Corrupting Absolutely

J.R.R. Tolkien's "Lord of the Rings" has captivated millions on thebig screen because it is an archetypal tale of power and human nature. Thecorrupting influence of power, its overwhelming temptation even to those whoseintentions are good, the dilemmas encountered in opposing evil -- these issuesare played out every day here in Washington, the center of the most concentratedpower on Earth.

A case in point: the Bush Administration has put forth a proposal that wouldreduce the power of the World Bank, one of the most powerful institutions in theworld. The Administration is pushing for a reform that would convert up to 50percent of the World Bank's loans -- for poor countries -- to grants. PresidentBush has suggested that these grants be made for specific projects such ashealth, education, and sanitation.

This proposal has met with unusually fierce resistance, most remarkably fromEuropean governments -- who have almost never publicly opposed any US policy atthe Bank for the past half-century. It is a major sticking point between Europeand the United States at this week's UN Financing for Development conference inMonterrey, Mexico. To understand the reason for this conflict, we must look atthe nature of the World Bank's power.

The World Bank loaned about $17 billion last year, but that is only a smallpart of its means of influence. The Bank is also a leading member of thecreditors' cartel that is headed by the International Monetary Fund. This cartelmonopolizes international credit markets in the same way that OPEC attempts tomonopolize the production and distribution of oil. In other words, if agovernment does not meet the approval of the IMF, it will not be eligible formost loans from the World Bank, other multi-lateral institutions, rich countrygovernments, and often private banks as well.

As a result of this arrangement, the IMF and the World Bank together have thepower to make the most important economic decisions for dozens of low andmiddle-income countries. Of course these decisions do not necessarily reflectthe will or best interests of these countries' residents. In fact they are oftenimmediately disastrous -- as we have seen in the collapse of the Russian economyin the 1990's, the Asian economic crisis, or currently, the economic meltdown inArgentina.

"The era of structural adjustment has failed," said Harvardeconomist Jeffrey Sachs in New York a few weeks ago. He was referring to thelast 20 years, in which the policies of the IMF, World Bank, and the"Washington consensus" have been implemented as never before. Theresult, for the vast majority of low and middle-income countries, has been theworst economic failure since the Great Depression. From 1980-2000, income perperson grew less than half as much as it did in the prior two decades(1960-1980).

Yet the creditors' cartel that ushered in the failed policies -- includingindiscriminate and often reckless opening to capital flows and trade,Enron-style de-regulation, privatization, and de-industrialization -- remainssolid. The Bush Administration's attempt to convert half of the World Bank'sloans to grants is being resisted because it is rightfully seen as underminingthe power of this cartel.

Although the World Bank might still try to use the grants to further itsagenda, it would lose one instrument of control: these funds would no longer addto the crushing debt burden that binds so many countries to their masters inWashington. This is leverage that they do not want to give up, and for this samereason the Bank (and the IMF) have been unbearably slow and stingy in grantingdebt relief to the world's poorest countries. It doesn't matter that most ofthis debt can never be repaid: it is all about power.

The Bank has successfully lobbied the European governments (another ironicpolitical twist: we give them taxpayer dollars to help the poor, and they spendit to influence government officials for their own ends) and somenon-governmental organizations to take their side.

Never mind that the liberals dream of using the power of the creditors'cartel for noble purposes. They would do well to consider Tolkien's Lord of theRings: like the One Ring that served as his metaphor for the forces of evil, andweapons of mass destruction, this cartel is inherently bad. What good can comeof an arrangement that delivers the economic fate of hundreds of millions ofpeople to the hands of a small, unaccountable group of men?

Mark Weisbrot is currently co-director of the Centerfor Economic and Policy in Washington, D.C. He is author, most recently, ofSocial Security: The Phony Crisis (2000, University of Chicago, co- authoredwith Dean Baker) and "Globalization for Whom," (Cornell InternationalLaw Journal).