What role does the World Bank have in Africa's future? … The World Bank's draft strategy for Africa appears to be an attempt to shore up its position as a key player in the continent's development, while at the same open itself up to feedback from the public The new report on Africa, published this week, concluded that the continent "could be on the brink of an economic take-off, much like China was 30 years ago, and India 20 years ago". In its report, published on Monday, the bank said the continent's steady economic growth, progress on the millennium development goals and good rates of returns on investments give Africa "unprecedented opportunity for transformation and growth". Promoting Africa as an exciting and lucrative investment destination will be crucial to fulfilling this potential, it added. "The emergence of new development partners such as China, the untapped potential of mobilising domestic resources, as well as the rise in private capital flows to Africa, calls for a new approach – Africa as an investment proposition – and points to the need for new partnerships among governments, development partners and the private sector," said the bank. – UK Guardian
Dominant Social Theme: Africa! Rejoice, ye sun-drenched people … celebrate your ancient birthright. It is time! Your day has come; your Northern bretheren, in Modesty and Gratitude, shall lift you up …
Free-Market Analysis: The World Bank has leveled its sights on Africa, and thus it seems Africa is next on the list to be "helped" by the Anglo-American power elite. This is not good news for Africa in our humble view. In this article, we will try to explain why, and also deal with the larger issue of the World Bank's relationship to the International Monetary Fund.
World Bank aid, in fact, seems to us something of an elite promotion (as so many things are on a global scale.) The process hinges on what we consider a dominant social theme, that the projection of Anglo-American money power overseas, both economic and military, is well-meaning, even generous. Even when things go wrong, the Anglosphere's involvement is always positioned in this light. (See UK Guardian article, excerpted above.)
How does the meme evolve? First a nation state must establish a predictable "ruling class" because the mercantilist Anglo-American elite needs an elite, government-affiliated group for business purposes. Governments are very important to the Anglo-American axis, especially governments that are "democratically elected." Governments allow the Anglosphere to create laws and influence legislators in a way that empowers Western multinationals (owned by the elite in our view) and reshapes society within so-called legal parameters.
Now enter the World Bank. The World Bank is obviousiy an important agency of the Anglo-American power elite; its headquarters are in Washington DC, and it was created about the same time as the International Monetary Fund in the mid-1940s. The two groups seemingly work in tandem. What is the main weakness of both these organizations? Being elite institutions, they tend to deal with nation's power centers, not with local businesspeople. Aid flows from the top down. Misesian human action is negated.
Some more detail. The World Bank has been constructed to make loans, and does so mostly to developing countries. These are countries that may need infrastructure and other large projects and the World Bank makes funds available, presumably at low interest rates. However, since the money often flows directly to governments, 1) whatever projects are green-lighted will likely be shoddy if they even get finished, and 2) the leaders of developing countries often borrow far more than the country can pay back because much of the money is diverted into private pockets and because public projects look good to the larger citizenry.
The World Bank of course does not do developing countries any favors by lending to governments or even the resident ruling class. It is true that the World Bank has grown into a rather complex institution with at least five subsidiaries under its World Bank Group (and one is supposed to lend directly to the "private sector.") But nonetheless, the larger mandate remains government-oriented, and thus World Bank money is provided in ways that almost guarantee its misuse. Once a country – or government – gets in trouble with the World Bank because loans are due and the revenue to pay them is not available, the IMF is likely called in.
Now things may go downhill rapidly. The IMF is willing to provide either loans or an outright funding stream to the country in question, but there are inevitably provisions to be followed. The IMF will likely insist on higher taxes, cuts in services and often privatization of industries. The IMF has gotten a bad reputation with developing countries because its solutions often eviscerate the middle class while the privatizations end up involving fire-sales bid out to Anglo-American corporations.
The "tag-team" mechanism of the World Bank and IMF seems to work to the advantage of the Anglosphere in other ways as well that may be considered even more important – and involve the larger (surprisingly rapid) development of the whole country. With the World Bank leading the way, the Anglo-American elite may decide to pour additional funds into a given country or region. This is what has happened most recently in the BRICs, with varying degrees of efficiency.
The operational methodology involves penetration by Western academics and the Western corporate state into the very fiber of the target country. Now loans are not merely made to government for large public works; the process goes far deeper. Western corporations make deals to open up subsidiaries or simply to open up direct businesses. These same corporations may establish huge factories or through joint ventures may take stakes in large domestic industrial developments. Either way, the country begins to build a substantial infrastructure that is tailored to Western consumer demands. This is certainly what happened in both China and India and is happening in Brazil as well. It took place in some degree in Russia after the Soviet Union collapsed but as the political climate changed Western influence ebbed.
The upshot of such rapid industrialization is twofold. First, living standards are raised dramatically for parts of the population and, second, Western-style institutions are imported en masse into the country as it is industrialized along Western lines. This means that the country's institutions are aligned with Western ones and will inevitably involve a central bank, a graduated income tax, and, eventually, a large external debt (though more immediately a surplus).
Of course as a country's economy is growing, there will inevitably arise business-advocacy to continue growth. Formerly impoverished citizens will clamor for an increasingly expansive economy. Leaders will feel the pressure. And just as they do, they will begin to be subject, not-so-coincidentally, to suggestions they purchase United States Treasury paper. The justification of course is that the purchases will help fund US consumers' continued buying of consumer goods.
This is a historical approach as best we can tell. It was applied to Europe via the Marshall Plan (which muscled out the World Bank at the time) and then was applied successively to Japan, China, India and Brazil and unsuccessfully in our view with Russia. (Various countries in Asia and Central and South America seem to have been subject to it as well.) Each time, the industrializing country gets a boost from Anglo-American infrastructure and consumerism. Once the industrialization is developed and money is flowing, requests are broached regarding funding. The quid quo pro is soon established.
The country that may be the most cautionary tale when it comes Anglosphere's economic colonialism is Japan. Japan profited enormously from US knowhow, but during its heyday in the 1970s and 1980s, Japan's central bank printed so much money (to take advantage of the growth offered by the Anglosphere) that it was said the emperor's palace grounds in Tokyo were worth more than the entire state of California. This sort of real-estate inflation is now taking place in China. It is not coincidence but an inevitable side effect of this sort of fiat-money intensive development.
Inevitably, as this sort of hyper-Westernization proceeds, a bubble begins to form in the industrializing country. This is because the entire "miracle" (it is always a miracle) is furnished via Western style fiat money. Inevitably currency fuels the boom, which must turn into a bust as the country's leaders try frantically to control the price inflation they have unleashed (see China, today).
Eventually, either price inflation spills out of control or growth is choked via off high interest rates, etc. Either way, economic chaos ensues. Factories are suddenly idle; homes are revealed to be worthless; businesses collapse; brand new stock indexes plunge; the government itself is suddenly revealed as insolvent or close to it. Yes, the "miracle" is deflated and what is left behind is nothing near what the boom times promised. The after-effects, in fact, may even involve social instability and civic unrest. (Argentina comes to mind.)
The mechanism that we have described above is now in play in China and India , both of which are suffering from significant inflation. As costs of doing business in both of these countries (and eventually Brazil) begin to rise, as price inflation takes hold, a kind of Hobson's choice presents itself: Choke off the economy or let monetary stimulation do it instead. Inevitably, either due to out of control inflation or because of suddenly over-expensive money, the expansion will end and a kind of de-industrialization will take hold.
This has been going in Japan, for instance, for decades. The country has paid many times over for its Western-initiated boom. Of course, the process is not without its costs for Anglo-American axis either; both America and Britain have been deindustrialized as well. (Yet, this, too, is a positive development in a certain light, as Western elites apparently fear their own middle classes even more than those of other countries.)
By exporting consumerism abroad, corporatizing impoverished countries and reorganizing them generally along Anglo-American lines, Western money power has extended its reach round the world without the overt colonialism that caused so much resentment. The downside (from most people's perspective) is that when the Westernization is concluded, when a given economy has "matured," money power will move on, leaving behind only shambles and social chaos – a carcass picked up clean of industrial potential, another treasury filled with worthless scrip.
O great mother-country, beware! … there is no free lunch.