Infrastructure First? Water Policy, Wealth, and Well-Being

[1]

In my reading of history, every country which has successfully lifted its people out of poverty has done so primarily by building its basic productive capacity. Central to this process has been giving priority to improving the productivity of agriculture, and creating the energy, transport and water infrastructure for rural and urban economic growth and employment generation.

In the water sector this includes what my colleague David Grey calls the infrastructure ‘‘platform for growth’’. No presently-rich country has developed without such investments, which have been the springboard for private sector growth, for job creation, for agricultural productivity.

To take but one indicator: every presently-rich country has developed more than 70% of its economically-viable hydro-electric potential. Africa has developed 3% of its potential.

Not only is this the path that has been followed by all presently-rich countries, but it is the path followed by the countries who have, in recent decades, pulled their people out of poverty – like China, India and Brazil.

Re-Tilting the Balance

The World Bank Water Strategy of 2003 (of which I was the main author) was a watershed, if you will, for the Bank; not just on the issue of water and but even more broadly on the issue of infrastructure.

In its early days the World Bank was basically an infrastructure bank. By the late 1990 s only 5% of Bank lending was for infrastructure. The fashion of development lending had shifted to social issues as embodied in the Millennium Development Goals (“MDG”) which prioritize health, education, gender and water and sanitation services.

Water infrastructure, as an instrument for growth and as a precondition for economic growth, had  essentially been thrust aside through a process led by the rich countries which already have their infrastructure.

In my view the MDGs are the ultimate expression of the social cart being put before the economic horse in development. The fact that no country which has emerged from poverty either historically or currently has ever followed such a set of priorities is ignored. In this sense I consider the MDGs to be a massively-negative process for poor countries who have had to give priority to the MDGs if they are to get aid from donors.

What do I mean by this?

Look at the food crisis of 2008. I was the World Bank’s Country Director in Brazil at the moment food crisis hit. There were many voices bemoaning the crisis, with press coverage dominated by NGOs and aid agencies who immediately called for greater support for agriculture in the developing world.

What the aid agencies did not say was that lending for agriculture had declined from 20% of official development assistance in 1980 to 3% in 2005 when the food crisis hit.

The apotheosis of this opposition to modern agriculture was the 2008 report of a $20 million ‘‘International Assessment of Agricultural Knowledge, Science and Technology for Development’’ The IAASTP process was turbulent, with NGOs dominating, and the private sector exiting, and major governments expressing their reservations.

This report basically said that small is beautiful, that modern, technologically-sophisticated agriculture (and especially the use of GMOs) was bad, and that the path that should be followed was small and organic and local agriculture.

I did not even know about the IAASTP when the Brazilian Minister of Agriculture called me and said, ‘‘How can the World Bank produce such an absurd report? Following the ‘wrong path’ Brazil has become an agricultural superpower, producing three times the output we produced thirty years ago, with 90% of this coming from productivity gains (and only 10% from increased capital, land and labor)!’’.

So here was Brazil, whose exports helped dampen the food crisis of 2008, being told they were the villains because they followed a path in tropical agriculture diametrically opposed to what is proposed in the IAASTP report!

As the Minister said: ‘‘You look at what Brazil has done over the last 30 years. We did not follow the fads of the aid community (who so drastically reduced their engagement in agriculture). While donors were reducing their support by 90%, Brazil maintained, out of our own resources, a consistent high level of investment in agricultural research. Through thick and thin, we’ve done this. We now have the world’s most sophisticated tropical agricultural science capacity and this has been fundamental to our success. You would think the Bank and the development community would learn from this.’’

In 2003 there had been an  enormous fight within the Bank and a struggle on the Bank’s Board to redefine the Bank’s position. Critical in this process was that China, India and Brazil basically stood up to the ‘‘social-first’’ view of the rich countries and insisted that an adequate infrastructure platform was essential for development.

Progress Made, But Mindsets Remain

Almost a decade later some things have changed, and some have  not.

First, the Bank has gone back into the infrastructure business. Infrastructure now accounts for about a half of all World Bank lending.   In the water sector  most of this remains in MDG-friendly water and sanitation projects, which are important, but no substitute for the large, path-changing investments represented by major infrastructure. Even today, for example, the Bank finances no more than a few dams - whereas the Chinese now finance over 200 large dams outside of China.

Second, because of its role as the thought leader on development issues, the change in Bank policy has had huge impacts in bringing infrastructure ‘‘back in from the cold’’ in development policy.

Within the Bank, however, the job is far from done. Risk-averse managers steer clear of major infrastructure projects. Bank country directors and vice presidents are well aware of what sorts of projects are going to bring major transactions costs and major headaches to them and so the ‘‘smart managers’’ know not to get engaged with them. For a typical, cautious manager, such matters are still to be avoided at all costs.

[1]Adapted and updated from “Invited Opinion Interview: Two Decades at the Center of World Water Policy. Interview with John Briscoe by the Water Policy Editor-In-Chief.”  To view the interview in its original and complete form, see Water Policy 13 (2011) 147–160.