World Development Report

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Session 2

World Development Report, 1991, pp. 1-11

If you have ever read any introduction /overview documents by a large development institution on the subject of development, this will all sound familiar. The WDR is a World Bank publication. The basic points are:

  1. Development is the most important challenge facing the human race; a number of alarming statistics are presented.

  2. The “market friendly” interaction of governments and markets is the key to economic growth which in turn is the key to development. Government should play a strong role in areas that markets can not handle.

  3. The four key areas regarding development are:

    • Human development: governments need to play a stronger role because the markets won’t necessarily take care of it

    • The domestic economy: key is domestic and external competition

    • The international economy: emphasis on openness to trade, investment and ideas.

    • Macroeconomic policy: a stable macroeconomic foundation is also essential


The article starts with a blanket statement: “Development is the most important challenge facing the human race.” It gives a number of alarming statistics regarding the more than 1 billion people (at the time one fifth of the world’s population) that live on less than one dollar a day. The Report vaguely defines development as improving the quality of life. Which in the world’s poor countries generally calls for higher incomes, “better education, higher standards of health and nutrition, less poverty, a cleaner environment, more equality of opportunity, greater individual freedom, and a richer cultural life.” (4)

Markets and Governments

The principle theme of the report is the interaction between governments and markets. “A consensus is gradually forming in favor of a ‘market-friendly’ approach to development. The Report describes the various elements of this strategy and their implementation in a wide variety of country contexts….When markets and governments have worked in harness, the results have been spectacular, but when they have worked in opposition, the results have been disastrous.” (1-2) The state should be involved beyond just stepping in if the markets fail. State must be involved in defend political and civil liberties, which can be consistent with economic growth. Government intervention in the market is likely to help when they are “market friendly” which means that the state should:

  1. intervene reluctantly,

  2. apply checks and balances,

  3. and intervene transparently and simply.

Technology and the Global Economy

The Report points to major transitions in the world economy: the top two being technology and integration of the global economy. The authors state that although developing countries’ growing exposure to external influences put them at risk, global integration brings enormous benefits in promoting competition and efficiency, giving poor countries access to basic knowledge in medicine, science, and engineering.

The Four Elements of a Market-Friendly Approach

The Report examines the relationship between governments and markets in terms of four broad categories that are interrelated:

  1. Human development: must invest in people. “markets in developing countries cannot generally be relied upon to provide people—especially the poorest—with adequate education(especially primary education), health care, nutrition, and family planning services.”

  2. The domestic economy: domestic and external competition is key to spur innovation, diffuse technology, and promote the efficient use of resources. Points to Japan, Korea, Singapore, the U.S. and Europe as successfully establishing competitive advantage through competition. Emphasizes market incentives for entrepreneurs.

  3. The international economy: not surprisingly, the Report emphasizes openness to trade, investment and ideas. In addition, industrial countries have a responsibility to provide market access.

  4. Macroeconomic policy: A stable macroeconomic foundation is also essential. This means that fiscal deficits should be low and inflation kept in check. There should be incentives for saving and investment.

The bottom line is that “governments need to do less in those area where markets work, or can be made to work, reasonably well. In many countries, it would help to privatize many of the state-owned enterprises. Governments need to let domestic and international competition flourish.” While at the same time, the government needs to do more in a number of areas:

  1. human development (education, health, nutrition, family planning, and poverty alleviation)

  2. building social, physical, administrative, regulatory, and legal infrastructure of better quality;

  3. mobilize resources to finance public expenditures

  4. provide a stable macroeconomic foundation.


The report states that it is true that these reforms usually come at the expense of certain vested interests and macroeconomic stabilization often means a temporary rise in unemployment. The authors argue that an authoritarian government is NOT necessary to make these changes. The key is to reform the public sector and strengthen its institutions, and enable society to establish checks and balances. The authors place cautions on redistribution of income and assets through distorting prices. Finally, comprehensive reform packages are often the most effective.

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