Helping the Poor by Taking Their Food

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Wandering by mistake into the World Bank headquarters in Washington, D.C., one could easily think one had just entered the world's largest charitable organization. "Our Dream is a World Free of Poverty," say the large letters emblazoned high on the wall. This may be a bank, but it doesn't seem like a regular bank. One half expects, around the next corner, to encounter automated teller machines where the world's poor can insert their cards and receive instant cash.

It might be closer to the truth to imagine ATMs in which the World Bank (and its sister organization, the IMF) can insert their cards and receive instant cash from the world's poor. That's not far from what happens as the poorest nations struggle to pay interest on roughly US$43-billion in loans from the Bank and the IMF.

But the World Bank's mandate is to foster world development and, in recent years, it has tried to beef up its image as a global poverty-fighter. This task has been made difficult by the constant barbs from protestors, who accuse the Bank and the IMF of setting back the cause of poverty alleviation.

So when protestors threatened to recreate the ambiance of Quebec City at a World Bank poverty conference scheduled for later this month in Barcelona, officials simply cancelled the event, blaming the protestors for creating a mood of intimidation. The message was clear: If only the protestors would go hang out in malls like well-adjusted young people do, the World Bank could get on with the task of eradicating poverty.

But the Bank and the IMF have just one idea for eradicating poverty: redesign Third World economies along strict market lines. So countries wanting to borrow funds are required to implement a list of reforms, often referred to as the "Washington consensus." These include lots of privatization, government downsizing, opening up the country to foreign trade and capital flows, reducing labour and social supports. Countries are often obliged to remove government subsidies for basic food - subsidies that were put in place so that poor people could afford to eat.

If this is considered a policy aimed at helping the world's poor, it would be interesting to imagine what a policy aimed at hurting the world's poor might look like.

Critics of the Washington consensus aren't all out in the streets being gassed by police. Among others, they include Joseph Stiglitz who, as chief economist of the World Bank in the late '90s, argued that the rigid pro-market approach is frequently counterproductive.

Mr. Stiglitz, who is often touted as a future Nobel laureate for his work developing the economics of information, came to the Bank just before the financial crisis swept through Southeast Asia in 1997. He publicly blamed irresponsible private investors, both in the United States and Asia, and argued that they should bear the consequences. Instead, IMF policies held the countries themselves responsible, forcing them to adopt policies of austerity in order to pay back Western creditors. Mr. Stiglitz said he was "appalled" as the workers of Southeast Asia were made to bear enormous costs in order to protect reckless Western financial interests.

Mr. Stiglitz also attacked the Bank's general approach to labour in the Third World. Rather than regarding decent wages as "the fruits of hard-fought bargaining," the Bank saw them as "labour market rigidities" which stood in the way of economic growth. So the Bank encouraged the driving down of wages -- a policy that favoured the interests of capital over workers.

It's not hard to imagine how Mr. Stiglitz got under the skin of Lawrence Summers, then U.S. Treasury secretary, who effectively oversaw the IMF and the Bank. When it was made clear his outspoken dissent wouldn't be tolerated, Mr. Stiglitz resigned in late 1999.

But while critics like Mr. Stiglitz have been eased out, the Bank's latest poverty report provides material that is damning enough. Once one wades through the upbeat references to "opportunity" and "empowerment," one gets to the nub of things: The Bank admits that the pro-market reforms of the last two decades haven't yielded the hoped-for results. It concedes "growth in the developing world has been disappointing, with the typical country registering negligible growth."

This candour is refreshing, but the Bank shies away from the logical next step - questioning whether its rigid pro-market approach is the right one. Instead, the Bank tends to attribute the lack of success to the poor design or execution of the reforms. But what about the possibility that many of the reforms were ill-conceived in the first place, that privatizing, downsizing, forcing up interest rates and cutting off food subsidies isn't the best way to develop Third World economies?

Interestingly, economic growth was much higher throughout the developing world (with the exception of parts of Asia) before 1980, when more diverse approaches were tolerated, including government investment in domestic economies and controls over foreign capital flows.

While the results of those pre-1980 decades were not inspiring, what's followed has proved even worse for the developing world. Again, the Bank's own numbers tell the story. A recent study by Bank economist Branko Milanovic found that roughly 70 percent of the world's people saw their real incomes decline between 1988 and 1993. While there were gains for the rich part of the world, the bottom 5 percent of the world's people actually lost one-quarter of their real incomes -- an amazing thought when one considers how little these people had in the first place.

So it may not make much difference whether meetings about poverty, like the one scheduled for Barcelona, actually take place -- unless there is a willingness to put the Washington consensus fully on the table.

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