Stone, Randall W. (2011) Controlling Institutions: International Organizations and the Global Economy, New York: Cambridge University Press, x-256. ISBN 978-1-107-005402.
Reviewed by: S. M. D. P. Harsha Senanayake
The United States of America, the pioneer of the democratic world, presented the Bretton Woods institutions to construct the post- World War international order while solidifying financial market, free trade and liberal principles.
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However, the international economy is in a staid catastrophe, the Bretton wood institutions: IMF, WB and EUagonised from quarrels of legitimacy and efficiency. Politics within donors’unswervingly conditions institutional responses to the financial predicaments. When predicaments extended, the IMF and the WBs’ prominent adherents tripled their financial contributions and accessible resources to address the situation, and such arrangements reinforced the position of USA, with its persuasive financial capacity in the decision-making process of institutions.
Although utmost global economists acknowledged that the United States exercise an-excessive covenant of influence in liberal financial institutions, the question reflects forward: how is a country with around mere 17 percent of the total votes in a position to exert such control. To this, Randall W. Stone provides an impressive-riposte by“Controlling Institutions.”
The book delivers a theoretical upbringing on game theory to analyse the International System and discover authority that the US exercises over the IMF, WB, and the EU with a demonstration of significant propositions. This affords rigorous picture of operational procedures of the US authority mechanisms with provisions of quantitative and qualitative data.
A Model of Informal Governance
Formal, informal governance provides choices to the USA government to shape its foreign policy interests.
Informal influence consists of participation in decision making, special access to information, and it allows the leading state to override the common policy when its vital interests are affected. The Americans found that the use of informal influence reduced cost and was more productive while engaging in aggregation with international organisations.
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Americans’bargaining power, reserved currency, access to information, and its power over the decision-making process geared up its informal influence and ability to exercise attractive unilateral options increased the power of its informal influence. The informal influence is based on the consent of the smaller nations. For instance, the functional powers of the IMF are exercised by the Executive Board, which consists of resident Executive Directors(EDs). The IMF articles mention the role of EDs, yet US ED [has] always requested a special briefing before a country item regarding a Latin American country came to the board. The access to information and power of the pocket has increased the informal of the USA in the recent past. The USA strengthened trade regime functioning effectively by winning over the small nations by offering them special development packages, subsidies, MFN status by influencing the World Bank agenda using its financial power and contribution to the budget. In return, the smaller nations use their votes in favour of the resolutions that the US pushes for in the UN and other global institutions.
A Model of Formal Governance
The exercise formal influential power by the USA within the IMF, WB, the EU based on two different pillars: structural power and the formal voting rights.
Structural power represents the outside options of the leading state and the externalities that its participation generates for other members and formal voting rights set the policy of the organisation and create the parameters within which informal influence is exercised.
Although the formal rules are based on the universal participation and representations of the membership, the evolution of the Bretton Woods institutions have been directly subjected to the US formal influence. For instance, the correlation between the US Senate and the institutional decision-making process brace the US formal influence capabilities. The managing director of WB is a post reserved for America and according to the WB and IMF’s formal procedures, the managing director exercises a remarkable degree of gatekeeping power and proposal power as chairman of the executive board.
The USA has tremendous organisational advantages over other nations. The extensive diplomatic cadre, private financial institutions, the locations of the headquarters of these organisations stressed the validity of the US formal power.
Formal Principles in Informal World
These formal power capabilities promote the US’ ability to influence these institutions directly within the framework of legitimacy. It provides a solid foundation to implement informal governance mechanisms as well.
The information asymmetry leads the informal governance, and the USA strategically applies the informal power capabilities to protect its formal power. For instance, the US keeps surveillance track records of the other nations, mainly during the crises durations. For them, this serves to increase access to IMF support dramatically in some cases while limiting it in others and G-7 members.
The book emphasises five components of the US informal power circle: US foreign aid, bank exposure, exports, voting patterns in the UNGA and alliance partners. Informal governance has increased the followers of the American system, but it carries particular vulnerabilities with it. Notably; the implementation of informal influenced by the USA government over these institutions has questioned the legitimacy and transparency of the decision making the process. Because of these reasons, the utility of the informal influence over the institutions to address the formal benefits subjected to a more in-depth cost-benefit analysis.
The power of pocket quickly provides alternative ways to bypass the formal negotiation procedures and independent review process of IMF, WB missions. Thus, American foreign policy exercises these techniques to secure it is economical, political and financial advantages with the reference of the particular engagement concept.
On a critical note, the book has introduced a formula to measure the informal influence of the great powers over these Bretton wood institutions; yet arguments and examples are based on the western economic power entities and their capabilities. However informal influences over these institutions are exercised by the emerging global powers in the non-western world also, including China, India. In this regards, the west-centric approach of the book diminishes the universal acceptance of the facts to some degree.
Harsha Senanayake is a researcher at Social Scientists’ Association- Sri Lanka and a visiting lecturer at the University of Colombo, Sri Lanka. He has acquired a masters degree in International Relations from the Department of International Relations, South Asian University, New Delhi, India and a specialised degree in International Relations from the Department of International Relations, University of Colombo. Harsha serves as an AIPE fellow- TFAS USA. He has authored few books including The Changing Patterns of USA- Japan Security Relations: Case Study of Okinawa and The Human Security Discourse and Seeking Peace: Field Work Analysis Based on the Sri Lankan Civil War. He can be reached at sharshacpbr@gmail.com
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