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The Sweet Smell Of Failure: The World Bank And The Persistence Of Poverty

Post author By David South Consulting
Post date 23/01/2021
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Paper delivered to the School of Politics and Government, Birkbeck College, University of London, London, UK, 2000

“… aid is no longer charity. It has become intrinsic to the maintenance of the international capitalist economy … (Fieldhouse 1999).”

By David South

In January 1949, US President Harry Truman set forth a challenge for the remainder of the 20th Century: the wealthy nations must aid the poorer ones to become wealthier and more democratic: in short, to become like the United States (Starke 2001: 143). The means of accomplishing this was to be international development, and its tool, foreign aid.

Decades later, this dream was being described as a nightmare. One of the most articulate proponents of the aid-is-waste thesis is Graham Hancock. His Lords of Poverty comes down unequivocally on the side of failure. Hancock argues that aid “is a waste of time and money, that its results are fundamentally bad, and that – far from being increased – it should be stopped forthwith before more damage is done (Hancock 1996: 189).”

Hancock originally wrote those words in 1989. Subsequently, a decade has past where international development organizations have attempted to prove the success of development in a wider context of the collapse of the Soviet Union, a crippling economic crisis in Asia and the former Soviet Union, and dizzying changes in information technologies. In addressing the proposition that “by the end of the 20th century, ‘development’ had failed”, it is important to clarify the underlying intentions of interntional development and whi the true actors are, and the interaction of politics and economy.

This paper will focus on one actor, the World Bank, which has seen itself as the principal international development organization for the past 55 years. I argue that the World Bank has been very successful at building a dependence on development institutions, itself in particular, but has failed at development as it has defined it: the elimination of poverty. The four main power structures underpinning the world economy described by Susan Strange – security, production, financial, and knowledge (Strange 2000: 43-119) – are each addressed by the World Bank’s programmes to varying degrees of success. It is the World Bank’s interaction with these power structures that have been a source of both stability and instability in the past 55 years.

I have chosen the World Bank because, as Hancock notes, it is

The pace-setter of Development Incorporated … the fact is that all official aid agencies, whether bilateral or multilateral, co-operate very closely with it, imitate its policies and its sectoral priorities and, to a large extent, share what might be called its ‘philosophy of development’. (Hancock 1996: 57)

I conclude that international development is now entering a new phase spurred on by the economic crisis affecting many developing nations after 1997, and not facing its destruction, in spite of rowdy protests around the world. The Asian Crisis provoked an increase in development spending, while simultaneously significantly raising awareness of international development institutions. At the beginning of the 21st century, the rise of the non-governmental organization as a key actor in development is strongly pronounced.

The fact that NGOs and private consulting companies are becoming the principal delivery mechanisms for development projects demonstrates a global lack of faith in government-run agencies and a belief in neo-liberal assertions that the private sector can do a better job.

1. Development: pernicious or persistent?

The word development needs to be pulled apart. Its endurance as a concept comes down to its ability to mean many things to many people. It is a loaded word, which upon closer inspection, becomes befuddingly vague and as slippery as an oil-soaked eel.

Development as defined by President Truman at the start of the development period of the 20th century meant “nothing less than freeing a people from want, war, and tyranny, a definition it is hard to improve on even today (Starke 2000: 153).”

Dictionary definitions of development take in ideas of growth, progress and evolution. As Hancock noted in Lords of Poverty, “underdevelped” countries “must in some sense be stunted and backward; ‘developed countries’, by contrast, are fully grown and advanced (Hancock 1996: 41).” Hancock bristles at the moralistic notion that particular countries may need to develop; in this he would probably have clashed with Marx, as Fieldhouse notes: “much as he hated capitalism, Marx saw it as a necessary agency for creating what we now call development in India and, by inference, most parts of the Third World (Fieldhouse 1999: 44).”

A refinement of this definition is one offered by the World Bank’s president in the 1980s, Barber Conable. Development offers measures “to promote economic growth” and “combat poverty”; those are the “fundamental tasks of world development” with the World Bank being the “world’s principal development agency” (Hancock 1996: 41).

More recently, in answer to heated criticism from donor nations and powerful NGO lobbies, the World Bank has adopted a more urgent tone on poverty. “Poverty reduction is the most urgent task facing our world today. The World Bank’s mission is to reduce poverty and improve living standards through sustainable growth and investment in people (World Bank 2000).”

Assessing development according to the World Bank’s definition of development, with its focus on eliminating poverty, it is very hard to say this has been a success, as I show further on.

2. Failure thesis: why the World Bank is a flawed poverty-fighter

The notion that development has failed has its critics on both the left and the right. On the right, development is seen as state welfare, bailing out countries that need to get their own houses in order. On the left, development has been seen, variously as a tool of the wealthy states to control the poorer states, a means to prop up corrupt but friendly elites, environmentally destructive, and a subsidy system for multinationals. Marxists have straddled the contradictions of criticising the effects of development while also chastising the wealthy West for not doing enough for the developing nations.

Since 1990 World Bank cumulative lending has totalled US $162,789.3 million (World Bank Annual Report 2000). Since its inception, global aid has risen from US $1.8 billion a year in the 1950s, to US $6 billion in the 1960s, to US $60 billion in the 1980s, to where it currently stands at US $129.2 billion (World Development Indicators Database). The Bank disburses US $25 billion a year (World Bank). Vast amounts of money is flowing back to the West in the form of payments on debts nearly totalling US $3 trillion (Starke 2000: 153).

In fact, the World Bank through its lending wings, the International Bank for Reconstruction and Development (IBRD) and the International Development Agency (IDA), embodies an inherant contradiction: it has shown itself to be unable to decouple its mandate to recover funds from what might be the wiser strategy. As the Bank puts it, “while the country must “own” its vision and program, the Bank must “own” and be accountable to shareholders for its diagnosis and the program it supports (World Bank).”

Over the development epoch, loans were accepted by countries that have shown themselves to be incapable of repayment, leading to the debt crisis today. While this crippling debt has been accumulated, the world has come no closer to eradicating poverty.

A brief look at the figures shows the scale of the challenge. Development policies have not been able to come to grips with escalating population rates in developing nations. During the period of development, the population of the regions with the lowest rates of development have risen rapidly. As Strange notes:

World population doubled between 1950 and 1984, rising rapidly from 2.5 billion to over 4.5 billion and topping 5 billion by the end of the decade… Numbers have increased most dramatically in the three ‘developing’ regions of Latin America, South Asia and Africa … (Strange 2000: 82)

Aid on the macro scale is also unequally divided, with the 10 countries that two-thirds of the world’s poor live in receiving less than a third of overseas development aid (Raffer and Singer 1996). And when it arrives in a country very little of it gets into the hands of the poor. Some generously claim that 20 per cent of aid reaches the poor (Raffer and Singer 1996), while Hancock maintains even less wends its way to the poorest.

According to the United Nations Development Programme, more than 1.3 billion people live on just US $1 a day; and 2.8 billion live on US $2 a day – nearly half the world’s population (UNDP). This number has remained unchanged since 1990 (Starke 2000: 4). In fact, in sub-Saharan Africa, South Asia and the former communist countries, “the number living in poverty is substantially higher than the figures recorded a decade ago (Starke 2000: 4).” The most noted trend is the diffusion of poverty and its more pronounced ability to sit side-by-side with an economic boom in developing – and developed – countries, fuelled by increased investment, especially in the areas of information technology and telecommunications.

The World Bank has set the target date of 2015 to cut extreme poverty by half. It remains highly dubious as to how the World Bank has any better idea of how to do this than it did in the first 55 years of development theory and practice. Theories have been misguided in the past, as Fieldhouse reminds us:

Central to all post-1950 attitudes to Third World development was the belief that the primary need was capital investment. The defining feature of underdevelopment was thought to be lack of sufficient capital to pay the cost of overcoming the perceived ‘structural’ obstacles to development. A short shopping list of what were then believed to be the necessary measures would include the following: first, the improvement of infrastructure – communications, power and water supplies, urban facilities and hospitals; secondly, education to raise the general level of literacy and to generate skilled workers at all levels, from the highest posts in government and industry, which was believed to be the basis of western affluence and must therefore become that of the Third World. (Fieldhouse 1999: 226)

It has been a period noted by a belief that development could be accelerated, and that the conditions necessary for development were understood and all that was necessary was capital and will.

In fact international development, when it has intended to eliminate poverty, has been unable to detatch itself from what can only be called the whirlpool effect, or the core-periphery debate: a tendency for wealth and power to be dragged into the centre, like a whirlpool: to wealthier nations, wealthy elites, capital cities. While aid is ostensibly about countering this trend, it fails miserably at doing it. The continent that requires the most aid, Africa, receives the least – in the 1990s the World Bank lent Africa a total of US $1,872.8 million (World Bank). It lent Latin America and the Caribbean US $51,520.8 million (World Bank). If, as Truman said, development is about helping those suffering from want, war and famine, then Africa is being ill served.

Looking at the evidence, it shows that aid follows the same pattern as private investment, seeking out success stories, rather than the poor, who by definition are society’s losers. It is an established fact that most trade flows and foreign direct investment is between the wealthy countries (Hirst and Thompson 2000: 2). The percentage of world trade captured by the developing countries has dropped from 50 per cent in the 19th century to 22 per cent (Hoogvelt 1997: 14). It is this tendency that builds into international development a peripherising effect that leaves billions on the outside of development and wealth acquisition – and draws the criticism that development has failed at its principal aim, as the World Bank puts it, to reduce poverty.

3. Security/production

Strange has noted where power lies in the modern world. Those who can influence or determine the structures of power will wield enormous influence over economic and political relations. The World Bank is an institution that has had a profound effect on the power structures of the world economy, with positive and negative consequences.

Security is the “provision of security by some human beings for others (Strange 2000: 45).” Strange focuses on the state as the primary provider of this security in the current international political system. She also broadens this definition to include “security from slow death by starvation, and security from disease, from disablement, or from all sorts of other hazards – from bankruptcy to unemployment (Strange 2000: 47).” And she attributes most conflict to disagreements over authority.

One of the biggest challenges now facing developing states is that of authority over their affairs. It is a two-pronged challenge, from outside and from within, as much of development aid now targets NGOs and civil society.

It is arguable that the World Bank’s greatest contribution to a state is its advice on governance, legislation and anti-corruption. While the World Bank is not tasked with a specific security mandate, it does play a significant role in supporting the viability of nation states, and offers up an off-the-shelf range of authoritative institutions that nation states are advised to take up. Through Structural Adjustment Loans (SAL) and their equivalents, countries are persuaded to adopt these measures or face losing the lifeline of funds.

These policies also dovetail with global concerns for security and stability, in terms of the absence of conflict and also in terms of predictability. Other governments will feel more comfortable dealing with philosophies and institutions that ring of familiarity. But how susccessful has the World Bank been?

Evidence has shown that the SAL loans and their package of reforms were destabilizing and inherently contradictory. As Hoogvelt illuminates:

they sought to denationalize the economies themselves by imposing various forms of deregulation, liberalisation and privatisation, indeed the dismantling of the public sector … At the ideological level it made the bailiffs walk a tightrope between, on the one hand re-affirming the notions of national sovereignty and national economy, while at the same time, and on the other hand, confining development economics and any hint of Keynesian notions of national economic management to the dustbins of history. They had to uphold the state and destroy it at the same time! (Hoogvelt 1997: 167)

The results have actually jeopardised security within Africa, and according to Robert Kaplan, the chaos on that continent will wreck havoc outside Africa as well (Kaplan 1994). Security is probably the World Bank’s greatest failure in the four global power structures. Hoogvelt concludes that its legacy in Africa is particularly disturbing:

In many African countries, the imposition of the neo-liberal orthodoxy, including privatisation of the public sector, the emasculation of the state apparatus and the insistence on electoral reform, has directly contributed to the descent into anarchy and civil wars. (Hoogvelt 1997: 175)

Production as Strange states it, is “the sum of all arrangements determining what is produced, by whom and for whom, by what method and on what terms (Strange 2000: 64).” Production is a bright spot for the World Bank, in that conventional economic statistics have shown a growth in production (even after the 1997 Asian crisis), fuelled by increasing investments in telecommunications, information technologies and greater investment in public utilities (Hirst and Thompson). The World Bank has also an extensive history funding infrastructure projects critical to the functioning of a modern economy, including roads, dams, airports, and ports. There is an extensive literature on the corruption and inefficiency of many of these projects, but at a minimum infrastructure was built.

The World Bank has been “able to profoundly affect the organisation of production and trade in the periphery to the benefit of the core world capitalist system (Hoogvelt 1997: 166).”

During the World Bank’s tenure, foreign direct investment has gradually increased for these states, but because of an intensification of trade between the wealthy nations, the global distribution of GNP has,

changed little over the 1970s and 1980s, and indeed became more unequal rather than less after the 1970s. What all this shows goes against the sentiment that benefits will ‘trickle down’ to the less well-off nations and regions as investment and trade are allowed to follow strictly market signals. (Hirst and Thompson 1999: 71)

At a minimum, links have been built and could be the basis of a re-alignment of the world economic order under fairer terms. Hoogvelt notes the links are unquestionably tight:

Structural adjustment has helped to tie the physical economic resources of the African region more tightly into servicing the global system, while at the same time oiling the financial machinery by which wealth can be transported out of Africa and into the global system. (Hoogvelt 1997: 171)

4. Financial/knowledge

Strange calls financial power the ability to “create credit”. It “implies the power to allow or to deny other people the possibility of spending today and paying back tomorrow, the power to let them excercise purchasing power and thus influence markets for production, and also the power to manage or mismanage the currency in which credit is denominated (Strange 2000: 90).”

The World Bank’s vast lending capabilities, as shown earlier, means the Bank literally has the power to switch the lights on or off in a country’s economy. It has also been in the forefront of creating today’s “casino” economy, as Strange calls it, the 24/7 financial markets. It has served the interests of the core economies in this arrangement, as Hoogvelt elaborates:

In a world economy dominated by global financial markets, by money careening around the globe at a frenetic pace, the principal national economic objective of the core countries has to be, and indeed has become, one of maintaining the competitive strength of their currency vis-a-vis each other, fighting domestic inflation that threatens this competitive strength, and trying to catch as much as possible of the careening capital flows into the net of their domestic currency areas. (Hoogvelt 1997: 165)

As Fieldhouse reminds us, “In the later twentieth century, in fact, the World Bank and the IMF were the main proponents of free trade and other related principles in the less-developed world. They thus filled the same role as Britain had done a century earlier (Fieldhouse 1999: 20).”

After World War II, it became apparent the world financial system was not going to be able to function with a hands-off United States. The Marshall Plan in Europe established the precendent of significant loans to aid countries to economically “recover”. As these two influential World Bank economists wrote, it was partly about creating conditions amenable to investors’ interests: “Thus, basic fiscal and monetary discipline, including a properly managed exchange rate, helps establish the credibility of economic policy that gives entrepreneurs the confidence to invest (Stiglitz and Squire 2000: 386).”

And they confirm the whirlpool effect: “Entrepreneurs will not invest in countries where the policy regime is unstable – investors require a degree of certainty (Stiglitz and Squire 2000: 386).”

The World Bank since 1996 has called itself the “Knowledge Bank”, because “We live in a global knowledge economy where knowledge, learning communities, and information and communications technologies are the engines for social and economic development (World Bank).”

In many respects, the World Bank has defined development as most people understand it. As Hancock reminds us, “Consciously or unconsciously we view many critical global problems through lenses provided by the aid industry (Hancock 1996: xiv).” Knowledge and intelligence-gathering is key in an age dominated by information. As Clark notes of development organizations,

The ‘software’ of their trade – ideas, research, empowerment, and networking – are rapidly becoming more important than their ‘hardware’ – the time-bound, geographically fixed projects, such as wells and clinics. In this new age, information and influence are the dominant currencies rather than dollars and pounds. (Clark 1992: 193)

The vast volume of statistics and reporting produced by the Bank on the global economy is valuable and it is frequently used as a source even by its critics. This quite possibly is the Bank’s greatest success. The Bank’s focus on information technologies is also valuable and it is aiding developing countries around the world to gain access to the internet for example. Keohane notes that information by its very existence can generate greater cooperation between states:

Informaton, as well as power, is a significant systemic variable in world politics. International systems containing institutions that generate a great deal of high-quality information and make it available on a reasonably even basis to the major actors are likely to experience more cooperation than systems that do not contain such institutions … (Keohane 1984: 245)

Conclusion

Like a chameleon, the political and economic actors in development change their appearance according to evolving conditions. I have argued in this paper that the fundamental needs – a desire for markets, global interconnectivity and political control – ensure the World Bank’s role in international development remains principle to the day-to-day lives of developing countries. It is also a fact that development organizations such as the World Bank have amassed a wealth of knowledge and expertise that binds donor nations to them, though this is being supplanted by NGOs as they in turn create a dependency between themselves and the World Bank.

The World Bank’s greatest success has been the perpetuation of the development industry and its role vis-a-vis the global power structures. It is particularly remarkable that development aid has been so robust for such a lengthy time, and points to the key needs in the power structure that it fulfils. However, the World Bank has failed to significantly reduce poverty in the world, and since it defines development as principally poverty reduction, its form of development has failed.

Development aid in and of itself is a highly successful formula, as attested by the boom currently experienced by NGOs. The trend towards these new actors is well advanced, as The Economist noted: “NGOs have become the most important constituency for the activities of development aid agencies (The Economist 2000: January 27).”

Even more compelling, “Between 1990 and 1994, the proportion of the European Union’s relief aid channelled through NGOs rose from 47% to 67%. The Red Cross reckons that NGOs now disburse more money than the World Bank (The Economist 2000: January 27).”

Unfortunately, there seems to be little evidence that any organization working in development will be out of a job by 2015. In the meantime, the poor remain peripheral actors in a play staged for the benefit of those who are not poor. As Fieldhouse notes:

Thus aid is no longer charity. It has become intrinsic to the maintenance of the international capitalist economy, a system by which western governments directly or through multilateral agencies, mobilize debtors so that they can continue to meet their obligations to both public and private creditors. (Fieldhouse 1999: 253)

More Papers

Pax Chaotica: A Re-evaluation of Post-WWII Economic and Political Order

In The Interests Of The Exploited?: The Role Of Development Pressure Groups In The UK

A Steppe Back?: Economic Liberalisation And Poverty Reduction In Mongolia

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A Steppe Back?: Economic Liberalisation And Poverty Reduction In Mongolia

Post author By David South Consulting
Post date 23/01/2021
No Comments on A Steppe Back?: Economic Liberalisation And Poverty Reduction In Mongolia

Paper delivered to the School of Politics and Government, Birkbeck College, University of London, London, UK, 2000

“… the neo-liberal claim that transition is most successful in situations where state organs wither away is highly problematic. The state, it seems, is required as a fundamental regulatory formation in transition (Pickles and Smith 1998: 15).”

By David South

This paper will explore the profound weaknesses of economic liberalisation as a tool of poverty reduction in the developing world. I have chosen to explore the experience of the Northeast Asian nation of Mongolia; a country sandwiched between Russia and China which has been held up as an example of how economic liberalisation policies and strong personal freedoms can help a country make the transition from a command-based Communist country to free markets and democracy (UNDP Mongolia: The Guide 1997-1999). I argue that the slate of policies that constitute economic liberalisation (or “shock therapy”) in the 1990s – privatisation, price liberalisation and a free-floating currency – are, by themselves, poor mechanisms for the alleviation of poverty; that in fact they increase poverty rates and leave a legacy of weak institutions that are either unwilling to, or incapable of, helping the poor. The author will also draw on firsthand evidence gained while working in the United Nations mission in Mongolia for two years.

Economic liberalisation policies have been inhibited from alleviating poverty by the cultural legacy of Mongolia’s economic development, which has de-emphasised private property and a money-based economy and placed a high emphasis on wealth being held in herds of animals and goods exchanged by barter.

Mongolia, with its relative isolation and small population of 2.4 million (Human Development Report Mongolia 2000: 55), has been seen as a self-contained petri dish by economic liberalisers hoping to incubate a robust transition to free markets and democracy that can serve as an example to other post-Communist states.

Mongolia’s journey towards neo-liberal ideas is unique. Unlike many other developing nations, Mongolia’s lively democratic movement that emerged at the end of the 1980s actively sought out these policies, and has enjoyed strong and widespread public support for them (though this has ebbed and flowed with the economic fortunes of the country). The 1996 election was fought and won by the Democratic Coalition based on these policies; the Coalition won 50 of the 76 seats in Mongolia’s parliament, and voter turnout was more than 90 per cent (Far Eastern Economic Review 1997: March 27). Thus, this is not a case of international institutions forcing upon a country policies against its wishes: the door was opened and the economic liberalisers were effectively invited in for a big bowl of fermented mare’s milk.

However, it is also a country in which economic liberalisation has failed to deliver anticipated reductions in poverty for the majority of the population, and a strong case exists that it has made things worse.

As the Human Development Report Mongolia 2000 states:

In recent years however, the predominant vision has been neo-liberal. Backed by some international donors, reformers have argued that the best thing the state can do is to largely withdraw from the economy – by rapidly privatising state enterprises, and dismantling as many regulations and controls as possible, and allowing market forces to determine the production and allocation of goods and services. (Human Development Report Mongolia 2000: 13)

Liberalisation policies in Mongolia: A potted history

With the fall of the Soviet Union at the beginning of the 1990s, Mongolia woke up to find itself without its financial benefactor for most of the 20th century, Russia, and in the grip of a severe economic decline (Rossabi 2000: 9).

But a new “big brother” was at hand. In 1991, economic liberaliser Jeffrey Sachs arrived in Mongolia (Fortune 1998: December 7). The arrival of Sachs and his ideas were to have a profound impact on the lives of Mongolians. He gathered a group of well-educated Mongolian economists to test economic liberalisation theories.

Smith and Swain neatly summerise the source of economic ideas for the transition states:

The roles played by Francis Fukuyama (1992), formerly of the US State Department, and Jeffrey Sachs (1990), as policy adviser … translated this agenda into the all too familiar programme of so-called ‘shock therapy’. Shock therapy has been based on the view that capitalism could be … imposed by fiat and that the unleashing of the power of capital will inevitably allow the institutions, regulations, habits and practices associated with the ‘normal’ functioning of a capitalist market economy to emerge (Smith and Swain 1998)

The economic liberalisation project in Mongolia can be split into two distinct phases. The first more tentative phase under the Communist government extended from 1990 to 1992 and included privatisation of some state firms, the issuing of stock-market vouchers to most of the population and a failed attempt to enter the foreign currency markets (as a result of which 80 per cent of the country’s reserves were lost). This phase coincided with a new constitution, democratic elections and significant improvements in personal freedoms.

The economic liberalisation project encountered serious difficulties from the start, and when all aid and subsidies from the Soviet Union were removed, the economy collapsed, with inflation spiralling to 320 per cent (Human Development Report Mongolia 2000: 13). Pro-economic liberalisation factions in the Communist government lost influence and the reforms stalled from 1992 until 1996, when they were re-started with a vengeance with the election of the Democratic Coalition. The Coalition was assembled from a hitherto fragmented opposition by the Washington-based International Republican Institute and mimicked the policies of the American Republican Party, including distributing a Newt Gingrich-style “Contract with the Mongolian Voter.”

The second phase of reforms, under Democratic Coalition Prime Minister M. Enkhsaikhan, was launched with the removal of price controls on fuel and electricity, increasing prices by 50 per cent (Rossabi 2000: 11). This phase of economic liberalisation also ran into difficulties, but its most successful policy achievements have been the privatisation of public housing, the removal of trade tariffs and the reining in of inflation.

Poverty and economic liberalisation

Prior to the introduction of economic liberalisation, there was no extreme poverty in Mongolia, though it is difficult to gauge relative poverty since this information was not gathered. Rossabi notes, however, an extensive public welfare system was spread throughout the country:

The Mongol economy required substantial subsidies from the Soviet Union. This command economy produced inefficient industries, few consumer goods, and scant increases in the size of the Mongol herds. The one-party system limited dissent and contributed to human rights abuses. On the other hand, the government provided extensive medical, educational, and welfare benefits to the young, women, the elderly, and indeed much of society. A growth in population, a longer life span, and high rate of literacy were byproducts of such state policies. (Rossabi 2000: 6)

All research data has shown an increase in poverty levels for a large portion of the population after 1990. Estimates vary wildly, but the United Nations Development Programme reports that 38.4 per cent of urban dwellers – and 32.6 per cent of rural residents – were poor in 1998 (Human Development Report Mongolia 2000: 23). School attendance is down, regional disparities have become more extreme, with the capital experiencing a boom fuelled by international aid (this totalled US $180 million in 1998 (Mongolia Update 1999: 27) and an expanding service sector. Provincial towns and smaller communities have seen local state-run businesses collapse, communications weaken, and a leaching of the population, either to the countryside to herd animals or to the capital to seek work.

To cite one graphic anecdotal example of the process, a consulant for the Asian Development Bank told a 1998 donor agencies meeting of the irony of going into former factory towns, and telling the well-educated residents to turn to small crafts and itinerant vegetable growing rather than restarting the existing factory.

Mongolia’s transition: theoretical dilemmas

As Pickles and Smith note in their work of political economy Theorising Transition: the Political Economy of Post-Communist Transformations, it is a profound mistake to ignore the distinctive evolution of each of the former Communist states. Mongolia’s attempts at transition to a market economy have been deeply marked by its cultural legacy, in spite of attempts to transcend this. While Ohmae may assert that “This movement up the ladder of development has nothing to do with culture and everything to do with the region’s ability to put the right policies, institutions, and infrastructure in place at the right time (Ohmae 1994: 21),” culture is crucial. It is simplistic to depend on a “stock set of policies to enable the supposed transition to capitalism at the end of the twentieth century to be achieved (Pickles and Smith 1998: 10).”

As Pickles and Smith add about post-Communist Eastern Europe:

Treating post-communist Eastern Europe as a whole fails to recognise the ever-present diversity of some 27 states and 270 million people. Even at the end of the nineteenth century, such political-economic diversity was central to what was unfolding in the region … The diversity of historical experiences was replicated under state socialism, and while we would not argue for some form of historical determination, the state socialist economy in part relied upon these spatial divisions of labour and forms of social organization and institutionalised practices, albeit that large-scale attempts at forced industrialisation were made to eradicate the legacies of ‘peasant societies’ and uneven capitalist development. (Pickles and Smith 1998: 12)

Historically, Mongolia had never experienced capitalism, even in its most basic and embryonic form. Prior to the 1921 revolution which made Mongolia the world’s second Communist country, the vast majority of its citizens were divided between two occupations: nomadic herding, and the herding of souls as Buddhist monks. There was a small trading community, including a tiny community of Jewish traders – a legacy of the long-gone silk route that once plied its way through the Mongol Empire. But modern, urban, industrial capitalism as was present at this time in Europe was nonexistent in Mongolia. Concepts of capitalism, market economics and private property were introduced anew after 1990.

Urbanisation, modernisation and industrialisation were wholly communist concepts in Mongolia prior to 1990. The traditional nomadic way of life measures wealth in terms of the size of the herd and places a high value on the ability to roam unencumbered by private property divisions and the ability to trade animals for other goods (though these needs are simple since a nomadic herder can only carry around a limited quantity of possessions).

Economic liberalisation policies have, ironically, only exacerbated this trend, driving more of the economy into barter relations and actually pushing a portion of the population out of urban areas and into subsistance herding in order to survive (Partnership for Progress 1998: 2-3).

Mongolia also offers some anomalies to theories of economic and democratic liberalisation. Lewis contends that democracy gives a nation a distinct economic advantage. “Average wealth, the degree of industrialisation and urbanisation and level of education are perceived to be much higher for countries which are democratic, education being of particular importance in this respect (Lewis: 1997).”

Yet as Fortune magazine noted, “No other Asian country enjoys more political freedom today than Mongolia. And no other Asian country has shown greater commitment to open markets. But Mongolia has received little reward for its efforts (Fortune 1998: December 7).”

The role of the state

Broad, Cavanagh and Bello see a strong argument for clear state direction in underdeveloped economies in the beginning stages, before allowing market mechanisms to dominate:

The South Korean economy’s resumption of growth after a brief period of stagnation at the onset of the 1980s and Eastern Europe’s slowdown after rapid growth in the 1960s confirm a more complex truth than the purveyed by free-market ideologues. Communist economies may propel societies through the first stages of development, but further growth into a more sophisticated economy necessitates a greater role for market mechanisms. (Broad/Bello/Cavanagh 2000: 392)

Strong state direction in economic development has been abandoned in Mongolia (it remains to be seen whether the re-election of the former Communist party in the summer of 2000 will alter this), and it can be argued that the over-dependence on market mechanisms has been premature.

In fact, “the neo-liberal claim that transition is most successful in situations where state organs wither away is highly problematic. The state, it seems, is required as a fundamental regulatory formation in transition (Pickles and Smith 1998: 15).”

The absence of this regulation in Mongolia means that where once economic transactions were transparent, they have now gone underground. The example of cashmere exports (one of the country’s major foreign-currency earners) is particularly interesting. In 1998 the Mongolian government, faced with ever-dwindling tax revenues, introduced a tax on cashmere exports, ostensibly to protect the domestic cashmere-manufacturing industry. Whatever the true intention, the result was catastrophic for government revenues. Recorded exports fell by more than 98 per cent, to US $306,000 in 1998 from US $16 million in 1997 (Far Eastern Economic Review: 1999). The trade went underground and a handful of customs officials could not make a dent in a border as vast as Mongolia’s. It is a graphic example of how weak the central government had become, unable to raise revenues when necessary.

Economic liberalisation also tends to pull economic activity into the capital, as has been witnessed across the transition states. Centrifugal forces leave great swathes of poverty in rural areas and drain marginal urban centres of their skilled workers (Pickles and Smith 1998: 17). Mongolia is no exception to this pattern (Rossabi 2000: 10).

Forces outside the market

After investigating the role economic liberalisers in non-communist developing nations, Robert Bates found that market-oriented economists routinely overlook the role politics and political power plays in wealth distribution:

One reason that market-oriented economists tend to deny the centrality of politics to the development process is that they tend to discount problems of distribution. Those who adhere to the efficiency-and-growth position counter that if development produces a maldistribution of income, those who are losers in the short run could become winners in the longer run … From this viewpoint, governments are not just irrelevant to the development process, the actually impede it. (Bates 1988: 239-240)

There is scant contemporary research into the role of clan or family elites in modern Mongolia, but Rossabi, a Mongolia historian, believes they wield significant influence to this day, and have glided from communism to capitalism with ease (Rossabi 2000: 12). He asks, “Has there been sufficient turnover in the political elite, or does it represent the same consitutency as in the past? Has it expanded sufficiently to make itself more broadly representative of the Mongol population, including the herders and the countryside in general?”

In search of a purpose

Mongolia today is undergoing a basic economic dilemma familiar to Ricardo. It is at once transforming political and economic relations while also exploring what advantages it has to offer to the world markets, that old chestnut of absolute and comparative advantage. To date, its absolute advantage has been to be the source of raw materials, the two key foreign currency earners being copper and cashmere wool (Human Development Report Mongolia 2000: 30).

Its large herds of animals (some 34 million) are under-utilised as foreign-currency earners, and for the most part provide food for domestic consumption. One of the main reasons for this has been the rudimentary livestock techniques that exclude these vast meat and dairy resources from foreign markets (while the herds are raised without any use of chemicals, there is no quality control – a service once provided by the state before 1990). The distortions to the economy caused by these policies are highlighted in the Gross Domestic Product (GDP). In 1985, agriculture accounted for 14.3 per cent of GDP, and industry was 31.8 per cent. By 1998, agriculture (now mostly nomadic herding) accounted for 32.8 per cent of GDP and industry shrank to 24.1 per cent (Human Development Report Mongolia 2000: 56). The economy had contracted and was more focused on meeting basic domestic food needs.

Mongolia has a number of strengths it can draw on, however, with its impressive steps at building democracy and personal freedom chief among them. Lewis categorises former communist states into two groups, with group two taking an undemocratic route. Mongolia would rank in group one, since these countries have: “relatively rapidly established a reasonably viable constitutional order and multiparty system, having held free elections, seen unequivocal changes of government and generally established civil liberties (Lewis: 1997).”

The economic model used by the Democratic Coalition was the United States; Mongolia’s new leaders, dismissed other Asian nations – with their stoic, thrifty populations taking direction from the state – as poor examples for Mongolia. Like the US, Mongolia’s nomadic heritage values freedom and individual effort over the state, assert government advisers such as Tserenpuntsag Batbold, an economic adviser to the Mongolian prime minister’s office.

Batbold is sanguine about finding a purpose for the country’s economy: “I’m always thinking about this, but I can’t give you an answer. This is exactly why we have to create a nondistortive economic environment, one which will show us the true comparative advantages of this nation (Asian Wall Street Journal 1997: May 27).”

Yet the process has been a difficult one. At a June 1998 international investors’ conference in Ulaanbaatar, the World Bank variously called Mongolia the “gateway to Russia”, the “gateway to China”, and the “gateway to Central Asia” (UB Post: 1998), giving the impression that both the global institutions and the Mongolian government would try anything in a desperate search for a purpose for the country’s economy. In fact, efforts in the 1990s to attract foreign direct investment (FDI) have not been fruitful. In 1999, FDI stood at US $70 million; it was US $200 million for all of the 1990s (Human Development Report Mongolia 2000). The belief that foreign private companies would pay for the country’s infrastructure improvements has run up against a wall: most foreign companies find it hard to see the benefits in investing in a country that only has a market of 2.4 million people and very high start-up costs.

By 1998, even Sachs was striking a pessimistic note. He told Fortune magazine he disagreed with the pace of reforms and insisted infrastructure improvements – more roads, improved livestock breeding, investment in information technology – were the only things that would improve the country’s economy (Fortune 1998: December 7).

Conclusion

Political power in Mongolia has switched from the hegemonic control of the Communist Party (and its overlords in Moscow) to be dispersed amongst a plethora of actors, including international aid organizations. Economic liberalisation has destroyed the state’s ability to guarantee a minimum standard of living. However, it has also expanded the number of small businesses in the country, and the GNP generated from the private sector has grown from 10 per cent of the total in 1990 to 64 per cent in 1999 (Human Development Report Mongolia 2000: 31). In spite of this, poverty rates remain stubbornly high, undermining assertions that free markets alone will generate wealth for the disadvantaged.

Unfortunately, Mongolia has significantly misdiagnosed the origins of prosperity in its current role model, the United States. Economic liberalisation policies cling to simplistic notions of the evolution of capitalist markets in the US, ignoring the complex relationship between state-funded or regulated infrastructure development and economic growth. Post-communist countries have been ill-advised on what policies will actually reduce poverty rates. These societies do not fit into conventional ideas of underdevelopment; on the whole their populations are highly literate and skilled. While products produced by these countries may not be able to compete head-on with more technologically sophisticated equivalents in Western markets, there is little evidence that wholesale destruction of these industries will spurn economic growth and reduce poverty.

Pax Chaotica: A Re-evaluation of Post-WWII Economic and Political Order

In The Interests Of The Exploited?: The Role Of Development Pressure Groups In The UK

The Sweet Smell Of Failure: The World Bank And The Persistence Of Poverty

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© David South Consulting 2017

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In The Interests Of The Exploited?: The Role Of Development Pressure Groups In The UK

Post author By David South Consulting
Post date 23/01/2021
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Paper delivered to the School of Politics and Government, Birkbeck College, University of London, London, UK, 2000

“Many Northern NGOs have assumed the role of ambassadors for the world’s poor (Clark 1992: 18).”

By David South

The question “Do pressure groups increasingly advance the fancies of the middle classes at the expense of the interests of the exploited?” is particularly relevant when applied to the ever-expanding network of international development pressure groups (IDPG) in the United Kingdom. Many of these groups are based in London, making use of its political networks, diplomatic connections (the UK is signed up to more international covenants and organizations than any other country), excellent travel links and centrality to the global financial system. While these groups promote their work and policies utilising sophisticated advertising and media campaigns (Save the Children Fund, for example, spends £14 million annually), they rarely come under scrutiny for their claims that they “speak for the poor” (Edwards and Hulme 1992: 23). In fact, “Many Northern NGOs have assumed the role of ambassadors for the world’s poor” (Clark 1992: 18). This question is of particular importance because governments are turning more and more to non-governmental organizations (NGOs) to administer and deliver international aid projects (Dolen 1992: 19).

In 1989, Graham Hancock’s seminal book Lords of Poverty singled out government development agencies and the United Nations for being “rich and powerful bureaucracies that have hijacked our kindness” (Hancock 1989: xiii). He, however, deliberately “refrained from mounting an offensive against the voluntary agencies … by and large I believe their staff to be well motivated and their efforts worthwhile … They rarely do significant harm; sometimes they do great good” (Hancock 1989: xiii).

One of the major changes to occur since Hancock wrote those words has been the co-opting and drawing in of development NGOs even further into the priorities of the bilateral and multilateral donors. They have been placed on a pedestal as the voice of the world’s exploited, and lead high-profile pressure campaigns to alter and direct aid and foreign policies of the UK (Jubilee 2000’s drop the debt campaign is one example). This paper will explore whether international development groups “advance the fancies of the middle classes”, looking at their role in UK policy formation, and whether they accurately reflect the wishes of the “exploited” of the world, in this case, the poor (Kanbur and Squire 1999: 1).

Development pressure groups in this paper include charitable non-governmental organizations engaged in advocacy or project implementation, or both. I have excluded the plentiful university departments that conduct extensive research into development practice and policy. The reason for this is the mandate of charitable development pressure groups: they appeal both to our heart and our head.

Where we stand now

British development policy has taken on a higher profile under the Labour Government elected in 1997. The Department for International Development (DFID) was set up as a separate department removed from the Foreign Office and given a full-time minister, Clare Short. DFID also released the first white paper in 22 years on international development, Eliminating World Poverty: A Challenge for the 21st Century.

As Short says:

NOW THE DEVELOPMENT INTEREST COMES TO THE TOP LEVEL OF THE BRITISH GOVERNMENT’S CONSIDERATIONS. THE DEPARTMENT IS NO LONGER JUST AN AID DEPARTMENT. IT IS NOW CHARGED WITH THE RESPONSIBILITY OF LOOKING AT ALL ASPECTS OF POLICY: TRADE, DEBT, ENVIRONMENT, AGRICULTURE IN THE GLOBAL SYSTEM AND ENSURING THAT BRITAIN’S POLICY ON THESE TAKES ACCOUNT OF THE DEVELOPMENT INTERESTS. (EARTH TIMES, 1999)

The Labour Government is seeking to play a key role in the global debate on the future of international development. As part of this approach, the government aspires to work more closely with those NGOs who support their conciliatory approach to global institutions such as the International Monetary Fund (IMF), the World Bank and the World Trade Organization (WTO). International development pressure groups are thus presented with a tantalising but difficult decision: work closely with the government on achieving its goals – and so gain access to a steady stream of funding – or remain autonomous but risk being frozen out of the mainstream debate.

The financial stakes are high for the NGOs. According to the Organization for Economic Cooperation and Development (OECD), northern NGOs as a whole spend US $10 billion annually (Smillie 1998: 157). They have evolved into significant economic sectors in their own right, employing thousands, with their tentacles stretching out to the global media and countries around the world.

In the UK, international development spending is currently £2,367 million annually, of which £182 million is channelled through NGOs (DFID 1999). OECD figures show that aid channelled through NGOs rose from 0.7 percent of all aid in 1975 to 5 percent in 1993 (Covey 1992: 4). As well, the number of international NGOs soared in the last century, from nine in 1909 to 28,900 by 1993 (Covey 1992: 3).

If aid is a business, then business is good. Save the Children Fund, to take one example, saw its income increase from £6 million in 1981 to £60 million in 1991 (Dolan 1992: 205), to £97.3 million in 1999 (Save the Children Fund website). Of the current budget, £40.9 million comes from grants given by government development agencies. It also spends £14 million a year on publicity and fundraising.

The “fancies” of the middle class

Interest or pressure groups are in the main a middle-class phenomenon, being largely staffed by the educated middle classes (even so-called ‘working class’ interest groups such as trade union associations can be found to be mainly staffed by the middle classes). They are the product of educated, aspirational citizens who believe they can and should play a role in the world. Moran suggests, “If we are no longer ‘working class’ we can define our social identity and political demands in numerous ways: so groups emerge catering for nuclear pacifists, radical feminists, etc.” (Moran 1985: 236). As Petracca points out, “The rise of citizen groups is probably best explained by a combination of factors: the growth of the middle class in the 1960s, a revolution in communications technology, and the emergence of interest group patrons” (Petracca 1992: 23).

Since the middle class is the core audience for these IDPGs (they vote in large numbers and they have funds to donate), they also colour the priorities of what gets on the development agenda.

Over the past 20 years, IDPGs have used a variety of appeals to raise money and exert pressure on the government. In the beginning appeals were driven by humanitarian disasters such as the famine in Biafra in the 1960s. These appeals struck a strong emotional chord, presenting images of extreme suffering at a time when the UK was enjoying a post-war economic boom. More recently appeals have focused on small-scale development projects such as water wells and classrooms. In the 1980s and 1990s they took on a more economic tone, epitomised in the “ethical shopping” encouraged by Oxfam with its line of Bridgehead products. This coincided with the expansion of a consumer culture and is probably the most graphic example of the marriage between humanitarianism and middle-class consumer lifestyles. It effectively promotes the idea that an alternative and fairer economy can be bought, one rainforest chocolate bar at a time. The environmentalist Dobson is especially critical of social change by shopping: “The Body Shop strategy is a hymn to consumption: in their contribution to the Friends of the Earth Green Consumer Week leaflet (12 and 18 September 1988) they urge people to ‘wield their purchasing power responsibly’ rather than to wield it less often” (Dobson 1995: 135).

In the last couple of years the focus has moved towards the phenomenon of globalisation and a perception that existing internaitonal institutions have failed the poorer countries; that they should be revolutionised or drop-kicked straight out of the global arena. How much are these cries to do with heartfelt concern for the poor of the developing world, and how much to do with middle-class angst over a rapidly changing global order with new economic powers such as China and new uncertainties? Certainly, many of the IDPGs are working both sides of the street, protesting the global institutions and national development agencies while also taking more and more of their grants to fund their activities.

It was once easy to criticise the international development bureaucracy for leading a life of aloof leisure, jetting from conference to conference, inhabiting a world so far removed from the poor that they might as well be living on another planet. More and more this can be said of the parallel world of international NGOs, whose bureaucrats also hop around the world attending conferences and government meetings. Steve Hellinger, co-founder and president of the Development Group for Alternative Policies, notes that NGOs’ dependence on public monies “has affected the way they deal with policy issues. Instead of representing the interests of the people in the South, they are increasingly supporting the interests of the aid institutions” (New Internationalist, 285, 1996).

The relationship between the articulated goals of development pressure groups and the effect they have in the countries of the exploited was the subject of a documentary on Channel 4 Television aired in November 2000. The Hunger Business documents the frustrations felt by Africans who found development NGOs put their own preconceptions ahead of asking Africans what they needed or wanted. This led to aid exacerbating many of the conflicts in the region. As Kenneth Hackett of Catholic Relief Services said, “if food keeps them alive to fight a war, then so be it” (The Hunger Business). Aid donations may have been harder to come by if people knew the messy regional politics.

Pressure and policy

The distinctive nature of the British political and social scene has also contributed greatly to the rise in influence and power of development pressure groups. As far back as the Victorian period, there has been a strong tradition of like-minded individuals banding together to do good works, especially among the poor. Many of today’s British NGOs have their roots in the extensive network of missionary organizations established in this period.

Britain also has a tradition of seeking help when it decides to alter or expand its role in a particular sphere of influence, which was the case at the turn of the 20th century:

THE BRITISH GOVERNMENT DECIDED TO INCREASE ITS INVOLVEMENT IN THE SOCIAL AND ECONOMIC WELL-BEING OF ITS CITIZENS, THE FRIENDLY SOCIETY MOVEMENT WAS A FACTOR TO BE RECKONED WITH. THE MEDICAL PROFESSION ALSO CLAIMED TO SPEAK FOR THE GENERAL PUBLIC AS WELL AS ITS MEMBERS. (VAN DER VALK 1998: 112)

There are strong parellels between this time and the current political climate. Unlike the Conservative government before it, the Labour government under Tony Blair has made it explicit policy to increase funding of, and involvement in, international aid and development. It has broadened its areas of interest (thus needing expertise from NGOs) and is also seeking lobbying power in order to exercise greater influence in the global negotiating game to reform and alter major international institutions such as the World Bank and the International Monetary Fund. Its new priorities include poverty elimination by 2015, empowerment of women, human rights for all, making government work for poor people, including better health care, tackling the water crisis and expanding primary education (DFID).

These priorities dovetail well with those of NGOs such as WaterAid, Oxfam and Save the Children Fund, which also have a storehouse of experience and contacts in these areas.

To have any influence on policy-making in the British parliamentary system like-minded individuals must form interest groups.

OF ALL THE WESTERN DEMOCRACIES, BRITAIN HAS PERHAPS THE LONGEST-ESTABLISHED INTEREST GROUP SYSTEM. THUS, DESPITE THE LACK OF A WRITTEN CONSITUTION, BRITISH POLICY-MAKING HAS CERTAIN WELL-ESTABLISHED PROCEDURES – STANDARD OPERATING PROCEDURES – WHICH GENERALLY ACCORD INTEREST GROUPS A KEY ROLE IN THE POLICY PROCESS. (RICHARDSON 1993: 86)

Nowhere has this become more strongly felt than in international development. NGOs have altered what development means and broadened it to include a wide range of community activities. The symbiotic relationship is mirrored in the policy goals of the Department for International Development.

As Weir and Beetham note: “The relationship between organised interests and departmental officials varies across policy domains, but many interest groups perform an intimate role in the way policies are formulated and are often vital to policies being carried through in practice” (Weir and Beetham 1999: 271).

This is also a game in which presentation and professionalism wield influence. IDPGs invest heavily in a range of publications to communicate their views and use the latest in information technology to influence public opinion. As their funds have grown, they have been in the forefront of adopting the sophisticated marketing techniques developed by major corporations. This becomes a virtuous circle, in which more sophisticated communications and marketing creates a more professional public image and in turn draws in more funds. The more funds available to plough into modern communications and research, the greater the pontential impact on the government. Wealthy organizations “naturally achieve their objectives more readily than poorer pressure groups which do not represent powerful sectional interests whose cooperation government departments require” (Beetham and Weir 1999: 275).

Development pressure groups have in many ways been the beneficiaries of the same neo-liberal propensity to private execution as the UK’s business lobby. Contracting out and privatisation are a reflection of dwindling faith in the public sector’s ability to meet people’s needs.

There is also another factor influencing the IDPGs’ rise in power. Mulgan calls this a period in which “weak” organizations have the advantage over traditionally “strong” orgnisations such as the civil service or political parties (Mulgan 1990: 347). He sees both the marketplace and interest groups of like-minded individuals as offering more choice and opportunity than the traditional institutions of democracy. In this environment the opinionated pressure groups will be able to exert greater influence. They are fleet-footed, able to push the agenda ahead, while civil servants are hampered by protocol and hierarchies: “The most significant factors are the general ascendance of free market economics (Toye 1987) and its corollary, a belief that government agencies are ineffective” (Dolan 1992: 203).

These groups also benefit from the decline of rigid class-based politics in the UK. “As support for the two big class-based parties has diminished, so cause-based pressure group activity has won popular support” (Jones and Kavanagh 1994: 236).

They are quintessentially modern organizations, placing more value in intelligence-gathering and opinion-forming than in traditional project managment. As Clark notes, “The ‘software’ of their trade – ideas, research, empowerment, and networking – are rapidly becoming more important than their ‘hardware’ – the time-bound, geographically fixed projects, such as wells and clinics. In this age, information and influence are the dominant currencies rather than dollars and pounds” (Clark 1992: 193).

Ear to the ground: do the exploited have a voice?

According to the United Nations Development Programme, more than 1.3 billion people live on just US $1 a day (UNDP). Concern for the world’s most exploited is on the official development agenda of all Western governments. Most governments in the developed world explicitly acknowledge that extreme poverty is the most vicious form of exploitation that can be experienced by a human being. Awareness of the plight of people in developing countries is widespread, in that most people generally believe life must be, as Hobbes put it, “poor, nasty, brutish and short.”

One of the key claims of NGOs is that they have an extra ear to the ground when it comes to understanding the needs of the world’s poor. Certainly, the world has become a more vocal place with the rise in freedom of expression and electronic communications in many countries. As Covey remarks, “Democratisation, in its messy evolution in societies around the globe, tugs NGOs toward a more active policy-influencing role as more political space opens for people’s voices in public affairs” (Covey 1992: 167).

But there is now a growing body of evidence that development pressure groups are not as tuned in to the needs of the exploited as they claim. The advocacy role of these NGOs in Northern countries such as the UK has been criticised by NGOs in developing countries, who say they are making policy suggestions without consulting fully the people who would be most affected by them.

Covey adds: “Recent doubts expressed by Southern NGOs about the advocacy role of NGOs in the North (speaking ‘on behalf the poor’) provide one illustration of this difficult issue” (Covey 1992: 14).

Covey calls the devolution of power and funds to NGOs a phenomenon equivalent to the rise of the nation state in the 19th century (Covey 1992: 4). This is called “New Policy Agenda”, and is characterised by neo-liberal economics and liberal democratic theory.

IDPGs may express a concern for the exploited, but in practical terms they are often more accountable to their funders. Smillie notes:

DESPITE THE GROWING CONSENSUS THAT PEOPLE’S PARTICIPATION IS A HALLMARK OF GOOD DEVELOPMENT PROJECTS, NGOS ARE SELDOM FORMALLY STRUCTURED TO ENSURE THEIR ACCOUNTABILITY TO GRASSROOTS ORGANIZATIONS. IN FACT, NGO ACCOUNTABILITY PROCEDURES ARE MOST OFTEN DESIGNED TO MEET DONOR NEEDS RATHER THAN GRASSROOTS OBJECTIVES. (SMILLIE 1998: 170)

Research into social movements and advocacy organizations working with the poor has shown an overarching tendency to seek stability and co-optation over confrontation with elites. A study conducted after the turbulent and socially active late 1960s and 1970s found that:

IN THE LARGEST PART ORGANISERS TENDED TO WORK AGAINST DISRUPTION BECAUSE, IN THEIR SEARCH FOR RESOURCES TO MAINSTREAM THEIR ORGANIZATIONS, THEY WERE DRIVEN INEXORABLY TO ELITES, AND TO THE TANGIBLE AND SYMBOLIC SUPPORTS THAT ELITES COULD PROVIDE. (CLOWARD AND PIVEN: XXII)

The effect development NGOs have on the communities they seek to serve also is not wholly helpful. Many “NGOs are seen as eroding the power of progressive political formations by preaching change without a clear analysis of how that change is to be achieved; by encouraging income-generating projects that favour the advancement of a few poor individuals but not ‘the poor’ as a class; and by competing with political groups for personal and popular action” (Edwards and Hulme 1992: 20).

Hellinger criticises these organizations for often ignoring local views and destroying local initiatives:

THE POLICIES OF AID ARE BEING MADE FROM AFAR AND CREATING AN ENVIRONMENT THAT MAKES LOCAL-LEVEL DEVELOPMENT MORE DIFFICULT THAN EVER. PEOPLE ARE BEING FORCED TO LOOK CONTINUALLY OUTWARD FOR ANSWERS – FOR MONEY, MARKETS, ADVICE, TECHNOLOGY. THE SOLUTIONS ARE BEING FOUND LESS AND LESS OFTEN WITHIN THESE SOCIETIES. IT’S DEBILITATING. (NEW INTERNATIONALIST, 285, 1996)

Conclusion

There is ample evidence that international development pressure groups are in need of even greater scrutiny. Their power grew during the 1990s, and they have been targeted by international institutions and national governments to be the primary delivery mechanism for international aid projects. Much of this process has passed quietly by, with little open debate as to the suitability of these organizations to speak for the poor. The most vocal criticisms have come from NGOs based in developing countries, but they have proven to be a weak match for the generously funded publicity operations of Northern NGOs.

If NGOs represent the next major social and political transformation in the UK and around the world, then an open and vigorous debate is even more urgent. NGO leaders are not elected by universal franchise and are only answerable directly to the boards of their respective organizations. As Hancock informs us, international development is neither benign nor wholly beneficial. It is a major actor in the power dynamics of the world. “At a more general level, foreign aid – now worth almost (US) $60 billion a year – has changed the shape of the world in which we live and had a profound impact on all our thinking. Consciously or unconsciously we view many critical global problems through lenses provided by the aid industry” (Hancock 1989: xiv).

Less than 20 percent of aid actually reaches the poor (Raffer and Singer 1996), and two-thirds of the world’s poor live in 10 countries that together receive less than a third of overseas development aid (Raffer and Singer 1996). Surely this is testament alone to a failure to help the most exploited in their lobbying efforts. It is certainly an unimpressive trickle when taken as whole.

International development pressure groups are a large and wealthy lobbyist of the UK government. They are a vast economic sector with many vested interests, including paid staff, government contracts and the political agendas of their private donors. Their reach is global and they have a significant impact on the economies and societies of countries around the world.

There is ample evidence to suggest international development pressure groups are accountable to many masters; the world’s poor, unfortunately, are not always among them.

Pax Chaotica: A Re-evaluation of Post-WWII Economic and Political Order

A Steppe Back?: Economic Liberalisation And Poverty Reduction In Mongolia

The Sweet Smell Of Failure: The World Bank And The Persistence Of Poverty

ORCID iD: https://orcid.org/0000-0001-5311-1052.

Further reading:

Whilst there are many examples of charity sector abuse spanning the past 20 years, this story gives a flavour of what can go on:

Midlands News

Crooked Birmingham charity boss in plot to smuggle illegal immigrants into UK

“Pranvera Smith, 47, launched Freedom to Stay on Hagley Road in 2014 to supposedly help vulnerable people from her home country Albania gain asylum.

Instead, the greedy crook and partner Flamur Daka, 44, used the Big Lottery-funded charity as a cover for helping people smugglers.

Victims were charged up to £10,000 to be illegally brought into the UK by smuggling gangs. Once here they were persuaded and ‘intimidated’ into paying Smith a further £1-4,000 for benefit and immigration advice – a free service.”

In the headlines:

The Guardian:

Save the Children ‘let down’ staff and public over sexual misconduct claims

This article is more than 8 months old

Charity Commission condemns ‘serious failures’ in handling of harassment allegations against senior staff

The Times: Fat cat charities have forgotten their principles

The National:

Save the Children and IRC dragged into Oxfam abuse scandal

A report leaked this week showed a charity headed by David Miliband had its funding suspended over allegations

London-based Muslim-aid charity is accused of funding human trafficking gangs smuggling Somali migrants into Europe via Greece

Croydon’s Al-Kahir Foundation was accused of helping migrants reach Europe
Notis Mitarachi, the Greek minister for migration, made the severe allegations
The Minister claims the Muslim charity funds and aids human trafficking gangs
He alleges migrants’ testimonies to Greek authorities show the Foundation paid for a boat crossing in which 34 Somalis drowned sailing from Turkey to Greece

ORCID iD: https://orcid.org/0000-0001-5311-1052.

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Pax Chaotica: A Re-evaluation of Post-WWII Economic and Political Order

Post author By David South Consulting
Post date 20/01/2021
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Paper delivered to the School of Politics and Government, Birkbeck College, University of London, London, UK, 2000

“The strongest is never strong enough to maintain his mastery at all times unless he transforms his strength into right and obedience into duty…Yielding to force is an act of necessity, not of will; at the very most, it is an act of prudence (Rousseau 1762).”

By David South

This paper analyses the following proposition: the key post-war institutions were neither an intended, nor an adequate, response to the economic and political challenges of the post-1945 world.

There is ample evidence to show that the plethora of post-war institutions were intended, and were a deliberate consequence of American policy-makers seeking to control the geo-political fallout of the most catastrophic conflict of human history, World War II.

In many respects institutions such as the United Nations, the International Monetary Fund and the World Bank were a sophisticated and modern approach to a new global order minus the old imperial powers. They were an act of significant imagination and inspiration drawn from a long tradition in asserting the rule of law over the rule of anarchy; the rights of the weak over the tyranny of the strong.

However, these institutions have repeatedly failed to meet the economic and political challenges of the past 55 years. The commitment of the United States to these bodies tailed off after World War II, and America displayed a lack of will to mature them beyond a dependence on American initiative and action.

There is substantial evidence to support the argument that the hegemony of Pax Americana over the last half century undermined the evolution of these institutions, sustaining a chaotic world order that has not delivered prolonged peace or prosperity for a large number of the world’s citizens and that these institutions were ill prepared to confront the collapse of the Soviet Union at the end of the 1980s.

This paper will explore the inadequacies of the global institutions to meet two key aspirations of the post-war world: conflict resolution and avoidance and economic prosperity based on free markets and democratic regimes.

I will argue that, while this period avoided a major conflagration on the scale of the world wars, it was not a period of peace. Regional conflicts, costly both in terms of human life and of finance, plagued every one of the years since World War II. This has been called a period of Pax Americana (Knutsen 1999). I will argue that, rather than a period of global harmony and prosperity anchored by the American hegemon, it has been a period of Pax Chaotica, a “macabre dance of death in which the rulers of the superpowers mobilize their own populations to support harsh and brutal measures directed against victims within what they take to be their respective domains, where they are ‘protecting their legitimate interests,’” as Noam Chomsky describes it (Chomsky 1995: 207). Pax Chaotica is a period in which there is an illusion of stability offered by a hegemon, but in which the hegemon’s military, economic and moral superiority is unable to secure actual peace and prosperity in the world. The hegemon is out of balance, its military and economic superiority in predominance, while its moral superiority and credibility wanes and withers on the vine.

I will analyse how adequate the global institutions were in the context of the concept of hegemony — in particular the hegemony of the United States, which has not relinquished this hegemony to the global institutions it initially set up. I will conclude that the 1990s has been a period of half measures, incremental attempts at bolstering the concept of international security by the community of nations, but that those attempts, as in the case of the Gulf War or in Kosovo, have been still under the direction of the United States.

Making up a master plan: The deliberate development of the institutions

The post-war master plan was comprehensive, and included the International Bank for Reconstruction and Development (World Bank), the International Monetary Fund, the International Trade Organisation (superseded by the General Agreement on Tariffs and Trade as the instrument of freer trade) and the United Nations. A clutch of security organisations was also established after the war, including NATO. As Knutsen aptly puts it:

WITH MEMORIES OF THE INTERWAR RECESSION AND THE NEW DEAL FRESHLY IN MIND, ALREADY, IN THE FIRST YEARS OF THE WAR THEY BEGAN TO DESIGN STABILISING POSTWAR INSTITUTIONS OF INTERNATIONAL FINANCE AND TRADE — THE IBRD, THE IMF AND THE ITO. … THEY SOUGHT TO SET UP THE MOST IMPORTANT POSTWAR INSTITUTIONS BEFORE THE CONDITIONS OF PEACE WERE EVEN RAISED. THEY RUSHED THE CONFERENCES ON THE UN, IBRD, IMF AND ITO INTO SESSION BEFORE GERMANY AND JAPAN SURRENDERED. (KNUTSEN 1999: 203)

The founding of the United Nations and the Bretton Woods institutions (the International Monetary Fund and the International Bank for Reconstruction and Development, later the World Bank) marked a turning point in world history. The United States had been attempting to exert greater control on the global order since the first 14 proposals of President Woodrow Wilson during World War I. As European powers declined at the beginning of the 20^thcentury, liberal American policymakers saw an opportunity for the US to assert its hegemony over the world and re-write the rules of economic engagement along American lines. The two world wars only made the US wealthier and wealthier: in World War I, by providing armaments to both sides of the conflict; in World War II by joining with Canada as the armament and resource engine for the allied war effort.

In many ways, the new institutions represented a forward-thinking and idealistic policy compared to a global order marked by imperial rivalries. It captured contemporary ideas on economic theory, projected a universalist Lockean ideal that all men from all nations are equal, and it was injected with the idealism and energy of the world’s largest democracy and the strongest market economy.

Franklin Roosevelt, like Woodrow Wilson, saw America’s engagement in the world war as a struggle to contain European-style militarism, imperialism and exclusive trade blocs. America’s aim, in both wars, was to preserve the conditions for liberal world order — for a democratic system of politics and an economic system based on free-market principles. Wilson and Roosevelt both sought to liberalize world trade. And they both sought to use America’s leading position in world politics to bring other countries into line with America’s policy. (Knutsen 1999: 193)

These institutions ensured that the US had an influence on every facet of world affairs post World War II. It could merge its political and economic goals and ensure it had a stake in the recovery from the war. This played very well when it came to shoring up domestic support in the United States.

Under a World Bank controlled by Americans, development assistance could be focused precisely where America’s core corporations saw the greatest opportunity. And so long as the recipients of America’s foreign aid used it to buy American exports core corporations could venture into global trade confident of receptive markets. Through such means, the playing field of global commerce was sufficiently tipped in America’s direction so that by the mid-1950s even the National Association of Manufacturers could be persuaded to support tariff reduction. (Reich 1992: 64)

The institutions were philosophically strong, too. Learning from Machiavelli that human relations can be cynical, ruthless and riddled with power agendas, the United Nations offered a peaceful forum to resolve these disputes and a theoretically far more transparent alternative than what had come before. As Weber emphasised, modern states helped to promote capitalist development. With that in mind, the Bretton Woods institutions laid the groundwork for a global financial structure pegged to the US dollar and promoting an American view of free markets.

Hegemony theory and Pax Americana

I argue that these global institutions have shown themselves to be hampered and inadequate when faced with serious political and economic challenges. The root cause is a weakness that is most often cited as their strength: the United States.

Hegemonic stability has been characterised by the emergence of successive dominant liberal powers (Gilpin 1987: 66). What Strange calls “structural power” is essential to the establishment of hegemony over world affairs, since it “confers the power to decide how things shall be done, the power to shape frameworks within which states relate to each other, relate to people, or relate to corporate enterprises (Strange 1998: 25).”

The post-World War II global institutions are an excellent example of the intersection of politics and economy; institutions like the United Nations seek to wield influence in both the political sphere and the economic, most particularly through the Bretton Woods institutions. Hegemonic world order exists, Knutsen suggests, “when the major members of an international system agree on a code of norms, rules and laws which helps govern the behaviour of all. This agreement reflects the rhetorical skills of a particular great power (Knutsen 1999: 49).” This is what happened towards the end of World War II, as the United States wrote the new world order according to its own rules.

As further evidence of US supremacy, the new global rules were constructed so as to force America’s superpower rivals, the USSR and China, to join “its” institutions, not the other way around (though Taiwan stood in for the People’s Republic in the United Nations, against the protests of the USSR, until 1971).

The US became the hegemon because the Soviet Union had very little to offer, either in terms of economic assistance or of political freedoms.

Historians now understand that potential clients encouraged the United States to become a hegemon at the end of World War II: the term “empire by invitation” has come to characterize what happened. The Soviet bid for postwar influence lacked any comparable legitimacy, and so quickly came up against a condition that creates major difficulties for hegemons, which is lack of consent. (Gaddis 1992: 177)

Do as I say, not as I do: The rise and fall of the hegemon’s moral advantage

A large part of the credibility of the US hegemony was bolstered by its moral advantage vis-à-vis other nations. A heady cocktail of democratic freedoms, economic success and military might led many other nations to believe the US and its institutions had got it right where others had failed.

As Strange notes: “President Truman had followed up in his augural address to the Congress with the firm promise of American help to peoples seeking freedom and a better material life. Moral authority based on faith in American intentions powerfully reinforced its other sources of structural power (Strange 1994: 32).”

Supporters of US hegemony, like John G. Ruggie, believe the hegemon must be liberal-minded. Otherwise:

IF THE OTHER STATES BEGIN TO REGARD THE ACTIONS OF THE HEGEMON AS SELF-SERVING AND CONTRARY TO THEIR OWN POLITICAL AND ECONOMIC INTERESTS, THE HEGEMONIC SYSTEM WILL BE GREATLY WEAKENED. IT WILL ALSO DETERIORATE IF THE CITIZENRY OF THE HEGEMONIC POWER BELIEVES THAT OTHER STATES ARE CHEATING, OR IF THE COSTS OF LEADERSHIP BEGIN TO EXCEED THE PERCEIVED BENEFITS. (GILPIN 1987: 73)

The US steadily weakened its credibility and moral advantage in both the areas of conflict resolution and avoidance, and in promoting economic prosperity.

Conflict resolution and avoidance

The US was seen as willing to distort global institutions to fight its ideological — and real — battles with the Soviet Union, and its proxies around the world. The US’s credibility as a promoter of peace and security was severely hampered by the Korean War, the Vietnam War and a dubious record of support for undemocratic regimes and guerrilla movements. These conflicts were intended to “contain” the Soviet Union and the spread of communism and to support regimes that were friendly to free markets. This was played out in a cynical cat-and-mouse game with the Soviet Union, where both sides avoided direct confrontation with each other and used third countries to wage their ideological battles.

Gaddis takes an overly generous view of the Cold War high-wire act, but it is worth being reminded:

BUT THE 1950S AND 1960S DID SEE A REMARKABLE SEQUENCE OF POTENTIALLY DANGEROUS CONFRONTATIONS — DIENBIENPHU, 1954; QUEMOY-MATSA, 1955; HUNGARY-SUEZ, 1956; LEBANON, 1958; BERLIN, 1958-59; THE U2 INCIDENT, 1960; CUBA, 1961; BERLIN, 1961; LAOS, 1961-62; THE CUBAN MISSILE CRISIS, 1962 — EVERYONE OF WHICH WAS RESOLVED WITHOUT MAJOR MILITARY INVOLVEMENT BY EITHER SUPERPOWER. THE SAME COULD NOT BE SAID OF KOREA IN 1950, OR OF VIETNAM AND AFGHANISTAN LATER ON. (GADDIS 1992: 33)

Other than actually being drawn in as a combatant, as in the case of the Korean War, the UN became more of a sideline observer and critic than a robust resolver of conflicts. The UN was critically flawed from the beginning and abrogated its commitment to collective security. It also proved ineffective when confronted with crisis. As Strange points out, one of the biggest weaknesses in the founding of the UN was the Charter. In Article 2, Paragraph 7, all matters of domestic consideration were the business of a state, and in Article 51 states were allowed to form alliances for individual or collective self-defence, “thus reopening the door to a security structure based on alliances and counter-alliance rather than on collective responsibilities for the maintenance of peace between states (Strange 1994: 52).”

The UN was also hampered from developing a collective security maturity by the Security Council. The five permanent members used the veto to control resolutions, with the USSR and the US the most prolific abusers. The US had a total of 69 vetoes from 1945 to 1994; the USSR had 116.

The fall of the Soviet Union at the end of the 1980s marked the beginning of a new period of instability in large parts of the world. The spotlight is once again on the UN to become an arbiter of conflict; once again it is most active when it is pushed by the United States to act when the US feels there is an interest to be served. This has been the case in the major UN missions in the 1990s, from the Gulf War (oil reserves), to the former Yugoslavia (European security). The UN proved to be ineffective where there was no naked US interest putting pressure on the organisation to act, as in the case of Rwanda. Strange remarks that this has had a demoralising effect on those who seek a security structure upholding international law and the universal rights of man.

The fear that either the world organization would merely be the tool of one or other great power (as indeed it was the tool of the United States in the early 1950s) or that it would be ineffectual — as both the League and the UN have proved to be in the face of grave threats to international peace and order — have been enough to kill any realistic hopes of managing a transition from the present security structure to a multilateral or confederal one. (Strange 1994:52)

Economic prosperity

The second half of the 20^th century has been hailed as a period of unprecedented global prosperity. Global gross national product rose from US $300 billion to US $2 trillion from 1945 to 1970 (Reich 1992: 64), though much of this was concentrated in a handful of countries. The major challenge of the 20^th century has been the task of spreading prosperity around the world; to more evenly distribute the gains than can be reaped from advances in science and technology. The collapse of the colonial powers left large numbers of underdeveloped nations grappling with independence.

With the collapse of the Bretton Woods arrangements in the early 1970s, and the emergence of deregulation in financial flows in the world, the US abrogated much of its responsibility for micro-managing global development. The market was now to do all the work, and being the modern age, rapid capital flows were to make the market work efficiently.

Like the experience with conflict resolution and avoidance, the economic project has been mixed. A dependence on the market has not avoided a dependence on the economic fortunes of the global hegemon. As the US ship rises and sinks, so does the rest of the world. The Global economic system, Panic notes:

By 1994, total world exports were more than 14 times greater than in 1950; output was five times greater than in 1950 (Dicken 1999: 24). But the economic achievements ring hollow if the well-being of the whole planet is taken into consideration. By 1995, 60 percent of the manufacturing in the world occurred in three countries — the United States, Japan and Germany (UNIDO 1996). While manufacturing in developing countries had quadrupled to 20 percent of global output, it was concentrated in a few developing countries with strong ties to the US.

There is a direct connection between US interests and who does well economically. Western Europe was reconstructed rapidly with US money, and Germany became an industrial powerhouse again. The defeated Japan was restored as Asia’s wealthiest nation with American investment and advice. In 1945, 71 percent of world manufacturing was concentrated in four countries. Developed countries were host to 2/3 of foreign direct investment (Dicken 1999: 21). Most FDI is now concentrated in industrial, developed countries.

There is a direct link between the failures of the UN and the global economy. The weakness of the international security arrangements also have an impact on economies. Vast sums of money are re-directed towards weapons purchases and away from human needs. For many smaller economies, this is a punishing drain on national resources and the funds are often borrowed from elsewhere. As Chomsky noted in the 1980s, “The fact is that both of the superpowers — and many lesser powers as well — are ruining their economies and threatening world peace, indeed human survival, by a mindless commitment to military production for themselves and for export (Chomsky 1995: 209).”

There are concrete examples of developing countries that have achieved significant development gains, reaping the gains of peace and freer world trade. A group of 18 developing countries enjoyed growth rates in the 1990s of over five percent (DFID 2000: 66). This is attributed to more open trade policies compared to other developing countries (though many other countries have been equally open to trade, like Mongolia, but have not reaped the same benefits). China has enjoyed unprecedented growth, but it also has increasing rates of unemployment and violent unrest in its western regions. Sub-Saharan Africa’s 600 million population generates exports no greater than Malaysia’s 20 million (DFID 2000: 67).

In regard to the World Trade Organization (WTO), the majority of its 140 members are developing countries. Not a perfect organisation, its agenda is dominated by a few wealthy nations, but the alternative of a world of bilateral trade deals hangs as a spectre if it fails. As the DFID report, Eliminating World Poverty: Making Globalisation Work for the Poor, points out:

DESPITE PROGRESS OVER THE LAST 50 YEARS, DEVELOPED COUNTRIES MAINTAIN SIGNIFICANT TARIFF AND NON-TARIFF BARRIERS AGAINST THE EXPORTS OF DEVELOPING COUNTRIES…TOTAL DEVELOPING COUNTRY GAINS FROM A 50 PER CENT CUT IN TARIFFS, BY BOTH DEVELOPED AND DEVELOPING COUNTRIES, WOULD BE IN THE ORDER OF $150 BILLION — AROUND THREE TIMES AID FLOWS. (DFID 2000: 69)

Conclusion

The postwar world order and the use of global institutions to build it, was a deliberate policy of the United States. It, however, proved only a half measure and the over-dependence on the United States ensured that these institutions were hampered when confronted with economic and political crises. As I have argued, a state of Pax Chaotica was the result.

For Pax Chaotica to end, there needs to be a renewed effort by the United States to shore up global institutions and to develop a concrete plan to ensure that the global institutions become the global hegemon in every sense of the word. There have been incremental moves in this direction, including attempts to pay dues owed by the US to the UN.

There needs to be a complete shift from the realist American interests of Pax Chaotica to the interests of the community of nations. In fact, there is an opportunity for a convergence of core American values — respect for individual liberty, freedom of expression, democracy — with the goals of the global institutions.

As for international institutions, they must show themselves to not only be just, but also to be seen to be just. Institutions can no longer work in the shadows as they have in the past. Well-educated, wealthy protesters in Western countries will no doubt continue to demand transparency.

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The Sweet Smell Of Failure: The World Bank And The Persistence Of Poverty