The 2019 World Bank Development Report highlights the importance of ‘global value chains’ to helping poor countries develop.
Global trade has increased significantly since the 1990s and global value chains today account for more than 50% of global trade.
Those countries which have high levels of participation with Global Value Chains have generally developed more quickly than those countries which have limited or no participation with global value chains.
Vietnam would be a good example of a country that has increased its export links to GVCs over the last 30 years and has seen a corresponding rapid economic development.
What is a Global Value Chain?
The report defines a global value chain (GVC) as ‘the series of stages in the production of a product or service for sale to consumers. Each stage adds value, and at least two stages are in different countries.’
The bicycle is used as an example of a product with an extensive global value chain, with many countries being involved in the many stages of its production.
Global Value Chains and Development
Those countries which have moved from simply exporting agricultural goods to manufacturing parts for products such as bicycles have seen higher levels of economic growth since the 1990s:
What I find most interesting is this map here:
We see that those countries which are more involved with global manufacturing – China and India for example have seen the highest rates of economic growth
The negative consequences?
The report also has chapters on increasing inequalities which have emerged as a result of development through increasing manufacturing – GVC firms tend to be highly concentrated in only a few regions in every country, and women are less likely to be employed in managerial positions.
And there may also be some negative environmental consequences for countries more involved in global value chains.
Future challenges
The report suggests that recent technological innovations which bring manufacturing closer to the end-consumers of GVC products (3D printers) may mean that manufacturing for GVCs is no longer a viable path to development for poorer countries.
The limitations of this report
You have to question how objective this report is – it is from the World Bank, an organisation dedicated to increasing World Trade.
The report also doesn’t seem to acknowledge the problem of what happens to those countries which are ‘left behind’ or ‘left out’ of global value chains.
That map above kind of reminds me of an updated version of Wallersteins’ ‘three zones’ in his World Systems Theory – and in that theory, one country can only move up into a higher zone at the expense of another moving down – there always has to be one country (or regions within countries) at the bottom, or maybe even left out altogether, which seems to be the case here.
It might be that integrating into GVCs is a great way to develop for SOME people in some regions of some countries, but not necessarily even for the majority of people the world over.
It might even be the case that the expansion of GVS are the cause of more inequality and thus, despite increasing economic growth (which are very limited indicators of development) we actually have equal amounts of losers (or more) than we do winners from the expansion of GVCs.
Relevance of this report for Global Development within A-level sociology
This seems to be a good case for global optimism – those countries which get more involved in global trade
The map of countries seems to be a modified version of Wallerstein’s World Systems Theory‘s ‘Zones of Production’, although interpreted here in an entirely positive light!
The Ground Truth Project (an independent US media company) is documenting how World Bank financed commercial agricultural projects are resulting in the displacement of indigenous peoples in Tanzania, and Kenya, East Africa.
This Oxfam article (2016) points to a complex way in which TNCs may benefit from World Bank loans – The World Bank lends money to poor countries who then pay TNCs to do development work for them, but the TNCs are registered in Tax Havens, which means the developing countries benefit less from taxing the profits of TNCs working in those countries.
A something of a counter argument to ‘the World Bank is evil’ line of evidence… This (2016) Guardian article argues that the proportion of the global population has fallen now below 10%, and so the World Bank has hanged its focus so that it now shifted its focus away from ‘Structural Adjustment programmes and more towards tackling global issues such as dealing with refugee crisees or combating disease outbreaks such as Ebola, rather than focusing on pushing through massive development projects in poor countries.
This is a useful history of the World Bank from Forbes Magazine – which argues that many of the lending policies of the 1960s and 70s were especially ineffective in promoting development.
The last 40 years (since the 1980s) saw the World Bank force poor countries to adopt neoliberal policies of privatisation and low taxation in return for development aid and loans. A good case study of the sort of thing which happened in many countries is this Action Aid (2005) article which argues that the World Bank’s privatisation of the water supply in Tanzania focused mainly on richer areas, ignoring the needs of the poor.
This 2008 Documentary seeks to answer the question of why there is still so much poverty in the world when there is sufficient wealth to eradicate it.
In order to answer this question, the video goes back to 1492, which marks the start of European colonialism and the beginning of the global capitalist system, making the argument that European wealth was built on the back of a 500 year project of extraction and exploitation of the Americas, and then Asia and Africa.
Using various case studies of countries including Venezula, Bolivia, and Kenya the video charts how brutal colonial policies made the colonies destitute while the wealth extracted led to the establishment of global finance, the industrial revolution, and the foundation of a global capitalist system which locked poor countries into unequal relations with rich countries.
Following Independence, a combination of unfair trade rules and debt, managed through global institutions such as the World Bank and the World Trade Organisation have effectively kept these unequal relationships between countries in place, meaning wealthy countries have got richer while many ex-colonies have remained destitute.
This video is quite heavy going, and jumps around from continenent to continent a bit too much for my liking, which, combined with a lot of sub-titles (as many of the people interviewed are not English-speakers) does make it quite hard to follow. Nonetheless, this video does offer a systematic account of a Dependency Theory view of underdevelopment and development, including interviews with numerous politicians and activists from development countries as critical thinkers such as Amartya Sen, Joseph Stiglitz and Naomi Klein, among many more.
Some useful links to good teaching resources for Globalisation and Global Development.
Good resources providing an overview of global trends and global inequalities:
Firstly, this 2016 video imagines the world as 100 people, and so illustrates what percentage of people live on less than $2 a day and so on (once you get through the ‘basic’ stuff on ethnicity/ religion etc…
A few stand-out facts are:
1% of the population own 50% of the world’s wealth
15% don’t have access to clean water
less than 50% have access to the internet
Secondly, Worldometers provides real time world statistics on population, the environment, food, health and media and society.
A few stand-out facts are…..
The total number of malnourished people in the world is decreasing!
The total number of people with no access to clean drinking water is also decreasing!
HOWEVER, we’re losing approximately 20 HA a minute to desertification and 10 HA a minute to deforestation, which could undermine both of the above in the future.
Good resources for researching individual countries
The United Nation’s Country Profiles are probably the most accessible place to start – each country’s page gives you basic development indicators which you can then click on to expand.
The World Bank’s Open Data is also useful – follow the link and you can either search or browse by country.
The CIA World Fact Book is a useful source for more qualitative information on a country by country by country basis, organised into various categories such as geography, population, economics, politics and so on…
Good Resources for tracking ‘Indicators of Development’
The United Nations Human Development Report – Data – click on the links to the left to access tables which rank countries according to the basic Human Development Index, the Gender Equality Index and more.
Modernisation Theory blames internal cultural factors for women’s subordination in the developing world. It is argued that some traditional cultures, and especially the religious ideas that underpin the values, norms, institutions and customs of the developing world, ascribe status on the basis of gender. In practise, this means that males are accorded patriarchal control and dominance over a range of female activities and, consequently, women have little status in developing societies.
Modernisation theorists note that gender equality is generally greater in more developed countries and believe that there is relationship between modernisation, economic growth and greater gender equality. The World Bank appears to be a strong proponent of this view today.
Trade, Economic Growth and Gender Equality
Below is an extract from a recent World Bank report on Globalisation, Economic Growth and Gender Equality.
Trade openness and the spread of information and communication technologies (ICTs) have increased women’s access to economic opportunities and in some cases increased their wages relative to men’s. Growth in exports, together with a decline in the importance of physical strength and a rise in the importance of cognitive skills, has increased the demand for female labour. ICT has also increased access to markets among female farmers and entrepreneurs by easing time and mobility constraints.
Women have moved out of agriculture and into manufacturing and particularly services. These changes have taken place across all countries, but female (and male) employment in the manufacturing and services has grown faster in developing than developed countries, reflecting broader changes in the global distribution of production and labour. In Mexico, for example, female employment in manufacturing grew from 12 percent in 1960 to 17 percent in 2008, with 10 times more women in 2008 than in 1960.
International peer pressure has also led more countries than ever to ratify treaties against discrimination, while growing media exposure and consumers’ demands for better treatment of workers has pushed multinationals toward fairer wages and better working conditions for women.
Increased access to information, primarily through wider exposure to television and the Internet, allows countries to learn about life and social mores in other places—knowledge that can change perceptions and ultimately promote adoption of more egalitarian attitudes. Increased economic empowerment for women can reinforce this process by promoting changes in gender roles and allowing newly empowered women to influence time allocation, shift relative power within the household, and exercise agency more broadly.
Countries with a comparative advantage in the production of female labour-intensive goods have lower fertility rates and, to a lesser extent, higher female labour force participation and educational attainment. For instance, moving from low female-intensity in exports (bottom quarter of the distribution) to high intensity (top quarter) lowers fertility by as much as 0.21 births per woman, or about 10 percent of the global total fertility rate.
Globalisation could also influence existing gender roles and norms, ultimately promoting more egalitarian views: women turned income earners may be able to leverage their new position to change gender roles in their households by influencing the allocation of time and resources among house- hold members, shifting relative power within the households, and more broadly exercising stronger agency. In fact, women appear to gain more control over their income by working in export-oriented activities, although the impact on well-being and agency is more positive for women working in manufacturing and away from their male relatives than for those work- ing in agriculture. Women in factories feel their status has improved.
Women in work also marry and have their first baby later than other women of similar socioeconomic status and to have better quality housing and access to modern infrastructure. They also report greater self-esteem and decision-making capacity, with benefits extending to other family members.
Beyond the economic sphere, increased access to information, primarily through higher exposure to television and the Internet, has also ex- posed many in developing countries to the roles women play in other parts of the world, which may affect gender roles and outcomes (chapter 4). For instance, in Brazil, a country where soap opera watching is ubiquitous and cuts across social classes, the presence of the Globo signal (a television channel that offers many popular Brazilian soap operas) has led to lower fertility, measured as the number of live births for women ages 15–49.
Similarly, evidence from rural India suggests that gender attitudes among villagers changed with cable television. Women with access to cable were less likely than others to express a son preference or to report that it is acceptable for a husband to beat his wife.
Interestingly, and somewhat contrary to standard notions about gender roles and women’s agency in the household, the evidence discussed here suggests that under some circumstances exposure to information can induce large and fast change. In Bangladesh, the employment of hundreds of thousands of women in the ready-made garment industry feminized the urban public space, creating more gender-equitable norms for women’s public mobility and access to public institutions. In the process, Bangladeshi women had to redefine and negotiate the terms of purdah, typically reinterpreting it as a state of mind in contrast to its customary expression as physical absence from the public space, modest clothing, and quiet demeanour.
Evaluations of Modernisation theory applied to gender
There is a very strong correlation between increasing trade economic growth and gender empowerment. Further evidence for this lies in this recent 2020 report from the World Bank.
However there are also some criticisms of this view:
Firstly, economic growth does not always result in gender equality – Japan and Saudi Arabia are two notable examples here and there is no country on earth yet has actual gender parity.
Economic development might even harm gender equality in some ways – according – if women are just exploited more because of their lower status, for example.
Thirdly, even though from our Western perspective we think of challenging traditional cultures as the right thing to do, but this could be regarded as ethnocentric.
It could be used in the Global Development topics on ‘Organisations in Development’ or ‘the role of Private Aid in Development’
A flow chart of what’s below would run something like this…
TNCs (pump their profits into their) – Charitable Foundations (who established) – The Council of Foreign Relations (which influences) – The World Bank (which sets the economic policies of) – Developing Countries
Basically Roy argues that in the early 20th century, three of the largest corporations in the world (one of which was Ford) set up Philanthropic (charitable) organisations – In the middle of the 20th century, after World War Two, these organisations were key to establishing the Council of Foreign Relations, the World Bank, the United Nations and the CIA. Essentially, Roy is arguing that US Corporations run the biggest international organisations in the world, which in turn coerce Developing countries into doing what these Corporations want.
The enthralling history of ‘philanthropic foundations’ began in the United States in the early 20th century. Among the the first was the Rockefeller Foundation, endowed in 1914 by J.D Rockefeller, founder of Standard Oil Company.
Rockefeller was America’s first billionaire and the world’s richest man. He believed his money was given to him by God. Among the institutions financed with Rockefeller’s money are the United Nations, the CIA, and the Council on Foreign Relations.
Philanthropic Foundations are non tax-paying legal entities with massive resources with an almost unlimited brief. They are wholly unaccountable, wholly non transparent, and are basically about translating economic power into social, political and cultural capital.
They emerged in the 1920s because it was then that US Capitalism began to look outward for raw materials and overseas markets. Foundations began to formulate the idea of global corporate governance. In 1924 the Carnegie and Rockefeller Foundations formed the Council on Foreign Relations (the CFR), also funded by the Ford Foundation as well. By 1947 the CIA was working closely with the CFR and over the years the CFR’s membership has included 22 secretaries of state, and all eleven of the World Bank’s presidents have been members of the the CFR. The CFR also contributed a grant of £8.5 million to pay for the land in New York on which the United Nations building now stands.
Given that the World Bank has more or less directed the economic policies of the Third World, coercing them to open up their markets in return for loans and aid, and given that the World Bank is steered by the Council of Foreign Relations, which in turn is steered by Transnational Corporations, it seems to follow that it’s TNCs which really have really determined the foreign policies of third world countries over the past few decades.
By the 1950s the Rockefeller and Ford Foundations were funding international educational institutions began to work as quasi-extensions of the US government, which was at the time toppling democratically elected governments in Latin America, Iran and Indonesia.
The Ford Foundation established a US style economics course in Indonesia at the Indonesian University. Elite Indonesian students, trained in counterinsurgency by US army officers, played a crucial part in the 1965 CIA backed coup in Indonesia which bought General Suharto to power. He repaid his mentors by slaughtering hundreds of thousands of communist rebels.
Twenty years later, young Chilean students who came to be known as the Chicago Boys were taken to the US to be trained in neoliberal economics by Milton Friedman and the University of Chicago (endowed by J.D Rockefeller), in preparation for the 1973 CIA backed coup that killed Salvador Allende and brought General Pinochet and a reign of death squads, disappearances and terror that lasted for seventeen years. Allende’s crime was being a democratically elected socialist and nationalising Chile’s mines.
Like all good Imperialists, the Philanthropoids set themselves the task of creating and training an international cadre that believed that Capitalism and by extension the hegemony of the United States was in their own interests.
Corporate foundations also provide scholarships at universities for courses in development studies – and many of these are for people from the middle classes in the developing world – these are the future finance ministers, corporate lawyers and bankers of the developing world. Of course the courses funded are the ones which sing the virtues of neoliberal economic policy, rather than the ones which are critical of neoliberalism.
According to Roy, not only do Philanthropic Foundations control the agendas of International Economic Organisations, governments and education systems, they also control the media and social movements which emerge to protest neoliberal policies – she gives a few examples of how, but probably the best piece of supporting evidence for this point of view is that we don’t question the role of philanthropic foundations in society. When Corporate funded philanthropic foundations first appeared in the United States, there were debates about their accountability, and people suggested that if they had so much money they should maybe raise the wages of their workers instead, nowadays we just don’t question them.
In summary, Roy argues that Philanthropic Foundations are simply a way of using a minuscule percentage of profits to run the world.
A Question to Consider….
The largest philanthropic foundation on earth today is the Bill and Melinda Gates Foundation. Roy points out that it’s odd that Bill Gates*, who admittedly knows a thing or two about computers, is now designing education, health, and agriculture policies, not just for US governments but for governments all over the world.
The question that Roy makes us ask is this – Is Bill Gates really trying to help people through his organisation, or is the Bill and Melinda Gates Foundation really a just a way for Gates to translate his economic capital into global political power, and to make sure that government policies the world over benefit Microsoft?
*Or to refer to him by his full name – ‘The Man Child Bill Gates’.
Sources
The above post is summarised from Arundhati Roy’s ‘Capitalism: A Ghost Story’ (2014).
The world bank may harm development by forcing countries to pursue neoliberal polices such as privatisation in return for loans.
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.
Ha-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.
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, which is covered in ‘The Corporation’ documentary:
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’…
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
Many of these criticisms are historical, and they may not apply to World Bank policy today.
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 isolate the specific effects of policies given the open-systems nature of global development.
Signposting
This material is of general interest to anyone interested in global social justice, but also to A-level sociology students taking the Global Development option in their second year.
The world bank provides aid and loans to help the development of the poorest countries, but it has many critics!
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 was established in 1944, towards the end of of World War Two with the intention of lending money to help countries rebuild after the war, and over the years ‘evolved’ into one of the main institutions which provides aid and loans to developing countries more generally.
Historically it is most closely associated with Modernisation Theory but in more recent decades it has adopted a more neoliberal agenda.
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.
Since the 1980s the World Bank’s primary role in development seems to have been 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.
This means that the remaining 130 countries, mostly outside of Europe, are eligible for development aid through the World Bank.
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)
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.
Lower taxation, especially on profits – to provide incentives businesses and attract international investment.
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.
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.
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….
Signposting and Related Posts
The World Bank is one of the main global institutions students need to know about for the Global Development module, one of the options in the second year of A-level sociology.
Generally speaking, the World Bank is supported by Modernisation Theorists but criticised by all other theories of development.
The New Rulers of the World (2001) by John Pilger provides a good example of a Dependency Theory analysis of the consequences of neoliberal globalisation, focusing on Indonesia as a case study.
The fact that this is a dependency view of development is quite clear from John Pilger’s own summary of the documentary:
“There’s no difference between the quite ruthless intervention of international capital into foreign markets these days than there was in the old days, when they were backed up by gunboats…. The world is divided between the rich, who get richer, and the poor, who get poorer, and the rich get richer on the backs of the poor. That division hasn’t changed for about 500 years” (the link above will take you to this quote)
Below I provide a brief summary of the documentary. The documentary is 15 years old now, but it provides a very useful introduction to the following concepts within global development.
It provides an unambiguous example of a Dependency Theory analysis of underdevelopment in one country – Indonesia
It’s an especially useful analysis of neo-colonialism – how economic institutions now work to extract wealth from a poor country.
It introduces you to the role of the World Bank and the International Monetary Fund in an accessible way.
NB this documentary is now over 15 years old, so you might like to think about the extent to which it still applies to Indonesia 15 years on, and the extent to which you can generalise this analysis to other countries today.
(NB – the headings below are my own, not from the documentary)
John Pilger – The New Rulers of the World – intro section
In recent months, millions of people around the world have been protesting against a new economic order called globalisation.
Never before has the human race enjoyed such enormous capacity to create wealth and reduce poverty, but never before has inequality been so great.
A small group of individuals controls more wealth than the billion people in Africa, and just a handful of corporations dominate a quarter of the world’s economic activity – for example General Motors is now bigger than Denmark.
The famous brands of almost everything are now made in poor countries, with wages so low it borders on slave labour.
Tiger Woods is paid more money to promote Nike than the entire workforce in Indonesia are paid to make Nike products.
Is this the new global village we’re told is our future, or is this an old project, that used to be run by the divine right kings, but is now run by the divine right of corporations and the government s which back them?
This film is about the New Rulers of the World – and especially their impact on one country – Indonesia.
Indonesia –history/ background
Indonesia is where the old imperialism meets the new. This is a country which should not be poor as it is rich in natural resources such as oil and gold, copper, timber and the skills of its people.
It was first colonised by the Dutch in the 16th century, and plundered by the west for hundreds of years, a debt which is yet to paid back.
Pramoedayo Ananta Toer (ex political prisoner)
“For hundreds of years Indonesia and many other countries were sucked dry by the European countries, who became strong, and the masters of finance and commerce, and now they are dictated to by the World Bank and the IMF – Indonesia has been turned into a country of beggars because its elite is spineless.
George Monbiot (well-known environmentalist)
“We’re told that globalisation is going to bring us all together and help combat poverty but what we’ve actually seen is the opposite – the poor are becoming poorer, and the wealthy are becoming staggeringly wealthy”.
Rich and poor in Indonesia
The World Bank famously called Indonesia a ‘model pupil’, a success story of economic growth.
To illustrate this success the video now cuts to a lavish wedding between two merchant families – these are the elite who have reaped the benefits of globalisation –the freedom to earn money and let that money make more money.
However, Indonesia is also a very unequal country and only a relatively few people have benefited from this economic growth: 70 million people live in extreme poverty – and they’ve calculated that it would take one of the waiters working at the wedding 400 years to pay for such a wedding.
The lavish wedding is contrasted to an Indonesian labour camp less than 5 miles way where young people make the cheap consumer goods we consume in the west.
This is the backyard of global capitalism, the side we don’t see, the human price we pay for the cheap goods we buy. The average worker here gets £0.72 a day, the minimum wage in Indonesia, just over half a living wage (according to the government).
Dormitories are made from breeze blocks, they flood when it rains, and open sewers spread diseases which kill children.
The labour camp is set in an economic processing zone, which is basically a vast area of sweat shops.
Investigating Poor Working Conditions in Indonesia
The documentary crew posed as fashion buyers to gain access and secretly filmed in one factory, and also conducted dozens of interviews with workers in these factories.
Working conditions are claustrophobic, frenzied, the workers fatigued, and working under strip-lighting in temperatures of up to 40 degrees (the management however have air conditioned offices.
They also have horrendous working hours – which can be upped when deadlines for orders are due. The workers are typically young women and one worker is on camera saying that she once worked a 24 hour shift with no breaks. She says she is too scared to refuse or even question the working hours.
These factories are owned by Taiwanese and Korean contractors who take orders from companies such as GAP (whose products were made in the above factory where the workers are paid extremely low wages).
GAP has codes of conduct which are supposed to apply to working conditions globally, and GAP representatives do visit the factories, but the workers interviewed say they are warned by management to not tell them about forced overtime.
Dita Sari – Trade union leader
Points out that codes of conduct are meaningless in a country like Indonesia because there is high unemployment and terrible poverty, so the people are desperate enough to put up with dismal working conditions, and the government is unwilling to enforce the codes because they want Indonesia to be as attractive as possible to international companies (which means keeping labour cheap).
If you pay £8.00 for a pair of boxer shorts, then an Indonesian worker will receive approximately £0.04 pence of that.
In the previous year, the profits of gap were just short of £2 billion, and the CEO ‘earned’ £5 million, figures typical of many multinational companies.
For the sake of the documentary, they had to keep the factories anonymous, because the workers would have Victimisation from contractors and violence from anti-unionists.
Barry Coats – World Development Movement
We should aim to be better informed as consumers – when we buy something, we need to ask the company where it was produced and to give assurances that the workers are treated fairly.
The secret history of globalisation in Indonesia
President Suharto – The most corrupt leader in modern history, according to Transparency International, having embezzled an estimated $15-35 billion during his rule
In the 1960s General Suharto seized power in Indonesia secretly backed the United States and Britain.
Suharto 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.
He did this with the support of the CIA, who provided a list of 5000 people they wanted dead, and the British ambassador at the time suggested a little shooting was necessary to ease the transition, while British war ships played a supporting role in protecting Indonesian troops.
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.
The American press reported these events not as a crime against humanity, but in terms of ‘The West’s best news for years’.
In 1967 – a conference in Switzerland planned the corporate take-over of Indonesia, with most of the world’s large international companies represented, such as ICI, General Motors and American Express. For western business this was the start of the gold rush which later became known as globalisation, and barely anyone mentioned the million dead Indonesians.
Professor Jeffrey Winters
Has never heard of a situation like this where global capital holds a meeting with the state and hammered out their interests. The conference lasted for three days – and the companies present hammered out policies which would be acceptable to them on a sector by sector basis. They basically designed the legal infrastructure for investment in the country.
It basically becomes clear from a series of interviews, despite their evasiveness, that the international business community new they were dealing with a nepotistic mass murderer.
Globalisation – the British arms connection
Globalisation began in the 1980s when Margaret Thatcher dismantled manufacturing and poured billions of pounds into building up the arms industry. Suharto was an important customer for the UK arms industry at that time, and sales to Indonesia were supported by ‘export credits’, in other words, a large part of Suharto’s arms bill was paid for by the British tax payer.
The Queen – entertaining the mass murderer and dictator general Suharto
So important was Suharto to British arms exporters, that he was welcomed to London by the Queen.
The World Bank and the IMF – The New Rulers of the World
Who are the new rulers of the world? Their empire today is greater than the British Empire ever was. Basically they are the World Bank, and the International Monetary Fund, two bodies which are the agents of the richest countries on earth, especially America.
Initially set up to help rebuild European economies after WW2, they later they began offering loans to poor countries, but only if they privatised their economies and allowed western companies free access to their raw materials and markets.
Barry Coates
Debt has been used by an instrument by the World Bank and IMF to get their policies implemented. The poorest countries are in a cycle of poverty, and current debt-reduction (not forgiveness) is not sufficient to allow them.
Susan George
The difference between Tanzania and Goldman Sachs
Tanzania – is a country with a GDP of $2.2 billion shared among 25 million, Goldman Sachs is an investment bank with profits $2.2 billion dollars shared among 162 partners.
The World Bank says its aim is to help poor people, calling this gobal development. It’s an ingenious system, a sort of socialism for the rich and capitalism for the poor – 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.
Here in Indonesia, the hand-outs to the rich have been extra-ordinary, internal documents from the World Bank confirm that up to a third of the banks loans went into – around $8 billion.
The 1998 Financial Crash, the End of Suharto and Indonesian Debt Repayment
Globalisation means that capital (big money) can be moved anywhere at any time, without warning.
In 1998 short-term capital was suddenly pulled out of Asia, collapsing the miracle economy overnight. This actually benefitted Nike in Indonesia, because they ended up labour costs were cut to 25% of what they had been previously.
With the economy collapsed, and Indonesia on the verge of revolution, Suharto was forced to step down, having already stolen an estimated $15 billion.
During his reign of more than 30 years, Suharto had handed out public utilities to his family and cronies, driving from Jakarta airport, you actually paid a toll to Suharto’s daughter.
Interview
The bank presents itself as an economic development agency, focusing on poverty reduction, but in fact, 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 Indonesian elite instigated many development projects with World Bank loans during Suharto’s 30 year reign, and many of them were seen as opportunities to skim money for themselves. In total, $10 billion remained unaccounted for out of $30 in loans. Of course the debt remained, and still had to be paid back to the World Bank.
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.
Interview with Chief Economist of the World Bank – Nicholas Stone
In response to the question of how the World Bank didn’t realise that $10 billion of aid money to Indonesia had gone missing, his response was firstly to deny any knowledge of the $10 billion figure, then (on having been shown the World Bank’s own report) to say that figure was made up. He finally argued that progress had been made during Suharto’s regime if we look at literacy and infant mortality figures, even if the numbers in poverty had doubled from 30 million to 60 million.
When asked why there was such a silence over the atrocities of Suharto, he simply said the World Bank got it wrong, and they will get it wrong in the future too.
Dita Sari
Globalisation creates debts, creates misery, creates crisis, and creates privatisation, which pushes up the prices people have to pay for basic goods. In effect the money stolen by the Suharto regime is being paid back by the people who never benefited from that money.
Debt and the International Monetary Fund (IMF)
Every day nearly $100 million is transferred in debt repayments from the poorest countries to the richest, it is a debt that can never be paid back, given that half the world’s population live on less than $2 a day.
Interview with Stanley Fischer, from the International Monetary Fund
John Pliger asks whether debt cancellation should be a priority if we are to alleviate poverty, given that some countries spend half their GDP on debt repayments.
Fischer argues that we should not necessarily cancel their debt – we should rather look at the policies on education and health, and look at what sort of economies they run – do they integrate into the world economy, or do they run corrupt economies.
Fischer basically argues that countries need to repay their debts because they need to keep more resources flowing into their countries, and if they don’t repay them, they’ll never be leant to again. He sees debt as a ‘normal’ part of expanding enterprise and increasing economic growth.
NB – The subtext to the interview is that Western financial institutions depend on the debt repayments being kept up too.
Dita Sari
(In order to keep up debt-repayments) the government, as recommended by the IMF. has cut subsidies on electricity, water and education, which means that the workers have to pay more their children through school.
Now people now eat two meals rather than three meals a day.
Protests at the World Trade Organisation
Two years ago, protestors from all over the world converged on Seattle at a meeting of the World Trade Organisation….
Evaluation – How Valid are the Findings of this Documentary Today?
The documentary makes the following claims, all of which are worth investigating to see if they are still true today….
The rich are getting richer and the poor are getting poorer
200 Corporations control 25% of world economic activity
The World Bank and the IMF dictate economic policy to poor countries
These economic policies are shaped by the 200 (or so) largest global corporations and work in their interests, not in the interests of the majority of people in poor countries.
There is a small elite in poor countries which benefit from these economic policies and enforce them, against the interests of the majority.
I’ll provide a summary of the rest at a later date… In the meantime, you might like to actually watch the rest of it!
