(As Wolfowitz prepares for his first annual meeting - weekend after next, in
the midst of a huge anti-war mobilisation - Stiglitz's main economic advisor
during his late 1990s WB years chimes in. Ellerman's background includes
brilliant analysis/advocacy of labour markets and worker self-management.
There's great material here and in his new full-length book on the same
topic, though others of us would stress a different reason to nix not fix
the WB, neoliberalism. It's still the brain, nerve centre and good-cop -
with IMF as bad-cop - for the commodification of everything. That *does*
make it a left-right issue.)
David Ellerman, "Can the World Bank Be Fixed", post-autistic economics
review, issue no. 33, 14 September 2005, pp. 2-16,
http://www.paecon.net/PAEReview/issue33/Ellerman33.htm
Can the World Bank Be Fixed?
David Ellerman* (University of California at Riverside)
Abstract
If the goal of development assistance is to foster autonomous development,
then most aid and "help" is actually unhelpful in the sense of either
overriding or undercutting the autonomy of those being "helped." The two
principal forms of unhelpful "help" are social engineering and charitable
relief. The World Bank is the primary example over the last half century of
the failures of social engineering to "engineer" development. Frustration
over these failures, particularly in Africa, is now leading the Bank and
many other development agencies towards the other form of unhelpful help,
namely, long-term charitable relief. The paper outlines some of the reasons
for the failure of socially engineered economic, legal, and social reforms
both in the developing world and in the post-socialist transition countries.
Finally, the argument [given at book length in Ellerman 2005] is summarized
in five structural reasons why the World Bank cannot be "fixed."
Introduction
The World Bank (the "Bank") might be taken as the premier development
assistance agency. With some exceptions, it represents much of what is
wrong with the approach to development assistance in the West over the last
half century. I will try to outline an alternative approach to development
assistance using the Bank and related agencies (e.g., the IMF or "Fund") as
the primary example of how and why development assistance in the customary
mode is ineffective and unhelpful.
This is not particularly a Left-Right issue, at least not as conventionally
understood. Since World War II, Communism had offered an 'alternative' path
to modernization, but from the viewpoint taken here, it was only a more
extreme and bone-headed version of the authoritarian and technocratic social
engineering mentality exemplified by the World Bank. Our approach is to
rethink development assistance from a basic principle of fostering autonomy,
not to offer a critique of the Right as if the Left already had a better
alternative.
Autonomy-Respecting Assistance
The Helper-Doer Relationship
It is not a new idea that genuine help or assistance will foster autonomy,
self-reliance, and self-help at all levels (individuals, organizations,
regions, and countries). There is the old Chinese proverb that instead of
giving people more fish, it is better to teach them how to fish-or better to
help them learn how to fish. There is also the old cliché "helping people
help themselves" which I used as the title for my recent book on this topic
[Ellerman 2005]-with the emphasis decidedly on "people helping themselves."
Even the World Bank begins its Mission Statement with a dedication to
helping people help themselves (www.worldbank.org). The idea cuts across
the fields of human endeavor where there is some helping or assistance
relationship such as education, psychology, management, organizing, and
counseling. Hence it is useful to think in terms of a generic helper-doer
relationship where the teacher-learner, therapist-patient, manager-worker,
and so forth are special cases each with their own particular
characteristics. But most 'help' in these relationships is unhelpful in the
sense of not only not fostering autonomy but of fostering subservience,
conformity, passivity, and dependence. Hence a theory of
autonomy-respecting help also must include a theory of unhelpful 'help'.
The Fundamental Conundrum of Development Assistance
The assumed goal is transformation towards autonomous development on the
part of the doers, with the doers helping themselves. The problem is how can
the helpers supply help that actually furthers rather than overrides or
undercuts the goal of the doers helping themselves? This is actually a
paradox: If the helpers are supplying help that is important to the doers,
then how can the doers really be helping themselves? Autonomy cannot be
externally supplied. And if the doers are to become autonomous, then what is
the role of the external helpers? This paradox of supplying help to
self-help, "assisted self-reliance"[1] or assisted autonomy, is the
fundamental conundrum of development assistance. Over the years, the debates
about aid, assistance and capacity-building keep circling around and around
it.
Unhelpful Help
There are many strategies for development assistance that may supply help in
some form but actually do not help people help themselves. The forms of help
that override or undercut people's capacity to help themselves will be
called "unhelpful help."[2]
There are essentially two ways that the helper's will can supplant the doer's
will to thwart autonomy and self-help:
1) The helper, by social engineering, deliberately tries to impose
his will on the doer; or
2) The helper, by benevolent aid, replaces the doer's will with her
will, perhaps inadvertently.
"Override" or "undercut" are shorthand terms for these two conceptually
distinct yin-and-yang forms of unhelpful help (which may be combined, as
when benevolence hides the desire to control).[3]
Unhelpful Help #1: Social Engineering
The overriding form of unhelpful help is a type of social engineering. The
helpers supply a set of instructions or conditionalities about what the
doers should be doing. They also offer motivation to follow this blueprint
through various forms of aid to override the doers' own motivations. If we
use the metaphor of the doers as trying to work their way through a maze,
then the helpers as social engineers perceive themselves as helicoptering
over the maze, seeing the path to the goal, and supplying instructions
(knowledge) along with carrots and sticks (incentives) to override the doers'
own motivation and push the doers in "the right direction."
Unhelpful Help #2: Benevolent Aid
The second form of unhelpful help occurs when the helper undercuts self-help
by inadvertently supplying the motivation for the doer to be in or remain in
a condition to receive help. One prominent example of this is long-term
charitable relief. The world is awash with disaster situations that call for
various forms of short-term charitable relief. The point is not to oppose
these operations but to point out how charitable relief operates in the
longer term to erode the doers' incentives to help themselves-and thus
creates a dependency relationship. Charity corrupts and long-term charity
corrupts long term.
All aid to adults based on the simple condition of needing aid risks
displacing the causality. The working assumption is that the condition of
needing aid was externally imposed (e.g., a natural disaster); the aid
recipient shares no responsibility. But over the course of time, such aid
tends to undermine this assumption as the aid becomes a reward for staying
in the state of needing aid,[4] all of which creates dependency and learned
helplessness. Thus relief becomes the unhelpful help that undermines
self-help.
Modernization and Development as a Social Engineering Project
Prior to the twentieth century, economic development in Europe and North
America was seen as the outcome of a natural process of growth rather than
as the result of a massive social engineering project. But when the lagging
countries envisioned their "late industrialization," engineering and even
military images came to the foreground. After the revolution in a Russia
barely emerging from feudalism, real-existing socialism was seen as a
socially-engineered short-cut directly to modernity and an industrial
society.
In the West, socially engineered visions of development did not take hold
until after World War II. The Marshall Plan was seen as an enormously
successful "project" for the reconstruction of western Europe.[5] With the
liberation of the many former European colonies in the Third World and the
advent of the Cold War, the West quickly realized that it needed to offer a
non-communist path to rapid modernization and industrialization. With the
newly created World Bank and International Monetary Fund (IMF) as the lead
organizations and with the Marshall Plan as the mental model, economic
development was reconceptualized as a social engineering megaproject rather
than as an evolutionary socio-economic-historical process. The Soviet Bloc
countries were not members of the World Bank or IMF (unlike the United
Nations)-in spite of the adjectives "World" and "International"-so the race
was on between the West and Soviet Bloc to offer the best development model
to the "Third World."
With the dissolution of the Soviet Bloc and the Soviet Union in the early
1990s, the western development assistance institutions triumphed as offering
the One Best Way. And the Second World, the formerly socialist countries,
became new clients of the international development agencies. International
development is now a huge "industry" in itself. The World Bank and the IMF
are joined by development organizations associated with the UN (e.g., the UN
Development Program and the UN Industrial Development Organization), by the
World Trade Organization, by regional development banks in Africa, East
Europe, Latin America, and Asia, by bilateral foreign aid agencies (such as
the US Agency for International Development), by a panoply of operating
foundations working on development issues (e.g., the Ford, Rockefeller,
Carnegie, and Soros foundations), and finally by swarms of non-governmental
organizations (NGOs) from both the North (developed countries) and South
(developing countries).
Over the decades, the major development assistance institutions have run
through a number of development foci (or fads). Initially, the focus was on
provision of physical infrastructure: roads, seaports, airports, dams, and
power plants. After much expensive disappointment, the emphasis shifted to
education (formation of "human capital"), health, and the satisfaction of
basic necessities.
These programs represented a swing of the pendulum away from the
engineering-oriented infrastructure programs towards the other form of
unhelpful help, charitable programs. But as these charity-oriented programs
yielded neither the desired developmental results nor loan repayments, the
pendulum swung back to social engineering in the form of structural
adjustment programs. Here the social engineering came more from economics
than civil engineering, and the slogan was "Get the prices right." But
since markets require a reasonably well-functioning set of institutions, the
focus on prices and structural adjustment soon broadened to governance
issues including corruption, business climate, and a legal system to protect
property rights and to adjudicate and enforce contracts. Hence the current
slogan is "Get the institutions right" as if institutions could be socially
engineered as large development projects.
Today the pendulum in the World Bank and many of the other international and
bilateral agencies is starting to swing back in the direction of charitable
disaster relief. Development, where it has occurred (e.g., East Asia), has
been a relatively incremental process rather independent of the social
engineering projects and programs offered by the Bank and Fund. The major
assistance bureaucracies such as the Bank need to reinvent reasons for their
continued existence. The crisis of AIDS and other diseases such as malaria
threaten to undo many of the meager developmental accomplishments of the
past. It is likened to a "silent tsunami" that calls for the development
assistance agencies to shift into disaster relief mode to meet the crisis.
The other major factor today came forcefully into the foreground with the
events of September 11, 2001. The War on Terror may eventually replace the
Cold War in the rationalization of the major agencies. The ascent of Paul
Wolfowitz to the Presidency of the World Bank may be a case in point. The
role of the major agencies is twofold. There is the "camp-following" role
of post-conflict "nation-building" in Afghanistan and Iraq that builds upon
earlier post-conflict experience in the Balkans and East Timor. And there
is the longer term "draining the swamp" role of fighting the poverty and
desperation that supposedly bred terrorism.[6]
After nearly six decades of attempts to socially engineer development, the
various efforts cannot be judged a success.[7] Where development has been
most successful in the East Asian countries, the standard model (e.g.,
"Washington Consensus") has not been followed and outside observers do not
credit the development agencies with a key role [e.g., Wade 1990]. Where
the international agencies have had the freest hand to try to impose
solutions, e.g., in Africa and Latin America, there has been the least
success [e.g., Van de Walle 2001 on Africa]. This was the conclusion of
even the World Bank's own respected researcher William Easterly [2001].[8]
The Challenge of the Transition: Shock Therapy as Ersatz Social Engineering
The transition from communism to a private property market economy presented
a unique challenge to the major development assistance agencies. It was a
new challenge since prior history did not provide examples of this systemic
transition. The transition is a wonderful case study of the effects of
'enlightened' social engineering for two reasons. One reason is that the
transition and the role of the major development agencies in it took place
largely in the decade of the 1990s so that we have a little perspective of
history. The other reason is that there was a remarkable natural experiment
in the transition; the two major countries, Russia and China, each used
opposite philosophies. Russia chose the social engineering model of
institutional shock therapy offered by the international development
agencies and the most prominent academic economists as advisors. China
chose pragmatism after "learning the hard way" the lessons from using
Bolshevik methods to try to engineer social change (e.g., the Great Leap
Forward and the Cultural Revolution).
The difference in results could hardly be more striking. Since the Chinese
reforms started with government support in the early 1980s, China has had
around 8 percent per capita annual growth [McMillan 2002, 204], perhaps the
largest growth episode in history.
Russia using the shock therapy strategy went the other way. In the first
year of shock therapy (1992), production fell by 19 percent with a further
12 percent and 15 percent in the ensuing two years [McMillan 2002, 202]. In
all, the country bottomed out at about a 50 percent drop in GDP. Experts can
argue about the interpretation of the economic statistics, but the
demographic trends tell an even more worrisome story. The population has
actually declined over the 1990s in such a precipitous manner-now for every
100 babies born, 170 Russians die-that the government projects a 30 to 40
percent drop by 2050 [Feshbach 2003a, 2003b]. The causality behind these
trends is very hard to disentangle-which is why the side-by-side comparison
with China is so revealing.
Since the systemic transition from plan to market had never happened before
in history, it surely called out for a non-dogmatic approach of
trial-and-error and experimentalism, i.e., for pragmatism. Two earlier
attempts to socially engineer revolutionary changes in social, political,
and legal institutions-the French Revolution and the Russian Revolution-had
led to disastrous results. The names "Jacobins" and "Bolsheviks" entered
history as labels to describe those who eschew pragmatism to try to force
historical change.
One of the most influential critiques of the Jacobin methods used in the
French Revolution was Edmund Burke's Reflections on the French Revolution:
In a letter intended to have been sent to a gentleman in Paris [1937 (orig.
1790)]. At the beginning of the decade of the transition (1990s), Ralf
Dahrendorf (a political sociologist and head of the London School of
Economics), wrote a book, Reflections on the Revolution in Europe: In a
letter intended to have been sent to a gentleman in Warsaw [1990], updating
Burke's message for the coming post-socialist transition. Dahrendorf argued
for the transition "to work by trial and error within institutions" [1990,
41; quoted in: Sachs 1993, 4]. Neoclassical economics has become the
primary intellectual framework of today's social engineering. In the early
debates about the transition, a prominent economist and even more gifted
self-publicist, Jeffrey Sachs (then of Harvard and now at Columbia
University), argued that he and other economists already had the answers.
After quoting Dahrendorf, Sachs argued to the contrary in favor of an
economics-inspired crash program of institutional shock therapy. "If instead
the philosophy were one of open experimentation, I doubt that the
transformation would be possible at all, at least without costly and
dangerous wrong turns." [Sachs 1993, 5]
The French Revolution was not the only relevant historical example. John
Maynard Keynes described the Russian Revolution and its aftermath in terms
that are surprisingly apt to describe Russia in the 1990s.
We have a fearful example in Russia today of the evils of insane and
unnecessary haste. The sacrifices and losses of transition will be vastly
greater if the pace is forced..For it is of the nature of economic processes
to be rooted in time. A rapid transition will involve so much pure
destruction of wealth that the new state of affairs will be, at first, far
worse than the old, and the grand experiment will be discredited. [Keynes
1933, 245]
Instead of taking these lessons to heart, the Russian reformers of the 1990s
became "market bolsheviks" [Reddaway and Glinski 2001] in their attempt to
use the "window of opportunity" to make the opposite transition from plan to
market.
There are a number of factors that combine to yield this view of engineered
revolutionary change. The question is not whether or not to make systemic
change. The question is: given a commitment to basic change-to get to the
"other side of an institutional chasm"-how best to get there? A pragmatic
approach would emphasize incremental step-by-step change starting from where
people are. Sachs often used the metaphor "you can't jump over a chasm in
two leaps" but even rather radical pragmatists would argue that people "need
a bridge to cross from their own experience to a new way." [Alinsky 1971,
xxi].
Another factor leading to social engineering schemes is the use of
simplified abstract models and a lack of experience in the give and take of
practical political experience. James Scott's book [1998] argues
persuasively that states use simplified pictures of static reality to
administer their affairs (e.g., to collect taxes and to staff the army) but
that these simplified pictures lead to disaster when they are the basis for
large-scale social engineering schemes to change societies. Academic
economists and global development bureaucrats have little contact with local
realities and thus they tend to be driven by such simplified cartoon models.
Exiles who have not participated in the give and take of politics in a
country for years if not decades also tend to have cartoon models. It is
the combination of power and highly simplified models of complex social
realities that is particularly lethal. In our case, the power of the
international agencies together with the bureaucratic/academic cartoon
models contributed to the debacles of shock therapy in the FSU.
There is a side-theme that might be explored. Youthful prodigies are
typically in activities based on abstract symbol manipulation (e.g.,
mathematics, music, and chess) where subtle and often tacit background
knowledge obtained from years of human experience is not so relevant (see
Scott's discussion of pragmatic knowledge or "metis"). As economic theory
has become more mathematical, there is now the phenomenon of wunderkind
professors in economics (e.g., Jeffrey Sachs, Larry Summers, and Andrei
Shleifer were all prodigy-professors at Harvard) who are then unleashed-with
the compounded arrogance of youth, academic credentials, and elite
associations-into the real world as ersatz "economic reform experts." Paul
Starobin [1999] contrasts the wunderkinder of "Big Bangery" with the mature
pragmatists behind the Marshall Plan, and notes the striking difference in
results. When wunderkinder cast long shadows in the development agencies
(e.g., Summers as Chief Economist in the Bank, Shleifer as manager for
USAID's big project in Russia, and now Sachs as a top 'development' advisor
to the UN), then it must be late in the day for those agencies.
"Cargo Cult" Economic Reforms: Where is the Road to Cargo?
There is a certain self-reinforcing vicious circle that leads the Bank and
other agencies to try to "install" inappropriate institutions in developing
and transitional post-socialist countries. Let us begin with the supply
side of this unhappy transaction.
People from advanced developed countries are, in effect, "born on third base
and think they hit a triple."[9] Such "natural-born development experts" may
be graciously disposed to teach developing countries how to "hit a triple."
The developing country should redraft its laws to describe the institutions
seen from the vantage-point of "third base" [e.g., "like in America"] and
then after passing these new laws, everyone should wake up next morning as
if they too were born on third base.
Societies, however, tend to operate on the basis of their de facto
institutions, norms, and social habits, not their formal laws-and
particularly not the formal laws "pulled out of the air" with little
relation to past experience. When such a gap between formal and de facto
institutions is introduced, then the bulk of the population can rarely "jump
over the chasm" to suddenly start living according to the new formal laws-so
the rule of law is weakened. Semi-legal ("gray") and illegal ("black")
activities become more prominent as the connection between legal and actual
behavior is strained to and beyond the breaking point. The advice from the
natural-born development experts thus becomes more part of the problem than
part of the solution. More relevant institutional information could be
provided by people who were only on first or second base since they might
actually know how to hit a single or a double.
Now consider the demand side-the demand for impossible "overnight" jumps to
institutions copied from technologically advanced developed countries. The
people and the politicians of the developing and the transition economies
are constantly bombarded by the mass media with images of life in the "First
World." They want to get there "tomorrow" (if not "yesterday"). Consultants
and academics from elite universities with no real development experience
badger the government officials to have the political courage and will to
undertake a shock-therapy-style change in institutions, to jump over the
chasm in one leap (i.e., jump directly to third base)-as if such
institutional change were actually possible. Those locals who caution
against radical leaps are dismissed as only trying to protect their
privileges and "rents" from the past regime. "How dare you think you know
better than professors from Harvard!"[10] The idea is to "escape the past,"
not to study the past to better develop incremental change strategies. If
the scientific experts from the First World give this advice, how can the
benighted officials from the Third World or the post-socialist countries
resist? All people have to do when they wake up the next morning is to
start behaving according to the new laws drafted by the experts!
For instance in a southeast European post-socialist country that had been
particularly isolated in the past, government officials wanted to jump to
modern corporations "like in Europe." This was an example of an "iceberg"
institutional reform; the "above the water-line" laws could be quickly
changed but the problem was the "below the water-line" long-term changes in
behavior.[11] They located a European foundation that was willing to fund
an "adaptation" of the corporate laws of a west European country. The new
draft laws were quickly passed by the Parliament so that the government
officials and legislators could brag that they now had "European corporate
statutes." All they needed now was a few lawyers, a few judges, a few
accountants, a few regulators, a few business people, and a few decades of
institution-building experience so that the new statutes could actually be
used. Any attempt to get the country to adopt laws similar to those in
neighboring countries that had incrementally evolved towards a market
economy for several decades was angrily rejected. "Why do you try to get us
to use these second-best or third-best laws when we can adopt the best
European statutes?" Surely the natural-born development experts from the
First World want to provide the best laws for their clients?
Thus the government officials demand that they do not want some second-best
model; they want the "very best" for their people-like in the advanced
countries. The third-basers in the international aid bureaucracies then can
reap the seeds they have sown by "listening to the clients" and "responding
to the clients' desires" by trying to set up "public joint stock companies"
in Albania, a "stock market" in Mongolia, "defined contribution pension
plans" in Kazakhstan, and "modern self-enforcing corporate laws" in
Russia.[12] Thus the circle is completed; supply responds to demand in a
self-reinforcing vicious circle to waste untold aid resources on the
attempted instant gratification of a non-evolutionary "Great Leap Forward"
to First World institutions.[13]
The failed attempts at utopian social engineering might be usefully viewed
from an anthropological perspective. Many of the First World institutions
such as "The Stock Market" have a certain totemic or 'religious'
significance. The Wall Street mentality found in the post-socialist world
is reminiscent of the cargo cults that sprung up in the South Pacific after
World War II.[14] During the war, many of the glories of civilization were
brought to the people in the southern Pacific by "great birds from Heaven"
that landed at the new airbases and refueling stations in the region. After
the war, the great birds flew back to Heaven. The people started "cargo
cults" to build mock runways and wooden airplanes in an attempt to coax the
great birds full of cargo to return from Heaven.
Post-communist countries, with hardly a banking system worthy of the name,
nonetheless opened up Hollywood storefront "stock exchanges" which were
kickstarted by the listing of shares in almost all companies in a voucher
privatization program. Government officials in East Europe, the former
Soviet Union, and even Mongolia proudly showed the mock stock exchanges,
complete with computers screens and "Big Boards," to western delegations of
Bank, Fund, and USAID officials (with enthusiastic coverage from the western
business press) in the hope that finally the glories of a private enterprise
economy will descend upon them from Heaven. An earlier generation of
misguided development efforts left Africa dotted with silent "white
elephant" factories, and the present generation of revolutionary reforms in
the post-socialist world left the region dotted with dysfunctional "cargo
cult" institutions-the foremost among them being the largely totemic stock
markets.
Summing Up
After book-length argumentation [Ellerman 2005] that is only hinted at here,
I concluded that the World Bank could not be "fixed." Its activities and
policies are the result of at least five powerful structural imperatives
that cannot be changed, say, by more enlightened or well-intended
leadership.
Structural Problem #1: Monopolistic Power
If in fact development were the sort of thing that could be "socially
engineered" then there would be a good case to have a very powerful global
development agency. But wherever the desired outcomes require sustainable
changes in the actions and beliefs of the doers-unlike the "vaccination of
children" or "mosquito nets" model of assistance[15]-then the engineering
approach subtly fails to achieve thorough-going and long-lasting results.
The externally-sourced pressures of the direct engineering approach can only
create the external show of results that provides a type of short-term
pseudo-verification for the aid bureaucracies. Genuine internal change in
the doers requires internally-sourced motivation and active learning by the
doers-all of which requires a fundamentally different autonomy-respecting
approach on the part of the helpers.
One problem lies in the imperatives of the organizations themselves.
Individuals in large or small aid organizations need to "move money" and
"show results" for their bosses, sponsors, or donors. Hence the would-be
helpers will try to take over, control, and own the interaction with the
doers in order to "deliver" the desired "results." The more powerful the
helping organization, the more damaging is this organizational drive.
On the whole, the conundrum of actually helping people help themselves is so
basic and subtle that trying to get a large development agency to operate on
that basis is akin to trying to get an elephant to dance a ballet.
Regardless of the rhetoric and good intentions, it is not going to happen.
The World Bank is now an economists' bank, not a civil-engineers' bank. One
might think that all the economists in positions of power in the Bank would
recall their catechisms about the problems of monopoly. But it would seem
that they are more attracted to the notion of "global" than they are
repelled by the notion of "monopoly." All the rhetoric about a "global
agency" having a "global role" to gather "global knowledge" to solve "global
problems" seems to be so much "globaloney" to justify the monopolistic
world-wide role of the World Bank.
Structural Problem #2: Affiliation with United States' Policies and
Interests
All this would be true of the World Bank if it were located in a neutral
city like Geneva or, if one can imagine it, in the developing world, e.g.,
in Africa. But in fact, the World Bank and the IMF are located a few blocks
from the White House in Washington. Most of the communist countries during
the Cold War period, like North Korea or Cuba today, were not members of the
Bretton Woods institutions so the International Bank for Reconstruction and
Development and the International Monetary Fund were not "international" in
the sense of the United Nations. Instead they were part of the "West" led by
the United States.
Today after the collapse of the Communist Bloc, the United States has
emerged as a relatively unchallenged global power, and the Bank and IMF have
kept their role as team players headquartered a few blocks from the White
House. By arrangement, the President of the Bank is always an American
national selected by the US President while the Fund has always been led by
a European.[16] Both institutions are thoroughly imbued with an American
perspective as expressed in the variants of the "Washington Consensus"
(e.g., Stiglitz 2002) and in the cheerleading for increased American
hegemony under the label of "globalization." Thus on many issues, the U.S.
Government does not need to exercise direct control. But on the major issues
of the day, the Bank and Fund twist and turn according to the twists and
turns of American foreign policy.[17] This would be the same even if the
president of the Bank was not Paul Wolfowitz.
Structural Problem #3: Money is Not the Key to Development Assistance
The third problem is that the Bank is a bank. The idea that money is key to
development goes back to the original idea of the Bank as financing civil
engineering projects, a role now largely taken over by the private sector.
When the Bank then turned to policy-based lending and institutional
development projects, it of course did not cease to function as a bank.
While capital may indeed have been the missing ingredient necessary to build
a dam or power station, it is by no means clear that money can buy real
changes in policies or can build institutions. Indeed, the availability of
large amounts of money to developing countries overrides their other
motivations and redirects their attention to playing whatever game is
necessary to get the money. Money is the magnet that sets all compasses
wrong; it is the root of much unhelpful help. Decades of experience in
Africa and elsewhere have made it crystal clear that money is not the key
missing ingredient in institutional development (as it might be in building
an airport). The implicit assumption that a development agency should
function as a money-moving machine has little to support it and much
evidence against it. The recent efforts by the "Development Set" (from
political leaders and academic 'development' experts to pop stars) to
address Africa's development problems by pumping in huge additional amounts
of money are pathetically misdirected. The Bank has already "been there and
done that."
Structural Problem #4: Working Through Governments that are Part of the
Problem
The fourth structural problem is that in the Bank's helper-doer
relationships, the doer is the government of the developing country.
Needless to say, the governments of developing countries are made up more of
the rich than the poor and more of the powerful than the powerless.[18] Yet
the mission of the Bank is to enrich the impoverished and to empower the
disempowered. Putting the mission together with the modus vivendi yields the
unlikely strategy of working through the rich and powerful to help the poor
and disempowered people of a country. But making any fundamental changes in
the economic, political, and social relationships could not be further from
the intentions of the rich and powerful elites in these countries.[19]
Since these elites are more a part of the problem than a part of the
solution, it should be no surprise that this strategy has shown meager
results. And the current calls to pour still more aid money through the
usual channels do not address the problem. Loan and aid monies to the
governmental elites will be used mostly for their own benefit with at best
some trickle-down to the poor-feed enough oats to the horse and some will
pass through to the road for the sparrows. Hence the effort of today's
"development leaders" to feed even more oats to the horses-all because of
their heart-felt concern for the sparrows.
Structural Problem #5: Tries to Control Bad Clients Rather Than Exit
Relationship
The fifth structural problem is the organization of the Bank as helper in
its helper-doer relationship. The Bank is essentially a financial
cooperative of its member countries, the developed "Part I" countries that
participate mightily in Bank governance but do not borrow and the developing
"Part II" countries that can borrow from the Bank. The problem with the
borrowers being members is the way the voice-exit dynamics plays out. A
commercial bank does not have to make loans to any specific potential
clients; it has no fixed set of "members." While a commercial bank might try
to work with a potential client to improve its borrowing capacity, there are
limits on that relationship. When the potential borrowers shows little
inclination to reform or restructuring, then the commercial bank can exit
the relationship.
But the World Bank is locked into a relationship with the worst borrowing
countries in the world. As these countries are in the most need of genuine
help, the Bank is constantly torn between the desire to help the poorest of
the poor countries and to walk away from oppressive and kleptocratic
governments of those countries. While the Bank can in some cases reduce its
involvement to a legal minimum, it cannot just walk away like a commercial
bank. Hence the exit-voice dynamic works in the other direction of the Bank
trying to exercise more voice in the country-in effect to try to run the
country in a state of tutelage (no doubt together with the IMF). If the
experience in sub-Sahara Africa is any guide, the Bank's tutelage is not
very effective. In many of the poorest countries, the lack of state capacity
along with the AIDS crisis and the "no exit" condition on the Bank have
transformed the Bank's aid program from social engineering for development
towards the model of long-term charitable relief (the second form of
unhelpful help).
Indeed, if I was to make a "cynical prediction" about the future trajectory
of the Bank, then the prediction is that the Bank will be both pushed and
pulled to become a hospital for the "basket cases" of development assistance
(e.g., post-conflict countries or "low income countries under
stress")-particularly in Africa. Then the Bank will combine the first form
of unhelpful help (social engineering) with the second form of unhelpful
help (long-term charitable relief). It is well-nigh structurally impossible
for the World Bank to actually help people to help themselves. Fifty-plus
years is more than enough.
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___________________________
* David Ellerman recently retired after ten years in the World Bank where
for three years he was economic advisor and speech-writer for Joseph
Stiglitz during Stiglitz's tumultuous tenure as the Bank's Chief Economist.
For more information, see: www.ellerman.org .
[1] The phrase is from Uphoff, Esman and Krishna (1998). See also Chapter 8
of Fisher (1993) on the "central paradox of social development."
[2] For related notions, see Gronemeyer (1992) on "help (that) does not
help" and Ivan Illich's notion of "counterproductivity" (1978).
[3] Albert Memmi found essentially the same two forms of an unhelpful
helper-doer relationship. In the social engineering case, the "helper" is
the dominator or colonizer while the "doer" is the subjugated one or the
colonized (Memmi 1967). In the case of "oppressive benevolence" (to use John
Dewey's phrase), the "helper" is the provider and the "doer" is the
dependent (Memmi 1984).
[4] See Ellwood (1988) on the "helping conundrums."
[5] Nota bene, it was the "reconstruction" of an already developed Europe,
not the development of Europe. Thus the application of the Marshall Plan
idea to the Third World was misconceived from the beginning.
[6] For the first post-9/11 All Bank Conference on Development Economics
(ABCDE) conference in 2002, a distinguished Princeton economist, Alan
Krueger, was commissioned to give an empirical paper on the roots of
terrorism. The Bank had a clear Official View that terrorism was rooted in
poverty so that some of the huge funds for the war on terrorism could be
channeled to the Bank. When Krueger's paper arrived so that it could be
printed for distribution at the conference, its conclusions were quite the
opposite. Little connection between terrorism and poverty or education was
found. Instead evidence pointed to "political conditions and long-standing
feelings of indignity and frustration that have little to do with
economics." (Krueger and Malecková 2003, 119) The Board representatives
from the Gulf States were particularly upset at the mention of political
conditions and at the fact that the Bank would commission a study of
terrorism in the first place. They managed to get the apparatchiks in the
Development Economics Vice-Presidency (DEC) in the Bank to completely
suppress the paper at the conference and to 'air-brush' it out the
conference program (see http://econ.worldbank.org/abcde/ ) and publications.
It was later published in the Journal of Economic Perspectives (Krueger and
Malecková 2003) with no mention of the incident or of the Bank.
[7] One consequence of consistent failure is the watering down of the notion
of evaluation to the ultimate low-hurdle form, a so-called "impact
evaluation." The most basic notion of valuation in economics is the notion
of opportunity cost: the cost of using resources of plan A is the value
foregone by not taking the best alternative plan B using the same resources.
Hence the heart of the notion of "evaluation" is to compare the results of
the plan A that was undertaken with the best alternative plan B using
roughly the same resources. But in the face of persistent failure over
decades, the project managers in the Bank and other major agencies have come
to favor "impact evaluations" that compare the results of the undertaken
plan A to the "counterfactual" of spending no resources at all. Thus if a
project manager can spend hundreds of thousands or millions of dollars and
not do actual harm (with some positive results) compared to what would have
happened if nothing was spent, then the project gets a positive (impact)
evaluation! It is as if a company would spend $1,000 or $10,000 of variable
costs on each unit of a product A that could sell for at most $100. An
"impact evaluation" was then done to "see what works and what doesn't" to
generate positive revenue. It was found that product A indeed generates
$100 of revenue while the counterfactual of no product (and no costs)
generates no revenue, so definitely product A "works" and gets a positive
evaluation. It is not surprising that project managers love this ultimate
low-hurdle form of "evaluation" and that the World Bank is now engaged in
promoting "impact evaluations" as the "scientific" way to "see what works"
in development assistance.
[8] Easterly was charged with an "ethical" violation on a technicality
(failing to get prior approval from the Bank's public relations department
before publishing a personal op-ed piece about the book's conclusions) and
was forced out of his tenured position in the World Bank shortly thereafter.
He is now a university professor.
[9] The baseball metaphor was used by the Texan populist and political
commentator Jim Hightower to describe the first President George Bush.
[10] See Wedel [1998] and Ellerman [2001, 2003] for more on the role of the
Harvard wunderkinder in Eastern Europe and in Yeltsin's Russia. Jeffrey
Sachs was the first young Harvard economics professor to gain notoriety in
this regard, but he was soon eclipsed by his colleagues Lawrence Summers
(who during the early 1990s become Chief Economist of the World Bank and
later Secretary of the Treasury in the U.S. government) and, his protégé,
Andrei Shleifer (born in Russia but emigrated to America as a teenager).
[11] The difference was noted by the British economic historian, Richard
Tawney, after visiting China in 1930. "To lift the load of the past, China
required, not merely new technical devices and new political forms, but new
conceptions of law, administration and political obligations, and new
standards of conduct in governments, administrators, and the society which
produced them. The former could be, and were, borrowed. The latter had to
be grown." [Tawney 1966 (orig. 1932), 166]
[12] See "Corporate Law from Scratch" [Black, Kraakman, and Hay 1996] for a
remarkable example of trying to etch first-best laws as if on a blank slate
in Russia. Even more remarkable is that after much bitter experience with
corporate governance in Russia, Black and Kraakman reversed themselves
[Black et al. 2000] and argued for a more pragmatic "staged" approach to
legal and institutional development. The third author of "Corporate Law
from Scratch", Jonathan Hay, was a legal specialist from the Harvard Law
School who worked with Shleifer in Russia on USAID contracts through
Harvard. Shleifer and Hay were later indicted by the US Department of
Justice and convicted for corrupt practices in that work.
[13] Again Tawney put it well. "What makes modern industry is ultimately not
the machine, but the brains which use it, and the institutional framework
which enables it to be used. It is a social product, which owes as much to
the jurist as to the inventor. To regard it as an ingenious contrivance,
like a mechanical toy, or the gilded clocks in the museum at Peiping made by
London jewellers for the amusement of Chinese emperors, which a country can
import to suit its fancy, irrespective of the character of the environment
in which the new technique is to function, is naïve to the point of
absurdity. It is like supposing that, in order to acclimatise Chinese
script in the West, it would be sufficient to introduce Chinese brushes and
ink." [Tawney 1966 (orig. 1932), 130]
[14] See the chapter on "Cargo Cult Science" in Feynman 1985. See the
Foreword by J. K. McCarthy in Lawrence 1979 for the cargo cult formulation
of the question of development assistance: "Where is the road that leads to
cargo?"
[15] These are code phrases for the rather common type of development
thinking (Jeffrey Sachs is a foremost current representative) that
implicitly models development assistance on a physical effect regardless of
the autonomous efforts of the doers. The predominant image is that the
helpers parachute into, say, Africa and "vaccinate children." The
beneficial effect is physical regardless of the voluntary (never mind
autonomous) efforts of the apparently helpless and child-like beneficiaries
themselves. The helpers can then fly out with a warm glow of moral
satisfaction for having done some good. "Providing mosquito nets" is the
most recent cartoon image of development assistance.
[16] Hence the highest ranking American in the Fund is typically the number
two position of Deputy Managing Director. When Stanley Fischer, the Deputy
Managing Director of the IMF during the contentious late 1990s and a
previous Chief Economist for the World Bank, retired from the IMF, the
former MIT professor immediately took the yellow-brick road from 19th Street
(IMF headquarters) to Wall Street to become a vice-chairman of Citigroup.
That was certainly congruent with the hypothesis that the IMF sees the world
through a Wall Street lens.
[17] See Blustein 2001 and Stiglitz 2002 on how the Bank and Fund functioned
as a junior partner in US foreign policy in Russia and in the East Asian
crisis during the 1990s.
[18] And the staff members in the Bank and Fund from developing countries
are drawn from the middle and upper classes.
[19] Charitable programs focused on individuals or families (e.g.,
microfinance loans to individuals) are fine but the elites would not support
help to the poor and disenfranchised to organize themselves socially and
politically to collectively act on their own behalf.
