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Thursday, May 12, 2005 05:02 am

commentary 5-12-05

The recent appointment of Paul Wolfowitz as head of the World Bank was viewed around the world as a scandalous example of the Bush administration’s arrogance. Perhaps more than any other member of the clique that has taken control of the White House, it was Wolfowitz who masterminded the illegal war in Iraq. This, together with his history as apologist for Suharto’s atrocities while serving as ambassador to Indonesia, would seem to disqualify Wolfowitz from heading an organization supposedly dedicated to eliminating global poverty. When one looks closely at the World Bank’s activities in the Third World, however, it becomes clear that Wolfowitz and the bank are a perfect match.

The World Bank and its sister institution, the International Monetary Fund, are vehicles for penetrating the economies of poor nations and assuring the dominance of First World financial institutions. The bank advocates the belief that all economic problems can and should be solved by the free market. The so-called Washington Consensus is the theory that poor nations can only develop by opening their economies to foreign investment, making their currencies convertible, eliminating tariffs and subsidies, and privatizing state-owned enterprises. According to this philosophy, an underdeveloped economy will prosper by embracing globalization.

Experience has shown otherwise. Chalmers Johnson, president of the Japan Policy Research Institute, has written, “There is no known case in which globalization has led to prosperity in any Third World country, and none of the world’s . . . developed capitalist nations . . . got where they are by following any of the prescriptions contained in globalization doctrine.” The result, and many would argue the intent, of World Bank interventions in the Third World has been the establishment of a string of sweatshop colonies whose economies are based on cheap labor and resource extraction. Winners in this process include banks such as Citigroup and JPMorgan Chase; losers include citizens of the Third World and U.S. taxpayers who finance the bank.

Perhaps the most egregious example of World Bank activities can be found in the reconstruction of Iraq. In September 2003, Paul Bremer, head of the Coalition Provisional Authority, signed into law Order 39, a document which permits full foreign ownership of businesses in Iraq, except in the oil industry. It is here, where global capital sniffs potential profit, that the World Bank facilitates foreign investment by offering “political risk insurance” to companies nervous about investing in developing countries. PRI insures against the possibility that profits made in a target country could not be withdrawn and sent abroad as a result of government-imposed transfer restrictions or because of market fluctuations. What sounds like a rational and benign facilitator of investment is in effect a powerful tool for crushing democracy and developing a de facto economic colony. PRI guarantees that profits generated in a given market can be withdrawn and sent in search of higher interest rates in other countries. This constant threat of capital flight does two things: gives foreign firms an insurmountable advantage over domestic companies that are not eligible for such insurance and forces the local government to follow the dictates of foreign business or else suffer from the withdrawal of capital. Governments that do not crack down on unions, weaken environmentallegislation, or reduce taxes on corporate profits are punished.

Favorite targets of the World Bank wrecking ball are state-owned enterprises and subsidy programs of any kind. Under Saddam Hussein, about 10 percent of the Iraqi workforce was employed by state industries. Since the invasion, most state-owned industries have been closed or sold off, contributing to today’s massive unemployment in Iraq. Between the first and second Gulf wars, Saddam’s regime rationed food to most of the population in order to soften the effects of the U.S.-imposed embargo. After the collapse of the regime the World Bank largely eliminated this subsidy. An April 5 report by the BBC claimed that child malnutrition has doubled since the invasion. These are the salutary effects of the free market.

As dubious a character as Wolfowitz is, it is unlikely that the World Bank under his leadership will be a significantly more manipulative organization than it has been in the past. His appointment as president has generated a great deal of interest toward an institution that until now has operated largely under the radar screen. Let us hope that a leader as venal as Paul Wolfowitz will help attract the global spotlight that the World Bank deserves.

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