WORLD BANK

The World Bank (Bank) or International Bank for Reconstruction and Development was created at a meeting of the forty-four World War II allied nations in Bretton Woods, New Hampshire, in 1944. Because of its promotion of economic development, the Bank is also an international institution involved to some extent with issues relevant to science, technology, and ethics.

Historical Emergence

At its inception, the Bank's mission was to make long term capital loans to countries harmed by World War II and, more generally, to undeveloped countries worldwide. Sister organizations founded at the same time, with overlapping missions, include the International Monetary Fund (IMF), the International Development Association, the International Finance Corporation, and the Multilateral Investment Guarantee Agency. Through an agreement signed in November 1948, the Bank acts as a specialized UN agency.

Surprisingly the Bank was largely irrelevant to the process of rebuilding Europe after World War II; the majority of the huge financial commitment came through the United States' Marshall Plan. In the first twenty-five years after its creation, the World Bank made only a handful of loans to European states (albeit large ones), including loans for the reconstruction of the steel industry in France, Belgium, and Luxembourg (McLellan 2003). With money in hand collected from its subscribing members, the Bank nevertheless felt an intense pressure to lend, and fell back to a secondary mission, that of lending to economically underdeveloped countries.

The Bank's charter contained language militating in favor of project-based lending, and in the early years most of its loans were for the finance of specific projects such as the development of mines or dams (Skogly 2001). The Bank, which experienced a failure rate of as much as 70 percent of its loans in the poorest countries (McLellan 2003), soon noticed that local conditions did not support the success of these projects. Among the factors cited by the Bank for project failure in poor countries are ineffective government, corruption, and lack of transparency (World Bank 1994).

To respond to these problems, the Bank began a program of so-called structural adjustment loans or SALs, which represented a movement away from its original project-based lending. SALs involve money advanced for a variety of projects and efforts, and are explicitly conditioned on the implementation of structural and economic changes by the borrowing country, including decentralization, privatization, cost-cutting, and discontinuance of tariffs and supports for its own currency.

In 2002 the Bank made $11.5 billion in loans in support of ninety-eight projects in forty countries. It currently has a total of about 1,800 projects in almost every developing country (McLellan 2003).

Evaluation

The main charge leveled against the Bank is that its ideological approach to lending actually creates the poverty it is intended to combat. Most critics focus on the SALs with their attendant mandatory conditions. Vikas Nath says that the Bank reduced many Third World nations to even greater poverty and dependence on Western aid. Countries often have to borrow from other sources to repay the Bank. Borrowing countries "gradually lost their ability to shape their own future. ..." (McLellan 2003, p. 62). In the poorest countries, government employment arguably provides a social safety net when jobs in private industry are unavailable. Critics argue that, by forcing cuts in government employment, the Bank throws people into poverty, since the predicted growth in private employment does not materialize soon enough, or with salaries high enough, to pick up the slack.

For many years, the Bank rarely assessed the environmental or social impact of projects it funded. The Sardor Sarovar dam project in India, projected to displace 1 million people, was canceled because of local protests. The Bank admits that under its current portfolio of projects, some 26 million people have been evicted, lost land, or lost livelihoods. As a result, in the early-twenty-first century the Bank conducts environmental reviews of all projects, and lending for environmentally beneficial projects makes up 10 percent of its portfolio. (McLellan 2003).

Critics also question whether a for-profit institution can carry out a not-for-profit mission in the Third World. "The World Bank focuses on economic growth until it is distracted by other issues like hunger, women, health, the environment, etc. The World Bank tries to adapt itself to these considerations without giving up its basic goal" (Danaher 1994, p. ix).

Such critics contend that the SALs in particular lead to the repression of democratic rights in poor countries, without reducing poverty. "Structural adjustment is a policy to continue colonial trade and economic patterns developed during the colonial period. ... [Third World countries] are more dependent on the ex-colonial countries than we ever were" (Danaher 2003, p. 4). Thirty out of forty-seven African governments have been in SALs for many years—yet by 1992, rather than being reduced, their external debt had more than doubled (to $290 billion) (Danaher 2003).

Shakrukh Rafi Kahn studied the impact of Bank lending in Pakistan over a twenty-year period. Though some initiatives, such as privatization of state-owned banks, were somewhat successful, he noted the greatly disproportionate impact of the Bank's SAL policies on the nation's poor: "They have been hurt many times over. Not only have they borne a disproportionate burden of the cuts in employment, cuts in subsidies and the rise in prices, but they also have started bearing more of the tax burden" (Kahn 1999, p. 120).

The Bank, in more guarded language, seems to be aware of the problems with its programs. In a publication on governance in developing countries, the Bank notes that the form of government (democratic or autocratic) is not one of its concerns. In reviewing its SALs around the world, the Bank concedes that things have not gone well in Africa: "Bank assistance to Africa is dominated by the collapse of public sector capacity in many countries, brought about by a combination of state over-extension, delayed adjustment to changed external economic circumstances, natural events, and poor governance" (World Bank 1994, p. 9). It recognizes that Western solutions to problems cannot always be transferred wholesale to countries with very different traditions. The Bank concludes "Performance in sub-Saharan Africa has been disappointing" (World Bank 1994, p. 11).

In a more overtly self-critical document, water expert George Keith Pitman (2002) argues that the Bank is poorly organized to implement its own water resources management strategy. Knowledge and leadership on water issues is seriously fragmented within the Bank's management structure, while budget cuts have eroded the knowledge function. Pitman also quotes certain nongovernmental organizations (NGOs) that believe "the pressure to lend ... has not been removed and continues to work against aspects of the water policy that recommend greater attention to smaller and cheaper alternatives" (Pitman 2002, p. 39).

The Poverty Action Lab, a Massachusetts Institute of Technology project, has begun randomized evaluations of the impact of Bank projects. Its researchers agree that success cannot be measured only by concrete achievements; assessments must include the impact of Bank projects on the lives of the poor (Dugger 2004). For example, hiring additional teachers for rural Indian schools did not improve test scores, but treating debilitating intestinal worms in Kenyan students raised attendance at a cost of only $3.50 per treated person per year.

Economists at the Poverty Action Lab say that the Bank's culture led to a certain complacency in the past, preventing the Bank from rigorously evaluating its own projects. The Bank is beginning to pay attention, organizing its own randomized studies.

Columbia professor Joseph Stiglitz believes that the Bank has been more successful than the international monetary fund in undertaking sweeping reforms of its own structure and approach: "the bank has always been less hierarchical than the IMF and more accepting of alternative views. ... [by 1997] the bank had begun to seriously address the fundamental criticisms levied at it" (Stiglitz, p. 122).

Conclusion

The Bank is a well-funded, powerful Western institution with the mission of aiding developing countries. Many of its good intentions may be wasted due to its attempt to apply free market solutions in countries with very different traditions, or that are simply not ready for these approaches.

JONATHAN WALLACE

SEE ALSO Development Ethics;Modernization;Money.

BIBLIOGRAPHY

Danaher, Kevin, ed. (1994). Fifty Years is Enough: The Case Against the World Bank and the I.M.F. Boston: South End Press. A collection of essays from a left-wing and critical perspective.

Dugger, Celia. (2004). "Letter From Washington: World Bank Challenged: Are the Poor Really Helped?" The New York Times, July 28, p. A4.

Kahn, Shakrukh Rafi. (1999). Do World Bank and I.M.F. Policies Work? New York: St. Martin's Press. A study of the impact of twenty years of structural adjustment loans in Pakistan

McLellan, Elisabeth P., ed. (2003). The World Bank: Overview and Current Issues. New York: Nova Science Publishers. An overview of the Bank's history and impact on the third world

Pitman, George Keith. (2002). Bridging Troubled Waters: Assessing The World Bank Water Resources Strategy. Washington, DC: World Bank. A World Bank analyst argues that the Bank's strategy on water resources is flawed

Skogly, Sigrun. (2001). Human Rights Obligations of the World Bank and the International Monetary Fund. London: Cavendish Publishing. An analysis of the impact of the Bank under the International Law of Human Rights.

Stiglitz, Joseph. (2003). "Democratizing the International Monetary Fund and the World Bank: Governance and Accountability," in Governance: An International Journal of Policy, Administration and Institutions, 16 (1) 111–139. A defense of the World Bank as an institution responsive to its critics.

World Bank. (1994). Governance: The World Bank's Experience. Washington, DC: Author. The Bank's critique of the impact of its structural adjustment loans, placing some of the blame on local corruption and conditions.