesand sophisticated money markets have takencare of many of the temporary imbalancesbetween industrial countries. And a newmonetary system has been created in Eu­rope.

One development that might have giventhe IMF a more central role in global mon­etary management was the introduction ofSpecial Drawing Rights (SDRs). But therichest nations would not allow SDRs tomake any significant contribution to inter­national monetary assets.

Developing countries do need the IMF,however. They have often fixed their ex­change rates to the currency of a majortrading nation and exercised tight controlson foreign exchange-policies that inevita­bly re ult in temporary balance of paymentsdeficit .Even for short-term problems, how­ever, the IMP has been in no position tocreate and supply the liquidity that develop­ing countries needed. These limitations werefully exposed when the debt crisis struck in

the early 1980s. IMP lending to developingcountries certainly shot up between 1980and 1986. As a result, their debt to the Fundincreased from $9.5 billion to $42.4 billion.But in the subsequent period, 1986-90, theIMP was actually withdrawing funds fromdevelopingcountries-a net transfer of$6.3billion a year.

The IMP has exerted a strong influenceover developing countrie by setting stiffconditions on the loans it offers. This condi­tionality has generally been monetarist anddeflationary, obliging governments to re­duce their demand for imports by curtailingoverall demand--cutting back on both pri­vate and public spending. These cutbackshave often reduced consumption, invest­ment and employment-and stifled eco­nomic growth.

An alternative strategy would have beenadjustment with growth, which would haveaimed more at promoting production, bothto increase exports and to meet a higherproportion of local demand from local pro­duction. Although there have been indica­tions of a change of IMF policy in thisdirection, there is as yet no well-articulatedagenda of reform.

The World Bank

The World Bank is no closer to meeting itsmandate, either. It was established to bor­row the savings of the rich nations and tolend them to poornations-to finance sounddevelopment projects and programmes,particularly where private investment failedorwas inadequate. In fact it has done littleto recycle global surpluses to deficit nations.In 1990-91, the current account surpluseof seven of the world' countries were over$150 billion (40% generated byJapan). Theprivate financial m~u:kets recycled most ofthis to richer industrial countries (with some$100 billion going to the United States).The World Bank, rather than sending someof the re t to poor countries, actually with­drew $500 million from them.

Nordid the Bank offerdeveloping coun­tries much protection from the harsh termsof the international money markets. It lendsmoney through two main channels. Themost significant i the International Bank

The IMF andthe World Bankhave {f1-ifted awayfrom theirol'igilla/mL1ndates

75

The GATT malldateis fairly limitedat present

for Reconstruction and Development(IBRD), which offers fW1ds at rate thatnow float in sympathy with world marketrates. This is a major shift from the Bank'soriginal role ofcushioningdeveloping coun­tries against fluchlations in market interestrates.111e Bank was supposed to raise capi­tal and lend it at rates that it could afford tosubsidize because of its own strength andthat of its industrial country partners.

The Bank's concessional channel, theInternational Development Association(IDA), provides more of a cushion-lend­ing interest-free money over longer repay­ment periods (40 years plus a 10-year graceperiod) to countries whose per capita GNPis below $700. But even with ab olute pov­erty increasing, IDA s share in total WorldBank lending ranges between 20% and 30%of the total.

The quantity and composition ofWorldBank lending is clearly inadequate for thechallenges it faces in developing countries.

Regional development banks

The total assi tance of the African Develop­ment Bank, the Asian Development Bank,the Caribbean Development Bank and theInter-American Development Bank to de­veloping countries is quite ubstantial ($11.3billion in commitments in 1990). The influ­ence of the regional banks is growing as theyare becoming more responsive to the specialneeds of their own constituencies.

GATT

The C cncralAgreement onTariffs and Trade(GATT) is the main regulating frameworkfor world trade. It came into existence in1947 with the declared objective of pursu­ing reciprocal and mutually advantageousarrangements dedicated to the substantialreduction of tariffs and other barriers totrade and to the elimination of discrin1ina­tory treatment in international commerce.

In January 1982, the GATT member­ship comprised 86 countries. Now, 94 COW1­tries are contracting parties, and 30 moreare negotiating membership. Together, theyaccount for more than four-fifths of worldtrade. But the percentage of trade fully

complying with the principles of GATT isless than 7%.

The value of world trade covered by thedifferent GATTnegotiating rounds has nev­ertheless grown during the past decades­more than Eifteenfold. If the present Uru­guay Round of multilateral trade negotia­tions were to succeed, the volume of tradefalling under GATT LUles would expandconsiderably-in agriculture, tropical prod­ucts and textiles, as well as in services, intel­lectual propertyrights and investmentflows.

But the negotiations have been verydifficult, and at the time of writing thisReport, it is stiU not clear what the finaloutcome might be.

As far as the developing countries areconcerned, a successful conclusion to theUruguay Round should mean a 6% gain intheir exports. The main benefits would go toAsia and then to Latin America. It is, there­fore, not surpri ing that developing couo­tries have, in recent years, made much greatereffOJ1S than the industrial countries to forgeahead with trade liberalization, domesti­cally and internationally. Most of the issuesnow holding back progress are of specialconcern to industrial countries-the ques­tion of agriculnu'al subsidies, the questionof stricter protection (rather than liberaliza­tion) of intellectual property rights and thequestion of liberalization of trade in ser­vices, especially the application of the most­favoured nation rule in shipping and tele­communications.

The United Nations system

The United Nations system has so far playedonly a peripheral role in global economicmanagement. When it comes to economicissues, the powerful industrial cow1tries havebeen reluctant to use the UN forum be­cause each member state has an equal vote.Theyprefer instead to use the BrettonWoodorganizations in which industrial countriesenjoy a weighted voting advantage.

Many global incentives that actuallystarted within the UN system have latermoved out. One example is the Interna­tional DevelopmentAssociation (IDA), nowlinked to the World Bank. Another exampleis in trade. Despite UNCTAD's work, espe-

76

cially in commodities and ervices, GAIT istoday the main forum for trade negotia­tions. And important global issues-such asdebt, monetary tability and intemationalresource transfers-are not dealt with in anyconcrete way in the UN forums.

The combined financial resources oftheUnited Nation specialized agencies aresmall compared with those of the interna­tional and regional institutions ($6 billioncompared with $35 billion in 1990). And theUN sy tern ha been a marginal player onthe global economic scene, de pite (or maybebecause of) its attributes of universality andneutrality.

The weal<. SUPPOlt trom many of theindustrial nations and the paucity of finan­cial resources have certainly reduced theeffectivene sof the UN. But there are otherrea ons why it ha not played avery effectivedevelopment role.

First, the specialized agencies are re­stricted to specific sectors-such as educa­tion, food, health or the environment. Theyoften lack an overall development per pec­tive, and there are few vigorous attempts atUN systemwide policy coordination.

Second, the technical assistanceprogramme of the UN ystem, includingthose ofUNDP, have had limited success atbuilding up the national capacity of devel­oping countries. This is evident from the lowlevels ofhuman development in these coun­tries-and the inadequate development ofnational expertise and national institution .True, the UN system agencies are not solelyresponsible for this, but it is also true thatthey have not offered bold imaginative yetpragmatic policy options. There are too fewexamples of successful technology transferor elf-reliant growth. L1stead, there is anincrea ing number of foreign advisers.

ill resource and ideas, the UN hascarried relatively littleweightinrecent years.Its heyday was the 1950s and 1960s, butsince then its intellectual influence in theglobal development policy debate has de­clined.

Transnational corporations

The evolution of the international economicsystem has vested inln1ense power in

transnational corporations, particularly inrelation to developing countrie . ill 1989,foreign direct investment urpassed all otherforms of private financial flows to develop­ing countries. Transnational corporationsare becoming increasingly involved in vari­ous forms of joint ventures in developingcountries. These arrangements mayor maynot involve foreign equity participation. illMalaysia, for example, in the period 1979­87, only 12% of 1,432 agreement withforeign enterprises had equity participation.Thi example and many others show thatbeyond capital, tran national corporationsalso allocate-or withhold-most other re­sources needed for industrialization, espe­cially if it is export-led. They are particularlyimportant in transferring technology.

Tran national corporations wield powerin the corporate interest, with a geographicframe that is global and a time frame that isfrequently hort. Contrast thi with the per­spective ofhost countries, with a geographicframe that is national and a time frame thatis long.

Some regulatory mechanism are neededto reconcile these differences in objectives.At the national level, Host-Country Coun­cils (of government and private sector rep­resentatives) should be established in theoffices of individual tran national corpora­tions to offer a conciliation mechanism andto deal with problems as they arise. At the in­ternationallevel, external regulatory instru­ments, such as the United Nations code ofconduct, should be adopted and enforced.

International civil society

Many actor in international civil societyinfluence policy and action. Non-govern­mental organizations (NGOs), includingtrade unions, church groups, action groupsand ethnic organizations bring togetherpeople who share a common concern or acommon ocial attribute. Acting as interestand advocacy groups, they influence theminds of decision-makers and the people.

Group bringing togetl1er vulnerablesections of the population reaffirm publiclythe need for affirmative action and the needto attend to the uneven spread of humandeprivation. A recent study of a sample of

The UN systemhas been amarginal player011 the globaleconomtc scene

77

MallY actionshave resultedfrom inte1-nationalNCO pressure

about 5,000 NGOs in Pakistan showed thatnearly two-thirds are providingprogrammesand facilities to local communities to pro­mote human development.

An equally important force is the media.It is a provider of news and information­but it is also a public conscience, drawingthe attention of public authoritie and thepeople to acts of omission or commission.The recent stalvation deaths among weav­ers in South India were first brought topublic attention by the press. It has beenargued that no country with a free press hasfaced famine, even though hunger and dep­rivation may persist.

Considerhow the participation ofNGOsin multilateral institutions. now formalized,influences international thinking and ac­tion. More than 500 NGOs from aroundthe world have consultative status with theUnited Nations Economic and SocialCoun­cil. The United Nations maintains a listingof an additional 550 NGOs associated withissues ofinternationalcooperation. The con­cerns and perspectives that they representare given weight in multilateral develop­ment activities. Most international meet­ings and conferences-whether on trade,education, the environment or women anddevelopment-have benefited from activeNGO participation. The June 1992 UNConference on Environment and Develop­ment is an example.

International NGOs generally raisefunds in industrial countries for use over­seas-for emergencies or for long-term de­velopment in developing countries. Theyprovide funds (usually for projects run bynational NGOs) amounting to around $4billion a year, or 8% of official developmentassistance (ODA). But they also have strongadvocacy roles that can bring them intodialogue or conflict with government orcommercial organizations. Action on manyissues-from human rights to environmen­tal protection to the marketing of babyfoods-have resulted from internationalNGO pressure. Many NGOshave also high­lighted the need to alleviate the social im­pact of structural adjustment programmes.

But as.in other areas, the vastly superiorresomces available to them have meant thatthe international civil sector is also domi-

nated by northern-based organizations.Fewer than 15% of NGOs with ECOSOCconsultative status are headquartered indeveloping countries. The NGO commu­nity is increasingly recognizing the biasednature of the current arrangements, eventhough many of the northern-based institu­tions peak in what they consider to be theinterests of the South.

Global institutions for the 21st century

In practice, there are no development insti­tutions managing the new integrated globaleconomy-much less doing so democrati­cally in the interests of the world's people.Democracy may be sweeping through indi­vidual nation-states. but it has yet to assumeaglobal economic dimension. Global gover­nance. if it comes at all, risks arising bydefault rather than by design. This situationis dangerous for the health of our shrinkingplanet, and it bodes ill for the majority of theworld's people.

What other form could global economicgovernance take? This must be a subject ofurgent discussion in the years ahead. Butany new system should be based on twofundamental principles. First, a set of rulesand procedures that all nation-states acceptas governing their actions and interactions.Second, a fair and effective system for en­forcing such rules on nation-states.

Considerations offuture patterns ofglo­bal governance can be idealistic and vision­ary, or they can be cautious and realistic­seeking a pragmatic blend of idealistic real­ism. Visionary blueprints must at least beprepared. Circumstances sometimes changesuddenly, w1expectedly, dramatically. Un­less equipped with detailed blueprints. re­formers lose by default.

The visionary approach, which the fol­lowing discussion starts with, does have themerit of offering a sense of direction-apath for some of the intermediate steps.

Human society is increasingly taking ona global dimension. Sooner or later it willhave to develop the global institutions tomatch. These are Wcely to include:• A global central bank-to create a com­mon currency, to maintain price and ex­change-rate stability, to channel global sur-

78 I 10 LClI (.1 ) III I D I LOP IE. I

pluses and deficits, to equalize internationalaccess to credit-and to provide the liquid­ity and credits poor nations need.• A system ofprogressive income tax-to becollected automatically from the rich na­tions, and to be distributed to the poornations according to their income and de­velopmentneeds. The administration ohhistax would have to represent equally theinterests ofboth donors and recipients. Andfunds would be allocated on the basis of ashared policy dialogue, rather than a systemof formal conditionality.• An international trade organization-toensure free and equal access to all forms ofglobal trade, to manage commodity stabili­zation schemes and to do research and makerecommendations for commodity policies.This new organization would merge thecurrent functions of GAIT and UNCTAD,but it would also be strengthened by effec­tive regulatory powers and by a small andmanageable executive board.• A strengthened UN system-to createnew structures of peace and secUlity i.n thepost-cold-war world. But the UN shouldalso as Ulne a much greater responsibilityfor development policy formulation. Thiswould be exercised through a new Develop.ment Security Council, which would estab­lish the broad policy framework for all glo­bal development issues. These issues rangefrom food security to ecological secuxity,from humanitarian assistance to develop­ment assistance from debt relief to socialdevelopment, from drug control to interna­tional migration.

A transitional strategy

The institutions above are likely to becomethe cornerstone of a new global economicsystem. In the meantime, realism demandsthat we proceed through reforms in theexi ting global institutions and examine therole that they might play in the transitionalperiod.

Reforms in the IMF

The IMP's role as an economic manager hasbeen greatly weakened over the past 45years. Any reforms must first concentrate on

a few fundamental issues.ADJUSTING EXTERJ"JAL ACCOUNTS. In the

normal proces of international trade andfinance, some countries run deficits andothers surpluses. Today, the onus for cor­rect.ing such imbalances is assumed to liewith the deficit countries: they must imP011

less by making (often painful) adjustmentsto their economies, and they must reallocateresources to potential export sectors. Thesurplus count.ries feel no correspondingobligation to increase their imports.

This lopsided approach usually meansshrinking the economies of deficit coun­tries-with a corresponding reduction inworld trade. To counter this deflationarytendency, Keynes' original proposal for anInternational Clearing Union (the proto­type for the IMF) included the possibility ofa penalty on surplus countries-1% of thesmplus per month to encourage them tomake adjustments too.

This kind of approach clearly is stillneeded, and the IMP should open a dia­logue on this issue with the smplus coun­tries-since timely reduction in their sur­pluses through long-term lending would bein their own interest. The current system isboth inefficient and Lmjust.

PROVIDING LIQUiDITY. The IMP mustfind a way to help developing countriesbuild up their foreign exchange reserves.

The indu trial countries tend to havefewer problems here. When their reservesrun short, they can simply borrow to covertheir needs. The United State has also hadthe option of running a permanent deficitsince other countries have been content tohold dollars.

But developing countries have a nar­rower range of options. Many of them arenot considered creditworthy, so they cannotborrow at all unless they are given con­cessional terms. Others can borrow only atvery high rates. And the alternative to bor­rowing-a sustained balance of paymentssurplus-is very difficult to achieve, as wellas being costly in sacrificed opportunitiesfor development.

The IMP's creation of Special DrawingRights (SDRs) in 1967 was a missed oppor­twlity to meet this need. SDRs were a newform of international asset designed to in-

A newDevelopm.entSecurity Councilshould be set upwithin the UN

I X\ I 10 FOR (,I >IHL III D 'I (I' II T 79

The 1M F :/Jouldserve as the world'scentral bank

crea e global liquidity and help promoteinternational trade. These new reserves couldhave been preferentially i sued to the cen­tral bank: of developing countrie . But theindustrial countries rejected thi option, andthe SDRs were distributed according toprevailing economic power.

The rich nations are unlikely to allow theSDR mechani m to be revived, especiallywhen the United States has a major balanceof payments deficit-creating ignificantinternational liquidity every year. An alter­native would be to allow countries below acertain per capita income to have a largerreserve tranche atthe IMP. This mechanismcould also be used to roll over the debts ofthe poorer nations-linked, of course, todomestic reforms.

A CENTRAL BANKING ROLE. The real roleof the IMP should be to serve a the world'cennal banle This was its original raisond'etre, though developments over the past45 years have conspired to usurp this func­tion. It hould now therefore take some ofthe steps that would allow it to move in thisdirection.

National central banks help dampenswings between euphoria and despair-theswings that can cause enterprises to col­lapse. In the good times, the central banklimits exce lending-generally by sugges­tion rather than by direct order. And incrisi , the central bank: can support banks indanger of failing.

Given the great increase in cross-borderlending, this function is now desperatelyneeded at the international level. The firststep would be for the IMP and the centralbanks of the major trading countries to forma coordinating committee to manage worldliquidity. Member countries would depositforeign exchange into a substitution accountand receive, in exchange, certificates de­nominated in SDRs (or in whatever interna­tional liquid asset is decided on). As theIMP increases its role in providing worldliquidity, its regulatory function would grow.

If countries all over the world agreed tothe establishment of a global central bank,theywould contribute to stability and growthin the world economy-and avoid the needto take mutually destructive measure .Theywould, however, have to coordinate thei.r

fiscal and monetary policies and permit thefreer movement ofcapital good and labour.And they might even consider the adoption(as Keynes sugge ted) of a single worldcurrency.

Ref011ns in the World Bank

The World Bank mu t rediscover its originalmandate as well-to mediate between thecapital markets and the developing coun­trie . Achieving thi will mean adopting notju t new lending instruments but also newphilosophies of development.

AN INTERNA11ONALINVESTMENTTRUST. Inthe face ofdeclining resource transfers fromthe World Bank, ome creative new think­ing is needed to enable international sur­plu es to be recycled to developing coun­tries. One possibility would be for the WorldBank to take on the role of an internationalinvestment tru t. Thi would enable it to sellbonds to surplus nation and lend the pro­ceeds to developing counnies.

Such bonds would have to competewith those issued by governments, so theymust appear attractive. This could beachieved by multilaterally guaranteeing thenew bond against currency fluctuationsand perhap indexing them again t infla­tion. So, although such assets might have alower rate of return, they would actually besafer than government bonds that carry nosuch guarantees.

The terms for loans to developing COUll­

tries would depend on their level of devel­opment. The newly industrializing coun­tries could pay commercial rates, while thelow-income countrie might receive orneinterest subsidy.

uch innovations would need to be ac­companied by other changes in the mandateand workings of the World Bank. Thereshould be a mechanism for the more auto­matic replenishment of the World Bank'scapital as well as a change in the Bank'scapital-gearing ratio-to allow it to makeloan equivalent to a higher proportion of itscapital.

AN iNTERMEDiATE AS ISTANCE FACllJlY.

Developing counnies taking World Bankloans have to fail into one of two categories:developed enough to afford the stiff terms

80 o

demanded by the IBRD, or poor enough toqualify for concessionary funds from theIDA. But many countries, such as tho e inSouth Asia, are poi ed uncertainly betweenthe two. The World Bank has tried to copewith the limitations of it lending instru­ment by skiliully blending IBRD and IDAre ource but there are limits to what can beachieved by uch adroit juggling.

The IDA now represents only 30% ofWorld Bank lending-at a time when pov­erty has increased in the developing world.As a result, even India, with a per capitaincome of only $340 and a third of theworld's absolute poor, has been obliged toborrow on commercial terms. India's debtincreased from $5 billion at the beginning ofthe 1980s to $70 billion in 1991-making itthe third largest debtor among developingcountries.

A further limitation to both the IBRDand the IDA is the size of the funds avail­able. The United States i the largest con­tributor to both-and 0 has the mo t votes.The United States i , however not onlyreluctant to increase its own contribution .It is also reluctant to let other countrie doso-since its own voting power would becorrespondingly reduced. Japan, for ex­ample, would be able to offer a lot more, ifnot for this constraint.

A solution to both these problems wouldbe to create a new loan window-anIntermediate Assistance Facility (IAF). Thiswould have its own Board ofGovernors anda separate voting structure, and donors couldgive funds directly. The Facility could helpcow1tries ready to graduate from the ex­tremely concessional IDA terms but not yetsufficiently robust to meet the tougher termsof the IBRD-such as India and Pakistan.They might borrow at, ay, 4% interest over25 years, and pay two-thirds of the goinginterest rate.

This would allow the World Bank toconcentrate its IDA resources mainly on thelong-term development of Africa (as it didfor Asia in the first 25 year of the IDA'sexistence). And it could concentrate IBRDfunds on the most creditworthy of the newlyindu trializing countries (and help protectthe hjgh credit rating of IBRD bonds in theinternational capital markets).

Bretton Woods and human development

Both the organizations created at BrettonWoods in 1945 will need to refocus theirwork on human development if they are tomake a con tructive conu'ibution in the1990s.

So far, they have often focused moreon the mean of development-GNPgrowth-and tended to exclude human be­ings from their calculations. The WorldBank has, for example, met concerns aboutpoverty by tacking "poverty" programmesonto efforts to promote economic growth­not as an integral part of new developmenttrategie .

In reality, people (especially poor people)have to be the means ofdevelopment as wellas its end. Poverty eradication should, there­fore, be tackled at the outset by judiciousinve tmem in human beings. Healthy, well­educated people who can participate in theplanning and execution of developmentprogramme will not only raise their ownstandards of living. They will promote theircountry s economic growth.

The World Bank and the IMP must,therefore al 0 a sess projects and pro­gramme \vith a vision that e>..1:ends beyondeconomic and financial feasibility. 111eymusttake into account the effect such projectand programmes will have on the humanbeings concerned. Projects need to be ex­amined for the ways they affect a country'sfundamental balances: between rural andurban communities, between men andwomen, between rich and poor, betweenthe majority community and minority ethnicgroups, between human beings and the en­vironment.

The IMP and the World Bank also needto be much more sensitive to the recipientcountry's pattern of social pending. Theymust help to check excessive military spend­ing, for example-a theme both are begin­ning to take up with greater courage.

If the World Bank and the IMP are toencourage participatory styles of develop­ment, they mu t also addre some funda­mental issues about democracy in their ownmanagement tructures. The developingcow1tries are likely to respond more willinglyto IMP and World Bank advice if they are

The \ arid Bankshould createa new loan ll'indoll'

81

conEdent that they have an influential voicein the running of these organizations.

The BrettonWoods organizations are ata critical stage in their history. They couldcontinue to be pushed to the margin-or,with honest self-criticism and fresh think­ing, they could play new and more construc­tive roles in the decade ahead.

Gi\TT prin.ciplesmllst apply toall trade

Re/01ms in GATT

The world needs new ways of organizinginternational trade-to avoid protection­i m, to stabilize primary commodity prices,to maintain a liberal trading framework andto police violations and keep disciplineamong restless trading partners. A success­ful outcome of the ongoing Uruguay Roundof multilateral trade negotiations would bea vital contribution. But a more fundamen­tal reform is now needed: either a new tradeorganization or a greatly strengthenedGATT.

Areformed and up-to-date GATTwouldneed to incorporate the following changes:

EXTENDED COVERAGE-to apply GATTprinciples to all products, including textileand agricultural and tropical products; toadopt rules for trade-related aspects of in-

tellectual property right, investment mea­sures and activities of transnational coop­eration; and to adopt a special agreementfor u'ade in services. Not all these areas areof equal significance. Textiles and agricul­ture are extremely important. But for intel­lectual property rights, each country maylegitimately come to different conclu ionsabout the economic efficiency of protectivemeasures, as well as their optimum designand duration.

ENLARGED MEMBERSHIP-from the pre­sent 94 to ail countries in the world, includ­ing the countries of Eastern Europe and therepublics of the former Soviet Union.

CLEAR RULE AND EFFECTIVE POWERS­GATT works on the basis of reciprocal con­cessions, which means that the big and richcountries have all the power. GATT shouldinstead negotiate clear and fair rules-toencompass such is ues as antidumping, sub­sidie , safeguards (emergency measuresagainst imports) and restrictions on foreigninvestors. But these rules will also need to beenforced. It would help if GATT had anexecutive board with extensive powers tomonitor and regulate the expansion ofworldtrade.

UN DeveLopment Security Councz'L

BOX 5.1

A Development Security Council

Rah'onaLe-Amanageable forum for institutions.global policycoordination, rru ted by both Comporition-ACouncil of22 COUD-

industrial and developing countries. try members, 11 permanent and 11 onMandate the basis ofrotational election.The Coun--To design a global policy frame- cil membership to be cho en on uch

work in all key economic and social area , criteria a GNP, population, hare ofincluding food ecurity, ecological 'ecu- international trade, strategic politicalrity, development assistance, humanitar- importance and considerations ofregionalian assistance, debt, commodity price balance. The 11 permanent membersstabilization, technology tran fer', drug may include China, France, Germany,control, women's issue ,children'sissues Japan, Russia, the UK and the US. Theseand human development. could be joined by the rno t populous

-To prepare a global budget of country in each developing region: India,development resource flow for a revolv- Brazil, Nigeria and Egypt. The 11 rotat-ing five-year period, to identify shortfall ing member can be cho -en to representbetween global development potential variou regional and economic group-and resource availability, and to identify ings.policies and programme to meet these Secretariat-A professional secre·shortfaUs. tariat, under the direct guidance of the

-To provide a policy coordination UN Secretary General. The secretariatframework for the mooth functioning of will propose various poUey options forinternational development and financial dis us ion by the Council.

The United Nation offer the world com­munity a potentially effective system of glo­bal governance. Indeed, in many ways, theUN's structure already parallels those ofnational governments: the General Assem­bly of 166 nations resembles a form ofparliament, the 15-member Security Coun­cil is a cabinet and the individual UN agen­cies from FAO to UNESCO can be thoughtof as ministries.

Economic and social issues are sup­posed to be coordinated by the Economicand Social Council (ECOSOC). In prac­tice, they are not. ECOSOC's 54-memberstructure is too large and unwieldy, and themost powerful indusnial countries have re­garded this and other UN forums asunmanageable and unprofessional.

Effective economic management wouldrequire a much smaller and more tightlyorganized forum-a Development SecurityCouncil, perhaps, made up of a small body

82

BOX 5.2

Restructuring the Global Environment Facility

institutions. If the GEF remains a the solefunding mechanism, everal change arerequired. The three most important wouldbe to expand its resource base, to providefor more participation from developingcoun­tries and to enlarge its mandate to covernational capacity bunding and th.e environ­mental priorities ofdeveloping countries forwater and land.

CAPACITY BUll..olNG-Few developingcountries have either the trained people or

ofdecision-makers representing the univer­sal body of nations at large (box 5.1). 'ThisCouncil could consider all major issues onthe global agenda, including poverty andhuman development, food security, drugtrafficking, humanitarian assi tance, com­modity prices, trade negotiations, debt andenvironmental safeguards. The basic ideashould be to develop aconsensus on policy­which could then be implemented by theagencies concerned. Such a DevelopmentSecurity Council would need the suppott ofa competent and thoroughly professionalsecretariat.

Creating such a forum would requireconsiderable patience and experimentation.The major industrial countries would needreassurance that their voices will not bedrowned in unmanageable meeting . Andthe developing countries, too, will need toknow that their interests will be better pro­tected. But it should be possible to accom­modate their concerns and use the UnitedNations much more effectively for interna­tional economic management.

Policies for sustainable development

If countries, rich and poor, are to acceptsustainable human development as a goal,adjusunent will be needed in global gover­nance, including stricter international legis­lation. The UN Conference on Environ­ment and Development-the Earth Sum­mit-offers an opportunity to move ahead.

Our objective must be to en ure thatpoor countries and poor people have accesto technologies that enable them to attainhuman development in a sustainable way.Countries and communities must be en­abled to manage their natural resourceswisely. Innovative financial tran fers will haveto be found to mobilize the necessary re­sources. Several proposals are most critical:

NEW INSTITUTIONS FOR ENVIRONMENTAL

FINANCE-The Global Environment Facil­ity (GEF), jointly administered by UNDP,UNEP and the World Bank, is one of thefew mechanisms for funding internationalenvironmental projects (box 5.2). There areseveral proposal at present for new fundingmechanisms for sustainable development.Donors seem to be averse to creating new

The Global EnvironmentFaciliry financeenvironmental projects i.n developingcountries. This three-year pilot chemebegan in 1991 and ha core funding from24 countries, nine in the developingworld.

The Facility' purpose is to as istdeveloping countrie in exploring wayto protect the global em~ronment and totransferenvironmentallybenign technolo­gies. But to be effective, the direct inter­e ts of people would also have to beprotected.A reformed GE Fwould, there­fore, al 0 have to promote an optimumbalance benveen the environment andhuman development.

Grants can be made for projeCl"s indeveloping countries with per capita in­come of less than 4,000 (in 1989) anda UNDP programme in place. The fundscan be used for investment projects, tech­nical cooperation and pre-inve tment aswell as re earch and development.

The four ptiority areas of concernare:

Global warmingDestruction of biological diversityPollution of international watersDepletion of the ozone layerThe Facilityha core fundingofS800

million in the Global EnvironmentalTru tFund, with a further $300 million avail­able through several associated co-financ­ing arrangements.

There is no et formula for allocatingfunds, but the rule of thumb is that 40%­50% should go to global warming con­cerns, 30%·40% to biological cliversity,and 10%·20% to protection of interna­tional waters. Ozone prolection projectswould receive practically all other fund­ing from the Montreal Protocol' InterimMultilateral Fund.

Each of the organizations co-imple­menting the Facility has a clistinct role.

UNDP u e its worldwide network ofoffices to help identify projecrs and carryout pre-inve tment stuclies-and is thenresponsible for technical cooperationactivitie . In adclition, UNDP runs the" mall grants programme"-a $5 millionfund to upport community aCl"ivities bydeveloping country GOs and gra s­roots organizations. UNEP provides en­vironmental experti e a well as the sec­retariar for the Scientific and TechnicalAdvisory Panel. The World Bank acts asa repository for the Tru t Fund, adminis­rers the Facwr}' and is respon ible forinvestment projects.

Allrhe fund will be committed bythe end of the pilot phase in mid-1994.The Facility will be modified both in thelight of experience and of the final rec­ommendations of the United NationsConference on Environment and Devel­opmentinJune 1992 inRiodeJaneiro. Itis already becoming clear that some fun­damental changes will be es entiaI inthree major areas:

Mandate-This will need to be en­larged to recognize more fully the linksbetween national, regional and globalproblems, and to include such concerna de ertificanon, acid rain, urban degra­dation, water scarcity, land-based pollu­tion and capacity building.

Funding-Some $5 to $10 billion ayear would be needed for the enlargedmandate. Thi could come both fromvolumary contributions and new formsof international taxation- uch as theproposed "carbon tax".

Governments participating-TheFacility' management and policy-mak­ing structure should be broadened to

provide for more participation from de­veloping countries.

83

BOX53

International taxation for sustainable development

the institutions to cope with the demands ofsound environmental practice. Building thisnational capacity will be just a important asfinding the resources for new technology(see box 1.4 in chapter 1). One way ofdoingthis could be to create "Sustainable Devel­opment Networks" for the exchange of in­formation on sustainable developmentwithin and among developing countries.Such networks would be supported by in­dustrial countrie .

TRANSfERRING ENVIRONMENTALLY OUND

TE HNOLOGY-Changes to industrial, agri-

,everal proposal have been made inrecent years for YSlems of internationalellvironmentahaxation. Such taxe couldpenalize coulltrie degrading the envi­ronment-and give dleD1 an in entive toimprove their management of naturalre ource and cut down on pollution.The taxes could also rai e funds for envi­ronmental protection and development.

The propo als for international taxa­lion include:

Aglobalincometax- ayO.l%oftheG P of every country, to be pent onenvironmental programmes.

Fossil fuel consumption taxes-a taxon oil of one dollar per barrel (aboUl5%)would yield about 24 billion a year.Taxing coal con umption as well wouldraise the revenue to about $40 billion.111is rate is not likely to reduce energyconsumption velY ·ignificantly. If such alax were u ed to encourage greater en­ergy efficiency, rather than to mobilizerevenues, the rate would be much higher.It has been estimated, for example, thatthe tax rate needed to reduce carbonemi ions by half by the year 2000 wouldhave to be about 80%.

Some countries (sucb as Finland,the etherland and Sweden) alreadyhave environmental taxes on fossil-fuelcon umption al the national level. andthe European Community is consideringthe introduction ofa carbon tax in stages,tarring in ]993.

Pollution taxes-on carbon dioxideor other pollutant. Since these wouldhave to be impo ed on outputs ratherman inputs, they would be more difficullto monitor and administer.

Greenhousegaspermits-these could

grant permission to emit a certain quan­tityofgreenhou e gases. An internationalauthority could issue the permits to eachCOUDtry, based preferably on populationize. The permits could eidler be free, or

leased for a certain period, to generaterevenue for environmental project .Theyhould be internationally tradable, orlea ­

able. 0 coumrie that do nor need alltheir quota (usually developing) couldgain revenue. Countrie that generatemore pollution a a result of high con­sumption and inefficiencies, or that donot control their population growth rate,would end up paying more. "Ecologicalpace" would mus gel priced for all na­

tion rather than remain free for plunderby a few.

G/obal commons taxes-the e couldreflect each country's usage of the globalcommons: the oceans (for 6 bing, trans­portation or seabed mining); the Antarc­tic (for mining); or space (for communi­cations atellites).

Taxes on intemalional trode-thesefall on environmentally ensitive prod­ucts, such as tropical hardwood.

Taxes on weapons-on defence ex­penditure or on ann trading.

Taxes un consumer items-such asenergy-inefficient car or hou eholdequipment.

Developing countries would need tobe as'ured, however, that after the distri­bution of revenues they would be netbeneficiarie . It ha al 0 been suggestedthat the least developed countrie betotally exempt from any internationaltaxation, while they should receive ig­nificam benefits from the revenues.

cultural, and other productive proces es to

make them more environmentally soundwill certainly promote more efficient andustainable human development. But such

technologies can be expensive to introduce.Developing countries would have to in­

crease investment to achieve this- i.n ornecases by up to 10%. Where is the money tocome from?

Since the whole world benefits from theintroductionofenvironmentally sound tech­nologies in each country, there is a strongcase for industrial countries to foot the bill.They could, for example, establish a pecialgrant fund to ubsidize the transfer of suchtechnologies from industrial and other de­veloping countries.

PAYING FOR POLLUTION-Ecological re­sources-such as the atmo phere the riversand the seas-have so far generally beenconsidered "free". Polluters have plunderedthese resources without being charged forthe damage to human welfare. One interest­ing uggestion for tackling this problem i toi ue "greenhouse gas permits" to all na­tions on the basis of their populations (box5.3 ).

lNTERJ\JATIO AL ENVIRO MENTAL TAXA­

no -Another proposal is a global tax onthe use of natural resources both to defendthe global commons and to raise funds forenvironmental projects. The imple t, andperhaps mo t acceptable, form would be aone dollar per barrel tax on oil collected atthe source. This would increase consumerprices by less than 5% but raise around $24billion a year. Of this, more than 73% wouldcome from the industrial countries, with therest from Asia (11%), Latin America (8%),the Middle East (5%), and Africa (3%). Anequivalent tax should al 0 be levied on otherfossil fuels particularly coal, which will yieldadditional revenues of about $16 billion ayear (box 5.3 ). The levy could be increa edover time, depending on the requirementsofenvironmental programmes and the needto encourage global energy efficiency as wellas a shift towards non-fos .il fuels.

New structures ofpeace and security

The end of the cold war has opened thepossibility for new structures of peace and

84

1987 199019841980

Sub-Saharan Africa

China Latin America

~........

Industrial

1980 1984 1987 1990

O........,----,---,------,r-'

20

40

1970

Japan

-----NATOEurope

1980 1984 1987 1990

1960

o

100

200

FIGURE 5 1

Global military spending,1960-90

$US billions900 .

300

300 .....

80

O--J..,...-------.,-...~-.....""""'......_....,F---.,..........""""'T-.....+-

Regional comparison of trends in military spending$US billions

Industrial Developingr-------=---------,

to invest more in the health and educationof their people.

Some developing countries can expect abigger peace dividend than other . Militarypending in Latin America and the Carib­

bean, for example, ha not been 0 exces­sive-1.5%ofGNP-andhasbeenle thanone-third of social expenditures. But othercountrie are still spending two or tl1J:ee timeas much on thei.r militalY a on health oreducation (table 5.3). The number of sol­diers inmany countries far exceeds the num-

8.312.118.117.113.613.9

Developingcountriesas % ofworld

Indus­Developing trialcountries countries World

Annual growth rates (%)1960-70 7.9 3.5 4.01970-80 6.2 1.3 2.01980-90 -1.1 2.1 1.61980-84 3.1 5.0 4.61984-87 -5.2 3.8 2.31987-90 -2.3 -3.1 -3.0

Military expenditures (US$ billions)1960 35 385 4201970 75 545 6201980 137 618 7551984 155 750 9051987 132 838 9701990 123 762 885

TABLE 5.1Trends in global military spending

security-based not ju t on reduced mili­tary expenruture but on building economica.nd ecological secU11ty for the whole ofhumanity.

Global military spending is already fall­ing (table 5.1 and figure 5.1). Industrialcountries reduced their total military pend­ing from a peak of $838 billion in 1987 to$762 billion in 1990. Developing countrieshave achieved a similar reduction-from apeak of $155 billion in 1984 to $123 billionin 1990. After decades of military build-up,a refreshing new trend has emerged.

This mean a large immeruate peacedividend-$158 billion for the industrialcountries and $119 billion for the develop­ing countries (table 5.2 and figure 5.2).Indeed, considering what might have beenpent in 1990 if the previous increasing

trend had continued, the possible dividendis even larger-around $200 billion for theindustrial countries and $125 billion for thedeveloping countries. Unfortunately, theonly regions where military pending hasnot yet started to decline al 0 happen to bethe poorest-South Asia and Sub-SaharanAfrica.

The peace dividend opens a window ofopportunity for both rich and poor nations.For the rich nations, it is a chance to directmore resources to their lengthening socialagenda-drug addiction urban violence,pollution, homeles ne s and strained socialservices-and to assisting poorer counu·ies.For the developing countries, it is a chance

85

Total peace dividend by year 2000$1.5 trillion

ber of teachers. So, there i till some way togo in reorganizing prioritie. (table 5.4).

The chiefresponsibi.lity for uch changeslies with the goverrunent of developingcountries. But the international communitycan al 0 do much to accelerate the proce .

Am CONDITIONALITY-Many aid donorsare beginning to take the military pendinglevel of recipients into account when allo­cating aid-a welcome adju tment to thenew realities. But they should also recognizethat the recipients do have legitimate secu­rity needs and that changes take time-andwill require considerable adju tment to acountry's economic and ocial policy. Morecan be achieved by persua ion than coer­cion, by a vigorous policy dialogue than byformal conditionality.

REDUCING MllJTARY A 5L TANCE-Muchof the arms build-up \Va due to proxy cold­war conflict fought on developing counu)'soil-and su tai.ned by mas ive milital)' aid.The big powers should now accept the re­spon ibility of eliminating or greatly reduc­ing militaL)' a istance, military bases andthe shipment ofsophisticated militaJ)'equip­ment. Bilateral donors should agree to con­vert existing military assistance into devel-

1990

opment assistance-over a pecific aythree-year timetable.

REDUCING ARM PRODUCTION-Thehrinking defence requirements of indu ­

trial countrie are causing arms supplier tolook more to markets in developing coun­tries. Oddly some indu trial country gov­ernments are even considering assistingmanufacturer with expOlt subsidies whilesimultaneously demanding that developingcountries reduce import. More helpfulwould be sub idie to help arm producerswitch to more peacefully oriented produc­tion.

CONTROLLING ARM SALE -Private armstrader should be discouraged from ship­ping equipment, and suppliers hould notbe able to offer buyer credit on easy term .

ational legislation to control expOlt ofarms and related materiel hould be strength­ened. Governments that export and inlportarm hould provide aU required data to theUN (RegisterofConventionalArms" agreedin the UN General As embly and e tab­lished with effect from 1 January 1992. Toenhance tran parency and openne s, gov­ernments should rapidly implement the en­visioned second stage of the Register andsupply data and background information ontheir military holdings and procurementthrough national production. The proposedU Register to record and monitor the £lowof arms would help here by making uchdealing more u'ansparent-and should beimplemented as oon as possible.

ALLIANCE. FOR PEA 'E-The big powersshould help foster new alliances to reducetension at the world' trouble pot. Re­gional structures for peace and securityhould be ba ed on a greater under tanding

and cooperation between the countries con­cerned-supplemented by protection froma strengthened UN. The defu ing of con­£licts in Central America by tlle meetings ofthe five Central American presidents offersa pertinent model.

A STRE GTIfENED UN POLITICAL UM­BRELLA-The new world order should bebased on greater justice and a more equalsharing of power among nations. The UNhas already begun to a sume a greater role inpolitical and security matter, with the tacitapproval of the big powers. This role now

2000

..

Peace dividend1990-2000$1.2 trillion

.....

Global military spending if1984/87-1990 reductioncontinues

Peace dividendby 1990$277 billion

/iAetual1990military spending

1987

Trend in militaryspending, 1980-84/87

FIGURE 52Peace dividend,1990-2000

All militarya i -tance shouldbe c01wcrtedto deve!o/Jmel1tas ista1'lce

86

needs to be strengthened so that bilateraldeals based on the exercise of raw politicalpower can be replaced by multilateral dis­cussions under the UN umbrella. To per­form such a role, the UN would need to bereformed in several respects. It wouJd needa larger and more assured source of financ­ing as well as a more streamlined structurefor decision-making (box 5.4).

International civil society

Many actors, not just governments and in­ternational agencies, make up the dynamicand complex web of global governance.Individuals, families, community groups,non-governmental organizations, interna­tional foundations trade unions, multina­tional corporations, the communicationsmedia-these and many others help deter­mine the hape our civil societies take.

Governments can often be intolerant ofsuch groups since they can represent alter­native focuses of power and influence. Butsuch intolerance :s short-sighted-and inthe long run aLnost always doomed to fail­ure. Governments genuinely interested in

TABLE 5.2Peace dividend: actual and potential(US$ billions, 1988$)

human development will allow them thespace to contribute both their ideas andtheir energies.

Non-governmentalorganizationsingen­eral can be ofgreat assistance in developingcOlmtries. But they often work under greatduress, in opposition to powerful vestedinterests, both official and unofficial. Agen­cies that deal with human rights are particu­larly exposed. That is why governments needto ensure that NGOs can work within asupportivelegalframework that affords themthe necessary rights, financial and legal.

One sensitive issue that NGOs havenot yet tackled systematically is corrup­tion-a persistent cancer on civil ocietythe world over. By analogy with the humanrights organization, Amnesty International,there seems to be a need for a new "Hon­esty International' to monitor corruptionat both national and international levels(box 5.5).

Towards a new global compact

The world has a fresh opportunity to createa new global order-an order based on

TABLE 5.3Military-socialspending imbalance inthe Third World(1987-89)

Highest military/socialspending ratios (%)Iraq 511Somalia 500Nicaragua 318Oman 268Ethiopia 239Pakistan 239Syria 204Saudi Arabia 177United Arab Emirates 174Bolivia 144

Lowest military/socialspending ratios (%)A~~a 18Botswana 16C6ted'ivoire 14Ghana 13Sierra Leone 11Fiji 9Jamaica 9Mexico 8Mauritius 5Costa Rica 4

Industrial countriesTotal 838 762 158 579 1,078 1,236

USA 301 268 66 182 473 539USSR 299 258 82 158 550 632East Europe excl. former USSR 24 19 10 9 55 65NATO Europe and others 187 187 187Japan 27 30 43

Militaryspendingin 1987

Middle East 76China 20East and South-East Asia excl. China 17South Asia 18Sub-Saharan Africa 7Latin America and the Caribbean 17

Developing countriesTotal

In 1984

155

Peacedividend

Military by 1990spending (CUmulativein 1990 1987-90)

CumulativeIn 1980 1984-90

123 119

44 112201918

715 7

Militaryspendingin 2000

(if 1987-90annualrate ofchange

continues)

If 1984-90annualrate ofchange

continues

98

18202318

712

Potentialpeace

dividendby 2000

(cumulative1991 to2000)

Cumulative1991 to

2000

160

143

17

Totalpotential

peacedividend

Total

279

255

24

TABLE 54Soldier-teacher ratiosin the Third World(1987-89)

HighestsoldieRteacherratios ("10)Iraq 625Somalia 591Ethiopia 416Nicaragua 350Syria 302Mauritania 300Viet Nam 291Singapore 280United Arab Emirates 269Cyprus 260

Lowest soJdieRteacherratios (%)Zaire 17Mexico 17Trinidad 15Sri Lanka 15Indonesia 15C6te d'ivoire 14Jamaica 10Ghana 9Kenya 8Costa Rica 0

II [) )J I 87

Reforming the United Nations

Many people doubt that the United Na­tions can cope with the demands of anincreasingly interdependentworld. Somehave gone so far a to demand a "thirdgeneration" world organization-as asuccessor to the League of Nations andthe United Nations. But most see thesoLution Lying in refonn of the UnitedNations system.

Many reform proposals suggest howthe UN might deal more effectively witheconomic issues-to build a more secureglobal economic system and to promotedevelopment for the world's poorestpeople. Similarproposals have come fromdifferen.t directions, including:

The UN Joint Inspection Unit-aninternal review body ofthe UN system­in a report prepared byMaurice Bertrandin 1985 called (or a limited-member hip"Economic Security Council".

The World Institute /or DevelopmentEconomicsResearch-partof the UN Uni­versity-made a similar proposal in 1989for the establishment of a "World Eco­nomic Council". Thiswas envisaged bothas a vehicle for changes in the worldeconomic system and eventually a amechanism for overseeing a set of re­formed global institutions.

The Stockholm Initiative on GlobalSecurity and Governance-a group of

A world summit011 humandevelopmentshould beconvened

BOX 54

mutual respect among nations, on greaterequality of opportunity for their people andon new structures of peace and security. Itwould be tragic if the conflict between Eastand West were replaced by one betweenNorth and South. Instead, there must be agreater mutual understanding and coopera­tion between industrial and developing coun­tries. This could also lay the foundation forgreater peace and development security inthe South.

The dustbin of history is full of grandglobal designs that were never imple­mented-a sobering reflection before mak­ing yet another attempt. But the failures ofthe past should be a source of inspiration,not of political paralysis. Past proposals of­ten came to nothing for several reasons.Many were unilateral-based on conces­sions by the North to the South, ratherthanon mutual interest. O&en they were overly

world political leaders- uggested in1991 that issues of economic and eco­logical secUlity should be handled eitherby a reformed UN SecurityCouncilor bya new organization.

The Nordic UN Project-a three­year study by the Nordic countries­proposed in its fmal report in 1991 thecreation of a high-level "InternationalDevelopmentCouncil" to direct the UN'sdevelopment operations.

The Group of 15-comprising thelarge t developing countries-empha­sized at its summit meeting in Caracas in1991 the need for practical ways of plac­ing economic development and interna­tional cooperation at the top ofthe globalagenda.

Another ba ic issue i how interna­tional funding can match internationalneeds. The Nordic UN project has al 0

submitted a proposal on this point. Itstresses that the objective must be pre­dictability, stability and fair burden-shar­ing among nations. A combination offunding mechanisms-assessed contri­butions, negotiated pledges and volun­tary contributions-is suggested. But forincreased funding to lead to a greaterdevelopment impact, the organizationalso needs more effective decision-mak­ing and management structures.

ambitious-demanding from industrialcountries substantial and politically un­popular increases in foreign assistance,rather than offeringwell-considered reformsin globalmarkets from which everyone couldgain. Many were narrowly focused-on ei­ther an economic or political issue. Andsome proposals were just made at inappro­priate moments-when the time for changewas not ripe.

With the cold war over, militaty spend­ing on the decline, economic and politicalfreedom expancling, and a growing publicawareness of environmental issues, theworld now has a unique opportunity tomake a substantial break with the past. Thetime has come for a new global compact onhuman development-an agreement to putpeople first in national policies and in inter­national development cooperation.

But a realistic global compact must bevery clearly defined-in the objectives itplans to fulfil, in the resources it needs, inthe strategy for its implementation and intheinstitutionalframeworkrequired to sup­port it. And it would have to involve give andtake on aU sides.

Such a compact would also have to beprepared through a process of worldwideconsultations. A world summit on humandevelopment should be convened to enlistthe support of the world's political leadersfor the objectives of the compact and theircommitment to the resource requirementsit will entail.

Objectives

While the overall objective of the new globalcompact would be to improve levels of hu­man development worldwide, developingand indu trial countries may want to makethis objective more concrete.

DEVELOPING COUNTRIES might want tosee the compact help them achieve at leastthe following:• Essentialhumangoafs-to be attained bythe year 2000. These should include univer­sal basic education for men and women,primary health care and safe water for aU,the elimination of serious malnutrition andat least 80% access to family planning.• Employment-to create sufficient job

88 ILL '1I L< ) I r

Honesty International

achieve a great deal. This suggests thatJUSt as Amnesty International publicizesabuses of human rights, there is an op­portunity for combating corruptionthrough an analogous "Honesty Interna­tional".

Such a non-governmental interna­tional organizationwould be funded fromprivate contributions. It would have itsown speciali t investigators and agents,but it could also glean information fromthird parties, such as the media and banks,a well as from the general public."Whistle-blowers" within organizationsmight indicate, for example, when peoplewere livingbeyond theirgovernment sala­ries or when corrupt leaders were trans­ferring funds abroad. Honesty Interna­tional would investigate all uch allega­tions and publish the results.

This would have two main benefits.The real prospect of discovery-andshameful exposure-would deter manyofficial and multinational staff whomight otherwise be tempted. But theinformation gained would also give thecountry's legal system the evidence nec­essary to pmsue its own investigation andto enforce the law.

opportunities to absorb the new addjtionsto the labour force and reduce absolutepoverty by 50%.• GD?growth rate-to be accelerated sig­nificantly to implement the foregoing objec­tives.

INDUSTRIAL OUNTRIES m.ight want thecompact also to cover some of the sharedglobal objectives that are of immeruate pri­orit)' concern to tl1em:

Drug trafficking and pollution-to betackled by close cooperation among all coun­trie in the world.• Immigration pressures-to be relievedthrough creating more job opportunitieswithin poor nations.• Nuclear threats-to be elimillated as in­ternational tensions are defused and coun­tries willingly accept reductions of nuclearweapons, including non-proliferation poli­Cies.

Certainly developing and indu trialcountlies would jointly agree that the fore­going goals can be successfully pur ued onlywith firm policy commitments to ilie follow­mg:

Global peace and disarmament-besidesstrengtl1enillg global and regional peace ar­rangements, military spending to be reducedprogressively in both industrial and dev l­oping countries.• Development security-to prevent theaccumulation of unmanageable debt bur­dens, whether environmental, financial orsocial.

Resource needs

The global human development compactwill have costs. And these will not only befinancial. First and foremost, the compactcalls for a firm policy commitment to the setobjectives. Only if policy-makers are com­mitted to the ends will iliey agree on themeaNS.

But to reach agreement on the financialresource requirements of the compact, it isimportant that its objectives are, as far aspossible, fully costed and that there is a clearidentification of the funding sources to betapped. These could include:

Thc pcacc dividcnd-All countr.ies, in­dustrial and developing, should coma1;it

iliemselves to reducing military expenru­ture dUlmg the 1990s by at least 3% a year.This would yield by the year 2000 a totalpeace dividend of around $1.5 trillion­$1.2 trillion in the industrial countries and$279 billion in the developing countries.• A reformed ODA .rystem-The worldneeds a new ODA system that is progre. ­sive, predictable and equitable. Since it willtake time to develop such a comprehensivereform, the major focus should be on im­proving ilie quality ofcurrent ODA. At leasttwo-thirds of ODA should be cl1annelled tothe poorest nations (compared with thepresent one-quarter) and at least 20% shouldgo to human priority expenruture (com­pared with the present 7%).• A global debt ba1'gain-A new bargainmust be struck wiili the severely indebtednations to halt the current debt-related nettransfer of $50 billion a year from the devel­oping to the industrial countries. Tills willinvolve a major write-down of debts byofficial donors and commercial banks as

Everycountrydeclares corruption illegal,and orne have set up anticorruptionagencies. Hong Kong, for example, hasan Independent Commission AgainstCorruption. Others have set up "vigi_lance committees" to control corruption.But there are relatively few such organi­zation ,and none operates at an interna·tionallevel.

There are always two sides in corrup­tion: those who take bribes and thosewho offer them. Both sides should beheld accountable: the corrupt leadersand officials in developing countries­and the multinationals that offer bribesto win valuable contracts.

Much of the corrupt money flies outof developing countries to be parkedcomfortably.in the banks ofthe industrialcountries. The discovery of such em­bezzled funds should not await the fall ofa corrupt dictator. There should be aninternational system to monitor for thearrival of dubious money.

The first weapon against corruptionis transparency of information and pub­licity. Corruption can flourish only insecrecy. Infonnation, carefullyresearchedand widely publicized, could therefore

A comprehensiveglobal developmentcompact shouldbe p1'epm-ed andfully costed

BOX 5.5

89

Human destinyis a choice,not a chance

well as by multilateral institutions.• Sustainable development funding-Col­lective responsibility will eventually lead tonew forms of international financing. Abeginning might be made with the protec­tion of the global commons. Various prom­ising ideas could be considered. A con­sumption tax of a dollar per barrel of oil,collected at source, would yield around $24billion a year (73% from industrial nations).An equivalent tax on coal would yield $16billion a year. Rationing certificates for car­bon dioxide emissions can lead to an au­tomatic transfer of resources from energy­consuming rich nations to poor nations.These could provide added financial back­ing for international cooperation in sup­port of sustainable human developmentworldwide.• Open global markets-Global marketsshould be liberalized both in goods andservices, to accelerate global growth and toensure much better distribution of thisgrowth. In particular, the existing restric­tions on the export of textiles, clothing andagricultural, tropical and resource-based pro­ducts should be eliminated. This shouldenable developingcolU1tries to increase theirexports by $40 billion a year and thus gainnew employment and income earning op­portunities for their people.

Stratef!J1

To ensure that the resource mobilizationmeasures are linked to the attainment of theagreed-on objective of the compact, it willbe necessary to base the design of the com­pact and its implementation on carefullycrafted strategies. These are needed not justinternationally but within region and coun­tries. Although the strategies will naturallydiffer from one country and one region to

another, there are Likely to be commonelements.

DEVELOPiNG COUNTRIES should adoptimproved policies of national governance tomake them fully responsive to the needs oftheir people. This might include more opengovernment, based on respect for humanrights and on wide participation, both inpolitical life and in development planning.Public administration should run witll greatertransparency and accountability. And pub­lic policy should provide a framework com­bining private initiative, energetic entrepre­neurship and the efficient functioning ofnational and international market witll well­defined policies and targets for human de­velopment.

INDUSTRlAL COUNTRJES will have to ell­sure that their peace dividend is carefullymanaged. The resources released will beneeded for structural adjustment pro­grammes if iJldustrial countries are to liber­alize their markets in goods, capital, tech­nology and labour-as weU as to financehigher levels ofhuman development athomeand abroad.

ALL COUNTRIE will need to come to­getherin joint action programmes to combatsome of the most serious global problem ­including poverty, hunger, illiteracy, drugtrafficking and abuse, nuclear proliferation,international terrorism, illegal migration, thedepletion of non-renewable resources andthe spread ofpollution. The e must be basedon a recognition that the world cannot bemade safe without the full collaboration ofall-rich and poor, North and SOUtll. Onlytl1fough cooperation can the world achievesustainable human development.

Needed today are a clear vision of hu­man goals over the next decade and a con­crete plan of action for their implementa­tion. Human destiny is achoice, not achance.

90

Technical notes

1. The human development index

4,829 + 2(4,829)'

I I l

W(y)= y' +2(y')' +3(y-2y')l +4(y-3y')'

-'.+ 3(4,829)'

-'.+ 4(15,108 -14,487)'

4,829 + 139 + 51 + 20 = $5,039

380

74.0

2.04

78.6

42.0

3.00

0.00

5,079

Singapore life expectancy

Singapore educational attainment

In calculat.ing the 001 of Singapore using the im·

proved variables and applying the metlmds described

here, the following steps are taken:

Maxinlum country life expectancy

Minin1um country life expectancy

Maxin1um country educational attainment

Minimum country educational attainment

Maximum country adjusted real

GDP per capita

Minimum country adju ted real

GDP per capita

W(y)=y forO<y~y'

I I

=y' +2(y-y')' +3(y-2y')l fory' ~y~2y'I ,

= y' +2(y')' + 3(y _2y')l for 2y' ~ Y~ 3y

So, the higher the income relative to the poverty

level, the more sharply the dinllnishing returns affect the

contribution of income to human development. Income

above the poverty line thus has a marginal effect, but not

a full dollar· for·dollar effect. Thi marginal effect is

enough, however, to di.fferentiate significantly among

industrial countries. This method does not. take E = 1,

but allows it to vary between 0 and 1.

For example, Singapore has a real GDP per capita of

$15,108. With the poverty line set at $4,829, there are

four terms in the equation to determine the well·being of

Singapore:

equal to O. There are no din1.inishlng returns here. For

income between y* and 2y", E is set equal to 1/2. For

income between 2y* and 3y*, E is set at 2/3. In general,

if ay* ~ y ~ (a+ 1) y*, then E = a / (a+ 1). TIus gives:

The value of Eries slowly in the 001 as income

rises. For this purpose, the full range of income is divided

into multiples of the poverty liney *. TIlLIS, most countries

are between 0 and y', some between y* and 2y *, even

fewer between 2y" and 3y * and so on. For all countries

for which y < y*-that is, the poor countries- E is set

Construction ofthe human development index (HDI)

The HDI has opened new perspectives on measuring and

analysing developmem. But there can be no doubt that

the work in this area is still at its beginning. Much more

research is needed-as is more experience with using the

HDI for various practical purposes of assessing, planning

or programming development. UNDP would welcome

any contributions to this topic, to be taken up in next

year's Human Development Report, from interested devel·

opment research scholars and practitioners.

The HDI includes three key components: longevity,

knowledge and income, which are combined in a t.hree·

step process to arrive at an average deprivation index (for

a full t.echnical description, see Human Development Re·port 199t t.echnical not.e 1, pp. 88·89). Longevity is

measured by life expectancy at birth as the sole unad·

justed indicator. Knowledge is measured by two educa­

t.ional tock variables: adult literacy and mean years of

schooling. The measure of educational achievement is

adjusted by assigning a weightof two· thirds to literacy and

one· third to mean years of schooling:

Wry) = log y

W(y) = _1_ xy'-'1-E

Here, Wry) is the utility or well·being derived from

income, and the parameter measures the extent ofdimin­

ishing returns. It is tlle elasticity of the marginal utility of

income with respect t.o income. If E =0 tllere are no

din1inishing returns. As E approacl1es 1, the equation

becomes:

E = a, UTERACY + a, YEARS OF SCHOOLING2 1

a =-and a, =-I 3 . 3

For income, the HDI is based on the premise of

diminishing returns from income for human development

usingan explicit formulation for the diminishing return. Awell·known and frequently used form i the At.kin on

formulation for the utility of income:

91

Singapore adjusted GDP per capita 5.039

ingapore Jjfe expectancy deprivation

= (786 - 74.0)/(78.6 - 42.0) = 0.126

ingapore educational allainmem deprivation

= 0.00 - 2.04)/0.00 - 0.00) = 0.320

ingapore GDP deprivation

= (5,079 - 5,039)/5.079 - 3 0) = 0.009

ingapore lIvemge deprivation

= (0.126 + 0.320 + 0.009)/3 = 0.152

ingapore human development index HDI= 1 - 0.152 = 0.848

Making the HDI gender-sensitiveOf the many inequalities in human development. the

most striking is that along gender lines. Women typically

live lon"er than men once they have gone beyond the age

when differemialtrealll1ent of boys and girls makes li(e

sholter (or girls. They work harder and more h, urs than

men, but they orten do work that is unpaid or underpaid.

Women cook, take care of children, the elderly and the

sick, look after the upkeep o( the house and work on the

(arm or in the shop. Only a small proportion of women

find that their work gets paid and recorded a participa­

tion in the lahour force. Labour force participmion as a

concept and in its measurement grossly understates

TECHNICAL NOTE TABLE 1.1

Gender-sensitive HOI

women's work even in the productive, commodity-pro·

ducing sphere. It completely leaves out much work that is

usefulLO the cominuing existence o( Lhe household.

Any attempt to measure gender inequalities is thus

bound to err on the low ·ide. Even allowing for that, the

inequalities are triking. An allempt i. made here to

calculate the ratio o[ female income to male income. We

do not have suitable data on income, but for 33 countries

we do hll\le comparable Jata on the relative wage ratios

and the relative ratios (or labour force participation.

111ese data I'eveal a remllrkahle pattern o( discrimi­

nation. The remale-male wage ratio for these 33 countries

ranges from a low of 50% (Japan) to a high of 89%

( weden).

In labour force panicipation.the lowest female-male

ratio is 40% (Costa Rica) and the highest i 92% (Swe­

den). Multiplying these two ratios gives the [emale-male

wage· income ratio.

111is wage-income ratio combines two identifiable

correlates of gender discrimination. 11,e male wage is

greater than the female wage, and the gap in labour force

participarion rates i even wider. When this is translated

into absolute income levels, we see the profound conse­

quences. To do rhis. a basic assumption has to be made

that is clearly gender-biased: that the ratio of non-wage

income to wage income is the same ("I' men and women.

92

Percentagedifference

Female as % of male betweenHOI and

Adjusted Human Gender- gender-life Educational real development Female Male senSitive sensitive

expectaney' attainment GOP index HOI HOI HOI HOI

Sweden 101.13 100.11 81.90 96.16 0.825 0.857 0.938 -3.8Norway 102.14 100.48 69.54 93.48 0.814 0.870 0.914 -6.5Finland 103.80 99.63 68.33 94.47 0.781 0.826 0.900 -5.5France 104.16 100.48 60.97 92.72 0.798 0.860 0.899 -7.3Denmark 101.21 99.93 70.56 92.20 0.775 0.841 0.879 -7.8

Australia 102.26 99.28 62.33 90.48 0790 0.873 0.879 -9.5New Zealand 101.53 101.96 61.69 89.95 0.756 0.841 0.851 -10.0Canada 102,48 98.21 50.05 85.73 0.781 0.911 0.842 -14.3USA 102.97 100.72 48.73 86.26 0.771 0.893 0.842 -13.7Netherlands 102.12 101.82 49.73 86.26 0.769 0.891 0.835 -13.7

8elgium 102.25 100.35 52,47 86.57 0.744 0.860 0.822 -13.4Austria 103.14 96.07 53.57 86.47 0.740 0.856 0.822 -13.5United J(jngdom 101.02 100.54 51.55 85.09 0.752 0.884 0.819 ·14.9Czechoslovakia 10383 97.52 61.35 90.25 0692 0766 0810 -98Germany 102.06 96.36 48.37 83.32 0.736 0,883 0.796 -16.7

Switzerland 102.07 97.41 40.65 80.92 0.752 0.929 0.790 -19.1Italy 102.22 100.64 47.31 83.82 0.702 0.838 0.772 -16.2Japan 100.81 99.66 33.88 77.56 0.743 0.958 0.761 -22.4Portugal 102.69 86.02 57.67 83.36 0.617 0.741 0.708 -16.6Luxembourg 102.46 100.21 29.16 74.88 0.661 0.883 0.695 -25.1

Ireland 100.86 102.48 30.43 7489 0.658 0.878 0.689 -25.1Greece 102.68 89.14 38.18 76.10 0.632 0.831 0.686 -23.9Cyprus 100.06 88.62 35.51 72.32 0.639 0.883 0.659 -27.7Hong Kong 100.58 75.47 39.79 71.10 0.635 0.893 0.649 -28.9Singapore 101.09 80.50 39.54 70.87 0.557 0.785 0.601 -29.1

Costa Rica 99.76 104,4 26.31 70.61 0,583 0.826 0.595 -29.4Korea, Rep. of 102.42 80.84 27.46 65.53 0.548 0.836 0.571 -34.5Paraguay 100.04 96.49 67-43 88.82 0.457 0.515 0.566 -11.2Sri Lanka 9963 83.70 46.49 79.59 0.478 0.601 0.518 -20-4Philippines 99.52 98.64 35.41 78.67 0.396 0.503 0.472 -21.3

Swaziland 100.68 96.27 43.23 68.74 0.193 0.280 0.315 -31.3Myanmar 99.31 7378 57.67 74,07 0,210 0.283 0285 -25.9Kenya 10024 52.78 54.00 5860 0.147 0.251 0.215 -41.4

a Adjusted 101' natural biologICal 1,1. expectancy advantage for females

This ratio therefore under tates the inequality.

In adjusted real GDP per capita, female incomes as

a percentage of male incomes range from a low of 26%

(Co ta Rical to a high of 82% ( weden). But of the 33

countries for which we have comparable data, only nine

have a ratio of 60% or above, while 10 are below 40%. 0,

even in a statistic that understates the inequality, the

differences are stark.

The female lIDlgains from the near-equal or better

ratio in liIe expectancy but loses somewhat from unequal

access to education, particularly in the developing coun­

tries. In education, the developed countrie how very

~ttle gender difference: though the value for female

achievement, as a proportion of male, never goe

above I02%, in five countries it goes below 98%. In poorer

countries the differences become substantial. Women's

educational attainment in Kenya shows a low tatioof53%.

In Myanmar it is 74%, and in Hong Kong 75%. Costa Rica

shows a figure of well over 100%.

The overaLl lIDl for .men and women calculated

separately reflects thi pattern. Much of the data, 22 ofthe

33 countries, relate to the industrial countries. So, techni·

cal note table 1.1 does not capture the full extent of

gender inequality. Even then, the female lIDl as a per­

centage of the male HDl is a Iowa 59% in Kenya, 66%

in the Repub~cofKoreaand 69% in SwaziLlnd. Of the 33

countne , LO have ratios below 75%, and only five coun­

tries- weden,Finland, Norway, France and Denmark­

have ratio of over 90% No COUntry attains full gender

equality even in thi biased measure, though Sweden

comes close with a rario of 96%.

How should thi inequaliry be reflected in the overall

lIDlfor any country? A imple approach is to multiply the

overall lIDl for any country by the ratio offemale·to-male

lIDl. Ifa country has full equa~ry, its lIDl is unaffected.

Although Japan has the second highest overall HDI

(0.98L I, it low female-to-male ratio brings it down to

being 18th of the 33 countries with a gender-adjusted

HDI of 0.761. Sweden by contrast, has a very high

female-to-male ratio and moves from fifth to rtf t position

withagender-adju ted HDl of 0.938. WhereasJapanhas

a lugh overall EDl with a high degree of gender inequal­

ity, Sweden has a high overall HDl with a low degree of

gender inequality. Among the 11 developing countries,

there is usually both a low lIDl and a high degree of

gender il1equa~ty.

Adjusting the lID! for income distribution

The HDI is a national average, just like real income per

capita, one of its components. The use ofany such overall

average hides the con iderable difference in the distribu­

tion of the basic indicators, whether by gender, race,

region, etbniciry or simply among individuals. The lIDl

therefore needs to be made sensitive ro these distribu­

tions.

The lIDI has the advantage that fWO of it three basic

variable -life expectancy and educational attainment­

are naturaLly di tnbuted much less unequally than is

income, the third variable. Thus, life expectancy in any

pOI ulation is not likely to be distributed more unequally

than, say. three to one. A rich petson cannot ~ve a

thousand times longer than a poor person, though their

incomes may be in that nltio. Across countries, the range

of liIe expectancy is 42 to 79, less lhan 2: 1.

The same is true in educational attainment. The

range of the percentage of adults who are literate varies

from 18% to 99%, a range of under 6:1. Mean years of

schooling show a variation from 0.1 to 12.3, more unequal

than life expeCtancy, and hide even greater variations in

the within-country distribution.

Apart from per capita income, all the variables used

in the HDI have an obvious maximum. Life expectancy

TECHNICAL NOTE TABLE 12Income-distribution-adjusted HOI

Percentagedifference

Income- betweendistributlon- HOI and

adjusted income-HOI HDI distribution-

value value adjusted HDI

Japan 0.981 0.979 -0.26Netherlands 0.968 0.964 -0.34Sweden 0976 0.957 -1.97Switzerland 0.977 0.957 -2.09Norway 0.978 0.956 -2.37

Canada 0.982 0.947 -3.68Belgium 0.950 0.944 -0.67USA 0.976 0.943 -3.44United Kingdom 0962 0.943 -2_03France 0.969 0.936 -3.53

Australia 0.971 0.933 -4.04Finland 0.953 0.931 -2.32Denmark 0.953 0.923 -3.23Israel 0.939 0.913 -2.93New Zealand 0.947 0.909 -4.11

Ireland 0.921 0.904 -1.88Spain 0.916 0.894 -2.49Italy 0.922 0.890 -3.51Korea, Rep. of 0.871 0.884 1.44Hungary 0.893 0878 -1.68

Hong Kong 0.913 0.871 -4.82Singapore 0.848 0835 -1.57Yugoslavia 0.857 0.833 -2.90Costa Rica 0.842 0,820 -2.75Chile 0.863 0.817 -5.59

Portugal 0.850 0.799 -6.30Argentina 0.833 0.792 -5.20Venezuela 0.824 0.771 -6.91Mauritius 0.793 0.744 -6.59Mexico 0.804 0.736 -9.22

Malaysia 0.789 0.731 -7.93Colombia 0.758 0.722 -5.07Panama 0.731 0.648 -12.91Thailand 0.685 0.644 -6.43Brazil 0.739 0.635 -16.38

Jamaica 0.722 0631 -14.37Sri Lanka 0.651 0.623 -4.5Syrian Arab Rep. 0.665 0.617 -7.83Turkey 0.671 0.608 -10.34Philippines 0.600 0.572 -4.94

Tunisia 0.582 0.566 -2.81Iran. IslamiC Rep. of 0.547 0.510 -7.37Indonesia 0.491 0.495 0.75EI Salvador 0.498 0.483 -3.18Honduras 0.473 0.420 -12.84

Egypt 0.385 0.373 -3.01Kenya 0.366 0.341 -7.28Pakistan 0.305 0.297 -2.56Zambia 0.315 0.292 -7.75India 0.297 0.278 -6.66

Cote d'ivoire 0.289 0.249 -16.07Bangladesh 0.185 0.168 -9.95Nepal 0.168 0.136 -23.20

t I .t I lTI 93

TECHNiCAl NOTE TABLE 1.3

Changing HOI over time

HOI HOI HOI HDI1970 1990 Difference 1970 1990 Difference

Saudi Arabia 0.386 0.687 0.301 Iran, Islamic Rep. of 0.464 0.547 0.083Korea. Rep. of 0.589 0.871 0.282 Domrnican Rep. 0.513 0.595 0.082Mauritius 0.525 0.793 0.268 Uruguay 0.799 0.880 0.081Malaysia 0.538 0.789 0.251 Ireland 0.840 0.921 0.081Tunisia 0.335 0.582 0.247 Pakistan 0.226 0.305 0.079

Syrian Arab Rep. 0.432 0.665 0.233 Sri Lanka 0.573 0.651 0.078Botswana 0.319 0.534 0.215 Cote d'ivoire 0.212 0.289 0.077Turkey 0.492 0.671 0.179 Haiti 0.200 0.276 0.076Indonesia 0.316 0.491 0.176 Guatemala 0.416 0.485 0.069Gabon 0.370 0.545 0.175 Ghana 0.246 0.310 0.064

Algeria 0.358 0.533 0.175 Hungary 0.831 0.893 0.063Brazil 0.569 0.739 0.170 Czechoslovakia 0.836 0.897 0.061Morocco 0.268 0.429 0.161 Philippines 0.542 0.600 0.058Jordan 0.428 0.586 0.158 Senegal 0.124 0.178 0.054Hong Kong 0.762 0.913 0.151 Nigeria 0.189 0.241 0.052

Thailand 0.535 0.685 0.150 USSR 0.821 0.873 0.051Colombia 0.617 0.758 0.141 Bulgaria 0.815 0.865 0.050Portugal 0.710 0.850 0.139 Argentina 0.784 0.833 0.049Yemen 0.093 0.232 0.139 Togo 0,170 0,218 0.048Israel 0.806 0.939 0.133 Poland 0.829 0.874 0.045

Mexico 0.675 0.804 0.129 Nepal 0126 0,168 0.042Japan 0.853 0.981 0.128 India 0.258 0.297 0,039USA 0.848 0.976 0.128 Libena 0194 0.227 0.033Chile 0.736 0.863 0.128 Madagascar 0.292 0.325 0.033Canada 0,860 0.982 0.123 Zimbabwe 0,365 0.397 0,032

Australia 0.849 0.971 0.122 Paraguay 0.607 0.637 0.031Singapore 0.730 0.848 0.119 Zaire 0.232 0.262 0.030France 0.854 0.969 0,116 Burundi 0.135 0.165 0.030Rnland 0.838 0.953 0.115 Panama 0.703 0.731 0.028Switzerland 0.863 0.977 0.114 Mali 0.054 0.081 0.028

Kenya 0.253 0.366 0.113 Somalia 0.061 0.088 0027United Kingdom 0.850 0.962 0.113 Niger 0.054 0.078 0.024Austria 0.838 0.950 0.112 Angola 0,147 0.169 0.023Venezuela 0.715 0,824 0.109 Central African Rep. 0.138 0.159 0.021Greece 0.793 0.901 0.108 Malawi 0,149 0.166 0.017

Norway 0.870 0.978 0.108 EI Salvador 0.483 0.498 0.015Lesotho 0.317 0.423 0.106 Bolivia 0.383 0.394 0012Belgium 0,846 0.950 0.104 Bangladesh 0.174 0.185 0.01 ISweden 0.873 0.976 0.103 Chad 0.083 0.088 0.006Netherlands 0,866 0.968 0.101 Peru 0.595 0.600 0,004

Yugoslavia 0.757 0.857 0.100 Sudan 0.155 0.157 0.002Iraq 0.489 0.589 0.100 Sierra Leone 0.060 0.062 0,002Ecuador 0.542 0.641 0.100 Rwanda 0.184 0.186 0,002New Zealand 0.848 0.947 0.098 8urkina Faso 0.073 0.074 0.001Egypt 0.286 0.385 0.098 Myanmar 0.384 0.385 0.000

Spain 0.819 0.916 0.098 Benin 0.117 0.111 -0.006Congo 0.278 0.372 0.095 Zambia 0.320 0.315 -0.006Trinidad and Tobago 0.784 0.876 0.093 Afghanistan 0.083 0.065 -0.019Italy 0.830 0.922 0.092 Papua New Guinea 0.342 0.321 -0.021Iceland 0.866 0.958 0091 Guinea 0.074 0.052 -0.022

Denmark 0.864 0.953 0.089 Uganda 0.241 0.192 -0049Honduras 0.385 0.473 0.088 Mozambique 0.205 0.153 -0.052Luxembourg 0.841 0.929 0.088 Nicaragua 0.549 0.496 -0.053Cameroon 0.228 0.313 0.085 Romania 0.798 0.733 ·0.065Costa Rica 0.759 0.842 0.084 Jamaica 0797 0,722 -0076

will rarely go beyond lOO.literacy never beyond 100% and be very misleading.

mean years of chooling eldom beyond, say, 15.lncome, The ranking of countries by per capita income could

however, has no upper bound. For GNP per capita the be adjusted if per capita income were multiplied by a

intercountry range is $80 to $29,880, a range 0075: 1. As factor indicating distributional inequality-I minus the

for real GDP per capita, the range is $380 to $20,998, or Gini coefficient. This method can be extended to all the

55: 1. Such inequalities in income are reproduced just a countries having statistics on distributional inequality.

sharply \\~thin countrie . Some 41 countrie have data on the ratio of the income

So, a high average value for life e~-pectancy or edu- share of the highest 20% to the lowest 20%. Of these -11

cational attainment can be obtained only by a rea onably countrie ,17 have data on the Gini coefficient as well, and

equitable spread among individuals, a result of the fixed there wa found to be a very strong association berween

maximum possible.Although it is ofgreat intere tto know the two-the logarithm of the ratio being a good precliClOt

the distributions of tho e variables, an average is a better of the Gini coefficient. This regression re ult was used to

statistic for these variables than for income, whete it can interpolate the Gini coefficient for the remaining 2-1

94

lX 11l - min XlIII

Z. = J.'lit ImllxX 1/l - min X1ltl

II 1.1

In the formula,} denotes country, t the time period.

Note now that the denominator will remain unchanged

for all time periods and for all countries.

MHDI stands for the modified HDI since we have a

new defulition of the maximum and minimum. Countries

are ranked by the si2e of the difference between the 1970

and 1990 values for the MHDI_ These differences range

from 0.301 for Saudi Arabia to -0.076 for Jamaica.

Jamaica is, however, a country where the HDl in 1970 was

already quite high, 0.797, and the lack ofchange does Dot

reflect absolute deterioration.

A summary of the differences between the 1970 and

1990 HDI values follows:

HDI Number of

difference countries

1

3

3

927

29

28

10

110

> 0.3000.250 to 0.299

0.200 to 0.249

0.150 to 0.199

0.100 to 0.149

0.050 to 0.099

0.000 to 0.0-19

< 0.000

Total

countries over the 20 years. Similarly for the maximum.

The distance to be travelled is thus stretched out as the

maximum over the 20-year period.

In the example ofRuritania, the minimum stay at20

but the maximum is now 80. In year I, the life expectancy

variable i 0.33[(40-20)/(80-20)), and in year 10it isO.5

[(50 - 20)/(80 - 20)).

With this adaptation, the human development index

becomes comparable over tme aswell as acrosscountrie .

The difference in the value of the human development

index over time can be shown to be a weighted sum of the

growth rates in the three variables: the weights are given

by the ratio of the initial value of a variable to the

maximum range.

To express this algebraically-with XI as life expect­

aney,X2 as literacy and X) as income-the contribution of

each variable to the HDI can be written as Z where:I.

At the bottom, with Jamaica, are to countries that

register a negative change, and above them i a group of

28 countries that register a change between 0 and 0.049.

Twenty-one of these 38 countries are from Sub-Saharan

Africa, seven from Latin America and seven from Asia.

These low achiever are usually countries with a compara­

tively low initial HDI value. Only Poland (0.829 in 1970),

Romania (0.798) Jamaica (0.797) and Argentina (0.784)

would qualify a such. The remainder are poor initially,

and 23 of them remained below 0.300 in 1990. Many of

these countries experienced low rates of growth of real

GDP per capita over this period, or even had a negative

growth. So, income growth may not be sufficient for

achieving a high HDl, but it cannot be dispensed with.

Measuring progress in human development over rime

The human development index (lIDI) ranks countries

relative to each other for a particular period. The maxi­

mum and minimum values that define the maximum

distance to be travelled [or each variable are peciSc to

that year. Over time, the actual achieved values of life

expectancy, literacy and income change, as will the maxi­

mum and minimum values of these variables across all

countries.

For example, Ruriralua' life expectancy in year 1

may be 40, halfway between a minimum of 20 and a

maximum of60. By year 10, Ruritania may have improved

its life expectancy to 50, but the minimum may now be 30

and the maximum 80. In such a case, the numerical value

of the index indicating Ruritania's life expectancy will

drop in the lIDI calculations from 0.5 [ = (40 - 20) / (60

- 20)) to 0.4 [ = (50 - 30) / (80 - 30)), despite the 25%

improvemem in life expectancy.

So, improvements in the components of human

development in any country over time may be reflected as

a decline in its HDI value, if in the meantime its relative

position bas deteriorated. To combine a measure of

progre s over time with intercountry compari on at one

point of time. the lIDl has to be modified.

The way to tackle thi problem, without changing the

logic of the HDI, i to say that the minimum and maxi­

mum should be defined, not [or eacl, point of time, but

over a period of time. Thus if we are measuring progress

between 1970 and 1990, the miJ1imum would be the

minimum of all values of, ay, life expectancy for all

countries. ome countries had data only on the Gini

coefficient. In all, 53 countries with directly estimated or

interpolated Gini coefficient were available.

A word of caution. The Gini coefficient are regis­

tered for various years between 1975 and 1988, and the

ratios o[ the top 20% to the lowest 20% are [or years

between 1980 and 1988. This is not a serious problem,

since the e coefficients are unlikely to change quickly. But

the Gini coefficient is not always truly representative of

the entire country. It i sometimes only for a subsection,

such as the urban population.

Adjusted income was multiplied by (1- G) with G

being the Gini coefficient to modify income even further.

Because this was done for the adjusted income, W(y),

rather than for the actual income, the diminishing return

effect could be incorporated before the distributional

adjustment modifies incomes further. This modified in­

come W(y)[ I - G) is then used as the third variable in

addition to life expectancy and educational attainment to

compute a distribution-adju ted lIDI.

For all but two countries, the lIDI is reduced by

making it sensitive to income distribution, and in a halfof

them, it is reduced by 4% or more. Tlus is particularly

marked in the developing countries, where 24 of the 32

developing couDtries have a reduction of 4% or more and

seven show a reduction in excess of 10%.

Much better data are needed to pursue the sensitiv­

ity of income distribution more thoroughly. The analysis

hows that caution is needed in interpreting a country's

lIDI value as a measure of achieved well-being for all its

people.

95

Fifty-six coumrie show a moderate improvement,

between 0.05 and 0.l5, 16 show a greater improvement

and 43 show a total increase in excess of O.lO. Since the

maximum distance to traverse is l.OO, some 40% of the

countries, staning at different levels, covered 10% or

more of the maximum distance. Almost all the counrries

with high lIDI in 1990 are in this group. They have

continued to improve de. pite their already high levels for

1970. But, a few countries in this fa t-moving group

began in 1970 \\~th low levels of lIDI, notably Yemen

(0.093 in 1970), Kenya (0.253), Morocco (0.26 ) and

Indonesia (0.316).

2. Measurement of global economic disparity

96

A standard practice, though po sible for relatively few

countrie and only infrequently updated, is to distribute a

country's income according to quintile groups of house­

holds ranked by total household or per capita income.

Data along these lines are available for 41 countries in

table 30 of the 1991 World Development Report.We ha,·e tried to adapt this national quintile ap­

proach to the world by ranking countrie according to

their per capita income and presenting them in the form

ofa continuum of population-with the population accu­

mulated in a way similar to designing a population sample

frame for a country. The world is then divided into

quintiJ~s, and the attributes of each quintile are calcu­

lated.

In technical note table 2.1, the first column is the

estimated GNP percapira in ascending order, the second

column is the population, the third column is the cumu­

lative population, and the fourth column i the cumulative

population percentile.

Aproblem arise because countries are not units, and

the quintile break wiJJ not necessarily occur at or near a

point between two countries. This can be seen in th~

break between the first and second quintiles, where India

straddles the two, between the second and third quintile

where hina straddles the two, and between the fourth

and [ifth quintiles where the former U SR straddles the

two. Accordingly, the three straddling countries have

been divided along the quintile break with the same GNPper capita but with different population reOecting thi

break.TI,e average GNP per capita for each quintile i

given in column 1of technical note table 2.4 at the end of

each group, and columns 5, 6, 7 and 8 give the wealth,

trade, domestic investment, and domestic savings per­

taining to each group---in ab olme terms and as a percent­

age of global wealth, trade, domestic investment, and

domestic savings. The income di parity between the top

and bottom quintiJes is 59 to I, and the other economic

disparitie· are even greater.

Each country is treated as one unit with an average

per capita income, and the analysis is based on compari­

sons of the average per capita incomes of rich and poor

countrie . In reality, of course, there are wide di parities

within each country between rich and poor people as can

be seen from table 30 of the 1991 World DevelopmentReport table refered to at the beginning of this note.

We tried to estimate what effect it would have on our

analysis if we could produce a global economic disparity

table that mea ures the income differences both between

countries and within countries. This is po sible to do with

the 41 countries in the World Development Report table.

In technical note table 2.2, we treat the universe a

limited to these 4l countries and apply the same method­

ology a we did in table 2.1. The income disparity between

the top and bottom quintile is 65 to 1. We then divide

each country into its own quintiles and treat our -11­

country world as if it were 205 countries. each country

having five parts. We apply the same methodology to this

205-country world technical note table 2.3. Apart from

ome fa cinaling glimpses into the comparative wealth of

rich quintiles in poor countries and poor quintiles in rich

countries, the most significant result is that the income

disparity between the top and bottom quintiJes inerea es

f:rom 65 to 1 to a much as 140 to I-that is, it more than

doubles.

The industrial countrie , where income disparities

tend to be smaller, are overrepresented in our 41/205

country universe, and it i reasonable to assume that, ifwe

were able to do this analysis of inequality between and

\\~tbin countries for the world, the global disparity ratio

would be higher stiJJ. The inequality ratio for the world is

probably at least three times higher than the inequality

ratio in technical note table 2.1 and may be well over 150

to 1.

ItII\!

TECHNICAl NOTE FIGURE 2 1

Beyond national averages

The population of 41countries IS dividedinto quintiles of averageper capita income...

• Developingcountry

D Industrialcountry

Subnational qUlntiles groupedinto quintiles of averageper capita income

The number of people in eachnew quintile remains equal,but the number of subnationalquintiles is unequal due tosizes of national populations.The subnatlonal quintiles arelisted In table 2.3 of thistechnical note.

5ooooooBooooBoooooBooooooooo••ooooooooooooooooooooBoo

4

••••••oo•o••••o•o•••oo•o•••oo•ooo•o•o••oo•o•Bo••oooooooooo•o•o•oooooo•ooo•oo•ooooo

3

•••••••••••••••••••••o•••••••••o•

Quintile2

••••••••••••••••••••• ••••••00 o.o ••~000 •

o·00o

.............01 Poorestone 02country 03

........ 04..........0 5 Rlchesl

1

••••••••••••The 205 subnatlonal qUlntiles are =then redistributed into qUintiles •of per capita income

In each of the 41 countnesthe population IS dividedinto qUlntiles of income..

2 3 4 5Quintile

.......

Bars show equal numbers of peoplein each quintlle

97

98

TECHNICAL NOTE TABLE 2.1

Global economic disparities. 1989

Cumulative CumulativeCumulative Cumulative global global

Cumulative global global domestic domesticGNP per global Cumulative wealth trade investment savingscapita Population population percentile (US$ (US$ (US$ (US$(US$) (millions) (millions) (%) billions) billions) billions) billions)

Poorest 20% 262 276.3 56.1 54.9 42.7(1.40%) (0.95%) (1.25%) (0.98%)

Mozambique 80 15.7 16 0.3 1.3 0.8 0.4 -0.24Ethiopia 120 49.2 65 1.2 7.2 2.3 1.2 0.06Cambodia 130 8.2 73 1.4 82 2.5 1.4 0.13Tanzania. U. Rep. of 130 27.3 100 1.9 11.8 3.6 2.1 -0.0550malia 170 7.5 108 2.0 13.1 3.8 2.4 ·0.23

Bangladesh 180 115.6 224 4.2 33.9 8.6 4.9 ·0.02Bhutan 180 1.5 225 4.3 34.1 8.8 5.0 0.03Guinea-Bissau 180 1.0 226 4.3 34.3 8.9 5.0 0.04Lao People's Oem. Rep. 180 4.1 230 4.4 35.1 9.0 5.1 0.03Malawi 180 8.8 239 4.5 36.6 9.7 5.4 0.09

Nepal 180 19.1 258 4.9 40.1 10.5 6.0 0.33Chad 190 5.7 264 5.0 41.2 11.1 6.1 0.19Afghanistan 200 16.6 280 5.3 44.5 12.3 6.7 0,41Myanmar 200 41.7 322 6.1 52.8 12.7 8.1 1.6Burundi 220 5.5 327 6.2 54.0 13.0 8.3 1.6

Sierra Leone 220 4.2 332 6.3 54.9 13.3 8.4 1.7Viet Nam 220 66.7 398 7.5 69.6 16.3 10.7 2.6Madagascar 230 12.0 410 7.8 72.4 16.9 11.1 2.9Gambia 240 0.9 411 7.8 72.6 17.2 11.1 2.9Nigeria 250 108.5 520 9.8 99.7 29.8 14.7 8.6

Uganda 250 18.8 538 10.2 104.4 30.7 15.3 8.7Zaire 260 35.6 574 10.9 113.6 35.0 16.5 10.1Mali 270 9.2 583 11.0 116.1 35.8 17.1 10.4Niger 290 7.7 591 11.2 118.4 36.4 17.4 10.5Burkina Faso 320 9.0 600 11.4 121.3 36.9 17.9 10.5

Rwanda 320 7.2 607 11.5 123.6 37.3 18.3 10.7Equatorial Guinea 330 0.4 608 11.5 123.7 37.4 18.3 10.7Guyana 340 0.8 608 11.5 124.0 37.8 18.3 10.7Sao Tome and Prindpe 340 0.1 609 11.5 124.0 37.8 18.3 10.7India I 340 447.9 1.056 20.0 276.3 56.1 54.9 42.7

Second 20% 346 365.0 80.2 114.9 110.7(1.85%) (1.35%) (2.62%) (2.53%)

India 1/ 340 405.2 1,462 27.7 414.0 72.6 87.9 71.6China II 350 649.3 2.111 40.0 641.3 136.2 169.8 153.4

Third 20% 427 453.1 149.9 128.3 113.1(2.30%) (2.53%) (2.92%) (2.59%)

China III 350 489.8 2.601 40.0 812.7 184.2 231.5 215.1Haiti 360 6.5 2.607 49.3 815.1 184.8 231.8 215.3Kenya 360 24.0 2.631 49.8 823.7 188.0 233.9 217.0Pakistan 370 122.6 2.754 52.1 869.1 199.8 242.1 222.0Benin 380 4.6 2.759 52.2 870.9 200.3 242.2 222.1

Central African Rep. 390 3.0 2,762 52.3 872.0 200.5 242.3 222.1Ghana 390 15.0 2,777 52.6 877.9 202.5 243.1 222.4Togo 390 3.5 2.780 52.6 879.3 203.2 243.3 222.6Zambia 390 8.5 2.789 52.8 882.6 205.4 243.6 222.8Maldives 420 0.2 2,789 528 882.7 205.5 243.7 222.8

Guinea 430 5.8 2.795 52.9 885.1 206.4 244.1 223.2Sri Lanka 430 17.2 2,812 53.2 892.5 210.2 245.7 224.1Liberia 450 2.6 2,814 53.3 893.7 210.8 245.8 224.3Comoros 460 0.6 2.815 53.3 894.0 210.9 245.8 224.3Lesotho 470 1.8 2.817 53.3 894.8 211.4 246.4 223.9

Djibouti 480 0.4 2.817 53.3 895.0 211.8 246.4 223.9Sudan 480 25.2 2,842 53.8 907.1 213.7 247.2 223.6Indonesia 500 184.3 3.027 57.3 999.2 251.8 279.5 257.7Mauritania 500 2.0 3,029 57.3 1,000.2 252.5 279.6 257.7Solomon Islands 580 0.3 3,029 57.3 1,000.4 252.7 279.7 257.8

An90la 610 10.0 3,039 57.5 1.006.5 256.0 280.8 259.0Bolivia 620 7.3 3.046 57.7 1,011.1 257.4 281.4 259.4Egypt 640 52.4 3,099 58.6 1,044.6 267.4 289.4 261.8Senegal 650 7.3 3.106 58.8 1,049.4 269.2 290.1 262.3Yemen 650 11.7 3,118 59.0 1,057.0 270.8 291.7 261.2

Zimbabwe 650 9.7 3.127 59.2 1,063.3 273.2 293.0 262.5Samoa 700 0.2 3.127 59.2 1.063.4 262.5Philippines III 710 43.7 3.171 60.0 1,094.4 286.1 298.0 266.5

Cumulative CumulativeCumulative Cumulative global global

Cumulative global global domestic domesticGNP per global Cumulative wealth trade investment savingscapita Population population percentile (US$ (US$ (US$ (US$(US$) (millions) (millions) (%) billions) billions) billions) billions)

Fourth 20% 2,203 2,319.6 825.8 555.4 584.9(11.75%) (13.94%) (12.65%) (13.39%)

Philippines IV 710 18.7 3,190 60A 1.107.7 291.7 300.2 268.3Cape Verde 780 0.4 3,190 60A 1,108.0 291.8 300.2 268.3Cote d' Ivoire 790 12.0 3,202 60.6 1,117.5 197.2 301.2 269.6Dominican Rep. 790 7.2 3,209 60.7 1,123.1 300.3 302.6 270.6Nicaragua 830 3.9 3,213 60.8 1,126.3 301.6 303.3 270.5

Vanuatu 860 0.1 3,213 60.8 1,126.5 301.6 303.3 270.5Lebanon 880 2.7 3,216 60.9 1,128.9 304.6 303.8 271.0Mongolia 880 2.2 3,218 60.9 1,130.8 306.0 304.2 271.5Morocco 880 25.1 3.243 61.4 1,152.8 314.8 309.5 275.6Papua New Guinea 890 3.9 3,247 61.5 1.156.3 317.6 310.3 276.0

Honduras 900 5.1 3.252 61.6 1.160.9 319.7 310.9 276.5Swaziland 900 0.8 3,253 61.6 1.161.6 320.5 311.1 276.7Guatemala 910 9.2 3.262 61.7 1,170.0 321.2 312.2 277.3Congo 940 2.3 3.265 61.8 1.172.1 322.7 312.5 277.8Syrian Arab Rep. 980 12.5 3,277 62.0 1,184.4 327.8 314.1 280.7

Cameroon 1.000 11.8 3.289 62.3 1.196.2 330.0 316.2 282.9Peru 1,010 21.6 3.311 62.7 1,218.0 335.5 320.6 287.7Ecuador 1,020 10.6 3.321 62.9 1,228.8 339.8 323.0 289.9Namibia 1.030 1.8 3,323 62.9 1,230.6 341.6 323.3 290.2Paraguay 1,030 4.3 3,327 63.0 1.235.0 342.8 324.2 290.8

EI Salvador 1.070 5.3 3,332 63.1 1,240.7 344.6 325.1 291.2Albania 1.200 3.2 3.336 63.1 1,244.5 345.2 326.0 292.0Colombia 1,200 33.0 3,369 63.8 1,284.1 356.0 333.9 301.5Saint Vincent 1,200 0.1 3.369 63.8 1,284.3 356.1 333.9 301.5Thailand 1,220 55.7 3,425 64.8 1.352.2 401.9 355.0 321.2

Korea, Oem. Rep. of 1,240 21.8 3.446 65.2 1,379.2 407.4 360.9 326.9Jamaica 1,260 2.5 3.449 65.3 1,382.3 410.2 361.8 327.7Tunisia 1,260 8.2 3,457 65A 1,392.6 417.5 364.2 329.7Turkey 1,370 55.9 3,513 66.5 1,469.2 444.9 381.0 345.7Botswana 1,600 1.3 3,514 66.5 1,471.2 447.3 381.5 346.5

Jordan 1.640 4.0 3.518 66.6 1,477.8 450.4 382.7 346.4Fiji 1,650 0.8 3,519 66.6 1,479.1 451.1 383.0 346.6Dominica 1.680 0.1 3.519 66.6 1,479.2 451.3 383.0 346.7Belize 1.720 0.2 3.519 66.6 1,479.5 451.6 383.1 346.7Panama 1.760 2.4 3,522 66.7 1,483.8 452.8 383.2 347.2

Chile 1,770 13.2 3,535 66.9 1.507.1 467.5 387.9 352.8Costa Rica 1,780 3.0 3,538 67.0 1.512.5 470.6 389.2 353.9Poland 1,790 38A 3,576 67.7 1.581.2 493.8 411.9 376.6Saint Lucia 1.810 0.1 3.576 67.7 1,581.5 494.1 411.9 376.7Grenada 1,900 0.1 3.576 67.7 1,581.7 494.2 412.0 376.7

Mauritius 1.990 1.1 3,578 67.7 1.583.9 496.5 412.6 377.2Cuba 2.000 10.6 3.588 67.9 1.605.1 509.6 417.3 381.6Mexico 2,010 88.6 3,677 69.6 1,783.1 554.7 447.5 413.7Argentina 2.160 32.3 3.709 70.2 1,853.0 568.5 455.9 426.9Malaysia 2,160 17.9 3,727 70.5 1.891.6 616.0 467.5 440.1

Algeria 2,230 25.0 3,752 71.0 1,947.3 633.0 484.8 457.3Bulgaria 2.320 9.0 3,761 71.2 1,968.2 660.0 491.4 463.6Venezuela 2,450 19.7 3,781 71.6 2.016.5 680.8 497.7 476.7South Africa 2,470 35.3 3,816 72.2 2,103.7 711.2 516.0 499.3Brazil 2,540 150.4 3,966 75.1 2,485.6 763.9 6001 598.6

Romania 2,560 23.3 3.990 75.5 2.545.2 787.9 613.2 611.1Hungary 2.590 10.6 4,000 75.7 2.572.5 806.3 620.3 619.3Uruguay 2,620 3.1 4.003 75.8 2,580.6 809.1 621.0 620.5Saint Kitts and Nevis 2,630 0.0 4.003 75.8 2,580.7 809.2 621.0 620.6Yugoslavia 2,920 23.8 4,027 76.2 2.650.2 837.4 654.4 657.4

Gabon 2,960 1.2 4,028 76.2 2,653.7 839.5 655.3 658.6Sunname 3.010 0.4 4.029 76.3 2,655.0 840.3 655.6 658.8Iraq 3,020 18.9 4,048 76.6 2,712.1 862.7 668.1 670.8Iran, Islamic Rep. of 3,200 54.6 4.102 77.6 2,886.9 885.2 720.6 719.8Tnnidad and Tobago 3,230 1.3 4,103 77.7 2.891.0 888.0 721.3 720.8

Czechoslovakia 3.450 15.7 4,119 78.0 2.945.1 916.8 736.5 737.0Antigua and Barbuda 3.690 0.1 4,119 78.0 2.945.3 917.1 736.5 737.1Seychelles 4.230 0.1 4,119 78.0 2.945.6 917.2 736.6 737.2Portugal 4.250 10.3 4,130 78.2 2,989.3 949.1 749.7 746.3Korea. Rep. of 4.400 42.8 4,172 79.0 3.177.6 1,072.7 815.6 816.0USSR IV 4.550 51.9 4.224 80.0 3,414.0 1.111.9 853.4 851.5

99

100

TECHNICAL NOTE TABLE 2.1 (CONTINUED)

Global economic disparities, 1989

Cumulative CumulativeCumulative Cumulative global global

Cumulative global global domestic domesticGNP per global Cumulative wealth trade Investment savingscapita Population populalion percentile (USS (USS (USS (USS(USS) (millions) (millions) (%) billions) billions) billions) billions)

Richest 20% 15.411 16.321.9 4.813.0 3.537.7 3.5183(82.70%) (81.23%) (80.56%) (80.51%)

USSR V 4.550 236.7 4.461 84.4 4.490.8 1.290.7 1.025.7 1.013.0Oman 5.220 1.5 4,462 84.5 4.498.6 1,296.9 1,Q28.1 1.016.4libya 5.310 4.5 4,467 84.5 4,522.7 1.308.7 1.033.6 1.021.7Greece 5.350 10.0 4.477 84.7 4.576.5 1.332.2 1.043.3 1.0265Malta 5.830 0.4 4,477 84.7 4,578.5 1.334.3 1.043.8 1.027.0

Saudi Arabia 6.020 14.1 4.492 85.0 4.663.6 1,382.0 1.061.6 1.044.8Bahrain 6.340 0.5 4,492 85.0 4,666.9 1,386.9 1.062.4 1,045.5Barbados 6.350 0.3 4,492 85.0 4.668.5 1.387.6 1.062.8 1.045.9Cyprus 7,040 0.7 4,493 85.0 4,673.5 1,390.3 1,063.9 1,047.0Ireland 8.710 3.7 4,497 85.1 4.705.9 1,428.4 1,070.7 1.056.4

Spain 9.330 39.2 4.536 85.9 5,071.5 1.544.2 1,162.1 1.136.8Israel 9,790 4.6 4.541 85.9 5,116.5 1,568.0 1,169.3 1.142.2Hong Kong 10,350 5.9 4,546 86.0 5.177.1 1,668.9 1,185.7 1.163.4Singapore 10,450 2.7 4.549 86.1 5,205.5 1.763.1 1,195,6 1,175.6Bahamas 11,320 0.2 4,549 86,1 5,208.3 1.765.5 1.196.3 1.176.3

New Zealand 12.070 3.4 4.553 86.2 5,249.2 1,782.9 1,209.4 1.187.7Australia 14,360 16.9 4.570 86.5 5,491.5 1.855.9 1.272.4 1,243.4United Kingdom 14,610 57.2 4,627 87.6 6.327.8 2,206.0 1.448.0 1,394.0Italy 15.120 57.1 4,684 88.7 7,190.5 2,496.2 1.655.0 1.592.4Brunei Darussalam 15,390 02 4.684 88.7 7,194.2 2,499.1 1.655.9 1,593.2

Qatar 15,500 0.4 4,684 88.7 7.199.9 2,5023 1,657.2 1,594.5Netherlands 15.920 150 4,699 88.9 7,437.9 2.714.3 1,702.4 1.649.2Kuwait 16,150 2.0 4.701 89.0 7,470.9 2.732.1 1.708.7 1,659.4Belgium 16,220 9.8 4,711 89.2 7,630.6 2,932.2 1.740.6 1.694.6Austria 17,300 7.6 4.719 89.3 7.761.8 3.003.5 1.776.0 1,731.3

France 17,820 561 4,775 90.4 8.762.1 3,366.2 1.986.1 1.951.4United Arab Emirates 18,430 1.6 4.777 90.4 8,791.4 3,390.8 1.993.4 1.963.1canada 19.030 265 4.803 90.9 9.296.1 3.618.1 2.109.5 2.079.2Germany 20.440 77.6 4.881 924 10,881.7 4,227.3 2,458.3 2.507.3Denmark 20,450 5.1 4.886 92.5 10.986.9 4.281.9 2,478.3 2.531.5

USA 20,910 249.2 5,135 97.2 16.198.1 5,120.4 3.260.0 3.208.9Iceland 21.070 0.3 5.135 97.2 16.203.5 5,123.4 3,261.2 3,210.1Sweden 21.570 8.4 5.144 97.4 16.385.6 5.223.8 3.301.3 3.250.2Finland 22,120 5.0 5.149 97.5 16,495.7 5.271.7 3,334.3 3.281.0Norway 22.290 4.2 5.153 97.5 16,589.5 5,322.3 3,359.7 3,311.0

Japan 23,810 123.5 5,276 99.9 19.5291 5,8047 4,329.7 4,3105Luxembourg 24,980 0.4 5.277 99.9 19,538.5 5,815.3 4,331.9 4,312.5Switzerland 29,880 6.6 5.283 100.0 19.735.9 5.924.9 4.391.1 4,369.8

TECHNiCAl NOTE TABU 2.1

GNP per capita distribution, 1988: 41 countries with income distribution data

GNP per Population Cumulative Cumulativecapita global percentile population(US$) (millions) (%) (%)

Poorest 20% 301

Bangladesh 170 115.6 116 4.6India I 340 388.2 504 20.0

Second 20% 341

India II 340 464.9 969 38.6Pakistan II 350 36.8 1,005 40.0

Third 20% 684

Pakistan III 350 85.8 1,091 43.4Ghana 400 15.0 1.106 44.0Sri Lanka 420 17.2 1,124 44.7Indonesia 440 184.3 1,308 52.1Philippines 630 62.4 1,370 54.5C/lte d'ivoire 770 12.0 1,382 55.0Morocco 830 251 1,407 56.0Guatemala 900 9.2 1,417 56.4Botswana 1,010 1.3 1,418 56.4Jamaica 1,070 2.5 1,420 56.5Colombia 1,180 33.0 1,453 57.8Peru 1,300 21.6 1,475 58.7Costa Rica 1,690 3.0 1,478 58.8Poland 1,860 38.4 1,516 60.3

Fourth 20% 8,018

Malaysia 1,940 17.9 1,534 61.1Brazil 2,160 150.4 1,684 67.0Hungary 2,460 10.6 1,695 67.5Yugoslavia 2,520 23.8 1,719 68.4Venezuela 3,250 19.7 1,739 69.2Spain 7.740 39.2 1,778 70.8Israel 8.650 4.6 1,782 70.9Singapore 9,070 2.7 1.785 71.0Hong Kong 9,220 5.9 1,791 71.3New Zealand 10,000 3.4 1,794 71.4Australia 12,340 16.9 1,811 72.1United Kingdom 12.810 57.2 1,868 74.4Italy 13,330 57.1 1,926 76.6Belgium 14,490 9.8 1,935 77.0Netherlands 14,520 15.0 1,950 77.6France 16,090 56.1 2,006 79.9

Richest 20% 19,542 2,513

Germany 16,570 77.6 2,084 82.9Canada 16,960 26.5 2,111 84.0Denmark 18,450 5.1 2,116 84.2Finland 18,590 5.0 2,121 84.4Sweden 19,300 8.4 2,129 84.7United States 19,840 249.2 2,378 94.7Norway 19,990 4.2 2,383 94.8Japan 21,020 123.5 2.506 99.7Switzerland 27,500 6.6 2,513 100.0

101

TECHNICAL NOTE TABLE 2.3

GNP per capita distribution, 1988: 41 countries by 20% income shares

Cumulative Cumulative

GNP per global Cumulative GNP per global Cumulative

capita Population population percentile capita Population population percentile(US$) (millions) (millions) (%) (US$) (millions) (millions) (%)

Poorest 20% 163 Cote d'ivoire 4 820 2.4 1,449 57.7

Bangladesh 1 88 23.1 23 0.9 Guatemala 4 842 1.8 1,451 577

Sri Lanka 1 101 3.4 27 1.1 Morocco 4 888 5.0 1,456 57.9

Bangladesh 2 117 23.1 50 2.0 Peru 3 891 4.3 1,460 581

Botswana 1 126 0.3 50 2.0 Ghana 5 892 3.0 1,463 58.2

Ghana 1 130 3.0 53 2.1 MalaYSia 2 898 3.6 1,467 58.4

Pakistan 1 136 24.5 77 3.1 Poland 1 902 7.7 1,474 58.7

India 1 138 170,6 248 9.9 Indonesia 5 909 36.9 1,511 60.1

Bangladesh 3 147 23.1 271 10.8Fourth 20% 4,984Phillipines 1 173 12.5 284 11.3

Sri Lanka 2 179 3.4 287 11.4 Botswana 4 1,020 0.3 1,511 60.2

Bangladesh 4 182 23.1 310 12.3 Costa Rica 3 1,115 0.6 1,512 60.2

Cote d'ivoire 1 191 2.4 313 12.4 Jamaica 4 1,133 0.5 1,513 60.2

Indonesia 1 194 36.9 350 13.9 Brazil 3 1,156 30.1 1,543 61.4

Pakistan 2 196 24.5 374 14.9 Sri Lanka 5 1,179 3.4 1,546 61.5

India 1-2 209 128.0 502 20.0 Colombia 4 1,227 6.6 1,553 61.8Poland 2 1,321 7.7 1,560 62.1

Second 20% 295 Hungary 1 1,338 2.1 1,562 62.2

India 11-2 209 42.7 545 21.7Malaysia 3 1,344 3.6 1,566 62.3

Ghana 2 218 3.0 548 21.8Yugoslavia 2 1.377 4,8 1,571 62.5

Colombia 1 236 6.6 554 22.1 Peru 4 1,398 4.3 1,575 62.7Guatemala 1 248 1.8 556 22.1 Venezuela 2 10495 3.9 1,579 62.8Sri Lanka 3 255 3.4 560 22.3 Philippines 5 1.512 12.5 1,592 63.3

Brazil 1 259 30.1 590 23.5Morocco 5 1,635 5.0 1,597 63.5

Pakistan 3 269 24.5 614 24.4Poland 3 1,674 7.7 1,604 63.8

Indonesia 2 273 36.9 651 25.9 Costa Rica 4 1,749 0.6 1,605 63.9India 3 277 1706 822 32.7 Hungary 2 1,879 2.1 1,607 64.0Costa Rica 1 279 0.6 822 32.7 Brazil 4 2.009 30.1 1,637 65.2

Peru 1 286 4.3 827 32.9Cote d'ivoire 5 2.029 2.4 1,639 65.2

Jamaica 1 288 0.5 827 32.9Malaysia 4 2,053 3.6 1,643 65.4

Philippines 2 306 12.5 840 33.4 Yugoslavia 3 2,078 4.8 1,648 65.6Cote d'ivoire 2 306 2.4 842 33.5 Poland 4 2,130 7.7 1,655 65.9Ghana 3 314 3.0 845 33.6 Venezuela 3 2,275 3.9 1,659 66.0

Bangladesh 5 317 23.1 868 34.5Hungary 3 2,298 2.1 1,662 66.1

Botswana 2 328 0.3 868 34.6Singapore 1 2.322 0.5 1,662 66.1

Indonesia 3 352 36.9 905 36.0 Guatemala 5 2,475 1.8 1.664 66.2Pakistan 4 360 24.5 930 370 Hong Kong 1 2,489 1.2 1,665 66.3India 11-4 374 75.1 1.005 40.0 New Zealand 1 2,550 0.7 1.666 66.3

Israel 1 2,595 0.9 1,667 66.3Third 20% 628 Jamaica 5 2,631 0.5 1,667 664

India 111-4 374 95.5 1,100 43.8 Spain 1 2,671 7.8 1,675 66.7Sri Lanka 4 387 3.4 1,104 43,9 Australia 1 2,715 3.4 1,678 66.8Guatemala 2 387 1.8 1,106 44.0 Hungary 4 2,802 2.1 1,680 66.9Morocco 1 407 5.0 1,111 44.2 Botswana 5 2,980 0.3 1,681 66.9Malaysia 1 442 3.6 1,114 44.3 Yugoslavia 4 2,985 4.8 1,686 67.1

Ghana 4 446 3.0 1,117 44.5 Colombia 5 3,127 6.6 1,692 67.3Philippines 3 466 12.5 1,130 45.0 Poland 5 3,274 77 1,700 67.7Indonesia 4 473 36.9 1,167 46.4 Peru 5 3,374 4.3 1,704 67.8COte d'ivoire 3 504 2.4 1,169 46.5 Venezuela 4 3,494 3.9 1,708 68.0Colombia 2 513 6.6 1.176 46.8 United Kingdom 1 3,715 11.4 1,719 68.4

Jamaica 2 529 0.5 1,176 46.8 Hungary 5 3,983 2.1 1,722 68.5Morocco 2 540 5.0 1,181 47.0 Singapore 2 4,499 0,5 1,722 68.5Guatemala 3 549 1.8 1,183 47.1 Italy 1 4,532 11.4 1,734 69,0Peru 2 553 4.3 1,187 47.2 Costa Rica 5 4,605 06 1.734 69.0Botswana 3 596 0.3 1,187 47.3 USA 1 4,662 49.8 1,784 71.0

Brazill 616 30.1 1,217 48.5 Canada 1 4,834 5.3 1,789 71.2Morocco 3 681 5.0 1,223 48.7 Spain 2 4,838 7.8 1,797 71.5Philippines 4 693 12.5 1,235 49.2 Malaysia 5 4,963 3,6 1,801 71.7Costa Rica 2 701 0.6 1,236 49.2 Hong Kong 2 4,979 1.2 1,802 717India 5 704 170.6 1,406 56.0 Denmark 1 4,982 1.0 1,803 71,8

Venezuela 1 764 3.9 1,410 56.1 Netherlands 1 5,009 3.0 1,806 71.9Yugoslavia 1 768 4.8 1.415 56.3 France 1 5,084 11.2 1,817 72.3Jamaica 3 769 0.5 1,415 56.3 Israel 2 5,233 0.9 1,818 72.4Colombia 2 797 6.6 10422 56.6 Yugoslavia 5 5,392 4.8 1,823 72.5Pakistan 5 798 24.5 1,447 57.6 New Zealand 2 5.400 0.7 1,823 72.6

102 ) I

Cumulative CumulativeGNP per global Cumulative GNP per global Cumulativecapita Population population percentile capita Population population percentile(US$) (millions) (millions) (%) (USS) (millions) (millions) (%)

Germany 1 5,617 15.5 1.839 73.2 Australia 4 15,302 3.4 2,136 85.0Belgium 1 5,724 2.0 1,B41 73.3 Spain 5 15,517 7.8 2,144 85.3Finland 1 5,874 1.0 1,842 73.3 Italy 4 15.663 114 2,155 85.8Norway 1 6,217 0.8 l,B43 73.3 United Kingdom 4 16.013 11.4 2,166 86.2Singapore 3 6,630 0.5 1,843 734 SWluerland 2 t6,087 13 2,168 86.3

Spain 3 6,695 7.8 1,851 737 Sweden 3 16,791 1.7 2,169 86.3Brazil 5 6.761 30.1 1,881 74.9 Denmark 3 16,974 1.0 2,171 864Australia 2 6,849 34 1,885 75.0 Finland 3 17,121 10 2,172 864Hong Kong 3 7.007 12 1,886 75.1 Israel 5 17,127 0.9 2,172 86.5SWitzerland 1 7,150 1.3 1,887 75.1 Netherlands 4 17,206 3.0 2,175 86.6

United Kingdom 2 7,366 114 1,899 756 Belgium 4 17.243 2.0 2,177 86.7Israel 3 7,699 0.9 1,900 75.6 USA 3 17,261 49.8 2,227 88.6Sweden 1 7,720 1.7 1,901 75.7 Japan 3 18,393 24.7 2,252 89.6Italy 2 7,998 11.4 1,913 76.1 Norway 3 18,911 08 2,253 89.7New Zealand 3 8,100 0.7 1,913 76.1 France 4 18,922 112 2,264 90.1

Venezuela 5 8,223 3.9 1.917 76.3 Germany 4 19,950 155 2.280 90.7Spain 4 8,979 7.8 1,925 76.6 Canada 4 20,861 5.3 2,285 90.9Japan 1 9,144 24.7 1,950 776 Hong Kong 5 21,667 1.2 2,286 910Netherlands 2 9,583 3.0 1,953 777 Singapore 5 22,185 0.5 2,287 91.0Singapore 2 9,714 0.5 1,953 77.7 New Zealand 5 22,350 0.7 2.287 910

France 2 9,751 112 1,965 78.2 SWitzerland 3 22,550 13 2,289 g11Belgium 2 9,926 2.0 1,966 78.3 Denmark 4 23,616 10 2.290 91.1Hong Kong 4 9,958 12 1,968 78.3 Sweden 4 23,643 1 7 2,291 91.2Canada 2 10,006 5.3 1,973 78.5 Finland 4 23,721 1.0 2,292 91.2Germany 2 10,505 15.5 1,988 791 Japan 4 24,278 247 2,317 922

Israel 4 10,596 0.9 1,989 792 USA 4 24,800 49.8 2,367 94.2Australia 3 10,798 34 1,993 79.3 United Kingdom 5 25,300 11.4 2,378 94.7USA IV-2 10,912 17.4 2,010 800 Norway 4 25,307 0.8 2,379 94.7

Australia 5 26,037 3.4 2,382 94.8Richest 20% 22,808 2,513 Belgium 5 26,082 2.0 2,384 94.9

USA V-2 10,912 32.4 2,043 81.3 Italy 5 27,327 114 2,396 95.4Denmark 2 11,070 1.0 2,044 81.3 Netherlands 5 27,806 3.0 2,399 955Italy 3 11,131 114 2,055 81.8 Switzerland 4 30,388 1 3 2,400 95.5Finland 2 11,266 1.0 2,056 81.8 Germany 5 32,046 155 2,416 961New Zealand 4 11,600 0.7 2.057 81.9 France 5 32,840 112 2.427 966

United Kingdom 3 11.657 11.4 2,068 82.3 Canada 5 34,090 5.3 2.432 96.8Sweden 2 12,738 1.7 2,070 824 Finland 5 34,968 10 2,433 968Norway 2 12,814 0.8 2,071 82.4 Denmark 5 35,609 10 2,434 96.9Netherlands 3 12,995 3.0 2,074 82.5 Sweden 5 35,609 1.7 2,436 96.9Belgium 3 13,476 2.0 2,076 82.6 Norway 5 36,702 0.8 2,437 97.0

France 3 13,853 11.2 2.087 83.1 Japan 5 39,413 247 2,461 98.0Japan 2 13,873 24.7 2,112 B4.0 USA 5 41,565 498 2,511 99.9Germany 3 14,731 15.5 2,127 847 Switzerland 5 61,325 1.3 2,513 1000Canada 3 15.010 5.3 2,132 84.9

103

3. Sources of data on political freedom

104

The attempt at measuring politi al freedom pre el1l.ed in

chapter 2 ofthis Report draws on a wide range ofempirical

data sources. The most important ones are listed in the

annex to this nOle.

There is no doubt that future work in the area of

human development and political freedom will have to be

based on a much broaeler selection of data sources in

order to ensure a full, comprehensive picture of the

current trends and the differences in perspective that may

exi;t in various regions, cultures and societies.

In particular, it would be neces ary in future years to

identify more regional data sources 'lnd to take also into

account relevant government reports. TIle latter may

become an increasingly important source of information

given the fact that, as stated in chapter 2, a growing

number ofcounu'ie hnve been selling up national bodies

to deal with human rights issues.

It would also be important in the future to include

the data sources that not only document human rights

violations but also analyse positive a hievements of gov­

ernments in the area of human right and poutical free­

dom conditions.

There is no doubt that the ·ttlely of the methodolo­

gies of measuring political freedom is only in it inilial

phase. Further research is needed, as well as more exten­

sive and objective sources of clata.

Amnesty International. 1990-91. Newsletters. London.

Amnesry International. 1991. Amnes/y In/erna/ional Re­port 1991. London.

Article 19. 1991. In/ormation Freedom and Censorship'Yflorld Repor/ 1991. Chicago.

Freedom House. 1991. Freedom in the World: 1990-1991.New York.

Humalla, Charles. Forthcoming. World Human RightsGUIde. UnpubLished manuscript.

Human Rights Watch. 199J.l-1uft/t1!l Rigb/s IY1atcb World

Report 1990. New York.

International Commission of] uri ts. 1990a. Attack.. onjus!ke: Tbe Harassment and PelJ'emtion a/Judges andLaWJ1ers, Jul)' 19 9-]utle 1990 Geneva.

---. 1990b. Nell,,'S/etters. Geneva.

Lawyers Committee for Human Rights. 1991. Critique:Review a/the Department0/State's COllntry ReportsOft

H.u!7I<ln Rigb/s Practices/or 1990. New York.

Organization ofAmerican States. 1991. Annual Repo/1 0//be In/er-AmeriCtm Commis.fioll 011 Human Rights 199()'

1991. Washington, D.C.

United Nations. 1990-1991. Reports by Special Rappor­

teurs, Special Representatives, Independem Experts,

and UN bodies on Afghanistan, China, Colombia,

Cuba, EI Salvador,Guatemala, Haiti, Iraq, Islamic

Repllbuc of Iran, Kuwait, Palestine, PbiUppines,

Romania, South Africll and Zaire.

United Nations Commission on Human Rights. 199()­

199J. Report by Spe.cial Rapporteurs and the ecre­

tary-General. Summary Records of the 47th Session.

Geneva.

United Nations Commillee on the Eliminalion of Dis­

criminationAgaitlslWomen. 1990. Summary Records

of the 160th and 166th Meetings. Report on the 10th

Session. New York.

United Nation Committee on the Euminalion ofR.1cial

Discriminalion. J990. Report on the 45th Session.

New York.

United Nations Sub-Commission on Prevention of Dis­

crimination and Protection of Minorities. 1989 and

1991. Summary Records of the 41st and 43rd Ses­

sions. Draft Report on the 4.3rd Se sion. Geneva.

United States Department of State. 1991. COlllltry Re­ports 011 Human Rights Practices for 1990. Washing­

ton,D.C.

Tf (II, CAL; OTE

Bibliographic note

Chapter 1draws on the following: Ad< 1991; Ahmad,

EI Serafy and LUlZ J989; Akder '990; Asian Develop­

ment Bank 1991a and 1991b; Banelmu 1989; Bartel­

mus, Lutz and Schweinfest forthcoming; Bouassami 1990;Brown and others 1991; Chernichovsky and Meesook

1984; Daly 1990; Daly and Cobb 1989; Dankelman and

Davidson 1988; Dasgupta and Maler 1991; Eklof and

Molapo 1990; Gay and others 1991; Goodland, Daly and

El erafy 1991; Gtillin and Knight 1990; Henry 1991;

Hueting 1990: Hutchison 1991; Kelley 1991; Khatib

1990; Kouidhi and Ramamonjisoa 1991; Latin American

and aribbean Commission on Development and Envi·

ronment 1990; tele 1991; Leonard and oums 1989;

Mathonnat 1991; Milhnan and others 1991; Organisation

for Economic Co·operation and Development 1991p;

Pearce, Barbier and Markandya 1990; Pearce and odlers

1991; Pearce ed. 1991; Pryor 1988; Repetto and others

1989; Shiva Kumar 1990; Solorzano and others 1991;

Streeten 1991; Summers and Heston 1988 and 1991;

Svasti and oUlers 1991; UNDP 1991e, 1991£, 1992aand

1992b; UNESCO 1991b: UNFPAI991; UNICEF 1991;

United Nations 1991g; United Nations Economic Com­

mission for Latin America and the CaJ'ibbean 1991 b; van

Tongeren and others 1991; World Commission on EIl\~­

romoent and Development 1987; and World Resources

Institute 1990.

References for the boxes are as follows: box 1.1,

UNDP 1990 and 1991b.

Chapter 2 draws on the following: AdeLnan and

Mon'is 1967 and 1973;An-NaimandDeng 1990; Anyang'

Nyong'o 1987; Ardito-BarleLLa 1990; Barsh 1991; Berg­

Schlosser and Siegler 1990; Bollen 1980 and 1990;

CUlgranelli and Hofferben 1988; Claude and Jabine

1990; Conaghan and Espinal 1990; Council for Europe

1950,1952 and 1963; Dahrendorf 1990; Dasgupta 1990;

de Baecque 1991; de Schweinitz 1964; Diamond, Linz

and Lipset 1989; Garcia 1990; Gerschenkron 1968;

Henderson 1991; Holt find Turner 1966; Humall RightsQuarterly 1986; International Institute of Higher Studies

in Criminal cience 1986; Lindenberg 1990; Lindenberg

and Devarajanl99.1; Marsh 1979; Milchell and McCor­

mick 198 ; Morris ilnd Adelman 1988; Nafziger 1983;

Nuscheler 1991; O'Donnell, Schmitter and Whitehead

1986; OAS J987; Pourgerami 1988; Pye and Pye 1985;

Roslow 1971; Ruttan 1991; SchmiLler and Karl 1991;

cul.ly 1988; en 199 1; Shepherd and Nanda 1985;

Utliled Nations J988b; United Nations Centre for Hu­

man Rights 1990; ~nd Vanh'lnen 1990.

References for the boxe are as fol.lows: box 2.2,

United Nations .194 ,1965,1966,1979, 1984and 1988b.

References for the tables are as follows: table 2.1: see

technical note 3.

Chapter 3 draws on the following: Avramovic 1989,

1991a and 1991b; Bhagwati 1991; Borensztein 1991;

Browne 1990 and 1991; Buhmann and others 1988;

Carlson and Wardlaw 1990; Clinc 1987; Denham 1990;

Eberstadt 1990; Faber 1990; Genberg 1991; Griffin

1991; Griffin and Khan 1991; Griffith-Jones 1990a and

1990b; I lam 1990; Lipton and Toye 1990; Maizels 1987

and forthcoming; Mi try 1991; Morss and Morss 1986;

Mosley 1987; Mosley, Harrigan and Toye 1991; Poe

1990; Portes 1990; Raffel' 1990; Ranis 1985 and 1989;

Riddel 1987; Sachs and Kneer 1990; South Commission

1990; Stokke 1989; UNDP 1990 and 1991b; United

Nations 1988a, 199011., 1990cand 1990[; United Nations

Economic Commi sion for Latin America and the Carib­

bean 1990a and 1990b; Wood 1989; World Bank 1989a,

1989d, 1990b, 1991a, and World Bank AJlflUal Report1991; and World Instilute for Development Economics

Research 1989a.

References for the boxes are a follow: box 3.1,Feinberg 1991, United Nations 1991a, United Nations

Economic Commission for Africa 1989, and World Bank

1991a; box3.2, Mistry 1991, and World Bank 19 9d; box

3.3, United Nation 1990c.

Chapter 4 draws on the following: Abella 199.1 a and

1991b; Adams 1991; Adepoju 1989,1990, 1991a and

1991b; Amjad 1989; Appleyard 1989, 1990 and 1991;

Avrarnovic 197 , 1988 and 1991 b; Ba.lan .199 t; Bello and

Rosenfeld 1991; Bhagwali 1988; Bosemp 1990; Dailami

and Alkin 1990; Escobar-Navia 1990; Evans 1987; Fin­

ger and Messerlin 1989; Finger and OledlOwski 1987;

Fisher 1933; Ghosh 1991; Gibbs and Hayashi 1990;

CUben 1987; Gillis, Perkins, Roemer and Snodgrass

1987; Golini, Geasno and Heins 1990; Graham 1991;

Gri[fln and Khan 1991; Grilli and Yang 1988; Haddad

and others 1990; Hamilton 1990; Heisler and SchmiLler

1986; Hilts 1991; Hoekman 1990; Hujanen 1988; Inter­

national Finance Corporation 1990a, 1990b and 1991;

lnternational Labour Officc 198~, 1987 and 1991; Inter­

national Organization for Migration 1990;Jacobson 1988:

Kim 198 ; Kritz, Lean Lim and Zlmnik forthcoming;

Laird and Vossenaar 1991: Laird and Yeats 1987; Lean

Lim 1991; Lucas 1990; Marlin 1991; Messerlin and

Salivant 1990; MOrlon ]990: Muto 1990; Noyelle 19 9

and 1990; Organisation for Economic Co-operation and

on 105

Development 1990a, 1991a-k and 1991 m-o; Oversea'

Development Council and World Wildlife Fund 1991;

Overseas Development Institute 1991; Page. Davenpon

and Hewitt 1991; Papademetriou ]990; Parikh 1991;

P[effermann and Madamssy ]990; Pipe 1989; Pongsapich

]989; Priovolos and Duncan 1991; Psacharopoulos ~md

others 1983; Raghavan 1990: Rice 1991; Rubio, Jaime

and Draz ]990; Smith 1991; Soubm ]989; South Com­

mission 1990; Taussig ]927;Tilak 1989; UN TAD 1989b,

1990c, 1991a, 1991b, ]991d and 1991e; UNCIAD,

UNDP and \XTlDER 1990; United Nations 1989, 1990a,

1990d and 1990e; United Nations Centre on Iran na­

tional Corporation' 1991b and forthcoming; United

Nation' Committee for Development Planning 1990:

United Nations Economic Commission or Europe and

United Nations Population Fund 1991; US Commission

for the Study ofInternational Migration and Cooperative

Economic Development 1990; White-Davis 1990, 1991

and forthcoming; World Bank 19 7 and 1991a; Yeats

1987 and 1990; Zikopoulos 1989 and 1990; and Zlotnik

1990 and 1991.Referencesfonhe annex are a .follows: for Singapore,

Lall 1990, Ng, Hil'Ono and Akrasanee 1987, and van

Liemt 1988; for Korell, Bello and Rosenfeld j 99t,£co/10­mist 1991 b, and Pack and Westphal 1986; [orJapan, Cole1989, Economist 1991c, and Stern and Hiromirsu 1990;

for Brazil, Plank 1990, Thomas, Strauss and Henriques

1990. and Vessuri 1990; for Mauritius, Economist Intel­

ligence Unit 1991, and World Bank 1989b; and for

Tunisia, UNCTAD 1991d and 1991e.

References for the boxes are as follows: box 4.1,

Griffin and Khan 1991; box 4.2, Adepoju 1990, White­

Davis 1990, 1991 and forthcoming, and Zikopoulos 1989

and 1990; box 4.4, Abella 1991b; box4.5, Daly and Cobb

1989, Latin Am<:rican and Caribbean Commission on

Development and Environment J990, and Overseas De­

velopment Council and World Wildlife Fund 1991; box

4.6, Haddad and others 1990, Lockheed, Jamison and

Lau 1980, Marris 1982, Psacharopoulos 1981,

Psacharopoulos and Woodhall J985, and Tilak 1989.

References for the figures are as follows: figure 4.1,

Avramovicl988 and 1991 b; figure 4.2, World Bank 1990b;

figure ~.3, AVl'amovic I99.lb, based on IlVIF AnllutllReport various years, and World Bank Anuual Reportvariou years; figure 4.6, UNCTAD 1987.

References for the rabies are as follows: table 4.1,

World Bank Annual Report various years; table 4.2,

Avramovic 1988; table-l,}, World Bank 1990b; table 4.4,

Avramovic 1991b, ba ed on IlVIF AIII/ual Report various

years; table ~.5, World Bank AI/Nual Report various years;

table 4.6, United Nations Centre on Transnational

Corporations 1991b; table 4.7, Organisation of Eco­

nomic Co-operation and Development 1990b; table 4.9,

UNCTAD 1987; table 4.10, World Bank 199Jb; table

4.11, UNCTAD 1990a.

Chapter 5 draws on the following: Bertrand 1987;

Bhagwati 1991; Blackwell 1986; Dalal 1991; Dell 1990;

Dorfman 1991; Dreze and Sen 1990; Finger and

Olechowski 1987; GATT 1991aand 1991b; Griffin 1991;

Griffith-Jones anJ Lipton 1984; Harris 1991; WCN,UNEPandWWF 1991;Jayawfirdana 1991;Kenon 1990;

Korten 1990; Lipton 1991; MulHneux 1988; Nagaraj and

others 1991; NORDIC UN Project 1991; Renninger

1989: Sauvant and Lanier 1980; Schrijver 1989; SivaI'd

1991; Stockholm Initiative on Global Security and Gov­

ernance 1991; Stockholm International Peace Research

Institute J991; UNDP 199Icand 1991d; United Nations

1991b-f; United Nation Centre on Transnational Cor­

porations 1991a; Urquhan and Childers 1990; World

Institute for Development Economics Research 1989b;

World Resources Institute 1989; World Women's Con­

gressfor a Healthy Planet 1991; and Wulf 1991.

References for the boxes are as follows: box 5'},

Pearce ed. 1991, UNEP 1991, World Commission on

Environment and Development 1987, and World Re­

sources Institure 1989; box 5.4, NORDIC UN Project

1991, Stockholm Iniriative on Global Security and Gov­

ernance 1991, Uluted Nations Joint Inspection Unit

1985, and World Insitute for Development Economic

Research 1989b.

106 BlBlJ()(,RAl'HI 1Tl

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117

Selected definitions

Azd human expenditure ratio The per­centage of a donor' GNP going to humanpriority areas in recipient countrie or theamount of official development assistancereceived for human priority areas expresseda a percentage of the recipient country'sGNP.

Aidsocialallocation ratio The percent­age of official development assistance thatgoes to the social sector.

Azd social priority ratio The percent­age of social ector official developmenta si ranee that goes to human priority area.

Apparent intake rate, first level Numberof new entrants into first grade, regardlessof age, expressed as a percentage of thepopulation of official admi ion age to thefir t level of education.

Birth rate (crude) The annual numberof births per 1,000 population.

Births attended The percentage ofbirth attended by physicians, nurses, mid­wives, trained primary health care workersor trained traditional birth attendants.

Budgetsurplus/deficit Current and capi­tal revenue and grants received, less totalexpenditure and lending, minus repayments.

Calorie supply See Daily caloriesupply.Child malnutrition See Underweight,

Wasting and Stunting.Child mortality See Underfive mortal-

ity.Contraceptive prevalence rate The per­

centage of married women of ch.i.ldbearingage who are using, or whose husbands areusing, any form of contraception: that i ,modern or traditional methods.

Currentaccountbalance The differencebetween (a) exports of good and ervices(factor and non-factor) a well as inflows ofunrequited private transfers but before offi­cial transfers and (b) imports of good andservices as well as all unrequited transfers tothe rest of the world.

Daily calorierequirementpercapita Theaverage number of calories needed to sus­tain a person at normal level of activity andhealth, taking into account the distribution

by age ex, body weight and environmentaltemperature.

Daily caloriesupplypercapita 111e calo­rie equivalent of the net food supplies in acountry divided by the population, per day.

Death rate (crude) The annual numberof death per 1,000 population.

Debtservice The sum ofrepayments ofprincipal (amortization) and payments ofinterest made in foreign currencies, goodsor ervices on external public, publicly guar­anteed and private non-guaranteed debt.

Dependency ratio 111eratio ofthe popu­lation defined as dependent, under 15 andover 64 year, to the working-age popula­tion, aged 15 to 64.

Directtax Taxes levied on the actual orpresumptive net income of individual , onthe profits of enterprises and on capitalgains whether realized on land ales, secu­rities or other a set .

Disability days Averagenumberofdaysin a year in which usual activities had to berestricted by illnes or injury.

Domestic investment (gross) Outlay inaddition to the fixed assets of the economyplus net changes in the level of inventories.

Domestic savings (gross) The gro s do­me tic product less government and privateconsumption.

Earningsperemployee Earnings in con­stant prices derived by deflating nominalearnings per employee by the country's con­sumer plice index.

Education expenditures Expenditureon the provision, management, inspectionand support of pre-primary, primary andecondary schools; universities and college ;

vocational, technical and other training in­stitutions; and general administration andsub icliary services.

Employees Regular employees, work­ing proprietors, active business partners andunpaid family workers, but excludinghomeworkers.

Enrolment ratio (gross and net) Thegross enrolment ratio i.s the number en­rolled in a level of education, whether or not

206 H

they belong in the relevant age group forthat level, expres ed as a percentage of thepopulation in the relevant age group for thatlevel. The net enrolment ratio is the numberenrolled in a level of education who belongin the relevant age group, expressed as apercentage of the population in that agegroup.

Expenditures See Govemmentexpendi­tures.

Exports ofgoods and services The valueof all goods and non-factor services pro­vided to the rest of the world, includingmerchandise, freight, insurance, travel andother non-factor services.

Female-male gap A set of national, re­gional and other estimates in \vhicb all thefigures for females are expressed in relationto the correspondingfigures for males, wl-uchare indexed to equal 100.

Ferttlity rate (total) The average num­ber of clilldren that would be born alive to awoman during her lifetime, if she were tobear child.ren at eacll age in accord withprevailing age-specific fertility rates.

Food aid in cereals Cereals providedby donor countries and international orga­nizations, including the World FoodProgramme and the International WheatCouncil, a reported for that particular cropyear. Cereals include wheat, flour, bulgur,rice, coar e grain and the cereal compo­nents of blended foods.

Food import dependency ratio The ra­tio of food imports to the food available forinternal distribution: that is, the sum offoodproduction, plus food imports, minus foodexports.

Food production per capita index Theaverage aru1Ual quantity of food producedper capita in relation to that produced in theindexed year. Food is defined as comprisingnuts, pulses, fruit, cereals, vegetables, sugar­cane, sugar beets, starchy roots, edible oils,livestock and livestock products.

Future labour force replacementratio Population under 15 divided by one­third of the population aged 15 to 59.

Gini coefji"cient A measure that showshow close a given distribution of income isto absolute equality or inequality. Namedfor Corrado Gini, the Gini coefficient is aratio of the area between the 45° line and the

Lorenz curve and the area of the entiretriangle. As the coefficient approaches zero,the distribu tion ofincome approaches abso­lute equality. Conversely, as the coefficientapproaches one, the distribution of incomeapproaches absolute inequality.

Governmentexpenditures Expendituresby all central government offices, depart­ments, establishments and otherbodie thatare agencies or instruments of the cenu-alauthority of a COWltry. It includes both cur­rent and capital or developmental expendi­tures but excludes provincial, local and pri­vate expenditures.

Greenhouse index Net emissions ofthree major greenhouse gases {carbon diox­ide, methane and chlorofluorocarbons),weighting each gas according to its heat­trapping quality, in carbon dioxide equiva­lents and expressed. inmetric tons ofcarbonper capita.

Gross domestic product (GDP) The to­tal for final use of output of goods andservices produced by an economy, by bothresidents and non-residents, regardless ofthe allocation to dome tic and foreign claims.

Gross enrolment ratio See Enrolmentratio.

Gross national product (GNP) The to­tal domestic and foreign value added claimedby residents, calculated without makingdeductions for depreciation. It comprisesGDP plus net factor income from abroad,whicl1 is the income residents receive fromabroad for factor services (labour and capi­tal), less similar payments made to non­residents who contribute to the domesticeconomy.

GNP per capita and growth rates Thegross national product divided by the popu­lation. Annual GNPs per capita are ex­pressed in current US dollars. GNP percapitagrowthrates are annual average growthrates that have been computed by fittingtrend lines to the logarithmic values ofGNPper capita at constant market prices for eachyear of the time period.

Habitable room See Persons per habit­able room.

Health expenditures Expenditures onhospitals, health cenU-es and cw-ucs, healthinsurance schemes and family plaru"llng.

Health services access The percentage

II 207

of the population that can reach appropriatelocal health services on foot or by the localmeans of transport in no more than onehour.

Immunized 111e average of the vacci­nation coverages ofchildren under one yearof age for the four antigens used in theUniversal Child Immunization Programme(UeI).

Income shm'e The income in both cashand kind accruing to percentile groups ofhouseholds ranked by total household in­come.

In/ant mortality rate The annualnum­bel' of deaths of infants under one year ofage per 1,000 live births. More specifically,the probability of dying between birth andexactly one year of age.

Inflation rate The average annual rateof i.n£1ation mea ured by the growth of theGDP implicit deflator for each of the peri­ods shown.

Internal renewable water resources SeeWater sources.

International reserves (gross) Holdingsof monetary gold, special drawing rights(SDRs), the reserve positions ofmembers inthe IMF, and holdings of foreign exchangeunder the control of monetary authoritiesexpressed in terms of the number ofmonthsofimports ofgoods and services these couldpay for at the current level of imports.

Labour force The economically activepopulation, including the armed forces andthe unemployed, but excluding homemak­ers and other unpaid caregivers.

Least developed countries A group ofdeveloping countries established by theUnited Nations General Assembly. Most ofthese countries suffer from one or more ofthe following constraints: a GNP per capitaof around $300 or less, land-locked, remoteinsularity, desertification and exposure tonatural disasters.

Life expectancy at birth The number ofyears a newborn infant would live if prevail­ing patterns of mortality at the time of itsbirth were to stay the same throughout itslife.

Literacy rate (adult) The percentage ofpersons age 15 and over who can, withunderstanding, both read and write a shortsimple statement on theli everyday life.

Low birth-weight The percentage ofbabies born weighing less than 2,500grammes.

Malnutrition See Underweight, Wast­ing and Stunting.

Maternal mortality rate The annualnumber of deaths of women from preg­nancy-related causes per 100,000 live births.

Mean years 0/schooling Average num­ber ofyears ofschooling received per personage 25 and over.

Military expenditures Expenditures,whether by defence or other departments,on the maintenance of military forces, in­cluding the purchase of military suppliesand equipment, construction, recruiting,training and military aid programmes.

Net enrolment ratio See Enl'Olment ra­tio.

North See South-North gap.Official development assistance

(ODA) The net disbursements of loansand grant made on concessional financialterms by official agencies of the members ofthe Development Assistance Committee(DAC), the Organisation for Economic Co­operation and Development (OECD), theOrganization ofPetroleum Exporting Coun­tries (OPEC) and so on, to promote eco­nomic development and welfare, includingtechnical cooperation and assistance.

ODA/orsodal investment Official de­velopment assistance for the combined ar­ea of health, education, social services,rural and urban development and water andsanitation.

ORT Oral rehydration therapy.Persons pel' habitable room The num­

ber of persons in housing units divided hythe number of habitable rooms in tho ehousing units. A habitable room is a pace ina housing unit, or other living quarters en­closed by walls reaching from the floor tothe ceiling or roof covering, at least to aheight of two metres, of a size large enoughto hold a bed for an adult.

Population density The total numberof inhabitants divided by the urface area.

Population growth rate The annualgrowth rate of the population calculatedfrom mid-year.

Poverty line 111at income level belowwhich a minimum nutritionally adequate

208

diet plus essential non-food requirementsare not affordable.

Primary education Education at thefirst level (International Standard Classifi­cation of Education [ISCED] level 1), themain function of which is to provide thebasic elements of education, such as el­ementary schools and primary schools.

Ptimary schooLcompLetionl'ate The pro­portion of the children entering the firstgrade of primary school who successfullycomplete that level in due course.

Purchasing power parities (PPP) SeeReaL CDP per capita.

Real CDP per capita (put'cbasing powerpalities [PPPJ) The use ofofficial exchangerates to convert the national currency fig­ures to US dollars does not attempt tomeasure the relative domestic purchasingpowers of currencies. The United NationsInternational Comparison Project (ICP) hasdeveloped measures of real GDP on aninternationally comparable scale using pur­chasing power parities (PPP) instead ofexchange rates as conversion factors, andexpressed in international dollars.

ReaL per capita expenditures The ex­penditures for each item in each countryexpressed in relation to those in the UnitedStates, based on the national currency totalfor each item converted to internationaldollars by the purchasing power for thatitem. This comparison ofquantities for eachitem is based on the common set of interna­tional prices applied across all the counU'iesthat is used in the International Price Com­parison Project. (See ReaL CDP per capita.)These expenditures are then expressed inrelation to the corresponding average ex­penditures of the industrial counu-ies, whichare indexed to equal 100.

Ruralpopulation The percentage ofthepopulation living in rural areas as definedaccording to the national definition used inthe most recent population census.

Rural-urban disparity A set of national,regional and other estimates in which all therural figures are expressed in relation to thecorresponding urban figures, which are in­dexed to equal 100.

Safe water access The percentage ofthe population with reasonable access tosafe water supply, including treated surface

waters, or untreated but uncontaminatedwater such as that from springs, sanitarywells and protected boreholes.

Sanitation access The percentage ofthepopulation with access to sanitary means ofexcreta and waste disposal, including out­door latrin.es and composting.

Science graduates Tertiary educationgraduates in the natmal and applied sci­ences.

Scientists Persons with scientilic ortechnological training-usually completionof third-level education in any field of sci­ence-who are engaged in professional workon research and development activities, in­cluding administrators and directors ofsuchactivities.

Secondary education Education at thesecond level (ISCED level 2 and 3), basedon atleast four years' previous instruction atthe first level, and providing general or pe­cialized instruction or both, such as middleschools, secondary schools, high schools,teacher-training schools at this level andschools of a vocational or technical nature.

Secondary technical education Educa­tion provided in those second-level schoolsthat aim at preparing the pupils directly fora trade or occupation other than teaching.

Social security benefits Compensationfor loss of income for the sick and tempo­rarily disabled; payments to the elderly, thepermanently disabled and th.e unemployed;family, maternity and child allowances andthe cost of welfare ervices.

South-North gap A set of national, re­gional and other estimates in which all thefigures are expressed in relation to the cor­responding average figures for all the indus­trial countries, which are indexed to equal100.

Stunting The percentage of children,between 24 and 59 montlls, below minutwo standard deviations from the medianheight-for-age of the reference population.

Technicians Persons engaged in scien­tific research and development activitieswho have received vocational or technicaltraining for at least three years after the £U'ststage of second-level education.

Terms oftrade The ratio of a counu'y'sindex of average expOlt prices to its averageimport price index.

II DI TO 209

Tertiary education Education at thethird level (ISCED levels5, 6 and 7), such asuniversities, teachers' colleges and higherprofes ional schools-requiring as a mini­mum condition of admission the successfulcompletion of education at the second levelor evidence of the attainment of an equiva­lent level of knowledge.

Tradedependency Exports plus importsas a percentage of GDP.

Transition from first to second leveleducation Number of new entrants intosecondary general education, expressed as apercentage of the total number of pupils inthe last grade of primary education in theprevIous year.

Underjive mortality rate The annualnumber of deaths of children under Bveyears of age per 1,000 live bitths. Morespecifically, the probability ofdying betweenbirth and exactly five years of age.

Underweight (moderate and severe childmalnutrition) The percentage ofchildren,

under the age of five, below minu twostandard deviations From the median weight­for-age of the reference population.

Unemployment The unemployed com­prise aU persons, above a specified age, whoare not in paid employment or elf-em­ployed, are available for paid employmentor self-employment and have taken specificsteps to seek paid employment or self-em­ployment.

Urban population The percentage ofthe population living itl mban areas as de­fined according to the national definitionused in tJle most recent population census.

Wasting The percentage of children,between 12 and 23 months, below minustwo standard deviations from the medianweight-for-height of the reference popula­tion.

Water access See Safe water.Water sourcej~ internal renewable The

average aJmual flow of rivers and aquifersgenerated from endogenous precipitation.

210 r I or lOR

Classification of countries

Countries in the human development aggregates

High human development(HDI 0.800 and above)

Medium human development(HDI 0.500 to 0.799)

Low human development(HDI below 0.500)

ao Tome and

Princil eSenegalSierra Leone

olomon IslandsSomalia

Sudanwaziland

Tanzania, U. Rep. of

TogoUganda

Viet NamYemenZaire

Zambia

Zimbabwe

ameroon

Cape VerdeCentral African Rep.

ChadComoro

Congoore d'lvoire

Djibouti

Egypt

EI alvador

Equatorial Guinea

Ethiopia

GambiaGhana

Guatemala

Guinea

Guinea-Bissau

HaitiHondurasLldia

Lldonesia

Kenya

Lao People" Dem. Rep.

LesOtho

Liberia

MadagascarMalawi

Maldives

MaliMauritania

Morocco

Mozambique

Iyanmar

amibia

epal

Nicaragua

Niger

Nigeria

PakistanPapua New Guinea[{wanda

Afghani tan

Ang laBanglade h

Benin

BhutanB livia

Burkina Faso

Burundi

Cambodia

Albania

Algeria

Antigua and Barbuda

Balmlin

BelizeBotswana

BrazilChina

Colombia

Cuba

Dominica

Dominican Rep.Ecuador

Fiji

Gabon

GrenadaGuy:ma

Iran, Islamic Rep. of

Iraq

Jamaica

JordanKorea, Dem. Rep. ofLebanon

Libyan Arab JamahiriyaMalaysia

Mauritius

MongoliaOmanPanama

Paraguay

Peru

Philippine

Romania

aim KillS and Nevis

aint Lucia

aint Vincent

amoa

audi Arabia

eychelJe

outh Africa

ri Lanka

Suriname

yrian Arab Rep.

Thailand

Tunisia

Turkey

United Arab Emirates

Vanuatu

Argentina

Australia

Austria

Bahamas

BarbadosBelgium

Brunei Daru salam

Bulgaria

Canada

Chile

Co ta Ri aCyprus

CzechoslovakiaDenmark

Finland

France

Germany

Greece

Hong KongHungary

Iceland

Ireland

Israel

Italy

JapanKorea, Rep. of

KuwaitLuxembourg

Malta

Mexico

Netherlands

New Zealand

NorwayPoland

PortugalQatar

ingapore

Spain

Sweden

Switzerland

Trinidad and Tobago

United Kingdom

UruguayU'A

US R

Venezuela

Yugoslavia

211

Countries in the income aggregates

High-income(GNP per capitaabove $6,000)

Australia

Ausu;a

BahamasBahrain

Barbados

Belgium

Brunei Darussalam

Canada

Cyprus

Denmark

Pinland

France

Germany

Hong Kong

IcelandIrelandIsrael

Italy

JapanKuwait

Luxembourg

NetherlandsNew Zealand

Norway

Qatar

Saucli Arabia

Singapore

Spain

SwedenSwitzerland

United Arab Emirates

United Kingdom

U A

Middle-income(GNP per capita$501 to $6,000)

Albania

Algeri,t

Angola

Antigua and Barbuda

ArgcminaBelize

Bolivia

Botswana

Brazil

Bulgaria

Cameroon

Cape Verde

Chile

Colombia

CongoCosta RicaCote d'lvoire

CubaCzechoslovakia

Djibouti

Dominica

Dominican Rep.

EcuadorEgypt

EJ SalvadorFiji

Gabon

GreeceGrenada

Guatemala

Honduras

Hungary

L'an, Islamic Rep. of

Iraq

JamaicaJordanKorea, Dem. Rep. ofKorea, Rep. of

LebanonLibyan Arab Jamahiriya

Malaysia

MaltaMauritius

Mexico

Mongolia

Morocco

Namibia

Nicaragua

Oman

Panama

Papua New Guinea

Paraguay

Peru

Philippine'Poland

PortugalRomania

Saint Kilts and Nevi

Saint Lucia

Saint Vincent

Samoa

SenegalSeycheUes

Solomon Islands

Somh AfricaSuriname

Swaziland

Syrian Arab Rep.

11lailand

Trinidad and Tohago

Tunisia

Turkcy

Uruguay

USSRVanuatu

Venezuela

Yemen

YugoslaviaZimbabwe

Low-income(GNP per caplta$500 and below)

Afghanistan

Bangladesh

Benin

Bhutan

Burkina Fa 0

Burundi

CambodiaCentral Afi-ican Rep.

Chad

China

ComorosEqualOrial Guinea

Ethiopia

GambiaGhana

GuineaGuinea-Hi sau

Guyana

Haiti

Llclia

illdonesia

Kenya

Lao People's Dem. Rep.

Le OlhoLibel;a

Madagascar

Malawi

Maldives

Mali

Mauritania

Mozambique

Myanmar

Ncpal

NigerNigeria

Paki tan

RwandaSao Tome and PrincipeSiclTa Leone

SomaliaSti Lanka

SudanTanzania, U. Rep. of

Togo

UgandaViet Nam

Zaire

Zambia

212 m [\!!\ D. \E OP\1[ 11 )1( ATC>

Countries in the major world aggregates

Least developed All developl;lg couJltries Industrialcountries countrzes

Afghani tan Afghanistan Guatemala Paraguay AlbaniaBangladesh Algeria Guinea Peru AustraliaBenin Angola Guinea-Bis 'au Philippine Au triaBhutan Antigua and Barbuda Guyana Qatar BelgiumBOl wana Argentina Haiti Rwanda BulgariaBurkina Faso Bahamas Honduras aint Kitts and CanadaBurundi Bahrain Hong Kong Nevi CzechoslovakiaCambodia Bangladesh India Saint Lucia DenmarkCape Verde Barbados Indonesia aint Vincent Finland

Central African Rep. Belize Iran, Islamic Rep. of amoa Francehad Benin Iraq aO Tome and Germany

Comoro Bhutan Jamaica Principe GreeceDjibouti Bolivia Jordan Saudi Arabia HungaryEquatorial Guinea Botswana Kenya _enegal IcelandEthiopia Brazil Korea, Dem. Rep. of eychelles IrelandGambia BrWlei Darussalam Korea, Rep. of Sierra Leone IsraelGuinea Burkina Faso Kuwait Singapore ItalyGuinea-Bissau Burundi Lao People's olomon Island JapanHaiti Cambodia Dem. Rep. Somalia LuxembourgLao People's Dem. Rep. Cameroon Lebanon outh Africa MaltaLe otho Cape Verde Lesotho ri Lanka Netherland'Liberia Central African Rep. Liberia Sudan New ZealandMalawi Chad Libyan Arab Suriname orway

Maldives Chile ]anlahiriya waziland PolandMali China Madagascar yrian Arab Rep. PortugalMauritania Colombia Malawi Tanzania, U. RomaniaMozambique Comoros Malay ia Rep. of painMyanmar Congo Maldive ll1ailand wedenNepal Costa Rica Mali Togo witzerland

Niger Cote d'Ivoire Mauritania Trinidad and United Kingdom

Rwanda Cuba Mauritius Tobago USA

Samoa Cyprus Mexico Tunisia U SR

Sao Tome and Principe Djibouti Mongolia Turkey YugoslaviaSierra Leone Dominica Morocco Uganda

Solomon Islands Dominican Rep. Mozambique United Arab

Somalia Ecuador Myanmar Em.irates

udan Egypt Namibia Uruguay

Tanzania EI Salvador Nepal Vanuatu

Togo Equatorial Guinea Nicaragua Venezuela

Uganda Ethiopia Niger Viet amVanuatu Fiji igeria Yemen

Yemen Gabon Oman Zaire

Zaire Gambia Pakistan Zambia

Zambia Ghana Panama Zimbabwe

Grenada Papua New Guinea

213

Countries in the developing aggregates

Africa SOlltb 0/the Sabara

AngolaBeninBotswanaBurkina FasoBurundiCameroonCape VerdeCentral African Rep.ChadComoros

ongoCOle d'h'oireDjiboutiEquatorial GuineaEthiopiaGabonGambiaGhan,\GuinellGuinell-BissauKenyaLesolhoLiberiaMadagascar

lalawiMaliMauritllniaMauritiu.MozambiqueNamibiaNiger

igcriaRwandaSao Tome and Principe

enegaleychellesierra Leone

'omaliaoUlh Africa

SwazilandTanzania, U. Rep. orTogoUganc.l:tZaireZambiaZimbabwe

Arab SlLItes

AlgeriaBahrainEg ptIraqJordanKuwaitLebanonLibyan Arab JamahiriyaMoroccoOmanQatarSaudi ArabiaSudanSyrian Arab Rep.TunisiaUnited Arab EmiratesYemen

Latin Americaalld the Caribbean

Amigu:l nnn FlarhudaArgentinaBahamasBarbadoBelizeBoliviaBrazilChileColombiaCosta RicaCubaDominicaDominican Rep.EcuadorEl alvadorGrenadaGuatemalaGuyanaHaitiHondurasJamaicaMexicoNicaraguaPanamaParagmlyPeru

aint Kilts >lnd evi>lint Lucia

Saint VincentSurinameTrinidad and TobagoUruguayVenezuela

East Asia

ChinaHong KongKorea, Oem. Rep. ofKorea, Rep. of

Mongoli>l

South-East AsiaandOceama

Brunei DarussalamCambodiaFijiIndonesiaLao People' Dem. Rep.MalaysiaMyanmarPapua New GuineaPhilippinesSamoaSingapore

olomon hlandsThailandVanuatuViet am

South AsiC/

AfghanistanBangladeshBhutan[ndiaIran, Islamic Rep. ofMaldive'NepalPakistan

ri Lanka

21-1 H

Countries in the industrial aggregates

OECD

AustraliaAustriaBelgiumCanadaDenmarkFinlandFranceGennanyGreeceIcelandIrelandItalyJapanLuxembourgNetherlandsNew ZealandNorwayPonugal

painSwedenSwitzerlandUnited KingdomUSA

Eastern Europe and USSR

AlbaniaBulgariaCzechoslovakiaHungaryPolandRomaniaUSSRYugoslavia

Nordic Counlnes

DenmarkFinlandIcelandNOlwaySweden

Soutbern Europe

AlbaniaGreeceItalyMaltaPortugalSpainYugoslavia

European Community

BelgiumDenmarkFranceGermanyGreeceIrelandItalyLuxembourgNetberlandsPortugalSpainUnited Kingdom

Non-European Countries

AustraliaCanadaIsraelJapanNew ZealandUSA

North America

CanadaUSA

II IJ \fIOP II II [!< lUI 2J5

Primary sources of data

Data for the topics in italics have been taken frommore than one major ource.

Food and Agriculture Organization ofthe UnitedNations (FAO)Agricultural production. Arable land. Calorie sup­ply. Cereal import. Dejoreslalion. Food imports.Food production. Fuel wood. Land area.

HabitatPersons per habitable room.

Institute for Resource DevelopmentBre(lst-jeedli1g. Child malnutrition.

International Centre for Urban StudiesCity population density.

International Labour Organisation (ILO)Employment. Labour force. Unemployment.Wages.

International Monetary Fund (IMF)Budget surplus/deficit. Current account balance.Inflation. International reserves. Taxes. Workers'remittances.

Interparliamentary UnionWomen in parliament.

Luxembourg Income Study Database (LIS)Real GDP per capita poverty line.

Organisation for Economic Co-operation andDevelopment (OECD)Debl service. ODA, given and received. ODA bysubject, and a broad range oj/i1dicatorsjor OECDcountdes.

Stockholm International Peace Research Insti­tute (SIPRI)Military expenditures. Arms exports and imports.

Statistical Office of the European Communities(EUROSIAT)A broad range ojindicatorsjar EC countries.

United Nations Centre for Social Developmentand Humanitarian AffairsDivorces. Drug crimes. Homicides. Prisoners.

United Nations Children's Fund (UNICEF)Breastjeed/i1g. Child malnutrilion. Immunization.ORT lise. Under-five mortality.

United Nations Development Programme(UNDP)Human development index (HDI). Mean years ofchooling. Selected Ijteracyestimates. Selected real

GDP per capita estimates.

United Nations Economic Commission for Eu­rope (ECE)Dejorestation and a broad range 0/ indicators /01'countries ill the Ee.United Nations Educational, Scientific and Cul­tural Organization (UNESCO)Book title. Cinemas. Compulsory education. Edu­cation expenditure. Graduates. Library books. Lit­eracy. Museums. Newspapers. Radios. Repeaters,scbool, college and university enrolment. Scientistsand technicians. Teachers. Televisions.

United Nations Industrial Development Orga­nization (UNIDO)Earnings.

United Nations Population DivisionBirth rates. Death rates. Dependency ratio. Ferti.!­ity. [II/ant and tinder-five mortality. Life expectancy.Population: total, urban and rural. Population den-ity.

United Nations Population Fund (UNFPA)Contraceptive prevalence.

United Nations Statistical OfficeEnergy. Exports and imports. GDP. Commercialenergy. Housing. fnjant mortality. Passenger cars.Persons per habitable room. Terms of trade. Tradedependency. Total population.

University of PennsylvaniaReal GDP per capita.

World BankDebt service and interest payments. Domestic invest­ment. Domestic savings. GDP, GNP and GNP percapita. Household income. Health and educationexpenditures. Population below poverty line. Socialsecurity benefits.

World Fertility SurveyBreastjeeding.

World Food Programme (WFP)Food aid.

World Health Organization (WHO)Child malnutrition. Access to health services, safewater and sarutation. Alcohol. Doctors and nurses.Health attendance at birth. immunization. Lowbirtll-weight. Maternal mortality. ORT use. Smok·ing.

World Priorities, Inc.Armed forces. Military, health and education expen­dilures.

World Resources InstituteGreenhouse index. Internal renewable water re­sources.

216 III I tI .J I I DI( ro