Why the World Bank Must Be Reformed and How We Can Do It

1. The globalization of market forces, vigorously promoted by the World Bank, creates greater inequality.

Over the past 30 years the globalization of the economy-led by the World Bank, the International Monetary Fund and transnational corporations-has proceeded at a quickening pace. These institutions have pressured governments to remove barriers to the cross-border flows of money and products. Advances in telecommunications and computer technology have made it possible for trillions of dollars in finance capital to zoom around the world, 24 hours a day, searching for the highest rate of interest.

This globalization of market forces has greatly increased inequality. Just 150 years ago there was not great inequality between the standards of living of people in the global north and those in Africa, Asia and Latin America. Now the richest 20 percent of the world's population receives 83% of the world's income, while the poorest 60% of the world's people receive just 5.6% of the world's income. The richest 20% of the world's population in northern industrial countries uses 70% of the world's energy, 75% of the world's metals, 85% of the world's wood, 60% of the world's food, and produces about 75% of the world's environmental pollution.

2. The World Bank is wrong in arguing that economic growth will solve the problems we face.

World Bank officials keep reassuring us that if we can just get economic growth rates high enough, these problems will be solved. We regularly hear the refain, "a rising tide floats all boats." But for those who don't own boats or have leaky boats, a rising tide means greater inequality between them and the more fortunate. The data shows that during a period of significant growth in world trade (1960 to 1989), global inequality got significantly worse: the ratio between the richest 20% and poorest 20% of the world population went from 30 to 1 to 59 to 1. We should also remember that unrestrained growth is the ideology of the cancer cell.

3. The real function of institutions such as the World Bank is not to promote "development" but rather to integrate the ruling elites of third world countries into the global system of rewards and punishments.

Because direct colonial control of the third world is no longer tolerated, northern elites need an indirect way to control policies implemented by third world governments. By getting the elites onto a debt treadmill and promising them new cash if they implement policies written in Washington, the World Bank can effectively control third world policies. You can see the effects right next door in Mexico. For more than a decade, Mexican elites have followed the "Washington consensus" of policy reforms designed by the World Bank. This has created some billionaires, yet for most of the 85 million Mexican people life is more difficult now than it was ten or twenty years ago. If the ruling PRI party did not control the police and military, its blatant corruption and disastrous economic policies would not be tolerated for long.

4. Evidence from many countries shows that the policies promoted by the World Bank are disastrous.

Whether you look at poor countries such as Somalia, Rwanda and Mozambique or well- endowed countries such as Ghana, Brazil and the Philippines, the policies pushed by the World Bank have worsened conditions for the majority. Evidence from dozens of countries under World Bank tutelage shows a similar pattern: structural adjustment policies may help countries pay off their foreign debts and may create some millionaires but the majority of the population suffers lower wages, reduced social services and less democratic access to the policy-making process.

5. The World Bank's emphasis on expanding exports has been disastrous for the environment.

As part of the standard structural adjustment package, the World Bank encourages countries to expand their exports so they will have more hard currency (dollars, yen) to make payments on their foreign debts. But this leads countries to overexploit their natural resources. They cut down their forests, which contributes to the greenhouse effect. They pump chemicals onto their land to produce export crops such as coffee, tea and tobacco, thus poisoning their land and water. They rip minerals out of the ground at a frantic pace, endangering human lives and the environment in the process. They overfish coastal and international waters, depleting a resource of the global commons.

6. The "free market" economic model being pushed on third world governments is not one the industrial countries used to develop themselves.

All the wealthy countries-the USA, Japan, Germany, England, France and the recent success stories such as Taiwan and South Korea-used a heavily state-interventionist model that had government play a strong role in directing investment, managing trade and subsidizing chosen sectors of the economy. The United States was in many ways the "mother country" of protectionism, showing other wealthy countries how to do it. Would we have a big electronics industry or nuclear power industry were it not for the massive government subsidy program called the Pentagon?

7. Globalization-from-above is being rejected and millions of people all over the world are struggling to build globalization-from-below.

Globalization-from-above is controlled by wealthy elites and driven by a hunger for more wealth and power. But there is another form of globalization made up of grassroots alliances of human rights activists, trade unions, women's organizations, environmental coalitions and farmers organizations. This people-centered form of globalization does not have the amount of money or guns possessed by the elites but it does have moral authority. Just think about the contrast between the dominant system's focus on greed and our focus on meeting human needs. This alternative vision calls for more openness and accountability by institutions such as the World Bank and transnational corporations. It calls for raising wages, health and safety standards in the third world to bring them up to first world levels, rather than driving first world standards downward. It calls for stewardship of natural resources that will preserve something of the environment for our grandhcildren to enjoy. It seeks to redefine self- interest so that it is more in line with the common interest of humanity. The problem confronting us is how to get the leaders of the World Bank to listen to our demands for reform.

An Easy Way to Pressure the World Bank for Change

The World Bank gets most of its capital by selling bonds to wealthy investors. If we could pressure large institutional funds (e.g., university endowments and state worker pension funds) to stop buying World Bank bonds as a way to protest the Bank's destructive policies, we could exert serious pressure on the Bank.

Just think about the huge impact the divestment campaign had on South Africa's white minority rulers during the closing days of apartheid. The divestment struggle also raised a key question: who controls how capital is invested and why isn't it a more democratic process?

Many institutions such as universities and retirement funds purchase bonds issued by the World Bank. The name appearing on the bonds will be the World Bank's formal name: International Bank for Reconstruction and Development. These are fixed rate securities which are sold by underwriters such as Goldman Sachs, Fidelity, First Boston, Credit Suisse and many Japanese banks. The bonds pay a good rate of return and are considered safe investments because they usually carry a triple-A rating. They are not officially insured by the U.S. government but, as one bond trader told us, the U.S. government would not stand by and let the World Bank default on its bonds. In other words, the U.S. taxpayer is the ultimate insurer of these bonds-just as we were forced to bail out the Wall Street speculators and Mexican financiers during Mexico's crash in early 1995.


See also: World Bank Bond Boycott Campaign