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International Development or Corporate Welfare?

International Development or Corporate Welfare?
By J. Bradley Jansen
July 23, 2001

President Bush recently proposed some changes at the World Bank. The World Bank and the International Monetary Fund have come under severe criticism. There is a broad consensus among conservatives, libertarians and progressives that the system is broken and needs to be fixed.

The Bush administration is filled with Bretton Woods skeptics. Economic advisor Larry Lindsey vocally opposed the latest quota increase for the IMF. Kenneth Dam, the number two man at the Treasury Department behind Secretary Paul O’Neill wrote in a 1998 book with former secretary of State George Shultz, that the bailouts mainly benefited wealthy investors and said that the interventionist policies only makes things worse. “They can say to themselves, ‘Heads I win, tails you lose,'” Dam and Shultz wrote.

John Taylor, a former economics professor at Stanford University, is Treasury’s undersecretary for international affairs. He has even advocated abolishing the IMF. He agrees with Dam that bailout actions serve to prop up reckless investing.

No one confuses the Bush team as apologists of the left on this issue.

However, many on the left are critical of the IMF and the World Bank too. “It was the IMF that assembled the high-profile multibillion dollar rescue packages that were meant to rescue foreign creditors even as local banks, finance companies, and corporations were told to bite the bullet by accepting bankruptcy,” argues Walden Bello, [“Is Bush Bad News for the World Bank?,” Focus on the Global South, January 2001]. It was after all mostly young progressives protesting in the streets against the IMF and World Bank. Their anger was mostly fueled by a coalition of progressives that came together in 50 Years is Enough: the Case Against the World Bank and the International Monetary Fund. A less pedestrian criticism came from the Meltzer Commission in February of 2000.

It reported that 80 per cent of World Bank resources are devoted not to the poorest developing countries but to the better off ones that have positive credit ratings, which would enable them to raise money in the international capital markets. The failure rate of World Bank projects is nearly 70 per cent in the poorest countries and about 60 per cent in all developing countries. The World Bank does not ameliorate global poverty which is its avowed.

The Meltzer Commission’s work stands on sound footing: The Cato Institute’s Perpetuating Poverty: The World Bank, the IMF, and the Developing World documents the failure of these institutions to help the world’s poor. Before Karin Lissakers became the Clinton Administration’s delegate to the IMF, she authored a damning critic of how the international financial elite used the IMF and World Bank for their own purposes. Her book Banks, Borrowers, and the Establishment: A Revisionist Account of the International Debt Crisis refers to the IMF a 20th Century version of gunboat diplomacy.

Many scholars have shown the failures of the IMF and World Bank policies. One Federal Reserve paper [“Why Intervention Rarely Works,” by Owen F. Humpage and William P. Osterberg, Economic Commentary, Federal Reserve Bank of Cleveland, 1, 2000] explains that intervention in monetary policy distorts the price signals of the market. These false signals then give bad information to businessmen who must make economic decisions. The central premise of is that central bankers, much like all other central planners, do not routinely possess better information than the market. Acting as if they do only makes things worse.

Both sides can unite behind one agenda at this point: the radical downsizing, if not dismantling, of the Bretton Woods twins, believes Walden Bello. I agree.