>With more than 1.2 billion of the world's people still living on less
>than $1 a day, there is no more important challenge than improving
>living standards and eliminating poverty. The World Bank and other
>multilateral development banks have a crucial role to play in meeting
>this challenge. To do so, they need to change their ways of doing
>business.
Looks like typical reformist, "Green Revolution", stuff.
>Today President Bush will speak about how we might spread development
>and prosperity to other parts of the world. In addition to describing
>the benefits of trade expansion, the president will point out that the
>key to improving living standards in poor countries is to design
>development strategies that focus on economic growth.
As if Capitalism Inc. isn't "spreading development" already. About the only good thing about it is that it's organizing people to take care of their own and the world's affairs when the time comes.
>Earlier this month in Rome, at a meeting of finance ministers, I had the
>opportunity to share ideas for improving the development banks with both
>officials of G-7 nations and heads of several of the banks themselves:
>the World Bank, the African Development Bank, the Asian Development
>Bank, the European Bank for Reconstruction and Development, and the
>Inter-American Development Bank.
>All of these development banks, whether they operate worldwide or
>regionally, try to use capital provided by richer nations to modernize
>the economies of the world's poor countries. But too often the millions
>or billions of dollars they have lent to finance development projects
>have not led to the hoped-for economic growth. To improve the lives of
>the poor significantly, these banks need to be more effective.
I would contend that there has been economic growth, but that local and international elites are the ones who get the primary reward, although how many people below the elites who benefit would probably depend on circumstances particular to the project, country, management of the project, etc.
>First and foremost, the development banks must focus their efforts on
>raising productivity growth in the developing world. Virtually all
>differences between rich and poor nations can be explained by
>differences in productivity - the amount of goods or services each
>worker produces per hour of work. Higher productivity translates
>directly into higher incomes. To start, the banks should devote more
>resources to the development of human capital. Education is inextricably
>linked to improving living standards, and it is critical that the banks
>place greater emphasis on it. Over the past five years, education
>projects accounted for only 7 percent of total World Bank lending. My
>colleagues in Rome agreed that this must change.
Productivity from whose point of view? Owners consider productivity to be high when they get an increasing return on their investment of capital. This increasing return can be caused by such "productivity enhancing" activities as cutting wages and dumbing down jobs then parceling the components out to lower-waged workers. Interesting that he should mention such a socializing institution as education; one place that teaches how to be a good, compliant worker who won't kick up a fuss. What is linked to improved living standards is more wealth in the pocket of the worker and less expensive goods (which happens over time anyway as capital requires and acquires more workers).
>The banks should also promote the right kinds of investments in physical
>capital. Not all capital investments are equal. Economic history has
>taught us, for example, that investing in agriculture while laying the
>foundation for diversifying into competitive, privately owned
>manufacturing is a key to development. Investments should support the
>production of real products for real customers in competitive markets:
>it is important that the banks do not induce countries to invest in
>business sectors that are already globally oversupplied.
A fine enough general observation, unfortunately the owners of trans-national capital only want the people of undeveloped countries for cheap labour (when they get rich enough, then they can be good consumers) for now. The sectors that are not globally oversupplied are probably so specific that only really wealthy investors would feel it worth their notice or even have the ability to invest in something that might not get good returns right away or might require intensive capital investment and the sort of labour only available in developed countries, so what's left for the undeveloped countries to do?
>Because a market economy relies on institutional bedrocks like the rule
>of law, enforceable contracts and a stable government free of
>corruption, the development banks should actively promote sound
>governance and public-sector management in borrowing countries. They
>should lend only to those with governments committed to meeting these
>standards.
Vide Chile under Pinochet. I understand IBM did very well there at that time.
>The banks must also adopt a bolder, more aggressive stance on the use of
>outright grants of money, as well as loans. During the past two decades,
>many of the poorest nations became so highly indebted that now they are
>unable to make payments on their current loans, let alone borrow and pay
>back more. Grants are the right way to help an already heavily indebted
>country provide education, health, nutrition, water and sanitary needs
>for its poorest people and to help fight AIDS and other infectious
>diseases. Loans should be made only when there is an expectation that
>principal and interest will be paid back in full and on time.
Not a bad idea, but not sexy enough for investors. If the banks got "aggressive" about grants, watch their well of money dry up (unless tax relief in the home countries of those poor owners got tied to their grants).
>Countries that do not have access to capital lent by private financial
>institutions are in the greatest need of the development banks'
>resources. As the financial conditions of individual countries improve,
>we should create a system of loan rates that moves toward the
>private-market interest rate. This will keep the development banks from
>competing with the private sector and help concentrate their lending on
>countries that lack access to the private financial markets.
Where do the development banks funds come from if not private financial institutions? Who helps govern these development banks if not the same people who run the private banks?
>Finally, it is essential that the multilateral development banks become
>more rigorous about measuring their own results. In education, to take
>an illustrative example, measuring inputs - classrooms, teachers - is
>secondary to measuring the product - ability to read and write and
>compute at an appropriate level. Similarly, in assessing the performance
>of the development banks, we need to develop specific ways to assess
>progress toward development objectives; we must be hard-minded and
>demanding about the necessity that the money lent really produce
>results.
This last sentence: What, it doesn't?
>I strongly believe that the multilateral development banks can be more
>effective in promoting world economic development by focusing their
>knowledge and resources on improving the lives of the world's poor.
OK, my work has been something more of a hasty rant written by someone who has only done a bit of reading here and there than a piece of really good critique. I now turn the microphone over to an expert. Any takers?
Todd