World Bank bats for ‘new social contract’ for East Asia

In recent years, the World Bank and the International Monetary Fund (IMF) have been adjusting their neoliberal growth panacea for borrowing countries. In an earlier column, we reported on how the IMF’s research department, in an article entitled “Neoliberalism oversold” (published in the IMF’s Finance & Development, June 2016), documented and decried the inequality and unsustainability outcomes arising from their own neoliberal prescriptions, specifically the policies promoting the unrestricted flow of capital and the downsizing of the state capacity in intervening in the economy. Unregulated capital account liberalization is heaven sent to vulture or speculative capitalists who do not create new jobs and wealth for society; on the other hand, a program of fiscal austerity, which is part of the bigger “privatization” program, weakens a government’s ability to stimulate the economy, as amply demonstrated in the case of Greece.

The soundness of some of the assumptions that are used to justify key neoliberal policies are also debated internally – and much longer and more public — in the World Bank, the twin sister of the IMF.  As is well known, the global mission of the World Bank is to reduce poverty by providing development loans and policy advisories (more accurately dubbed as “policy conditionalities”) to borrowing countries. In the 1980s and 1990s, the World Bank was at the forefront of the global proselytizing on the so-called virtues of untrammeled globalization, which was translated into “structural adjustment” policies aimed at tearing down trade and investment walls, privatizing government assets and services and deregulating various sectors of the economy. In the specific case of the Philippines, the “structural adjustment program” or SAP was rationalized by the World Bank and Filipino economic technocrats as the key in advancing industrialization, modernizing agriculture and making the economy efficient.

However, the development outcomes of SAP in the Philippines and other countries were largely negative, as documented by trade unions, farmer organizations, civil society groups and industry associations. Dani Rodrik, a Washington-based economist, wrote that SAP can in fact lead to the opposite – “premature de-industrialization”, as what happened in the case of the Philippines. Proof: the country’s growth momentum in the last two decades is not due to the SAP program instituted in the 1980s-90s; growth is fueled largely by two non-SAP phenomena: the explosive growth of OFW remittances and the rise of the call center/BPO sector. Another proof: the Department of Trade and Indistry is trying to revive Philippine manufacturing through its “manufacturing resurgence” program.

At any rate, the World Bank has been adjusting its arsenal of anti-poverty policy prescriptions. In the 1990s, the World Bank, in response to the growing global criticisms on SAP modified the SAP program by emphasizing the role of “institutions” and the need to curb “moral hazards” (code name for “corruption”) in borrowing countries. The SAP-oriented “Washington Consensus” of the two Washington-based sisters was re-baptized as the “new Washington Consensus”.

In 1997-2000, a maverick economist, Joseph Stiglitz, became the Chief Economist of the World Bank. Stiglitz created a furor by immediately questioning the soundness of some aspects of the SAP program and the appropriateness of a number of development policies being pursued by the World Bank. One policy issue questioned by Stiglitz was the Bank’s obsession to promote the privatization of social security in borrowing countries.

After the departure of Stiglitz, the World Bank dropped the debate on pension privatization. Instead, it promoted itself as the defender of the marginalized sectors or those who are not covered by any formal social insurance by making social protection for these sectors a priority flagship development program. In Latin America, it conceived the Bolsa de Familia or the conditional cash transfer (CCT) program as the mechanism to address the needs of households who have limited incomes and whose children are unable to go to schools. In Southeast Asia, the World Bank, after dilly-dallying on what to do to assist the displaced victims of the 1997-1998 Asian financial crisis, eventually recognized the importance of a universal health insurance scheme, as pioneered by Thailand’s Prime Minister Thaksin Shinawatra.

With the Bank’s prodding, the Philippines adopted the CCT during the second term of Gloria Macapagal-Arroyo. It was christened as the 4Ps – Pantawid Pamilya Pilipino Program. The CCT immediately became the priority program in a bundle of other World Bank-supported anti-poverty programs such as the KALAHI-CIDSS. The CCT was continued and expanded during the Aquino Administration. Today, the CCT is not only being continued by the Duterte Administration; it is also being expanded further in collaboration with the World Bank and ADB, to complement the government’s job creation “Build, Build, Build” program.

In summary, the World Bank, since the turn of the millennium, has become a major exponent of social protection and human capital development ostensibly for the benefit of the poor and those left out in the globalization processes. When the Arab Spring broke out in 2011, ushered in by the Tunisian Revolution lit by the self-immolation by a young jobless vendor, the World Bank started looking more closely not only into issues of inequality and extreme poverty but also on how the poor, young, women and even middle-class segments of society are being excluded in the sharing of wealth and power in the Middle East and other regions. The World Bank took the unprecedented step in its anti-poverty development advocacy in the last seven decades, that is, by calling on concerned governments to embrace a “social contract” in support of inclusive growth.

Thus, for 2015, the World Bank’s development report for the Middle East and North Africa region was boldly titled “Towards a New Social Contract”. Some of its policy recommendations are also quite bold such as competition policy to level the field against those who hold domestic power and monopolize the domestic market, measures to make the government accountable to the “citizens” in the delivery of public services, and transforming government subsidies into outright cash transfers ala-CCT for the poor. At the same time, the World Bank wrote that the proposed “incremental reforms” are not meant to “dislodge the system”, obviously to shield the Bank from any backlash that autocratic leaders in the region may unleash.  It would be interesting to find out if the Report was read by the kings and sheiks who rule the Middle East.

Now for East Asia, the World Bank has just come out with a Regional Report entitled Riding the Wave: An East Asian Miracle for the 21st Century (for general release in 2018). Like the past World Bank Reports on the Region, Riding the Wave highlights the role of the region as a motor of global economic growth and how millions in the region (mainly from China) are being lifted out of poverty in the process. At the same time, the Report reiterates past observation: growth is generally uneven and growth benefits distributed unequally. It noted further that in some countries like the Philippines, there was very “little mobility” (p. 4) for those stuck in the lower end of the income class structure. The Report warns that middle classes in the region are vulnerable to “systemic shocks” and can slide down in the income ladder if the social protection system is not fully developed such as having protection against a destructive flood disaster.

Most of the economic observations in the Report are not new.  What is new in the audacious proposal for “a new social contract” to promote inclusive growth based on what the World Bank calls as three pillars: fostering economic mobility, providing greater economic security, and strengthening institutions in support of inclusive growth. Are these not the same proposals being aired by trade unions and civil society organizations in Asean and other global, regional and national forums? The Bank then goes on enumerating anti-poverty measures such as CCT  for the low-income classes, expansion of the social insurance coverage, progressive taxation, competition policy, and so on.

Clearly, the World Bank’s proposal for a “new” social contract in East Asia is bold and quite advanced compared to its past anti-poverty programs, especially those developed around the old discredited SAP program which merely listed technocratic solutions on how to open up the market via trade and investment liberalization, privatization of government assets and services and deregulation of economic sectors. However, key elements of a progressive and truly inclusive social contract are hardly mentioned or amplified in Riding the Wave. These include “voice”, “human rights” and “representation” for the marginalized.  Central in modern and democratic social contract is citizens’ participation in the crafting of policies directly affecting them. This requires institutions and mechanisms for the conduct of frank and sustained social dialogue among the stakeholders in growth and development.  Again, these are missing in the Bank’s proposal.

Moreover, the appropriateness of certain economic measures prescribed by neoliberal economists in the past and present still need to be debated and evaluated. For example, the issue of freeing “property rights” and “land rights”, as proposed in the Report and by some neoliberal economists, is contestable. This is seen by farmers in Cambodia, Indonesia, Myanmar, Philippines and other countries as a green light for corporate land invasion and poses a direct threat to small farmer livelihoods and well-being.

The idea of a social contract in each of the East Asian countries and in the region as a whole is a good one. But forging a democratic and liberating social contract requires a full-blown honest-to-goodness social dialogue involving all key stakeholders and a closer scrutiny of whether past and present World Bank policies have truly contributed or not to inclusive growth and development.

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Turning Points 2018