When
Jim Yong Kim took the helm of the World Bank in July, progressives in
the development community hailed it as a turning point in the fight
against poverty. For once the Bank is headed not by a US military boss
or a Wall Street executive, but by an actual expert in the field of
development. Jeffrey Sachs
called Kim's appointment a "tremendous step" toward making the World
Bank a place "where the world convenes to address the dire, yet
solvable, problems of sustainable development".
I
have deep respect for Kim and his past accomplishments, but I do not
share the optimism that has overcome the development community. I find
it astounding that we continue to place our hope for the end of poverty
in an international financial institution that is fundamentally beholden
to the interests of Wall Street and the US government. And we do so
against all the available evidence. History shows that most of the
countries that have come under the sway of the World Bank - and its
sister institution, the IMF - have experienced declining development outcomes over the past 30 years or so.
This
is either an unfortunate mistake that can be fixed with a little dose
of better leadership, as Sachs and the rest seem to believe, or an
indication that the Bank doesn’t actually care much about development
and poverty reduction, and that it's after something else entirely.
Structural adjustment
To
explain the Bank's dismal record on development we have to understand
its core economic strategy, namely, "structural adjustment", which has
been in place since about 1980. When the Bank gives out loans to poor
countries, they come with strict conditions attached that require
debtors to restructure their economies in line with neoliberal policy
by cutting subsidies and price controls; privatising public utilities;
curbing regulations on labour and pollution; removing trade tariffs; and
allowing foreign corporations to buy up public assets, bid on
government contracts and repatriate profits at will.
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Inside Story Americas - Will the World Bank
change direction? |
The
Bank claims that this free-market "shock therapy" stimulates growth and
therefore enables debt repayment. But this doesn’t actually work.
Instead of helping poor countries develop, structural
adjustment has basically destroyed them. While developing countries
enjoyed a per capita growth rate of more than 3 per cent prior to the
1980s, structural adjustment cut growth in half, down to 1.7 per cent.
When it was foisted on Sub-Saharan Africa, per capita income began to decline at a rate of 0.7 per cent per year. The GNP of the average country shrank
by around 10 per cent during the 1980s and 1990s, and the number of
Africans living in basic poverty nearly doubled. It would be hard to
overstate the degree of human suffering that these statistics represent.
This
is not to say that the World Bank has accomplished nothing on the
development front, of course. Its proponents are always quick to point
out successes in infant mortality
and school enrolment in developing countries. But such gains are
dwarfed by the losses that these countries have suffered over the same
period: developing countries have lost roughly $480bn each year in potential GDP as a result of structural adjustment, and another $160bn each year to transfer pricing and other forms of foreign tax evasion legalised as part of the neoliberal package.
When
the failure of structural adjustment became apparent to the world, the
Bank ostensibly backed down from this policy and replaced it with
"Poverty Reduction Strategy Programmes". But a quick look at the content
of the new PRSPs shows that they cloak the same policies
behind new euphemisms. If the World Bank wants to achieve a world free
of poverty, how do we explain the fact that it continues to pursue
policies that have such disastrous consequences for poor countries?
Transferring crisis
Some critics, like William Easterly and Ha-Joon Chang,
argue that Bank leaders are just a bit too overzealous about free
markets and don't realise that their policies are so destructive. Once
they see the folly of their ways they will change course, the thinking
goes. This kind of optimism is terribly misplaced. The World Bank will
not change course because it is not actually failing at its underlying objectives.
So what is the Bank after, if not poverty reduction?
| "The success of the Bank’s business model hinges on the unique power that it wields over its debtors." |
To
understand the World Bank's underlying objectives, we have to consider
its role in the broader context of global capitalism. Capitalism
inevitably bumps up against limits to the creation of new profits -
limits such as market saturation, diminishing consumer demand, resource
depletion, or higher input costs. When this happens, corporations find
themselves with lots of excess capital but nowhere to invest it for
profitable returns. This is what economist David Harvey calls
"overaccumulation", and it can lead to systemic crisis such as that
which set in during the period of stagflation in the West in the 1970s.
This
is where the World Bank becomes useful. When the domestic economy began
to stagnate in the 1970s, Wall Street banks decided to circulate their
excess capital through the World Bank in the form of loans to poor
countries. These days the Bank sells around $30bn worth of AAA-rated bonds on Wall Street each year: "innovative debt products", in Bankspeak, that produce returns of more than 7 per cent.
The
success of the Bank's business model hinges on the unique power that it
wields over its debtors. By attaching structural adjustment conditions
to loans, the Bank can force debtors to channel all their available
resources toward debt repayment, requiring them to cut other expenses
(such as much-needed subsidies and public services) and raise new funds
by selling off assets. In addition, structural adjustment requires
debtors to keep inflation low so that the value of their debt (read:
Wall Street's investment) doesn't diminish, even though this denies poor
countries an important method for stimulating growth.
In other words, structural adjustment programmes were not designed to reduce poverty (in fact, they specifically preclude poor countries from using the basic strategies
that Western countries used to develop their own economies). Rather,
they were designed to pull wealth from third world governments into
first world banks, allowing the US to transfer the crisis of
capitalism abroad for a while without having to solve its contradictions
at home. It's no accident that all of the Bank's past presidents have
been US military bosses and Wall Street executives (see the full line-up
here); they've been put there to underwrite this strategy. Kim knows this. But despite whatever good intentions he might harbour, he will have to serve the same masters.
Accumulation by dispossession
In
addition to enforcing flows of tribute from the global periphery to the
global core, the World Bank serves the interests of Western capitalism
in a broader sense. Responding to the crisis of the 1970s, the US
government retooled the World Bank and the IMF to create new market opportunities
for Western corporations in the third world. Structural adjustment
facilitated this agenda by prying open previously protected economies,
forcing down the costs of business in developing countries, and
subsidising exports from Western producers.
|
| World Bank predicts weak economic growth |
In
other words, when there is nothing left to accumulate at home, the
World Bank creates ways for US corporations to siphon value from new
frontiers. This is what Harvey calls "accumulation by dispossession" -
the ongoing process by which capital has to plunder external resources
and assets in order to maintain growth. The process of dispossession
always requires force, be it through military coercion, as in the case
of the American occupation of Iraq, or through the "soft power" that the
World Bank wields by leveraging debt.
In
addition to forcing economic liberalisation, the Bank's other key
method of dispossession is privatisation. As part of its tactic for
recouping loans, the Bank requires debtor nations to sell off telecoms,
railroads, banks, hospitals, schools and every conceivable public
utility to private companies. The Bank has privatized more than $774bn
worth of assets in developing countries since 1988 alone. This amounts
to $39bn per year of profitable opportunities for Western investors in addition to the $30bn of high-interest bonds (read: debts) that the Bank sells each year.
This
has disastrous consequences for the poor, since in most cases the new
owners of formerly public assets have no reason to make them available
to people who can't afford to pay. But the World Bank defends
this practice on the basis that it provides "a real business
opportunity" for corporations. Some studies show that US businesses get
up to 82 cents in new purchases for each dollar that the US contributes to the Bank.
According
to these standards, the World Bank has been a resounding success, not a
failure. Indeed, it would be absurd to imagine that a multi-billion
dollar institution controlled by Wall Street and the US government would
ever be left to "fail". Thanks in large part to the World Bank and the
IMF, US investments abroad have grown to more than $10 trillion and
income from those investments has increased from about 20 per cent of
domestic profits in the early 1980s to about 80 per cent
in recent years. What is more, US corporations have been enjoying an
increasing rate of return on those investments: from 5 per cent in 1975
to over 11 per cent in 1990. Never mind that poor countries have been systematically destroyed in the process.
Transforming the World Bank
This
is why the World Bank is so valued by the US government and Wall
Street: because it is instrumental to expanding the sphere of Western
capitalism, a role not dissimilar to that which colonialism once played
for Europe. This may be a good way to overcome flagging corporate
profits and to stop stagflation at home, but it does not count as a serious strategy for global poverty reduction.
| "Power in the World Bank is presently apportioned according to members’ shares, just like in a corporation." |
We
have to face up to the fact that the World Bank will never be an
effective tool in the fight against poverty without fundamental changes
in its power structure.
First,
developing countries need much more control over decisions that affect
them. Power in the World Bank is presently apportioned according to
members' shares, just like in a corporation. Major decisions require 85
per cent of the vote, and the United States, which holds about 16 per
cent of the shares (and controls the presidency), wields de facto veto
power. The same is true of the IMF. Developing countries together hold
less than 50 per cent of the vote, which is shocking given that the
institution supposedly exists to promote their welfare.
Second,
development aid should be delinked from corporate bonds. This would
take Wall Street's interests out of the equation, eliminate the pressure
to siphon wealth from debtors and allow the Bank to evaluate its
performance on the basis of poverty reduction outcomes instead of loan
volume, as is the current practice.
These
two interventions would open the door to other changes that critics
have demanded for decades, such as: forgive third world debt on the
grounds that it was imposed in bad faith; get rid of the blanket
structural adjustment conditions associated with development loans; and
eliminate the Bank's "sovereign immunity" status, which presently allows
it to avoid responsibility for the perverse outcomes of its policies.
Kim
probably won't be able to accomplish these reforms because they would
run up against enormously powerful economic interests. Real change will
require rebuilding the global justice movement by linking together
organisations that have been working on these issues for decades. As
neoliberal policy has ravaged the lives of hundreds of millions of
people around the world, there's a lot of anger out there ready to be
mobilised. A revolution lies waiting in the wings; we have only to call
it forth.
Dr
Jason Hickel teaches Anthropology at the London School of Economics and
Political Science. He has contributed political critique and analysis
to various magazines, including Foreign Policy in Focus, The Africa Report, Pambazuka, MR Zine and Thought Leader. Currently, he is co-editing an interdisciplinary volume titled Ekhaya: The Politics of Home in KwaZulu-Natal, South Africa.
The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera's editorial policy.
Source: Aljazeera news
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