The reasons behind the World Bank's failure to deal with poverty

(Submitted in 2016)

Major global events such as wars and economic crisis led to the creation of a New World Order regulated by global institutions. These institutions among which are the United Nations, the World Bank, the International Monetary Fund and the World Trade Organization were created for specific purposes and have done their best throughout time to achieve he gal of making the world a better and fairer place. However, the current state of the World shows that expectations hold at their creation do not meet the reality. The paper shows that despite their tremendous efforts, the World Bank, in charge of ending extreme poverty and boosting shared prosperity has not succeeded yet in defining and dealing with the poverty problem throughout its history.

The World Bank was established in 1944 to become “the channel for a long-term development finance” (Ravallion 1). Their main goal as expressed in their motto is to have “a world free of poverty” (Clemens and Kremer 1) by reducing it and also “promote shared prosperity” (The World Bank Group). The World Bank has five main institutions essential to its functioning which are The International Bank for Reconstruction (IBRD), The International Development Association (IDA), The International Finance Corporation (IFC), The Multilateral Investment Guarantee Agency (MIGA) and The International Centre for Settlement of Investment Disputes (ICSID) (The World Bank Group). Out of those five, only the International Bank for Reconstruction and Development and the International Development Association are useful in reaching their poverty alleviation goal. In fact, their usefulness is found in that the International Bank for Reconstruction and Development lends to governments of middle-income and creditworthy low-income countries, whereas The International Development Association provides interest-free loans and grants to governments of the poorest countries (The World Bank Group).

Alleviating poverty, although laudable is difficult for the World Bank since poverty is a complex phenomenon which definition varies depending on different factors. The World Bank defines poverty as “a pronounced deprivation in well-being” (Haughton and Khandkter 2) and measures poverty based on a one dollar a day standard considered as the poverty line (Reddy 108). However, this is not the only way to define poverty and this first obstacle somewhat limits the World Bank’s efforts. Nonetheless, the ways the World bank has tried to manage poverty over time were through Structural Adjustment Programs in the past, and currently through The Good Governance Agenda.

Structural Adjustment Programs are “economic policies for developing countries” (WHO). They are designed to “encourage the structural adjustment of an economy by removing excess government controls and promoting market competition” (WHO). Structural Adjustment Program’s policies include “privatization, managed balance of payments, reduction of government services, increase of free trade, business deregulation”, and promote a neo-liberalism ideology of the market where the state has a minimal role (WHO). Structural Adjustment Programs “support low-income countries through loans or low interest subsidies using an IMF financing mechanism” (WHO). If when launched, they seemed to be an efficient solution to alleviate poverty and share prosperity, the 1980’s proved all those whom believed in it wrong. As a matter of fact, the Structural Adjustment Programs collapsed in most of developing countries within which they were implemented. The main reason behind this was the fact that the World Bank only had one development program for multiple different countries without even considering their internal functioning. Consequently, this big mistake led to none of the adjustments programs proposed to function as the World bank forgot that “one size does not fit all” (Drake et al. 26)

Later on, in order to catch up with their previous failure, the World bank came up with the Good Governance Agenda and the Poverty Reduction Strategy paper as new attempts to deal with poverty. They defined Good governance as “the manner in which power is exercised in the management of a country’s economic and social resources for development” (Drake et al. 6). They included principles such as “accountability, participation and inclusiveness, respect for institutions and laws, effectiveness, transparency and efficiency” (Drake et al. 4), which they thought were essential to good governance. Surprisingly, unlike the previous approach, Good governance emphasized the role of the state as international institutions started to realize the central role of the State in managing and regulating the market (Drake et al. 2). Moreover, they also realized that poor governance was the reason why countries could not reach a certain level of development (Drake et al. 7), and wanted to optimize their ability to thereby requiring a properly functioning democratic system from each participating country. Along the Good governance agenda was the Poverty Reduction Strategy paper based on the idea that “leaders, administrators, and others from within a country should take the lead in the development process, so that the process is “owned” locally and not imposed from the outside “(WHO).

Despite this new attempt, failure was certain to be the outcome since the generalization of the situation still the main issue in World Bank’s attempts to deal with poverty. What I mean is that the World Bank applies a set of standards to countries that do not improve in the same way. Even though they came up with a new plan to alleviate poverty that seems far from Structural adjustment programs, they are subtly repeating the same mistake. For instance, the poverty line established at one dollar a day does not consider conditions at the country level and has no rational basis (Chossudovsky). Moreover, it dismisses the fact that people who are even earning more than three dollars might not be able to meet basic life needs and might be considered as poor. Having said that, it appears that the claim according to which “the international poverty line (whether the new or the old one) is representative of standards prevailing in poor countries is untenable as commodity prices are irrelevant” (Ravallion, Chen and Sangraula 4). The established poverty line conceals the reality of poverty but also how many poor people are really out there. One of the biggest thing is that it makes people comfortable thinking that poverty is not that of a big deal, since only one in five people which represents one billion of persons out of the seven billion on Earth are poor (Ravallion, Chen and Sangraula). This belief prevents action.

Another explanation for the World Bank’s failure is the pressure exercised by the World Bank and other institutions on countries in order to get them to do what they want. Rather than imposing a package to countries as before, the World Bank grants their financial aid at some conditions. This is called “aid conditionality “ (Santiso 16) and describes “a mutual arrangement by which a government takes certain policy actions, in support of which an international financial institution will provide specified amounts of financial assistance” (Santiso 16). Those conditions are to fulfill in order to reach what the World Bank calls “good governance”. Once again, they are imposing their vision of what good governance is based on western values. This is in some extents coercive for countries that have to comply to policies or development models they do not really believe in. Indeed, instead of developing systems that are accountable and responsible to their citizens, the government responsibilities lie towards the donor countries or institutions. In other words, countries only come up with plans and reforms to satisfy the requirements so that they get the financial aid, while nothing is internally done. The problem is not a lack of development policies or programs, the problem lies in the application and the effective institutional mechanism necessary to implement them. At the end of the day, it is clear that the Good Governance Agenda is profitable for institutions and donor countries since they grasp more countries into their market ideologies and perpetuate the cycle of poverty. We have to realize that “aid conditionality is not the appropriate approach to strengthen good governance and reinforce governing institutions in developing countries” (Santiso 30). However, the World bank does not seem to agree.

The last but not the least reason that could be given to explain the World Bank’s failure is the allowed blindness that dominates the market. It is easy to notice that the so-popular free market model of development does not work for everyone, and that it is mainly the source of all problems. However, some scholars of political economy unlike Marxists and dependency theorists want to ignore this factor and pursue this unfair system, which contributes to give advantages to only one part of the World. The truth is, as long as we have a “free market” system that makes rich countries richer and poor countries poorer, and as long as we have ideologically influenced institutions as the World bank, poverty and under development are going to be perpetuated throughout time. Dependency theorists did a good job emphasizing this aspect of the market (Farmer 24). Given those facts, we can say that “social realities are concealed, official statistics are manipulated, economic concepts are turned upside down and public opinion is bombarded in the media with glowing images of global growth and prosperity”. (Chossudovsky

All things considered, the reasons why the World Bank is highly criticized and inefficient are relevant. Because of their western ideological penchants and tendency to concentrate wealth and power in the hands of already-well-heeled such as Western countries, they are preventing themselves from achieving their main stated goal. Their real motivations are challenged, for whatever they propose most of the time tends to serve industrialized countries’ best interest, worsening third world countries’ situation. The fact that “the United States has effective veto power over major Bank decisions, and Bank lending tends to follow the commercial and financial interests of the United States” (Clemens and Kremer 62) allows powerful countries and international institutions to “transform countries into open economic territories and national economies into "reserves" of cheap labor and natural resources” (Chossudovsky) rather than really targeting poverty.

Finally, a world free of poverty appears to be a utopia for those who believe there are always going to be poor and rich and an equal society cannot exist. The fact that there are no agreed upon definition and criterion to identify poverty and that there is only one definition of good governance, which is based on western values that do not always comply with Third world values are challenges for the World bank. As long as those challenges will persist, it is going to be harder to alleviate poverty through any mechanisms. The World bank despite commendable programs established to alleviate and eradicate poverty seems far from its goals since they keep repeating past errors and are still relying on a system that perpetuates inequality. Poverty perpetuation is a reality and the perfect example of the International system failure. Yet, having an agreed upon definition of poverty and development programs specific to countries might be a good starting point to help alleviate poverty.

Khady-Emilia D., your future employee

WORKS CITED

• Brian R., Farmer. “The Question of Dependency and Economic Development: A Quantitative Analysis” Lexington Books, 1999. Google books. Web. 5 Mar. 2016

• Carlos, Santiso. “Governance conditionality and reform of multilateral development finance: the role of the group of eight”. John Hopkins University Press 2002. Web. 5 Mar. 2016

• Clemens, Michael A., and Michael Kremer. “The new role For the World Bank”. Journal of Economic Perspectives 30.1 (2016): 53-76. Business Source Complete. Web. 2 Mar.2016

• Drake, Elizabeth., Malik, Ambreen., Xu, Ying., Kotsioni, Ionna., El-Habashy, Rasha and Viva, Misra. “Good governance and the World Bank”. University of Oxford. Web. 5 Mar.2016

• Jonathan, Haughton, and Shahidur R.Khandker. “Handbook on Poverty and Inequality” World Bank Publications, 2009. Google books. Web. 5 Mar.2016

• Michel, Chossudovsky. “Global poverty in the late twentieth century” Journal of International Affairs (Columbia University), Vol. 52, no. 1 (Fall 1998). Web. 5 Mar. 2016

• Ravallion, Martin. Chen, Shaohua, and Sangraula, Prem. “Dollar a day revisited”

• THE WORLD BANK ECONOMIC REVIEW, VOL. 23, NO. 2, pp. 163 –184. Oxford University Press 2009. Web. 5 Mar.2016

• Ravallion, Martin “The World Bank: why it is still needed and why it still disappoints” Journal of Economic Perspectives 30.1 (2016): 77-94. Business Source Complete. Web. 2 Mar.2016

• Reddy, Sanjay “Digging deeper into a hole” The World Bank’s New Poverty Estimates. Challenge, vol. 51, no. 6, November/December 2008, pp. 105–112. Web. 2 Mar.2016

• The World Bank group “About the World Bank”. Web.5 Mar.2016

• World Health Organization. “Structural adjustment programs”. Web. 5 Mar. 2016

• World Health Organization. “Poverty Reduction Strategy Paper PRSP”. Web. 5 Mar 2016

IMAGES

• World Bank image from polyp.org.uk

• Aid conditionality image from Credit: James Gayo, Tanzania / epd-entwicklungspolitik, 14/15/2000 from https://www.researchgate.net/figure/314472624_fig5_cartoon-on-the-negative-effects-of-aid-conditionality-and-double-talkCredit-corruption

• Free Trade image from http://jacobsongj.wordpress.com/