To what extent is the World Bank an actor, an ‘autonomous variable’ in the international system?footnote1 Or to what extent are its objectives and approaches the mere manifestations of competition and compromise among its member states? Several writers have argued that the Bank has a relatively large amount of autonomy—from the state interests of its overseers, and that its staff have some autonomy from the senior management. They have traced this autonomy to variables such as ‘lack of clarity of the priorities of organizational objectives’, ‘the difficulty and complexity of accomplishing the organization’s mandate’, ‘bureaucratized structure’ and ‘professionalism of staff’.footnote2 But there is something strangely bloodless about this approach. It manages to discuss autonomy without conveying anything of the political and economic substance of the field of forces in which the Bank operates. By focusing only on morphological variables like ‘professionalism’ and the ‘complexity of accomplishing the organization’s mandate’, it misses other variables like ‘correspondence of organizational actions with the interests of the us state’. If the Bank is propelled by its budgetary, staffing and incentive structures to act in line with those interests, the us state need not intervene in ways that would provide evidence of ‘lack of autonomy’; yet the Bank’s autonomy is clearly questionable.

This paper describes an episode in Japan’s attempts over the 1980s and 1990s to assert itself on the world stage, to move beyond the constraints of dependency in a us-centred world economic system. The episode involves a Japanese challenge to the World Bank and its core ideas about the role of the state in the strategy for economic development. Over the 1980s Japan poured aid and investment into East and Southeast Asia, using its strong domestic capacity to strengthen its external reach. In doing so, Japan endorsed a market-guiding role for the state in recipient countries, and justified this role by pointing to its success in the development of Japan, Taiwan, and South Korea. The World Bank found Japan’s prescriptions inconsistent with its own programmatic ideas about the role of the state, which emphasized the need for thoroughgoing liberalization and privatization. Since the Bank’s ideas are themselves derived from largely American interests in and ideas about free markets, Japan’s challenge to the Bank was also a challenge to the us state—the Bank being an important instrument by which the us state seeks to project a powerful external reach, while having a much weaker domestic capacity than Japan’s.

In the early 1980s, when the Bank started to champion liberalization and the private sector, the Bank and the Japanese government proceeded along independent paths. But growing tension reached a head in the late 1980s when the Bank criticized Japanese aid programmes, for undermining the aims of the Bank and the International Monetary Fund. In response, the Japanese government set out to change the Bank’s core ideas about the role of the state in development strategy. It did so by inducing the Bank to pay more attention to East Asian development experience, so perhaps the Bank would change its mind, see more validity in the Japanese principles, and enhance Japan’s role as a leader in development thinking. Japan’s influence inside and outside the Bank would then grow. Specifically, the Japanese government persuaded the Bank to make a special study of East and Southeast Asia, focusing on why this region has become rich and what other countries should learn from the experience. The study was published in September 1993 as The East Asian Miracle: Economic Growth and Public Policy.

In this paper we examine, first, the build-up of tension between Japan and the Bank; second, the process by which the study was written inside the Bank; and third, the resulting text. We shall ask whether Japan’s attempt to get the Bank to change its mind was successful. We shall see how the final document reflects an attempt at compromise between the well-established World Bank view and the newly-powerful Japanese view. The result is heavily weighted towards the Bank’s established position, and legitimizes the Bank’s continuing advice to low-income countries to follow the ‘market-friendly’ policies apparently vindicated by East Asia’s success. But the document also contains enough pro-industrial policy statements to allow the Japanese to claim a measure of success. Taken together with other Bank studies prompted by Japan at the same time, it provides a number of ‘attractor points’ for research and prescriptions more in line with Japanese views. Although the Bank emerges with its traditional paradigm largely unscathed, this particular episode may even be looked back on as an early landmark in the intellectual ascendancy, in East and Southeast Asia if not in the West, of Japanese views about the role of the state. Finally, we shall come back to the issue raised in the first paragraph—the autonomy of the World Bank, and the extent to which it can be regarded as an ‘actor’ with objectives and approaches that are not simply the vector of the interests of its member states.

The World Bank enjoys a unique position as a generator of ideas about economic development. Around the world, debates on development issues tend to be framed in terms of ‘pro or anti’ World Bank positions. The Bank’s ability to frame the debate rests on, 1) its ability to influence the terms on which low-income countries gain access to international capital markets, 2) a research and policy-design budget far larger than that of any other development organization, and 3) its ability to attract global media coverage of its major reports.

In the early 1980s the Bank swung into line with a us-led consensus about the needs of the world economy and appropriate economic policies for developing countries. Reflecting the demise of Keynesianism and the ascendancy of supply-side economics in the us and some parts of Europe, the consensus—the ‘Washington consensus’, as it has been called—was based on the twin ideas of the state as the provider of a regulatory framework for private-sector exchanges (but not as a director of those exchanges), and of the world economy as open to movements of goods, services, and capital, if not labour. The Bank’s new Structural Adjustment Loans applied conditions conforming to these ideas, such that borrowers had to shrink the state and open the economy to international transactions. Its annual World Development Reports have provided the conceptual framework and evidence to justify these conditions. In particular, the World Development Report 1987, entitled Trade and Industrialization, articulated a strong ‘free-market’ or neoliberal argument about the appropriate development approach.footnote3

The central problem of developing countries, in the Bank’s view, is the weakness of their ‘enabling environment’ for private-sector growth. The enabling environment consists of infrastructure, a well-educated work force, macroeconomic stability, free trade, and a regulatory framework favouring private-sector investment and competition. Policies to secure such an environment are collectively called ‘market-friendly’. The ‘market-friendly’ approach is not the same as laissez faire, the Bank is at pains to say, for there are areas where the market fails, in infrastructure and education, and where the government should step in with public spending.footnote4 On the other hand, the approach warns against intervention beyond these limits, especially against sectoral industrial policies designed to promote growth in some industries more than others. Market-friendly policies—neither complete laissez faire nor interventionism—are optimal for growth and income distribution, says the Bank. This set of ideas is broadly consistent with us demands that its trading partners—Japan in particular—change their domestic institutions in order to create a ‘level playing field’ for free and fair trade.