Written by Chiara Mariotti, CPAN Research Officer
Development is a complex process of structural change, which brings about risk and opportunities. Increase of complexity implies an increase in risk, but taking risk is necessary to harness opportunities. This is, in a nutshell, the premise for the 2014 World Development Report Risk and Opportunities, which manages to be pragmatic, innovative and conservative all at once.
The WDR 2014 is pragmatic because it acknowledges that systematic action is necessary to harness the opportunities and limit the negative consequences of risks, and that single individuals and enterprises are ill-equipped to do this by themselves. The cornerstone of this systematic action is risk management, which should include gaining knowledge in order to reduce uncertainty and prepare for the other actions; preventing risks from turning into negative events; insuring against the occurrence of negative events and preparing for and coping with the latter’s consequences.
The report makes a case for proactive, systematic and integrated risk management: all types of risk must be treated in an integrated way by the combined action of households, communities, enterprises, the financial system and the international community. The state should coordinate the different actors, complementing their actions and guaranteeing the principle of shared responsibility.
The report is innovative in making a strong link between development and risk management, arguing that the latter should be considered a key aspect of public policy and that each country should have a national strategy for risk management. This innovative point echoes one of CPAN’s forthcoming Third Chronic Poverty Report[i]’s key themes: that the other side of the coin of the link between risk and development is the link between risk and impoverishment. Structural change has the potential to bring people out of poverty but also to push them into poverty, through economic shocks, health shocks, conflicts and natural disasters. Protecting its citizens against these risks and prevent their impoverishment is that State’s first duty, as well as an essential task if the target of zero chronic poverty is to be achieved.
The WDR’s most innovative policy proposal is the creation of a national risk board in each country. The task of the board should be to define priorities and coordinate the other actors, make sure that all contingencies have been considered and avoid overspending to manage one risk in isolation while neglecting others. Importantly, it should also deal with the trade-off in investing in risk preparation and coping with risk. This policy proposal however makes manifest one of the main limitations of the report: while calling for holistic risk management, the report has little to say on how to eliminate risk in the first place, because it doesn’t venture into an analysis of the sources of different types of risk and how they are linked to each other. [ii]
Because there is little analysis of the causes of risk, the report glosses over the fact that some types of risk are the outcome of regularities – i.e. of how the system works. The report then is conservative because it barely challenges the model of development which is itself the cause of so much risk, and does not reflect on policies that can tackle its causes by changing the way the system works (for example, creating new decent jobs for unskilled informal workers, in addition to bringing social insurance to them, or avoid land grabbing and displacement, in addition to promote weather-based insurance). Even within the space of the existing model of development, the report does little ‘thinking outside of the box’: little is found in terms of innovative solutions for risk management and the possible contribution by informal indigenous institutions, whereas all the focus is on the formalisation of the economy. Notions of justice and inequality are absent from the discussion, or they feature only in reference to inequality as a source of risk for private business and a constraint to investment (also a key theme in the World Economic Forum’s 2014 Global Risks Report). How risk is distributed among the population, and who is more likely to bear its costs and whom the benefits, remain unaddressed themes.
Overall, if risk management is truly to become a component of future development and anti-poverty strategies, a much broader investigation of risk – one that takes into account politics, power, and broader processes of change, is needed.
[i] To be published in March 2014.
[ii] Footnote for the methodology-fond reader: the focus on risk management rather than on the sources of risk is a direct consequence of the report’s analytical framework, namely economics of decisions under uncertainty. In the latter, individual choice is the main category of analysis and incentives and preferences the driving forces of individual action. The focus of the report is then on risk management as the tool to govern different actors’ behaviour and choices in a way that makes them plan and prepare for risk. This approach is necessary but not sufficient for policy making, because it neglects issues of identity, power and politics, which would instead be at the core of a political economy of risk and risk management.