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The Day After Tomorrow: The Final Battle in the War Against Poverty

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The Day After Tomorrow: The Final Battle in the War Against Poverty
Authored by Otaviano Canuto and Marcelo Giugale*

This is the third in a series of blogs where we take a look at the issues and the countries that will be at the forefront of the development agenda, not now, not next year, but over the next 2 to 5 years--thus, "after tomorrow"[1].

There is now a budding consensus on what reduces poverty: it is the combination of fast and sustained growth (more jobs), stable consumer prices (no inflation), and targeted redistribution (subsidies only to the poor). On those three fronts, developing countries are, on average, doing well. So, where should poverty fighters focus next?

First, on better jobs. What matters to reduce poverty is not just jobs, but how productive that employment is. This points toward a more efficient allocation of resources in the economy as a whole, and to the broad agenda of reforms that make an economy more competitive. It also points toward something much closer to the individual: skills, both cognitive (say, critical thinking or communication ability) and non-cognitive (say, attitude toward newness or sense of responsibility).

Second, more human opportunity. It is now possible to measure how important personal circumstances--like skin color, birthplace, or gender--are in a child's probability of accessing the services--like education, clean water, or the Internet--necessary to succeed in life. That measure, called the Human Opportunity Index [2], opened the door for social policy to focus not just on giving everybody the same rewards but the same chances, not just on equality but on equity. A few countries, mostly in Latin America, now evaluate existing social programs, and design new ones, with equality of opportunity in mind. Others will follow.

Third, lower social risk and larger social protection. A few quarters of recession, a sudden inflationary spike, or a natural disaster, and poverty counts skyrocket--and stay sky-high for years. The technology to protect the middle class from slipping into poverty, and the poor from sinking even deeper, is still rudimentary in the developing world. Think of the scant coverage of unemployment insurance.

Fourth, less gender discrimination. The future priorities of gender policy will be defined by demographic dynamics. Countries still facing demographic "explosions" (mostly in Sub-Saharan Africa) will continue to prioritize maternal health and family planning services, especially among teenage mothers. Countries in demographic "transition," with large working-age populations relative to children and the elderly need women's effective participation in the labor markets, primarily through skill formation and support to entrepreneurship. A smaller, but growing, group of countries (all of them in Eastern Europe) are experiencing demographic "implosions," with rapidly aging populations. This has exposed the dearth of, and the need for, social security for women, a legacy of comparatively lower labor market participation, higher informality, and smaller salaries.

And fifth, easier poor-to-poor transfers. Remittances are a large source of private financing that proved surprisingly resilient during the crisis. Is there anything governments can do to leverage them into poverty reduction? Yes, plenty. There is too little competition and transparency in remittance markets, where transfer fees tend to be unrelated to cost. Subsidizing banks' marketing (Pakistan), mobile money-transfer technology (Kenya), or settlement systems (the Philippines) is worth experimenting with. Funding investment projects with "diaspora bonds" has proven useful (El Salvador). Bilateral efforts to establish guest-worker programs (for example, between Europe and India) have served well both origin and destination countries.

To access The Day After Tomorrow: A Handbook on the Future of Economic Policy in the Developing World, please visit: http://go.worldbank.org/TPPWANWXR0

It can also be read online and purchased (World Bank Publications; ISBN 978-08213-8498-5; $35) at http://publications.worldbank.org/18498, through bookstores, and through the World Bank's network of international distributors http://go.worldbank.org/6XBJT3DJA0.

This blog was originally posted on the World Bank Insititute Growth and Crisis website.

*Otaviano Canuto is the World Bank Vice President for Poverty Reduction and Economic Management, and Marcelo Giugale is the Sector Director of Poverty Reduction and Economic Management for the Latin America and the Caribbean Region.

[1] Here we borrow heavily from a book that we've just published: Canuto O. and M. Giugale, eds., 2010, The Day After Tomorrow: A Handbook on the Future of Economic Policy in the Developing World, World Bank Publications, Washington D.C.

[2] See J. Molinas, R. Paes de Barro, J. Saavedra, and M. Giugale, 2010, Do Our Children Have a Chance? The 2010 Human Opportunity Report for Latin-America and the Caribbean, World Bank, Washington, DC.