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The following article appeared in Left Business Observer #95, November 2000. It retains its copyright and may not be reprinted or redistributed in any form - print, electronic, facsimile, anything - without the permission of LBO.
For many years, the World Bank has been under political attack by people in the poorer countries. More recently, the attack has spread to what officialdom calls the "donor" countries -- the rich countries whose capital markets supply the money that the Bank lends to the poor ones. In the face of these attacks, the World Bank has been fighting back by trying to act nicer, by professing its great concern for the poor. While this is almost entirely empty public relations gesturing, there are even severe limits on what they'll say.
This newsletter has extensively covered the battle surrounding the Bank's former chief economist, Joseph Stiglitz. Stiglitz was forced out of office by Treasury Secretary Lawrence Summers for publicly questioning the wisdom of the Washington Consensus, the familiar package of austerity, deregulation, and privatization that has repeatedly been applied to scores of countries around the world since the so-called Third World debt crisis broke out in 1982 (see LBO #94 for details). Though Stiglitz was purged, he did leave behind some traces, and the fate of one of those, an economist named Ravi Kanbur, is highly illuminating.
Stiglitz hired Kanbur to supervise the drafting of the Bank's annual World Development Report, its flagship publication. In the past, the Report was typically drafted by Bank economists and polished up by journalists on loan from The Economist or the Financial Times -- organs that would later report glowingly on the contents of the document. This year, a draft version was posted on the web, and public comments were actively sought. The message of the draft was that contrary to standard development doctrine, growth wasn't enough to lift the poor out of poverty -- instead, policy had to be actively tilted in their favor.
Dollar standard. As the public discussion around the draft progressed, the Bank management promoted a paper by two staff economists -- the richly named David Dollar (described by one Bank insider as "Summers' lackey") and Aart Kraay -- called "Growth Is Good For the Poor." Yes, there are many who argue that growth can be a statistical mirage that leaves the poor behind, but there are few people who'd say that the poor countries of the world need to be made significantly less poor. But it's always more pleasant to argue with a straw man.
Dollar and Kraay's paper -- which got nice publicity in the Financial Times, The Economist, and an ExxonMobil ad -- claimed that the incomes of the poor rise in tandem with overall growth, so the best way to raise their incomes is to stimulate growth. That may be true in general over the long term, but it's not hard to find exceptions. For example, Dollar and Kraay needn't have left the U.S., statistically speaking, to find a counter-example; real incomes of the richest 5% of the U.S. population rose 75% between 1980 and 1999, while those of the poorest 20% rose 10% -- or, put another way, the top 5% enjoyed 41% of the benefits of economic growth over the period, and the bottom fifth, well under 2%. The U.S. example is compelling not only because of the country's size, accounting for almost a quarter of global income, but our deregulated, minimal welfare state economy is taken as a model for the rest of the world.
The U.S. government, in the person of Summers, was outraged by Kanbur & Co.'s draft, and ordered that the report be rewritten to be more "pro-growth" -- more in line with the Dollar/Kraay thesis, more concerned with growth and less with distribution. As one Bank insider put it, the Clinton administration embraced the trickle-down economics that Democrats had run against for decades. Kanbur refused to rewrite it, and quit in a huff.
Critiques. Politics aside, Dollar and Kraay's paper is a rather shoddy piece of work. A critique by Howard White and Edward Anderson of the University of Sussex suggests that Dollar and Kraay's curious findings are the result of averaging the sharply variant experiences of different countries: in some, the poor have lagged the averages, while in others they've come out ahead, and when you average them, the results seem neutral. In other words, there's no hard or simple relation between distribution and growth, and since there isn't, the world would be a lot nicer place if policy nudged the benefits of growth towards the poor.
Growth can be good for the poor, but as Mark Weisbrot, Dean Baker, Robert Naiman (that hero of the people who pied outgoing IMF managing director Michel Camdessus last February), and Gila Neta of the Center for Economic and Policy Research (www.cepr.net) point out in a very useful paper, the World Bank and its sibling the International Monetary Fund have not been good for growth. Growth rates since 1980 in most of the "developing" world (China and East Asia excepted) have been much slower than they were from 1960 - 80, precisely as the influence of the Bank and Fund have grown. Incomes in 1998 were lower for Africa and most of the former socialist world than tin 1980. Regional panics and collapses have become routine. If growth is good for the poor, orthodoxy hasn't done much to promote it.
The CEPR crew also took apart Dollar and Kraay's stats and found that data of poor quality were tortured to produce results of little statistical or intellectual significance. Their claims that "openness" (to trade and capital) is good for the poor and that anti-inflation policies are "super-pro-poor" aren't supported by their own data. Questioned at an August seminar by Weisbrot and Baker, Dollar and Kraay retreated on many of their claims, and conceded large points of the CEPR critique. Kraay, says Weisbrot, "was particularly forthright and honest about the paper, noting at one point that they 'could just have well have titled it "Growth Is Good for the Rich."'" They had to concede that inflation rates below 40% do no serious economic damage. (Of course, anti-inflation policies can do lots of damage, creating unemployment and wage losses.) Sometime in late summer, the paper disappeared from the World Bank's website. [Note not in the print version: sometime afterward it was restored, probably because its disappearance was pointed out by CEPR .]
Of course, this isn't just about intellectual practice; the World Bank and IMF have state power, largely under the control of the U.S. Treasury, which is plainly not tolerant of philosophical or policy deviance. Kanbur and Stiglitz were temperate critics of orthodoxy from within the system, yet even those are out of order.
All this is additional evidence that the Bank and the Fund are unreformable monsters that must be liquidated for the good of humanity. This is not universally believed among orthodoxy's critics; some ask for "reform," not abolition. But even the most pragmatic reformists should embrace the abolitionist line; if you make maximal demands, you may get some modest reforms. As they used to say in Paris in 1968, be practical, demand the impossible.
To promote the abolitionist case, LBO asked two stalwarts of the cause, Patrick Bond and Walden Bello, to imagine a world without the IMF and World Bank. The essays are their thoughts; LBO's house ideologist agrees with much of it, but Bond's plea for national finance is a bit unsound. More, no doubt, to come.
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