Foreclosing the Future: The World Bank and the Politics of Environmental Destruction

By Bruce Rich, Guest Blogger

In 2011 UN Secretary General Ban Ki-Moon shocked an audience of bankers and corporate executives in Davos Switzerland when he declared that the current economic system was “a recipe for disaster” and “a global suicide pact.” Over the last two decades the world’s institutions have largely failed to deal with the ecological crises of climate change, destruction of species, and pollution of fresh water and oceans. These failures have been accompanied by growing economic inequality in many nations.

The vast majority of the world’s economic growth, as well as ecological destruction, is now occurring in developing countries, and it is largely in these countries where the environmental and economic future of the world will be decided. No institution has played a more influential role in this arena than the World Bank Group.

The World Bank Group proudly proclaims “our dream is a world without poverty.” It claims to be a leader in promoting environmental standards for development, as well as in finance for environmental purposes, such as mitigating climate change. In reality it is a microcosm of the failures of its 188 member countries to address the challenges of economic development.

Internal Bank studies reveal that the Bank’s incorporation of environmental concerns into its lending decisions has actually decreased since the turn of the millennium.

Over the past decade, as the U.S. and other rich countries gave the Bank many extra billions to fight global warming, it actually increased its lending for giant coal power plants and oil development–including two of the 50 biggest new single sources of greenhouse gas emissions on earth.

In 2011 the Bank’s internal evaluation department found that nearly nine tenths of World Bank Group lending for the private sector through the Bank’s rapidly expanding International Finance Corporation—touted by recent Bank presidents as a model–has totally ignored poverty impacts, often subsidizing the world’s richest corporations and banks with public funds.

Since the turn of the millennium the Bank has continued to support dubious schemes such as Chinese resettlement into ethnic Tibetan areas and huge mining and oil projects. These projects have spurred protests among some of the world’s poorest and most disenfranchised people—as well as by Nobel Peace laureates such as the Dalai Lama and Arch-Bishop Desmond Tutu.  Yet the Bank does not learn: it convened multi-year, wide-ranging international reviews to come up with policies to improve large dams and extractive industry projects—and then refused to adopt most of the recommendations.

For many years the Bank, together with the U.S. Treasury Department and other international agencies, helped promote a one-sided economic globalization that has liberalized trade and unleashed capital flows. It has done so with little effective countervailing regulation at either the national or international level to address environmental and social abuses. One particularly corrosive result has been a disproportionate growth of corruption in developing nations. Massive amounts of stolen funds have been laundered from even the poorest countries through international tax havens.

Hearings of the U.S. Senate Foreign Relations Committee found several years ago that as much as 30 percent of the Bank’s lending is corrupted by its borrowers, abetted by major banks, corporations, and the global web of money laundering centers. Yet the World Bank Group, and particularly the IFC, habitually supports companies that use off-shore tax havens such as the Cayman Islands and Bermuda.

In 2011, two Danish watchdog groups examined the IFC’s entire portfolio of extractive industries operations (mining, oil, gas), some sixty-nine projects. Of the forty-nine investments for which they were able to find data, twenty-eight, or some fifty-seven percent used tax havens.
This hardly seems consistent with the Bank’s proclaimed focus on improving governance, transparency, and fighting corruption.

Even Paul Volcker was no match for the Bank bureaucracy. In September, 2007—nearly a decade after the Bank proclaimed that it had strengthened anti-corruption efforts, Volcker told the Financial Times that there was “ambivalence in the bank as to whether they really want an effective anti-corruption program or not.” “The board,” he added, “itself has been ambivalent.”

He observed that many of the Board members representing the Bank’s member countries, as well as Bank staff, feared that “a strong anti-corruption effort would somehow be anti-development.” Volcker contended that despite the Bank’s proliferating internal reviews and evaluation units, “a strong focus on managerial and institutional accountability is absent.”

The Bank’s behavior is rooted in a dysfunctional internal culture, the so-called loan approval culture: the pressure to move money even in violation of Bank policies concerning the environment, protecting the poor, and preventing stealing from Bank loans. Much of problem lies with Bank management’s lack of political will to resist the hypocritical pressures of its 188 member countries—donors and borrowers alike–and the failure of these governments to hold management accountable. Thousands of pages of both internal Bank reviews and external studies have documented not just for years, but for decades, the disastrous consequences of this failure of accountability—with no lasting impact on the institution’s management.

Contemporary critiques of globalization contend that a global economy calls for a global project of justice, including conserving the earth for the poor and for future generations. The World Bank’s misplaced priorities and lack of accountability are driving societies apart while undermining the ecological foundations on which humanity depends. The result is a looming global debt that is rapidly foreclosing the future.

Bruce Rich is a lawyer who has worked on international issues for three decades with national environmental organizations. An expert on public international finance and the environment, he received the United Nations Global 500 Award for environmental achievement with his research and advocacy concerning multilateral development banks. He is the author of Mortgaging the Earth and To Uphold the World, as well as articles in publications including The Financial Times, The Ecologist, and Environmental Forum, the policy journal of the Environmental Law Institute. This article draws from and summarizes some of the research and conclusions of Mr. Rich’s forthcoming book Foreclosing the Future: The World Bank and the Politics of Environmental Destruction, to be released by Island Press on September 30, 2013.

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7 Responses to “Foreclosing the Future: The World Bank and the Politics of Environmental Destruction”

  1. […] of the world will be decided. No institution has … Article by TripleCrisis. Read entire story here. Tags 2012 Black categories crime crisis case studies crisis communications crisis management […]

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  3. Joe Wazzzz says:

    The sad fact is, there is nothing we can or will do about this. Any attempt will be corrupted and the world of politics is already so complex that progress has ground to a halt and is staging for the mother of all reboots. Like the importation of sub-saharan Africans to the west for slave labor, protestations notwithstanding, the die is cast for future unrest. Life is a work-around. Get used to it.

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  6. Chauncey Gardiner says:

    @Joe Wazzzz,

    Presuming you were empowered to implement one step, what would that one step be?

  7. Bruce Rich says:

    Dear Chauncey Gardner–very good question, which I do indeed go into my forthcoming book, Foreclosing the Future. The World Bank could play a more positive role in moving governments of the world towards a more honest approach to the environmental and social crises exacerbated by one-side globalization. The problem is that the internal management incentives give all the wrong signals–rewarding moving money out the door rather than rigorous implementation of Bank environmental, social, and anti-corruption policies. The unwritten rules of the institution are stronger than the written ones. So pressure to change would have to come from the Bank’s major contributing member governments, starting with the U.S.

    Here is an excerpt from the concluding chapter of my book that sets out very simply what the priorities should be:

    “Yet, the Bank itself, at least its Independent Evaluation Group, had identified a clear solution. To avoid irrelevance, starting with middle income countries which could find finance elsewhere, its operations should become a ““beacons of performance” of good and best practice in the areas of environment, promoting social equity, and anti-corruption. If it focused on quality, rather than quantity, its projects would “encourage replication and scaling up.” It would have to be much more selective in the future in choosing which projects it would finance.

    “Another key lesson of the past two decades concerned “sequencing”—i.e. the need in many situations to build up governance structures and institutions first before flooding a proposed investment program, a sector (particularly extractive industries), or country with Bank money. Otherwise infrastructure gets built first, but the social, environmental, and fiduciary “software” that would give a better chance for an investment to actually benefit people, gets left behind. One could view the “resource curse” as just an extreme example of this more general principle of “governance first.”

    Thanks again for your thoughtful question, Bruce Rich