JV: Welcome to Wake Up Call. This is Joan Veon. I'm on location in Rio de Janeiro at the Rio+5 Summit which is a review of where the United Nations has come with regard to the environment in the last five years since UNCED, the United Nations Conference on the Environment and Development held here in Rio five years ago. My guest today is Dr. Andrew Steer. He is director of environment with The World Bank.
And, Dr. Steer, many people do not understand exactly what The World Bank is. If you would be so kind to give us an overview of the various components of The World Bank.
AS: Well, The World Bank is owned by 180 nations in the world and our job is to provide finance for projects and programs that promote sustainable development. We have several ways of doing this. We have a fund called IDA, the International Development Association for the very low income countries. The funds for that comes from donations from the rich countries of the world. And this goes to the low income countries mainly in Africa and South Asia, for example. That's provided at zero interest rate for varied long terms, like 30 years. The bulk of our activity is a lending instrument which is financed by borrowing on the world's capital markets and most of our client countries use this facility. So, for example, we would lend each year maybe 15 to 20 billion dollars to about 100 countries for development projects. In addition to that we have a private sector affiliate called the International Finance Corporation. Their job is to catalyze private sector activities, especially in those parts of the world where the private sector is not yet confident enough to invest in a big way, and also to make sure that those investments are in the service of sustainable development. Finally, we have an affiliate called the Multilateral Investment Guarantee Agency, and its job is to provide risk coverage for the private sector in countries where they might be nervous about investing for political reasons. So, for example if a company wanted to invest in a certain country and the private company is willing to take the commercial risk, they may ask us to take the political risk. That is a guarantee against there being a political insurrection or takeover of the private sector, or anything like that. so, those are our main instruments. And, of course in the five years since the Rio Earth Summit we've been reshaping our portfolio very much with an aim to supporting Agenda 21 which was the document that came out of the Rio Earth Summit.
JV: Sir, The World Bank was founded in 1944. You have basically evolved from what you did in 1944 to a new agenda, if I understand correctly, which as you put is sustainable development. When did The World Bank establish that agenda and incorporate it into the various sectors that you just mentioned?
AS: Well, back in the 1940's of course and early 50's we were actually lending to countries in the post-war period. We were lending to the currently industrialized countries like France and Germany and so on, with a purpose of helping them rebuild after the war.
In the 1950's and 60's we basically switched our attention to the developing world. And in those days it was a bricks and mortar approach to development. Most experts in those days believe it or not actually thought that if you simply were able to provide infrastructure, that is telecommunications, roads, ports, water supply and so on, that those were the constraints that were preventing the developing countries really developing. And the idea was there would be a great sort of supply response and the entrepreneurs in developing countries would respond to this new infrastructure. And, to some extent that happened.
But it became clear in the 1970's that whilst this was promoting economic growth, the growth wasn't always helping the poor. And, there was another input to the development process, the human factor that we were neglecting. So, in the 1970's we recognized that the investment we had been doing was okay, but it wasn't complete. And so we greatly expanded our attention then towards human development. So, our lending for education, health, and nutritional programs, poverty programs greatly expanded. And that all went quite well.
In the late 70's and early 80's we found this massive crisis in the global macro-economic situation. High debt, high interest rates, high inflation. And all of this macro-economic imbalance was undermining the programs that we and others were supporting. So, in the 1980's in addition to providing infrastructure, to providing human development we started helping countries really reform their macro-economic system.
And, that really was the story of the 1980's. As countries struggled with debt, struggled with macro- economic imbalances and sectoral distortions and we helped them adjust to that. The Brundtland Commission Report in 1987 made a point that of course to some of us has been clear for some time, but nonetheless is was a very very important point, was that you can't think of development without seeing how it really relates to the natural world. So, the Brundtland Commission Report followed then by the 1992 Earth Summit in Rio really set a new agenda that we've been very much a part of which said you can't go ahead with your economic development independent of an understanding of how that relates to the natural world, so to speak.
And so, the Rio Earth Summit and Agenda 21 did something that was very important. It said that poverty reduction is essential, there's still 1.3 billion people living on less than one dollar a day. That should remain the primary concern of institutions like The World Bank, but in addition to that, you'd better really think about how countries can grow and address poverty in a way that sustains the environment for future generations. And so as a result of that, over the last five years we've now been approached by almost 100 countries that have come to us and they've said we want to run our economies well, we want to keep on growing and reducing poverty, we want to do it in a different way. We want to do it in a way that's quite different to the way that the industrial countries did it in the last century and the first half of this century. We are not willing to tolerate the kind of environmental degradation that those countries went through. And so in 70 of those countries now, The World Bank has provided finance to reform environmental legislation and policies and to provide the resources for specific investments to address environmental problems.
And so, around the world now in these 70 countries we have programs with the countries that address pollution very frontally, that protect natural habitats, forests, wetlands, biodiversity in general. And, that also build up the capacity within these countries for environmental management. So, for example countries like Ghana that were starting to run their economies well, they came to us and they said, you know we want to follow the right kind of economic policies, macro-economic policies and so on, but we also are very concerned that as we are now starting to do well economically, that is putting all kinds of pressures on the environment. And so we are working with them to strengthen their laws for fisheries, for forests, for pollution from their mining industry, and to build up their capacity both at the central government level, but also at the local government level in order to manage the environment. And of course a crucial element of this is the rise of civil society.
And so in all of these projects we now insist that it not just be the government supported by us, but rather that local community groups, national non-governmental groups and international experts are all part of the equation. Because, no government traditionally has led on the environment. Governments respond to what the people want. And that's a primary objective now of our programs now is to strengthen the role of civil society. Because if you don't do that, quite frankly, you're not going to have a whole lot of hope of really making progress.
JV: You've mentioned a number of components. If we go back to sustainable development, many people do not understand sustainable development. If you will help incorporate that, both sustainable development and then biodiversity and we'll get to the new civil society.
AS: Well, sustainable development has many definitions and none of them are very satisfying. But, basically the goal of sustainable development is to eliminate poverty while preserving the world's eco-system functions. The productive functions of the natural world for future generations. And, also preserving cultural and social diversity. Now, that sounds like it's a very complicated sort of thing to say, but essentially take the fact that there are 1.3 billion people living on a dollar a day. There are 3 billion people living on two dollars a day or less. That's the real primary objective of sustainable development is to help raise these people out of poverty and provide all of the amenities that clearly are basic to living a dignified life. Illiteracy, nutrition, and so on. But you've got to do that in a way that preserves the world's forest stock, preserves the atmosphere so that we don't suffer a 4 degree increase in temperature through climate change. That preserves the wetlands, that provides such vital cleansing ecological services to us, and so on. So, that's really the goal of sustainable development. And, of course we now have a good idea of how to bring that about. But, doing it is much much harder than having the idea.
JV: In many countries they are adopting an eco-system or biosphere way of living. That's what Habitat II did. In Maryland, where I live, they have several pieces of legislation , called smart growth to sort of help people move to the cities while they preserve the eco-systems. Is that really what you're talking about with regard to The World Bank and their objectives?
AS: Well, we don't believe that one should sort of have a blueprint such as reduce rural population, and increase urban population or the other way around. We don't think that's the right approach. Rather, we think that included in incentives, environmental and social concerns should be factored in. So, as you as a citizen, or I as a citizen, whatever country of the world, when we decide to turn our light switch, for example, included in the incentives we face, which really are the price you pay for the electricity, should be all the environmental issues that relate to electricity.
So, for example, we fill up our cars with gasoline. That gasoline, at the moment is causing climate change. The price of the gasoline should reflect that damage. It's also causing all kinds of other problems, local pollution and so on. That should be factored in through charges into the cost of the gasoline. Now, the gasoline then will be much more expense perhaps than it is today. That in turn will make alternatives much more cheap and it will encourage the private sector to invest in the kinds of new technologies.
Now, sometimes those technologies need to be helped by institutions like The World Bank or governments. And that's what we're doing now, for example, in renewable energy. We believe the market for renewable energy needs to be transformed. So, we have a couple of programs, one's called the photo-voltaic market transformation initiative, the purpose of which is to try and bring down those costs of renewable energy so that instead of people using coal and oil which are bad for the environment, they will use the solar energy which is good for the environment.
JV: This is Joan Veon. We have much to discuss with Dr. Steer. We're going to have to do that on another day. You stay tuned. This is and always will be your Wake Up Call.
JV: Welcome back to Wake Up Call. I am on site in Rio de Janeiro. My guest is Dr. Andrew Steer. He is Director of Environment for The World Bank, and we are talking about The World Bank. The World Bank, after all, is The World Bank. I think one of these days you may see a World Bank on a street corner in Washington, D.C., other than where they're located or perhaps in Rockville, Maryland or perhaps in Chicago as they continue to expand with their agenda and program for the environment.
Yesterday on our program we were talking about the various aspects of The World Bank. We introduced such topics as sustainable development. And that is a key, you must write that down, sustainable development. What does it mean? What will it mean to you and I and how will we live in the future?
Dr. Steer, let's take up there with sustainable development because that is the premise for Agenda 21, the Rio Earth Summit. And that is why we are at the Rio+5 follow-up.
So, sustainable development. It has a little bit more to it than just two words. It really is a new way of living. It is a philosophical shift, if I can use that term to all of life with regard to the environment. As such, sustainable development is like a prism. Every time you turn it you've got a different facet of it, and it grows. Part of it is, there are four definitions or four components to it. So, if you could expand on sustainable development and what it encompasses and how it relates to us.
AS: Well, sustainable development is at its most simple level, living sustainably. Not doing anything today that would undermine the capacity of the generations of tomorrow to live lives as full and as rich and as prosperous as our own. That's a nice concept. It's very difficult to define. We've recently done some work on this subject and we've used the language of economists partly because economists tend to be the powerful decision makers in this world. And so we've looked at the issue of capital. Now, traditionally economists have thought about economic growth. And, they ask the question, what is it that determines the growth of income and output. And, basically it relates to the amount of capital that you put in. The amount that you invest and the traditional capital is what we sometimes call man-made or fabricated capital. And that's machinery, it's roads, it's ports, it's telephones. It's all the things that we usually associate with investment. And that's a very very important type of capital. It does promote economic growth.
But, there are three other kinds of capital that we've been spending a lot of time thinking about and doing work on that are just as important. The first of these other kinds of capital is called human capital. This is something that's been known of course to development specialists for 20 or 30 years now. It basically is the capital or the capacity to produce, if you like, that lies within each individual. So human capital is created through education, through health, through nutritional programs, and through research which leads to new understanding of issues. So, that's human capital, that in fact in many ways in terms of investment is probably the most important thing that we invest in for development.
A second kind of capital, in addition to the human capital, and of course in addition to the man-made or fabricated capital is natural capital. That's the capital that we are all endowed with when we come into this world. That is the metals and minerals that lie under the ground. It's also the land itself and the soils and their fertility. It's the trees and the forests. It's the water that's clean. It's the air that we breathe. That is all the natural capital upon which the economy grows and develops.
The final kind of capital that is an input, if you like, to the development process is what we call social capital. This has been the greatly neglected element of capital. Social capital is the relations that exist between people. It is the groups that form, the institutions that form. It is the common values that we hold. Recent research shows that in fact, social capital is extremely important in making development work. We've recently done a study, for example of rural water supply projects. We've shown that in fact it's the extent to which people act and work together, i.e. social capital, that actually determines success or failure. We've recently done a cross-sectional study of income growth in a number of African villages. And we've shown in fact that it is the ability of villages to work together that is an even more important determinant of development than some of the more traditional kinds of capital, such as whether or not you have a good infrastructure system. Or, even whether or not you have a good educational system.
Now, these four kinds of capital, that is man-made or fabricated capital, the machines, the roads and so on; human capital, that is the education that lies within us all and the human capacity to create and so on; natural capital which is the nature of things, if you like. It is the trees and the forests and the water, and so on; and social capital, the relations and the values that we have that we share. All four are essential.
And if we think about the generations of tomorrow, we've got to think about all four. And, traditionally, you see economists who have thought about this, and I speak as an economist, traditionally economists have tended to think, well as long as we have a growing capital stock, we'll be all right. But, of course if you build that capital stock and it's simply the man-made capital stock of roads and so on, and in so doing you deplete your natural capital stock and your social capital stock, then you can imagine that we are in fact undermining development prospects for tomorrow.
And so we've done some interesting work. We've actually made measurements of the first three kinds of capital. And we've shown that we've looked across 180 nations and we've actually put values, money values on these because you actually can do analysis that will actually give you these values. And we've shown, in fact that the man-made capital is actually the least important of the types of capital, although it is still important.
Much more important is human capital. And also natural capital, even in rich countries is generally about the same or slightly more than the man-made capital. Now, we aren't able to measure social capital. I happen to believe that social capital is extraordinarily important, but I don't know how to actually measure it. There are some techniques. But, anyway, the interesting thing here is that this helps you to think through tough policy decisions.
For example, suppose you've got oil sitting under the ground and the questions then is, should I take the oil out of the ground? Is that denying future generations the right to use that oil? And the answer of course is, well it depends what you do with the oil when you take it out of the ground. And, it depends what you do with the revenues that you make from that oil. So, for example if you do what, for example, Nigeria did in the late 1970's and the early 1980's when they had an oil bonanza, i.e., simply spend it on consumption, you have a little boom, but then you always have a bust. And, so what Nigeria found is that its gross domestic product rose and the incomes rose, but then they very quickly fell back down again. That is unsustainable, that is taking a very precious commodity or source of wealth, and it is simply consuming it.
Suppose you do instead what, for example, Indonesia did with its oil which occurred exactly the same time when in 1979 the oil prices tripled. Indonesia said, well how were you really going to use this oil revenue wisely? What they did they embarked upon a major program for educating the primary level and the secondary level. They embarked upon a major program of a small scale socially orientated investment programs at the village level. They used a lot of it for micro-credit and small scale credit at the local level. And, consequently they created something that's much more sustainable. So, should you use oil that's under the ground? Well, if you use it simply to spend and waste, then that's not necessarily morally bad, but it certainly won't promote something which will last over the longer term. If you use that oil to educate a girl, for example, you have a massive multiplication effect. Think about educating a girl in Africa today. It costs about $32 to give a girl one more year at primary school. Think what that does for future generations.
For one thing, every extra year of primary school that an African girl has, on average she would choose to have half a child less. So, take a thousand girls in Africa, give them one more year of primary school, 500 less children will be born. That's simply because they choose to have less. That helps the long term sustainability of the planet. But, much more important than that, half of all the natural resources in Africa are managed by women. And, yet most of these women don't have the resources to borrow. They don't have legal title. And, many of them, most of them can't read. Therefore, they can't follow instructions on the fertilizer packer, or whatever. They don't have access to extension services very often. So, education will dramatically improve sustainability.
Now, one could repeat that story 100 times looking at all the different types of capital. So, we've found this forward approach to the capital stock a useful one conceptually to help us think through the issues.
JV: There are many questions I could ask from all of that. But, an overall question that I'm sure many people will have who have not heard of sustainable development -- this is new to them, it is foreign, if you will. They haven't heard of it. They haven't paid attention to global levels of change and philosophies -- is this. And that is how will it impede personal freedom if now one is acting for the whole versus what they were doing individually. Which to be honest with you, is how America was brought up and founded.
AS: Well, certainly it will affect the way we behave. I don't think it will make our lives any poorer. My guess is it will make our lives a lot richer. I don't think, for example that the average European who uses only half as much energy to create a unit of industrial output, I don't think the average European is any poorer because of that. They tend to have less polluted skies and atmospheres as a result. I don't believe a city that is based upon a transport system that is less polluting in any way demeans ones life. No, I think the point is this, is that each of us simply live our lives based upon a price system, that gives priority to personal satisfaction, you may well find that we will be polluting each others air because it doesn't really hurt us. Far better to think collectively about this. And so, we're not talking about massive infringements upon freedom.
JV: Dr. Steer, I've got to cut you off. And, I'm afraid if it's possible, we're going to have to continue this tomorrow. Because, collectively, we need to go. To my listeners, I say you stay tuned and join us tomorrow. Thank you.