Controlling the World Bank and IMF

Shareholders, Stakeholders, and the Politics of Concessional Lending

Liam Clegg

• Publisher: Palgrave Macmillan
• Year: 2013
• Print ISBN: 9781137274540
• eBook ISBN: 9781137274557
• Topic: Economics
• Subtopic: International Business
• Index: Economics

Liam Clegg provides an innovative reading of where power lies in the institutions' concessional lending operations, drawing its focus on shareholders and stakeholders from staffs' own understandings of their operational environments.

1

Introduction

The World Bank and International Monetary Fund (IMF) are looming figures in the field of international development. Since the Bank’s move into concessional lending back in the 1960s, and the Fund’s ramping up of its low-income country lending in the mid-1980s, these international organisations (IOs) have become increasingly central actors in the global development industry. With research departments that are well resourced and highly regarded by policy-making elites, the Bank and Fund are purveyors of agenda-shaping expertise; with their control over vast reserves and flows of finance, they are providers of large volumes of money to governments with limited alternative means of accessing international currency. Owing to the high visibility of the World Bank and IMF’s dealings with low-income countries, much ink has been spilt analysing the operations of these institutions. However, despite – or perhaps because of – the quantity of existing work, heated disagreement remains around an issue of foundational importance: who controls the World Bank and IMF?

Answers to this question tend to cluster around one of three poles. Analysts see either the long arm of the US directing the organisations’ activities (e.g. Wade 2002, Andersen et al. 2006, Stone 2011), a transnational elite serving to advance both the reach of global capitalism and the interests of global capitalists (e.g. Cleaver 1989, Cammack 2002, Cammack 2004, Rogers 2012), or staff whose high levels of expertise buys them considerable autonomy when working out how they should approach their broad mandates (e.g. Barnett and Finnemore 2004, Woods 2006, Weaver 2008, Chwieroth 2010). The analytic framework advanced through this book is different. By taking staff’s understandings of their operating environment as the point of entry when examining the institutions, I explore the dynamics of shareholder and stakeholder control at the World Bank and IMF. Rather than being defined through a priori methodological commitments, the aspects focused on reflect the pressures as experienced and negotiated by staff themselves. Through my study I demonstrate that, on the one hand, state actors are working to tie the organisations’ output evermore tightly to poverty reduction, as measured by the Millennium Development Goals (MDGs) and social spending levels at the Bank and Fund, respectively; on the other hand, both organisations have made a range of moves to incorporate domestic stakeholder groups into decision-making processes, though more extensively so at the Bank than the Fund. The manner in which these contrasting dynamics continue to evolve and interact is the core problematique on which this study is focused: this, in short, is the politics of control at the World Bank and IMF.

The politics of control is undoubtedly a hot topic for the Bretton Woods Twins. For many years the IOs have faced criticism from member states that they are unresponsive to demands for change. In spite of their seats on the organisations’ Executive Boards, state representatives commonly share a frustration that they are unable to shape the operational contours of what are seen as unwieldy bureaucratic beasts. Indeed, former top officials from both of the Twins have in recent years resorted to ‘going public’ with their insights; partly motivated, one would assume, by a need for post-Washington catharsis (e.g. Evans 1999, Malloch-Brown 2011). In addition to this frustration at the top table, non-state actors have become increasingly vocal about their anger over their exclusion from the Bank and Fund’s decision-making processes. The accusation that these IOs serve to subvert domestic political processes and extend the marginalisation of domestic actors has been at the core both of high-profile non-governmental organisation (NGO) critiques (e.g. Bretton Woods Project 2009, SAPRIN 2009) and of the street-level protests accompanying high-profile Bank and Fund interventions (Walton and Seddon 1994). Indeed, as recent – and repeated – demonstrations in Ireland and Greece have shown, such feelings are by no means confined to low-income country populations. And given the ‘new intrusiveness’ of the Bank and Fund’s activities, with their focus on evermore intricate tasks of economic, social, and political reform (Woods and Narlikar 2001), this twin-tracked pressure for more effective mechanisms of control is likely to only increase.

In this introductory chapter, I outline the core contributions made by this book to the study of IOs and international political economy (IPE). In the opening section, I explain the significance of the shareholder–stakeholder framework at the centre of analysis. In a shallow sense, by drawing on terms that are widely used by actors in and around the organisations themselves, this typology represents something of a ‘common sense’ ordering structure. However, in a deeper sense, by acknowledging the constitutive role of intersubjective understandings, this book develops a burgeoning strand of constructivist literature on contemporary IPE; to paraphrase Blyth (2003), structures of global economic governance don’t come with an instruction sheet, what matters is how agents ‘make sense’ of their environment. Building on these foundations, the second and third sections of the chapter situate the dynamics focused on in this study within extant models of control in IOs. After reviewing the core components of the main rationalist approaches to understanding dynamics of control in IOs, I outline the attempts that are currently being made by sociological models to endogenise interest formation into models of IO control. In the fourth section I demonstrate the value of bridging between the two broad strands of IO scholarship reviewed. By so doing, we are able to see that structurally important actors’ use of material incentives and monitoring frameworks constitute important mechanisms of control in the Bank and Fund’s concessional lending activities, but that norm entrepreneurs’ influence over diffuse mechanisms of ideational change allows for a parallel (albeit subtle) form of influence to be exercised. This flexible analytic framework allows for the detailed dynamics surrounding both shareholder attempts to lock in effective performance and the steady movement towards greater stakeholder engagement to be fully captured. The fifth section of the chapter introduces the move contained in the book to engage with normative theorising on global governance, which lays the groundwork for the reflections that are presented in the concluding chapter of the book on the desirability of the dynamics of shareholder and stakeholder control examined. Finally, in the sixth section of this chapter I present an overview of the remaining chapters of the book.

1.1. Locating shareholders and stakeholders at the World Bank and IMF

The organising framework around which the main body of the book is structured comes from the shareholder–stakeholder dichotomy. Outside of IPE, the terms sit at the centre of an established body of literature. These categories have their modern roots in the fields of Business Studies and Accounting where, back in the 1990s, they became increasingly mainstream concepts. In this context the dichotomy was used to explore the tension between the formal obligation of corporations to act first and foremost in the interests of their shareholding owners and the growing informal pressures that they were under to implement ‘corporate social responsibility’ policies to protect wider stakeholders (Wood 1991, Vershoor 1998). This literature and these concepts generated intriguing paradoxes for mainstream economic thought over the relationship between individual and collective interests, which served to test the limits of belief in the capacity of market mechanisms to maximise the social good. Milton Friedman (1970), in an early foray into the topic, outlined the ‘Gordon Gekko’ end of the continuum by declaring that ‘the social responsibility is to increase profits’;¹ later contributors, more mindful of the potential for persistent shareholder–stakeholder misalignment through deep-seated market failure, sought to explore strategies through which negative social and environmental externalities could be internalised through price mechanisms (Stern 2008).² However, in the shadow of these grand debates, the terms have not gained great traction in the field of IPE.

On a superficial level, the reason for the adoption of the shareholder–stakeholder terminology in this study appears to be somewhat prosaic. Quite simply, in their everyday language, Bank and Fund staff use these terms; shareholders and stakeholders are part of the organisations’ shared lexicons. In broad terms, shareholders are taken as referring to the representatives of the Bank and Fund’s major creditor states, in particular as embodied in the form of the institutions’ Executive Directors. Stakeholders are understood as a more amorphous grouping, consisting of an unsteady mix of domestic trade unions, business organisations, academics, and select transnational advocacy networks (IMF 2003: 1–3, World Bank 2004c: 1). Beyond their common usage by staff, the shareholder and stakeholder terms are also a prevalent feature of the official media through which the IOs represent themselves in the outside world³; though with contrasting levels of intensity and different beliefs about the optimal form of the relationships, shareholders and stakeholders are the key communities to whom the Bank and Fund profess to have a significant institutional responsibility.

Following the lead of Adler and Poulliot (2011), the approach adopted here is to aim to enhance our knowledge of key dynamics in world politics by focusing on what practitioners do and how they understand their environments. The shareholder–stakeholder classification, then, provides a useful point of entry through which to explore important dynamics of control within the Bank and Fund. Indeed, by drawing on intersubjective frameworks used by actors to navigate their social environments, this typology serves to draw upon the evolving methodology of constructivist political economy. In contrast to the analytic approaches within IPE that hold an unproblematic relationship to exist between researcher and the social world, the foundations of the constructivist approach stand on the very problematisation of this relationship. For constructivist scholars, rather than being a pre-existing and unitary entity waiting to be studied by the political analyst, the social world is in a fundamental way constituted by actors’ beliefs (e.g. Wendt 1999, Rosamond and Hay 2002, Blyth 2003, Widmaier et al. 2007). By seeking to explore both elements of continuity and change in the conceptualisation of shareholders and stakeholders at the Bank and Fund and the evolving mechanisms in which these groups’ relationships with the institutions are manifest, this book contributes to the developing constructivist approach. Given the existence of formalised rules in relation to voting power and stable patterns of access to supplementary finance, there is a large degree of stability in the shareholder grouping in both the Bank and the Fund; however, beliefs about the appropriate form of the relationship between the institution and stakeholder groups has shifted significantly over time in both organisations (albeit in a more dramatic manner at the Bank).

1.2. Models of control in international organisations: The rationalist pathway

In exploring the evolving dynamics of shareholder and stakeholder control that run through the concessional lending operations of the World Bank and IMF, the book provides a departure from established approaches to the analysis of IOs. In order to develop a comprehensive understanding of the dynamics that reside within the shareholder and stakeholder relationships at the Bank and Fund, it is necessary to draw on analytic frameworks that highlight both the material and the ideational components of control in the world of IOs. Control over money and control over ideas are both significant factors in shaping shareholder and stakeholder dynamics; by flexibly integrating rationalist and constructivist insights (more on which in the following section), an analytic approach can be established that captures these nuanced relationships.

While debates continue over the extent to which rationalist understandings have dominated scholarship on IOs and on IPE more generally (cf. Frieden and Lake 2003, Cohen 2007, Higgott and Watson 2009, Maliniak and Tierney 2009, Weaver 2009), it is widely agreed that core rationalist assumptions have shaped a significant body of work through the history of the sub-field. By briefly reviewing the neo-realist, neo-liberal, and principal–agent (PA) approaches to understanding issues of control in and around IOs, I both provide a snapshot of this important strand of literature and draw out the insights that are used to inform the understanding of the dynamics of control surrounding the World Bank and IMF’s concessional lending activities in this study.

At the outset, it is necessary to be clear about the understanding of ‘rationalism’ that has been adopted. At its very broadest, rationalism has been identified with the tenet that ‘when faced with several courses of action, people usually do what they believe is likely to have the best overall outcome’ (Elster 1982: 22). While assumptions about ranked preferences and utility maximisation are commonly taken as markers of rationalist work, here I include IO analyses that bracket out questions of interest formation from the focus of analysis. By holding interests to be static features of agent interactions, the rationalist frameworks reviewed highlight the processes through which material power and calculations regarding partners’ likely behaviour shape outcomes in the world of IOs. In the early phases of the development of the sub-field (typified by the neo-realist and neo-liberal paradigms), IOs were commonly conceptualised as something akin to ‘empty shells’; arenas in which state actors came together to engage in iterative rounds of strategic bargaining, and where security concerns were generally never far from mind. With the emergence of the PA framework, a more direct analytic focus has been placed on the question of what controls IO behaviour and how.

The neo-realist approach is most closely identified with the work of Kenneth Waltz (1979), whose major contribution to the field was to advance a structurally based understanding of international politics. Whereas earlier figures associated with the realist school relied upon explanations of state behaviour that were ultimately grounded in assumptions about the immanent characteristics of human beings, Waltz moved to situate the anarchic nature of the international system as the key explanatory factor. Given that in the international sphere there was no central authority with the autonomous capacity to enforce common ‘rules of the game’, state actors were for Waltz compelled to compete with each other in order to enhance their capacity to provide security. As such, states’ interactions were characterised as strategic games, with both parties seeking to secure outcomes enhancing their power relative to competitors. And with Waltz’ structuralism seeking to incorporate additional variables such as the prevailing balance of power into its explanatory framework, central neo-realist assumptions were incorporated into the burgeoning IO-focused research agenda through the 1980s.

The ‘take home’ message from neo-realist analysts at the time was that structural constraints made the achievement of international cooperation highly problematic. Joseph Grieco (1988: 485) outlined these ‘limits of cooperation’ starkly:

International anarchy fosters competition and conflict among states and inhibits their willingness to cooperate even when they share common interests … . International institutions are unable to mitigate anarchy’s constraining effects on inter-state cooperation.

The core issue for neo-realists is that because violence (or the threat of violence) is a constant feature of interstate relations, competition is hard-wired into global politics. Translated into the world of IOs, the neo-realist framework predicted that permanent structures would be difficult to establish in relation to any issue area with either a direct or an indirect bearing on security concerns. Moreover, it was assumed that a state would ‘decline to join, leave, or sharply limit its commitment to a cooperative agreement’ if it believed that partners either were achieving or were likely to achieve a relative advantage over themselves (Grieco 1988: 499). Given these severe limits on the extent to which cooperation could be achieved and maintained over time, for neo-realists the state was destined to remain the primary unit of analysis for scholars of international politics. With a priori theoretical commitments leading to the conclusion that IOs would remain of little significance, the question of who controls these arenas was situated as a lower-order issue on the neo-realist research agenda.

In parallel to the neo-realist approach, through the 1980s and 1990s the neo-liberal paradigm provided a second pole around which IPE research was oriented. The two approaches were often identified in oppositional terms, and indeed this period is commonly characterised as the ‘neo–neo debate’. In contrast to the somewhat pessimistic conclusions reached under the neo-realist framework, findings generated by a collection of neo-liberal scholars suggested that comparatively greater possibilities existed for international cooperation. Though sharing a broadly structuralist interpretation of international politics, by re-framing the nature of anarchy the limits placed on cooperation by this systemic feature were substantially reduced.

For neo-liberal scholars, the conceptual starting point remained the anarchic nature of the international system; in contrast to domestic politics, the international sphere was still seen to lack a central Leviathan figure to act as an arbiter of last resort. However, in the light of an apparent proliferation in the number of binding multilateral agreements and the increasingly visible presence of IOs across many issue areas, neo-liberal analysts sought to downplay the prevalence of security concerns to state actors. By conceptualising state representatives as acting on the basis of absolute utility calculations rather than considerations of relative power distributions, the potential space for cooperation was significantly enhanced. From this starting point, neo-liberal scholars proceeded to explore the contextual factors affecting states’ levels of cooperation. In doing so, a number of conditions were identified that were thought to aid the emergence of international cooperation (Haas 1980, Axelrod and Keohane 1985, Oye 1985, Keohane 1998). First, by forming iterative relationships, actors’ levels of mutual trust can be enhanced. This, ultimately, can help transform the calculations made by state representatives in different game contexts; by developing a history of ‘doing the right thing’ in situations characterised by the prisoner’s dilemma or stag hunt scenario, partners will become evermore relaxed about committing to cooperate in future events. Second, by visibly increasing the costs incurred by one’s own defection from an agreement, partners will calculate that the chances of one’s cooperation are increased and accordingly adjust their own behaviour. Third, by collating a range of issue areas into one single ‘take it or leave it’ bundle, issue linkage can be an efficient means of raising the cost of defection on all parties. Moreover, for neo-liberal scholars international institutions were considered to be potentially significant features of global politics. Robert Keohane (1984), in particular, argued that international institutions provided a holistic mechanism through which the likelihood of effective cooperation could be maximised. By serving to aid the establishment of clear rules and locking in automatic sanctions for defections from agreements, formalised IOs ca...

Table of contents

• Cover
• Title Page
• Copyright
• Contents
• List of Figures and Tables
• Preface
• Acknowledgements
• List of Abbreviations
• 1. Introduction
• 2. Shareholder Control and the Rise of Poverty Reduction at the World Bank
• 3. Shareholder Conflicts and the Rise of Social Spending at the IMF
• 4. The World Bank and the Reconstruction of Stakeholder Engagement
• 5. Apolitical Economy and the Limits to Stakeholder Engagement at the IMF
• 6. Conclusion
• Notes
• Bibliography
• Index