By Howard Stein
Since the latter part of the 1990s the World Bank has increasingly claimed its main focus is on poverty reduction and development. Among other things, the Bank introduced poverty focused loans, a commitment to debt reduction with support for the reallocation of spending toward health and education, the expansion of more domestically generated poverty reduction support papers and comprehensive development frameworks. Below, Howard Stein argues that despite some diversification in its agenda, the Bank is still promoting policies that continue to support its three-decade-old commitment to neoliberalism, which arguably works against its purported commitment to poverty reduction.
“Even where neoliberal policy measures have succeeded in stimulating economic growth, growth’s benefits have not gone to those living in “dire poverty,” one-fourth of the world’s population”1(Jim Kim, 2000)
On July 1, 2012, Jim Kim, the new president of the World Bank was sworn in. The background of Dr. Kim was dramatically different than any previous Bank president. Dr. Kim is the first World Bank president without a background in politics or finance. He is also the first who has both a Ph.D in Anthropology and a Medical Degree and has a strong history of working on health issues in the developing world. The above quote indicates a healthy skepticism aimed at neoliberal policies, which have been a central core of the World Bank agenda since the early 1980s.2
Where did these policies come from? How have they changed over time? What has happened to the neo-liberal agenda under the Kim presidency?
Origins of Neoliberal Policies
During the 1950s and 1960s, the World Bank needed to establish its credibility on global markets which it used to finance its operations. The Bank built a fairly non-controversial portfolio and lent roughly 60% of its funds to low-risk infrastructural focused projects like roads and dams. Given its priorities, the Bank was dominated by engineers and finance experts.
During the 1970s, the focus began to change. Under the presidency of McNamara, the World Bank shifted its priorities toward income distribution, basic needs, and poverty reduction. During the decade, lending to infrastructure fell to around 36%. At the same time the allocation to agriculture and social areas rose to 41% compared to 17% in the 1960s.
Since the new lending required more country-specific knowledge, the Bank became increasingly reliant upon economists. Toward the end of the decade, there was some concern among the economists in the Bank that too much economic growth was being sacrificed to reach social goals. Moreover, the economics profession was becoming both increasingly conservative and critical of most forms of state intervention in the economy, including the types that have been historically supported by the World Bank. In addition, a series of events, including the election of right-wing regimes in the US and the UK (Reagan and Thatcher), the appointment of A.W. Clausen, a staunch conservative, as president of the Bank and the hiring of Anne Krueger, a hard-line neo-liberal, as chief economist led to a major shift in the agenda. After 1980, the new approach known as structural adjustment or neoliberalism was introduced and became dominant in the Bank and in international policy circles.
Neoliberalism has multiple definitions and has been described in the literature as an ideology, philosophy, doctrine, assertion and a theory. Despite the differences there is generalised recognition of a common policy paradigm, which assumes that growth and development will arise from conservative monetary and fiscal policy, liberalisation and privatisation of economies. Each of these policy positions arise from distinct neo-classical economic theories, and each has serious flaws both at the theoretical level and in practice in promoting growth, poverty reduction, income equality, and the structural change in economies needed for development.
For example, in the area of trade, the World Bank actively encouraged countries to follow their static comparative advantage (export the product they can produce with relatively greater efficiency) through the removal of trade restrictions, privatisation or closing down of state industries and the curtailment of state expenditures in vital areas needed for competitive manufacturing such as roads, education, health care and power generation. Local industries could not compete with the inflow of goods from more advanced countries, leading to de-industrialisation and unemployment.
Sub-Saharan African countries were a main focal point of the World Bank neoliberal agenda. From 1980-90, SSA countries received 31 adjustment loans, which comprised roughly 50% of all loans in this category allocated worldwide during that period. By 1995, in Sub-Saharan Africa, 37 countries had received structural adjustment loans.3 During the 80s and 90s GDP growth fell dramatically as compared to the 70’s. The share of manufacturing in GDP fell from 21% in the 1970s to only 12%.4 By 1999 poverty levels rose to nearly 60% of the population from roughly 53% in 1981 with an additional 170 million people living on under a $1.25 per day on the continent south of the Sahara.5
Under the direction of neoliberal policies, African economies followed their static comparative advantage and increasingly relied on the export of unprocessed raw materials, with little value added and limited benefit to the broader population. By 1995, 87% of all exports were in primary commodities. With some recovery in commodity prices, and the growth and expansion of oil and gas and other minerals in SSA there was some rise in economic growth after 2002. However, there is little sign of the kind of structural transformation associated with development. The export share of primary commodities rose to an astounding 93% by 2012, with the share of manufacturing falling to just 6% of GDP by 2010.6 In many African countries few people, other than the elites of a country and foreign direct investors, are able to share in the benefits of resources, such as oil, compared to the employment opportunities and linkage effects of sectors like manufacturing.7
Evolution of the World Bank Policy and Neoliberalism
While there were some innovations in the World Bank policy in the 1980s and 1990s under Wolfensohn, the Bank began to refocus on the issue of poverty which was largely ignored by the Bank after the 70s. The Bank replaced structural adjustment loans with poverty support credits for poor countries and development policy loans for middle-income countries. They supported the reduction of debt for the poorest countries through the HIPC (highly indebted poor country) initiative including the generation of country poverty reduction support papers, which outlined the poverty focused usage of funds released from debt servicing. They also introduced the comprehensive development framework (CDF). CDF undertook a more holistic approach to development, which emphasised the importance of including social and human dimensions into development strategies along with the typical macroeconomic and financial considerations. Despite the broadening of the agenda, the neoliberal agenda continued and was extended in the Wolfensohn era.
Neoliberalism and “Doing Business”
In 2002, Wolfensohn launched the Doing Business Reports (DB) which has become a World Bank standard for ranking country progress globally on regulatory impediments, a central neoliberal focal point.8 The focus was on property rights, licensing and dismissing labor. In 2006, DB measured the number of procedures and the amount of time to start a business, to register property, to obtain licences, and to enforce contracts. They also generated an employment index focusing on the ease of hiring and firing employees, another index on the protection of investors and a third on the time to close a business.9 Through the Wolfowitz and Zoellick presidency DB continued to expanded with not only global comparisons but also regional comparisons and individual reports. DB has come under heavy criticism both in the literature and from internal evaluations. The 2008 Independent Evaluation Group argued:
“It measures selected dimensions of the regulatory environment, some of which are bound to be irrelevant in some countries. It notes the costs of regulation but not the benefits. Seven of DB’s 10 indicators presume that lessening regulation is always desirable, whether a country starts with a little or a lot of regulation…the policy implications are not self-evident, since regulations deliver benefits as well as costs. What is good for a firm (or firms) may not be good for firms at large, or the economy and society as a whole. The right balance for any country is a matter of political choice.”10
Little has changed under the Jim Kim regime. A 2013 Independent panel review was also rather critical of the DB’s particularly in its usage of cardinal country specific measurements to generate ordinal global level rankings:
Inevitably, aggregation relies on strong built-in assumptions, making it an inherently value-laden practice. The act of ranking countries may appear devoid of value judgment, but it is, in reality, an arbitrary method of summarising vast amounts of complex information as a single number. Changing the weight accorded to a particular indicator can easily change an item’s ranking. The composite measures used in the Doing Business report are also misleading because they are only partial measures that ignore the social benefits of regulation.11
Given their weaknesses, the Panel recommended curtailing their usage because they were greatly influencing national policies. Governments were motivated by the potential reward of higher investment and foreign aid. Despite this, the 2014 Doing Business rankings were not altered.
“Doing Business” in Agriculture
Moreover, the Bank has not only maintained the status quo on Doing Business reports under Kim but has now expanded into the domain of agriculture at the request of the G8 which is supporting foreign investment in land aimed in part to further the interests of global agro-processing in Africa (Stein et al, 2013). In 2013, the World Bank launched Benchmarking the Business of Agriculture (BBA). BBA builds on the Doing Business methodology and is expected to become a mainstream evaluation tool. The focus is on “key legal and regulatory issues” covering “land, finance, seed, fertilizer, transport and markets.” In late 2013, BBA pilot studies were underway in 10 countries, to be scaled up to 40 countries in 2014 and eventually to 80 countries.12
Reforms under the rubric of DB have already encouraged large scale investment and arguably “land grabbing” at the expense of local populations in some African countries. For example, Liberia introduced 39 reforms to “ease business” between 2008 and 2011 attracting large scale investors from Europe and Southeast Asia in areas like palm oil and rubber. Investors have acquired roughly 1.5 million acres taking away farms, resources and livelihoods from thousands of local people. The new BBA is likely to further facilitate the investor acquisition of land.13
The BBA document places a heavy emphasis on the need for secure property rights through formal institutions like “land registries or registries of deeds” aimed at “designing property rights that support efficient land use… as a necessary condition for increased investment in agriculture and economic growth”.14 The argument is not new, but has been part of the Bank’s neoliberal agenda for a number of decades.15 Evidence exists that formalisation can further spur the dispossession of land by both increasing the spread of land markets which can disfavor the rural poor as well as supporting efforts by the state to carve land out of existing villages for reallocation to investors.16
There is little doubt that compared to the hard-core neoliberalism of 1980s and 1990s, over the past decade and a half, the World Bank has softened its image and expanded its agenda with a greater focus on social spending and poverty reduction. Still, after nearly three decades, neoliberal policies are still a central component of the World Bank agenda despite strong evidence that they exacerbate poverty and contribute to dispossession.
About the Author
Howard Stein is a Professor in the Department of Afro-American and African Studies at the University of Michigan, and also teaches in the Department of Epidemiology. His most recent books are Beyond the World Bank Agenda: An Institutional Approach to Development (University of Chicago Press, 2008), Good Growth and Governance in Africa: Rethinking Development Strategies (Oxford University Press, 2012) co-edited with Joseph Stiglitz, Akbar Noman, and Kwesi Botchway and Gendered Insecurities, Health, and Development in Africa (Routledge, 2012) co-edited with Amal Fadlalla. He was also the principal co-author of the United Nations Economic Commission for Africa, Economic Report for Africa 2014, Dynamic Industrialization in Africa: Innovative Institutions, Effective Processes and Flexible Mechanism. Since, 2008, Professor Stein has been actively engaged in a research project on property right formalisation, institutional transformation and poverty alleviation in rural Tanzania.
1. Kim, J. Y., Millen, J. V., Irwin, A., & Gershman, J. eds. Dying for Growth: Global Inequality and the Health of the Poor. Common Courage Press. Monroe, Maine, 2000.
2. See Bazbauers, Adrian Robert. “The Wolfensohn, Woflowitz, and Zoellick Presidencies: Revitalizing the Neoliberal Agenda of the World Bank.” Forum for Development Studies, Vol. 14, No. 1, 2014 and Stein, Howard. Beyond the World Bank Agenda: An Institutional Approach to Development. University of Chicago Press. Chicago, 2008
3. Stein, 2008. op. cit.
4. K.S. Jomo and Rudiger von Arnim. ”Economic Liberalization and Constraints to Development in Sub-Saharan” in Akbar. Noman, Kwesi. Botchwey, Howard. Stein and Joseph Stiglitz eds. Good Growth and Governance in Africa: Rethinking Development Strategies. Oxford University Press, Oxford, 2012.
5. Chen, Shaohua and Martin Ravaillion.“The Developing World is Poorer than we Thought but no Less Successful in the Fight Against Poverty.” World Bank Policy Research Paper, No. 4703, August, 2008.
6. United Nations Conference on Trade and Development “Online Statistics” http://unctad.org/en/pages/Statistics.aspx.
7. United Nations Economic Commission for Africa. Economic Report for Africa 2014, Dynamic Industrialization in Africa: Innovative Institutions, Effective Processes and Flexible Mechanisms http://www.uneca.org/publications/economic-report-africa-2014
8. Bazbauers.2014 . op. cit.
9. World Bank. Doing Business in 2006.
10. World Bank Independent Evaluation Group “Doing Business: An Independent Evaluation: Taking Measure of the World Bank-IFC Doing Business Indicators.” 2008
11. World Bank. “Independent Panel Review of the Doing Business Report.” June, 2013 http://www.dbrpanel.org/sites/dbrpanel/files/doing-business-review-panel-report.pdf
12. World Bank. “Benchmarking the Business of Agriculture, FAQ.” 2014 http://bba.worldbank.org/faqs
13. Martin-Prével, Alice. “Corporatizing Agriculture: World Bank’s Ranking Facilitates Land Grabs.” Bretton Woods Bulletin. May, 2014
14. World Bank. “Snapshot Background Note on Access to Secure Property Rights on Land.” 2014
15. See for example, Feder, Gershon and D. Feeny (1991) “Land Tenure and Property Rights: Theory and Implications for Development Policy” The World Bank Economic Review. Vol. 5, No. 1, 1991 and Feder Gershon et al. Land Policies and Farm Productivity in Thailand.World Bank Publications. Washington, D.C., 1988.
16. See Martin-Prével, op. cit., 2014. Between 2009 and 2013 anthropologists Kelly Askew, Rie Odgaard and geographer Faustin Maganga and myself undertook a NSF sponsored study to investigate the impact of property right formalisation and poverty in 20 villages in Tanzania. We found little evidence that formalisation had a positive impact on poverty (eg. farmers were unable to use their titles for collateral for loans) and considerable evidence of rising conflict, deepening poverty and inequality, exclusion of women and pastoralists and rising landlessness in some villages. See for example Stein, Howard, Faustin Maganga, Rie Odgaard, and Kelly Askew “Land Struggles in Tanzania: Dispossession by Formalization?” Paper Presented at European Conference on African Studies, Lisbon, Portugal, June, 2013.