Contemporary development policy is now moving into a new phase: the large-scale support of the private sector by multilateral organisations such as the World Bank’s International Finance Corporation.
Contemporary development policy is now moving into a new phase: the large-scale support of the private sector by multilateral organisations such as the World Bank’s International Finance Corporation. This is a qualitative shift for multilateral development policy from working on and through the state to significantly working around it. Toby Carroll details how this new agenda has emerged out of a legitimacy crisis for development policy generally and the limited, though important, increase in the leverage of underdeveloped countries.
In public policy circles there is often an unfortunate tendency to talk of policy in technocratic terms. Bureaucrats and academics, ever eager to confidently present themselves as solution providers, regularly describe the problems of particular policies and the supposed benefits of alternative policies in ways disconnected from understanding the social forces, and struggles between, those social forces, that actually significantly advance and condition particular policy agendas.
To be sure, discussions over ‘implementation issues’ and ‘good governance’—prominent over the last decade or so within development policy—have increasingly led to the tentative recognition by public servants and scholars that politics matters, both in terms of understanding why certain patterns of governance exist in the first place and why efforts to change extant forms of governance often yield unexpected (for some) and unimpressive outcomes.
However, even this recognition is often used for technocratic ends as an entry point for policymakers to finesse and tweak modes of implementation without really taking into account a policy’s relation to and impact upon social forces, such as factions of capital and labour. The key point here is that public policy never emerges out of the ether. Even when they don’t know it, public policy practitioners are articulating agendas that rarely stem simply from dispassionate pondering in superb isolation from interests and ideology. Moreover, the agendas promoted are seen by constituencies in political terms and generate political responses, whether from lobby groups, powerful private interests, activists and or social movements).
Development policy—policy ostensibly promoted towards improving material and social conditions in the underdeveloped world—dThe politics of contemporary development policy in historical context
emonstrates the politics of public policy well. Since World War II, development policy has clearly been informed and shaped by particular ideologies (bundles of ideas) and interests (both public and private).
Indeed, the recent and large-scale push into private sector support by organisations such as the World Bank’s private sector arm, the International Finance Corporation (IFC), bears this out clearly. The last of three phases of liberal market-oriented development policy, this new policy agenda is the product of persistent legitimacy challenges to liberal development policy and, more recently, a new politics of development.
The politics of contemporary development policy in historical context
For the last three decades, development policy, as with public policy generally, has been underpinned by neoliberalism—a bundle of ideas associated with extending market discipline into the realms of state and society. This said, neoliberal development policy has remained far from static, subjected as it has been to pressure from activists and non-governmental organisations (NGOs), and the reality that these policy prescriptions have often yielded unintended results. These factors, along with the increased prominence of heterodox development stories, have challenged the credibility of the agenda more generally and prompted change from within neoliberal circles.
The so-called Washington consensus during the 1980s and early 1990s—which pushed privatisation, liberalisation, fiscal austerity and deregulation as development policy, and which was promoted by the World Bank and the International Monetary Fund—stemmed from the post-Keynesian ascendancy of orthodox economics and the identification of the state by neoliberals as a key impediment to national development.
Now well-known, the results of these prescriptions in sub-Saharan Africa, Latin America and the former communist states in Europe and Central Asia often met with stern resistance from activists and NGOs at both the domestic and international levels, with groups particularly critical of the results of fiscal austerity, indebtedness to multilateral organisations, lacklustre (and worse) development outcomes and the capture of privatised assets by interests less than concerned with realising the ostensible social benefits of market forces.
These outcomes of neoliberal development policy’s first phase, combined with much critical attention over the impact of largescale infrastructure projects, led to an important, though not paradigmatic, rethink within development policy circles during the 1990s and early noughties, with the World Bank and the IMF the targets of high profile campaigns such as the 50 Years is Enough campaign and perennial attention at various multilateral and intergovernmental meetings.
Championed by figures such as James Wolfensohn (World Bank President, 1995- 2005) and Joseph Stiglitz (World Bank Chief Economist, 1997-2000, and later Nobel laureate), a new policy set came into focus as a response from within development organisations to the legitimacy crisis that they faced. Stiglitz dubbed this policy agenda the post- Washington consensus (PWC), clearly demarcating it against what he and others derided as the ‘market fundamentalism’ of the Washington consensus.
This new agenda remained neoliberal insofar as it was predicated on extending competitive liberal market social relations as an approach to development. However, drawing upon new institutional economics—an area of economics in which Stiglitz had played an important role—emphasis was now placed upon building the right institutions, often within the state, to ‘make markets work’. Moreover, concern over implementation of development policy agendas (in particular reform rejection and distortion) led to the promotion of participation, partnership and ownership in the policy push.
This said, in classic technocratic fashion, the policy set that stakeholders were to participate in implementing and ‘owning’ had already been decided. Increasingly, the World Bank and others detailed that there were certain very specific roles that states should and should not play. For example, states were deemed crucial in performing critical regulatory functions but inappropriate players (largely) in service provision, where ‘ideally regulated’ market forces were to be prioritised.
Here, the fundamental conflict between technocratic policy agendas and politics was brought, once again, into sharp relief. Were parliaments the world over meant to simply be rubber stamps to endorse a uniform set of prescriptions (implying a massive shift in both state form and state-society relations) recommended in the Bank’s signature World Development Report series? And setting this technocratic challenge to notions of representative citizenship aside, how long would it be until the disconnect between the implementation of particular policy sets and the interests of citizens became apparent?
Unsurprisingly, the institution-building agenda of the PWC somewhat withered on the vine. Questions have been increasingly raised over the utility of institution-building agendas that are incredibly difficult to implement in the face of governments that have been forced to respond, however imperfectly, to the pressures of representation.
More importantly, the PWC has met with several large-scale trends that have reshaped the development landscape and marginalised the institution building agenda even further. The first of these has been the emergence, which should generally be recast in a less hubris-coated light, of many underdeveloped countries—of which the BRICS of Brazil, Russia, India, China and South Africa are but the most prominent—as new high-growth poles in a multipolar world.
The second has been slowing (or worse) growth in Organisation for Economic Cooperation and Development (OECD) countries, which has meant greater incentives for both capital in the developed world to find returns elsewhere and for states to find savings (aid budgets, often the target of conservatives, have been notably scrutinised of late in OECD countries).
Both these developments mean that the leverage of organisations such as the World Bank has been significantly diminished, with highgrowth countries increasingly able to access deeper capital markets rather than simply relying on conditional lending traditionally bundled with policy prescriptions from the likes of the Bank. Indeed, considerable evidence exists to suggest that the Bank no longer has significant leverage in many of its most important client countries.
However, despite the consolidated emergence of these high-growth poles, underdevelopment— characterised by poor infrastructure, low-skilled and erratic employment, large informal sectors and high rates of vulnerability— of course persists in abundance.
Private sector support as a response to the new politics of development
It is precisely this confluence of factors and interests that the pro-private sector push of the IFC and others such as the European Bank for Reconstruction and Development (EBRD), both of which operate on a commercial basis, takes as its starting point. The promotion of ‘access to finance’ by capitalising financial intermediaries (such as microfinance wholesalers and retailers and banks) to cultivate and expand spheres of private sector activity has grown spectacularly in recent times. On this front alone, IFC now works with 750 financial institutions worldwide and counts more than 10 million loans to micro, small and medium enterprises (MSMEs) as attached to its portfolio.
Yet more than this, the public support of the private sector manifests through the emboldened promotion of public-private partnerships (PPPs), where organisations such as the IFC not only relentlessly recommend PPPs as a policy solution to service and infrastructure provision, but indeed also take equity in PPP companies to mitigate the risks of other private investors and, subsequently, make the promotion of PPPs—at least in the short-term—more viable. This approach shares many similarities with the investment by private sector oriented multilateral organisations in large scale infrastructure in frontier and emerging markets more broadly, with organisations such as the IFC behind some of the world’s biggest mega projects (for example, the IFC was key in making the US$3.2 billion Baku to Ceyhan pipeline go forward). Notably, this has been an important part of IFC’s portfolio expansion, which has grown from around US$10 billion to nearly US$50 billion in just a decade.
Returning to the politics of public policy, this pro-private sector push resonates strongly with key interests. Multilateral organisations such as the IFC and EBRD operate on commercial terms, which means they attract less scrutiny from member states. The investors in IFC bonds and projects are eager to attain returns that aren’t as easily found in OECD countries anymore, with their risks mitigated by multilateral organisations. States in the underdeveloped world, regularly fiscally constrained, need to respond to the demands their constituents, with the policy solutions presented by the likes of IFC appearing congenial to this task. Moreover, individuals and companies looking to make a go of things are rationally eager to access new sources of capital through MSME targeted lending.
Yet, that a policy prescription meshes with particular patterns of politics should not be simply celebrated. US banking deregulation provides a striking example where policy that meshed with the interests of numerous stakeholders in the short-term was actually extremely problematic in the medium-to-long term.
In a similar way, there are serious concerns over the pro-private sector approach introduced above. For one, there is plenty of evidence to suggest that the separation between the state and the private sector in the public interest is anything but a technical issue when it comes to regulating a PPP, for example. Moreover, despite the deployment of safeguards, the multilateral support of megaprojects has in some prominent cases assisted in entrenching less than desirable patterns of politics, with little development outcomes for populations. Second, the utility and sustainability of promoting access to finance as a key development modality is open to significant question, with the potential for subprime-like and other types of crisis afflicting already vulnerable populations very real. Put more broadly, there is the very real possibility that this new mode of development policy will not only fail to deliver substantive and sustainable development outcomes but also detract from considering alternative approaches.
Confronting the limitations of technocratic development policy has its own politics, with those interested in advocating and deploying technocratic solutions obviously resistant to change. This said, with a world immersed in crisis and massive underdevelopment persistent (often despite growth), it is about time we concentrated more on how particular forms of politics generate and shape policy and what the implications are in terms of developing policies that deliver better outcomes for more people.
Toby Carroll is Senior Research Fellow at the Centre on Asia and Globalisation, where he runs the Centre’s large ‘New Approaches to Building Markets in Asia’ research project.His email is decb64_dGNhcnJvbGxAbnVzLmVkdS5zZw==_decb64