Power, Intergovernmental Organisations and the International Political Economy / by Susan Park

By Susan Park

First Published at Progress in Political Economy

Views on the importance of intergovernmental organisations (IOs) vary dramatically: from being merely part of the furniture of international relations; to positive constraints on states’ that further international cooperation and economic liberalisation; as purveyors of globalisation that act to further the interests of hegemonic capitalist elites through upholding and extending the capitalist system; as sites of symbolic power, to agents akin to Frankenstein’s monsters able to wield power independent of their member states. Central to all of these views of IOs is their role in wielding power, either on behalf of others, or to advance their own agenda.

This is why the Chinese-led Asian Infrastructure Investment Bank (AIIB), which was created in 2016, has been followed by so much angst in the scholarly and policy making community. For some AIIB portends the demise of the US-led international economic order. Much ink has been spilled over whether a multilateral development bank, designed to foster sustainable economic development, create wealth, and improve infrastructure connectivity in Asia through investing in infrastructure and other sectors, constitutes a challenge to the liberal economic order. On the one hand, it signals that China as arrived in terms of leading a multilateral organisation, in the same way Japan did in launching the Asian Development Bank (ADB) in 1966. Of course the difference is that Japan was a US ally: the US backed Japan’s efforts and agreed to share the largest vote with the US (derived from the amount of capital they invested). The US remains deeply suspicious of China and questioned China’s interest in maintaining international standards. This resulted in the US refusing to join the AIIB, pressuring allies like Australia not to join, and remonstrating those that did.

On the other hand, as was quickly realised, the AIIB mimics the mandate, structure, and function of the World Bank and other regional development banks in its activities, drawing on a wealth of experience from staff from those organisations to craft its policies and enact its operations. In defence of US claims that it would not uphold international development standards the AIIB has even adopted policies on environmental and social impacts, information disclosure, and accountability. While these are weaker than the World Bank’s, on a sliding scale they are comparable to other regional development banks. This indicates that China, like Japan before it, is interested in leading an MDB to signal its legitimacy.

If China’s interest in the AIIB is primarily about legitimacy, what does this mean for our understanding of IOs as purveyors of power? China, like the US, primarily lends through bilateral development channels such as the China Development Bank, the Export-Import Bank, with a host of operations under the One Belt, One Road initiative. Overall, the MDBs are marginal to the actual flows of development finance globally. Yet the MDBs are upheld as vital to the international economic order for two reasons. First, for upholding standards as noted above. Second, because IOs like the MDBs, the International Monetary Fund (IMF), and the World Trade Organisation (WTO), do serve powerful member states interests. In other words, they legitimise the use of power through what are often projected to be independent, credible, technical, and apolitical organisations.

To explain, IPE scholars all recognise that the IMF, World Bank, WTO and to a lesser extent the other regional development banks, advance neoliberal economic prescriptions to their borrowers, which consolidates the global capitalist system. However, it has only been recently that development economists have shown just how influential powerful states in the Fund and the Banks are in shaping lending. Vreeland and Dreher argue that when materially weaker states sit on the United Nations Security Council (UNSC) they receive more favourable treatment by the IMF, World Bank, ADB, and the African Development Bank. There is now extensive research showing how voting with the US or the G7 in the UN General Assembly leads to more favourable loan conditions from the IMF, the World Bank, and the ADB. Within the IMF, it is affinity with the G5 (US, UK, France, Germany and Japan) that determines the size and conditions of loans. The transmission of interests is not necessarily through formal voting, which is often by consensus, but through informal governance, where staff of the IOs anticipate powerful states interests. This means that staff devise larger loans to go to the board for approval to powerful states allies, and staff are more lenient in releasing further loan tranches even if they do not meet stringent conditions. For IO scholars this evinces the argument that states channel funds like dirty laundry through these economic IOs. If discovered this would undermine their legitimacy and that of purportedly technical and apolitical IOs. It is therefore not just important to know who has formal power in economic IOs like the AIIB, but to know how informal governance works in shaping the international order.