The IMF and the World Bank

By Zeit-Fragen

[This article published in: Zeit-Fragen Nr. 15, April 19, 2004 is translated from the German on the World Wide Web,  http://www.zeit-fragen.ch/ARCHIV/ZF_116a/T04.HTM or  http://www.zeit-fragen.ch/ARCHIV/ZF_116a/TO4.HTM.]

It was 1944 at the International Monetary conference of the United Nations in Bretton Woods – a small American city – nine months before the war’s end. The International Monetary Fund (IMF) and the World Bank were founded as part of concerted efforts to finance Europe’s reconstruction after the devastations of the Second World War and protect the world from grave future economic crises. They had to accept different tasks. The World Bank or the International Bank for reconstruction and development as it was originally called should be active first of all for Europe’s recovery. The IMF should guarantee the stability of the monetary system and prevent another economic depression. Behind that was the conviction that collective action on the global plane was needed to protect economic stability.

The IMF has changed greatly since its establishment. While in its formation the IMF started from the fact that markets often do not function trouble-free, it proclaims today the superiority of the market. The most radical changes in this institution occurred in the 1980s when Ronald Reagan and Margaret Thatcher proclaimed the ideology of the free market economy. Everyone would win, it was promised. More free trade brings more growth, more prosperity, more freedom and more democracy.

With “TINA – There is no Alternative”, the British Prime Minister Margaret Thatcher stylized worldwide free trade as a seeming natural law. The IMF and the World Bank were the new institutions that forced these concepts on reluctant poor countries because these countries often depended on credits and donations.

The World Bank also experienced far-reaching changes. In 1968 Robert McNamara was chosen president of the World Bank. His team of advisors under Harvard professor Hollis Cheney worked on the questions why the free market failed in developing countries and what could be done to improve the efficiency of the markets and combat poverty. A change of course also occurred here in the 1980s. In 1981 the World Bank was given a new president with William Clausen. Its chief economist Ann Krueger hardly worked any more on combating poverty and saw the best solution for developing countries in open markets.

In the course of the years, the good ideas and intentions supporting the establishment of the IMF and the World Bank changed to something completely different.

The credo was now that the global free market brings prosperity and is the only true solution for everyone. This conviction defined the work of the two institutions.

The worldwide gross domestic product actually rose considerably. International trade climbed ten-fold between 1950 and 2000. In 1985 this amounted to 1/10 of the world economic output for the first time since 1929. Since 1995, this share has even grown to 15%. However not everyone profited in the same way from this growth. With Africa, a whole part of the world was actually uncoupled. Vast parts of the world fall in dependence on the rich North. They were told to bind themselves more strongly to the world market and limit their state-owned production to a few export-goods.

As a result, the third world falls into a destructive debt crisis. Within a generation, their debts with the rich countries rose from $21 billion (1961) to $560 billion (1980), a mountain of debts that cannot be paid out any more and forces these countries into a disastrous dependency. On the other hand, others profit from the neoliberal world trade policy. In the last 20 years, the capital streams grew and the capital movements separated from real-economic transactions. Today 2.5% of the currency flow is invested in the real economy; 97.5% is speculative. The greatest winners of globalization can be found in this speculative area. The mammoth multinational corporations are in the second tier. They profit from the very low costs for transportation and communication and can build their profit chains across the borders. A third of international commodity trade today consists of inter-company transfers.

There can be no talk of an increase of production and services and adjustment of prosperity for everyone as the neoliberal economists prophesied. The opposite has happened. In 1960 the difference between the richest and the poorest fifth of humanity amounted to 30%; today this difference is 70%.

The assets of the 3 richest Americans exceed the gross domestic product of the poorest 48 countries altogether. The 200 richest persons of the world own as much as 41% of the world population. Their assets have doubled in the last 10 years. Since 1986, developing countries have remitted twice as many dollars to the rich North as they received in economic aid.

As a result, the balance from more than a half-century of neoliberal economic policy is horrific:

· An expanding prosperity gulf from North to South and also within developing countries.
· Profit maximization without regard for resource- and environmental protection.
· Contempt for cultural diversity.
· Destruction of social structures that developed over centuries.
· Deficiency in democratic participation.

For this development, the recreation of a fair political framework is a command or imperative of the hour…

Economic growth, not improving quality of life, has had priority. This is decisive because as a rule only a few profit from economic growth, not the population.