World Bank, World Development Report 2024: The Middle-Income Trap, World Bank, 2024. Free to download.
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Here’s a belated festive challenge for you - with apologies for the delay, and its parochial character. With reference to the current Labour government in the UK, name the odd one out: (i) the pensioners’ winter fuel allowance; (ii) the two-child cap on child benefit; (iii) the pensions triple lock, and explain why. And for bonus points, name the HM Treasury civil servant who recently spent a year at the OECD, then returned to the Bank of England to head up its research agenda, and say what she has in common with Catherine Mann, and with Liz Kendall, Alison McGovern, Bridget Phillipson, Angela Rayner, and Rachel Reeves (No, not that, although it is a point of interest). Answers at the end.
If you would like a clue, in a single word, the word is competitiveness - coincidentally highlighted as 2024 was coming to an end (30 December) by Henry Foy in the Financial Times (‘Year in a word: competitiveness’) as the ‘buzzword on every Eurocrat’s lips’. The context for that was the publication by the Commission in September of a bulky two-part document (The Future of European Competitiveness) under the name of Mario Draghi, and the launch of Ursula von den Leyen’s second term as Commission President. What was she doing in her first term as President, you might well ask. Or for that matter, if your memory goes back that far, what became of Jacques Delors’ 1993 White Paper, Growth, Competitiveness and Employment? Or the fruitless Lisbon Agenda of 2000? Or the ill-fated Europe 2020 initiative that followed it in 2010? Or the subsequent ‘two-pack’, ‘six-pack’, and European Semester? No wonder that Henry Foy remarks acidly that all the ‘industrial policy’ proposals due to be dumped on the desks of EU leaders this spring ‘will contain long-mooted ideas that have been rebuffed before, but with a renewed plea for change in the name of competitiveness’. Not that I mind, of course, that the Commission perennially falls short in its zeal to serve capital.
Anyway, let’s set Draghi’s tired, laborious and inevitably doomed tomes aside. To get up to speed on the thinking of global liberal institutions on the imperatives of competitiveness, turn instead to the OECD’s Economic Policy Reforms 2023: Going for Growth (to which the HM Treasury/OECD/Bank of England civil servant mentioned above contributed an illuminating introductory editorial); or its subsequent highly instructive Economic Survey of the United Kingdom (OECD 2024), which will join up some more dots for you. Or better still, study with care the World Bank’s latest World Development Report, The Middle-Income Trap, which is the principal subject of this review, and more relevant to the UK than you might think.
The Bank has promoted the development of capitalism on a global scale throughout its history, and its thinking is the best guide by far to the global liberal elite fantasy of a world ruled by capital. Its World Development Reports, produced practically every year since 1978, set out the strategy it pursues and the policies it recommends. Most of them focus on specific aspects of its overall programme, but from time to time it produces a general overview that sets out its approach as a whole; and although it is not immediately apparent in its title, the 2024 Report, The Middle-Income Trap, is one such. It offers what its Chief Economist, Indermit Gill, describes as ‘a well-constructed growth framework on which policy makers could build effective development strategies’ (xv), ostensibly aimed at the middle-income countries that account for over 75 per cent of the world’s population, and more than three in five of people living in extreme poverty (4), but actually setting out policies deemed appropriate for all its member states. The framework is structured around three successive shifts, the first focused on investment, the second (appropriate for lower-middle-income countries) on infusion of foreign technology across the domestic economy, and the third (appropriate for upper-middle-income countries) moving to innovation in the domestic economy itself: ‘Each shift requires a new mix of policies that, if implemented reasonably well, result in increasingly dynamic enterprises, an increasingly productive workforce, and an increasingly energy-efficient economy. It is an approach that can benefit all countries – low-, middle-, and high-income - seeking high-quality growth’ (xv).
The only things that are relatively new here are the focus on energy efficiency, in response to the climate crisis, and the increased emphasis on infusion (they should say diffusion, but they are obsessed with alliteration) as an important stepping stone to innovation. Otherwise, this statement reflects two elements of the Bank’s approach that have been central for over half a century: the claim that their growth strategy will benefit all countries, and the focus on the need to cultivate productive workers and dynamic enterprises. This, it is important to note, requires an active role for the state in the promotion of capitalist development, in inculcating competition throughout the economy, and in investing in workers’ education and skills, and ensuring their flexibility and mobility. In its turn this dictates a particular stance on regulation, and on state spending: regulation should enforce competitiveness between enterprises, and between workers, with implications both for trade, which should not be limited by protectionism, and for immigration policy, which should give foreign workers access to formal jobs. State spending, meanwhile, should focus on providing the physical and institutional infrastructure that a competitive economy requires (in transport, health, and education), but not on supporting failing or inefficient businesses, or allowing working-age adults to rely on benefits rather than look for work. A number of characteristic themes emerge from this: the need to invest in the education of girls, and facilitate the entry of women into the labour force; the importance of taking advantage of new technologies (around digitalisation, at present); the value of incentives (‘nudges’) that push citizens towards adopting the behaviours that a capitalist system requires, and hence the need for benefits to be precisely targeted rather than universal as a general rule; and the need for high income countries to accept reforms that increase the level of competitiveness in the global economy as a whole. All this is long established - Competitiveness 101.
So it is wrong to imagine that the World Bank has no idea what it is doing, or that it simply does what a few rich countries or large and powerful corporations want. It pursues a coherent project of its own, thought through to an impressive level of detail. If you doubt this, look at the definitions provided in the glossary (World Bank 2024: xxv-xxvii) for capitalizing on crises, contestability, creative destruction, and disciplining incumbents. They capture its programme in a nutshell. At the same time, it recognises the difficulties in promoting capitalism on a global scale. Those rich countries and powerful corporations are far from adopting or supporting every aspect of its programme – to take out of context a phrase that appears early on in the report, ‘globally rational thinking is rarely favored by leaders with domestic politics on their minds’ (25), and such leaders may come up against insuperable political problems if they do seek to pursue its logic with energy. The Bank is also well aware that capitalism is prone to recurrent crises – so much so that it devotes considerable time to developing strategies to take advantage of those crises to push its agenda forward. In short, it is not to be underestimated. It has a relatively sophisticated understanding of capitalism as a dynamic yet crisis-prone global system, and it is determined to preserve and extend the hegemony of capital over labour on a global scale. What is more, given the frequency and the clarity with which it sets its programme out in documents that are freely available, it is not difficult to find out what it is. Even so, that is only a starting point. Because it is a blueprint for global capitalism, and therefore highly ideological in character, a critical analysis is necessary, in order to bring out its omissions, biases and contradictions. I offer such an analysis here, drawing initially in the following paragraphs on the Bank’s own summary (2024: xxii-iv).
The Middle-Income Trap is divided into three parts of three chapters each: Middle-Income Transitions, Creative Destruction, and Making Miracles. In Part 1 the Bank proposes a strategy of capitalist development initiated by foreign investment. But it does not assign a permanently subservient role to developing countries, insisting rather that they should aim to develop full-scale capitalist economies themselves, as reliance on capital investment from abroad yields diminishing returns.
Part 2 highlights the need for the efficient use of capital, labour and energy, and identifies the key obstacles to the dynamic process of capitalist development in envisages: the use of political influence by incumbents to block the entrance of innovators, and patriarchal practices that block the entrance of women. In each case this leads to a suboptimal exploitation of available resources, in product and labour markets respectively. On the first point: ‘Incumbents’ dominance can buy economic, social, and political power. By capturing political and social institutions, incumbents have an outsize say in who learns where and what, who gets a sought-after job and what they are paid, and who gets to start a business’. On the second: ‘Patriarchal norms and systems of belief that give men greater status and authority and define strict gender roles and responsibilities hold back women from benefiting from attractive educational and job opportunities. Discrimination can be pervasive, affecting the businesses women own, the jobs they get, the pay they receive, what their families spend on educating them, and their ability to manage financial accounts’. In general, then: ‘The destruction of outdated arrangements – enterprises, jobs, technologies, private contracts, policies, and public institutions – is essential to creating value through infusion and innovation’.
Part 3 then sets out the means by which ‘the forces of preservation that protect incumbents from healthy competition’ can be overcome: ‘contestable markets’ that pressure incumbents to compete and upgrade or lose out; removal of protection from market leaders and state-owned companies; reform of norms that work against women; adoption of competition laws, and strengthening of competition authorities; and strategies to ‘upgrade talent pools’ (by immigration), ‘select efficient learners’ (by merit-based procedures), and ‘tap the productive power of women’. Governments must stop ‘coddling small firms or vilifying large firms’; let unproductive firms go; modernise management; and connect entrepreneurs with mentors and markets; and they should look to take advantage of crises, which ‘provide the momentum to weaken the status quo’. In short, governments must always be looking to adapt their societies and economies to the demands of a dynamic (and crisis-prone) global market.
This is how international organisations think. Their advice is directed to governments (and just as much to those of low- and high-income countries as of middle-income countries). Whether by the OECD or the World Bank, or by the IMF, in its regular Article IV consultations with governments (IMF 2024) governing elites are told that they should always be focused on maintaining and extending the conformity of their economic, social, institutional, political and cultural arrangements with the logic of capitalist competition, and therefore that businesses and workers alike need to be obliged to compete with their peers. This is a permanent responsibility, as new circumstances and new challenges continually demand new responses - you can never rest. This approach has been consistently advanced from the late 1970s onwards, by the Bank and the OECD, regardless of the current leadership, the state of the global economy, or the nature of the prevailing doctrines of development (Cammack 2015, and 2022: Chapters 2 and 3).
Within its limits this is a realistic approach; and in fact it bears some comparison, albeit from a thoroughly uncritical perspective, with Marx’s view of capitalist development as discontinuous, ridden with conflict, and subject to recurrent crisis. But at the same time it has some tell-tale weaknesses and contradictions. First, while insisting on the need for middle-income countries to transition to high-income status, it dwells repeatedly and at length on the great difficulty of making this transition in present circumstances, to the extent that it describes such an outcome as a miracle should it occur. On the very first page, it describes the prospect of graduating to high-income status as ‘daunting’. In Chapter 1 it identifies 34 countries (about a quarter of the total) as having made the transition since 1990, but notes that the average middle-income economy still has an income per capita less than one-tenth that of the United States (34). And as if escape from the trap was not hard enough in principle, it admits that over the last decade the global economy ‘has gone from healthy to hobbling and from largely integrated to increasingly fragmented’; geopolitical tensions have impacted negatively on investment flows; the rich countries are increasingly protectionist; debt is increasing, along with borrowing costs; and the room for governments to act is shrinking due to demographic trends and ‘populist’ pressures. Strikingly, the Bank is at its keenest to see middle-income countries adopt its capitalist agenda precisely moments of crisis - when the prospects for raising incomes and prosperity appear at their lowest.
There is an apparent paradox here, but it is easily resolved. The Bank would like it, no doubt, if aggregate income levels could rise in low-income and middle-income countries, and the gap between rich countries and the rest could narrow, but it wants them in any case to pursue policies that expose capital and labour equally to the pressures of global competitiveness - because that increases the hegemony of capital on a global scale whether individual countries prosper or not. That explains why it is particularly imperative at times of capitalist crisis, because it is at such times that the hegemony of capital is most under threat. So it is selling a fundamentally false prospectus. If the policies the Bank proposes were ‘infused’ throughout the 108 middle-income countries in the world, few if any of those countries would make the transition dangled before them, but the grip of capital across the world market would certainly be increased. Not least, the increased competitiveness of middle-income countries would put pressure on the high-income countries themselves to unleash the ‘vital forces of destruction’, ratcheting up further the imperative of competitiveness, and this is a point to which the Bank has always attached great importance. In short, would you believe, the Bank pursues the global development of capitalism because it is committed to the global development of capitalism. It has to hold out the prospect that this will bring prosperity, so, with its fingers crossed behind its back, that is what it says, and has been saying regardless of circumstances since 1978.
Second, ideologically driven as it is, it paints out of the picture completely the fundamental antagonism between capital and labour. Capital and labour are presented as equivalents, either in terms of markets, or as inputs into production, with no recognition of the fundamental difference between owners of capital on the one hand and individuals obliged to depend upon a wage on the other. In the Bank’s perspective, the heroic figure is the ‘entrepreneur’, and increased value come from competition between firms, not from the exploitation of workers by capital, as new firms (entrants) introduce more productive processes, and existing firms (incumbents) respond or go bankrupt - increasing the overall level of productivity either way. Workers are inevitably periodically thrown out of work - collateral damage.
Third, the Bank’s stylised ‘Schumpeterian’ creation-destruction framework is schematic, and offers a narrow and impoverished account of the nature of competition in the capitalist mode of production. Capitalism is a system in which private concerns compete on the market to sell their products at a profit and thereby accumulate capital. This may involve various specific initiatives - entry into new markets, introduction of new products, switches from one line of activity to another, access to cheaper sources of labour, implementation of innovative and more efficient methods of production and so on - but in principle all capitalist concerns are always in competition with other producers, existing or potential. The consequence, as Marx memorably described it, is a constant state of turmoil in which successive revolutions in production throw workers from one branch of production to another, or cast them into the ‘reserve army’ of the unemployed, while the mix of capitalist enterprises continually changes. Schumpeter’s Capitalism, Socialism and Democracy (1942), a shrewd manifesto for the capitalist class well worth reading today, depicted this dynamic perfectly well, and Aghion and Howitt (below) cite it as follows in their opening lines:
‘The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers' goods, the new methods of production or transportation, the new markets,.... [This process] incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism’ (1942: 83).
The Bank uses two contemporary neo-Schumpeterian contributions, Aghion and Howitt (1992) and Akcigit and Kerr (2018) to structure its argument. Aghion and Howitt modelled ‘creative destruction’ as a world of rents from intermediate production goods protected by patent, periodically disturbed by the research-fuelled invention of new intermediate production goods that rendered existing ones obsolete. They made the key (simplifying) assumption that producers of currently state-of-the-art intermediate goods (incumbents) do not carry out such research themselves. Akcigit and Kerr drop this condition, assuming in contrast that ‘multiproduct incumbents invest in internal innovations to improve their existing products, while new entrants and incumbents invest in external innovations to acquire new product lines’ (1374). The Bank draws rather creatively on these loosely related contributions to opt for a model in which ‘both entrants and incumbents can add value. Entrants bring change in the form of enterprises with new products or production processes, workers with new skills and ideas, or energy sources such as renewables that embody new technologies. Incumbents bring scale—and can compete with entrants in the market to jointly expand a country’s technological capabilities—moving the country closer to the global technology frontier’ (85). This implies, of course, as noted above, that workers are continually thrown in and out of work, and are under constant pressure to acquire new skills and moderate their expectations regarding wages.
Global capitalism, the Bank preaches, is a hard school: ‘The vital forces of destruction place tremendous pressure on governments to act because a growing economy needs to shed outdated arrangements (in capital, labor, and energy markets) as much as it needs to invent new ones. Where the forces of destruction are constrained by misguided policies, creation struggles and advances slowly’ (81). Fortunately, though, salvation is at hand, as a consequence of the paradox that the prospects for reform are greatest when the capitalist system is at its weakest:
‘A growing economy that requires new arrangements in capital, labor, and energy markets needs to release itself from less efficient ones. To the extent that weak institutions and policies preserve outdated arrangements, creative destruction is stifled. However, this opposition tends to weaken during crises—whether economic, political, or ecological. When crises place intense pressure on governments to act, a window opens for reforms’ (17).
So there you have it: the ruthless politics of the World Bank, which advocates capitalist development with most energy precisely when capitalism is in crisis and workers and the poor are hardest pressed.
This brings us back to the quiz announced at the beginning of this review. First, then, which is the odd one out, (i) the pensioners’ winter fuel allowance; (ii) the two-child cap on child benefit; or (iii) the pensions triple lock (the pledge that pensions would be raised annually by whichever is highest between average earnings growth, CPI inflation, or 2.5 per cent). There are no doubt various possible answers, but this is mine: in making the winter fuel allowance conditional on low income, New New Labour was acting in accordance with OECD/World Bank advice to make benefits selective and targeted wherever possible, and it took this clearly calculated step despite significant criticism from pensioners and its own backbenchers; by refusing to reverse the Tory cap on child benefit the government again sided with the logic of competitiveness, in the face of perhaps even stronger criticism, signalling clearly its wish to see benefits geared towards nudging women to return to the workforce rather than continue to expand their family. But despite explicit and direct advice from international organisations that it should abandon the triple lock, it did not do so, and indeed pledged in the election campaign that it would not. So this is the odd one out. But New New Labour is strongly committed to the OECD/World Bank reform agenda. So it is not a question of if the triple lock will be abandoned, but when.
Next, the HM Treasury civil servant who recently spent a year at the OECD, then returned to the Bank of England to head up its research agenda, is Clare Lombardelli (BA Oxon (PPE), MSc Economics, LSE), who began her career at the Bank of England and spent many years at the UK Treasury before her year at the OECD as Chief Economist. In July 2024 she returned to the UK as Deputy Governor for Monetary Policy at the Bank of England, but not before contributing an editorial to Economic Policy Reforms 2023: Going for Growth which urged governments to ‘keep long-term goals in sight when navigating a course out of difficult times’, making structural reforms in order to ‘boost economic growth, improve productivity, and reduce inequalities while transitioning to a zero-carbon future’. It was essential, she wrote, to have ‘robust social protection systems’ in place. But at the same time, ‘social protection systems could be better targeted to reduce costs and improve sustainability. Outcomes for workers and for the wider economy can be improved with policies which increase participation, improve the matching between jobs and workers, and support firms to become more dynamic, innovative, and greener’. And in most countries,’ she concluded, ‘boosting competition requires deeper regulatory reforms across a wide range of sectors, especially in services where regulatory barriers to the entry are still prevalent’ OECD 2023: 3).
As a prime exponent of the OECD/World Bank competitiveness agenda, tasked with driving it forward from behind the scenes, she is where she is for a reason. Sitting alongside her on the Bank of England’s Monetary Policy Committee (a nine-member Anglo-American body with a majority of women) is Catherine Mann, another former Chief Economist at the OECD. In that post ten years ago, she advised that for all countries, ‘the challenge is to pursue structural reforms to raise growth and create jobs in a sustainable and inclusive way’, and warned members and non-members alike that ‘structural reform isn’t a finite list of measures with an end-date. It is an on-going process to build more productive, inclusive and sustainable economies for our citizens’ (Mann 2014). To make the point again, this is how these people think. And what Lombardelli has in common with Liz Kendall, Alison McGovern, Bridget Phillipson, Angela Rayner, and Rachel Reeves is that they have all been charged with implementing key elements of the same agenda of structural and institutional reform. Liz Kendall (Work and Pensions) and Alison McGovern (Minister of State for Employment) are engineering the exclusion from benefits of young people who refuse to take up jobs or training, and the reorganisation of Job Centres to drive the policy forward. Bridget Phillipson (Secretary of State for Education) is tasked to implement the work and skills agenda across the education sector as a whole (though she will seek to avoid responsibility for the inevitable ‘creative destruction’ of higher education that is in prospect), Angela Rayner (Deputy Prime Minister) is leading the streamlining of planning and side-lining of local opposition that more general ‘creative destruction’ requires, while overseeing the reform agenda as a whole, and Rachel Reeves (Chancellor of the Exchequer, and also a graduate from PPE at Oxford and the MSc in Economics at LSE) is an exponent of ‘modern supply side economics’ who has declared war on Britain’s ‘persistently low productivity’ and its ‘direct impact on our global competitiveness’ (Reeves, 2023:13).
They know what they want to do, and what challenges they face. This is why Starmer has relentlessly purged dissenting voices from Labour. He aims to align his government with the global agenda on productivity and competitiveness - a goal he shares with old New Labour, and as much with Clare Short and Gordon Brown, as it happens, as with Tony Blair (Cammack, 2001, 2006). But despite his massive parliamentary majority (achieved, don’t forget, on a lower number of votes and share of the votes than secured by Jeremy Corbin) he remains fearful of popular opposition and is out to chip away at it if he can. Grasping the logic of his programme is an essential first step to resisting the New New Labour project, and the World Bank’s Middle Income Trap is a good place to start.
References
Aghion, Philippe and Peter Howitt. 1992. A Model of Growth Through Creative Destruction, Econometrica, 60, 2, 323-351.
Akcigit, Ufuk, and Sina Ates. 2019. Ten Facts on Declining Business Dynamism and Lessons from Endogenous Growth Theory, Working Paper 25755, National Bureau of Economic Research, Cambridge, Mass.
Akcigit, Ufuk, and William R. Kerr. 2018. Growth through heterogeneous innovations, Journal of Political Economy, 126, 4, 1374-1443.
Cammack, Paul. 2001. Making the Poor Work for Globalisation?, New Political Economy, 6, 3, 397-408.
Cammack, Paul. 2006. Global Governance, State Agency and Competitiveness: the Political Economy of the Commission for Africa, British Journal of Politics and International Relations, 8, 3, 331-350.
Cammack, Paul. 2015. What International Organizations Do, and Why They Do It, Spectrum, 7, 1, 62-77.
European Commission. 2024. The Future of European Competitiveness, Parts A and B (The ‘Draghi Report’). At https://commission.europa.eu/topics/strengthening-european-competitiveness/eu-competitiveness-looking-ahead_en
IMF. 2024. United Kingdom 2024 Article IV Consultation - Press Release; Staff Report; And Statement by the Executive Director for the United Kingdom, IMF Country Report No. 24/203, July.
Mann, Catherine. 2014. Raising Global Growth: Why the G20 is “Going Structural”, OECD Observer, 300, 12-13.
OECD. 2023. Economic Policy Reforms 2023: Going for Growth. Paris, OECD.
OECD. 2024. OECD Economic Surveys: United Kingdom 2024. Paris: OECD. September.
Schumpeter, Joseph. 1942. Capitalism, Socialism and Democracy.
Reeves, Rachel. 2023. A New Business Model for Britain: Building Economic Strength in an Age of Insecurity, Labour Together.
If you would like a clue, in a single word, the word is competitiveness - coincidentally highlighted as 2024 was coming to an end (30 December) by Henry Foy in the Financial Times (‘Year in a word: competitiveness’) as the ‘buzzword on every Eurocrat’s lips’. The context for that was the publication by the Commission in September of a bulky two-part document (The Future of European Competitiveness) under the name of Mario Draghi, and the launch of Ursula von den Leyen’s second term as Commission President. What was she doing in her first term as President, you might well ask. Or for that matter, if your memory goes back that far, what became of Jacques Delors’ 1993 White Paper, Growth, Competitiveness and Employment? Or the fruitless Lisbon Agenda of 2000? Or the ill-fated Europe 2020 initiative that followed it in 2010? Or the subsequent ‘two-pack’, ‘six-pack’, and European Semester? No wonder that Henry Foy remarks acidly that all the ‘industrial policy’ proposals due to be dumped on the desks of EU leaders this spring ‘will contain long-mooted ideas that have been rebuffed before, but with a renewed plea for change in the name of competitiveness’. Not that I mind, of course, that the Commission perennially falls short in its zeal to serve capital.
Anyway, let’s set Draghi’s tired, laborious and inevitably doomed tomes aside. To get up to speed on the thinking of global liberal institutions on the imperatives of competitiveness, turn instead to the OECD’s Economic Policy Reforms 2023: Going for Growth (to which the HM Treasury/OECD/Bank of England civil servant mentioned above contributed an illuminating introductory editorial); or its subsequent highly instructive Economic Survey of the United Kingdom (OECD 2024), which will join up some more dots for you. Or better still, study with care the World Bank’s latest World Development Report, The Middle-Income Trap, which is the principal subject of this review, and more relevant to the UK than you might think.
The Bank has promoted the development of capitalism on a global scale throughout its history, and its thinking is the best guide by far to the global liberal elite fantasy of a world ruled by capital. Its World Development Reports, produced practically every year since 1978, set out the strategy it pursues and the policies it recommends. Most of them focus on specific aspects of its overall programme, but from time to time it produces a general overview that sets out its approach as a whole; and although it is not immediately apparent in its title, the 2024 Report, The Middle-Income Trap, is one such. It offers what its Chief Economist, Indermit Gill, describes as ‘a well-constructed growth framework on which policy makers could build effective development strategies’ (xv), ostensibly aimed at the middle-income countries that account for over 75 per cent of the world’s population, and more than three in five of people living in extreme poverty (4), but actually setting out policies deemed appropriate for all its member states. The framework is structured around three successive shifts, the first focused on investment, the second (appropriate for lower-middle-income countries) on infusion of foreign technology across the domestic economy, and the third (appropriate for upper-middle-income countries) moving to innovation in the domestic economy itself: ‘Each shift requires a new mix of policies that, if implemented reasonably well, result in increasingly dynamic enterprises, an increasingly productive workforce, and an increasingly energy-efficient economy. It is an approach that can benefit all countries – low-, middle-, and high-income - seeking high-quality growth’ (xv).
The only things that are relatively new here are the focus on energy efficiency, in response to the climate crisis, and the increased emphasis on infusion (they should say diffusion, but they are obsessed with alliteration) as an important stepping stone to innovation. Otherwise, this statement reflects two elements of the Bank’s approach that have been central for over half a century: the claim that their growth strategy will benefit all countries, and the focus on the need to cultivate productive workers and dynamic enterprises. This, it is important to note, requires an active role for the state in the promotion of capitalist development, in inculcating competition throughout the economy, and in investing in workers’ education and skills, and ensuring their flexibility and mobility. In its turn this dictates a particular stance on regulation, and on state spending: regulation should enforce competitiveness between enterprises, and between workers, with implications both for trade, which should not be limited by protectionism, and for immigration policy, which should give foreign workers access to formal jobs. State spending, meanwhile, should focus on providing the physical and institutional infrastructure that a competitive economy requires (in transport, health, and education), but not on supporting failing or inefficient businesses, or allowing working-age adults to rely on benefits rather than look for work. A number of characteristic themes emerge from this: the need to invest in the education of girls, and facilitate the entry of women into the labour force; the importance of taking advantage of new technologies (around digitalisation, at present); the value of incentives (‘nudges’) that push citizens towards adopting the behaviours that a capitalist system requires, and hence the need for benefits to be precisely targeted rather than universal as a general rule; and the need for high income countries to accept reforms that increase the level of competitiveness in the global economy as a whole. All this is long established - Competitiveness 101.
So it is wrong to imagine that the World Bank has no idea what it is doing, or that it simply does what a few rich countries or large and powerful corporations want. It pursues a coherent project of its own, thought through to an impressive level of detail. If you doubt this, look at the definitions provided in the glossary (World Bank 2024: xxv-xxvii) for capitalizing on crises, contestability, creative destruction, and disciplining incumbents. They capture its programme in a nutshell. At the same time, it recognises the difficulties in promoting capitalism on a global scale. Those rich countries and powerful corporations are far from adopting or supporting every aspect of its programme – to take out of context a phrase that appears early on in the report, ‘globally rational thinking is rarely favored by leaders with domestic politics on their minds’ (25), and such leaders may come up against insuperable political problems if they do seek to pursue its logic with energy. The Bank is also well aware that capitalism is prone to recurrent crises – so much so that it devotes considerable time to developing strategies to take advantage of those crises to push its agenda forward. In short, it is not to be underestimated. It has a relatively sophisticated understanding of capitalism as a dynamic yet crisis-prone global system, and it is determined to preserve and extend the hegemony of capital over labour on a global scale. What is more, given the frequency and the clarity with which it sets its programme out in documents that are freely available, it is not difficult to find out what it is. Even so, that is only a starting point. Because it is a blueprint for global capitalism, and therefore highly ideological in character, a critical analysis is necessary, in order to bring out its omissions, biases and contradictions. I offer such an analysis here, drawing initially in the following paragraphs on the Bank’s own summary (2024: xxii-iv).
The Middle-Income Trap is divided into three parts of three chapters each: Middle-Income Transitions, Creative Destruction, and Making Miracles. In Part 1 the Bank proposes a strategy of capitalist development initiated by foreign investment. But it does not assign a permanently subservient role to developing countries, insisting rather that they should aim to develop full-scale capitalist economies themselves, as reliance on capital investment from abroad yields diminishing returns.
Part 2 highlights the need for the efficient use of capital, labour and energy, and identifies the key obstacles to the dynamic process of capitalist development in envisages: the use of political influence by incumbents to block the entrance of innovators, and patriarchal practices that block the entrance of women. In each case this leads to a suboptimal exploitation of available resources, in product and labour markets respectively. On the first point: ‘Incumbents’ dominance can buy economic, social, and political power. By capturing political and social institutions, incumbents have an outsize say in who learns where and what, who gets a sought-after job and what they are paid, and who gets to start a business’. On the second: ‘Patriarchal norms and systems of belief that give men greater status and authority and define strict gender roles and responsibilities hold back women from benefiting from attractive educational and job opportunities. Discrimination can be pervasive, affecting the businesses women own, the jobs they get, the pay they receive, what their families spend on educating them, and their ability to manage financial accounts’. In general, then: ‘The destruction of outdated arrangements – enterprises, jobs, technologies, private contracts, policies, and public institutions – is essential to creating value through infusion and innovation’.
Part 3 then sets out the means by which ‘the forces of preservation that protect incumbents from healthy competition’ can be overcome: ‘contestable markets’ that pressure incumbents to compete and upgrade or lose out; removal of protection from market leaders and state-owned companies; reform of norms that work against women; adoption of competition laws, and strengthening of competition authorities; and strategies to ‘upgrade talent pools’ (by immigration), ‘select efficient learners’ (by merit-based procedures), and ‘tap the productive power of women’. Governments must stop ‘coddling small firms or vilifying large firms’; let unproductive firms go; modernise management; and connect entrepreneurs with mentors and markets; and they should look to take advantage of crises, which ‘provide the momentum to weaken the status quo’. In short, governments must always be looking to adapt their societies and economies to the demands of a dynamic (and crisis-prone) global market.
This is how international organisations think. Their advice is directed to governments (and just as much to those of low- and high-income countries as of middle-income countries). Whether by the OECD or the World Bank, or by the IMF, in its regular Article IV consultations with governments (IMF 2024) governing elites are told that they should always be focused on maintaining and extending the conformity of their economic, social, institutional, political and cultural arrangements with the logic of capitalist competition, and therefore that businesses and workers alike need to be obliged to compete with their peers. This is a permanent responsibility, as new circumstances and new challenges continually demand new responses - you can never rest. This approach has been consistently advanced from the late 1970s onwards, by the Bank and the OECD, regardless of the current leadership, the state of the global economy, or the nature of the prevailing doctrines of development (Cammack 2015, and 2022: Chapters 2 and 3).
Within its limits this is a realistic approach; and in fact it bears some comparison, albeit from a thoroughly uncritical perspective, with Marx’s view of capitalist development as discontinuous, ridden with conflict, and subject to recurrent crisis. But at the same time it has some tell-tale weaknesses and contradictions. First, while insisting on the need for middle-income countries to transition to high-income status, it dwells repeatedly and at length on the great difficulty of making this transition in present circumstances, to the extent that it describes such an outcome as a miracle should it occur. On the very first page, it describes the prospect of graduating to high-income status as ‘daunting’. In Chapter 1 it identifies 34 countries (about a quarter of the total) as having made the transition since 1990, but notes that the average middle-income economy still has an income per capita less than one-tenth that of the United States (34). And as if escape from the trap was not hard enough in principle, it admits that over the last decade the global economy ‘has gone from healthy to hobbling and from largely integrated to increasingly fragmented’; geopolitical tensions have impacted negatively on investment flows; the rich countries are increasingly protectionist; debt is increasing, along with borrowing costs; and the room for governments to act is shrinking due to demographic trends and ‘populist’ pressures. Strikingly, the Bank is at its keenest to see middle-income countries adopt its capitalist agenda precisely moments of crisis - when the prospects for raising incomes and prosperity appear at their lowest.
There is an apparent paradox here, but it is easily resolved. The Bank would like it, no doubt, if aggregate income levels could rise in low-income and middle-income countries, and the gap between rich countries and the rest could narrow, but it wants them in any case to pursue policies that expose capital and labour equally to the pressures of global competitiveness - because that increases the hegemony of capital on a global scale whether individual countries prosper or not. That explains why it is particularly imperative at times of capitalist crisis, because it is at such times that the hegemony of capital is most under threat. So it is selling a fundamentally false prospectus. If the policies the Bank proposes were ‘infused’ throughout the 108 middle-income countries in the world, few if any of those countries would make the transition dangled before them, but the grip of capital across the world market would certainly be increased. Not least, the increased competitiveness of middle-income countries would put pressure on the high-income countries themselves to unleash the ‘vital forces of destruction’, ratcheting up further the imperative of competitiveness, and this is a point to which the Bank has always attached great importance. In short, would you believe, the Bank pursues the global development of capitalism because it is committed to the global development of capitalism. It has to hold out the prospect that this will bring prosperity, so, with its fingers crossed behind its back, that is what it says, and has been saying regardless of circumstances since 1978.
Second, ideologically driven as it is, it paints out of the picture completely the fundamental antagonism between capital and labour. Capital and labour are presented as equivalents, either in terms of markets, or as inputs into production, with no recognition of the fundamental difference between owners of capital on the one hand and individuals obliged to depend upon a wage on the other. In the Bank’s perspective, the heroic figure is the ‘entrepreneur’, and increased value come from competition between firms, not from the exploitation of workers by capital, as new firms (entrants) introduce more productive processes, and existing firms (incumbents) respond or go bankrupt - increasing the overall level of productivity either way. Workers are inevitably periodically thrown out of work - collateral damage.
Third, the Bank’s stylised ‘Schumpeterian’ creation-destruction framework is schematic, and offers a narrow and impoverished account of the nature of competition in the capitalist mode of production. Capitalism is a system in which private concerns compete on the market to sell their products at a profit and thereby accumulate capital. This may involve various specific initiatives - entry into new markets, introduction of new products, switches from one line of activity to another, access to cheaper sources of labour, implementation of innovative and more efficient methods of production and so on - but in principle all capitalist concerns are always in competition with other producers, existing or potential. The consequence, as Marx memorably described it, is a constant state of turmoil in which successive revolutions in production throw workers from one branch of production to another, or cast them into the ‘reserve army’ of the unemployed, while the mix of capitalist enterprises continually changes. Schumpeter’s Capitalism, Socialism and Democracy (1942), a shrewd manifesto for the capitalist class well worth reading today, depicted this dynamic perfectly well, and Aghion and Howitt (below) cite it as follows in their opening lines:
‘The fundamental impulse that sets and keeps the capitalist engine in motion comes from the new consumers' goods, the new methods of production or transportation, the new markets,.... [This process] incessantly revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one. This process of Creative Destruction is the essential fact about capitalism’ (1942: 83).
The Bank uses two contemporary neo-Schumpeterian contributions, Aghion and Howitt (1992) and Akcigit and Kerr (2018) to structure its argument. Aghion and Howitt modelled ‘creative destruction’ as a world of rents from intermediate production goods protected by patent, periodically disturbed by the research-fuelled invention of new intermediate production goods that rendered existing ones obsolete. They made the key (simplifying) assumption that producers of currently state-of-the-art intermediate goods (incumbents) do not carry out such research themselves. Akcigit and Kerr drop this condition, assuming in contrast that ‘multiproduct incumbents invest in internal innovations to improve their existing products, while new entrants and incumbents invest in external innovations to acquire new product lines’ (1374). The Bank draws rather creatively on these loosely related contributions to opt for a model in which ‘both entrants and incumbents can add value. Entrants bring change in the form of enterprises with new products or production processes, workers with new skills and ideas, or energy sources such as renewables that embody new technologies. Incumbents bring scale—and can compete with entrants in the market to jointly expand a country’s technological capabilities—moving the country closer to the global technology frontier’ (85). This implies, of course, as noted above, that workers are continually thrown in and out of work, and are under constant pressure to acquire new skills and moderate their expectations regarding wages.
Global capitalism, the Bank preaches, is a hard school: ‘The vital forces of destruction place tremendous pressure on governments to act because a growing economy needs to shed outdated arrangements (in capital, labor, and energy markets) as much as it needs to invent new ones. Where the forces of destruction are constrained by misguided policies, creation struggles and advances slowly’ (81). Fortunately, though, salvation is at hand, as a consequence of the paradox that the prospects for reform are greatest when the capitalist system is at its weakest:
‘A growing economy that requires new arrangements in capital, labor, and energy markets needs to release itself from less efficient ones. To the extent that weak institutions and policies preserve outdated arrangements, creative destruction is stifled. However, this opposition tends to weaken during crises—whether economic, political, or ecological. When crises place intense pressure on governments to act, a window opens for reforms’ (17).
So there you have it: the ruthless politics of the World Bank, which advocates capitalist development with most energy precisely when capitalism is in crisis and workers and the poor are hardest pressed.
This brings us back to the quiz announced at the beginning of this review. First, then, which is the odd one out, (i) the pensioners’ winter fuel allowance; (ii) the two-child cap on child benefit; or (iii) the pensions triple lock (the pledge that pensions would be raised annually by whichever is highest between average earnings growth, CPI inflation, or 2.5 per cent). There are no doubt various possible answers, but this is mine: in making the winter fuel allowance conditional on low income, New New Labour was acting in accordance with OECD/World Bank advice to make benefits selective and targeted wherever possible, and it took this clearly calculated step despite significant criticism from pensioners and its own backbenchers; by refusing to reverse the Tory cap on child benefit the government again sided with the logic of competitiveness, in the face of perhaps even stronger criticism, signalling clearly its wish to see benefits geared towards nudging women to return to the workforce rather than continue to expand their family. But despite explicit and direct advice from international organisations that it should abandon the triple lock, it did not do so, and indeed pledged in the election campaign that it would not. So this is the odd one out. But New New Labour is strongly committed to the OECD/World Bank reform agenda. So it is not a question of if the triple lock will be abandoned, but when.
Next, the HM Treasury civil servant who recently spent a year at the OECD, then returned to the Bank of England to head up its research agenda, is Clare Lombardelli (BA Oxon (PPE), MSc Economics, LSE), who began her career at the Bank of England and spent many years at the UK Treasury before her year at the OECD as Chief Economist. In July 2024 she returned to the UK as Deputy Governor for Monetary Policy at the Bank of England, but not before contributing an editorial to Economic Policy Reforms 2023: Going for Growth which urged governments to ‘keep long-term goals in sight when navigating a course out of difficult times’, making structural reforms in order to ‘boost economic growth, improve productivity, and reduce inequalities while transitioning to a zero-carbon future’. It was essential, she wrote, to have ‘robust social protection systems’ in place. But at the same time, ‘social protection systems could be better targeted to reduce costs and improve sustainability. Outcomes for workers and for the wider economy can be improved with policies which increase participation, improve the matching between jobs and workers, and support firms to become more dynamic, innovative, and greener’. And in most countries,’ she concluded, ‘boosting competition requires deeper regulatory reforms across a wide range of sectors, especially in services where regulatory barriers to the entry are still prevalent’ OECD 2023: 3).
As a prime exponent of the OECD/World Bank competitiveness agenda, tasked with driving it forward from behind the scenes, she is where she is for a reason. Sitting alongside her on the Bank of England’s Monetary Policy Committee (a nine-member Anglo-American body with a majority of women) is Catherine Mann, another former Chief Economist at the OECD. In that post ten years ago, she advised that for all countries, ‘the challenge is to pursue structural reforms to raise growth and create jobs in a sustainable and inclusive way’, and warned members and non-members alike that ‘structural reform isn’t a finite list of measures with an end-date. It is an on-going process to build more productive, inclusive and sustainable economies for our citizens’ (Mann 2014). To make the point again, this is how these people think. And what Lombardelli has in common with Liz Kendall, Alison McGovern, Bridget Phillipson, Angela Rayner, and Rachel Reeves is that they have all been charged with implementing key elements of the same agenda of structural and institutional reform. Liz Kendall (Work and Pensions) and Alison McGovern (Minister of State for Employment) are engineering the exclusion from benefits of young people who refuse to take up jobs or training, and the reorganisation of Job Centres to drive the policy forward. Bridget Phillipson (Secretary of State for Education) is tasked to implement the work and skills agenda across the education sector as a whole (though she will seek to avoid responsibility for the inevitable ‘creative destruction’ of higher education that is in prospect), Angela Rayner (Deputy Prime Minister) is leading the streamlining of planning and side-lining of local opposition that more general ‘creative destruction’ requires, while overseeing the reform agenda as a whole, and Rachel Reeves (Chancellor of the Exchequer, and also a graduate from PPE at Oxford and the MSc in Economics at LSE) is an exponent of ‘modern supply side economics’ who has declared war on Britain’s ‘persistently low productivity’ and its ‘direct impact on our global competitiveness’ (Reeves, 2023:13).
They know what they want to do, and what challenges they face. This is why Starmer has relentlessly purged dissenting voices from Labour. He aims to align his government with the global agenda on productivity and competitiveness - a goal he shares with old New Labour, and as much with Clare Short and Gordon Brown, as it happens, as with Tony Blair (Cammack, 2001, 2006). But despite his massive parliamentary majority (achieved, don’t forget, on a lower number of votes and share of the votes than secured by Jeremy Corbin) he remains fearful of popular opposition and is out to chip away at it if he can. Grasping the logic of his programme is an essential first step to resisting the New New Labour project, and the World Bank’s Middle Income Trap is a good place to start.
References
Aghion, Philippe and Peter Howitt. 1992. A Model of Growth Through Creative Destruction, Econometrica, 60, 2, 323-351.
Akcigit, Ufuk, and Sina Ates. 2019. Ten Facts on Declining Business Dynamism and Lessons from Endogenous Growth Theory, Working Paper 25755, National Bureau of Economic Research, Cambridge, Mass.
Akcigit, Ufuk, and William R. Kerr. 2018. Growth through heterogeneous innovations, Journal of Political Economy, 126, 4, 1374-1443.
Cammack, Paul. 2001. Making the Poor Work for Globalisation?, New Political Economy, 6, 3, 397-408.
Cammack, Paul. 2006. Global Governance, State Agency and Competitiveness: the Political Economy of the Commission for Africa, British Journal of Politics and International Relations, 8, 3, 331-350.
Cammack, Paul. 2015. What International Organizations Do, and Why They Do It, Spectrum, 7, 1, 62-77.
European Commission. 2024. The Future of European Competitiveness, Parts A and B (The ‘Draghi Report’). At https://commission.europa.eu/topics/strengthening-european-competitiveness/eu-competitiveness-looking-ahead_en
IMF. 2024. United Kingdom 2024 Article IV Consultation - Press Release; Staff Report; And Statement by the Executive Director for the United Kingdom, IMF Country Report No. 24/203, July.
Mann, Catherine. 2014. Raising Global Growth: Why the G20 is “Going Structural”, OECD Observer, 300, 12-13.
OECD. 2023. Economic Policy Reforms 2023: Going for Growth. Paris, OECD.
OECD. 2024. OECD Economic Surveys: United Kingdom 2024. Paris: OECD. September.
Schumpeter, Joseph. 1942. Capitalism, Socialism and Democracy.
Reeves, Rachel. 2023. A New Business Model for Britain: Building Economic Strength in an Age of Insecurity, Labour Together.