With policies that run counter the interests of the world’s populations the WB and the IMF have systematically made loans to nation states as a means of influencing their policies.

Using indebtedness as an instrument for subordinating their borrowers the IMF and WB have violated international pacts on human rights, and supported dictatorships.

In order to escape the global predicament they have created a new form of decolonisation is urgently required. New international institutions must be established.

This article by Éric Toussaint retraces the development of the World Bank and the IMF since their founding in 1944. Sources used are The World Bank: a never-ending coup d’état. The hidden agenda of the Washington Consensus, Mumbai: Vikas Adhyayan Kendra, 2007, or The World Bank : A critical Primer,  Pluto, 2007.

The World Bank claims that, in order to progress, the Developing Countries [1] 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 [2]. 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 [3]. 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).

The Trickle-Down Effect

The trickle-down effect is a trivial metaphor which has guided the actions of the World Bank from the outset. The idea is simple: the positive effects of growth trickle down, starting from the top, where they benefit the wealthy, until eventually at the bottom a little also reaches the poor. This means that it is in the interests of the poor that growth should be as strong as possible, if they are to be able to lap up the drops. Indeed, if growth is weak, the rich will keep a larger part than when growth is strong.

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 [4].
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. While he 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 [5].

Essentially, what this really means is that anything which might prove profitable should be handed over to the private sector. While on the other hand, providing of infrastructure should fall to the public sector: these costs needed to be met by society in order 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.

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.

For more insight into the development theories used by the World Bank and the IMF please visit the source article ‘THEORETICAL LIES OF THE WORLD BANK’, here at Popular Resistance.