Social Democracy on a World Scale:
The World Bank and The Logic Of Love
It is not obviously true that de-alienation, as we have adapted the concept, names practices that would solve the problems of poverty. Yet it is true. The reasons why it is not obvious do not stem from lack of empirical data. The factual premise needed to prove that de-alienation would end poverty is, although not well known, in plain sight for all to see and not in doubt. The lack of obviousness of the conclusion is due to the difficulty of explaining the meaning of the concept. Once the concept is understood, it becomes obvious that if it were put into practice there would be no poverty.
The
factual premise is that there is no natural obstacle to eliminating
poverty. Many of the relevant facts are
documented in Food First by Frances
Moore Lappe and Joseph Collins, which demonstrates that there would be no
hunger if there were democratic control of resources (1977). Other relevant facts are documented in Food Resources, Conventional and Novel
by N.W. Pirie (1969), a biochemist at Rothamstead Laboratories in England, who
shows that as a matter of biochemistry, the problem of transforming the earth's
resources into adequate nutrition for all is easily solved. R. Buckminster Fuller summed up the matter
when he wrote, "We now know scientifically that for the first time in
history there can be enough to support continually all of expanding humanity at
previously undreamed-of and ever-advancing standards of living and intellectual
satisfaction in effective participation in the evolutionary processes” (1969:
151).[1]
Alienation means separation. De-alienation means unity. If people were de-alienated, they would work
together in unity. Since there is no
natural obstacle to eliminating poverty, it follows that if people worked
together in unity to eliminate it, it would be eliminated. Thus the proposition that de-alienation
would end poverty is very nearly a tautology.
The proposition does not say, however, how to persuade and guide people
to work together in unity. It opens a
space for two crucial questions which it asks but leaves unanswered: 1) where
are people going to get the motivation to do the things that must be done to
meet other people's needs, and thus to eliminate poverty? And 2) assuming that they are motivated, how
are people going to be guided so that they will know what to do to meet other
people's needs?
Nevertheless, the near-tautology that
de-alienation would end poverty is significant, because it throws into relief
the fact that if people would and could work together to end poverty, it would
end. It makes it clear that when and if
answers to the two questions stated above are found and implemented, there will
be no poverty.
Conceptualizing the problem of
poverty in this way makes it easy to see two further points, which may be
loosely termed corollaries:
Corollary 1.
Expecting people to be motivated to act to meet other people's needs by a
desire for economic gain or profit is only a partial answer to the problem of
motivation, not the whole answer.
Corollary 2.
Expecting the price-signals generated by supply and demand in markets to tell
people how to act to meet other people's needs is only a partial answer to the
problem of guidance, not the whole answer.
Conceptualizing the problem in this
way, and noticing that markets and market-like institutions are prominent among
economic arrangements worldwide, also makes it easy to see what can be called a
"corollary" of the "corollaries," which has been
corroborated many times by bitter experience:
Corollary 3. To the extent that a society depends for meeting people's
needs on profit motives and price-signals, measures designed to alleviate
poverty, which weaken profit motives and/or distort price-signals, are likely
to backfire.
Thus the
proposition that de-alienation will end poverty, although it relies on
confidence in findings of the natural sciences for its optimism, is not so much
a prescription for ending poverty as a frame of reference for thinking about
what would be required to end poverty.
Similar points can be made about
other concepts we have proposed or discussed as frameworks for thinking about
how to end poverty: Adam Smith's concept of value-in-use, cultural resources,
stewardship, trusteeship, volunteering, putting back into nature what you take
out, local self-reliance, society producing for itself, Islamic social
principles, Buddhist ideas of community and of right livelihood, and
others.
In this chapter we are going to work
with yet another concept, which is also a near tautology. It is also true by definition once some
factual premises that are not in doubt are acknowledged. It can also be accepted or rejected as a
useful way to think about how to eliminate poverty. By introducing now in this last chapter still another concept of
social democracy, i.e. social democracy as a logic of love, we do not want to
be understood as dropping one subject and taking up another. Rather we are continuing to practice the
philosophical strategy that we endeavored to demonstrate in Chapter One, and to
articulate in Chapter Two.
Our shifting from one concept to
another and our reliance upon diverse traditions is not simply an assertion
that everybody is right and nobody is wrong.
Rather, our catholicity and conceptual flexibility pursue a vision of
human language and thought in which questions about who is right and who is
wrong fade into the background. Judging
logic, which Aristotle defined as sets of rules for the conduct of arguments,
according to its own rules, is comparatively unimportant, compared to the more
important task of judging logic according to whether it functions (or fails to
function) to facilitate the delivery of the goods: the food, the clothing, the
housing, the health, the happiness.
Viewed in the manner we recommend,
social democracy does not require any single ideology. At any given time and place, it requires
some ideology, because people have to share a code to communicate, and people
have to communicate to cooperate. But
it does not depend for its success on universal agreement. On the contrary: it depends for its success
on the celebration of diversity.[2]
When we introduce still another way
of talking about the limitations of economics and the construction of social
democracy, it is not because we have changed our minds, now dropping the idea
of de-alienation and taking up instead the idea of the logic of love. It is because we continue to believe that
there are any number of different sets of conventional cultural norms, and any
number of patterns-of-talk, which can function to facilitate cooperation to
meet needs. Unfortunately, there are
also any number of character flaws, and any number of conceptual errors, that
function to frustrate cooperation and sharing.
To begin
our discussion of the World Bank and the logic of love, we repeat an assessment
made in the previous chapter: "Poverty, and therefore violence, are
just not going to go away until the contradictions of commodity exchange as a
way of life are successfully resolved."[3] Commodity exchange
as a way of life can be called non-love as a way of life. This is because the extant institution of
commodity exchange perpetuates the structural contradictions that make the
elimination of poverty on a world scale an impossible task until those
contradictions are resolved (even though it is possible to eliminate poverty
locally in open economies that benefit from favorable terms of trade with the
rest of the world, such as Holland and Singapore).
The basic rules of the game of modern
society can be called rules of non-love.
Rules for deals. The logic of
exchange. The worker says to the
employer, "I will work for you, but only if you pay me." The employer says to the worker, "I
will pay you, but only if you work."
The property owner says to the tenant, "I will share my property,
but only if I am paid." The
customer says to the merchant, "I will give you money, but only if you
give me what I want to buy." The
merchant says to the customer, "I will give you what you need, your daily
bread, your prescription medicine, or whatever it may be, but only if you pay
my price." The investor says,
"I want the maximum return on my investment consistent with safety. If the needs of others are met by my
investment, that is okay, but my purpose is to make money, not to meet
needs." Thus accumulation of
profit becomes the motor that moves society, and when that motor falters,
society falters.
The rules of the logic of exchange are so
basic, so much a part of modern common sense, that it is assumed that they
reflect human nature, the way humans are and always will be. Economics, for its part, building a social
science from the material offered by the institutions it observes, takes pride
in distinguishing itself from the pre-economic notions, like the "just
price" of St. Thomas Aquinas, in terms of which traditional societies
understood themselves. It has been the
pride of economics that, like God, it accepts people just as they are, just as
it observes them to be in the societies it studies. Unlike God, it does not try to change them. Adam Smith's friend David Hume held that any
plan for the reform of society that relied on the improvement of manners and
morals was wholly imaginary. Smith
agreed with Hume, and the economists following him have dedicated themselves to
squaring the circle: manipulating the rules of non-love to maximize welfare.
The logic of love is more
comprehensive. In its basic form it is
simpler than the logic of exchange.
Early cultures discovered it long before economics was invented. The logic of love says that we ought to act
to meet another person's needs because of what the other person needs, not
because of what we ourselves will get out of the deal. Given, however, that exchange may actually
work to everyone's benefit, we can think of exchange itself as a sort of
friendly game we play with each other, in which, at least some of the time,
everybody wins. Competition thus might
be love in disguise. It might be what
Hegel called a "ruse of reason" in which what appears to be action
from self-interest turns out, in general and in the long run, to be a practical
form of love.
A moment's reflection will show that Gandhi was quite correct to
maintain that without the logic of love, which he called "the law of
love," the human species would have perished long ago (Gandhi, 1990: 78-9,
91). The logic of non-love works, to
the extent that it works at all, only in the middle years of life. The very young and the very old are smelly
and unproductive. They are non-starters
in games played according to the logic of commodity exchange. They do not produce anything of value to
sell in a market. If they are going to
have their needs met at all, it will be because they are loved
unconditionally. (It is true that in
modern society, by the legal fiction of property ownership, there are times
when we say that a very old person, even one bed-ridden and demented, is
"paying" for board and care, out of earnings from prior years
deposited in a bank. This is a fiction
because all they have to offer today in exchange for their care is money saved
from work they did in the past, which is theirs because the law says it is
theirs. Since they produce nothing now,
they could confer a net benefit on the rest of the world by dying and letting
someone else inherit their savings. In
any case, whatever one thinks of the legal fiction of property ownership, the
majority of very old persons exhaust their savings before they die, and rely
for their care during their last years on inter-generational solidarity.)
A further
moment's reflection will show that even in the middle years of life there is no
necessary reason to suppose that a person's needs will be met by the logic of
exchange. There is no necessary reason
to suppose that each person in society will have something to sell, some
marketable skill or valuable service to provide. There is no necessary reason to suppose that each person in
society is in a position to earn enough to be able to strike deals to obtain
from willing sellers her or his food, clothing, shelter, and other
necessities. Thus the very basic rules
that constitute society produce what Viviane Forrester (1996) has aptly called
"the economic horror.” The horror
of economics is that everybody is presumed capable of earning enough on the
open market to get by, but it is not true. Those who do not earn enough to get
by are told that it is their own fault.
As homo economicus they fail,
and where being human is defined in terms of homo economicus they fail as humans. And Forrester's examples are drawn mainly from France --a country
in the first world, the developed world.
She does not even consider the greater economic horrors found in the
third world.
Although ancient peoples knew many
horrors, the horror of being rejected by the labor market as an unsalable
commodity is a modern invention. Nobody
doubts, nonetheless, that the modern world is on the whole better. What some people doubt is whether it can be
improved to eliminate its principal horrors, or whether its basic structure
makes its horrors insuperable.
Rephrased, the question is whether capitalism is tough love, or not love
at all. One alternative, which we will
call the Tough Love Worldview, conceives of today’s global capitalist economy
as the current phase in humanity’s ethical construction of its social
reality. It regards capitalism as a
servant of a transcendent ideal. Its logic, the logic of exchange, can in
principle be held accountable to, and transformed by, a standard higher than
itself. The rules of non-love can be
thought of as practical concessions to human nature, whose great merit is that
some of the time they produce indirectly what love would have produced
directly. The other alternative we will
call the Immutable Framework Worldview: capitalism is not love at all. This view holds that the nations of the
world whose attempts to create social democracy within their borders have been
frustrated by the requirements of the global marketplace have encountered an
insuperable obstacle, a global quasi-physical reality that neither should nor
can be transformed. The logic of exchange
rules humanity, and not vice-versa; it is just what it is, by natural right,
objective fact, cruel fate.
Our argument will be that the history of the World Bank supports reasons for choosing the first of these two alternatives. With all due respect for those who advocate framing the problem in a different way, and with sympathy for those who fear that we may just further muddy already muddy waters by analyzing multifaceted issues in a dualistic framework, we will proceed according to the heuristic hypothesis that the contrast between Tough Love and Immutable Framework is illuminating and useful.
The World Bank, together with its
sibling, the International Monetary Fund, was born at Bretton Woods, New
Hampshire, in the second week of July of 1944.
It was born an orphan; its natural parents, the U.S. Department of the
Treasury and the British Exchequer, abandoned it immediately, insisting that
from the moment of its birth it be autonomous.
The closest thing it had to a moral compass was Article III, section 4
(vii) of its founding charter as stated in its Articles of Agreement, which
provided, "Loans made or guaranteed by the Bank shall, except in special
circumstances, be for specific projects of reconstruction or
development." Although
"World Bank" is its commonly used nickname, the official name given
to it at Bretton Woods was
"International Bank for Reconstruction and Development." Much turned on the word
"development," especially since the other alternative,
"reconstruction" ceased to be pursued a few years after World War II
was over. For what purpose there was
supposed to be "development" was not stated or known. The World Bank was born with no religion, no
cosmology, no philosophy, and no democratic process for validating its rules
and actions by the consent of the world's peoples.
Its early years were dominated by a
single imperative: to gain the confidence of Wall Street's institutional
investors. (Wealthy private individuals
have never been a significant source of funds for the World Bank.) To do anything, the Bank needed to raise
capital, and right after World War II there was only one significant capital
market in the world, the United States capital market. The people in that market to whom the Bank
had to sell itself were directors of life insurance companies, directors of
mutual savings banks, trustees of large charities, trust companies, trustees of
educational institutions, and the state legislators in the several states who determined
which securities were eligible for purchase by managers holdings funds in a
fiduciary capacity. Most of them had
been stung before. In the 1920s
Americans had bought large quantities of foreign bonds, only to see many of
them go into default in the 1930s. Now,
beginning in the 1940s, the World Bank was offering them a new deal that was a
sweet deal: supposedly no-risk bonds, guaranteed by the capital subscriptions
and the credit of the governments which had signed the Articles of Agreement of
the World Bank. Only the United States
government guarantee was considered to be worth anything, and after Franklin
Roosevelt's holiday on foreclosures and other populist shenanigans, even the
U.S. guarantee was imperfect.
Thus the World
Bank, regardless of what it might mean to be a "development bank"
with the welfare of the world's peoples somehow at heart (as distinct from just
being a plain bank) believed that it had to start by gaining the confidence of
American institutional investors.
In this atmosphere, the provisions
of the United Nations charter, which provided that the Bank would be a
specialized agency of the United Nations responsible to the General Assembly,
quickly became dead letters. The Bank
had to be an autonomous agency, above politics, above international law as
expressed in the UN Charter, above democracy, above morals, above love, above
God, above reason, above ecology, above sentiment, above humanitarian
ideals--for the sake of one high standard at least temporarily more important than
all else: to assure trustees and directors in charge of investing other
people's money that the funds advanced to the Bank would be repaid, on time,
and with interest. That capitalism was
immutable, that no government and especially no revolutionary or reformist
third world government had any right to change it, that it was answerable to no
authority higher than its own rules, was not deduced from philosophy or
theology. The Immutable Framework
Worldview appeared at the time to be an obligatory ideology, imposed by facts,
since it appeared that if the Bank could not gain the confidence of investors,
it could not do anything else.
The period dominated by establishing the credibility of the
Bank as a borrower coincided roughly with the period when the Bank made
reconstruction loans to Western Europe.
Thereafter, in the early 1950s, the Bank began what would prove to be
its main activity: making development loans in the impoverished nations of the
third world. Humanitarians in and
around the Bank clung to the word "development" because it was the
only major value-laden word that suggested normative standards, including some
sort of concern with meeting the needs of people. The alternatives to "development" were value-laden
words like "sound," "competent," and
"creditworthy" that suggested approving only low-risk loan
applications, and then efficiently collecting principal and interest payments,
with no goal more heroic than milking the third world to produce a steady flow
of unearned income to bondholders.
Similarly, humanitarians often clung to the twin disciplines of
competitive markets and technical rate-of-return calculations because the alternatives
were corruption, sloth, and nepotism.
Any port in a storm.
In spite of the role that the idea
of "being a development bank" played in keeping alive the idea that
the Bank had some sort of mission to alleviate the plight of the world's poor
in some way, the idea of "development," especially as the Bank
interpreted it in its early years, was an inherently dysfunctional
concept. The Colombian scholar Arturo
Escobar (1995), in his book Encountering
Development, has admirably charted the rise of development ideology after
World War II under the aegis of agencies like the World Bank. His excellent account is enriched by his own
experience as a participant in dysfunctional efforts to "develop"
Colombia. Without presuming to add
anything to Escobar's account, we will make three brief points about what is
wrong with the very idea of "development."
First, with respect to the role of
"development" as a concept organizing the space of the world,
"development" divides the globe geographically into two parts: the
"developed" countries, and the others, which are classified as
"underdeveloped" or "developing." This way of organizing space overlooks and obscures the more
important division of humanity between the rich, whose needs are met, and the
poor, whose needs are not met. Rich and
poor are found in every country.
Second, with respect to the role of
"development" as a concept organizing time, the very idea postulates
that the "developing" countries are moving from a past in which human
needs were not met, toward a developed future in which human needs will be met.[4] The images of a "developed"
society that typify the end goal to which "development" is supposed
to lead have been drawn mainly from the social democracies. As we have shown in detail in the four
chapters on Sweden, however, although it is possible under exceptional
circumstances to pay for a welfare state with revenues derived from export-led
growth, it is not possible for all countries simultaneously to be
"developed," in this sense (i.e., the sense in which Sweden and others
typify "development"). The
constitutive rules of capitalism imply that the future promised to
"developing" countries by the concept of "development" is a
utopia that will never come.
Third, with respect to the role of
"development" as a concept identifying the causes and dynamic forces
which have led to the relative prosperity of the first world, and which
supposedly could, in principle, lead to a similar prosperity of the third
world, World Bank ideas of "development" center on the Bank's role in
contributing to meeting the "capital needs" of developing
countries. The Bank
"finances" development, as one might "finance" a business
to enable it to invest and thereafter to turn the investment into a profitable
enterprise. Development is conceived as
economic growth, which means capital accumulation--not to be sure, simply as
accumulating money, but as accumulating physically usable capital goods. This view of historical causality overlooks
and obscures the fact that insofar as the working classes of the social democracies
achieved high wages, health benefits, pensions, and safe working conditions,
their success was not caused by unfettered capital accumulation, but by a
prolonged struggle by the democratic elements of society to win a larger share
of the social product for the people.
The very idea of "development" as the World Bank has employed
the term, connotes a kind of capital accumulation in the third world that
organized labor did not let capital get away with in the first world.[5]
The inherently dysfunctional
categories for thought provided by mainstream ideas of "development"
have led humanitarians to improve the concept by advocating revisions such as
integrated development, balanced development, integral development,
constructive development, and sustainable development.[6] Others, such as the Peruvian theologian
Gustavo Gutierrez (1973), have argued that people of good will should not speak
of "development" at all but instead of "liberation.” We are introducing into these terminological
debates another way to distinguish a better from a worse category of thought,
which is to contrast a narrow logic of exchange with a broad logic of
love. The narrow worldview we are
calling Immutable Framework, and the broad worldview Tough Love.
We are proposing as an alternative
to the categories derived from the logic of exchange and accumulation that are
embedded in mainstream ideas of "development," categories derived
from what Gandhi called “the law of love.”
We will suggest that over time, and in the light of experience, the
World Bank, and the international community generally, have been moving toward
a love ethic. Our proposal draws on an
idea expressed by Martin Luther King Jr. in his doctoral dissertation: Justice
has no ontological reality independent of love. “Justice is dependent on love.
It is a part of love’s activity” (1955: 147).[7] It is not that there are no rules of
justice--for example, the rule so important to the logic of exchange and so
important to the Bank that debts ought to be paid--but that those rules are
meant to serve a higher purpose. We are
supporting the idea of caritas as the
general form of the virtues that should guide life that was systematically
developed by St. Thomas Aquinas in the Middle Ages.[8]
But before developing further the idea of
the logic of love as an alternative to, or more comprehensive form of, the idea
of development, it is necessary to say a few words about the ambiguous status
of humanitarian ideals in the early history of the Bank. We have analyzed the Bank's idea of
"development" as dysfunctional in the light of the presumed purpose
of eliminating poverty, but it is by no means clear that the Bank in its early
days had any such purpose.
The early memoranda by Harry Dexter
White, the United States Treasury Department official whose proposals
eventually took the form of the Articles of Agreement that chartered the World
Bank, do not say anything about great humanitarian ideals. The problem as White saw it was that normal
commerce had been disrupted by World War II, and even before World War II
normal commerce had been disrupted by defaults and nationalizations that made
investors in the rich countries unwilling to risk their capital in the poor
countries. White's proposal for a World
Bank was a scheme for shoring up capitalist normality (Mason and Asher 1973:
13-16, 20-21).[9] John Maynard Keynes, who chaired the
committee at Bretton Woods that prepared and presented the final draft of the
Articles of Agreement, stated that a principal function of the Bank would be to
develop the productive capacities of the world (Mason and Asher 1973:
1-2). He may have intended to imply
that increased productive capacity would in itself relieve the suffering of the
poor, in which case what he intended to imply was false. Or he may have had in mind that parallel to
the Bank's work in financing the increase of productive capacity there would be
the sort of Keynesian macromanaging of the economy that would feature raising
wages to create more aggregate demand for industry's products.[10] It is true that the speech of U.S. Treasury
Secretary Henry Morgenthau at Bretton Woods spoke in glowing terms of the
benefits to humanity to be expected from the IMF and World Bank (Dormael 1978:
172-73), but it remained unclear whether this meant that eliminating poverty
was to be in itself an explicit goal of the Bank’s operations, or simply a
consequence attributed by mainstream economic theory to the normal processes of
capital accumulation.
In the early years of the World Bank (until Robert
McNamara's speech as its president in Nairobi in 1973), it remained ambiguous
whether contributing to ending poverty was the Bank's goal, and whether it
would measure its success by what it did to end poverty. During thirteen of its early years the Bank's
President was Eugene Black. He was
credited with having done more than anyone else to make the Bank credible as an
issuer of bonds on Wall Street--where he
himself had
worked for Chase Bank before he moved from New York to Washington to join the
World Bank. Black said that the Bank
was setting out to prove to the world that private enterprise works (Mason and
Asher 1973: 62). Perhaps he meant that
the once-profitable business of private investment in the third world could be
revived with the help of World Bank loans guaranteed by the commitments of
first world governments to make their taxpayers cover any defaults. But perhaps he meant instead, or also, that
private enterprise would solve the problems of the poor by creating general
abundance in which the poor would share.
Suppose we wipe the slate clean,
state frankly and unambiguously that eliminating poverty and meeting human
needs is our goal, and forget, at least temporarily, the whole idea of
"development." One of the
first things we will notice if we mingle with the impoverished masses of the
world and observe their lives, is that the logic of exchange is not working for
them. They do not have enough
money. They do not have enough to sell,
either as services or as goods, to get enough money. Unable to meet their needs relying only on Adam Smith's famous
"natural tendency to truck or barter," they are finding other ways to
pursue happiness.
Some of the alternatives to the logic
of commodity exchange are versions of the logic of love, and some are not. Millions are turning to fundamentalist
religions, finding that pre-modern rules for living grounded in precepts such
as those of the Holy Koran work for them.
They give their lives meaning and hold together the families and clans
on which they depend for mutual aid.
Millions are turning to crime, finding that what they cannot get on the
free market by voluntary exchange where buyer and seller consent, they can get
by involuntary exchange, enforced by violence or concealed by stealth. Large numbers, especially in Africa, have
turned to civil war as a way of life; even children arm themselves and live by
plunder in the service of a warlord or political cause. Millions more have turned to begging. What they cannot get by offering equivalent
value in return, they get by appealing to the hearts of passersby. Millions more live on relief supplies provided
by charitable organizations, while additional millions live on welfare payments
provided by governments. Millions more
scavenge on the streets, picking up and using the trash that others have
discarded. Millions more are in prison,
living at public expense as officially certified enemies of society--while
other millions also live at public expense as their guards. Many others in the ghettos of this world
elect to detach subjective reality from objective reality. Not being served by any of the cultural
logics humans have invented to make life work, they escape into altered states
of consciousness. Some drink themselves
to death, some hurl insane curses at imaginary interlocutors, some cling to a
studied apathy while they wait to die.
The evident inability of the logic
of exchange and of capital accumulation to provide the motivation and guidance
needed to meet the needs of the people of the world, does not imply that there
is no role for the logic of exchange.
Indeed, some of the most successful movements for alleviating poverty
have consisted of the imaginative use of the logic of exchange combined with a
healthy dose of the logic of love. For
example, love is built into the ideology of the Grameen Bank in Bangladesh,
which has been copied more or less faithfully in many countries. The Grameen Bank loans small sums to five-member
groups of poor people to empower them to make a living. Muhammad Yunus, the founder of Grameen Bank,
describes as follows part of the pre-loan training given to borrowers:
We
repeat the following advice many times to them so that they will remember it
when the occasion arises: “Please never get angry with the person who cannot
pay the installment. Please don't put
pressure on her to make her pay. Be a
good friend, don't turn into an enemy.
As a good friend, your first response should be, `Oh, my God, she is in
trouble, we must go and help her out.'”
We advise them, "First find
out the story behind the non-repayment.
From our experience we can tell you that most often there is a sad story
behind each case of non-repayment. When
you get the full story, you'll find out how stupid it would have been to twist
her arm to get the money. She can't pay
because her husband ran away with the money.
As a good friend your responsibility will be to go and find her husband
and bring him back, hopefully, with the money. It may also happen that your friend could not pay the
installments because the cow that she bought with the loan money died. As good friends, you should promptly stand
by her side, give her consolation and courage at this disaster. She is totally shaken by the shock of the
event. You should cheer her up and help
her to pull herself together. Ask
Grameen to give her another loan, and reschedule and convert the previous loan
into a long-term loan”(1994: xii).
Starting with the principle that
meeting needs is the goal, one can propose a logic of love as a viewpoint
including, but more comprehensive than, the early World Bank's concept of
"development." Three basic
tenets of a logic of love are the following:
Tenet 1. With respect to organizing the space of the world, it is
useful to think of the world as divided into "ghettos" and
"suburbs." By
"ghetto" we do not mean a racially or ethnically segregated area, but
a place where poor people live, such as the inner city of an American metropolis. The ghetto can be thought of as a place
where there is no major investment. It
is a low-profit high-risk area, and therefore not attractive to investors.[11] Consequently the people there must live in
some way other than by earning money through a job created by an investor--by
government subsidy, by crime, or in some other way. In this sense, most of Africa, most of the Middle East, most of
the former Soviet Union and Eastern Europe, much of Asia, much of Latin
America, as well as the inner cities of the United States are ghettos.
Tenet 2. With respect to
periodization, the way we conceptually organize time, history might be divided
into three periods: a pre-economic past, prior to the time when humanity
learned to benefit from the worldwide specialization of labor and the
coordination of the self-interested activities of millions of people through
markets; an economic present; and a post-economic future in which humanity does
not forget what it learned from economics but at the same time learns to
broaden the scope and variety of motivational and guidance systems used to
mobilize resources to meet needs.
Tenet 3. With respect to the dynamic principles of cause and effect
that operate in the world, the emphasis should be on the logics, the conventional
norms guiding practice, that govern institutions. Cultural structures are causes.
People have souls; they deliberate; they accompany and sometimes guide
their acting with thinking. For homo sapiens sapiens practice and
discourse are inseparable. Humans
follow, and sometimes violate, or renegotiate, social rules.
If we define the problem as how to
meet people’s needs, it is evident that the logic of exchange, a discourse and
a set of social rules which guides many practices today, solves only part of
the problem. It does not adequately
motivate people and guide people so that needs are met without damage to the
environment. Therefore, the dynamic
problem to be solved can be thought of as: 1) how to improve the functioning of
the logic of exchange, so that it works to meet the needs of more people; and
2) how to limit and complement the logic of exchange with other desirable
logics.
By and large and in the main, as
stated above, the World Bank has been guided by an ideal of
"development" conceived as "economic growth." It has evaluated the "performance"
of borrowing countries by indicators of growth. As a history of the Bank published by the Brookings Institution
states:
The
development indicators commonly taken into account in Bank analysis include
various measures of (a) the rate of growth of national and per capita income,
(b) rates of growth of factor inputs, particularly domestic savings rates and
public sector savings rates, (c) rates of growth of output and investment in
various sectors, (d) putative measures of efficiency of resource use, such as
sectoral and aggregate capital-output ratios, and (e) various measures of
external viability" (Mason and Asher 1973: 443).[12]
Nevertheless,
the history of the Bank’s development loans has been the history of a learning
process. The progress of the Bank’s
learning has been in the direction of a logic of love, although sometimes it
has taken one step forward and two steps back.
That history can be summarized as eleven somewhat overlapping stages.
The constitutive rules of modern
society provide that sales are consensual transactions between buyers and
sellers. They provide that owners may
and may not choose to let others use their property, and owners may and may not
dedicate their property to productive purposes. Owners of money may and may not decide to invest it, and if they
do invest, it is up to them to decide where.
There is no reason to suppose that in general there will be enough
investment to create enough jobs to pay the entire worldwide working class
adequate wages. Hence there is no
reason to suppose that the world’s poor will thus be enabled to engage in sales
transactions in which willing sellers will sell them the food, clothing,
housing, and medical care they need.
Although President Black wanted the
World Bank to prove that private enterprise works, its very existence was proof
that although private enterprise might work some places some of the time, it
does not work in all places all of the time.
The poor areas of the world, the areas Bank ideology calls “developing,”
and which our ideology calls “ghettos,” are low-profit high-risk areas for
investors. The probability that
investment funds will spontaneously flow into them in sufficient quantity to
employ all willing workers at wages sufficient to meet their basic needs is
zero. The reason why a
government-sponsored international development bank was proposed in the first
place was that private investors did not want to invest in the third world.
The Bank’s initial responses to
third world reality conceived of private investment as normal, and its own
activity as a government-sponsored facilitator of investment as abnormal. It was in the anomalous position of being a
public agency that (at first) only made loans to governments, which,
nevertheless, endorsed an ideology strongly supportive of private
enterprise. The Bank looked for ways to
help governments prime the pump for, or, to vary the metaphor, to jump-start,
the flow of private capital. Some
thought of the World Bank as a transitory institution, which would shut up shop
and dissolve itself when the world became normal, as was expected to happen
soon. It was reasoned that two things
were needed to jump-start private investment in the third world:
infrastructure, and government policies designed to create a favorable
investment climate. The Bank as a
lender started out making loans for infrastructure, for port facilities,
railways, and above all for electric power generation, mostly in Mexico,
Brazil, and India (Mason and Asher 1973: 160-61, 197, 233, 707, 715-16). The bank as an adviser encouraged
governments to make the “tough decisions” (i.e. low wages, low taxes,
unrestricted repatriation of profits) that would attract private
investors. The roles of lender and
adviser coalesced when the Bank insisted that the borrowing countries raise
prices. When persuasion proved to be
ineffective, the Bank began to condition its loans on “rate covenants”
requiring borrowing governments to charge higher fees for the use of port
facilities, higher railway fares, and higher electric rates (Ibid., 237-29). Since the loans were made to public
utilities that were monopolies, there was nothing the citizens could do but pay
the higher rates. The hands of their
own governments were tied by covenants with the force of international law.
In order to prove that private
enterprise worked the early loans were non-starters. What the Bank proved was that low-profit high-risk investments
can be turned into high-profit low-risk investments when an international
quasi-governmental agency (the World Bank) sells gilt-edged bonds through
Morgan Stanley and First Boston Corporation, and then uses the proceeds of bond
sales to make loans at close-to-commercial rates to third world utility
monopolies, whose rates are set by governments; and when the governments are
required to raise the rates. The Bank rationalized
this outcome by reasoning that sound business practice required a company to
charge enough for its products to acquire an adequate reserve to be sure its
debts would be paid, and to be sure it could retain enough earnings to finance
its own future expansion. Of course,
sound business practice, so defined, cannot be generalized. If all firms in Mexico, Brazil, and India,
had similarly raised their prices, the result would have been inflated prices
with nobody better off than before. The
effect of the World Bank’s rate covenants was that certain firms, the ones the
Bank lent to, were allowed and required to raise their prices, thus
guaranteeing high profits for a privileged sector and no risk for the buyers of
World Bank bonds.
The Bank never admitted that a large
part of the world is not a promising field for the establishment of profitable
businesses. Arturo Escobar illustrates
the Bank’s dysfunctional blindness in this respect with his thorough account of
the efforts of the Bank and associated agencies in Colombia, which never
acknowledged the basic fact that producing food to sell to people who have no
money is not profitable. Instead of
acknowledging the reality imposed by the very constitutive rules of modern
society, which is that the limited number of profitable businesses investors
will set up voluntarily is bound to be insufficient to produce and distribute
enough to meet everybody’s needs, the Bank interpreted the problem as a lack of
technical managerial skill in third world countries. The poor countries lacked the technical skills needed to prepare
loan applications to the Bank. They did
not know how to write business plans and how to project financial rates of
return (Escobar 1995: 73-85).[13] The Bank insisted that there was no lack of
funds for making loans. That part was
true. As long as it could sell
government-guaranteed bonds on the bond market, and as long as it could make
selective loans to carefully studied borrowers, and as long as it could require
governments to allow its borrowers to charge high prices for their products,
World Bank bonds would be blue chips.
Acting on the basis of what it
believed to be true, the Bank undertook to train potential third world
borrowers in the skills needed to make loan applications to itself. Soon it found itself reviewing for approval
loan applications where it had itself been involved in every phase of the
application process, starting with identifying promising projects, and
selecting which ones deserved priority (Escobar 1995:164-67). Since priority was determined largely by
calculating opportunity costs (i.e., by comparing how profitable the proposed
investment would be compared to other uses of the same money) the Bank had no
trouble equating what was good for its bondholders (i.e., being sure they would
be promptly repaid with interest), with what was good for the borrowing
country. As Escobar recounts, the third
world soon acquired a class of highly-paid technical experts in development,
whose role was to facilitate the funding of foreign aid projects financed by
the World Bank and other agencies. Some
of the most successful of them joined the headquarters staff of the World Bank
in Washington (Escobar 1995: 35-39, 44-47).
Expanded lending was accompanied by
the continuation and expansion of the World Bank’s role as adviser to third
world governments. Governments were
encouraged to adopt policies that would raise profits high enough to attract
private investment, both their own local domestic private investment and
international investment. They were
required to put in place whatever policies were called for in order to ensure
that Bank-financed projects would be profitable. The Bank was able to boast in its early years that it had
selected and planned its loans so carefully that it had never suffered a
default.[14]
Given the basic cultural structures
of the modern world, the expanded lending of the Bank and other agencies
working along similar lines, often in tandem with the Bank, could in the course
of time only lead where it did lead, namely: 1) to the rich getting richer,
while the poor on the whole stagnated or got poorer; 2) to the countries of the
third world assuming debt obligations which they could repay only at great
human sacrifice, or not at all; and 3) to the flooding of the first world by
cheap-labor goods from the newly industrialized third world, thus undermining
the relatively high wage and benefit levels in the first world that had been
achieved with so much pain and suffering during the previous century.
Although the United Nations had
effectively been barred from any decision-making role at the World Bank,
several United Nations agencies, and a number of third world countries using
the UN as a forum, notably India and Chile, doggedly insisted that there had to
be a serious global effort to end world poverty. It was obvious that the World Bank’s development loans at close
to commercial rates were not going to accomplish that goal. To make a clean break with poverty, there
had to be a clean break with the logic of exchange. The haves of the world had
to take responsibility for sharing and cooperating with the have-nots. A number of independent commissions, one of
them headed by the philanthropist and sometime New York governor Nelson
Rockefeller, came to the same conclusions.[15]
As a cumulative result of many
conscientious efforts, the World Bank opened its soft loan window in 1960. It is called the International Development
Association, but it has the same staff and same president as the Bank. The European contributors to the soft loan
fund were inclined to use the money to make grants
for development, not loans. In
deference to what was believed to be the attitude of the United States Congress
and the American people, however, it was decided that the new window would not
give money away, but would loan it on terms so favorable that the terms would
almost amount to gifts. The soft loan
window began making loans to be repaid in fifty years with no interest, with
only a small service charge, and sometimes with a long moratorium period with
no payments due at all. On the basis of
using a standard discount rate to calculate the present value of the stream of
payments that would flow back into the Bank to repay the soft loans, the soft
loans were often 80-percent to 90-percent gifts. Unlike the Bank’s hard loans, funds to make soft loans did not
come from selling bonds. The soft loan
funds have been donated by the governments of the rich countries of the world
(Payer 1982: 33; Mason and Asher 1973: 222). They are gifts from first world
taxpayers.
Another source of funds for soft
loans has been the World Bank itself.
Since the Bank charges higher rates of interest on its hard loans than
the rates it pays to its bondholders, the Bank has been a profitable
institution. Only so much can be spent
on the Bank’s own staff and on expanding its formidable research capabilities. When Poland withdrew from membership in the
World Bank, it took with it not only a withdrawal of its initial capital
subscription, but also its share of the profits the Bank had earned so
far. The Bank’s Governors and staff did
not want that to happen again the next time a country withdrew (Mason and Asher
1973: 120). A much better use for the
Bank’s profits, one much more consonant with its ideals, was to donate the
profits from the hard loan window to the soft loan window.
With regard to the Bank’s proud
track record of never having suffered a default on a loan, the soft loan window
opened just in the nick of time.
Already in 1960 India and Pakistan had borrowed more than they could
possibly repay. Their hungry masses were already groaning under the burden of
debt repayment. The soft loan window
quickly bailed out India and Pakistan, and thus, indirectly, bailed out the
hard loan window (Mason and Asher 1973: 399-403).
The soft
loan window is an ethical milestone. It
is a recognition that giving is a normal part of human life. It is a recognition that the needs of
everyone on the planet are not going to be met solely through any practice of
the logic of exchange, however sophisticated.
As the World Bank has handled it,
the soft loan window is an intelligent form of giving. A major objection to gifts sent to the third
world from the first world is that they have a “crowding out” effect. When free food from first world donors is
available, an unintended result can be that third world farmers lose customers.
Food that might have been grown locally is not grown; the farmers become
dispirited and dependent. An area that
might have produced its own food may become permanently dependent on free or
subsidized imports. A misguided version
of the logic of love crowds out the logic of exchange.
Intelligent giving requires
achieving a “crowding in” effect. The
objective is to meet more needs, not just to meet the same needs in a different
way. On the positive side of the ledger, the World Bank has been careful to use
soft funds in ways that complement hard funds to produce a higher total net
benefit. On the negative side of the
ledger, loan agreements, however generous, which tie third world borrowers to
the tutelage of the World Bank for fifty years, are less beneficial than forms
of aid that entail greater respect for the autonomy of the peoples of the third
world, and greater liberty for them to seek their own tutors in the marketplace
of ideas.
When the Philippines applied to the
soft loan window for funds to build roads, the World Bank turned it down. The reason for denying the soft loan was
that the Philippine economy at the time was growing fast enough to enable the
Philippines to make payments on a hard loan (Mason and Asher 1973: 400). Unlike the hard loan window, which always
has more funds to lend than it has qualified loan applicants, the soft loan
window has too little money to fund all the worthy projects brought to it. Therefore, the Philippines should apply for
a hard loan.
There was a catch. The Philippine government was not talking
about toll roads. They were proposing a
project that was not going to make any money.
It was going to provide needed infrastructure for the benefit of the people,
at government expense. Up until that
time, the Bank had lent money only for self-liquidating projects, for
enterprises that were expected to generate the profits from which repayment of
the loans would be made. It had not
made loans to be repaid from future tax revenues.
Considering the matter carefully, in
the light of its experience and its growing sense of itself as a benevolent
organization, the World Bank decided that it made no sense to fund non-profit
projects out of its soft loan window, and then to refuse to fund non-profit
projects out of the hard loan window for countries that were too rich to meet
the strict demands of the means-test used at the soft loan window. Since the early 1960s, the Bank has made
loans for social projects that do not generate any profits, including
population control projects, nutrition projects, many health sector loans in
cooperation with the World Health Organization, and many education loans in
cooperation with UNESCO.
In 1968 the World Bank passed
another milestone when it decided that it would no longer refuse to make loans
to support business enterprises located in the public sector. It soon found itself making the majority of
its loans to government-owned and autonomous public entities in the third
world.
The presence of the World Bank in
the public sector has been a mixed blessing.
It has tended to insist that public enterprises operate for profit the
same as private enterprises, thus nullifying the prospects for managing a
public enterprise to make it socially responsible with respect to a gamut of
objectives, among which earning a decent profit for its owner, the state, would
be only one. The Bank has also insisted
that government-owned recipients of its loans have independent boards of
directors, responsible to no political authority, and indeed, like the Bank
itself, not effectively responsible to anyone at all. The result has been to encourage independent economic
fiefdoms. They are clothed with public
authority. They often possess
monopolies, tax exemptions, and privileged access to natural resources. But they are not accountable to the people
directly or indirectly.[16]
Also, although the Bank has accepted public ownership as a legitimate form of ownership, it still favors private profit. It appears to take the view that private investment for profit is the norm, to be relied on wherever possible, and that public investment is an inferior form of investment to which recourse must be had when profits are too low, or the risks too great, to attract private capital. Thus the Bank has participated in, and has done little or nothing to discourage, partnerships of public and private capital in which public money has been used to make low-interest loans to projects whose profits go to private enterprises. The government puts up enough cheap public money to make the enterprise attractive to a private partner (see, e.g., Payer 1982: 135-56).
In its early days the Bank’s reviews
of loan applications concentrated on the financial rate of return. The leading question was whether the
borrower would make a large profit with the money borrowed. Later the Bank added to its loan approval
analysis the concept of “economic rate of return.” The question shifted from whether the particular project to be
funded would make money, to the question whether the loan would benefit the
economy as a whole.[17] The classic case in which the Bank saw a
major difference between the financial rate of return and the economic rate of
return was the case in which the borrower planned to make large profits in
a protected market.
Its earnings projections counted on selling its products not at world
market prices, but at higher prices created by protective tariffs and import
restrictions. In such cases, the Bank
reasoned, a particular proposed borrower would win, but the nation’s consumers
and the nation as a whole would lose.
Therefore, the loan application should not be approved (Mason and Asher
1973: 247-54).
Our opinion, on the contrary, is
that most nations most of the time are better off choosing greater national and
local self-reliance, even when it means making purchases at higher than world
market prices. Of course, our opinion does
not count for much compared to the World Bank’s opinion. We are, however, persuaded by Jürgen
Habermas (1996) and others who have advanced weighty arguments in favor of
democracy.[18] They imply that the decision concerning how
to handle the trade-off between the advantages of trusting one’s own resources
and the advantages of purchasing less expensive goods on the world market
should be made by the people of a nation, not by us, and not by the World Bank.
The principles of democracy, that
there should be government of, by, and for the people, are not arbitrary
principles. In addition to the weighty
arguments in their favor, there is the weighty experience of history, which
teaches that although democracies have many failings, and real democracies
always have more failings than ideal democracies, the alternatives are worse.
There should be open public debate on issues important to the people’s welfare,
such as how much to import and how much to produce at home. There should be transparent processes of policy
formation. We know that elites will
always govern one way or another, but we are nonetheless grateful, and we
believe everybody should be grateful, when elites are constrained by norms that
require them to obtain the consent of the governed in some form, when they are
in some way accountable to laws and to constituencies.
The idea of “economic rate of
return” is only meaningful, in the last analysis, if someone identifies what
outcomes are desired. If it is the
political will of a nation that what is desired is greater local self-reliance,
then an economic rate of return, properly calculated, will show that the nation
gains, and does not lose, when it becomes more self-sufficient. It is the considered judgment of many
thoughtful people in the third world, and often a majority opinion, that the
policies that would be in the best interests of their nation are not the
policies that the World Bank thinks are in the best interests of their nation.[19]
The general concept of considering
the good of the whole nation, as distinct from considering the expected
financial rate of return of a particular project, was a step forward for the
Bank. The principal application of the concept, which
consisted of substituting economic theories endorsed by the Bank for the
consent of the governed, was a step backward.
In 1973 the Bank passed another
ethical milestone. World Bank President
Robert McNamara declared: “We should strive to eradicate absolute poverty by
the end of this century. That means in
practice the elimination of malnutrition and illiteracy, the reduction of
infant mortality, and the raising of life-expectancy standards to those of the
developed nations” (McNamara 1981:
259).[20] Thus ended almost two decades of
uncertainty concerning the purpose of the Bank, as the Bank itself announced
the standard by which its performance should be judged.
McNamara’s clarification of the
Bank’s purpose came with an important admission. He admitted that he personally, and the World Bank in general,
did not know how to solve the problem of world poverty. His admission implied that economic growth
was not the solution to the problem of world poverty. The World Bank had identified its mission as “development,” and
it had identified development with economic growth. If economic growth were the solution to the problem of world
poverty, the World Bank would have known the solution all along. McNamara explicitly recognized the need to
redefine “development,” to make it more than just economic growth.
Under McNamara the Bank made
important commitments. If it did not
know how to end world poverty, it would use its formidable research
capabilities to find out. If economic
growth was not the answer, it would find out what was the answer and pursue
whatever that answer was. If the Bank
could not do it alone, it would partner with other agencies committed to the
same goal.
President Black, in 1962, had
declared that the only way the Bank was able to “get away with” what it was
doing was to put forward its economic calculations as “morally antiseptic,” as
if economic forecasts were, like weather forecasts, predictions of natural
events.[21] His wordview was that of the Immutable
Framework. President McNamara, in contrast,
in 1973 and many times afterward, spoke with the moral passion of a crusader
against poverty. In the end,
nevertheless, despite his good intentions, McNamara did more damage than Black.[22] By enormously expanding the Bank’s
activities, he made poverty worse.
Brian Rich, of the Environmental Defense Fund, explains why:
Although
population growth and poverty are often blamed for the growing masses of
uprooted people in the developing world, in many countries economic development
as it has been practiced is as much a cause of such poverty as a solution. . .
. A disproportionate number of these
“development refugees,” as anthropologist Thayer Scudder calls them, come from
the marginalized peoples of the earth: tribal and indigenous groups, the harijans (outcastes) in India, the
landless and homeless--all those who increasingly fall outside the mainstream
of the modern market economy. Jacques
Attali’s vision of a planet overrun by hordes of global nomads is no mere
nightmare, but one possible outcome of the historical project of Western
development (Rich 1994: 155-56).
Stage Eight refers not so much to a
step in the evolution of prevailing thinking at the World Bank (from the logic
of exchange to the logic of love), as to a step in the evolution of the
influence of the World Bank, as its model of thought became the accepted model
for the world finance community at large.
Starting from the early days when it undertook to train third world
technical experts in how to prepare loan applications, the Bank found that it
had a potent source of intellectual influence in its ability to combine
seminars with top-flight economists with the concrete rewards that went with
loan approval.
It later learned that it could do
more to induce thinking it regarded as sensible if it joined forces with other
aid agencies. Once a consortium of aid
agencies, all of them more or less committed to mainstream capitalist
economics, reached consensus on what was best for a third world nation, there
was little anybody could do to stop their intellectual consensus from becoming
policy. The nation itself usually had
little or no discretionary capital to invest, and was therefore inclined to
make its policies conform to advice that came with money. Private sector investors were generally
unwilling to move without guarantees from governments.
There were occasional breaks in the ranks, as when the
government of the Netherlands withdrew from the consortium which coordinated
development policy for Indonesia, because it could no longer stomach the human
rights abuses of General Suharto’s dictatorship.[23] By and large, however, cooperation among the
major players engaged in conceptualizing, funding, and guaranteeing third world
development has produced the closest thing to a de facto world government the
world has yet known. The de facto world government has been strengthened by
clauses in treaties associated with the World Trade Organization which
explicitly curtail the powers of national governments.
It was natural that the World Bank,
and to a lesser extent its sister institution the International Monetary Fund,
should become the intellectual leader of the international consensus of the
world’s major aid and finance institutions.
It was not because the World Bank put up the lion’s share of the funds
for most international projects.
Indeed, since the mid-1980s, private commercial bank loans, guaranteed
but not funded by governments, have become the major source of capital flows to
the third world. The World Bank has
taken the intellectual leading role because it has more information than anyone
else. Its highly profitable operations
have enabled it to hire a large research staff and to produce vast quantities
of high quality well documented publications.
Its practice of meticulously studying every loan application, every loan
applicant, and every national economy made it the brain of the global economy.
As the World Bank became the leading
intellectual center for the study of development, it also became home to a
number of diverse currents of thought within its own staff, as well as a venue
where visiting lecturers, often with views at odds with the Bank’s views, came
to participate in ongoing dialogues concerning development policy. Questions about the importance of family
planning to the future of Malaysia are hotly debated in the corridors of the
headquarters of the World Bank at 1818 H Street in Washington, D.C. These debates among people from diverse
regions of the world would set the stage for the World Bank to reach additional
ethical milestones as time went by.
In the historic race between
education and catastrophe, catastrophe pulled ahead in the 1980s, as it became
apparent that the nations of the third world could not repay their loans. As John Maynard Keynes had candidly
observed in 1944, speaking at the time mostly to deaf ears, the only way to
maintain most third world loans as performing loans was to roll them over at
maturity into new loans. Many nations
needed continuous injections of new loans in order to stay current on payments
on the old loans. These nations were, as
Cheryl Payer (1975) wrote and extensively documented, caught in a debt trap.[24] In the early 1980s, certain triggers
proximately caused first Mexico, and then other major borrowers, to threaten to
stop payments not just on World Bank loans but on foreign loans in general. The triggers were: 1) the second big OPEC
raising of oil prices in 1979; and 2) the decision of the United States Federal
Reserve Board to raise interest rates, which raised interest rates all over the
world. But these were only the
triggers: underlying the newly manifested economic problems was the fact that
Keynes had been basically correct in the first place.
In spite of the progress World Bank
thinking had made in discarding one by one the premises of the notion that the
logic of exchange, if only it is intelligently administered, will function to
meet the needs of the world’s people, it and the IMF were not ready to
admit--and perhaps could not admit--that their basic ideology, the Immutable
Framework posited by mainstream economics, was wrong. Instead of moving forward intellectually to acknowledge that doctrinaire
free market capitalism was irreconcilable with reality, the World Bank and IMF
moved backward to insist ever more strenuously that the nations of the third
world abide by the rules of games at which they could only lose. Like a prairie dog who hears a vehicle
coming down the road, instead of running out into the unknown for safety, they
sought safety by returning to the known.
The prairie dog, racing to its hole, must cross the road and risk
getting run over. The World Bank and
the IMF raced back to free market orthodoxy, which requires drastic cuts in the
living standards of the poor people of the world--the very people the Bank was
committed to lifting out of poverty.
It was at this point that the World
Bank, together with the IMF, became the world’s most hated institution. As a small sample of the vast literature
attacking the Bank, we will quote the following words written by Davison
Budhoo, an economist from the small third world nation of Grenada, who created
an international sensation when he resigned from the IMF staff in 1988 in
protest against what he called “its increasingly genocidal policies.” Budhoo writes:
1994 marks the fiftieth anniversary of the founding of the World Bank and the International Monetary Fund at Bretton Woods, New Hampshire.
But as the North congratulates itself and celebrates, the South and its three billion poor will tear out their hair in rage. For the operations of these agencies there have been catastrophic. Instead of development and favorable adjustment, the Third World today is in an accelerating spiral of economic and social decline. That decline is linked directly to the World Bank and the International Monetary Fund.
IMF-World Bank structural adjustment programs (SAPs) are designed to reduce consumption in developing countries and to redirect resources to manufacturing exports for the repayment of debt. This has caused overproduction of primary products and a precipitous fall in their prices. It has also led to the devastation of traditional agriculture and to the emergence of hordes of landless farmers in virtually every country in which the World Bank and IMF operate. Food security has dramatically declined in all Third World regions, but in Africa in particular. Growing dependence on food imports, which is the lot of sub-Saharan Africa, places these countries in an extremely vulnerable position. They simply do not have the foreign exchange to import enough food, given the fall in export prices and the need to repay debt.
Basic conditionalities of the IMF-World Bank include drastic cuts in social expenditures, especially health and education. According to the UN Commission for Africa, expenditures on health in IMF-World Bank programmed countries declined by 50 percent during the 1980s, and spending on education by 25 percent. Similar trends are evident in all Southern regions.
.
. . Using figures provided by the United Nations Childrens Fund (UNICEF) and
the UN Economic Commission for Africa, it has been estimated that at least six
million children under five years of age have died each year since 1982 in
Africa, Asia and Latin America because of the anti-people, even genocidal,
focus of IMF-World Bank SAPs (quoted in Danaher 1994: 20-21).
Budhoo and other critics of the World Bank often do not clearly state whether a cultural transformation from a narrow logic of exchange to a logic of love is needed to end world poverty. Sometimes they seem to say that the circle could be squared: that somehow production for profit could become production to meet needs if only the World Bank and the IMF did their jobs right, instead of doing them wrong. We would say--probably restating what Budhoo and others mean--that the structural adjustment catastrophes were not the result of the Bank’s incompetence. No bank has ever been more competent. They were the result of the general concept of trying to force third world countries to pay debts that could be paid only with tragic sacrifice, or could not be paid at all.[25] They were the result of the lack of an essential component of the logic of love, the logic of forgiveness.
As John Cobb Jr. has noted, it is a mistake to think that Structural Adjustment Policies were just policies the IMF and the Bank adopted at a certain point in history, because “the same policies follow from standard economic thinking in general” (1999: 93). It is the paradigm itself that is the problem, not the agency.
We would add,
further, that by the time catastrophe hit, the World Bank had already repented
of the idolatrous worship of the legal foundations of capitalism. It had already acknowledged that private
enterprise alone is not enough. It had
already accepted that the haves should share with the have-nots because of the
needs of the have-nots, and not because a market bargain could be struck
according to the logic of exchange. It
had already decided to count not-for-profit projects as equally meritorious
with for-profit projects. It already
recognized that the true bottom line is physically measured, by ecology and natural
science, and not measured in dollars or other artificial units established by
social convention. Under Robert
McNamara it had already adopted the philosophy that human economic
arrangements, and by extension the legal rules of property and contract, are
meant to serve a purpose, the purpose of mobilizing resources to meet the needs
of the needy. Therefore, by
implication, they ought to be modified as and when necessary in order better to
achieve their purpose. The Bank had already admitted that economic growth would
not solve the problem of poverty. If
the Bank in the 1980s had not learned enough to respond creatively and humanely
to the debt crisis, it was not because it was not learning anything; but rather
because in the face of crisis, the Bank panicked and momentarily tossed aside
its new knowledge, hurriedly retreating to older forms of “knowledge” that did
not in fact square with empirical reality.
Stage Ten: Cooperating
with Non-Governmental Organizations and with Stakeholders
Non-Governmental Organizations (NGOs) became more
significant as the debt crisis, brutally confronted with Structural Adjustment
Programs, worsened. Many of the NGOs
were church-related charitable agencies, which were left to pick up the pieces
of the lives of the poor when the public sector was forced to cut back services
because of conditions imposed on governments by the IMF and the World
Bank. The NGOs became, in many cases,
both the partners of the World Bank, because of necessity, and the critics of
the World Bank, because of conscience.
Already in 1982 the World Bank set up a special NGO-World Bank
coordinating committee.
As time went on
the NGOs began to hold their own international summits, at which they gradually
put together a series of socially-conscious alternatives to the Bank’s top-down
mainstream economism. They particularly
devoted themselves to confronting the Bank on its funding of huge mega-dam
projects, such as the Sarodar Dam Project in India, which wrought havoc with
the environment and flooded the former homes of 90,000 people, most of them
tribal (Magot 1994: 12). Dialogue with
outside critics from the NGOs became a principal source of transformative ideas
inside the Bank.[26] Some of these ideas flowed from the offices
of the Sustainable Development Division, which was established within the Bank
in 1991.
A 1996 World Bank publication stated: “While only six percent of all Bank-financed projects in the period 1973-1988 included provisions for some form of involvement by NGOs, NGOs were to be involved in about 30 percent of all bank-financed projects in FY 93, and between 40 and 50 percent of projects approved in FY94 and 95. . . . The Bank is striving to increase both the quantity and the quality of NGO involvement in Bank-financed projects” (Fumo 1996: 5).
In the same year, 1996, James D. Wolfensohn, who became President of the Bank in 1995, declared to the Bank’s Board of Governors:
The lesson is clear: for economic advance, you need social advance--and without social development, economic development cannot take root. For the Bank, this means that we need to make sure that the programs and projects we support have adequate social foundations:
--By designing more participatory country strategies and programs--reflecting discussions not only with governments but also with community groups, NGOs, and private businesses
--By putting more emphasis on social, cultural, and institutional issues, and their interplay with economic issues, in our project and analytical work
--By learning more about how the changing dynamics between public institutions, markets, and civil society affect social and economic development (Wolfensohn 1996).[27]
Environmentalist and communitarian professions of faith have proliferated at the Bank since the early 1990s. Paradoxically, now that neo-liberalism is becoming ever more dominant worldwide in practice, ecology and solidarity are becoming ever more popular in theory. The premises required to limit and complement the logic of exchange with other desirable logics have been proclaimed, and are available. Nevertheless, the Bank, along with the rest of the world’s major financial players, now more than ever takes as its primary operating rule the simple version of exchange logic that was articulated in 1994 by the Bank’s former chief economist Lawrence Summers when he declared his first principle to be: “Markets work. Capital responds to incentives” (Summers 1994: 4).
Stage Eleven:
Accepting the Inevitability of Massive Loan Defaults
In its early years the World Bank was run by people who were unreconstructed fundamentalists on the issue of debt repayment. Its loans were made to governments, and it would not loan to a government that was in default on any of its past debts. The Bank refused to make any loans to Guatemala, for example, until Guatemala satisfied debt obligations it had incurred in 1829. By the mid-20th century, of course, 1829 Guatemalan government bonds were collector’s items. They had already passed through the hands of a series of speculators who had bought them up at small fractions of their face values.
What the Bank demanded, as a condition of making new loans to countries that had defaulted in the past, was not full payment of the old loan with accumulated interest. It demanded making a settlement with the bondholders. The bondholders were willing to compromise. After all, they had thought they were holding worthless pieces of paper until they learned that the economic muscle of the World Bank was on their side.
Through the end of the 1970s the Bank maintained that it had not only persuaded third world countries to cure their old defaults, but also that it had itself never suffered any defaults on its new loans. The latter was a fiction, as noted above, because the Bank used soft loans to bail out hard loans. It was an obligatory fiction for those who dealt with the Bank. Like a hospitalized psychotic who succeeds in making others on the ward buy into his or her way of looking at the world, the Bank succeeded in creating a socially constructed reality in which nobody defaulted. It stood foursquare and blind for the principle that loans are always repaid--in a world where insolvency and bankruptcy were already standard parts of the professional practice of the average accountant and average lawyer, in a world where non-performing loans were part of the daily experience of ordinary bankers, in a world where the tax laws of every nation allowed lenders to write off debts that would never be paid.
During the 1980s and 1990s the fiction was gradually abandoned. In 1981 alone thirteen Bank loans had to be rescheduled to permit repayment on easier terms. The World Bank participated along with other major lenders in rewriting third world debt, sometimes on soft terms, sometimes with debt cancellation. Social change activists took up the cause of debt relief. They advocated the release of the third world from debt bondage, as three centuries earlier English debtors had been released from prison after Parliament passed the first Bankruptcy Act. The Vatican declared the year 2000 to be a Year of Jubilee. The Pope reminded the world that according to the Old Testament, the ancient Hebrews periodically declared a Year of Jubilee in which all debts were forgiven.[28]
As this is written, in 2002, the World Bank and the IMF appear to be accepting the inevitability of massive defaults. They appear to be drawing the wise conclusion that the smooth functioning of the global economy requires an orderly process for handling the bankruptcies of nations that should no longer be required to pay their debts. They should be forgiven, and helped to get off to a good fresh start.
A Higher Form of
Pragmatism
The incomplete moral evolution of the World Bank, which we have just briefly interpreted and summarized as taking place in eleven stages, gives a new meaning to the word “pragmatism.” “Pragmatism” as a philosophy was articulated by the American philosopher C.S. Peirce in 1878 in the following terms: “Consider what effects, that might conceivably have practical bearings, we conceive the object of our conception to have. Then, our conception of these effects is the whole of our conception of the object” (Peirce quoted in Cahoone 1996: 150). William James picked up Peirce’s idea twenty years later, named it “pragmatism,” and took a somewhat different view. James’s philosophy of “pragmatism” made the true a species of the good. James writes, “The true is the name of whatever proves itself to be good in the way of belief, and good, too, for definite, assignable reasons” (1948: 155).
The term “pragmatism” in development economics has been associated with following eclectic policies, doing “what works.” This has meant, for the most part, accepting the fact that in the world as it exists, measures must be taken to make a country attractive to investors. It means accepting the fact that since the logic of exchange dominates the world, decisions must be made according to the logic of exchange. Singapore is an authoritarian welfare state which calls itself a social democracy, and which attributes its success to “pragmatism.” Two observers of Singapore’s economic miracle wrote of the ideology of that country’s political elite: “[P]ragmatism has become equated with rationality. If it works, use it; if it doesn’t work, discard it and try one of the alternatives” (Milne and Mauzy 1990: 114).
The principles that limit and complement the logic of exchange, which the World Bank has adopted, and to some extent practiced, give a new meaning to the word “pragmatism.” Whereas in development circles, “pragmatism” has meant doing what the logic of exchange requires, now it can mean modifying the logic of exchange in order to do “what works” in a larger sense--“what really works.”[29] “Pragmatism” can mean doing whatever works to meet needs and to eliminate poverty. It can mean moving beyond the Immutable Framework, and working pragmatically with a moving and evolving Mutable Framework.
The pragmatism, in this broad sense, sometimes shown by the World Bank--in response to many pressures, in the light of many experiences, after too many all-too-avoidable catastrophes--contributes to answering the question posed at the beginning of this chapter. The principles of capitalism (which are the principles of common sense of the modern world, and which are the principles framing modern legal systems) are best conceived as intended to be principles of Tough Love. The other alternative posed above--that they are simply facts about the way things are, natural and immutable, cruel fate--does not square with the evolving practice of the World Bank. At its inception the Bank was an institutional citadel of doctrinaire free market ideology. It has not changed because of its own inherent biases, but because reality made it change. Its institutional evolution has dismantled the Immutable logic of exchange and accumulation Framework it began with. If the claim that the commodity exchange as a way of life is obligatory for human beings was ever believable, it is not believable now. Its most powerful and most influential believer has recanted, principle by principle, step by step.
For the purpose of carrying out the good intentions we should ascribe to it, capitalism should evolve in the direction of social democracy. With respect to whether what should happen will happen, the history of the World Bank provides qualified good news. The principles required to move from a narrow logic of exchange to a broad logic of love have been articulated. They have been officially endorsed, and are now legitimate.[30] They license NGOs and people of good will generally to criticize economic actors in public and private fora. They can be used to drive home the truth that the World Bank and other major players on the world economic scene are not living up to ideals they publicly profess. Although the logic of love is not, for the most part, operational, the news is still qualified good news. It is better for the Tough Love Worldview to be non-operational and legitimate, than for it to be non-operational and illegitimate.
Notes
[1] The work of architect William McDonough and chemist Michael Braungart should assure the reader that the historical moment of which Fuller spoke in 1969 has not definitively passed and that even with the population growth of the last thirty years, human creativity still has much to contribute to improving living standards in responsible and sustainable ways the world over. See William McDonough and Michael Braungart, From Cradle to Cradle: Remaking the Way We Make Things (San Francisco: Northpoint Press, 2002). McDonough insists upon “changing the story”—or cultural codes—in order to resolve many of the problems in today’s world. As an architect and an advocate of democratic design, he suggests that we practice the intellectual exercise of imagining ourselves (as indeed we are) as designers of the world; then to ask ourselves what are the steps we would take to design by intention a world with the degree of alienation we experience in our current world. Doing so, he believes, can help us to imagine the precise nature of the steps needed to construct a more loving and viable world.
[2] We agree with legal theorist Seyla Benhabib, who writes that because “communities tend to constitute themselves by excluding difference, the task of a philosophical politics is to conceptualize new forms of association which let the different appear in their midst.” Seyla Benhabib, “Democracy and Difference: Reflections on Rationality, Democracy, and Postmodernism,” unpublished manuscript, 1994, 30, quoted in Cowie (1999), 194. See also Nicola Lacey, “Community in Legal Theory: Idea, Ideal, or Ideology?” Studies in Law, Politics, and Society, Vol. 15 (1995), 105-46.
[3] Any reader who does not understand this assessment, or who thinks it has been proven false by the success in eliminating poverty of Sweden and other social democracies of Western Europe, should go back to Chapter One and start over.
[4] The classic articulation of the concept of “development” as a certain standard of living that any nation-state can achieve if only it follows the prescriptions derived from studying the economic histories of the North Atlantic nation-states is Walt Whitman Rostow’s The Stages of Economic Growth: A Noncommunist Manifesto, 3rd edition (New York: Cambridge University Press, 1990). Immanuel Wallerstein’s world-systems analysis offers a concise rebuttal of the tenets underlying the concept of development presented by Rostow and other development economists. See “Development: Lodestar or Illusion?” in Immanuel Wallerstein, Unthinking Social Science: The Limits of Nineteenth-Century Paradigms (Cambridge: Polity Press, 1991), 104-24. For an expansive historical treatment of the institution of structural inequalities—the constitutive rules of capitalism—that mitigate against the possibility of following Rostow’s development prescriptions with the success he implicitly promises, see Immanuel Wallerstein, The Modern World System, 3 vols. (San Diego: Academic Press, Inc., 1989).
[5] See Deepak Lal, “The Misconceptions of ‘Development Economics,’” Finance and Development, Vol. 22 (June 1985), 10-13; G.D. de Bernis, “Development or Pauperization,” in Paul Mark-Henry, ed., Poverty, Progress, and Development (London: Kegan Paul, 1991), 86 ff. There is an extensive literature documenting the history of resistance to unfettered capital accumulation by the working class in the first world. For an historical treatment of this process in the United States, and of how gains made by the working class were gradually incorporated into government policies, see, e.g., Herbert G. Gutman, Work, Culture & Society in Industrializing America: Essays in American Working-Class and Social History (New York: Vintage Books, 1977); David Brody, Workers in Industrial America: Essays on the 20th Century Struggle (New York and Oxford: Oxford University Press, 1980); Christopher L. Tomlins, The State and the Unions: Labor Relations, Law, and the Organized Labor Movement in America, 1880-1960 (Cambridge; London; New York; New Rochelle; Melbourne; Sydney: Cambridge University Press, 1985); David Montgomery, The Fall of the House of Labor: The workplace, the state, and American labor activism, 1865-1925 (Cambridge: Cambridge University Press, 1987); Gary Gerstle, Working-class Americanism: The politics of labor in a textile city, 1914-1960 (Cambridge; New York; Port Chester; Melbourne; Sydney: Cambridge University Press, 1989); Alan Dawley, “Workers, Capital, and the State in the Twentieth Century,” in J. Carroll Moody and Alice Kessler-Harris, eds., Perspectives on American Labor History: The Problems of Synthesis (DeKalb: Northern Illinois University Press, 1989); Lizabeth Cohen, Making a New Deal: Industrial Workers in Chicago, 1919-1939 (Cambridge; New York; Port Chester; Melbourne; Sydney: Cambridge University Press, 1990); David Brody, In Labor’s Cause: Main Themes on the History of the American Worker (New York and Oxford: Oxford University Press, 1993); Melvyn Dubofsky, The State and Labor in Modern America (Chapel Hill and London: The University of North Carolina Press, 1994); and Kevin Kenny, Making Sense of the Molly Maguires (New York and Oxford: Oxford University Press, 1998).
[6] The critiques of the concept of “development” are quite varied and too numerous to name. The writing of Gary Gereffi offers an example of a critique that does not depart substantially from the tradition of developmentalist theory but seeks to broaden it. Gereffi notes the very limited conceptions of “development” that have arisen from generalizing based on analyses narrowly focused at the national level. He calls for an integration of the global, national, and local levels of analysis and states that such integrated analysis will necessarily indicate a number of alternative paths toward national development. Gary Gereffi, “Rethinking Development Theory: Insights from East Asia and Latin America,” in A. Douglas Kincaid and Alejandro Portes, eds., Comparative National Development: Society and Economy in the New Global Order (Chapel Hill and London: The University of North Carolina Press, 1994), 26-56. For one of the earliest calls for a radical redefinition of “development,” see Galtung (1980), especially 55-65, 149-68. In Galtung’s redefinition, “development” means the realization of ten normative goals: personal growth, socioeconomic growth, equity, solidarity, diversity, equality, autonomy, participation, social justice, and ecological balance. For more recent, post-Cold War radical reformulations of “development,” see Herman E. Daly, Beyond Growth: The Economics of Sustainable Development (Boston: Beacon, 1996); and Brian Milani, Designing the Green Economy: The Postindustrial Alternative to Corporate Globalization (Lanham, MD; Boulder; New York; and Oxford: Rowman & Littlefield Publishers, Inc., 2000). As for the concept of “sustainable development,” the first use of this term by an international institution was in 1972 at the United Nations conference in Stockholm. The term gained wide acceptance in government and NGO circles alike following its endorsement by the World Commission on Environment and Development (WCED) in 1987. For a comprehensive overview of the debate surrounding “sustainable development” during this initial period of the term’s widespread use, see Michael Redclift, Sustainable Development: Examining the Contradictions (London: Metheun & Co., 1987). For the state of the debate on this term in the present moment, see Neil Middleton and Phil O’Keefe, Redefining Sustainable Development (London: Pluto Press, 2001). The authors put forth a critique of the concept similar to critiques of “development” put forth by Galtung and others. They argue, furthermore, that the dominant discourse of “sustainable development” merely contributes to the perpetuation of capitalism and that it is therefore, in the final analysis, entirely detrimental. We respectfully disagree with this assessment, on the basis that seemingly small changes in the dominant cultural codes—in this case the specific code of “developmentalism”—have the capacity to engender deeper and more meaningful (and therefore enduring) systemic changes.
[7] King drew on the ideas expressed in Paul Tillich, Love, Power, and Justice (New York: Oxford University Press, 1960). See also Martin Luther King, Jr., Where Do We Go From Here: Chaos or Community? (New York: Harper and Row, 1967).
[8] The general structure of the second part of the second part of Aquinas’ Summa Theologiae (the part on moral theology) makes caritas (“love” or “charity”) a consequence of faith and justice a consequence of caritas. Justice, in turn, provides the outline for rights and laws. Both justice and love are described as, in a sense, synonymous with virtue in general. “For as charity (caritas) may be called a general virtue because it sets the activities of all the virtues toward the divine good, so it is with legal or general justice which sets them toward the common good.” St. Thomas Aquinas, Summa Theologiae (London: Blackfriars, 1975), Vol. 37, 37 (2a 2ae 58, 6). “It must be said that charity is the form, mover, and the root of the virtues.” St. Thomas Aquinas, St. Thomas Aquinas on Charity (Milwaukee: Marquette University Press, 1960), 35.
[9] White’s introduction to his “Proposal for a United Nations Stabilization Fund and a Bank for Reconstruction and Development of the United and Associated Nations,” issued in April 1942, reads in part: “No matter how long the war lasts nor how it is won, we shall be faced with three inescapable problems: to prevent the disruption of foreign exchanges and the collapse of monetary and credit systems; to assure the restoration of foreign trade; and to supply the huge volume of capital that will be needed virtually throughout the world for reconstruction, for relief, and for economic recovery. Clearly the task can be successfully handled only through international action.” Quoted in Mason and Asher 1973, 15.
[10] For an historical treatment of the development of the ideas of John Maynard Keynes with regard to national macroeconomic policy in an increasingly volatile world economy, see Robert Skidelsky, John Maynard Keynes, Vol. 2: The Economist as Saviour, 1920-1939 (London: Macmillan, 1992).
[11] We extend our gratitude to our colleague Jonathan Diskin, professor of economics at Earlham College, for offering this definition of “ghetto.” Diskin’s conception of the ghetto, in turn, draws upon the works of several authors. See, e.g., David Rusk, Inside Game/Outside Game: Winning Strategies for Saving Urban America (Washington, D.C.: The Brookings Institution, 1999); William Julius Wilson, When Work Disappears: The World of the New Urban Poor (New York: Knopf, 1996); Richard D. Bingham, ed., Managing Local Government: Public Administration in Practice (Newbury Park, CA: Sage Publications, 1991); and W. Dennis Keating, “The Dilemma of Old Urban Neighborhoods,” Washington University Journal of Law and Policy 3 (2000): 699-708. See also Jane Jacobs, The Death and Life of Great American Cities (New York: Random House, 1961) and Mike Davis, City of Quartz: Excavating the Future in Los Angeles (New York: Vintage Books, 1992), on alienating and de-alienating urban designs.
[12] "External viability" basically refers to whether the country can pay its foreign debts.
[13] Escobar documents the process of “infantilization” of the third world carried out by the early development economists, which is especially clear in their prescriptions concerning technology. With regard to the literature written by development economists promoting the so-called “Green Revolution,” for example, Escobar notes that it was “full of cultural assumptions regarding science, progress, and the economy, in which one can discern the authorial stances of a father/savior talking with selfless condescension to the child/native” (1995: 159). See also pages 29-30.
[14] The World Bank publicly continued to maintain the fiction of its default-free record long past the time when it ceased to be true. In 1978, a spokesperson for the World Bank commented: “We have not had any losses on loans. We have never had a write-off of a loan. We have never had a nonaccruing loan. We have a firm policy against debt rescheduling. We do not tolerate late payments. There are substantial pragmatic reasons why borrowers do not default on World Bank loans. In the event of a default, no further disbursement would be made on that loan or any other loan we had outstanding in the country. . . . Borrowers know our policies in this regard, and given the substantial amount of our undisbursed loans, I suggest they would be extremely reluctant to take steps to jeopardize the transfer of future resources” (quoted in Payer 1982: 46). Payer goes on to demonstrate the hyperbole of this statement. Our discussion of the World Bank’s “soft loan window” further demonstrates the statement’s inaccuracy.
[15] The commission headed by Rockefeller, the U.S. International Development Advisory Board, issued a report in March 1951 that called for the creation of an international finance corporation, which would be an affiliate of the World Bank, with the authority to make loans to private enterprise “without the requirement of government guarantees” (Mason and Asher 1973: 347). This commission found that there were “many projects of basic importance to the development of underdeveloped countries that cannot be financed entirely on a loan basis’” (quoted in Ibid., 384).
[16] One example of the World Bank’s lack of accountability comes from Brazil, one of the places the World Bank got involved in very early in its history. Fátima Vianna Mello writes: “[T]he World Bank invested more than US $500 million over the course of the 1980s to support the Brazilian government’s Polonoroeste project in Rondonia, which has been called the greatest ecological disaster ever funded by the Bank. This megaproject was supposed to rationalize the colonization [i.e., settlement] process, provide local infrastructure, and protect indigenous areas in the Amazon. Hundreds of indigenous peoples, rural workers and rubber-tappers were expelled from their lands after a road to the interior was paved, yet they had no say in the project’s design at all. Acknowledging its part in that debacle, the Bank is now investing US $167 million in a new project called Planafloro, which is supposed to reflect a more sustainable approach to development in the area affected by the previous project. Although good in intention, Planafloro was not designed with the involvement of local communities either. The Bank only initiated the process of consultation after being pressured by Northern environmental groups.” Fátima Vianna Mello, “Making the World Bank More Accountable: Activism in the South,” NACLA Report on the Americas, Vol. XXIX, No. 6 (May-June 1996), 20. On the Polonoroeste project, see also Payer (1982), 345-51. One of the best known cases of transnational financial institutions allowing the development of private economic fiefdoms in borrower nations is the case of IMF involvement in Zaire/Congo during the increasingly dictatorial regime of Mobutu Sese Seko. This case is well documented in Michela Wrong, In the Footsteps of Mr. Kurtz: Living on the Brink of Disaster in Mobutu’s Congo (New York: HarperCollins, 2001). See especially pages 195-215.
[17] Making decisions for the good of the whole as distinct from maximizing benefit to some person or entity is related to topics discussed under the headings of public goods, or making public decisions. See, e.g. Inge Kaul, Isabelle Grunberg, and Marc Stern, eds., Global Public Goods: Global Cooperation in the 21st Century (New York and Oxford: Oxford University Press (published for UNDP), 1999); and John Dryzek, Rational Ecology {FULL CITE} Such discussions usually make a stated or unstated assumption that the constitutive rules of capitalism are in place and are not going to be modified.
[18] Habermas offers the locus classicus of philosophical arguments in favor of democracy in Between Facts and Norms: Contributions to a Discourse Theory of Law and Democracy (Cambridge, MA: MIT Press, 1996). Others who advocate democracy proffer arguments ranging from that which holds that “democracy” or the liberal nation-state is the best guarantor of a stable and peaceful world to a philosophy of radical egalitarianism to arguments concerning the devastating material consequences that occur when democracy is betrayed or otherwise deterred. See Immanuel Kant, Perpetual Peace (New York: Columbia University Press, 1939); Antonio Gramsci, Selections from the Prison Notebooks, transl. by Quintin Hoare and Geoffrey Nowell Smith (New York: International Publishers, 1971); Chantal Mouffe, ed., Dimensions of Radical Democracy: Pluralism, Citizenship, Community (London: Verso, 1992); William K. Greider, Who Will Tell the People: The Betrayal of American Democracy (New York: Touchstone Books, 1993; and Noam Chomsky, Deterring Democracy (London: Verso, 1991).
[19] The literature criticizing World Bank and International Monetary Fund policies that has been produced by people who are originally from third world countries or who have spent a good deal of their professional lives in third world countries is an extensive literature that has been growing exponentially since the mid-1990s. A good starting point for the reader interested in third world critiques of these international institutions would be the following works: Arjun Makhijani, From Global Capitalism to Economic Justice (London: Zed Books, 1991); Peter Gibbon, Yusuf Bangura, and Arve Ofstad, Authoritarianism, Democracy, and Adjustment: The Politics of Economic Reform in Africa (Uppsala: Scandinavian Institute of African Studies, 1992); Bright Erakpoweri Okogu, Africa and Economic Structural Adjustment: Case Studies of Ghana, Nigeria and Zambia (Vienna: OPEC Fund for International Development, 1992); Chakravarthi Raghavan, Recolonization: GATT, the Uruguay Round, and the Third World (Penang, Malaysia: Third World Network, 1990); Vandana Shiva, Staying Alive: Women, Ecology and Survival in India (New York: St. Martin’s Press, 1989); and Vandana Shiva, Stolen Harvest: The Hijacking of the Global Food Supply (Boston: South End Press, 1999). These works contain several concrete historical case studies and offer the principal points of contention with the policies of the World Bank and the IMF and the climate they have created to allow greater corporate hegemony. See also the works listed below, in note 25 [keep track of number as it changes].
[20] Address of Robert McNamara, President, to the Board of Governors, Nairobi, Kenya, September 24, 1973, reprinted in Robert S. McNamara, The McNamara Years at the World Bank: Major Policy Addresses of Robert S. McNamara, 1968-1981 (Baltimore and London: The Johns Hopkins University Press, 1981), 233-63. McNamara thought it was beyond the Bank’s power to eliminate poverty in general, and he proposed only to eliminate the worse poverty, absolute poverty.
[21] Eugene Black, quoted in Brian Rich, Mortgaging the Earth: The World Bank, Environmental Impoverishment, and the Crisis of Development (Boston: Beacon Press, 1994), 63.
[22] The moral gains of Stage Seven have recently been experiencing a resurgence. The starkest indication of this was the publication in 2000 of Voices of the Poor: Crying Out for Change. This book was the result of a study commissioned by the World Bank in preparation for its World Development Report 2000/01: Attacking Poverty. The introduction states that the origins of the study lay “in the conviction that at the start of the 21st century any policy document on poverty should be based on the experiences, reflections, aspirations and priorities of poor people themselves.” Deepa Narayan, Robert Chambers, Meera K. Shah, and Patti Petesch, Voices of the Poor: Crying Out for Change (Oxford and New York: Oxford University Press, 2000), 3. The book is published for the World Bank and carries the Bank’s current slogan, “Our dream is a world free of poverty.” This study offers a wide range of policy prescriptions based directly on the testimony of people living in poverty in twenty-three countries around the world, and its scope of inquiry focused on four main themes: wellbeing and “illbeing”; the identification of problems and priorities and how these had changed; the role of institutions; and gender relations (Ibid., 4-5). The emphasis upon ways that people living in poverty want institutions to change and become more responsive is particularly important. In the concluding section, “Agenda for Change,” the authors state: “[Poor people] call for systemic change. They want more government, not less—government on which they have influence and with which they can partner in different ways. They look to government to provide services fundamental to their wellbeing. Poor people’s problems cut across sectoral divides. They challenge us to think and plan beyond narrow disciplinary boundaries while still remaining responsive to local realities. This requires institutions that are more decentralized, facilitative and accountable to poor women and men” (Ibid., 266). See also pages 267-89.
[23] In 1967, following the seizure of power by Suharto, the Netherlands took the leading role in the formation of the Intergovernmental Group on Indonesia, with the hope of preventing the outright collapse of the Indonesian economy (Mason and Asher 1973, 526).
[24] See also Cheryl Payer, Lent and Lost: Foreign Credit and Third World Development (London and New Jersey: Zed Books Ltd., 1991).
[25] See Carlos M. Vilas, “Neoliberal Social Policy: Managing Poverty (Somehow),” NACLA Report on the Americas, Vol. XXIX, No. 6 (May-June 1996), 16-25; Carlos M. Vilas, “Economic Restructuring, Neoliberal Reforms, and the Working Class in Latin America,” in Sandor Halebsky and Richard Harris, eds., Capital, Power and Inequality in Latin America (Boulder, CO: Westview Press, 1995); Duncan Green, Silent Revolution: The Rise of Market Economics in Latin America (New York: Monthly Review Press, 1996); Howard Handelman and Werner Baer, eds., Paying the Costs of Austerity in Latin America (Boulder and London: Westview Press, 1989); E. Wayne Nafziger, The Debt Crisis in Africa (Baltimore and London: The Johns Hopkins University Press, 1993); Christopher L. Delgado and Sidi Jammeh, eds., The Political Economy of Senegal under Structural Adjustment (New York Praeger Publishers, 1991); Dharam Ghai, ed., The IMF and the South: The Social Impact of Crisis and Adjustment (London: Zed Books, 1991); and Bade Onimode, ed., The IMF, the World, and the African Debt, Vol. 1 (London: Zed Books, 1989).
[26] See “A Coherent Opposition,” Chapter 7, 108 ff., of John B. Cobb, Jr., The Earthist Challenge to Economism (New York: St. Martin’s Press, 1999). It is conceivable that input from NGOs, with their extensive experience in the field, could eventually break the stranglehold that persons trained as professional economists have had on the issuance of political and economic advice throughout the twentieth century. The early history of this particular stranglehold is well documented in Paul W. Drake, The Money Doctor in the Andes: The Kemmerer Missions, 1923-1933 (Durham: Duke University Press, 1989). See also Paul Drake, “The Money Doctors: Foreign Advisers and Foreign Debts in Latin America,” NACLA Report on the Americas, Vol. XXXI (Nov.-Dec. 1997), 32-36. The World Bank’s Voices of the Poor study offers evidence that this stranglehold is beginning to dissolve. The very first paragraph of the book states: “There are 2.8 billion poverty experts, the poor themselves. Yet the development discourse about poverty has been dominated by the perspectives and expertise of those who are not poor—professionals, politicians and agency officials. This book seeks to reverse this imbalance by focusing directly on the perspectives and expertise of poor people” (Narayan 2000), 2. Another promising development with regard to Stage Ten is the creation of the World Bank’s Global Development Network (GDN). This network encourages collaboration among NGOs and other workers at the grassroots level and think tanks in all regions of the world and is based on the premise that “local knowledges” are crucial in the consensus-building process. On the Global Development Network, see Diane Stone, ed., Banking on Knowledge: The Genesis of the Global Development Network (London: Routledge, 2000). This work contains contributions by many of the participants in the conference in Bonn in 1999, which launched the creation of the GDN.
[27] Although the World Bank has recently strengthened its commitment in principle to neoliberalism, the Bank has begun to propagate institutions that spring from its acknowledgment of the need for greater local participation and more emphasis on social development. One such institution is the Social Investment Fund (SIF), which the World Bank conceives of as a mechanism for mitigating some of the harsh effects of the structural adjustment programs. The stated priorities of the SIFs, which now operate in most countries that underwent structural adjustment, are social assistance programs (e.g., food aid), emergency (short-term) employment programs, and longer-term employment programs aimed at promoting “productivity” (e.g., worker training and microcredit programs that assist small businesses). The SIFs can be criticized for helping to legitimize neoliberal economic policies that have already proven disastrous. Nevertheless, the existence of the institution of the Social Investment Funds has created apertures for governments in borrowing countries to mold these SIFs to their needs. One shining example of a success in this regard is the Chilean Solidarity and Social Investment Fund (FOSIS), instituted in 1990 as Chile made the transition back toward social democracy under civilian rule. The FOSIS is designed to be a long-term program that strikes at the structural causes of poverty in ways that most SIFs do not. It is also largely independent of external funding sources. See Karin Stahl, “Anti-Poverty Programs: Making Structural Adjustment More Palatable,” NACLA Report on the Americas, Vol. XXIX, No. 6 (May-June 1996), 32-36.
[28] Even if the World Bank reached Stage Eleven for cynical reasons—e.g., trying to forestall the political instability of social revolution or other forms of the expression of legitimate popular grievances with structural adjustment programs—Stage Eleven nevertheless remains an important step in the Bank’s moral evolution.
[29] In the vein of advocating a broader and more authentic form of pragmatism, we direct the reader’s attention to the work of John Dryzek, who makes the case of the primacy of ecological rationality. Dryzek writes, “The preservation and enhancement of the material and ecological basis of society is necessary not only for the functioning of societal forms such as economically, socially, legally, and politically rational structures, but also for action in pursuit of any value in the long term. The pursuit of such values is predicated upon the avoidance of ecological catastrophe. Hence the preservation and promotion of the integrity of the ecological and material underpinning of society—ecological rationality—should take priority over competing forms of reason in collective choices with an impact upon that integrity.” John S. Dryzek, Rational Ecology: Environment and Political Economy (Oxford and New York: Basil Blackwell, 1987), 58-59, italics in original.
[30] The Voices of the Poor study, carried out by the World Bank at the end of the twentieth century, stands as an official endorsement of these principles and as an embrace of the Bank’s moral evolution, especially as we outlined in Stages Six, Seven, and Ten. Although the book published as a result of this study (Narayan et al. 2000) carries a careful disclaimer that the book’s findings, interpretations, and conclusions “should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors,” the Bank’s recognition of the importance of commissioning such a study to serve as background material for its annual development report speaks volumes. The book concludes with a consideration of what a commitment to “deep change” would entail. The authors speak of professional change (“a paradigm shift”), personal change, and institutional change (Ibid., 288). It is this third category we wish to highlight. The authors write: “Institutional change is cultural and behavioral. To the extent that organizations reward domineering behaviors, they are antithetical to the sensitive, responsive and empowering approaches needed to give the needs and interests of poor people priority. These behaviors are dictated by the norms, rules, rewards, incentives and values implicit in organizations” (Ibid., 289, italics in original).