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Published online by Cambridge University Press: 07 May 2025
As an agent of global social reproduction, the World Bank itself is also subject to forces pushing for privatization (in this case, divestment of its development lending role to private capital markets), much in the way that welfarist states are urged to selectively offload their more profitable (or commercially viable) social services to the private sector. Jessica Einhorn's call to wind down the World Bank's lending arm for middle-income countries, the International Bank for Reconstruction and Development (IBRD) (Foreign Affairs, January/February 2006) follows upon the recommendations of the Meltzer Commission (US Congress, 2000) for a triage of borrower countries: debt cancellation, performance-based grants for the most destitute of highly-indebted countries, as opposed to the more “credit-worthy” borrowers with access to capital markets, who should be weaned from multilateral lending agencies and henceforth be serviced by private lending sources (i.e. the financial analogue of “targeted” programs in health services). Indeed, this targeted approach is the persuasive face and generic template for the privatization of social services. What will be the consequences of such a change?
1. Shorthand for the “World Bank Group” which includes the International Bank for Reconstruction and Development (IBRD), lending to the governments of middle- and lower-middle income countries at market-based rates, the International Development Association (IDA), which provides concessional rates and performance-based grants to the poorest countries, and the International Finance Corporation (IFC), which promotes private sector involvement in development and its financing. Kenneth Rogoff, professor of economics at Harvard University and former chief economist at the International Monetary Fund (IMF) explains that “the IBRD has only a small amount of paid-in capital [5 percent of callable capital]. It finances most of its lending activities, which amount to more than $100 billion, through borrowing. That is, the IBRD taps international capital markets using its triple-A rating, and then lends to developing countries and emerging markets at a mark-up of between 0.5 percent and 0.75 percent, generally (but not always) far below the rate at which they could borrow on their own. The Bank uses the difference to help defray the Bank's $1.5 billion in operating expenses, including the cost of its 10,000-plus employees” (Economist, July 24, 2004).
2. Nicholas Eberstadt & Clifford Lewis. Privatizing the World Bank. The National Interest, Summer 1995.
3. Alan Walters. 1994. Do We Need the IMF and the World Bank? London: Institute of Economic Affairs.
4. Branko Milanovic. 2003. The Two Faces of Globalization: Against Globalization as We Know It. World Development 31(4):667-683.
5. See for example Hollis Chenery, Montek Ahluwalia, Clive Bell, John Dulloy and Richard Jolly. 1974 Redistribution with Growth: Policies to Improve Income Distribution in Developing Countries in the Context of Economic Growth. (A Joint Study by the World Bank's Development Research Center and the Institute of Development Studies, University of Sussex). London: Oxford University Press.
6. Report of the International Financial Institution Advisory Commission (chair: Allan H Meltzer), March 2000, US Congress www.house.gov/jec/imf/meltzer.htm (accessed on January 3, 2002). Along with Meltzer, the most sustained calls to outsource the IBRD's lending have come from his colleague Adam Lerrick, a Carnegie Mellon University economist and visiting scholar at the American Enterprise Institute. Lerrick, who had served as senior advisor to Meltzer during his tenure as chairman of the International Financial Institution Advisory Commission (1999-2000) has 25 years experience as an investment banker. Currently, he is chairman of Sovereign Debt Solutions Limited, a capital markets advisory firm which was retained from 2003-2005 to negotiate on behalf of 30,000 European retail investors, in collaboration with HypoVereinsbank (Germany's second largest bank), and DSW, the largest German investor rights protection organization, which collectively constituted the largest group of foreign creditor claimants in the $100 billion Argentina debt restructuring.
7. For a critical analysis of the World Bank's targeted approach in Investing in Health (World Development Report, 1993), see Asa Cristina Laurell & Oliva Lopez Arellano. 1996. Market Commodities and Poor Relief: The World Bank Proposal for Health. Int J Health Services 26(1):1-18.
8. For a discussion of universalism and targeting in social policy and development practice, see: Thandika Mkandawire. 2005. Targeting and Universalism in Poverty Reduction. United Nations Research Institute for Social Development, Social Policy and Development Programme Paper Number 23. Geneva: UNRISD; CK Chan. 2006. What's new in the Arusha statement on New Frontiers of Social Policy? Global Social Policy 6(3):265-270
9. Gavan McCormack. 2005. Koizumi's Coup. New Left Review No. 35 (September-October 2005). In the September 2005 Japanese elections, Koizumi had brilliantly tapped into a wellspring of disaffection among the Japanese electorate towards what was perceived as an arrogant, bloated, and pampered bureaucracy/technocracy – amakudari (post-retirement placements in cushy private sector jobs), repeated scandals and seedy history of reciprocal favors and corruption of LDP factions and their business and bureaucratic associates (“iron triangles”), cosseted civil servants who “continued enjoying their golfing retreats while the rest of us suffered the brunt of the collapsing bubble”, etc). The privatisation of Japan Post had little to do with enterprise efficiency or client satisfaction, but was largely cipher for anti-establishment sentiment (let the “free” market sort out cronyism, familiar mantra).
10. The State as Sugar Daddy (Economist, 30 July 2005); CK Chan. 2005. Neo-liberalism vs. Communitarian Capitalism: Japan's Dilemma. Posted on 22 September 2005.
11. Economist, March 17, 2007, citing Julie Abrams & Damian von Stauffenberg. 2007. Role Reversal: Are Public Development Institutions Crowding Out Private Investment in Microfinance? Wash. DC: MicroRate, Inc
12. Statement of Kenneth Peel, head of US delegation, 40th Annual Meeting of the Board of Governors of the Asian Development Bank, Kyoto, May 6-7, 2007 accessed on 4 September 2007.
13. Asian wealth leading to ADB overhaul. Associated Press, May 3, 2007
14. A professor of social epidemiology at University College London who chairs the WHO Commission on Social Determinants of Health which will be reporting in early 2008.
15. In the terminology of the neo-Keynesian French Regulation School, this would be an instance of “regulation failure” and crisis of the existing regime of accumulation: “there are long periods of time when things work, when the configuration of social relations that defines capitalism, for instance, reproduces itself in a stabilized way. We call such a continuing system a regime of accumulation. This refers, of course, to economics but this can be extended to politics, diplomacy, and so on… we have to think [also] about the ways this regime of accumulation is achieved… individual expectations and behavior must take shape so that they are in line with the needs of each particular regime of accumulation. There are two aspects of the process. The first operates as habitus, as Bourdieu would say, in the minds of individuals with a particular culture and willingness to play by the rules of the game. The other operates through a set of institutions [which] may vary widely, even within the same basic pattern of social relations. Wage relations, market relations, and gender relations have, for example, changed a lot since they first developed. We call a set of such behavioral patterns and institutions a mode of regulation…” Alain Lipietz. 1987. Rebel Sons: The [French] Regulation School - An interview conducted by Jane Jenson. French Politics & Society, Volume 5, n°4, September 1987. If we add an element of periodicity, this calls to mind Kondratieff waves (business cycles) and the periodic build-up (and dissipation or destruction) of over-accumulated capital and excess capacity.
16. Paul M. Sweezy. 1956. The Theory of Capitalist Development. New York: Monthly Review Press; Paul A. Baran and Paul M. Sweezy. 1966. Monopoly Capital. New York: Monthly Review Press.
17. Harry Magdoff and Paul Sweezy. 1987. Stagnation and the Financial Explosion. New York: Monthly Review.
18. Ulrich Beck. 1992. Risk Society: Towards a New Modernity. New Delhi: Sage (translated from the German Risikogesellschaft published in 1986).
19. Private Sector Development Strategy – Directions for the World Bank Group, para. 60 (April 9, 2002). Washington, DC: World Bank.
20. International Finance Corporation, 2007 Annual Report. Washington, DC: IFC.
21. David de Ferranti 2006. The World Bank and the Middle Income Countries, in Rescuing the World Bank (ed. Nancy Birdsall) Wash. DC: Center for Global Development.
22. Nancy Birdsall had previously held senior positions in multilateral development financing institutions, as executive vice-president of the Inter-American Development Bank (1993-1998) and before that, as director of the policy research department of the World Bank.
23. Nancy Birdsall (ed.). 2006. Rescuing the World Bank. Wash. DC: Center for Global Development.
24. Nancy Birdsall. 2006. A Global Credit Club, Not Another Development Agency, in Rescuing the World Bank (ed. Nancy Birdsall) Wash. DC: Center for Global Development.
25. Early in his tenure, Robert Zoellick, who replaced Paul Wolfowitz as president of the World Bank in July 2007, deftly turned to the expanding IFC for increased cross-subsidies for the IDA's grants and soft loans window. Affluent member states, who were balking at increased IDA replenishments despite their earlier pledges, would have found it difficult to support a downsizing of development lending by the IFC to the private sectors of emerging market economies. On the other hand, to secure the support of China, India, and other lower-middle income borrowers for the increased cross-subsidies to IDA (coming ultimately from the income streams from IBRD and IFC's borrowers), Zoellick offered as quid pro quo lower (!) rates for IBRD loans to these large borrowers. In contrast to Wolfowitz, Zoellick has shown considerably more savvy in playing the “multilateralist”, triangulating between the CGD/Brookings/Carnegie Endowment and the AEI camps, the different tendencies within global finance capital, and the dominant and emerging member states of the WBG, even as he seeks (or needs to be seen) as protecting the bank's “institutional” interests. Indeed, many of Zoellick's early initiatives would not have been out of place in a “multilateralists' agenda”: stepped-up lending to middle-income sovereign borrowers, and expanding the menu of the WBG's financial products (structured finance, risk management for natural disasters and currency and commodity price fluctuations, increased lending to sub-national and supra-national borrowers as well as to the private sector, local currency bonds). World Bank press release No:2008/078/EXT, September 27, 2007.
26. It was not coincidental that Singapore was chosen as the venue for the 2006 IMF/World Bank joint meetings, given Wolfowitz' assertive and sustained anti-corruption crusade in multilateral development lending. Quite apart from the Singapore government's intolerant approach to dissent and civil liberties, Singapore is also a highly efficient, technocratic, comprador state, a “development showcase” equally known for its “pragmatism” and its remarkably low level of corrupt practices (in the restricted “governance” sense) among government functionaries.
27. The IMF - Shrink it or Sink it: A Consensus Declaration and Strategy Paper. 2006 campaign spearheaded by Focus on the Global South. Accessed on 15 Sept 2006
28. Vince McElhinny. 2007. Banco del Sur: A reflection of declining IFI relevance in Latin America. Bank Information Center, 1 May 2007 accessed on September 2, 2007
29. José Angel Gurria & Paul Volcker (co-chairs). 2001. The Role of the Multilateral Development Banks in Emerging Market Economies. 2001. Washington, DC: Carnegie Endowment for International Peace.
30. Wang Seok-Dong. 2002. Regional Financial Cooperation in East Asia: the Chiang Mai Initiative and Beyond. Bulletin on Asia-Pacific Perspectives 2002/03. Asia-Pacific Economies: Sustaining Growth Amidst Uncertainties. Bangkok: UNESCAP.
31. ASEAN+3 agree to cash swap scheme / Countries to pool reserves for stability. (The Yomiuri Shimbun online, May 6, 2007) (accessed on May 7, 2007)
32. “The Asian Bond Fund 2 has moved into Implementation Phase” (EMEAP Press Statement, 12 May 2005)
33. China Daily, 26 July 2007, p.10.
34. Tinkering at the edges of governance reform: IMF quota proposals. Bretton Woods Project website (11 September 2006) accessed on 20 September 2006.
35. McElhinny, ibid.
36. interview with Plinio Soares de Arruda (economist, State University of Campinas) on Brazil and Banco del Sur, May 18, 2007 accessed on September 1, 2007.
37. Patrick Bond. 2006. The Dispossession of African Wealth at the Cost of African Health. Equinet discussion paper number 30 (March 2006). Harare, Zimbabwe: Equinet.
38. Financial Times, December 7, 2006.
39. World Bank Commits Record $5.8 Billion to Africa. (World Bank press release, September 4, 2007).
40. Full text of President Hu Jintao's speech at the Beijing Forum on China-Africa Cooperation accessed on September 2, 2007.
41. Peter Bosshard. 2007. China's Role in Financing African Infrastructure. Berkeley: International River Network and Oxfam. For African perspectives on the emergence of China as a major source of development finance, see Firoze Manji & Stephen Marks (eds). 2007. African Perspectives on China in Africa. Cape Town: Fahamu; see also Todd Moss & Sarah Rose. 2006. China ExIm Bank and Africa: New Lending, New Challenges. CGD Notes, November 2006. Wash. DC: Center for Global Development.
42. Harry Broadman. 2007. Africa's Silk Road: China and India's New Economic Frontier. Wash. DC: World Bank.
43. Michal Kalecki. 1939. Essays in the Theory of Economic Fluctuations (p.149). London: Allen and Unwin.
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