The Political Economy of the World Bank: The Early Years
When the young Osvaldo Sunkel arrived at the London School of Economics from Chile in 1953 to start a research degree, the director, Lionel Robbins, asked him what he planned to study. "Economic development," said Sunkel. "Economic development," exclaimed Robbins incredulously, "What's that? You should study demography!"
By 1953, economic development as something that governments should actively encourage was too new an idea to have penetrated [End Page 429] Robbins' neoclassical, antistate, anti-Keynesian worldview. Michele Alacevich's book deals with an organization that did not have the luxury of merely talk, namely the first years of the International Bank (as it was officially known until 1960 when "World Bank" came into official use). Once the US government put the Marshall Plan in charge of external assistance for European reconstruction, starting in 1948, the International Bank found itself marginalized in what had been its principal field of operations (reconstruction lending to European governments). It had quickly to reorient itself toward the unknown terrain of lending to developing countries. There was no consensus about the meaning and mechanisms of economic development, nor about the appropriate role of an inter state organization mandated to help developing countries.
Alacevich's book describes what happened as the Bank—as its employees, interacting with government officials—searched for a modus operandi. But it is relevant to much more than one organization and a short historical period; indeed, it illuminates some of the big questions of present-day international relations, international political economy, and development economics. In particular, it provides a partial answer to the question of how the World Bank—and the western-based development community generally—has formulated its ideas, its policy norms. Ever since the mid-1970s, the Bank has championed a broad-gauged notion of development, distinct from Gross National Product (GNP) growth, even extending into "governance" by the 1990s. But before the 1970s, the Bank was wedded to a different policy norm about the content of development, equating it with GNP growth. The question then is: Why did it embrace the latter during its first twenty-five years or so, and why did it change its ideas during the 1970s? These questions are relevant beyond the World Bank, because the World Bank was an ideas trendsetter in its first decade and again in the shift of policy norms that occurred in the 1970s.
According to Alacevich, the Bank's top managers in the early years equated development with GNP growth, and GNP growth with investment in specific revenue-generating projects, both because they believed that this was necessary to convince Wall Street to buy the bonds of this quite new type of organization (buy the bonds with minimum risk premium, so that the Bank could on-lend to developing countries at a rate lower than they could borrow under their own name), and also because they were Wall Street men, coming to the new Bank after long careers at its heart.
They saw the Bank as a bank, not as an agency for development. That meant no support for overall planning or for projects that did not directly yield a flow of revenues out of which the loan could be repaid—hence nothing for education, health, housing or even water [End Page 430] supply. Implicitly they invoked the "trickle-down" metaphor to justify paying no attention to poverty and income distribution; as hard-nosed Wall Street men, they focused only on the ostensibly political technical issues of GNP growth and project financing.
But there is much more to the story than this, as Alacevich illustrates with reference to the "street-level" debates that erupted during the Bank's first-ever "overview" or "general survey" mission to a developing country (as distinct from a mission to assess a specific lending project, such as a steel plant). The country was Colombia, where it was estimated at the time that 90 percent of the population had never worn shoes. The mission started work in 1949 with fourteen members. The Bank appointed the redoubtable Lauchlin Currie as its head, who had been economic advisor to Roosevelt, prominent architect of the New Deal, and manager of the Federal Reserve Bank. Currie thought that a broad national economic plan was essential to provide the context in which decisions about specific investments could be made, and set about trying to generate the data on which such a plan could be based (the data being almost wholly uncollected by the government).
But in Washington at this time, conservatives were fast extruding New Dealers from the government, and the top positions in the Bank were already filled by strongly anti-New Dealers. The Bank's powerful vice-president was Robert Garner, anti-New Deal to the point where in 1972 he wrote that "Roosevelt . . . did more harm to this country than anyone else in history" (p. 32). When Currie proposed a large and varied investment plan for Colombia in 1951, which included "social" loans, Garner exclaimed, "Damn it Lauch! We can't go messing around with education and health. We're a bank" (p. 129).
Currie was succeeded as head of the Bank's work in Colombia by the young Albert Hirschman in 1952. Hirschman leaned more toward the conservative position of top Bank management than toward Currie's, and with Currie still very influential as advisor to the Colombian government, they fell into a pattern of bitter dispute. The dispute later echoed in the debate between "balanced" and "unbalanced" growth strategies, whose sterility can be understood as the result of its personal animosity-driven protagonists striking against their stereotype of the other.
Meanwhile, back in Washington, the top managers carried out a reorganization in 1952. To assert their (anti-Currie, pro-Hirschman) view that the Bank should concentrate on specific revenue-generating projects, they effectively shut down the Economic Department, which (with Paul Rosenstein-Rodan as a leading light) had been conducting analyses of whole economies and development strategies. From then on, the views of the microfocused Operations Department and its [End Page 431] regional components would not be challenged internally by pesky economists and country specialists.
That is how the Bank's policy norm of development as GNP growth and of narrowly economic project lending as its modus operandi emerged and then stabilized. Later this norm subsided in the 1970s, replaced by the emerging norm of development as economic and social transformation and of country strategy as leading the work on specific projects. Why?
By the 1970s, the sheer weight of evidence suggested that the earlier premises were not valid. However, contrary to what neoclassical economists might presume, this evidence did not drive a linear process of cumulative learning; the learning occurred "through the passionate confrontation of opposing views of development policy" (p. 7). By this time, the Bank was an intellectual laggard, and the passionate confrontations mostly occurred in the academic and emerging consulting communities. Then came a change of leadership at the top with the arrival of manager-turned-politician President Robert McNamara in 1968. He was closer to the US government than to Wall Street (he had been Kennedy's Defence Secretary), and saw the Bank as an instrument for boosting the US government's anti communist strategy (as in the Indonesian transmigration project). He opened the doors to economists and the wider academic community, and to a broader notion of development, extending to "poverty-biased" lending projects and macro strategy. He also opened the door to more direct US government involvement in Bank operations.
Readers interested in the nature of US hegemony—and its mix of hard material interests and justifying cognitive and normative ideas—will find plenty of interesting material herein. [End Page 432]
