The IMF and World Bank are two institutions that you are familiar with in modern times.
They are perhaps the largest financial entities in the world and contrary to popular belief as nescessary, dignified organizations, are not and are responsible for destroying the very countries we live in through their neoliberalist policies. These two organizations claim to benefit the world’s economies by making stringent policies and offering stability but through the years have systematically crippled world economies in favour of large multi national corporations and wealthy private investors.
Let me explain, for those of you not familiar with the term neoliberalism, here is the definition – “Neoliberalism refers to the policies and processes whereby a relative handful of private interests are permitted to control as much as possible of social life in order to maximize their personal profit.” – Robert McChesney
The history of neoliberalism is for another day but the school of thought from modern times is perhaps Milton Freedman’s Chicago School Of Economics which proposed that only by leaving everything to the market could economies flourish. The severe flaw with this idea is that prosperity did rise for the few, as levels of inequality deepened for many.
The school of thought emphasizes non-intervention from government and generally rejects regulation in markets as inefficient with the exception of central bank regulation of the money supply i.e monetarism.
Neoliberalists will argue that economies and free markets are inefficient without them and that they are nescessary. The beginning was The Mont Perlin Society which was founded in 1947 by Friedrich Hayek to bring together the widely scattered free market thinkers and political figures. “Hayek and others believed that classical liberalism had failed because of crippling conceptual flaws and that the only way to diagnose and rectify them was to withdraw into an intensive discussion group of similarly minded intellectuals.” With central planning in the ascendancy world-wide and few avenues to influence policymakers, the society served to bring together isolated advocates of liberalism as a “rallying point” – as Milton Friedman phrased it. Meeting annually, it would soon be a “kind of international ‘who’s who’ of the classical liberal and neo-liberal intellectuals.”
Quoting the Guardian on Hayek “He began to create what Daniel Stedman Jones describes in Masters of the Universe as “a kind of neoliberal international”: a transatlantic network of academics, businessmen, journalists and activists. The movement’s rich backers funded a series of thinktanks which would refine and promote the ideology. Among them were the American Enterprise Institute, The Hetritage Foundation, The Cato Institute, the Institute Of Economic Affairs, the Centre for Policy Studies and the Adam Smith Institute. They also financed academic positions and departments, particularly at the universities of Chicago and Virginia.”
There is more on Hayek and neoliberalism and about how we have got into this mess in the first place here. This is the briliant full article on the Guardian.
Similar organizations that exist to this date are ‘The Bilderberg Group’ and ‘The Trilateral Comission’ which was founded by David Rockefeller. Anyway whether they share similar neoliberal views or not remains only speculation. But a lot of idiots in the world think they control the world which again is just conspiracy theorists having a field day with uninformed minds.
The major beneficiaries of neoliberalism are large trans-national corporations and wealthy investors. The implementation of neoliberal policies came into full force during the eighties under Thatcher and Reagan. The economic policies introduced by Margaret Thatcher in the United Kingdom and Ronald Reagan in the United States were classical examples of neoliberalization. The implementation of neoliberal policies and the acceptance of neoliberal economic theories in the 1970s are seen by some academics as the root of financialization, with the financial crisis of 2007-08 as one of the ultimate results.
Today, the principles of neoliberalism are widely held with near-religious fervor by most major political parties in the US and Britain and are gaining acceptance by those holding power elsewhere.
Although the proponents of neoliberalism eulogize private enterprise, consumer choice and free trade to name a few things, the actual effects of neoliberal policies are quite the opposite. They spell disaster for the middle and working class and result in highly protectionist markets dominated by a few trans-national corporations. The main sectors of the economy i.e oil, steel, food processing, corporate media and aviation are all oligopolies that can be characterized in particular as highly centralized command economies. A major theme of neoliberal policies is the deregulation of markets and removal of government intervention in the economy. Hence, within neoliberalism as it is actually applied, capital is allowed to roam the world freely with very few restrictions, which in fact causes most of the worlds corruption, embezzlement and arms purchase. Furthermore the laxing of norms promotes borrowing of capital by nations at the expense of the marginalized section of their economy i.e the working class, while workers remain trapped within the borders of their countries.
This derugulation serves trans-national corporations well, though for some, not well enough. Another component of neoliberalism is the dismantling of the welfare state which in countries like India is practially non-existant. Again, in practice, this policy is applied to the majority of the population, who have to accept cut backs in unemployment benefits and health care, while large corporations continue to receive massive subsidies and tax breaks.
It is not uncommon for most if not all of the policies in a Union Budget of a nation to benefit the wealthy 1% of the population of the country at the expense of the remaining 99%. This is a common theme throughout the world with every government in every country and nobody bats an eye to it.
The effects of neoliberal policies on people everywhere across the globe has been devastating. During the last two to three decades, wealth disparity has increased many fold within countries as well as between countries. In the US, inflation adjusted median wages are lower today than they were in 1973 (when median wages reached their peak) while the wealth of the top 1% of society has soared.
In the United States, income inequality, or the gap between the rich and everyone else, has been growing markedly, by every major statistical measure, for some 30 years.
Income disparities have become so pronounced that America’s top 10 percent now average nearly nine times as much income as the bottom 90 percent. Americans in the top 1 percent tower stunningly higher. They average over 38 times more income than the bottom 90 percent. But that gap pales in comparison to the divide between the nation’s top 0.1 percent and everyone else. Americans at this lofty level are taking in over 184 times the income of the bottom 90 percent.
For the poorest people in the world, the situation has become even more dire and desperate.
As John Gershman and Alec Irwin state at the turn of the millenium in the 2000s:
- “100 countries have undergone grave economic decline over the past three decades. Per capita income in these 100 countries is now lower than it was 10, 15, 20 or in some cases even 30 years ago. In Africa, the average household consumes 20 percent less today than it did 25 years ago. Worldwide, more than 1 billion people saw their real incomes fall during the period 1980-1993. Meanwhile, according to the United Nations Development Program’s 1998 Human Development Report, the 15 richest people in the world enjoy combined assets that exceed the total annual gross domestic product of sub-Saharan Africa. At the end of the 1990’s, the wealth of the three richest individuals on earth surpassed the combined annual GDP of the 48 least developed countries.”
The disparity has grown further over the past decade and a half and now the world’s poor people in developed and developing countries alike control less than 10% of their income as per a report by the world economic forum. As you can see neoliberalism has cataclysmic effects on most of the world’s population while largely benefiting the trans-national corporations and the wealthy. On the wikipedia page for Economic Disparity if you read the causes you fill find all your reasons for this gulf in income and right there as the third last cause is neoliberalism.
Anyway I will not get into economic disparity or income inequality in this article that is for another day but you may ask what does the IMF and World Bank have to do with all this?
For this we will have to dig a bit into the history of these organizations.
The IMF and World Bank were both created at the end of World War II in a volatile political climate much different from today. Nonetheless their roles have been suitably modified and updated to serve interests to those that benefit from neoliberalism. The institutional structures and organizational processes were framed at Bretton Woods, New Hampshire but today have again been modified to benefit the high ranking members of the organizations.
Initially, the primary focus of the IMF was to regulate currency exchange rates to facilitate orderly international trade and to be a lender as a last resort when a member country experiences balance of payments difficulties and is unable to borrow money from other sources. The original purpose of the World Bank was to lend money to Western European governments to help them rebuild their countries after the war. In later years, the World Bank shifted its attention towards development loans to third world countries.
Immediately after world war II, most western countries, including the US, had ‘New Deal’ style social contracts with sufficient welfare provisions to ensure ‘stability’ between labor and capital. It was understood that restrictions on international capital flow were necessary to protect these social contracts. The post war ‘Bretton Woods’ system which lasted until the early seventies was based on the right and obligation of governments to regulate capital flow and was characterized by rapid economic growth. However after that, the Nixon administration unilaterally abandoned the ‘Bretton Woods’ system by going off the gold standard and lifting restrictions of capital flows, basically deregulation. A move postulated by one Alan Greenspan (infamous from the documentary The Inside Job; which is a must watch)and his associates who served Richard Nixon as his coordinator on domestic policy in the nomination campaign. The ensuing period has been marked by dramatically increased financial speculation and low growth rates.
With the guise of being neutral organizations, in practice, the IMF and World bank end up serving powerful interests of western countries. . At both institutions, the voting power of a given country is not measured by, for example, population, but by how much capital that country contributes to the institutions and by other political factors reflecting the power the country wields in the world. The G7 plays a dominant role in determining policy, with the US, France, Germany, Japan and Great Britain each having their own director on the institution’s executive board while 19 other directors are elected by the rest of the approximately 150 member countries. The president of the World Bank is traditionally an American citizen and is chosen with US congressional involvement. The managing director of the IMF is traditionally a European. On the IMF board of governors, comprised of treasury secretaries, the G7 have a combined voting power of 46%, which is a huge bias.
The power of the IMF becomes clear when a country defaults on loans and gets into financial trouble and needs funds to make payments of private loans. Before the IMF grants a loan, it imposes conditions on that country requiring it to make structural changes in it’s economy while even in some cases deciding as to who/ which political candidate or party should come into power while eliminating all evidence of doing so.
I cannot find the article where I read this, it was a long time ago, but it does happen.
These conditions are called ‘Structural Adjustment Programs’ (SAPs) and are designed to increase money flow into the country by promoting exports so that the country can pay off its debts or in theory at least should be doing so. However, not surprisingly, in view of the dominance of the G7 in IMF policy making, the SAPs are highly neoliberal. And herein lies the problem, the countries that default owe private lenders, they approach the IMF, the IMF implements a SAP which is inherently neoliberal and benefits only the worldwide trans-atlantic corportations and UHNI’s(Ultra High Net Worth Individuals) and the country has no other choice but to abide by the rules of the IMF because the private lenders often deem a country credit-worthy based on actions of the IMF.
The World Bank plays a qualitatively different role than the IMF, but works tightly within the stringent SAP framework imposed by the IMF. It focuses on development loans for specific projects, such as the building of dams, roads, harbors etc that are considered necessary for ‘economic growth’ in a developing country. Nonetheless, the conceptions of growth and economic well being within the World Bank are very much molded by western corporate values and rarely take account of local cultural concerns.
Examples of such projects by the World Bank benefiting large trans-national organizations are the ‘Green Revolution’ in agriculture, heavily promoted in the third world by the World Bank in the sixties and seventies. The ‘Green Revolution’ refers to the massive industrialization of agriculture, involving the replacement of a multitude of indigenous crops with a few high-yielding varieties that require expensive investments of chemicals, fertilizers and machinery. The ‘Green Revolution’ was a catastrophe for the poor in third world countries, it in fact increased income disparity, created unemployment and disconnected and marginalized people from their own economy while western chemical corporations such as Monsanto, Dow and Dupont fared very well, cashing in high profits and increasing their control over food production in third world countries.
Later in the 2000’s the World Bank was at it again. This time it was promoting the use of genetically modified seeds in the third world and worked with governments to solidify patent laws which would grant biotech corporations like Monsanto unprecedented control over food production. All the while the pattern remaining clear, whether deliberate or not, the World Bank serves as a stage for large trans-national corporations to enter third world countries and extract large profits by marginalizing the poor and removing the wealth and resources of that nation and transferring it to their pockets.
There are further examples of this available on the web mostly in articles written by scholars. Here is another article by the Guardian on the same lines.
The most devastating program imposed by the IMF and the World Bank on third world countries are the Structural Adjustment Programs. The widespread use of SAPs started in the early eighties after a major debt crisis. The debt crisis arose from a combination of reckless lending by western commercial banks to third world countries, mismanagement within third world countries and changes in the international economy.
As the MIT article in their paper The Thistle pointed out in their article :
“During the seventies, rising oil prices generated enormous profits for petrochemical corporations. These profits ended up in large commercial banks which then sought to reinvest the capital. Much of this capital was invested in the form of high risk loans to third world countries, many of which were run by corrupt dictators. Instead of investing the capital in productive projects that would benefit the general population, dictators often diverted the funds to personal Swiss bank accounts or used the them to purchase military equipment for domestic repression. This state of affairs persisted for a while, since commodity prices remained stable and interest rates were relatively low enabling third world countries to adequately service their debts. In 1979, the situation changed, however, when Paul Volker, the new Federal Reserve Chairman, raised interest rates. This dramatically increased the cost of debtor countries’ loans. At the same time, the US was heading into a recession and world commodity prices dropped, tightening cash flows necessary for debt payment. The possibility that many third world countries would default on their debt payments threatened a major financial crisis that would result in large commercial bank failures. To prevent this, powerful countries from the G7 stepped in and actively used the IMF and World Bank to bail out third world countries. Yet the bail-out packages were contingent upon the third world countries introducing major neoliberal policies (i.e. SAPs) to promote exports.
Examples of SAP prescriptions include:
- – an increase in ‘labor flexibility’ which means caps on minimum wages, and policies to weaken trade unions and worker’s bargaining power.
- – tax increases combined with cuts in social spending such as education and health care, to free up funds for debt repayment.
- – privatization of public sector enterprises, such as utility companies and public transport
- – financial liberalization designed to remove restrictions on the flow of international capital in and out of the country coupled with the removal of restrictions on what foreign corporations and banks can buy.
Despite almost two decades of Structural Adjustment Programs, many third world countries have not been able to pull themselves out of massive debt. The SAPs have, however, served corporations superbly, offering them new opportunities to exploit workers and natural resources.
As Prof. Chomsky often says, the debt crisis is an ideological construct. In a true capitalist society, the third world debt would be wiped out. The Banks who made the risky loans would have to accept the losses, and the dictators and their entourage would have to repay the money they embezzled. The power structure in society however, prevents this from happening. In the west tax payers end up assuming the risk while the large banks run off with the high profits often derived from high risk loans. In the third world, the people end up paying the costs while their elites retire in the French Riviera.”
Fast forward to 2016 and this is going on to date with the latest bailouts happening in Azerbaijan as a result of tumbling oil prices and once again the IMF and World Bank are jumping at the opportunity like ruthless scavengers. Here is the article from the Financial Times.
I believe that that the IMF and World Bank are tools for wealthy investors and multi-national organizations to execute their corporate agenda and maximize their profits. I further believe that the world wide poverty, income disparity, exploitation is a result of this agenda of these two entities. Furthermore, it is foolish to concentrate so much power in the hands of a handful of like minded neoliberalist people who are ruthless and blinded by their thoughtless pursuit of power and dollar signs at the expense of the rest of the world. How will countries come out of debt? How will the poor reach income equality? How will the countries’ economies flourish? This certainly cannot happen with the existence of the IMF and World Bank whose facade as neutral entities is flawed in every way especially when they have only the interests of the trans-national organizations and themselves in mind(the high ranking officials). I’m certain that the deal makers and high ranking members of the IMF and World Bank get considerably well paid when acting in favour of these multinational entities.
Perhaps if more people were educated about this including nation’s policy makers and leaders then perhaps a new system could come into place for countries to solve their debt crises without the intervention of the IMF and World Bank.
Sadly I cannot see a world without them as they have established themselves over the years and today sit firmly at the top of the financial food chain in today’s western world.
I certainly hope the over-reliance of nations on these two organizations for funds and bailouts stops, but only time will tell.
Till then we have no choice but to remain at the mercy of these neoliberal capitalists.
Thankfully, unless I am wrong, India is free from the clutches of the IMF and World Bank although I am aware of their presence here(The World Bank has an office in Mumbai itself) and I do suspect some involvement or the other within our country itself of these two organizations doing the same things, perhaps to benefit Indian MNC’s. I am clueless about it as of now but I shall do some digging and write about it in another article.
Cheers ! 🙂