NeoLiberalism 101

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Neoliberalism and Corruption

August 19th, 2008 · 1 Comment

Sunday, August 17, 2008

Neoliberalism and Corruption

Friends and colleagues, from their origins in the 1940s, the IMF and World Bank have functioned as built-in systemic mechanism of neoliberalism; both are — in the words of Woods, 1989 — opposing not only socialism but national capitalism as well, in favor of the progressive extension of international market forces. Both institutions play significant roles in the social construction of global market economies. However, in doing so, they produce policies that encourage corruption in various economies. Well, nonetheless World Bank battles corruption — but only in some countries. The following are articles that highlighted the issue .

IMF and World Bank Policies that Encourage Corruption
by Anup Shah
23 September 2007
. . . At a deeper level are the policies that form the backbone to globalization. These policies are often prescribed by international institutions such as the World Bank and IMF. For years, they have received sharp criticism for exacerbating poverty through policies such as Structural Adjustment, rapid deregulation and opening barriers to trade before poorer countries are economic ready to do so. This has also created situations ripe for corruption to flourish:
As Western governments and the World Bank and IMF shout ever more loudly about corruption, their own policies are making it worse in both North and South. Particularly at fault are deregulation, privatization, and structural adjustment policies requiring civil service reform and economic liberalization. In 1997, the World Bank asserted that: any reform that increases the competitiveness of the economy will reduce incentives for corrupt behavior. Thus policies that lower controls on foreign trade, remove entry barriers to private industry, and privatize state firms in a way that ensure competition will all support the fight.
The Bank has so far shown no signs of taking back this view. It continues to claim that corruption can be battled through deregulation of the economy; public sector reform in areas such as customs, tax administration and civil service; strengthening of anti-corruption and audit bodies; and decentralization.
Yet the empirical evidence, much of it from the World Bank itself, suggests that, far from reducing corruption, such policies, and the manner in which they have been implemented, have in some circumstances increased it. — Dr Susan Hawley, Exporting Corruption; Privatization, Multinationals and Bribery, The Corner House, June 2000 Jubilee Research (formerly the prominent Jubilee 2000 debt relief campaign organization) has similar criticisms, and is also worth quoting at length:
Rich country politicians and bank officials argue that because dictators like Marcos, Suharto, and Mobutu were kept in power with western arms and were given loans to squander on ill-judged and repressive schemes, that the people of those countries—who often fought valiantly against those dictators—cannot be trusted not to waste the money released by debt cancellation. This may seem confusing to people not familiar with the logic of the IMF and World Bank.
In summary:
Creditors colluded with, and gave loans to dictators they knew were corrupt and who would squander the money.
Creditors gave military and political aid to those dictators—knowing arms might be used to suppress popular opposition
Therefore, successor democratic governments and their supporters, who may have been victims of corruption and oppression, cannot be trusted.
To many people in the South, this seems irrational and illogical—the logic of blaming the victim. It is the logic of power rather than of integrity, and is used to benefit the rich rather than the poor in developing countries.
A similar logic argues that if the World Bank and government export credit agencies promoted inappropriate and unprofitable projects, then southern governments proved their inability to control money because they accepted the ill-advised projects in the first place. Thus, if money is released by debt cancellation, it must be controlled by agencies which promoted those failed projects.
This is the logic that says if people were stupid enough to believe cigarette advertising, then they are too stupid to take care of themselves and the “reformed” cigarette companies should be put in charge of their health care.
The same institutions who made the corrupt loans to Zaire and lent for projects in Africa that failed repeatedly are still in charge, but their role has been enhanced because of their success in pushing loans. Can we trust these institutions to suddenly only lend wisely; to not give loans when the money might be wasted?
Preventing new wasted loans and new debt crises, and ensuring that there is not another debt crisis, means that the people who pushed the loans and caused this crisis cannot be left in charge.
The creditors or loan pushers cannot be left in charge, no matter how heartfelt their protestations that they have changed. Pushers and addicts need to work together, to bring to an end the entire reckless and corrupt lending and borrowing habit. — Joseph Hanlon and Ann Pettifor, Kicking the Habit; Finding a lasting solution to addictive lending and borrowing—and its corrupting side-effects, Jubilee Research, March 2000
And in terms of how lack of transparency by the international institutions contributes to so much corruption structured into the system, Hanlon and Pettifor continue in the same report as cited above:
Structural adjustment programs cover most of a country’s economic governance.
… The most striking aspect of IMF/World Bank conditionality [for aid, debt relief, etc] is that the civil servants of these institutions, the staff members, have virtual dictatorial powers to impose their whims on recipient countries. This comes about because poor countries must have IMF and World Bank programs, but staff can decline to submit programs to the boards of those institutions until the poor country accepts conditions demanded by IMF civil servants.
There is much talk of transparency and participation, but the crunch comes in final negotiations between ministers and World Bank and IMF civil servants The country manager can say to the Prime Minister, “unless you accept condition X, I will not submit this program to the board”. No agreed program means a sudden halt to essential aid and no debt relief, so few ministers are prepared to hold out. Instead Prime Ministers and presidents bow to the diktat of foreign civil servants. Joseph Stiglitz also notes that “reforms often bring advantages to some groups while disadvantaging others,” and one of the problems with policies agreed in secret is that a governing elite may accept an imposed policy which does not harm the elite but harms others. An example is the elimination of food subsidies.
— Joseph Hanlon and Ann Pettifor, Kicking the Habit; Finding a lasting solution to addictive lending and borrowing—and its corrupting side-effects, Jubilee Research, March 2000
As further detailed by Hanlon and Pettifor, Christian Aid partners (a coalition of development organizations), argued that top-down “conditionality has undermined democracy by making elected governments accountable to Washington-based institutions instead of to their own people.” The potential for unaccountability and corruption therefore increases as well.

World Bank battles corruption — but only in some countries.Observing the struggles of its sister organization (the IMF), the World Bank has taken a proactive approach to its own crisis of legitimacy by considering extending invitations to Mexico, Turkey, South Korea and China to become full voting members. The World Bank is also investing $30 million in a public relations campaign in an effort to position itself as the premiere lending institution for global efforts to end poverty, protect the environment and address the global AIDS pandemic, as well as to reiterate that it is the world’s largest “development” research organization. At the heart of this new media campaign is World Bank President Paul Wolfowitz’s new anti-corruption campaign. Given Wolfowitz’s recent history as the architect of the Iraq war and occupation — an undertaking literally drowning under allegations of mismanagement and nepotism — many see this anti-corruption campaign as grossly hypocritical. Many African leaders have long said that they need Western institutions to aid them in rooting out corruption and ensure transparent governance, since international institutions based in the Global North are complicit in corruption. Recently, European countries have pressured Wolfowitz to put greater emphasis on building institutions to fight corruption in the developing world, rather than simply suspending loans where corruption is suspected. As a result, he began working with shareholders to develop a framework to fight and monitor corruption. The framework will be considered at the next IMF/WB meetings in the Fall of 2006 in Singapore. While welcoming this needed reform, many argue that the World Bank is not applying the same scrutiny to Iraq and Indonesia (where Wolfowitz worked prior to his work in the Bush administration) that is being applied to Chad and the Democratic Republic of Congo. In January, the World Bank cut off $124 million in loans after Chad changed its laws to siphon oil pipeline revenues away from anti-poverty programs; and in March, the Bank imposed rigid conditions on Congo’s oil-exporting capacity. The World Bank maintains that Chad, Congo and Sudan may all be eligible for debt relief in the coming months, provided they show proof of economic stability and government reform. Civil society reactions Addressing corruption and the need for basic standards applied to loans and disbursements has been one of the main campaign points of civil society in the Global South for the last 30 years. Campaigners are pleased to see the financial institutions that are the source of so much corruption taking this life-threatening issue seriously. However, ensuring that debt-servicing funds are properly reallocated to address human needs (education, health, etc.) is a process that must involve partnerships between civil society and governments in indebted countries. This process cannot be achieved solely vis-a-vis international institutions. At present, there are seven international bodies that address accountability and transparency in international fund management. If the World Bank wants to add itself to this list, there must first be a proper analysis of why these existing institutions and bodies have not been wholly effective.

Tags: general social politics · political economy