The World Bank Essay Research Paper Since

The World Bank Essay, Research Paper

Since the 1950 s the World Bank has had an indifferent, to say the least, affect on the Third World. The actions of the Bank have always come under severe scrutiny because of the important role it plays in many lives of Third World peoples. This paper will outline the role of the Bank, some of the arguments against its policies, power, and influence, reasons why the Bank has found it difficult to achieve favorable outcomes in its policies; and whether it has in fact been beneficial to the people it claims to help. The World Bank was set up initially as an aid organization to help foster the reconstruction of Europe, and later guarantee loans made by private banks for projects in the poorer, developing countries (1). The former of the objectives never eventuated to the extent of its founders hopes. The World Bank (otherwise known as The Bank) was subjugated to a minor role in the post war reconstruction of Europe, due to the more robust influence and attraction of the Marshall Plan. Of the $41.8 billion in loans, made in the decade after the end of the war, only $497 million was disbursed from The Bank. This was a result of the war-torn countries needing rapidly disbursed grants and concessional loans for balance of payments support and imports necessary to meet basic needs. (2) The Bank, on the other hand, provided loans for specific projects that required lengthy preparation. Thus, the Banks diminished role in Europe, lead it to focus its lending to Third World countries, and this became the core of its operations from the 1950 s. The World Bank s goal to reduce poverty and improve living standards by promoting sustainable growth and investments in people . (3) This has been challenged by many, who all see the role of the Bank being either detrimental to the economy s of the countries it is supposed to help, or the social cost being too high for the economic programs being put in place. A number of arguments, have been developed that make light of the Banks preponderant shortcomings and it s many social inequities. It must be said that a full analysis of the Bank shortcomings could include thousands of pages. This paper will, however, take only a representative few, which it is hoped can suffice a fair and broad analysis. These are described below. The World Bank, in the opinion of Yunus (4), has single-mindedly pursued growth until other issues such as hunger; women, health; the environment, etc. distract it. The Bank then tries to adapt itself to these considerations without giving up its basic goal and adopting these issues as rhetoric, but they are seldom put into action. This ineffective action may be explained by two factors. Firstly, the article framework within which the Bank operates does not assign any urgency or primacy to poverty reduction; thus its pronouncements only get prescribed through humanitarian add-ons, such as safety-net programs. Secondly, Bank staff was not employed to eliminate poverty, but for qualities that may not have immediate relevance for poverty reduction; meaning they are not the right people to undertake such sensitive social projects as the World Bank does. Susan George, a long time critic of the World Bank, sees the role of the Bank being purely to make sure the debt of Third World countries is being serviced. (5) She claims that the Bank presides over a net outflow of capital from the Third World, which will continue to further drive their economies into ruin and poverty. At the same time the Bank has enforced structural adjustment programs that have cured very little at all. George believes that these economic policies have caused untold human suffering and widespread environmental destruction, emptying debtor countries of their resources and rendering them less able each year to service their debts, let alone invest in human capital. The policies inherent in creating such harmful effects are, according to George, the result of a capital intensive, energy-intensive, unsustainable Western model of development, which is only favorable to Third World elite s, Northern banks, and multinational corporations. Susan George believes that the World Bank has induced social and economic outcomes, which ultimately affect the Western world in adverse ways. These outcomes she describes as debt boomerangs, (6) and are described below. The first boomerang is debt-induced poverty. This causes Third World people to exploit natural resources in the most profitable and least sustainable way, causing an increase in global warming and a depletion of genetic bio-diversity, thus affecting all citizens of the world. Secondly, the illegal drug trade for heavily indebted countries, like Peru, Bolivia, and Colombia, is their major export earner. Thus giving them little alternative, but to condone such activities. The social and economic costs of drug consumption in the US alone have cost $60 billion. Thirdly, Western governments have allowed their banks tax concessions so they may write off so-called bad debts from Third World countries. However this has not reduced the real debts of poor countries, and in the case of the UK has cost the government $8.5 billion. Fourthly, there have been lost exports to Western countries from the Third World due to the burden of high debt servicing costs. It has been estimated that this accounts for one fifth of total US unemployment. Fifthly, legal and illegal immigration from the Third World has resulted in100 million economic refugees, resulting in enormously high economic costs to Western nations. Lastly, conflict that is often an effect of the strain put on debt burdened Third World countries, this may be seen as possibly an influence for Iraq s invasion of Kuwait. The World Bank is often seen as being party to disbursing funds to malicious and repressive regions that often use these loans to further entrench their power. An ardent critic of this aspect of the Banks operations is Patricia Adams. Adams argues that there are large amounts of debt owing to the Bank that are very odious in nature. (7) Odious debts may be defined as any debt that has been incurred by a government without the informed consent of its people, and one that is not used in the legitimate interest of the State. (8) Many of the activities that Third World governments undertake are often not in the interest of the people that they represent, this can be seen by the treatment of the Penan people of Sarawak, whose forests are being traded away for the benefit of others. Much of the above debate has been structured around the effectiveness of the World Bank s structural adjustment programs, which were developed to force the borrowing countries into macroeconomics discipline. These policies have resulted in huge social and economic changes, which has caused much hardship to many of the countries citizens. For example, Oxfam, a British charity, released a study (9) recently on Latin America, which suggests that after a decade of structural adjustment, and despite economic growth, more people than ever are living in poverty. These studies, however, are often very subjective, as there is no way to easily measure welfare of the poor, especially in countries where statistics are sparse. The World Bank has just issued a report (10) that suggests that Third World nations may find it very difficult to grow at a rate that will create enough wealth to lead to sustainable development if they rely on commodities as their major export. This, the Bank, suggests maybe so as many Third World countries export mainly commodities. Countries where manufactured exports accounted for at least 50% of total exports enjoyed average annual GDP growth of 6.8% between 1980 and 1992. While those that exported mainly non-oil commodities grew by only 1.4% – so slowly, that real income per head declined. The countries that the World Bank categorizes as low-income commodity producers have an average annual income of $420 per head, and their commodity exports make up over 50% of their total exports. Average commodity prices have dropped by more than half in real terms since 1980, representing an annual loss to low-income commodity producers of $100 billion – almost twice they received in foreign aid. Another factor, which has contributed to their low growth, has been that world trade in commodities has grown far slower than trade in manufactured goods and services. African countries, in particular, have adopted policies that have stunted growth in non-commodity industries, such as agriculture. These policies are ones similar to import barriers on manufactured goods such as tractors, which are used to increase the efficiency of agricultural sector, and export taxes on farm produce. As a result not only has Africa remained heavily dependent on primary commodities, but its market share has also dwindled. The continent s share of world coffee production, for example, has shrunk from 29% to 15%over the past two decades. Shocks to supply, such as bad harvests, make the prices of commodities twice as volatile as those of manufactures. This is a particularly serious problem for countries such as Zambia, Rwanda, and Uganda, where a single commodity makes up more than three-quarters of total exports do (11). A possible way to stabilize prices and therefore incomes would be the use of derivative – financial instruments such as futures contracts, swaps and options. These are a better way for developing countries to hedge their price risk, so that their incomes can be more consistent and permanent. Much of the ineffectiveness of the World Bank s policies has been explained by inadequate and inefficient use of the Banks funded projects. These Bank projects have been plundered in four ways according to the Bank (12): Firstly, facilities have not been maintained properly. Approximately 40% of the power generating capacity in poor countries is out of action at anyone time; this results in costs being burdened on the user, for example, electric generators are a needed extra cost to make up for when their are power shortages. Assets that are badly maintained also deteriorate rapidly: a third of the roads built in sub-Saharan Africa in the past twenty years have been eroded for want of upkeep. Secondly, infrastructure building has often been developed using the wrong technology and in the wrong place. The problem with this occurrence is that the cost of big capital projects is sunk: once built, power stations and roads cannot be moved or put to other uses. For instance governments have built wide roads, where narrower ones would have sufficed. Thirdly, major inefficiencies have been detected in the running of infrastructure services. Railways, in particular have been over manned – one estimate suggests that at times two-thirds of the railway staff in Tanzania and Zaire have been surplus to service requirements. (13) Fourthly, prices have been held below costs. Much of the utilities (power, water, gas, etc.) have been heavily subsidized, and lead to increased pressure on state resources – leading to lower spending in more important area s such as education and health. Only half of the marginal costs of electricity were covered by revenues in developing countries in the 1980 s, and rail subsidies in these countries often amounted to 1% of GDP, which is course about 10 times that of most developed nations. A recent study by Elliot Berg (14), an American development economist, gives an analysis on both economic and social indicators, which has come up with some interesting results. Judging by income indicators (how much money people have) both Latin America and sub-Saharan Africa have suffered badly over the past twenty years where income per head has declined, with only a gradual improvement in the last few years. Economic decline also took a toll on the poor: household consumption decreased; real wages fell; and the number of poor people (defined by a minimum income required for basic consumption) increased. If one looks at social indicators, on the other hand, the picture looks very different. It appears from Berg s study that people in Latin America and most of Africa is living for longer and in better conditions. In Latin America infant mortality decreased during the1980 s; illiteracy rates fell or stayed the same; and life expectancy increased or stayed constant. Child malnutrition scored no rise, and vaccination rates increased in 19 of the 22countries that track them. Africa has seen similar results: life expectancy has increased in 33 out of 42 countries; illiteracy has declined; fewer children are dying as infants as did 15 years ago; and more people are vaccinated. These conflicting outcomes can only suggest that, at the very least, some of the World Bank s policies are being useful to some extent.

In conclusion the World Bank has been, no doubt, less than perfect in achieving its objectives. What one must take into account, however, is what would have been achieved without the World Bank? This question is, of course, impossible to answer, but by contemplating what might have been without the World Bank it does allow for a more appreciative view of its track record. The social costs of imposing western style economic theory and organization on Third World nations has brought about allot of hardship and distress. This, however, has not been to any avail. As described above, in some important indicators there has been substantial improvement in the Third World. The criticisms have far outweighed those in support of the World Bank, and many of these criticisms are rightly justified. One outcome that continues to prop up is the insensitivity s to the needs of the indigenous peoples and the lack of regard to the environment. The Banks new role from the 1950 s onwards, was to bridge the gap between world financial markets and creditworthy borrowers in poor countries. In the 1950 s world financial markets were barely developed and there were no suitable means for many Third World countries to raise capital without the help of multilateral aid organization such as the World Bank. It was in the next twenty years that the Bank became most active integrating specific infrastructure projects and dispersing massive amounts of capital to Third World countries. Last year, however, the Bank lent around $24 billion to them; net private capital flows to developing nations reached $88 billion (15). Suggesting, perhaps, that financial markets are starting to play a large enough role to do without the Bank, except of course, in those countries that do not have adequate access to world financial markets. Finally, many believe (16) that the World Bank will not become an effective organization until many of the debts of the Third World nations are forgiven. This question itself deserves many pages of writing, and is far beyond the scope of this paper, but a late development in the running of the World Bank has given hope to some of those espousing this idea. The new president of the World Bank, an Australian interestingly, has suggested that a new relief fund (17) may be set up to forgive some of the more heavily indebted nations. This is a significant step in the direction of the Bank and could possibly see a new era of Third World development. BibliographyAdams, P. Odious Debts Routledge, London, 1994.Author Unknown. How Poor Are The Poor. The Economist, October 1st, 1994.Author Unknown, and Fit at Fifty The Economist, July 23rd 1994.Author Unknown Investing in Development The Economist, June 25, 1995Berg, E., Poverty and Structural Adjustment in the 1980 s: Trends in Welfare Indicators in Latin America and Africa. Development Alternatives, Inc., Washington, DC, 1995 George, S., The Debt Boomerang , South End Press, 1992. Holman, M. World Bank Relents: About-Face On Africa The Australian, Sept 20, 1995 Rich, B., World Bank/IMF 50 Years Is Enough , SouthEnd Press, Boston, 1994. The World Bank, A Global Partnership , World Bank, Washington, 1995. The World Bank. Global Economic Prospects and the Developing Countries , Washington, DC, 1994 The World Bank. World Development Report , Washington, DC, 1995Walters, Sir Alan., Do We Need the IMF and World Bank? , Current Controversies, Institute of Economic Affairs, London, 1994. Yunnus, M., Redefining Development , Zed Books, Washington, 1994.1 Walter s, Sir Alan. Do We Need the IMF and World Bank? Current Controversies, Institute of Economic Affairs, London, 1994. 2 Rich, B., World Bank/IMF 50 Years Is Enough , South End Press, Boston, 1994. 3 The World Bank, A Global Partnership , World Bank, Washington, 1995. 4 Yunnus, M., Redefining Development , Zed Books, Washington, 1994.5 George, S., The Debt Boomerang , South End Press, 1992. 6 Ibid. 7 Adams, P. Odious Debts Routledge, London, 1994. 8 Ibid. 9Author Unknown. How Poor Are The Poor. The Economist, October 1st, 1994. 10 The World Bank. Global Economic Prospects and the Developing Countries , Washington, DC, 1994 11 The World Bank. Global Economic Prospects and the Developing Countries , Washington, DC, 1994 12 The World Bank., World Development Report , Washington, DC, 1995 13 Author Unknown Investing In Development The Economist, June 25, 1995 14 Berg, E., Poverty and Structural Adjustment in the 1980 s: Trends in Welfare Indicators in Latin America and Africa. Development Alternatives, Inc., Washington, DC, 1995 15 Author Unknown, Fit at Fifty The Economist, July 23rd 1994. 16 Rich, B., World Bank/IMF 50 Years Is Enough , South End Press, Boston, 1994. 17 Holman, M. World Bank Relents: About-Face On Africa The Australian, Sept 20, 1995