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The World Bank


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 favourable 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
organisation 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 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 its many social inequities. It must be
said that a full analysis of the Bank short comings 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 Yunus4, has single-mindedly
pursued growth until it is distracted by other issues such
as hunger, women, health, the environment, etc. 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 theoretical 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 were 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
serviced5. She claims that the Bank presides over a net
outflow of capital from the Third World, which will
continue to further drive their economy's 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 favourable to Third World
elites, 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, has 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 in 100 million economic
refugees, resulting in enormously high economic costs to
Western nations. Lastly, conflict 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 regimes, 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
macroeconomic 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 study9 recently on
Latin America, that 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 report10 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
may be 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 categorises 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 exports11. A possible way to stabilise
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 have been
explained by inadequate and inefficient use of the Banks
funded projects. These Bank projects have been plundered in
four ways according to the Bank12: Firstly, facilities have
not been maintained properly. Approximately 40% of the
power generating capacity in poor countries is out of
action at any one 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 are
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 of sufficed. Thirdly,
major inefficiencies have been detected in the running of
infrastructure services. Railways, in particular have been
overmanned - 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 subsidised, and lead to
increased pressure on state resources - leading to lower
spending in more important area's such as eduction 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 Berg14, 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 are living for longer and in better conditions. In
Latin America infant mortality decreased during the 1980'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 22 countries 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. CONCLUSION The world bank
has been, no doubt, less that perfect in achieving its
objectives. What one must take into account, however, is
what would of 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 organisation on Third World nations has brought
about alot of hardship and distress. This, however, has not
been to no 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 crop up is
the insensitivities 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 organisations such as the World Bank. It
was in the next twenty years that the Bank became most
active in targeting 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 billion15. Suggesting, perhaps, that
financial markets are starting to play a large enough role
to do without the Bank, except of course, in those
countries who do not have adequate access to world
financial markets. Finally, many believe16 that the World
Bank will not become an effective organisation 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 fund17 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. BIBLIOGRAPHY Adams, P. "Odious
Debts" Routledge, London, 1994. Author Unknown., "How Poor
Are The Poor." The Economist , October 1st, 1994. Author
Unknown, "Fit at Fifty" The Economist, July 23rd 1994.
Author Unknown "Investing In Development" The Economist,
June 25, 1995 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 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", South End 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, 1995 Walters, 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 Walters, 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 


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