We Need More World and a Lot Less Bank

Pity the World Bank. Every month, the organization gets hit with another scandal or resignation that sends its hefty public relations operation into overdrive, working on damage control.

This month, it’s the bank’s $40-million loan to China for a project that will resettle 60,000 people in an area that was once a province of Tibet. The Dalai Lama, Tibet’s spiritual leader, has called it “cultural genocide.”

Last week, the project took another blow when an internal evaluation was leaked to the press. The bank’s independent inspection panel found that the bank had violated most of its own safeguards in considering the loan. For example, the bank had failed to adequately consult with the people affected by the resettlement. Nor did it consider alternative sites or other options–a major violation of the bank’s own guidelines.

The bank’s latest embarrassment follows a very disturbing resignation last month by Ravi Kanbur, the Cornell University economist who was lead author of the World Bank’s influential 2000 World Development Report. Kanbur quit because he came under pressure, reportedly from the U.S. Treasury Department, to alter the manuscript so that it would conform to the IMF/World Bank/Treasury’s orthodoxy on globalization.

That orthodoxy maintains that opening markets to international trade and investment is the most important policy that governments can adopt. Challenges to this view have been gathering momentum over the last few years in both developed and underdeveloped countries.

Kanbur’s resignation is looking like a sequel to that of Joseph Stiglitz, who was the bank’s chief economist until December of last year. He was forced out after he criticized the International Monetary Fund’s costly mistakes in the Asian financial crisis and in Russia.

The World Bank and the IMF insist that they know what’s best for every country and that their policies promote growth and development. These claims are generally accepted at face value, in many cases even by their opponents. In fact, critics often accuse the bank and the IMF of being overly concerned with economic growth and ignoring the needs of the poor and not protecting the environment.

Yet their record on economic growth is their most spectacular failure. Over the last 20 years, low- and middle-income countries throughout the world have implemented the economic policies of the World Bank and the IMF, often under the threat of economic strangulation. The worst disaster has been in Russia and the states of the former Soviet Union, which lost more than 40% of their national income in the 1990s. This is worse than our own Great Depression.

Income per person in sub-Saharan Africa has declined about 20% over the last 20 years. In Latin America, it has barely grown–maybe 7% over the whole two decades.

By contrast, both of these regions showed vastly superior economic growth in the previous two decades, before the IMF and World Bank’s “structural adjustment” policies became the norm. From 1960 to 1980, income per person grew 34% in Africa and 73% in Latin America.

The only region that has grown rapidly over the last 20 years has been South and East Asia. But this region had similarly rapid growth in the previous two decades. And these are the countries that have most disregarded Washington’s instructions. China, which quadrupled its national income over the last 20 years, does not even have a convertible currency.

In short, there is no region in the world that the bank and the IMF can claim as a success story, while their failures have been widespread and devastating. That is why their top officials, when pressed to defend their policies, will point to an individual country’s economy over a relatively short period of time.

For example, in a recent news article, U.S. Treasury Secretary Larry Summers cited Uganda and Poland as success stories for their economic model. But Uganda, despite seven years of growth, is still 30% below its per capita income of 1983. And Poland is very unrepresentative of the IMF’s work in Eastern Europe and the former Soviet Union. Sadly, most of the 19 “transition economies” in that region are still far below their 1989 levels of income.

With such unchecked power, an incredibly long string of failures and no serious reform in sight, perhaps the attention of reformers should turn to downsizing these institutions. The simple slogan of the protesters who gathered outside the World Bank and IMF headquarters last April may turn out to be the best strategy for reform: “More World, Less Bank.”

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