Behind the Development Banks

This book is about how American politics affects the multilateral development banks—or “the banks,” for short. The best known of these is the World Bank, but several regional banks that are smaller play the same role.

The banks are very influential. Their loans and grants give governments around the world incentives to do certain kinds of things and not do other kinds of things. For example, when lots of loans are available for building dams, it is easier for developing-country governments to build dams. The banks also give loans for policy reforms. The most famous example is the World Bank’s “structural adjustment” program that started promoting free-market policies in the 1980s.

The banks also have a big intellectual influence. The World Bank’s publications set the tone for debates in the world of development experts. If you are a development economist, you may disagree with the World Bank’s position on a particular issue, but you can’t ignore it.

In addition to being influential, the banks are controversial. One of the most common criticisms is that they give bad advice. Some people say the World Bank is partly to blame for some major policy failures of the 1980s and 1990s, when many developing county governments deregulated their economies with the help of structural adjustment loans. Another common criticism is that the banks are ineffective, and try to accomplish too many things at once.

Most of these critiques are aimed the banks themselves, blaming either their management or the many economists who advise them. In contrast, I think that we should start looking more at the role of the “shareholder” governments that own the banks. My book argues that since the 1980s, the United States government has been an “activist” shareholder, and has a played a huge role in the banks’ activities and ideas.