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Law professor's book explores role of international development bank

Tuesday, February 17, 2015

LAWRENCE — A University of Kansas law professor has authored a book that thoroughly examines the operations of the Asian Development Bank, both to help people understand how the institution works and to help consider how the institution that invests billions of dollars every year in developing Asian and Pacific nations can improve.

John Head, Robert W. Wagstaff Distinguished Professor of Law, has written the third edition of The Asian Development Bank, part of the International Encyclopedia of Law series. This edition of the publication was co-authored by Xing Lijuan, law professor at the City University of Hong Kong and a KU Law alumna.

One of four of the world’s regional multilateral development banks, the Asian Development Bank was founded in 1967 as a way to help countries develop through infrastructure projects such as roads, airports, hospitals, schools, power generation, irrigation systems, rural credit and many others. Over the years, much criticism has been leveled at the bank for how it operates, where its funding comes from and its resistance to change and improvement.

“Enormous misunderstanding of the multilateral development banks — including the Asian Development and the World Bank as well — exists around the world,” Head said. “In other books, I have offered my own critiques of these institutions, including the ADB. In this book I try to explain more about how that particular institution works, hoping this can serve as a firm factual foundation for considering how it can and should be improved.”

Among the most frequent criticisms of the Asian Development Bank is that it is operated on a weighted voting system. Nations that invest more heavily in the bank can have more influence on what projects are funded, leading to charges of bias, favoritism and other criticisms in how funding is assigned. In the book Head and Xing explain in detail how the weighted voting system works, why that is the system in place and the legal implications it has. Similarly, many claim the United States, Canada, France and other wealthy Western nations have too much influence. The authors explain the two largest reasons Western nations are involved: First, it is in their interest to help insure a stable Asia; second, only with the involvement of rich nations can the Asian Development Bank mobilize the financial means to provide large amounts of funding for all manner of projects.

Similarly, there are common misconceptions about the sources from which the Asian Development Bank derives its funding. Most of the money is not collected from taxes but instead from private sector investors buying bonds, the integrity of which are backed by the bank’s member nations, the authors explain.

“Therefore they’re safe investments,” Head said of the investments. “A lot of people, and especially institutional investors, will buy those bonds from the Asian Development Bank, European Bank for Reconstruction and Development and others because they’re safe and have a high AAA rating.”

Head is quick to point out he is not an apologist for the Asian Development Bank or other regional multilateral development banks. His goal with the book was to increase understanding, because unfounded criticism can prevent improvement among the banks.

“There is a lot of noise, and unfortunately it drowns out much of the valid criticisms,” Head said. “The Asian Development Bank and its sister institutions are too important to allow silly or unfounded criticisms to dominate the discourse over how to bring about the dramatic reforms they need to undertake.”

An expert in international commerce and investment, international economic law and comparative law, Head is intimately familiar with the book’s topic. In the 1980s he was a staff attorney for the Asian Development Bank, headquartered in Manila, Philippines, and later served as a legal counsel for the International Monetary Fund in Washington, D.C. In those roles he learned the value of possessing a deeper understanding of varying legal systems and cultures before offering criticism. Both legal and cultural problems are much more likely to be understood and workable solutions reached, he said, when cross-cultural understanding is attempted and accomplished.

Head emphasizes that such large institutions do not change easily, but through understanding and reasoned criticism the Asian Development Bank and others can address their problems and achieve changes. In Head’s view, these would include improving the weighted voting system, broadening participation by non-state actors, strengthening funding structures and placing ever more emphasis on environmental protection, social justice and gender equity.

“The main goal that Dr. Xing and I have for this book is to provide an objective and non-value-laden descriptive account of how the institution works,” Head said. “If anyone is interested in learning about and critiquing how the Asian Development Bank works, they can take a look at what we have written in this book.”