Why The World Bank Really Sucks. (IMF, too.)

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lI enjoyed this Foreign Policy Magazine piece offering a contrarian perspective on Africa’s growth over the last 10 decades. It describes TIME magazine and The Economist’s cover story articles about Africa’s precipitous rise. As author Rick Rowden says of these magazines,

They looked to Africa’s recent high GDP growth rates, rising per capita incomes, and the explosive growth of mobile phones and mobile phone banking as evidence that Africa is “developing.” Rich countries figured out long ago, if economies are not moving out of dead-end activities that only provide diminishing returns over time (primary agriculture and extractive activites such as mining, logging, and fisheries) and into activities that provide increasing returns over time (manufacturing and services), then you can’t really say they are developing.

Indeed, simple free-trade isn’t sufficient criteria for real, sustained growth. Mining and agriculture alone will slow down, once you’ve reached peak levels of your natural resources. Industrialization, which is the sustainable and effective way to become a rich country, requires speculative investment (from governments AND from private investors, as Bill Janeway eloquently describes in this fantastic book) and especially creating a knowledge worker class who can produce competitive advanced goods to sell in an export economy and as price-protected services to their population.

Now, imagine if the entire continent of Africa were to invest in huge domestic stimuli the way China has, and use currency protections and price-fixing to artificially manufacture the ideal high-growth conditions that would fast-track the continent to industrialization. The global iron, diamond, oil, gold industries would be thrown into the type of chaos that we saw with the OPEC crisis of 1973. Ghana, Angola, Chad, Botswana, Nigeria, and DRC would suddenly be globally influential because of their control of their own spigots of valuable resources**. Their education systems, manufacturing industries, and entreprneurial communities would explode. But, of course, the World Bank would never allow such.

The World Bank, after all, is the very same organization that was constituted to rebuild Europe after World War II. A Europe that was, mind you, made up of England, France, but also their two dozen African colonies. While the organization’s mission, goals, and processes have evolved, it is still an organization whose function is to keep the global economy stable, and is overwhelmingly funded by the United States and other rich western countries. Under these circumstances, the global economy is stable if developing countries don’t grow too fast (inflation), or take on debt that they might not be able to repay (sound familiar?). These developing countries are strictly discouraged from expensive national stimulus programs, no matter what their domestic needs are. In so many cases, their ministers of finance are educated in the US, the UK, or France, and have done a stint of their formative years at the World Bank. The World Bank gives low-interest (and sometimes zero-interest) loans to developing countries, ostensibly to raise them up. But really, it just keeps them down. And it’s unfair.

**The counterargument that political stability or open democracy, is the far bigger obstacle facing Africa’s permanent rise is interesting, but I think tangential. The Middle East is an interesting case-study there.

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