The Political Economy of Development

The World Bank, Neoliberalism and Development Research

Kate Bayliss, Ben Fine, Elisa Van Waeyenberge

• Publisher: Pluto Press
• Year: 2011
• Edition: 1
• eBook ISBN:
  9781783713868
• Topic: Economics
• Subtopic: Development Economics
• Index: Economics

Any student, academic or practitioner wanting to succeed in development studies, radical or mainstream, must understand the World Bank's role and the evolution of its thinking and activities. The Political Economy of Development provides tools for gaining this understanding and applies them across a range of topics. The research, practice and scholarship of development are always set against the backdrop of the World Bank, whose formidable presence shapes both development practice and thinking. This book brings together academics that specialise in different subject areas of development and reviews their findings in the context of the World Bank as knowledge bank, policy-maker and financial institution. The volume offers a compelling contribution to our understanding of development studies and of development itself. The Political Economy of Development is an invaluable critical resource for students, policy-makers and activists in development studies.

Part I

Preliminaries and Principles

The birth in 1998 of the post-Washington Consensus (PWC), launched by Joe Stiglitz (1998a) as chief economist at the World Bank, appeared at the time to be a dramatic event in signalling potential departure from the Washington Consensus, not least in scholarship. Nonetheless, it prompted two extreme reactions, possibly caricatured here, at opposite ends of the spectrum. One was to see this as another ideological shift in the continuing subordination of the Bank to developed-country (especially US) interests, with neo-liberal policies set to continue to be adopted. The other was to view this as a genuine shift in direction, enabling much greater potential through progressive engagement with the Bank.

In a volume that in many respects can be seen as a predecessor of this, a more nuanced position was adopted (Fine, Lapavitsas and Pincus 2001). It sought to unpick the PWC across its different dimensions, focusing on scholarship, but also on policy in practice and the Bank’s ideological shift from being dogmatically pro-market to, let us say, not being anti-state. It also demonstrated that the impact of the PWC across different topics was uneven and differentiated. The limitations of the PWC were also exposed in terms of an exclusive reliance upon the market-imperfections approach of mainstream neoclassical economics for which Stiglitz was renowned, if more widely applied than for (the new) development economics alone.

The present volume, with Jomo and Fine (eds) (2006) as something of an intermediate state-of-the-art stepping stone, continues to put flesh on the bones provided by these themes. But, as covered in this first part, it also adds to them in the following ways. First, it locates the impact of the PWC in the context of the continuing evolution of neo-liberalism, emphasising how much (as sharply revealed by the global crisis) it has been underpinned by what has been termed ‘financialisation’. In many respects, the PWC can be seen as a more moderate and tempered version of neo-liberalism, seeking to pursue financialisation by means other than shock therapy. Making markets work, in other words; but the markets working, or advancing, most over the period of the PWC have been those of finance. Second, this part charts the rise of the Bank as a self-proclaimed knowledge bank, albeit one with a somewhat more limited range of assets and derivatives than its real world counterpart. The rise of the knowledge bank is indicative of the increasing and deliberate command that the Bank exercises over development discourse, for both economic and social policy, projecting influence and control from its base within orthodox economics. It does so despite what, as exposed by the Deaton Report (Deaton et al. 2006), is poor-quality research by the standards of that economics. And despite, as we argue throughout the rest of this book, the impoverished capacity of such economics to address adequately the issues of economic, let alone social, development.

Since the launch of the PWC, there has been a considerable volume of excellent scholarly contributions exposing the limitations of the World Bank’s research, of which, of course, the Deaton Report is one. Throughout this volume, we have drawn upon this research for both its critical substance and its offer of alternatives. What we have also sought to do, however, is to locate such research both in the wider role of the Bank itself and in its interaction with broader material and intellectual developments. This allows for such themes to be picked up in the case-study chapters that follow in Part II, finessing general developments and their interaction across particular fields of study.

1

The World Bank, Neo-Liberalism and Development Research

Elisa Van Waeyenberge, Ben Fine and Kate Bayliss

1.1	PRELUDE: A TALE OF THREE RESIGNATIONS

In the autumn of 2006, one week after its Annual Meetings, the findings were released of an external evaluation of World Bank research that had been undertaken between 1998 and 2006 (Deaton et al. 2006). The evaluation had been commissioned by the Bank and was carried out by a panel of four distinguished development economists, with Angus Deaton acting as chair.¹

The period covered by the review had revealed itself to be particularly tumultuous in the history of Bank research. Joe Stiglitz, at the time vice president and chief economist, had opened 1998 with a bang. At the WIDER annual lecture, he delivered his now much-celebrated address, ‘More Instruments and Broader Goals: Moving towards the Post-Washington Consensus’ (Stiglitz 1998a). As indicated by the title, Stiglitz called for an urgent reorientation of the Bank’s development paradigm, beyond what he perceived as the excessively narrow bias that was the basis of the Washington Consensus that had steered Bank policies during the 1980s and early 1990s. For Stiglitz, the Washington Consensus had been ‘at best incomplete and at worst misguided’ (p.3). A more ‘holistic’ and ‘broad-based’ approach to development was to be pursued through a broader set of policy instruments than those traditionally associated with the Washington Consensus – itself shorthand for macroeconomic ‘stabilisation’, i.e. fiscal austerity, trade liberalisation, privatisation, and so on. In the autumn of the same year, Stiglitz (1998b) issued another urgent call from a public platform for a new development paradigm to be promoted by the Bank. One year later, he was forced to resign from his job as chief economist.

Meanwhile the drafting of the 2000/01 World Development Report (WDR) was under way. ‘Attacking Poverty’ was important for the Bank (World Bank 2001a). As a World Development Report, it summed up and publicly advertised Bank ideas in a particular area. Further, it was part of a longer-term exercise that sought, over a period of ten years, to reformulate Bank analysis and policy on poverty – with poverty reduction sitting at the heart of the Bank’s proclaimed mission. Ravi Kanbur, another distinguished development economist, known to be broadly in tune with the more comprehensive and ‘holistic’ approach advocated by Stiglitz and the then Bank president James Wolfensohn, had been tasked with leading the team writing the report. Yet by mid 2000, soon after drafts of the report had been circulated for comment to representatives of the Bank’s member governments and to researchers in and outside the Bank, Kanbur had departed his post.

Within the Bank’s main research department, the Development Economics Research Group (DECRG), led between 1998 and 2003 by Paul Collier, another drama was about to unfold. William Easterly, a senior advisor in the Macroeconomics and Growth division of DECRG since 1989, had received clearance from the Bank to write a book on some of his research findings regarding the causes of growth. After authoring an op-ed piece in the Financial Times summarising some of his findings, he found himself the subject of a misconduct investigation. He too had left his job at the Bank before the end of 2001.²

To the extent that the postures adopted by these three high-level Bank staff diverged from the official line espoused by the Bank, their positions became compromised and unacceptable. The resignations forced to the fore a set of tensions between scholarly efforts at the Bank, its advocacy role and the specific policy imperatives the institution was seeking to promote and, where necessary, defend.

This book seeks to assess critically the Bank’s development research both in how it affects particular debates and policies about development and through a closer look at the role it plays for the Bank itself, with particular attention to the shifting contradictions within and across Bank scholarship, its advocacy, and the policies the institution promotes. The Deaton evaluation provides a critical lens through which this endeavour is approached. The report sought to assess the extent to which Bank research contributed to its two main stated objectives: the generation of new knowledge on development and the broadening of the understanding of development policy. This was broached across nine fields of enquiry: macroeconomics and growth; fiscal policy, public sector management and governance; trade and international economics; poverty and social welfare; human development; finance and private sector development; agriculture and rural development; infrastructure and urban development; and the environment. Running to 165 pages, it came out in favour of a formal ‘knowledge’ role for the Bank, but denounced a set of fundamental shortcomings regarding the way in which the Bank discharged itself of its intellectual responsibilities.

The failure of the report, however, to situate the Bank’s research effort within a set of broader political–economic pressures bearing upon the Bank’s scholarly activity, and the absence of any exploration of how the relationship between Bank research, rhetoric and policy priorities is mediated, were striking (see Chapter 2). The way the Deaton Report dealt with (or avoided) the resignations mentioned above serves as an illustration. For example, the book that sat at the heart of Easterly’s resignation, The Elusive Quest for Growth, Easterly (2001a), was hailed by Deaton et al. (2006, p.50) as ‘perhaps the most cited and influential of all of the Bank’s research output’ – without a hint of the controversy the book had ignited within the Bank. Further, Deaton et al. (p.11) put forward the fact that one of the Bank’s former chief economists, the unnamed Stiglitz, was a Nobel laureate as evidence of the Bank’s alleged leading edge in development research. But there was no mention of the forced departure of Stiglitz from the Bank. Nor was there any mention of Kanbur’s resignation, while a later (and more sober and less self-constrained) Deaton (2009a, p.107) highlighted the shenanigans surrounding the 2000/01 WDR for ‘the internal disarray that it revealed within the Bank, particularly on the role of growth in poverty reduction’.

These yawning gaps in the Deaton evaluation may have been the consequence of a naive, sophisticated or complicit panel, or some mix of all three, as hope sprung eternal that some limited but positive influence on the Bank’s research might prevail in the wake of the panel’s extensive deliberations. What stands out is how the Deaton Report was committed to a particular, as it were ‘neutral’, appraisal of the Bank’s knowledge role (by way of standard of scholarship and suitability as such for advocacy), without seeking to situate this more broadly vis-à-vis the Bank’s role as lender and advocate of a particular interpretative and policy order.

This failure, or at least self-limitation, serves as point of departure for a more critical and deeper assessment of the Bank’s development research over the last decade across the select set of research topics covered in this book. Such an assessment acquires significance in the context of the Bank’s formal emphasis on its role as a knowledge bank since the late 1990s. This role was adopted against the backdrop of a formal transition from Washington to post-Washington Consensus as the Bank’s legitimacy as an agent of development came under doubt. Further, critical assessment of the role of knowledge bank is all the more urgent in the context of the global crisis at the time of writing, through which the failure of the Bank’s analytical and policy frameworks is (once more) dramatically exposed.

As an introduction, this chapter recounts briefly the trajectory of the rhetorical and policy paradigms that have prevailed at the Bank since the early 1980s. This allows the Bank’s role in the promulgation of a ‘neo-liberal’ order to be situated as well as to examine the shifting nature of that order. The crisis not only sheds light on the poverty of the Bank’s research in the past, but also reveals the inadequacies of its responses to the crisis as a result of continuities inherited from its pre-crisis configuration of advocacy, scholarship and policy in practice. This volume, then, uncovers the nature and role of the Bank’s research as it has been. This allows us to offer alternative perspectives for the future, not least on the stances of the Bank – whose status has been enhanced, rather than shattered, even though the consequences of the policies with which it has at least been complicit continue to unfold (see below).

1.2	FROM WASHINGTON CONSENSUS TO WHAT CRISIS?

The Bank was instrumental in promoting the neo-liberal perspectives on development that came to dominate the agenda of many international development actors during the 1980s. Summed up as the Washington Consensus (Williamson 1990), these perspectives displaced a short-lived focus on poverty reduction that had emerged during the 1970s and had been combined with a generally favourable appraisal of the need for the state to intervene to promote development (Fine 2009c). The Washington Consensus aimed at economic policy reform, with the purpose of eliminating all obstacles to a ‘perfect market’ as the presumed optimal path to growth. This implied an emphasis on ‘fiscal discipline’, curtailment of government subsidies, interest rate liberalisation, trade liberalisation, privatisation and deregulation.

By the early 1990s, however, the pernicious implications of the reform packages promoted under the Washington Consensus became increasingly apparent and the Bank’s half-century anniversary was marked by vocal campaigns that 50 years had been enough. Aware of the urgent need to restyle the Bank and address the serious challenges presented by the various pressures bearing upon the institution, attempts were instigated to reassert the Bank’s central role as a ‘development institution seeking to fight poverty’ and to move beyond the ‘technical’ and ‘narrow’ approach that had characterised the Washington Consensus. This entailed calls for a more ‘comprehensive’ approach to development (Wolfensohn 1999), accompanying the arguments for a post-Washington Consensus (PWC) put forward by Joe Stiglitz.

The new agenda tried, at least in principle (or at the rhetorical level), to move beyond the reductionist conception of the development process as exclusively reliant upon market forces which was implied by the Washington Consensus. It, further, sought to project a different view of state–society interactions. The presumed antagonism between state and society/market gave way to a notion of ‘partnership’: the priva...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• Acronyms and Abbreviations
• Preface
• Part I Preliminaries and Principles
• Part II Research in Practice
• Part III Continuity or Change?
• References
• Index