The Global Governance of the World Bank
EX NO: Y3587462
The Global Governance of the World Bank and
Asian Development Bank can best be Understood
as Part of the Logic of Global Capitalism
Critical Assessment
4,043 Words (Excl. Bib)
3/15/2016
MUNDUS MAPP: European Public Policy
International Organizations
Dr. Jappe Eckhardt
The World Bank and Asian Development Bank global governance can best be understood
as part of the logic of global capitalism; a critical assessment of this claim.
Contents
Introduction ................................................................................................................................... 2
Definitions ...................................................................................................................................... 3
Global Governance ..................................................................................................................... 3
Global Capitalism & Capitalism ................................................................................................ 4
International Organizations ........................................................................................................ 4
i)
World Bank ...................................................................................................................... 5
ii)
Asian Development Bank ............................................................................................ 5
Debates on Capitalism .................................................................................................................. 6
Polarity in Politics ......................................................................................................................... 8
Unipolarity .............................................................................................................................. 9
Bipolarity ................................................................................................................................. 9
Multipolarity ......................................................................................................................... 10
Conclusion & Analysis ............................................................................................................... 10
References..................................................................................................................................... 14
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Introduction
The 21st century is a peculiar time in geopolitics and global capitalism. In the decades leading
up to it, the world order has become muddled with uncertainties and obfuscated conflicts.
After World War II, the world quickly became shaped by a divisive development in the
balance of powers: a seeming divide between East and West, and more importantly a cold
peace between ideals. The victorious nations of World War II quickly came to the realization
that their alliance had held water only in the dire necessity to overcome the Axis powers. In
the time of rubble and reconstruction, communism and capitalism seemed to have little in
common; mistrust and hostility resurfaced. Consequently, and rather simultaneously, the
United Nations (UN), the World Bank (WB), the World Trade Organization (WTO), and the
International Monetary Fund (IMF) were established. These organizations essentially became
tools of providing stability and removing trade barriers. At face-value, these aimed to provide
economic growth and enhanced national security opportunities for all member countries
involved. This in turn led to a whirlwind of economic development within the participating
countries; unfortunately, research has exposed this growth as unsustainable in several African
nations and in much of South America (Dollar et al., 2004). Similar to these international
developments, in 1999, we witnessed the creation of the European Union (EU) and
subsequently the introduction of the shared currency, the Euro (EUR), in 2002. The
establishment of the European Union was indicative of a societal inclination towards
providing smaller states with more power through aggregate decision making. Thus, through
the examples given, the overall trend of the 21st century has arguably been the creation of
multilateral agreements and allegiances, a search for mutual benefits (Kissinger, 2014; pp.
366).
The question posed within the paper is as follows: whether, or not, the creation of the Asian
Development Bank (ADB) and the World Bank could be considered a development outside of
the interests and logic of global capitalism. This will be analysed and considered on the
grounds of the definitions provided for the WB and ADB, the rhetoric used by the respective
banks, and the overall fit into the definitions of capitalism, and more importantly, the
framework of global capitalism modelled in this paper. The topicality of this question seems
highly relevant as ample research on the theories of hegemony and polarity is being
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conducted in academia. More importantly, plenty of contemporary discussion within news
and media are tracking a perceived shift into the direction of multi-, uni-, or bipolarity.
Definitions
In order to provide an overview of this topic, the following definitions are vital in order to
establish an understanding of the status quo.
Global Governance
The movement or theory of global governance is closely related to, and often involves,
institutionalization. Within this paper, the approach taken to understand global governance
will be in line with historical institutionalism, as reflected by Charles Tilly in his approach of
studying history via “big structures, large processes and huge comparisons” (Tilly, 1984).
More precisely, this refers to nations delegating power to an institution in pursuit of shared
goals or ambitions - such institutions include the UN, WB, WTO, and the ADB. The name
suggests a type of governance that is exerted beyond a singular entity, and thus a non-singular
system. Professor Adil Najam has effectively defined the concept as “the management of
global processes in the absence of global government” (Riazati, 2006). The rise of global
governance could be described as an organic response to the overarching trend of
globalization, marked by the dissolution of the Soviet Union in 1991. Recently, the post-ColdWar geopolitical environment was witness to a paradigm shift that required new responses to
shared international anxieties such as: environmental concerns, property rights, trade, public
health, and agriculture. Several of the aforementioned factors require a new response and have
been conceptualized as “global commons”, defined by Smithian economic theory as
“rivalrous” and “non-excludable” (Smith, 1992). However, heterogeneity of preferences, the
feature that provides efficacy to global governance, is also simultaneously undermining
common global goals. Through the myriad actors involved, compromises need to be made,
and countries tend to homogenize their preferences. This can lead to the more “powerful”
nations coercing others to act on behalf of their biddings or interests.
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Global Capitalism & Capitalism
Global capitalism, as opposed to capitalism, is the global trend that has been homogenizing
states and economies’ economic structures. As with global governance, global capitalism has
also recently emerged from the downfall of the Soviet Union and the consequent shift in
national priorities (Gilpin et al., 2000, pp. 458). The natural result of the globalization of
capitalism is a significant increase in competition, and consequently, a growing necessity for
nations to specialize productive efforts. According to the theories and research conducted by a
number of established economists, ranging from Adam Smith to Joseph Schumpeter,
capitalism is able to promote economic growth and improve standard of living (Smith, 1993;
Kissinger, 2014; Gilpin et al., 2000; Lucas, 2003; Schumpeter, 1942). Nonetheless, despite
the vogue for these claims and the intellectual calibre of the proponents of this theory, it
remains highly controversial. Equally, it is claimed that capitalism does not lead to wealth
creation for the general populace, and there is a contemporary rise in the belief that capitalism
leads to wealth creation only for a small percentage of people in a given society. This belief is
critically reflected in the Marxian theory of capital accumulation, in which wealth does not
trickle down, but rather becomes concentrated in the hands of a few – later elaborated on by
the likes of Thomas Piketty (Marx, r.1990; Piketty, 2014). Hence, global capitalism refers to
market capitalism as a system transcending borders, thus enlarging the market, and increasing
the amount of involved actors.
International Organizations
As the section on “Global Governance” (p.3), explains, institutionalization and global
governance are two concepts that work hand-in-hand. In this paper, institutionalization will
refer to the process by which a person or entity accessing an institution is being forced to
adhere to strict norms and controls in order to be accepted (Merriam Webster, 2016).
International organizations are, as the name suggests, organizations with international
members, influence, or presence. They can be subdivided into two main types: (1)
International non-governmental organizations [INGOs] and (2) Intergovernmental
organizations [IGOs]. INGOs are non-governmental organizations that operate
internationally, such as the Gates Foundation, SOS Children’s Villages, Oxfam, Catholic
Relief Services, or Médecins Sans Frontières. Most INGOs aim to support humanitarian,
environmental, or religious/belief efforts. The IGOs on the other hand are organizations
composed of sovereign states, e.g. the United Nations, International Monetary Fund, World
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Nature Organization, and World Trade Organization. Across IGOs, the purpose can vary
greatly, some with a general scope and others pursuing niche or precise missions.
Thus, with a number of international organizations, the membership structure makes for
several actors or states aiming to cohesively tackling a problem together, arguably via global
governance.
i) World Bank
The World Bank (WB) is a multilaterally governed, international financial institution founded
in 1944 at the Bretton Woods Conference, and its membership comprises 188 participating
countries. It was founded simultaneously with three other institutions including the
International Monetary Fund (IMF). Both the WB and IMF are based in Washington, D.C.,
and are known to frequently collaborate. The WB provides credits and loans to developing
nations in the self-proclaimed pursuit of the global reduction of poverty. More specifically,
and according to the WB’s Articles of Agreement, “All its decisions must be guided by a
commitment to the promotion of foreign investment and international trade and to the
facilitation of capital investment” (World Bank, 1989). Historically, the WB has been
managed almost solely by American nationals; of the 12 WB Presidents, 10 were born
Americans, one was an Australian (James Wolfensohn) who was a naturalized American
citizen before taking office, and there has been one South Korean national (Jim Yong Kim),
who also later became a naturalized American citizen.
ii) Asian Development Bank
The Asian Development Bank (ADB) is a multilaterally governed, international financial
institution and regional development bank established on December 19 th, 1966. The ADB is
headquartered in Manila, Philippines; though, with 31 ‘brick-and-mortar’ offices around the
world, all working to promote social and economic development in Asia (ADB, 2016). The
ADB’s membership comprises 67 members; 48 of which are from the Asia & Pacific region,
and 19 outside. Because Japan is the ADB’s majority shareholder, the presidency of the ADB
has always been held by a Japanese national. The differentiating attributes of the ADB versus
the WB are characterized by its “Asian” nature, or as it self describes its purpose as “Asian in
character… [we] foster economic growth and cooperation” (ADB, 2016, Who We Are).
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Debates on Capitalism
There are myriad fiercely contrasting perspectives on capitalism: to many, it is more than just
an economic system - it’s a school of thought and an ideology. Capitalism is often identified
by its characteristics: private property, capital accumulation, wage labor, voluntary exchange,
a price system and competitive markets. These may occur in concert or isolation within an
economy (Gregory, 2012; p. 41).
Capitalism
When Winston Churchill discussed democracy, he famously coined the idea that “democracy
is the worst form of government, except for all others” (Churchill, 2008, p. 574). Many
proponents of capitalism believe that it, too, should be held to the same standard and
considered similarly as a system with inherent value, and inherent flaws, but with the positive
outweighing the negative (Krugman, 1997). Operating on this premise, a multitude of camps
emerged, leading to debate regarding the necessary level and amount of economic
governance. For the sake of brevity, the systems discussed will be laissez-faire and mixed
economy. Arguably, the only economic system working within nations operating under the
Washington consensus is the mixed economy system. This is the result of economic
neoliberalism, mixed with the necessity for governments to provide quality controls and
services such as welfare, healthcare. Therefore, in its purest form, laissez-faire economic
governance is non-existent in modern, Washington consensus capitalism. Thus, within this
paper, the focus will remain on mixed economy capitalism .
Long-term economic development studies have shown the radical and seemingly exponential
rise in the world’s GDP as a direct result of industrialization, and the spread of capitalism.
(See Figure 1, below)
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Figure 1: World's GDP per capita, since beginning of the Industrial Revolution
(Maddison, 2001)
This type of evidence of the global GDP growth is undisputed, yet the question raised is
whether there is a direct correlation between global growth in GDP and poverty reduction.
Understanding whether the growth of GDP alleviates poverty is essentially at the forefront of
interest for economists, on both sides of the spectrum, whether they are proving its efficacy or
disproving it (Wade, 2004). According to standard economic theory, the Heckscher-Ohlin
model, trade gains should flow to abundant factors. This suggests that in developing countries
unskilled labor would reap the most significant benefits from global capitalism and trade
liberalization (Topalova, 2007). Conversely, according to new theories, in the long run this
could in actuality reduce the wages of unskilled labor forces, even in countries boasting labor
abundance (Topalova, 2004). Banks are a vital part of this economic structure as they provide
capital necessary for businesses to operate and invest. In terms of the monetary interplay,
there are effectively three major currencies (the USD, EUR, and JPY) clashing with one
another. This could be compared to a collision of tectonic plates, with the resulting ripples and
quakes being felt internationally. Nonetheless, capitalism works best when the markets are
closely tied to another with little or no barriers of trade in place; consequently, there is a clear
argument in favour of global capitalism.
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Global Capitalism
The line that separates the terms ‘globalization’ and ‘global capitalism’ is blurred and
obfuscated. In both instances, we are discussing conditions in which governance structures are
changing owing to international integration (Albrow et al., 1990). The IMF saliently defined
four essential factors of globalization: (1) trade and transactions; (2) capital/investment
movements; (3) migration and movement of people; (4) the dissemination of knowledge
(IMF, 2000). Unequivocally, these terms can also be considered pillars of capitalism, as
capitalism also relies on trade, markets, capital, intellectual property and free movement of
capital and labor.
Global capitalism as a system aims to incorporate and integrate as many countries as possible,
as this effectively creates a larger market and greater opportunities for productive
specialization for all involved. Arguably, sharing economic systems also leads to less
geopolitical friction, as goals and values tend to be more aligned. Inevitably, this relentless
growth and intensive expansion is leading to massive privatization and commodification.
Famously, some critical economists fear this development and predict an exponential decrease
in public spheres within involved nations (Robinson, 2008). This in turn could then
undermine the services provided by the public sector, such as health, education, housing, and
enterprises. This discussion also provides reason to criticize or question the ulterior motives
of international organization such as the WTO and WB.
Polarity in Politics
The discussions surrounding international integration, shared economic systems, cultural
globalization, and shared monetary systems all lead to a higher level discussion regarding the
international relations theory of polarity. International relations researchers and practitioners
have identified three primary means of global power distribution and geopolitics, defined as
uni-, bi- , and multipolarity (Huntington, 1999; Vasquez & Heneham, 1999; Deutsch &
Singer, 1964). These can be briefly defined and discussed as follows:
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Unipolarity
Unipolarity, or as it is also commonly referred to as “hegemony”, describes a system of power
distribution whereby one state is undeniably more influential than all others. This influence
can be defined by cultural, economic, or military dominance [or all three] (Huntington,
1999.p. 2). Arguably, the nation that would be most emblematic, for having been a hegemon
in contemporary history, would be the United States, post-Cold War. In the wake of the
dissolution of the USSR, the US was able to secure power and influence on a variety of levels,
whilst simultaneously securing leading positions in international organizations. To date,
ample academic evidence supports that the US has retained its position as global hegemon
(Wolforth, 1999; Kagan, 2008). The resulting stability derived from unipolar domination is
established on the basis of raw power advantage. Numerous IR scholars debate the potential
of unipolar power to lead to global peace, the most salient counterargument being that an
asymmetric distribution of power is unsustainable and ultimately breeds conflict. Monteiro,
for example, has emphasized the multitude of inter-state-wars that the United States was
involved in merely between 1990 and 2013: Kuwait, 1991; Kosovo, 1999; Afghanistan, 2001present; Iraq, 2003-2010 (Monteiro, 2011).
Bipolarity
Bipolarity is defined by the duality of global power shared – thus, the power distribution is
shared by two states. Generally, within this scenario, states find themselves having to choose
to ally with one or the other, yet unable to work with both. The Cold War provided a textbook
example of this dynamic with the dichotomy of the USSR and the US (Waltz, 1964). Both
were strong sovereign states with strongly defined values and cultures, large populations,
advanced technology, ample resources, and military power; granted, many of these vaunted
characteristics would later falter or be disproved, but for a period this was the case. The
dichotomy this created led to countries establishing allegiances based on these factors, as well
as on reciprocal diplomacy. Critics believe this system to be inherently flawed, as it could
lead to a perpetual condition of Pareto efficiency, in which two states will continuously grow
and develop at the expense of all others (Piketty, 2014). Similarly criticized within Trotsky’s
notion of uneven and combined development (Ashman, 2012, pp.60-65). Proponents have
argued that the condition will lead to international safety and stability, on the grounds that
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neither state will aggressively expand or absorb nations as this will lead to countermeasures
taken in order to level the playing field (Waltz, 1974). Nonetheless, this argument could also
be turned on its head: it could be argued that this is exactly what one can witness within
international politics, wherein the U.S and Russia have been erecting military bases and
missile silos in a competition for supremacy (Kissinger, 2014).
Multipolarity
Logically, following the conceptualization of polarity within uni- and bipolar examples, the
state of multipolarity is defined by the condition wherein a multitude of nations are on equal
footing with regard to military, cultural, and economical power. Multipolarity within IR is
considered a geopolitical condition in which states tend to be evenly distributed, with ample
openings for collaboration. This opportunity simultaneously has potential for growing
tensions and conflicts, as the abundance in points of contact are conducive to friction
(Vasquez & Heneham, 1999).
Conclusion & Analysis
The previous chapters have discussed and defined some of the terms and concepts that are
essential in order to better understand the global governance of both the World Bank and the
Asian Development bank - namely, by providing an overview of what global governance is,
how international organizations work, the differences between capitalism and global
capitalism, and describing polarity within an international relations context.
These terms, theories, and concepts are vital in order to further the discussion surrounding the
thesis deliberation: “The Global Governance of the World Bank and Asian Development
Bank can best be understood as Part of the Logic of Global Capitalism”.
The global governance of the World Bank, as defined within the prior chapters, can be
understood as working on multilateral principles. This is evidenced by the multi-national
approach to membership and management, as is typical for international organizations.
Nonetheless, emerging from its international governance, the de-facto governing nation of the
WB is the United States. This is underlined by many aspects of the World Bank being heavily
dominated by US influence, both directly and indirectly. First, the WB’s presidency has
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continuously been claimed in ever-reoccurring-manner by US nationals, with no other
nationals having a chance at taking the presidency. Secondly, the headquarters are
geographically located in the heart of the American capital, providing proximity to all
important US political and financial institutions. Moreover, the largest financial donation for
the WB comes from the US state department, carrying with it the blatant dominance over the
pursued agenda in terms of investment decisions. Finally, the US wields the highest voting
power in percentage (as of 2014, at 15.85%), significantly outweighing all other member
nations. (Second place in voting power is claimed by Japan at 6.84% - less than half of the
US’ power.) (WB, 2016). In this case, though at face value an IO managed through a system
of global governance, the World Bank is heavily influenced by a single sovereign nation. The
United States, as any sovereign nation, is directly or indirectly steering the bank into a
direction that would provide nationally beneficial results (Krugman, 1997), and within
development and finance, this will result in a yield of security and political stability, or
financial gains. Following World War II and during the Cold War, there was more apparent
clarity surrounding the ulterior motives of the WB, as it was also utilized in order to bolster
states that the US deemed at risk of tipping into communism. This was most famously
reflected in the first WB loan ever provided, to France, for $250m, that was provided under
harsh conditions. It was clearly stipulated by the WB that France had to agree to produce a
balanced budget, provide priority of debt repayment to the WB above all other governments,
and all government employees associated with the communist party were to be removed
(Bird, 1992; p.288-291). This was symbolic for the WB potential to leverage political power,
reflective of American foreign policy, in order to ward off communism. Later, during the
implementation of the Marshall Plan, the WB was forced to shift its focus from Europe, as
many European nations were already receiving aid. Although the pursuit of mutually
beneficial agreements and developmental loans or financing could also be beneficial to all
other member nations, its objectivity is offset by the fact that the WB is steered with a strong
US bias aiming at ensuring national interests, before those of other members. The discussion
surrounding developmental economics as a means of providing political stability or conflict
relief, could also be evidence as to a means of nations bolstering trading partners in order to
increase exports, and/or imports (James et Al, 2007). These arguments would be emblematic
of the essence of market capitalism, and more fittingly, global capitalism. Nations united
under the banner of multilateral organizations, providing developmental support via financing
and loans, are debatably striving to increase the size of the shared economic system, and the
markets it houses. Simultaneously, this development would provide ample opportunities to
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restructure supported national economies by privatizing public services with well-established
and wealthy corporations - again, providing reason to believe that the services of the WB are
catalysing global capitalism (Robinson, 2008). Finally, through this type US steered selective
developmental support, the World Bank’s influence could be considered detrimental to
multipolarity. Instead, as reflected within the IR definitions of polarity, the WB seems to be
shaping geopolitics into a more unilateral process (see chapter: Polarity in Politics).
The Asian Development Bank surged into operation as an Asian parallel of the World Bank.
The services offered aimed at providing similar assistance but with the promise of a different
approach than that of the Washington consensus, and with closer geographic and cultural
proximity to many of the nations in need of support. This has afforded the ADB rapid growth
in financing importance within the Asia-Pacific region. As previously discussed, the ADB,
although multilateral in nature, is also heavily dominated by one member nation. This
leadership position was seized by Japan. Japan, as the majority share-holder (by far), has been
able to fill the ADB’s presidency with Japanese nationals on a rolling basis. Distinctly like the
US, it has become the de-facto governing nation of the ADB, and shapes the path and agenda
of the ADB. In turn, this also leads to a multilateral organization promoting the goals and
agenda items of one nation; again, we witness a multilateral bank subtly driving geopolitics
into the direction of unipolarity (see chapter: Polarity in Politics). The behaviour of the ADB
has been described as “very similar to the US”, and the intended outcomes of Japanese aidgiving are, historically, strikingly strategic. Throughout the 70s and into the early 90s, the
Japanese government provided aid within Latin America and the Caribbean under the
Japanese banner, and also under that of the ADB. The support provided did not only benefit
the supported nations, but also served Japan’s national-political and economic interests within
the region. Simultaneously, through its support and simultaneous collaboration with the US,
the US-Japanese political and trade relationship improved (Katada, 1997; p. 931-945).
Conclusively, from the succinct overview provided, it becomes apparent that the two
development banks are advancing their own interests more than the nations supported. The
existing research and academic debate provides reason to believe that, although multilateral in
nature, the WB and ADB are acting on behalf of singular nations. The effect of this type of
global governance is that the resulting power exerted by the banks leads to a higher
concentration of power and influence of single nations, rather than a diffuse distribution of
influence. Ultimately, as the preceding chapters have demonstrated, the logic of the banks’
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existence lies within the context of global capitalism. Finally, as the banks are seemingly
being utilized as vehicles for exerting power, and reinforcing dependency, it could be argued
that multilateral banks are not conducive towards multipolarity in geopolitics.
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References
ADB (2016) The Asian Development Bank Website (About Us) Retrieved in March, 2016
from: http://www.adb.org/about/main
Albrow, Martin and Elizabeth King (r.1990) Globalization, Knowledge and Society.
London: Sage Publications
Ashman, Sam (2012) Combined and uneven development, pp. 60-65 in Alfredo & Filho
(eds.), The Elgar Companion to Marxist Economics. Cheltenham, UK: Edward Elgar
Bird, Kai (1992) The Chairman: John J. McCloy, the Making of the American
Establishment: New York, NY; Simon & Schuster
Boughton, James and Bradford, Colin (2007) Global Governance: New Players, New
Rules. Finance and Development: IMF Magazine
Churchill, Winston (r.2008) Churchill by Himself. Public Affairs 1 st Edition
Deutsch, K. & Singer, D. (1964) Multipolar Power Systems and International Stability.
World Politics, vol. 16, p. 3
Dollar, D. and Aart Kraay (2004) Trade, Growth, and Poverty. The Economic Jounrnal
vol. 114 – Blackwell Publishing
Gilpin, Robert and Jean Millis Gilpin (2000) The Challenge of Global Capitalism: The
world Economy in the 21st Century. Princeton University Press
Google NGRAM (2016) Line graph depicting the rise of Global Governance in literature
from 1800 – 2010 – Google
Gregory, Paul (2012) The Global Eonomy and its Economic Systems. South-Western
College Publications
Hayek, Friedrich (1944) The Road to Serfdom. The University of Chicago Press
Huntington, S.P (1999) The lonely Superpower. Foreign Affairs, ed. 78, p.2
IMF (2000) Globalization: Threats or Opportunity. IMF Publications
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https://www.imf.org/external/about/histend.htm
Ingham, Geoffrey (2008) Capitalism. Polity Press
Katada, S.N (1997) Two Aid Hegemons: Japanese-US interaction and Aid Allocation to
Latin America and the Carribean: World Development, Vol. 25
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Kissinger, Henry (2014) World Order. Penguin
Krugman, Paul (1997) Unpublished – Debate on Capitalism, Globalization of the
Economy. Council on Foreign Relations
Lucas, Robert E. (2003) The Industrial Revolution: Past and Future. Federal Bank of
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Maddison, Angus (2001) The World Economy: A Millenial Perspective. Paris
Marx, Karl (r. 1990) Capital: Critique of Political Economy version. Penguin Classics
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Merriam Webster (2016) Definition of: )nstitutionalize ; http://www.merriamwebster.com/dictionary/institutionalize accessed March, 2016
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Piketty, Thomas (2014) Capital in the 21st Century. Harvard University Press;
Cambridge, MA, USA
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Quoting Adil Najam’s definition; a Scholar at Boston University
Robinson, William (2008) Understanding Global Capitalism. The Development
Roundtable Series (Quotation from within roundtable transcription)
Schumpeter, Joseph (1942) Capitalism, Socialism, and Democracy
Smith, Adam (r.1992) The Wealth of Nations. Penguin Classics
Tilly, Charles (1984) Big Structures, Large Processes, and Huge Comparisons
Topalova, Petia (2007) Trade Liberalization, Poverty, and Inequality: Evidence from
Indian Districts. University of Chicago Press
UN Thematic Think Piece (2013) Global Governance and Governance of the Global
Commons in the Global Partnership for Development beyond 2015
Vasquez, J. & Heneham, M. (1999) The Scientific Study of Peace and War. Oxford:
Lexington Books
Wade, R. (2004) Is globalization reducing poverty and inequality. London School of
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Waltz, K.H (1964) The Stability of a Unipolar World. International Security
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World Bank (1989) Articles of Agreement
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The Global Governance of the World Bank and
Asian Development Bank can best be Understood
as Part of the Logic of Global Capitalism
Critical Assessment
4,043 Words (Excl. Bib)
3/15/2016
MUNDUS MAPP: European Public Policy
International Organizations
Dr. Jappe Eckhardt
The World Bank and Asian Development Bank global governance can best be understood
as part of the logic of global capitalism; a critical assessment of this claim.
Contents
Introduction ................................................................................................................................... 2
Definitions ...................................................................................................................................... 3
Global Governance ..................................................................................................................... 3
Global Capitalism & Capitalism ................................................................................................ 4
International Organizations ........................................................................................................ 4
i)
World Bank ...................................................................................................................... 5
ii)
Asian Development Bank ............................................................................................ 5
Debates on Capitalism .................................................................................................................. 6
Polarity in Politics ......................................................................................................................... 8
Unipolarity .............................................................................................................................. 9
Bipolarity ................................................................................................................................. 9
Multipolarity ......................................................................................................................... 10
Conclusion & Analysis ............................................................................................................... 10
References..................................................................................................................................... 14
1|Page
Introduction
The 21st century is a peculiar time in geopolitics and global capitalism. In the decades leading
up to it, the world order has become muddled with uncertainties and obfuscated conflicts.
After World War II, the world quickly became shaped by a divisive development in the
balance of powers: a seeming divide between East and West, and more importantly a cold
peace between ideals. The victorious nations of World War II quickly came to the realization
that their alliance had held water only in the dire necessity to overcome the Axis powers. In
the time of rubble and reconstruction, communism and capitalism seemed to have little in
common; mistrust and hostility resurfaced. Consequently, and rather simultaneously, the
United Nations (UN), the World Bank (WB), the World Trade Organization (WTO), and the
International Monetary Fund (IMF) were established. These organizations essentially became
tools of providing stability and removing trade barriers. At face-value, these aimed to provide
economic growth and enhanced national security opportunities for all member countries
involved. This in turn led to a whirlwind of economic development within the participating
countries; unfortunately, research has exposed this growth as unsustainable in several African
nations and in much of South America (Dollar et al., 2004). Similar to these international
developments, in 1999, we witnessed the creation of the European Union (EU) and
subsequently the introduction of the shared currency, the Euro (EUR), in 2002. The
establishment of the European Union was indicative of a societal inclination towards
providing smaller states with more power through aggregate decision making. Thus, through
the examples given, the overall trend of the 21st century has arguably been the creation of
multilateral agreements and allegiances, a search for mutual benefits (Kissinger, 2014; pp.
366).
The question posed within the paper is as follows: whether, or not, the creation of the Asian
Development Bank (ADB) and the World Bank could be considered a development outside of
the interests and logic of global capitalism. This will be analysed and considered on the
grounds of the definitions provided for the WB and ADB, the rhetoric used by the respective
banks, and the overall fit into the definitions of capitalism, and more importantly, the
framework of global capitalism modelled in this paper. The topicality of this question seems
highly relevant as ample research on the theories of hegemony and polarity is being
2|Page
conducted in academia. More importantly, plenty of contemporary discussion within news
and media are tracking a perceived shift into the direction of multi-, uni-, or bipolarity.
Definitions
In order to provide an overview of this topic, the following definitions are vital in order to
establish an understanding of the status quo.
Global Governance
The movement or theory of global governance is closely related to, and often involves,
institutionalization. Within this paper, the approach taken to understand global governance
will be in line with historical institutionalism, as reflected by Charles Tilly in his approach of
studying history via “big structures, large processes and huge comparisons” (Tilly, 1984).
More precisely, this refers to nations delegating power to an institution in pursuit of shared
goals or ambitions - such institutions include the UN, WB, WTO, and the ADB. The name
suggests a type of governance that is exerted beyond a singular entity, and thus a non-singular
system. Professor Adil Najam has effectively defined the concept as “the management of
global processes in the absence of global government” (Riazati, 2006). The rise of global
governance could be described as an organic response to the overarching trend of
globalization, marked by the dissolution of the Soviet Union in 1991. Recently, the post-ColdWar geopolitical environment was witness to a paradigm shift that required new responses to
shared international anxieties such as: environmental concerns, property rights, trade, public
health, and agriculture. Several of the aforementioned factors require a new response and have
been conceptualized as “global commons”, defined by Smithian economic theory as
“rivalrous” and “non-excludable” (Smith, 1992). However, heterogeneity of preferences, the
feature that provides efficacy to global governance, is also simultaneously undermining
common global goals. Through the myriad actors involved, compromises need to be made,
and countries tend to homogenize their preferences. This can lead to the more “powerful”
nations coercing others to act on behalf of their biddings or interests.
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Global Capitalism & Capitalism
Global capitalism, as opposed to capitalism, is the global trend that has been homogenizing
states and economies’ economic structures. As with global governance, global capitalism has
also recently emerged from the downfall of the Soviet Union and the consequent shift in
national priorities (Gilpin et al., 2000, pp. 458). The natural result of the globalization of
capitalism is a significant increase in competition, and consequently, a growing necessity for
nations to specialize productive efforts. According to the theories and research conducted by a
number of established economists, ranging from Adam Smith to Joseph Schumpeter,
capitalism is able to promote economic growth and improve standard of living (Smith, 1993;
Kissinger, 2014; Gilpin et al., 2000; Lucas, 2003; Schumpeter, 1942). Nonetheless, despite
the vogue for these claims and the intellectual calibre of the proponents of this theory, it
remains highly controversial. Equally, it is claimed that capitalism does not lead to wealth
creation for the general populace, and there is a contemporary rise in the belief that capitalism
leads to wealth creation only for a small percentage of people in a given society. This belief is
critically reflected in the Marxian theory of capital accumulation, in which wealth does not
trickle down, but rather becomes concentrated in the hands of a few – later elaborated on by
the likes of Thomas Piketty (Marx, r.1990; Piketty, 2014). Hence, global capitalism refers to
market capitalism as a system transcending borders, thus enlarging the market, and increasing
the amount of involved actors.
International Organizations
As the section on “Global Governance” (p.3), explains, institutionalization and global
governance are two concepts that work hand-in-hand. In this paper, institutionalization will
refer to the process by which a person or entity accessing an institution is being forced to
adhere to strict norms and controls in order to be accepted (Merriam Webster, 2016).
International organizations are, as the name suggests, organizations with international
members, influence, or presence. They can be subdivided into two main types: (1)
International non-governmental organizations [INGOs] and (2) Intergovernmental
organizations [IGOs]. INGOs are non-governmental organizations that operate
internationally, such as the Gates Foundation, SOS Children’s Villages, Oxfam, Catholic
Relief Services, or Médecins Sans Frontières. Most INGOs aim to support humanitarian,
environmental, or religious/belief efforts. The IGOs on the other hand are organizations
composed of sovereign states, e.g. the United Nations, International Monetary Fund, World
4|Page
Nature Organization, and World Trade Organization. Across IGOs, the purpose can vary
greatly, some with a general scope and others pursuing niche or precise missions.
Thus, with a number of international organizations, the membership structure makes for
several actors or states aiming to cohesively tackling a problem together, arguably via global
governance.
i) World Bank
The World Bank (WB) is a multilaterally governed, international financial institution founded
in 1944 at the Bretton Woods Conference, and its membership comprises 188 participating
countries. It was founded simultaneously with three other institutions including the
International Monetary Fund (IMF). Both the WB and IMF are based in Washington, D.C.,
and are known to frequently collaborate. The WB provides credits and loans to developing
nations in the self-proclaimed pursuit of the global reduction of poverty. More specifically,
and according to the WB’s Articles of Agreement, “All its decisions must be guided by a
commitment to the promotion of foreign investment and international trade and to the
facilitation of capital investment” (World Bank, 1989). Historically, the WB has been
managed almost solely by American nationals; of the 12 WB Presidents, 10 were born
Americans, one was an Australian (James Wolfensohn) who was a naturalized American
citizen before taking office, and there has been one South Korean national (Jim Yong Kim),
who also later became a naturalized American citizen.
ii) Asian Development Bank
The Asian Development Bank (ADB) is a multilaterally governed, international financial
institution and regional development bank established on December 19 th, 1966. The ADB is
headquartered in Manila, Philippines; though, with 31 ‘brick-and-mortar’ offices around the
world, all working to promote social and economic development in Asia (ADB, 2016). The
ADB’s membership comprises 67 members; 48 of which are from the Asia & Pacific region,
and 19 outside. Because Japan is the ADB’s majority shareholder, the presidency of the ADB
has always been held by a Japanese national. The differentiating attributes of the ADB versus
the WB are characterized by its “Asian” nature, or as it self describes its purpose as “Asian in
character… [we] foster economic growth and cooperation” (ADB, 2016, Who We Are).
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Debates on Capitalism
There are myriad fiercely contrasting perspectives on capitalism: to many, it is more than just
an economic system - it’s a school of thought and an ideology. Capitalism is often identified
by its characteristics: private property, capital accumulation, wage labor, voluntary exchange,
a price system and competitive markets. These may occur in concert or isolation within an
economy (Gregory, 2012; p. 41).
Capitalism
When Winston Churchill discussed democracy, he famously coined the idea that “democracy
is the worst form of government, except for all others” (Churchill, 2008, p. 574). Many
proponents of capitalism believe that it, too, should be held to the same standard and
considered similarly as a system with inherent value, and inherent flaws, but with the positive
outweighing the negative (Krugman, 1997). Operating on this premise, a multitude of camps
emerged, leading to debate regarding the necessary level and amount of economic
governance. For the sake of brevity, the systems discussed will be laissez-faire and mixed
economy. Arguably, the only economic system working within nations operating under the
Washington consensus is the mixed economy system. This is the result of economic
neoliberalism, mixed with the necessity for governments to provide quality controls and
services such as welfare, healthcare. Therefore, in its purest form, laissez-faire economic
governance is non-existent in modern, Washington consensus capitalism. Thus, within this
paper, the focus will remain on mixed economy capitalism .
Long-term economic development studies have shown the radical and seemingly exponential
rise in the world’s GDP as a direct result of industrialization, and the spread of capitalism.
(See Figure 1, below)
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Figure 1: World's GDP per capita, since beginning of the Industrial Revolution
(Maddison, 2001)
This type of evidence of the global GDP growth is undisputed, yet the question raised is
whether there is a direct correlation between global growth in GDP and poverty reduction.
Understanding whether the growth of GDP alleviates poverty is essentially at the forefront of
interest for economists, on both sides of the spectrum, whether they are proving its efficacy or
disproving it (Wade, 2004). According to standard economic theory, the Heckscher-Ohlin
model, trade gains should flow to abundant factors. This suggests that in developing countries
unskilled labor would reap the most significant benefits from global capitalism and trade
liberalization (Topalova, 2007). Conversely, according to new theories, in the long run this
could in actuality reduce the wages of unskilled labor forces, even in countries boasting labor
abundance (Topalova, 2004). Banks are a vital part of this economic structure as they provide
capital necessary for businesses to operate and invest. In terms of the monetary interplay,
there are effectively three major currencies (the USD, EUR, and JPY) clashing with one
another. This could be compared to a collision of tectonic plates, with the resulting ripples and
quakes being felt internationally. Nonetheless, capitalism works best when the markets are
closely tied to another with little or no barriers of trade in place; consequently, there is a clear
argument in favour of global capitalism.
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Global Capitalism
The line that separates the terms ‘globalization’ and ‘global capitalism’ is blurred and
obfuscated. In both instances, we are discussing conditions in which governance structures are
changing owing to international integration (Albrow et al., 1990). The IMF saliently defined
four essential factors of globalization: (1) trade and transactions; (2) capital/investment
movements; (3) migration and movement of people; (4) the dissemination of knowledge
(IMF, 2000). Unequivocally, these terms can also be considered pillars of capitalism, as
capitalism also relies on trade, markets, capital, intellectual property and free movement of
capital and labor.
Global capitalism as a system aims to incorporate and integrate as many countries as possible,
as this effectively creates a larger market and greater opportunities for productive
specialization for all involved. Arguably, sharing economic systems also leads to less
geopolitical friction, as goals and values tend to be more aligned. Inevitably, this relentless
growth and intensive expansion is leading to massive privatization and commodification.
Famously, some critical economists fear this development and predict an exponential decrease
in public spheres within involved nations (Robinson, 2008). This in turn could then
undermine the services provided by the public sector, such as health, education, housing, and
enterprises. This discussion also provides reason to criticize or question the ulterior motives
of international organization such as the WTO and WB.
Polarity in Politics
The discussions surrounding international integration, shared economic systems, cultural
globalization, and shared monetary systems all lead to a higher level discussion regarding the
international relations theory of polarity. International relations researchers and practitioners
have identified three primary means of global power distribution and geopolitics, defined as
uni-, bi- , and multipolarity (Huntington, 1999; Vasquez & Heneham, 1999; Deutsch &
Singer, 1964). These can be briefly defined and discussed as follows:
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Unipolarity
Unipolarity, or as it is also commonly referred to as “hegemony”, describes a system of power
distribution whereby one state is undeniably more influential than all others. This influence
can be defined by cultural, economic, or military dominance [or all three] (Huntington,
1999.p. 2). Arguably, the nation that would be most emblematic, for having been a hegemon
in contemporary history, would be the United States, post-Cold War. In the wake of the
dissolution of the USSR, the US was able to secure power and influence on a variety of levels,
whilst simultaneously securing leading positions in international organizations. To date,
ample academic evidence supports that the US has retained its position as global hegemon
(Wolforth, 1999; Kagan, 2008). The resulting stability derived from unipolar domination is
established on the basis of raw power advantage. Numerous IR scholars debate the potential
of unipolar power to lead to global peace, the most salient counterargument being that an
asymmetric distribution of power is unsustainable and ultimately breeds conflict. Monteiro,
for example, has emphasized the multitude of inter-state-wars that the United States was
involved in merely between 1990 and 2013: Kuwait, 1991; Kosovo, 1999; Afghanistan, 2001present; Iraq, 2003-2010 (Monteiro, 2011).
Bipolarity
Bipolarity is defined by the duality of global power shared – thus, the power distribution is
shared by two states. Generally, within this scenario, states find themselves having to choose
to ally with one or the other, yet unable to work with both. The Cold War provided a textbook
example of this dynamic with the dichotomy of the USSR and the US (Waltz, 1964). Both
were strong sovereign states with strongly defined values and cultures, large populations,
advanced technology, ample resources, and military power; granted, many of these vaunted
characteristics would later falter or be disproved, but for a period this was the case. The
dichotomy this created led to countries establishing allegiances based on these factors, as well
as on reciprocal diplomacy. Critics believe this system to be inherently flawed, as it could
lead to a perpetual condition of Pareto efficiency, in which two states will continuously grow
and develop at the expense of all others (Piketty, 2014). Similarly criticized within Trotsky’s
notion of uneven and combined development (Ashman, 2012, pp.60-65). Proponents have
argued that the condition will lead to international safety and stability, on the grounds that
9|Page
neither state will aggressively expand or absorb nations as this will lead to countermeasures
taken in order to level the playing field (Waltz, 1974). Nonetheless, this argument could also
be turned on its head: it could be argued that this is exactly what one can witness within
international politics, wherein the U.S and Russia have been erecting military bases and
missile silos in a competition for supremacy (Kissinger, 2014).
Multipolarity
Logically, following the conceptualization of polarity within uni- and bipolar examples, the
state of multipolarity is defined by the condition wherein a multitude of nations are on equal
footing with regard to military, cultural, and economical power. Multipolarity within IR is
considered a geopolitical condition in which states tend to be evenly distributed, with ample
openings for collaboration. This opportunity simultaneously has potential for growing
tensions and conflicts, as the abundance in points of contact are conducive to friction
(Vasquez & Heneham, 1999).
Conclusion & Analysis
The previous chapters have discussed and defined some of the terms and concepts that are
essential in order to better understand the global governance of both the World Bank and the
Asian Development bank - namely, by providing an overview of what global governance is,
how international organizations work, the differences between capitalism and global
capitalism, and describing polarity within an international relations context.
These terms, theories, and concepts are vital in order to further the discussion surrounding the
thesis deliberation: “The Global Governance of the World Bank and Asian Development
Bank can best be understood as Part of the Logic of Global Capitalism”.
The global governance of the World Bank, as defined within the prior chapters, can be
understood as working on multilateral principles. This is evidenced by the multi-national
approach to membership and management, as is typical for international organizations.
Nonetheless, emerging from its international governance, the de-facto governing nation of the
WB is the United States. This is underlined by many aspects of the World Bank being heavily
dominated by US influence, both directly and indirectly. First, the WB’s presidency has
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continuously been claimed in ever-reoccurring-manner by US nationals, with no other
nationals having a chance at taking the presidency. Secondly, the headquarters are
geographically located in the heart of the American capital, providing proximity to all
important US political and financial institutions. Moreover, the largest financial donation for
the WB comes from the US state department, carrying with it the blatant dominance over the
pursued agenda in terms of investment decisions. Finally, the US wields the highest voting
power in percentage (as of 2014, at 15.85%), significantly outweighing all other member
nations. (Second place in voting power is claimed by Japan at 6.84% - less than half of the
US’ power.) (WB, 2016). In this case, though at face value an IO managed through a system
of global governance, the World Bank is heavily influenced by a single sovereign nation. The
United States, as any sovereign nation, is directly or indirectly steering the bank into a
direction that would provide nationally beneficial results (Krugman, 1997), and within
development and finance, this will result in a yield of security and political stability, or
financial gains. Following World War II and during the Cold War, there was more apparent
clarity surrounding the ulterior motives of the WB, as it was also utilized in order to bolster
states that the US deemed at risk of tipping into communism. This was most famously
reflected in the first WB loan ever provided, to France, for $250m, that was provided under
harsh conditions. It was clearly stipulated by the WB that France had to agree to produce a
balanced budget, provide priority of debt repayment to the WB above all other governments,
and all government employees associated with the communist party were to be removed
(Bird, 1992; p.288-291). This was symbolic for the WB potential to leverage political power,
reflective of American foreign policy, in order to ward off communism. Later, during the
implementation of the Marshall Plan, the WB was forced to shift its focus from Europe, as
many European nations were already receiving aid. Although the pursuit of mutually
beneficial agreements and developmental loans or financing could also be beneficial to all
other member nations, its objectivity is offset by the fact that the WB is steered with a strong
US bias aiming at ensuring national interests, before those of other members. The discussion
surrounding developmental economics as a means of providing political stability or conflict
relief, could also be evidence as to a means of nations bolstering trading partners in order to
increase exports, and/or imports (James et Al, 2007). These arguments would be emblematic
of the essence of market capitalism, and more fittingly, global capitalism. Nations united
under the banner of multilateral organizations, providing developmental support via financing
and loans, are debatably striving to increase the size of the shared economic system, and the
markets it houses. Simultaneously, this development would provide ample opportunities to
11 | P a g e
restructure supported national economies by privatizing public services with well-established
and wealthy corporations - again, providing reason to believe that the services of the WB are
catalysing global capitalism (Robinson, 2008). Finally, through this type US steered selective
developmental support, the World Bank’s influence could be considered detrimental to
multipolarity. Instead, as reflected within the IR definitions of polarity, the WB seems to be
shaping geopolitics into a more unilateral process (see chapter: Polarity in Politics).
The Asian Development Bank surged into operation as an Asian parallel of the World Bank.
The services offered aimed at providing similar assistance but with the promise of a different
approach than that of the Washington consensus, and with closer geographic and cultural
proximity to many of the nations in need of support. This has afforded the ADB rapid growth
in financing importance within the Asia-Pacific region. As previously discussed, the ADB,
although multilateral in nature, is also heavily dominated by one member nation. This
leadership position was seized by Japan. Japan, as the majority share-holder (by far), has been
able to fill the ADB’s presidency with Japanese nationals on a rolling basis. Distinctly like the
US, it has become the de-facto governing nation of the ADB, and shapes the path and agenda
of the ADB. In turn, this also leads to a multilateral organization promoting the goals and
agenda items of one nation; again, we witness a multilateral bank subtly driving geopolitics
into the direction of unipolarity (see chapter: Polarity in Politics). The behaviour of the ADB
has been described as “very similar to the US”, and the intended outcomes of Japanese aidgiving are, historically, strikingly strategic. Throughout the 70s and into the early 90s, the
Japanese government provided aid within Latin America and the Caribbean under the
Japanese banner, and also under that of the ADB. The support provided did not only benefit
the supported nations, but also served Japan’s national-political and economic interests within
the region. Simultaneously, through its support and simultaneous collaboration with the US,
the US-Japanese political and trade relationship improved (Katada, 1997; p. 931-945).
Conclusively, from the succinct overview provided, it becomes apparent that the two
development banks are advancing their own interests more than the nations supported. The
existing research and academic debate provides reason to believe that, although multilateral in
nature, the WB and ADB are acting on behalf of singular nations. The effect of this type of
global governance is that the resulting power exerted by the banks leads to a higher
concentration of power and influence of single nations, rather than a diffuse distribution of
influence. Ultimately, as the preceding chapters have demonstrated, the logic of the banks’
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existence lies within the context of global capitalism. Finally, as the banks are seemingly
being utilized as vehicles for exerting power, and reinforcing dependency, it could be argued
that multilateral banks are not conducive towards multipolarity in geopolitics.
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