New Man at the World Bank

BY ARTHUR MACEWAN

This article is from the May/June 2005 issue of Dollars and Sense: The Magazine of Economic Justice available at http://www.dollarsandsense.org/archives/2005/0505macewan.html


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This article is from the May/June 2005 issue of Dollars & Sense magazine.

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Widely known as the architect of one of the most controversial U.S. wars, he became a symbol of an aggressive military approach to foreign affairs. Against widespread international opposition, he pushed ahead with an essentially unilateral U.S. military action in the name of "promoting democracy." Perhaps his most lasting legacy will be the perverted concept of destroying a country in order to save it.

After his stint at the Department of Defense, he was selected by the U.S. president to head the World Bank. On the surface at least, it seemed a strange appointment. Here was a man thoroughly identified with an aggressive, unilateral approach to international affairs, a man who preached democracy while perpetrating mayhem. How could he be an effective leader of an organization that was supposed to provide multilateral support for economic development in low income countries, an organization that was supposed to empower the poor?

The man was Robert McNamara, U.S. Secretary of Defense during the Vietnam War and president of the World Bank from 1968 to 1981.

So there was little reason to be surprised this spring when Deputy Secretary of Defense Paul Wolfowitz was appointed president of the World Bank This was merely history repeating itself. Yes, Wolfowitz, a principal architect of the U.S. invasion of Iraq, is a man who seems to define democracy in terms of a people submitting to U.S. military occupation, who advocated the destruction of Faluja as the means to save it, and who sees the privatization of the Iraqi economy--the opening of its oil operations to U.S. investors--as laying the economic foundation for democracy. Yet the McNamara experience had long ago established the link between U.S. military strategy as carried out in the Department of Defense and U.S. international economic strategy as carried out through the Bank.

True, the World Bank is not a branch of the U.S. government. It is, however, thoroughly U.S.-dominated. Voting shares in the operation of the Bank are divided as are the voting shares in a private corporation, in proportion to the money that various members put in. Although it is only one of 184 Bank members, the U.S. government has 16.4% of the votes; Japan is a distant second with 7.9%; Germany, France, the U.K., Canada, and Italy account together for another 18.6%. As in a private corporation, holding 16.4% of the votes provides effective control, especially when a large segment of the other "shares" are controlled by close allies and small states readily disciplined by the principal shareholder.

So what does the U.S. government do with its control of the World Bank? And what can we expect Paul Wolfowitz to do as the bank's President?

What Does the World Bank Do?

Unlike a formal foreign affairs branch of the U.S. government, the Bank does not provide direct support for U.S. businesses in their international operations. The State Department and the international offices in the Treasury and Commerce Departments take care of that. The role of the Bank is broader, one of shaping the structure of the international economy and the manner in which various countries organize their international commerce. Working in parallel with its partner organization, the International Monetary Fund (IMF), and the World Trade Organization, the Bank attempts to establish the structure, the "rules of the game," of the international economy.

The Bank's power comes through its role as a major aid-giving agency to poor countries, channeling low-interest loans to support various development programs--everything from education and health care to managerial training and road building. But the loans come with conditions, general policies that the recipient countries must adopt in order to receive funds from the Bank, which employs a huge stable of advisors and researchers whose job is to churn out studies that provide the rationale for these policies.

Generally, countries must privatize publicly owned firms and "liberalize," that is, remove barriers to foreign investment and foreign trade. When countries' finances have become especially problematic and their creditors are worried, the Bank works with the IMF to establish "structural adjustment programs" that push governments to balance budgets, restrain expansion of the money supply, eliminate government subsidies for particular products (for example, subsidies on food grains), and reduce tax rates on businesses.

These "structural adjustments" integrate the economies of low-income countries more effectively into the world economy and provide opportunities for U.S.-based businesses (and the businesses based in Europe and Japan) to gain access to markets, labor, and natural resources. But the Bank claims to carry them out in the name of promoting economic development and fighting poverty.

As the Bank presents itself on its web page: "One of the world's largest sources of development assistance, the World Bank supports the efforts of developing country governments to build schools and health centers, provide water and electricity, fight disease, and protect the environment. … The Bank's … projects … are as diverse as providing microcredit in Bosnia Herzegovina and raising AIDS awareness in communities in Guinea, supporting education of girls in Bangladesh and improving health care delivery in Mexico, helping East Timor rebuild upon independence or India to rebuild Gujarat after a devastating earthquake."

Especially in sub-Saharan Africa and some of the especially low income countries of Asia and Latin America, many of the Bank's individual projects undoubtedly make positive contributions. Similarly, during the 1960s the U.S. government's malaria control programs in Vietnam's Mekong Delta probably made positive contributions. The malaria control programs, however, were not simply "individual projects"; they were part of the larger context of the Vietnam War that Robert McNamara was guiding. Likewise, the schools and health care centers supported by the World Bank are parts of a larger context, namely the Bank's overall strategy of establishing the "rules of the game" of the international economy.

Wolfowitz at the World Bank

So what is Paul Wolfowitz likely to do at the World Bank? On one level, he will simply continue to do what his predecessors--McNamara and others--have always done. He will use the financial power of the Bank, buttressed by its bevy of advisors and researchers, to push governments of low income countries to adopt programs consistent with the interests of U.S.-based businesses and the foreign economic policy of the U.S. government. Nothing new there.

On another level, just as the current Bush administration has pursued a greater and more dangerous degree of unilateralism and aggressiveness in foreign affairs than most of its predecessors, it seems likely that Wolfowitz will carry this approach with him to the World Bank. Bank actions under Wolfowitz are likely to be more closely tied to U.S. policy, more clearly directed, for example, toward rewarding the friends of the U.S. government. Also, projects are likely to be more closely tied to the "War on Terror," designed to bolster governments that have cooperated most fully in it. And the rhetoric of "democracy" will probably reach a higher pitch in the promotion of the Bank's programs.

Paul Wolfowitz and his allies in Washington who designed the U.S. invasion of Iraq took the U.S. on a more extreme course of action than has been the wont of previous administrations. In doing so, they have brought death and destruction to Iraq, and they have created a more unstable and dangerous world situation. But they did not essentially depart from a long pattern of U.S. foreign policy, a pattern that has involved dozens and dozens of military operations--many small and some large--to protect U.S. business interests and promote "democracy" (or, in an earlier era "Christianity").

Likewise, there is little reason to think that Paul Wolfowitz's World Bank will depart from its long pattern of shaping the international economy in line with U.S. business interests. More extreme and perhaps more dangerous than his predecessors, he may be more of a zealot and less pragmatic. But the World Bank under Paul Wolfowitz will be the same World Bank it has always been.

Arthur MacEwan teaches economics at the University of Massachusetts-Boston. He is the author of Neo-Liberalism or Democracy? Economic Strategy, Markets and Alternatives for the 21st Century (Zed Books).