The report, Entering the 21st Century, argues that "localisation" will prove just as important an economic phenomenon as globalisation, and the Bank's own lending policies will focus increasingly on improving social welfare cities, for example through the provision of clean water and sanitation in urban slums, or schemes to reduce air pollution. There will be less emphasis on traditional World Bank projects such as huge dams and roads, and more on the direct improvement of welfare in population centres.
The report also argues for the decentralisation of government spending and decision-making to local authorities. Cities are challenging the monopoly of central government over policy making, according to Shahid Yusuf, the head of the team that wrote the report.
This devolution is more efficient when it works, although the report also concedes that local governments can easily become overburdened and unable to provide the necessary infrastructure and services. And, against the background of the tragedy in East Timor, it notes that: "demands for local autonomy can lead to ethnic strife and civil war".
It is hardly surprising that the World Bank has concluded it must change tack in its lending policies. The traditional lending for power stations, dams and roads has been tainted by past corruption and, even worse, ineffectiveness. The history of such projects is littered with technical failures as well as having helped line the pockets of corrupt dictators and their cronies.
What's more, environmental concerns about such big projects have played an important part too. The protest against construction of the controversial dam on the Narmada river in India will prove to have been a key turning point.
Under its president, James Wolfensohn, the Bank has started to try to learn the lessons of such failures. He has focused policies on raising people out of poverty, which sounds obvious but was never to the fore in the World Bank's previous, more abstract, focus on economic development.
If reducing the number of people in poverty is what matters, then it is obviously necessary to think about improving the quality of life in the squalid slums of the Third World metropolis.
In 1950 the number of people living in cities amounted to about 300 million in both the developed and developing worlds. By 2000 it will be 1 billion in the industrialised and 2 billion in the developing countries, or about half the world's population in total.
Economic growth is almost always accompanied by urbanisation. Economists have long noted that a skyline full of cranes, whether in London's Docklands or an emerging centre like Shanghai or Manila, is a good signal of rapid economic expansion.
Densely populated centres provide businesses with a pool of skilled labour, access to a network of suppliers and a ready market for their products. The process of globalisation is actually reinforcing some of these traditional advantages. For instance, cheap telecommunications mean companies can compete more easily in the global economy while continuing to draw on the urban labour force.
The report says this is potentially more important for developing countries. "Access to the opportunities offered by globalisation is much greater in cities."
As countries develop, cities account for a growing share of national income. This share averages 55 per cent of GNP in low-income countries but rises to 73 per cent in middle-income and 85 per cent in high-income countries. The fast-growing sectors of the economy, manufacturing and especially services are concentrated in cities because they benefit most from the big local customer base and other "agglomeration economies".
"The speed of urbanisation and the enormous numbers involved make it one of the major development challenges of the 21st century, according to today's report. Whereas the industrialised countries took more than one generation to urbanise, it is happening with dramatic speed today in Asia and Africa. Korea, which has already made the transition, took just 40 years to move from being 80 per cent rural to 80 per cent urban.
The problems of such rapid growth are familiar; we have often seen pictures of grim conditions in the favelas of Rio de Janeiro, for instance. But their inhabitants are lucky. Access to shelter is getting worse with pressure of numbers, and about 100 million people have no permanent home. More than 700,000 sleep on the streets of Bombay.
Traffic pollution is another problem. "For most children in developing country cities, breathing the air may be as harmful as smoking two packs of cigarettes a day," the report says. One in 10 children in Delhi suffers from bronchial asthma.
In 1994 at least 220 million urban dwellers, or 13 per cent of the population in the developing word, lacked access to clean drinking water and twice as many lacked access to toilets or latrines. Domestic and industrial waste is piled in streets and waterways, spreading disease. Manila's Pasig River is biologically dead as a result.
The World Bank places in this report great emphasis on working in partnership with local authorities and community groups to improve the amenities of urban life. This is a pronounced change from its past policy of lending for big projects to national governments either directly or through nationalised industries or agencies. It signals a decentralisation of lending parallel to the decentralisation it recommends in policy-making.
Whether this will have good results in practice remains to be seen, and scepticism is probably in order given the lack of progress made in reducing poverty in the first 50 years of the World Bank's existence. However, the World Development Report at least testifies to a new attention to the day-to-day conditions of life for the growing proportion of humanity crowded into our cities.
Full text of the report and additional materials available at http://www.worldbank.org/wdr
Outlook, page 17