Chapter 5: Growth, debt and the World Bank
When I was in graduate school in economics in the early 1960s we were taught that capital was the limiting factor in growth and development. Just inject capital into an economy and it would grow. As the economy grew, you could then re-invest the growth increment as new capital and make the economy grow exponentially. Social development would follow. Originally, to get things started, capital came from savings, from confiscation, or from foreign aid or investment, but later out of the national growth increment itself. Capital embodied technology, the source of its power. Capital was magic stuff, but scarce. It all seemed convincing at the time. Many years later (early 1990s) when I worked for the World Bank it was evident that capital was no longer the limiting factor. Trillions of dollars of capital was circling the globe looking for projects in which to become invested so it could grow. The World Bank understood that in practice, if not in theory, the limiting factor was what they called ‘bankable projects’ – concrete investments that could embody abstract financial capital and make its value grow at an acceptable rate, usually 10 percent per annum or more, doubling every seven years. Since there were not enough bankable projects to absorb the available financial capital the World Bank decided to stimulate the creation of such projects with ‘country development teams’ set up in the borrowing countries, but with World Bank technical assistance.
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