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The Political Economy of the World Bank: The Early Years

Author(s):Alacevich, Michele
Reviewer(s):Galambos, Louis

Published by EH.NET (October 2009)

Michele Alacevich, The Political Economy of the World Bank: The Early Years. Stanford, CA: Stanford University Press, 2009. xvi + 197 pp. $30 (paperback), ISBN: 978-0-8047-6066-9.

Reviewed for EH.NET by Louis Galambos, Department of History, Johns Hopkins University.

At the end of World War II, a momentous change took place in relations between the strong and weak nations. For all of human history to that point, the strong had systematically exploited the weak, taking their people for slaves, stealing booty, and creating colonies subject to the authority and taxation of this or that empire. Seeking to create a new and stable world order, the victors in the late 1940s set out to build a series of international institutions that would no longer involve exploitation. One of these new institutions was the World Bank.

As Michele Alacevich points out, the Bank began its evolution with a relatively simple mandate. It was designated The International Bank for Reconstruction and Development and sent out to help the allied and associated nations recover from the war?s devastation. Preempted in that task by the Marshall Plan, the Bank quickly turned to the task of encouraging the economic development of those nations that had yet to experience the first and second industrial revolutions.

Alas, there was no consensus among economists or government officials as to how, exactly, that should be done. Enter the Canadian-born Lauchlin Currie, who had studied at the London School of Economics and Harvard University before heading to Washington, DC, where he prepped in Treasury and the Fed, then became FDR?s economic advisor. Dedicated to a full-blown form of economic, political, and social planning, Currie was at home in the New Deal White House. In 1948, the World Bank selected Currie to head its mission to Colombia, the first significant effort to launch the new development program. Enter economist Albert Hirschman, who left a position at the Federal Reserve in order to explore the new and exciting field of development economics. Sent by the Bank to assist in Colombia, Hirschman soon clashed with Currie. Their struggle provides the central tension of Alacevich?s stimulating, on-the-ground account of this important phase of the Bank?s grand experiment in closing the gap between the developed and the under-developed nations.

The job wasn?t (and still isn?t) easy. Currie?s mission struggled with a lack of good data, with third-world political turmoil, and with an inefficient agricultural economy stubbornly resistant to change. The mission?s approach emphasized a broad, New-Deal type program that included consideration of health as well as productivity, education as well as infrastructure. Meanwhile, the Bank was drifting toward a project-centered approach to development. Hirschman, who was skeptical about balanced growth, became the Bank?s leading advisor after Currie completed his mission and began to work with the Colombian government. Alacevich does an excellent job of unraveling the opposing concepts of growth and demonstrating how important personality was in this innovative stage of the development saga. Meticulous research in the extant records enables the author to convey a powerful sense of the sort of confusion and conflict that drops out of history written from the top down.

Does the book fall short in any regards? Yes, of course. It still has the marks of originating in a doctoral dissertation ? in this case, a Ph.D. completed at the University of Milano, Italy. Far better written than most revised dissertations, the book nevertheless seems to be reaching for an appropriate philosophy of history without actually grasping one aligned with this subject. The most serious limitation is one the author probably couldn?t avoid. Having set up the Currie-Hirschman conflict as the central story, Alacevich has a problem when that particular tension is resolved. As a result, the final section of the book appears to be tacked on to a story that has already ended. While the author goes into the Bank?s reorganization of 1952 as a final denouement, the reader?s impression is that this structural adaptation was an epilogue, not a conclusion.

These problems aside, The Political Economy of the World Bank is a study that merits a careful reading. The author has dug deeply into a significant process of institutional change, a process worthy of serious reflection half a century later. The World Bank, despite its thick layers of expertise, has not escaped the problems first uncovered in Colombia. Powerful reasoning could not persuade Colombian leaders that they did not need and could not operate efficiently the integrated steel mill that they badly wanted. Import substitution became an even more powerful form of reasoning, and the Bank had to yield. Amidst steadily increasing costs and some episodes of bad-faith negotiating by the government, Colombia moved ahead with the steel plant at Paz de Rio. As the Bank?s vice president noted with a shrug, ?Paz de R?o had become a national symbol? (p. 98).

Every international program has collided with this style of resistance. Should you provide fresh, safe water or build a hospital ? with a naming opportunity. Should you improve agriculture or buy a modern weapon system? The list of tensions seems endless, and they define the boundary between the ideology of nationalism and the internationalism the Bank was attempting to strengthen. More than fifty years later, we are still perched along that boundary, looking for better ways to close the gaps that still exist between the developed and developing worlds. That, in large part, explains why Alacevich?s history deserves our attention today.

Louis Galambos is a professor of economic and business history at Johns Hopkins University and is a co-director of the Institute for Applied Economics and the Study of Business Enterprise. He has long been interested in the Bretton Woods institutions and has just completed a book on ?The Creative Society ? and the Price Americans Paid for It.?

Subject(s):Economic Planning and Policy
Geographic Area(s):North America
Time Period(s):20th Century: WWII and post-WWII