Goodbye, World Bank?

Goodbye, World Bank?

The World Bank’s own 2007 Global Development Finance (GDF) report, released in May, emphasizes the bank’s decreasing role: “Net lending from the international financial institutions and other official sources in the Paris Club of creditors dropped starkly over the past two years, while private lending surged.”

Many developing countries’ liberalization of capital controls, the report adds, has enabled private firms in these nations to access world capital markets at unprecedented levels. Private borrowing accounted for more than 60 percent of total bank borrowing in these countries from 2002 to 2006. To do this, the report notes, these businesses must be willing to conform to the higher levels of transparency and reporting that is the expectation of participating in international capital markets.

The need for the World Bank has not only been obviated, but ti was never really necessary for two reasons:

1) The path to economic growth was never through international loans. Take a look at Singapore and Taiwan, as two examples of nations that succeeded without resorting to aid from the International Monetary Fund and the World Bank. There are no corresponding success stories for the World Bank.
2) There are a number of failures in the World Bank’s history.

Read more about their failures.

I’ve done a fair amount of research over the years on both the IMF and the World Bank and it’s amazing how unsuccessful they are. I know effort is admirable, regardless of success, but a a certain point, shouldn’t we look back and realize that what’s been tried in the past has failed? Shouldn’t we learn from the lessons of Taiwan and nations like it that spurned assistance and did it on their own through trade liberalization and private property rights, the opposite approaches the IMF and World Bank recommend?

And more bad news on the economic front in Latin America:

In Latin America, however, there is an alternative to both private equity and the World Bank when it comes to accessing capital. We might call this “the Chavez option.” It involves the transfer of funds from Hugo Chavez’s oil-rich Venezuela to poorer Latin American nations also headed by populist-leftists. Thus far, President Chavez has offered approximately $1.5 billion (US) to Bolivia and $500 million to Ecuador.

In September 2006, he even suggested creating a “Bank of the South” as a “socialist alternative” to the IMF and World Bank. Unfortunately, this scheme is likely to produce even less-satisfactory results than many World Bank-funded projects. We can safely assume any funding from Chavez’s Venezuela will not go to the private sector — except those businesses unhealthily close to leftist governments. This would contradict the Venezuelan president’s objective of “building socialism.” Instead, most such payments are likely to be used by recipient governments to fund the costs associated with state-directed development schemes and nationalizing privately-owned industries.

Historically speaking, such projects’ success rate is low, protected as they are from market-disciplines. They are also especially vulnerable to corruption from state officials.

Direct economic aid to governments is doomed to fail, as history shows us. Money is given to political cronies, rather than economically viable alternatives. Money is lost to corruption.

Here’s a simple economic plan that will far surpass anything the World Bank can throw at you:

1) Support Private property
2) Support the rule of law – consistent and equitable laws that favor neither the rich nor the poor, but right over wrong
3) Support intellectual property through a strong patent system
4) Increase foreign trade and investment – if you don’t have money already, shutting off outside sources of money won’t help you get it.
5) Minimize government regulation and subsidies – let the intelligence and inventiveness of the people have free reign, you’ll be surprised what they come up with

There’s likely more but those are a few basics. Sticking with those will outperform the World Bank in a heartbeat.

White Sox set record

Stat of the Day >> Worst losses when scoring at least 14 runs

Last night’s first game of the Twins-White Sox game was won by the Twins 20-14. It was the highest scoring game in the major leagues since 1999. This was only the 22nd time over the last 50 years that a team scored 14 or more runs and lost. None of the rest of the losing teams lost by more than three runs, so the White Sox set a record, of sorts. One I’m sure they’d rather not have.

(Phillies fans: the losing pitcher in the second game was Gavin Floyd, our former farmhand and rotation anchor of the future. I’m not convinced he’ll ever be right.)