Mercy Global Concern - 2004

Civil Society Forum
Statement by Johan Schölvinck, Director
Division for Social Policy and Development, DESA
3 February 2004

Mr. Chairman, ladies and gentlemen,

It is a pleasure being with you once again on the eve of the start of the Commission for Social Development. I must admit that this pleasure is somewhat increased by the fact that we are meeting on a Tuesday, rather than a Sunday as has been the practice over the last number of years.

This morning we are to exchange views on the priority theme of the Commission, namely "Improving public sector effectiveness". This subject sends somewhat of a mixed message. On the positive side, it clearly indicates that the existence of the public sector is not in question. Getting rid of the bureaucracy is not a serious option. Also on the positive side is the notion of "improving". The public sector is at least not seen as beyond repair. The word "effectiveness", on the other hand, would seem to inject a negative connotation, implying that the public sector is wanting in being effective. Of course, as a member of the UN Secretariat, I am well aware of these sentiments, as we have been seen as a bloated, wasteful bureaucracy, however always considered amenable to reform, of which we have had our fair share, and thus, by implication, to improvement.

But let me take a step back. Some two months ago I attended a meeting with Professor Jeffrey Sachs, who, as you know, is the Director of the UN Millennium Project in UNDP and whose mandate is to operationalize the MDGs and to produce a report thereon by early 2005. When asked whether the objective was to reach the MDGs at the global, regional or national level, Professor Sachs' answer was unambiguous: the MDGs should be reached in each and every country by 2015. Undoubtedly this was the politically correct answer. The question remains whether it is a realistic answer.

Let us take for a moment MDG number one, the halving of the number of people living on less than one dollar a day. Couching this goal in monetary terms, invariably leads to the conventional wisdom that poverty is best reduced by increasing the economic growth rate. Leaving aside, for the time being, whether this wisdom holds any water, let us look at what the World Bank had to say about this in its 2004 World Development Report entitled "Making Services Work for Poor People". Let me quote: "How much reduction in child mortality and improvement in primary school completion can be expected from income growth alone?" asks the Bank. The answer is as follows: "Cutting child mortality by two-thirds between 1990 and 2015 (one of the MDGs) means reducing it by 4.4 per cent a year. Low-income countries would need sustained per capita income growth of 6.7 per cent a year to reduce mortality by two-thirds by 2015. Senegal would have to boost per capita income from about $650 to $3,500 - close to the level of Panama. Brazil would need an increase from almost $5,000 to $20,000 - close to the per capita income in New Zealand."

This quotation is not meant to say that economic growth has no place in poverty eradication, quite the contrary. To use a well-worn phrase: "without economic growth all things suffer". But, and here I quote the World Bank again: "reaching the MDGs will require dramatically high - perhaps unrealistically high - growth rates if growth is the only channel for achieving the goals." The inclusion of the word "perhaps" in this quotation would seem to me to be unrealistic. For example, quadrupling per capita income, as is implied in the Brazilian case, in 11 years would require a per capita growth rate of 14 per cent a year!

Clearly, growth alone does not guarantee poverty reduction, let alone poverty eradication. What needs to be taken into account is the underlying distribution of income and wealth. Unfortunately, policies that emphasize fast economic growth often pay little or no attention to income distribution, particularly the worsening inequality of that distribution.
The evidence suggests that rising inequality in income distribution makes it harder to reduce poverty - higher levels of inequality are associated with lower rates of poverty reduction at any given rate of growth. Furthermore, high inequality in a country can seriously impede poverty reduction strategies because it can limit the poverty-reducing effects of growth. Additionally, high levels of inequality can have undesirable political and social impacts, for example on crime and political stability.
Here, it is interesting to note that a recent growth simulation study on the ability of countries to achieve the MDG poverty goal by 2015 shows that for a given rate of economic growth, poverty falls faster in those countries where inequality of income is lower. This study found that higher growth and pro-poor policies will improve poverty reduction prospects in both high- and low-inequality countries but high-inequality countries need to grow twice as fast as low-inequality countries to halve poverty by 2015. Per capita income in countries in the high-inequality group will need to grow by about 7.1 per cent per annum in order to reach the poverty target by 2015
The prospect that all countries will achieve the poverty reduction goal of the Millennium Declaration by 2015 depends to a large extent upon whether countries will achieve faster and more broad-based growth. But this appears unlikely for a large number of countries. For instance, if sub-Saharan Africa is to achieve progress in reducing its rising number of poor, it must grow faster than its growth performance for the early 1990s.
If there is slow growth and increases in inequality, progress will be much slower and the MDG for poverty reduction target will be out of reach for all regions apart from East Asia. Thus, it becomes critical for poverty reduction strategies to pursue both income growth and improvements in the distribution of income and wealth, because the benefits of growth for the poor may be diminished if the distribution of income worsens.
From what I have said so far, it should be clear that policies that do more than increase growth are required. I would argue that those policies have to take into account what happens to equity. As Jan van de Moortele put it eloquently in a piece that appeared in the Financial Times, last August, and I quote: "Equity is not only good for the poor but also good for growth. Unfortunately, most anti-poverty strategies fail to make equity an explicit objective, to the detriment of both the poor and the wider economy."

Inequitable asset and income distribution can be addressed by a range of policies, including those that focus on improving access to and distribution of assets, especially land, which determine income flows for the poor. Land reform in an agriculture dominated country could substantially reduce rural inequality and, indirectly, urban inequality as well. Equally important is improving the productivity of the poor, especially by improving basic education, health and the skills that will enable the poor to take up rural non-farm or urban-oriented livelihood opportunities. In this regard, there should be an emphasis on expanding equitable, broad-based, high quality basic education, especially for girls. Furthermore, it is imperative to establish the distributive consequences for the poor from changes in taxes and charges, privatization, trade liberalization, and the removal of governmental subsidies and price controls. While greater flexibility may be desirable, labour market and tax and transfer policies should not abandon their traditional equity goals.

Now, what, you may wonder, has all of this to do with improving public sector effectiveness? I would venture a great deal. All too often is effectiveness equated with greater efficiency and with policies that advance economic growth. Here, it may be useful to recall the case of Brazil where per capita income has to quadruple to reach one of the MDGs. No matter how effective and efficient the policies to achieve economic growth, there is no way that Brazil will be able to achieve the per capita income that is seen as necessary to meet the MDGs. However, if we look at the underlying distribution of income and wealth a great deal can be achieved by pursuing policies that embrace the notion of equity.

In other words, effective public policies should include both efficiency and equity considerations.

Without a doubt the social agenda is of a long-term nature: eradicating poverty, together with a more equitable distribution of income, wealth and opportunities are all long-term goals. Also without a doubt, macro-economic policy is mostly concerned with the short run: it involves managing policy instruments in a consistent manner so as to achieve a stable and sustainable pace especially of economic growth.

In a nutshell, it can be said that social policy involves equity considerations while economic policy is mostly concerned with efficiency. Marrying equity and efficiency is not a simple matter. And it is often efficiency, in the name of achieving macro-economic stability, that gets the upper hand. An important task is to temper this focus on efficiency and to redress the balance towards the inclusion of equity.

Lest we forget, macroeconomic policies are essentially only a means to an end, and not an end in themselves. Or, as the Secretary-General said not long ago: "The ultimate ends of economic policy are in the broadest sense 'social'." Therefore, it is essential that explicit social objectives should be included in macro-economic policy making. That is, not only an emphasis on steady growth, price stability and fiscal balance, but also equal emphasis on full employment, equity, including income inequality, social protection and the provision of basic social services. And when I say equal emphasis, I mean that their inclusion should not be an afterthought or something that will come to pass once the macro-economic variables are behaving correctly, but rather, that the inclusion is a direct combination of economic and social policies.

Once we acknowledge that improving public sector effectiveness includes both efficiency and equity criteria, the emphasis on a leaner and meaner bureaucracy loses much of its force, especially when it comes to delivering social services. Or, as it is put in the Report of the Secretary-General: "Starving the public sector of resources under the rationale that it therefore will become more effective and efficient would seem dubious at best and counterproductive at worst."

Let me go back, for a moment, to our meeting with Professor Jeffrey Sachs. In order to reach the MDGs by 2015, he strongly advocated a major scaling up of public outlays in the social sector and in infrastructure. This, he noted, would require a big increase in the size of governments and greater budgetary revenues to finance core public goods. Furthermore, our focus should be on the poorest countries all of whom should be spending more on social services and should achieve a 4 per cent increase in public revenues by 2015. At the same time, he acknowledged the huge budgetary gaps that the poorest countries face and the consequent need for financial assistance, particularly ODA.

"Scaling up public outlays", "increasing the size of the government", "increasing budgetary revenues", "more financial assistance", all of these pronouncements would seem to be the opposite of what the advocates of public sector effectiveness would like to see occurring. However, I see Professor Sachs' approach as one that not only emphasises equity over efficiency but also as one that the public sector has a particular obligation to deliver services to poor people.

To me, then, improving public sector effectiveness really boils down to how effective the public sector is in reaching poor people. Actually, I would argue, the public sector is quite effective in reaching the middle class and certainly the elite in many countries, developed and developing alike. One reason for this is that spending is skewed to services disproportionately used by richer people. Public spending on primary education tends to reach poor people. But not all spending on primary services is pro-poor. While public spending on primary health care tends to be more pro-poor than overall spending, it does not always disproportionately reach the poor.

Consequently, most poor people do not get their fair share of public spending on services, let alone the larger share that should be justified on equity grounds. Results typically show that the poorest fifth of the population receives less than a fifth of health and education expenditures, while the richest fifth receives more.

Clearly, orienting public spending toward services used by poor people is essential. However, orienting is not enough; the spending has to reach poor people themselves, where it truly benefits them. In other words, unless resources support services that work for poor people, they will be ineffective. Furthermore, and this poses an additional problem, poor people's voices are often not heard with the result that the resources allocated to them are not only almost invariably inadequate but also ineffectively applied to service provision.

For basic services to work for poor people, governments have to be involved. Some of you may ask "what about the private sector"? I will not go into the pros and cons of privatisation as that is the topic of the next panel discussion. But let me say at this juncture, that, in terms of providing social services to poor people, it is the public sector whose aim it is to increase availability and accessibility of services in an equitable way, especially to those who cannot afford them, rather than generate financial profits, the main objective of the private sector. No matter how much we talk about corporate social responsibility, it is ultimately the profit motive that rules the private sector's behaviour; equity considerations do rarely enter its calculus.

Now, if we accept that governments have to be involved in providing basic services to the poor, it is necessary to look at how that involvement actually is carried out.

The principal vehicle is the public sector budget that, to no small extent, determines the economic and social objectives a country wants to achieve. However, in setting this budget, co-ordination and co-operation among the different Ministries is often absent, or weak at best, with the result that the separate sectoral interests are poorly understood thereby causing inconsistent policy making. Furthermore, when priorities are fleshed out in the budget process, social development goals are often seen to be "soft" objectives especially when they are compared with macroeconomic targets.

The plea, if not the point, here is that budgetary allocations should not simply be left to technocratic decisions emanating from the Ministry of Finance. Fiscal policy has major implications for social development, not in the least because it provides the resources for its achievement. However, the more the emphasis is on maintaining steady economic growth, the greater the risk that social sector expenditures are seen as a cost to that growth. Obviously it is not that simple, and certainly no economist would deny that social spending is a productive factor in the development process, no less than building physical infrastructure is, but squeezing it is easier because the benefits are widely dispersed and often slow in coming.

Here it is worth quoting the World Bank again from its report "Making Services Work for Poor People": "Policy management", the Bank observes, "is particularly difficult in providing social services. Costs come early and impacts much later. Policy anagement in these sectors is often an outcome of well-informed bargaining between competing domestic interests, so accounting for domestic political concerns is important. By contrast, macroeconomic management tends to be the preserve of a few relatively insulated technocrats, with the central bank and the finance ministry as key veto players, crises having to be dealt with expeditiously, and domestic concerns often not included in decision-making."

Two years ago, when I spoke for the first time at this forum, I made a distinction between those who had hard minds and hard hearts and those with soft minds and soft hearts. Often those who operate in the economic realm are associated with the former while those dealing with social issues are seen as belonging to the latter.

Intersecting these two mindsets, I said then, is of paramount importance. Not to end up with soft minds and hard hearts, the worst of all possible worlds, but to set the stage, to create the conditions where hard minds are ruled by soft hearts.

Improving public sector effectiveness has to be approached with keeping that in mind. It is all too easy to see the public sector as being underworked and overpaid and thus being a prime candidate for drastic pruning and privatising. Undoubtedly, there are many activities carried out by the public sector that could be curtailed or even eliminated. But when it comes to providing basic social services to poor people, a subject that is of particular relevance to the Commission for Social Development, it would seem that that same public sector is overworked and underpaid. Poor people are rarely heard, much less do they vote. Those who try to help them are usually small in numbers and engaged in unglamorous work often at meagre pay.

The Secretary-General in his opening speech to the General Assembly this last fall referred to the persistence of extreme poverty and the disparity of income between and within countries as "soft threats". Overcoming these threats requires public sector interventions at both the national and international levels. Reaching the MDGs by 2015 will be the ultimate test case. Economic growth, globalisation, trade liberalisation, liberalising financial markets will not be enough. In the final analysis, the effectiveness of the public sector, including the international community, will be judged by the extent to which it has been able to reduce these threats.

Mr. Chairman, I cannot conclude my statement without referring to my persistent insistence that the artificial divide between social and economic issues as they have been treated in the United Nations has to be overcome, a matter I have stressed here as well as in the General Assembly and at the Commission for Social Development. It is therefore encouraging that the General Assembly, taking its cue from the Commission for Social Development, adopted a resolution last fall in which it "emphasises the importance of integrating economic and social policies in promoting human resources development and enhancing the process of development" and in which it "invites the Economic and Social Council, at the highest possible level, to assess the effectiveness of such integration and make recommendations in this regard to the General Assembly." It is my hope, Mr. Chairman, that, as this approach takes root, my persistent insistence on this need on integrating social and economic policies, an issue that I believe is also of great relevance for our discussions on improving public sector effectiveness, will no longer be needed.

Thank you.