Urban Poverty in the Context of Structural Adjustment Recent Evidence and Policy Responses

162 Pages·2001·12.01 MB·English

by  Les Barker

TWU DP #4
URBAN DEVELOPMENT DIVISION
TRANSPORTATION, WATER, AND URBAN DEVELOPMENT DEPARTMENT
ENVIRONMENTALLY SUSTAINABLE DEVELOPMENT
THE WORLD BANK
Urban Poverty in the Context of
Structural Adjustment
Recent Evidence and Policy Responses
Caroline 0. N. Moser
Alicia J. Herbert
Roza E. Makonnen
May 1993
DISCUSSION PAPER
The TWU Discussion Papers present preliminary research findings and are intended for internal review and discussion. The
views and interpretations in these Discussion Papers are those of the author(s) and should not be attributed to the World Bank,
to its affiliated organizations or to any individual acting on their behalf.
0 1993
The World Bank
Washington, D.C
All Rights Reserved
First Printing May 1993
This is a document published informally by the World Bank. In order that the information contained in it can be presented with the
least possible delay, the typescript has not been prepared in accordance with the procedures appropriate to formally printed texts, and the World
Bank accepts no responsibility for errors.
The World Bank does not accept responsibility for the views expressed herein, which are those of the author and should not be
attributed to the World Bank or to its afftliated organizations. The findings, interpretations, and conclusions are results of research supported by
the Bank; they do not necessarily represent official policy of the Bank. The designation employed, the presentation of material, and any maps
used in the document are purely for the convenience of the reader and do not imply the expression of any opinion whatsoever on the part of the
World Bank or its affiliates concerning the legal status of any country, tertitory, city, area, or of its authorities, or concerning the delimitations
of its boundaries or national affiliation.
This paper was prepared by Caroline 0. N. Moser, The World Bank, and Alicia J. Herbert, and Roza E. Makonnen, consultants to the
Urban Development Division.
..--
THE WORLD BANK
Urban Poverty in the Context of
Structural Adjustment
Recent Evidence and Policy Responses
Caroline0 . N. Moser
Alicia J. Herbert
RozaE . Makonnen
DISCUSSIOPNA PER
EXECUTIVESUMMARY
The purpose of this paper is threefold. First, it reviews the available evidenceo n urban
poverty in developingc ountriesi n the contexto f structurala djustmenta nd macroeconomicp olicy
reform during the past decade. Second, it describes the relationship, under conditions of
adjustment,b etween macroeconomicp olicy changesa nd urban microlevel outcomes at both
householda nd intrahouseholdle vels. Third, it assessetsh e ability of compensatorym easuresto
alleviatep articular problemst hat urbanp opulationsin specificc ountriesh ave experiencedd uring
periodso f adjustment.
Severali mportant reasonse xist for undertakings uch a review. First, the World Bank has
concludedt hat over the last decadea djustingc ountriesh ave shown a better growth record, with
greater improvementsi n socioeconomicin dicators,t han non-adjustingc ountries. Evidenceh as
shown, however, that adjustmentp oliciesa re not acceleratings ocial progressw here it is most
needed,w ith little impact on long-term chronicp overty (Kakwani, Makonnena nd van der Gaag,
1990).
Second,i n many developingc ountries,t he debt crisis and recessiono f the past decadea nd
the resultings tabilizationa nd structurala djustmentlo ans( SALs), haveh ad different implications
for various social and economic groups in both rural and urbana reas.W hile the overalli ncidence
of poverty may have declineda t the nationall evel, as the 1990 World Development Report notes,
this is not necessarilyth e casea t all local levels. Restructuringo f the rural/urbant erms of trade,
as well as exchangera te movements,f or instance,h avep ut somes ectorso f the urbanp opulation
at particular disadvantage(W orld Bank, 199Oc,l).
More recent estimatesp resentedin the 1992 World Development Report reveala negligible
reductioni n the incidenceo f poverty in developingc ountriesd uring the secondh alf of the 1980s.
Further, due to the severity of the recessiono f the late 1980sa nd the disappointingp rogress
made in severald evelopingc ountries,t he absoluten umbero f poor increasedb y more than 100
million during the 19851990 period (World Bank, 1992, 29-30).
Third, although policy makersi ncreasinglyh ave recognizedt he effects of adjustmenti n the
political, economic,a nd sociala renas,t hey haven ot yet unified their concernsa s an urbani ssue.
Macroeconomistss eem relatively unconcerneda bout the disproportionatelyh eavy impact of
economicc hangeo n the city and its residents( Cohen, 1990,53).
The most seriousc onstraint in undertakings uch a review relatest o the lack of adequateo r
reliable data. Both Bank and non-Bank sources are cited to present as objective and
multidimensionavl iew of the issuesa s possible.H owever, ultimately, as in any review of existing
data, the validity of all of the data cannot be vouchedf or. In addition, the review focuseso n
issuest hat do not lend themselvest o quantitative assessments, uch as relationshipsb etween
factors which increaseo r decreaseh ouseholdim poverishmentH. ere the review relies heavily on
qualitative work, particularly of women in development( WID) researchers.
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Sincet he accuracyo f each data sourcec annot be individually verified, there are important
limitations to a review sucha s this. Its purpose,h owever, is not to comparet he relative situation
of urban poverty in different developing countries experiencing debt, recession, structural
adjustment,o r economic reform. It is rather to present a description of the situation currently
confronting urban low-income householdsin developingc ountries, from a cumulatived iversity
of different data sources,a nd from this to reachs omev ery generalc onclusionst o assistp olicy
makersa nd researchers.
In any review of poverty in the context of economicr eform and adjustment,a number of
further qualificationsn eed to be raiseda t the outset. Above all, the issue of the counterfactual
must be recognized.O ver the last decadea djustment-lendingc ountries have shown a better
growth record, with greater improvementsi n socioeconomici ndicators, than non-adjustment
lending countries (World Bank, 199Of).I t is recognized,t herefore, that while macroeconomic
reforms may not be sufficient to alleviateo r reducep overty, the situationm ight have beene ven
more seriousf or low-income populations,h ad no economicr eform taken place.
The main conclusiono f this review is that there is a clear associationb etweenm acroeconomic
distortions and the processo f impoverishmentt aking place in urban areast oday. It is legitimate
to pay attention to short-term compensatoryin terventions.H owever, these cannot be sustained
unlesst hey shift their focus away from short-term objectivesa nd seek solutions to the longer-
term structural problemsa ssociatedw ith poverty. The only way to accomplisht his objective is
to improve the human capital of the urbanp oor and to increaset he productivity of their labor.
Major findings and recommendationos f this review include the following:
There have been differential impacts on the various categorieso f the poor. The
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changesi n food prices have particularly affected the “borderline” poor, increasing
their vulnerability. The changesin the labor market and wagesh ave led often to the
impoverishmento f the working classes,g iving rise to the “new” poor. In many
contexts the plight of the “chronic” poor has been exacerbatedb y the changesi n
prices, wages, and public expenditure.
The targeting of food subsidiesd uring adjustmentc an increaset heir effectiveness,
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providing an important incomet ransfer to the urban poor. In addition,t he increased
private provision of infrastructure,f or examplet ransport, can ultimately enhanceth e
productivec apacityo f the urbanp oor.
Under adjustment,t he householdi s the primary unit of survival. Householdsh ave
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developedv arious coping strategiest o buffer the effects of the changesi n prices,
wages/laborm arket, and public expenditure.T heses trategiest end to vary with the
context and among the different types of householdsg iven their differential access
to and control of resources.
. . .
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The household is not an undifferentiated unit. Adjustment policies have had
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differential intrahouseholdi mpacts and have provoked distinct responsesf rom
different memberso f the household.F or example, where women or children have
relative lack of power and accesst o resourcesw ithin the household,t hey can be
disproportionatelya ffected.
Policiess houlds upports trategiesth at emphasizee mploymentg rowth and productivity
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of the informal sector, such as community-basedin itiatives to cope with rising food
prices and reduceda ccesst o services.
Policy makers should recognize women’s roles as active participants in the
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maintenanceo f householdw elfare. Becauses ocietyi n the past hasr ecognizedw omen
primarily for their reproductive role, policy makers often have not specifically
identified them in their productive role. Consequently interventions have not
adequatelyc ompensatedh ouseholdsfo r adjustment-relatedin come losses.
Sincew omena ret he prime userso f local community services,c utbacksh ave affected
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them disproportionately.W here community-leveli nitiatives are developedt o lower
costs, in most instancest,h ey dependo n unpaidf emale labor and time. To ensuret he
reliability and sustainabilityo f community-baseds ervice delivery of infrastructure,
policy makerss hould recognizew omen’sr ole as community managers.
In householdc oping strategiesu ndera djustmentc onditions,c hildren frequentlym ake
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an importanti nvisible contributiont o the maintenanceo f householdw elfare. If future
humanr esourcesd evelopmenits to be guaranteedc, ompensatoryin terventionss hould
include this in their design.
This paperi s divided into three parts. Part I reviews the literatureo n the urbans ectora nd
low-income householdsin the developingw orld during the 1980s. It examinest he effects of
changesin prices, wages, and public expendituret hat arise from macroeconomicr eform at the
urban, household,a nd intrahouseholdle vels. A numbero f important questionsa rise:
How have thesec hangesa ffectedt he way that cities contributet o macroeconomic
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development?
Has urbanp overty increasedd uring the 198Os?
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Which categorieso f the poor have these changesa ffecteda nd in what ways?
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What type of strategiesh ave householdsd evelopedt o deal with the changing
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macro policy environment,a nd what are the implications of these strategiesf or
different memberso f the household?
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Part II provides a comparative review of country experiencesw ith compensatory
interventions,i nitiated to alleviatep roblemst hat urbanp opulationse xperienceu ndera djustment.
The evidencec omesf rom more than 30 different compensatoryin terventionsc arriedo ut in World
Bank projects in 12 counties.’ These interventions include food and nutrition programs,
employment-income generating interventions, and social and economic infrastructure
interventions.S everalf undamentalq uestionsa re examined:
Who are the urbanp opulationg roups that need compensationd uring adjustment?
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What measuresh avec ountriesu ndertakento assistt hem to absorbt he shockst hat
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they have experienced?
How effectively have these measuresr educedt he social costs associatedw ith
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adjustment?
The review also discussesth e processesb y which policy makersi dentify compensatory
interventionsa nd the institutional arrangementws ithin which they carry them out. It assessetsh e
experiencec ountriesh ave gaineds o far from targetedc ompensatoryin terventions.I n so doing,
the intention is to increaseu nderstandingo f both the potential effectivenessa nd limitations of
thesei nterventionsi n reducing the social costs associatedw ith adjustment.
Finally, Part III highlights someo f the main conclusions.
Backgmundt o the Report
Significant economic growth characterizedt he 1960s and the early 1970s in many
developing countries. Since the mid-1970s, however, a combination of external shocks and
internal factors has interrupted this growth, particularly in Africa and Latin America. These
shocks have included inappropriated omestic macroeconomicp olicies, the quadruplingo f oil
prices, and the weaknesseisn internationalc ommodity markets.M any developingc ountriesh ave
experienceds everee conomica nd financialc rises.F acingu nmanageablpeu blic sectord eficits and
substantialle vels of externald ebt, many developingc ountriesb egant o implement SALs. At the
samet ime, they initiated policy reforms aimeda t producinge xternala nd internal equilibriumb y
improving resource allocation, increasing economic efficiency, and stimulating long-term
economicg rowth (Ribe et al., 1990, 3). To date, about sixty-two developingn ations,m ainly in
Latin America and Africa, have undertakenS ALs.
Efforts to induce external balance included expenditure-switchingp olicies, such as
changesi n relative prices, aimed at reallocatingr esourcesa way from the production of non-
tradeablet oward tradeableg oods. Countriesa lso adoptede xpenditure-absorptiopn olicies such
1. For the sake of brevity the summary excludes both detailed references to specific countries and the citation of
all sources. These can all be found in Volume II which includes an extensive bibliography.
V
as reductionsi n consumption,g overnmente xpenditure,a nd investment in efforts to promote
internal equilibrium. Finally, many adoptedr eforms to stimulate growth through the reduction
or elimination of product and factor market distortions.
In the early years of adjustment lending many were optimistic, believing that such
programsw ould be temporary. They believedt hat as growth resumed,p overty would continue
to diminish (Ribe et al, 1990).H owever, nearly a decadel ater it is evident that the adjustment
processi s taking longer than many anticipated.A dditionally, the restorationo f sustainedg rowth
often has been both difficult and protracted.I n the short term, therefore, high transitional social
and economicc osts occur becauseo f the structural and political constraintsc ountriese xperience
during implementation.
Structuralc onstraintsto a smootht ransitioni nvolveb oth supply constraints-such as price
rigidities-as well as demandc onstraintsr esulting from policies aimeda t demandm anagement
to enableo verall macroeconomicb alance,a nd fiscal constraint leadingt o the rationalizationo f
public expenditurea nd a consequentr eduction in public employment( Demery and Addison,
1987).
Political constraintsh ave causedd elays in the implementationo f adjustmentp rograms.
Although policy makers may recognize macroeconomicr eforms as essentialc omponentso f
sustainable economic growth, perceived political implications have limited governments’
willingnesst o carry out such programs.A s a consequences,e veralc ountriesh ave either heavily
diluted thesep rogramso r abandonedth em.
A publicationf rom UNICEF, entitledA djustmentw ith a Human Face (Comia et al, 1987),
highlighted the “social costs” of adjustment.T his study provided empirical evidence of the
deteriorationo f social conditions in ten countriesu ndergoinga djustment.S ome questionsh ave
arisena bout the rigor of the analysist his study presented.I ts findings, however, elicited a call
for reassessingth e impact of adjustment policies on the poor within developing countries
(Behrmana nd Deolalika, 1989).
Consequently,c ountriesa dopting SALs have taken action at various levels to offset the
costs of macroeconomic adjustment. These actions have included reallocation of public
expendituret oward thoses ectorst hat are of particularc oncernt o the poor, sucha s primary health
and education,a nd the incorporationw ithin SALs and SECALs of measuresa imeda t protecting
the poor (World Bank, Adjustment Lending Policiesf or SustainableG rowth, 1990, 35).
In conjunction with these reforms, countries undertaking SALs also have initiated
compensatoryin terventionsa imeda t reducingt he short-termc ostsa ssociatedw ith the adjustment
process. Countries have aimed these measuress pecifically to help those target groups most
advers’elayf fected.T hei nterventionsin corporatein come-generatinagn di ncomet ransferp rograms
as well as social safety nets. They include nutrition and food assistancein terventions,d esigned
to offset incomea nd consumptionlo ssesa risingf rom changesin prices. Policy makersa lso have
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launchede mploymentg enerationi nterventionst o offset losso f incomea nd consumptiona rising
from changes in the labor market. Finally, developing countries have initiated social and
economici nfrastructurei nterventionst o enhanceb asic social and economics ervices.
The Analytical Fmework for the Review
Severem ethodologicald ifficulties arise in trying to develop an explanatoryf ramework
that can identify the nature of the linkagest hrough which changesin the macroeconomica nd
policy environment affect individuals and households.A t the macro level, it is difficult to
separateth e impactso f externala nd internals hocksa nd policy mismanagemenftr om the impacts
of stabilizationa nd structural adjustment.I t is also difficult to define the causalr elationship
between specific policy measureso n particular income groups since most frequently it is a
combinationo f measuresw hich simultaneouslya ffect both the economya nd society.
In addition, at the householda nd intrahouseholdle vels, developing a methodology to
assessth e relativee ffects of different interventionsis problematic.O ne reasoni s that thesel evels
representt he results of multifaceted relationshipsb etween different macro and micro level
factors. The declining health status amongl ow-income urbanh ouseholdsf,o r example,m ay not
occur solely becauseo f cuts in public health expenditure.T hey may also result from other local
factors, such as the quality of a family’s housing,w ater and sanitation,o r socio-culturaln orms.
Nevertheless,in addressingth is issueo f causality,p olicy analystsh ave identified three
causallyi nterrelatedl evels-the macro, meso,a nd micro-levels.T he SDA Unit andU NICEF, and
many other organizationsh, ave usedt hesec onceptsin their work.* This review alsoh as adopted
such a framework and analyzest he impact of macroeconomicre forms at the meso and micro
levels. However, it alsoe xtendst he framework at the micro level to focus not only on households
but also on intrahouseholdre lationships.
Discussion at the mucro level, involves an implicit assumption that the increased
dependencoen the price mechanismu ndera djustmenwt ill leadt o greatere fficiency in allocating
and utilizing resources.T his not only requires adjustment at the aggregatel evel but also
behavioralc hangesa t the householda nd intrahouseholdle vels.H owever, there arem any “meso-
channels ” through which macroeconomicr eforms affect responsesa nd outcomes at the
microlevel. In the urbanc ontext, these includec hangesin prices, wages, empZoyment andp ublic
expenditure.
Wheret here are direct linkagesb etweenc hangesin the macropolicy environmenta nd the
microlevel outcome,t hesea re identified. One such examplei s the unemploymentt hat can result .
from retrenchmentin the civil service.I n most cases,h owever,t he linkagesa re multifaceteda nd
2. The meso-economic level has been defined by the World Bank’s SDA Unit as “the variables which come between
the macropolicy interventions, on the one hand, and the microlevel (or household level) variables on the other”
(World Bank, Analysis Plan for Understanding the Social Dimensions of Adjustment, 1990).
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often indirect. In this case,t he review can only identify the potential associationA. frequently
cited exampleh ere is the indirect linkageb etweenf ood price increasesa nd changesin household
nutrition and health status.
Having reviewed the micro-level impact of changesi n prices, wages, employment,a nd
public expenditure, the paper then assessest he effectiveness of targeted compensatory
interventionst hat countries undergoinga djustment‘ have initiated. Three major categorieso f
compensatoryin terventionsa re appraised:
Nutrition and food assistancein terventionsa imed at ameliorating income, and
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consumption losses arising from changes in the price and availability of
consumptiong oods,p articularly food items.
Employment-incomeg enerationin terventionsw hich countriesh ave undertakento
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offset incomea ndc onsumptionlo ssesa risingf rom changesin the compositiona nd
level of employmenta nd wages.
Sociala nd economici nfrastructurei nterventionsa imeda t cutting lossesr esulting
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from reductionsi n public expenditureo n the provision of social and economic
infrastructurea nd services.
In assessintgh e effectivenesso f thesei nterventionss everacl riteria areu sed.T hea ppraisal
of nutrition and food assistancep rogramsi s madei n terms of both their effectivenessa s income
transfersa nd their coverage.E mploymenta nd income generationi nterventionsa re appraisedin
terms of their cost effectivenessin providing employmenta nd income to intendedb eneficiaries.
The effectivenesso f social and economic interventions is made in terms of their ability to
improve the availability of basic social and economics ervicest o target beneficiaries.
In conductings uch a comparativea ssessments, everali mportant considerationsm ust be
taken into account. First, countries initiating compensatoryi nterventionsh ave used differing
approachesin designingt hesei nterventions.S ome countriesh ave designedi nterventionsa imed
at addressingi ssuesp revalent within a specific sector such as in nutrition, employment, etc.
Othersh ave designeda portfolio of interventionsc onsistingo f a multisectoralp ackageo f actions
within severals ectors.
Second,c ountriesh aveu sedd iffering institutionala rrangementtso administera nd execute
compensatoryin terventions.S omec ountriesh ave delegatedt he responsibility for the execution
of compensatoryin terventionst o existing governmentaal genciesw hile others have established
new institutional structures,s uch as SocialI nvestmentF unds,t o undertaket his task. Further, in
somec ases,c ountriesh ave used nongovernmentaal gencies,s uch as NGOs and community and
other local level organizations,t o administeri nterventions.