The SSC is an “old bottle with new wine”. When the concept first appeared in the next half of the last century, it was boosted by a resource boom in oil exporting countries and served the purpose of enhancing political solidarity. The revival of the SSC, however, is based on the successful industrialization of a cluster of emerging economies and primarily driven by economic considerations. In essence, the reviving SSC is a process of increasing economic integration between and within emerging and developing countries and decoupling from the developed world that has never happened before. Different from that of the last round SSC in 1970s, the defining feature of this new round of SSC is far beyond capital resources. SSC is shaping the global development cooperation from knowledge, policy to institutional architecture, through direct and indirect approaches.
Knowledge and policy about development
By now, SSC is by and large at the level of practices. There are scattered experience-sharing practices in SSC, such as China’s experience in establishing special economic zones, India’s experience in providing microfinance, and so on. But they are not yet synthesized into systematic thinking that can effectively compete with the traditional theories and policies. With the rise of emerging economies, there have been enormous discussions about new development models. However, there are a variety of SSC practices with different characteristics. And the discussions often occur outside these countries and are full of controversies. For example, the so-called “Beijing Consensus” was coined by an American, which was not welcomed by China. [1] Even if there was a new consensus inside, it was challenged before it was established.
In the 1980s and early 1990s, after Japan emerged to be a new actor in the global development system, it strongly proposed its own development model and theory in the World Bank and tried to challenge the Bank’s classic neo-liberal philosophy. Famously, the proposal was to increase the role of state in setting industrial policies and guiding the national development.[2] This round of knowledge reshuffling by SSC is much more diverse and much less clear for its policy essence by now. In effect, SSC is most famous for its non-intervention policy and respect for recipient country’s own policy choices.
However, SSC practices do have shown a potential to make a “creative destruction” of global development knowledge. They challenge the validity of conditionalities traditional donors impose on development finance. They deny liberalization as a one-fits-all solution. They are taking actions to improve environmental and social standards for SSC but do not believe that the highest standards mean the best for all developing countries. They are of the opinion that many procedures and processes traditional development agencies adhere to are redundant and wasteful of resources. They agree that accountability needs to be improved, but argue that when western donors pay much attention to the issue of accountability, they are actually mixing the “means” with the development “ends”.[3] Some BRICS countries also argue that IMF and World Bank often underestimate investment-induced growth, while “social projects” have been overemphasized at the expense of building productive capacity for faster poverty reduction in the long run. [4]
Therefore, SSC has been substantially driving the evolution of global development cooperation about the process of delivering development finance, if not those core values and theories. Probably, the increasing importance of SSC indicates what we really need are not new development theories or new pledges, but real delivery. At the 2012 IMF/World Bank annual meeting in Tokyo, The World Bank President Jim Yong Kim called on the Bank to transform from a “knowledge bank” to a “solutions bank”, which exactly means the delivery stage will be given much more focus.
Institutional architecture of global development
The level of SSC is upgrading from infrastructure projects, technical cooperation to institution building. Institution building includes bilateral and multilateral levels, while this session will focus on the latter, deeper one.
As SSC, south-south multilateral development institutions are not anything new, either. Those old institutions were mostly created by OPEC members, such as the Islamic Development Bank (IsDB), OPEC Fund for International Development (OFID), the Arab Fund for Economic and Social Development (AFESD), the Arab Bank for Economic Development in Africa (BADEA), the Andean Development Corporation (CAF), the first four of which were covered by the 1st IDCR Report. What they brought to the world development architecture were petro-dollars and probably some Islamic finance model. They are still very active today. According to the 1st IDCR, the four major south-south multilateral development banks provide over $1 billion of SSC a year. [5]
However, as SSC is an old concept with new contents, south-south development institutions will also have wider implications. Newly emerging economies are now creating their own development institutions practicing their own philosophies as mentioned above. These initiatives are motivated by considerations of both efficiency in delivering finance and equity in global governance. The issue of delivery efficiency has been discussed previously. The following paragraphs will touch on the latter.
Latin American countries are pioneers of this process. As mentioned above, the CAF established in 1970 has kept expanding in membership and size in the last decade. The Bank of the South or BancoSur was newly founded in 2009. What is unique is their innovations in the governance structure. The CAF adopted a decision-making structure that is simpler than the weighted voting power structure of the World Bank and other regional development banks. Its Assembly is comprised of series A, B and C shareholders. The BancoSur went further in equity consideration. As the United Nations, all their members have equal voting rights.
But the most noticeable development in south-south multilateral development institution is the planned BRICS Development Bank (name undecided yet). The idea of its establishment was initiated by India, and then officially approved by BRICS’ leaders at their fourth Summit in Delhi in April 2012. In early 2012, Shanghai Cooperation Organization (SCO) also declared to establish a development bank. All the details are still under negotiations. According to a recent report by the Financial Times, Brazil proposes that the BRICS Bank adopt the same simple governance structure as the CAF. There is also a proposal that the Bank should follow the BancoSur’s model and adopt an equal decision-making structure. If this comes true, it will be a major breakthrough from the practices of traditional development agencies.
However, there are a lot of uncertainties about this. To what extent this pilot can succeed remains to be seen. The advantages and disadvantages of the World Bank and the development agencies under the United Nations system are probably worth looking at when negotiators consider what kind of balances to get for the new south-south multilateral development banks.
In sum, the shaping of SSC on world development knowledge debate and institutions has just started and its real impact remains to be seen. Conversely, SSC itself is also being shaped. SSC has brought not only new thoughts, perspectives and institutions, but also conflicts and debates, to global development cooperation. With proper management, a win-win situation could realize.
[1] The Beijing consensus is to keep quiet, Economist, May 6th 2010.
[2] The East Asian Miracle: Economic Growth and Public Policy, a World Bank Policy Research Report, 1993.
[3] Zhang Haibing, Development-oriented Aid: A Study on China’s Aid to Africa, Shanghai People’s Publishing House, Dec., 2012, forthcoming.
[4] Nkunde Mwase and Yongzheng Yang, BRICs’ Philosophies for Development Financing and Their Implications for LICs, IMF Working Paper WP/12/74, March 2012, pages 7, 9.
[5] UNDESA, Development Cooperation for the MDGs: Maximizing Results, International Development Cooperation Report, New York: United Nations, 2010, p. 73.
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