A Sea Change at the World Bank?

In a world of heated debates over policy responses to the global crisis, it seems that old institutions are changing.  No longer does the IMF stand for "it's mostly fiscal", it might now slant towards impressive macroeconomic flexibility.  And with the possibility of Jim Yong Kim, an expert in health and not finance, leading the World Bank, what can we expect?  Recently, there's been criticism of Kim for a volume of articles he co-authored with  Joyce V. Millen, Alec Irwin, and John Gershman.  And some of this criticism shouldn't be surprising; some of the passages from the book aren't things one would expect a World Bank president would say.

“The studies in this book present evidence that the quest for growth in GDP and corporate profits has in fact worsened the lives of millions of women and men.” (p.7)

 “Through a series of specific cases, we have demonstrated how growth – the market-led economic growth sought by governments, the growth in profits celebrated by businesses, and the growth in power and influence of transnational financial and corporate interests – often comes at the expense of the disenfranchised and vulnerable…  As the imperatives of growth at any cost increasingly determine economic and social policy and the behavior of global corporations, more people join the ranks of the poor and greater numbers suffer and die.” (p. 363)

This seems in line with the theme of a TED talk by Hans Rosling on global health and poverty.  While technological progress is an incredible tool to raise people out of poverty, it is not enough.  Often, the distribution of progress can rend societies as many of the previously poor stay poor, without any access to the new advanced capital.  As a corollary, public investments in education are incredibly important to democratize economic growth and to allow everybody to have the chance at the brighter future.

However, the World Bank mission statement does not seem to take this into account.  According to Article 1 from the Articles of agreement:

The purposes of the Bank are: 

(i) To assist in the reconstruction and development of territories of members by facilitating the investment of capital for productive purposes, including the restoration of economies destroyed or disrupted by war, the reconversion of productive facilities to peacetime needs and the encouragement of the development of productive facilities and resources in less developed countries. 

(ii) To promote private foreign investment by means of guarantees or participations in loans and other investments made by private investors; and when private capital is not available on reasonable terms, to supplement private investment by providing, on suitable conditions, finance for productive purposes out of its own capital, funds raised by it and its other resources. 

(iii) To promote the long-range balanced growth of international trade and the maintenance of equilibrium in balances of payments by encouraging international investment for the development of the productive resources of members, thereby assisting in raising productivity, the standard of living and conditions of labor in their territories. 

(iv) To arrange the loans made or guaranteed by it in relation to international loans through other channels so that the more useful and urgent projects, large and small alike, will be dealt with first. 

(v) To conduct its operations with due regard to the effect of international investment on business conditions in the territories of members and, in the immediate postwar years, to assist in bringing about a smooth transition from a wartime to a peacetime economy.

Interestingly, there does not seem to be any clause recognizing the possibility that neoliberal reforms can actually harm development.  Clause ii has a strong focus on private capital, and although clause iii talks about "balanced growth", it focuses on international investment as a way to access more sustainable growth, and thereby ignores the possibility that international investment can impede sustainable growth.

This kind of debate goes to the core of Dani Rodrik's book on the Globalization Paradox.  Often times, free trade can buffet small economies with waves that can cripple their human capital and cultural institutions.  Most of the East Asian miracles, such as China, South Korea, and Japan, began with very protectionist policies, with high tariffs and state sponsored monopolies.  However, with more development, they were able to move towards freer trade.  In effect, free trade was not a cause of their prosperity, but rather an effect.  In the context of development, it means that allowing massive amounts of foreign investment isn't always the answer.  Rather, proper development policies can be initiated with directives from within the country, not from the corporations from distant shores.

Thus, I hope that if Kim does become a president, he can use his development expertise to recognize that neoliberalism does not always mean equitable development, that development is a means to an end, and not an end in itself, that any growth in development requires recognition for its distribution in a society.  That, perhaps, the World Bank will no longer be seen as a front for neoliberalism, but rather as an institution that can transcend developing/developed nation binaries and foster truly equitable development.