How Business Inhibits Democracy

This morning’s post to NYRBlog by William Easterly and Laura Freschi offers an informative, if depressing, appendix to Easterly’s article in the latest New York Review, “Foreign Aid for Scoundrels.”  The opening paragraph, which includes a hyperlink to Easterly’s article, is a useful compression of the entire argument:

Foreign aid observers have often worried that Western aid to Africa is propping up autocratic regimes. Yet seldom has such a direct link from aid to political repression been demonstrated as in “Development without Freedom,” an extensively documented new report on Ethiopia by Human Rights Watch. Based on interviews with 200 people in 53 villages and cities throughout the country, the report concludes that the Ethiopian government, headed by prime minister Meles Zenawi, uses aid as a political weapon to discriminate against non-party members and punish dissenters, sending the population the draconian message that “survival depends on political loyalty to the state and the ruling party.”

This lays the groundwork for the question expressed by the title of the post, “Why Are We Supporting Repression in Ethiopia?”

Easterly’s article makes it clear what the answer to this question used to be:  A repressive anti-Communist government is better than any government with the slightest inclination towards Communism.  However, with the end of the Cold War, this old question deserves a new answer;  and, as usual, the answer comes from following the money.

One of the major sources of that money is the World Bank, and it is clear that both the blog post and Easterly’s article see the World Bank as contributing more to the problem than to any solution.  Neither of these sources, however, tries to assess why this might be the case.  Yet, as we continue to struggle through our economic crisis and question the recovery strategies of our government, we really ought to consider a paraphrase on one of Clinton’s most effective slogans:

It’s the banks, stupid!

The priority of every bank intent on staying in business is a good return-on-investment.  The World Bank is an institution formed by and managed by the “rich and mighty;”  and the rich and mighty tend to believe that their investments can only pay off if they are calling the shots.  Thus, they would rather support ineffective but powerful puppets, rather than democratic institutions that might invest in solutions that are not in the best interests of World Bank members.  This leads to rather perverted statistics of economic growth that ignore any deterioration of public welfare.

However, there is more to the argument than just the desire to maintain control.  Whenever we find one of these repressive states, we almost always discover that it controls some resource that our business leaders need.  Thus, the real beneficiaries of World Bank are those businesses that need cheap and secure flows of those resources;  and those flows are best maintained by puppets whose only priority is to impede any democratic processes that might interfere with those flows.  Thus, the real answer to the question posed by the blog title is the usual one:

It’s good for business!