1 Standardizing global norms and informalizing authority: The IMF and World Bankʼs new policy stratégies Jacqueline Best, University of Ottawa Paper prepared for ECPR Joint Sessions, Lisbon 14-19 April 2009. DRAFT ONLY – Please do not cite without permission This is a chapter from a manuscript in process, Governing the Margins: The Transformation of Global Economic Authority. Finance ministers, central bankers and IMF and World Bank leaders are not known for giving particularly interesting speeches. Even when they stray from the details of current economic conditions into broader issues such as the reform of international financial governance, their vision tends towards the technical side of things. Yet for several years in the mid-1990s, these same financial leaders began to pepper their remarks with a somewhat more potent rhetoric. They talked of a vision of a new rule-governed global order, of battling corruption and ensuring good governance in nations around the world, and of the importance of fairness, transparency and accountability in the global economy. The intensity of that rhetoric has since faded, but many of the policy changes that were instituted in those heady days have remained. In this chapter, I will examine a number of the concrete policy changes that were set in motion in that time period, concentrating on a set of policies that have sought to create new global standards for economic governance. I will focus in particular on two interconnected efforts at the World Bank and IMF—the development of good governance norms and the introduction of international standards and codes of good economic practice. Although these new standardizing practices were not necessarily the most ambitious of the new governance strategies in practical terms, they were certainly the most rhetorically impressive. The advocates for these new global rules framed them in the broadest possible terms and did not shy away from explicitly normative overtones, whether in World Bank President, James Wolfensohn’s famous speech about the “cancer of corruption” at the 1996 Annual Meetings (Bank 1996), Michel Camdessus’ 1999 promise that the IMF would contribute to “civilizing globalization” (Camdessus 1999a), or Horst Köhler’s call in 2002 for a new “global ethics” (Köhler 2002). This was a language that was unashamedly universalist, even idealistic. While this shift in rhetoric is interesting in itself, 1 the primary focus of this chapter is a closer examination of the policies that these statements sought to justify—the growing emphasis on norms of “good governance” and the related standards and codes initiative. Both, I will suggest, reflect a new effort by the international financial institutions (IFIs) to not only define economic governance in universalist terms, but also to govern it through the application of a new kind of global 1 And is in fact the subject of several other writings of mine, including: (Best 2003; Best 2005b; Best 2006)
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Standardizing global norms and informalizing authority: The IMF and World Bankʼs new policy stratégies Jacqueline Best, University of Ottawa
Paper prepared for ECPR Joint Sessions, Lisbon 14-19 April 2009.
DRAFT ONLY – Please do not cite without permission This is a chapter from a manuscript in process, Governing the Margins: The Transformation of Global Economic Authority.
Finance ministers, central bankers and IMF and World Bank leaders are not known for giving particularly interesting speeches. Even when they stray from the details of current economic conditions into broader issues such as the reform of international financial governance, their vision tends towards the technical side of things. Yet for several years in the mid-1990s, these same financial leaders began to pepper their remarks with a somewhat more potent rhetoric. They talked of a vision of a new rule-governed global order, of battling corruption and ensuring good governance in nations around the world, and of the importance of fairness, transparency and accountability in the global economy. The intensity of that rhetoric has since faded, but many of the policy changes that were instituted in those heady days have remained. In this chapter, I will examine a number of the concrete policy changes that were set in motion in that time period, concentrating on a set of policies that have sought to create new global standards for economic governance. I will focus in particular on two interconnected efforts at the World Bank and IMF—the development of good governance norms and the introduction of international standards and codes of good economic practice. Although these new standardizing practices were not necessarily the most ambitious of the new governance strategies in practical terms, they were certainly the most rhetorically impressive. The advocates for these new global rules framed them in the broadest possible terms and did not shy away from explicitly normative overtones, whether in World Bank President, James Wolfensohn’s famous speech about the “cancer of corruption” at the 1996 Annual Meetings (Bank 1996), Michel Camdessus’ 1999 promise that the IMF would contribute to “civilizing globalization” (Camdessus 1999a), or Horst Köhler’s call in 2002 for a new “global ethics” (Köhler 2002). This was a language that was unashamedly universalist, even idealistic. While this shift in rhetoric is interesting in itself,1 the primary focus of this chapter is a closer examination of the policies that these statements sought to justify—the growing emphasis on norms of “good governance” and the related standards and codes initiative. Both, I will suggest, reflect a new effort by the international financial institutions (IFIs) to not only define economic governance in universalist terms, but also to govern it through the application of a new kind of global
1 And is in fact the subject of several other writings of mine, including: (Best 2003; Best 2005b; Best
2006)
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standard—one that works through a particular kind of indirect and constitutive form of power.
Although these two policies evolved at different times and were driven by different institutions—the emphasis on good governance beginning at the World Bank in 1989, and the first international standard being developed at the IMF in 1995—they share much in common. Both can be understood predominantly as universalizing and standardizing strategies that seek to develop new minimum norms for economic governance. They are also both strategies that have sought to broaden the scope of the international financial institutions beyond their narrow focus on economic policies towards the institutional and even political context within which economic development occurs. Both the good governance and the standards and codes initiative have also demonstrated a kind of constitutive power, as they have sought to reconstitute the capacities of the state and redefine the relationships among state, market and civil society. Both IFI strategies are also characterized by the use of a less direct form of authority than that deployed in traditional conditionality. Perhaps most interestingly, however, as they have evolved over time, both strategies of good governance and standards and codes have also proven to have significant limits. While these are therefore practices of standardization, they are not therefore the kind of rigid, constitutional strategies—characteristic of trade and investment agreements—that neo-Gramscians like Stephen Gill have discussed (Gill 1995; Gill 2002). The predominant form of power at work in good governance norms and global standards is productive rather than disciplinary, relying on carefully managed peer pressure rather than global fiat. This kind of productive power is therefore much closer to a sociological conception of authority, like the idea of productive power used by Michael Barnett and Raymond Duvall (Barnett and Duvall 2005), or the concept of inscription used by cultural political economists such as Michel Callon, Donald MacKenzie and Nigel Thrift (Callon 1998; MacKenzie 2004; MacKenzie 2006; Thrift 2000; Thrift 2001; Walters 2002). The idea of inscription provides us with some clues as to the concrete, day-to-day, micro-level practices through which institutions work to constitute particular kinds of political and economic realities. At the same time, some of the Foucauldian-inspired literature on governmentality and reflexive government (Dean 1999; Miller 1992) offers some insight into the kind of governments, markets and publics that the IFIs are working to constitute. For all of their strengths, however, these constructivist and sociological accounts of the logic of contemporary global and national governance practices also share a key weakness: in their effort to demonstrate power of technical authority, they tend to overemphasize its effectiveness. They thus miss the many ways in which the efforts to render governance technical actually rely on the political and even affective registers of social life; at the same time, they tend to downplay the extent to which strategies to extend the scope of technical governance actually fail.
This chapter is thus an examination of the ways in which a powerful idea of the universality of global governance took hold, was institutionalized, and ultimately faced certain limits. The consequences of those limits are taken up in different ways in the following chapters. Here I will focus on examining the pressures driving the effort to develop new “rules of the game” in global economic governance, consider the form that
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the norms of global governance and standards and codes took at the IMF and World Bank, and then consider the underlying logics of those new governance strategies. I will focus in particular on the ways in which these policy changes have transformed the relationship between the technical, the ethical and the political and have fostered a new kind of constitutive, indirect political authority.
Good governance
We define governance as the traditions and institutions by which authority in a country is exercised for the common good. This includes (i) the process by which those in authority are selected, monitored and replaced, (ii) the capacity of the government to effectively manage its resources and implement sound policies, and (iii) the respect of citizens and the state for the institutions that govern economic and social interactions among them (Bank 2008).2
The idea that good governance matters for economic development and stability has been with us for over two decades now. Over the years, it has come to seem quite natural that IFIs and donors would make good governance and limits on corruption part of their development programs. In 2007, public sector governance conditions, broadly defined, made up 50% of World Bank policy-based conditions, up from 17-24% in the 1980s and 1990s (Bank 2007a: 6). Governance factors also account for over half of the Country Policy and Institutional Assessment (CPIA), which the World Bank uses to determine how much concessional assistance poor countries are entitled to through the International Development Association (IDA).3 At the IMF, 85.4% of lending programs included governance conditions in 1999 (IMF 2001c: 27). Governance is also front and centre in many donor assistance programs, from the Department for International Development in the UK to US AID and the Millennium Challenge Corporation in the US (DFID 2006; MCC 2008a; MCC 2008b). Yet when governance was first introduced into the World Bank and IMF, it was politically very sensitive and the subject of considerable internal debate. In some ways, nothing has changed since then: the pursuit of good governance remains a political project, and continues to encounter opposition. In fact, as I will argue later in this chapter, it has begun to encounter a new kind of resistance of late. Yet, good governance and anti-corruption efforts have also become normalized; they are so much a part of the way that IFIs operate that it is hard to imagine them not integrating governance into their programs.
How did we get to this point? Given that the mandates of the IFIs are legally explicit about the necessity of staying clear from political intervention of any kind, the very fact that the IMF and World Bank now spend considerable energy giving advice and imposing conditions on civil service reform, restructuring central banks and bankruptcy laws, reforming the legal system and encouraging civil society organizations to play a role in these processes, requires some kind of explanation. At the same time it is
2 The Bank and the Fund have both steered largely clear of the first of these aspects of governance,
seeing it as too politically sensitive, and have concentrated above all on the second and, to some extent on the third.
3 For IDA14 in 2004, governance factors accounted for 68% of the country performance rating (IDA 2004: Annex 1)
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important to consider whether the embrace of good governance as a policy objective has in fact had any real impact on development practices and outcomes, given that many scholars have expressed doubts about the significance of these changes in concrete terms (Soederberg 2003; Weaver 2005). In the following pages, I will therefore first provide a brief sketch of the various pressures leading to the adoption of good governance policies at the Bank and the Fund, as well as an overview of their evolution over time. I will then consider the underlying logic of the policies, as well as some of their initial implications. I will focus in particular on four of the key elements of these standardization strategies that I mentioned at the beginning of this chapter: their expanded scope, their universalism, their constitutive force and their reliance on indirect authority.
The evolution of a governance agenda As is often the case for this kind of broad-based shift in development practice, there were many different factors that produced the shift towards good governance. Some of the initial impetus for the policy shift came from the assessment of the limits of development efforts in Africa during the 1980s; it was this insight that first put the issue explicitly on the agenda of the World Bank. Over time, significant pressure for the change came from donors, particularly from the Europeans, who faced a combination of “aid fatigue” from voters and increasing pressure to cut back government spending. They spearheaded the new emphasis on “aid effectiveness” and ultimately focused on domestic governance as one of the key solutions to what had been ailing development assistance. Another major underlying factor in the shift was the end of the Cold War and the experience with transitional economies in Eastern Europe and the former Soviet Union, where it quickly became clear that economic reform without institutional changes was a recipe for disaster. While the World Bank was therefore engaged in the issue of good governance from the late 1980s onwards, the IMF only got involved after the Mexican financial crisis in 1994, after the G7 identified problems in governance as one of the key sources of financial instability.
Given that the term “good governance” is so ambiguous, it should not come as a surprise to find that governance has come to mean different things at the World Bank and the Fund over time. While there are considerable overlaps in the approach to governance at the two institutions, it is nonetheless worth looking at each separately, since the path that each has taken is rather different.
The World Bank
The World Bank prides itself on being the first institution to recognize and act on the idea that governance was central to economic development. Although its staff and management have certainly retained that conviction over the past twenty-odd years, they have also defined and acted on that idea differently over time. In fact, it is possible to define two broad phases in the evolution of the governance agenda at the World Bank: the first phase, from 1989-1998 was very much an extension of the neoliberal agenda, and saw governance defined primarily in public choice terms, as a effort to avoid rent-seeking by creating a leaner, more effective government. The second phase, dating roughly from 1999-2005 saw a broadening of the governance agenda to include the Bank’s new emphasis on poverty-reduction and a shift in the theoretical justification from
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public choice theory to institutionalism; this phase also saw more emphasis on the “demand side” of governance, through competition and participation. 4
The term “good governance” first appeared as a central theme in a Bank document in a 1989 report on long-term development in Sub-Saharan Africa (Bank 1989: xii).5 The report’s authors sought to explain the persistent failure of development efforts in the region over the previous decades. They argued that the principal source was not in fact external—in declining terms of trade, for example—but was instead internal, based in a failure of investment that had its roots in bad public management (3). This “crisis of governance” they argued must therefore be addressed before economic progress could be expected (60). The report included a focus on poverty and equity that was not to reappear in documents on governance for another decade, and can therefore be seen as ahead of its time in some respects.6 Yet the report is also clearly framed in neoliberal terms, and in fact can be read in part as a neoclassical rebuttal of dependency theorists’ claims that the causes of underdevelopment are within the broader capitalist system. And while the report does place some responsibility for failure on the Bank’s inability to recognize the institutional basis of economic development, it also implies that the ultimate blame for underdevelopment rests with poor countries’ governments. Moreover, the vision of better governance articulated in the report is not one that recognizes a larger role for government, but that seeks to create a leaner and more effective state (4-5). Together, these are themes that would continue, in different forms, throughout the next two decades. Within the next few years, the governance agenda began to command greater attention within the institution. Bank reports on governance in the early 1990s began to flesh out a particular vision of what good governance is, and to identify the steps to take to promote it (Bank 1991; Bank 1992; Bank 1994). The Bank’s governance work focused on four key areas: public sector management, accountability, rule of law and informational transparency (Bank 1991: ii, 4). Throughout these early governance documents, the relationship between state and market is defined in terms of public choice theory, which views political and social interactions through the lenses of economic theory, treating all of the players as self-interested and individualistic agents.7 Perhaps the most pervasive argument made throughout the documents at this time is the idea that rent-seeking is the central problem of governance. Rent-seeking is a public choice concept that suggests that the state’s ability to make decisions about resource allocation—for example the building of a dam in a particular location—can have perverse consequences as it encourages the unproductive use of resources (in the form of lobbying or bribery) by those who would
4 The second phase might more accurately be said to end in 2005 with the arrival of Paul Wolfowitz as
World Bank President. Given the shortness of his tenure, and the recentness of his successor’s appointment, it is not yet clear whether we are now in a third phase. I will discuss more recent developments in the good governance agenda towards the end of this chapter.
5 The actual history of the interest in what eventually became known as good governance dates back further to the late 1970s (Weaver 2005).
6 Weaver has suggested that the report more closely matches the concerns of a small group of staff that sought to broaden the Bank’s agenda beyond a narrow economic focus (Weaver 2005).
7 Classic public choice texts include: (Coase 1937; Kiewiet and McCubbins 1991; Niskanen 1971; Williamson 1975)
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benefit from the decision being made one way or another. The most often touted solution to rent-seeking in the public choice literature is to reduce the scope of state decision-making by shifting greater responsibility to the markets. This concern with creating a leaner state appears throughout early Bank documents on good governance and, as I will suggest below, even persists in later efforts to re-emphasize the role of the state. By the mid-1990s, the governance agenda was having a concrete impact on Bank operations; in 1994, a report on the Bank’s experience of governance programs noted that volume of governance-related lending was significant and increasing, with as many as 68% of lending operations containing some kind of governance dimension (Bank 1994: xv). Yet, even as the idea of governance began to take hold within the institution, it was clearly a fraught issue. The Bank’s General Counsel, Ibrahim Shihata, was asked to provide a legal opinion on whether the institutions’ mandate allowed it to address questions of governance. Shihata’s opinion sought to narrowly define the scope of the Bank’s involvement in governance to those questions that had a direct impact on economic development (Shihata 1990).8 It was not until James Wolfensohn took the helm of the World Bank in 1995 that the issue of governance—and the related problem of corruption—took centre stage, and the governance agenda entered its second phase at the Bank. In a famous speech at the Annual Meetings in 1996, Wolfensohn called for an end to the “cancer of corruption” that he argued was eroding development efforts around the world (Bank 1996). Over time, Wolfensohn significantly transformed the character of the governance agenda at the Bank. It was during his tenure that the 2000-01 World Development Report, Attacking Poverty, and the 2002 Building Institutions for Markets were released (Bank 2001; Bank 2002b).9 Together, these two reports shifted the understanding of governance in several key respects. First, good governance began to be justified in terms of its importance for reducing poverty. Second, the theoretical justification for good governance changed somewhat from a public-choice logic to an institutionalist one.10 This shift is significant because although an institutionalist approach remains consistent with much neoclassical economic theory, it does place considerable emphasis on the problems of market failure—instances in which the state must step in because markets are unable to allocate resources effectively. This is still a far cry from the interventionism encouraged by earlier Keynesian-inspired approaches, but it does nonetheless redefine the role of the state and its relationship with the market in new ways, as I will discuss further below. From 2000 onwards, both the broad, vision-defining WDRs and the more practical strategy documents also placed increasing emphasis on the importance of public participation and voice in the process of governance. Although the idea of public voice is
8 For an interesting discussion of this opinion, see: (Thomas 2007: 733). 9 For a discussion of the controversy surrounding this report—including the pressure brought to bear by
the US government and the eventual forced resignation of Joseph Stiglitz, World Bank Chief Economist, see: (Wade 2001; Wade 2002)
10 Classic institutionalist texts here include: (North 1990; Williamson 1985). Douglass North, in particular, is cited in a number of Bank documents as an inspiration for governance policy, particularly from the 2002 WDR on Institutions onwards, in which the first footnote cites North, Williamson and Coase on institutions (Bank 2002b: 5 n.1)
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a theme that carries through from the earliest of the Bank governance strategies, by 2000 the idea that governance reform should be driven by the “demand” of public and private actors had become a defining feature of the governance agenda (Bank 2000; Bank 2002a). This emphasis was no doubt linked to the Bank and Fund’s adoption in 1999 of the Poverty Reduction Strategy Paper (see Chapter 4) as a participatory framework for planning development assistance, which has become one of the principal mechanisms through which the Bank has sought to pursue its governance agenda (Bank 2002a: 9-10).
International Monetary Fund
The story of the evolution of the IMF’s governance policy is somewhat shorter, since the Fund only got on board with the good governance agenda in 1997 and has not had a substantive shift in policy since 2001. The Fund’s approach to governance has also remained more consistent over time, and has remained broadly in line with the Bank’s early public choice-driven governance strategy. The first formal impetus for the IMF to consider governance came from the 1996 meeting of the Interim Committee, a ministerial-level advisory board to the institution. In its Partnership for Sustainable Growth, the committee identified:
[P]romoting good governance in all its aspects, including ensuring the rule of law, improving the efficiency and accountability of the public sector, and tackling corruption, as essential elements of a framework within which economies can prosper (IMF 1996b).
Following this announcement, the Executive Board of sat down to discuss a paper prepared by the staff on “The Role of the Fund in Governance Issues” (IMF 1996c). Like the Bank’s early governance strategy, the Fund staff also drew extensively on public choice theory to frame the problem of governance, arguing that the central problem are those of rent-seeking and ad-hoc decision-making, both of which can be best resolved through careful and continued liberalization, to reduce the opportunity for government mismanagement (IMF 1996c: 9, 11, 19; IMF and Bank 1996: 2, 5). At the same time, although Fund staff and management were explicit about the need to broaden the role of the IMF, they were also careful to define governance issues as consistent with the institution’s more traditional role. Yet these new issues did clearly expand the institution’s mandate into new areas. A 2001 report on the Executive Board’s discussion of governance issues provides a useful overview of some of the kinds of issues ultimately taken up by the IMF under the rubric of “good governance”:
strengthening revenue administration; enhancing financial accountability of state enterprises; improving bankruptcy laws and procedures; consolidating extrabudgetary funds into the budget; enhancing transparency in tax and tariff systems; reinforcing central bank independence; extending prudential bank supervision; and improving economic and financial statistics (IMF 2001a).
In practical terms, such governance issues were not only raised in the context of the Fund’s usual Article IV surveillance activities, but were also integrated into its
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requirements for those borrowing from the institution.11 Good governance conditions therefore had real teeth, since program approval could be “suspended or delayed on a account of poor governance” (IMF 1997d). In a speech on the IMF’s role in good governance, Managing Director, Michel Camdessus suggested that there existed a “universal consensus” on the importance of good governance (Camdessus 1998b). Yet, in spite of such claims to a new consensus, this expansion of the Fund’s mandate was not an easy sell on the Board. Jack Boorman, who was then the head of the Policy Development and Review (PDR) department responsible for developing the governance policy, has since noted, “the resistance to the governance agenda was amazing in the mid-1990s.”12 Camdessus himself admitted as much in the same speech cited above, suggesting that early in the process of developing the new policy, “Some of our shareholders feared that in taking on such issues the institutions would become politicized and lose their effectiveness” (Camdessus 1998b). In the end, those who sought to broaden the Fund’s role into governance issues ultimately won the day. In fact, as the 2001 review of the Fund’s experience noted, the institution’s engagement on governance had expanded well beyond the staff and Board’s initial expectations when they had first approved the Guidance Note on Governance in 1997. The principal reasons for this expansion were the Asian financial crisis in 1997-98, which had led to the creation of the standards and codes initiative (discussed below), as well as the decision to focus conditions on public resource management in the context of enhanced debt relief to Highly Indebted Poor Countries (HIPC) (IMF 2001c: 3, 11-12). At the same time, the emphasis on governance issues continued to increase in the Fund’s bread and butter policies—in its Article IV surveillance consultations and its lending programs. Between 1994-95 and 1998-99, the percent of Article IV consultations that raised governance-related issues increased from 17.9% to 61.9%, with developing and transition economies having the most consultations involving governance issues. For lending programs, the overall percentage with governance conditions was much higher, but grew less markedly, from 79.4% to 85.4% over the same period. At the same time, the average number of governance-related conditions almost doubled from 3.4 to 6.6 per program (IMF 2001c: 27, 29).
Analyzing good governance As this overview of the evolution of good governance policies at the Fund and Bank suggests, this policy strategy has been far from static: the precise meaning given to the term “good governance” has shifted over time, the specific focus and character of
11 The two main policies through which the IMF engages with its members are its Article IV consultations
and lending programs. Under Article IV of its Articles of Agreement, the IMF conducts annual consultations with all member states (not just those using its resources) as a part of its ongoing surveillance of the international financial system. These consultations take the form of an assessment of the strengths and weaknesses of the country as well as non-binding recommendations for reform. The Fund also has a number of different facilities through which it lends resources to states in need; these funds come with conditions (discussed further in Chapter 4) which are binding on states that wish to receive the funds.
12 Interview with Jack Boorman, Consultant, Office of the Managing Director, and former head of Policy Review and Development, International Monetary Fund. Washington, DC, August 31, 2005.
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recommended policy reforms have evolved, and the techniques through which the policy objectives have been implemented have changed. While these various changes are more prominent at the World Bank, the IMF has not been immune to broader shifts. In this next section, I will continue to examine the evolution of good governance policy at these two institutions. Yet I will dig deeper and focus in particular on the evolving logic of the good governance agenda: I will look at how these policies have been implemented and what implications they have for the character of IFI authority.
Defining new universals
I have already emphasized, in my introduction, the effort made by leaders at both the IMF and World Bank to present the good governance agenda (like that of the standards and codes) in strikingly universalistic terms. What is most interesting about this universalist framing of the policy is that it has two rather different sides: there is a claim to an explicitly moral universalism at the same time as an economic claim to a technical kind of universality. Each form of universal claim simultaneously complements and undercuts the other, making for a paradoxical technical-moral hybrid.
As I have discussed in greater length elsewhere (Best 2005b; Best 2006), both Fund and Bank leaders made strong moral claims for the importance of this agenda—and did so in explicitly universalist terms. This universalist tone is consistent from World Bank President, Barber Conable’s 1991 memo, which noted that “Problems of governance are universal” (Bank 1991), to IMF Managing Director, Michel Camdessus’s regular reiteration that there existed a “universal consensus” that good governance was important (Camdessus 1998b). Although the turn to a more explicitly moral rather than technical justification for the institutions’ programs has not always sat easily with their traditional emphasis on objectivity and expertise, the fact that the institutions’ normative framework is universalist has reduced some of the potential tensions that this moral turn has created.13 For one thing, the IFIs were clearly created as universal institutions designed to serve the general good. And although many of the universal principles being alluded to were in fact largely drawn from industrialized, western economies, the claim that the “problems of governance are universal” suggested that this was not a policy directed only a developing economies but rather at a global challenge.14
What is most interesting about the explicit normative character of this language is the way that it supplements and enriches the more traditional technocratic forms of universalism. Part of the power of economics is its appeal to universality—to the
13 In other words, the fact that the Fund and Bank have opted for a predominantly universalist, or
cosmopolitan, normative justification for these programs rather than a particularist or communitarian approach fits more easily with their historical role and technocratic approach. In fact, as I have discussed elsewhere, the ethical assumptions underpinning the Fund’s approach to these policies is more of a communitarian-cosmopolitan hybrid, but with a dominant universalist tendency. (Best 2004; Best 2006)
14 This was in fact the way that Barber Conable, World Bank President, used this phrase in a memo to the Board, in seeking to justify the move into governance in the face of certain concerned Executive Directors(Bank 1991).
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universal laws that govern human behaviour, whatever the time or place. Both the IMF and the World Bank have relied heavily on a public choice approach to governance treats governance problems in methodologically individualist terms, as the logical outcome of rational agents pursuing their own self-interest. In the World Bank’s 1991 report on governance, accountability is seen as a problem because of principal-agent problems, in which those collecting taxes, for example, on behalf of the public, need incentives and checks to ensure that they do in fact act in the interests of the public rather than for their own enrichment (Bank 1991: 3). Rule of law is viewed as essential to create a predictable environment for market actors, while information about economic conditions and government decisions becomes essential for markets to perform optimally (iii).
This emphasis on public choice theory has not only justified a reconstitution of the role of the state, as we will see below, but it has also framed the challenges of governance in universal terms, viewing them as the logical outcomes of human self-interest and the difficulties of collective action. The solution for developing states is no different from what (it is assumed) applied to industrialized states many years ago—the development of the kinds of rules and institutions necessary to keep those tendencies in check. The institutionalist economics literature, which has come to play a more important role in framing good governance policy in recent years, is somewhat more nuanced, as it focuses on institutional rather than individual dynamics and therefore pays more attention to the particularities of historical and geographical variation. Yet, here as well, the problems of transactions costs and market failure are represented as timeless and universal. The 2002 World Development Report on institutions begins with a discussion of the challenges of 11th century Maghribi trades, suggesting that the challenges that they faced in seeking to expand their trade, and the solutions that they found to overcome problems of information and cheating, were parallel to those faced by people everywhere today (Bank 2002b: 3).
The combination of moral and technical universalism has several interesting effects: although the technical logic remains the predominant one, it is supplemented by a broader, thicker kind of set of universal claims, enhancing the basis of the institutions’ claims to legitimacy. This thicker set of universalist claims provides a more robust foundation for expanding the institutions’ mandate to include increasingly contested and politically-charged areas in their programs. At the same time, the combination of moral and technical claims remains somewhat perverse—for just as the moral claims help to thicken the thin universalism of economic theory, those moral claims’ increasing dependence on economic logic also has the effect of instrumentalizing their normative character.
Expanding the scope of the technical
The most visible—and controversial—aspect of the good governance agenda is its tendency to move into areas that were previously deemed off-limits for the IMF and World Bank. Many of the institutions’ most ardent critics have charged the institutions with politicizing their roles by advocating changes in the ways that governments exercise their authority over their citizens. Although this critique captures an important dimension of the changes taking place, it misses some of the more complex processes at work: rather than seeing the policies as evidence of a politicization of the institutions’ technical
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mandate, it makes more sense to see them as a reformulation of the relationship between the technical and the political, and as an expansion of the scope of the technical.
The most prominent justification for the IMF and World Bank’s move into governance-related issues has been the claim that it is a technical matter—just a question of increasing the effectiveness of their programs. The World Bank and, above all Fund staff have been very careful to define their role in technical and economic terms, and have contrasted their definitions of governance with those of organizations like the OECD, which links it more explicitly with democratic governance and human rights (Bank 1994; IMF 1996c; OECD 1997). In fact, the IMF’s 1996 staff paper on good governance begins its discussion of governance with a long quote from Adam Smith, who is viewed as the father of contemporary neoclassical economics:
Commerce and manufactures can seldom flourish long in any state which does not enjoy a regular administration of justice, in which the people do not feel themselves secure in the possession of their property, in which the faith of contracts is not supported by law, and in which the authority of the state is not supposed to be regularly employed in enforcing payment of debts from all those who are able to pay. The Wealth of Nations, cited in: (IMF 1996c: 6)
In this and several other documents, Fund staff are careful to delineate the boundaries of the IMF’s mandate: the Fund will concentrate on both extending its more traditional economic policy reforms to include the financial sector and on developing new expertise in institutional reforms, all the while concentrating on those aspects of governance that have a clear impact on macroeconomic performance (IMF 1997b). World Bank management articulated similar concerns, particularly in the early days of the policy; for example, in a cover memorandum to the 1991 discussion paper on governance by the President, Barber Conable, took pains to note the importance of approaching the governance issue in a way that works to “protect [the Bank’s] reputation for technical excellence, professionalism and objectivity” (Bank 1991). These efforts to confine the definition of governance to technical issues can be seen as a way of narrowing its scope so that it fits within the institutions’ pre-existing mandates. Yet, a closer look at the actual evolution of governance policy at the two institutions suggests that the scope of what counts as governance has actually expanded over time. IFI staff thus not only subject governance questions to their existing technical practices and procedures, they also effectively expand their mandate, making ever-broader aspects of political economic life subject to a technical logic.15 Moreover, the very act of expanding the technical has had the effect of blurring their careful distinction between the political and the technical. What is particularly interesting is that the institutions’ staff and management appear to have been very well aware of that tension. The 1996 IMF staff paper on governance as well as the later staff guidelines are both very interesting in this regard: they simultaneously argue for the importance of clearly defining the Fund’s role in terms of the macroeconomic consequences of governance, while also noting the
15 This technocratic logic fits well with Barnett and Finnemore’s discussions of the IFIs as Weberian
bureaucracies (Barnett and Finnemore 2004).
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difficulty in clearly separating out political from economic dimensions (IMF 1996c: 7; IMF 1997d). In fact, as one senior staff member explained, there was a major debate within the institution about whether the Fund should describe its role as being related to economic governance or just governance. In the end, the Policy Development and Review Department (PDR) sent around a memo telling staff not to use the term “economic governance,” since the broader forms of governance had significant implications for macroeconomic stability and growth.16 The IMF and World Bank’s pursuit of good governance has therefore significantly expanded the kind and the number of issues that they deem to be a part of their technical mandate. While this move does subject many of their more traditional technical practices to a more explicitly political logic, this expansion also subjects more aspects of political life to a particular kind of technical logic, which has specific constitutive effects, as I will discuss further below. Yet before we consider these effects, it is also worth considering more closely the technical logic of the IFIs’ good governance strategy—for in doing so we will see that it has a rather unusual character: it not only universalist, but also explicitly moral at times.
Reconstituting capacity, redefining boundaries
What are the practical effects of the two tendencies in the good governance agenda that I have discussed —the expansion of the technical into new domains and framing of that expansion in universalist terms? One of those effects is the redefinition of the roles of the state, the market and civil society, and the redrawing of the boundaries that separate them, a redefinition that can be best understood in terms of a kind of constitutive power. The IMF and World Bank have always relied on a wide range of forms of authority, from the more coercive power of conditional lending to the informal power of technical advice and assistance. As the institutions have moved into the arena of governance, they have continued to rely on these more traditional forms of authority. Yet they have also begun to experiment with new forms as well.
As Barnett and Finnemore suggest, international organizations like the IMF and World Bank have always made use of a kind of productive power that uses their capacity to define and categorize objects of governance in order to give them real meaning and presence (Barnett and Finnemore 2004). The idea of good governance is a classic example of a term whose invention has had significant constitutive effects by making possible a whole range of practices and interventions that would not have been possible before. In many ways, the term can be seen as an extension of earlier such categories like “sound economics” which have been used for much longer. Yet whereas past calls for sound economics tended to define state and market actions in largely negative terms, as a matter of deregulating and liberalizing, the category of good governance seeks to define far more explicitly—and positively—the role of government, civil society and the markets.
16 Interview with Former IMF Executive Board Member, August 29, 2005, Washington, D.C. Kate
Weaver has discussed a similar push by internal forces at the World Bank to make governance an acceptable part of the institution’s normal mandate. (Weaver 2005)
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One of the most striking aspects of the changes taking place in IMF and World Bank policies and pronouncements over the past decade has been their renewed interest in the state—after several decades of denigrating its developmental role. Yet that renewed attention has consistently retained a certain skepticism about the state, and a belief that its role should remain secondary to that of the market. The section on Bank policy in a joint 1996 IMF-World Bank joint issues paper on governance notes:
Markets discipline participants more effectively than public sector accountability mechanisms general can. Enlarging the scope and improving the functioning of markets strengthens competitive forces in the economy and curtails opportunities for monopoly profits, thereby eliminating the bribes public officials may be offered (or may extort) to secure them. Markets also require fair and effective regulation to ensure that the interests of the consumer are served (IMF and Bank 1996: 3).
Less than a year later, the World Bank published its landmark document on the return of the state, the 1997 World Development Report, The State in a Changing World. This report, like those before it, took great care to differentiate the renewed emphasis on the state from earlier state-led development efforts in the 1950s and 60s. In the 1990s, the report argued, developing country states could only become effective if they first focused on the fundamentals and pared down the role of the state by shifting some of its “burdens” to the private sector and to local communities (Bank 1997a: 3). The report then goes on to note,
But reducing or diluting the state’s role cannot be the end of the reform story. Even with more selectivity and greater reliance on the citizenry and on private firms, meeting the broad range of citizens’ collective needs more effectively will still mean making the state’s central institutions work better (3).
The new and improved state, will not only be leaner, but will also be “effective” and “efficient.” The Bank defines an effective state as one that has the capacity to undertake certain necessary functions; to do so, it must be able to “undertake and promote collective action efficiently” (Bank 1997b: 3). These are not only technical bases for assessing a state, but are also clearly drawn from economics, in which efficiency is defined in terms of an effective cost-output ratio. Although such a metric may well have value, to define a state’s role primarily in those terms is to subject it to a very particular kind of market-based logic. This kind of market approach to the state is clearest in the earliest Bank documents and in the Fund, but it also appears in the later institutionalist-inspired governance strategies, in which there is a call to bring market-style competition to bear on state institutions, at the same time as the state comes to play a greater role in setting clear rules for the market (Bank 2002b; Stiglitz 1998). The impetus for a universal technical solution to the governance aspects of economic development and growth thus has some profound implications for the ways in which developing governments are both defined and restructured.
Relying on indirect authority
The Bank and Fund’s efforts to encourage good governance do not only involve the redefinition of the state’s capacity. They also seek to redefine the relationship between state, market and civil society. In doing so, moreover, they are relying increasingly on an
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informal, indirect form of authority, in which their objectives are to be achieved (they hope) through market and popular pressure.
This increasing reliance on indirect authority is particularly apparent in World Bank’s approach to good governance, as they define the market and citizens as playing crucial and oddly parallel roles—as sources of pressure for government reform.17 In the early 1990s, their role is defined as ensuring a kind of “micro-accountability” (Bank 1991) for the state. From the late 1990s on, they are understood as a source of “demand” for good governance (Bank 1997a; Bank 2007b). Rather than emphasizing only the “supply side” of governance (through World Bank and IMF imposed reforms), the idea is that the general public and market actors will combine to form the “demand side” of the good governance equation. Yet, they cannot play that role unassisted. The role of the IFIs is therefore to give the public and the markets the tools necessary to demand better governance—by ensuring that governments are transparent and publish data on their actions and by creating “competition among jurisdictions, among firms in product markets, and among individuals” (Bank 2002b: 19). Transparency and competition may both create tensions and conflict in the short-term, but Bank staff believe that it will ultimately create new demands for institutions better-suited to the changing environment (20).
Thus the World Bank aims to create important changes in the very structure of developing governments and their relationship with the market and citizens; yet it aims to do so through very indirect means, by creating the conditions in which others will demand those changes. This is a kind of indirect constitutive authority that relies on the power of information and competition to achieve its ends. Not only is the form of this strategy therefore somewhat unusual, but its goal is also novel: the attention to market and popular demand together with the emphasis on transparency and accountability makes it quite clear that the objective is to create what Mitchell Dean, drawing on Peter Miller (Miller 1992) has described as a kind of reflexive government:
The imperative of reflexive government is to render governmental institutions and mechanisms . . . efficient, accountable, transparent and democratic by the employment of technologies of performance such as the various forms of auditing and the financial instruments of accounting, by the devolution of budgets, and by the establishment of calculating individuals and calculable spaces (Dean 1999).
This examination of the World Bank and IMF’s evolving policies on good governance reveal the ways in which these institutions have begun to fuse normative and technical appeals in order to develop thin universalist justifications of their expansion. At the same time, these policies involve a new and less direct form of authority that works to reconstitute the roles of government, market-actors and citizens.
17 As I will discuss below, the IMF’s emphasis on indirect authority is most apparent in their standards
and codes initiative.
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Standards and Codes
By taking a look at a second related policy change—the development of standards and codes—we can gain a more concrete idea of how these two institutions have deployed these new governance strategies, and what kinds of limits they may now be facing.
The development of the initiative The standards and codes initiative ultimately came to be seen as the centre-piece of the international financial institutions’ response to the financial crises of the 1990s—effectively the foundation of the promised new international financial architecture.18 These universal “best practices” in twelve different issues areas from fiscal transparency to accounting standards were to provide the institutional reforms, and above all to ensure the necessary transparency, to help prevent future financial crises. Over time, the standards also came to be viewed, particularly by the IMF, as their central contribution to the spread of the practices of good governance. Yet the first standards were not developed with such grand objectives in mind. In fact, the standards and codes initiative evolved rather gradually and only eventually took on the central role that it plays today. By tracing the initiative’s development, we can also track the evolution of thinking about role of these standards and recognize the choices that were made in pursuing this particular path to financial stability and good governance—choices that reflected a desire to make use of a less direct and more constitutive form of authority.
The standards and codes initiative began life as a rather narrow and, at least on the surface, unexciting set of standards for statistical information: the Special Data Dissemination Standard (SDDS). The impetus for the development of this first standard was the Mexican financial crisis of 1994. At the Halifax Summit in June of 1995, the G7 leaders called for the IMF to “establish benchmarks for the timely publication of key economic and financial data” (G7 1995). The IMF created the SDDS in order to encourage member countries to commit to publishing statistics on their economies in a standardized form and in a timely manner. The rationale underlying this policy was the belief that “Comprehensive economic and financial data are essential for the transparency of macroeconomic policy and performance” (IMF 1996a). The IMF, the G7 and others saw the poor quality of Mexican data as one of the causes of its financial crisis and believed that better and more frequent data would improve market confidence. Shortly after creating the SDDS, which was designed for countries that were able to borrow from international financial markets, the Fund created a second General Data Dissemination Standard (GDDS), which was aimed primarily at those states whose statistical capabilities were much weaker. The goal of this standard was to create an incentive for poorer states to develop their statistical capacities and to publish the data that they obtained. In the case of the GDDS, the standard covers not only economic and financial data but socio-demographic information as well. Central to both standards is
18 Although it was to be just one of three major initiatives to prevent and respond to financial crises, the
other two—the Contingent Credit Lines for states who could prequalify for assistance, and the Sovereign Debt Restructuring Mechanism (SDRM) which was to act as a kind of international bankruptcy mechanism, both ultimately failed to obtain global support.
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the idea of publicity: the strategy not only seeks to get countries to publish their statistics on a regular basis, but also publicizes countries’ compliance with the standards through an electronic bulletin board. This same preoccupation with the importance of transparency also characterized a second set of discussions that were taking place at around the same time. In 1997, the IMF Executive Board sat down to discuss two staff papers, one on “Transparency in Government Operations” and the other on “Fiscal Policy Rules.” The first of these papers provided a broad discussion of the value of transparency—not only in the provision of statistical information but also in the day to day fiscal activities of a state and in its development and implementation of a budget (IMF 1997e). The second document focused specifically on the potential usefulness of fiscal policy rules—such as balanced budget rules, or a maximum threshold for a budget deficit such as the 3 percent of GDP limit in the Maastricht treaty (IMF 1997a). In both the documents and the discussions around them, IMF staff and Directors focused on the problems with “off-budget” and other forms of “creative accounting,” such as that used by some EU countries in order to meet Maastricht rules. They expressed concerns about both unintentional opacities—when a government does not have the technical capacity to provide the necessary information—and intentional forms, in which a government attempts to “escape public scrutiny of its behavior—especially in the run-up to elections—in order to avoid or postpone possible adverse reaction from the electorate and from financial markets” (IMF 1997e: 3). The ultimate outcome of these discussions was the next step in the creation of the standards and codes initiative. Although Executive Board members considered the possibility of explicitly endorsing and integrating fiscal rules into their programs, they decided instead to take a less direct approach to transparency. At its October 1997 meeting on the subject, the Board initially asked Fund staff to compile current best practices into a manual that would available to it members. By March of the following year, global pressure for more explicit guidelines had become strong enough that the Fiscal Affairs department decided to draft a more comprehensive code of conduct on fiscal transparency. Staff justified the draft code by arguing that promoting transparency was the Fund’s most effective means of contributing to the spread of good governance (IMF 1998: 1). The draft code on fiscal transparency sought to both clarify the boundary between the government and the economy and to define the appropriate role of the government in the economy. It also emphasized the importance of providing timely and accurate information on the budget to the public, ensuring that the budgeting process was open and that there were independent audits of the public accounts (IMF 1998). Not long after the code on fiscal transparency was approved in 1998, a second code on monetary and financial policies was also developed (IMF 2000).
Over time, the Board and staff also developed a process for monitoring compliance with the codes (IMF 1999a; IMF 1999b). This process initially took the form of experimental case studies, but eventually grew into the more standardized Reports on Observance of Standards and Codes (ROSC). Like the SDDS and the GDDS, the ROSCs are based on the principles of voluntary compliance, publicity and market discipline. Both the adoption of the standards and codes and the publication of the ROSCs are voluntary. The assumption was that a combination of peer pressure and a desire for
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market approbation would lead governments to adopt the standards and codes and then to publish the information on their compliance. It was also hoped that markets would provide a further crucial incentive by rewarding compliant states with lower borrowing costs. Over time, the list of standards and codes continued to grow, ultimately reaching twelve different issue areas covering everything from accounting standards to bank supervision, and the prevention of money laundering.19 The World Bank has taken the lead in several of these issue areas, and together with the Fund takes responsibility for overseeing their implementation. What initially began as a rather modest effort to reform statistical capacities has thus grown into a vast array of standards covering a wide range of different aspects of economic life.
An analysis of standards and codes Given that the standards and codes initiative was framed by IMF staff as their major contribution to the good governance agenda, it is not surprising that there are important parallels between the two policies’ approach to governance. I will therefore make use of the four logics of governance that I discussed earlier in this chapter in order to examine their application to the standards and codes strategy—examining the very similar appeal to universals, the broadening of the scope of the technical, the reconstitution of government, market and public, and the reliance on indirect forms of power.
Defining new universals
Although the standards and codes initiative may appear a lot drier and more technical than its good governance cousin, it has in fact been framed in many of the same lofty universalist terms. Horst Köhler, then Managing Director of the IMF, suggested “While standards and codes deal with highly technical matters, there is nothing narrow or technical about their purposes” (Köhler 2001). His predecessor, Michel Camdessus, went even further, arguing that the goal of international financial reform was not simply a technical but also a normative project in which the IMF could play a crucial role in “civilizing globalization” (Camdessus 1998a; Camdessus 1999a; Camdessus 1999b). Universal standards could play a crucial role in this civilizing process by creating new “rules of the game” to tame the wilder excesses of the global economy. Moreover, given the interdependent character of that global economy, Camdessus argued, “a duty of universal responsibility is incumbent upon all. Every country, large or small, is responsible for the stability and quality of the entire world growth” (Camdessus 1999a: emphasis in original).20 As with the rhetoric surrounding the good governance agenda, this moral universalism was closely connected to a more technical universalist discourse. In this case, the IMF staff and Board members used public choice theory combined with an emphasis on
19 The full list is: “accounting; auditing; anti-money laundering and countering the financing of terrorism
(AML/CFT); banking supervision; corporate governance; data dissemination; fiscal transparency; insolvency and creditor rights; insurance supervision; monetary and financial policy transparency; payments systems; and securities regulation.” (IMF 2004)
20 I have discussed the moral universalism of recent IMF policy in much greater detail in: (Best 2003; Best 2005b; Best 2006)
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credibility to produce a powerful case for constraining the scope of governmental action in the economy. Drawing on public choice theory, the staff paper on “Transparency in Government Operations” emphasized the importance of transparency as a way of counteracting what it describes as the tendency of government to “[exploit] the fiscal illusion of voters” (IMF 1997e). The paper on fiscal rules is even more explicit in its reliance on both public choice and credibility theory as a means of justifying the application of universal rules (IMF 1997a). Advocates of credibility theory, and the time consistency problem, argue that as long as governments are able to revise the policies that they committed to at an earlier point in time, they will have considerable difficulty in being seen as credible by market actors, and will therefore find their efforts at constructive market intervention undermined (Kydland and Prescott 1977); in such circumstances, the only credible alternative is for the government to give up much of its policy discretion and to commit to binding rules. Although the IMF Executive Board decided ultimately to adopt a less stringent approach to fiscal standards than that involved in fiscal rules, the logic underlying the standards and codes initiative relied nonetheless on many of the same assumptions. The importance of credibility was a central theme throughout Board debates on the subject of the standards and codes. It was believed that the adoption of fiscal transparency and the publication of the ROSCs would have a similar effect on credibility, by providing markets and the public with additional information on fiscal plans, reducing the government’s lee-way to back-track on policies and thus increasing its credibility (IMF 1998). Thus, Camdessus and Köhler’s moral claims about the universal responsibility of member states to adopt sound policies were underpinned by a set of technical claims about the universal importance of credibility and the necessity of policy transparency. Once again, the combination of moral and technical universalism had some very interesting consequences: it simultaneously worked to put some more normative flesh on the bones of narrowly technical appeals to universalism, while at the same time thinning out those same moral claims by tying them to a technocratic logic.
Expanding the scope of the technical
This moral-technical universalism helped to justify the IMF and World Bank’s expansion into the areas governed by these new standards and codes. As we saw in the case of the good governance agenda, the effects of this expansion were two-sided. As the IFIs moved into these new arenas of economic and political life—auditing and accounting, corporate governance, money laundering and terrorist financing—they moved into increasingly politically-fraught areas, politicizing their technical mandate. At the same time, this move had the effect of expanding the scope of their technical practices, making larger and larger areas of political and economic life legitimate objects for a particular kind of technical governance. Just as the technical became politicized, so did the political become subject to a new kind of technical logic.
At the IMF and World Bank, a particular understanding of “political economy” has provided a very useful way of reconciling the tensions between the slipperiness of these new political questions and the institutions’ desire to make them calculable. Their conception of political economy is a very specific one, which generally seeks to apply
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economic models of individual rational action to complex social and political problems.21 Thus, for example, the IMF staff paper on fiscal rules notes that while the economic evidence for the desirability of such rules may be inconclusive, the political economy argument is much stronger:
Probably the most powerful argument for fiscal rules centers on their political economy aspects. According to this argument, democratically elected (especially coalition) governments have a built-in bias to deficits, and thereby to redistribute income from future (mostly unborn) generations to the present generation of voters. Because of their sensitivity to electoral pressures, these governments, for the most part, are incapable of correcting the bias without a higher order—possibly constitutional—constraint on fiscal policy (IMF 1997a: 20).
Even as they develop standards of behaviour that will apply to ever-broader aspects of member countries’ policies, the IFIs retain a technical economic lens which ensures that these new problems do not challenge but rather reinforce traditional economistic assumptions.
Reconstituting capacity, redefining boundaries
This effort to recalibrate and reapply economic approaches to a widening array of policy issues is in fact far more ambitious than it at first appears. As I have discussed elsewhere, although a policy of transparency may appear to be minimalist, its objectives are not (Best 2005a: Ch. 6). Take the two data standards that I discussed at the beginning of this section. Although both the SDDS and the GDDS may seem highly specialized and technical, they are important for several reasons. They frame the problem of economic governance in terms of the quality and quantity of information. They also seek to constitute a particular capacity to measure and communicate that information.22 And in providing that information they also hope to change the behaviour not only of the government but also of both the general public and the markets, by providing them with the information that they need to keep the government in check. This same logic underpins the other standards and codes. As the introduction to an early draft of the code on fiscal transparency put it:
Increased fiscal transparency should lead to better-informed public debate about the design and results of fiscal policy, make governments more accountable for fiscal policy and management, and thereby strengthen credibility as well as mobilized popular support for sound macroeconomic policies (IMF 1998: 1).
The standards and codes initiative thus seeks, like the good governance agenda, to redefine the relationship among the state, the market and the public. Here again we see a new emphasis on the demand side of governance, and a belief the market and public
21 This conception of political economy is also used by many American economists and political
scientists. The “Political Economy” section at American Political Science Association’s annual meeting generally reflects this approach, which typically includes a large number of presenters applying rational choice models to understand Congressional voting patterns and various forms of bureaucratic politics.
22 In the case of the GDDS they seek to provide a capacity not only to provide economic statistics but also to measure socio-demographic data such as population and public health, thus in Foucauldian biopolitical terms enabling the measurement, constitution and governance of the population.
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actors can play a central role in pushing governments to act in a particular way. Although one might argue (as I will further below) that these assumptions about the superior rationality of the market and the public are rather naïve, it is important to note that the goal of fiscal transparency is not simply to rely on existing public actors but also to educate them about the budget and thus to constitute a more informed and active public citizenry. This belief in the power of scrutiny—particularly market scrutiny—is in fact key to the particular form of authority that the standard and code initiative relies on.
Relying on indirect power
What is perhaps most striking about the standards and codes initiative is its almost exclusive use of indirect forms of authority. Although there were wide-ranging debates both within and without the IMF about whether the new standards and codes should be mandatory or voluntary,23 those who believed in the power of peer-pressure ultimately won the day. Underlying this informal strategy was the assumption that it was in states’ interest to adopt the new standards and codes. Thus, Köhler argued, “While it is still early in the game, there is already evidence that meeting standards can pay off.” Why? Because it was believed that as “private creditors have begun using this information [ROSCs] in their country risk assessments” they would also begin to reward compliant governments with lower borrowing costs (Köhler 2001). Transparency thus worked twice over to ensure sound economic policies: by not only committing to increase their transparency but by also publishing their compliance with that goal (thus making their progress transparent), market actors should have all of the information necessary to exert effective discipline. No need for the IMF or World Bank to rely on the blunter instrument of conditionality to achieve their desired goals.
The standards and codes initiative also included a second innovation in the structure of global economic authority—for it also relied on non-IMF institutions to develop some of the standards. Not only was the World Bank involved in developing certain standards, but other agencies including the Bank for International Settlements, the International Accounting Standards Board, and the International Association of Insurance Supervisors, among others, were involved in setting the standards in their areas of expertise. Although there was initially a certain amount of debate within the staff and on the Board about this reliance on external agencies, this has how become accepted. The involvement of these agencies further complicates the structure of authority in several ways, making it more network-like, with the Fund as a coordinator rather than a sovereign generator of policy norms, and also increasing the role of private and quasi-private authorities (Abrahamsen and Williams 2009; Cutler 2003; Hall and Bierstecker 2002; Porter 2005).
Conclusion : constitutive power and its limits
Together, the good governance agenda and standards and codes initiative have contributed to some significant transformations in the structure of global economic governance and in the character of its authority. In both policy strategies, we see the
23 The G7 initially advocated more binding rules in 1998, and the UK continued to pushed for mandatory
standards until 2001(Brown 2001; G7 1998).
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appeal to a new kind of universalism that seeks to justify these increasingly interventionist policies in both technical and moral terms. Both policies also clearly expand the IFIs’ mandate into new terrain, and in the process simultaneously increase the politicization of the institutions’ technical mandate and expand the reach of their technical practices. Thus, as the IMF and World Bank have begun to focus more on the moral and political dimensions of economic life—in order to better manage the relationship between the government, the market and the public—they have also subjected these questions to a particular kind of technical, rationalist logic. This transformation of the relationship between the technical, the political and the moral has two main consequences for the character of these institutions’ authority. On the one hand, it enhances the constitutive power of their policies, providing them with new tools for redefining the boundaries between state, market and public and reconstituting the role and capacities of each. On the other, it requires them to rely more on indirect forms of power—to rely on the demands and pressures that they hope that the market and civil society will exert on governments to keep them in check. All of these changes provide significant support for the arguments of those theorists who have emphasized the increasing importance of technical practices as everyday mechanisms for the inscription of power relations. We can understand this transformation in terms of the evolving role of technical expertise in advanced liberalism (Miller and Rose 1990; Rose 1993), the bureaucratic character of the authority of international organizations (Barnett and Finnemore 2004), the increasing governmentalization of the state (Dean 1999), or the central power of inscription (Miller 1992; Walters 2002). All of these theoretical contributions provide important insights into the transformations underway at the IMF and World Bank.
Yet, the evolution of good governance and standards and codes strategies and their efforts to transform global authority are only part of the story. For there have been some significant forms of resistance to these changes—both within and outside the organizations—as well as broader indications of the limits of these new strategies. In the final pages of this chapter, I will therefore briefly outline some of these challenges and consider their initial implications. I will focus in particular on three kinds of limits: to the effort to define these new policies in universalist terms, to the expansion of the scope of the technical, and to the constitutive and indirect forms of authority.
While IFIs have always defined good governance policy and the standards and codes iniative in universalist terms—as a set of universally applicable principles or best practices that are broadly applicable in any specific development context—there has over time been increasing ambivalence within the institutions about the appropriateness of such universalist claims. Even as the idea of “best practices” was gaining ground at the IMF in 1997, some Executive Board members expressed reservations about their appropriateness (IMF 1997c). While such reservations have never held enough sway to change the IMF’s emphasis on universalist strategies, the World Bank has backed away somewhat from this approach, particularly as they began to develop the PRSP “bottom-up” approach to development financing. The Bank’s 2000 and 2002 reports on governance both raise questions about the appropriateness of the “best practices” approach which had dominated discussions to that point, preferring instead to opt for an emphasis on “good fit” (Bank 2000: xii, xv; Bank 2002a: 17-23). As I will discuss in the
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next chapter, Bank staff have begun to place significant emphasis on the importance of tailoring governance strategies to the specific circumstances in individual countries, and on fostering a “country-led approach” to governance and anti-corruption efforts. With the arrival of Paul Wolfowitz as President in 2005, and his increased emphasis on corruption as the centerpiece of the good governance agenda, the universality of the strategy again came under fire. Some have argued that Wolfowitz stumbled by accident upon fighting corruption as his central objective, when he first began his term at the Bank. Whatever the initial impetus, he soon made the battle against corruption his mantra.24 This more recent governance and corruption (GAC) strategy has also been characterized by a return to the kind of Executive Board resistance that was alluded to in Barber Conable’s 1991 memorandum when governance was first being discussed.25 This time, the attack has been led by the United Kingdom among others, who raised concerns about the likelihood that the poor would suffer from having aid cut because their leaders were corrupt, and the dangers of applying the policy without attending to the complexities of local context (Thornton 2006). Over time, the relatively straightforward assumptions about a “universal consensus” on the value of good governance and global standards have gradually come into question. Although this hasn’t led to significant backtracking in policy, it has certainly slowed the spread of governance policies and led to its dropping down the list of priorities at the IFIs, particularly the IMF. The second major transformation at the heart of these new standardizing strategies—the expansion of the scope of the technical—has also begun to reveal some significant tensions. Both good governance and global standards policies have sought to regulate new aspects of political and social life through the application the technical logic of public choice, credibility and institutionalist economic theory and practice. Yet this relationship between the technical and the political has remained fraught; for even while the Fund and Bank have sought to make new issue areas calculable through a kind of economic logic, they always ran the risk of doing the opposite, as their carefully constructed technical practices confronted the messiness of politics. Even as the Fund staff and Board have worked hard to limits the institution’s involvement in governance to areas that are clearly relevant to macroeconomic success, they have always been aware of the difficulties of separating the economic from the political dimensions of governance. They have sought to address this ambiguity by keeping the definition of the scope of Fund policies relatively broad, giving staff the discretion to decide when advice or conditions are appropriate. Yet, over time, this particular resolution to the tensions in engaging with governance has come under fire.
24 He was also enthusiastic about participatory and demand-side approaches to governance and
development. As one World Bank staff member noted, speaking of Wolfowitz’s enthusiasm about governance and anti-corruption, particularly when it involved citizen participation, “We could have a conversation about neoconservatism and Strauss, but it’s clear that there is an interest in grassroots democracy. Put simply, the President loves this stuff.” Interview with Senior World Bank Staff Member, May 10, 2007, Washington, DC.
25 In his cover memo to the report, Conable noted “Governance is an emotive word, and more importantly, a potentially contentious issue internationally and within many of our member countries. It is not surprising that there were divergent views expressed by Executive Directors on the subject.” (Bank 1991)
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At the same time as the scope of the Fund’s involvement in governance issues was increasing, the consensus over its importance was unraveling. When they sat down to discuss the 2001 report on governance, Executive Directors discussed the fact that the boundaries of the Fund’s role were particularly ambiguous, requiring regular application of judgment by staff. While a majority supported this approach, a number opposed this tendency towards “mission creep” (IMF 2001a). Although the Public Information Notice summing up the Board’s discussion does not indicate which directors took which position on the broadening of the Fund’s mandate, if the positions parallel those taken by Board members in their discussions on conditionality, which took place around the same time, then it was developing country directors above all who took strong stances against the expansion in the Fund’s mandate (IMF 2001b; IMF 2002). Directors also raised concerns about the difficulty of determining the macroeconomic relevance of particular governance policies and urged staff to develop better tests for doing so. As I discuss further in Chapter 4, the Board subsequently made the decision to streamline conditionality. Since that time, there have been growing calls for the Fund to narrow its activities to those areas clearly within its mandate.
At the World Bank, a similar debate has erupted about the amenability of these increasingly complex issue areas to technical calculation—focusing in particular on the possibility of measuring good governance. Although the idea—and the challenge—of measurement is a theme that appears in earlier governance reports, under Wolfowitz’s leadership, the Bank began to put increasing emphasis on the development of governance indicators (Bank 2007b: ix, 34-5). At the same time, the pursuit of governance indicators has been perhaps one of the most contested aspects of the Bank’s governance strategy.26 Although the World Bank Institute—a semi-autonomous think tank within the institution—has developed a range of different governance indicators, the Executive Board has consistently rejected attempts to integrate them into the Bank’s lending operations. I will discuss the implications of the tensions in this effort to develop new measurement techniques further in Chapter 5. For now, it is enough to note that the effort to subject some aspects of political life to technical calculation has encountered some important forms of resistance.
Finally, and perhaps most importantly, there is evidence to suggest that these new policies have not had the concrete constitutive effects that they were intended to have. Good governance and global standards strategies have sought to work both directly and indirectly to reconstitute government, market and public capacities. Over time, with the increasing emphasis on the “demand side” of governance and the adoption of a voluntary approach to the standards and codes, the indirect aspects of authority became increasingly important. At the heart of these strategies was a belief in the power of publicity and its ability to empower citizens and markets to demand government reforms. It is not at all clear, however, that markets in particular are behaving according to plan. The IMF and World Bank’s own evaluations of the standards and codes initiative found that market participants were not in fact making use of the data on government compliance published in the ROSCs (IMF and Bank 2005: 24). Moreover, although the IMF has regularly cited studies that suggest that markets have rewarded economies that are more transparent,
26 I will discuss the World Bank’s efforts to develop governance indicators in more detail in Chapter 5.
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even they admit that the evidence remains inconclusive at best (IMF and Bank 2005: 19).27
While these two polices may now be entrenched parts of the IMF and World Bank, the path of institutional evolution has been anything but smooth. The development of new universals principles, the expansion of technical logics into new areas, and the transition to a less direct form of power have all encountered significant forms of resistance, internal tensions or been proven less than effective. What does this mean for the theories of the transformation of power that I have drawn on throughout this chapter? I will take up these questions in much greater detail in Chapter 5 and in the Conclusion. For now it is enough to suggest that while these complications certainly do not invalidate their insights, they do raise some important questions about their generalizability. The evidence from these two new policies suggests that the purchase of technical logics over political and even economic life has important limits. These limits take several different forms. The first is the reliance of technical logics on increasingly explicit moral claims for their expansion; while this moral-technical hybrid is more effective in some ways, it appears much less “clean” and “objective” than purely technical approaches, which in turn provokes certain forms of internal as well as external resistance. The second limit of the technical is the related problem of separating out the technical from the political and the increasing difficulty of subjecting ever more complex aspects of social and political life to the logic of economic calculation. The third limit is the naïveté of much technical economic theory and practice about the character of market and public actors. Much of the expansion of technical, indirect forms of governance relies on a particular conception of publicity and the role of information that is simply not borne out in practice.
In the next two chapters, I trace these new strategies of governance and their limits through several further policy strategies. I will begin, in Chapter 4, by examining the ways in which the IMF and World Bank, along with much of the donor community, have sought to balance the universalism of their governance and standards strategies with greater attention to the local and particular dimensions of development policy. I will then consider in Chapter 5 the ways in which these institutions have sought to respond to the difficulties of rendering these increasingly specific, local and political problems calculable through the development of new forms of measurement. In both cases, I will suggest, we can see both the elaboration of informal, technical and indirect forms of authority and their limits.
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