The Scandal of the World Bank - Updated

This blog may not be about what you think it is, if you have been following the news.

Many 'citizens' of the US are not very aware of the World Bank and International Monetary Fund. The average person in the US, in my experience, does not know much about these organizations at all. To most people in the US, the letters 'IMF' refer to a series of movies starring Tom Cruise and the 'WB' is where to tune in for replays of 'Saved by the Bell'. This is, I think, because most people in the US are not directly affected (or so they think) by the WB and IMF. I wouldn't be surprised if most people in the US asked "what is the World Bank?" when the news began to break that Paul Wolfowitz had promoted his girlfriend and gave her a nice fat salary. Even more scandalous than Wolfowitz's behavior is the fact that most people (in the US) did not even know, before the scandal, that Wolfowitz was the chief of the WB, and even fewer questioned his credentials in that post or his agenda there.

To many people outside of the US, and especially in places like Africa and India, the WB and IMF are quite prominent aspects of their lives. Hugo Chavez, in fact, has taken it as his mission to 'liberate' Latin American countries from the grips of these groups. (My feelings on Chavez are ambivalent, at best, but shouldn't we at least ask why it is that this is so important to him and his constituents?) My intention here is not to educate whomever might come to read this blog on the activities of these organizations – rather, only bring them to light and encourage some level of interest in what they do and don't do. I also don't want to paint a monolithic picture of these groups as inherently evil or without good intentions, as Chavez has done – and especially not to portray them as without great possibility to change the world. Actually, I truly believe (some would say I am foolishly optimistic), that if more US Americans took an interest in these organizations, there might be hope to reduce the rampant corruption, manipulation, strong-arming, and cultural imperialism so prevalent in these groups today – and perhaps even improve the lives of the world's most desperately poor. US corporations and special interest groups give millions of dollars to US political campaigns (of both parties!), and one of their primary concerns is the selection of bureaucrats to head the WB, IMF, and participate in the WTO and UN. The fact that most people in the US couldn't care less about whom is selected is one of the greatest joys of these political contributors. It means that someone like Paul Wolfowitz can get appointed, and really no one in the US cares or is even aware of it.

Those who know me, know that I am a true believer in free-market exchange and free-development. These organizations pose as protectors and securers of free-markets, but what they say and what they do couldn't be further divided. They epitomize neo-colonialism and cultural imperialism. I would be very interested to hear/read someone who tries to make a case otherwise.

I am also a true believer in free-speech. I believe that corruption cannot withstand the bright and shining light of public awareness and scrutiny. This is precisely my point with this blog – to simply generate a little bit of concern over these organizations and encourage people to care about them a little bit. The true scandal of the World Bank is not Wolfowitz' form of nepotism, and not even the corruption so pervasive in its form of neo-colonialism… the true scandal of the World Bank is that most people in the world's wealthiest and most powerful nation neither know nor care.

I promise my next blog will be a little more light-hearted!

Addendum:

When I asked her what she thought of this blog entry, Elizabeth was kind enough to be honest and let me know what she thought was missing… namely, a point. I think she is right, so I want to elaborate a little and hopefully spark some discussion from those who agree or disagree.

Basically, my point is that people in the US don’t know or care much about the World Bank. But why should we care?

Well, the aims of the World Bank are to alleviate extreme poverty in the world and to provide much needed capital to developing markets. These are both wonderful aims. However, much of the funding is given to governments of developing nations in the form of loans and grants. Obviously, the people who decide whom receives this money are in a position of great power to set the terms necessary to receive the money. This is precisely the reason that we should care who runs the group and how they run it – that is, assuming that we care about alleviating extreme poverty and developing poor economies. The World Bank, for example, has given considerable funding to the government of the Sudan, but much of this money has been used by the government to fund genocidal efforts in Darfur. Of course, the decision by the WB/IMF to fund these terrorists (can there be another name?), has nothing to do with the massive oil reserves in Southern Sudan. Sudan sells its oil to China. It’s not as if the US & European ministers who run these self-less organization think that they can convince the new regime to sell oil to them just by bribing them with a few billion dollars – that would be immoral. Why is it, then, that they continue to fund them?

On smaller scales, loans have been given to create clean water resources in small villages throughout Africa. This is a good thing, but more often than not, these resources have been set up as private enterprises which charge local residents to use the water – not exactly a means to alleviate poverty! When I visited Ghana, I visited a few farms where the World Bank and IMF have provided low-interest or interest-free loans to farmers to buy fertilizers and pesticides. Environmental concerns aside, most of these loans were given with stipulations regarding the crops to be grown – usually coffee, cocoa, cotton, etc. In order to receive the funding, many farmers stopped growing essential crops for the residents of Ghana and started growing cocoa and other crops for export to the US. The farmers benefited (at least in the short-run, until the over-supply of these goods caused market prices to plummet), and the US markets benefitted in the form of cheaper chocolate & coffee, but the residents of Ghana and other West African countries have suffered as a result of higher food costs and not enough food to go around. Even many of the farmers starve to death – finding cotton somewhat unpalatable. As a further result, exports of US crops (especially corn & wheat, both of which are heavily subsidized by the US government) have increased to Ghana and other countries.

Now, as a firm believer in Smithian economics and free-trade, I ask – how are such manipulations ‘free’ or ‘fair’? Many defenders of the WB & IMF say that the US and other member countries have every right to place stipulations on the financing that the offer. Well, of course they do! But they can’t, then, say that they are promoting free-trade! It has to be one or the other. They say one thing, and then do the opposite. But why not? Who is calling them to task? You? Me?

As for Wolfowitz – how does the former Deputy Secretary of US Defense get appointed as President of the World Bank? Are there really that few economists that we can’t spare a single one to alleviate poverty and promote free & fair trade on the global stage?

OK, my rant is over. Although somewhat more ‘pointed’, I hope the ‘point’ is also more clear.