Articles and Essays by Mark Engler

    Abandoning the World Bank

    Pitfalls When Right and Left Agree.

    In 1994, a collection of activist groups came together to form a unified campaign against the World Bank and its sister organization, the International Monetary Fund (IMF). The two institutions were then celebrating a half-century in business, having been founded at the Bretton Woods conference near the end of World War II. The name of the activist coalition, and its slogan, was “50 Years Is Enough.”

    The group’s call to action against the international financial institutions seemed to come at an inopportune moment. The mid-1990s were high times for corporate globalization. Enthusiasm about the expanding “New Economy” was rising. The Clinton administration placed structures like the World Bank, the IMF, and the World Trade Organization (WTO) at the center of its foreign policy. And the march of economic neoliberalism seemed unstoppable.

    By the institutions’ sixtieth anniversary in 2004, however, things had changed. Crises in Asia and Argentina helped to quell international exuberance for the policies of the Washington Consensus. The left’s critique–which challenged the World Bank’s practice of forcing structural adjustment on countries needing loans, its support for environmentally destructive dams and other megaprojects, and its undemocratic governance structure–drew mass protests to previously inconspicuous World Bank meetings. And the Bank was compelled to launch a major PR offensive promoting its righteous mission of ending poverty. Yet perhaps more disconcerting still for World Bank defenders, influential conservative economists and Bush administration officials were also ready to declare “enough.”

    In the Bush years an interesting landscape has appeared. The White House has maintained at best a lukewarm relationship with the World Bank–and at times has abandoned it altogether. Conservative critics have presented a vision of a world without the Bank. In this new context, progressives have been called upon not only to distinguish their own demands but also to consider the possibilities for some unusual alliances.

    The Decline of Multilateral Globalization

    A new attitude toward the World Bank is part of the Bush administration’s pursuit of a different strategy for managing U.S. foreign policy as a whole. In the Clinton era, American power was deployed to expand and defend a corporate-friendly, “rules-based,” multilateral global economy. In contrast to this Clintonian “corporate globalization,” Bush has crafted a more aggressive, unilateralist “imperial globalization.” Here, the U.S. is willing to antagonize traditional capitalist allies in pursuit of nationalistic economic gains. Both visions of the global order are neoliberal, but they differ significantly in their management of international affairs.

    The neoconservatives’ assertive militarism, disregard for U.S. “soft” power, and eagerness to cut off uncooperative “Old Europe” from the spoils of the Iraq War are part of the shift. Another part has been a willingness to sidestep or even undermine the multilateral structures of corporate globalization. Although the United States largely dominates these bodies, they nevertheless require compromise. At times, they can obstruct White House designs–anathema to the unilateralists in power. Therefore, the Bretton Woods institutions are in danger.

    The shift away from a multilateral approach to globalization in recent years has been most evident with regard to the World Trade Organization. By the WTO’s September 2003 Ministerial in Cancún, The New York Times reported that the U.S. had “compiled a long record of violating trade rules” and noted that “[t]op officials at the World Trade Organization say they are worried that the Bush administration’s go-it-alone policy is threatening international trade.” Before the Cancún talks collapsed, Shefali Sharma of the Institute for Agriculture and Trade commented, “before, the European Union was the biggest sinner” in terms of refusing to compromise, “but the United States is [now] making Europe look good.”

    The U.S. worked for a time to keep the WTO limping along. But talks advanced very little, and the “Doha Round” of negotiations ultimately collapsed in late July 2006. As an alternative to stalled multilateral trade deals, the Bush administration has pursued bilateral, one-on-one deals with individual countries. Negotiating on their own, less powerful trading partners lose the ability to join a bloc like the G20+, which resisted U.S. demands in Cancún. The administration has successfully used the bilateral method to negotiate favorable agreements with countries including Australia, Morocco, Singapore, and Chile, and it is currently pursuing many others.

    Losing Its Internationalist Protectors

    It is not surprising that the WTO would be the first institution to be sidestepped by the Bush administration. The WTO is the most democratic of the international financial institutions, operating on a one-country, one-vote model for member nations. The IMF, meanwhile, proclaims itself “accountable to its shareholders.” Its voting structure is weighted based on each country’s economic heft and financial contributions to the institution. As a result, the U.S. alone holds 17 percent of the voting power. Europe holds approximately 40 percent, while developing countries as a whole have only 37 percent of the votes in the IMF. China and India are dramatically underrepresented. The World Bank’s branch institutions operate on a similar system to the IMF’s–and the fact that an 85 percent supermajority is required for major decisions gives the U.S. an effective veto.

    Even so, these institutions have also fallen out of favor with White House unilateralists. At the onset of the Bush administration, Walden Bello of Focus on the Global South predicted that Bretton Woods sisters would “lose their liberal internationalist protectors like Treasury Secretary Larry Summers who believe in using the Fund and Bank as central instruments to achieve U.S. foreign economic policy objectives.”

    The prediction proved true, and the World Bank has experienced relative neglect from the new administration. Rather than focusing on using World Bank loans to promote neoliberal development, the Bush administration has preferred using bilateral foreign aid–and tying aid packages to specific political and military objectives of the United States. Such bilateral aid deals played a large part in the strategy to mobilize a “Coalition of the Willing” to invade Iraq.

    Tom Barry, policy director of the International Relations Center, noted early last year, “The 2004-2009 strategic plan produced by the State Department and USAID (U.S. Agency for International Development) defines ‘security’ as the main goal of U.S. foreign assistance. The strategic plan aims to ‘align diplomacy and development assistance’ with the president’s National Security Strategy of September 2002–the document that lays out the case for preventive war and for building the capacity for global military intervention.”

    Early this year, the administration moved to further politicize USAID by ending its formal independence and moving it under the State Department. Rather than repudiating past abuses of America’s foreign aid, the White House is making the political use of aid more overt than ever. While the changes are being implemented in the name of efficiency and accountability, Oxfam America identified USAID reorganization as a further step in “a drastic shift in U.S. foreign assistance” since the attacks of September 11th “that has blurred the lines traditionally separating development and humanitarian aid from political and military action.”

    Significant increases in U.S. foreign aid have not been channeled through the World Bank. Rather, money has been pumped into new go-it-alone initiatives such as the Millennium Challenge Account (MCA). Heralded by President Bush as a “new compact for global development,” the MCA provides development assistance “to those countries that rule justly, invest in their people, and encourage economic freedom.” In principle, the MCA aims to make aid more transparent by basing award decisions on defined criteria and measurable outcomes. Yet many of the criteria, especially those related to “economic freedom,” are highly problematic. Among them are planks rewarding “a country’s openness to international trade” (as measured by the arch-conservative Heritage Foundation’s Index of Economic Freedom), while penalizing “financial regulations on foreign investment and capital.”

    Bucking the Bank

    Even as it pushes development aid through its own bilateral mechanisms, the Bush administration has, in key moments, effectively advocated de-funding the World Bank. A clearest instance of this took place in discussions leading up to the G8 agreement on debt relief in the summer of 2005. There, debate centered on how billions of dollars worth of debt cancellation for 18 heavily indebted countries would be financed. The U.S. argued that the World Bank and IMF should use their own resources to pay for the cancellation. If the World Bank stopped collecting payments on outstanding debts, it would simply have less money to use to give out future loans, contended the White House.

    Many European nongovernmental organizations cried foul, arguing that this change would amount to giving to poor countries with one hand while taking with the other. They argued that “additionality,” or a net increase in aid funds from wealthy nations, was absolutely necessary. The end result was a role reversal for many activists who traditionally opposed the World Bank: the NGOs essentially advocated holding up a debt deal until G8 governments agreed to extra financing for the much-scorned institution.

    This is not the only case in which progressive stances have been muddled. The downgraded status of the World Bank in the eyes of Bush administration officials also contributed to some questionable analysis upon the appointment of Paul Wolfowitz as the Bank’s new president in early 2005. Even as liberals warned that Wolfowitz could destroy the World Bank, critics further to the left argued that the move showed the continued centrality of the institution in promoting U.S. policy. Few considered that, from a neocon perspective, being shipped off from a key post at the Department of Defense should be considered a demotion, or that undermining the World Bank could be part and parcel of the administration’s imperial doctrine.

    British journalist and Guardian columnist George Monbiot provided an exception to the trend with an April 2005 column acknowledging the shift at hand and wishing Wolfowitz well in his new position. “Surely,” he wrote, “the appointment illustrates the unacknowledged paradox in neocon thinking. They want to drag down the old, multilateral order and replace it with a new, U.S. one. What they fail to understand is that the ‘multilateral’ system is in fact a projection of U.S. unilateralism, cleverly packaged to grant other nations just enough slack to prevent them from fighting it. Like their opponents, the neocons fail to understand how well Roosevelt and Truman stitched up the international order. They are seeking to replace a hegemonic system that is enduring and effective with one that is untested and (because other nations must fight it) unstable. Anyone who believes in global justice should wish them luck.”

    The Right-Wing Critique

    There is more to right-wing aversion to the World Bank than just a general unilateralist disposition. A critique of the institution developed by several conservative economists has become influential within the Bush administration. First put forth by Harvard economist Kenneth Rogoff and Stanford’s Jeremy Bulow in the early 1990s, this analysis denounces the Bank’s inefficiency and ineffectiveness. It has since been prominently advanced by a congressional committee headed by economist Allan H. Meltzer, which released its findings in March 2000, and by Adam Lerrick, a visiting scholar at the American Enterprise Institute.

    The conservative stance provides a rationale for dramatically downsizing several branches of the World Bank. The Bank, properly named the World Bank Group, actually consists of several allied financial bodies. These include the International Development Association (IDA), which finances the poorest countries, and the International Bank for Reconstruction and Development (IBRD), which provides loans to middle-income countries. Additionally, the International Finance Corporation (IFC) and the Multilateral Investment Guarantee Agency (MIGA) promote private-sector investment.

    As part of their radical reordering of the World Bank, conservatives argue that the IDA should switch away from making loans, given that poor countries are consistently unable to pay them back. Instead, the economists argue, the institution should make “performance-based” development grants to countries in need. The World Bank boasts that the recipients of its assistance never default on their loans. Economists like Meltzer and Lerrick charge that this claim is based on financial practices that would never be accepted in the private sector. When developing countries fail to pay off their loans, a private bank would be forced to declare a default. The World Bank, in contrast, simply distributes new loans that allow indebted countries to keep paying. Although few countries ever fully pay off their obligations, the Bank can count on some steady income trickling in from the debtor countries. In addition, having a large loan portfolio adds to the Bank’s clout. Conservative critics consider this a sham.

    “For more than two decades, the bank has played a shell game with worthless developing nation loans by recirculating funding in what even the UK Treasury describes as ‘balance sheet fantasies,'” Lerrick writes. “The bank must accept that it is in the development business, not the banking business.” Being in the development business means writing off loans that long since should have been considered irretrievable, ending the re-loaning cycle, and adopting a more efficient mechanism of development grants, closer to Bush’s MCA.

    Right-wingers make even more drastic proposals with regard to the IBRD. They argue that the Bank’s role as a lender to middle-income countries is obsolete in a world that, in past decades, has become awash in private capital. The Bank is nowhere near being the dominant funder it once was. Still, Lerrick writes, it “is struggling to maintain market share.”

    Conservatives would prefer that the Bank let go. The Meltzer commission report contends that the World Bank should be “transformed” into something that is hardly a bank at all, “from capital-intensive lenders to sources of technical assistance, providers of regional and global public goods, and facilitators of an increased flow of private sector resources to the emerging countries.” In short, the Bank would remain an overseer of neoliberal policy, but would let the private sector handle most of the cash.

    Money in the Bank

    Seeking to curtail the World Bank’s most profitable activities, right-wing critics argue not only for transforming the World Bank, but for defunding it. Because the Bank makes loans at market-based rates to middle-income countries, and because those clients are the ones with the greatest ability to pay their debts, the “IBRD has become a crucial source of financial support and clout for the development community,” writes to Jessica Einhorn, a former Managing Director at the World Bank, in the January/February 2006 issue of Foreign Affairs. She further explains, “IBRD income helps sustain the World Bank’s administrative budget of $2 billion.”

    When coupled with the loss of revenue coming from debt relief to the poorest countries, conservative plans would make the World Bank more dependent on “replenishment” funding sent by donor countries. This funding can be precarious, especially if ideological opponents of the Bank hold sway in the parliaments of donor countries. Lawrence Summers, Clinton’s treasury secretary at the time of the Meltzer report, was well aware of this. He argued that the commission’s recommendations “would dramatically reduce the total amount of resources that can be brought to bear in [developing] economies and require an unworkable system for delivering such assistance.”

    In response to the conservative attack, liberal and centrist defenders of the Bank have proposed various schemes to tweak the institution’s function and governance. In the wake of the Meltzer report, Summers himself promoted a series of modest reforms designed, among other things, to create a “clearer delineation of the respective roles of the World Bank and the IMF.” Ultimately, though, such defenders continue to hold up the Bank as an important foreign policy instrument, and they are loathe to risk losing it.

    Sebastian Mallaby, Washington Post columnist and author of The World’s Banker, argued in the May/June 2005 issue of Foreign Affairs that by paying the small cost of keeping the institution involved in lending, “the United States and its allies keep the World Bank active in strong developing countries, allowing it to earn a profit on its loans and therefore to sustain the professional standards that make it an important tool of U.S. and European foreign policy.” He contended, “Once you start picking at the bank’s intricate mechanism for financing soft loans, it is not hard to imagine the whole system unraveling.”

    Strange Bedfellows

    In this contentious context, those with more radical criticisms of the World Bank are put in a strange position: they must decide whether to ally themselves with the libertarian-leaning right that wants to get rid of the institution or the neoliberal center that wants to keep it around in a slightly modified form. In either case, progressives looking for more representative international institutions and effective solutions to poverty must figure out how to express the distinct nature of their criticisms.

    Clearly, there are several points on which left and right agree. Many progressive advocates of debt relief, in Africa as well as the U.S., support the shift from World Bank loans to grants. Likewise, Lerrick’s description of Bank efforts at poverty reduction as “fifty years of failure” echoes the call of “Fifty Years is Enough.” And when other followers of Allan Meltzer propose to downsize key functions of the World Bank and IMF, they hold much common ground with street protesters chanting that the institutions have “got to go.”

    Indeed, this type of alliance has already made a political impact. In late 1998, an unusual coalition of conservatives and liberals in the U.S. Congress very nearly denied the IMF some $18 billion in funding–and it was their dissent that forced the creation of the Meltzer Commission in the first place.

    The left must recognize some pitfalls in bolstering the conservative critique, however. While Meltzer and Lerrick would displace the Bank, they would hand over any profitable development lending to private bankers. Rather than abolish the World Bank, the right would privatize it. At the same time, they would keep the remnants of the multilateral institutions on hand to continue evaluating the credit-worthiness of poorer governments. In the past, this “gatekeeper” role has given the IMF and World Bank much of their power to dictate economic policy in the developing world.

    In a critique of the Meltzer Commission’s findings, Sarah Anderson of the Institute for Policy Studies points out that under the right-wing restructuring, “the IMF would terminate long-term assistance tied to structural adjustment conditions but would maintain tremendous influence by requiring that countries meet free market-oriented ‘preconditions’ to qualify for emergency assistance.” For the poorest countries, grants from the World Bank’s IDA would also remain highly conditional.

    One of the key findings of the Meltzer Commission was that the World Bank has a terrible track record of accomplishing its stated mission of reducing poverty. After examining Bank documents and interviewing experts, the commission concluded that the Bank had a failure rate of 55 percent to 60 percent for projects in all developing countries, with even higher failure rates in Africa. Critics on both left and right cite these figures, but they hold very different understandings of why projects have failed. Conservatives point to corruption and lack of accountability in developing nations. Unlike progressives, they do not recognize flawed macroeconomic assumptions or the rigidity of neoliberal structural adjustment as sharing fault for impeding poverty reduction. If conservatives had their way, getting rid of the World Bank and relying on private financing (plus a system of politicized, bi-lateral grants) would end up further entrenching U.S.-backed neoliberalism.

    Limits of Reform

    Should progressives, then, focus on reforming the World Bank rather than eliminating it? Representative of those who have sought reforms, a coalition of civil society groups, including the AFL-CIO, Oxfam America, and Environmental Defense, issued a call for “Responsible Reform of the World Bank” in advance of Congress’s vote IDA replenishment in 2002. In addition to debt relief, the proposal laid out demands that the World Bank create mechanisms to “Respect Worker Rights,” “Promote Environmental Sustainability,” “Target Gender Equality,” and “End Undemocratic Trade and Investment Deregulation.”

    Such demands represented a reasonable agenda for near-term reform. However, any push for World Bank reform in the current environment should take into account past difficulties of changing the institution. Outgoing World Bank president James Wolfensohn garnered himself a reputation as a reformer by emphasizing “poverty reduction” as the core mission of the institution and by engaging the Bank’s critics in civil society. His “reforms,” however, ultimately took the shape of public relations maneuvers rather than real change. In each of his heralded efforts to invite civil society to review Bank practices–the Structural Adjustment Participatory Review, the Extractive Industries Review, and the World Commission on Dams–a similar pattern emerged. Bank officials publicized their participation as a significant move toward “partnership” and “dialogue” with critics. But when the institution was unable to control the reviews, and when it became evident that the findings would not be to its liking, it backed out and refused to adopt the recommendations from the “partnerships” it had initiated with such fanfare.

    In the Wolfensohn years the Bank also claimed to abandon structural adjustment in favor of more flexible Poverty Reduction Strategy Programs (PRSPs), developed by participating countries themselves. Civil society groups that have examined the programs, however, have consistently found that the programs employ the same macroeconomic framework and enforce almost identical policies.

    Institutional self-interest should not be overlooked as a final serious barrier to change. As Einhorn notes, proposals for reform, liberal or conservative, that seriously threaten the Bank’s influence or financial well-being face “fierce bureaucratic resistance” from within the institution.

    Crisis and Opportunity

    In light of past failures of reform, the eagerness of conservatives to diminish the Bank should be considered an opportunity, reflecting a wider crisis of legitimacy for the institution. Progressives can take advantage of this opportunity by joining alliances that weaken the Bank’s stranglehold over development policy, while still working to highlight the failure of neoliberal policies that the right would like to perpetuate, even with the Bank gone.

    Left visions of what a more just structure of development financing would look like in the post-Bank world have generally been vague. The international order that Monbiot suggests, in which traditional allies appalled by naked U.S. unilateralism relinquish their roles as junior partners in corporate globalization and put new pressure on the hegemonic order of the past, is suggestive. Yet it falls short of being a plan for how to create something new and better out of a climate of hard-nosed U.S. nationalism. Walden Bello gives only a somewhat more developed sketch for the future. He pictures “a more fluid, less structured, more pluralistic world, with multiple checks and balances, [in which] the nations and communities of the South–and the North–will be able to carve out the space to develop based on? the strategies of their choice.”

    There may be good reason for the imprecision of these visions. In the end, poor countries and progressive movements do not have the power at present to dictate the terms of a post-World Bank system. More important than an elaborately wrought blueprint for the future are firm principles that policy critics and movement advocates can use to craft responses to a changing international situation. Such principles include the need for international structures to give developing nations a representative voice in decision-making, the insistence that the straitjacket that binds countries to a constricted set of neoliberal policy options must be removed, and the idea that involvement of grassroots organizations in development planning and execution is critical for creating effective programs.

    While emphasizing these positions, progressives in an anti-Bank coalition would show no allegiance to institutions that refuse to abandon undemocratic governance. In the place of the World Bank, IMF, and existing regional banks, they would promote competing structures for development finance, regulation, and technical assistance–including UN agencies, the International Labor Organization, and those regional bodies that open themselves to more participatory decision-making.

    Perhaps the greatest argument for pursuing a left-right alliance against the Bank in the present moment is that the circumstances that endanger the institution might not last. Already, the Bush administration, burdened by a disastrous occupation of Iraq, is shedding some of its unilateral belligerence and approaching multilateral structures with a more conciliatory attitude. Paul Wolfowitz has often looked more like a Clintonian “free trader” as World Bank president than a neocon militarist. And Bank staff members, skilled at preserving their institutional power, may be waiting for a new White House administration to revert to something resembling the corporate globalization that prevailed in the 1990s–when their institution was a central player in U.S. foreign policy, and critics’ cries of “enough” sounded far fainter than they do today.

    — Mark Engler is a writer based in Philadelphia, an editorial board member at Dissent, and co-author of "This Is An Uprising: How Nonviolent Revolt Is Shaping the Twenty-first Century" (Nation Books). He can be reached via the website Research assistance for this article provided by Kate Griffiths.

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