The World Bank and Failed Policies

Introduction

Modern politics calls for states to enter into certain agreements in order to succeed in achieving the national interests, even though their objectives might be different. The increase in the number of international organizations can be explained from two different perspectives, one being a realist perspective while the second is the intuitionalist view. From a realistic perspective, powerful states will always form institutions with an aim of controlling global politics meaning that no state will ever be interested in realizing the objectives of the other. Developing countries have been depending on the global financial institution for development and this explains the main reason why many states in Africa, Asia, and South America are yet to achieve their economic ambitions1. The international system is characterized by anarchy, which means that there is no order in the way states conduct their businesses.

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The system is compared to the Hobbestian state of nature that was brutal, nasty, and chaotic, as there was no leviathan to oversee the welfare of each member. In this paper, the role of the World Bank in developing countries will be discussed whereby it is argued that the organization has failed in convening the needs of the poor states because it was never created to help the countries of the south develop. It is observed that the main role of the World Bank is to ensure the United States has access to the economy of the state applying for the loan. The organization is known to dictate economic policies once it is allowed to fund projects. An example of economic structural adjustment policies is given to show that it ties its loans to certain policies that serve the interests of the US. Through this, the developing country is never given a chance to develop, as it would achieve the much-needed economic power to control the global politics.

The World Bank and Failed Policies

The global financial institution was established in 1944 to help the states in Europe to redevelop their economies following the Second World War. Currently, it works with over one-hundred and sixty five countries, but none of these countries has achieved economic objectives. The officials of the bank have always insisted that developing countries cannot proper economically if they do not seek subsidized loans from established institutions. It further claims that it is certainly positioned exclusively to help underprivileged states prevail over the challenge of underdevelopment through relocation of resources to these countries.

Studies show that the bank has never helped developing countries realize their goals, as any state working with it face several economic challenges. Statistics show that all the developed countries that applied for a loan with the bank are worse off today while poor states that embarked on economic development without engaging the bank better off today. Hong Kong and Singapore are often cited as examples of countries that have developed without a loan from the World Bank or International Monetary Fund (IMF). The bank has been developing economic policies to salvage the situation in the developing countries, but none of these strategies has been successful. The officials underscore the fact that microeconomic reforms are needed for achievement of any sustained economic growth, but they still advise poor states to work with the multilateral institutions.

The bank’s president claimed in 1995 that the institution had evolved from being a financier to being a trusted advisor on issues touching on economic development, which suggests that the bank’s objective is to reduce poverty levels and enhance the standards of living among the poor. However, this has never worked because existing data proves something different.

Nicaragua is one of the victims of underdevelopment, even though it has always received heavy funding from the World Bank. From 1965 to 1995, the country received over sixty-hundred and thirty million dollars in form of aid, but its per capita GDP was less in 1995 ($875) as compared to the 1987 performance ($1752). This shows a reduction of growth with over fifty percent. Niger is another victim that received over five-hundred and eighty million dollars between 1965 and 1995, but its domestic gross product reduced significantly by over fifty-four percent.

A close analysis of developmental records of various countries receiving aid from the World Bank indicates that the institution has a bad record as far as economic progress is concerned. Studies show that several factors contribute to the underperformance and failure of the World Bank’s policies because the institution does not give its members a financial freedom. Once it releases the funds, it will want to follow up to on how these resources are used, something that affects the development agenda of the state. Dictating to states on how the money is to be used prevents them from creating wealth and prosperity. Not all states under the World Bank program have choices to spend money the way they want implying that their economies are not free2.

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A journal by Heritage Foundation on the indicator of financial freedom in 1996 revealed that many states getting loans from the organization lacked momentous levels of monetary freedom. The organization took into consideration at least ten financial aspects, including trade, the tax structure, regime expenditure, fiscal strategy, depository policies, overseas venture, salary bill and price regulation, private property privileges, economic laws, and black markets. Developing countries have failed to pick economically because of poor advises they receive from the bank.

For instance, underdeveloped states are misadvised to charge high duties, institute obstacles to businesses, including licensing, keep off from overseas venture, establish ambiguous systems of banking, burdensome regulations of government resources, weak fiscal policies, huge salary bill and price monitoring, and a bigger black market that does support monetary development. In fact, research shows that black markets affect the financial system in a number of ways because they deny the government the opportunity to acquire taxes3.

Hong Kong and Singapore as Models of Economic Development without World Bank

If the failures of the bank are to be understood, an analysis of economic policies of states that abandoned the bank’s advice is necessary. The two countries are consider the upcoming countries and a new name, Asian Tigers, has been designed for them because of their high level of economic development. In 1963, Singapore had similar GDP level as other poor countries, such as Kenya, but adoption of strong economic policies explains why the country is in its own class, even though it is categorized under the poor states. The two states embarked on an extensive economic liberation program rather than depend on foreigners who do not have the interests of the country at heart.

The US foreign policy makers were of the view that Hong Kong, as well as the entire East Asian region, was barren of any economic promise and decided not to associate with it focusing more on the African continent. Hong Kong received a very small amount from the US, but the same figure was reduced further in 1965. Later on, the World Bank officials admitted that they underestimated the region’s economic prospect after realizing that the rate of development could not be matched with any in the world.

The government of Hong Kong came up with various reform agendas in the banking and financial sector that the country develop some of the best banking institutions with the capacity to lend to its citizens at low rates. While the World Bank encouraged its developmental partners to liberalize the economy by withdrawing governmental participation, Hong Kong advocated for governmental regulation of the business. Moreover, the country was aware of importance of foreign investments and went a notch higher to lower international trade barriers, which made the country one of the region’s investment hubs. The regime eradicated all forms of duties, levies, permit necessities, and other import obstacles. The administration realized that manufactures were in need of export processing zones or what others refer to as free trade areas, which an important role in cutting through the red tape in the global market4.

Unlike the World Bank’s proposal, Hong Kong developed a robust taxation structure that allowed citizens to retain almost everything that they made. In Singapore, the government realized that development could never be achieved through borrowing and it formulated two major objectives, one being promotion of foreign investment and the other was intensifying exports. The two policies opened up the country’s economy to foreign investment and the role of the government was simply to provide an enabling environment that facilitated individual fulfillment. If the bank is to be of any help to the developing countries, it has to reform its economic policy to espouse that of the Asian Tigers that have been able to develop without any aid5.

While some pundits suggest that the congress should cut funding for the organization, others are of a different view since they suggest a change in policy. First, the community should have access to the organization’s monetary proceedings and information. Currently, the bank is highly reticent and this is known to obstruct any stranger from scrutinizing its efficiency. Since it is factual that economic freedom is a prerequisite for development, the congress should be varnished with the report on the same before approving any funds for the organization.

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Conclusion

It is concluded that the World Bank has spend over three-hundred billion dollars in trying to help the poor countries achieve their economic needs. However, it is observed that the institution has not been of any help because states working with it are still poor and they do not show any sign of development. When it was formed in 1944, the organization was effective and it played a major role in helping countries in Europe rediscover lost glories in financial terms, but its current performance suggests something different. The existing data proves that the institution has failed seriously to undertake its mandate as the world-leading financier because it does not allow countries to institute economic policies that are consistent with the expectations of the majority. In other words, the institution is simply an instrument that the US uses in realizing its interests.

Bibliography

Armstrong, D, L Lloyd & J Redmond, ‘International organization in world politics’, 3rd edn, Palgrave Macmillan, Basingstoke, 2012. Web.

Goldman, M, ‘Imperial nature: The World Bank and struggles for social justice in the age of globalization’ 4th edn, University Press, New Haven, 2005. Web.

Hurd, I, ‘International Organizations Politics, Law, Practice’, 2nd edn, Cambridge University Press, Cambridge, 2013. Web.

Mazower, M, ‘Governing the world: The history of an idea, 1815 to the present’, 4th edn, Penguin Books, New York, 2012. Web.

Weiss, TG, ‘The United Nations and changing world politics’, 5th edn, West view Press, Boulder, 2012. Web.

Footnotes

1 Hurd, I, ‘International Organizations Politics, Law, Practice’, 2nd edn, Cambridge University Press, Cambridge, 2013, p 15.

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2 Goldman, M, ‘Imperial nature: The World Bank and struggles for social justice in the age of globalization’ 4th edn, University Press, New Haven, 2005, p 87.

3 Mazower, M, ‘Governing the world: The history of an idea, 1815 to the present’, 4th edn, Penguin Books, New York, 2012, p 76.

4 Armstrong, D, L Lloyd & J Redmond, ‘International organization in world politics’, 3rd edn, Palgrave Macmillan, Basingstoke, 2012, p 31.

5 Weiss, TG, ‘The United Nations and changing world politics’, 5th edn, West view Press, Boulder, 2012, p 54.

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