WOMEN’S UNIVERSITY IN AFRICA
FACULTY OF SOCIAL SCIENCES AND GENDER DEVELOPMENT STUDIES
Assignment Cover Sheet
Department: MDS
Intake: 10
Part A: Student Details
Name of Student: PAIDAMOYO MAGAYA
Student I.D No: W150180
Name of Course: ADVANCED QUALITATIVE RESEARCH METHODS
Code: MDS 113
Assignment Number: One
Question: ‘The establishment of the IMF and the World Bank at the Bretton Woods Conference in July 1944 was mainly aimed at expanding and consolidating the Capitalist Mode of Production throughout the world.’ Discuss
Due Date: 25th March 2015
Part B: Marker’s comments:
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Overall Mark: …………………………………. Date Marked:………………………………
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Lecturer:………………………………………………………………………………………………...

The Bretton Woods conference gave birth to two powerhouses in the economic spheres in the world namely the International Monetary Fund (IMF) and the World Bank (WB). The two institutions have evidently embraced the capitalist ideology by setting the agenda to enrich the few while widening the gap between the haves and the have-nots. IMF and WB are largely capitalist institutions promoting the capitalist mode of production to unsuspecting and vulnerable countries throughout the world. The two institutions do also have some level of development that they have contributed to economies in some parts of the world. The assignment discusses how the two have expanded the capitalist mode of production since their establishment. On the lesser note, any positive gains from their existence shall also be highlighted.
According to the IMF website the IMF formerly known as the International Stabilisation Fund (ISF) is a financial institution with core aspects of surveillance, lending and technical assistance. Under surveillance, IMF monitors the economies and exchange rates of countries. Its lending role involves lending reserve currencies to nations with trade difficulties. Technical assistance and training is provided in the areas of monetary and financial policies, fiscal policy and management, and economic and financial legislation. The World Bank (2008) defines itself as a United Nations international financial institution that as Stephey (2008) explains provides underdeveloped nations with needed capital. Karl Max (1867) states that the capitalist mode of production refers to the systems of organizing production and distribution within the capitalist societies. In the view of Foley and Dumenil (2008) capitalist mode of production is based on industrial technology, wage-labour and private ownership of the means of production while capitalism is production for exchange. It is driven by the desire for personal accumulation of wealth mediated by free markets. Robinson (2004) states that capitalism is by nature expansionary and needs constant access to new sources of cheap labour, land, raw materials and markets in order to survive.
Taking place towards the end of the Second World War in 1944 in the United States (US), the Bretton Woods Conference was attended by 44 nations with the aim of helping rebuild the shattered post-war economy and to promote international economic cooperation. Earlier on the world had been devastated by the Great Depression and World War One which resulted in the destruction of infrastructure and economies to countries mostly affected by these catastrophes. Evrensel (2013) states that the delegates at the conference agreed to avoid the past mistakes they had made when in an attempt to punish Germany; they had imposed large reparation payments to cover the debt accumulated by Allied forces during the war and help them pay to rebuild their countries. Due to the heavy burden of the payments Germany never recovered from the World War One and ended up printing money thereby creating hyperinflation where a pound of bread cost DM3 billion. In attempting to respond to the Great Depression countries had agreed to implement trade restrictions in the 1920s to improve their current account deficits and stop the reserve loss. However retaliation against these trade restrictions instead pushed the level of restrictions to international trade higher and further supressed output and employment. It is at the 1944 conference that the participants declared their ideological views so that they would rely on capitalism to solve the economic problems of the post-World War II era. Evrensel (ibid) further explains that despite their different views regarding the desired extent of government interventions in the market, the countries represented in the conference were dedicated to capitalism.
Goldman (2005) states that during the Bretton Woods conference the US and Britain dominated in the deliberations. John Maynard Keynes a British economist presented a proposal for the creation of a union called International Clearing Union (ICU) as a way to addressing current account balances. His Plan was for the ICU to act as a bank with its own currency (Bancor) which could be exchanged with other currencies at a fixed rate allowing countries to have an overdraft facility in their Bancor account. His plan had an interest rate of 10 percent for countries whose current account surplus would be more than half the size of its permitted overdraft. His proposal was shot down by Harry Dexter White an American economist who saw it as being “interventionist” and would work against the US bid to control the economy. White agreed on the need to have an agency formed to manage current account imbalances and came up with the proposal to set up the ISF which later became the IMF which placed the burden of balancing current accounts on deficit countries and imposed no limits on surplus countries. This capitalist international monetary system was accepted together with the second proposal of creating a new multi-lateral development agency that would plan and finance economic reconstruction in all war-torn countries. His proposal, full of American undertones thus gave birth to the setting of the IMF and the World Bank placing US in the presidency and in control. Arrighi (2001-2002:474) observes that the IMF and World Bank were created by the U.S. government … as an expression and instrument of U.S. world hegemony.” Arrighi et al (1999) argue that these formations were a successful attempt to solve the contradictions of world capitalism as instituted under British hegemony.
The management of the two institutions is dominated by industrialised countries. The Global Exchange explains that unlike a democratic system in which each member country would have an equal vote, rich countries dominate decision-making in the IMF because voting power is determined by the amount of money that each country pays into the IMF’s quota system. It’s a system of one dollar, one vote. Stumm (2011) explains that since voting power is based on economic size, the countries with little contribution have zero bargaining power hence giving room for power houses such as America to set the agenda in the institutions as it is the largest shareholder. The disproportionate amount of power held by wealthy countries means that the interests of bankers, investors and corporations from industrialized countries are put above the needs of the world’s poor majority.

It should be noted that the countries that joined IMF between 1945 and 1971 agreed to keep their exchange rates pegged at rates that could be adjusted only to correct a “fundamental disequilibrium” in the balance of payments and only with the IMF’s agreement. Thus currencies’ value was matched with the US and the value of dollar for America was matched with gold. This however ended in 1971 after the US government suspended the convertibility of the dollar into gold which was seen to be overvalued. This allowed IMF members the freedom to choose any form of exchange arrangement they wished. Following the oil crisis that took place immediately after, most countries that were oil importers ended up borrowing money to import meaning new wealth flowed back into the European and American Banks including the World Bank who were eager to lend money.

IMF and the World Bank whose roles as earlier explained have been to lend money to needy countries, have indeed given loans which however have come up with strings and conditions that have left the borrowers in worse situations than they were currently in. These conditions come in the form of policy prescriptions called ‘Structural Adjustment Policies (SAPs)’ which Robinson (1996) label as neo-liberal. The SAPs require debtor governments to open their economies to penetration by foreign corporations, allowing access to the country’s workers and environment at bargain basement prices. The SAPs meant across-the-board privatisation of public utilities and publicly owned industries, reducing social spending on programs such as education, health and production credits for poor farmers. Examples of some of the countries who were victims of the SAPs include Ecuador. It got a loan in the 1960s and 30 years down the line its poverty had increased from 50 to 70 percent; unemployment from 15 to 70 percent, the public debt from $240 million to $16 billion and resource allocation to the poor had decreased from 20 percent to six percent. By 2000, 50 percent of its budget was allocated to pay its ever increasing debt. Elsewhere, Bolivia privatised its water utility which generated inflationary bills and resulted in uproars in the country. The Philippines after borrowing reached a point where 44 percent of the country’s total budget was going to service the debt while only three percent was allocated to health. Poverty increased to 70 percent of the population. Through these loans the IMF was instrumental in budget allocation for the countries in debt, leaving less funds for environmental protection and development. Cornia et al (1987) state that Unicef reported in the 1980s that these SAPs of the World Bank had been responsible for reduced health, nutrition and educational levels for tens of millions of children in Asia, Latin America and Africa.
Furthermore, the Global Exchange mentions that the SAPs through the immoral system of modern day colonialism created by the IMF, contributed to the devaluation of national currencies to make exports cheaper and the freezing of wages. Through the prioritization of export production as recommended by the IMF, countries shifted their focus from food production for local consumption to production of export crops destined for the wealthy countries. These and more measures only contributed to the increase in poverty leaving women and children hard hit; and reduced countries’ abilities to develop their own strong domestic economies while damaging the local environment. In Ivory Coast, the increased dependency on cocoa exports led to the loss of two-thirds of the country’s forests. Furthermore, the loan Argentina received had conditions of reduction of salaries for doctors and teachers and decreases in social security payments. Thus IMF made elites from the Global South more accountable to First World elites than their own people, thereby undermining the democratic process. Cobb (2002) explains that the SAPs proved to be an extremely effective instrument in accomplishing the basic purpose of the Washington consensus, that is, the movement toward a single global market.
Hertz (2001) explains the ‘Washington Consensus’ as a group of Washington based institutions including IMF and World Bank that agreed on some policy instruments that included privatization, deregulation, trade liberalization and fiscal prudence. Latin American countries had to pursue the policy instruments as a condition to qualify for financial aid from the US and the international institutions to overcome the debt crisis of the 1980s and 1990s. The notion of the consensus was to apply the trickledown theory where economies would grow and wealth would trickle down from the rich to the poor. However, after the policies were applied in Latin America, growth percentages fell radically. Notzon et al (1998) observe that after capitalism was introduced in Russia, inequality and poverty grew tremendously and life expectations dropped by 15 years in the 1990s. Thus, the Trickledown Theory was proved a myth.

The sweatshops set up in developing countries by the two institutions have contributed to the cycle of poverty as benefits go to the multinational corporations since labour costs are lowered. According to Klein (2001) in a 1998 survey of special economic zones in China it emerged that manufacturers for companies like Ralph Lauren, Adidas and Nike were paying as little as 13 cents per hour in a country where the living wage was around 87 cents per hour. Workers in the U.S. doing the similar job were paid in the range of $10 per hour. Thus the cycle of poverty gets to be perpetuated even more as the debts to the institutions also continue to grow.
The open market system created by these institutions created a platform for take-over by giant US corporations and conglomerates thereby destabilising local markets. Foreign goods found their way into the developing countries. These destroyed local productions as citizens opted for the imports whose prices were cheap compared to goods produced locally. A case in point is the current advent of Chinese shops in most African countries including Zimbabwe. As protective barriers are broken down currencies gathered in the state economies are overturned by this open competition in global capitalism. In the end the western empire continues to firm while local industries become unsustainable and close down.

In support of the above, Mueller states that ( 2009:181)
The independent economic agencies of the UN, … the IMF and the World Bank, impose capitalistic features such as private property and wage labor on developing societies. These societies are forced to accept the market, rather than the state, as the mechanism for distributing wealth, resources, and values.
Thus as long as the market distributes wealth, resources and its values, the owners of the means of production stand to benefit at the expense of wage earners. In the context of the modern world system theory Mueller (ibid) further states that the core will always benefit at the expense of the poor. As long as the IMF and the World Bank continue to demand market reforms in exchange for development and stabilisation loans, then the periphery states will see at best mal-development and, at worst, chronic underdevelopment.
The UN agencies; IMF and the World Bank reflect, reinforce and impose capitalism. Through their policies they continue to sell capitalism, an economic mode of production under which the majority of the world’s people are impoverished, malnourished and exploited, Mueller (ibid). Their aid comes with notions of democracy, human rights and self-actualisation of governments yet it is all an agenda for market accumulation. Any countries that seem to interfere in any significant way with capitalist accumulation are sacrificed. Pilger (1992) observes that Yemen after voting against the resolution to go to war in the Security Council, had its debt of $17 million withdrawn and was told by a Senior American Diplomat that they had cast the most expensive no-vote. On the contrary countries that support the US get rewarded handsomely. China received its first World Bank loan one week after its foreign minister met with American President George Bush at the White House. Also, Iran also received its first loan after it showed support of the US in 1979. Thus through the two institutions America has controlled not only countries’ economies but even leadership for its personal gains.
While their role has been to alleviate poverty and help in reconstruction of infrastructure, IMF and the World Bank have continuously hurt the struggling countries despite parading as saviours. In the case of Haiti, the country was hit by earthquakes that destroyed lives and millions worth of properties. IMF intervened by cancelling the existing debt and further gave Haiti a new debt which was interest free till end of 2011. Thereafter the country would be charged interest. This meant that the capitalist still had a hold of Haiti and would benefit from the interest to be generated by the new loan. There was no way Haiti would rebuild and pay off the loan by 2011.
So shrewd and cunning is the US that it uses these institutions to carry out surveillance on countries that have resources which the US will stand to benefit. Once the countries have been identified, IMF and the World Bank come in with proposals which are ‘developmental’. Countries fall prey to these and end up getting loans which they struggle to pay off. In turn the financial institutions settle for the resources which are extracted and sold off to foreign corporations (mainly US) at unequal rates as countries try to service their debts. Stephey (ibid) highlights that all over the world people are being forced from their lands so oil, timber and mining companies can move in to extract the resources. Little or no compensation is offered for these displacements. Instead environments are destroyed along the way.
Moreover, the IMF and the World Bank have been extensions of capitalist unsustainable banking system. Landes (1999) calculated that the difference in income per head between the richest nation (Switzerland) and the poorest non-industrial country (Mozambique) was about 400:1. The gap between the rich and poor has continued to widen as a result of the capitalist nature of the institutions whose presence is dominant in developing nations.
Although the institutions are funded by taxpayer money, they operate in such secrecy. IMF works with a select group of central bankers and finance ministers to make polices without input from other government agencies such as health, education and environment departments. The institution has resisted calls for public scrutiny and independent evaluation.
The IMF has used its influence to plunge developing countries into deeper crisis while gaining from the fiasco. In 1979, Liberia, whose economy largely depended on rice farming, was advised to remove subsidies to farmers and import rice from the US. Immediately after the subsidies were stopped, rice prices went up leading to serious rice riots as the majority of the population could no longer afford their staple food. The agriculture system had been destroyed through bad advice from IMF. This further led to the 26 year period of war and the country got loans which were used to buy weapons from the US and more than 250 000 people died. Haiti too was forced to open its market to imported rice and currently a US corporation called Early Rice sells nearly 50 percent of rice consumed in the country.

The two institutions have been accused of creating moral hazard and greater instability in the global economy through their capitalistic tendencies of bailing out rich bankers. Global exchange reports that IMF routinely pushes countries to deregulate financial institutions thereby increasing capital investment in developing countries’ financial markets. An estimated $1.5 trillion is said to cross borders daily to benefit the institutions. During the 1995 Mexican crisis which was also attributed to the harsh policies of the institutions, the IMF and US government stepped in to prop up interest and exchange rates, using taxpayer money to bail out Wall Street bankers. In Asian countries the institutions required governments to assume the bad debts of private banks resulting in the public paying the costs and draining of more resources from social programs.
While generally it has been apparent that the two institutions largely propagated capitalist agendas it should however be noted that the goals set at their establishment were developmental. The original aim of lending money through loans to developing nations was a noble idea in so far as uplifting economies and development was concerned. Some countries actually benefited from the loans. An example is South Korea who through pursuing macroeconomic reforms, high savings and investing in basic needs such as education and social services, was able to stabilise its economy and eradicate poverty.
IMF has of late revised its loan facilities. Martin (2009) states that instead of providing the same medicine to all countries regardless of their particular problems, the new loan facilities are intended to aid reform-minded governments by providing short-term resources to reassure investors. In this manner, they help politicians in developing countries manage the downside costs of integration.
The World Bank has been instrumental in helping countries work towards achieving the Millennium Development Goals (MDGs) which include reducing child mortality rates and fighting disease epidemics such as AIDS. Though the MDGs are yet to be achieved, countries are making great strides in improving health systems strengthening. Zimbabwe’s HIV epidemic has reduced from 30 percent more than 20 years ago to the current 15%. The country is now working on the UNAIDS 90-90-90 strategy that stipulates that 90% of population should get an HIV test. Of the positives 90 percent should be on treatment and 90 percent to have reduced viral load.
In responding to the increasing poverty in the countries it helps, the World Bank has embarked on programs of expanding social issues in the fight on poverty. Brym et al (2005) state that in 2001, the World Bank began to incorporate gender issues into its policy. Two years later the World Bank announced that it was starting to evaluate all of its projects for their effects on women and girls, noting that poverty is experienced differently by men and women and a full understanding of the gender dimensions of poverty could significantly change the definition of priority policy and program interventions.
From the above discussion it is cogent to argue that the IMF and World Bank have to a very large extent expanded and consolidated the capitalist mode of production championed by the US and its Western Capitalist allies culminating in a much wider gap between the North and South and between the Haves and the Have-nots in the North and South.

References
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Cobb J. B. (2002) ‘The Global Economy and its Theoretical Justification’. Shanghai
Cornia, G. A. et al eds. (1987) Adjustment with a Human Face: Protecting the Vulnerable and Promoting Growth. New York, NY: Oxford University Press USA
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