World Bank Essay

The World Bank is the international financial institution that focuses on loans to countries of the world for large projects, which cannot be funded by private banks and which need the involvement of the large international organization that is capable to fund such projects. The World Bank was established in 1945 along with the International Monetary Fund and they cooperate closely together. The main goal of the creation of the World Bank was the creation of the international financial institution that could help developing countries to raise funds to finance their large projects which were unaffordable for them and which could not be financed by private banks. The major shareholders of the World Bank are developed countries with the US holding the largest share of the bank which exceeds15%. The World Bank consists of two institutions: the International Bank of Reconstruction and Development and the International Development Association. The International Bank of Reconstruction and Development provides loans for the middle-income developing countries, while the International Development Association provides loans for the poorest countries.

The World Bank is the international institution that works as a bridge between rich and well-developed countries and middle- and low-income developing countries. The World Bank provides funding of the middle-income and low-income developing countries, while rich and developed countries are the major contributors to the bank because they are the major shareholders of the World Bank. To put it more precisely, the largest shareholder of the World Bank is the US, which is followed by other developed countries like Japan, Germany, and others.

The World Bank was the subject to criticism for its funding because some critics view the bank as the institution used by rich countries to enhance their dominant position in the world and to keep the economic and financial control over other countries, to maximize revenues of the rich nations. The criticism of the World Bank emerges because the rich countries have the control over the decision-making process. This is why they take decisions on the policy of the World Bank and they determine which projects to fund and which not to. At the same time, financial resources to fund loans of the bank are also generated in rich countries. To put it more precisely, the US is the largest contributor and the major shareholder of the bank. This is why the US has the greatest impact on the World Bank compared to other nations. Such a position of the US makes its position very influential with regard to decisions taken by the World Bank.

The current development of the World Bank reveals the persisting focus of the bank on the financial support of developing countries. The World Bank gives loans which developing countries have to pay off. These loans focus on various projects, including education, health care reforms, the development of infrastructure and transportation system and others. The funding of projects is performed by shareholders of the bank while developing countries use money received from the bank to complete their projects and reforms to accelerate their economic development and raise their standards of living.

Annotated Bibliography

Coelho, A. (2018). International: World Bank releases draft report supporting basic income, BIEN. Retrieved from http://basicincome.org/news/2018/04/international-world-bank-releases-draft-report-supporting-basic-income/

The article focuses on the report prepared by the World Bank which supports the introduction of the basic income. The main idea of the report is the introduction of the basic income as the manifestation of the universalism in the labor relations and labor force in global terms. In such a way, experts of the World Bank support basic income because it contributes to the introduction of common labor standards in global terms. Hence, the bank supports such universalism because it eliminates differences between national economies and makes the world economy more homogeneous and, therefore, more open to the international cooperation.

Cox, J. C., Friedman, D., & Sadiraj, V. (2008). Revealed Altruism. Econometrica, 76(1), 31-69.

The authors focus on the role of the World Bank in the development of the world not only in economic terms but also in terms of the global growth and the rise of the quality of living standards. The authors of the article argue that the World Bank focuses on the improvement of the quality of living in the poor countries because the rise of the quality of living in global terms is beneficial for all countries. The poor improve their standards of living, while the rich benefit from the growth of the global economy. The improvement of conditions of living in the poor countries means the expansion of business opportunities for companies based in developed countries. Anyway, the researchers reveal the positive impact of the World Bank on the growth of the global economy. They argue that the World Bank helps to fund projects, which, otherwise, would be unaffordable for low- and middle-income developing countries. The development of the poor countries is beneficial for the rich ones because the poor countries prevent overheating of economies of the rich countries which simply export their capital to the poor countries which have to pay off their debt and interest rate back. However, the authors of the article argue that the World Bank is not seeking profits but rather looks for the development of the world economy and improvement of standards of living in global terms. In such a way, the authors present the World Bank as a sort of altruist financial institution which just facilitates the development of the poor countries by helping them to fund important projects.

DellaVigna, S., List, J. A., & Malmendier, U. (2012). Testing for Altruism and Social Pressure in Charitable Giving. Quarterly Journal of Economics, 127(1), 1–56.

The researchers conducted the study of the nature of altruism and social relations with regard to charity and the flow of capital at the international level. The researchers study the impact of the social pressure on international institutions like the World Bank and reveal the fact that international financial institutions are still not vulnerable to altruism in its pure form. Instead, they remain to be financial rather than charitable institutions. At any rate, in the case of the World Bank, this international financial institution still looks for financial aspects of projects the bank provides loans for rather than their charitable nature. The researchers argue that the World Bank is not a charitable organization, although many projects funded by the World Bank focus on the improvement of the social sphere, standards of living, better education, healthcare and so on. The social orientation of projects funded by the World Bank make them look like altruistic and charitable in a way, but still, they are a financial project with specific financial obligations of parties involved in those projects. Therefore, the researchers conclude that the nature of many large projects funded by the World Bank is socially-oriented. This is why the World Bank often looks like a sort of charitable organization which the bank is not. In this regard, the failure of the poorest countries to pay off its debt and high risks of the loans provided by the World Bank is not returned just enhance the false impression that the World Bank is a charitable organization.

Dreher, A., & Sturm, J. E. (2012). Do the IMF and the World Bank influence voting in the UN General Assembly?. Public Choice, 151(1-2), 363-397.

The researchers explore the possible impact of the IMF and the World Bank on voting in the UN General Assembly. The authors attempt to reveal the possible correlation between funding provided by the World Bank and pressure on member-states. To put it more precisely, the researchers argue that there is a possible conflict of interests and the room for manipulations and pressure from the part of the rich countries in relation to poor countries. The World Bank may be used as the tool of the political pressure when the rich countries push on the poor ones by restricting the World Bank loans provided for the poor countries, if they refuse to support decisions taken by the rich countries in the UN general assembly. In this regard, the researchers point out that the rich countries are the major decision-makers in the World Bank and they are the major contributors to the World Bank. This is why middle- and low-income countries have to gain the support of the rich countries to get access to loans from the World Bank. This is why, if middle- and low-income countries do not support decisions of the rich countries in the UN general assembly, the rich countries may not grant loans to those countries provided by the World Bank and, on the contrary, if the poor countries do support decisions taken by the rich countries in the UN general assembly, then they may count on loans of the World Bank to fund projects which may be vitally important for them. This is a mechanism of the pressure described by the researchers which the rich countries can use via the World Bank to influence voting in the UN general assembly.

Eddwards, S. (2018). World Bank procurement reforms ‘already saving millions of dollars’, Devex. Retrieved from https://www.devex.com/news/world-bank-procurement-reforms-already-saving-millions-of-dollars-92598

The author of the article reveals optimistic forecasts of the World Bank concerning the positive effect of procurement reforms funded by the World Bank in developing countries, such as Kenya and Ghana. However, the author questions the overall effectiveness of the reforms and refers to the opinion of experts, who also doubt whether procurement reforms will have long-run positive effects and allow saving costs as the World Bank experts forecast. Hence, the article reveals the impact of the World Bank on reforms in developing countries and attempts to optimize costs and public spending in those countries with the help of those reforms.

Gadd, S. (2018). Denmark strengthens its ties with the World Bank to promote digital development, CPH Post. Retrieved from http://cphpost.dk/news/denmark-strengthens-its-ties-with-world-bank-to-promote-digital-development.html

The author reveals the enhancement of the collaboration between Denmark and the World Bank in the field of digital technologies. The article reveals the fact that the World Bank uses advanced technologies provided by suppliers from well-developed countries, such as Denmark. This trend is important because it also implies that loans granted by the World Bank also flow back to developed countries as developing countries purchase products and technologies from developed countries to complete projects and introduce reforms funded by the bank.

Hasan, M. (2018). World Bank working to safeguard Indus Waters Treaty: official, The News. Retrieved from https://www.thenews.com.pk/print/308625-world-bank-working-to-safeguard-indus-waters-treaty-official

The article reveals efforts of the World Bank to perform the role of the mediator in the dispute between India and Pakistan to resolve their dispute of Indus Waters Treaty. The World Bank attempts to bring both countries to an agreement to secure the Indus River and protect the environment from the pollution. Such efforts reveal the political impact of the World Bank on developing countries as the bank uses its economic power to push on developing countries.

Igoe, M. and Edwards, S. (2018). 5 takeaways from the World Bank Spring Meetings, Devex. Retrieved from https://www.devex.com/news/5-takeaways-from-the-world-bank-spring-meetings-92601

The article focuses on the latest decisions being taken by the World Bank which include the expansion of its loan capacity and the focus on the further expansion of its operations. Hence, the article reveals current plans of the World Bank to expand its operations and, thus, to increase its role in the global economy as the major agent that may use loans to influence the economic development of developing countries and the global economy at large.

Mayeda, A. (2018). World Bank seals $13bn cash boost, The Independent. Retrieved from https://www.independent.ie/business/world/world-bank-seals-13bn-cash-boost-36832418.html

The article focuses on the analysis of the decision taken by the World Bank’s shareholders to increase the loan capacity of the bank by $13 bn. The article shows the substantial rise in the loan capacity of the bank that means that the World Bank is likely to increase its impact on the world economy and the bank will try to use its loans to stimulate the growth of the global economy.

Reid, D. (2018). Fairness of trade is a key focus, World Bank chief says, CNBC. Retrieved from https://www.cnbc.com/2018/04/18/fairness-of-trade-is-key-focus-world-bank-chief-kristalina-georgieva.html

The article gives insights into the key principles of the World Bank as declared by the bank’s officials. According to the article, the World Bank stands for the fairness of trade that means that the bank supports the creation of the homogeneous global economy with common rules and free trade. Such a globalized economy may lead to better opportunities for bank’s operations due to the free movement of capital and rise of business activities in both developed and developing countries.

Selby-Green, M. (2018). WORLD BANK: Workers should ditch minimum wage to compete with robot labor, Business Insider. Retrieved from http://www.businessinsider.com/world-bank-labour-report-2018-4

The article discusses the World Bank’s suggestion to ditch minimum wage, which though implies the drastic weakening of the position of employees in the global economy. Minimum wage is the guarantee of decent conditions of living for employees, whereas the refusal from minimum wage leads to the enhancement of the position of employers and weakening of the position of employees. Such recommendations of the World Bank are questionable with regard to the protection of interests of employees worldwide.

Sengupta, M. (2009). Making the State Change Its Mind–the IMF, the World Bank and the Politics of India’s Market Reforms. New Political Economy, 14(2), 181–210.

The author focuses on the experience of India in terms of using financing from the part of the IMF and the World Bank to fund Indian reforms, such as reforms in the agricultural sector, infrastructure, and health care. The author reveals the fact that the IMF and the World Bank became the major sources of funding of fundamental projects which are very important not only for the economic development of India but also for the maintenance of the social stability, public order, and improvement of standards of living of the local population. At the same time, the author reveals negative side-effects of borrowings from the World Bank as well as the IMF. To put it more precisely, the author argues that borrowings lead to the growing dependence of India on international financial institutions, such as the World Bank. India just keeps borrowing from the World Bank or the IMF, or both, whenever there are large projects which Indian government cannot fund on its own. The author warns against such dependence of India on the World Bank because India becomes disinterested in the optimization of its costs or finding of alternative sources of funding because there is the World Bank loan available to India. As a result, the government does not try to cut the public spending or increase revenues of the state budget. Instead, the government just keeps borrowing over and over again. However, ultimately, India will come up with the enormous public debt which the nation owes to the World Bank and its major contributors. This is why the debt will become the unbearable burden for Indian economy and nation.

Stiglitz, J. E. (1999). The World Bank at the millennium. Economic Journal, 109(459), 577-597.

The researcher conducts the study of the development and role of the World Bank on the turn of the century. The researcher attempts to evaluate the role of the World Bank in the world economy by the end of the 20^th century. As the World Bank origin dates back to the mid-20^th century, the author attempts to evaluate the historical development of the World Bank to assess its role and performance by the end of the century. The analysis conducted by the researcher reveals the fact that the World Bank became one of the major international institutions that offer loans to fund important projects developed and implemented by governments of developing countries mainly. The author argues that the World Bank has become a new form or tool which enhances and maintains the economic dependence of developing countries on rich countries. The researcher points out that the World Bank allows pumping of capital from developing countries to developed ones. As developed countries give loans to developing countries via the World Bank, they ultimately receive their money back as developing countries have to pay off their debt along with interest rates. As a result, upon completion of projects, developing countries have to return more than they borrowed and this is the problem because they invest in social or infrastructural projects which do not bring profits to governments and often do not boost the economic development of countries. This is why they become dependent on the World Bank, while their wealth steadily flows to developed countries as they pay off their debt to the World Bank.

Sumner, A. (2012). Where do the poor live? World Development, 40 (5), 865–877.

The researcher focuses on the problem of poverty and how this problem is addressed in the world. The researchers naturally arrive at the conclusion that poverty affects all countries but developing countries are in a particularly desperate position because they suffer from poverty and lack of financial resources to invest into the development of their economy and upgrading their economy to stimulate the economic growth and improve conditions of living. In such a situation, the World Bank becomes an important source of funding for governments of developing countries which though does not really help to cope with the problem of poverty, in spite of the declared goal of the World Bank to help to prevent poverty in the world. Instead, the World Bank is the financial institution which provides loans for developing countries to receive money and interest rates back, while often loans of the World Bank are spent on the purchase of materials and contracting companies from developed countries. As a result, instead of the enhancement of their economic development, poor countries grow poorer, while rich ones grow richer.

Conclusion

Hence, critics argue that rich nations simply use the World Bank as a mere tool to offer loans for the third world. At the same time, critics warn against risks associated with such role of the World Bank because developing countries become more and more dependent on the rich ones. As the World Bank provides loans to the middle- and low-income developing countries, they have to pay off those loans and interest rates. The middle- and low-income developing countries receive loans but they have to return them and loans become the tool of their growing dependence on the rich nations. They borrow money which they cannot always return and they have to borrow more. As a result, steadily their debt to the World Bank grows and they have to pay off their debt. In such a situation, even if they rich success with their large projects funded by the World Bank, they have to pay off their debt and interest rates to the World Bank that means that, instead of investing in their development, they have to pay off their debt. In such a situation, the countries that provide loans benefit the most because they offer loans to fund large projects and then return their money back and earn interest rates paid off by the middle- and low-income countries.

On the other hand, the World Bank rejects such allegations of its predatory nature. Instead, the World Bank positions itself as international financial institutions that facilitate the development of the world economy and helps to eradicate poverty. The World Bank’s mission and vision focus on the struggle against poverty and helping the poor nations to fund projects which they cannot afford to fund on their own. The World Bank is very important because private banks could not raise funds to fund those projects but even if they could, interest rates the poor nations had to pay off to private banks would be too high and just unaffordable for them. In such a situation, the World Bank becomes almost the only alternative for the middle- and low-income countries to raise funds to cover costs of their ambitious projects as well as just vitally important projects to improve their infrastructure, transportation, and so on. In this regard, it is worth mentioning the fact that the World Bank focuses on large sectors, such as agriculture, education, health care, trade policy, regulatory policy and others. In such a way, the World Bank is not a sheer financial institution but also a political one because it uses economic tools to influence policies conducted by countries that take loans from the World Bank. Therefore, in spite of claims of the World Bank, it still does uses loans granted to poor countries as the tool of control and enhancement of the position of the rich countries. Anyway, the rich countries play the main part in the decision-making process of the World Bank and they are the major suppliers of financial resources to fund loans which poor countries take to fund their large projects. At the same time, the World Bank is essential because it is virtually the only international institution capable to afford funding of such projects. The poor countries could have never accomplished their large projects without the World Bank, whereas the completion of those projects creates conditions for the accelerated economic growth of the poor nations and the improvement of their standards of living. Also, the World Bank contributes to the overall growth of the global economy because its loans help to redirect financial flows or capital from the rich countries to the poor to fund projects. As a result, money keeps working and returning to the rich nations and the world economy is growing.

The current development of the World Bank reveals the growing trend to the enhancement of homogeneous rules in the international trade and global economy and weakening of the position of employees. The World Bank supports the development of the homogeneous world economy because it facilitates the bank’s operations and makes the free movement of capital even easier than it used to be before.

References