NOTE: see Bank response to this letter below.
Tuesday, May 08, 2001
James Wolfensohn
President
The World Bank Group
1818 H. Street
Washington, DC
Re: Flaws in the economics of the proposed conversion of the involuntary resettlement policy (new OP 4.12)
For years, Bank and academic studies have confirmed that involuntary resettled people face impoverishment risks. The draft involuntary resettlement policy before your Board may create new poverty, contradicting the Banks basic objective of reducing poverty. The future will most likely repeat the past and Bank projects will ended up subsidized by people displaced by the Bank-financed project. I suggest that any Board action to revise/convert the involuntary resettlement policy address a critical question - what is being done, in the proposed policy, to overcome the demonstrated by the Bank itself, unsatisfactory economic performance of projects involving involuntary resettlement?
I chose to contribute to the on-going discussion by highlighting the serious flaws in the economics of the proposed draft. The shortcomings undermine an assessment of overall project economics that require involuntary resettlement component. I urge you to delay Board consideration of the draft OP 4.12 until these flaws have been examined and corrected by the Bank economists.
Thank you,
Theodore E. Downing
Research Professor of Social Development
Pc. Ian Johnson, VP The World Bank, The New York Times, The Washington Post, The Financial Times
Ted
Downing
Research Professor of Social Development, University of Arizona
Chair of the International Network on Displacement and Resettlement
Former involuntary resettlement consultant to the IBRD and IFC
6 March 2001
The draft Operational Policy 4.12 (6 March 2001) acknowledges the well-established impoverishment risks that threatened the involuntarily displaced. Unfortunately, it fails to institutionalize methods to move beyond the economics of compensation to an economics of developing productive systems. The draft policy drags forth the same flawed methodologies that have been responsible for decades of unacceptable performance. It conceals critical economic information on risks from the Bank Board and the displaced. It fabricates new legal distinctions that externalize costs and are unsupported by economic science. It ignores distributional impacts. And it places compensation above jump-starting the damaged socio-economic system.
Five dimensions need to be examined by the Bank economists and social scientists before this draft can go forward.
1. The draft policys economic objectives are ambiguous, contradictory, and obstruct project implementation.
Restoration should not be confused with development.
The objective of providing people with the opportunity to restore their
livelihoods and standards of living or at least to restore them, in real terms,
to pre-displacement levels (whichever is higher) contradicts the draft
policys other objective of providing sufficient investment resources to give
the displaced an opportunity to share in project benefits (I.2.b and c). If a borrower opts to restore the displaced
to their pre-displacement levels, the displaced cannot be beneficiaries of the
project since they are to be restored to a position before the development
project. The restoration standard should be replaced with one requiring an
improvement in their livelihoods and standards of living. A significant
improvement would come from removing "at least restore living
standards" and substituting the original Operational Directive 4.30
language that All involuntary resettlement should be conceived and executed as
development programs, with resettlers provided sufficient investment resources
and opportunities to share in project benefits.
2. The draft policy uses outdated, inaccurate economic models that externalize costs and internalize benefits by:
a) introducing a troublesome new legal distinction that does not derive from scientific economic or sociological knowledge and was not in the current policy OD 4.30 - between direct and indirect impacts.
In contradiction of the Banks own studies, the draft arbitrarily limits cost of resettlement to "direct economic and social impacts" resulting from the projects taking of land, relocation of shelter, loss of assets, loss of income sources (p. II 3). Introducing this flawed direct/indirect distinction leads to an understatement of total project cost. Bank research has established these externalized costs are real and calculable. They include costs of reintegration and repositioning of communities and individuals - resulting from marginalization, loss of food security, and degradation of resettlers health. Consequently, the draft policy externalizes the costs of resettlement to host governments and society. The correct, economic litmus test should be: if the costs would not have accrued without the project, then they are fully project costs.
b) incorrectly assessing and externalizing critical health care costs.
The current draft recognizes the costs of the providing of health care services, but does not factor in the critical costs of health impoverishment incurred by the resettled people themselves (Annex 1, footnote 2). This is the equivalent of claiming that equipping a hospital emergency room covers the costs of an industrial injury to a worker. The health care costs incurred by all affected peoples should be fully assessed and covered. Again, add the litmus test of if the costs would not have accrued without the project, then they are full project costs.
Moreover, the draft inexplicably narrows the earlier Operational Directives recognition of stress of being uprooted to psychological stress, excluding other documented social, environmental and economic stress that accompanies being uprooted.
c) not including impoverishment risk assessment in the socio-economic studies.
A listing of costs is not a risk analysis. The draft policy requires neither an assessment of the well-established impoverishment risks nor a socio-economic analysis of impacts. The Board clarified that impoverishment risks must be taken into consideration when it reviewed The 1994 Bankwide review. The present draft policy also retreats from Banks commitment in its response to public commentary that the analysis of impoverishment risks would supplement traditional social and economic surveys. If the risks are not assessed, then neither the Board nor the displaced will be provided with information.
To the contrary, in the Bank Procedures accompanying
the policy, staff is only directed to review the risk of impoverishment
resulting from inadequate implementation of the resettlement
instrument. This limited review focuses
on risk as a measure poor project performance and avoids the multifaceted,
impoverishment risks known to be commonly faced by the displaced (mentioned in
the first paragraph of the draft OP).
And more. Impoverishment risks are not folded into the draft operational
policy nor are mitigation of those risks legally binding to lenders who accept
the policies during negotiation.
3. The draft policy uses a flawed methodology to calculate the replacement cost, skewing the economic analysis in such a way that the poor are highly likely to end up subsidizing Bank-financed projects.
Replacement costs focus on compensation of assets, excluding the critical costs of reintegrating and restarting disrupted economy, social institutions, educational systems (para 10). Validation of and compensation for losses is set at the pre-project or pre-displacement baseline, ignoring project impacts (removing land from the market may increase its costs). Setting compensation at the pre-project or pre-displacement levels externalizes project costs, encouraging an unjustified overestimate of overall project returns (Annex 1, footnote 1.)
Although the objectives call for persons displaced to share in project benefits, the draft fails to require cost/benefit analysis of a project to the displaced population, distinct from the project analysis. Its requirement for a simple listing of costs can be made without an economic analysis. An adequate economic analysis would require disaggregating vulnerable segments of the population, considering the costs of jump-starting a disrupted social and economic system, and covering the anticipated recovery period. The latter routinely exceeds that of the project.
4. The draft policy institutionalizes a negotiating system that undermines the chances for economic reconstruction and borders on a human rights violation.
Economic reconstruction is undermined not only by transferring project preparation costs to the displaced, but also by setting up unresolved conflicts of interests. Bank research has established that strengthening the capacity of a group is a critical prerequisite for economic reconstruction. Experience has also shown that borrowers often fear that improving the capacity of displaced peoples might increase resistance, demands, and costs. Why does the draft policy permit the Bank to underwrite the borrowers costs of negotiating with the displaced but not vice versa?
The draft does not provide for basic rights of a weaker party to legal representation in a situation created by the project. It tightly limits the rights of the weaker party. The draft improperly assigns the borrower the power to veto project-affected-people requests for Bank assistance. If the borrower requests, the Bank may provide assistance to strengthen the capacities of affected people to participate more effectively in resettlement operations I know of no project where this strengthening includes providing the displaced with independent, adequately financed legal representation. The lack of legal representation has consistently undermined the capacity of project-affected-people to understand and negotiate for their economic reconstruction. Provisions should be made to assure that those at risk of displacement are opportunely informed and have independent, competent legal representation. And the legal cost of displaces to be charged to the project.
5. Lack of informed consent for both the displaced and the Board.
Informed decision-making requires that the displaced be fully aware of the "risks" as well as choose among the options. The draft hierarchically consults on rather than consults with and does not require the borrower or Bank to inform the displaced about the known risks. This is equivalent to claiming that the rights of a smoker are taken into consideration if they are offered a choice of brands, without being told of the risk of cancer.
An acceptable standard would be to require that the population facing displacement understands the impoverishment risks they are facing, gives binding, written consent to the resettlement component, and accept the actions being proposed to mitigate each of these risks. Informed consent should also be obtained for actions intended to assure project affected people are beneficiaries. Regretfully, experience has shown that social and economic harm may come from well-intentioned attempts to do good, without the informed, participation of the project affected people.
As with the earlier policy, the success of the proposed draft resettlement policy heavily depends on the successful execution of a resettlement plan. Given the substantial risks facing a resettlement component, it would be prudent to assure, in policy, that independent monitoring continues until the goals of the resettlement component of a project have been reached.
RESPONSE
TO THE LETTER ABOVE
The World Bank
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
1818 H Street N.W.
Washington,D.C. 20433 U.S.A.
August
8, 2001
Theodore E.
Downing
Research Professor of Social Development
University of Arizona
1237 N. Mountain
Tucson, AZ 85721-0471
Re: Letter to James Wolfensohn dated May 8,2001
Dear Ted,
I have been asked by
Ian Johnson, Vice President, Environmentally and Socially Sustainable
Development (ESSD), to respond to your letter and the attached critique
regarding the World Bank's draft operational policy on involuntary resettlement.
We appreciate your professional experience and knowledge, and your comments
warrant and have received all due consideration.
As you know, the debate
regarding the OD 4.30 conversion process has been going on for quite some time
now. The present draft ofOP 4.12 has been revised on several occasions to
incorporate useful views presented to us. Bank staff are confident that the
present draft represents a significant improvement over the existing policy in
terms of clarity, while fully maintaining the intended protections for persons
who may be affected by resettlement-related impacts. We are convinced it is now
time to move forward with the conversion process.
Please be assured that we all recognize the need for
continued learning, both through analytical work and practical experience.
Undoubtedly, the issues you (and others) raise are enduring themes that will
continue to be revisited as this learning process continues. It is particularly
encouraging to see that you are advocating increased attention to economic
analysis in resettlement. Michael Cernea's edited volume on the subject points
the way toward some very interesting topics, which we hope to pursue further.
I know that you fully
appreciate that some of the issues you raise are deeply philosophical in
nature, about which people holding strong views can disagree. Your view that
potentially affected persons should exercise free, prior consent before being
subjected to resettlement-related impacts is incompatible with the eminent
domain laws in effect throughout the world. We are not in the position to
address this issue in the context of a policy conversion exercise. We have,
however, included strong provisions relating to consultations with and
participation of potentially displaced persons in project design and
implementation.
But I also think that
some of the issues represent, to a significant degree, our inability to
successfully explain the Bank's operating environment. As you know, the
resettlement policy originated from a widely shared concern about the
consequences of reservoir schemes involving relocation of entire
communities. Over time, obviously, policy coverage has been extended to
all kinds of projects involving land acquisition, with the term
"resettlement" now commonly applied to situations in which the vast
majority of persons are not required to relocate at all. In very many cases,
minor land acquisition creates circumstances in which incomes and health are
not affected, or create minor losses which are easily rectified in-situ.
What this means is that the various risks of impoverishment are not all
relevant in all cases, but the Bank's policy nonetheless must apply to all
cases in which land acquisition occurs. We have learned through experience that
it is inappropriate to approach all projects, regardless of the scope or
significance of the impacts they may create, as if they will uniformly result
in the debilitation of all affected. Projects typically involving relatively
minor land acquisition, such as power transmission line projects and many road
rehabilitation projects, often do not provide circumstances appropriate for
major resettlement-as- development interventions. Hence our concern that the
policy conversion process allow for provision of appropriate remedies for all
impacts, big and small.
I welcome your personal assistance in helping us to make clear the important
and necessary distinction to be made between projects in which potentially
serious resettlement circumstances make the risks of impoverishment more
pronounced, and other project circumstances in which land acquisition will lead
to relatively minor impacts. This will help us to ensure that resources are
directed most effectively and that those who really are significantly affected
get a shot at meaningful development opportunities through resettlement. We
intend that all affected persons should be treated equitably, but this req~ires
us to recognize that not all persons are affected equally.
I also want to briefly address the issue you raise regarding the distinction
between "direct" and "indirect" impacts. As you observe,
and we readily agree, the distinction will not be an easy one to make in all
circumstances. It is obvious that we will need to consider this subject in
detail in the forthcoming Resettlement Sourcebook. Nonetheless, it is simply
impossible to address, in the resettlement policy, all potential social impacts
that could over time eventually be associated with a project activity .The
revised policy codifies current practice and clarifies that it covers direct
impacts related to taking of land and restrictions of access to legally
designated parks and protected areas. The policy is not intended to apply, and
has never been applied, in situations involving impacts other than those related
to taking of land or related assets.
The Bank's resettlement policy does not cover the entire range of possible
adverse social and economic impacts. While some of them would be covered under
the Bank's EA policy (OP 4.01), others are taken into account as part of good
project design. I would like to emphasize that there is no backtracking on the
kind of impacts which trigger the Bank's resettlement policy. In this respect,
it is pertinent to point out that the current Bank policy (OD 4.30) could be
read restrictively to cover only impacts caused by actual physical relocation
of affected people. However, in 1996 Bank Management clarified that direct
impacts on livelihoods ("economic displacement") caused by physical
measures, even when there is no physical relocation of affected people, is also
covered by the policy.
Ultimately, Ted, we both share a concern for satisfactory "results on the
ground." Since many of the persons nominally included as
"resettlers" are not subject to significant impacts in the first
place, the overall resettlement record is not as glum as you imply.
Nonetheless, there is certainly room for improvement. We think the conversion
exercise will help us to direct our practical attention, and analytical
efforts, to areas where improvement is necessary. We solicit your support in
this endeavor.
Sincerely,
~~~
Maninder Gill
Coordinator, Resettlement Thematic Group
Return to original Downing letter