Masters of Illusion by Catherine Caufield, Macmillan, ÂŁ20,
ISBN 0 333 66262 8

CRITICISING the World Bank has become a minor industry. The bank, which lends
money for development projects in the developing world, has been criticised for
ignoring or exacerbating poverty, social distress, infringements of the rights
of individuals and communities, and environmental degradation.

Catherine Caufield’s lengthy Masters of Illusion repeats much past
criticism. The charges are that the bank has tended to focus on large projects,
such as hydroelectric dams which displace people; that it invests in major
polluting industries, or natural resource-depleting industries such as mining
and timber production; that it tends to place “structural adjustment conditions”
on loans, forcing borrowers to engage in economic reform (such as raising
prices) which hurts the poor most; and that it does all this arrogantly.

There can be no question that the World Bank has done all of these things and
that it has made mistakes, some serious. Negative criticism serves a function:
it should encourage the bank to do better and to think about ways of integrating
social and environmental concerns into its lending. The bank would argue that it
is doing this.

The problem with negative criticism is that it is incumbent on the critic at
least to hint at solutions. Here, Caufield is entirely silent. I suspect that
her reluctance to give constructive advice arises from a limited understanding
of the basics of economic development.

First, the bank is only one of several players in a huge development
business. Out of the total flow of more than $180 billion each year from
rich to poor countries, the multilateral agencies (the World Bank, Asian
Development Bank, and others) contribute around $20 billion, or just over
10 per cent. Of the $180 billion, one-third is “official” development
finance and two-thirds comes from the private sector. The World Bank is
important but not dominant. In 1994, for example, official loans from bilateral
sources (individual governments), were twice the level of World Bank loans.

Secondly, development must involve improving water and energy supplies,
sanitation, health care, infrastructure and education. It would be naive to
suggest that living standards in the developing world will rise without such
investments. The World Bank spends its annual lending in roughly these
proportions: 6 per cent on water and sanitation, 10 per cent on education, 5 per
cent on health, 8 per cent on agriculture and 20 per cent each on energy and
transport.

Moreover, unless these investments yield rates of return greater than the
cost of the capital provided, development is not achieved. To get an economic
rate of return, the borrower must receive benefits greater than the costs
incurred.

Thirdly, development cannot be secured by investment alone. One of the major
lessons learnt by any investing agency is that there is no chance of success
unless the economic context for the investment is right. To take a simple
example, investing in irrigation is likely to fail if the price of water is held
below cost, encouraging waste, waterlogging and salinisation of soils. What
causes the failure is not the investment but the prevailing policies in the
borrowing country. That is why so-called “structural adjustment” is applied: it
is the bank’s way of doing its best to get the context right so that the
investment works.

Indeed, all the evidence we have indicates clearly that the major cause of
environmental degradation is not investment but bad policy. And this message
holds for rich and poor countries alike—we do not need to look further
than European agricultural policy or water pricing in the US to see that.

What is missing in Caufield’s book is the appreciation that this is the
context of development. The bank has made some huge mistakes and no doubt will
make more. But credit also has to be given for its achievement in meeting basic
needs. Caufield has some telling, if familiar, criticisms of the bank. But,
resting as it does on so much unverifiable, anonymous internal criticism and
apparently little discussion with those who are vilified, this is a rather mean
book that does little to help the design of sustainable development.

FAILURE to acknowledge, respect and register the role of women in economic
activity is not just a sexist outrage. It is very bad economics too. Statisticians
have long tended to measure the economic output of the market sector where
men and women supply labour and skills, and where both are consumers. Removed
from the market sector in both developed and developing economies are economic
activities which are not the subject of any exchange of money for labour.

This sector of the economy is largely peopled by women. In developing
countries, the activities they perform range from collecting water, cooking,
managing the farm and tending subsistence crops to clearing land, collecting
fuelwood, rearing children. Almost without exception, statisticians do not
record these activities. In the rich world, the list of unrecorded activities
would certainly include cooking and housework. Without question, the formal
sector of the modern economy depends on the ‘invisible’ sector managed by
women, but the national economic accounting systems do not acknowledge the
fact.

At the microeconomic level, it is comparatively easy to cite examples
of entire projects that have gone wrong because of a failure to understand
the sexual division of labour in the household. In The Gambia, for example,
planners of a development project aimed at double-cropping irrigated rice
consulted only men, despite the fact that men looked after cash crops, such
as maize and sorghum, and the women looked after rice crops. The irrigated
high-yield rice crops were not successful, something the women could have
explained because in this region they planted only indigenous varieties
of rice suited to local conditions. It proved bad economics to neglect the
issue of gender.

Is the economic invisibility of women all the result of a conspiracy
by men, a ‘patriarchal ideological bias’? Marilyn Waring thinks so, and
is not afraid to say so in a gutsy but eloquent way. She has it in for the
statisticians, whom she tends, perhaps a little unfairly, to identify with
economists. The author attacks the United Nations System of National Accounts
for not making the effort to measure all female economic activity and for
hiding behind dismal excuses about the complexity of data collection. Much
of her book is about the failings of this system, and in it she is very
successful.

There are, however, many other interesting features of Waring’s book.
I found particular sympathy with the idea that men treat nature as feminine
and hence as not being quite on the same level as development or growth.
This strikes me as an important insight. Environmental values are not as
important as commercial and financial values not because they are ‘soft’
and difficult to measure, but because they are intrinsically seen as not
being as important as ‘hard’ values.

Where I part company with the author is in her ambition to construct
out of this feminist critique of economics a new economics. As a general
rule, people who are looking for a new model of global economics are, I
find, generally not aware of the uses to which the old economics can be
put. And this means they are not wholly familiar with the subject matter
they criticise. Throughout the book the author is obsessed with the idea
that ‘value results only when (predominantly) men interact with the marketplace’.
But this interpretation is fundamentally wrong. Economic value arises because
people want goods and services. Something has positive economic value if
it meets their wants and negative economic value if it detracts from wants.
It is open to anyone to design economic systems on other criteria, but what
cannot be concluded from such a model is that wants expressed outside the
marketplace have no value. What is more, it is not necessary for us to use
goods and services to confer economic value on them.

Take the example of a fine view in a national park. We do not pay to
enter the park. It is outside the market system. Users of the park derive
pleasure from the view. They secure economic value. Finding out what that
value is is the subject of a vast literature on the economics of environmental
benefits. But many people want national parks to exist, even if they do
not visit them. They have what is called an ‘existence value’, and the same
literature has been successful in finding out these values. None of this
work is cited by Waring. So she overstates her criticism of economics. As
a science, it is already taking account of her worries and has done so for
some time. Second, it launches her into what I suspect will be a fruitless
search for a new economics.

If the critique of economic value is misplaced, the critique of national
accounting is not. There really cannot now be any excuse for ignoring women’s
work in the national accounts, any more than there is for failing to treat
environmental assets as wealth. Waring has pushed those cases along very
nicely.

David Pearce is professor of economics at University College London,
and coauthor of Blueprint For A Green Economy (Earthscan), which addresses
the issues of accounting for the environment.