Obsessed: The Latest Chapter in the World Bank's Privatization Plans. (Word Bank/IMF Privatization Mania)

By Tannenbaum, David | Multinational Monitor, September 2002 | Go to article overview

Obsessed: The Latest Chapter in the World Bank's Privatization Plans. (Word Bank/IMF Privatization Mania)


Tannenbaum, David, Multinational Monitor


IT IS HARDLY NEWS THAT THE WORLD BANK is a major proponent of privatization. But a new Private Sector Development Strategy (PSDS) promises to intensify the Bank's support for privatization, extend its privatization advocacy to sectors still generally conceived of as quintessentially public, and introduce novel approaches to create private markets where none now exist.

Drafted by Bank staff in 2000, the PSDS faced immediate controversy. Non-governmental advocacy groups worldwide objected to the rough proposal, urging it be ditched. That recommendation was ignored. The Bank redrafted and refined the PSDS, but its fundamental approach remained unchanged.

The World Bank Executive Board approved the PSDS in February 2002. The World Bank will initiate the PSDS in Africa, East Asia and South Asia in fiscal year 2002, and all Bank regions will be included in the plan by the end of fiscal year 2004.

The PSDS is an unusual document. It discusses an overall plan without clearly marking out the details, or the concrete policy implications of broad, overarching statements.

Thus the Bank can argue that the rising concern among development advocates about the PSDS is misguided. "Nothing in the strategy is incredibly novel," says a spokesperson for the World Bank designated to answer questions about the PSDS. "It is a continuation rather than anything incredibly new or novel." The spokesperson requested anonymity.

But critics see a nefarious, ideologically-driven plan to privatize much of the remaining government infrastructure in developing countries, without regard to the impact on developing country economies, and particularly on the poor.

Bank protestations to the contrary notwithstanding, it seems clear that the PSDS is, at least, a far-reaching blueprint that radically departs from the conventional wisdom that has governed infrastructure and social sector management in the developed world.

"The PSDS is a recipe for transforming the World Bank Group in a very fundamental way," says Nancy C. Alexander, of the Citizens' Network on Essential Services. "Under the PSDS, private sector operations would characterize the main purpose of the World Bank Group.

INVESTMENT CLIMATE CHANGE

A key prong of the PSDS is to more systematically attach conditions to future loans that are meant to "improve the investment climate" in developing countries. These changes are meant to facilitate the growth of the private sector. The Bank also plans to incorporate surveys of "investment climate" in future strategy papers, and to expand its business development services and microfinancing schemes to small- and medium-sized firms.

Almost no one disputes the importance of some of the genetic attributes of a sound investment climate -- respect for the rule of law, a functioning court system, streamlined rules to establish new businesses, a well-functioning infrastructure including transport and electricity, an educated workforce.

But the Bank's historical record suggests it is concerned with another set of investment indicators.

The PSDS states, "A significant part of the [World Bank Group's] existing work on policy reforms, such as that on privatization, competition policy, deregulation and strengthening of property rights, will help improve the investment climate in client countries." In the past, these reforms have translated into lower taxes on businesses that starve governments of resources, labor law changes that weaken protections for workers, destabilized social safety nets and lower wages [see "Against the Workers," Multinational Monitor, September 2001].

An additional concern is that "improving investment climate" is really code for "improving foreign investment climate." "The standards that the Bank proposes are heavily biased to the foreign private sector," says Alexander.

David Ellerman, economic adviser to the chief economist of the World Bank, suggests there might be cause for Alexander's concern. …

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