A response to Michael Dowdle or "How the BRICS Bank proves that Santa Claus exists"

In his most recent post, Michael Dowdle, the most prolific contributor to this blog, argued that the BRICS Bank can be conceived as an example of my concept of institutional bypass. Moreover, he adds that the Bank has a strong potential to actually undermine the field of law and development by refusing to engage with the "good governance" discourse and specially by refusing to use the main instrument that current promotes the "good governance" agenda, conditionalities.

Michael is not alone in conceiving the BRICS Bank as a bypass. Indeed, a person had suggests that to me on facebook last week and the media has also used the word "bypass" to describe the new Bank (see here). But Michael considers this an irony, as he believes that in this case an institutional bypass is actually being used to destroy the field that I care so much about. Indeed, he conveys this idea clearly in the title of his post: "The BRICS Bank as Inverse Institutional Bypass, or "Christmas comes early for Mariana Prado, but did she get what she really wanted?""

Actually, I am not overly concerned with that. While the concept of institutional bypass may be productively used to promote fruitful and desirable changes, I also acknowledge that there are undesirable institutional bypasses. So, the concept itself basically describes mechanisms of institutional change without necessarily attaching a normative judgment to them. Bypasses are not intrinsically good or bad. They are just bypasses. 

But most importantly, Michael suggests that the BRICS Bank likely rejection of the modus operandi of the World Bank will necessarily be detrimental to the field of law and development. I am not so sure. First, it is not clear whether a full rejection of the modus operandi of the World Bank by the BRICS will necessarily happen. And if it does, it is not certain that it will produce negative results. As a matter of fact, I have recently published a paper with Fernanda Cimini Salles mapping out possible strategies that could be adopted by the BRICS Bank. For each of these strategies, the paper discusses its interaction with the World Bank and the potential outcomes. Those interested in the full argument can read the full paper here. I am pasting below a summary of the argument, published in another blog:

Fernanda Cimini and I ask whether the new bank has the potential to bypass the World Bank, destabilizing the current development finance framework. Our answer is: it depends on how it will operate. If we look at the existing practices in development finance, the BRICS Bank has at least three options:

1) Adopting the current paradigm, which is guided by institutional concerns. An example is the World Bank (IBRD), which tries to improvea country’s institutional framework by engaging in a process of creation of rules, norms, organizations and procedures that can directly or indirectly promote development.

2) Adopting a compliant passiveness type of operation, which, in contrast to the first one, has not actively engaged with an institutional agenda for development. An example is BNDES, the Brazilian Development Bank, which operates within the existing framework, forcing borrowers to follow existing rules and norms.

3) Adopting a consistent pragmatism type of operation. This is illustrated by theChinese Development Banks (CDB and Exim Bank), which have actively engaged with institutions, but they have done so in rather creative ways, always driven by the goal of achieving the concrete objectives of the operation.

There are still uncertainties regarding how the BRICS Bank will operate. So, we do not know which of these three, if any, will be adopted. But these uncertainties should not stop us from speculating about the new bank and how it could change the development scene. In this speculative spirit, we could consider that the most significant change may come from the interaction of the BRICS Bank with the World Bank. In this interaction, there are the possible scenarios:

1) If the BRICS Bank adopts the agenda and modus operandi under the current paradigm, it will become a direct competitor of the World Bank, but it will not offer the risk of rupture with the field. This is not to say that the competition process between the two banks may not generate innovations in the field. On the contrary, the BRICS Bank, by becoming a competitor under the current paradigm, could be create incentives for the creation of innovative mechanisms of development finance that promote institutional reforms while addressing the problems that have reduced the effectiveness of World Bank mechanisms.

2) If the BRICS Bank adopts the compliant passiveness model, it would offer an alternative to the World Bank without directly challenging the current paradigm.  However, by choosing this model, the BRICS Bank would not try to compete directly with the World Bank or to imitate its modus operandis. As a consequence, the incentives for innovation in finance mechanisms would be lower, as there would be less chances of the BRICS Bank’s operation clashing with those proposed by the BRICS Bank. A possible outcome is a peaceful co-existence of the two institutions, or even a partnership.

3) If the BRICS Bank adopts the consistently pragmatic model, its operations will clash directly with the normative and operative structures of the World Bank. In this case, not only the World Bank will be “threatened”, but also will the organizations that have been pushing for the institutional turn in the field and a particular model of development. This consistent pragmatism may bring a refreshing blow of flexibility and effectiveness, generating a much-needed renovation of the entire field.

The table below summarizes the scenarios identified in the paper

World Bank	BRICS Bank	Dynamic	Possible Outcomes
Current Paradigm	Current Paradigm(Unlikely)	Direct Competition (with or without collaboration)	No rupture with the field - Operational Innovation
Current Paradigm	Compliant Passiveness	Peaceful Coexistence without direct competition	No rupture with the field - Possible partnership
Current Paradigm	Consistently Pragmatic	Tense Coexistence with no collaboration	Rupture with the field - Potential structural innovation

In sum, independently of what kind of approach the BRICS Bank adopt, if it is indeed created, we are likely to see changes in the field of development cooperation in the near future. The impact of a new world multilateral development bank controlled by emerging countries goes beyond financial and political considerations. The BRICS Bank has the potential to call into question the basic normative and operational structures of the field of development and even to provoke a rupture with the existing architecture. The intensity of such changes remains to be seen.

In sum, as the Guardian nicely put, the bank "has the potential to change how development is done, but the devil is in the details". So, my response to Michael is that I still believe in Santa Claus!