The World Bank and the rule of law debacle

This essay serves as a theoretical inquiry into the questions that have surrounded the long-standing debate about law and economic development. There is a resounding ambivalence, controversy and vexation embedded in the existing literature. Disparities in prevailing views are hotly contested and are more in the nature of systematic inquiries into the lingering questions that puzzle this area rather than proposed resolutions.  For purposes of the present discussion, two competing polarities will be explored; each presenting extreme ends of the policy spectrum within which suggestions for “theories” of law and economic development have evolved.

The two “vernaculars” referenced above explore the policy questions that underpin the discourse from a legal and an economic standpoint. The following discussion will be an appraisal for the skepticism leveled against the so-called Washington Consensus through the perspective of the role of the rule of law within the World Bank in the seminal paper by Alvaro Santos.[1] In turn, the discussion will present a critique of the theory of Adam Smith as a singular expression of the development paradigm from an economic perspective.[2] In doing so this paper will attempt to highlight whether development viewed through this bilateral lens excludes other vital perspectives equally pivotal to any theory of development. This latter notion is concurrent with the contention that the very idea of development itself remains embedded in a deep-rooted controversy.

Turning first to the paper by Alvaro Santos; it is seen as a detailed critique of the neo-liberal paradigm; bred by Washington and epitomized through its market fundamentalist rhetoric. This critique is brought to bear specifically on the workings of the World Bank, one of the International Financial Institutions that have characterized the Washington Consensus. We will display a leaning propensity in favor of the arguments presented by this critique as it serves to highlight the resurgence of the paradox of the capitalist dogma reflected through the entrenchment of an exclusionary ideological structure that has kept the developing world at the periphery of development strategy.

What Santos suggests is a paradoxical devaluation of the doctrine of the rule of law within the structural framework of the Bank to conceal a self-interested and “self-reinforcing” motivation for reform. He identifies four conceptions of the rule of law – institutional and substantive conceptions on the one hand and instrumental and intrinsic conceptions on the other. He correlates each of these conceptions to the works of prominent jurists in order to establish their prominence in contemporary legal theory. He finds support for the institutional conception particularly in the works of Joseph Raz[3] who felt that the rule of law was synonymous with the efficacy rather than the content of legal rules. Santos alludes to Max Weber amongst others for a classic formulation of the instrumental version of the rule of law in Weber’s work on the relationship between “rational law” and economic development.[4] He refers to A.V. Dicey[5] and Amartya Sen[6] who exemplify the intrinsic version which is a conception of the rule of law as a goal in its own right. For a substantive conception Santos turns to Hayek who regards the rule of law as a system that articulates a free market economy.[7]

Through this seemingly detailed conceptualization of the rule of law phenomenon Santos seeks to permeate the internal institutional structure of the World Bank that has used these conceptions as an ironic tool of exploitation. Santos highlights how the Bank has not only extended its mandate into ‘political’ areas strictly outside its mode of operation but how the rule of law has paradoxically provided the “shield” for it to do so. The latter has come about through a commingling of a substantive framework with an institutional one. While the Bank’s mandate was devised to function on an institutional level the Bank by not placing itself in any one clear conception of the rule of law has allowed itself to enlarge its scope into otherwise “untenable” areas. Parallel to this discrete permeation into a substantive framework Santos notes that there has been a “shift in emphasis from an instrumental to an intrinsic version of the rule of law that has not necessarily correlated to a shift in the Bank’s projects.”[8]

Santos contends therefore that it is through this lexical creativity that the World Bank has been able to attract reputational appraisal for its legal and judicial reform projects despite their questionable utility. He argues that empirical evidence has not been able to establish any discernable, meaningful link between these projects and economic growth. The rule of law is thereby reduced to a mere rhetorical tool used to facilitate what Santos refers to as the “problematic continuation of these projects.”

Inherent in this submission is thus a resonance to the original contention that the World Bank has pursued a “self-reinforcing” agenda through a well-insulated philosophy upholding the practicality of its legal and judicial reform projects in fostering economic growth in developing countries with no concrete proof of actual growth on the ground.

It is submitted that this philosophy is paradigmatic of the western dominance in the contours that have shaped development strategy over the less influential south. It is this conclusion that the present discussion seeks to support as the tragic failure of any ‘development’ policy or strategy reflected through a vivid insight into the workings of one of the financial giants of the Washington Consensus. In providing such support, we seek to illustrate the shortcomings of the other developmental strategies or theories that have only been able to perceive this debate through an essentially limited perspective in conceiving it to be situated primarily in one discipline alone.

The paradox of the developmental strategy as portrayed by the Santos paper to which this discussion lends allegiance is thus the ideology of the powerful north that perpetuates a “false consciousness” of what is development and what is in the interests of the much weaker south. It asks the question as to whose standards are being used to define a conception of the rule of law within development strategy? Moreover, as David Kennedy[9] has argued, what laws are we talking about? This paper seeks to extend this inquiry into questioning what processes put the so-called legal regimes in place in the first place? Are these processes in themselves de-limiting of development even before we arrived at the law?

The answers to these questions are neither apparent nor necessarily linear. They remain entrenched in a heated debate that, as is contended above, seeks to exclude the developing world to the periphery of development by a self-executing arrogance cloaked in the wishy-washy justifications that are extended as strategies that support the interests of the developing south. Such arguments also form part of a vast array of literature sparked off by the contested failure of the one-size-fits-all approach of the Washington Consensus.[10]

Therefore, if the critique of the Washington Consensus is taken to be representative of the thesis of a development strategy in law and economic development – this paper for the remaining discussion will attempt to argue that the resounding affirmations of the capitalist ideology present the antithesis within this vernacular. The classical political economic theories of the mid-eighteenth century are paradigmatic of this latter standpoint. An evaluation of these theories will be focused on the discussion of the work of Adam Smith[11] that presents the epitome of irony in attempting to elucidate the “enigma of the extremes of wealth and poverty.”[12] It will be contended that any inherently capitalist theory or philosophy attempting to discern the complexities between wealth and poverty presents itself as an oxymoron. Moreover, it will be argued that any such economic theory of development is necessarily exclusionary of all other facets of a developmental ideology that shape the typology within this complex debate and to confine it as such is to get but one lop-sided perspective.

Central to Smith’s theory of competitive capitalism and growth is the notion of what he calls “the invisible hand.” Today, this is simply referred to as “the forces of supply and demand working to attain equilibrium in a perfectly or neatly competitive economy.”[13] Smith argued in favor of a “harmony of interests” between consumers and producers driven by a “self-interested” motivation that Smith believed lead to “higher levels of economic welfare.”[14] He contended that competition within the market system would provide the necessary “counterweight” with which to regulate this self-interested behavior of consumers and producers. Moreover, from an economic development perspective Smith “stressed the importance of the division of labor and the law of capital accumulation as the primary factors contributing to economic progress or, as he termed it, to the ‘wealth of nations.’”[15]

Therefore, Smith celebrated the notions of accumulation of physical capital, technological progress, specialization of labor and free trade as the ultimate conceptualization of any theory of economic growth or development. It is contended that in doing so, he presented the archetype of the inbuilt fallacies that are an inevitable conclusion of any such theory of development strategy. These fallacies take the shape of what maybe outlined as two main critique of the Smithsonian paradigm.

Firstly, although Smith argues otherwise, it remains highly questionable whether regulation of selfish behavior by the forces of competition is either plausible or even realistic – can this be practically achieved? The question compels us to force any answers in the affirmative to the realms of nothing but idealism. Secondly, Smith ironically contradicts himself when he expounds the virtues of the division of labor in leading to an   increased profit-making exercise for producers – something on which he based his free trade philosophy.

It is this enhancement of ‘a’ particular group/segment in society that has formed the basis of critique of this entire discussion. We have constantly attempted to question and analyze whose interests are being served by the definition and development of particular standards. The allegations have been channeled towards the formulation of a unilateral view of these standards characterized through the dominant ideology of the powerful west. This may thus be seen as emblematic of the critique of the neoliberal paradigm discussed earlier.

What we conclude from Smith’s pronouncement of an economic theory of development strategy is that it seems to exacerbate the perils inherent to the neoliberal agenda in propagating the contentions of free trade and market access that are dubiously claimed to serve and ‘save’ the developing world. In doing so it represents the opposing end of the policy spectrum referred to in the opening remarks of this paper and thus serves as a vivid illustration of the ‘other side’ to the two fiercely competing polarities that have formed the subject of the present discussion within the discourse of thinking about law and economic development.

To revert to the theoretical inquiry with which we started; it maybe submitted that what we have explored is an exposition of two conflicting perspectives within the vexatious literature that epitomizes the debate at hand. On the one hand we lent support to authors such as Alvaro Santos who recognize the inbuilt paradox of the exclusionary nature of development strategy reflected through the powerful rhetoric of dominant ideology that has long shaped the contours of the philosophy and thinking of law and economic development.  On the other hand, we examined authors such as Adam Smith; who in failing to recognize the self-interestedness of the dominant ideology propounded views that became exclusionary of the development strategy itself in so far as they pushed an entire perspective to the periphery. These latter views were in fact outlined as the driving force that fuel the existing coercive capitalist ideology deemed responsible for controlling the development agenda through a self-reinforcing exercise.

It maybe asked if synthesis can ever be reached to these respective thesis and antithesis. In hoping for such synthesis there will be an inevitable danger of standing at the door of idealism; something Wayne Morrison[16] alluded to as the “dream of reconciliation” when speaking of Marx’s hopes for a socialist state. Any answers must await the unfolding textures of a continuing and challenging debate.

[1] Alvaro Santos, The World Bank’s Uses Of The “Rule of Law” Promise In Economic Development, in The New Law and Economic Development A Critical Appraisal, David M. Trubek and Alvaro Santos, Cambridge University Press (2006)

[2] Adam Smith, in The Process of Economic Development, James M. Cypher and James L. Dietz, 2nd edition (2006)

[3] See Joseph Raz, The Rule of Law and its Virtue, 93 Law Quarterly Review 195 (1977)

[4] See Max Weber, Economy and Society (1968)

[5] A.V. Dicey, The Law of the Constitution (10th ed., 1959), p. 188

[6] See generally Amartya Sen, Development as Freedom (1999)

[7] Friedrich Hayek, The Road to Serfdom (1944), p. 80-96

[8] Alvaro Santos, The World Bank’s Uses Of The “Rule of Law” Promise In Economic Development, in The New Law and Economic Development A Critical Appraisal, David M. Trubek and Alvaro Santos, Cambridge University Press (2006)

[9] See David Kennedy, Laws and Developments, in Law and Development: Facing Complexity In The 21st Century, Essays in honor of Peter Slinn, Edited by John Hatchard and Amanda Perry-Kessaris, Cavendish Publishing Limited (2003)

[10] See generally J.E. Stiglitz, The Post Washington Consensus Consensus (Paper)

[11] Ibid. See also Adam Smith, The Wealth of Nations (1776)

[12] Cypher and Dietz, The Process of Economic Development (2nd ed., 2006)

[13] Cypher and Dietz, The Process of Economic Development (2nd ed., 2006)

[14] Ibid

[15] Ibid

[16] See Wayne Morrison, From the Greeks to Post Modernism, Cavendish Publishing Ltd (1996)

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