This week, as Europe deals with the fallout from the Greek referendum, one thing has become clearer than ever: the old economic orthodoxy is dead. What’s less clear is whether a new and more sensible framework may be on its way and whether the emerging economies known as BRICS — Brazil, Russia, India, China and South Africa — may be able to play a role in ushering it in.
As far back as 2013, the International Monetary Fund conceded that austerity in Greece had already caused a lot of harm. This would come as no shock to citizens of most countries in Africa that have been forced to swallow the bitter pill of structural adjustment policies — very similar to what Greece has had to endure — for more than 30 years with disastrous results. To give just one example, Tanzania went from having 90 percent literacy prior to IMF austerity and privatization measures to 68 percent literacy today. Unemployment figures in many parts of Africa tell an even more dire story.
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To make matters worse, we actually know a lot about the kinds of economic policies that do reduce unemployment, create jobs and would even help deal with challenges like climate change and inequality. Those policies are in many ways the opposite of the kind of austerity, privatization and liberalization measures that have been forced on poor countries since the 1980s.
So is there an institution that’s willing to finance the opposite of structural adjustment? Until now the answer has been a resounding “no.” But this week marks the official launch of the BRICS New Development Bank. The institution that will be launched at the annual BRICS Summit in Ufa, Russia, is financed by the big middle-income countries and specifically set up to be an alternative to the World Bank. Though the rhetoric has been soft of late — cooperation, not competition, will describe its relationship to existing institutions, we are told — the fact that the institution is being established in part out of frustration with the slow pace of change at the World Bank and IMF offers some hope.
For poor countries and poor citizens of developing countries, the New Development Bank will be a break with the status quo if and only if it can abide by the following principles:
1. Do no harm.
The advice of Hippocrates to physicians offers a good starting point for development banks.
Too often, development is seen as something done to people rather than with them. Large infrastructure and energy projects have often displaced communities and cost livelihoods — and sometimes lives.
Where social benefits are understood to outweigh the costs, affected communities should give their free, prior and informed consent before being asked to relocate or accept compensation. In practice this means strong social and environmental safeguards, which at least meet basic international human rights standards, and an accountability mechanism where communities can ask for redress if they feel that they’ve been wronged by a project or policy.
2. Work transparently with communities and others who should benefit.
An institution that claims to work in the public interest must be as open as possible to public scrutiny. Project documents and policies should be open to the public not only after they are finalized, but open to public consultation as they are being formulated.
Governments and international financial institutions are not the only ones with development expertise, although ultimately governments are responsible for ensuring the right to development. Trade unions, social movement and nongovernmental organizations also have a role to play and should be given formal space to share their expertise in the NDB.
3. Promote sustainable development for all.
Ultimately development is about transformation away from an economy based only on resources and towards an economy based also on industry and services. The World Bank has promoted the opposite of this — economies based on exporting raw materials at the cost of industrialization. That needs to change, and not just at the World Bank.
Both industrialized and developing economies have been seeing a rapid increase in inequality. Development must also therefore prioritize policies like fair and equitable land tenure, creation of decent jobs, strong social protections and free access to quality education that have been proven to reduce inequality. And with the reality of climate change already starting to affect communities around the world, sustainable development means prioritizing projects that will help those communities adapt to climate change and develop the resilience needed to deal with the increasing number of climate-related natural disasters that are all likely to take place.
The New Development Bank should take these challenges seriously, and challenge the entrenched status quo in development thinking. Brazil, China and India all dismissed parts of that orthodoxy and fashioned their own, successful approaches. Rather than give into the temptation to copy the World Bank and prioritize maintaining its own advantages, NDB should open up doors to equitable development in other developing countries.
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