With the world bank's main objective being cited as that of alleviating World Poverty,it seems safe to say beyond reasonable doubt that it has failed developing nations on vast number of fronts.
In 2007, the World Bank provided Tanzania the financial and technical means to urbanize water resource management. Raising a number close to a whopping $1.42 billion, the project can best be described as an abysmal failure, with the percentage of Tanzanians having access to drinking water decreasing in five years since the implementation of the project.
Developing nations tend to dream big and for some nations, like Tanzania, an East African country known for its vast wilderness area, the most ambitious dream possible is that of dispelling the image of being a “Third World nation” and emerging as a middle-income country. Despite its efforts, the 50 year old organization failed to fulfill the seemingly straightforward quest for water, which presently requires a four kilometer long trip. On the other end of the spectrum, we will also see successful programs of economic liberalisation that have helped countries such as Singapore and Hong Kong achieve exponential success. They have grown to become nations on par with developed nations while having been as poor as the countries that needed World Bank loans 30 years ago. In this article, after delving into a bit of relevant history, we will try to provide an insight on why despite having the resources, the World Bank has been unable to create the lasting impression of uplifting countries entrenched in poverty, the very vision with which it was forged.
How the World Bank came into existence
At the end of the World War II, countries needed capital to fulfil their ambitions of rapid industrialization and development. This need for capital sparked the establishment of the World Bank, at Bretton Woods. Their first major employment of capital occurred during the Decolonization period of 1947-1968. A substantial chunk of the capital was used towards the development of income-producing infrastructure, such as seaports, highway systems, and power plants, which would help the borrower country repay the loan.
In 1968, Robert McNamara was appointed to the presidency. During the McNamara Period of 1968-1980, the World Bank’s focus shifted towards the service sector, with the intention of alleviating poverty. The service sector in these borrower countries lacked expertise and social capital. As a result, the implemented projects failed to make any notable impact. The wavering focus of the World Bank not only led to an exponential rise in third-world debt, but it was a rather costly affair that can best be described by the “Cart before the horse” fallacy. The capital investment should have been made at a time when the service sector was adequately equipped to produce maximum gain. The debt increased and these countries were forced to take further loans, accentuating a problem created by the World Bank itself.
In addition to this appalling mismanagement of funds, the World Bank faces criticism, and
rightfully so, over four key issues: -
i) Power distribution
ii) Structural Measures
iii) Sovereign Immunity
iv) Planning and Implementation
Power distribution
There has been inequitable distribution of voting power ever since the inception of the World Bank. The World Bank system amounts to $1 = 1 vote. Therefore, richer countries often tend to decide how the developing nations carry out their developmental process, while they only contribute 14% to the world’s population.
Sovereign Immunity
The World Bank faces has sovereign immunity from all member countries. This leads to moral injustice as it is not accountable to its members and does not have a binding obligation to work in their best interests.
Structural Measures
The structural measures are arguably the main reasons for the astronomical rise in the levels of third-world debt. Delving into why these measures were so catastrophic-
- Development of exports :
The development of exports was encouraged mainly to empower these borrower countries to procure the foreign currency needed to repay the debt. This led to them, to put it simply, reduce food crops for local population, to specialize in one or several export crops.
- The complete opening up of markets through elimination of customs barriers :
The opening up of markets matched untrained, less well equipped local producers against multinational conglomerates, hampering their livelihood.
- The massive privatization of public companies :
The massive privatization of public companies involved selling them off for a song. As a result, the state lost control of strategic elements for development and essential services were entrusted to the private sector.
Country | Principal Export | Percentage in Export |
Benin | Cotton | 84 |
São Tomé | Cocoa | 78 |
Uganda | Coffee | 56 |
Malawi | Tobacco | 61 |
Developing nations in Africa have their economics geared towards
exporting one product primarily
Planning and implementation
The World Bank, just like they did in Nigeria, already has another loan in place in Tanzania, having forgotten all about the $1.42 billion laid to waste. Up to 1.9 million Tanzanian citizens apparently stand to benefit from new financing approved on 29th January 2017 by the World Bank towards the nation’s Water sector, including 700,000 residents of the country’s largest city, Dar es Salaam. The World Bank has a very poor implementation record in terms of helping developing countries and has in fact been criticized of extending funds and support with the motive of simply extending its geopolitical presence in these regions. Most World Bank investments do not require evictions or damage people’s ability to earn a living - following the Bank’s promise of “doing no harm”. But the percentage of those that do has increased sharply in recent years.
In the case of Nigeria, a World Bank sanctioned project aimed at improving drainage systems and income producing infrastructure such as dams and power plants led to the eviction of over 9,000 residents of Lagos, without resettlement. The investigation reports have found that the bank’s lapses have hurt urban slum dwellers, hardscrabble farmers, impoverished fisherfolk and forest dwellers — leaving them to fight for their homes, their land and their ways of life, sometimes in the face of intimidation and violence. Despite this, the subsequent loan was sanctioned.
Hong Kong
Hong Kong, which was considered to be a part of the economically barren Asia only received a small amount of aid from America. They began a series of economic liberalizations in 1965, covering a vast number of sectors, especially banking and financial services.
a. Lowering Barriers to International Trade : The Government came up with innovative ideas such as setting “Free trade zones” that allowed for easier exports, fuelling growth.
b. Reformed Tax Structure : Following a capitalist school of thought, a fixed tax slab of 20 percent was levied on income over $155,000, with the worker being taxed an average of only 2 percent.
GDP soon skyrocketed, with numbers like 9% growth common. According to current prices, Hong Kong is one of the most expensive real estate markets in the world, while being a major global financial hub. The rise has truly been phenomenal. All without the aid of the World Bank, by carefully thought out series of economic liberalizations.
Singapore
After exhausting its quota of World Bank loans, Singapore followed the path that Hong Kong had paved for the rest of the world to follow. The country focussed on enhancing export numbers and boosting foreign investment in the country. The tax system was restructured, the average person was taxed close to zero while the rich were taxed thirty percent. The country’s policy of not differentiating between domestic and foreign firms played a crucial role in securing foreign investment. These economic reforms helped pave way for these countries on their upward trajectory.
Conclusion
Since 1944, the World Bank has spent hundreds of billions and has outstanding debt due to the financing of non-performing assets by taking further loans, which could easily lead to a vicious, perpetual debt trap. Most beneficiaries of loans aren’t in a better position than before. In fact, many are worse off. Even though 1.42 billion was spent in Tanzania, little to no improvement was observed. The world organization has failed to improvise over time, replicating its past mistakes. It has provided loans without proper groundwork or without thought of the impact on the local communities. It is important to remember that rapid growth is possible only when there is economic freedom, such as there was in Hong Kong and Singapore. In order for World Bank initiatives to be effective, the country in focus must be given a bigger say in determining the execution, keeping in mind the viability and the possible gains.
Further Reading:
- nigeria world bank panel turns its back forcibly evicted community (amity.org)
- the world bank and economic growth 50 years failure (heritage.org)
- unnayan.orgIFI Watch Bangladesh Vol 1.pdf (unnayan.org)
Written by Akhil Andasu
Edited by Shubhra Agrawal
