World Bank urged to axe development program Plenty of paradoxes

The Commodity Curse people are at it again, this time in pressuring the World Bank and its associated agencies — the International Finance Corporation and the Multilateral Investment Guarantee Agency — to stop financing mining and energy-extraction projects in the Third World.

This is another straw in a very ill wind blowing from what is sometimes injudiciously called “civil society.” Non-governmental organizations have seized on the extractive industries as one of the evils the First World sends to the Third, and many of them mean to shout their mightiest “stop,” largely by pressuring governments and international agencies to abandon support for resource industries in the developing countries.

That is myopic, and frequently even blind. As we have argued before on this page, commodity production is often the only way poor countries can offer goods competitively in world markets. Cutting off their access to the capital that would allow their resources to be developed effectively cuts them off from any economic growth at all.

A report from the Extractive Industries Review, an outside body the World Bank commissioned to study its practices in financing extractive-industry projects, is much more measured in its conclusions, noting that the valid predictor of social and economic progress is not resource endowment but good government.

This is the fact that the industry must hammer home. The Third World is rife with examples of commodity industries that have enriched the powerful, the landed, or an educated elite; but equally there are examples of countries with resource bounties and steadily developing societies, good educational systems, functioning health care, and diminishing poverty. Then — and this is an important point that the NGOs al- ways manage to ignore — there are the countries that are now First World societies wholly or partly because of their resource endowments.

In short, economies and societies can progress on the strength of their resource industries: they are not condemned to poverty, sickness, oppression and environmental degradation by developing their resources. Side by side are archaic Saudi Arabia and the steadily more modern Persian Gulf states; side by side are progressive Botswana and degraded Zimbabwe. The determinant is the old Churchillian divide, between public men who “are proud to be the servants of the State and would be ashamed to be its masters,” and the bad old ways, which in many Third World countries are not so old at all.

In this, the Review has sensibly made it a priority for the Bank to monitor where the money goes, what governments do with it, and how much actually makes its way to the poor in developing countries. But the Review still seems to have come down on the anti-mining side, if less heavily than the NGOs. It has recommended a freeze on financing for new resource projects until its other recommendations can be implemented.

There is a school of thought among the world’s bureaucrats and NGOs that one can easily shout, “stop the world, I want to get off,” and have the world pay attention. It won’t; but that attitude can have some unpleasant effects if anyone else is listening.

For example, a freeze of new project financings now would delay some projects just long enough to miss the next economic cycle. Then Third World mining projects would bring their production to the commodities markets just at a time when prices were declining again. That is a sure way to decrease the revenue available to those projects, and stunt whatever economic growth they might bring their host countries.

It is beyond doubt that people in the NGOs do care about the Third World; it is doubtful, though, that they think their nostrums through very carefully. Perhaps they should.

At the request of the Review’s advisory board, the final report is not being submitted until late this month. A “Final Workshop” is scheduled for Lisbon in mid-December. Following that, the Review’s recommendations go to the Bank. It is not too late for the industry to make its voice heard — if not by the Review secretariat, at least by the World Bank itself.