Martin Wolf on the World Bank

Recently the IEA sent me a flier about this book in praise of globalisation, and I went round there and bought a copy from them (at an enticingly reduced price – thank you Adam). That second link is to an IEA review of the book. So far I have only read the Introduction, so I cannot offer you a review of my own, but already I am impressed.

I found especially interesting what the book’s author Martin Wolf had to say about the World Bank, and about its boss at the time that he worked for it, Robert McNamara.

For some reason I have never really paid proper attention to the World Bank. I knew that I was vaguely against it. I suspected it of doing too many of the things that the globalisers who are the target of Wolf’s book still complain about it not doing. But I had never really got to grips with the story. So this bit of Wolf’s Introduction really struck home to me:

By the late 1970s, I had concluded that, for all the good intentions and abilities of its staff, the Bank was a fatally flawed institution. The most important source of its failures was its commitment to lending, almost regardless of what was happening in the country it was lending to. This was an inevitable flaw since the institution could hardly admit that what it could offer – money – would often make little difference. But this flaw was magnified by the personality of Robert McNamara, former US Defence Secretary, who was a dominating president from 1967 to 1981. McNamara was a man of ferocious will, personal commitment to alleviating poverty and frighteningly little common sense. By instinct, he was a planner and quantifier. Supported by his chief economic adviser, the late Hollis Chenery, he put into effect a Stalinist vision of development: faster growth would follow a rise in investment and an increase in availability of foreign exchange; both would require additional resources from outside; and much of these needed resources would come from the Bank. Under his management, the Bank and Bank lending grew enormously. But every division also found itself under great pressure to lend money, virtually regardless of the quality of the projects on offer or of the development programmes of the countries. This undermined the professional integrity of the staff and encouraged borrowers to pile up debt, no matter what the likely returns. This could not last – and did not do so…

Wolf’s next paragraph starts predictably:

By that time I had had enough…

But then Wolf goes into a bit of detail, on the subject of India.

… I had worked on India as senior divisional economist for three years. During that time, my chief function, so far as the Bank was concerned, was to justify the provision of significant quantities of aid, even though this money was helping the government of India avoid desperately needed policy changes. As it turned out, those changes were made in a midst of a deep foreign exchange crisis in 1991, almost two wasted decades later…

And then Wolf hammers home the further point that his Indian experiences illustrate:

Unfortunately, lending too much was not the Bank’s only fault. It also had to lend to governments. This had two undesirable consequences: it had to assume that the government represented the interests of the country; and it reinforced an unjustifiably collectivist view of that national interest. Bank lending made it easier for corrupt and occasionally vicious governments to ignore the interests and wishes of their peoples. By the end of my time at the Bank, I came to the conclusion that its borrowers fell into three categories – those that did not need the help; those that would not use the help; and those that needed the help and would use it. The Bank was constitutionally incapable of concentrating its efforts on this third, often quite small group. As a result, its efforts were often either unnecessary or wasteful. I therefore came to agree with most of the criticisms of aid that had long been made by the late Peter (Lord) Bauer.

Who he? (As the IEA’s former editorial supremo Arthur Seldon would say.) He.

Wolf continues:

The realization that the institutions designed to oversee aspects of the global economy might fail, even though integration was an important element in successful development, has stayed with me to this day. To defend a liberal world economy is not to defend the International Monetary Fund, the World Bank, the World Trade Organization or any specific institution. These must be judged – and reformed or discarded – on their merits…

The important thing to understand about foreign aid (which is what stupidly soft loans are) is that they do not merely fail to do good. They do active harm. They help to keep in place destructive policies and to keep in office vicious and destructive politicians and officials which and who might otherwise have been done away with. They do bad.

And the World Bank is all part of that sad story, and a very big one I should imagine.

Apologies if I am the last person who writes for or who reads Samizdata.net to have heard this item of news. But no apologies for posting what Wolf says about it, because he is not just saying it, on a blog or something. He is saying it in a big and important book which has the air of establishment-think about it. So the news here is not just that the World Bank is harmful and dangerous, but that People Who Matter are starting seriously to realise it. This is very good news indeed.