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The Progressive Economics Forum

Wolf(owitz) in sheep’s clothing

Naomi Klein takes a look past Wolfowitz to the real corruption at the World Bank:

World Bank sullied before Wolfowitz

 

It’s not the act itself; it’s the hypocrisy. That’s the line on Paul Wolfowitz, coming from editorial pages around the world. But it’s neither the act (disregarding the rules to get his girlfriend a pay raise) nor the hypocrisy (the fact that Wolfowitz’s mission as World Bank president is fighting for “good governance”).

First, let’s dispense with the supposed hypocrisy problem. “Who wants to be lectured on corruption by someone telling them to ‘do as I say, not as I do’?” asked one journalist. No one, of course. But that’s a pretty good description of the game of one-way strip poker that is our global trade system, in which the United States and Europe–via the World Bank, the International Monetary Fund, and the World Trade Organization–tell the developing world, “You take down your trade barriers and we’ll keep ours up.” From farm subsidies to the Dubai Ports World scandal, hypocrisy is our economic order’s guiding principle.

Wolfowitz’s only crime was taking his institution’s international posture to heart. The fact that he has responded to the scandal by hiring a celebrity lawyer and shopping for a leadership “coach” is just more evidence that he has fully absorbed the World Bank way: when in doubt, blow the budget on overpriced consultants and call it aid.

The more serious lie at the centre of the controversy is the implication that the World Bank was an institution with impeccable ethical credentials–until, according to 42 former bank executives, its credibility was “fatally compromised” by Wolfowitz. (Many American liberals have seized on this fairy tale, addicted to the fleeting rush that comes from forcing neocons to resign.) The truth is that the bank’s credibility was fatally compromised when it forced school fees on students in Ghana in exchange for a loan; when it demanded that Tanzania privatize its water system; when it made telecom privatization a condition of aid for Hurricane Mitch; when it demanded labour “flexibility” in the aftermath of the tsunami in Sri Lanka; when it pushed for eliminating food subsidies in post-invasion Iraq. Ecuadoreans care little about Wolfowitz’s girlfriend; more pressing is that in 2005, the World Bank withheld a promised $100 million after the country dared to spend a portion of its oil revenues on health and education. Some antipoverty organization.

But the area where the World Bank has the most tenuous claim to moral authority is in the fight against corruption. Almost everywhere that mass state pillage has taken place over the past four decades, the bank and the International Monetary Fund have been first on the scene of the crime. And no, they have not been looking the other way as the locals lined their pockets; they have been writing the ground rules for the theft and yelling “Faster, please!”–a process known as rapid-fire shock therapy.

Russia under the leadership of the recently departed Boris Yeltsin was a case in point. Beginning in 1990, the bank led the charge for the former Soviet Union to impose immediately what it called “radical reform”. When Mikhail Gorbachev refused to go along, Yeltsin stepped up. This bulldozer of a man would not let anything or anyone stand in the way of the Washington-authored program, including Russia’s elected politicians. After he ordered army tanks to open fire on demonstrators in October 1993, killing hundreds and leaving the parliament blackened by flames, the stage was set for the fire-sale privatizations of Russia’s most precious state assets to the so-called oligarchs. Of course, the bank was there. Of the democracy-free lawmaking frenzy that followed Yeltsin’s coup, Charles Blitzer, the World Bank’s chief economist on Russia, told the Wall Street Journal: “I’ve never had so much fun in my life.”

When Yeltsin left office, his family had become inexplicably wealthy, while several of his deputies were enmeshed in bribery scandals. These incidents were reported in the West, as they always are, as unfortunate local embellishments on an otherwise ethical economic-modernization project. In fact, corruption was embedded in the very idea of shock therapy. The whirlwind speed of change was crucial to overcoming the widespread rejection of the reforms, but it also meant that by definition there could be no oversight. Moreover, the payoffs for local officials were an indispensable incentive for Russia’s apparatchiks to create the wide-open market that Washington was demanding. The bottom line is that there is good reason that corruption has never been a high priority for the bank and the IMF: its officials understand that when enlisting politicians to advance an economic agenda guaranteed to win them furious enemies at home, there generally has to be a little in it for those politicians in bank accounts abroad.

Russia is far from unique: from Chile’s dictator Augusto Pinochet, who accumulated more than 125 bank accounts while building the first neoliberal state, to Argentine president Carlos Menem, who drove a bright-red Ferrari Testarossa while he liquidated his country, to Iraq’s “missing billions” today, there is, in every country, a class of ambitious, bloody-minded politicians who are willing to act as western subcontractors. They will take a fee, and that fee is called corruption–the silent but ever-present partner in the crusade to privatize the developing world.

The three main institutions at the heart of that crusade are in crisis–not because of the small hypocrisies but because of the big ones. The World Trade Organization cannot get back on track. The IMF is going broke, displaced by Venezuela and China. And now the World Bank is going down.

The Financial Times reports that when World Bank managers dispensed advice, “they were now laughed at.” Perhaps we should all laugh at the bank. What we should absolutely not do, however, is participate in the effort to cleanse the bank’s ruinous history by repeating the absurd narrative that the reputation of an otherwise laudable antipoverty organization has been sullied by one man. The bank, understandably, wants to throw Wolfowitz overboard. I say, let the ship go down with the captain.

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