During its Annual Meetings earlier this month, The World Bank Group discussed with its shareholders and partners how to transform economies to benefit the poor, and in particular the need to bring the public and private sectors together to better combat global poverty. 

The challenges are formidable. Growth projections have been down-graded in light of the slow recovery from past crises and the impact of new ones; millions of people are jobless and millions more are seeking to enter the job market; technology provides opportunities for incredible advances but much of it goes towards jobless growth; wealth inequality leads to an increased concentration of wealth in the hands of a few, who exercise outsized influence on policies.

As these issues were discussed, I was left with a feeling that the underlying, age-old challenge remained: building trust between the public and the private sector to work towards shared prosperity for the population at large. Was the public sector capable and efficient, was the private sector paying its taxes rather than profiteering? Were either of them doing the best they could to ensure citizens benefited from good governance as much as services?

And, what is the role of The World Bank Group in this scenario? Being a partner to the public and the private sector, the work of the Bank – from analytics and advisory, through investments, trade and project finance, equity and policy lending, to guarantees, partnerships and monitoring – has played a vital role in the development arena.

IEG has looked at a number of areas that shed light on how well the Bank Group is promoting inclusive growth, in particular for private sector development. Here are some lessons.

Creating a level playing field

Two of our evaluations concern creating a level playing field for private sector development. One is on investment climate reforms, the other on targeted support to small and medium sized enterprises (SME) development. The results of investment climate reforms were positive when it comes to making it easier for business to invest. However, the impact of these changes on investments, jobs, business creation, and growth is not straightforward. Likewise, when promoting SME development, it was far from clear which hindrances the Bank Group interventions addressed, and whether and how SME development was helped. Did the interventions, for instance, contribute to growth or jobs, and, if so, for whom. In promoting regulatory reforms, the Bank Group has focused on the cost to businesses and less so on the broader effects of reforms on inclusion or shared prosperity.

Enabling private sector growth by supporting innovation capacity

In our evaluation of innovation and entrepreneurship IEG found that the Bank Group supported its client countries in a number of ways - by supporting public and private research and development capacity and by strengthening entrepreneurial capabilities. The interventions tried, to a lesser extent, to bring together actors from public and private sector. Overall, the evaluation found that the Bank Group needed a clearer vision of how to support client countries with a systemic approach that brings private and public actors together to facilitate and promote innovation in a way that ensures that those living in extreme poverty also benefit.

Better services through partnership

Our evaluation of Public-Private Partnerships (PPPs) shows that the Bank Group has made significant contributions to building capacities, which is essential to overcome local gaps in skills and resources. Overall, investments in these partnerships have produced expected outcomes, often defined in aspects relevant to cash flow, such as the number of people that obtained access to infrastructure. However, success was not defined in terms of whether the poor – or bottom 40% – benefited from the services, or whether the quality of the services improved.

Investing in people

The same evaluation suggested that the fiscal implications of PPPs were not sufficiently considered in the design and implementation of the partnerships, which risked weakening a government’s fiscal position and eroding its capacity to invest in people.  Another evaluation suggests that government policies on pooling of revenues and risks, namely choices for financing the health sector, can create incentives for the behavior and performance of health service providers, health insurers, and individuals, and make these systems more inclusive.

To promote inclusive growth the Bank Group needs to get the diagnostics of inclusion right before designing meaningful interventions that actually level the playing field for all. It needs to understand where and how to facilitate the relationship between public and private actors, and how to strengthen each in their respective roles in boosting shared prosperity.  The Bank cannot assume that the distributional effects will occur by themselves.

 

Comments

Submitted by Grace Okonji on Fri, 10/24/2014 - 22:59

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Building on the bank's evaluation findings is the best entry point of what the bank should do. The conclusion could not have been even better "get the diagnostics of inclusion right"

Submitted by Caroline Heider on Sun, 10/26/2014 - 21:47

In reply to by Grace Okonji

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Grace, many thanks for your feedback. Please "stay tuned" as we will be coming out with an evaluation called "Getting to Poverty" which looks at how poverty considerations are integrated from diagnostic, through strategy and design, to implementation and data collection. I hope the lessons will be, at least in part, transferable to diagnostics of inequality.

Submitted by Ronald Nsubuga on Mon, 10/27/2014 - 07:53

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Private- public sector partnerships can generate inclusive growth *(People at grassroot levels) only if World Bank group designs interventions that breath sustainability directly to the economic activities that grassroot people are involved. I agree with Caroline that the distributional effects of the WBG interventions to end poverty may not automatically happen.

Submitted by Caroline Heider on Sun, 10/26/2014 - 21:49

In reply to by Ronald Nsubuga

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Roland, thank you for your comment. Please also have a look at our evaluation of Public-Private Partnerships, which highlights the importance of generating more information on when and how the poor or populations in the lowest 40% income-bracket benefit. We all have a lot to learn and do if we want to create a world free of poverty.

Submitted by Shyamadas Banerji on Wed, 10/29/2014 - 00:52

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The public sector has two distinct roles, both equally important. The first is regulation and efficient enforcement of laws so that all economic agents play fairly by the rules; and the second is creating and maintaining a competitive business environment which is supportive of business, corrects market failures and provides incentives for commerce and industry to innovate, invest and grow. In the latter area, governments need to ensure through appropriate regulation and incentives that barriers to entry for newcomers in all legitimate activities is minimal and "the playing field is level". Access to finance on reasonable terms is a major barrier to entry and growth of new entrepreneurs and small businesses. And providing equal access to quality education is a basic function of government in collaboration with the private sector. The World Bank(WB) has been active for more than forty years in supporting small and medium scale enterprise development. It has achieved significant success in some countries and much less in others in growing efficient SMEs. But often, the reach of its interventions has been restricted to select partner institutions and broader spillover to the financial and business sectors has been quite limited. The Bank has not achieved much success in improving the first aspect of public sector governance in spite of major efforts through policy based lending. Improving government performance is a difficult task and the Bank has limited resources to deploy in this area. However, because of its importance in promoting inclusive and equitable growth, this is an area where the Bank needs to devote more attention and resources. The second area of public sector activity i.e.. improving the business environment which also includes many elements of the first has been a thrust area for the Bank's projects. The publication of annual performance indicators has contributed to raising awareness in governments and the private sector to implement reforms. These could be supplemented by indicators of inclusive growth disaggregated by regions, income classes and sectors, entrepreneurial activity, women's participation in business, access of poor to finance etc would sharpen the focus and attention of policy makers and private groups. Inclusive growth requires not only inclusive policies but also embracing inclusive and extensive institution building across a wider set of sectors and activities.

Submitted by Caroline Heider on Mon, 11/03/2014 - 02:11

In reply to by Shyamadas Banerji

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Shyamadas, thank you for your comment. You raise very good points about the roles of the public sector and how to better focus attention on the different roles and raise public awareness. IEG's recent evaluation of support to SMEs (The Big Business of Small Enterprises) makes similar arguments as regards the importance of leveling the playing field and ensuring appropriate regulation to minimize barriers to entry. It argues for the critical need to harmonize and clarify targeted support for SMEs while strengthening their relevance in countries where the field has historically not been well regulated of level, most obviously in fragile and conflict affected countries. Your suggestion of supplementing current tracking of performance indicators to include inclusive growth disaggregated to include, for example, regions, income level and sectors, is a compelling idea. IEG is currently preparing an evaluation of the Bank's work on poverty which identifies areas where better data and analysis could strengthen awareness and transparency in this area. However, such indicators are costly to produce and often of low priority for low income countries, which points to the important role the international community needs to play in supporting statistical capacity development; something we covered a couple of years ago in a review of three global programs dedicated to improving statistical capacities, namely Statcap, Paris 21, and Marrekesh Initiative.

Submitted by Faisal on Thu, 01/01/2015 - 02:20

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the Bank Group needed a clearer vision of how to support client countries with a systemic approach that brings private and public actors together to facilitate and promote innovation in a way that ensures that those living in extreme poverty also benefit. I agree with that.

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