Till We Meet Again?

The WB was formally established in December 1945 as a part of the Bretton Woods system and in 1947 made its first loan of $250m to France to help with post-war reconstruction. The rebuilding and restoration of the economies of both victors and vanquished after WW2 was the focus of the WB for much of its early life. As the world repaired itself the WB gradually shifted to work increasingly on development, but it remains involved in post-conflict reconstruction, reconstruction after natural disasters, responding to humanitarian emergencies and the rehabilitation needs of developing and transitional economies. Despite an agenda driven by seemingly lofty ideals the WB – and the IMF – are increasingly the target of criticism; often by the very nations it is supposed to be helping out of poverty, and attention is increasingly focused on allegations that the WB has contributed to the growth of corruption and exploitation in beneficiary countries.

Lightening the burden on the ill-nourished shoulders of the worlds poor is the defining humanitarian goal of the 21st century. Currently the WB is focused on the achievement of the Millennium Development Goals (MDG’s) which call for the elimination of poverty and the implementation of sustainable development.. The elimination of poverty, whilst a commendable aspiration, is not realistically achievable and it always was an impossible dream. The reduction of poverty however is achievable, and a large dent in the world’s population living in poverty has been made over the last thirty years – a fact not immediately obvious to those that remain poor.

New estimates reveal that 1.4 billion people in the developing world – or 1 in 4 of its population - are living on $1.25 a day; which is down from 1.9 billion – or 1 in 2 – in 1981. The removal from poverty of 500 million people in less than thirty years is no small achievement, and poverty has been declining globally at about 1% per annum from 52% of the developing world population in 1981 to 26% in 2005. However, the price hikes if the process of staple foods and energy in all its forms since 2005 have yet to be factored in, and about a billion worldwide will live on less than $1.25 a day in 2015 when the MDG’s are set to mature.

There is an uneven reduction across the regions, with a dramatic drop in East Asia which was the poorest region in 1981 with 80% living on less than $1.25 a day to 18% in 2005, mostly because of the dramatic progress in poverty reduction in China. South Asia, including Pakistan, has fared less well coming down from 60% to 40% over the same period. Despite reductions in the percentages of populations in poverty the actual numbers have not decreased – populations continue to expand – and the region supported a ‘total poor’ population of around 600 million in 2005.

Success aside (and much of the reduction in poverty is down to the efforts of individual nations rather than the exclusive efforts of the WB or IMF) there remain some fundamental criticisms of the WB. At the heart of the concerns expressed by many is a belief that the bank was not conceived as an instrument of poverty reduction but more to support and promote the business interests of the United States worldwide (a barb also often aimed at the United Nations) and that the WB has, by its policies, actually increased rather than alleviated, poverty.

The argument gains weight if understood against the development of international relations in the post-WW2 period, and in particular the doctrine of the imposition of cooperation which is linked to the hegemonic stability theory; which attributes global economic and political stability to the existence of a dominant power and is achieved when the dominant power establishes rules and institutions that influence the behaviour of other states.

Cooperation can be strongly encouraged by a superior power in relation to a weaker state – and may be imposed via specially constructed instruments like the WB. In effect the hegemon that establishes and maintains the principal international regulatory structures – in the case of the WB this being the United States – becomes the functional equivalent of a common governmental authority in global society. We may thus see that the Bretton Woods institutions such as the WB, the IMF and GATT have not only fostered cooperation with the hegemon, but forced cooperation where it saw fit via the relatively liberal economic order established by the western powers but dominated by the US, at least until recently, a situation which may be changing.

Until the late ‘80’s there was another hegemon in play – the Soviet Union – which used its status as a regional hegemon to maintain order within its satellite states and to influence the nature and degree of economic interdependence among them. The fall of the Soviet Union altered the hegemonic balance in favour of the United States, and the United States is in the driving seat of the WB. Many of those former satellite states are now clients of the WB, in which there is an irony not lost on the new rulers in Russia and those who run China – which will soon have the worlds largest economy.

The American domination of the WB (and other Bretton Woods constructs) is also cited as a reason for a widening of distrust and misapprehension. The President of the WB has to be a citizen of the United States and they are always nominated by the President of the USA (in theory subject to approval by three other member states – but there has never been anything other than an American President of the WB.) Decisions are made and policies implemented by leading industrialised countries—the G7—because they represent the largest donors without much consultation with poor and developing countries. It is said that the decision-making structures are undemocratic in that the USA effectively has a veto over some constitutional decisions and that there is an almost complete lack of transparency about internal governance – all of which the WB is keen and quick to point out when identified as a deficit in the governance of its client states.

The world needs the World Bank. We may detest it for all the right reasons, but there is as yet no other institution that could fill the niche that it does, not any other nation which could takes the role of hegemon as does the USA. Events are changing the world, and the near-collapse of large parts of the global banking sector and the necessity for state intervention to prop it up, have their origin in the crash of the sub-prime mortgage market that American fiscal policies encouraged into being. As history tells us, hegemons come and go. China is rising, so is a new version of the old Russia. Both will want a place at the table around which poverty and influence and access to emerging markets and peoples are brokered. The world needs the World Bank – but it is not going to need it forever.