It is entirely fitting that the final chapter of this book should present a list of indictments of the World Bank and the International Monetary Fund (IMF) (p.335) that, like the closing arguments of a prosecutor, drives home the case that Éric Toussaint has crafted against them and the model of ‘economic development’ they serve. He exposes a global order built upon the hegemonic role of the United States and the exploitation of impoverished countries.
Toussaint shows how the World Bank, headquartered a stone’s throw from the White House, has furthered the interests of the US and its allies. Its selective notion of keeping out of politics hasn’t prevented it from propping up dictators and imposing policies of austerity and privatisation so as to maximise exploitation.
The author explores the international framework within which the Bank operates and proposes just and democratic alternatives to the present system. He is clear, however, that a challenge to the institutions of the dominant world order constitutes a challenge to global capitalism itself.
Toussaint shows how the Bank provides ‘financial support as well as technical and economic assistance’ to repressive regimes, enabling them to ‘maintain power and perpetrate their crimes.’ Thus, the ‘neoliberal model, imposed with the aid of dictatorships, is now maintained through the yoke of debt and ongoing “structural adjustments”’ (p.2).
The Bank furthers a ‘Washington Consensus’ that claims it can ‘reduce poverty through growth, the free operation of market forces, free trade, and minimum intervention by public authorities.’ This approach ensures ‘US dominance is maintained worldwide’ while ‘imposing and intensifying the productivist-extractivist model’ (p.3).
‘Development’ is the calling card of the World Bank and it ‘claims that in order to develop, countries must rely on external debt and attract foreign investments.’ This debt ‘serves mainly to purchase equipment and consumer goods from the industrialized countries. For decades the facts have demonstrated, over and over again, that this does not lead to development’ (p.6).
Toussaint argues that the ‘dominant view that sees indebtedness as an absolute need must be challenged and rejected. Further, countries must not hesitate to cancel or repudiate odious and illegitimate debts’ (p.6). He sets out a model of international economic development in which there is no place for the World Bank.
Tracing the historical roots of the Bank, Toussaint notes that, from 1942, the Roosevelt administration ‘pursued discussions concerning the economic and financial order to be established after the war’ (p.17). The notion emerged of ‘two major multilateral institutions’ (p.17). There would be ‘an Exchange Rate Stabilization Fund [the future International Monetary Fund] and an international bank to provide capital’ (pp.17-18). The latter ‘would provide capital for the reconstruction of the countries affected by the war and for the development of backward regions; it would help stabilize commodity prices’ (p.18).
Tackling poverty wasn’t a stipulated role for the World Bank, as is commonly supposed. ‘The rebuilding of Europe and furthering the economic growth of the countries in the South, many of which were still under colonial rule’ (p.21) were the objectives, with the second continuing to the present day. ‘Economic growth’, however, has been selectively defined and the well-being of populations in the South became an entirely secondary consideration.
Wall Street dominant
The Bank’s operations began in 1946, following the Bretton Woods Conference that laid the basis for its activities, but it faced a cool response from Wall Street, based on concerns that the new body might be ‘too influenced by the excessively interventionist, excessively public policy of the New Deal’ (p.21). The following year, however, ‘a number of changes were made in the Bank’s higher echelons, and a new trio favourable to Wall Street took the reins’ (p.23). A system was developed under which to ‘lend money to its member countries, the World Bank had first to borrow from Wall Street by way of bonds’ (p.23).
From the start, ‘the World Bank did nothing to embrace the social dimension … It failed to support any project aimed at redistributing wealth and granting land to landless peasants. And as regards improvements in health, education and provision of drinking water, it was not until the 1960s and 1970s that the Bank supported a small number of projects, and even then, with the greatest circumspection’ (p.25).
Toussaint explains that ‘the World Bank is careful to select profitable projects, and makes sure that it imposes drastic economic reforms’ (p.25). To this day, interest rates charged by the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA), components of the Bank, are very steep and it ‘makes profits to the tune of several billion dollars per year at the expense of developing countries and their populations’ (p.26).
Colombia was a particular object of attention during the early years and this set an enduring pattern. Determined to prevent the country from ‘falling into the Soviet camp or heeding the call of revolution’, it was deemed necessary to craft ‘a global development strategy’ that would be to Washington’s liking (p.32).
In 1951, employing studies undertaken by the Bank, the Colombian government brought out ‘a development programme, which the government then put into action: budgetary and bank reforms; reduction and relaxing of import restrictions; relaxing of exchange controls; adoption of a liberal and accommodating attitude with regard to foreign capital’ (p.32).
Toussaint shows how the Bank has thwarted efforts to create more just and viable development mechanisms. For ‘the US government and the governments of the other major industrial powers, the idea of a special fund controlled by the UN and separate from the World Bank was unacceptable’ (p.39).
Very significantly, Toussaint observes that ‘the refusal to grant indebted developing countries the same kind of concessions as were granted to Germany indicates that creditors do not really want these countries to get rid of their debts. Creditors consider it in their better interest to maintain developing countries in a permanent state of indebtedness so as to extract maximum revenues in the form of debt reimbursement, but also to enforce policies that serve their interests …’.
The wishes of the lesser imperialist powers and the interests of capitalist classes in developing countries may have to be considered, but the Bank consistently acts as Washington decides. ‘The United States has viewed all multilateral organizations, including the World Bank, as instruments of foreign policy to be used for specific US aims and objectives’ (p.53).
Toussaint challenges the false theories that have shaped the Bank’s notions of development and their shared assumption ‘that in order to progress, developing countries must rely on external borrowing and attract foreign investments’ (p.109). Those who advance such theories maintain, regardless of all evidence to the contrary, that the unequal international relationships they sanction will ultimately lift the poorer countries up to full development and prosperity. They even suggest that high levels of inequality that result are necessary and entirely welcome because ‘the rise of inequality is a condition for the take-off of growth’ (p.119).
Toussaint explains that from ‘1970 to 1982, developing countries greatly increased their loans [and] public external debt owed to the World Bank was multiplied by 7.5’ (p.143). He presents this as an integral part of an enormously harmful ‘debt trap’ (p.142) for which those who have carefully prepared it have much to answer.
Interest rates shot up in the 1980s and, along with falling commodity prices, created considerable hardship. ‘During this time, while the developing countries were paying back more than they were borrowing, their total external debt did not go down at all.’ Toussaint condemns ‘the total cynicism inherent in the system, which results in artificially increased debt loads out of all proportion with the amounts actually injected into the economies of these countries’ (p.149).
As early as the 1960s, Bank economists were warning that rising debt was reaching alarming levels (p.156). The Bank, however, obdurately disregarded the signs of developing crisis right up until August of 1982 when ‘Mexico, which had paid back considerable amounts over the first seven months of the year, stated that it could not pay any more’ (p.167). In response to this development, ‘the big movers and shakers of world finance got together to bail out the commercial banks’ (p.174). They also developed a strategy to move forward through such dangerous waters.
It was decided to respond to the crisis ‘as though it was caused by a short-term liquidity problem.’ At the same time, ‘private debt must be converted into public debt for the indebted countries’ and ‘creditors should act collectively while the indebted countries must be dealt with individually’, to prevent any united opposition to the imposed conditions. Vitally, ‘indebted countries must at all costs continue to repay the interest on their debt’ and any further loans would hinge on agreements to impose austerity measures on the populations of indebted countries’ (p.174).
In this way, the crisis was weathered by ensuring repayment at all costs to commercial banks and other lending institutions that were supposed agents of economic development. We learn that ‘between 1982 and 1985, transfers from Latin America to creditors represented 5.3 per cent of the continent’s GDP’, more than double that which was taken from Germany during the years after WWI (p.179).
Because it funds capital projects, the Bank’s decisions have particularly destructive results, including large-scale displacement of populations. For example, ‘in India alone the World Bank financed projects involving the displacement of some 600,000 people from 1978 to 1990’ (p.196).
Tellingly in this regard, as the Earth Summit of 1992 approached, the Bank’s chief economist Lawrence Summers wrote a confidential memorandum suggesting that the countries of the South were ‘vastly underpolluted’ and arguing that ‘the economic logic behind dumping a load of toxic waste in the lowest wage countries is impeccable and we should face up to that’ (p.198).
The Bank’s president from 1995 to 2004, James Wolfensohn, ‘introduced the Poverty Reduction Strategy Programmes (PRSPs) to replace the much-discredited Structural Adjustment Plans (SAPs) that had been the Bank’s and IMF’s main approach to development since the 1980s. But in fact, only the name changed – the macroeconomic framework of privatization and liberalization remained the same’ (p.207).
Wolfensohn took an approach to containing opposition, called ‘constructive engagement’ (p.208), that has come to have much wider application. Toussaint shows how organisations that might have mounted much more effective challenges to the Bank were drawn into consultative processes that consumed time and effort with few tangible results.
The Bank discarded overt climate denial later than many of its counterparts. As late as 1991, the above-mentioned Summers was proclaiming that the ‘danger of an apocalypse due to global warming or anything else is non-existent … The idea that we should place limits on growth because of natural limitations is a serious error’ (p.235).
In 2006, the Bank adopted progressive climate rhetoric that was more in line with its cynical approach to poverty reduction. However, it still provides ‘technical assistance’ loans for ‘projects that are directly connected to the coal industry, non-renewable energies, and exploitation of gas and oil. The “green” projects are in fact mere greenwashing for excessive exploitation of nature’ (p.241).
Given that the World Bank is supposedly pursuing the goal of universal prosperity, its fuzzy accounting on the scale of global poverty is striking. A working paper, put out by the Bank, acknowledging that for ‘“2005 we estimate that 1.4 billion people, or one quarter of the population of the developing world, lived below our international line of $1.25 a day” whereas previous estimations had given a figure of around one billion people’ (p.270).
Toussaint concludes that ‘with the World Bank’s enormous miscalculations on poverty, the entire edifice of international poverty reduction policies collapses. The structural adjustment policies imposed by the IMF and the World Bank since the early 1980s … have in fact worsened living conditions for hundreds of millions of people around the world’ (p.270).
Toussaint points out that even ‘as the World Bank and the IMF were praising the authoritarian or dictatorial regimes in power for many decades in the Arab regions, the embers of revolt were ready to flare up’ (p.275). The Bank insists that disgruntled middle-class elements dominated the uprising and that inequality was not a major factor. Other commentators, however, have documented the powerful role of the poor in the Arab Spring and shown that ‘the Middle East appears to be the most unequal region in the world …’ (p.277).
The limits of the Bank’s understanding of the threat of rebellion are clearly set by its determination to proceed with the very measures that generate it. It astoundingly asserts that to ‘avoid another lost decade, a loud wakeup call needs to resonate all across MENA … The immediate task is to open the door to private enterprise [and] win over the resistance to liberalizing economies …’ (p.282).
The chapter that deals with the impacts of the Bank’s measures on women in the Global South was written by Camille Bruneau. The particular harm that these have caused and the genderwashing’ (p.296) that the Bank has engaged in are entirely in line with the record that emerges throughout the rest of the book.
Bruneau shows how ‘the structural adjustment plans (SAPs) are synonymous with the destruction of social protection and the means of subsistence for the peoples of the South. These phenomena contribute to the increase of the various inequalities and have a particular impact on women’ (p.296).
Bruneau draws out the reactionary nature of the Bank’s ‘institutional and imperialist form of feminism – yet another trump card in the hand of neoliberalism, now hiding behind the mask of “concern for women’s rights”’ (p.300).
As he moves to a conclusion, Toussaint brings together the threads of his argument. He asserts that ‘the World Bank and the IMF are despotic instruments in the hands of an international oligarchy (a handful of major powers, their governments and their transnational corporations) who bolster an international capitalist system that is detrimental to mankind and the environment’ (p.338).
Toussaint suggests the ‘debts whose repayment these institutions demand must be cancelled, and the institutions and their directors must be brought to justice’ and concludes that ‘a new, democratic international architecture be set up, one that would promote redistribution of wealth and support the efforts of peoples to achieve a form of development that is socially just and respectful of nature’ (p.338).
While it might be argued that truly just international relations and forms of development will require the defeat of the imperialist world order itself, there is no doubt that Toussaint’s challenge to the World Bank and IMF and his call for their abolition are fully justified. At this time of multi-layered global crisis, the World Bank remains an agent of debt, poverty and rampant inequality, imposing a destructive agenda that makes a sick farce of the very concept of ‘development’.
Éric Toussaint’s detailed and powerful indictment of the World Bank emerges at a vital time. It should be read by all who want to challenge domination and exploitation and contribute to the struggle for global justice.