Climate: Sorcerer’s apprentices at the World Bank and the IMF

19 January 2007 by Eric Toussaint


At the end of October 2006 Nicholas Stern, Adviser to the Government on the economics of climate change and development, handed Prime Minister Tony Blair a 500 page report on the consequences of the current climate change and measures to counteract this trend. In his report Nicholas Stern writes: “Climate change will affect the basic elements of life for people around the world - access to water, food production, health, and the environment. Hundreds of millions of people could suffer hunger, water shortages and coastal flooding as the world warms." [1] Implicitly the diagnosis suggested in the report is a condemnation of policies implemented by the IMF IMF
International Monetary Fund
Along with the World Bank, the IMF was founded on the day the Bretton Woods Agreements were signed. Its first mission was to support the new system of standard exchange rates.

When the Bretton Wood fixed rates system came to an end in 1971, the main function of the IMF became that of being both policeman and fireman for global capital: it acts as policeman when it enforces its Structural Adjustment Policies and as fireman when it steps in to help out governments in risk of defaulting on debt repayments.

As for the World Bank, a weighted voting system operates: depending on the amount paid as contribution by each member state. 85% of the votes is required to modify the IMF Charter (which means that the USA with 17,68% % of the votes has a de facto veto on any change).

The institution is dominated by five countries: the United States (16,74%), Japan (6,23%), Germany (5,81%), France (4,29%) and the UK (4,29%).
The other 183 member countries are divided into groups led by one country. The most important one (6,57% of the votes) is led by Belgium. The least important group of countries (1,55% of the votes) is led by Gabon and brings together African countries.

http://imf.org
and the WB World Bank
WB
The World Bank was founded as part of the new international monetary system set up at Bretton Woods in 1944. Its capital is provided by member states’ contributions and loans on the international money markets. It financed public and private projects in Third World and East European countries.

It consists of several closely associated institutions, among which :

1. The International Bank for Reconstruction and Development (IBRD, 189 members in 2017), which provides loans in productive sectors such as farming or energy ;

2. The International Development Association (IDA, 159 members in 1997), which provides less advanced countries with long-term loans (35-40 years) at very low interest (1%) ;

3. The International Finance Corporation (IFC), which provides both loan and equity finance for business ventures in developing countries.

As Third World Debt gets worse, the World Bank (along with the IMF) tends to adopt a macro-economic perspective. For instance, it enforces adjustment policies that are intended to balance heavily indebted countries’ payments. The World Bank advises those countries that have to undergo the IMF’s therapy on such matters as how to reduce budget deficits, round up savings, enduce foreign investors to settle within their borders, or free prices and exchange rates.

, where Nicholas Stern was Chief Economist [2].

The present article compares the Stern Stern with the positions of major figures in the WB, the IMF and the Washington government over the last fifteen years. It also offers comments on the report on natural catastrophes the World Bank issued in 2006. The World Bank’s analysis contradicted what it had claimed before. Its current discourse is an attempt to minimize the credibility crisis it suffers from, but this does not change its basic adherence to a market-oriented and productivist model that destroys both people and the environment. While the Stern report includes interesting views it does not open to any alternative to the productivist model and the obsession with growth.

World Bank leaders’ former assertions

While several voices had warned about the dangers of a search for limitless growth resulting in exhausted natural resources from the early 1970s, World Bank and IMF leaders kept claiming that such alarm was unfounded until quite recently.
Lawrence Summers, economist and vice-president of the World Bank from 1991 to 1996, later Treasury Secretary of State under William Clinton, claimed in 1991 : “There are no limits on the planet’s capacity for absorption likely to hold us back in the foreseeable future. The danger of an apocalypse due to global warming or anything else is non-existent. The idea that the world is heading into the abyss is profoundly wrong. The idea that we should place limits on growth because of natural limitations is a serious error; indeed, the social cost of such an error would be enormous if ever it were to be acted upon ... [3].

In a letter to the British weekly The Economist, published on 30 May 1992, he wrote that even in the worst possible scenario he saw it as sheer demagoguery to claim that a failure to attend to global environmental problems would result in terrible problems for our grandchildren, adding that it was dumb to argue that moral obligations to future generations meant that we had to pay special attention to environmental investments.

Summers’ claims had roused much protest at the time, and five years later, in 1997, Nicholas Stern (future chief economist at the Bank) wrote in the book that was to cover the Bank’s first fifty years: “The Bank’s commitment to environmental issues was questioned by some as a result of a leak to the Economist magazine, in late 1991, of extracts from an internal memorandum of Lawrence Summers, then chief economist. The memorandum suggested the possibility that environmental issues were being overemphasized in relation to developing countries, and that those countries might actually have lower marginal costs in dealing with or tolerating pollutants. [4]

In full contradiction with Summers’ above mentioned lenifying claim that global warming would reduce growth by less than 0.1% a year over the next two centuries, Nicholas Stern states in 2006 : “The Review estimates that if we don’t act, the overall costs and risks of climate change will be equivalent to losing at least 5% of global GDP GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
each year, now and forever. If a wider range of risks and impacts is taken into account, the estimates of damage could rise to 20% of GDP or more
." This is a scathing though late rebuttal of Lawrence Summers’ claims.

These however are not isolated: they are part and parcel of the US government’s position when the World Bank and the IMF had to make decisions. This view which denies that severe environmental damage was caused by the productivist model and that climate change was occurring was expressed by Washington until not very long ago.

The many speeches delivered by Anne Krueger, chief economist at the World Bank under Ronald Reagan and First Deputy Managing Director at the IMF from 2000 to 2006, testify to this. In one of them, given on 18 June 2003 at the 7th International Economic Forum at Saint-Petersburg, Anne Krueger said: “Take the perennial concern that rapid growth depletes our fuel resources and once that happens growth will come to a complete dead stop. World oil reserves today are higher today in 1950. Then the world’s known reserves of oil were expected to be enough for only 20 more years of consumption. We were expected to run out by 1970. It did not happen. Today, our known reserves are enough to keep us going for another 40 years at our present rate of consumption. There is no doubt that by the time 2040 rolls around research and development will have delivered new breakthroughs in energy production and use.”

This claim runs counter all current figures on oil reserves. From the early 1990s the amount of new oil fields discovered is less than what is used [5].

Anne Krueger further said: “Nor have we done irreparable harm to the environment. The evidence shows quite convincingly that economic growth brings an initial phase of deterioration in some aspects: but that this is followed by a subsequent phase of improvement. The turning point at which people begin choosing to invest in cleaning up and preventing pollution occurs at a per capita GDP of about $5,000.

This paragraph includes two patent mistakes (or lies). First, facts show that the environment has already suffered irreparable harm. Second, it is not true that after “an initial phase of deterioration” economic growth brings “a subsequent phase of improvement.” The more industrialized countries have long overreached the per capita GDP $5,000 mark [6], and yet most of them still implement policies that entail an increase in pollution.

We had to wait for the consequences of the Katrina hurricane in August 2005 for the White House to reluctantly start acknowleding the obvious.

Along with other movements CADTM did not wait for a catastrophe of the scale of what affected New Orléans to expose the World Bank’s and IMF’s policies that favoured global warming and weakened developing countries’ ability to face natural catastrophes. It notably showed how noxious for the environment World Bank and IMF promoted policies such as deforestation and huge powerplants were [7]. Similarly it asked the World Bank to forsake its support to projects that destroy natural coast protection such as mangroves, that might have absorbed part of the impact of the tsunami [8]. CADTM also demanded that the World Bank stopped lending money to the extractive industry. Finally CADTM questioned the decision made at the Rio conference in 1992 to entrust the World Bank with the management of a global funds to protect environment. This amounts to asking a fox to look after the chicken pen...

A shift in the World Bank’s policies

In April 2006, without any attempt at apology, the World Bank published a report on natural disasters. Its author, Ronald Parker, wrote: “There has been an increase in incidents of disaster clearly tied to environmental degradation around the world. [9]” While the number of earthquakes has hardly changed, the number and magnitude of natural disasters related to climate have dramatically increased: from an average of 100 in 1975 to over 400 in 2005. The Bank acknowledges that global warming, deforestation, and soil erosion have made extensive areas more vulnerable. It estimates that developing countries suffer damages for at least $30 billion a year. As Lester Brown, Prsident of the Earth Policy Institute, said, “This report underlines that although we continue to call these natural disasters, they are sometimes clearly of human origin. [10]

The Stern Review on Global Warming

Nicholas Stern is crystal clear: the less industrialised countries though less to blame for global warming, are also those that will bear the brunt: “All countries will be affected. The most vulnerable - the poorest countries and populations - will suffer earliest and most, even though they have contributed least to the causes of climate change.” He adds, in this completely contradicting the proponents of neoliberal globalization, “Climate change is the greatest market failure the world has ever seen, and it interacts with other market imperfections.“This being said, Nicholas Stern does not propose any alternative to the productivist model and to the capitalist market. Quite the opposite: his report is meant to ring the bell so that sufficient money be found for expenses of industrial conversion and environment protection and this mad race to growth can go on. He claims that mankind can be both”green and growth".
He explains that the environment protection market will represent a new opening for the private sector to make profits. And to crown it all, he suggests that since developing countries pollute less than industrialised countries while suffering more of the consequences of global warming, they could sell polluting rights to the rich countries. With the revenues they would thus bring in they could then finance the cost of repairing the harm to their people.

Conclusion

Once again the proponents of the mainstream productivist model first denied a crucial issue, namely environmental damage and global warming, and carried on promoting policies that only made matters worse. Then, when the situation has become unsustainable, they swamp the international media with a sensational report, trying to credit international institutions and the governements of the more industrialised countries with a correct sizing of the problem, which they had actually ignored for decades. At the end of the day, the proponents of the current system suggest that it can find a solution to a problem it has largely contributed to create, thus making it possible for it to perpetuate itself. It is urgent to understand that the only fair and sustainable solution requires a shift away from the productivist capitalist system which is the structural cause of fast increasing environmental damage and social inequality.




Translated by Christine Pagnoulle.

Footnotes

[1Nicholas STERN, STERN REVIEW: The Economics of Climate Change, October 2006. All quotations from the Stern Review in the present article are to be found in the conclusions. The full text of the Report can be accessed on the British government website. www.hm-treasury.gov.uk/independent_reviews/
stern_review_economics_climate_change/sternreview_index.cfm

[2Nicholas Stern was Chief economist and vice president of the World Bank from 2000 to 2003.

[3Lawrence Summers, at the World Bank and IMF annual assembly in Bangkok 1991, interviewed by Kirsten Garrett,”Background Briefing", Australian Broadcasting Company, second programme.

[4Nicholas Stern et Francisco Ferreira in KAPUR, Devesh, LEWIS, John P., WEBB, Richard. 1997. The World Bank, Its First Half Century, Volume 2: Perspectives, p.566.

[5In Alternatives économiques, n°239, September 2005

[6The per capita GDP is now over $20,000 in North America, Western Europe, Japan, Australia, and New Zealand.

[7See for instance Eric Toussaint, Your Money or Your Life, Pluto Press, 2006, chapter 9.

[8Damien Millet and Eric Toussaint, Tsunami Aid Or Debt Cancellation, Vak, Mumbai, 2006

[9Quoted in the Financial Times, 22-23 April 2006.

[10Quoted in the Financial Times, 22-23 April 2006.

Eric Toussaint

is a historian and political scientist who completed his Ph.D. at the universities of Paris VIII and Liège, is the spokesperson of the CADTM International, and sits on the Scientific Council of ATTAC France.
He is the author of Debt System (Haymarket books, Chicago, 2019), Bankocracy (2015); The Life and Crimes of an Exemplary Man (2014); Glance in the Rear View Mirror. Neoliberal Ideology From its Origins to the Present, Haymarket books, Chicago, 2012 (see here), etc.
See his bibliography: https://en.wikipedia.org/wiki/%C3%89ric_Toussaint
He co-authored World debt figures 2015 with Pierre Gottiniaux, Daniel Munevar and Antonio Sanabria (2015); and with Damien Millet Debt, the IMF, and the World Bank: Sixty Questions, Sixty Answers, Monthly Review Books, New York, 2010. He was the scientific coordinator of the Greek Truth Commission on Public Debt from April 2015 to November 2015.

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