Eric Toussaint :
The World Bank claims that, in order to progress, the Developing Countries should rely on external borrowing and attract foreign investments. The main aim of thus running up debt is to buy basic equipment and consumer goods from the highly industrialised countries. The facts show that day after day, for decades now, the idea has been failing to bring about progress. The models which have influenced the Bank’s vision can only result in making the developing countries heavily dependent on an influx of external capital, particularly in the form of loans, which create the illusion of a certain level of self-sustained development. The lenders of public money (the governments of the industrialised countries and especially the World Bank) see loans as a powerful means of control over indebted countries. Thus the Bank’s actions should not be seen as a succession of errors or bad management. On the contrary, they are a deliberate part of a coherent, carefully thought-out, theoretical plan, taught with great application in most universities. It is distilled in hundreds of books on development economics. The World Bank has produced its own ideology of development. When facts undermine the theory, the Bank does not question the theory. Rather, it seeks to twist the facts in order to protect the dogma.
In the early years of its existence, the Bank was not much given to reflecting upon the type of political economy that might best be applied to the developing countries. There were several reasons for this: first, it was not among the Bank’s priorities at the time. In 1957, the majority of the loans made by the Bank (52.7%) still went to the industrialised countries. Secondly, the theoretical framework of the Bank’s economists and directors was of a neo-classical bent. Now neo-classical theory did not assign any particular place to the developing countries. Finally, it was not until 1960 that the Bank came up with a specific instrument for granting low-interest loans to the developing countries, with the creation of the International Development Association (IDA).
However, the fact that the Bank had no ideas of its own did not prevent it from criticising others. Indeed, in 1949, it criticised a report by a United Nations’ commission on employment and economics, which argued for public investment in heavy industry in the developing countries. The Bank declared that the governments of the developing countries had enough to do in establishing a good infrastructure, and should leave the responsibility for heavy industry to local and foreign private initiative .
According to World Bank historians Mason and Asher, the Bank’s position stemmed from the belief that public and private sectors should play different roles. The public should ensure the planned development of an adequate infrastructure: railways, roads, power stations, ports and communications in general. The private sector should deal with agriculture, industry, trade, and personal and financial services as it is held to be more effective than the public sector in these areas. What this really meant was that anything which might prove profitable should be handed over to the private sector. On the other hand, providing the infrastructure should fall to the public sector, since the costs needed to be met by society, to help out the private sector. In other words, the World Bank recommended privatisation of profits combined with the socialisation of the cost of anything which was not directly profitable.
An ethnocentric and conservative vision of the world
The World Bank’s vision is marked by several conservative prejudices. In the reports and speeches of the first 15 years of its existence, there are regular references to backward and under-developed countries. The Bank sees the reasons for under-development from an ethnocentric point of view. In the World Bank’s 8th Annual Report, we read that: “There are many and complex reasons why these areas have not been more developed. Many cultures, for instance, have placed a low value on material advance and, indeed, some have regarded it as incompatible with more desirable objectives of society and the individual…”. One of the causes of backwardness identified in the Report is the lack of desire or absence of will to make material progress and to modernise society. Hindus’ deep respect for cows becomes shorthand for the inherent backwardness of India. As for Africa, World Bank president Eugene Black declared in 1961: ” Even today the bulk of Africa’s more than 200 millions are only beginning to enter world society “. The reactionary nature of World Bank vision has by no means been attenuated by the passing years. In the Global Development Report of 1987, the Bank wrote: “In his Principles of Political Economy (1848), John Stuart Mill mentioned the advantages of ‘foreign trade’. Over a century later, his observations are as pertinent as they were in 1848. Here is what Mill had to say about the indirect advantages of trade: “A people may be in the quiescent, indolent, uncultivated state, with all their tastes either fully satisfied or entirely undeveloped, and they may fail to put forth the whole of their productive energies for want of any sufficient object of desire. The opening of a foreign trade, by making them acquainted with new objects, or tempting them by the easier acquisition of things which they had not previously thought attainable, sometimes works a sort of industrial revolution in a country whose resources were previously undeveloped for want of energy and ambition in the people: inducing those who were satisfied with scanty comforts and little work to work harder for the gratification of their new tastes, and even to save and accumulate capital, for the still more complete satisfaction of those tastes at a future time.”.
The massive return of the neo-conservatives in the administration achieved by G. W. Bush (2001-2008) exacerbated its deeply materialistic and reactionary tendencies. The appointment of Paul Wolfowitz, one of the leading neo-cons, to the presidency of the Bank in 2005, has further entrenched this orientation.
Growth and development planning (in both industrialised and developing economies) is given remarkable importance in World Bank documents and the literature of the time dealing with development issues from the 1950s until the 1970s. Until the end of the ’70s, planning was considered important for several reasons: first, planning emerged during the prolonged depression of the 1930s as a response to the chaos resulting from laisser-faire policies; secondly, the reconstruction of Europe and Japan had to be organised; thirdly, this was still part of the thirty years of continuous economic growth that followed the Second World War and had to be managed and planned for; fourthly, the success, real or supposed, of Soviet planning undoubtedly exercised a great fascination, even for the sworn enemies of the so-called “Communist bloc”. The idea of planning was completely rejected from the early ’80s, when neo-liberal ideologies and policies came back with a vengeance.
Another major preoccupation in the early days which was rejected after the 1980s was the decision by several Latin American countries to resort to import substitution and the possibility that other newly independent countries might follow their example.
Let us briefly review some of the economists whose work had a direct influence on and in the Bank.
Ricardo’s theory of comparative advantages gained force in the 1930s through the studies of Swedish economists, Heckscher and Ohlin, later joined by Samuelson. It is the synthesis produced by the latter that is known as the HOS model. The HOS model raises the issue of factors of production – these factors are work, land and capital – and claims that each country has an interest in specialising in the production and export of goods which make greatest use of that country’s most abundant production factor – which will also be the cheapest. Free trade would then make it possible to balance out what the factors earn among all the countries taking part in free trade agreements. The abundant factor, which would be exported, would grow scarcer and thus more costly; the rare factor, which would be imported, would increase and its price would fall. This system of specialisation would bring about optimal distribution of factors in a now homogenous market. This model would enable all economies to aim for maximal integration in the global market with positive outcome for all the trading partners. Various studies carried out later, especially those by Paul Krugman , to test the HOS model have shown it to be inaccurate.
The Five Stages of Economic Growth according to Walt W. Rostow
In 1960, Walt W. Rostow postulated five stages of development in a book entitled The Stages of Economic Growth: a Non-Communist Manifesto. He claimed that all countries fell into one of the five categories and that they can only follow this route. The first stage is traditional society characterised by the predominance of agricultural activity. Technical progress is nil, there is practically no growth in productivity and minds are not ready for change.
Next, in the stage before take-off, exchanges and techniques begin to emerge, people’s mentalities become less fatalistic and savings rates increase. In fact, this is how European societies evolved from the 15th to the early 18th century. The third stage is take-off, a crucial stage corresponding to a quality leap, with significant increase in savings and investment rates and a move towards cumulative growth|.
The fourth stage is the “march towards maturity”, where technical progress takes over in all fields of activity and production is diversified. Finally, the fifth stage coincides with the era of mass consumerism.
Walt W. Rostow claimed that at the take-off stage, an influx of external capital (in the form of foreign investments or credit) was indispensable.
Rostow’s model is marred by over-simplification. He presents the stage of development reached by the USA after the Second World War both as the goal to aim for and the model to reproduce. Similarly, he considers that the British take-off model, with the agricultural revolution followed by the industrial revolution, should be reproduced elsewhere. He thus completely ignores the historical reality of other countries. There is no reason why each country should go through the five stages he describes.
(To be continued)
