The Antitraveller
Voyaging Is Victory

World Bank – making the worlds poor more productive slaves

Aid and Trade: The World Banks mission to make the worlds poor more productive slaves.



According to the World Bank its mission is to “


fight poverty with passion and professionalism for lasting results”. Its seems a mission of noble intent, and indeed its reports and presidents speeches repeat it over and over. However every time it is mentioned there is always the preceding necessity of economic growth. Economic growth first, poverty alleviation will follow. The hegemonic architecture of neo-liberal globalization instills in the Banks policy a blind faith in the ‘rising tide lifts all ships’ philosophy. Only through It shall the worlds poor enter the Kingdom. That is the only way. But to date the World Bank has failed in its stated mission to reduce poverty. Arguments on the right and left agreed on this around the Banks Fifthieth anniversary, “Fifty Years of Failure” and “Fifty Years Is Enough”. A comrehensive study concluded that the Bank had a failure rate of 60% on all its projects in the developing world. The right blames the poor countries corrupt governments and lack of accountability, the left blames the harsh neo-liberal imperatives of structural adjustment and conditional lending.

I will argue in this essay that the primary imperitave driving the policies of the Bank is global economic growth. Its history as part of the post- War world economy reconstruction and repositioning as loaner to poor countries in the Cold War period, the influence of its most powerful member the United States, and its devout belief in a particular vision of globalization, make its existence irreconcilable with genuine poverty reduction. To be sure its spot-fire / band-aid approach to poverty is not without its successes. However the Banks drive for economic growth, as an engine for the maintenance of exploitative global capitalism, has contributed to human rights abuses, environmental degradation, and denial of democracy in the developing world. Exploitation, and hence poverty, is an inherent part of the fabric of this system. Genuine global alleviation of poverty would be truly revolutionary, and thats certainly not a role bequethed to the World Bank.


The World Bank was conceptualised, along with the International Monetary Fund (IMF) and the General Agreement on Tarrifs and Trade (GATT), at the Bretton Woods Conference in 1944. The victors of World War Two put in place a global economic system designed to “strike a balance between a liberal world market and the domestic responsibilities of the state” and maintain economic order “through the ups and downs of the business cycle”. At the time, the leaders of the Conference, the United States and Great Britain, wanted to bring stability to the postwar financial system, to avoid the crises of the interwar years, yet still allow for unrestrained international commerce, to maintain the war-period strength of the US economy. As part of the global stability, the British representative, John Maynard Keynes, pushed for the establishment of a world bank, firstly to reconstruct the economies of great powers destroyed in the war, but also to “develop the resources and productive capacity of the world, with special attention to the less developed countries… to make the resources of the world more fully available to all mankind”. The US mostly supported this, but with additions for capital interests, notably that a clause that the banks medium and long-term capital promote private investments.


Along these lines the International Bank for Reconstruction and Development (IBRD) was established in 1946. For the first 25 years of its existence the Bank lent about $13 billion, mostly to high and middle-income borrowers like Japan, Italy, France, and the Netherlands. But its emphasis was moved from postwar reconstruction of Europe to development of Europe’s remaining and former colonies. Along with the goal of opening the world’s markets to US capital, goods, and services, assistance to the Third World became part of the US strategy of containment of potentially communist-influenced states and populations. Two extra agencies of the Bank were established: in 1956 the International Finance Corporation (IFC) was set up to allow for direct lending to the private sector, and in 1960 the International Development Association (IDA) was set up to provide loans for poorer countries.


Now we come to an important figure in the development of World Bank policy – its president from 1968 to 1971, Robert McNamara. McNamara had gone from CEO of Ford, to Secretary of Defence, to World Bank president in the space of ten years. His presidency came at a time of momentous change in the international political economy, and on top of that he brought his own zealous energy to overhauling the Banks lending policies. The Vietnam War had sunk the US economy, and in 1971 Nixon unpegged the US dollar from the gold standard, relegating the stable Bretton Woods system to the rubbish bin of political economy history.


The Vietnam war had crystalised in the minds of American policy makers the problem of what to do about all the rebellous peasants. Military action was costly, both financially and politically. McNamara believed that the revolutionary Third World, “seething cauldrons of change”, was a result of “economic backwardness”, and that their potential for violence, which threatened “peace and security” of the world, could be sated with “economic and social progress”. To this end he set about doubling the portfolio of loans to the poorest countries and enlarging the Banks staff base. He stated that money was not the issue, that “the rich and powerful have a moral obligation to assist the poor and the weak”.


On the surface it seems he was genuine. His policies were designed to assist rural populations with projects for “irrigation, fertilizer, peasant education, to produce near miracles”. The Bank had only ever lent very little for education, but under McNamara’s tenure it increased substantially, mostly to primary level schooling to attack low literacy rates, as well as eductaion for nutrition, birth control and health.


However McNamara’s zealous lending policies left the Third World with crippling levels of debt. While highly profitable for foreign investors, the debts were devastating for the countries unable to repay them. By 1980 much of what the Bank lent wasn’t even going toward bricks and mortar, or seeds and tractors, or research and education, but was needed just to pay interest on already existing debt. In its powerful position as ‘development master’ the Bank used the vulnerability of the indebted nations to restructure their debts and reorientate their economies.


Structural adjustment, or policy-based lending, became a key force in the Bank’s imperative for economic growth in the developing world for the benefit of the powerful nations. Structural adjustment consisted of currency devaluation, trade liberalisation, a reduced role for government and social (health and education) spending, higher interest rates and lowering of real wages. The indebted governments acceptance of adjustment was a condition for receiving financing.


Apart from the fact that its plainly extortion, it is hard to determine, after years of destruction caused by structural adjustment, whether the policy makers are so blindly loyal to the ‘trickle-down’ effect regardless of whether it works for the poor or not, or if they dont actually care if it works as long as it serves the interests of the powerful economies. Bank insiders swear that it works, but any number of non-governmental organisations working with the poor and seeing the effects on the ground see adjustment as a “social and ecological disaster”.


In detailing the destructive effects of Bank reforms in the Philippines, Bello et al, conclude that an important factor is the ideological assumptions that Bank technocrats bring to their work from their academic training, being recruited from the “cream of the American establishment”. The “crude realities of power, inequality and poverty” are filtered through the lens of ideology – “a set of deeply held assumptions and propositions that reorganize reality… to make it ‘manageable'”. Economic development is seen as a ‘technical problem’, devoid of factors like power and control, who controls the economy etc. Poverty is transformed into a problem of scarcity, with the only solution being economic growth. How this growth is to be distributed and who owns the means of production that produces the growth is not considered, only the belief in the ‘trickle-down’ theory that if you just increase the size of the pie, then logically everyone, including the poorest, will get more.


The technocrats have their own language to talk without wincing about the disgusting effects of poverty – referring to “debt adjustment”, “trade-offs”, “growth”, “poverty traps”, “food insecurity”. These terms disembody the human reality of what they are discussing.


A ‘counter-paradigm’ is built up in and around Bank policy as a moral and ethical discourse within the neoliberal ideology, focusing on ‘sustainable development’ and ‘poverty alleviation’, seemingly as a critical debate but not confronting its underlying causes or opposing it.


Along these lines are authors that believe “the attempts on the part of Bank staff and management to “do better” are genuine”. The ideological assumptions are prevalent in statements like: “the Banks evolution..has been driven in part by sudden and sweeping changes in developing countries…(where) market orientated reform has been embraced throughout the developing world”.


As has been pointed out the Bank has a long history of adapting to changing global circumstances and demands. It is logical that an institution staffed and run by the wealthiest nations will translate the prevailing economic ideology into its policies and programmes. During the 1970’s and 80’s the international political economy saw the rise of neo-liberalism. This new form of economic liberalism was taken up by an increasing number of Western governments and was pushed by them and the private sector as necessary and without alternative. Government was required to be the promoter of market capitalism, primarily consisting of breaking up the public service sector and public industry and distributing it to private ownership. Government services previously run for social benefit were reformed to be profitable businesses selling ‘products’ to their ‘customers’.


This form of globalization was not, as it is often claimed, a natural historical process, but was a strategic political project for establishing a new global sovereign in the investor, the holder of large private property rights. Under neo-liberal globalization the world is becoming sharply divided between increasing concentrations of wealth and desperate poverty, with profit-motivated discipline being imposed on multiple facets of human life – social welfare, health, and education are all reformed to become factors for economic growth. The developing world becomes a dumping ground for the waste of the top industrialised countries, increasing environmental destruction and social crisis, all legitimised in trade agreements by the powerful countries.


In this context the adjustment policies of the Bank add a crucial piece to our puzzle. Its realignment with neoliberalism fits in with the Banks founding mission of promoting the capitalist system internationally. Bank loans had always been geared to furthering the interests of private capital, and supporting the goal of international economic liberalization, though through the 1950’s and 1960’s it was focused on industrialisation, financing the development of infrastructure.


Miller-Adams argues against the ‘international relations theorists’ who see the Bank’s policies evolving as part of that global ascendency of neo-liberalism. Rather, by using ‘organization theory’, shes sees the Banks imperatives evolving from within, so that in the 1980’s the staff, of their own accord, “embraced the view that markets, rather than governments, should serve as the chief allocators of resources and engines of growth in developing countries”.


Barend A De Vries, a former economist with the Bank for 30 years, admits that during the 1980’s the fight against poverty was “put on the back burner”. However, “economic measures and engineering procedures are presumed to benefit individuals in the end”. He adds that the Bank works hard to alleviate poverty, but “without the personal motivation and committment by the poor themselves to the programme, no design can be fully effective”.


To overcome the poors’ apparent lack of desire or stubbordness to get out of their debilitating poverty, the Bank developed its Poverty Reduction Strategy Papers (PRSP’s), designed so the poor could write their own strategies for reducing poverty. PRSP’s should “reflect the countries own individual circumstances and characteristics”.


Yet after an extensive on-the-ground analysis of PRSP’s, World Vision concluded that they have failed to live up to the standards with which they were sold to the poor and that they are neither participatory or prioritise poverty reduction. Their implementation has not placed primary importance on poverty reduction in areas like education and health, but “continued the international community’s priorities such as privatisation and liberalisation of markets”. For example in Senegal the highest priority was on the privatisation of the state-owned electricity company. In Mozambique it was found that there was very limited involvement with the poor and agents closest to the point of implementing activities contributing to poverty reduction, and a bias in favour of participation of groups in capital cities instead of rural areas most affected by poverty.


As noted by Richard Falk, the “imposed regimes of fiscal austerity” are used to manage the Third World development process for capitalist interests that directly opposes the “supposed ideology of empathy”. In his opinion, the explanation for the “sinister gap between idealist illusion and exploitative reality” lies with the ‘structural blindness’ on the part of the policy makers who fail to understand the relevance of class structure and class conflict in imperial geoeconomics. The fact remains that the World Bank is a “creature and instrument of world capitalism”.


The problem with the expansion of capitalism, with the help of the international financial institutions like the Bank, the IMF and trade organisations, is that even if “rising tides lift all ships”, it still perpetuates the global structure of inequality. The poor may get a bit, but the rich get a lot more and the system of exploitation remains. The global economic system relies on “an unequal structure of trade, production, and credit, which defines the role and position of developing countries in the global economy”. So a focus on economic growth, or even a focus on solely ‘poverty alleviation’, is missing the larger picture. What needs to be discussed is inequality rather than poverty.


Figures on the distribution of world income show the glaring inequality of wealth. In 1993 less that 15% of the worlds population, the OECD countries, held 80% of the worlds income. The poorest countries, making up almost 60% of the worlds population, had less than 4% of the worlds income. Between 1960 and 1991 the share of the richest 20% rose from holding 70% of global income to 85%, while the worlds poorest declined from having 2.3% of the worlds income to 1.4%.


Clearly all the SAL’s, PRSP’s and lofty wishes are not helping the growing mass of people surviving on the 1.4% and declining. And an institution like the World Bank, whose imperitaves add to the increasing inequality, is not reconcilable with genuine poverty reduction.


An analysis of inequality challenges the legitimacy of the world order. The focus on economic growth not only perpetuates poverty but increases inequality. The neoliberal ‘race to the bottom’ exasserbates inequality with the continual massive transfer of wealth from the poorest to the richest. Loans that go in the other direction and returned to the top in interest and repayments.


Sweezy points out that capitalism has always been made up of two poles – independent and dependent, dominant and subordinate, developed and underdeveloped, center and periphery. The driving force is the accumulation process from the periphery to the center. The core of the relationship is exploitation, where the periphery is controlled by a combination of coercion and market forces. Forcing the periphery along paths of economic growth espoused by the reigning ideology strengthens rather than changes their position as victims. As the president of Brazil once said of his country, the economy is doing fine but the people aren’t.


A tragic knock-on effect of the imperative for economic growth and its widening of inequality in the interests of the global dominant class is an increasing disregard for human rights. Where adjustment policies reduce the power of the state to act independently, it effectively takes away any chance at genuine democracy from the country’s poor and “significantly undermines the rights of people to self-determination, ie to freely determine their political status, and freely pursue their economic, social and cultural development”. With an overfocus on economic efficiency, the Banks adjustment programmes have adverse impacts on human rights at economic and political levels.


It is a matter for deep concern, that after 60 years the World Bank, with its dreams of a world free of poverty, continues to force policies that have been shown to seriously impact the fullfilment of rights guaranteed in the International Convent on Economic, Social, and Cultural Rights, particularly the rights to education, health, food, adequate housing and employment. But the imperitave for economic growth continues at an ever greater pace, with the poor relegated to the role of “mine shaft canaries of the global economy”.


But to “escape from the inequalities requires fundamental change in the dominant system”, in short revolution. The problem facing the South is that growing differentiation continues to undermine joint collective action.


However there are some glimpses of hope in Latin America. In December 2006 Venezuelan President Hugo Chavez announced his idea to create a Bank of the South (Banco Del Sur) against the institutions of international capital he calls the “tools of Washington”, the World Bank and the IMF. The Bank of the South is set to be launched in November 2007 with seven founding member states : Venezuela, Brazil, Argentina, Bolivia, Ecuador, Uruguay and Paraguay. Each member will contribute 10% of its international reserves and have equal oversight in the new institution aimed at reviving socioeconomic development and infrastructure investments, and to keep the region outside the control of the IMF and the World Bank. Venezuela has already cleared its debt with the Bank, declaring that “we will no longer have to go to Washington” to beg for aid. The new bank has already been praised by former World Bank economist Joseph Stiglitz who also praised Chavez’ redistributive social policies.


Lula da Silva, President of Brazil, declared that “developing nations must create their own mechanisms of finance instead of suffering under those of the IMF and the World Bank, which are institutions of rich nations . . . it is time to wake up”. As the article notes, “unlike the Washington-based international financial institutions, the new bank will not impose economic policy conditions on its borrowers. Such conditions are widely believed to have been a major cause of Latin America’s unprecedented economic failure over the last 26 years, the worst long-term growth performance in more than a century”. This obviously flys in the face of the reigning global political economy, and is logically opposed by Washington. An insider at the Inter-American Development Bank told the Financial Times: “With the money of Venezuela and political will of Argentina and Brazil, this is a bank that could have lots of money and a different political approach. No one will say this publicly, but we don’t like it.”


As I have shown, the World Bank role has been to maintain the reigning hegemony of the center/periphery system of exploitation. Its primary imperative has always been economic growth, which is inreconcilable with geniune poverty reduction, and more importantly, global inequality reduction. Its lastest president is Robert Zoellick, former US trade negiotiator, famous for his adament stance against the WTO ruling that “the poorest of nations–those without any pharmaceutical manufacturing facilities–should be able to import cheap generic drugs, since they can’t pay for the more expensive patented versions”. It says quite a lot about the Bank and the neoliberal system that the Bush Administration would appoint him as president of an institution that claims its primary goal is poverty reduction.


To conclude its useful to look at Zoellicks latest speech as World Bank president. He states that – “Globalization has become the defining mark of our time. It has lifted barriers and boundaries, and unleashed movements of ideas, goods, capital, and people. It has created opportunities where there were none. Yet globalization has not embraced all. Many remain on the fringes, and some are falling further behind”. But globalization is not the problem. It must continue, yet what is needed is “sustainable growth, driven by the private sector”. Herein are those same statements professed by the Bank ad nauseum over the years that the poor must be integrated into the ideology of neoliberal globalization, despite years of evidence of how harmful it is. Apparently on a recent trip to Africa the poor told him that “social development objectives are necessary but not sufficient”, that they “also want us to help develop local financial markets, including for microfinance, that can mobilize African savings for Africa’s growth”. Its difficult to imagine the poor requesting ‘microfinance’ assistance and discussing savings. The thrust of the speech is the need to improve the climate for “doing business”. He also alludes to aid tied to US interests, for example: “in the Palestinian territories today, we are helping provide basic social services and support for good governance and private sector growth, which could provide the economic foundation for hope if the parties choose the path of peace”. That the Word Bank President sounds similar to the US Secretary of State or President discussing the Israel/Palestinian problem, with their historical emphasis on the blame of the Palestinians, is truly worrying.



One Response to “World Bank – making the worlds poor more productive slaves”

  1. I agree with you completely !

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