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Mainstream, Vol XLVII, No 44, October 17, 2009

How World Bank Prevents Development

Saturday 17 October 2009, by Bharat Jhunjhunwala


Two models of economic development are available to us. The first model is of centralised development. The big businesses will lead smaller ones in this model. Big industries will buy parts from small vendors. They will also provide loans for setting up vendor units through their banking subsidiary. The growth and progress of the vendors is wholly dependent upon the growth of the big unit. The second model is of decentralised development as we see in a large number of lock-making units in Aligarh or weaving units in Tirupur. The small units are independent of a fixed patronage. Some will become ‘big’ in course of time and challenge the might of big players of the day. For example, small vanaspati manufacturers have challenged the might of Dalda; or bottled water units have challenged the might of Bisleri.

Both models have certain advantages and handicaps. The big business-cum-vendor model can deliver quick progress. One big player like Tata Motors can quickly help establish a number of vendors as done for the Nano. The handicap is that the progress of the vendors is mostly dependent upon the progress of the big company just as the fortunes of a creeper are dependent upon the tree on which it crawls. The vendors will collapse like a pack of cards if the big company fails as we are seeing in the problems of General Motors in the US these days. The small unit model has opposite features. Progress is slow because small units have to independently find markets and finance and develop technologies. But their progress is more stable. They are not dependent upon the success of the big company. They are like a small tree that faces the troubles on its own strengths and becomes big in due time. They are not dependent upon the success of the big brother. This model has a greater spread of entrepreneurship, wealth and employment but is slow to deliver results.

This writer believes that true development can only be got from the second model. ‘To develop’ means to stand free on one’s own strengths. Dependence is contrary development. Thus businesses seeking true development must stand alone even if that delivers slow growth at present.


The development of countries follows this same pattern. There are two models here. One model is that high rate of growth in rich countries will open markets for goods of poor countries and pull them out of poverty. The second model is of independent development of scores of poor countries. Needless to say, the second model alone will deliver true development. Twenty per cent of the world’s people living in the rich countries are today consuming eighty per cent of the world’s resources. It is necessary to reduce consumption by the rich countries so that more resources are available for the poor. A reduction in growth of the rich countries, as is happening in the present recession, will open opportunities for independent development of the poor countries just as the cutting of a great Banyan tree enables thousands of small trees to flourish.

The World Bank does not like this, however. It says that the high prices of commodities like rice, iron ore and petroleum will hit many developing countries. India, for example, exports rice and iron ore. An increase in the prices of these commodities will bring more revenue for India. But a few developing countries are importers of these items. Bangladesh may import steel from India. An increase in the price of steel will benefit India but hurt Bangladesh. It will also hurt the rich countries who are the main importers of iron ore from India. The question is whether such an increase would be beneficial or harmful for the development of poor countries as a whole.

The World Bank says that high prices will be harmful for the developing countries because importing poor countries will be hit. Commodity prices must be kept low so that Bangladesh is not put to difficulty. The Bank forgets that developing countries as a group stand to gain from such price increase. As a group, poor countries are exporters while rich countries are importers. An increase in the prices of commodities will clearly help poor countries even though a few will be hurt. It will hurt the rich countries much more. But the World Bank does not like that poor countries should get higher price for their commodity exports because the rich countries will be hit. The World Bank, therefore, ingeniously creates the theory that commodity prices should be kept low to protect the few poor countries who are commodity importers. The World Bank secures the interests of rich countries behind the smokescreen of a few importing poor countries.

It escapes the attention of the World Bank that another alternative is available for protecting importing poor countries like Bangladesh. These countries are exporters of some other commodity. For example, Bangladesh imports steel and exports jute. An increase in the price of jute would protect Bangladesh from the increase in the price of steel. Higher revenues earned from exports of jute would make it possible for Bangladesh to pay higher price for imports of steel. The World Bank, however, does not like this because it will entail double disadvantage for the rich countries. They will have to pay higher prices of steel as well as jute.

Similar misinformation is spread by the World Bank in respect of capital flows. The Bank says that the rich countries are bringing back their investments from developing countries due to the global recession. The World Bank seeks greater fiscal stimulus in the rich countries so that the flow from the rich to poor countries can be restored. It forgets that another route to make available capital to the poor countries is available. The flow of capital between the poor and rich countries takes place in two ways. One is foreign investment which the World Bank has discussed. The second flow occurs through remittances by the poor countries for augmenting their foreign exchange reserves. According to the Global Development Finance report of the World Bank, the net flow has gone against the poor countries after 2003. In this year the poor countries received foreign investment of $ 274 billion but sent $ 375 billion for augmenting their forex reserves. They made a net export of $ 101 billion. This export of capital has progressively increased to reach $ 452 billion in 2007. The loss of capital from reduced foreign investment can be easily made up if the poor countries stop exporting their capital for augmenting their forex reserves and work out an alternative mechanism to maintain forex reserves within the poor countries. The World Bank, however, does not like this because this will be a net loss for the rich countries. Hence the Bank raises the alarm that the poor countries will be deprived of capital from the rich countries. We should beware of the World Bank which is trying hard to maintain the supremacy of the rich countries.

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