Stiggy in FT on WB

Doug Henwood dhenwood at panix.com
Fri Aug 31 09:23:47 PDT 2001


LETTERS TO THE EDITOR: Better to have the new World Bank than the old one Financial Times; Aug 31, 2001 By JOSEPH STIGLITZ

From Prof Joseph Stiglitz.

Sir, After reading Stephen Fidler's article on the World Bank ("A world of complaint", August 28) I still do not quite understand what his point is. Virtually everyone, even the people now complaining, agrees that the way the World Bank was doing business had to change. Would Mr Fidler really rather see a return to the bad old days when the bank spent much of its time funding big dams and bridges regardless of the effects on the environment?

It may be that the bank has become too fluffy in some ways but the alternatives are far worse. Surely it is better for the World Bank to consult with non-governmental organisations then to rely only on the opinions of government officials who in many countries were not democratically elected and do not speak for the people they purportedly represent. Even if such consultation does not help development happen faster, talking to a range of groups about how they want their society to develop is the right thing to do. Even if it were not, pushing programmes that lack mass support simply does not work, as many studies have shown.

Bankers and businessmen in the developed world would love to see structural adjustment programmes foisted on the people of the developing world. Of course Wall Street believes in capital market liberalisation. But there is little evidence that this really contributes to economic growth although the downside risk is enormous, as we saw in the 1997 Asian crisis. There is no sensible reason, ie one backed by solid research, to push these sorts of "reforms" even though financial types love to feel they are bringing "market discipline" to countries in trouble. Markets are the key to long-run success but creating a market-friendly environment entails more than mindless deregulation: it requires, for instance, competition policies, strong and well regulated financial institutions, an environment that is conducive to the transfer of new technologies, governments that are not corrupt - all issues that were ignored by the old World Bank but are central to the thinking of the new one.

There is still a lot to be done. The allocation of voting rights to member countries is grossly unbalanced and the views represented in the bank are more closely aligned with finance ministries than with a broader swath of society. There is far less openness and transparency than there should be in a public institution.

But no one said the World Bank could become perfect overnight. While the narrow focus of the old bank did not work, at least the more comprehensive approach of the new bank has raised the right issues. Transformations are always hard and mistakes are often made along the way. But Jim Wolfensohn should be given credit for trying. Blaming him for a drop-off in foreign direct investment as Sebastian Edwards, quoted in the article, seems to do, is simply ludicrous.

There are many alternative views about how best to proceed with development. The World Bank should present the options and countries should democratically decide what they want to do.

Joseph Stiglitz, Professor of economics, Columbia University, US



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