Corporate Power and Influence in the World Bank

http://www.stwr.net/content/view/2176/37/


Corporate influence11th September 07 - Shalmali Guttal, Focus on the
Global South

Every year, the World Bank (Bank) channels US$ 18-20 billion to developing
countries in the form of loans and grants with the ostensible aim of
reducing poverty and promoting economic growth. The Bank always acts in
tandem with its sibling agency, the International Monetary Fund (Fund),
even in countries that no longer borrow from the Fund. Not all Bank
financing and support goes to governments. A significant amount goes
directly to the private sector, especially large corporations, in the form
of loans, technical assistance and mitigation of investment risks.

Backing the Rich
In existence for over 60 years, the Bank has expanded from a single
institution-the International Bank for Reconstruction and Development
(IBRD)--to five institutions, each dealing with a particular area of
operations. [1] These include financing and other supports for relief and
rehabilitation, physical and institutional infrastructure in sectors such
as energy, transportation, extractive industry and telecommunications,
restructuring of key sectors such as health, education, water and
agriculture to make them private sector and market friendly, private
sector development, and mitigating investment-associated risks for private
companies. Despite recent scandals, the Bank is a powerful institution. In
most of its client countries, it is virtually the only doorway to access
international trade, development finance and private investment capital.
It derives its power and policy agendas from its wealthiest shareholders
--governments that comprise the G-7 [2], who routinely use the Bank to
secure lucrative trade and investment deals in developing countries for
their respective transnational corporations (TNCs).

Corporate influence is manifested in and through the Bank in several ways.
Most obvious are the supports extended to private corporations through
three of its specialised institutions: the International Finance
Corporation (IFC), Multilateral Investment Guarantee Agency (MIGA) and
International Centre for the Settlement of Investment Disputes (ICSID).

The IFC is the private sector arm of the Bank and the world's largest
multilateral source of equity and loan financing for private enterprises
in developing countries. It claims to support economic development,
employment and poverty reduction by promoting open, competitive and
efficient markets and direct support for private companies in developing
countries. The IFC has developed a range of financial tools and services
to enable private companies to manage investment risks and broaden their
access to capital and developing country markets. The Bank and IFC have
also established the "Rapid Response knowledge initiative," which
specializes in policy advice on business environment reforms and
privatization policy in developing countries. The initiative maintains a
cyber-service called "Private sector blog-a market approach to development
thinking" to promote its pro-market, pro-corporate ideology. [3].

A closer look at IFC operations show that much of its support actually
goes to large, well-funded corporations and not to small-scale, local
entrepreneurs. Through the IFC, corporations get access to large,
government-sponsored infrastructure and service delivery projects and
investment opportunities that are relatively risk free. Local communities,
on the other hand, have little voice and no benefits in these investments
as social and environmental safeguards are increasingly overridden by
corporate demands for profits.

MIGA provides some of the most important services to private corporations
by mitigating the political risks of private investment in high risk, low
income and conflict-affected countries. MIGA's forte is political or
sovereign risk, which includes governmental actions that jeopardize
corporate revenues. MIGA risk guarantees protect corporate investors
against loss resulting from government expropriation of assets and breach
of contract, war and civil disturbance including insurrection, coups
d'état, revolution, sabotage, and terrorism. MIGA prides itself as a
leader in the political risk insurance industry and collaborates with
private and public insurers to "encourage private sector insurers into
transactions they would not have otherwise undertaken."[4] MIGA's
beneficiaries are generally TNCs in sectors such as water, energy, oil and
gas, telecommunications, automobiles, agribusiness and luxury hospitality.

MIGA also provides "dispute mediation" services and in this, it is
complemented by ICSID, which serves as a private, almost secret court to
settle disputes between states and private investors. ICSID has been in
the public spotlight recently because of a US$ 50 million lawsuit brought
against the Bolivian Government by Bechtel and Aguas Del Tunari for
cancellation of a water privatisation contract in the Bolivian town of
Cochabamba. A massive, coordinated international campaign against Bechtel
forced it to accept 30 cents as its settlement. But the case directed the
world's attention to the Bank's system of closed door trade courts, the
majority of which involve protecting the rights of corporate investors in
crucial public interest sectors such as water, electricity,
telecommunications, oil, natural gas and mining.

Corporate Support Disguised as “Development”
Less blatant, though more insidious and pervasive, are the pro-corporate
policy prescriptions that accompany Bank financing for so called
"development" projects and programmes through the IBRD and International
Development Association (IDA). Especially notorious are Bank-Fund designed
economic reform packages which seek to establish small, efficient and
corporate friendly governments to rule over corporate friendly capitalist
economies. Once called Structural Adjustment Programmes (SAPs) and then
renamed "poverty reduction strategies," these reform packages are designed
to open up the markets and economies of borrowing countries to foreign
investors through trade and investment liberalisation, privatisation of
public utilities, state marketing boards and state enterprises, and
financial deregulation. Reforms also demand that cross subsidies for the
poor, and protections for workers and domestic producers and enterprises
be eliminated, and publicly financed social programmes--including those in
health, education, water and sanitation-be drastically cut back.

Although the ostensible goal of the Bank's "development finance" is to
alleviate poverty, increase employment and raise living standards by
stimulating rapid economic growth, Bank projects and programmes deliver
far greater benefits to private corporations, contractors and consulting
firms than to the poor. The Bank's push for trade liberalisation coupled
with the removal of government supports for domestic producers and
enterprises provides foreign corporations unrestricted access to
developing country markets in crucial sectors such as agriculture,
services and industry. By insisting that borrowing countries shrink labour
and environmental regulations and establish corporate friendly taxation
and property regimes, the Bank virtually assures private investors a free
ride at the cost of local communities, workers and environments.

The Bank's almost religious belief in commercialisation and privatisation
has served corporations extremely well. Regardless of the problem or
sector (water, electricity, agricultural marketing, health, education,
etc.) the Bank demands that the government step back and the market step
in. Privatisation includes a range of measures: from unbundling (or
breaking up) operations in a public enterprise and outsourcing (or
contracting out) the unbundled operations to eventual sale of the public
enterprise either whole or in part. Included in the package are contracts
for privately provided, high-end "technical assistance" and procurement of
ancillary goods and services. Although the Bank insists that procurement
and contracting are the responsibilities of the implementing agency [5]
(usually a government department), privatised assets, and construction,
consultancy and procurement contracts generally go to large corporations,
contractors and consulting firms that are well versed with Bank rules for
bidding and procurement.

The 'symbiosis' between the Bank and corporations is well demonstrated in
the biotechnology and agrochemical industries. The Bank's agriculture
policies have been practically written by corporations such as Monsanto,
Aventis, Novartis and Dow. Even as the Bank expanded its rhetoric about
environmental sustainability in the 1990s, its projects advocated
increasing farmers' access to agrochemicals and genetically modified
seeds. During this time, the Bank also entered into business partnerships
with nearly all leading pesticide and biotechnology companies through a
staff exchange programme that involved 189 corporations, governments,
universities and international agencies. A marketing analyst from Aventis
(now Bayer CropScience) spent nearly four years in the IBRD to develop
IBRD's position on agricultural biotechnology and strategies to leverage
financing through the IFC. Novartis' (now Syngenta) head of public affairs
spent a year working on outreach strategies for the Bank's rural
development unit. Bank officials placed in Novartis and Rhone Poulenc Agro
(now part of Bayer) in the late 1990s assisted them with biotechnology
regulatory issues and rural development partnerships. The Bank thus
adjusted its agricultural strategies to satisfy leading biotechnology and
agrochemical corporations which in turn gained access to public policy
making in developing countries via Bank sponsorship.[6].

Pro-corporate thinking is deeply embedded in the Bank. Many of the Bank's
presidents and senior staff come from the corporate sector and "market
solutions" feature prominently in the Bank's strategies for addressing
virtually any challenge whether deforestation, global warming or food and
water scarcity. The Bank's development vision is a capitalist one in which
the role of government is to create an "enabling environment" for the
private (corporate) sector to flourish and for the market to sort out
crucial issues of access and distribution. In large hydro-power projects
for example, the Bank routinely assists host governments and private
contractors in project preparation and mobilising project finance: it
hires private consulting firms to work alongside government departments to
design the project and implementing arrangements, mobilises project
financing (through the IFC) and underwrites the loans (through MIGA or
other partnering risk guarantors). The costs of environmental and social
mitigation are left to government and society, and the terms of project
financing and guarantees generally favour private companies over the
larger public interest.

The Bank is proud of its support for corporations and private investors,
as expressed on the MIGA website:
"Our presence in a potential investment can literally transform a "no-go"
into a "go." We act as a potent deterrent against government actions that
may adversely affect investments. And even if disputes do arise, our
leverage with host governments frequently enables us to resolve
differences to the mutual satisfaction of all parties."[7].

For several decades now, the Bank has used development and poverty
reduction as smokescreens to further corporate interests. It has used its
position as preferred creditor and aid coordinator in developing countries
to create opportunities for private corporations, contractors and
consultants to profit from structural needs and crises in developing
countries. Clearly, dismantling corporate power over our public goods,
services and commons will also require dismantling the World Bank.


Shalmali Guttal is a senior associate with Focus on the Global South.