July 2, 2001

Even a Stopped Clock . . .

By: Michael D. Mallinger

During the week of September 28th, the now familiar anti-globalization circus will descend upon our nation’s capitol to disrupt the meetings of the World Bank and the IMF. For the most part, the protestors will peddle their usual anti-capitalistic message, carrying signs with such slogans as “People Before Profits” and “Fair Trade Not Free Trade.” To the casual observer, it will appear to be a typical gathering of young supporters of the far Left. A closer examination of the protestors who will attend this particular powwow, however, reveals that not everything they say is antithetical to the classical liberal notion of a free society.

Unlike the protests of the WTO and FTAA — which were dominated by labor unions, environmentalists, and consumer groups — the World Bank/IMF protests will be led by NGOs representing the developing world such as Global Exchange and the Third World Network. For the most part, the protests will focus on the World Bank’s structural adjustment programs — its policies of requiring governments to adopt “market-based” reforms as a condition for receiving additional loans for development. In promoting their criticisms of its policies, these organizations have drawn strong parallels to arguments made by the Cato Institute and American Enterprise Institute to drastically curtail the Bank’s funding. For example, in an essay on the World Bank’s structural adjustment programs in Global Exchange’s 1994 book Fifty Years Is Enough: The Case Against the World Bank and IMF, Susan George states:

The World Bank and IMF structural adjusters have by now had plenty of time to make their measures work. But they have failed. Had they been corporate executives they would doubtless have been sacked long ago for incompetence. But no such accountability applies to these international bureaucrats acting on behalf of the creditor governments. They need never submit to the judgement of their victims.

Although not necessarily a ringing endorsement of public choice economics, statements such as this can be found in many of the essays featured in Doug Bandow and Ian Vasquez’s 1994 book Perpetuating Poverty: The World Bank, IMF, and Developing World — which documents, from a classical liberal point of view, why so many of the World Bank’s programs have failed. In an essay on why the Bank’s programs have been unable to move India closer to a market-based economy, Shyam Kamath points out that the Bank cannot make a significant dent in the “license-raj” system that has rewarded special interests since India achieved independence. In his essay on the World Bank’s failure in Russia, Nicholas Eberstadt notes that “Throughout the so-called donor community there is a pervasive tendency to equate performance with ‘moving money’: to judge aid not by the effectiveness with which it is spent, but simply by the fact that it is spent.”
This, too, is a common viewpoint among the Bank’s critics on the Left. In his highly influential 1989 book Lords of Poverty: The Power, Prestige, and Corruption of the International Aid Business, Graham Hancock offers the following critique of the World Bank, U.S. Agency for International Development, and other multilateral lending institutions, which he labels “Development Inc.”:

…Development Inc. has a license to spend every cent of its revenues in pursuit of its mission. No profits need be set aside, no dividends paid out to shareholders. This is a business that cannot go bankrupt because, like the legendary Horn of Plenty, its resources are constantly replenished, topped up, restored.

This is not to say that all of the protestors’ claims about the benefits and costs of the World Bank’s programs are valid. They argue that efforts to open up the economies of third world nations by reducing tariffs and subsidies on agricultural goods will raise food prices in those countries. They claim privatizing inefficient state industries will lead to lower wages and long-term unemployment in these nations. They assert that allowing private markets to influence the provision of education and health care drives infant mortality rates up and life expectancies down in the long run. However, their arguments that the Bank has bribed corrupt third world leaders into enacting large state projects resulting in increased poverty, environmental degradation, and a loss in quality of life are right on.

Instead of embracing the protestors’ demands and allowing them to participate in rulemaking programs like the United Nations, many supporters of the World Bank and IMF have largely dismissed their claims. In his introduction to the book Culture Matters: How Values Shape Human Progress — which contains several chapters by World Bank consultants — Lawrence Harrison of Harvard University brushes off the protestors’ demands by stating: “Neither colonialism nor dependency has much credibility today. For many, including some Africans, the statute of limitations on colonialism as an explanation for underdevelopment lapsed long ago.” Although his statement is correct, he declines to address the notion that the World Bank’s lending may have contributed to a sense of dependency among third world leaders anxious to suppress market forces in their nations.

Overall, like their counterparts from the WTO and FTAA protests, the leaders of the World Bank/IMF demonstrations have a misguided view of how the global economy works. Their recommendations to link labor and environmental standards to trade agreements should be rejected outright. However, their case against the structural adjustment programs promoted by the World Bank does contain a grain of economic logic. Indeed, Kevin Danaher of Global Exchange even cited Bandow and Vasquez’s book in 50 Years Is Enough, indicating that this is one of those rare issues where members of the Far Left and Right can find common ground.

Supporters and critics of free trade should use this opportunity to form a coalition against the World Bank and IMF. Demanding that Congress cut funding for the Bank would do more than save taxpayers money — it would help stop the flow of cash to corrupt third world leaders who promote flawed, socialistic economic plans and commit human rights violations against their constituents. It wouldn’t solve the third world’s development problems overnight, but it would go a long way towards ending the seemingly endless stream of failed investment projects subsidized by governments. Finally, it would send a powerful message to the special interest groups who support the Bank that neither champions of markets nor supporters of socialism tolerate their perverse transfer programs.