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Globalization, Development,and International Institutions:Normative and Positive PerspectivesHelen V. Milner

William Easterly,The Elusive Quest for Growth: Economists Adventures and Misadventures in the Tropics(Cambridge:MIT Press, 2001).

Thomas Pogge,World Poverty and Human Rights(Cambridge, UK: Polity, 2002).

Joseph E. Stiglitz,Globalization and Its Discontents(New York: W. W. Norton, 2002).Randall Stone, Lending Credibility: The International Monetary Fund and the Post-Communist Transition (Princeton:Princeton University Press, 2002).

James Raymond Vreeland,The IMF and Economic Development(Cambridge: Cambridge University Press, 2003).

Introduction

At the conclusion of World War II, several inter-national institutions were created to manage theworld economy and prevent another Great De-

pression. These institutions include the International

Monetary Fund (IMF), the International Bank for Recon-struction and Development (now called the World Bank),and the General Agreement on Tariffs and Trade (GATT),which was expanded and institutionalized into the WorldTrade Organization (WTO) in 1995. These institutionshave not only persisted for over five decades, but theyhave also expanded their mandates, changed theirmissions, and increased their membership.They have, how-ever, become highly contested. As Stiglitz notes, Inter-national bureaucratsthe faceless symbols of the worldeconomic orderare under attack everywhere. . . . Virtu-ally every major meeting of the International MonetaryFund, the World Bank and the World Trade Organizationis now the scene of conflict and turmoil.1

Their critics come from both the left and right wings ofthe political spectrum. Anti-globalization forces fromthe left see them as instruments for the domination of thedeveloping countries by both the rich countries or theforces of international capitalism. Critics from the right

view these institutions as usurping the role of the marketand easing pressures on developing states to adopt effi-cient, market-promoting policies.These debates often occurin a highly ideological and polemical fashion; they wouldbenefit from being more informed by social science. Byreviewing some of the recent social science literature, thisessay addresses three questions: what has been the impactof these institutions on the developing countries, why havethey had this impact, and what should be their role in thedevelopment process.

Conventional wisdom in international and comparativepolitical economy has held that international institutions,

Helen V. Milner is the B. C. Forbes Professor of Politics andInternational Affairs at Princeton University and the direc-tor of the Center for Globalization and Governance atPrincetons Woodrow Wilson School ([email protected]). She has written extensively on issues related to inter-national trade, the connections between domestic politicsand foreign policy, globalization and regionalism, and therelationship between democracy and trade policy. Herwritings includeInterests, Institutions, and Information:Domestic Politics and International Relations(1997),Internationalization and Domestic Politics(co-edited

with Robert O. Keohane, 1996), Why the Move to FreeTrade? Democracy and Trade Policy in the DevelopingCountries (International Organization2005), TheOptimal Design of International Trade Institutions: Uncer-tainty and Escape (coauthored with B. Peter Rosendorff,International Organization,2001). The author thanksDavid Baldwin, Chuck Beitz, Robert O. Keohane, EricaGould, Steve Macedo, Lisa Martin, Thomas Pogge, TomRomer, and Jim Vreeland for invaluable comments. Shealso received much useful advice from seminars at PrincetonUniversity and the Rockefeller Foundations Bellagio Studyand Conference Center.

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like the IMF, World Bank, and WTO (and its predecessor,the GATT), have been largely beneficial for the countriesin them. These institutions, it is claimed, constrain thebehavior of the most powerful countries and provide infor-mation and monitoring capacities that enable states tocooperate.2 All states involved are better off with these

institutions than otherwise. Recently, however, evidencehas mounted that these institutions may not be so benefi-cial for the developing countries.

Discerning the impact of these institutions requires thatone address difficult counterfactual questions.3Would thedeveloping countries have been better off if these institu-tions had not existed? Would resources for aid and crisismanagement have been as plentiful or more so if they hadnot existed? Would globalization have occurred as fast andextensively, or even faster and deeper, if these inter-national institutions had not been present? Counterfactu-als cannot be answered directly because they presume a

situation which did not occur and rely on speculationabout what this hypothetical world would have been like.4

Researchers can only make indirect counterfactual specu-lations. First, longitudinal comparison asks whethera devel-oping country performed as well before it joined theinstitution (or participated in its programs) as after it didso. This enables the researcher to hold constant many char-acteristics of the country that do not change over time.Second, cross-sectional comparison asks if countries belong-ing to the institution (or participating in its programs)fare better or worse than those countries who do not.These comparisons are usually not enough. Part of theproblem of knowing what the right counterfactual isdepends on why countries join. Selection bias arises if thecountries are joining or participating for nonrandom rea-sons which are not held constant. If countries choose toparticipate only under certain conditions, then the coun-terfactual experiment must correct for this or its resultsare likely to be biased. Because selection bias can arisefrom both observed and unobserved factors, correctingfor selection effects is not straightforward. Little of theresearch on these international institutions addresses all ofthese methodological issues.

Assessing the impact of these institutions involvesaddressing this counterfactual. But recent normative schol-

arship claims that answering this counterfactual is notenough for assessing their role. It proposes different stan-dards for evaluation and raises the contentious question ofwhat standard one should use to assess the responsibilityof these institutions for the developing countries. Thisdebate involves the extent of moral obligations that therich countries and the institutions they created have regard-ing the poor countries, ranging from a limited duty ofassistance to a cosmopolitan striving for equality. Com-bining normative and empirical scholarship may beunusual, but it may be fruitful. As Beitz claims, reflectionabout reform of global governance is well advanced in

other venues, both academic and political, almost neverwith the benefit of the moral clarity that might be con-tributed by an articulate philosophical conception of globalpolitical justice.5

The paper has eight sections. Following this introduc-tion, I present a brief summary of the main arguments in

the books focused on here. Then, I delineate the role theseinstitutions have played in the developing countries. Next,I discuss evidence about the progress that the developingcountries have made lately. In the fifth section, I reviewthe four major arguments proposed by theories of inter-national institutions to explain their existence. The sixthsection examines reasons why these institutions may havefailed to produce as many benefits for the developing worldas the theories imply. The next section explores recentnormative literature on the role of international institu-tions. The conclusion returns to the question of institu-tional reform, bringing the normative and positive analyses

together.These topics are vast and cannot possibly be covered intheir entirety. The goals are three: to provide an overviewof recent empirical research on the impact of the IMF,World Bank and WTO on the developing countries, toconnect this research better to theories about inter-national institutions, and to see if a blending of normativeand positive analyses can advance discussions about theseinstitutions. My conclusions are that (1) we need moreempirical analyses of these institutions and their impacton the poor countries, (2) given the findings of existingresearch and changes in the world since they were created,these institutions need reform, and (3) systematic propos-als for their reform can be usefully derived from a combi-nation of normative and empirical analysis.

A Brief Review of the Books

This essay is not intended as a traditional book review. Itaddresses the question of what has been the impact of themajor international economic institutions on the develop-ing countries. The books that are its focus are all critical ofhow the effects of globalization have been managed overthe past 20 years. None attacks globalization itself, buteach points to different problems with the ways inter-

national institutions have affected the developing coun-tries. I briefly sketch the arguments in each book below.But since this is not a traditional book review, I focus onthe arguments they make that are relevant to the maintheme of this essay.

Stiglitzs Globalization and Its Discontentsis not intendedas a fair and balanced account of the IMF; it is an indict-ment by a policy insider. Stiglitz, a Nobel Prize winnerand former chief economist for the World Bank, angrilyclaims that the IMF has mismanaged the globalizationprocess for the least developed countries (LDCs). Drivenby a market fundamentalist ideology and special interests

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(global finance) in the advanced industrial countries,IMF officials have imposed the wrong policies on theLDCsand worsened their economic and political situations. Heargues that the IMFs single-minded concerns about infla-tion and fiscal rectitude have been inappropriate for manycountries and have neglected economic growth and employ-

ment. His solutions involve changing bad habits withinthe IMF via increased transparency and accountability andreducing the influence of special interests by giving theLDCs themselves more ownership over the conditionsimposed by the IMF.

EasterlysThe Elusive Quest for Growthis another criti-cal look at the institutions managing development andglobalization. Easterly, a former economist at the WorldBank, criticizes the search for simple panaceas for devel-opment promoted by the Bank. Neither aid nor invest-ment nor education nor population control nor adjustmentlending nor debt forgiveness proved to be the panacea for

growth.6

He documents how political and social factors(for example, corruption, ethnic conflict, inequality) inLDCs compound their economic problems, rendering sim-ple solutions ineffective. His corrective, which must bevague given his attacks on specific panaceas, is to makesure that all groups incentives are properly structured topromote growth, including those of the international insti-tutions like the World Bank.

In The IMF and Economic Development, Vreeland, apolitical scientist, presents a social scientific analysis ofthe impact of IMF programs on growth in the LDCs.While many authors have presented such analyses before,only Vreeland has dealt with the major complicating fac-tors that affect such programs. Using a formal and empir-ical model that accounts for both a governments decisionto request an IMF loan and the IMFs decision to grantone, he shows that IMF programs do not promote growth.This result holds when compared with other countriesnot undergoing such programs, with the same countrywhen it was not under such a program, and when selec-tion bias for entry into the program is taken into account.Vreeland argues that countries often choose to undergoIMF reforms; they are not always forced to do so. Fur-ther, governments often choose to distribute the costs ofsuch programs in ways that hurt poor groups, thus wors-

ening inequality in addition to reducing growth. Heblames the IMF for loaning to such countries and, likeStiglitz, for imposing conditions that prioritize control-ling inflation and government spending. Like Stiglitz, hebelieves that the IMF should become more transparent,more attentive to the costs of its programs for labor andthe poor, and more inclusive of the LDCs concerns andpriorities.

Lending Credibility,by political scientist Randall Stone,also finds fault with the IMF. But Stone is most con-cerned with the interference produced by the powerfuladvanced industrial countries, especially the United States.

He shows that the IMF can only be successful in itsmission to reduce inflation and find macroeconomic sta-bility when powerful countries do not intervene to under-mine the Funds conditionality. Unlike Stigltiz andVreeland, he argues that reducing inflation and deficits isand should be a priority, a position consistent with the

IMFs own mission. Using a formal model to understandIMF interaction with LDC borrowers, he argues that ininternationally powerful countries and ones that receiveAmerican support, IMF programs tend to fail becausethey are not credible. These countries receive loans butdeviate more often from the IMFs conditions and thusfail to control inflation. Outside interference and politicsundermine the IMF; its own policies are sound and effec-tive. He focuses much on issues of compliance, whileneglecting questions about why countries ask for loans inthe first place. His books strengths are thus Vreelandsweaknesses, and vice versa. Stones solution is to push for

greater IMF autonomy, almost the exact opposite ofStiglitzs and Vreelands.World Poverty and Human Rightsis a collection of essays

written by a philosopher, Thomas Pogge. It combines nor-mative and empirical analysis to argue that the developedcountries and the international institutions they estab-lished are harming the poor countries and have an obliga-tion to stop such harmful behavior. In the interdependentworld we live in, the advanced industrial countries sup-port an international system that makes coups, civil warand corruption in LDCs not only possible but likely. Byupholding a governments privileges to borrow and assignrights for domestic resourcesno matter how bad thegovernment is, the rich countries encourage a free for allfor control of developing countries. Failure to recognizethe rich nations role in harmingthe poor countries dependson the explanatory nationalism that dominates currentresearch and thinking. Pogges main innovations are two.He argues that the resource and borrowing privileges con-ferred by the international system on the leaders of poorstates constitute a causal link from rich countries, whomaintain that system, to the misery of the poor. Norma-tively, his claims are innovative because they are foundedupon his insistence on negative duties (do no harm) ratherthan positive ones (do good).

Pogge opines for a reform of global institutions so thatthey do no harm, or at least less. That these institutionsleave the poor better off than a world without them isnot enough for him; one must ask if institutions withbetter effects for the poorest could feasibly be designed atlittle cost to the rich. His answer is yes, and he provides anumber of interesting ideas, including a global fund fordemocracy, to help the poorest. Like the other authors,Pogge does not call for the dismantling of current inter-national institutions; he calls for their reform and forchanges in the behavior of developed countries runningthem.



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The Role of the InternationalEconomic Institutions

The roles of the three main institutions have changed overtime; in addition, their membership has become nearlyuniversal. All of these institutions were created by the vic-

tors in World War II and were intended to help themavoid another global depression. Part of the problem forthese institutions lies in their legacy. They were designedto help the developed countries create a cooperative andstable world economy in a nonglobalized world.

The IMF was established to support the fixed exchangerate system created at the Bretton Woods Conference in1944; its role was to aid countries that were experiencingdifficulties in maintaining their fixed exchange rate byproviding them with short term loans. It was a lender oflast resort and a provider of funds in crisis, enabling coun-tries to avoid competitive devaluations. Ensuring a sta-

ble international monetary system to promote trade andgrowth was its central mission. From an initial member-ship of 29 countries, it has become almost universal with184 members.

With the collapse of the Bretton Woods fixed exchangerate system in the early 1970s, this role changed.7 TheIMF dealt less with the developed countries and morewith the developing ones. It provided long and short termloans at below-market interest rates for countries in allsorts of economic difficulty, making it less distinct fromthe World Bank. It began attaching increasing numbers ofconditions to those loans (conditionality), negotiatingwith countries to make major changes in their domesticpolicies and institutions. Promoting economic growth aswell as resolving specific crises became its mission, whichmeant that ever more countries became involved in theseso-called structural adjustment programs. Indeed, asVreeland notes, in 2000 alone the IMF had programswith sixty countries, or more than one-third of the devel-oping world.8 These changes made the IMF more similarto the World Bank.

Formed after World War II, the Bank concentratedmostly on reconstruction and later on development; in1960, with the formation of the International Develop-ment Association (IDA), the Bank moved further toward

economic development programs.9 Many countries overthe years have received both IMF and World Bank loans,often simultaneously.10 TheWorld Bank also gives interest-free loans and grants (similar to foreign aid) to the poorestdeveloping countries. This aid has been heavily used inAfrica; indeed, in 2003, 51 percent of it went to sub-Saharan Africa. This overlap of missions, proliferation ofadjustment loans, and expansion of conditionality are cen-tral issues today.

The WTOs central mission has been to promote tradeliberalization by fostering negotiations among countriesto reciprocally lower their trade barriers and providing

information about countries trade policies. Membershipin the GATT/WTO has grown importantly over the years,from a mere 23 in 1947 to 146 countries in 2003.11 Likethe IMF and World Bank, the GATT was originally anegotiating forum for the developed countries; its impacton the developing countries has grown slowly over time.

The liberalization of trade policy has become an accepteddoctrine for most developing countries; barriers in thedeveloping world have fallen significantly since 1980.12 Inaddition, the WTOs mission has increasingly involvedthe connections between domestic policies and trade bar-riers. With significant lowering of tariffs and quotas, manydomestic policies such as intellectual property laws, envi-ronmental policy, domestic subsidies, and tax laws, arenow seen to affect trade flows and hence to reside withintheWTOs jurisdiction. As with conditionality in the mon-etary domain, the attack on trade barriers has increasinglybrought this international institution into contact with

domestic politics.The GATT/WTO system has sponsored numerous tradenegotiation rounds over the past fifty years. The mostrecently concluded negotiations, called the Uruguay Round,ended in late 1994 with the debut of the WTO and accordslowering trade barriers and extending agreements into otherareas such as intellectual property and foreign investment.This system relies on reciprocity, attempting to balancecountries gains and losses. The WTO is now conductingthe new Doha Round of trade negotiations, which isintended to address the problems of the developing coun-tries more directly.

The Experience of theDeveloping Countries

Debate over these institutions has arisen from the seem-ing lack of progress in the developing world. Except forthe World Bank, the original and primary mission ofthese institutions was not promoting growth in the devel-oping world. Nevertheless, since the change in their rolesfrom the 1970s onward, they have increasingly been judgedby their impact on the poor. Fairly or not, the ques-tion has been whether these institutions have fostereddevelopment.13

Each of these institutions has promoted the adoptionof market-friendly policies, and part of the reaction againstthem has been connected to these policies. The wide-spread recourse of indebted developing countries to struc-tural adjustment loans from the BrettonWoods institutionsin the aftermath of the debt crisis of the early 1980s playeda pivotal role in the redefinition of trade and industrial-ization strategies. Prominent among the conditions attachedto these loans was the liberalization of policies towardstrade and FDI (foreign direct investment). This was inline with the rising influence of pro-market economic doc-trines during this period. Under these structural adjustment




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programs, there was a significant increase in the numberof cases of trade and investment liberalization in manydeveloping countries.14

But concerns abound over whether trade and capitalmarket liberalization, privatization, deregulation, auster-ity, and the other elements of the so-called Washington

Consensus that these institutions advocated promotedevelopment in poor countries. If one looks solely at theeconomic side, progress has been mixed in many develop-ing countries. As Easterly concludes, there was much lend-ing, little adjustment, and little growth in the 1980s and1990s in the developingworld.15Annual per capita growthfor the developing countries averaged 0 percent for theyears from 1980 to 1998, whereas from 19601979 theirgrowth had averaged about 2.5 percent annually.16 Pov-erty remains very high, with roughly 20 percent of theworlds population living on less than a dollar a day andmore than 45 percent on less than two dollars a day.17

Because of these conditions, some 18 million people ayear die of easily preventable causes, many of them chil-dren.18A sizable number of these countries were worse offeconomically in 2000 than they were in the 1980. WorldBank data indicate, for instance, that per capita incomewas lower in 1999 in at least nine countries (for which wehave data) than in 1960: Haiti, Nicaragua, Central Afri-can Republic, Chad, Ghana, Madagascar, Niger, Rwanda,and Zambia.19 From 1980 to 2002, twenty countries expe-rienced a decrease in their human development indexes,which include more than just economic growth.20

Since 1980 the worlds poorest countries have doneworse economically than the richest.21 In the 1980s thehigh income countries of the Organisation for EconomicCo-operation and Development (OECD) grew at 2.5 per-cent annually and in the 1990s at 1.8 percent; the devel-oping countries grew at 0.7 percent and 1.7 percent,respectively.22 Moreover, if one excludes East Asia wherethe growth was extraordinary (5.6 percent in the 1980sand 6.4 percent in the 1990s), the developing countriesgrew much more slowly than the developed ones. Thus,they have been falling further behind the rich countries,increasing the gap between the two. As Lant Pritchett hasshown, over the period 1820 to 1992 the divergence inincomes between the worlds rich and poor has grown

enormously.23 In 1820 the richest country had three timesthe income that the poorest did; in the early 1990s thisnumber was thirty.24 Much of this divergence is due tothe rich countries rapid growth.25

Economic crises among the developing countries havealso proliferated after the 1970s. In addition, the debtproblems of many developing countries have increased.Total debt of developing countries increased until 1999and then stabilized at about $3 trillion as of last year [thatis, 2003]. Furthermore, while debt has declined as a pro-portion of GDP, it remains high at some 40 percent, andthe ratio of debt to exports at 113 percent. More impor-

tantly, the net resource transferthe resources availablefor use after paying interesthas been negative in recentyears for all regions. These magnitudes suggest that it isdifficult to consider current levels of debt sustainable andhelping growth.26

The performance of the developing countries has not

been uniformly poor, however. From 1960 to 2000, lifeexpectancy increased from 46 to 63 years in the develop-ing world. Child mortality rates were halved in the sameperiod, as were illiteracy rates.27 Poverty as a percentage ofthe developing countries populations has declined recent-ly.28 Including China, where the declines have been enor-mous, the percentage of people in the developing countriesliving on the poverty threshold of $1 a day has fallen fromover 28 percent in 1990 to below 22 percent in 2000.29

The percentage living on $2 a day in the developing worldalso fell from 61 percent to 54 percent in this period.30

Unfortunately, the absolute numbers of the desperately

poor have not fallen much, if at all, because of high growthpopulation rates.31

The developing countries have also upgraded their rolein the world economy. They now are producers and export-ers of manufactures and not primarily of primary prod-ucts. In 2000, about 64 percent of low and middle incomecountries exports were manufactures, while only 10 per-cent were agriculture, and their share of world trade inmanufactures rose over this period from 9 percent to 26percent.32 Especially in East and South Asia, the develop-ing economies have become tightly integrated into theworld production and trading system led by multinationalcorporations. This increase in the value-added and thediversification of developing countries production andtrade has been a boon for many.

This mixed record of economic outcomes has raisedquestions about the impact of these international eco-nomic institutions. But one must pose the counterfactualto assess their impact: would the performance of thesecountries have been better, the same, or even worse hadthese institutions not existed?

Theories about the Functions andBenefits of International Institutions

Many international relations scholars have argued thatcountries should benefit from these institutions. Statesrationally decide to join them; therefore, they join only ifthe net benefits are greater than those offered by stayingout of the organization. Membership is voluntary. The netutility derived from joining could be negative, but lessnegative than that incurred by remaining outside the insti-tution. As Gruber has argued, if the most powerful statesdefine the alternatives open to the developing countriesand set up multilateral institutions, the developing coun-tries can be better off by joining them than staying out-side, but worse off than if the institutions never existed.33



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The rush lately by all countries to join these institutionssuggests that developing countries have found them to bemore beneficial than the alternative of staying out, but itdoes not moot the question of whether they would bebetter off without any of these multilateral institutions inthe first place. Four reasons are often theorized for the

existence of these institutions: (1) constraining the greatpowers, (2) providing information and reducing transac-tion costs, (3) facilitating reciprocity, and (4) promotingreform in domestic politics.

Constraining the Great Powers

International institutions may exert a constraint on theunderlying anarchy of the international system. They makethe use of force and power by states to achieve their goalsless likely; the rules, norms, and procedures established bythese institutions replace to some extent the pursuit of

national interest by power. Most importantly, as Iken-berry claims, they help to harness the behavior of the mostpowerful states.34 By creating and complying with theseinstitutions, the Great Powers, or hegemon, can reassureother states that they will not take advantage of them. Thestrongest bind themselves to a set of norms and rules thatthe other states voluntarily agree to accept.

Evidence for this effect is mixed. As the WTO pointsout, trade is likely to expand and be more profitable underconditions of certainty and security as to the terms ofmarket access and the rules of tradeprecommitmentaround a set of rules also diminishes the role of power andsize in determining outcomes.35This motivation is impor-tant in trade where countries with large markets, and hencemarket power, can use this to obtain more favorable trad-ing arrangements in bilateral negotiations with smallercountries.

Nevertheless, critics maintain that developing coun-tries have not gained much from the GATT trade rounds;most of the gains have gone to developed countries. Somescholars even allege that the trade rounds have allowed thedeveloped countries to exploit the developing ones byengaging them in unfair agreements. As Stiglitz says, pre-vious rounds of trade negotiations [in the GATT/WTO]had protected the interests of the advanced industrial

countriesor more accurately, special interests within thosecountrieswithout concomitant benefits for the lesserdeveloped countries.36 The unbalanced outcome of therecent Uruguay trade round is an important issue. Sev-eral computable general equilibrium models have shownthat the Uruguay Round results disproportionately ben-efit developed country gross domestic products (GDPs)compared to developing countries, and that some devel-oping countries would actually suffer a net GDP loss fromthe Uruguay Roundat least in the short run.37

Developing countries have raised concerns about theequity of the outcome of this and other rounds. With

hindsight, many developing country governments per-ceived the outcome of the Uruguay Round to have beenunbalanced. For most developing countries (some did gain),the crux of the unfavourable deal was the limited marketaccess concessions they obtained from developed coun-tries in exchange for the high costs they now realize they

incurred in binding themselves to the new multilateraltrade rules.38 Others note that asymmetric outcomes arean intrinsic part of the GATT/WTO bargaining process.[Trade] rounds have been concluded through power-based bargaining that has yielded asymmetrical contractsfavoring the interests of powerful states. The agenda-setting process (the formulation of proposals that are dif-ficult to amend), which takes place between launch andconclusion, has been dominated by powerful states; theextent of that domination has depended upon the extentto which powerful countries have planned to use theirpower to conclude the round.39

The counterfactual one must pose is the following: with-out the GATT or WTO would the developing countriesbe better off if they had to negotiate bilaterally with thelarge, rich countries? Multilateralism seems well suited togiving the developing countries a better outcome thanwould such bilateral negotiations.40 Multilateralismensures transparency, and provides protectionhoweverinadequateagainst the asymmetries of power and influ-ence in the international community.41 It may not onlyplace some constraints on the behavior of the large, devel-oped countries, but it may also encourage developing coun-tries to realize their common interests and counterbalancethe rich countries. By giving them more political voicethan otherwise, institutions like the WTO may enhancetheir capacity to influence outcomes.

Evidence of the constraining power of the IMF orWorld Bank is less apparent. Decisions in the IMF andWorld Bank are taken by weighted voting, with the richcountriesand especially the United Stateshaving thelions share of votes. Since the end of the fixed exchangerate system in the early 1970s, these institutions have basi-cally collected funds from the developed countries andprivate capital markets to give to the developing ones underincreasing conditions. Conditionality has been designedby these institutions with the tacit support of the devel-

oped countries, and it has been negotiated with the poorones. Since the late 1970s few, if any, developed countrieshave not been subject to IMF programs; only the devel-oping world has. Article IV of the IMF charter requiressurveillance of all members and discussion of the prob-lems in their fiscal and monetary policies, but since thelate 1970s, de facto this has not applied to the developedcountries.42 The IMF has remarked on its own inefficacy:Nowhere is the difficulty of conducting surveillance moreapparent than in the relations between the IMF and themajor industrial countries. Effective oversight over thepolicies of the largest countries is obviously essential if




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surveillance is to be uniform and symmetric across themembership, but progress in achieving that goal has beenslow and hesitant.43 It is difficult to argue that the IMFand World Bank constrain the exercise of power by thedeveloped countries. Indeed, these multilateral institu-tions may enhance the capacity of the rich countries to

collectively enforce their will on the poor countries, asRodrik argues.44

Does their existence change the behavior of the rich?Without the two institutions, would the developed coun-tries lend or donate as much as they do now? Does multi-lateral lending and aid substitute for or complementbilateral giving? Would the least well-off and the mostpolitically insignificant countries be left to fend for them-selves if they ran into economic crises, should the WorldBank and IMF not exist? And would the terms of any aidor loans given bilaterally be worse for these countries thanthey are now? Evidence exists that bilateral aid tends to be

more oriented toward the political and economic interestsof donors than is multilateral aid.45 Some critics of theIMF and World Bank claim that countries would experi-ence fewer crises since they would be more attentive totheir financial situation in the absence of the moral hazardpresented by the existence of these multilateral organiza-tions.46 Others scholars have demonstrated that the dis-tribution of aid and loans even with these institutions isweighted toward the economically better off and the polit-ically more important developing countries.47 For instance,Stone shows that in lending to the transition countries theIMF gave more and imposed lighter conditions on thosestates with stronger political ties to the United States.48

Further, he shows how this political process underminesthe credibility of the IMFs position and induces the recip-ient countries to ignore its conditionality. His research,however, does not really address the question of whetherthe IMFs presence affected the overall amount of lendingor the allocation of those loans, relative to a situationwhere the Fund did not exist. These counterfactuals areessential for addressing questions about these multilateralinstitutions, but they are difficult to assess.

Providing information and reducing transaction costs

Following New Institutionalism theories, some argue thata major reason for these institutions is the lowering oftransaction costs and the provision of information to facil-itate multilateral cooperation in an anarchic world. AsKeohane writes, international institutions facilitate agree-ments by raising the anticipated costs of violating othersproperty rights, by altering transaction costs through clus-tering of issues, and by providing reliable information tomembers. [They] are relatively efficient institutions, com-pared to the alternative of having a myriad of unrelatedagreements, since their principles, rules, and institutionscreate linkages among issues that give actors incentives to

reach mutually beneficial agreements.49 For him, inter-national institutions also reduce uncertainty by monitor-ing the member states behavior and allowing decentralizedenforcement through reciprocity strategies.50

Scholars such as Anne Krueger have suggested just suchan informational role for the IMF and World Bank.51

Surveying and reporting on the policy behavior of mem-ber countries, providing information about the likelihoodof crises, and being a repository of expert information arekey roles for these institutions. The Meltzer Commissionalso emphasizes this role, and the most severe critics onthe right imply that the IMF and World Bank should giveup all roles except monitoring and providing expert infor-mation to member states. Others have noted the expertiserole of the IFIs. The World Bank is widely recognized tohave exercised power over development policies far greaterthan its budget, as a percentage of North/South aid flows,would suggest because of the expertise it houses. . . . This

expertise, coupled with its claim to neutrality and itsapolitical technocratic decision-making style, have giventhe World Bank an authoritative voice with which it hassuccessfully dictated the content, direction, and scope ofglobal development over the past fifty years.52

The WTO has also been seen as an information-provision institution. It monitors and reports on the com-pliance of states with the commitments they have made toeach other. This task reassures other member countriesand domestic publics about the behavior of their politicalleaders, making cooperation more likely and sustainable.53

Informational arguments suggest that all states gain fromparticipation in such institutions.54 This mutual gainexplains the voluntary participation of states in these multi-lateral forums. The expectation would be that developingcountries join largely for these informational benefits, butthere remains the issue of who provides what informationfor whose benefit. Are the developing countries providingmore information than otherwise? Are the principal ben-eficiaries private investors in the developing countries orin the developed world, other domestic groups, or theinstitutions themselves? Do the IMF and World Bank pro-vide developing countries with useful information aboutother members or with expertise that would otherwise beunavailable?These empirical questions have not been exam-

ined much.One central complaint against the IMF andWorld Bank

is that the policy advice they give (especially the Wash-ington Consensus advice) has been unhelpful, if notdetrimental, since it failed to take into account the cir-cumstances of the developing countries.55 The claim isthat the policy expertise given (or imposed via condition-ality) has not been beneficial. For instance, Stiglitz, Bhag-wati, and others have all criticized the IMF for pushingthe developing countries into opening their capital mar-kets.56 They have argued that little, if any, economic evi-dence or theory supports this, the consequences have been



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negative for most countries, and the main beneficiarieshave been private investors in the developed world. AsStiglitz writes, the [main] problem is that the IMF (andsometimes the other international economic organiza-tions) presents as received doctrines propositions and pol-icy recommendations for which there is not widespread

agreement; indeed, in the case of capital market liberaliza-tion, there was scant evidence in support and a massiveamount of evidence against.57 Even the advice to opentheir economies to trade has not been unquestioned. Eco-nomic analysis shows that the impact of trade opennesson economic growth can be positive but also insignificant.58

Easterlys book is also an indictment of the economicpolicy prescriptions of the Bank and Fund. Each chaptershows how the prevailing wisdom guiding economic pol-icy prescriptions in the IFIs has either been proven wrongor never been attempted to be proven right or wrong. Ashe concludes, in part II, we saw that the search for a

magic formula to turn poverty into prosperity failed . . .Growth failed to respond to any of these formulas. . . 59

Vreelands book supports these claims about the failedpolicy advice of the IMF. His research shows that IMFprograms lower economic growth and redistribute incomeaway from the most needy; the impact of conditionality isto retard development. As he concludes, this result meansthat either the IMFs policy prescriptions are incorrect oreconomic growth and poverty reduction are not the goalsof the IMF. Stones findings counter these; he shows thatIMF programs do reduce inflation and return greater mac-roeconomic stability but only when they are not inter-fered with by political factors.Thus, even the informationalvalue of the international institutions has been questioned.

Facilitating reciprocity

International institutions facilitate reciprocity strategiesamong countries in an anarchic environment. Coopera-tion in anarchy relies on reciprocity, but more coopera-tion can be sustained if it need not require simultaneousand perfectly balanced exchanges. International regimescan be thought of in part as arrangements that facilitatenonsimultaneous exchange.60 Bagwell and Staiger havedeveloped the most rigorous claims about the impor-

tance of reciprocity for the international trading sys-tem.61 If countries are sizable economic actors in worldmarkets, then they can use trade policy to manipulatetheir terms of trade and gain advantages over their trad-ing partners. If these big countries set trade policy uni-laterally, they will arrive at an inefficient outcome,sacrificing the gains to be had from mutual trade liberal-ization. Reciprocity enhanced by the WTOs rules andmonitoring can provide a context in which these bigcountries can achieve more efficient, cooperative out-comes. The main function of international institutions isto make reciprocity credible and feasible.

In the case of the large, rich countries in world tradethis motivation seems apparent. The United States, Euro-pean Union and Japan have used the GATT/WTO toenforce reciprocity strategies and lower their trade barri-ers. However, there is little evidence that this reciprocityhas extended to the developing world. Many developing

countries did not join the WTO until recently; most ofthe developing country members did not reciprocally lib-eralize their trade in the trade rounds.

In the period until the launch of the Uruguay Round and theformation of the WTO, only the industrial countries were mean-ingful participants in multilateral trade negotiations. They bar-gained amongst themselves to reduce trade barriers, whiledeveloping countries were largely out of this process and had fewobligations to liberalize.The latter availed themselves of the ben-efits of industrial country liberalization, courtesy of the MostFavored Nation (MFN) principle, but that defined pretty muchthe limits of their contribution to or benefits from the General

Agreement on Tariffs and Trade (GATT). Industrial countries

were content with this arrangement, in part because it alleviatedthe pressure on them to liberalize sensitive sectors such as agri-culture and clothing, but perhaps more importantly because themarkets of developing countries were not at that stage suffi-ciently attractive.62

This situation is not unexpected. Theories about thevalue of reciprocity in trade depend on the assumptionthat the country is a large trader (that is, it can affectprices); for most developing countries, this is not a realis-tic assumption.63 Countries with small markets are justnot attractive enough for larger trading partners to engagein meaningful reciprocity negotiations.64 The 100 larg-est developing countries (excluding the transition econo-

mies) accounted for 29 percent of total world exports in2003; the United States alone accounted for 10 percent,the EU (excluding intra-EU trade) for 15 percent andJapan for 6.5 percent.65

In addition, many of the developing countries receivedpreferential access to developed countries markets, as notedabove. Ironically, this access has reduced their interest inreciprocal multilateral liberalization since it simply reducestheir preference margins.66 The problem with grantingpreferential access in goods trade as the payoff to smalland poor countries is that it is counterproductive andeven perverse. Although preferential access does provide

rents in the short run, the empirical evidence suggests thatpreferences do not provide a basis for sustaining long-rungrowth.67 In addition, preferences create an incentive forrecipients to have more protectionist regimes.68 For mostof the developing world then, ensuring reciprocity has notbeen a main function of the trade regime.69

Facilitating reform in domestic politics

Some scholars have speculated that joining an inter-national institution and publicly agreeing to abide by itsrules, norms, and practices has important domestic polit-ical consequences. It can help domestic leaders to alter




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policies at home that they otherwise would not be able todo. It can help them lock in good policies (that is, onesthat enhance general welfare) and resist pressures by spe-cial interests to adopt bad policies (that is, ones thatbenefit special interests only). Or it can help domesticleaders to activate interest groups to counterbalance other

groups pressures and thus introduce different policies thanotherwise.

Several logics exist to support these claims. For some,once leaders join an institution it becomes hard for themto violate its practices since leaders who do so tarnish theirinternational reputations and are less capable of makingnew agreements; their publics lose from this and are morelikely to evict the leader, making noncompliance morecostly than otherwise.70 Others argue that domestic pub-lics receive signals from the monitoring of internationalinstitutions and that when the institution sounds a viola-tion alarm, some domestic groups hear this and know

their leaders are probably giving in to special interests andbecome more likely to vote them out of office.71 For oth-ers the key is that achieving cooperative agreements withother countries brings advantages for some domestic groupsthat otherwise would not be involved in a change of pol-icy; once their interests are engaged through the multilat-eral process, they can become strong proponents for policychange at home.72

Evidence for this binding effect is not extensive in thetrade area. Mattoo and Subramanian, for instance, showthat the poorest countries (roughly a third of all countries)have not used the WTO to make commitments. For avast majority of the poor and small countries, both theproportion of [tariff] bindings in the industrial sector issmall and the wedge between actual and committed tariffsis large, indicating that countries have given themselves alarge margin of flexibility to reverse their trade policieswithout facing adverse consequences in the WTO.73

Moreover, as others have noted, many of the develop-ing countries chose to liberalize their trade regimes uni-laterally.74 That is, they decided to open their marketsbefore joining the WTO; membership in the WTO wasnot necessary for them to liberalize. Once they liberalized,however, membership then became more important; ithelped to prevent the raising of trade barriers.

The domestic political consequences of IMF and WorldBank membership may be important but little researchaddresses this directly. Vreeland notes that countries under-went IMF programs out of choice as much as necessity.Governments were using the IMF to produce changes inpolicies that they desired, but unfortunately, these changesdid not produce economic growth or poverty reduction.His analysis demonstrates that the programs were usedinstead to promote the welfare of capital owners, whotend to be the richest groups in developing countries andthus may have further hurt developing countries. Stonesanalysis also shows that compliance with the IMF has

been variable, and that, especially for important borrow-ers, domestic binding or compliance has been low. In sum,we do not know what the overall domestic effect of IMFand World Bank membership on countries has been.

Four Sources of the Problems withInternational Institutions

If the WTO, IMF, and World Bank do not provide thebenefits for developing countries that scholars predict theymight, what could explain this? Four claims have beenadvanced. Some argue that these institutions have mini-mal impact. Others argue that they are captured by eitherthe powerful rich countries or by private producers andinvestors and so do not focus on the interests of the poorcountries. Finally, the problems may lie with the internalorganization and dynamics of the institutions themselvesand the failure of the member countries to monitor theirbehavior.

1. No Impact. It may be that these institutions had littleor no impact on the developing countries. Their fate couldbe far more sensitive to other forces, such as globalizationand domestic politics.

Because of technological innovation, reduced commu-nications and transportation costs, and policy changes,the developing countries have been increasingly exposedto the world economy.75 But the capacity of the IMF andWorld Bank has not grown proportionately, and thus, theyare less able to help, especially at times of crisis. The IFIsseek to fulfill their role of technical and financial support,but the relative size of their financing remains low. Theyconstitute only about 19 per cent of total debt outstand-ing by developing countries, and only 13 per cent amongmiddle-income countries.76The developing countries havethus experienced increasing globalization while the IFIscapacity has not kept up with the rising demand for funds.

The debate over the impact of globalization on the devel-oping countries is too vast to join here, but suffice it to saythat many scholars have argued that globalization is hav-ing a large effect on such countries (whether it is positiveor negative is much debated).77 Globalization, however, isnot disconnected from the WTO, World Bank, and IMF.

These institutions were intended to help manage the pro-cess of integrating the developing economies into the worldone. Nevertheless, the larger point is that globalizationmay have done more to affect these countries than theseinternational institutions.

Others have attributed the outcomes of the developingcountries to their own domestic problems. Political insta-bility, corruption, civil war, lack of the rule of law, andauthoritarianism are viewed as the bigger sources of theirproblems. Recent research touting the importance ofdomestic political institutions supports this line of argu-ment. Without institutions that protect private property



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rights for broad segments of the population, growth isunlikely.78 In this view, reforming domestic institutions isa first priority to promote sustained growth.79 To the extentthat the international institutions have advanced such insti-tutional reform, they have helped the developing world.To the degree they have permitted developing nations to

avoid or postpone such domestic change, they have hurttheir prospects for development. From this perspective, itis essential not to attribute too much impact to the threeinternational economic institutions. Much as realists ininternational relations maintain, these institutions may bemore epiphenomenal; whatever impact they have, if any,is derived from their role in some larger political or eco-nomic structure.

2. Capture by the Powerful Developed Countries. For manyscholars, Realists and others, these institutions were cre-ated by and for the interests of the large, rich countries.

They were established at American initiative during itshegemony following World War II. American and Euro-pean dominance in these organizations has been sealed bytheir sizable market power and their de facto control overthe institutions operations. Serving the interests of theadvanced industrial nations has meant either that the inter-ests of the poor countries were at best neglected and atworst damaged. There are thus serious problems withthe current structure and processes of global governance.Foremost among these is the vast inequality in the powerand capacity of different nation states. At the root of thisis the inequality in the economic power of different nations.The industrialized countries have far higher per capitaincomes, which translates into economic clout in negoti-ations to shape global governance. They are the source ofmuch-needed markets, foreign investments, financial cap-ital, and technology. The ownership and control of thesevital assets gives them immense economic power. Thiscreates a built-in tendency for the process of global gov-ernance to be in the interests of powerful players, espe-cially in rich nations.80 In this view, the internationalinstitutions have not helped much since they are orientedto promote the interests of the developed countries.

This bias operates in a number of ways in each organi-zation. World Bank aid has been questioned. It has been

heavily used in sub-Saharan Africa, but this region hasdone least well. Scholars have argued that this aid hasbeen used to prop up authoritarian governments and tocontinue with failed policies longer than they otherwisecould have.81 The link between the amount of aid a coun-try received and its growth rate remains disputed; manyfind that aid alone has no significant impact on economicgrowth.82 But aid flows have not been allocated to theneediest countries. Studies show that donor interests, botheconomic and foreign policy ones, often dictate whichcountries receive what aid, and when.83 Countries withpoor governments and policies may for other reasons receive

large allocations of aid; the priorities of rich donors mayundermine the developmental impact of aid.

According to other scholars, policy recommendationsthe developing countries were given reflected the experi-ences and interests of the rich countries. Trade liberaliza-tion promoted by theWTO and IMF occurred too quickly

and without (enough) concern for finding alternative meansfor the poor countries to fund their budgets and developsocial safety nets. For others, the problem is more how theagenda is set and how negotiating power is distributed. Inthe WTO, Steinberg shows the enormous power of therich countries. The secretariats bias in favor of great pow-ers has been largely a result of who staffs it and the shadowof power under which it works. From its founding until1999, every GATT and WTO Director-General was fromCanada, Europe, or the United States, and most of thesenior staff of the GATT/WTO secretariat have beennationals of powerful countries. Secretariat officials . . .

actions have usually been heavily influenced or even sug-gested by representatives of the most powerful states. Forexample . . . the package of proposals that became thebasis for the final stages of negotiation in the UruguayRound. . .was largely a collection of proposals prepared byand developed and negotiated between the EC and theUnited States.84

IMF and World Bank conditionality programs mandat-ing capital market liberalization, privatization and govern-mental austerity programs often ran aground because thedeveloping countries did not have the financial or legalinstitutions to support such policies. These policies mightwork in the context of the developed world where theseinstitutions existed. An example of this is Russia, whichStiglitz and Stone discuss in detail. They show that Amer-ican government officials pushed the IMF to loan andcontinue loaning large sums to Russia, that the IMF pro-moted policy changes that the Russian political economycould not handle, and finally that American pressure under-cut the ability of the IMF to induce Russia to reform.The officials who applied Washington Consensus poli-cies failed to appreciate the social context of the transitioneconomies;85 privatization in the absence of a legal frame-work of corporate governance only helped cause eco-nomic and political problems. Stone, who presents a more

optimistic picture of the IMF largely because his centralfocus is on reducing inflation and not increasing growthor equality, shows that American influence on the IMF ispervasive and pernicious. In the Russian case, for instance,he claims that the IMF made some mistakes (for example,in advising capital market liberalization in 1996, whichwas pushed by the Americans) but that most of the prob-lems came not from IMF advice but from Russias failureto listen to the IMF. American pressure on the IMF andsupport for Russia were largely to blame for this outcome;Russian politicians knew that the IMF would never carryout their threats since the United States would never let




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them. Stones identification of the credibility problemsthat big country interference with the IMF engenders is anovel and subtle mechanism for rich country influence onthe developing world.

Pressure from the rich countries has been seen as caus-ing the international institutions at times to provide unhelp-

ful advice as well as to shift the agenda and negotiatingoutcomes away from those favorable to the developingworld. Bhagwati notes that the rush to abandon controlson capital flows . . . was hardly a consequence of financeministers and other policy makers in the developing coun-tries suddenly acknowledging the folly of their ways. Itreflected instead external pressures . . . from both the IMFand the U.S. Treasury.86 Thacker shows that the UnitedStates exerts a great deal of influence over which countriesget IMF loans.87 Countries voting similarly to the UnitedStates in the United Nations do better at the IMF. Theliterature on foreign aid also suggests that a countrys rela-

tionship to powerful sponsors makes a difference. Coun-tries tend to get more aid from all sources the more tiesthey have to powerful, rich countries, especially the once-colonial powers. Loans, aid, and advice may respond tothe pressures of the most powerful developed countries,while trade agreements may promote theagendas and inter-ests of these rich countries, but are these effects more orless likely when multilateral institutions exist than whenthese relations must be negotiated bilaterally?

3. Capture by Private Producers and Investors. Some haveargued that the mission of the WTO, IMF, and WorldBank have been increasingly dominated by the interests ofprivate producers and investors.88 Sometimes their influ-ence over these institutions operates through the power ofthe United States and European governments, and othertimes it operates independently or even at cross purposesfrom the developed countries interests. The impressiongiven is that these commercial and financial interests havehijacked the agenda of these institutions and have turnedthem into enforcers of open access to the markets of thepoor countries. Furthermore, globalization has increasedthe influence of these private actors. The governance struc-ture of the global financial system has also been trans-formed. As private financial flows have come to dwarf

official flows, the role and influence of private actors suchas banks, hedge funds, equity funds and rating agencieshas increased substantially. As a result, these private finan-cial agencies now exert tremendous power over the eco-nomic policies of developing countries, especially theemerging market economies.89

Stiglitz claims that financial interests have dominatedthe thinking at the IMF, [and] commercial interests havehad an equally dominant role at the WTO.90 Even Bhag-wati, who holds one of the most positive views aboutglobalization, indicts the Wall Street-U.S. Treasury com-plex for many of the undesirable policies promoted by

the international institutions and resultant problems theycreated for the developing countries.91 Is there strong evi-dence for this? One area that many scholars have pointedto is the WTOs promotion of trade-related aspects ofintellectual property rights (TRIPs), especially in drugsand pharmaceuticals. As Bhagwati claims, the multination-

als have, through their interest-driven lobbying, helpedset the rules in the world trading, intellectual property, aidand other regimes that are occasionally harmful to theinterest of the poor countries.92 He notes that a key exam-ple of this harmful effect has been in intellectual propertyprotection where the pharmaceutical and software com-panies muscled their way into the WTO and turned itinto a royalty-collection agency because the WTO canapply trade sanctions.93 He goes on to describe how theindustries lobbied to get their views onto the Americantrade policy agenda and then used the United States gov-ernment to force this onto the WTO and the developing

countries.94

The impact of private actors seems most well-documented in the case of the IMF. Goulds research, forexample, shows that the number and nature of condition-ality in the IMF have responded increasingly to privateinvestors. Their influence has grown because such inves-tors play such a prominent role in international financing.As she claims,

many of the controversial changes in the terms of Fund condi-tionality agreements reflect the interests and preferences of sup-plementary financiers. The Fund often provides only a fractionof the amount of financing that a borrowing country needs inorder to balance its payments that year and implement the Fundsrecommended program. Both the Fund and the borrower rely(often explicitly) on outside financing to supplement the Fundsfinancing. This reliance gives the supplementary financiers someleverage over the design of Fund programs. The supplementaryfinanciers, in turn, want to influence the design of Fund pro-grams because these programs help them ensure that borrowersare using their financing in the ways they prefer.95

Perhaps international economic institutions like the IMF,World Bank, and WTO are a means for private actors toaffect policies in the developing countries, particularly whenglobalization is high. Scholars have pointed out that lib-eral international regimes improve the bargaining power

of private investors vis--vis governments and other groupsin society.96Again, the counterfactual deserves consider-ation: would the developing countries have been more orless subject to the pressure of private capital if these insti-tutions had not existed?

4. Internal Dysfunctions and Failure of Accountability. Somescholars have been sensitive to the internal dynamics ofthe institutions themselves. They claim these organiza-tions have developed their own internal logics, which maynot serve the interests of the poor (or rich) countries.Effective control over them by either the advanced



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industrial countries or the developing ones may be diffi-cult; long chains of delegation allow them much slack andmake adequate monitoring of their behavior costly.97

Principal-agent models suggest such outcomes are espe-cially likely when multiple principals (that is, countries)try to control a single agent (that is, the institution); in

these situations, the ability of the bureaucracy to play offdifferent countries interests and to avoid monitoring ismaximized. Unlike the previous explanations that treatedinternational institutions as mere servants of either pow-erful states or private producers and investors, this claimgives the organizations broad independence and wide lat-itude for autonomous action.

Vaubel has been one of the foremost proponents of thisview.98 He produces evidence showing that bureaucraticincentives within the IMF and other international insti-tutions lead to policies and practices inappropriate fortheir stated purposes. Concerns over career advancement

and budget size induce actors within these agencies tofocus on making loans and giving aid, but not on moni-toring the results. Giving more loans and aid is alwayspreferred to giving fewer, and recipients know this and useit to extract more. If both institutions [that is, the IMFand World Bank] are left to themselves, they will likelyrevert to internal bureaucratic politics determining loans.The act of making loans will be rewarded rather than theact of helping the poor in each country.99

As noted by Barnett and Finnemore, the IR literaturehas tended to take a benign view of international organi-zations, viewing them as instruments for facilitating coop-eration and making efficient agreements.100 But IOs oftenproduce undesirable and even self-defeating outcomesrepeatedly, without punishment much less dismantle-ment . . . In this view, decisions are not made after a ratio-nal decision process but rather through a competitivebargaining process over turf, budgets, and staff that maybenefit parts of the organization at the expense of overallgoals.101 For instance, they point to the case of the WorldBank: Many scholars and journalists, and even the cur-rent head of the World Bank, have noticed that the bankhas accumulated a rather distinctive record of failures butcontinues to operate with the same criteria and has showna marked lack of interest in evaluating the effectiveness of

its own projects.102 A series of internal problems couldbe responsible thus for the performance of these institu-tions vis--vis the developing countries.

These four problems are not exclusive or exhaustive.Enumerating them is important. Figuring out which prob-lems affect which institutions seems important and under-studied. Moreover, the type of reform desired depends onthe problem. For example, Stone recommends further insu-lation of the IMF from the pressures of the donors, espe-cially the United States. He wants the IMF to be more likean independent central bank. Insulation is desirable if themain problem is that they are too easily pressured by the

rich countries or by private investors. Stiglitz, among oth-ers, however, has the opposite view. He thinks they shouldbe more transparent and open to developing-country influ-ence. Studies of bureaucracy in general see insulation asnecessary, if undesirable, outside influences are strong andleaders are tempted to yield to them; but they see insula-

tion as the problem itself if the bureaucracys unaccount-ability and standard operating procedures are the failings.If the IMFs problem results mainly from its own internalorganization and logic, then further insulation is only goingto worsen the problem. Without further systematic evi-dence about the sources of these institutions main prob-lems in delivering benefits to the developing countries,reform proposals may do more harm than good.

In sum, todays international economic institutions seemto be falling short of the goals that theories expect ofthem, and the reasons seem numerous. The current stateof our knowledge does not warrant advocating the aboli-

tion of these international institutions, however. Theyappear to provide some benefits to the poor countries overthe most likely counterfactual scenarios. But they proba-bly could be reformed to provide even greater benefits.

International Justice and Institutions:Normative Perspectives

Empirical assessments of the impact of international insti-tutions on the developing countries provide a baseline fordiscussion of the role that these institutions should play. Itbears a moment to ask about the normative side of thisquestion: should, and to what extent should, these insti-tutions be responsible for addressing the interests of thedeveloping world? Discussions of international distribu-tive justice have multiplied lately as globalization has spreadand the divergence between the fortunes of the rich andpoor seems to have grown.103

The debate over the extent to which distributive justiceconcerns apply is a large and important one, and this essayis not the place to reiterate it. I do not desire to take astance in this debate, but rather to expose what the debatehas to offer for thinking about the role that the inter-national institutions should play. I discuss the cosmopol-itan perspective more because it seems to have more to say

about these institutions. This debate revolves around thequestion of how far the moralobligations of the rich extend.Rawls has famously argued that distributive justice (andespecially his difference principle) does not apply globally;it only extends domestically to well-ordered societies.104

As Nagel claims, the ideal of a just world for Rawls wouldhave to be the ideal of a world of internally just states.105

For burdened societies, which include most of the devel-oping world, the well-ordered countries have only a dutyof assistance. The meaning of this duty is not clear, but itis not a claim to distributive justice. For Rawls, the mainproblem of burdened societies is not wealth or resources;




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political outcomes in the developing world. He identifiesthe international resource privilege and the inter-national borrowing privilege as critical forces in shapingdeveloping countries; furthermore, he shows that they aresustained by the current global system and the developedcountries interests in that system. These forces harm the

developing countries, and the rich countries are responsi-ble for these privileges.

Pogge proceeds in three steps. In the current inter-national system, any group that controls the preponder-ance of the means of coercion in a country is internationallyrecognized as the legitimate government, no matter howit came to power, how it exercises power or whom it rep-resents. Once recognized, this government has the legalpower to confer domestic and global ownership rights toall of the countrys resources. It possesses the right to sellthe countrys resources and to borrow money for whateverpurposes it decides. Given this situation, all domestic groups

are thereby encouraged to lay claim to the leadership of acountry, thus providing powerful incentives toward coupsand civil wars. These privileges often mean that a countrysresources are sold off and it borrows heavily to the benefitof a few individuals and the long-term detriment of thepublic. As Pogge claims, these two aspects of the globaleconomic order, imposed by the wealthy societies and cher-ished also by the authoritarian rulers and corrupt elites inthe poorer countries, contribute substantially to the per-sistence of severe poverty. . . . These global factors therebystrongly affect the overall incidence of oppression and pov-erty and also, through their greater impact on the resource-rich countries, international differentials in oppression andpoverty.119 The advanced industrial countries and theinternational institutions they set up are then responsiblenot only because they maintain the current internationalsystem and its rules but also because they freely buy thegoods sold by such corrupt and unelected governmentsand offer them loans. Thus for theoretical and empiricalreasons, distributive justice must be cosmopolitan in scope;and the role of international institutions must be scruti-nized from such a moral perspective.

Rawls and his defenders do not accept this position.120

While space does not permit recapitulating the debate,they have made two strong counterarguments.They main-

tain that the principles of justice do not extend acrosspeoples. A central part of their argument is that states arevaluable. Justice is relevant only within states because indi-viduals within them consent to be governed by certainprinciples and agree to be coerced, if need be, into doingso. The individualistic perspective of cosmopolitanism iswrong; it greatly underrates the moral significance of polit-ical communities.121 As Rawls says, an important rolefor government, however arbitrary a societys boundariesmay appear from a historical point of view, is to be theeffective agent of a people as they take responsibility fortheir territory and the size of their population, as well as

for maintaining the lands environmental integrity.122 Notonly this, in well-ordered societies self-government createsand depends on common sympathies and strong recip-rocal moral obligations. Citizens have powerful obliga-tions of mutual concern and respect to one another becausethe political institutions for which they are all responsible

determine patterns of opportunities and rewards for all.123Justice in this perspective is relevant only domestically.

As a second point, they maintain that domestic factors,not international ones, are the source of the plight of thedeveloping countries. Domestic defects have preventedsome of the developing countries from moving forward,and these domestic problems are unrelated to the richcountries. The rich countries have neither caused harm inthe developing ones, nor can they rectify problems in thepoor countries. There is no basic structure that links thefates of the developed and developingnations. If one acceptsthe position of the Rawlsians and nationalists, then the

next two points are irrelevant; the only obligation of theinternational institutions is the duty of assistance, as dis-cussed above.

2. Current Counterfactual Assessments are Insufficient. An-other element of cosmopolitan normative argument con-cerns the evaluation of the IMF, World Bank and WTO.Above, we evaluated the institutions on the basis of thecounterfactuals that arise from comparison cross-nationallyand longitudinally. Did these institutions leave the devel-oping countries better off than they would have been in aworld without their presence? Pogge and Singer, amongothers, reject this standard of evaluation (for slightly dif-ferent reasons). For them, a positive answer to this coun-terfactual is not sufficient to conclude that the presentinternational system is a moral one. To decide whetherthese institutions are just requires more.

For them, another question must be asked: could onedesign another international system or reform the currentinternational institutions so as to provide greater benefitsfor the poor countries at very low cost to the developedcountries? This moral standard follows that proposed bySinger more than thirty years ago.124 Singers two con-clusions [then were] the strong one that affluent peoples

not contributing money or time to voluntary inter-national aid agencies is immoral, in the same way that abystanders failing to save a drowning child would beimmoral, and the stronger one that noncontribution tosuch agencies only ceases to be wrong when one hasreducedoneself to a level such that any further sacrifice wouldactually be worse for those whom one is trying to help.125

The right standard for judging these institutions is whetherreforms in them could be easily made that would providegreater benefits for the poor at minimal cost to the rich.For Singer, the rich countries have apositiveduty to helpthe poor and one that is very extensive.




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For Pogge, the counterfactual is similar but his caserests on thenegativeduty that the rich countries are obli-gated to stop taking actions that hurt the poor. This nor-mative case again rests on empirical evidence. As notedabove, poverty and inequality globally remain widespread,and in some views they are increasing. Furthermore, as

noted above, the wealthiest countries have been gettingwealthier and often doing so even faster than the poorones. This means that the rich countries have even moreresources with which to help thepoor, and thepoor becausethey are so poor can be helped easily. The poorest 2.8billion people, or 46 percent of humankind, have 1.2 per-cent of aggregate world income now; the richest countrieswith 900 million in population have almost 80 percent ofworld income.126Achieving the UN Millennium Summitgoals, which include halving the number living on $1 aday or less, would cost about $4060 billion a year inextra aid, which is less than 1 percent of the rich countries

total annual income.127

Hence, he claims that for verylittle the rich countries could dramatically help the poor,and thus concludes that the current international orderrequires reform.

For the international institutions, the issue is whethertheycouldbechangedinwaysthatwouldimprovethelivesof the absolute poor without much impact on the devel-oped countries. Pogge, Singer, Beitz, and others claim theanswer is a resounding yes. What matters for a moral eco-nomic assessment of an economic order under which manyare starving is whether there is a feasible institutional alter-native under which such starvation would not occur.128

These scholars do notseethe counterfactual used in empir-ical analysis as morally compelling. Suppose poverty andpoverty deaths are actually less now than they would be ifthe WTO had not been concluded. It is tempting to inferthat thenewregimeis then benefiting thepoor, since it treatsthem better than the old one would have done. But thisreasoning fails by unjustifiably taking the continuation ofthe old regime as the neutral baseline. . .129

The problem lies not with the developing countries foraccepting the WTO, since they have little choice, butwith the WTO and the developed countries for craftingthe regime so that it does not help the poor more. Thedeveloped countries could have negotiated a differentWTO

agreement, one fairer to the poor with little cost to them-selves. Perhaps even more millions who would have diedfrom poverty-related causes had [the WTO regime notexisted] have in fact survived [with the WTO in place].Governments [in the rich countries] cannot use this ben-efit to justify the harm they caused, because they couldhave avoided most of this harm, without losing the ben-efit, by making the WTO treaty less burdensome on thedeveloping countries. They did not do this because theysought to maximize [their] gains from the agreement.130

Relinquishing a small portion of their gains, he claims,the developed countries at low cost could have fashioned a

WTO providing many more benefits to the poor. Thesame is said to be true for the IMF and World Bank,where if the developed countries and the institutions them-selves did not bargain for maximum advantage, the devel-oping countries could do better. The proliferation ofconditionality that Gould documents in the IMF is one

example; the imposition of austerity by the IMF leadingto slow or negative growth and rising domestic inequalitythat Vreeland documents is another. Furthermore, refus-ing to give aid to or loan to governments that come topower through coups or other nondemocratic means mightalleviate the problems generated by the internationalresource and borrowing privileges. As Pogge concludes,our present global economic order produces a stable pat-tern of widespread malnutrition and starvation amongthe poor, with some 18 million persons dying each yearfrom poverty-related causes, and there are likely to be fea-sible alternative regimes that would not produce such sim-

ilarly severe deprivations.131

In arriving at a normativeassessment of the IMF, World Bank, and WTO, Poggeamong others claims that one might need to use a stan-dard of moral judgment that is different from the usualcounterfactual that scholars employ in positive analysis.

3. The Nationalist Research Agenda Must Change. Poggelabels much of the current research on the developingcountries as nationalist. He argues that there is a researchbias in the field such that domestic and local factors aremore likely to be identified as causes of poverty and under-development than global ones. That research into pov-erty turns up national or local factors is due not the worldbut to how these inquiries are focused: on the differentialevolution of poverty in various developing countries andregions. . . . It would be an analogous mistake to con-clude, from the fact that comparative poverty researchuncovers national and local factors, that the existing globaleconomic order is a not a causal contributor to pover-ty.132 Pogge thus criticizes this explanatory nationalismand calls for more research into theglobalsources of poverty.

Comparative research into poverty and growth shouldthus include international variables. For instance, econo-mists and political scientists have run many growth regres-sions, based largely on economic models and including

mainly national-level variables. Pogges recommendationwould be to add international variables like the participa-tion of countries in the WTO, IMF, or World Bank andtheir programs. He would applaud Vreelands research,while calling for an even broader approach. He recognizesthat many of these international factors are constant; theinternational resource privilege has existed since theTreatyof Westphalia (1648), for example. But the interaction ofsuch factors with national-level ones that vary can increaseones leverage on these problems. Corruption in Nigeriais not just a local phenomenon rooted in tribal cultureand traditions, but encouraged and sustained by the



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international resource privilege. . . . This correlation has anationalist explanation: national resource abundancecauses bad government and flawed institutions by encour-aging coups and civil wars . . . But this nationalist expla-nation crucially relies on a global background factor, theinternational resource privilege, without which a poor

countrys generous resource endowment would not hand-icap its progress toward democratic government and eco-nomic growth.133

His research advice is not just to add or take account ofinternational factors but also to examine them in inter-action with domestic ones. Maybe the impact of resourceendowments on growth depends on the existence of theinternational resource privilege.134 When these inter-national factors vary either over time or across countries,their inclusion and interaction with domestic factors isgood advice. After all, in this globalized world, conduct-ing research on countries integrated into the global system

without taking account of those global linkages is a strat-egy that can mislead. His research advice is simple andfeasible in many cases: avoid the explanatory nationalistbias by including international variables and their inter-actions with domestic ones in order to properly assess thesources of poverty and development.

Conclusions: What Is to Be Done?

What do we know about the impact of the major inter-national economic institutions, the IMF, World Bank, andthe WTO, on the developing countries? Have these insti-tutions improved the lives of the poor in these countries?Have they made the developing countries better off thanthey would have been in the absence of these global insti-tutions? Is this counterfactual the appropriate standard toevaluate them by? What is the moral obligation of the richcountries and their international institutions to the poorones? Should the institutions be reformed to better fulfilltheir duty of assistance to the poor? Or is a better stan-dard for their evaluation one that asks whether the insti-tutions could be reformed at low cost to the rich countriesso that they would provide more benefits to the poor ones?How do normative and positive analyses together shedlight on these institutions?

In terms of the four major functions that theories ofinternational institutions identify, these three global insti-tutions seem to have failed to live up to the expectationsof these theories in their impact on the developing coun-tries. They have had a difficult time constraining the large,developed countries; most of the time these countries havebargained hard to maximize their advantage vis--vis thedeveloping nations. Perhaps they have left the developingcountries better off than if they had to negotiate bilater-ally for access to trade, aid, and loans, but it seems as ifthese institutions could have bargained less hard with thedeveloping countries at little cost to themselves or the

developed countries and thus provided more benefits forthe poor.

The IMF, World Bank, and WTO have certainly helpedprovide monitoring and information. But the monitoringand information provision have been asymmetric; it is thedeveloping countries that are monitored and provide more

information than otherwise. This action, however, maymake the developed countries and private investors morelikely to trade with, invest in, and provide loans to thepoor countries, but the terms of these agreements haveoften imposed multiple and powerful conditions on thedeveloping countries that may have impeded their growth.

Facilitating reciprocity has been a central function attrib-uted to international institutions. For these three organi-zations, reciprocity vis--vis the developing world has notbeen a central mission; trade agreements have often beenvery asymmetric and the aid and lending programs areone way. Finally, the ability to alter domestic politics by

creating support or locking it in for reform has been lessstudied, but seems to clearly have had an impact. Theimpact of the international institutions on the developingcountries and their domestic situation has been powerfulbut not always benign.

The difficulties faced by the international institutions inproviding benefits for the developing countries have arisenfrom at least four sources. It may be the case that globaliza-tion hassimply overwhelmedtheseinstitutionsandthat theirimpact is minor compared to other factors, especially withalargeandopenworldeconomy,anditislikelythatdomes-tic weaknesses account for part of their poor performance.But their problems may also lie in the pressures exerted bythe large, developed countries and private producers andinvestors. Both of these groups have shaped the function-ingoftheWTO,IMF,andWorldBank.Thepowerful,richcountries have bargained hard within these institutions toadvance their own interests. Private producers and inves-tors have directly and indirectly affected the performanceof the institutions through their central role in the worldeconomy. All of these institutions were established to sup-portandfacilitateprivatetradeandcapitalflows,nottosup-plant them. Finally, onecannot overlookthe claim thatpartof the problems arises from the internal organization andproceduresoftheinstitutionsthemselves.Makingloansand

imposing conditions may be more important for careeradvancement than measuring the impact of these activitieson the developing nations.

Positive, empirical research asks the question of whetherthe developing world would have been better or worse offwith the presence of these international institutions thanwithout them. The evidence suggests that even thoughproblems abound with the institutions, one cannot ruleout the counterfactual: w

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