Protest and Consensus: a (very) Brief History of the World Bank and IMF

Nicholas Guyatt

Rude awakenings

At around five in the morning on April 16th of this year, dozens of finance ministers, economists and bureaucrats were shepherded from the lobbies of some of Washington, DC’s swankiest hotels into an unlikely convoy of armed police, trucks and buses. The sleepy technocrats were in town for long-scheduled meetings of the World Bank and IMF, the international agencies that offer loans and development assistance to many of the world’s poorest countries. Although such meetings usually draw little attention, the April convocation had been targeted by tens of thousands of protesters, hoping to reprise the spectacular demonstrations against the World Trade Organization in Seattle last November. The delegates, then, were roused from their slumbers by a shrewd police operation which sought to avoid the disruption and embarrassment dealt to the WTO’s meetings. If the protesters were determined to disrupt the day’s activities, the police and delegates would have to start their work by night – and so the conference attendees were bused into position under cover of darkness, as if their work was too seedy or criminal to take place by day.

The events in Washington and Seattle have seriously challenged two interpretations of the developed world which had attained the status of orthodoxies. Since the late 1980s, we’ve been told repeatedly that (serious) politicians on all sides share a basically similar view of economics and politics: government can provide some services, but the market is the most efficient agent in society. We’ve also been told, in the same period, that political activists have pretty much given up the ghost: people are either self-centered and uninterested in the biggest political questions, or they’ve taken positions in a balkanized politics of environmentalism, gay rights, gender equality and other issues which compete with each other for the attention of a largely bored or contented public. Put yourself, then, on those pre-dawn buses with the Washington delegates – you belong to a profession which has largely smoothed over some of the big ideological divisions in the past twenty years, in which the savvy operator (like, say, Alan Greenspan[1]) can win plaudits and job security from politicians on the right and the left. You’ve watched a series of centrist parties in Europe and the United States take control of government and sell the public on their moderate beliefs with phrases like ‘triangulation’ and ‘the third way’. You’ve worked hard to build relationships with your colleagues (in politics and economics) around the world, to the point where you can converge on the World Bank/IMF headquarters in DC without fear of a Third-World walkout, or squabbles with the Europeans over monetarism. And now, you’re forced out of bed at an ungodly hour because of thousands – maybe tens of thousands – of protesters, many of them under thirty, who feel so passionately opposed to your actions that they’d camp out for days, shout out their lungs, and throw themselves into custody for the chance to disrupt your work.

The recent protests suggest that something important is going on right now in the way we think and talk about the economy (and, by extension, our political beliefs). In Seattle and Washington, to the horror of cheerleaders of globalization like Jeffrey Garten and Thomas Friedman, the supposedly fractured ranks of political protest presented a united front – union members walked alongside environmentalists, students marched with gay rights activists and church leaders. The global economy, as represented by the WTO and the World Bank/IMF, has welded these disparate groups into a single engine of protest; and the evidence from Washington suggests that the loose coalition has gained strength from its successes, and will continue its effort across the coming months and years.

The coalition also faces plenty of hazards, however, as it works its way towards a bigger public profile. The loose alliance that’s formed in recent years against globalization is obviously vulnerable to internal discord and fragmentation – although union members and Methodist ministers might pool their efforts to protest the WTO, their respective agendas (and imagined solutions) in doing so might be very different. More ominously, the weight of ‘respectable’ opinion is still firmly on the side of the globalisers. Even the putatively liberal media in the US has expressed a knee-jerk disdain for the unpractised enthusiasm of the street protesters, and a fleet of ‘experts’ from the op-ed columns and academia has been launched at the first sight of trouble, with orders to sink the alternative viewpoints brightly displayed in Seattle and DC.[2] Perhaps the biggest challenge for the protest coalition, though, is to articulate their own vision of a global economy, and to persuade the public that this would work better than the version we’re struggling with right now. This is a tall order conceptually – the US hasn’t proven fertile ground for the nurturing of fundamental economic change, and there’s a great deal of pressure to accept the ‘pragmatic’ course, and to ‘work for change within the existing system’, as one might rationalise it to oneself when voting for Al Gore, or whatever. But this positive agenda also seems alien to the spirit and tone of the coalition. In Seattle and Washington, its goal was primarily to shut down the institutions of the global economy: recognising that the WTO, the World Bank and the International Monetary Fund are extremely powerful and diffuse organizations, the protesters concentrated their efforts on sabotage rather than debate. Now that this tactic has paid off, and the American public (along with people around the world) has begun to take notice of the forces opposed to globalization, the protesters must sell their own vision of a just global economy as successfully as they’ve assailed the reigning order.

From the perspective of the battles in Seattle and Washington, it’s hard to see the 2000 presidential election as anything but a turf war fought in the political center, with a lot of scripted division and some important divergence in social thinking, but an essentially identical concession from both parties to the ascendancy of corporations and the global market.[3] Ralph Nader and Pat Buchanan, who would certainly challenge the hollow economic triumphalism of Gore and Bush, are unlikely to win a place in televised debates which are funded and controlled by the Republican and Democratic parties; and unlikely to win much airtime by other means without making precisely the concessions to big-business sponsors which have assured the anaemia of the Bush-Gore economic perspective. Against these formidable obstacles to the expression of divergent views, the strategy of the anti-globalization protesters to date seems pretty sound – their guerrilla tactics have bypassed the formal political system and conveyed their dissatisfaction to a wide audience. But further protests in the same vein may stereotype the coalition as an essentially unruly, nihilistic force. News organizations have been scampering to present this image already, concentrating on Starbucks-smashing ‘anarchists’ even as they try to downplay the preponderance of ordinary working people and peaceful protesters in the crowds. The battle against globalization, then, is at a crossroads – can protesters continue to disrupt the smooth operation of the economy as they simultaneously promote alternatives? Can they win respect from the public without attaining the ‘respectability’ and toothlessness of the mainstream political parties?

Where do we go from here?

If you’re the kind of person who’s pretty happy with the way the economy looks in the US right now, and not too interested in whether (a) it looks the same way elsewhere in the world, or (b) it’s going to look so rosy in the US for much longer, then you’d probably be a fool not to cast your vote for Bush-Gore in November, and to join the chorus of media voices excoriating the Seattle and Washington protesters for their immaturity, temerity, anarchy, and so on. If, on the other hand, you have grave doubts about economic justice in the US, and the export of American economic thinking around the globe, you’re probably sympathetic to the spirit of these street protests, and at least tangentially interested in the kinds of profound changes that these protesters seem to want. It’s possible that the traditional split in US politics between Democrats and Republicans will be less meaningful in the coming years than this more fundamental divide between those who are happy with the service we get, pretty consistently, from Republicans or Democrats; and those who aren’t, and are eager for a change. What’s up for grabs right now is how this more fundamental divide will be expressed, and how it will affect the American public.

One immediate way of entering into this bigger debate is to reject the authority of the technocrats and to make an effort to reacquaint yourself with some basic history and facts about how the global economy is structured, and how it got to be this way. This necessitates a degree of courage, in the sense that the ‘experts’ and politicians have been careful to exoticize this kind of knowledge, or to suggest that it’s best left in the hands of the cognoscenti.[4] But it’s also a rewarding process, because you realize that a whole lot of stuff that seemed sort-of given and natural isn’t really either, but instead is fiercely political; and so you make a step towards recognizing that the field of politics, and (by extension) of democracy, is much larger than you’d previously thought. This is a necessary process if you’re to partake in the debate over globalization, and particularly if you’re to have an answer for the ardent globalists who argue, monotonously, that there’s no alternative to what’s happening now.

In what follows, I’m going to move through the history of the World Bank and to the International Monetary Fund, the targets of the Washington protests in April. The Bank and the Fund are particularly important because, pace the protests of April, they have a much more complicated relationship with the global economy than, say, the World Trade Organization. The history of the WB/IMF reveals a great deal about the direction of the world economy over the past fifty years, and raises some interesting questions about how that direction might be affected by protest and popular challenge in the years ahead.

The IMF and World Bank: founding and mission

The Great Depression of the 1930s convinced the United States that governments had an active role to play in the global economy. Although the Depression had many causes, historians and economists have pointed out that much of the reckless financial activity (stock market speculation, over-lending within big economies like the US, reckless loans to poorer countries (especially Latin America), etc.) flourished in an environment of ‘free trade’ and a vacuum of government control.[5] Franklin Roosevelt based his New Deal policies in the US on the notion that government had a vital role to play in fostering and controlling economic development; he was also instrumental in arguing for the IMF and the World Bank in 1944, suggesting that international governing bodies could work for the global economy in the same way that his souped-up administration controlled New Deal America. [6]

The IMF and World Bank, then, were envisaged as institutions which would be controlled by the US and the other big powers, and which would help to maintain order in the global economy.[7] The IMF was a kind of policeman for the new policy of fixing the rates of currencies around the world against each other – the European currencies, for example, were each pegged at a particular rate against the dollar, and were allowed to move around only within a small band before the IMF would intervene and buy or sell the currency accordingly. The IMF would do this buying and selling from a reserve fund, but it was hoped that it wouldn’t have to intervene so often since currency speculators would realize that they couldn’t drive the value of a currency below its peg, and that the IMF was too powerful to take on.[8]

The World Bank, meanwhile, was designed to offer discounted loans to the economies of Europe which had been ravaged by WWII. Roosevelt and the other architects of the ‘Bretton Woods system’ thought that private banks would be unlikely to make loans to these devastated countries, and that those countries would in any case be unable to afford to borrow at commercial rates.[9] The World Bank, then, would channel money from richer governments (predominantly the US) towards poorer governments, on favorable terms and at discounted rates of interest. Countries could only receive World Bank assistance if they agreed to join the IMF, so the two institutions locked in most countries – with the promise either of subsidized lending, or short-term loans to prop up a currency, or some combination of the two.

The IMF and World Bank were therefore designed not only with specific tasks in mind, but within a specific global economic context: currencies were ‘pegged’ to each other and to the dollar, which made the entire economic system less volatile and more predictable; and the poorer countries (even in Europe) found it hard to raise money from private banks for their development projects (or simply for balancing their budgets and taking care of essentials), and were obvious customers for a non-commercial bank which made loans at subsidized rates. In addition, the United States faced an uncertain world order, and was keen to ensure that it used its economic power to keep as many countries (or at least governments) on its side as it faced down the Soviet Union.[10]

Changing circumstances: 1945 to 1982

In the three and a half decades following the founding of the World Bank and IMF, these original circumstances changed dramatically. In the first place, the United States became interested in many third-world countries which had previously been off the map for US policymakers, given the new anxiety about Communism and an extension of Soviet influence. Although the World Bank was staffed by representatives from a myriad of countries, its president was always American, and its policies were very heavily influenced by the political and economic muscle of Washington. Given a US fear of Communist encroachment in south and south-east Asia, Africa and Latin America, the World Bank was therefore encouraged to make development loans to countries beyond its original European focus. The bank disbursed large sums to governments throughout the developing world, usually attaching conditions to those loans which determined what they were to be used for, or the economic policies of the government which agreed to them.[11]

The World Bank in this period was simultaneously an agent for change and development in the developing world, and an instrument of US foreign policy. Historians have noted the importance of these development loans to many of the world’s poorest countries, and have conceded that many third-world nations would have struggled to raise money from private banks during this period. On the other hand, the US was selective about the kinds of programs it was happy to support, and the kinds of governments it would lend money to (through the World Bank). Many of the ‘anti-Communist’ dictators in Africa and Latin America were kept in power thanks to preferential treatment from the World Bank, and other governments which were rather more democratic could find their room for economic maneuver constrained by conditions attached to World Bank loans. For example, developing countries were routinely asked to concentrate on development projects which would make more efficient their export of raw materials and commodities; but developing governments were frequently interested in developing an industrial base beyond these raw materials, and escaping their usual dependence on the prices of those materials which were set on Western exchanges. There was therefore a tension between the aspirations of these developing countries, which sought to compete with the West on an equal footing, and the priorities of Western countries (which controlled the World Bank), which were eager to avoid massive industrial development in the Third World which might lead to local competition for established Western industries/corporations.[12]

In the 1960s and 1970s, therefore, developing governments had some access to cheap loans, but had often to swallow onerous conditions to get their hands on this money. Those governments with a rhetoric of industrial development had a problem, then: new industries would cost a fortune to establish, but the most obvious (and preferred) source of cash (the World Bank) would probably turn down any requests for this kind of loan.[13] Developing countries thus looked around for other sources of lending. As it happened, the big commercial banks in the West had started to wonder if they weren’t being too cautious in their steering-clear of the third world, and those employees who remembered vividly the disastrous debt crisis of the 1930s were slowly disappearing (through retirement, or death) from the corporate ranks. The Western banking industry in the 1950s and 1960s was beginning to think once more about lending as a source of profit rather than a kind of service; and this idea moved from loan-pushing in the US (the explosion of consumer credit, for example) to a more aggressive courting of potential third-world borrowers.[14] Put yourself in the shoes of a third-world government: you have a rhetoric of national development and industrialization which stresses your forward-looking philosophy, your desire to escape from dependence on the West, etc. You have ambitious plans to build an automobile industry, or to produce your own steel, or to make planes, or whatever. You have no capital to do any of this, and the World Bank is dragging its heels on any loans which don’t get directed specifically to your traditional economy – getting gold out of the ground, or harvesting sugar, or producing cattle, or whatever. And then these commercial banks from the US and Europe try to sell you on the idea of ‘non-political’ lending – the patter goes a bit like this: “Why should you listen to the World Bank? Why let those guys tell you how you should develop? You make the choices! It’s your loan!”[15]