World Bank/IMF and the Inevitable Failure of Global Capitalism
By Zacheaus Somorin
The discourse synthesis of the recently concluded World Bank meeting in Washington DC, in which I was invited as a participant, was that global capitalism has failed as the ideological polemics of discussants ‘recruited’ from all over the world did nothing to chart a new course for global economic equality among nations.
World capitalism is experiencing the worst crisis in its over 500 years history; while global capitalism is a qualitative new stage in the open ended evolution of capitalism characterised by the rise of transactional capital, transactional capitalist class and transactions state as symbolised by the emblem institutions – IMF and the World Bank. Hence, it looked like the just concluded World Bank meeting was converged to push for an alternative – socialism?
Capitalism on Trial
In William I Robinson argument, ‘’the global crisis is structural and threatens to become systemic, raising the specter of collapse and a global police state in the face of ecological holocaust, concentration of the means of violence, displacement of billions, limits to extensive expansion and crisis of state legitimacy’’. He therefore suggested that a massive redistribution of wealth and power downward to the poor majority of humanity is the only viable solution.
”Advanced economies remain stuck in a low-growth, low-investment, low-inflation cycle. And while growth in emerging markets is picking up, low-income commodity exporters are struggling with low prices. We project global growth at 3.1 percent this year, with only a modest acceleration to 3.4 percent next year. Putting it simply: growth has been too low, for too long, and benefiting too few.
The social and political consequences are becoming all too apparent. Inequality remains too high in too many countries. Conflict and migration exert a terrible toll. Trade has become a political football. And supporters of economic integration – and cooperation – are on the defensive’, these are the words of the International Monitory Fund (IMF) Managing Director, Christine Largarde at the just concluded IMF/World Bank annual meeting in Washington DC, United States.
The economic convergence was greeted with the global presence of many countries’ representatives with, as expected, Finance Ministers leading the delegations. Most of the discourses were premised and patterned towards how poverty can be eradicated in the world through social and economic inclusiveness.
As expected, there was a synthesis that Africa as a continent needs more help, one: from itself and from global neo-liberal agenda which many believe has made it recumbently dependent and perpetually at the mercy of donor nations. The global Financial Stability report indicates that the world has found itself in a ”low growth, low-rate era, characterised by increased political and policy uncertainty” – with Africa, as expected, at the bottom.
According to the report, this is creating many challenges for banks, corporate organisations, and policy makers in all parts of the world; saying failure to adapt to this new era could undermine the health of financial institutions, and add to the forces of economic and financial stagnation. It added that the world has entered into a new era of challenges: low, uneven and unequal growth risk that have been opening doors to more populist and inward looking policies that eventually leads to a loss of political cohesion and a rise in policy uncertainty in some countries.
By implication, this could increase volatility and undermine growth. The IMF and World Bank were both created at the end of World War II in a political climate that is very different from that of today. Nevertheless, their roles and modalities have been suitably updated to serve the interests of those that benefit from neoliberalism. The institutional structures of the IMF and World Bank were framed at an international conference in Bretton Woods, New Hampshire.
Initially, the primary focus of the IMF was to regulate currency exchange rates to facilitate orderly international trade and to be a lender of last resort when a member country experiences balance of payments difficulties and is unable to borrow money from other sources. The original purpose of the World Bank was to lend money to Western European governments to help them rebuild their countries after the war. In later years, the World Bank shifted its attention towards development loans to third world countries – and that forms the historical context of Africa’s woeful neo-liberal involvement.
As Robert McChesney concisely describes it, neoliberalism “refers to the policies and processes whereby a relative handful of private interests are permitted to control as much as possible of social life in order to maximize their personal profit.” The major beneficiaries of neoliberalism are large trans-national corporations and wealthy investors. The implementation of neoliberal policies came into full force during the eighties under Thatcher and Reagan.
Although seemingly neutral institutions, in practice, the IMF and World Bank end up serving powerful interests of western countries. At both institutions, the voting power of a given country is not measured by, for example, population, but by how much capital that country contributes to the institutions and by other political factors reflecting the power the country wields in the world. The G7 plays a dominant role in determining policy, with the US, France, Germany, Japan and Great Britain each having their own director on the institution’s executive board while 19 other directors are elected by the rest of the approximately 150 member countries.
While speaking at the Global Infrastructure Facility Programme, the Minister of Finance, Mrs Kemi Adeosun stated that Nigeria – the supposed economic giant of Africa- needs funds for infrastructure while also painting a picture of a nation at its kneels – financially. But she failed to put into historical context how previous funding by the World Bank has been looted. The usual conditions attached to loans to the third world nations is what has kept them eternally dependent of Briton Woods institutions.
Global Debt Burden
While giving a global outlook on the world economy, Director, Fiscal Affairs Department, Mr Vitor Gaspar, stated that after looking at the private and public debt around the world, it was discovered that the global debt is at record highs and rising, but there is quite a bit of homogeneity within and across the groups of companies. Based on World Bank data, in the last fifteen years, the debt of the non-financial sector has increased significantly, reaching $152 trillion by 2015.
About two-thirds (or $100 trillion) is the debt of the private sector; the remainder constitutes public debts which increased from below 70 percent of GDP at the beginning of the century to almost 85 percent in 2015. He also explained that excessive private debt is a major headwind against the global recovery and a risk to financial stability. According to him, the World Bank Fiscal Monitor shows that rapid increase in private debts often end up in recessions, saying however that public debt also matters.
”Entering a financial with a weak fiscal position results in even larger output losses – this is especially the case for emerging market economies which tend to cut government spending in times of crisis, thus reflecting tighter financing conditions”, he added. He however pointed out that debt is not high everywhere, but that private debt is concentrated in advanced and a few emerging economies. In advanced economies, which were at the epicenter of global financial crisis, deleveraging has been uneven and in many cases private debt has continued rising.
He however clarified that fiscal policy can do more to restore growth and stability, saying targeted fiscal interventions in the form of government-sponsored programs to help restructure private debt and public support for financial sector restructuring can be very effective in reducing output losses associated with private sector deleveraging. However fiscal policy cannot do it alone: ”A comprehensive, consistent and coordinated approach is what is needed. Comprehensive action using all three policy prongs – monetary, fiscal, and structural – harnesses the synergies across policies.”
Looting the Loan
Historically, according to researchers, the most devastating program imposed by the IMF and the World Bank on third world countries are the Structural Adjustment Programs as implemented by Ibrahim Babangida regime in Nigeria. The widespread use of SAPs started in the early eighties after a major debt crisis. The debt crisis arose from a combination of reckless lending by western commercial banks to third world countries; mismanagement within third world countries and changes in the international economy.
During the seventies, rising oil prices generated enormous profits for petrochemical corporations. These profits ended up in large commercial banks which then sought to reinvest the capital. Much of this capital was invested in the form of high risk loans to third world countries, many of which were run by corrupt dictators. Instead of investing the capital in productive projects that would benefit the general population, dictators often diverted the funds to personal Swiss bank accounts or used them to purchase military equipment for domestic repression.
‘’In most parts of the world we are facing strong headwinds – a slowing global economy hit by falling commodity prices and stagnating global trade. Global growth is now projected at 2.4% in 2016; investments are soft and export prospects are deteriorating with commodity exporters facing particularly tough conditions’’, said World Bank Group President, Jim Yong Kim President.
Poverty Proliferation
He pointed out that the world now has the highest number of developing countries in recession since 2009; saying the latest growth forecast for Sub-Saharan Africa is only 1.6 percent for 2016, far below population growth which is around 3 percent. Labor productivity growth, a key enabler of real wage growth, is negative in the United States, near zero in the Euro zone, and declining even in East Asian countries, he added.
‘’We also know that by 2030, almost half of the world’s extreme poor are expected to live in countries affected by fragility and conflict. These are no ordinary times. So we cannot rely on ordinary measures. All of us at the World Bank Group feel an enormous responsibility to bring forward, precisely those innovative, creative measures that are needed in our world – at the scale required to meet the challenges’’, he added.
He said having joined the World Bank in 2012, he led the organization to set two clear goals: One, to end extreme poverty by decreasing the percentage of people living on less than $1.90 a day to no more than 3%. And the second, to promote shared prosperity by fostering the income growth of the bottom 40% for every developing country.
This he was ambitious to do with what he described as Pandemic Emergency Financing Facility, the Global Concessional Financing Facility and its decision to use equity from IDA, hence raising fund for the poorest countries, But, he revealed: ‘’findings from our first annual Poverty and Shared Prosperity report, which tracks progress towards our twin goals, make clear that achieving the goals will be extremely challenging’’.
Zacheaus Somorin is a Nigerian journalist based in Toronto, Canada