Susan Park and Antje Vetterlein (eds.). 2010. Owningdevelopment: Creating policy norms in the IMFand the World Bank (New York: Cambridge UniversityPress)

Robert Wade

Published online: 13 August 2011# Springer Science+Business Media, LLC 2011

“The World Bank says A, B, C” and “the IMF imposes conditions X, Y, Z”—everyone who talks about these organizations uses phrases like these. But suchphrases beg the question of where the organizations get their ideas from, how theirideas get translated into policies recommended to or converted into conditions onloans to member governments, and how their policies and conditions are actuallyimplemented by those governments.

The literature about interstate organizations (IOs) contains two broad answers,with reference to IOs in general. One comes from a principal-agent (PA) model ofrational principals and agents, with the IO as agent and its member states ascollective principal. This model emphasizes the material interests of dominantmember states as the primary source of the policy ideas advocated by the IO. The IOis, put crudely, a puppet on a string. The other main answer comes from a Gramscianmodel of a hegemonic capitalist class bloc, extending beyond states, which operatesthrough state levers, through the training of development professionals (especiallyeconomists), and through IO staff recruitment to produce an organization which actsto advance the class interests of this capitalist bloc (whether based in the U.S., orIndia, or states in between). But neither approach has much to say about the“invisible strings” that link cause and effect, and they both miss important causes.

In Owning Development, Susan Park at the Department of Government andInternational Relations, University of Sydney, and Antje Vetterlein at the InternationalCenter for Business and Politics at the Copenhagen Business School provide an editedset of essays which take our understanding a good step further. They and theircontributors share the conviction that most of the relevant literature is too glib about whythe World Bank and IMF behave as they do, because it hardly examines processes (1)inside the organizations, (2) between the organizations and member governments, (3)between the organizations and civil society organizations (particularly NGOs), and (4)within the member polities, and to the extent that it does, it does so in a purely

Rev Int Organ (2012) 7:231–238DOI 10.1007/s11558-011-9132-7

R. Wade (*)Department of International Development, The London School of Economics and Political Science,Houghton Street, London WC2A 2AE, UKe-mail: R.Wade@lse.ac.ukURL: http://www2.lse.ac.uk/internationalDevelopment//whosWho/wader.aspx

descriptive way. Together with an introductory chapter and a concluding synthesis, thebook contains nine case studies of these processes at work in particular policy domainsin the Bank and Fund. The domains include pension reform policy, multilateral debtrelief, gender and development, social development, current account convertibility, taxreform, capital account liberalization, environmental and vulnerable people’s safeguardprocedures, and new public management (NPM).

The authors adopt a “constructivist” approach to questions about why IOs behaveas they do and where their ideas come from. In contrast to the PA and Gramscianapproaches, these constructivists emphasize that “IOs do not necessarily do whattheir principals want them to do, thus suggesting that IOs actively create norms ontheir own and set policy agendas” (94). In other words, “the IMF and the WorldBank have the power to diffuse norms throughout the international system, and maketheir own decisions based on their internal culture, norms and identity” (226). Or inthe negative light deployed by NGOs which campaign against the organizations, farfrom being “puppets on a string” they are “empires out of control.”

The editors start with the central phenomenon to be explained, the “policy norms”of the two organizations. They define a policy norm as shared expectations for allrelevant actors about what constitutes an appropriate policy prescription foreconomic stabilization and development in a particular domain. In any domainthere are many potential norms about appropriate policies (think of pensions,management of the capital account, tax structure, gender); but IOs have an innerimperative to crystallize out only one norm and advocate it as the (universal) policy.Once this is achieved the norm then begins to exert the “structural power” whichmost of the norms literature takes as its starting point (and then goes on to ask aboutthe impact of the given norm or norms). The contributors want to know what liesbehind, before and after the “structural power” of norms in international relations.

The editors summarize the book’s broad conclusion about where norms come from:

We found evidence that norm advocates both within and outside the IMF and theWorld Bank do influence their behaviour, thus contributing to IO change. In somecircumstances these norm advocates include member states but these “principals”are often not the instigators of policy norms, nor do ideas for change necessarilyalways come from IO management and staff. Locating multiple sources of policynorm formation and change in this way breaks down the boundaries soassiduously constructed by rationalist PA model adherents…. Moreover, thevolume does not provide evidence to substantiate assumptions of either globalhegemonic elites or complete IO autonomy in determining these IOs’ motivationfor behaviour. What we found instead is much more diverse interactions betweenstate and non-state actors that engage in complex ways to shape policy norms thatmay be quite different from what norm advocates originally intended. Far frompower shaping agendas in structurally-determined ways, we discovered that theIMF and the World Bank were capable of change through the formation andmodification of their policy norms, but that this did not necessarily accord with asystematic favouring of certain actors (powerful or non-powerful) over others….[W]e also found that the IOs’ internal norms, culture and identity do influencewhether and how some ideas were picked up by the IMF or the World Bank tobecome policy norms. (226–7)

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The main contribution of the book lies in what it says about how policy normschange. Going beyond the standard question of how given norms affect states’behavior and identity, the editors argue “that policy norms will demonstrate varyingdegrees of strength over time, which are determined by the degree to which it [sic] iscontested either within collective actors like the Fund and the Bank or by actorsexternal to them” (231). They propose categories of norm strength, including“formally valid,” “socially recognized,” and “culturally valid.”

“Formally valid” means that the norms (about forests, trade, taxes, the capitalaccount, gender relations, etc.) are institutionalized in treaties, loan agreements,organizational strategy papers, or organizational operating procedures (such as theBank’s Operational Policies). The strongest form of formal validity is encapsulationin the Articles of Agreement (as for the Fund’s norm of current accountconvertibility); less strong, encapsulation in operating procedures; and less strongagain, in the organization’s policy in a particular sector (such as the Bank’s forestpolicy paper, or its trade policy paper, or its pensions policy paper) which explainswhat all (developing country) governments should do.

“Social recognition” refers to a high “degree of acceptance amongst member states,management and staff through their interactions and practices” (232). As the editors say,“[The degree of social recognition] is the crucial component in understanding the extentto which formal validity accords with current social understandings of the appropriate-ness of the policy norms within the IMF and the World Bank” (232). Formal validitymay be acquired as a result of an earlier build up of social recognition; and once a normacquires formal validity it may then get more social recognition—more acceptanceamong relevant actors at the level of the organization (as distinct from the level of aparticular member/borrower country) that it expresses the right thing to do.

“Cultural validation” refers to acceptance within the borrowers’ polities, and hereboth domestic politics and the links between the IO and the national government arecentral. In the case of the norm of new public management, for example, the severalcomponents of government reform which came to be called New Public Managementwere elaborated in Anglo-American circles in the 1980s, and given formal validity in theBank from the early 1990s (in the form of being incorporated as conditions in loans forpublic sector reform). This helped to give NPM high social recognition within the Bank.The Bank continued to accord it high formal validity through the 1990s and on (as in thekey strategy document, Reforming public institutions and strengthening governance: aWorld Bank strategy (World Bank 2000)). However, borrowing governments have oftenbeen much less keen to adopt more than bits and pieces of it, and in that sense it “does notshow evidence of strong cultural validity in light of competing government pressures”(232). As contributor Martin Lardone says, the NPM norm continues to be central to theBank’s governance discourse that the “right” microeconomic policies are not sufficientfor development and that “state capacity” must be strengthened; but the norm has beenfragmented in the bargaining between Bank and borrowers, and the Bank has notdeveloped a clear sense of how the NPM package might best be sequenced in application.

Using these three big categories the authors postulate a “norm circle,” in which normsare categorized as emerging, stabilizing or stabilized, and declining or subsiding, withcontestation particularly concentrated at the emerging phase. For example, the socialdevelopment norm in the Fund (which says that the Fund must take poverty reduction aswell as stabilization and economic growth as its central objectives) is shown to be

Susan Park and Antje Vetterlein (eds.). 2010. Owning Development 233

stabilizing—shifting from growing social recognition to formal validity via the Fund’sestablishment in 1999 of the Poverty Reduction and Growth Facility (PRGF), throughwhich “social issues” (poverty reduction) were incorporated into Fund conditionality forthe first time. However, “growing social recognition” hides the intense contestationaround the idea that the Fund should pay attention to poverty reduction. ContributorAntje Vetterlein shows that most of the staff wanted nothing to dowith the idea, and it wasthe Board of Executive Directors which pushed it through in the aftermath of the EastAsian crisis of 1997. So the staff did not socially recognize it, whereas the Board did. Butthen the Board refused to allow the Fund to hire in more social scientists to help theeconomists with the social side of their work (on top of the existing two or three whowere paid not by the Fund but by the UK Department for International Development). Sothis is a case of contested social recognition of a norm, moving to weak formal validity,presumably with norm subsidence next in line.

The tax reform norm in the Fund, around a single world “best practice” structure(taxes on broad domestic sources, especially consumption, not on international tradeor capital income), has stabilized: it has high formal validity (it features as a standardcomponent of formal loan conditions) and high social recognition (strong supportwithin the Fund). And it apparently has high cultural validity, meaning that borrowergovernments declare their commitment to introducing the best practice tax structure.But contributor Leonard Seabrooke makes an important qualification by distinguish-ing cultural validity as “talk but not walk” and as “talk and walk”—in other words,rhetorical acceptance of IMF prescriptions versus acceptance combined with alignedpolicy actions. The distinction opens the way to a more subtle analysis of the Fund’sfinding that 60% of borrowing states under Fund programs fail to meet their fiscaltargets, which the Fund itself explains with the cliché, “lack of political will.” Anyanalysis of the “structural power” of norms has to build on this distinction.

The most original part of the argument concerns the little-examined phase of normdecline or subsidence, in terms of structural power to shape IOs’ and governments’behavior. The chapter by Ralf Leiteritz and Manuela Moschella on capital accountliberalization in the Fund provides an example. Social recognition of the desirability ofcapital account opening by all member countries (even Ethiopia1) built up over the1990s both among the staff (much influenced by prevailing views in the Anglo-American economics profession about the efficiency of financial markets, as in theefficient markets hypothesis), and among executive directors from developed anddeveloping countries, even in the absence of robust evidence that capital accountopening brought significant net benefits to the economy. Indeed, the Fund regularlyadmonished countries to open the capital account even though the Fund’s Articlesexplicitly say that member states have the right to maintain controls on internationalcapital movements. (Keynes considered this clause in the Articles to be the mostimportant achievement of the Bretton Woods negotiations.) With agreement of mostexecutive directors, the staff prepared the way for an amendment of the Articles tooutlaw capital controls and give the norm of capital mobility strong formal validity.Then came the external shock of the East Asian crisis of 1997, which highlighted bigdangers of open capital accounts. Support for proceeding with the amendmentevaporated and by the end of 1998 the Fund gave up even mentioning it—an item

1 Wade (2001).

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which had been at the top of its priority list for the several years before 1997. What wasa rapidly emerging norm failed to become a stabilized norm, and instead has become aweakening norm. But it may well yet become “emerging.” The Fund still urges allcountries to commit to capital account liberalization, with the qualification that a rangeof specified conditions should first be met, which may take a long time. MeanwhileFund economists continue to build up an empirical case for capital opening, nowstressing the indirect and hard-to-measure benefits in order, hopefully, to compensatefor the absence of direct and readily-measurable benefits and the presence of direct andreadily-measurable costs.

What causes or triggers shifts in policy norms within IOs? The authors start fromthe premise that

Change is slow in international bureaucracies such as the IMF and the WorldBank because they have organizational cultures or identities through whichnew norms must penetrate. Change is…costly since habits and traditions mustbe adapted or reinvented…. Different levels of resistance can be expectedaccording to the organizations’ mandate and professional background of staffin relation to different policy fields. (233)

The first trigger is “widespread acknowledgement that certain understandings ofdevelopment problems and their attendant policy prescriptions do not work” (233),which opens the door to reconsideration of alternatives. The second trigger is “externalshocks…where unforeseen circumstances radically revise taken for granted assumptionsabout how economics and development work and what policies are therefore mostappropriate” (234). The East Asian crisis and the end of the ColdWar are prominent casesof external shocks. In addition to acknowledged failure and external shock, the thirdtrigger (which generally occurs with one or other of the first two) is mass condemnation.

An example of the latter is multilateral debt relief, where civil society organizations,backed by a small number of western states (UK, Canada, Netherlands, the Nordics),waged a campaign to reduce the debt of highly-indebted low-income countries. Thecampaign was opposed by several of the IMF’s biggest shareholders (led by the Germangovernment), by private banks, and also by the management of the Fund, all of themsaying that relief on sovereign debt, for any state and no matter how unsustainable thedebt, would open the door to moral hazard, contagion, and free riding in the world atlarge. Contributor Bessma Momani does a good job of tracing the interaction betweenthese colliding parties, which led to the IMF accepting sovereign debt relief for certainlow-income countries in 1996—formally accepting, but from then till the present theissue continues to be contentious at the level of the Board of Executive Directors, withsome powerful states continuing to resist the policy norm. After more than 10 years, itis still “emerging.”

That is a short overview of the main argument. Four caveats can be flagged. First, thechosen nine policy domains are for the most part not central to the core economic contentof the so-called Washington Consensus (equally, the London Consensus), namelystabilization, privatization, and liberalization. In the case of theWorld Bank, the norms ofthe Washington Consensus are crystallized out in the Country Policy and InstitutionalAssessment (CPIA) formula. Every September to May since the mid 1990s eachborrower country is scored between 1 and 5 in several policy and institutional domains,

Susan Park and Antje Vetterlein (eds.). 2010. Owning Development 235

the aggregate score then shaping (a) the Bank’s “dialogue” with the country and (b) theamount of lending, especially for low-income countries (and also the amount of grantsfrom the Global Environmental Facility). On the main economic domains the scoringcriteria come straight from a hard neoliberal version of the Washington Consensus. Forexample, for a country to get the top score under “trade policy” it must have a virtuallycompletely free trade regime, and to get the top score under “labor market institutions” itmust have no more than weak worker protections (which are seen as frictions in the labormarket, an issue on which the International Labor Organization has protested to the Bankagain and again). The CPIA is not mentioned in the book. Ignorance of its central roleallows outside scholars (including Park andVetterlein in their concluding chapter, p. 242)to declare or imply that the Washington Consensus is dead, that we are now in a PostWashington Consensus.2 Rather, additional norms have been added on (such as NPM,gender and development), leaving the economic core (the three-ations: stabilization,privatization, liberalization) little changed.

Second and implied in the first point, the book says rather little about the relationshipbetween norms, as in the idea of norm complexes (one example of which is theWashington Consensus). Each case study domain is treated as separate from others.

Third, the book also says rather little about an important fourth category of causes ortriggers of changes in norms—rising “multipolarity,” as in the rising economic weight ofsome developing countries and their rising influence inside the organizations (Chinamost obviously). The past and existing norms are derived mostly from the societies anduniversities of the West, whose states have long dominated the organizations. (Fewdeveloping country nationals have got jobs in the organizations without degrees fromAnglo-American universities, which are used as an indicator of an applicant’s fitness tooperate in line with the world view of Anglo-American economics, understood as theappropriate source of “universal” norms.) One reason the environmental and vulnerablepeople’s safeguards norm has entered a subsiding phase is because influential middle-income countries are impatient with the costly hassles the safeguard policies impose onborrowing from the Bank (such as gold-plated environmental assessments and land-for-land resettlement), and the Bank badly needs these influential middle-income countries(best able to walk away and borrow from other sources) to keep borrowing from it. Morenorm changes lie ahead as China, India, Russia, Brazil, and Indonesia increase theirgovernance role in IOs in lagged response to their rising economic weight (Wadeforthcoming; Vestergaard and Wade forthcoming).

Fourth, the book’s concern to highlight the role of internal staff and normentrepreneurs leads to an underplaying of the mechanisms of influence of dominantstates, the U.S. above all, whose executive and especially legislature have longregarded the Bank and Fund as arms of U.S. foreign policy. The problem iscontained in one of the summary statements:

The volume demonstrates that IOs are as much shaped by theirorganizational culture and identity as they are by the material and strategicconstraints in which they and their staff exist (indeed the former influenceshow the latter is understood)…. The book’s nine policy areas across theIMF and the World Bank show the limits of conventional PA models and

2 For example, Rodrik (2008).

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neo-Gramscian approaches with evidence of a variety of sources and triggers forFund and Bank policy change (with attendant shifts in behaviour) that were rarelyinstigated by member states. (246)

This is better than saying that IOs are shaped only by external material interests ofdominant states, or that IOs are shaped only by organizational culture; but not muchbetter. There are undoubtedly domains where the initiative and drive for policy norms hascome largely from internal norm advocates (the Bank’s Michael Cernea and the norm forinvoluntary resettlement is a striking example, where he expanded social recognition andformal validity of a resettlement norm against intense internal opposition over a period ofmany years). But in other domains the U.S. has much more direct interest (for example,norms for free market financial sector operations and privatization of state-ownedenterprises); and these domains also tend to be ones where the influence of the epistemiccommunity of Anglo-American economists is much stronger.

Going beyond the book’s “sometimes it’s internal, sometimes it’s external,” onecould hypothesize that internal norm advocates only make headway when the morepowerful states (e.g., ones with their own seat on the Board) do not object(resettlement) or actually support (financial liberalization). When the powerful states—the string pullers—do not much care about a policy, they are better off letting theBank and the Fund run the show. In these cases, the organizations are not puppets;they really do “actively create norms on their own and set policy agendas” (94). Butwhen the Bank and the Fund bump up against the interests of the U.S. et al. in areasof concern to them, the internal dynamics are largely overridden and the U.S. et al.largely get what they want, even when bureaucratic culture and internal normentrepreneurs push in another direction. That, at least, is a plausible hypothesis.

For example, when the Bank put together a Task Force on Financial SectorOperations in the late 1980s it appointed an American economist well-known for freemarket views to be its chair (Frank Levy) and others of the same beliefs to be itsmembers. The Bank’s senior management did not need to be told that this was a domainof keen interest to the U.S. Treasury, and that the personnel of the task force had to bereliably supportive of U.S. Treasury views. The task force functioned as “normentrepreneurs” against the somewhat more nuanced insiders (appointed by thesomewhat more independent managers of the Bank’s research complex) then preparingthe World Development Report 1989, entitled Financial Systems and Development.(The WDR stressed more than the Levy report that private financial markets cansometimes make mistakes, due to information problems and externalities; andprescribed a somewhat stronger government regulatory role.) The task forceentrepreneurs prevailed, to the point that the later Bank policy directive on financialsector operations took the Levy report rather than the World Development Report as itsstarting point. Had the U.S. Treasury been opposed to their more extreme views theymight not have prevailed; but it agreed with the general thrust, and did not have to useits various levers of influence over “Bank thinking” to help them prevail.3

3 Wade (1996). At this time, the late 1980s and into the early 1990s, the Japanese government tried topromote a new norm on financial sector operations in developing countries, which sanctioned interest ratecontrols and directed credit; and got nowhere in the World Bank, despite being the second biggestshareholder.

Susan Park and Antje Vetterlein (eds.). 2010. Owning Development 237

For all these qualifications, both the general framework and the case studies make thisbook simply indispensable for future research on the Bretton Woods organizations inparticular and IOs generally. It provides a set of new and coherent categories whichdirect attention to cause-and-effect connections underplayed in the existing literature,especially via the reflexive role of beliefs about how the world works and what policiesand institutions are appropriate for stabilization and development.

References

Rodrik, D. (2008). The death of the globalization consensus. Project Syndicate. http://www.project-syndicate.org/commentary/rodrik21/English

Vestergaard, J., & Wade, R. (forthcoming). The new Global Economic Council: Governance reform at theG20, the IMF and the World Bank. Global Policy.

Wade, R. (1996). Japan, the World Bank, and the art of paradigm maintenance: The East Asian Miracle inpolitical perspective. New Left Review 217(May–June), 3–36.

Wade, R. (2001). Capital and revenge: the IMF and Ethiopia. Challenge, 44(5), 67–75.Wade, R. (forthcoming). Emerging world order? From multipolarity to multilateralism in the G20, the IMF

and the World Bank. Politics and Society.World Bank. (2000). Reforming public institutions and strengthening governance: A World Bank strategy.

Washington, DC: the World Bank.

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