IFI governance


Bank on trade: will the real World Bank please stand up?

26 November 2002

Over the past year the Bank has cast itself as an advocate for the developing world in trade talks, but considering the Bank’s inconsistent signals, no wonder many people don’t see it that way. Much chest-pounding over Bank efforts to support improved access for developed countries to Northern markets continues to be accompanied by pressure on beneficiary countries for unilateral trade liberalisation.

At the annual meetings, the Bank’s new Trade Director Uri Dadush ridiculed the reciprocal principle of multilateral trade talks, labelling it a vestige of “mercantilist ideology”. He re-affirmed that the Bank’s belief in the benefits of unilateral liberalisation was unshaken. However, internal contradiction on the issue was revealed when Senior Economist Bernard Hoekman reported that the World Bank Institute was conducting research on a formula for compensating countries which had undertaken ‘autonomous liberalisation’. Surely if unilateral liberalisation was good for them, they wouldn’t need compensation? Later in the day, President Wolfensohn further confused the issue. When confronted with his Trade Director’s assertions, he insisted that the “song book that the Bank is playing from” is that trade liberalisation is a two-way street. He quipped that he would fire whoever had made comments to the contrary.

Backing up its position as defender of the weak, the Bank points to three of its most recent trade initiatives: a $300,000 fund to help poor countries meet international product standards administered by the WTO, accompanied by research indicating massive gains to African countries through improved ability to meet standards; a joint project with APEC to improve trade facilitation through increased investment in ports; and continued leadership in the latest round of talks about the expanding Integrated Framework trade capacity building initiative to more low-income countries.

But behind these initiatives, the Bank’s core trade policy prescriptions, centred around deep integration into the global economy through export-oriented production, continue to come under fire. Harvard economist Dani Rodrik argues that the Bank should do more than enhance poor countries market access while pushing facilitation and standards. What is required is support for experimentation to find “divergent solutions to the developmental bottlenecks they face”; institutional reform should be evaluated from the perspective of development (“what do countries need to achieve equitable growth?”) and not from the perspective of integration (“what do countries need to do to integrate?”).

This call for plurality was reinforced by UNCTAD in a report on economic development in Africa. The report says the Bank’s pursuit of trade liberalisation has lead to growing wage inequality, a “hollowing-out” of the middle class and widening trade deficits caused by a loss of industry. An alternative programme of domestic demand-led growth is the focus of a new paper from economist Thomas Palley.

The question remains whether the Bank will reconcile its pretensions to being the advocate of the poor with its core policies which undermine trade capacity. A key opportunity will be a study of Bank trade policy by the Operations Evaluation Department which is to be presented to the Bank Board by the end of the year.

After neoliberalism, what? Dani Rodrik

Economic Development In Africa: From Adjustment to Poverty Reduction: What is New?, UNCTAD

A New Development Paradigm – Domestic Demand-Led Growth, Thomas Palley

Cornering the market: The World Bank and trade capacity building, Bretton Woods Project

“…in East Asia an understanding of the role of trade, development, and economics is something of an ‘Asian consensus,’ much like the ‘Washington Consensus’ was alleged to be a consensus some years before. But your consensus, unlike the Washington consensus, is seen to be an outstanding success!”

– James Wolfensohn’s remarks at the Fourth Asia Development Forum: Trade and Poverty Reduction, 4 November