Sarah Babb

 

On her book Behind the Development Banks: Washington Politics, World Poverty, and the Wealth of Nations

Cover Interview of August 17, 2009

Lastly

Behind the Development Banks is aimed at many audiences—I hope that I’ve made it interesting and accessible not only to academics, but also to policymakers and people interested in economic development more generally.

Most of all, I would like the book to inform the strategies of people who are interested in reforming the banks and their policies.  There are a lot of people today talking about making the banks more democratic—to end the disproportionate influence of the G-7 and the overwhelming influence of the U.S.

Some of these people have detailed blueprints for reform, and most of them are a lot smarter than I am.  But I think my book suggests that they may be barking up the wrong tree.

The banks are set up the way they are for a reason.  Like private companies, they attract money by giving their shareholders influence to match their contributions.  Even back in the 1950s, developing countries were arguing that development financing should be channeled through the United Nations, which is run on a one-country, one-vote basis.  But wealthy countries, particularly the U.S., always felt that if they were putting up the cash, they should be calling the shots.

This has been even more the case since the era of U.S. shareholder activism began in the 1980s.  I think it’s clear that Congress would never allow the U.S. to contribute to more democratically-run banks; even now, with such strong American influence, they cut appropriations to the banks every year.

The IDB, as I just described, could perhaps have maintained its strong regional representation by becoming a smaller bank—perhaps an organization more like the U.N. economic agencies that offer advice but don’t have a lot of resources. However, just as the banks respond to shareholder pressures, they also respond to powerful internal interests in the organizations’ perpetuation and growth; ultimately, the IDB was willing to cede more control to donors as a price for more resources.

Organizations, as sociologists have long observed, are primarily in the business of their own survival.  The African Development Bank started out in the 1960s with only African members on its board of directors; the tradeoff was that it was perpetually strapped for cash.  Over time, the African bank steadily sacrificed more and more regional autonomy for the money it needed to become a significant lending institution.

Instead of trying to make the banks more like the United Nations, I think reformers should focus on making shareholder governments more accountable for the things the banks do.  This is essentially the tactic of social movements that have recently been trying, quite successfully, to get the banks and the IMF to forgive the debt of low-income countries.

But to put more pressure on shareholders, we need more transparency.  The meetings in which the U.S. and other donors decide on the banks’ policies are secret.  Changing this could be a first step in holding the shareholders who ultimately control the banks responsible.


© Sarah Babb