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Criticisms of the World Bank

The World Bank claims that its major goal is to promote global development through poverty reduction, but there are many critics who argue this is a smoke-screen, and the real aim of the World Bank is to use conditional loans in exchange for countries establishing neoliberal economic policies which ultimately benefit western companies and financial institutions.

bad-samaritansHa-Joon Chang (2007) for example argues that the World Bank (and the IMF) present themselves as a ‘good Samaritans’ whose only motives are to assist the developing world, but they are actually ‘bad Samaritans’ because their motives are essentially selfish.

Chang argues that the real point of the World Bank (along with IMF and the WTO) is to create a policy environment in the developing world that is friendly to Transnational Corporations, an environment which benefits TNCs and small groups of elites in developing countries, but results in deteriorating social development for the majority of the people.

John Pilger in ‘The New Rulers of the World‘ puts it more bluntly:

Pliger argues that the World Bank (along with the International Monetary Fund) is the agent of the richest countries on earth, especially America, and its function is to offer loans to poor countries, but only if they privatise their economies and allow western companies free access to their raw materials and markets.

The World Bank says its aim is to help poor people, calling this global development, but in reality, the effects of its policies are that the rich get richer on running up debt, cheap labour and paying as little tax as possible, while the poor get poorer as their jobs and public services are cut to pay just the interest on the debt owed to the World Bank.

The documentary also claims that the bank operated during the entire cold war as an institution which distributed money to mainly authoritarian regimes in the third world that supported the West in the Cold War.

The World Bank in Indonesia (1960s – 1990s)

Probably the best historical case study which criticizes the role of the World Bank in development is the case of Indonesia. 

In the 1960s General Suharto seized power in Indonesia secretly backed the United States and Britain. He removed from power the founder of modern Indonesia, Sukarno – a nationalist who believed in economic independence for the country. He had kept the Transnational Corporations and their agents, the World Bank, and the IMF, out of the country, but with Suharto coming to power they were called back in to ‘save’ Indonesia.

This regime change was one of the bloodiest mass murders in post WW2 history, with more than a million people estimated to have died in the process. Suharto took brutal steps to consolidate his power by rounding up thousands and thousands of civil servants, school teachers and basically anyone with communist leanings and murdering them.

Within a year of Suharto’s coming to power the economy of Indonesia was effectively redesigned, giving the west access to vast natural resources, markets and cheap labour, what Nixon called ‘the greatest prize in Asia.

Over the next 30 years the World Bank handed out $30 billion in loans for development to the Suharto regime, turning a blind eye to the estimated million people who Suharto massacred during his rule. The Indonesian elite instigated many development projects with World Bank loans during this time, and many of them were seen as opportunities to skim money for themselves.

The Asian financial crisis of 1998 collapsed the Indonesian economy which resulted in Suharto stepping down from power, ending a 30 year rule during which time he stole an estimated $15 to $30 billion from the Indonesian people, giving him the dubious honour of being the most corrupt dictator in modern world history.

According to the World Bank’s own documents, by the end of regime, $10 billion out of $30 billion in loans remained unaccounted for (so around half of the estimate above is straight from the World Bank). Of course the debt remained, and still had to be paid back to the World Bank by the Indonesian citizens who had never seen a cent of that money.

According to the auditor general of the World Bank, if the citizens of Indonesia made a legal challenge against the World Bank over the remaining debt (given that they never received the money), the World Bank would be bankrupt, because this has gone on the world over.

The World Bank in Bolivia (1994)

Another specific case study which demonstrates the harmful effects World Bank policies can have on poor countries is the case of the World Bank’s Structural Adjustment Programme in Bolivia in the mid 1990s (clip below from ‘The Corporation’):


In 1994 the World Bank refused a $25 million dollar loan to a local water co-operative in Cochabamba, Bolivia. Instead, they insisted that the Bolivian government hand over the running of the local water supply to a French mulitnational named Bechtel. The agreement that the World Bank forced onto the Bolivian government gave the French company total control over the local water supply in Cochabamba, even over the rain water, and locals were forbidden from collecting rain water to drink – they either had to pay the company for water or die of thirst.

The problem was that the fees Bechtel was charging for water cost the average local resident more than they spent on food, or about half of their income (the other half they didn’t spend on food).

In response,  a resistance movement sprang up (no pun intended), to which the government responded with military force – and over a hundred people were wounded in the following skirmishes.

In this case, the government eventually backed down, and the water supply was returned to the control of the local community, meaning that water was again effectively available for free, but this goes to show the lengths the world bank will go to in support of Transnational Corporations.

A good documentary which puts the Bolivian water privatisation in historical and global context is ‘Blue Gold: World Water Wars’ – clip below…

Some negative consequences of Structural Adjustment Programmes in Africa 

Structural Adjustment programmes are the primary vehicle through which the World Bank provides conditional loans for development – through them, a country only receives loans if it adopts neoliberal (pro-business) policies – there are four main strands to this – prviatising public services, cutting taxes, deregulation, and developing an ‘export driven’ economy.

This useful blog post summarises some of the harms that World Bank structural adjustment programmes have done in Africa. To summarise just a few of them…  

  • Privatisation has meant that Transnational Corporations have been able to buy state enterprises at very low costs.
  • Tax reforms under structural adjustment programmes typically have meant tax cuts for the wealthy (lowering taxes on profits for example) and shifted the tax burden onto middle and low-income groups.
  • Deregulation has made it easier for TNCs to shift their profits abroad – to offshore banking accounts for example.
  • Cuts to public services such as health have increased the number of people without access to health care.
  • Cuts in public sector employment, have led to large increases in unemployment. (for example 300 000 civil servants were retrenched in Zaire – now DRC – in 1995).
  • Liberalisation of labour markets have led to the phasing out of minimum wage legislation.
  • Export orientation in agriculture has led to the elimination of subsistence agriculture and pushed people towards cities, leading to rapid urbanisation and an increase in slum-living conditions.
  • Various NGOs funded by international aid agencies have gradually taken over government functions in the social sector.

Evaluations of these Criticisms 

  1. Many of these criticisms are historical, and they may not apply to World Bank policy today.
  2. It’s actually quite difficult to evaluate how successful World Bank policies have been in promoting development, because you can never be sure what would have happened if World Bank policies and conditional loans had not been put in place, and it’s difficult to isoloate the specific effects of policies given the open-systems nature of global development.

Further Reading

Structural adjustment programmes – more harm than good for African development?  A useful blog post analysing the reasons why SAPs generally didn’t work in Africa, from 2015

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The Role of the World Bank in International Development

The World Bank’s main function is to provide long-term loans to developing countries for development. These loans support a wide array of investments in such areas as education, health, infrastructure, agriculture, and environmental and natural resource management.

 

the-world-bank
The World Bank headquarters in Washington D.C.

According to the World Bank’s web site:

The World Bank Group has set two goals for the world to achieve by 2030:

  • End extreme poverty by decreasing the percentage of people living on less than $1.90 a day to no more than 3%
  • Promote shared prosperity by fostering the income growth of the bottom 40% for every country

The World Bank is not a bank in the ordinary sense but a unique partnership to reduce poverty and support development. The World Bank Group comprises five institutions managed by their member countries.

Historically, the World Bank’s primary role in development seems to be in promoting free-market pathways to development, focusing primarily on GDP growth as the most important indicator of development. However, more recently there has been more of an emphasis on poverty alleviation and and improving social development, as well as making countries resilient to global challenges such as climate change and pandemics. .

Donor Countries and Countries viable for World Bank Assistance 

The World Bank is funded primarily by the governments of the world’s richest 60 developed nations, and the amount each country provides is broadly related to its GDP – the USA is the largest donor, for example, having contributed $1.5 billion, while the UK is third, with a contribution of just under $900 million (2010 figures). NB It’s worth noting that the amount of money channeled through the World Bank is increasing.

world-bank-commitments

This means that the remaining 130 countries, mostly outside of Europe, are eligible for development aid through the World Bank.

World Bank recpient countries.png
Countries eligible for World Bank Assistance 2016

The Scale Development Assistance Given by the World Bank

In 2016 the World Bank made over $64 billion dollars of commitments to developing countries, broken down by region below (World Bank Annual Report, 2016)

world-bank-commitments

So what does the World Bank actually do to promote development?

TBH it’s difficult to say – exactly what the World Bank does in each country depends, to an extent, on that country’s level of development. To check out what the World Bank does in each country, and for progress, see the World Bank’s country pages.

Historically, the World Bank has had a Neoliberal Development Agenda

Despite there being different development programmes in different countries, since the 1980s, the World Bank has generally favoured a neoliberal approach to development by offering loans only if developing countries adopt neoliberal policies such as the privatization of public services, deregulation, lowering taxation, and developing an export-driven (rather than a subsistence) economy (Chapman et al, 2016).

The World Bank and Structural Adjustment Programmes (SAPs)

Structural Adjustment Programmes (SAPs) are one of the main policy vehicles through which the World Bank and the IMF* have sort to encourage economic development in poorer countries. They basically involve encouraging poorer countries to adopt a neoliberal pathway to development, favoouring free-trade. 

Structural Adjustment Programmess were first introduced by the World Bank and the IMF in the 1980s in response to a debt crisis in Africa in the 1970s. Under SAPs, countries are able to get loans from the IMF or the World Bank if they accept conditions, which usually consist of adopting neoliberal policy reforms.

How did SAPs intend to fuel development?

SAPs required numerous developing countries to introduce the following neoliberal policies, which favoured free-market capitalism.

  1. Lower taxation, especially on profits – to provide incentives businesses and attract international investment.
  2. Privatisation of public services – neoliberals believe that state run services (such as health and education) are inefficient, privatising them means handing them over to private companies to run, which should deliver better services for cheaper because they’re more concerned with cost-cutting to maintain and increase profit.
  3. Deregulation – which included reducing the rules surrounding minimum wages, environmental legislation and health and safety, all of which make it more difficult to do business.
  4. Refocusing the economy to favour production for export rather than ‘import substitution’ –  many SAPs encouraged developing countries to invest money in ‘export processing zones’ which were special areas (typically near ports) which TNCs could move into to manufacture goods cheaply for export, taking advantage of the cheap labour in poorer countries, rather than spending money supporting smaller,  local industries producing goods for domestic consumption. A good example of this is provided through the current case study of Malawi. The World Bank’s web site says: ‘With support from the World Bank and other donors, the Malawi government has been developing a new national agricultural policy to refocus smallholder subsistence farming to commercial approaches’.

So What is the role of the World Bank in International Development?

Historically we can certainly say that the World Bank has made considerable efforts to support free-market capitalism, and some of its policies do seem have benefited some developing countries, such as the IDA graduates.

However, unfortunately for the World Bank, there is a lot evidence that many of its policies have not helped developing countries at all and numerous critics argue that its interventions in poor countries have actually made things worse for a lot of people, which is covered in a later post….

Related Posts

Criticisms of the World Bank (forthcoming)

Further Reading

Structural adjustment programmes – more harm than good for African development?  A useful blog post analysing the reasons why SAPs generally didn’t work in Africa, from 2015

The World Bank’s Malawi page

*The International Monetary Fund – I’ll post on this later.