hen Jim Yong Kim assumed the World Bank Presidency in 2012, the anthropologist-and-vocal-Bank-critic was expected to lead the institution away from its sordid past into a hopeful new era. Seven years later, the man who had once made calls to abolish the Bank for its deference to private interests abruptly resigned to join a private equity firm.
To observers from 2012, Kim’s sudden career change may have come as a shock. But by 2019, it was a fitting final act—a perfect metaphor for his defining work as President: the Maximizing Finance for Development (MFD) agenda.
The World Bank’s MFD agenda is marketed as the great new hope for sustainable development. In reality, it is the latest chapter in a long history of international financial institutions putting the profits of a few over the lives of the many. Practitioners, activists, and the general public alike must join together to reject MFD—and build an alternative vision of development finance.
Maximizing Finance for Development…
The premise of MFD rests on the so-called “Billions to Trillions” gap. Sustainable development requires trillions of dollars in funding. Existing aid is only in the billions. To make up the difference, the thinking goes, the Bank must use its resources to mobilize private capital.
Under MFD, the first step in any development project is to ask if it can be privately financed. If it cannot, the Bank works with the recipient country to “reform” regulations to make investment more attractive. If this is insufficient, the Bank and the country underwrite private finance, acting as insurer or guarantor of private profit. Direct World Bank and public financing are only to be used as a last resort.
To further leverage private funds, the Bank is collaborating with institutions like the G20 to promote an agenda of “securitization.” Development projects, and their future revenues, are to be packaged into financial products. These products can then be traded on an open market in the same way as mortgage or auto loan-backed securities.
According to MFD’s proponents, stimulating private finance is the only way to adequately fund global development.
…or Maximizing Profit for Financiers?
But in truth, MFD is a coup for global capital—steamrolling the poor and vulnerable to pave the way for private profit.
First, MFD represents a fundamental pivot from public provision of public goods toward austerity and privatization. From the very beginnings of the neoliberal era, institutions like the World Bank have forced privatization onto countries of the Global South. Following decades of resistance, and accumulated evidence that privatization undermines basic human rights and denies equitable access to public goods like water, healthcare, and education, the World Bank seemed to be moving away from its past extremes. MFD is a return to business as usual.
Second, MFD demands that funding recipients develop an “investment-friendly” environment. If that environment does not already exist, the Bank will help to engineer it as a condition of assistance. But what’s friendly to investors is rarely what’s best for the public. World Bank prescriptions include: privatization; fiscal austerity; capital market deregulation; targeted, rather than universal, social programs; the opening of borders to volatile global capital flows; the opening of procurement processes to transnational corporations; and the restructuring of agricultural policies to benefit big business at the expense of peasants and smallholder farmers.
Third, MFD’s securitization approach can be used to circumvent important protections otherwise required of public development projects. As Nancy Alexander of the Heinrich Böll Foundation reports, “once a project’s future revenue streams are securitized…environmental and social safeguards would not apply.” Securitized projects are particularly likely to introduce or raise user fees, abandoning social goals like universal electricity access under pressure of the profit motive.
Finally, securitization, combined with deregulation, creates systemic financial vulnerability. In a recent open letter, over one hundred leading academics outline the threat: “Securitization, [as] we learnt from Lehman’s collapse, is a shadow market easily prone to mis-incentives, aggressive leverage, [and] aggressive promotion of underlying loans onto customers that cannot afford them. It generates systemic interconnectedness and fragility.” By placing the global development apparatus into the hands of unregulated “shadow bankers,” MFD heightens the risk of a repeat of 2008’s financial collapse.
MFD is little more than a rebranding of longtime neoliberal goals: privatization, financialization, and deregulation. It places unearned—and more, repeatedly invalidated—faith in the power of unfettered private finance. It is a textbook case of the “privatization of profits, socialization of losses,” and a conquest for investors at the expense of those that they purport to help.
Resisting the MFD Agenda
Handing the reins of global development to private financiers is not the only option.
Austerity and deregulation should be resisted, not imposed as a condition of aid. The shadow banking system should be brought under control. Public goods should be, where possible, publicly provided. And in cases where private financing is necessary, it should only be deployed under tight regulation, in service of projects that are proven to be sustainable, transparent, and inequality-reducing.
An alternative funding framework would free the resources needed for development by tackling systemic biases toward those who already hold the wealth.
Every year, the Global South loses over ten times what it receives in development assistance to illicit financial flows; reforming the global financial system would keep this wealth where it belongs. A fairer global tax system would prevent the siphoning of resources out of public coffers into unregulated banks and opaque tax havens. Comprehensive measures to prevent exploitative lending and encourage debt relief would free public funds that would otherwise be spent servicing national debt burdens. Ensuring that wealthy countries meet, and then surpass, their current aid commitments, perhaps as a form of reparations, would further bridge the gap. And a total restructuring of the global financial architecture—a New Bretton Woods—could mobilize the resources necessary for a Global Green New Deal.
Such a comprehensive, alternative agenda will take mass action—mobilization not only of professionals and civil society specialists, but of a global grassroots movement. Twenty years ago, a similar movement managed to shut down a Seattle meeting of the World Trade Organization. In the face of those same forces of neoliberal globalization, embodied now in the Maximizing Finance for Development agenda, it is time to revive the spirit of Seattle.
Jim Kim may have abandoned the pursuit of sustainable, human-centered development in order to pursue private profit. But we must not.
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The World Bank Must Put People Before Profit
The World Bank’s MFD agenda is marketed as the great new hope for sustainable development. In reality, it is the latest chapter in a long history of international financial institutions putting the profits of a few over the lives of the many. Practitioners, activists, and the general public alike must join together to reject MFD—and build an alternative vision of development finance.
October 16, 2019
With its Maximizing Finance for Development agenda, the World Bank continues its history of forcing neoliberalism on the Global South.
W
hen Jim Yong Kim assumed the World Bank Presidency in 2012, the anthropologist-and-vocal-Bank-critic was expected to lead the institution away from its sordid past into a hopeful new era. Seven years later, the man who had once made calls to abolish the Bank for its deference to private interests abruptly resigned to join a private equity firm.
To observers from 2012, Kim’s sudden career change may have come as a shock. But by 2019, it was a fitting final act—a perfect metaphor for his defining work as President: the Maximizing Finance for Development (MFD) agenda.
The World Bank’s MFD agenda is marketed as the great new hope for sustainable development. In reality, it is the latest chapter in a long history of international financial institutions putting the profits of a few over the lives of the many. Practitioners, activists, and the general public alike must join together to reject MFD—and build an alternative vision of development finance.
Maximizing Finance for Development…
The premise of MFD rests on the so-called “Billions to Trillions” gap. Sustainable development requires trillions of dollars in funding. Existing aid is only in the billions. To make up the difference, the thinking goes, the Bank must use its resources to mobilize private capital.
Under MFD, the first step in any development project is to ask if it can be privately financed. If it cannot, the Bank works with the recipient country to “reform” regulations to make investment more attractive. If this is insufficient, the Bank and the country underwrite private finance, acting as insurer or guarantor of private profit. Direct World Bank and public financing are only to be used as a last resort.
To further leverage private funds, the Bank is collaborating with institutions like the G20 to promote an agenda of “securitization.” Development projects, and their future revenues, are to be packaged into financial products. These products can then be traded on an open market in the same way as mortgage or auto loan-backed securities.
According to MFD’s proponents, stimulating private finance is the only way to adequately fund global development.
…or Maximizing Profit for Financiers?
But in truth, MFD is a coup for global capital—steamrolling the poor and vulnerable to pave the way for private profit.
First, MFD represents a fundamental pivot from public provision of public goods toward austerity and privatization. From the very beginnings of the neoliberal era, institutions like the World Bank have forced privatization onto countries of the Global South. Following decades of resistance, and accumulated evidence that privatization undermines basic human rights and denies equitable access to public goods like water, healthcare, and education, the World Bank seemed to be moving away from its past extremes. MFD is a return to business as usual.
Second, MFD demands that funding recipients develop an “investment-friendly” environment. If that environment does not already exist, the Bank will help to engineer it as a condition of assistance. But what’s friendly to investors is rarely what’s best for the public. World Bank prescriptions include: privatization; fiscal austerity; capital market deregulation; targeted, rather than universal, social programs; the opening of borders to volatile global capital flows; the opening of procurement processes to transnational corporations; and the restructuring of agricultural policies to benefit big business at the expense of peasants and smallholder farmers.
Third, MFD’s securitization approach can be used to circumvent important protections otherwise required of public development projects. As Nancy Alexander of the Heinrich Böll Foundation reports, “once a project’s future revenue streams are securitized…environmental and social safeguards would not apply.” Securitized projects are particularly likely to introduce or raise user fees, abandoning social goals like universal electricity access under pressure of the profit motive.
Finally, securitization, combined with deregulation, creates systemic financial vulnerability. In a recent open letter, over one hundred leading academics outline the threat: “Securitization, [as] we learnt from Lehman’s collapse, is a shadow market easily prone to mis-incentives, aggressive leverage, [and] aggressive promotion of underlying loans onto customers that cannot afford them. It generates systemic interconnectedness and fragility.” By placing the global development apparatus into the hands of unregulated “shadow bankers,” MFD heightens the risk of a repeat of 2008’s financial collapse.
MFD is little more than a rebranding of longtime neoliberal goals: privatization, financialization, and deregulation. It places unearned—and more, repeatedly invalidated—faith in the power of unfettered private finance. It is a textbook case of the “privatization of profits, socialization of losses,” and a conquest for investors at the expense of those that they purport to help.
Resisting the MFD Agenda
Handing the reins of global development to private financiers is not the only option.
Austerity and deregulation should be resisted, not imposed as a condition of aid. The shadow banking system should be brought under control. Public goods should be, where possible, publicly provided. And in cases where private financing is necessary, it should only be deployed under tight regulation, in service of projects that are proven to be sustainable, transparent, and inequality-reducing.
An alternative funding framework would free the resources needed for development by tackling systemic biases toward those who already hold the wealth.
Every year, the Global South loses over ten times what it receives in development assistance to illicit financial flows; reforming the global financial system would keep this wealth where it belongs. A fairer global tax system would prevent the siphoning of resources out of public coffers into unregulated banks and opaque tax havens. Comprehensive measures to prevent exploitative lending and encourage debt relief would free public funds that would otherwise be spent servicing national debt burdens. Ensuring that wealthy countries meet, and then surpass, their current aid commitments, perhaps as a form of reparations, would further bridge the gap. And a total restructuring of the global financial architecture—a New Bretton Woods—could mobilize the resources necessary for a Global Green New Deal.
Such a comprehensive, alternative agenda will take mass action—mobilization not only of professionals and civil society specialists, but of a global grassroots movement. Twenty years ago, a similar movement managed to shut down a Seattle meeting of the World Trade Organization. In the face of those same forces of neoliberal globalization, embodied now in the Maximizing Finance for Development agenda, it is time to revive the spirit of Seattle.
Jim Kim may have abandoned the pursuit of sustainable, human-centered development in order to pursue private profit. But we must not.
