World Bank Views On Economic Crisis and Reform

In the post-colonial period, the means of involvement in developing countries by developed countries are constantly changing. Particularly from the 1970s, the World Bank is intervening in the policy decisions of developing nations in the name of assistance to development. Especially, whenever there is crisis in developing countries, the World Bank came forward with a particular interpretation of the causes for crisis, which leads to the specific policy perspective, and further recommends its reform programmes to implementation. These changing policy stances have been able to seen very explicitly in the Third World countries after the 1970s.

The roots of the present neo-liberal reforms in the Third World can be traced to the policy perspectives of World Bank and IMF. This was further involved in the monetarist solutions to the crisis in the West and USA during 1970s. These solutions necessitated the spread of foreign capital to the Third World through the MNCs. But this has been done in the Third World by interpreting the crisis situation of their economies in the way that leads to opening up for international markets in the name of liberalisation policies.

Two kinds of interpretations appeared after the 1970s regarding crisis situation in the Third World. First, some political scientists characterised the Third World polity as ‘ungovernable’ or ‘over loaded’. The second series of interpretations focused especially on the policy perspectives of Keynesian welfare state, arguing that “they were fundamentally flawed and responsible partly for the economic problems of the current era”. These interpretations reflected in the Third World in deepening of state-promoted commercialisation with in foreign sponsored large-scale rural development projects and agency encouraged foreign borrowing for such projects. This further contributed to the debt crisis, which in turn opened the way for the present neo-liberal offensive.

The present reform package offered by the World Bank and IMF to resolve the crisis in the Third World broadly consists of globalisation and privatisation under the policy stance called ‘liberalisation’. At the implication level this involves three broad phases of restructuring of the economy and state activity.

First is the ‘stabilisation’ of the macro economy. This applies to the state since it sees the state as part of the problem, not part of the solution. Accordingly, the economy has to be restructured to reduce the state role and unleash the private sector. This means privatising state firms and the broader deregulation of trade and investment. Deregulation should also be assumed as to remove ‘structural rigidities’ in the work force. In practice, this often means cutting labour costs by making it easier to hire and fire employees, restricting trade union activities and encouraging greater labour flexibility through short-term contracts and subcontracting.

After achieving macro economic stabilisation, state has to taken up the ‘structural adjustment programme’. This involves eliminating government spending, deficits which more frequently can lead to closing the deficit by enhancing revenue as well as cutting spending on social welfare measures.

The ultimate aim of structural adjustment is to enable a country to move to a third stage of ‘export led growth’. This strategy generally means to encourage foreign investors to bring in new technology and capital. For this purpose, government should give priority to remove all trade barriers on both exports and import, which assumed to ensure the efficient allocation of resources. Further, this will make exports more competitive because their producers will be able to cut costs by importing the cheapest inputs available, whether fertilisers and pesticides for agro-exports or manufactured inputs for industry.

At the societal level, these reforms need certain kind of social discipline from all sections. For this purpose, instead of economic reforms, the World Bank has a programme to reorient society, state, politics, governance and development. The efforts at this reorientation are based on the Bank’s assumption that improved levels of living through targeted human resource development can result in rapid growth of the economy. These were also accepted partly by the Third World countries with the optimism of rising of living standards, and reaching the growth targets. Gunnar Myrdal also expressed his faith in this formula, when he said that, “this interdependence between productivity and levels of living is much stronger in the countries of South Asia than in Western countries.” But he expressed discontent over the application of Western approach in the analysis of South Asian development problems, which raised doubts over the relationship between productivity and levels of living.

However, these new policy orientations display a shift in state’s ideological discourse and actions. It also does amount to a break from the welfare state model. These reoriented policies took shape the form of emphasis on people’s participation, good governance and relationship between politics and development, which are discussed in other posts.

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