The 1960s and
1970s: The World Bank Attacks Poverty; Developing Countries Attack the IMF
By Sandra Blanco
In section two of part one, we discussed the
formation of the International Monetary Fund (IMF) and the World Bank. We noted
that the founders of the institutions did not focus on "development"
per se. Instead, their vision of the world was broader. They envisioned that
the IMF and the World Bank would help bring about peace and prosperity in a
universal way.
The founders' universal image of life changed
during the 1960s and 1970s. With the post-war decolonization wave came the
realization that economic development was not as universal as the founders had
supposed. The gap between the rich and the poor in developing countries grew
extensively. So, too, did the wealth gap between developed and developing
countries.
In the first part of this section, we will
describe how the World Bank's lending operations turned from narrowly focused
project lending to massive loan programs to alleviate poverty and promote
development in the "Third World." The loans were given to governments
to help them with their efforts to develop under a state-led model of
development.
During this time, the concept of development
itself was changing. Economic growth statistics alone could no longer
adequately reflect development. Concepts relating to the overall quality of
life needed to be taken into consideration, including the importance of having
communities truly participate in the process of development.
The first part concludes by pointing out the
weaknesses in the World Bank's top-down approach to development. At about the
same time that policymakers began to recognize these weaknesses, they also
began to see the weaknesses of the state-led, import-substitution model of
development.
The second part of this section describes the
rise of a movement called the New International Economic Order. It was
organized by developing countries, many of whom had recently been decolonized.
They did not think the "universal" system created by the founders of
the IMF and the World Bank in the 1940s was fair.
Institutions like the IMF gave developing
countries very little voice in important matters relating to international
finance and development. So, these countries demanded fundamental changes in the
international economic order in order to bring meaning to their newly found
sovereignty. Most of the NIEO's agenda was not implemented, in part because the
powerful industrial countries thought the demands were unrealistic.
1.
Early World
Bank Lending was Centered on the Concept of Economic Development.
It was quite obvious during the early days of
the World Bank that the reconstruction of Europe would take priority over
development. But, in actuality, the World Bank made only a few loans to Europe.
This was due to the U.S. Marshall Plan, which took over most of the financing
for the reconstruction of Europe.
With one of its two main responsibilities gone,
the World Bank made many loans to developing countries early on. Within the
next few decades, the number of developing nations grew. In the 1960s and
1970s, more countries joined the ranks of developing nations as newly
independent states emerged out of the grips of colonialism.
At first, these new nations focused on
obtaining and strengthening their sovereignty. Their main focus was the right
to self-determination and recognition of their sovereignty. Many countries
expected that once this was established, their economies would flourish and
"development" would follow.
Unfortunately, many of the ex-colonies had been
used by the colonial powers as sources of raw materials and as markets for
industrial and manufactured goods. Few of these new countries, therefore, had
the infrastructure and industrial power that would sustain economic
development.
In order to build the economies of the
developing nations, the World Bank engaged in project lending. The aim of the
early projects was to increase the nations' abilities to sustain economic
development through generating income from projects. The only way to do this
was to build up the resources necessary for economic growth.
Early World Bank lending to developing nations
stressed the development of infrastructure, industry, and agriculture. For
instance, it was important to develop electric power plants and roads before
manufacturing factories could open and before light and heavy industry could be
developed. None of these economic activities could develop without electric
power. Without good roads, no investor would want to do business with a country
because there was no way to transport products. Thus, the World Bank project
lending was intended to foster a welcoming environment for the factors that
lead to economic growth.
2.
Economic
Growth was Accompanied by Unequal Distribution of Wealth.
The post-colonial push to develop did result in
higher rates of growth. Many developing countries witnessed increases in per
capita income (total income in a country divided by the number of people) and
gross national product (the value of goods and services produced and sold in a
given time period), but most of the increases in income were concentrated in
sectors directly involved in what became a state-led process of economic
development. Typically, the government sector, those employed in industries, and
those who otherwise had special ties to the government or to foreign investors
benefited the most.
Many other people - those not connected to
the key sectors - did not benefit from this type of development. The push
to develop led to great migrations of people from rural areas to big cities,
where many could not find jobs. In addition, development projects tended to
favor industrialization over agricultural development, which led to increased
poverty in rural areas.
Some policymakers thought that the gap between
the rich and the poor would eventually shrink with increased economic growth.
They believed that if government policy favored the sectors that appeared to be
thriving, the whole country would be better off. In other words, the increased
wealth generated from development would "trickle down" to the poorer
sectors of society.
3.
The Change
to Program Lending Reflected the World Bank's Shift to "Growth With
Equity."
In the 1960s, many policymakers realized that
the trickle-down approach to development was not improving the circumstances of
the poor. In fact, some believed that benefits were "trickling up."
Because of the very obvious maldistribution of wealth, governments in
developing countries established social programs intended to directly address
the poverty. These programs were aimed at improving housing, education, health,
energy, and transportation.
Between 1973 and 1980, the World Bank, led by
Robert McNamara, became a significant actor in the push to address social
welfare in developing countries. In his view, it was imperative (in light of
the Cold War) for the World Bank to work with governments to eradicate absolute
poverty in developing nations.
With financial and technical assistance from
the World Bank and developed nations, the governments of developing countries
implemented state-run programs aimed at improving the lot of their nation's
citizens. Development was controlled directly by the state and its policies.
This was part of a broader model of development that emphasized state-led
industrialization via import substitution.
By this time, development was no longer
measured solely by statistics relating to economic growth. Notable experts
began to question the assumption that there was a trade-off between policies
promoting overall economic growth and policies advancing equitable distribution
of income and assets - a country could advance both interests at the same
time. Policymakers also began to take into account a person's quality of life
and the ability to meet the basic needs of the population. All of these
measures fell under the "growth with equity" approach to development.
The "growth with equity" approach was
evident in the new types of programs that were initiated at the World Bank.
Although project lending aimed at the development of infrastructure, industry,
and agriculture still continued, the programs initiated during the McNamara era
were directly aimed at the eradication of absolute poverty. The World Bank lent
large sums to facilitate rural development, urban development, and development
of small-scale industry. Bank loans also helped to develop programs for the
improvement of health, nutrition, family planning, and educational services.
The aim of this effort was to provide for the impoverished and under-employed
sectors of the population in a country.
It is important to understand that many
policymakers did not think the great push to attack poverty would magically
lead to economic equality between developed and developing countries. The
objective was to improve people's lives by addressing minimum needs relating to
food, shelter, clothing, health, education, work, etc. This approach also took
into consideration qualitative factors such as a humane and satisfying
environment and popular participation in decision-making--factors that would
eventually lead to the type of development model we have today.
4.
The World
Bank's Top-down Approach to Development was Ineffective in Many Cases.
During the McNamara years, however, pressure to
lend was high because of the internal culture of the World Bank. Success was
measured in terms of how many loans were approved. So, the emphasis was on
output instead of on the outcome of particular projects. In the name of output,
the same techniques and technologies were implemented in every locality.
Unfortunately for the poor, many of these
projects failed because they were inappropriate for the locality. The programs
were not necessarily tailored to the specific needs of a particular population
or culture. Consequently, the programs did not produce the gains that were
expected and often destroyed the environment.
Another top-down approach to
development - the import-substitution model - also began to show
weaknesses during the 1960s and 1970s. That approach, implemented widely in
Latin America and parts of Asia, sought to jump-start development by promoting
industrialization. Accordingly, governments heavily regulated market activity
in the domestic sectors (e.g., subsidies and price controls) as well as in the
international arena (e.g., trade barriers and foreign investment regulation).
Typically, much of the market activity was dominated by state-owned
enterprises.
Although supporters of the import-substitution
model point to sizeable economic growth rates between the 1960s and 1970s, the
statist policies ultimately led to chronically slower, inefficient, and
inequitable growth.
B.
Developing
Countries Attack the IMF
1.
The NIEO
Movement Demanded Effective Sovereignty.
As the World Bank preoccupied itself with the
unequal distribution of income within countries, developing countries began to
call for a redistribution of wealth from the industrialized countries to
developing countries. This demand was part of a movement called the New
International Economic Order (NIEO).
The NIEO was, in essence, a demand for
effective sovereignty. During the 1960s and 1970s, newly independent
ex-colonies were coming of age and demanding a greater share of the world's
wealth and more participation in the decision-making processes that affected
world issues, especially in economic matters that had great implications for
the well-being of their populations.
At the United Nations, where each country had
one vote, (this was not true at the IMF), developing countries successfully
passed a number of resolutions during the mid-1970s that embodied the NIEO's
agenda relating to the international economic order. The resolutions demanded
the transfer of resources from developed nations in the form of technology,
open markets, and direct aid.
The demands also called for greater equality
between developing and developed countries through more favorable terms of
trade. Moreover, developing countries claimed "full permanent
sovereignty" over their natural resources and claimed the sovereign right
to nationalize private property. The resolutions also called for the
reallocation of trading power through cartels and regional blocs, and codes of
conduct for multinational corporations.
2.
The NIEO
Failed to Change the Power Structures Underlying the International Economic
Order.
Most important to this discussion is the strong
critique of the IMF and the World Bank. Critics claimed that the IMF and the
World Bank had been created based on the interests of the developed nations. So
it was very likely that the monetary and trade system that they set up would
only cater to the interests of developed nations and ignore the interests of
developing nations. This system exacerbated the inequality of economic power,
political power, and growth rates between developed and developing countries.
To correct what was perceived to be an
inherently unfair monetary system, the UN General Assembly called for the
one-nation-one-vote rule at both the IMF and the World Bank and a change from
the "strict" conditionality of IMF loans. The demand for a voting
revision was in line with the call for greater political equality between
nations. Developing countries believed the existing voting system based on
quotas (which, in turn, were based on a country's economic power) was unfair
because many nations did not even exist at the time that the IMF and the World
Bank were formed.
The NIEO also demanded that Special Drawing
Rights (SDRs), a monetary reserve asset created by the IMF, be linked to
development. There were two suggested modes of linkage: organic and inorganic.
Under the organic method, the number of SDRs allocated would take into
consideration the level of need for development. By contrast, under the
inorganic method of allocation, quotas would be paid in as before, but the
quota subscriptions of developed nations would go to institutions that
benefited developing nations. One such institution is the International
Development Association, an affiliate of the World Bank that provides
concessional loans to very poor countries.
The NIEO's efforts were largely fruitless, in
part because of the golden rule - those who have the gold make the rules.
But some of the NIEO's demands were unrealistic, which led critics to downplay
the significance of the UN resolutions. In any event, the NIEO receded into the
background when the debt crisis hit many developing nations in the early 1980s.
Thereafter, everyone concentrated on trying to cope with highly indebted
developing countries teetering on the brink of economic collapse.
The interesting thing about the NIEO is that
the movement was based on the hope that the markets would help developing
countries prosper. They still believed, for example, that trade was key to
development. They also believed that multilateral institutions like the IMF
were worthwhile. What developing countries wanted, though, was a fair shake
from developed nations. The NIEO stood for the proposition that developed
countries should bear some burden in the development of poorer nations. This
meant that the developed states would have to extend more favorable terms of
trade, more finance, and more political power to developing nations.
[OUTLINE] [PART 1:IV] [BIBLIOGRAPHY]
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