Negative Impacts of Undemocratic Development - Term Paper Example

Number Negative Impacts of Undemocratic Development ‘Economic growth’ and ‘free-markets’ are stepping stones to the way to wealth for development and poverty reduction and also the theories on the basis of which the International Financial Institutions (IFIs) prosper and are widely known. The IFIs have consistently been criticized for pushing a neoliberal agenda which though has been extremely profitable for corporations and moneymen, but destructive and anti-developmental for developing countries by inducing heightened poverty levels and inequality in such countries. These financial institutions include the WTO, the IMF and the World Bank. The World Bank’s mandate originally incorporated provision of long term loans for reconstruction which has been enhanced since the 1970’s to financing and supporting multimillion dollar infrastructure projects in developing countries. Being exclusively largest source of development finance in the world, the World Bank intends to provide loans for wide changes in infrastructure and economy, long-term development and poverty reduction and many other projects such as constructing dams, roads, extracting natural resources etc. The World Bank has a leading impact on the livelihoods of millions of people living in most part of the world in a way that the bank finances commercial projects of really low income countries which are unable to acquire commercial loans from any other source. It is even criticized for imposing neoliberal policies that are highly undemocratic on developing countries. This paper analyses the negative impacts of undemocratic policies of the World Bank on sustainable development of developing countries and argues the development strategy of the World Bank should be democratic enough to meet their developmental objectives effectively and efficiently. The World Bank has been playing dual but contradictory roles; one is of a political organization and second is that of a practical organization. On one hand, the World Bank must satisfy the demands of lending and borrowing governments, other international organizations, and private capital markets as a political organization. On the other hand as an action-oriented organization, it must be neutral and specialized in loans, development aid, and technical assistance. The World Bank's responsibilities to donor countries and private capital markets have induced it to acquire policies which prescribe that poverty is best relieved by the implementation of free-market policies (Weaver 2008). Developing nations attempt to increase their economic output (GDP) by involving themselves in and simultaneously competing with the worldwide economy. Such countries are financially insecure and undeveloped industries are disabled to participate in global competition as the so-called competitive free-market is inherently unfair and biased. Since developing nations determine their inability to make investment in growth-promoting policies by having lack of sufficient foreign currency reserves due to their expenditure of the reserves on imports and debt repayments. In order to facilitate economic growth and development, the developing nations may chose to borrow money from the World Bank to finance large development projects as such projects may help gain their development goals. The World Bank has important associations with corporations especially in United States, to contract them for these remunerative projects. By undertaking the projects, these corporations gain immense profits, but the poor countries have to bear an additional debt burden. The borrowing countries even lose control over their primal natural resources and a huge part of revenue from these resources because of repatriation of profits abroad. Before granting loans and debt relief, the World Bank imposes several conditions on the recipient governments for the reform of various aspects such as their lack of transparency, far-flung corruption and undemocratic authorities. Nevertheless the World Bank is confronted which the same matters and widely reputed to be not transparent, unaccountable and undemocratic. It is subjected to excessively abundant corruption (Makwana 2005). The theme of the Human Development Report (2002) from the United Nations revolves around democracy or the lack of it throughout the world. It highlights governments and international financial institutions directing to the crisis of public confidence in the legitimacy and effectuality of the IMF and the World Bank. According to the report, the World Bank has been dictating domestic policy of a developing nation increasingly through pre-conditions attached to their loans for development projects. In the 1980s, there were approx 6 to 10 performance criteria that were required to be met by the borrowing countries, but in the 1990s it increased to 26. While the World Bank decisions have an intense impact on developing countries but these poor countries still have little influence on the decision-making framework of the World Bank. Even the proceedings of executive board meetings are not published, and votes are often not taken and then cannot be recorded or publicized. This implicates that citizens of member countries and their interested outsiders cannot deem executive directors or their governances accountable for their policies in the World Bank. The chief directors of the World Bank are elected according to a political pattern whereby the US and Europe appoint their candidate for each country respectively. The report has indicated that many other countries and critics justly mark the process of the World Bank as undemocratic and insufficiently accountable (Deepening Democracy at the Global Level Human Development Report 2002 United Nations). Based in United States, the World Bank is constituted by its 184 member countries. Seven of those countries make G7 and hold majority of voting power that is 40%. The largest share at 18% is held by the US and thereby having the power to veto policies that do not serve well US interests. Financial strength of member countries determines the allocation of votes with ‘one dollar one vote’ criterion. This standard consequently results in the situations where such financially powerful countries and their influencing commercial interests determine the economic and development architecture of the worldwide economy. Hence, it will not be wrong to infer that developing countries are thrown forthrightly at the clemency of G7 foreign interests by the existing worldwide economic system. It is not astonishing that the model adopted by all existing economically dominant nations during their industrialization and development is not the neoliberal and free-market model advocated by the IMF and World Bank. Alternatively, these economic powers have protected their own markets from foreign goods and investment along with donating large subsidies to inland business. This has evidenced that the self interest of economically powerful countries is usually benefitted by the hypocrisy of liberalizing emerging markets. So if these neoliberal policies are inflicted on developing countries, it is similar to dragging them to economic imperialism. The economic occupation of Iraq by the World Banks and IMF is the best example of financial expedience, corporate mandate and interrelationship of the two IFIs, and the United States support. Iraq’s integral economy has been forged by the IMF and World Bank to befit foreign investors and corporate interests, primarily the United States, since the beginning of the economic occupation. Through the IMF, the Paris Club of creditors promptly sanctioned the cancellation of 80% of Iraq’s debts that constitute approximately $39 billion. Neoliberal structural changes were fleetly acted out including the denationalization of assets and state owned enterprises, employing Iraq’s debt relief as leverage. Such undemocratic economic readjustments consequently brought on capital conflict, higher unemployment levels and unaffordable increments in service costs. All these situations triggered far-flung protests by citizens and students (Makwana 2005). The World Bank will stay enormously unaccountable to the precisely so people they claim to be aiding without democratic delegacy within the World Bank and its cooperation with the south. The World Bank’s failures to make efforts in poverty reduction and addressing inequality would induce citizens and nations to continue their protests globally as they are calling for an established and reasoned process of globalization that is not controlled by the ruling elites for their own benefits (Gibbs 2002). According to Human Development Report (2002), the need for the World Bank to enhance the representation of developing countries has been now greatly recognized. This can be done in a number of ways. First method is to increase the ratio of basic votes allocated to each member that can achieve this goal effectively. Enhancing the participation of developing countries within the institutions can also be a good strategy. It appears to be obvious that the World Bank is adversely affected by typified as having an unopened and confidential selection process which is established in favor of institutions. Such process is essentially committed to greater accountability and transparency. The chief directors’ selection process essentially required to be unfolded. It should be made reasonably more essential concerning the nominees’ views on the vision for the World Bank. For enabling wider participation and transparency, a selection committee should be formulated for such a post. Raising the number of seats for developing countries on the executive boards can also serve well. Thirdly, the increase in the representation of developing countries can also be attained by inducing the World Bank to be more accountable for its processes, not only to its board members but also to the people who are influenced by its decisions. A variety of legal, political and social institutions have held governments accountable, so the worldwide financial institutions must also be held more accountable by employing these very institutions. Specifically, this entails assuring transparency, supervising and evaluating their rules, policies, decisions and actions. It has been indicated that International financial institutions have limited transparency to defend proprietary or secret information and full and outspoken discussion in their decision-making processes, even though transparency is groundwork of accountability. The World Bank has undertaken this revolution in such a ways that broader evaluations are tackled in the World Bank Operations Evaluation Department which is a part of the Bank. The department rates the development impact and functioning of the Bank’s lending operations, processes and policies, and reports directly to the executive board about its evaluation. The outcomes of all of these ratings must be openly published, implemented, and looked into. All this is necessary for the Bank to be effective and undertake necessary modifications. Fourthly, it can also be achieved by considering that the troubles of untypical or poor decision-making cannot be settled by judicial-style accountability. However, greater transparency and monitoring of the World Bank can be proclaimed modern establishments of examination and monitoring. (Deepening Democracy at the Global Level Human Development Report 2002 United Nations). Conclusion From the above discussions, it is enlightened that the existing model for development and finance is extremely not transparent for the benefits of already wealthy and economically powerful nations. The current framework it is highly ineffective to address the underlying issues of poverty and inequality. The complexities of global economy have made cooperative international economic reform is a tremendous undertaking. To address all the elaborations of such a system within the theoretical model of international cooperation can merely be possible by the representation of a reformed and regenerated United Nations. There is a substantial need for a sustainable economic framework in the World Bank that places human rights and the environment at the centre of socioeconomic life. Such a democratic system would require the deputation of corporate actions to a domain that can be handled by the global public and also guarantee that the governance of the global economy is provided a democratic and participatory process. At present, executive directors from developing countries comprise large constituencies and can minimally influence policy making frameworks. Furthermore, female delegacy at the highest organizational levels stays low as in many other institutions. Revision the role of quotas; improvement in the gender balance in high level decision making; and supporting, empowering and involving the executive directors of developing countries in the selection of the World Bank’s presidents can intensively heighten the democratic character of the institution. Perceptions of international financial institutions can also be modified by these reforms dragging them away from an upholding feeling of distrust of external domination to a situation where developing countries flavor importantly larger ownership and duty in decision-making process (Deepening Democracy at the Global Level Human Development Report 2002 United Nations). Works Cited “Deepening Democracy at the Global Level” Human Development Report 2002 United Nations. [Available online] cited 5 Dec 2011 from: Gibbs, Walter. "World Briefing – Europe: Norway: Protests As World Bank Meets" (2002) New York Times. cited 5 Dec 2011 from: Makwana, Rajesh. “IMF, World Bank & Trade” Decommissioning The IMF, World Bank and WTO: The World's Resources (2005). [Available online] cited 5 Dec 2011 from: Weaver, Catherine. “Hypocrisy Trap: The World Bank and the Poverty of Reform”. Princeton and Oxford: Princeton University Press, (2008), pp.31–32. cited 5 Dec 2011 from: Read More