Globalization, State Power, and the World Bank's Development Ideology

Introduction: Globalization and the Nation-State

The role of the state is subject to considerable debate with respect to the forces of globalization. Some feel that the state will become obsolete. Certainly, the role of the state has evolved over time — identities and the idea of sovereignty are subject to this evolution (Mozaffari, 2001). Stiglitz (2007) has argued that the expansion of globalization has outpaced the evolution of the nation-state. There is a good case to be made for this, certainly at present. Large-scale trade agreements are enforced through tribunals that are superordinated to national government justice systems, yet lack transparency. Such tribunals are a recent development in globalization, but they have the power to render judgements to which a state is bound.

Investor-state dispute settlement mechanisms (ISDS), as these extra-judicial bodies are known, essentially place corporate entities as the legal equivalent of a state. Given that the panels lack the transparency of state entities and are typically comprised of industry interests, ISDS arguably represents an evolution in the structure of globalization that clearly diminishes the power and role of the state (Baker, 2012).

ISDS and the Erosion of State Sovereignty

The key argument of those who believe the state will become obsolete is that ISDS and similar recent developments that undermine state power are part of a larger trend toward reduced state authority. ISDS alone does not eliminate the state, but it is a step in that direction, building on prior steps that have already occurred. Successive trade agreements, or new text added to existing ones, are expected to continue this trend, with the ultimate consequence being that states lose so much power they become irrelevant — no longer useful enough to justify the cost of their own existence.

Can States Reassert Their Role?

Rodrik (2012) argues that this trend need not continue, and others similarly take the view that states can and should survive. Rodrik makes the case that the state is the one entity with sufficient power to act as a check on corporate interests. The concern, of course, is that states are willingly reducing their own power by signing trade agreements that explicitly bind themselves to ISDS. Rodrik argues that states must continue to serve their national interests, and that these national interests will often conflict with the interests of globalization. Signing an agreement such as the TPP is done with full knowledge of the trade-offs involved, but ultimately states need to understand and respect the role they play in the world and maintain their ability to enforce the interests of their nations. The promise of marginal economic growth tied to a trade agreement, however enticing to a politician or constituents, should not commit that politician to abrogating the duty of a democratically elected official to serve the fuller, broader interests of the public.

Peet (2009) argues that the architects of globalization are entering a time of crisis. That crisis — Peet was writing at the depths of the Great Recession — has largely passed today, but he makes important points about the role that structural inequity plays in globalization. Peet's core argument is that the current neoliberal economic structure of globalization is unstable and ungovernable, putting the process of globalization itself at risk. Two valuable points follow from this. First, while the crisis during which Peet wrote has abated, the underlying system remains in place and is still prone to future crises that will create opportunity and need for reform. Second, that reform will ultimately have to come from states, which retain the power to structure globalization in ways that represent their interests. There is presently a view that state interests are aligned with corporate interests, but future crises will put that view to the test.

State interests are far more complex and varied than the simple pursuit of economic growth. Economic growth is one interest among many, and the degree to which the public in a democracy recognizes where its interests intersect — and diverge — with those of the forces of globalization will be a critical determinant of whether states are mandated to restore their power. States serve the interests of all their constituents, at least in theory, and the current erosion of state power reflects the willingness of states to diminish themselves.

Skeptics argue that the state will remain essential in a globalized world, but it can only remain essential if that is a role states are willing to accept. The troubling trend is that some people who hold positions of power within state structures appear to have concluded that states are an impediment to progress — as though the only conceivable progress is unstructured economic growth. The role of the state most certainly remains critical, and would remain so even if states were to cease to exist altogether, but whether states are willing to accept and fulfill that role is entirely in doubt.

Present trends favor the transformationalists, but there is hazard in extrapolating a trend that is only fifteen or twenty years old too far into the future. The influence of different actors tends to be cyclical, and if state influence is waning now, it will not necessarily continue to wane forever. The state must choose whether it will fulfill its role as a check on the unelected sources of power that are presently shaping and driving globalization. Stiglitz is correct that the pace of globalization has been more rapid than the development of the state. States are slow to change, but they will need to accelerate their response to globalization while they still have the power to do so, in order to avoid the slide into irrelevance that the transformationalists foresee.

The World Bank's Development Ideology

The World Bank has largely forged its position with respect to development ideology as a right-leaning institution — one that promotes the idea that by financing investment in communities, those communities can be better equipped to improve their economic standing. This supply-side position stands in contrast to other organizations oriented less toward the facilitation of economic activity (Joshi & O'Dell, 2013).

The World Bank has always been conservative in nature. Its initial loans came with conditions that included balanced budgets — an orthodoxy that remains controversial among economists. Into the 1970s, however, the Bank began lending to Third World countries and promoting measures such as debt waivers for developing nations. An ideological shift occurred in the 1980s, away from funding development and toward encouraging Third World countries to balance their budgets. This shift echoed the Bank's early approach but also reflected widespread concern among developed countries over the rapid rise in Third World sovereign debt. The move toward using the World Bank as an instrument of globalization came in the 1990s, continuing the notion that the Bank could contribute intellectual capital to developing countries by advising them on how to restructure their economies (Ngcwangu, 2015).

The World Bank moved toward this type of intervention from a stance that had been more oriented toward offering money to financially strapped governments. That money was intended to address short-term problems through investment, but it was invariably tied to specific economic reforms. The World Bank, together with the IMF and other institutions, would essentially hold a nation hostage: if the nation needed money, it would have to move toward the sort of economic system the World Bank favored — free-market capitalism — whether that government and society were truly ready for it or not (Easterly, 2009). When such measures proved too demanding and a country collapsed, with its people suffering from policies not designed with their interests in mind, backlash followed. The World Bank earned a negative reputation in many parts of the world for its insistence on tying aid money to these types of economic reforms (Easterly, 2009).

References

Baker, B. (2012). Leaked TPP investment chapter presents a grave threat to access to medicines. Northeastern University School of Law Research Paper No. 121-2012.

Chowla, P. (2012). The World Bank: A glimmer of a possibility of change. The Guardian.

Easterly, W. (2009). The ideology of development. Foreign Policy.

Joshi, D., & O'Dell, R. (2013). Global governance and development ideology: The United Nations and the World Bank on the left-right spectrum. Global Governance, 19(2), 249–275.

Mozaffari, M. (2001). The transformationalist perspective and the rise of a global standard of civilization. International Relations of the Asia-Pacific, 1(2), 247–264.

Ngcwangu, S. (2015). The ideological underpinnings of World Bank TVET policy: Implications of the influence of Human Capital Theory on South African TVET policy. Education as Change, 19(3), 24–45.

Ngugi, J. (2006). The World Bank and the ideology of reform in international economic development discourse. University of Washington.

Peet, R. (2009). Unholy Trinity: The IMF, World Bank and WTO (2nd ed.). Zed Books.

Rodrik, D. (2012). The Globalization Paradox: Democracy and the Future of the World Economy. W. W. Norton.

Stiglitz, J. (2007). Making Globalization Work. W. W. Norton & Company.