1998/99 World Bank Development Report
Presented by
Jim Franciscus - Valerie Chittenden - Lee Baliton - Masud Arif Mozammel
International Development (33.637.01)
Spring 1999
Introduction
By Jim Franciscus
As World War II was ending and there was a need for international economic institutions, the Bretton Woods system was created at a conference of the war winning states in 1944 at Bretton Woods, New Hampshire. It established the International Bank for Reconstruction and Development (IBRD) more commonly called the World Bank, as the source to provide loans for the reconstruction of the European infrastructure and economies. Later on the main borrowers were less developed countries (LDC’s), who were in need of loans to reduce poverty and improve living standards through sustainable growth and investment in people. Over the last fifty years the World Bank has created development programs and provided loans to help these developing countries.
The 1998/99 World Development Report "Knowledge for Development", the 21st annual report, analyzes the opportunities the global information revolution is creating for developing countries, and how financial, technical, and medical knowledge is crucial to improving sustainable living conditions and health standards of the poor. Additionally, the new communication technology era is expanding global knowledge in even the most remote areas of the world. But, this rapid development of knowledge and technology is widening the gap in areas where the funds needed to increase knowledge awareness are not available. The World Bank recognizes this danger could increase knowledge awareness gaps to levels in which countries and communities will never catch up. The report provides us with a comprehensive look at how knowledge can make a difference in developing countries between sickness and health, and poverty and wealth.
The Components of Knowledge according to the 1998/99 World Bank Development Report focuses on two types of knowledge. It recommends three types of actions to help developing countries succeed in making the most of knowledge as the tool in reducing its problems.
First, Knowledge About Technology, provides technical knowledge to developing countries to improve birth rates, nutrition, software engineering, and accountancy. Unequal balances between developed and under developed countries show us knowledge gaps. By closing these gaps through education, better communication systems, and increased trade between countries can help to improve poor people’s lives. Secondly, Knowledge about Attributes, refers to the quality of a product, the diligence of its work force, and the creditworthiness of a firm, are all-important factors in a developed marketplace. Through better knowledge development programs a transformation will occur in product standards, information awareness, training, and credit reports access. With an increase in information there will be a decrease in market failures that have especially hurt the poor.
The outline of this report is to understand the relationship between information problems and knowledge gaps, how development is affected in developing countries, and the ways international institutions and developing countries governments can work together to alleviate these problems.
Making the Most of Knowledge
The three types of knowledge programs developing countries should follow begins with Acquiring Knowledge, which involves learning from other developed countries and by adapting and tapping into their available resources as a means to learn. Program examples include, creating open trade markets, increasing foreign investment opportunities, and implementing knowledge programs through research and development with the local indigenous peoples. Second, is that Absorbing Knowledge involves the creation of a universal basic education program, with an emphasis on educating traditionally neglected groups such as woman, and developing long term education programs in and the science and engineering fields. Thirdly, is Communicating Knowledge involves taking advantage of new sources of information and communication developments that would increase competition in the private sector with the appropriate regulation, and offering it to all people including the poor.
The World Banks goal is to provide by the year 2000 relevant parts of the Knowledge Programs and make it accessible to clients, partners, and stakeholders around the world. By narrowing the knowledge gap and increasing education will help improve the daily life of people living in developing countries.
12 Subsection Summaries from the 1998/99 World Bank Development Report
By Valerie Chittenden
The Power and Reach of Knowledge - No one denies that knowledge is power. This section presents the outcomes of two different countries - the former USSR and Hong Kong- in relation to their pursuit and use of knowledge. Both countries had initially focused on physical capital and education. Where the USSR had a closed education system and did not allow free flow to ideas and knowledge, Honk Kong pursued the opposite course resulting in their obviously much high standard of living.
Acquiring Knowledge - Knowledge acquisition is more than just educating people. Exposure to new ideas through foreign trade, foreign investment and migration leave a tangible impact of a developing country. Not all of the above are positive. Where the migration of a group expatriates might contribute to a nation's store of information; the emigration of a country's educated populace (i.e.: brain drain) will act to drain it.
Absorbing Knowledge - Universal education is the foundation upon which knowledge is built. However, education must reach out to all segments of the population especially previously disadvantaged groups. The results are far reaching. From preserving economic and physical survival of the average person through flexibility in employment in times of uncertainty to basic protection of rights, education is vital. Another benefit that basic education encourages more education - creating a positive cycle of tangible results.
Communicating Knowledge - With computing power costing less and less and telecommunication costs plummeting, this combination allows the developing nation to leap frog ahead in knowledge acquisition. Wireless technology liberates the developing nation from dependence on costly and outdated analog telephone systems. Easier access to computer technology encourages and maintains education. Locations that previously could not access information can do so now with basic literacy and the click of a mouse. As investment opportunities expand, the local governments can improve with the sharing of knowledge.
Competition and Public Policy -Government involvement should be active in the fields of knowledge acquisition and communications. By privatizing a national telephone industry, competition is encouraged. This can only benefit the consumer with lower, competitive prices, improved access, and improved quality. A government that actively breaks up monopolies related to the spread of knowledge ultimately benefits the national economy and the good of the people.
Ensuring Competition - Destroying a company's stranglehold on service-like telecommunications is not enough. The government must take an active part is preserving this new freedom. Gradual privatization, with piece-meal liberalization of individual components encourages competition and does not provide sudden interruptions in existing service. Regulations must be initiated and implemented encouraging competition. Terms for licenses and regulations must be universal and respected.
Information, Institutions, and Incentives - Obtaining knowledge of a good or service can be difficult is difficult with out some form of help. Banks in developing nations cannot access credit worthiness according to Western conventional means; thus, resulting in discouraging interest rates. A more basic problem involves the quality of milk in India. People cannot ascertain if this staple is of good quality and not diluted. Government enforcement in the form of standards is essential.
Processing the Economy's Financial Information - The recent collapse of the East Asian financial markets is a prime illustration of the results if misinformation. Many companies and banks lacked accurate assessments of reserves and in some cases did not even have correct balance sheets. The markets therefore could not accurately process information and act accordingly. The process could have been averted with accurate accounting techniques and complete public disclosure of information.
Coping with Information Gaps - Institutions are faced with the problem of assessing the promise or reliability of a contract or borrower without information on the credit worthiness of the involved party. Without such information, banks and institutions cannot trust the other involved parties. Banks first need to carefully assess the projects/persons they are funding. Another solution is to extend microcredits to a group of borrowers. The members of the group are responsible for each other - providing an effective watchdog device. The final step in narrowing the information gap is the strict enforcement of contracts.
Public Action - When a market collapses, contagion must be contained. For example, financial failure of an institution is hastened by people making a run on the bank. Knowledge again can prevent this. With public monitoring of such institutions, knowledge of the bank's standards and regulations are assumed to be in place - preventing such mass panic.
Increasing Our Knowledge of the Environment - The environment is a difficult thing to value. It is neither a good nor a service. However, a bad environment can cost lives while a good environment can promote development and profit. The Green Revolution is disproving the Malthusian dilemma. However, knowledge must be maintained in order for it to be preserved. Information of an existing crop and its cultivation can be lost within one generation if farmers rely totally a single, new cash crop.
Addressing Information Problems - Development can only succeed by listening to the people one is trying to help. Involving the beneficiaries in the design and implementation of a project will ensure its success. Working with local groups not only earns their trust but gives them a voice in the whole process as well. Information can then be easily spread; information such as AIDS prevention or prevention of complications from such problems as diarrhea. By involving the people one is helping, one discovers not only what information they need but also how to implement it.
Most important Chapters of the Development Report
By Lee Baliton
The most important chapters in the book entitled The World Development Report are: "Communicating Knowledge" and "Processing the Economy’s Financial Information."
The chapter on Communicating Knowledge specified the advantages of today's technological advances thus making communication less expensive and more available to LDC’s. With these advances, computing power per dollar has risen, cost of voice transmission has fallen and a merging of digital and telecommunication technology have made information more easily available to everyone. To guarantee free flow of information to LDC’s, government intervention is necessary to encourage competition to keep costs lower. Regulations must be established to encourage the private sector to develop infrastructure, encourage competition and continue its leadership in communication technology.
By having the advantages of accessible information through communication technology, improvements in the processing of financial information may also be accomplished. This can be seen in Chapter 6, "Processing the Economy’s Financial Information."
For example, the East Asian financial crisis resulted from bad information caused by inadequate communication lines. Local financial markets did not have the full capability to process information accurately, and as a result, bank officials lacked information on banks’ balance sheets. This caused a distortion of information and economic forecasts for banks were inaccurate.
The use of modern communication technology is essential in preventing misinformation that might cause financial crises. LDC’s must adopt greater accounting transparency. In doing so, accounting procedures will be standardized and therefore create better communication between entities. Furthermore, with the help of updated communication technology, lending institutions will be more capable of monitoring borrowers’ financial performance.
By Masud Arif Mozammel
Kinds of Data/Information used
By Masud Arif Mozammel
Various types of data including primary data from different international agencies and nation-states have been used in the report. Main source of data was primary data collection by the World Bank. The member-countries reported data on external debt, accounts estimates, and social data, were also drawn from the member-governments. Besides, other statistical data and information were collected from United Nations, International Monetary Fund (IMF) and research institutes such as World Resources Institute.
Methodologies
By Masud Arif Mozammel
Different statistical methods have been used in the World Bank Development Report. These include least-squares growth rate, the exponential (end-point) growth rate, the Gini index and the World Bank’s Atlas methodology for calculating the conversion factor used to estimate GNP and GNP per capita in US Dollars.
Growth rates are computed using the least-squares regression method taking into account all available observations during a period.
Gini index measures the extent to which the distribution of income among individuals or households within an economy deviates from a perfectly equal distribution.
The Atlas conversion factor for any year is the average of a country’s rate for the year and its exchange rates for the two preceding years.
Constant price series has been used to facilitate international comparisons and incorporate the effects of changes in inter-sectoral relative prices on the national account aggregate. The constant price data are first partially rebased to three sequential base years and then "chain-linked" together and expressed in prices of a common base year, 1987. In doing the chain-linking procedure, components if gross domestic product (GDP) by industrial origin are individually rescaled and summed to arrive at the rescaled GDP.
2 Main Questions
It is obvious that developing nations face many challenges when it comes to acquiring more knowledge for development. They are already considered "backward" or "lagging" in comparison to the "developed" world. The task of development is now even more difficult. Not only do developed nations have a greater store of acquired knowledge; they are constantly making great strides in further evolution with each new technological breakthrough. How then, can the less developed country hope to close the existing gap between themselves and other nations when the developed world continues to surpass itself and exceed previous goals of development?
Acquiring knowledge and closing the gap is not sufficient to achieve development. The utilization of knowledge is what drives the development process. However, human beings are flawed and even the information they generate can sometimes be incorrect. These are inescapable certainties of the human condition. Information failure can damage existing markets of such things as credit and services. This has a detrimental impact on the disadvantaged. How can developing nations create institutions to reduce this while simultaneously acknowledging the certainty of information failure?