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Heretic In Babylon

World Bank
Structural Adjustment

new internationalist
issue 257 - July 1994

Heretic in Babylon
What does the World Bank look like from inside? And what does the world look like through the Bank's own
spectacles? The New Internationalist's Richard Swift tries to find out from Herman Daly, one of the world's
ablest environmental economists, who ended his six-year association with the Bank in January.

Illustration by ALAN HUGHES RICHARD SWIFT: YOUR LEAVING SPEECH WAS PRETTY BLUNT - you talked about the World Bank suffering from the infirmities of creeping middle age and prescribed 'a few antacids and laxatives to cure... managerial flatulence and organizational constipation' and 'to improve interactions with the outside world... some new eyeglasses and a hearing aid.' What is the internal culture of the Bank really like?

HERMAN DALY: It's a very professional workaholic kind of a culture where people in general are very competent. The main problem at the Bank has more to do with its faulty vision of development - the spreading of Western overconsumption world-wide. The Bank is a very top-down kind of place which creates a great tendency to please your boss - people know what the party line is. As in so many places people put a shorter leash on themselves than anyone objectively puts on them. But there are enough cases of people being jerked up short on their leash. It's a very stressful place to work with a kind of go-go push-push atmosphere. There is also the golden handcuff - people are well paid. Most people could not match their Bank salary at their next best alternative. Because people are in a position to lose quite a bit they are not as independent or outspoken as they might be.

Some insiders in the Bank describe the culTent atmosphere there as a malaise. Do you think that's fair?

Yes. It stems from many sources. There is grousing because of the extreme degree of hierarchy. Who ends up as your immediate superior is a very important fact of your life in the Bank. But probably the most important depressing factor is the degree of external failure. Many people there really try to do good in the world but after three years or four years they see things doing the opposite of what they expected. There's a certain feeling that development - in other words bringing the whole world onto a higher economic plane - is just not being accomplished.

Doesn't the Bank's adherence to the market-based neo-classical model make that inevitable?

I think a lot of what is wrong with the Bank can be traced back to the academic training of Bank economists. Whether they are from California or Cameroon, they all went to places like Harvard, Stanford, Cambridge or MIT. They were socialized into the standard economic view of the world; the neo-classical vision. That's the context through which the Bank sees the world and I think that context is fundamentally flawed.

Don't you think it also has to do with the pressure of the main industrial countries on the direction of Bank policy'? Otherwise why would there have been such pressure on African and Latin American economies to put repaying their debts ahead of funding health or education'?

That's right. A lot of that gets couched and justified in the language of neo-classical economics. 'Yes it's true it's pinching now but once we get things adjusted then growth will take over and we won't sacrifice credit worthiness.' The solution to past debt is to have more debt and more growth. There must have been a lot of pressure from the Northern commercial banks. The World Bank was supposed to pump money in to keep the balance of payments going and the foreign exchange flowing to repay the private banks.

By now the World Bank and the International Monetary Fund are taking more in repayments out of the Third World than they are putting back in new credits. Wouldn't the South be better off if these institutions just dissolved and the debt load with them?

I know that those figures are correct - the repayments flow is greater than the volume of new lending. But I don't see that a whole lot really follows from that. If you had invested the money you borrowed in things that were highly productive and so were now paying back those loans out of a much greater income then that would be positive. I mean the only way you can hope to get out of debt is for your repayments to be greater than your new loans. To the extent that these loans were wasted on bad projects or totally motivated by balance-of-payments reasons then I think that's just awful. And the solution for that is to have a lot more quality control on Bank projects and accept the consequence that it is going to lend less and be slow and careful with the projects it is supporting.

But say you are an urban worker in Caracas: you have seen your social services cut back, your real wages have dropped and you have to wait an extra half hour every day for the bus. You are in these ways paying off a loan that somebody else has profited from. Why should you do that'?

It's a good question. If you borrow money and waste it and then your creditor expects me to pay it back I'm going to be pretty upset. And it's almost that bad. You have a government usually drawn from the elite class that borrows the money and then spends it or wastes it and has to wring it out of society to pay it back. It's connected to the fact that when the World Bank makes loans it knows it's going to be repaid - not at all like a private bank. If a private bank makes a loan and the money is spent badly the bank takes a loss. Not so the World Bank, which always gets repaid because it lends to sovereign governments who have the power to squeeze the money right out of their citizens and who have the right to print money no matter what the inflationary cost.

There is a tremendous predisposition within the Bank to push the money. The borrowing government wants the project. The Bank says 'what the hell, we're never going to lose, we are always going to be repaid'. There's very little attention paid to whether in five or ten years down the road the project will prove to be successful. It's a kind of culture biased to project approval. Nobody has an interest in stopping it.

I suppose the larger the project the better. The evaluation would be a lot more difficult for a lot of small projects than for one big one.

Bundle of joy. Unfortunately all these Sierra Leone banknotes amount to no more than $250.

The costs of monitoring and lending are the same for a big project as for a small. As someone put it 'Efficiency in the Bank is to move the greatest amount of money with the least amount of thought'.

On this fiftieth anniversary of Bretton Woods the Pakistani economist Mahbub ul Haq has advocated a return to Keynes' original vision. He calls for an international civil society including a global bank with more decisive powers and a world tax authority where power and influence would be held on the basis of population rather than capital subscription. What do you think of this idea'?

I have two sorts of conflicting reactions. I think there are areas where we absolutely need a forum for international agreements - atmosphere, oceans, nuclear proliferation.

However most questions of economic life are not necessarily global. Most people make their living in national or local settings. There is a kind of tendency to want to globalize the economy and that I would resist very strongly. I think we ought to be moving very much in the opposite direction. Let goods flow across boundaries but the idea of capital becoming global running all over the world to employ labour in the cheapest possible place and then export and import everything all over the globe strikes me as a very bad idea. Yet it's exactly what we are doing.

Mabbub ul Haq's case for an international civil society is that it would provide a counterweight to the kind of globalization that is going on now - mostly driven by transnationals and banks.

What he is recommending may be the best political thing but it accepts the globalization of capital and says we have to now globalize our social control of capital. The other way of bringing the two into congruence is to say no I don't want a global governmental kind of control system I want to keep that national; so since capital has escaped national control let's push it back down under the nation state. I prefer the latter option. It may be that that is just not in the cards and if that were the case then I would say that ul Haq's view is certainly the next best thing. But I would first like to try and root capital nationally.

You make that argument quite cogently in your book For the Common Good where you apply it to the US economy but is self- sufficiency a real possibility for small Third World economies like Guyana or Mali'?

It is true that the smaller an economy is the less self-sufficient you are going to be able to be. But to the extent that you are able you should at least try and achieve that.

And don't maximize your ties with the rest of the world, minimize them.

Is some of your commitment to self-sufficiency rooted in a belief that ecological solutions are just not possible without some decentralization of power?

Nation states that get together and sign a global treaty have to have sufficient power within their own borders to enforce those treaties. If the borders become porous to trade, capital and migration the power of governments to live up to treaties is very much reduced. Free trade and free capital mobility allows you to spacially separate benefits from costs. They become much more difficult to compare. If we are getting cheap beef from ranches that are on chopped-down rainforest then we don't really see the costs of erosion, lost species and displaced native peoples. It takes a big effort on the part of NGO campaigners to raise these costs up into our consciousness.

You are effectively looking for ways to establish popular control of the movement of capital. How's that going to take place in Costa Rica or Uruguay'?

I think that is a real difficult question. I have no clear answer but I have a suspicion that the best way to control the flow of capital is not through direct controls but rather through an insistence on balanced trade - imports equal exports in the current account. Capital movements ultimately require an imbalance in the trade account. If you insist through some mechanism that trade should be roughly balanced then I think that will have the effect of controlling capital movements . There will be no reason for capital movements if they are not to be followed by real transfers of wealth. You estimate what your exports are going to be and limit your imports to that.

The World Bank has become infamous for its use of the latest fashions in development rhetoric without these much affecting its own core activities. Do you think that's fair?

Mists of devastation in the Brazilian Amazon. Whose growth? Whose benefits?

To a certain degree it is. Basic needs, import substitution, export-led development, women and development - those things are all a bit of the 'flavour of the month' at the Bank. They do breed a certain cynicism not only outside but also within the Bank. People tended to look at environment and development in the same way - 'let's not invest in it because pretty soon it will be gone'. That was a mistake. The environmental concern has not gone away - it has got stronger and stronger due to outside pressure and to some degree of internal conviction.

Do you think Southern distrust of Northern environmentalism is legitimate?

Oh sure it is. It's self-serving in many ways for the élites of the South but there is a great legitimacy to it. This is the main problem with pushing sustainable development through an institution like the World Bank that has leverage over the South but no leverage over the North. Because the main problem of sustainability resides in the North. It's the North that's overconsuming. It's the North that's pushed depletion and pollution to unsustainable limits. I think that the South has every reason to be suspicious of the North and what I would really like to see is the South exerting some back pressure on the North and saying 'We recognize the reality of the environmental problems and recognize that we cannot generalize your levels of consumption to the whole world. But don't ask us in the South to take any actions that you have not already taken in the North.'

Is there still room for economic growth in the South'?

I think we have already exceeded the real limits and we are destroying the eco-system already. So in the global sense I really don't think there is room for any more growth anywhere. However given the tremendous disparity between the North and the South it's very difficult just to say 'too bad, you got here too late so you stay poor'. The real way to make room for further growth in the South is to reduce growth in the North. The North should concentrate on efficiency and qualitative development and reduce the level of through-put. Maybe the South for a little while will have to increase physical through-put because of having so many people in such dire poverty. But we are going to pay dearly for that - it's a difficult thing because you are really trading the present for the future and the choices are difficult. If the South were to get serious about limiting population growth and the North were to get serious about limiting consumption that could be the basis of a North-South bargain where each side really did something.

It's very hard to imagine that any of these kinds of changes can take place within a notion of economic life that privileges selfishness.

I think that is ultimately a religious question of treating other people as your brother and sister and not being willing to have too big an inequality. We've escaped from that with the notion that we all grow, grow, grow and the fact that one person has more doesn't mean that someone else is going to have less. That's been an easy buying off of the inequality issue.

If we are reducing the capacity of the earth to support life then I think we just have to recognize that is wrong. People from traditional religions have no difficulty recognizing that. For them life and the world are divine gifts. Unless we get back to that kind of childlike acceptance of the gift and gratitude for it then I don't see that we are going to be able to base our restraint on anything. I don't see any self-interested rationalistic kind of model that is going to do much for the biosphere.

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New Internationalist issue 257 magazine cover This article is from the July 1994 issue of New Internationalist.
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