Small “i” ideas

If the experiences of the 1990s had produced some significant debates about the expert authority of the IFIs and donor states, then these new conditionality policies can be understood in part as efforts to respond to those contested failures.⁵⁵ All four institutions’ strategies are shaped by their interpretation of the causes of those earlier failures – whether it is the problem of excessive conditions for the World Bank, the IMF and DFID, the importance of selectivity at the Bank and the MCC, or the importance of country ownership at all four.

What all of these policy innovations have in common is the problematization of the “political economy” dimensions of development, using a cluster of public choice assumptions to conceptualize and engage with their objects. A handful of studies are cited over and over again in the policy literature on the subject: analyses by David Dollar, Jakob Svensson, Paul Collier, Tony Killick and Craig Burnside, all of whom draw heavily on public choice theory (and most of whom worked for the World Bank at some point).⁵⁶ What does politics look like from this perspective? It takes two principal forms: first, as the “environment” within which conditions are implemented, an environment made up of existing policies and institutions.⁵⁷ Second, the political appears in somewhat more active guise as the leaders of borrowing countries, who are deemed to be either “reformers” – keen to implement “sound” economic policies – or not.⁵⁸ Dollar and Svensson argue that these “political economy variables” play a crucial role in determining whether or not an adjustment loan achieves its intended outcomes, regardless of World Bank efforts.⁵⁹

From the perspective of public choice theory, development financing should therefore be more selective, directed towards “reformers,” since “adding more conditions to loans or devoting more resources to manage them does not increase the probability of reform” for poor performers.⁶⁰ What then is the role of conditions, if they are not needed to “buy” or even encourage reform? They become a kind of “commitment technology,” in the language of public choice and credibility theory: they are a way for governments to (voluntarily) bind their own hands, in order to show markets and donors that they are credible reformers.⁶¹ Yet this new logic for conditionality contains a dilemma for donors: markets will only find governments credible if they trust that they will follow through on their promises. Research by Collier and others indicates that many governments state their willingness to undertake reforms in return for financing, and then fail to follow through.⁶² In public choice terms, IFIs and donors thus face the problems of adverse selection and moral hazard: because most World Bank loans are fully disbursed to borrowers even when conditions are not met, governments have considerable incentives to misrepresent themselves as reformers. Hence the crucial importance of selectivity: IFIs and donors must not lend to poor candidates, not only because aid is unlikely to foster reforms, but also because they will actually undermine the credibility of good candidates’ conditions.⁶³

The logic of public choice theory points towards a different kind of conditionality policy – one where the number and scope of conditions matters much less than the credibility of governments’ commitment to implement them. Commitment, or ownership, as it eventually came to be called, becomes the key to addressing the “failure of conditionality,” as Collier bluntly called it.

Symbolic and informal techniques

How was this new public choice conception of conditionality translated into practice? There is little question that there has been a culture shift in the IFIs, particularly at the World Bank, around staff’s perception of the role of conditionality. A number of staff who I spoke with suggested that conditions were far less important than they had been, one former senior staff member suggesting that in the region that he was involved in, “we do not have conditionality any more.” Instead, “government comes up with a plan which we discuss; the plan is put down on paper and discussed, and if it seems to be something worthy of support, we give them the money to help them implement it.”⁶⁴ A closer examination of the evolving practices of conditionality, however, suggest that rather than disappearing, conditions have changed in form, becoming increasingly symbolic in character, and informal in application.

As I discussed above, public choice theory proposes a much thinner conception of conditions as commitment technology. Conditions become less about what they are (required reforms) and more about what they represent (signals of “sound” intentions). Their relationship with concrete policy changes therefore becomes increasingly distant and hypothetical – more symbolic than real. Although all conditions today potentially play this symbolic, signalling role, the IMF has gone so far as to introduce a kind of conditionality that is purely about signalling commitment. The policy support instrument (PSI) does not include any financing whatsoever: it is conditionality without the money. To date, seven countries, all of them African, have negotiated a PSI with the IMF. Why would a government agree to conditions without receiving any financing in return? It would be in order to signal to donors and financial markets their willingness to stick to the sound policies that the IMF supports.⁶⁵

At the same time as formal conditions have been pared down and become increasingly symbolic, informal conditions have proliferated. At the World Bank, the number of formal conditions has dropped from above thirty-five on average in the late 1980s, to twelve in 2005.⁶⁶ Yet even as these formal conditions have declined, there has been an increase in those conditions that the Bank does not officially define as such: these include benchmarks and triggers, which are used in programmatic lending, as well as the country policy and institutional assessment (CPIA), which all play a role in determining whether funding will be provided, and at what level.⁶⁷ Thus, while official conditions may have decreased, by 2001 the average number of benchmarks increased from fifteen in the early 1990s to twenty-three or more, and as many as thirty-five for the poorest countries.⁶⁸ Even at the IMF, where one of the objectives of the 2002 streamlining exercise was to rely less on subjective structural benchmarks in order to increase the “clarity” of conditions, the Board reversed course after the 2008 financial crisis and replaced quantitative performance criteria with more subjective reviews, again blurring the boundaries of what counts as conditionality.⁶⁹ Paradoxically, even as IFIs and donors seek to make conditions more transparent, they are becoming less visible.

As donors and IFIs have scaled back formal conditions, they have also been increasing their technical assistance, upping the role of consultants and other sources of policy advice. For example, in the UK, as both DFID staff and NGO critics point out, even as formal conditionality has declined, the agency’s budget for technical assistance remains “huge” and has become a crucial means for applying less formal pressure on borrowers.⁷⁰ As ODI researcher, Ruth Driscoll, put it, “In practice, what you get is a bit of a fudge where DFID staff engage in a lot of ‘policy influencing’.”⁷¹ Finally, in their studies of “new” or “post-conditionality” in Africa, Graham Harrison and Jeremy Gould have both demonstrated an increase in perhaps the most invisible kind of development conditionality: the growing internalization of donor and IFI norms by developing country leaders, particularly by finance ministry officials who have come to accept the imperatives of domestic adjustment.⁷² The combination of this kind of internalization with the persistence of significant aid dependence in many countries makes it difficult to identify the degree of external influence.⁷³

Informalizing power

As public choice theory would have it, the new conditionality avoids power dynamics altogether, since borrowing countries use conditions to tie their own hands and to signal to markets and donors their ownership of policy reforms. Not too surprisingly, this account turns out to be something of a fantasy. Instead of eliminating power dynamics, the informalization of conditionality techniques discussed above produces a certain informalization of power relations. Even where formal conditionality has been reduced or eliminated, its ghost lives on at the edges of or in the spaces between formal lending programs – its invisibility lending it a paradoxical kind of power.

There is no question that the reduction in the number of formal conditions by the IMF, World Bank and DFID alters the ways in which the lender can influence the behaviour of the borrower. At the IMF, the attempt to limit step-by-step conditions means that staff have less ability to control how borrowing states comply with conditions, while efforts to focus on their core areas of expertise limit the issues they can address. Yet there is little doubt that the institution retains significant power in its relationship with borrowing states. The very fact that poor African countries would choose to accept the constraints of the PSI without financing suggests that the IMF wields considerable authority through its capacity to decide what counts as sound economic policy.

The fact that the World Bank and DFID have moved even further away from formal conditions suggests that the diminution of lender control will be even more noticeable; yet their increased emphasis on technical assistance, consultants and more flexible benchmarks does not so much reduce as transform their power to influence borrowers’ policies. One former senior World Bank staff member I spoke to suggested that conditions have given way to conversations at the institution. In cases where there is considerable evidence that the country is moving in the right direction, that conversation can be reasonably open-ended. On the other hand, “if you have a situation where there is no progress on the poverty reduction front, then you need to ask tougher questions, and it means a tougher dialogue – which can be interpreted as conditions.”⁷⁴ This shift towards a policy of conversations is a double-edged sword as it can both complicate and conceal the power relations at work in the aid relationship, evidenced by the fact that surveys have indicated that borrowers do not see much difference between formal and informal conditions.⁷⁵ To put it more succinctly, the difference between a condition and a conversation is not always clear to those on the borrowing side of the relationship.

Even at the MCC, where the practice of relying on quantitative pass-fail indices appears to be the least ambiguous approach possible, the dynamics of selectivity also work to informalize power. As the then Chief Executive Officer of the MCC, John Danilovich, noted with pride, poorer states that have yet to qualify for MCC assistance have begun to proactively make changes to their governance practices and business regulations in hopes of eventually qualifying.⁷⁶ These changes are no doubt in large measure aimed at achieving a better score in the MCC indices; yet they are also a kind of performance of good faith – a demonstration of country ownership. When conditions become increasingly symbolic, power relations also take a representational turn, as borrowing countries seek to signal their willingness to be good political economic players.

This willingness to conform demonstrates the expert authority of the IFIs and donors as they set themselves up as the arbiters of “sound” policies that the markets (and other donors) will view as credible. This expert authority is a particularly productive form of power. Ilene Grabel points out that the discourse of credibility is highly political and performative: the act of declaring a policy as credible (generally by an external, authoritative actor) seeks to create rather than to simply signal credibility.⁷⁷ If the initial performance of the statement of credibility is accepted as authoritative, donors and market actors will follow through with funds and further endorsements that effectively reinforce the initial statement about credibility. Moreover, those policies that are deemed “sound” remain strikingly familiar, focusing on low inflation, financial and trade liberalization, and the creation of a friendly business environment – the stock-in-trade of neoliberalism.

Paradoxically, as conditions become more symbolic, they also become more performative: conditions are designed to do a lot more than simply indicate what policies should be changed; they now also communicate a particular kind of political will. Similar to the standards and codes that I will discuss in the next chapter, these seemingly simple techniques are thus delegated a new kind of power, as conditions take on a life of their own.

These new subtler forms of power can nonetheless be devastatingly effective. We should not forget that underpinning the new conditionality is a belief in the value of selectivity – of only providing financing to those countries with good policy environments and leaders who demonstrate their commitment to reform. The aid effectiveness studies discussed above suggested that those not deemed “genuine reformers” should receive advice and technical assistance but no money; in practice, as one former senior World Bank staff member noted, not only has the allocation of dollars been reduced to countries deemed poor candidates, but so has the time spent on them, which is a serious mistake given that “the whole point was that these countries needed more engagement.”⁷⁸ Moreover, in the wake of these changes, Bank aid in particular has become more selective.⁷⁹ The cost to poor countries of not complying with informal conditions – of not convincing lenders of their commitment – is therefore very high indeed. Selectivity and the threat of selectivity act as particularly potent forms of exclusionary power, sorting countries into the saved or the potentially savable, and the damned.

Engaging new actors

Those involved in developing and implementing the PRSP have sought to use this policy strategy to engage new actors in the practices of governance. Who has historically been responsible for the day-to-day work of governing international development finance? If we look back to World Bank President Robert McNamara’s “war on poverty” in the 1970s, McNamara himself was not only a force behind the adoption of new policies, but also played dual roles as a diplomat working behind the scenes to influence borrowers, and as a technocrat whose measurement techniques ensured that staff were achieving their targets.⁹⁷ As the Bank and Fund became actively involved in structural adjustment in the 1980s, more work was delegated to technical staff. With the shift from one-off projects to more program-based lending, domestic government actors became more important; yet they were conceptualized in passive terms as consumers of policy advice rather than as active participants, as IFI staff often bypassed domestic institutions and actors.

With the introduction of policies like the PRSP, Bank and Fund staff have continued to be key actors. Yet the PRSP’s architects hoped that the day-to-day practice of governing economic growth, adjustment and poverty reduction would increasingly be undertaken by a new set of actors. Domestic governments were seen as much more active participants in their own governance, preparing their own strategies and taking more responsibility for their successes and failures. The PRSP’s creators also sought to integrate civil society actors as active players, participating in the creation of the PRSP and then using it to hold the government to account. In practice, the range of actors involved in the formulation of the PRSPs has varied considerably, but has included religious groups, parliamentarians, worker and peasant organizations, indigenous peoples, women’s groups, local government officials and others. Even the poor themselves, who were once deemed unable to organize themselves into an effective political force, are now seen as a group capable of having an effect on government policies.⁹⁸ In the process, developing countries’ civil society has come to be viewed as a necessary quasi-political space – a third space, to use Nikolas Rose’s term – in between the rent-seeking realm of the state and the self-interested logic of the market.⁹⁹

New techniques

In order to understand what role these new actors play, we need to consider the techniques through which the PRSP does its work. Two kinds of techniques in particular are crucial: inscription techniques, and what Rose calls “technologies of community.”¹⁰⁰ The technique of putting things down on paper has long played an important role in IFI lending to poor countries: the PFP was also designed to translate complex domestic economic factors into practical goals. Both the PRSP and the PFP it replaced can usefully be understood as inscriptions: they each seek to translate the complexities of a country’s economic, social and political context, their aspirations and objectives, into a single document capable of enrolling actors and orienting action. Yet they are very different kinds of inscription.

If we compare them, the most obvious difference between the two is the length and scope of the documents. PFPs were relatively short (twenty- to thirty-page) documents that covered a range of areas, from social to monetary policy, viewing them all through the lens of economic efficiency.¹⁰¹ The object of the PFPs, and the structural adjustment programs that they facilitated, was economic transformation. The PRSPs, in contrast, are not merely much longer documents – often close to 200 pages long – but also much more ambitious in their objectives.¹⁰²

What is perhaps most interesting about the PRSP is the way that it is produced – a key selling point for its advocates. This is where technologies of community combine with inscription techniques to produce a more dynamic and performative document. Whereas the PFP was a report created by Bank and Fund staff in order to coordinate their respective development programs, the PRSP is, at least in theory, prepared by the borrowing government. It is not just the Treasury staff who are involved: many of the affected ministries now play a role, together with a range of civil society groups and individuals. The goal of the PRSP is to engage a myriad of actors in discussing the shape of the country’s development policy. By translating some of the past experiences with micro and project-level participation to a macro level, staff involved in implementing the PRSPs seek to engage a range of stakeholders in the process of formulating, implementing and monitoring a country’s poverty reduction strategy. In practical terms, techniques include information dissemination strategies, various kinds of consultations, workshops and focus groups, citizen surveys and report cards.¹⁰³

New forms of authority and power

By linking PRSPs to a wide range of different development practices, the IFIs have sought to both re-establish and expand their institutional authority. They have sought to re-found their economic expertise by putting into practice many of the insights of public choice theory and institutionalist economics. At the same time, IFIs’ use of various “technologies of community” help to enhance their claims to popular authority – allowing them to argue that their programs are based on a wider, more robust kind of ownership than in the past. These more popular technologies also delegate a certain amount of governance authority to a wider range of actors – giving domestic governments and local populations more control over their own economic development.

Given its popular, participatory dynamic and its effort to redistribute authority, the PRSP appears to be less subject to power imbalances than the PFP. Yet this delegation of authority is far from unconditional. Although the instrumental power that was so often visible in SALs has become less prominent, power relations remain in a different guise.

The PRSP has been designed not simply to engage government and civil society actors in governing, but also to help shape them. As Joseph Stiglitz, then Chief Economist at the Bank, put it, “At the heart of development is a change in the way of thinking and individuals cannot be forced to change how they think.”¹⁰⁴ Rather than operating through coercion, the PRSP is designed to work more subtly, fostering change through the document’s production and reception. Even after the document is produced, its publication is to have performative effects. One of the “wagers” of this strategy, as one development think-tank member put it, is that by giving civil society actors new capacities and tools, they will put pressure on governments to become more responsive.¹⁰⁵ In the process, PRSPs, as inscriptions, have become increasingly performative, as institutional actors have delegated considerable powers to them – powers that continue to operate after their original formulation.

Another wager contained in this policy is that if government actors participate in devising their own programs – and become “self-responsible” in the words of one IMF Managing Director – they will become better at developing “good” rather than “distorted” policy environments.¹⁰⁶ This emphasis on fostering an internal will to reform resonates with Foucault’s concept of governmentality, in which the objective is to govern by encouraging actors to regulate themselves.¹⁰⁷ This is also a particularly proactive strategy that seeks to create the conditions necessary for its long-term objectives, rather than simply reacting to ongoing events and challenges.

The power relations enabled by policies like the PRSP are thus not only more productive and proactive, they are also increasingly indirect. Although the goals are economic – development, adjustment, stability and poverty reduction – the means are through various intermediaries. It is only through the roundabout route of mobilizing the poor, encouraging civil society pressure, generating demand for reforms and fostering political will that the ultimate objective is attained.

Like efforts to reform conditionality, the PRSPs have the effect of informalizing power and making it less visible. This is rather ironic, given that one of the central premises of the PRSP is to make development planning more transparent. Although the preparation of the PRSP as inscriptions is a more public process, with many more participants, it is certainly not universally inclusive. In most countries, not all civil society groups are included in the consultation processes: in Uganda, for example, the unions and many other groups seen to be too “political” were excluded from the first PRSP process.¹⁰⁸ In Bolivia, it was local government officials who played a preponderant role in consultations.¹⁰⁹ Moreover, studies of the Bolivian, Ghanaian, Ugandan and Nicaraguan PRSPs suggest that donors continued to play a significant role in defining the ultimate form of the PRSP, often undermining the “bottom-up” accountability that the process was intended to create.¹¹⁰ Which actors were included in the participatory processes? Which ones were heard? Whose voices were ultimately translated into the PRSP documents? The answers to these questions say a great deal about the power relations reflected in and enabled by this particular poverty reduction strategy. Yet they are obscured as much as they are revealed by the PRSPs themselves.

The World Bank

The World Bank prides itself on being the first institution to recognize and act on the idea that governance is central to economic development. Although its staff and management have certainly retained that conviction over the past twenty-odd years, they have defined and acted on that idea differently. It is possible to define two broad phases in the evolution of the governance agenda at the World Bank: the first phase, from 1989 to 98, was an extension of neoliberalism and defined governance primarily in public choice terms as an effort to avoid rent-seeking by creating a leaner, more effective government. The second phase, dating roughly from 1999, saw a broadening of the governance agenda to include the Bank’s new emphasis on poverty reduction and a shift in the theoretical framing from public choice theory to new institutionalism; this phase also saw the development of more experimental policies aimed at fostering the “demand side” of governance.

The term “good governance” first emerged in response to the perceived failures of development in sub-Saharan Africa. In an influential 1989 report on the subject, the authors argued that the principal source of this failure was not external – in declining terms of trade, for example – but internal, based on a failure of investment linked to bad public management.¹⁶ This “crisis of governance,” they argued, must be addressed before economic progress can be expected.¹⁷ The report is framed in neoliberal terms and can be read in part as a neoclassical rebuttal of dependency theorists’ claims that the causes of underdevelopment are within the capitalist system.¹⁸ While the report places some responsibility for failure on the Bank for its inability to recognize the importance of institutions, it also implies that the ultimate blame for underdevelopment rests with poor countries’ governments. Although the report was never formally discussed by the Executive Board, nor served as the explicit basis for policy discussions, it framed later discussions on the legality of the Bank’s move into the governance area.¹⁹ In fact, during discussions of the Bank’s legal mandate in this area, the Libyan Executive Director, Salem Omeish, went so far as to charge the Bank staff with trying to “sneak” the results of that study into policy discussions.²⁰

This report launched a broader process of debate and problematization at the Bank, as the issue of good governance became a central preoccupation, with Bank staff producing several further reports on the subject and Executive Board members debating the emerging policy.²¹ Not surprisingly, those involved in these initial debates about governance drew heavily on economic theory, using a public choice conception of state–market relations that treated all of the players as self-interested and individualistic agents.²² Perhaps the most pervasive argument made throughout staff documents at this time is that rent-seeking is the central problem of governance. Rent-seeking is a concept that assumes that the state’s ability to make decisions about resource allocation – e.g. the building of a dam in a particular location – can have perverse consequences as it encourages the unproductive use of resources by those seeking to affect government decisions.²³ The most touted solution to rent-seeking in the public choice literature is to reduce the scope of state decision-making by shifting greater responsibility to the markets.

By the mid-1990s, the governance agenda was having a concrete impact on Bank operations: in 1994, a report on the Bank’s experience of governance programs noted that the volume of governance-related lending was significant and increasing, with as many as 68 per cent of lending operations containing some kind of governance dimension.²⁴ Yet, even as the idea of governance began to take hold within the institution, it was clearly a fraught issue. The Bank’s General Counsel, Ibrahim Shihata, was asked to provide a legal opinion on whether the institution’s mandate allowed it to address governance issues. Shihata’s opinion – which he only provided after significant pressure from management – narrowly reduced the scope of the Bank’s involvement to factors that had a direct impact on economic development.²⁵ When the Bank’s executive directors discussed the legal opinion in an Executive Board seminar, their conversation was intense, with one director noting that the subject was “clearly delicate and perhaps emotive,” while another went so far as to charge the institution with attempting to “move into the distinct political arena and dictate [a country’s] political agenda and ideology.”²⁶

It was not until James Wolfensohn took the helm of the World Bank in 1995 that the issue of governance – and the related problem of corruption – took centre stage. In a famous speech at the 1996 annual meetings, Wolfensohn called for an end to the “cancer of corruption.”²⁷ It was during his tenure that the 2000–1 World Development Report (WDR), Attacking Poverty, and the 2002 WDR, Building Institutions for Markets were released.²⁸ Together, these two reports altered the good governance strategy in several respects.²⁹ First, they justified good governance based on its capacity to reduce poverty. Second, they reframed the theoretical justification for good governance in terms of new institutionalist economics.³⁰ This shift is significant because although an institutionalist approach remains consistent with much neoclassical economic theory, it emphasizes the problems of market failure – instances in which the state must step in because markets are unable to allocate resources effectively.

The good governance agenda also began to focus more explicitly on the importance of public participation and demand. The role of participation had been controversial in the early 1990s: Shihata’s 1991 legal opinion had identified participation as a borderline case that might be viewed as too political, yet a number of directors were vocal in their advocacy for its importance.³¹ By 2000, in the context of the development of the ownership strategy, the idea that governance reform should be driven by the “demand” of public and private actors (and not just the “supply” from lenders) had become a defining feature of efforts to foster good governance.³² When Wolfowitz took over as Bank President in 2005, he continued this emphasis on the demand side of good governance. As one World Bank staff member put it in 2011,

This focus on local participation was integrated into Wolfowitz’s governance and corruption strategy (GAC), which remains the principal framing document for governance activities at the Bank.³⁴

International Monetary Fund

The story of the evolution of the IMF’s governance policy is somewhat shorter since the Fund only got on board with the good governance agenda in 1997 and has remained more consistent, broadly in line with the Bank’s early public choice-driven approach.

In 1996, following a directive from the IMF’s Interim Committee,³⁵ the Executive Board sat down to discuss a staff paper on “The Role of the Fund in Governance Issues.”³⁶ Like the Bank’s early governance strategy, Fund staff drew extensively on public choice theory to frame the problem of governance, arguing that the central issues were those of rent-seeking and ad hoc decision-making, which could be best resolved through continued economic liberalization to reduce opportunities for government mismanagement.³⁷

Despite Fund staff and management’s attempts to define governance issues as consistent with the institution’s traditional role, the attention to governance clearly expanded the organization’s mandate. A 2001 report on the Executive Board’s discussion of governance issues provides a useful overview of the new practices undertaken by the IMF under the rubric of “good governance”:

In concrete terms, such governance issues were not only raised in the context of the Fund’s usual Article IV consultations with member states, but were also integrated into its lending conditions.³⁹ Good governance practices therefore had teeth, since program approval could be “suspended or delayed on account of poor governance.”⁴⁰

In a 1998 speech on the IMF’s role in good governance, Managing Director Michel Camdessus argued that there existed a “universal consensus” on the importance of good governance.⁴¹ Yet, in truth, this expansion of the Fund’s mandate was more contested on the Board than Camdessus suggests. Jack Boorman, then head of the Policy Development and Review (PDR) department, which was responsible for developing the governance policy, has since noted, “the resistance to the governance agenda was amazing in the mid-1990s.”⁴² Camdessus himself admitted as much in the same speech cited above, suggesting that initially “Some of our shareholders feared that in taking on such issues the [Bretton Woods] institutions would become politicized and lose their effectiveness.”⁴³

Those pushing to broaden the Fund’s role to include governance issues ultimately won the day. In fact, as the 2001 review of the IMF’s experience noted, engagement on governance had expanded well beyond the staff and Board’s initial expectations when they had first approved the Guidance Note on Governance in 1997. The principal reasons for this expansion were the Asian financial crisis in 1997–8, which led to the standards and codes initiative discussed below, and the decision to link governance conditions to debt relief as part of the Highly Indebted Poor Countries (HIPC) initiative.⁴⁴ The emphasis on governance issues also continued to increase in the Fund’s bread-and-butter policies – in its Article IV surveillance consultations and lending programs.

A new kind of universal

The good governance agenda was an effective response to critics’ charges of the failure of past efforts at financing development: it allowed the IFIs to shift significant responsibility for those failures onto low-income governments while at the same time developing new forms of expertise to respond to the “problem” of governance. In the process, institutional actors did not so much reject their earlier economic universals, as modify and supplement them through a different kind of universal: one that was broader in scope, more symbolic in character, and that combined technical and moral appeals to its authority.

These new universal standards of good governance are defined partly in technical terms. Through their use of public choice theory, Bank and Fund staff have framed the challenges of governance in universal terms, viewing them as the logical outcomes of human self-interest and the difficulties of collective action. The solution for developing states is no different from what (it is assumed) applied to industrialized states many years ago – the development of rules and institutions capable of keeping self-interested tendencies in check. The institutionalist economics literature, which has played a more important role in framing good governance policy in recent years, is somewhat more nuanced, focusing on institutional rather than individual dynamics, and paying more attention to historical and geographical variation. Yet, here as well, the problems of transaction costs and market failure are represented as universal. The 2002 WDR on institutions begins with a discussion of eleventh-century Maghribi trades, suggesting that the challenges that they faced in expanding trade, and the solutions that they found to overcome problems of information and cheating, are parallel to those faced by people everywhere today.⁴⁵

Given the prominence of such technical economic claims in the good governance agenda, how different is this standardizing strategy from that of the structural adjustment era, which also relied on technical economic universals? If we take a closer look at the kinds of universals that are being deployed through good governance policies, we find several significant differences.

The first of these differences is the broader scope of the new universals, which not only define “sound economics” but also explicitly identify the kinds of political and social institutions needed to achieve such economic goals.⁴⁶ This is a much messier and more contestable undertaking – one that runs the risk of overstepping the IFIs’ mandate. IMF and World Bank staff have worked hard to police the boundary between “politics” and “economics.” By insisting that only those institutional reforms needed to achieve economic stability or development are appropriate, they have managed the policy in such a way as to “protect [the institution’s] reputation for technical excellence, professionalism and objectivity.”⁴⁷ Yet, in practice, the move into governance issues has further blurred these distinctions. As Michel Camdessus noted in an interview,

Eventually, Camdessus suggests, staff grew more accepting of the need to move into this new terrain.⁴⁸ The 1996 IMF staff paper on governance, as well as the later staff guidelines, simultaneously argue for defining the Fund’s role in terms of the macroeconomic consequences of governance, while also noting the difficulty in clearly separating political from economic dimensions.⁴⁹ World Bank Executive Directors also noted the difficulties in separating politics from economics: as the UK Director, David Peretz, put it, “There is always going to be some ambiguity, some borderline cases.”⁵⁰

The second major difference from structural adjustment-era universals is the form that good governance standards take. Because good governance is more complex and pushes the boundaries of the IFIs’ (formally) apolitical mandates, these standards tend to be more visibly constructed, even arbitrary, and therefore contestable. Of course, the “rules” of sound economic practice are also social constructs, built up over centuries as the institutions of the market economy were developed and propagated and homo economicus was formed.⁵¹ Yet these economic norms have been black-boxed: naturalized as expert knowledge and integrated into everyday life, so that the principles of low inflation and independent central banks now appear as law-like propositions that are natural facts rather than symbolic constructions.

The principles underpinning good governance, in contrast, are less commonsensical and more obviously Western in their origins. IFI actors advocating their adoption face more vigorous opposition and are more aware of the need to actively define, construct and police the boundaries of these new governance standards. These are standards of good practice, rather than fundamental rules: they are therefore more clearly contingent in their construction, making visible their character as what STS scholars, Timmermans and Berg, describe as “local universals,” a term that emphasizes the way that “universality always rests on real-time work, and emerges from localized processes of negotiations and pre-existing institutional, infrastructural, and material relations.”⁵² As these specific, localized standards are generalized and universalized, however, they lose contact with the particular Western liberal contexts in which they were produced and become increasingly symbolic, even arbitrary.

The strategies that IFI actors have used to justify these new, more symbolic and visibly constructed standards have taken two different forms: on the one hand, as I discussed above, IFI staff have sought to justify them in technical terms through the use of public choice theory and new institutionalist economics. On the other, they have begun to justify the good governance agenda in explicitly moral terms. This moral turn may appear self-defeating in a context in which actors are supposed to be objective and apolitical. In fact, by framing good governance standards in universal moral terms, the IFIs are working to move these standards into a category that is beyond dispute – not because they are technical, but because they are universal goods.⁵³

Both Fund and Bank leaders have made strong moral claims for the importance of the good governance agenda. The quotation that begins this section makes that clear: when Wolfowitz claimed in 2006 that good governance requires “a fundamental willingness to do the right thing,” he was making an explicitly normative argument regarding the universal “goodness” of the good governance agenda. Although many of the universal moral principles being alluded to are largely drawn from industrialized, Western economies, the claim that the “problems of governance are universal” suggests that this is not a policy directed only at developing economies, but rather at a global challenge.⁵⁴ Executive Board discussions make it clear that it was important to some members that governance not be seen as “a peculiarly African problem,” but rather that “the principles and practices are universal or ought to be so.”⁵⁵

This combination of moral and technical universalism has several interesting effects: although the technical logic remains the predominant one, it is supplemented by a thicker set of universals, enhancing the basis of the institutions’ claims to legitimacy. This thicker set of universalist claims provides a more robust foundation for expanding the institutions’ mandate to include increasingly contested and politically charged areas in their programs, thus expanding the basis of their authority.

New actors and sites of authority

The shift towards broader, messier and more self-consciously constructed universals entailed in the good governance agenda has led to the enrolment of new state, market and civil society actors, and the redrawing of the boundaries that separate them. Although these new standards do intervene more closely into the workings of borrowing states, they do not seek to render local actors “docile,” to again borrow a term from Timmermans and Berg.⁵⁶ Instead, IFI staff have sought to encourage the engagement of more proactive, reflexive local actors in the process of governance: citizens and market participants who will demand better governance, and government actors who will respond. This strategy distributes the authority for governing more widely to a range of new actors, while simultaneously reconstituting them in particular terms.

One of the most striking aspects of the changes taking place in IMF and World Bank policies and pronouncements over the past decade has been their renewed interest in the state and government actors – after several decades of denigrating their role. Yet that attention has retained a certain scepticism about state actors, and a belief that their role should remain secondary to that of the market. The 1997 WDR, The State in a Changing World, carefully differentiates the renewed emphasis on the state from earlier state-led development efforts in the 1950s and 1960s. In the 1990s, the report argued, developing-country government actors could only become effective if they first pared down the role of the state by shifting some of its “burdens” to the private sector and to local communities, and made “the state’s central institutions work better.”⁵⁷

These policies seek to redistribute some governance authority by enrolling state functionaries in the development process – but only insofar as those government actors learn to behave in certain ways. The World Bank in particular has expended an enormous amount of energy over the past decades in fostering Western-style public services in borrowing countries.⁵⁸ The goal is not only to change public-sector management practices but also to transform bureaucratic actors by fostering a different kind of culture. As I will discuss in Chapter 8, in the context of results-based management, many of these efforts are inspired by new public management theory, which is based on public choice assumptions and seeks to make bureaucracies work more like markets. Drawing on these ideas, World Bank and donor staff seek to transform developing-country bureaucrats into more efficient, accountable and market-like actors.

One of the key ways of cultivating this new kind of bureaucratic actor is by creating checks on their actions, which reduces the potential for corruption among public officials – a classic concern in public choice theory.⁵⁹ These checks can take the form of rules, procedures and internal audits, but also include other actors: specifically, active citizens and other non-state actors. The World Bank has long been interested in using market actors and forces to check government action – that is part of the logic underpinning decades of privatization and efforts to build up a strong private sector. The logic behind these new initiatives is, however, somewhat different: there is a genuine attempt in the demand-side initiative to encourage both market actors and citizens to press for better governance. Civil society actors are also therefore granted a degree of authority and responsibility in the practice of fostering better governance. Yet these are citizens of a peculiar kind: “citizen-consumers” who are both consumers of basic services, such as water or health care, and citizens of a state responsible for the provision of those services.⁶⁰ Their identity as public actors is linked to their role as private consumers. The architects of the good governance agenda thus seek not only to enrol a range of new actors in the practices of governance, but also to reconstitute them as more responsible and active participants.

New techniques: governing through universals

Bank and IMF staff use a range of new techniques in their operationalization of good governance practices. Some of these are similar to techniques used for structural adjustment programs, while others are far more innovative, experimenting with ways of generating popular support for governance reforms.

Since the mid-1970s, the World Bank has relied on the CPIA to help establish the level of funds that the poorest countries receive from the IDA, the World Bank’s concessional financing facility. The CPIA translates countries’ performances in a wide range of areas into indices, which it ultimately reduces to a single numerical score: a classic technique for making disparate contexts commensurable with reference to a set of universally applicable criteria.⁶¹ The CPIA initially focused on macroeconomic criteria, but starting in 1997 the Bank introduced governance criteria into the mix, which now account for 68 per cent of the final score.⁶² At the IMF, more traditional techniques include the inclusion of governance concerns in Article IV consultations and the addition of governance conditions in stand-by agreements and concessional loans.

The good governance agenda has also led to some innovative practices. At the IMF, the chief example of this is the standards and codes initiative, which I will discuss in the second half of this chapter. At the World Bank, this kind of innovation is most apparent in the institution’s move to foster the “demand for good governance” (DFGG) at the country level, through the development of new technologies of community.⁶³

Bank staff have identified several practices as key to supporting DFGG: transparency and the dissemination of information, consultation and participation, and ongoing monitoring and evaluation. These techniques should be familiar to anyone who has examined liberal conceptions of the public sphere as a site where individuals engage in publicity (typically through a free press) and debate. Bank staff thus seek to mobilize popular support for good governance in a way that combines liberal normative assumptions about publicity and participation with public choice ideas about the need to develop checks on government excess. In the process, deliberation is transformed into a kind of thin participation that is somewhere between consumer feedback and citizen consultation.

If citizen-consumers are to act as checks on government, they need information about what government actors are doing. The Bank’s goal is not simply to engage public actors in the initial formulation of policies, but rather to create mechanisms through which they can monitor, evaluate and report on government policies on an ongoing basis.⁶⁴ For this to happen, it is necessary to gather information about the effects of those policies, to assess them against predefined indicators, and to communicate them to the public. This involves the creation of new kinds of inscriptions. These can include Doing Business indicators, a Bank initiative that scores countries on how easy it is to set up a business, complaints mechanisms, media investigations, and “citizen report cards,” in which civil society organizations grade public services.⁶⁵ Transparency, participation and monitoring thus come together, as information on service performance is transmitted to encourage public actors to “voice” their views, producing data that is in turn used to improve service delivery.

While such thin public practices could potentially spill over into thicker, more genuinely political activities, this possibility is constrained by the tendency to frame civil society actors as consumers of services first and foremost. Narrowly economic forms of consultation such as obtaining customer feedback thus come to redefine and constrain activities that might have produced more political kinds of engagement.

New forms of power and authority

Any efforts to reshape the policies and institutions of developing-country governments clearly involve power relations, whatever claims the IFIs may make to the contrary. The IMF and World Bank have always relied on a range of forms of power, from the more coercive power of traditional conditional lending to the informal power of technical advice and assistance. The incorporation of governance criteria into the CPIA at the World Bank and of governance conditions into loans at the IMF are examples of how the good governance agenda has extended the IFIs’ more traditional coercive forms of power. Yet when World Bank executive directors discussed the institution’s initial move into good governance, they were explicit about the importance of using “persuasion” rather than “constraint” as the key tool for achieving objectives.⁶⁶ Efforts to develop new standards of good governance have made the IFIs more reliant on productive, indirect and proactive forms of power.

As Barnett and Finnemore suggest, IOs like the IMF and World Bank have always exerted a kind of productive power that uses their capacity to define and categorize objects of governance in order to give them real meaning and presence.⁶⁷ The idea of good governance is a classic example of a term whose invention has had performative effects by making possible a range of practices and interventions that would not have been possible before. “Good governance” can be seen as an extension of earlier such categories, like “sound economics,” which have been used for much longer. Yet whereas calls for sound economics once defined state and market actions in largely negative terms, as a matter of deregulating and liberalizing, the category of good governance seeks to define far more explicitly – and positively – the role of government, civil society and market actors.

Thus the IFIs aim to create important changes in the organization of low-income governments and their relationship with the market and citizens by creating the conditions in which others (chiefly citizen-consumers) will demand those changes. This is a kind of indirect power that relies on information and transparency to achieve its ends. Not only is the form of this strategy somewhat unusual, but its goal is also novel, at least in the developing world: the attention to market and popular demand together with the emphasis on transparency and accountability makes it clear that the objective is to create what Mitchell Dean, drawing on Peter Miller, has described as a kind of reflexive government:

Michel Foucault’s discussions of the different forms that power take are useful here: the universalist strategy that underpinned structural adjustment operated both like a juridical rule, dictating orthodox economic practice, and like a form of discipline, differentiating normal economics from abnormal forms.⁶⁹ The standardizing practice that underpins the turn to benchmarks, standards and best practices shares with the structural adjustment era a disciplinary logic, as it sorts economies into normal and abnormal. But it also increasingly relies on a more governmental form of power, focusing on managing circulations around the norm (rather than drawing lines between what is normal and what is not), and seeking to foster a more active, self-disciplining kind of subjectivity among the bureaucratic, market and civil society actors that it enrols.

The form that power takes here is not one of domination, since the goal is not to produce docile subjects, but to enrol a wide range of actors in the process of demanding and providing better governance. Yet these less direct mechanisms still work to generate forms of exclusion and inequality. Standards may appear inclusive but, as Timmermans and Epstein put it, “every standard inevitably implies an evaluation at the expense of some other, often obfuscated, devaluation.”⁷⁰ In the case of good governance standards – and even more clearly with the standards and codes initiative, as I will discuss below – those kinds of institutions and practices of governance that have been deemed “good” are almost entirely drawn from Western, liberal, free-market societies. The patterns of inclusion and exclusion enabled by standards are therefore subtle: countries are graded and ranked, rather than simply excluded. Moreover, because their “grade” translates, through the CPIA and performance-based conditions, into different levels of funding, this ranking has very real consequences for the poorest in the world.⁷¹

A new kind of universal

The standards and codes initiative, like the good governance agenda, is a universalist strategy that seeks to promote new global standards of good political economic practice. Yet, once again, when we look closely, we find a visibly constructed universal at work, broader and more flexible than the rigid economic rules that defined the structural adjustment era.

As I discussed in the previous chapter, a particular small “i” idea – credibility theory – was highly influential when the IMF Board was debating whether and how to develop new standards of economic practice.⁸¹ Advocates of credibility theory and the time inconsistency problem argue that as long as governments are able to revise the policies that they committed to earlier, they will not be seen as credible by market actors, and will therefore find their efforts at constructive market intervention undermined; in such circumstances, the only credible alternative is for the government to relinquish much of its policy discretion and commit to binding rules.⁸² This is seen as a universally applicable axiom, since it is assumed that all rational market participants will recognize good or bad economic policy, and therefore judge the credibility of a government’s actions accordingly.

The fiscal rules paper that the IMF Board discussed was particularly explicit in its reliance on both public choice and credibility theory to justify the application of universal rules that would bind governments’ hands.⁸³ In the end, the Board decided not to adopt fiscal rules as their primary technique for fostering standardization. Yet the logic of credibility remained central even as they developed more flexible techniques for achieving their ends. Staff believed that fiscal transparency and the publication of the ROSCs would have a similar effect on credibility, by providing markets and the public with additional information on fiscal plans, reducing governments’ leeway to back-track on policies, and thus increasing their credibility.⁸⁴

Although technical expertise served as the primary grounds for justifying the universality of these new standards, this was a different universal claim from those underpinning the economic rules of the structural adjustment era. Credibility theory relies on a more contingent kind of universal from those in traditional neoclassical theory – or rather, credibility theory makes the symbolic and performative dimensions of economic universals more visible. As I noted in the previous chapter, the very acts by market participants that are supposed to be signals of objectively credible or non-credible policy actually create or undermine policy credibility.⁸⁵ For example, an inward flow of foreign capital, which is often seen as a sign that a government’s policies are credible, actually generates that credibility by providing the government with resources that enable it to keep its promises, while an outward flow of capital has the opposite effect. Similarly, the role of external experts who are often imported to play key roles in monetary institutions do not simply verify and communicate a government’s latent credibility, but actually help to create it through their presence as symbolic markers of Western economic expertise.

These standards and codes are not only more performative but also far broader in their scope than past economic norms – defining best practices in the fields of auditing and accounting, corporate governance, money laundering and terrorist financing, to name a few. In their effort to justify a move into these new domains, the IMF leadership, like the World Bank, moved beyond a narrowly technical discourse and began to frame the policy in moral terms. Horst Köhler, the managing director of the IMF during the early years of the initiative, suggested “While standards and codes deal with highly technical matters, there is nothing narrow or technical about their purposes.”⁸⁶ Michel Camdessus, Köhler’s predecessor, also suggested that universal standards could help to “civilize globalization” by creating new “rules of the game” to tame the wilder excesses of the global economy. Given the interdependent character of that global economy, Camdessus argued, “a duty of universal responsibility is incumbent upon all. Every country, large or small, is responsible for the stability and quality of the entire world growth.”⁸⁷ These new universals are therefore not only more symbolic and performative than their predecessors, but also more complex in their justification, relying on both technical and moral appeals to their universality.

More performative techniques

An interesting aspect of the standards and codes initiative is the way in which its creators sought to put the policy into practice through new and innovative techniques. The key technique at the heart of the standards and codes initiative is the ROSC. This technique was developed through an experimental process in which IMF staff undertook several case studies in a range of different countries, published their findings, and solicited public feedback. The IMF Board initially deemed these “experimental ROSCs” a success, but continued to advocate a “gradual and interactive approach” in developing the Fund’s involvement in standards.⁸⁸

As their name suggests, ROSCs are reports: they are inscriptions that seek to translate the messiness of a country’s strengths and weaknesses into a single document. They were intended to establish “best practices” in a range of areas from corporate governance to banking regulation, and to benchmark individual countries’ performance in each of these areas. Part of the goal behind these benchmarks is to enable governments to assess their own progress over time. Once the ROSCs are published, however, their role shifts significantly and credibility becomes key, as an early IMF report notes:

The role of ROSCs as inscriptions is thus not only to translate complex economic and political actions into a single document, but also to signal good (or bad) economic practice to market actors. Like the conditions I discussed in the last chapter, standards and codes are not only important because of what they are (guidelines for best practice) but because of what they signal through the ROSCs. Their value is increasingly symbolic and it is through that symbolic role that they do their most important work: IMF staff and management believed that this signalling would have significant material effects, as those interested in buying government bonds would pay attention to ROSCs and reward good economic performers with lower borrowing costs.⁹⁰

Although many policies based on credibility theory, such as fiscal policy rules, ignore or downplay the performative character of the policy, advocates of ROSCs were highly reflexive about the performative nature of this kind of signalling device, seeing the reports not simply as descriptions of an objective reality but as tools for creating the kind of self-fulfilling cycle that pushes countries towards more “credible” policies.

New actors and sites of authority

These new techniques rely for their effectiveness on the active involvement of a range of actors: not only the IFI staff who conduct the evaluations, or the member government actors who are to use the benchmarks established, but also civil society and market actors who, it is hoped, will pay attention to the ROSCs and reward good performers.

As in practices to foster good governance, information, publicity and transparency are the key mechanisms through which these new actors are to be informed and enrolled. As I have discussed elsewhere, although a policy of transparency may appear to be minimalist, its objectives are not.⁹¹ Take the two data standards discussed earlier: although the SDDS and the GDDS seem highly specialized and technical, they are important for several reasons. They frame the problem of economic governance in terms of the quality of information. They also seek to constitute a particular capacity to obtain and communicate that information, particularly among emerging and developing countries.⁹² And in providing that information they also hope to influence not just the actions of government, but also those of civil society and market actors, by providing them with the information that they need to keep the government in check. This same logic underpins the other standards and codes. As the introduction to an early draft of the code on fiscal transparency put it:

The standards and codes initiative thus seeks, like the good governance agenda, to redefine the relationship among state, market and public actors. Here again we see a new emphasis on the demand side of governance, and an effort to redistribute some governance authority based on the belief that market and public actors can pressure governments to act in certain ways. Although one might argue that these assumptions about the superior rationality of the market and the public are rather naïve, it is important to note that the goal of fiscal transparency is not simply to rely on existing public actors but also to educate them about the budget, thus constituting a more informed and active public citizenry. This belief in the importance of external scrutiny is key to the particular form of power that the standard and codes initiative relies on.

More indirect power

What is perhaps most striking about the standards and codes initiative is its almost exclusive use of indirect forms of power. Although there were wide-ranging debates both within and outside the IMF about whether the new standards and codes should be mandatory or voluntary, those who believed in the power of peer pressure ultimately won the day.⁹⁴,⁹⁵ Underlying this informal strategy was the assumption that it was in states’ interest to adopt the new standards and codes. Thus, Köhler argued, “While it is still early in the game, there is already evidence that meeting standards can pay off,” as investors reward good behaviour with lower borrowing costs.⁹⁶ No need for the IMF or World Bank to use the blunter instrument of conditionality to achieve their desired goals.

The forms of power involved in making the standards and codes initiative work are also clearly productive: the goal is not simply to make government actors behave in certain ways, but to give them new tools – statistical capacities, best practices and benchmarks – to enable them to see and calculate their actions and objectives in new ways. In Michel Callon’s terms, the strategy is one that seeks to generate a particular kind of economic society by fostering new calculative capacities.⁹⁷ This is therefore also a proactive strategy: while transparency is partly an end in itself, more importantly it is a means to encourage market and civil society to pressure governments to achieve longer-term goals of economic policy change.

Who gets to decide what count as “best practices” of fiscal and monetary policy? As the initiative’s critics – academics, NGOs and emerging market leaders – were quick to point out, the process for establishing these news standards was exclusive, and largely based on Western, free-market principles.⁹⁸ Moreover, as Ilene Grabel notes, although scholars and policymakers generally insist that credible policies (low inflation, low taxes, minimal government involvement in the economy) are timeless and universal, they are instead based on neoliberal values, and tend to support a particular set of economic interests. The process of fixing these particular economic values as the standard also devalues alternative forms of political and economic policy as non-credible and therefore not viable.⁹⁹ Although the mechanisms through which these valuations of better and worse policy are therefore far subtler than a fiscal rule or strict conditions, their effects are nonetheless to grade and rank country practices according to Western norms.

Small “i” ideas

Economists’ and policymakers’ attention to the role of external factors in determining poor countries’ economic success is in sharp contrast with earlier reports like the 1981 Berg Report discussed in Chapter 3, or the 1989 report on sub-Saharan Africa discussed in Chapter 6, both of which blamed most of LICs' difficulties on their own economic mismanagement and poor governance.³¹ This does not mean that these new policies ignore the role of domestic institutions. Instead, economists and policymakers have begun to study the interaction between internal institutional factors and external economic pressures – hence the continual emphasis on countries’ “capacity” to manage risk. Those economists whose work inspired and justified these new policies – including Collier, Acemoglu and Rodrik – all draw on institutionalist economics and public choice theory in order to explain the central role of institutions in determining countries’ vulnerability to external shocks.³² Acemoglu, for example, draws on a public choice conception of political institutions to argue that weak property rights and rule of law, and lack of social entitlement, allow self-interested elites to expropriate resources from the economy, producing increased economic volatility.³³ Both Collier and Rodrik, in different ways, link institutional factors to vulnerability to external shocks, Collier focusing on macroeconomic structural factors, and Rodrik emphasizing the importance of political institutions for managing social conflict.³⁴

Several things are worth noting about the influence of these two small “i” ideas – new institutionalist economics and public choice theory – in the development of IFI policies on risk and vulnerability. First, these policies clearly continue the trend that I have discussed throughout this book of bringing institutions into the heart of development thinking and practice at both the World Bank and the IMF. Yet the way that they do so is also distinct from the good governance and ownership strategies discussed in previous chapters. Whereas these other strategies sought explicitly to act on and change institutional practice, the risk and vulnerability assessments have a more minimalist approach – using institutional capacity as a criterion for allowing extra borrowing and only very indirectly seeking to influence institutional quality. This minimalism is reinforced by the reliance on the CPIA as a technical proxy for institutional strength, as the messiness of good-quality institutions gets translated into a single number – the ultimate “black box” in Michel Callon’s terms.

The IFIs’ increased recognition of the role of institutions and their acknowledgement of the risks and vulnerabilities faced by poor countries indicates a growing awareness of the complexities of governance efforts. Yet the very thin way in which IFI staff have understood these concepts works to domesticate the difficult and the unknown, making it tractable, if not fully predictable.

Actors

All three policies seek to engage LIC actors more fully in managing their own risk and vulnerability, and differentiate more clearly among various categories of low-income countries and their respective capacities. The vulnerability assessment exercises are designed to provide LICs with better information to enable them to take “pre-emptive policy action to reduce vulnerabilities.”³⁵ By increasing the flexibility of the limits on external borrowing by LICs, IMF staff are even more ambitious about encouraging a more active role by low-income governments, noting that “over time, an increasing number of LICs would be expected to move to the more flexible and sophisticated approaches as their macroeconomic and public financial management capacity improves.”³⁶ They thus seek to shift more of the responsibility and authority for managing debt portfolios to “capable” LICs.

This emphasis on different capacities is nonetheless worth noting: low-income countries are to play a bigger role “as their macroeconomic and public financial management capacity improves.” These new policies on risk and vulnerability not only seek to involve some LIC actors in the process of government, but they also seek to sort them according to their capacity to do so. One of the defining features of all three of the policies discussed here is their attention to the question of how to differentiate between low- and high-risk countries, between those who can borrow what they need and those who cannot. Not only do these policies therefore seek to enrol more active participants in financial governance, but they also work to discriminate between those more and less able to take on this new role. This new strategy to govern risk and vulnerability therefore involves a reconceptualization of the ontology not only of the global environment but also of individual actors themselves.

Techniques

These new policies on vulnerability and risk seek to pre-empt or prevent the worst from occurring, all the while preparing for it, just in case. The debt sustainability framework is “aimed to help countries monitor their debt burden and take early preventive action” before it becomes unsustainable.³⁷ The vulnerability exercises are similarly designed to be “pre-emptive,” allowing IMF staff and country authorities to address underlying vulnerabilities before they become too serious.³⁸

Particular kinds of techniques are required to act pre-emptively in the face of such unknowns. The first set of techniques imagine the possible risks that could arise; in both the DSAs and the vulnerability exercises, this is done through “scenario analysis,” a process that involves projecting possible futures with a range of different degrees of volatility. The vulnerability exercises in particular include assessments of “tail risks” – highly unlikely but extreme events that were largely ignored until the 2008 financial crisis.³⁹ As Marieke De Goede has argued, this kind of scenario analysis is a form of “premediation” in which policymakers seek to imagine and prepare for extreme unknowns.⁴⁰ The second set of techniques evaluate countries’ vulnerabilities to such shocks and translate these assessments into inscriptions to guide policy, including various scores that identify countries as lower or higher risks (of course, these scores depend in turn on prior inscriptions like the CPIA).

The third set of techniques for managing risk and vulnerability bear important resemblances to ones discussed in earlier chapters: techniques for monitoring and communicating countries’ levels of vulnerability. In all three of the policies discussed here vulnerabilities are monitored on an ongoing basis. In the case of the vulnerability exercise, regional assessments are published while country-specific information is shared only between the IFI and the country, for fear that the markets might overreact to a negative assessment. For the two debt assessment policies, on the other hand, the evaluation process is very public: countries’ DSA scores are communicated widely to donors, IOs and market actors.

These are highly symbolic practices that parallel both ownership and standardization strategies by emphasizing the signalling power of risk assessment scores. As the IMF’s factsheet on the DSA notes, “The effectiveness of the DSF in preventing excessive debt accumulation hinges on its broad use by borrowers and creditors.”⁴¹ The goal is to get as many lenders as possible to use DSA ratings in their decisions about whether and on what terms to lend to LICs.⁴² DSAs are thus performative inscriptions: they not only signal better or worse country conditions, but in doing so mobilize key actors to act on the basis of these signs.

Power and authority

IFI staff and Directors’ efforts to engage LICs more actively in managing their own risks and vulnerability, as well as their attempts to encourage donors and other lenders to use key inscriptions like the DSA, both point to indirect and productive forms of power. As one senior IMF staff member put it, the goal of the IMF’s new ranking system is to encourage countries to deal more effectively with their debt through “peer pressure” – a technique that mirrors the logic behind the standards and codes initiative. In fact, IMF staff hope that the publication of the IMF’s risk ratings will work the same way as the World Bank’s “Doing Business” index, to which low and middle income countries pay very careful attention, trying to move their way up the rankings.⁴³ This is a very indirect form of power: IFI staff seek to change behaviour by publishing information in a highly stylized form, creating a tool – a way of assessing and sorting LIC economies – that others can use. Although the ultimate goal is to foster more responsible behaviour by LICs, the means to that end is through the decisions of other actors who, it is hoped, will lend more to good performers and less to poor ones.

These assessments are a perfect example of expert authority: they are highly technical; they translate complex political and economics realities into a set of simplified ratings; and they are carefully justified through staff’s repeated emphasis on the objectivity and neutrality of the processes involved.⁴⁴ These new policies clearly work to re-establish IFI staff authority as experts on risk and vulnerability in the wake of the crises of the late 1990s and 2000s. Yet these new policies also seek to distribute that authority more widely: by enrolling “good” low-income governments in managing their own vulnerabilities and by encouraging donors, IOs and other lenders to use the rankings in their decisions about countries’ credit-worthiness.

This is not a zero-sum process where IFIs lose ground to other actors, but rather a more complex way of reorganizing the authority to govern.⁴⁵ For example, although Fund staff and Directors recognize that their new borrowing limits will reduce their more direct influence over many LICs, they also note that “the gate keeping function has led to the perception that the Fund is an obstacle to financing for development;” shifting that function to capable LIC governments will therefore increase the institution’s legitimacy.⁴⁶ The staff also note “This is why it is critical that these options be used only in countries with high capacity.”⁴⁷ In other words, this authority can only be shared with the “right” actors – those already demonstrating similar priorities and practices as the IFIs themselves. The legitimacy of this strategy for managing risk and vulnerability, like the other governance strategies discussed in this book, thus rests on a particular combination of expert and popular authority. The goal is ultimately to disseminate the expertise embodied in these ratings so that a wide range of non-IFI actors, including the low-income governments themselves, can play a more central role in the governance process.

This less direct form of power is in stark contrast to the institution’s traditional “gate keeping” role: in the past, governments were forced to comply with the Fund’s determination that they were not in a position to borrow externally if they wanted IMF financing.⁴⁸ Even as the IMF’s own resources constituted a smaller proportion of official assistance over time, this gate-keeping role hugely leveraged their influence over borrowing countries’ financial activities. Yet, the institution has not entirely given up this tool – merely reduced its scope to those countries as yet “incapable” of taking on this role for themselves. A country’s rating has some very direct consequences: a higher-risk rating means that the IMF retains its gate-keeping role, limiting the opportunity for a government to borrow, effectively reducing their ability to invest in social and physical infrastructure.

More subtly, these various vulnerability assessment processes are all tools for differentiating – discriminating – among LICs. While this is not a black and white, inside and outside form of exclusion, it nonetheless operates as what Giorgio Agamben has called a form of inclusive exclusion.⁴⁹ Some are excluded from the possibility of additional borrowing by virtue of their location at the very bottom of the ranking system; yet they are still a part of that system – the least capable against whom better performers are compared.

Small “i” ideas

This new approach to poverty as social risk is underpinned by new institutionalist economics. From the late 1980s until the mid-1990s, more narrowly neoclassical schools of thought dominated macroeconomic thinking at the Bank and the Fund. These theories assumed perfectly efficient markets and rational individuals, and generally concluded that most governmental interventions in the economy were counterproductive. As I discussed in Chapter 4, although institutionalist economists remain within the neoclassical tradition, they focus on what causes market failure. Rather than assuming that market-based solutions are necessarily the most efficient, institutionalist economists emphasize the centrality of institutions in reducing transactions costs and making markets work better.

Both advocates of pro-poor growth and of the new approaches to social protection see poverty as a sign of market failure: the fact that poor people do not have access to the benefits of the market, such as credit and jobs, is an indication that the market is not working properly. Even with increased growth, distortions in the market may persist, making it unlikely that growth alone will reduce poverty. Viewing poverty in terms of market failure legitimizes poverty reduction efforts as central to broader economic development: making markets work better for poor people also ensures that markets work. New institutionalist insights thus allow development experts to dig deeper into the causes of poverty without challenging the underlying liberal assumption that the market is the ultimate solution.

Techniques

Reconceptualizing poverty as a process in time also enables (indeed requires) a new set of proactive governance techniques. It becomes necessary not only to identify those most vulnerable, but also to discover the greatest risks that they face, and develop strategies to deal with shocks long before they have occurred. Those seeking to redefine the Bank’s SPS in the late 1990s discovered

This new conception of poverty as risk required new measurement techniques – and new ways of translating those measurements into useful inscriptions for policymakers. Among the key techniques that the Social Protection staff developed for this task were the risk and vulnerability assessments (RVAs). Between 2000 and 2007, World Bank staff undertook 132 country-specific RVAs.⁹⁰ These assessments sought to deliver a comprehensive picture of potential shocks, government, market and community actors’ vulnerabilities, and their current risk management strategies. In theory at least, this four-dimensional map (time is also a necessary factor) can be used to develop more nuanced, targeted interventions to alter the movement of people into and out of poverty.

The examples of social protection policies discussed above all seek to engage more proactively with the target populations, to promote the right kind of practices and to pre-empt undesired outcomes. Hence labour-market policy is no longer only focused on reducing barriers to labour-market flexibility (the classic neoliberal strategy), but is also increasingly focused on fostering a better-trained, more work-ready population.⁹¹

Actors

Poor individuals themselves are one key group of actors who are now more directly enrolled in managing risk. The social risk framework not only treats poverty as a more dynamic phenomenon but also views the poor themselves (or at least some of the poor) as more active participants in reducing poverty.⁹² The goal is to provide them with resources and incentives to prepare for and prevent risks (through better education, small accumulations of savings, etc.) and to manage risks more effectively when they do occur (e.g. not remove their children from school).

Poor individuals are not, however, the only actors in this new approach to reducing poverty. The policy also seeks to enrol government, civil society and private sector actors into the process of managing social risk. The prevalence of covariant risks that affect a broader population simultaneously, and the problems of market failure, mean that individual and market-based risk management is not enough. While there is therefore a role for the public sector, the government is seen primarily as a means to “supplement” existing private and individual risk management strategies rather than replace them:⁹³

Who are the actors involved in these various “risk management arrangements”? New institutionalist economics provides a particular lens for understanding and engaging with both institutional and individual actors – one that blurs the boundaries between public and private, state and market, and that sees them largely through the lens of service provision. These actors are both public and private (and sometimes both at once): they are private sector actors providing insurance; they are individuals and families demanding protection and developing new forms of self-insurance; they are actors at various levels of government providing traditional forms of social protection; and they are NGOs, acting as service providers and as advocates for better risk management. What matters is not where they are, but what they do.⁹⁵

The social risk framework reconceptualizes the relationships among these actors through a range of different market-based metaphors, such as competition, supply and demand:

As one passage from the 2000–1 WDR notes, “This is not an issue of the state versus the market, but of the use of different agents and mechanisms depending on the type of activity.”⁹⁷ These heterogeneous social actors are represented in very similar terms as parts in a larger, more social or even political kind of market mechanism, in which individuals, NGOs, communities, IOs and others can act as a source of demand for risk management, as well as being sources of its supply.⁹⁸

Power and authority

The techniques involved in managing risk and vulnerability rely as much on productive as on exclusionary forms of power. The goal of this kind of policy is not just to reduce poverty, but also to constitute a new kind of low-income individual, better capable of managing risk and thus able to gain and sustain a better quality of life.⁹⁹ Bank staff are themselves keen on the productive and proactive aspects of this new poverty-reduction framework.¹⁰⁰ In their 2009 review of social protection, staff note, “The productive, as opposed to the redistributive, role of safety nets is becoming more recognized.”¹⁰¹ Moreover, the concept note and the consultations for the new 2012–22 SPS places even more emphasis on the importance of promoting more resilient communities and individuals.¹⁰²

Risk is a category rather than a thing: it is a way that we make the world calculable in particular kinds of ways. Risks are beyond our control and yet also very much subject to our understanding: a risk by definition is something that can be understood through a logic of probability (as opposed to uncertainty, ambiguity and other kinds of indeterminacy).¹⁰³ Risk-based policies are well suited to the productive application of power, particularly in the context of a market economy, in which risk is never viewed as an entirely bad thing. According to the World Bank, risk is an essential tool for understanding poverty, not only because shocks can wreak havoc with efforts to raise incomes (risk as a bad thing), but also because as poor people find themselves with fewer tools for managing risks, they are less likely to undertake riskier activities, and thus forgo the potential gains that they might make (risk as a good thing).¹⁰⁴ Risk is thus understood as a double-edged problem: it is not universally bad, but needs to be both mitigated and exploited through careful policy interventions.

As with the policies discussed earlier, the social risk framework relies on a combination of expert and popular authority to underpin its legitimacy. It is not just IFI experts or government bureaucrats who are responsible for applying this new understanding of social risk, but rather a range of public and private organizations, and the poor themselves, who are to take on a more active role in reducing their vulnerability and managing risk. We therefore see a similar process of distributing both expert and popular authority to a wider range of “capable” actors as we witnessed in the debt vulnerability assessments discussed above.

The fact that these forms of power are productive does not make them any less exclusionary, however. As a number of social policy analysts have pointed out, even as the social risk framework engages a wider range of poor people in the process of managing risks, it also tends to neglect those less capable of such active self-governance, leading policymakers to downplay the problems of the chronically poor.¹⁰⁵ The strategy’s emphasis on shocks also leads staff to de-emphasize subtler sources of vulnerability, such as those associated with gender, class, ethnicity or other more structural fault-lines.¹⁰⁶ More fundamentally, the framework’s tendency to define poverty in absolute rather than relative terms (downplaying inequality) and to view poverty reduction as a “win-win” policy, means that more politically difficult, structural solutions to poverty tend to get short shrift.¹⁰⁷ While these new policies on risk and vulnerability may take a less direct approach to their objects, they are therefore no less powerful in their effects – both intended and unintended.