The nascent Asian Infrastructure Investment Bank (AIIB) and the World Bank are similar in that they are supposed to support developing countries with instruments such as low-interest loans and technical assistance.
Advanced economies like Germany, Australia and the UK are hoping to use their participation in the setting up of the governance system of the AIIB to ensure that the decisions the bank makes are arrived at in a multilateral, transparent and accountable manner, without being controlled by any one party. The US has also requested that the UK help in ensuring the AIIB’s governing mechanisms are transparent.
Less advanced countries such as Malaysia are hoping that the bank will be lenient, and will favor sustainable and equal economic development in an even-handed way.
Taiwan’s Minister of Finance Chang Sheng-ford (張盛和) laid his emphasis on the idea that the AIIB and the “One Belt, One Road” policy would mean cross-strait business opportunities worth US$8 trillion over 10 years and be beneficial to regional trade.
Regarding the problem of transparency, Chang has responded in a cursory manner, amply demonstrating that those responsible for decisionmaking at the highest level in this nation have no idea of how Taiwan might exercise some influence over the way this bank is to be run.
Chang would have the public believe that the AIIB will bring all kinds of contracts flooding in. If it is felt that Taiwanese contractors are not up to the job, the hope is that China will take care of them and spare them from free competition.
British Chancellor of the Exchequer George Osborne holds a similar view to Chang’s. Despite objections by its consistent ally, the US, Osborne has decided to have the UK throw in its lot with the AIIB, announcing the reasons for this decision as the promotion of Anglo-Chinese economic relations and encouraging China to invest in nuclear energy in the UK to the tune of several tens of billions of British pounds, while China has undertaken to establish the first Chinese yuan clearing center outside of Asia in London.
Osborne’s explanation is very straightforward, but he is mainly adhering to the Conservative Party’s neoliberal mindset of attracting private investment to invest in infrastructure within the country and to reduce the tax burden on British citizens.
The US government sees it very differently. According to the Washington Post, the US government suspects that the Chinese government seeks to use the AIIB to secure contracts for state-owned companies, and to thereby gain economic benefit through unfair competition.
As far as the running of the AIIB is concerned, major countries in the West are focused on ensuring decisions are made multilaterally. According to the international media, Western countries are currently negotiating with Beijing on issues such as who will receive aid and the procedure for awarding contracts, in order to prevent China from directly interfering with the bank’s decisionmaking.
The US’ influence in the World Bank extends beyond the 17 percent of the vote it enjoys: It lies more in the free market competition mechanisms and ideas that it has instilled therein.
The World Bank has transparent mechanisms for how aid is allocated, how contracts are awarded, which consultants are employed and what is expected of the countries that receive financial aid. On the surface these mechanisms appear objective, professional and neutral.
However, due to the US’ soft power, they are influenced by US values at a profound level. The majority of economists working at the World Bank were educated in the US, and they have been heavily influenced by neoliberal theory. Under the World Bank, economists all over the world have adopted neoliberal social and economic policies, and through methods such as suspending loans, have forced developing countries receiving aid to stop subsidizing utilities and agriculture, to remove import tariffs and to privatize industry.
None of this takes into account the particular socio-economic context of the developing countries, and is ideologically driven by the dogma of deregulation and privatization, all of which enables the US to gain economic benefit from market deregulation. It is when the elites of these countries accept the free market and the free flow of capital to conform to the best interests of all parties, that they seamlessly contribute to the maintenance of US interests.
Meanwhile, the developing countries that are receiving aid are paying a high price for the World Bank funds. Nobel laureate and former World Bank chief economist Joseph Stiglitz has frequently blasted the bank for following erroneous policies that are failing the citizens of developing countries.
Stiglitz has conducted in-depth studies of the successes of the governments of East Asian countries such as China and Taiwan in their active intervention in the market. He has concluded that deregulation and privatization are merely tools, not ends in themselves, and that the focus should be on policy in the particular context of individual countries.
He also believes that the direct privatization of state monopolies often has a negative impact on efficiency, and that blind deregulation can be detrimental to long-term social and economic stability.
Even research by the World Bank’s own Independent Evaluation Group has found that fewer than one-tenth of borrower countries enjoyed sustained economic growth in the period 1995 to 2005, and that the vast majority of these countries had fallen into economic strife and poverty.
It remains to be seen whether China — with its tight capital controls, high degree of market intervention and “I’ll scratch your back if you’ll scratch mine” political culture intertwined with market interests — actually commands the ability and influence to promote a transparent AIIB that reflects its own governing values.
However, Taiwan, with its successful record on government market intervention, can benefit in two ways.
First, it could consider what it can contribute to the setting up of the AIIB’s governing system through its own experience, and exert its own influence in arguing for an alternative to the World Bank model that could be of benefit to developing countries.
Second, it should look at the debate over the AIIB’s governance mechanism and reflect on the negative long-term impact that unconstrained market forces could have on socio-economic development at a time when the government in recent years has been following rudderless deregulation and privatization policies, and it should then amend its policies accordingly.
Chang Ching-chun is an associate researcher.
Translated by Paul Cooper
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