Put Growth Ahead of Aid

On June 1, former Deputy Defense Secretary Paul Wolfowitz became the next head of the World Bank. His mission: to end global poverty. The trouble is, few agree on how to go about it. So Foreign Policy asked five of the world’s leading development experts to offer Wolfowitz some free advice on getting the job done.

Paul Wolfowitz has a choice. He can eradicate poverty directly by dispensing medicines to poor people, funding clean water, educating and empowering those with few resources (especially women), and so forth. Or he can eradicate poverty indirectly, by stimulating broad economic growth in the worlds poorest regions. This is not a return to the old-fashioned Washington Consensus of just let markets work. Economic growth that favors the poor improves the climate for business, promotes domestic and foreign investment, and reduces barriers to trade.

Paul Wolfowitz has a choice. He can eradicate poverty directly by dispensing medicines to poor people, funding clean water, educating and empowering those with few resources (especially women), and so forth. Or he can eradicate poverty indirectly, by stimulating broad economic growth in the worlds poorest regions. This is not a return to the old-fashioned Washington Consensus of just let markets work. Economic growth that favors the poor improves the climate for business, promotes domestic and foreign investment, and reduces barriers to trade.

The two approaches are not incompatible. Local firms and international investors need well-trained, healthy workers to become competitive, expand employment, and penetrate new markets. But under outgoing bank President James Wolfensohn, the bank has overemphasized trying to relieve the problems of poor people directly. The more effective way to bring people above the poverty line is to stimulate economic growth. Seven years of growth at 5 percent in India reduced national poverty by 6 percent. During the same time period, 6 percent economic growth in Vietnam reduced national poverty by 7 percent; 8 percent growth in China reduced national poverty by 8 percent.

If Africa could achieve growth rates of 4 to 5 percent over a decadehalf the rate in Chinathe resulting poverty reduction would be far greater than what would result from a doubling of the foreign aid budget to the troubled continent.

The criticism that the World Bank does not have any priorities is misplaced. The real problem is that every country director and country strategy team at the bank have 20 No.1 priorities. Wolfowitzs real contribution will be to decideand enforcewhat the true priorities are. He can only alter the course of the World Bank by a few degrees and he should not completely eliminate direct poverty-reduction programs. But he should shift the banks priorities toward stimulating broad economic growth for the poor.

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