World Bank Can't Seem to "Think Different"

Mark Weisbrot

The World Bank spends millions of dollars each year on public relations, promoting the idea that the organization is well-run, accountable, transparent, and working for "a world free of poverty" (the slogan on their web site). This effort has grown more intense as the Bank-- and its sister institution, the International Monetary Fund-- has come under increasing fire for everything from failed economic policies to environmental destruction caused by Bank-sponsored projects. But hardly a month goes by without a new controversy that reveals just how far these institutions are from reforming themselves.

In August it's the Bank's $40 million loan to China for a project that will resettle 60,000 people in an area that was once a Tibetan province. The Dalai Lama, Tibet's spiritual leader, has called it "cultural genocide," and the project has encountered strenuous opposition from human rights and environmental groups. The Bank will decide this week whether to go ahead with the loan.

Recently the project took another blow when an internal evaluation was leaked to the press. The Bank's independent Inspection Panel found that the Bank had violated most of its own safeguards in considering the loan. For example, the Bank had failed to adequately consult with the people who were to be resettled, or with those displaced by the resettlement. Nor did it consider alternative sites or other options-- a major violation of the Bank's guidelines.

The Bank's latest embarrassment comes on the heels of a disturbing resignation last month by Ravi Kanbur, a Cornell University economist who was lead author of the World Bank's influential 2000 World Development Report. This resignation highlights some of the deeper political and ideological roots of the Bank's resistance to change. Kanbur quit because he came under pressure, reportedly from the US Treasury Department, to alter the manuscript so that it would conform to the IMF/World Bank/Treasury's orthodoxy on globalization.

That orthodoxy maintains that the opening of markets to international trade and investment is the most important policy that governments can adopt. Challenges to this view have gathered momentum since the Asian economic crisis forced a rethinking within the economics profession-- at least about the investment part of the theory-- nearly three years ago.

The Bank's intolerance toward dissenting views within its own ranks bodes ill for the future of reform at the institution. Joseph Stiglitz, the Bank's chief economist until December of last year, was forced out after he criticized the IMF's handling of the Asian financial crisis. Stiglitz, one of the America's most highly respected academic economists, had also written scathing reports on the IMF's policy failures in the former Soviet Union and Eastern Europe. In Russia alone, Stiglitz noted in one paper, the number of people in poverty soared from 2 million to 60 million in just a few years of IMF supervision.

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

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

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

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

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

In short, there is no region in the world that the Bank and the Fund can claim as a success story-- while their failures have been widespread and devastating. That is why their top officials, when they are questioned about these issues, will point to an individual country over a relatively short period of time.

For example, in a recent New York Times article US Treasury Secretary Larry Summers cited Uganda and Poland as success stories for their economic model. (The US Treasury Department has the overwhelmingly dominant voice within the IMF and the World Bank).

But Uganda, despite seven years of growth, is still 30 percent below its per capita income of 1983. And Poland is very unrepresentative of the IMF's work in Eastern Europe and the former Soviet Union. Out of 19 "transition economies" in that region, Poland was the only country that had caught up with its 1989 level of income by 1997. Most of the rest are still living far below their "pre-transition" income.

An honest debate over these issues is sorely needed. Together the Bank and the IMF sit at the top of a creditors' cartel that makes them the most powerful institutions in the whole world. If a country doesn't get approval from the IMF, it may not get credit from anywhere else, either. This arrangement allows the Fund, with the backing of loans from the World Bank, to continue making the most important economic decisions for dozens of countries.

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

Mark Weisbrot is co-director of the Center for Economic and Policy Research in Washington, DC.