by das monde
Mon Dec 19th, 2011 at 05:33:57 AM EST
The recent article of Archdruid Report references this article
Growth, debt, and the World Bank
by Herman Daly
It offers a straight perspective of the gears turning the world in the last decades:
When I was in graduate school in economics in the early 1960s we were taught that capital was the limiting factor in growth and development. Just inject capital into the economy and it would grow [....] Capital was magic stuff, but scarce. It all seemed convincing at the time.
Many years later when I worked for the World Bank it was evident that capital was no longer the limiting factor, if indeed it ever had been. Trillions of dollars of capital was circling the globe looking for projects in which to become invested so it could grow. The World Bank understood that the limiting factor was what they called "bankable projects" -- concrete investments that could embody abstract financial capital and make its value grow at an acceptable rate, usually ten percent per annum or more, doubling every seven years.
Right, this is well visible in recently liberated
economies. Quite a few services and infrastructures are abandoned as not yielding enough for "decent" living.
Since there were not enough bankable projects to absorb the available financial capital the WB decided to stimulate the creation of such projects with "country development teams" set up in the borrowing countries, but with WB technical assistance. No doubt many such projects were useful, but it was still hard to grow at ten percent without involuntarily displacing people, or running down natural capital and counting it as income, both of which were done on a grand scale. And the loans had to be repaid. Of course they did get repaid, frequently not out of the earnings of the projects which were often disappointing, but out of the general tax revenues of the borrowing governments. Lending to sovereign governments with the ability to tax greatly increases the likelihood of being repaid -- and perhaps encourages a bit of laxity in approving projects.
The world exists for capital owners. What is actually being solved by governments is the problem of capital savers of what to do with their rich financial positions.
... the WB had to figure out why its projects yielded low returns. The answer sketched above was ideologically unacceptable because it hinted at ecological limits to growth. A more acceptable answer soon became clear to WB economists -- micro level projects could not be productive in a macro environment of irrational and inefficient government policy. The solution was to restructure the macro economies by "structural adjustment" -- free trade, export-led growth, balanced budgets, strict control of inflation, elimination of social subsidies, deregulation, suspension of labor and environmental protection laws -- the so-called Washington Consensus. How to convince borrowing countries to make these painful "structural adjustments" at the macro level to create the environment in which WB financed projects would be productive? The answer was, conveniently, a new form of lending, structural adjustment loans, to encourage or bribe the policy reforms stipulated by the term "structural adjustment." An added reason for structural adjustment, or "policy lending," was to move lots of dollars quickly to countries like Mexico to ease their balance of payments difficulty in repaying loans they had received from private US banks. Also, policy loans, now about half of WB lending, require no lengthy and expensive project planning and supervision the way project loans do. The money moves quickly. The WB definition of efficiency became, it seemed, "moving the maximum amount of money with the minimum amount of thought."
And the rest is becoming history.