World Bank and Globalisation

AR1987 By AR1987, 5th Nov 2013 | Follow this author | RSS Feed | Short URL http://nut.bz/41m0y1-6/
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This article evaluates the role the World Bank plays on Globalisation. Exploring both positive and negative implications, engaging in subject specialist literature and empirical evidence(which is referenced appropriately.

What role does the World Bank play in Globalization?

BY ANDREW RIDDLES
What role does the World Bank play in Globalization?
The lack of consensus about the World Bank’s specific role in globalization has burdened the organisation for years, and the differences in opinion over the fundamental role of the organisation have spread widely. James D. Wolfensohn, past president of the World Bank, during 2001 delivered a speech in Berlin making powerful statements about the World Bank’s stance on globalization and the role they intended to take. He commented that “we cannot turn back globalization. Our challenge is to make globalization an instrument of opportunity and inclusion–not of fear and insecurity. Globalization must work for all”. (Worldbank.com, 2001) The purpose of this essay is to investigate the role the World Bank plays in globalization, it does this through firstly defining what the organisation is and its fundamental aims/role within globalization. Secondly, this paper will investigate some of what can be seen as the positive roles the World Bank plays in globalization. These positive roles are primarily its aims to reduce world poverty and its emphasis on educating lesser developed nations. Finally the essay will consider the critiques of the World Bank in regards to the negative influence it has on globalization, particularly how the organisation is governed and critiques of Structural Adjustment Policies (SAPs) . Through the analysis of the positive and negative impacts that the World Bank has on globalisation it will be possible to conclude that the role of the World Bank is overall positively influencing globalisation, however there are still some negative issues which are detrimental to globalisation.
The World Bank originally derives from the Bretton woods conference. It was initially envisaged as one of three pillars of the international economic system, focusing at the outset on post war reconstruction and development (Asif,H. et al, 2007). The organisation has since grown and developed into the World Bank Group, which now comprises of two organisations; the IBRD (international bank for reconstruction and development) and the IDA (international development association) (Worldbank.org, 2012).
According to the World Bank, it is best described as an international lending institution that aims to reduce poverty and improve people’s lives by strengthening economies and promoting sustainable development. Owned by the governments of its 188 member countries, the Bank lends about twenty billion dollars a year to development projects, provides technical assistance and policy advice and acts as a catalyst for investment and lending from other sources. The World Bank’s poorest members receive loans for up to 50 years without interest. Other needy members receive loans for 15-20 years at lower interest rates than are charged by commercial banks (Asif,H. et al, 2007.
There are six strategic goals/themes that the organisation works from. The first being, assisting the poorest nations by leveraging the resources of the IDA in its efforts to fight hunger and malnutrition in these countries.Secondly the organization also aims to help prevent conflict and support reconstruction in member nations dealing with war and other destabilizing events. The third goal is to help middle income countries mobilize funds to enhance their infrastructure and other essential services. The fourth goal is to focus on international environmental health care challenges.Furthermore the bank recognises the potential for strong growth and development within the Arab world, therefore aims to seek effective partnerships with these countries. Finally the last goal of the organisation is to provide analysis of the challenges faced by member countries and track progress against benchmarks ( stockresearchpro.com, 2012).
In terms of the positive role the World Bank plays in globalization, the Bank’s aim to reduce poverty in less developed nations is fundamental. The bank try’s to combat poverty through projects like its Heavily Indebted Poor Countries (HIPC) initiative, set up in 1996. The HIPC is an agreement between the creditors orchestrated to help the poorest most heavily indebted countries escape from unsustainable debt (Globalpolitician.com, 2007). The HIPC initiative is only available to the worlds poorest countries that meet strict criteria, mainly , having such high debt they cannot sustain it even after applying debt relief services and a track reform of trying to reduce poverty and building economic growth(Globalpolitician.com, 2007). According to research carried out in 2007 poor countries owed a combined debt of over two trillion dollars to rich countries. Now through the HIPC initiative less developed nations are able to concentrate on building the policy and institutional foundation for sustainable development. The HIPC initiative the World Bank created has received positive feedback mainly in the form of making major progress in obliging most creditors to provide relief. The above could be described as a positive input to globalization because helping less developed countries escape from debts that amount to large proportions of public spending, now affords these countries the opportunity to inject these finances into their own economy. This could increase the import levels of the countries in question and contribute to the global market greatly.
According to the empirical evidence presented on the World Banks website, the organisation has to some extent made progress in the area of reducing poverty. During the past two decades, the absolute number of people living on less than one US dollar per day has actually fallen for the first time ever, even though the population has increased drastically by 1.6 million people. The economic growth within the countries which the World Bank has engaged during the past decade has outpaced that of any developed countries, helping to provide jobs, and also boost revenues in poor countries. Clearly the World Bank is positively influencing globalisation by offering the organisation’s poorest members this support and assistance. It is reducing the gap between the poorest and least developed members and those most developed and richest members. This furthers globalisation because the smaller the gap between the members’ the more possible it is for cross-border transactions, agreements and developments to take place.
The positive role the World Bank plays in globalization not only comes in the form of financial aid, the organisation also proposes they will work with developing countries to establish foundations to help them prepare for global integration. The Bank does this in order to ensure these developing countries can reap in the benefits of globalisation (Worldbank.org, 2012). In order to achieve this aim, the World Bank since its existence has provided technical assistance to the less developed nations of the World by making available training facilities through its various institutions (Preservearticles.com, 2012). This type of assistance is normally available through one of the World Bank’s training wings, known as the World Bank Institute (WBI). This wing of the Bank’s programmes includes training and policy consultations, and can be defined as a “global connector of knowledge”. The WBI aims to inspire less developed nations and provide them with the necessary knowledge and tools that can help achieve development results. This wing adheres to four strategies to approach economic development problems, namely leadership and coalition building, knowledge exchange, structured learning and innovation for development (Worldbank.com, 2012). I see this to be a positive role within globalization because evolving with new technological developments is detrimental to being able operate within the process of globalization. In fact, technology has become one of the most potent drivers of globalization, and it is through technology that globalization can lead to continued world economic growth and integration.
Although I have stated various positive inputs in regards to the role of the World Bank, the latter intends to investigate the negative role the World Bank plays within globalization. Criticism of the World Bank encompasses a whole range of issues, but often centre around concern raised in reference to the approaches they adopt in formulating their policies and the way in which the organisation is governed (BWP, 2005).
The first criticism I intend to engage with is the growing concern of SAPs. Initially introduced in the 1980’s by the World Bank, an SAP is best described as a long term loan from an international financial institution which intends to restore equilibrium, and especially economic growth. From the outset the theoretical basis for SAPs was a return to neoclassical economics, laissez-faire and free trade, which today is referred to as ‘neo liberalism’. An SAP has seven basic elements: exchange rate liberalisation, trade liberalisation, fiscal policy reform, the closing or privatization of the state owned enterprises, reform of the financial sector, opening the economy to foreign investment and finally sectoral reforms of agriculture, industry and social sectors (Griesgaber & Gunter, 1996).
Some good examples of the validity of rationale behind such policies can be illustrated by looking at countries included in what is described as the “East Asian Miracle”. Countriessuch as, Korea, Singapore, Honk-Kong and Taiwan. These countries have experienced an unprecedented economic boom due to the liberalization of their economies. Furthermore we cannot ignore the fact that in the process a staggering figure of approximately 230 million or more, have been lifted from poverty, whilst living standards have been seen to improve for those still in poverty(e-ir.info.com, 2011). Initially it may seem that SAPs may have a positive impact upon globalisation.
Although my above illustration of the “East Asian Miracle” is seen as positive to promoting the process of globalization, SAPs have been under much scrutiny and continually receive criticisms. The main critique of SAPs is that they are often ineffective, inequitable and adopted in an unfair manner (Griesgaber & Gunter, 1996). SAPs are often ineffective because countries are normally expected to adjust as if they could do so in vacuum. The majority of the less developed nations are in fact highly vulnerable to external factors, which are beyond their own control and beyond the reach of adjustment policies (Griesgaber & Gunter, 1996).
These policies can also be ineffective because they neglect the asymmetry in the international adjustment process and include severe contradictory prescriptions. Therefore the policies can be seen to impede on a country’s ability to grow in an environmentally sustainable manner, and meet the needs of its people and service its debts. An SAP can be seen as inequitable, because they often open the markets of adjusting countries too early to an increase in imports, mainly of consumer goods, meant for higher income groups, without allowing sufficient time for the capacity to pay to catch up (Griesgaber & Gunter, 1996). They normally do not create enough room for long term investments, especially in infrastructure and human capital necessary for long term economic health, as well as short term help for the poor (Griesgaber & Gunter, 1996).
An example of such a policy being ineffective can be illustrated by looking at Zambia, a country which had a relatively sound domestic economy, based on the production of metal and the export of copper. After adhering to such policies put in place by financial institutions, including the World Bank, their domestic economy was no longer seen to be healthy. The liberalization of the Zambian economy has led to a large increase in public debt. (e-ir.info.com, 2011).
Another criticism of the World Bank in terms of its role in globalization would be its governance structure. Developing countries, as well as some of Asia’s fast emerging economies, have continually voiced dissatisfaction with what they say is their lack of influence (BBC.com, 2012). The Bank’s governance structure is seen to be dominated by industrialised countries; decisions are made and policies implemented by the leading industrialised countries, normally referred to as the G8, because they represent the largest donors with little or no consultation with the smaller less developed nations (BWP.org, 2005). Under the current system of governance the United States holds 17 % of the vote, whilst India with more than 3 times the population of the US, has less than one third of the US’ voting power. The head of the Bank has in fact always been an American, although past presidents such as sir James Wolfensohn was said to be Australian, and the present head of the bank Jim Yong Kim, Korean ; Wolfensohn was naturalised before taking office and Jim Yong Kim is also a full American Citizen.
In conclusion, although the World Bank has played an important role in promoting globalization in place of protectionism, there are important issues which need to be addressed in regards to the role they play. The Bank has a mainly positive role in relation to globalisation however the way in which the organisation is governed and how it formulates its policies casts some doubt on this. Despite these issues being of significant importance we cannot ignore the empirical evidence presented, which implies that fewer people are living in poverty and that there has been an increase in economic growth. Both these results highlight the positive role the World Bank plays in globalisation.

Tags

Bank, Globalisation, Globalization, Imf, World

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author avatar AR1987
Post Graduate Education student and Honours Politics Graduate. Articles Focusing on current affairs applying political or educational theory.

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author avatar Sivaramakrishnan A
6th Nov 2013 (#)

World Bank has helped many poor countries to get their acts right in terms of project implementation. I think it is now a question of fine tuning its working - siva

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