Copyright 1997 Guardian Newspapers Limited: The Guardian Weekly Volume 157 Issue 1

for week ending July 6, 1997, Page 19.

HEADLINE: World Bank in Surprise Policy U-turn.

BYLINE: Charlotte Denny

HIGHLIGHT: Wants a strong and vigorous state !

 
 From:         vivian Hutchinson[SMTP:vivian@jobsletter.org.nz]
 Sent:         Tuesday, 8 July 1997 22:53
 To:   Designing for POST-INDUSTRIAL REALITIES
 Subject:      World Bank in surprise policy U-turn

IN an astonishing volte-face, the World Bank in Washington has abandoned its long-running support for minimal government in favour of a new model based on a strong and vigorous state.

Its latest report on world development*, published last week, calls for "reinvigoration of public institutions" and says the role of government has been vital in making possible the "dazzling growth" of East Asia. "An 'effective state' is the cornerstone of successful economies; without it, economic and social development is impossible," says the report. "Good government is not a luxury [but] a vital necessity for development."

The bank says an effective state "harnesses the energy of private business and individuals, and acts as their partner and catalyst, instead of restricting their partnership". With the collapse of the communist economies and the crisis in welfare spending in the industrial world, the role of the state is in the spotlight around the globe, it adds.

"For many, the lesson of recent years has been that the state could not deliver on its promise," said the bank's president, James Wolfensohn. "Many have felt that the logical endpoint of all of this was the minimalist state. The report explains why this extreme view is at odds with the evidence of the world's development success stories."

But the bank itself has been identified with policies that have seen developing nations cut essential government services to try to balance their books. Aid recipients must meet stringent budget targets under its structural adjustment policies.

The bank now says that building an effective state is vital for development. It lists key tasks of government as including investing in basic social services and infrastructure, providing a welfare safety net, protecting the environment and establishing a foundation of law.

Chief economist Joseph Stiglitz said the bank now believed markets and governments were complementary. "The state is essential for putting in place the appropriate institutional foundations for markets," he said.

The irony of this U-turn was not lost on many of the bank's critics. The International Confederation of Free Trade Unions (ICFTU) said the bank had toured the globe during the 1980s recommending the paring down of government, the civil service, education and health services in the developing world.

Bill Jordan, leader of the Brussels-based ICFTU, welcomed the change of heart, but he added: "I regret that public institutions, public morale and essential services like health and education had first to be considerably eroded before the World Bank could come round to its current view."

For its report, the bank surveyed businesspeople around the world and found that the countries that scored low marks for government effectiveness also suffered from low growth. "Many countries lack the basic institutional foundations for markets to grow," the report says.

Corruption and crime emerged as serious problems. The bank found countries with high levels of corruption had low investment and growth. The report says the consequences of bribery do not end with paying off the officials and then getting on with business: "Government arbitrariness entangles firms in a web of time-consuming and economically wasteful negotiations."

*The State in a Changing World; The World Development Report, 1997 (The World Bank)

 vivian Hutchinson
 phone 06-753-4434 fax 06-759-4648
 P.O.Box 428
 New Plymouth, Taranaki, New Zealand

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