In June 2015, China signed its newly-created Asian International Investment Bank (AIIB) into existence. It was to challenge the US-supported World Bank for supremacy in Southeast Asia; more broadly, it was an opportunity for China to extend its influence in the region. After the AIIB launched with China controlling a 30.4% share in equity it was quickly criticized by American politicians and economists as a power play. The US voiced its objections, backed the World Bank and implored its European counterparts to do the same.
However the American protests were to go unheeded. More than 50 countries signed on to the AIIB immediately, and more followed soon after. Particularly problematic for the US, however, was that its key European allies ignored its warnings and joined the movement anyway: Germany, France and the UK all committed to support the bank. The US was left alone in its criticism, looking like a petulant child while the new AIIB took off. It was a significant failure of US international economic policy, and will be a sticking point over future economic interaction in the region for years to come. Why did the US decide not to join the bank? How did it not foresee that its criticism would go unheard? Jeremy Weinstein, former Chief of Staff at the US mission to the United Nations and current professor at Stanford’s Freeman Spogli Institute for International Studies, has an intriguing answer.
In the US, major foreign policy decisions are made by the principal’s committee- a group of high-ranking experts immediately under the president. The group can meet as often as three times a day, but it inevitably cannot deal with all issues. When “critical” policy problems arise, the group pushes them up the agenda and delegates “less important” issues to lower-level decision making bodies. As Weinstein explains, however, these lower-level bodies may be making decisions without complete access to information or with concentrated motives. The USA’s disastrous AIIB policy is one such situation.
At the time the Principal’s committee should have been dealing with US-AIIB policy, it was consumed by a host of other pressing issues: Russia-Ukraine, the Iranian nuclear negotiations and the fight against ISIS were all on the table simultaneously. Hence, the Principal’s committee delegated judgment on the AIIB issue to the US treasury- and the problems began.
The US treasury placed a massively exaggerated weight on pure economics when constructing its policy towards the AIIB; not a surprise given that the body is dominated by finance ministers. It was obviously advantageous economically for the US to maintain the World Bank as the global development bank of choice- the US is the bank’s largest shareholder and the only member with veto power. But what the finance ministers of the treasury did not accurately judge was the political capital in important European countries for AIIB membership. Holding barley over a tenth of the America’s voting power when combined, Germany, France and the UK were more than willing to opt into a newer bank that would give them a bigger say. The treasury decided that the US should vehemently oppose the AIIB, all of America’s allies joined anyway, and now the US is in a far worse situation then had it joined outright.
America’s AIIB disaster provides a bigger window into international economic policy generally. When important policy decisions are delegated to government financial bodies and executed solely by economists, they run the risk of missing the political nuance on which economic success so often depends. Hence the connection between International Relations and Economics is essential; no one group of experts can make successful international economic policy themselves.
Anklesaria Aiyar, Swaminathan. "Why US Allies Are Happy to Join China's AIIB." The Diplomat. N.p., 30 June 2015. Web. 15 Feb. 2016.
Vestergaard, Jakob. “The World Bank and the Emerging World Order.” Danish Institute for International Studies. May 2011. Web. 15 Feb. 2016.
Weinstein, Jeremy. Lecture notes, Oct 22 2015. Stanford University.
World Bank. “United States Country Overview.” The World Bank. 04 June 2013. Web. 15 Feb. 2016.
Picture titled "Reflection on Bank of China Tower" taken by Kevin Poh on April 17, 2009 obtained through Creative Commons.