Joseph Seigliz writes: The International Monetary Fund and the World Bank are poised to hold their annual meetings, but the big news in global economic governance will not be made in Washington DC in the coming days. Indeed, that news was made last month, when the United Kingdom, Germany, France, and Italy joined more than 30 other countries as founding members of the Asian Infrastructure Investment Bank (AIIB). The $50 billion AIIB, launched by China, will help meet Asia’s enormous infrastructure needs, which are well beyond the capacity of today’s institutional arrangements to finance.
One would have thought that the AIIB’s launch, and the decision of so many governments to support it, would be a cause for universal celebration. And for the IMF, the World Bank, and many others, it was. But, puzzlingly, wealthy European countries’ decision to join provoked the ire of American officials.
America’s opposition to the AIIB is inconsistent with its stated economic priorities in Asia. Sadly, it seems to be another case of America’s insecurity undermining an important opportunity to strengthen Asia’s developing economies.
China itself is a testament to the extent to which infrastructure investment can contribute to development.
The AIIB would bring similar benefits to other parts of Asia, which deepens the irony of US opposition.
There is a further major global advantage to a fund like the AIIB: right now, the world suffers from insufficient aggregate demand. Financial markets have proven unequal to the task of recycling savings from places where incomes exceed consumption to places where investment is needed.
When he was Chair of the US Federal Reserve, Ben Bernanke mistakenly described the problem as a “global saving glut.” But in a world with such huge infrastructure needs, the problem is not a surplus of savings or a deficiency of good investment opportunities. The problem is a financial system that has excelled at enabling market manipulation, speculation, and insider trading, but has failed at its core task: intermediating savings and investment on a global scale.
The World Bank’s assistance was sometimes overburdened by prevailing ideology; for example, the free-market Washington Consensus policies foisted on recipients actually led to deindustrialization and declining income in Sub-Saharan Africa. Nonetheless, US assistance was, overall, far more effective than it would have been had it not been multilateralized.
New attempts to multilateralize flows of assistance are similarly likely to contribute significantly to global development. The AIIB offers a chance to test that idea in development finance itself.
Perhaps America’s opposition to the AIIB is an example of an economic phenomenon that I have often observed: firms want greater competition everywhere except in their own industry. This position has already exacted a heavy price: had there been a more competitive marketplace of ideas, the flawed Washington Consensus might never have become a consensus at all.
US opposition to the AIIB is hard to fathom, given that infrastructure policy is much less subject to the influence of ideology and special interests than other policymaking areas, such as those dominated by the US at the World Bank. Moreover, the need for environmental and social safeguards in infrastructure investment is more likely to be addressed effectively within a multilateral framework.
The UK, France, Italy, Germany, and the others who have decided to join the AIIB should be congratulated.
