The third area of consideration is the suite of policies to be adopted in pursuit of poverty reduction objectives. This is especially pertinent to PRSs given their association with the orthodox policy consensus which emerged in the late 1990s. The work of Bourguignon (2002 and 2004) is important in underlining the role of grand policy choice in mediating the core relation, via what he refers to as the poverty-inequality-growth triangle. He argues that the broad policy stance can have a decisive effect on the nature of the growth process, and that management of distributional change is central to securing sustained and substantial poverty reduction. Moreover, this thinking gained some influence within mainstream policy circles, with the Bank at least recognizing the instrumental importance of inequality in securing poverty reduction (World Bank, 2001).
Nevertheless the policy stance remains contested, and it is important to underline that the new consensus does not include an endorsement of wholesale income and wealth redistribution. Typically, it is argued that the specific characteristics of LICs – notably, the dominance of agriculture within their economies and mass poverty, favour a growth first strategy at the early stages of development. These positions are married to a narrative of weak governance, to argue for progressive liberalization (internal and external) targeted at exploiting the static gains from trade (generally in agriculture) and providing vent for surplus (from the use of under-employed labour). Mainstream accounts maintain that as the poor live and work overwhelmingly in rural areas and are labour abundant, then growth through liberalization will favour labour intensive growth, without the need for specific attention to be given to distribution (Lipton, 1997). Growth-first type positions have also been supported by the high profile (and much criticized) work of the World Bank economists David Dollar and Aart Kraay (2002 and 2004)29.
Mainstream thinking has, however, exhibited some distributional concern in seeking to ensure labour displaced through technical progress is absorbed within light manufactures;
in expanding state provision of schooling and better health care; and in the maintenance of basic welfare safety nets, particularly during periods of adjustment. Yet, the justifications
29 Many criticisms have been levelled at Dollar and Kraay. These include fundamental methodological objections (see Lubker et al, 2002) and thoroughgoing econometric critiques (see Amann et al 2004).
for these policies were, until recently, crafted in terms of economic efficiencies leading to poverty reducing growth, rather than their direct effects on poverty. The efficiency of the labour market and its ability to absorb the oversupply of labour is also central to orthodox accounts of poverty reduction. The role of the State becomes one of facilitating market-driven adjustment in line with revealed comparative advantages, while avoiding policy distortions. Unsurprisingly, the PRS consensus also draws heavily on the good governance agenda (Craig and Porter, 2006). Securing macroeconomic stability becomes national authorities’ primary function. This policy template has been established over a number of years, and its early form is articulated most clearly in the manual authored by Lipton and Ravallion (1995) on pro-poor policymaking, and these ideas remain dominant in the World Bank’s PRS Source Book (World Bank, 2002).
It would be wrong, however, to conclude that the consensus has remained static in the period since the first PRSs were adopted. Many mainstream voices have come to question the adequacy of the policy mix being advocated30. Concerns have included the durability of growth-first strategies to sustain reductions in poverty over time, and a debate is underway within PRS policy circles over the management of inequality. However, the more radical ideas - including structural reforms (such as selective industrialization and trade measures, and land reform), _redistribution (progressive tax and transfer systems and statutory minimum wages) remain anathema to the orthodoxy, and are the subject of very divisive disputes. A key argument that this thesis will make in later chapters is that the policy consensus remains shallow and self-limiting31. Additionally, it will be argued that unless PRSs come to address deeper structural and institutional questions they will fail in securing their ultimate goals.
However, before concluding, it is also worth referring to a further contribution to the policy debate rooted in the political realities of LIC state action. Kanbur (2009) argues that the feasibly of radical policy action on inequality and its underlying drivers is necessarily limited in most LICs, due to the challenges faced in confronting powerful vested interests. For Kanbur, this underpins the narrowness of the policy consensus and
30 These include one of its founding authors – Michael Lipton – see Lipton (1997).
31 Dagdeviren et al (1997) provides a review of direct re-distributional measures and structural reforms and their applicability to low income countries – see pages 399-405.
the focus on growth in most PRSs. Yet he also concludes that it is unrealistic to expect externally-driven plans to address more radical options (such as land reform and factor prices) and that critics underestimate the challenges faced by national politicians.
2.5 Conclusions
This chapter has provided a comprehensive review of three established literatures, which are central to this evaluation of the PRS initiative. Key insights are followed by a discussion of how these literatures assist in answering the principal research questions posed in Chapter One (see section 1.4).
Although the PRS appraisal literature is now substantial, it remains limited in its depth and lacks analytical rigour. Particular omissions are an aggregate quantitative appraisal of outcomes and a failure to specify an adequate counterfactual for performance comparisons. An alleged limiting factor has been the claimed non-testability of PRSs, due to their bespoke nature and the varying national contexts in which they operate. This thesis contests this claim. This is firstly because it should, in any case, be possible to test for improved outcomes of the claimed institutional benefits, and secondly because this chapter finds prima facie evidence that PRSs do possess a common policy template.
Independent contributions to the PRS literature underline that there is a clear case to answer. The external evaluations bodies of the IMF and World Bank found serious weaknesses in the approach and few solid indications of progress towards its objectives.
Published case study materials provide more damning, though admittedly partial evidence, to support the arguments made by long standing critics of IFI dominance, policy biases and weak institutionalization. These positions are given greater force by a segment of the aid effectiveness literature which suggests that PRSs can only partly resolve the principal-agent problems at the heart of donor assistance. A key insight is the likely poor correspondence between PRS adoption and subsequent policy actions.
The second body of work reviewed, that of the policy based lending appraisal, provides a valuable resource in setting out how this thesis might tackle its core research objectives.
Particularly useful is the notion of a menu approach as recommended by Killick (1995), under which a variety of empirical methods and counterfactual analyses are employed.
The study by Mosley, Harrigan and Toye (1994) on World Bank lending provides a
directly applicable framework made up of a cross sectional evaluation followed by a series of qualitative case studies. These two works also provide a developed understanding of the practice of IFI lending operations in the past. These are the gap between rhetoric and outcome performance, the power of aid bureaucracies to reshape policy instruments to serve status quo interests and the importance of local conditions, notably national political economies, in determining the outcome of lending operations.
The third part of the Chapter, which examines the pro-poor growth measurement and policy literature, outlines the conceptual background to the core set of relationships being examined, and helps inform the analytical basis of the case study appraisals undertaken in Chapters Four and Five. A key innovation offered in this thesis over past case materials will be to back qualitative insights with more substantive quantitative evidence. This literature is also helpful in identifying the policy template associated with the PRS policy consensus and the key disputes, and chiefly, the importance of growth versus distributional change.
It is useful to examine how the existing literature would answer the four primary research questions posed in Chapter One, and this effectively provides a baseline for this thesis.
Each question is considered in turn.
Firstly, with reference to PRS performance, the existing evidence is incomplete, lacks reliability and is somewhat contradictory. While the IFI accounts adduce some post-adoption improvement in inputs and outputs, their external evaluations bodies’
conclusions are highly equivocal, finding few clear improvements. Most significantly, no direct evidence of better poverty outcomes is presented. The qualitative case materials, which focus on different research questions, tell an equally inconclusive story. Broadly, they find potential for, but very little realized evidence of attainment. A key challenge remains the lack of quantitative appraisals based on a sound counterfactual case.
On the question of policy neutrality, there is a clear disconnect between the assertions made within the IFI published materials and the rest of the literature. The rigorous appraisals undertaken by the external evaluations bodies unambiguously find that the policy positions adopted within PRSs are narrow, and little consideration alternatives has taken place. This finding is also largely supported by independent case study-based
works. These tend to reveal that choices tend to mirror the established policy consensus outlined in Section 2.4. However, it is also worth noting that the evaluation bodies find no strong evidence of disinflationary biases within PRSs. Moreover, the more ideologically neutral case study contributions are still optimistic about the Initiative’s potential.
Similar difficulties are faced in addressing the third research question regarding the extent of IFI influence within PRS development and implementation. IFI assertions of national ownership are challenged by the empirical record. On balance, the published case study evidence suggests that IFI operational practice has been rather more intrusive than intended by its architects when the Initiative was launched. Furthermore, the aid effectiveness literature offers a more significant critique by questioning whether PRSs even have the potential to resolve the core agency problems posed by donor-recipient relations. Yet the situation is somewhat fluid, and notable revisions to PRS development and monitoring processes have been made. It also has to be kept in mind, as articulated by Morrissey (2002), that ownership need not require the origination of policy, and that the real criterion is one of control.
Firm judgements also cannot be made in relation to the fourth and final question regarding PRS implementation. The aid effectiveness literature, particularly the case study materials, substantiates many of the concerns given within critical accounts, especially in finding that national PRSs have often amounted to merely paper strategies. In contrast, the IFI materials, and the IEG report more convincingly, do provide some evidence of policy influences. It seems, therefore, that outcomes vary between countries. This question is potentially the most important causal consideration in determining the effectiveness of the PRS Initiative.
CHAPTER THREE: CROSS SECTIONAL EVALUATION OF PERFORMANCE
3.1 Introduction
This chapter presents and discusses the results of a cross-sectional appraisal of PRS outcome performance. It examines the evidence, at the aggregate level, for enhanced poverty reduction and its proximate drivers of economic growth and more equitable income distribution. This is achieved through a set of statistical and econometric evaluations, based on counterfactual comparisons between two specially constructed panel datasets of PRS-adopting and non-adopting countries. This chapter represents the first substantive part of the empirical body of work reported in this thesis. In addition to providing a set of free standing conclusions, it also seeks to inform the case study evaluations which follow in Chapters Four and Five.
The Chapter has four principal sections. The first outlines the analytical approach, the core relationship to be tested and the various analytical techniques employed. It also addresses key research issues, chiefly, the challenges associated with assembling consistent and comparable panel data. The second section provides the results of a series of statistical cross tabulations of differences in performance between PRS and non-PRS groups of countries. The third section reports the results of two standard panel data econometric approaches - First Differencing and Fixed Effects estimation. Finally, the concluding section brings the various strands of the analysis together.