Interesting article on World Bank

["Ken Hanly" <khanly@xxxxxxxxxxxxxxx>]

I thought that the Summers' memo was supposed to have been written by
someone else and generous Lawrence bravely accepted the fallout from it. In
a discussion on Pen-L a while ago someone advanced this viewpoint. Now we
have a different story from the horse's mouth or is it more hot air from the
jackasses' behind?
   Cheers, Ken Hanly

The Nation October 2, 2000

Stiglitz and the Limits of 'Reform'

By Doug Henwood

It's global protest time again. When Bill Gates and other members of
the global elite gathered in mid-September for the World Economic
Forum in Melbourne, Australia, thousands of union members and
activists filled the streets to protest the effects of unfettered free
trade.
The next opportunity to trouble a convocation of the world's bigwigs is in
Prague at the end of September, when the World Bank and International
Monetary Fund hold their annual meetings. In April, their midyear
meetings brought thousands to Washington and shut down the city
There's a long-standing split among those who protest and criticize
these institutions - and their close relative, the World Trade Organization
- between those who'd reform them and those who'd prefer to shut them
down. Two forced departures from the World Bank have made the limits
of reform irrefutably clear.
The first was the exit of former chief economist Joseph Stiglitz at the
end of 1999. Stiglitz had made one too many public criticisms of the
economic policies preferred by the bank and its ultimate master, the US
government. And more recently, Ravi Kanbur, an outside economist
whom Stiglitz brought aboard to supervise the writing of the bank's
annual World Development Report, resigned "in anger" (as the New York
Times put it) in June when he was ordered to revise the document to
conform to the party line that growth is the highest good of economic
policy.
Stiglitz was appointed to his World Bank post in December 1996.
Long regarded as one of the leading theorists in his field - and frequently
tipped as a future Nobelist - he served on Bill Clinton's Council of
Economic Advisers from 1993 until his move over to the bank. Despite
this respectable pedigree, Stiglitz started causing trouble almost from the
first.
He attracted worldwide notice with a January 1998 lecture in Helsinki
in which he criticized the "Washington consensus" - the austerity,
privatization and deregulation agenda that had become the standard
policy prescription for much of the world - as misguided and often
disastrous. He pointed out that the historically unprecedented rapid
economic growth in East Asia - and with it the increases in life
expectancy, literacy and other social indicators - was the result of the
sort of state intervention that the bank frowns on. He also pointed out
that the 1997 financial crisis that interrupted that growth was in large
part
the result of the reckless decisions of private investors. But instead of
drawing the proper conclusions, Stiglitz noted, market ideologues were
using the crisis to discredit state intervention and promote more market
liberalization. He further argued that moderate inflation is pretty
harmless, budget deficits aren't necessarily evil, privatization isn't a
panacea and deregulation of domestic and international financial
markets can do serious harm. For a senior World Bank official to say
these things is a bit like a Pope denying the Virgin birth.
As his tenure progressed, Stiglitz elaborated on these themes. He
publicly rued the fact that workers and small businesses were "getting
screwed" because they were inadequately represented in decision-
making. He criticized the IMF - without mentioning it by name - for
making the Asia crisis worse by imposing austerity programs instead of
stimulating imploding economies and shoring up social safety nets. He
proposed that restricting the freedom of global capital movements could
make the world less crisis-prone. He mused that the disastrous results of
economic reform in Russia were "not just due to sound policies being
poorly implemented" but to "a misunderstanding of the foundations of a
market economy" earning him a public rebuke from World Bank
president James Wolfensohn.
The accumulation of sacrileges became too much, and Stiglitz's
"resignation" was announced last November, an occasion that led
Treasury Secretary Lawrence Summers to praise Stiglitz as a "major
creative and intellectual force." The Clinton Administration said it had
played no role in the exit. In fact, according to World Bank insiders
Summers informed Wolfensohn that if he wanted another term as World
Bank president, Stiglitz had to go - so Stiglitz went.
Stiglitz was kept on as a consultant, but his contract was terminated
in May. It's said the last straw was an article he wrote for The New
Republic that, aside from reiterating his policy criticisms, contained this,
passage: "The older men who staff the fund ... act as if they are
shouldering Rudyard Kipling's white man's burden. IMF experts believe
they are brighter, more educated, and less politically motivated than the
economists in the countries they visit. In fact, the economic leaders from
those countries are ... brighter or better-educated than the IMF staff,
which frequently consists of third-rank students from first-rate
universities." Policy disputes are one thing, but this was just too harsh a
truth to utter in public.
Ravi Kanbur was an inconvenient leftover from the Stiglitz days.
Together they had opened up the drafting of the World Bank's annual
World Development Report, its flagship document. A draft was posted
on the web, and public comments were actively sought, Its drift was that
contrary to standard development doctrine, growth wasn't enough to lift
the poor out of poverty - policy had to be actively tilted in their favor.
(It
should be remembered that we're not talking about people who skip a
meal now and then: The bank's definition of poverty is an income of less
than $1 a day, a ration on which 1.2 billion of the world's people subsist.)
This openness was a departure from past practice, in which the reports
were written by staff economists under the supervision of elite journalists
on loan from The Economist or the Financial Times.
The US government, in the person of Summers, was outraged by
Kanbur & Co.'s draft. As one participant in the process put it, the Clinton
Administration had essentially embraced the trickle-down economics that
Democrats had run against for decades. Kanbur was ordered to rewrite
the report to be more "pro-growth." He resigned instead. In the final
version, among other changes, discussion of the importance of income
distribution to poverty reduction largely disappeared.
A lot of bank staffers were upset by the departures of Stiglitz and
Kanbur (though even Stiglitz's supporters concede he was a poor
manager), but the public executions were a clear warning to any future
dissenters. None of the sources for this article, for example, wanted to
be quoted by name, even though the bank's mission statement swears
that it is an institution based on an ethic of "personal honesty, integrity,
commitment; working together in teams - with openness and trust;
empowering others and respecting differences."
Though ostensibly multilateral institutions, and formally part of the
United Nations, the World Bank and IMF are essentially run by the US
government. As MIT economist Rudiger Dombusch put it a few years
ago, "The IMF is a tool of the United States to pursue its economic policy
offshore." The bank has a reputation for being a bit softer than its
neighbor across Washington's 19th Street; it is, by its mission and by the
preferences of many of its staffers, devoted to poverty reduction and
economic development, while the IMF is the guardian of financial stability
and political orthodoxy. There are some good people with good
intentions working for the bank; the fund is staffed mainly by
disciplinarians. But the fates of Stiglitz and Kanbur make it clear that
there are severe limits on how much good can be talked about, much
less done, by the World Bank.
Treasury Secretary Summers, who purged Stiglitz and Kanbur, was
himself chief economist at the World Bank from 1991 to 1993. In that
role, Summers made headlines when a memo attributed to him -
suggesting that Africa was "vastly under-polluted" and that "the
economic logic behind dumping a load of toxic waste in the lowest wage
country is impeccable" - was leaked to the press. This past April, when I
asked Summers whether Africa was still vastly underpolluted, he said,
after conceding that this was a "fair if not friendly question," that it's
long
established that he was merely being ironic and provocative. He also
praised the 'moral energy" of the protesters who'd come to Washington
to complain about the World Bank and the IMF, unaware that I'd
overheard him just an hour earlier celebrating the "proactive" arrest of
hundreds of them who hadn't committed any crime.
Neither Stiglitz nor Kanbur is a radical by any standard; both are
humane reformers who sincerely care about the world's poor. But even
that was too much for the World Bank and the IMF. The impeccable logic
by which they operate will hear no appeals; their decisions are final.


Doug Henwood, a Nation contributing editor edits the Left Business
Observer. His latest book, A New Economy?, is due out late this year
from Verso.